The
Marshall Family
of Funds
ANNUAL REPORT DATED AUGUST 31, 1998
Marshall Equity Income Fund
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Marshall Large-Cap Growth & Income Fund
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Marshall Mid-Cap Value Fund
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Marshall Mid-Cap Growth Fund
------------------------
Marshall International Stock Fund
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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
------------------------
Marshall Funds
TABLE OF CONTENTS
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COMMENTARIES
Marshall Equity Income Fund...................................... 1
Marshall Large-Cap Growth & Income Fund ......................... 3
Marshall Mid-Cap Value Fund ..................................... 5
Marshall Mid-Cap Growth Fund .................................... 7
Marshall International Stock Fund................................ 9
Marshall Small-Cap Growth Fund .................................. 11
Marshall Short-Term Income Fund.................................. 13
Marshall Intermediate Bond Fund.................................. 15
Marshall Government Income Fund.................................. 17
Marshall Intermediate Tax-Free Fund.............................. 19
Marshall Money Market Fund....................................... 21
FINANCIAL INFORMATION
Portfolio of Investments......................................... 22
Marshall Equity Income Fund.................................... 22
Marshall Large-Cap Growth & Income Fund........................ 23
Marshall Mid-Cap Value Fund.................................... 25
Marshall Mid-Cap Growth Fund................................... 26
Marshall International Stock Fund.............................. 27
Marshall Small-Cap Growth Fund................................. 30
Marshall Short-Term Income Fund................................ 31
Marshall Intermediate Bond Fund................................ 33
Marshall Government Income Fund................................ 34
Marshall Intermediate Tax-Free Fund............................ 36
Marshall Money Market Fund..................................... 39
Statements of Assets and Liabilities............................. 42
Statements of Operations......................................... 44
Statements of Changes in Net Assets.............................. 46
Financial Highlights............................................. 50
Notes to Financial Statements.................................... 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS........................... 63
DIRECTORS & OFFICERS............................................... Back Cover
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ANNUAL REPORT--COMMENTARY
MARSHALL EQUITY INCOME FUND
The Marshall Equity Income Fund (the "Fund") seeks capital appreciation and
current income through a disciplined approach of investing in a broadly
diversified portfolio of common stocks with above-average dividend yields. The
portfolio is structured to pursue a yield at least 100 basis points (1% before
fees and expenses) more than the Standard & Poor's 500 Index (S&P 500).*
For the 12 months ended August 31, 1998, the Fund provided a total return of
0.04%,** while the S&P 500 provided a total return of 8.09% and Lipper Equity
Income Funds Index* returned 1.22%.
NAVIGATING A VOLATILE MARKET.
A combination of strong domestic economic growth and continued low inflation
provided a good backdrop for equities over the past year. At the market's peak
on July 17, 1998, the performance of the S&P 500 appeared impressive. However,
this performance was deceptive. A handful of large capitalization growth stocks
accounted for the majority of the S&P 500's total return. Specifically, twenty
stocks accounted for over 50% of the total return of the S&P 500 for the
six-month period ended 6/30/98.
This is characteristic of a two tiered market where a handful of large
capitalization growth stocks dramatically outperform the broader market. History
tells us that this performance and valuation dichotomy is not sustainable. At
the peak on July 17, 1998, valuations had been pushed to all-time highs. The S&P
500 was trading at 26.4 times trailing twelve months earnings and providing a
low 1.41% dividend yield.
Growing concerns for world economic conditions affected U.S. stock prices in
July and August 1998. Since July 17, 1998, the S&P 500 dropped 19.2% through
August 31, 1998. It remains to be seen how severe world economic turmoil will
affect U.S. corporate earnings. We believe that stock prices will remain
volatile until this issue is resolved.
ENERGY, HEALTHCARE, FINANCIALS PLAY AN IMPORTANT ROLE.
The Fund continues to hold a significant weight in energy stocks (17.2%). Oil
prices, like many other commodities, have fallen significantly and are at
historically low levels. Even though this is not a permanent condition,
investors have avoided the sector. At current stock prices, energy companies are
attractively valued based on future earnings expectations and dividends.
Healthcare stocks currently account for 9.29% of the Fund's assets. Over the
past year, this has been a top-performing group. Healthcare stocks offer high
earnings visibility, and therefore investors have been willing to pay high
multiples of earnings (price/earnings) for these predictable growers. Their high
valuations and low yields have given us reason to moderately underweight the
group.
Over the past year, we have significantly reduced our investment in Real Estate
Investment Trusts (REITs) from 9.11% (August 31, 1997) to 4.63% (August 31,
1998).
"Graphic representation "1A" omitted. See Appendix."
[Photo Appears Here]
MARSHALL EQUITY INCOME FUND
Although REITs met our fundamental expectations, they have underperformed due to
a lack of investor interest. These traditionally conservative securities now
appear attractively valued and provide investors with historically high dividend
yields. We continue to hold our remaining position in anticipation of improved
relative performance.
DISCIPLINED APPROACH HELPS TO MINIMIZE VOLATILITY.
Investing in attractively priced stocks of companies paying above-average
dividends is the cornerstone to our disciplined investment approach. The Fund
has provided solid results in the strong bull market years of 1995, up 34.22%;
1996, up 21.18%; and 1997, up 27.53%, on a calendar year basis. In addition, the
Fund has performed better than its comparative index in each of the six market
declines of greater than 5% since the Fund's inception.
Equally important, however, our investment style achieved these results with a
low-risk profile. Of course, any investment involves risk, including possible
loss of principal. The portfolio's above-average dividend yield combined with
its low historical volatility should help reassure our investors that the
portfolio is built around a disciplined investment style designed to pursue
competitive long-term returns with less volatility.
Sincerely,
/s/ Bruce P. Hutson
Bruce P. Hutson
Manager, Marshall Equity Income Fund
"Graphic representation "2A" omitted. See Appendix."
"Graphic representation "3A" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on September 30, 1993 to August 31, 1998, compared to the S&P 500 and
the LEIFI.*
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*The S&P 500 and LEIFI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made in
an index. The S&P 500 is a capitalization-weighted index of 500 stocks designed
to measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries. Lipper
figures represent the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
respective categories indicated.
**Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and LEIFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
ANNUAL REPORT--COMMENTARY
MARSHALL LARGE-CAP GROWTH & INCOME FUND
The Marshall Large-Cap Growth & Income Fund (the "Fund") invests in large
capitalization stocks with growth and income orientation. The Fund holdings are
well diversified, with representation in the major sectors of the economy.
Companies held are typically leaders in their respective industries and have
records of above-average financial performance and proven superior management.
For the 12 months ended August 31, 1998, the Fund provided a total return of
3.44%,* outperforming the Lipper Growth and Income Funds Index** return of
(.81%). For the same period, the Standard & Poor's (S&P) 500 Index** provided a
total return of 8.09%.
FOCUS ON EARNINGS PROVED SUCCESSFUL.
The Fund's strategy of focusing on the highest quality companies with superior
relative earnings growth proved to be on target over the last 12 months. The
market concentrated on a few select large-cap stocks; specifically, 18 stocks
within the S&P 500 Index accounted for 50% of the index's total return. The
focus of the market on these few large stocks suggests continued earnings
problems across many market sectors. Current overall earnings growth is the
slowest since 1991.
The Fund owned half of these 18 mega-capitalization market leaders.The ones not
owned were mostly the highest price/earnings multiple companies, where the
long-term earnings growth rates discounted by those very high price/earnings
ratios are unsustainable in a world of low inflation. Staying true to our
discipline, we focused on high quality companies with strong balance sheets
selling at reasonable valuations, given their expected growth rates. Over the
past months, the equity market has favored earnings momentum as the successful
investment strategy to the exclusion of a value-based investment decision. The
Fund benefited greatly with our holdings in General Electric, IBM, Microsoft,
Walgreens and Safeway, as all were able to deliver on earnings expectations.
Also consistent with our discipline is an exposure to other high quality
companies that may be experiencing some current problems but represent
outstanding value. This value may be represented in a low price-to-sales or an
attractive price/earnings multiple based on normalized earnings. Holdings such
as Boeing, Nike and Motorola fall into this category.
EMERGING MARKET TURMOIL TO PRODUCE OPPORTUNITIES.
While the problems in the emerging markets present great near-term uncertainty,
this turmoil presents great long-term opportunities for Fund holdings such as
General Electric and American International Group. To regain economic stability,
these countries will be required to open their markets, drop trade barriers and
allow for fair treatment of all companies. This will give large global companies
new opportunities for future growth that might not have existed a few years ago.
For example, General Electric recently purchased the fifth largest consumer
finance company in Japan.
Currently, however, the problems of Asia are spilling over to Russia and South
America, and the financial stocks are suffering. The Fund has been modestly
underweighted in financials for most of the fiscal year but will look to add to
this sector to take advantage of current weakness.
"Graphic representation "1B" omitted. See Appendix."
[Photo Appears Here]
MARSHALL LARGE-CAP GROWTH & INCOME FUND
EARNINGS GROWTH REMAINS THE CHALLENGE.
Looking forward, the ability of companies to deliver on earnings expectations
will continue to be a great challenge. Wall Street analysts' earnings estimates
are still too high for both the fourth quarter of 1998 and for full year 1999.
However, while we believe that 1999 will be another year of modest earnings
gains, we do not expect to see a down earnings year as some are expecting. This
is no time to drop down in quality in the companies held in the Fund. Our
efforts will continue to focus on large, high quality companies, leaders in
their respective industry sectors.
Sincerely,
William J. O'Connor
/s/ William J. O'Connor
Manager, Marshall Large-Cap Growth and Income Fund
"Graphic representation "2B" omitted. See Appendix."
"Graphic representation "3B" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on November 20, 1992 to August 31, 1998, compared to the S&P 500 and
the LGIFI.**
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*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**The S&P 500 and LGIFI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. S&P 500 is a capitalization-weighted index of 500 stocks designed
to measure the performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
Lipper figures represent an average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and LGIFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
ANNUAL REPORT--COMMENTARY
MARSHALL MID-CAP VALUE FUND
The Marshall Mid-Cap Value Fund (the "Fund") uses a value-oriented approach to
purchasing common stocks predominantly within the mid-capitalization range. A
pure stock-picking approach is utilized without emphasis on sector rotation or
group momentum. Out-of-favor, undervalued stocks are purchased and held as the
company implements strategies aimed to enhance shareholder returns.
For the 12 months ended August 31, 1998, the Fund provided a total return of
(7.75%).* For the same period, the Standard & Poor's (S&P) Mid-Cap 400 Index
returned (9.38%), and the Lipper Mid-Cap Funds Index returned (13.45%).**
A CHALLENGING MARKET.
During most of the year, our value style and mid-cap universe generally
underperformed large capitalization and growth stocks. Toward the end of the
year, however, as international markets became more volatile and the U.S.
markets declined, the Fund's value characteristics showed stronger returns
relative to the general market indices.
CONCENTRATING ON FOUR VALUE SCENARIOS.
The Fund has experienced continued success in focusing on four categories of
out-of-favor or undervalued stocks:
1. ASSET RECOGNITION. We look for stocks that have significant financial,
tangible or intangible assets that are not currently recognized in the market.
It is not uncommon for these stocks to be noticed by other investors and
targeted for a buy-out. This fiscal year, three holdings--Tele-Communications,
Inc., Waste Management, Inc. and DSC Communications--were purchased by companies
at significant premiums to the prices the Fund paid for the stocks.
2. TURN-AROUNDS. Frequently, we find value opportunities when a company
implements more effective ways to conduct its core business. This year,
management at Darden Restaurants concentrated on improving the guest experience
at its Olive Garden and Red Lobster restaurants. This new management focus has
helped increase sales and profitability for Darden.
3. RESTRUCTURINGS. When companies change their business strategy or shift to a
different business segment, patient value investors can be rewarded. In mid-
1996, the Dial Corp. was split into two separate entities, Dial Corp. and Viad
Corp. We recognized the value of their assets and, in particular their brand
names, and were amply rewarded throughout 1997.
4. INEXPENSIVE STOCKS. The market's recent sell-off has provided the Fund with
several opportunities to buy quality companies at significant discounts to
market valuation measures. Before the market correction, cheap stocks had been
very difficult to find. We recently bought four stocks with solid balance
sheets, strong company franchises and price/earnings ratios under 13.
"Graphic representation "1C" omitted. See Appendix."
[Photo Appears Here]
MARSHALL MID-CAP VALUE FUND
MARKET WOES PROVIDE STRONG OPPORTUNITIES.
Despite market volatility in reaction to troubled international economies, we
remain enthusiastic about the number of bargains becoming available. After
several years of high valuations, the market is finally providing us with
opportunities to buy mid-cap companies at reasonable prices. We are committed to
our value approach and look forward to rewarding patient investors through our
unwavering discipline. Thank you for your continued commitment to the Marshall
Mid-Cap Value Fund.
Sincerely,
/s/ Matthew B. Fahey
Matthew B. Fahey
Co-Manager, Marshall Mid-Cap Value Fund
/s/ John C. Potter, C.F.A.
John C. Potter, C.F.A.
Co-Manager, Marshall Mid-Cap Value Fund
"Graphic representation "2C" omitted. See Appendix."
"Graphic representation "3C" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its inception
on September 30, 1993 to August 31, 1998, compared to the SPMC and the LMCFI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**SPMC and the LMCFI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in the Fund's performance.
These indices are unmanaged. Actual investments may not be made in an index.
SPMC is a capitalization-weighted index of common stocks representing all
major industries in the mid-range of the U.S. stock market. Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
SPMC and LMCFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
ANNUAL REPORT--COMMENTARY
MARSHALL MID-CAP GROWTH FUND
The Marshall Mid-Cap Growth Fund's (the "Fund's") goal is to seek capital
appreciation by investing in companies with market capitalizations similar to
the Standard & Poor's Mid-Cap 400 Index (SPMC)**, that are exhibiting strong
financial characteristics, and are expected to grow significantly above the
average corporation.
For the 12 months ended August 31, 1998, the Fund provided a total return of
(8.77%),* compared to the SPMC total return of (9.38%) and the Lipper Mid-Cap
Funds Index (LMCFI)** return of (13.45%).
RELATIVE PERFORMANCE REMAINS STRONG.
Although the Fund's return was not what shareholders have been accustomed to for
the last three years, the Fund still managed to provide better return than many
of the alternatives in this category. In fact, the Marshall Mid-Cap Growth Fund
was recognized in the Morningstar Mutual Funds review, September 6, 1998 issue.
"This Fund's concentration and high-growth style have led to more volatility,
but its shareholders have been well-compensated."
It helped that we minimized exposure to computer hardware and semiconductor
companies early on in the Asian currency crisis. We also have made a conscious
decision to avoid financials, as their acquisition craze has been hampered by
Federal Reserve Board concerns over Year 2000 compliance. We make an effort to
find out that every company we consider has addressed all Year 2000 problems
with their MIS systems.
DOMESTIC GROWTH FUELS PORTFOLIO.
Despite our disappointment with the mid-cap market's performance in the last
quarter, we remain true to our discipline and continue to seek outstanding
companies that provide better-than-average growth opportunities. We have
identified several companies in sectors that are unaffected by the economic
troubles overseas.
We continue to believe that high employment and consumer confidence will benefit
our retail investments, in particular Kohl's and Bed, Bath and Beyond. We are
particularly excited about Kohl's. They have all of the qualities we look for in
a company: an entrepreneurial management team, a unique strategy and open-ended
growth opportunities. We believe they have the potential to become one of the
next great major retailers.
GLOBAL INSTABILITY ENHANCES SELECTED OPPORTUNITIES.
It is interesting to note that the Asian crisis also has created exciting
opportunities in certain sectors. Novel Denim, Ltd., a cloth manufacturer with
plants in Africa, has taken a beating because investors do not understand that
the company is thriving simply because small garment manufacturers in the
emerging Asian markets have failed. The Gap, Levi's and Abercrombie & Fitch have
found in Novel Denim a stable, reliable vendor.
"Graphic representation "1D" omitted. See Appendix."
[Photo Appears Here]
MARSHALL MID-CAP GROWTH FUND
While careful analysis has helped us enhance shareholder return to date, we are
optimistic that we can enjoy further appreciation as the market recognizes the
inherent value in mid-caps over the next 6 to 12 months. Once the international
crisis finds its way into the balance sheets of the large, multi-national
corporations, and the preoccupation with large-caps dissolves, we will be
positioned to take advantage of the new-found interest in mid-cap names.
Sincerely,
/s/ Steve D. Hayward
Steve D. Hayward
Manager, Marshall Mid-Cap Growth Fund
"Graphic representation "2D" omitted. See Appendix."
"Graphic representation "3D" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on September 30, 1993 to August 31, 1998, compared to the SPMC and
the LMCFI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**The SPMC and the LMCFI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. SPMC is a capitalization-weighted index of common stocks
representing all major industries in the mid-range of the U.S. stock market.
Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
SPMC and LMCFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
ANNUAL REPORT--COMMENTARY
MARSHALL INTERNATIONAL STOCK FUND
The Marshall International Stock Fund (the "Fund"), which is sub-advised by
Templeton Investment Counsel, Inc., seeks long-term capital appreciation through
a flexible policy of investing in stocks of companies outside the United
States.+
For the 12 months ended August 31, 1998, the Fund provided a total return of
(9.09%),* compared to a total return of 0.1% by the Morgan Stanley Capital
International Europe, Australia and Far East Index (EAFE Index)** and (1.06%)
provided by the Lipper International Funds Index (LIFI).**
EMERGING MARKETS AND VALUE UNDERPERFORMED.
The last six months saw a continuation of the bear market in the international
arena, led by weakness in the emerging markets. The Fund had approximately 17%
of total assets invested in the emerging markets. This had a detrimental effect
on our performance in comparison to the EAFE Index, which does not include
emerging markets.
In addition, the market rewarded the growth approach over the value approach for
the last six months of the fiscal year. Value tends to precede market momentum,
and we were early sellers in Europe, which continued to appreciate. Further, we
were early buyers of value in the emerging Asian markets, which have yet to
rebound.
SELECTED HOLDINGS PAID OFF AS ANTICIPATED.
Still, we were able to find pockets of opportunity that should weather the
economic storm, such as Ono Pharmaceuticals, a small Japanese firm with a strong
balance sheet. Ono and Sony comprise our limited Japanese exposure (1.5%).
In Europe, we have continued to lighten up on our overall weightings and have
been reducing our financial weighting. Two exceptions are AXA, which has a
strong American presence, and Merita Ltd., a Finnish bank that offers solid
value and has less than 1% of net assets in Russia. As for Russia, we trimmed
our position in Gazprom, the country's largest gas producer, before the end of
the year and will keep a watchful eye on the rapidly deteriorating situation
there.
We are comfortable with our holdings in South America, recognizing that in the
near term there may be significant volatility from the spreading Asian
contagion. Speculators are making runs on currencies and liquidity is becoming
an issue. Uneasy investors tend to sell more liquid large-caps, putting downward
pressure on those stocks. On the plus side, this may create an opportunity to
add quality names.
Finally, we sold Gio Australia Holdings, an Australian insurance company, after
a buyout offer raised share prices. We will continue to look for opportunities
as valuations drop to very attractive levels.
"Graphic representation "1E" omitted. See Appendix."
MARSHALL INTERNATIONAL STOCK FUND
MAINTAINING A LONG-TERM FOCUS.
We will not stray from our proven discipline and its three tenets that have
rewarded us over the last four years: value, patience and fundamental analysis.
We continue to search globally for good ideas and quality companies. The current
international crisis is proof that quality is the foundation of consistent
performance potential.
In the long run, this global instability may be a healthy situation for
international investors. When markets sell off, quality names start to come down
to levels that we can afford. We are enthusiastic about this opportunity to get
good companies at great prices, and we are confident that shareholders' patience
can be rewarded in the long term.
Sincerely,
/s/ Gary R. Clemons
Gary R. Clemons
Manager, Marshall International Stock Fund
"Graphic representation "2E" omitted. See Appendix."
"Graphic representation "3E" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on September 1, 1994 to August 31, 1998, compared to the EAFE Index
and the LIFI.**
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+Foreign investing involves special risks, including currency risk, increased
volatility of foreign securities and differences in auditing and other
financial standards.
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**The EAFE Index and the LIFI are not adjusted to reflect sales charges,
expenses or other fees that the SEC requires to be reflected in a mutual
fund's performance. These indices are unmanaged. Actual investments may not be
made in an index. The EAFE Index is a market capitalization-weighted foreign
securities index, which is widely used to measure the performance of European,
Australian and New Zealand, and Far East stock markets. Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
EAFE Index and LIFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
ANNUAL REPORT--COMMENTARY
MARSHALL SMALL-CAP GROWTH FUND
The Marshall Small-Cap Growth Fund (the "Fund") seeks capital appreciation by
investing in stocks issued by high-growth companies with market capitalizations
under $1 billion.
For the 12 months ended August 31, 1998, the Fund provided a total return of
(16.25%),* compared to the Russell 2000** total return of (19.39%) and the
Lipper Small-Cap Funds Index** return of (19.48%).
INVESTORS IGNORED EARNINGS STRENGTH.
As a group, small-cap funds suffered during the last quarter of the fiscal year
from the misconception that there was greater safety in large-caps than small-
cap stocks. Earnings growth rates for small-caps continued to exceed large-caps
and, in fact, widened as the year drew to a close; yet the market was attracted
by the liquidity and perceived strength of large-caps. The flight to U.S. blue
chips as a safe haven for global investors added to this disparity.
In reality, large-cap outperformance has primarily been driven by about 20
stocks, with lackluster performance by the majority of issues. Companies such as
Procter & Gamble and Gillette have missed their earnings projections in recent
weeks, which we believe is a precursor to additional earnings problems among
large companies. As Asian troubles continue to filter through large-cap income
statements and international uncertainty over U.S. political stability grows, we
anticipate a shift away from large-cap popularity.
STRATEGY CONTINUED TO REWARD.
Despite the unfavorable market conditions, we were still able to post stronger
returns than many of our peers. With minimal exposure to certain areas of
technology and financial stocks, we were insulated from some of the worst
performing sectors. And, by focusing on rapidly growing companies without any
direct impact from the Asian and Russian economic woes, we were able to identify
pockets of exceptional earnings growth.
One area we have focused on for this "insulated" growth is the solid waste
industry. While tremendous consolidation has already occurred in this industry,
many acquisition opportunities remain for the smaller regional operators.
Furthermore, the consolidation that has taken place among the larger companies
should lead to a more favorable pricing environment for the surviving companies.
Within this area we own Casella Waste Systems and Waste Industries, two high
quality regionals with strong internal growth dynamics that supplement an
aggressive acquisition strategy.
We are also finding opportunities in the healthcare sector that possess similar
domestic growth dynamics. For example, Henry Schein is the leading supplier of
dental supplies to office-based practitioners in the U.S., and Province
Healthcare is an owner/operator of rural hospitals. Both of these companies
should be able to sustain earnings growth in excess of 20%.
"Graphic representation "1F" omitted. See Appendix."
[Photo Appears Here]
MARSHALL SMALL-CAP GROWTH FUND
OUTLOOK FOR SMALL-CAPS IS POSITIVE.
We believe the Fund is positioned for a period of strong performance that we are
confident is approaching for small-cap stocks. Relative valuations for
small-caps are currently at the lowest levels we have seen in many years, while
earnings growth rates remain strong. We remain committed to our strategy of
investing in quality, rapidly growing companies, as we believe this can continue
to reward our investors over time.
Sincerely,
Steven D. Hayward
/s/ Steven D. Hayward
Co-Manager, Marshall Small-Cap Growth Fund
David J. Lettenberger
/s/ David J. Lettenberger
Co-Manager, Marshall Small-Cap Growth Fund
"Graphic representation "2F" omitted. See Appendix."
"Graphic representation "3F" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on November 1, 1995+ to August 31, 1998, compared to the Russell 2000
and the LSCFI.**
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* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The Russell 2000 and LSCFI are not adjusted to reflect sales charges,
expenses or other fees that the SEC requires to be reflected in a mutual
fund's performance. These indices are unmanaged. Actual investments may not
be made in an index. Lipper figures represent the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective categories indicated. The
Russell 2000 is an index of common stocks whose market capitalizations
generally range from $200 million to $5 billion. SMALL-CAP FUNDS MAY
EXPERIENCE A HIGHER DEGREE OF MARKET VOLATILITY.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
Russell 2000 and LSCFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
+ The Marshall Small-Cap Growth Fund is the successor to a collective trust
fund. The quoted performance data includes performance of the collective trust
fund for periods before the Fund's registration statement became effective on
August 30, 1996, as adjusted to reflect the Fund's anticipated expenses. The
collective trust fund was not registered under the Investment Company Act of
1940 ("1940 Act") and therefore was not subject to certain investment
restrictions imposed by the 1940 Act. If the collective trust fund had been
registered under the 1940 Act, the performance may have been adversely
affected.
ANNUAL REPORT--COMMENTARY
MARSHALL SHORT-TERM INCOME FUND
The Marshall Short-Term Income Fund (the "Fund") seeks to maximize total return
consistent with current income, while minimizing price fluctuation. The Fund
invests in a diversified portfolio of short- to intermediate-term high-grade
bonds and notes.
FUND ATTAINED FIVE-STAR RATING.
As of September 30, 1998, the Fund was awarded the highest rating--five stars--
for its overall performance among 1,491 taxable bond funds by Morningstar.+
For the 12 months ended August 31, 1998, the Fund provided a total return of
6.22%,* compared to 5.15% by the IBC/Donoghue's Taxable Money Fund Average,**
7.37% provided by the Merrill Lynch 1-3 Year U.S. Treasury Index** and 6.41%
compared to the Lipper Short-Term Investment Grade Bond Fund Index.**
FUND PROVIDED STRONG ADVANTAGE OVER MONEY FUNDS.
An emphasis on quality was the story for the Fund this fiscal year, and it paid
off handsomely. Investors were rewarded with returns of more than 75 basis
points over the IBC/Donoghue's Taxable Money Fund Average.
Global uneasiness caused international investors to flee to the safety of U.S.
Treasuries. While Treasury securities rallied, all other asset classes tumbled,
victims of extreme volatility. Stocks and corporate bonds, in particular,
suffered from the corresponding meteoric rise in risk premiums.
Our response was to concentrate on only the highest quality corporate bonds,
which suffered less than lower quality bonds. This strategy helped reduce the
effects of this extremely unfavorable cycle--one of the worst markets for
corporate bonds in a long time.
The mortgage market also underperformed for much of this year, a trend we expect
to continue as long as lower rates support refinancing and prepayment activity.
As this cycle draws to a close, however, we are confident we will begin to find
value in mortgage securities.
PATIENCE MAY BE REWARDED.
Our economy remains strong, although it should slow in response to overseas
problems. The biggest concern is not Russia, but Latin America, where U.S. banks
have greater exposure. An economic crisis is likely to precipitate a change in
governments, as we saw in Indonesia, Japan and Russia. Treasuries remain a very
attractive investment in times of uncertainty, and investors seeking a safe
haven have sent Treasury prices soaring over the last 12 months.
For the next six months we will maintain a conservative strategy, waiting for
opportunities to arise. We will look for corporate bond values as soon as we see
stability in foreign economies and the U.S. equity market. Undoubtedly there
will be a lot of uncertainty in the bond and equity markets, but uncertainty can
create opportunity.
Sincerely,
/s/ Mark D. Pittman
Mark D. Pittman
Manager, Marshall Short-Term Income Fund
"Graphic representation "1G" omitted. See Appendix."
[Photo Appears Here]
MARSHALL SHORT-TERM INCOME FUND
"Graphic representation "2G" omitted. See Appendix."
"Graphic representation "3G" omitted. See Appendix."
The graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on November 1, 1992 to August 31, 1998, compared to LSTIBI and
DMFA.**
- --------------------------------------------------------------------------------
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The LSTIBI and DMFA are not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. IBC/Donoghue's Money Fund Report(TM) publishes annualized yields
of hundreds of money market funds on a weekly basis and through its Money
Market Insight publication reports monthly and year-to-date investment
results for the same money funds. The Merrill Lynch 1-3 Year U.S. Treasury
Index is an 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. Lipper figures represent the average of the
total returns reported by all of the mutual funds designated by Lipper
Analytical Services, Inc. as falling into the respective categories
indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LSTIBI and DMFA have been adjusted to reflect reinvestment of dividends on
securities in the indices.
+Morningstar proprietary ratings reflect historical risk-adjusted performance as
of 9/30/98. They are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the funds' 3-, 5- and
10-year average annual returns in excess of 90-day Treasury bill returns with
appropriate fee adjustments, and a risk factor that reflects fund performance
below 90-day T-bill returns. The Fund received 4 stars and 5 stars for the
three-year and five-year periods and was rated among 1,491 and 940 taxable bond
funds, respectively. Ten percent of funds in a rating universe receive 5 stars,
the next 22.5% receive 4 stars, the next 35% receive 3 stars.
++Duration is a commonly used measure of the potential volatility of the price
of a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
ANNUAL REPORT--COMMENTARY
MARSHALL INTERMEDIATE BOND FUND
The goal of the Marshall Intermediate Bond Fund (the "Fund") is to maximize
total return consistent with current income. The Fund primarily buys high-grade
bonds and notes with a maturity of three to ten years.
For the 12 months ended August 31, 1998, the Fund provided a total return of
8.00%,* compared to a return of 7.72% by the Lipper Intermediate Investment
Grade Bond Funds Index.**
QUALITY POSITION BOOSTS RETURN.
Interest rates fell precipitously as global economic uncertainty sent investors
seeking the safety of U.S. Treasury securities. The rally in Treasury securities
unfortunately came at the expense of all other asset classes. Uncertainty
creates volatility, which means risk premiums must rise. And in fact, they rose
with almost unprecedented velocity and magnitude. Risk assets such as stocks and
corporate bonds tumbled.
Increasing the quality of our corporate bond holdings has been an important
theme for the Fund. While all corporate bonds have suffered, lower quality bonds
have fared much worse. Maintaining a high degree of credit quality has helped
mitigate the effects of one of the most difficult periods for the corporate bond
market in recent history.
Over the next several months, we are taking the position, "better a little late
than a lot early." Once we see foreign economies and the stock market settle
down, we will look for value in the corporate bond market.
In the mortgage market, we foresee another wave of refinancing pressure and
additional prepayments. We will continue to be underweighted in mortgages until
rates stabilize, but as the market becomes more favorable, we will begin to add
more mortgage securities to the Fund mix.
We anticipate a continued strong Treasury market, as global investors continue
their flight to quality and liquidity. We are not looking for the economy to
slow appreciably, with labor markets still tight and commodity prices bottoming
out. The bond market is expecting the Federal Reserve Board (the "Fed") to cut
rates. We feel the justification for a lower Fed funds rate will be highly
dependent on when foreign economies hit bottom and to what degree our economy
slows in response.
Going forward, there is a lot of uncertainty, but uncertainty can create
opportunity. We will continue to maintain a fairly conservative strategy,
staying close to home base and waiting for opportunities to arise.
Sincerely,
/s/ Mark D. Pittman
Mark D. Pittman
Manager, Marshall Intermediate Bond Fund
"Graphic representation "1H" omitted. See Appendix."
[Photo Appears Here]
MARSHALL INTERMEDIATE BOND FUND
"Graphic representation "2H" omitted. See Appendix."
"Graphic representation "3H" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on November 23, 1992 to August 31, 1998, compared to the LGCI and the
LIBF.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**The LGCI and the LIBF are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. LGCI is an index comprised of government and corporate bonds
rated BBB or higher with maturities between 1-10 years. Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LGCI and the LIBF have been adjusted to reflect reinvestment of dividends on
securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
ANNUAL REPORT--COMMENTARY
MARSHALL GOVERNMENT INCOME FUND
The Marshall Government Income Fund (the "Fund") seeks to generate a high level
of current income while maximizing total return with moderate share-price
volatility. Strategies are focused on investment opportunities within the
mortgage-backed securities market, in particular the government agency-backed,
whole loan and home equity loan sectors of the mortgage market.
For the 12 months ended August 31, 1998, the Fund provided a total return of
8.92%,* compared to a return of 8.69% by the Lehman Brothers Mortgage-Backed
Securities Index** and 8.39% provided by the Lipper U.S. Mortgage Funds
Index.**
FUND POSITIONED TO BENEFIT FROM ANTICIPATED SHIFT.
After strong performance in 1997 and much of the first half of 1998, our concern
of the mortgage market underperforming came to pass in the last month of the
fiscal year. We saw a dramatic drop in rates in July and August 1998, and the
accompanying prepayment concerns and refinancing boom led to the mortgage
market's underperformance.
Fortunately, we were positioned to benefit from this momentum shift, and the
strategies we had in place helped boost our performance above our peers. For
example, we moved away from vintage mortgages, which have lost their luster. We
also avoided securities that were most likely to get called, underweighting
higher coupons and moving to the 6% and 6 1/2% range. We were rewarded by
lengthening average duration from three years to four years as well.
BARGAINS MAY BE FOUND AMONG HIGHER COUPONS.
The environment still calls for holding lower coupons and more liquid
securities, such as Treasuries and agencies. As world markets continue to cause
significant turmoil, we suspect the Federal Reserve Board's next move will be to
lower interest rates. For the near future, that will put continued pressure on
mortgages.
By the end of this year or early next year, we anticipate moving back into some
higher coupons on a very selected basis, anticipating that they will again offer
value. The general consensus is that rates will be moving lower and prepayments
will continue to spike, causing higher coupons to drop to their most attractive
levels since 1990. As we saw in 1994 and 1996, investors were greatly rewarded
for buying assets that were beaten up badly. Our strategy would be to start
moving into coupons of 7% to 7 1/2%, selectively and patiently, adding yield and
shortening duration.
"Graphic representation "1I" omitted. See Appendix."
[Photo Appears Here]
MARSHALL GOVERNMENT INCOME FUND
BONDS EXPECTED TO PROVIDE SOLID RETURN POTENTIAL.
We continue to see a very positive environment for bond investments. Low
inflation, a strong dollar, declining budget deficits and a shaky stock market
should lead to more assets flowing to all fixed-income assets.
As the market evolved as we anticipated, we were pleased to see shareholders
handsomely rewarded by our strategies. As we look forward to the next six
months, we expect bonds to continue to offer high real rates of return
potential.
Sincerely,
/s/ Lawrence J. Pavelec
Lawrence J. Pavelec
Manager, Marshall Government Income Fund
"Graphic representation "2I" omitted. See Appendix."
"Graphic representation "3I" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its
inception on December 13, 1992 to August 31, 1998, compared to the LMI and the
LUSMI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**The LMI and LUSMI are not adjusted to reflect sales charges, expenses or other
fees that the SEC requires to be reflected in a mutual fund's performance.
These indices are unmanaged. Actual investments may not be made in an index.
LMI is an index comprised of fixed rate securities backed by mortgage pools of
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corp. (FHLMC) and Federal National Mortgage Association (FNMA). Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LMI and LUSMI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price
of a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
ANNUAL REPORT--COMMENTARY
MARSHALL INTERMEDIATE TAX-FREE FUND
The primary goal of the Marshall Intermediate Tax-Free Fund (the "Fund") is to
generate income that is exempt from federal income tax.+
For the 12 months ended August 31, 1998, the Fund provided a total return of
7.31%,* compared to a return of 6.82% for the Lehman Brothers 5-Year General
Obligations Index** and 7.26% for the Lipper Intermediate Municipal Funds
Index.**
FUND GROWTH ENHANCED STRATEGY.
The most striking influence on the Fund this fiscal year was a decline in
interest rates of between 40 and 50 basis points over the last several months.
We were able to enhance shareholder return by positioning the portfolio to take
advantage of the decline. A second significant factor was the deployment of new
assets under management, which grew the Fund from $88.1 million on August 31,
1997 to $101.6 million on August 31, 1998. Rather than leave new money in
lower-yield money market funds or short maturity paper, we aggressively invested
in longer maturity paper at attractive yield levels.
There is no question that these tremendous inflows were due to investors
reducing their asset allocation to the equity markets. Since the municipal
market is not directly affected by the faltering Asian and Russian economies,
municipals provide a relatively safe investment for domestic investors.
Investors are rapidly realizing that the stock market is not the only game in
town.
A RELATIVELY SAFE INVESTMENT FOR HIGH-INCOME INVESTORS.
The municipal market is recently recognized for its defensive characteristics,
that is, low volatility or limited price movements compared to the rest of the
bond markets. In the last year, volatility has declined to the lowest we have
ever seen.
As rates have declined, more municipal issuers have refunded their old debt,
holding supply high. Relative to Treasuries, munis are as cheap as they have
been since the early '80s, making this a very attractive time for investors in
the high tax brackets to take advantage of municipals. And, on a taxable
equivalent basis, high grade municipals are now yielding the same as
low-quality, high-yield junk bonds.
STRONG TAX RECEIPTS BOOST CREDIT QUALITY.
Municipal credit quality is in a very healthy position, thanks to continued
strong tax receipts. Low unemployment combined with wage gains feeds into higher
tax revenues, to the point where many states are experiencing budget surpluses
this year.
This may be as good as it gets in states where tax revenue is supported by
export-driven manufacturing firms. If those businesses suffer from the malaise
in Asia and Russia, there may be a drop off in the growth of tax receipts. That
is where our credit quality emphasis will pay off; when times get rougher, the
higher credit quality issuers should hold together better. In the municipal
market, there is little advantage to migrating to lower quality issuers.
[Photo Appears Here]
"Graphic representation "1J" omitted. See Appendix."
+Income may be subject to the federal alternative minimum tax and state and
local taxes.
MARSHALL INTERMEDIATE TAX-FREE FUND
For those investors who think they have missed the bond rally, the municipal
market may be the place to be. Municipals have lagged the rest of the market,
and continued strong tax receipts seem to indicate further opportunities. Low
prices, high yields and low volatility all point to municipals as a good value
for high tax bracket investors.
Sincerely,
/s/ John D. Boritzke
John D. Boritzke
Manager, Marshall Intermediate Tax-Free Fund
"Graphic representation "2J" omitted. See Appendix."
"Graphic representation "3J" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
its inception on February 2, 1994 to August 31, 1998, compared to the L5GO,
L7GO and the LIMI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
**The L5GO, L7GO and LIMI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. L5GO is an index comprised of all state general obligation debt
issues with maturities between four and six years. L7GO is an index comprised
of all general obligation bonds rated A or better with maturities between six
and eight years. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper Analytical Services,
Inc. as falling into the respective categories indicated. The investment
adviser has elected to change the benchmark of the Fund from the L5G0 to the
L7G0. The L7G0 is more representative of the securities typically held by the
Fund.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
L5GO, L7GO and LIMI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
++Duration is a commonly used measure of the potential volatility of the price
of a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
ANNUAL REPORT--COMMENTARY
MARSHALL MONEY MARKET FUND
The Marshall Money Market Fund (the "Fund") seeks to provide current income
consistent with stability of principal. The Fund's adviser attempts to generate
an annual net return exceeding IBC's Taxable Money Fund Report Average(TM) while
maintaining a stable $1 price per share.* The Fund purchases high-quality,
short-term money market securities, including banker's acceptances, certificates
of deposit, first-tier commercial paper, master notes, repurchase agreements,
and U.S. Treasury and Agency securities.
FUND PERFORMANCE EXCEEDED PEERS.
As of August 31, 1998, the 7-day net yield for the Fund's Class A Shares and
Class B Shares were 5.32% and 5.02%, respectively.** For the 12 months ended
August 31, 1998, the Fund provided a total return of 5.51%,** for Class A
Shares, compared to a return of 5.15% for the IBC/Donoghue's Taxable Money Fund
Average (Donoghue)*** and 5.10% for the Lipper Money Market Funds Index.***
Class B shares provided a total return of 5.19%.**
PROVEN STRATEGY BOOSTED RETURN.
This fiscal year saw a continuation of the strategy that had proved successful
for the Fund for several previous quarters; limited exposure to commercial
paper, which we feel is overpriced, and more extensive exposure to floating rate
notes, master notes and funding agreements. This limited exposure to commercial
paper, relative to other funds, helped us outperform our peers.
The Fund's average duration shifted from 50 days to as low as 37 days before
ending the fiscal year at 40 days, as we actively managed average maturities to
seek the best opportunities in the floating rate sector. Overall, the market has
not rewarded for longer duration, as is evidenced by Treasury notes, which
recently had yields of 4.88% for one-year notes and 4.91% for five-year notes.
STRONG ECONOMY UNDER SCRUTINY.
The question on everyone's mind remains: Will the domestic economy slow down?
While unemployment and inflation have stayed low, consumer confidence could dip
as the recent stock market glitches cause spending to slow down, especially for
those in higher income brackets. Trade imbalances also continue to grow with the
troubled Asian nations.
The market has built in the equivalent of a Federal Reserve Board (the "Fed")
easing, with a drop of 45-60 basis points over the last month of the fiscal
year, which indicates that investors are coming around to believing that the
economy will slow down. Inflows into the Fund from uneasy equity investors are
also steady. If a volatile stock market continues and stocks need more
liquidity, we feel the Fed will have to ease at some point.
As the answer becomes clearer over the next several months, we will continue to
focus on our successful discipline and actively manage duration to maximize
shareholder return potential.
Sincerely,
/s/ Richard M. Rokus
Richard M. Rokus Manager, Marshall Money Market Fund
[Photo Appears Here]
"Graphic representation "K" omitted. See Appendix."
*Although money market funds seek to maintain a stable net asset value of $1 per
share, there is no assurance that they will be able to do so. An investment in
the Fund is neither insured nor guaranteed by the U.S.
Government.
**Performance quoted represents past performance and is not indicative of future
results. Yields will vary. Yields quoted for money market funds most closely
reflect the Fund's current earnings.
***IBC/Donoghue's Money Fund Report(TM) publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper Analytical Services,
Inc. as falling into the respective categories indicated. These figures do
not reflect sales charges.
+The 7-day net annualized yield is based on the average net income per share for
the 7 days ended on the date of calculation and the offering price on that
date. The 7-day effective yield is based on the 7-day net yield and is then
compounded and annualized.
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY INCOME FUND
<TABLE>
--------------------------------------------------------
<CAPTION>
Shares Description Value
--------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 89.7%
CAPITAL GOODS -- 6.0%
AEROSPACE & DEFENSE
25,700 (a)General Dynamics Corp. $1,222,356
20,500 Northrop Corp. 1,299,188
27,000 (a)Rockwell International Corp. 978,750
42,000 Textron, Inc. 2,635,500
35,000 United Technologies Corp. 2,539,688
----------
Total 8,675,482
----------
DIVERSIFIED MANUFACTURING
73,000 (a)Corning, Inc. 1,797,625
----------
ELECTRICAL EQUIPMENT
100,000 General Electric Co. 8,000,000
----------
MACHINERY & MACHINE TOOLS
19,000 Briggs & Stratton Corp. 699,438
21,500 Cooper Industries, Inc. 915,094
----------
Total 1,614,532
----------
OFFICE EQUIPMENT
41,300 Xerox Corp. 3,626,656
----------
OTHER CAPITAL GOODS
117,300 Tenneco, Inc. 3,716,944
----------
Total Capital Goods 27,431,239
----------
CONSUMER DURABLES--4.4%
AUTOMOTIVE & RELATED
137,000 Ford Motor Co. 6,028,000
127,500 General Motors Corp. 7,363,125
80,000 (a)Genuine Parts Co. 2,505,000
18,000 Goodyear Tire & Rubber Co. 882,000
53,000 (a)TRW, Inc. 2,272,375
----------
Total 19,050,500
----------
HOUSEHOLD PRODUCT/WARES
36,100 Fortune Brands, Inc. 995,006
----------
Total Consumer Durables 20,045,506
----------
CONSUMER NON-DURABLES -- 17.3%
BEVERAGES & FOODS
13,500 (a)Campbell Soup Co. 680,063
102,000 (a)ConAgra, Inc. 2,524,500
105,000 International Multifoods Corp. 1,824,375
101,000 PepsiCo, Inc. 2,796,438
26,000 Sara Lee Corp. 1,176,500
----------
Total 9,001,876
----------
CLOTHING & TEXTILES
60,000 Kellwood Co. 1,601,250
----------
HEALTH CARE
76,000 Abbott Laboratories 2,926,000
182,100 (a)American Home Products Corp. 9,127,763
28,100 Bausch & Lomb, Inc. 1,188,981
141,500 Baxter International, Inc. 7,534,875
70,800 (a)Bristol-Myers Squibb Co. 6,929,550
50,000 (a)Johnson & Johnson 3,450,000
78,300 (a)Merck & Co., Inc. 9,077,906
42,000 (a)Smithkline Beecham Corp., ADR 2,388,750
----------
Total 42,623,825
----------
RETAIL
22,000 Intimate Brands, Inc. 407,000
</TABLE>
<TABLE>
-------------------------------------------------------------
<CAPTION>
Shares Description Value
-------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
37,000 Limited, Inc. $772,375
23,800 May Department Stores Co. 1,338,750
31,600 (a)Penney (J.C.) Co., Inc. 1,566,175
----------
Total 4,084,300
----------
SERVICES
127,000 (a)Browning-Ferris Industries, Inc. 4,127,500
----------
TOBACCO
300,000 Philip Morris Cos., Inc. 12,468,750
212,000 UST, Inc. 5,538,500
----------
Total 18,007,250
----------
Total Consumer Non-Durables 79,446,001
----------
ENERGY -- 17.2%
DOMESTIC & INTERNATIONAL OIL
188,200 Amoco Corp. 8,527,813
101,000 Atlantic Richfield Co. 5,858,000
50,000 (a)British Petroleum Co. PLC, ADR 3,656,250
138,000 (a)Chevron Corp. 10,220,625
229,300 Exxon Corp. 15,004,819
113,800 (a)Mobil Corp. 7,866,425
170,800 Occidental Petroleum Corp. 3,159,800
50,000 Phillips Petroleum Co. 2,040,625
219,600 (a)Royal Dutch Petroleum Co., ADR 8,729,100
152,200 (a)Texaco, Inc. 8,456,613
207,500 USX Corp. 5,395,000
----------
Total Energy 78,915,070
----------
FINANCIAL -- 20.5%
BANKS
128,269 (a)Banc One Corp. 4,874,214
96,300 Bank of New York Co., Inc. 2,329,256
86,500 BankAmerica Corp. 5,541,406
19,700 BankBoston Corp. 703,044
119,664 Chase Manhattan Corp. 6,342,192
21,000 Citicorp 2,270,625
52,000 First American Corp. 1,865,500
154,000 (a)First Union Corp. 7,469,000
60,200 Fleet Financial Group, Inc. 3,946,863
92,000 (a)KeyCorp 2,346,000
38,000 Mellon Bank Corp. 1,976,000
85,000 (a)Mercantile Bancorporation, Inc. 3,734,687
87,400 (a)NationsBank Corp. 4,981,800
100,000 (a)Norwest Corp. 2,975,000
20,000 Union Planters Corp. 805,000
129,000 (a)Washington Mutual, Inc. 4,128,000
13,000 (a)Wells Fargo & Co. 3,664,375
----------
Total 59,952,962
----------
FINANCIAL SERVICES
42,000 Federal National Mortgage Association 2,386,125
----------
INSURANCE
105,300 (a)CIGNA Corp. 6,127,144
52,800 Hartford Financial Services Group, Inc. 2,362,800
29,200 (a)SAFECO Corp. 1,186,250
32,000 (a)St. Paul Cos., Inc. 978,000
----------
Total 10,654,194
----------
OTHER FINANCIAL
40,000 Capstone Capital Trust, Inc. 770,000
60,000 Crescent Real Estate Equities, Inc. 1,380,000
</TABLE>
(See Notes to Portfolio of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
EQUITY INCOME FUND (continued)
<TABLE>
<CAPTION>
---------------------------------------------------------------
Shares Description Value
---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
FINANCIAL (continued)
70,000 Equity Office Properties Trust $1,588,125
53,000 Equity Residential Properties Trust 2,116,688
45,000 FelCor Suite Hotels, Inc. 916,875
104,500 Glenborough Realty Trust, Inc. 2,272,875
94,700 HRPT Properties Trust 1,479,688
110,100 IRT Property Co. 977,137
96,300 Prentiss Properties Trust 2,154,713
155,400 Public Storage, Inc. 3,632,475
92,600 Simon DeBartolo Group, Inc. 2,691,187
59,000 Storage Trust Realty 1,279,563
----------
Total 21,259,326
----------
Total Financial 94,252,607
----------
RAW MATERIALS/INTERMEDIATE GOODS -- 4.8%
CHEMICALS
39,200 (a)Eastman Chemical Co. 2,021,250
61,300 (a)Goodrich (B.F.) Co. 1,658,931
68,500 (a)Imperial Chemical Industries, PLC, ADR 2,919,813
----------
Total 6,599,994
----------
CONTAINERS & GLASS
47,500 (a)Crown Cork & Seal Co., Inc. 1,555,625
39,600 Sonoco Products Co. 1,014,750
----------
Total 2,570,375
----------
METALS
106,000 Allegheny Teledyne, Inc. 1,596,625
45,000 (a)Aluminum Co. of America 2,694,375
----------
Total 4,291,000
----------
PAPERS
40,000 Bowater, Inc. 1,512,500
110,000 Kimberly-Clark Corp. 4,193,750
114,000 Mead Corp. 3,120,750
----------
Total 8,827,000
----------
Total Raw Materials/Intermediate Goods 22,288,369
----------
TRANSPORTATION -- 0.4%
RAILROAD
43,000 (a)Union Pacific Corp. 1,711,937
----------
UTILITIES -- 19.1%
ELECTRIC
127,500 Allegheny Energy, Inc. 3,394,687
70,000 CMS Energy Corp. 2,961,875
96,000 (a)Cinergy Corp. 3,336,000
87,600 (a)Duke Energy Corp. 5,464,050
68,000 Houston Industries, Inc. 1,959,250
90,000 (a)NIPSCO Industries, Inc. 2,632,500
74,300 Pinnacle West Capital Corp. 3,208,830
104,000 Southern Co. 2,925,000
102,700 Texas Utilities Co. 4,364,750
----------
Total 30,246,942
----------
GAS DISTRIBUTION
66,000 Consolidated Natural Gas Co. 2,891,625
155,000 Enron Corp. 6,558,437
73,100 MCN Corp. 1,283,818
67,800 WICOR, Inc. 1,449,225
77,000 Williams Cos., Inc. 1,771,000
----------
Total 13,954,105
----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
UTILITIES (continued)
TELECOMMUNICATIONS
190,000 (a)AT&T Corp. $9,523,750
23,000 Alltel Corp. 1,037,875
190,000 (a)Bell Atlantic Corp. 8,383,750
141,000 GTE Corp. 7,050,000
285,560 (a)SBC Communications, Inc. 10,851,280
96,400 (a)Sprint Corp. 6,464,825
------------
Total 43,311,480
------------
Total Utilities 87,512,527
------------
TOTAL COMMON STOCKS (identified cost
$376,407,550) 411,603,256
------------
(C)REPURCHASE AGREEMENT -- 7.5%
$34,505,011 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 34,505,011
------------
TOTAL INVESTMENTS (identified cost $410,912,561) $446,108,267
============
- -------------------------------------------------------------------------------
</TABLE>
LARGE-CAP GROWTH & INCOME FUND
<TABLE>
<CAPTION>
---------------------------------------------------------------
Shares Description Value
---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 89.3%
BASIC INDUSTRIES -- 4.5%
CHEMICALS
91,600 (a)Air Products & Chemicals, Inc. $2,799,525
15,000 Du Pont (E.I.) de Nemours & Co. 865,313
----------
Total 3,664,838
----------
INDUSTRIAL SERVICES
82,287 (a)(d)Waste Management, Inc. 3,630,922
----------
PAPER
136,800 Kimberly-Clark Corp. 5,215,500
----------
Total Basic Industries 12,511,260
----------
CAPITAL GOODS -- 16.6%
AEROSPACE & RELATED
92,300 Boeing Co. 2,855,531
----------
COMPUTER SERVICES
79,800 (a)(d)BMC Software, Inc. 3,376,538
79,900 (a)Compaq Computer Corp. 2,232,206
41,600 (a)International Business Machines Corp. 4,685,200
350,000 (a)(d)Maxtor Corp. 2,384,375
78,500 (a)(d)Microsoft Corp. 7,531,094
99,900 (a)(d)Sun Microsystems, Inc. 3,958,538
----------
Total 24,167,951
----------
ELECTRICAL EQUIPMENT
69,100 (a)Emerson Electric Co. 3,938,700
119,600 (a)General Electric Co. 9,568,000
----------
Total 13,506,700
----------
ELECTRONICS
98,300 (a)(d)Applied Materials, Inc. 2,414,494
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
LARGE-CAP GROWTH & INCOME FUND
(continued)
<TABLE>
<CAPTION>
-------------------------------------------------------------
Shares Description Value
-------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CAPITAL GOODS (continued)
38,700 Intel Corp. $2,754,956
----------
Total 5,169,450
----------
Total Capital Goods 45,699,632
----------
CONSUMER DURABLES -- 0.6%
BUILDING & FOREST PRODUCTS
37,600 Georgia-Pacific Corp. 1,612,100
----------
CONSUMER NON-DURABLES -- 34.9%
BEVERAGES & FOODS
60,000 (a)Coca-Cola Co. 3,907,500
141,300 PepsiCo, Inc. 3,912,244
105,100 (a)Quaker Oats Co. 5,583,438
65,900 Unilever N.V., ADR 4,176,413
174,800 Whitman Corp. 2,709,400
----------
Total 20,288,995
----------
CONSUMER CYCLICAL
800 (a)Nike, Inc., Class B 27,750
----------
DRUGS
98,300 (a)American Home Products Corp. 4,927,288
46,500 (a)Merck & Co., Inc. 5,391,094
47,900 Schering Plough Corp. 4,119,400
76,100 (a)Smithkline Beecham Corp., ADR 4,328,188
----------
Total 18,765,970
----------
ENTERTAINMENT
136,500 Disney (Walt) Co. 3,745,219
----------
HEALTH CARE
160,200 (a)Abbott Laboratories 6,167,700
49,800 (a)Columbia/HCA Healthcare Corp. 1,123,613
----------
Total 7,291,313
----------
MEDIA
97,500 Gannett Co., Inc. 5,752,500
174,400 New York Times Co., Class A 5,057,600
54,200 (a)Time Warner, Inc. 4,356,325
----------
Total 15,166,425
----------
MEDICAL SUPPLIES
74,900 (a)Johnson & Johnson 5,168,100
----------
RETAIL
126,400 (a)(d)Federated Department Stores, Inc. 5,506,300
86,300 (d)Kohl's Corp. 3,921,256
115,400 (a)(d)Safeway, Inc. 4,543,875
138,900 Walgreen Co. 5,347,650
----------
Total 19,319,081
----------
TOBACCO
146,700 Philip Morris Cos., Inc. 6,097,219
----------
Total Consumer Non-Durables 95,870,072
----------
ENERGY -- 6.8%
INTERNATIONAL OIL & GAS
117,500 (a)Exxon Corp. 7,688,906
122,900 (a)Occidental Petroleum Corp. 2,273,650
80,300 (a)Royal Dutch Petroleum Co., ADR 3,191,925
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Shares or
Principal
Amout Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
ENERGY (continued)
98,300 (a)Texaco, Inc. $5,461,794
------------
Total Energy 18,616,275
------------
FINANCIAL -- 14.1%
BANKS
195,400 Bank of New York Co., Inc. 4,726,238
74,900 BankAmerica Corp. 4,798,281
87,200 Chase Manhattan Corp. 4,621,600
74,900 Mellon Bank Corp. 3,894,800
------------
Total 18,040,919
------------
INSURANCE
76,125 (a)American International Group, Inc. 5,885,414
116,000 Provident Cos., Inc. 4,176,000
------------
Total 10,061,414
------------
OTHER FINANCIAL
48,800 American Express Co. 3,806,400
130,000 Federal Home Loan Mortgage Corp. 5,135,000
40,000 Travelers Group, Inc. 1,775,000
------------
Total 10,716,400
------------
Total Financial 38,818,733
------------
UTILITIES -- 11.8%
ELECTRIC
64,000 (a)Duke Energy Corp. 3,992,000
------------
GAS DISTRIBUTION
37,300 Consolidated Natural Gas Co. 1,634,206
------------
TELECOMMUNICATIONS
99,900 (a)Alcatel Alsthom, ADR 3,015,731
92,900 Ameritech Corp. 4,377,913
73,700 AT&T Corp. 3,694,213
85,800 GTE Corp. 4,290,000
61,800 Motorola, Inc. 2,661,263
111,700 (a)SBC Communications, Inc. 4,244,600
109,900 (a)WorldCom, Inc. 4,499,031
------------
Total 26,782,751
------------
Total Utilities 32,408,957
------------
TOTAL COMMON STOCKS (identified cost $181,076,973) 245,537,029
------------
(E)U.S. TREASURY BILL -- 0.3%
$710,000 United States Treasury Bill, 11/5/1998 (identified
cost $703,864) 704,137
------------
TOTAL INVESTMENTS IN SECURITIES (identified cost
$181,780,837) $246,241,166
------------
(C)REPURCHASE AGREEMENT -- 9.4%
25,750,582 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 25,750,582
------------
TOTAL INVESTMENTS (identified cost $207,531,419) $271,991,748
============
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
MID-CAP VALUE FUND
<TABLE>
<CAPTION>
-------------------------------------------------------------
Shares Description Value
-------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 84.3%
CAPITAL GOODS -- 2.8%
CHEMICALS
50,000 Brady (W.H.) Co. $837,500
----------
COMPUTERS
25,000 (d)Bell & Howell Group, Inc. 587,500
152,500 (d)Silicon Graphics, Inc. 1,382,031
----------
Total 1,969,531
----------
OTHER CAPITAL GOODS
70,000 (d)Acuson Corp. 1,023,750
----------
Total Capital Goods 3,830,781
----------
CONSUMER DURABLES -- 1.9%
HOUSEHOLD PRODUCT/WARES
10,000 Flowserve Corp. 187,500
55,000 Jostens, Inc. 1,093,125
49,000 (a)Rubbermaid, Inc. 1,246,438
----------
Total Consumer Durables 2,527,063
----------
CONSUMER NON-DURABLES -- 38.4%
BEVERAGES & FOODS
179,900 (a)Darden Restaurants, Inc. 2,788,450
234,000 Food Lion, Inc., Class B 2,325,375
100,000 Food Lion, Inc., Class A 1,031,250
183,000 International Multifoods Corp. 3,179,625
100,000 (d)Ralcorp Holdings, Inc. 1,931,250
----------
Total 11,255,950
----------
CONSUMER STAPLES
70,000 American Greetings Corp.,
Class A 2,563,750
----------
COSMETICS/TOILETRIES
40,000 (a)Dial Corp. 780,000
----------
MEDIA
116,934 (a)(d)TCI Ventures Group,
Class A 1,944,022
----------
OIL & GAS PRODUCTS
136,000 (d)Rowan Companies, Inc. 1,258,000
114,500 (a)Unocal Corp. 3,585,281
108,320 USX-Marathon 2,816,320
----------
Total 7,659,601
----------
PHARMACEUTICALS & HEALTH CARE
299,200 (d)Perrigo Co. 2,543,200
132,400 (a)(d)Tenet Healthcare Corp. 3,417,575
----------
Total 5,960,775
----------
RETAIL
95,400 Dillards, Inc., Class A 2,754,675
69,500 (a)(d)Federated Department Stores, Inc. 3,027,594
53,278 (a)Limited, Inc. 1,112,178
----------
Total 6,894,447
----------
SERVICES
65,000 (a)Dun & Bradstreet Corp. 1,527,500
142,000 Viad Corp. 2,946,500
60,139 (a)(d)Waste Management, Inc. 2,653,628
77,000 (d)World Color Press 2,165,625
----------
Total 9,293,253
----------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
Shares Description Value
---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
TOBACCO
75,000 RJR Nabisco Holdings Corp. $1,626,563
141,000 UST, Inc. 3,683,625
----------
Total 5,310,188
----------
Total Consumer Non-Durables 51,661,986
----------
FINANCIAL -- 9.1%
INSURANCE
92,600 Everest Reinsurance Holdings, Inc. 3,241,000
134,500 IPC Holdings Ltd. 3,345,688
50,400 Torchmark Corp. 1,801,800
----------
Total 8,388,488
----------
OTHER FINANCIAL
40,000 Equity Residential Properties Trust 1,597,500
128,720 Trizec Hahn Corp. 2,196,285
----------
Total 3,793,785
----------
Total Financial 12,182,273
----------
RAW MATERIALS/INTERMEDIATE GOODS -- 14.5%
CHEMICALS
233,000 Agrium, Inc. 1,965,938
207,150 Calgon Carbon Corp. 1,281,741
68,150 (a)Imperial Chemical Industries, PLC, ADR 2,904,894
----------
Total 6,152,573
----------
INTERMEDIATE GOODS
101,000 Canadian Pacific Ltd. 1,912,688
20,000 (a)Crown Cork & Seal Co., Inc. 655,000
125,127 (a)Hanson PLC, ADR 3,081,252
----------
Total 5,648,940
----------
OTHER RAW MATERIALS
185,000 (a)(d)USEC, Inc. 2,705,625
----------
PAPER & RELATED PRODUCTS
71,000 Consolidated Papers, Inc. 1,779,438
57,000 Fort James Corp. 1,660,125
56,800 Mead Corp. 1,554,900
----------
Total 4,994,463
----------
Total Raw Materials/Intermediate Goods 19,501,601
----------
TELECOMMUNICATIONS -- 6.6%
SERVICES
105,000 (a)(d)DSC Communications Corp. 2,533,125
97,033 (a)(d)Tele-Communications, Inc., Class A 3,202,095
96,600 Telephone and Data System, Inc. 3,199,875
----------
Total Telecommunications 8,935,095
----------
TRANSPORTATION -- 1.6%
OTHER TRANSPORTATION
90,180 Alexander and Baldwin, Inc. 2,119,230
----------
UTILITIES -- 9.4%
ELECTRIC
82,600 (a)Texas Utilities Co. 3,510,500
115,000 Wisconsin Energy Corp. 3,342,188
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
MID-CAP VALUE FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
UTILITIES (continued)
75,000 Pinnacle West Capital Corp. $3,239,063
89,500 (a)NIPSCO Industries, Inc. 2,617,875
------------
Total Utilities 12,709,626
------------
TOTAL COMMON STOCKS (identified cost $109,006,980) 113,467,655
------------
(C)REPURCHASE AGREEMENT -- 10.0%
$13,484,532 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 13,484,532
------------
TOTAL INVESTMENTS (identified cost $122,491,512) $126,952,187
============
</TABLE>
- --------------------------------------------------------------------------------
MID-CAP GROWTH FUND
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Shares Description Value
-------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 90.1%
CAPITAL GOODS -- 18.9%
COMPUTER SERVICES
25,000 (a)America Online, Inc. $2,048,437
100,000 (a)(d)BMC Software, Inc. 4,231,250
100,000 (a)(d)Compuware Corp. 4,543,750
150,000 (d)Concord EFS, Inc. 2,962,500
120,000 (d)Diamond Technology Partners, Class A 2,790,000
50,000 (d)Intuit, Inc. 1,709,375
100,000 (a)(d)Network Associates, Inc. 3,225,000
155,000 (a)(d)Transaction Systems Architects, Inc., Class A 5,134,375
----------
Total 26,644,687
----------
COMPUTERS
85,000 (a)(d)Lexmark Intl. Group, Class A 5,147,813
----------
ELECTRICAL EQUIPMENT
90,000 (a)(d)Uniphase Corp. 3,594,375
----------
Total Capital Goods 35,386,875
----------
CONSUMER NON-DURABLES -- 55.9%
BROADCASTING
100,000 (a)(d)Clear Channel Communications, Inc. 4,500,000
125,000 (d)Heftel Broadcasting Corp.,
Class A 3,781,250
110,000 (a)(d)Jacor Communications, Inc., Class A 6,490,000
100,000 (d)Westwood One, Inc. 1,931,250
----------
Total 16,702,500
----------
COMMERCIAL SERVICES
200,000 (d)MSC Industrial Direct Co. 4,212,500
150,000 (d)Rental Service Corp. 3,609,375
60,000 (a)(d)Republic Services, Inc. 967,500
----------
Total 8,789,375
----------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
Shares Description Value
----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
DRUGS
50,000 (d)Elan Corp. PLC, ADR $2,937,500
175,000 (d)North American Vaccine, Inc. 1,203,125
100,000 (d)Parexel International Corp. 2,487,500
100,000 (a)(d)Theragenics Corp. 1,262,500
-----------
Total 7,890,625
-----------
HEALTH CARE
200,000 (d)Health Management Association, Class A 3,612,500
150,000 (a)Omnicare, Inc. 4,678,125
150,000 (a)(d)Sunrise Assisted Living, Inc. 3,956,250
-----------
Total 12,246,875
-----------
LEISURE & RECREATION
200,000 (a)Royal Caribbean Cruises, Ltd. 4,850,000
110,000 (a)(d)Speedway Motorsports, Inc. 1,787,500
225,000 (d)Steiner Leisure Ltd. 4,950,000
-----------
Total 11,587,500
-----------
MANUFACTURING
135,000 (d)Novel Denim Holdings Ltd. 1,814,062
150,000 (d)Rayovac Corp. 2,090,625
200,000 Windmere Corp. 4,750,000
-----------
Total 8,654,687
-----------
MEDICAL SUPPLIES
90,000 Biomet, Inc. 2,418,750
125,000 (d)Henry Schein, Inc. 4,812,500
-----------
Total 7,231,250
-----------
RESTAURANTS
75,000 (a)(d)Landrys Seafood Restaurants, Inc. 630,469
-----------
RETAIL
135,000 (d)99 Cents Only Stores 4,741,875
300,000 (a)(d)Bed Bath & Beyond, Inc. 5,418,750
175,000 (d)Kohl's Corp. 7,951,562
120,000 (d)NBTY, Inc. 1,095,000
75,000 (a)(d)Staples, Inc. 2,034,375
-----------
Total 21,241,562
-----------
SERVICES
75,000 (d)ABR Information Services, Inc. 1,087,500
70,000 (a)(d)CSG Systems International, Inc. 2,572,500
105,000 (d)ITT Educational Services, Inc. 2,887,500
60,000 Paychex, Inc. 2,280,000
50,000 Stewart Enterprises, Inc.,
Class A 981,250
-----------
Total 9,808,750
-----------
Total Consumer Non-Durables 104,783,593
-----------
FINANCIAL -- 6.9%
80,000 MGIC Investment Corp. 3,320,000
100,000 PaineWebber Group, Inc. 3,475,000
80,000 SouthTrust Corp. 2,590,000
90,000 Zions Bancorp 3,453,750
-----------
Total 12,838,750
-----------
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
MID-CAP GROWTH FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
TELECOMMUNICATIONS -- 8.4%
150,000 (d)American Tower Systems Corp. $2,362,500
100,000 (a)Crown Castle International Corp. 812,500
125,000 (d)NEXTEL Communications, Inc., Class A 2,257,812
100,000 (d)Pacific Gateway Exchange, Inc. 3,518,750
125,000 Scientific-Atlanta, Inc. 2,210,938
110,000 (a)(d)Tellabs, Inc. 4,647,500
------------
Total 15,810,000
------------
TOTAL COMMON STOCKS (identified cost $175,163,210) 168,819,218
------------
(E)U.S. TREASURY BILL -- 0.2%
$350,000 11/5/1998 (identified cost $346,948) 347,113
------------
TOTAL INVESTMENTS IN SECURITIES (identified cost
$175,510,158) 169,166,331
------------
(C)REPURCHASE AGREEMENT -- 5.4%
$10,126,067 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 10,126,067
------------
TOTAL INVESTMENTS (identified cost $185,636,225) $179,292,398
============
</TABLE>
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Shares Description Value
-----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 88.1%
ARGENTINA -- 2.6%
113,910 (a)Telefonica de Argentina S.A., ADR $2,548,736
145,500 (a)YPF Sociedad Anonima, ADR 3,219,188
----------
Total 5,767,924
----------
AUSTRALIA -- 3.8%
489,500 David Jones Ltd. 425,182
915,000 Gio Australia Holdings Ltd. 2,624,841
460,700 Mayne Nickless Ltd. 2,391,518
862,501 Pacific Dunlop Ltd. 1,501,301
481,200 Pioneer International Ltd. 879,942
50,500 (d)(f)Qantas Airways, ADR 679,109
----------
Total 8,501,893
----------
AUSTRIA -- 1.1%
9,900 Evn Energie-Versorgung Niederoesterreich AG 1,364,496
11,000 VA Technologie AG 1,075,947
----------
Total 2,440,443
----------
BELGIUM -- 0.3%
15,900 NV Union Miniere SA 782,498
----------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
Shares Description Value
---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
BERMUDA -- 1.6%
170,000 Jardine Matheson Holdings Ltd. $302,600
83,000 PartnerRe Ltd. 3,340,750
----------
Total 3,643,350
----------
BRAZIL -- 1.6%
111,200 (a)Petroleo Brasileiro SA, ADR 1,162,118
34,150 (a)Telecomunicacoes Brasileiras SA, ADR 2,413,978
----------
Total 3,576,096
----------
CANADA -- 2.2%
170,400 Agrium, Inc. 1,437,750
40,000 Canadian Imperial Bank of Commerce 748,198
37,000 Newbridge Networks Corp. 692,083
374,300 (d)Ranger Oil Ltd. 1,988,469
----------
Total 4,866,500
----------
CHILE -- 0.4%
63,000 (a)Gener S.A., ADR 830,814
----------
CZECHOSLOVOKIA -- 0.2%
24,430 CEZ A.S. 430,382
----------
DENMARK -- 2.2%
47,000 Tele Danmark A.S., Class B 4,996,940
----------
FINLAND -- 2.5%
47,500 (a)Amer Group, Ltd., Class A 727,725
850,000 Merita Ltd, Class A 4,303,757
73,500 (a)Metsa-Serla Oy, Class B 563,029
----------
Total 5,594,511
----------
FRANCE -- 9.0%
47,019 AXA 5,422,815
18,842 (a)Alcatel Alsthom 3,051,918
65,881 Banque Nationale de Paris 4,363,387
1,500 (a)Compagnie Generale D'Industrie
Et De Participation 731,428
25,592 Elf Aquitaine SA 2,539,233
1,766 Marine-Wendel SA 289,042
82,332 Rhone-Poulenc, Class A 3,967,185
----------
Total 20,365,008
----------
GERMANY -- 1.9%
53,500 Bayer AG 2,014,504
37,650 Deutsche Bank, AG 2,349,243
----------
Total 4,363,747
----------
GREAT BRITAIN -- 14.0%
2,015,406 Albert Fisher Group PLC 439,193
248,576 BG PLC 1,541,745
1,567,312 (d)BTR PLC 3,513,992
66,129 BTR PLC 142,088
189,800 (a)British Steel PLC, ADR 3,416,400
523,410 Caradon PLC 1,228,349
880,800 (d)Centrica PLC 1,365,748
585,865 Hillsdown Holdings PLC 1,379,830
125,166 Hyder PLC 2,001,642
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND (continued)
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Shares Description Value
--------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
GREAT BRITAIN (continued)
1,500,000 Medeva PLC $2,652,744
264,434 National Power Co. PLC 2,198,622
347,200 Next 2,578,310
254,979 Peninsular & Oriental Steam
Navigation Co. 2,944,932
170,450 Somerfield plc 1,087,185
516,900 Tate & Lyle 3,777,850
345,694 The BICC Group 504,153
60,000 (d)Waste Management International
PLC, ADR 633,750
----------
Total 31,406,533
----------
HONG KONG -- 6.7%
382,000 Cathay Pacific Airways 278,519
116,107 (a)HSBC Holdings PLC 2,464,719
628,000 Hong Kong Electric Holdings Ltd. 1,863,934
455,000 Hong Kong Ferry Holdings 270,092
2,238,400 (a)Hong Kong Telecommunications Ltd. 3,957,321
210,000 (a)Hutchison Whampoa 910,546
485,500 Jardine Strategic Holdings Ltd. 568,035
894,000 South China Morning Post Holdings Ltd. 294,185
752,500 (a)Swire Pacific Ltd., Class A 2,170,336
1,246,000 Varitronix International Ltd. 2,299,307
----------
Total 15,076,994
----------
HUNGARY -- 0.8%
88,814 (d)(f)MOL Magyar Olay, GDR 1,740,399
----------
INDONESIA -- 0.0%
91,800 PT Pan Indonesia Bank, Warrants 329
----------
ISRAEL -- 1.0%
63,300 (a)Teva Pharmaceutical Industries, Ltd., ADR 2,266,932
----------
ITALY -- 3.8%
170,000 Burgo (Cartiere) S.P.A. 1,036,407
1,120,900 (a)Fiat SPA 3,500,596
825,000 Telecom Italia SPA 4,116,222
----------
Total 8,653,225
----------
JAPAN -- 1.5%
55,000 Daito Trust Construction Co. 441,156
72,000 Hitachi Zosen Corp. 89,438
18,000 Ono Pharmaceutical 435,690
33,300 Sony Corp. 2,436,989
----------
Total 3,403,273
----------
KOREA -- 1.8%
243,500 (a)Pohang Iron and Steel Co. Ltd., ADR 2,708,938
223,000 (a)SK Telecom Co. Ltd., ADR 1,338,000
----------
Total 4,046,938
----------
MEXICO -- 1.1%
346,000 (a)Alfa, S.A. de C.V., Class A 781,038
83,000 Industrias Penoles S.A. 199,017
42,978 (a)Telefonos de Mexico, Class L, ADR 1,533,777
----------
Total 2,513,832
----------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Shares Description Value
--------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
NETHERLANDS -- 5.7%
46,800 Akzo Nobel N.V. $1,926,469
18,135 Ballast Nedam N.V. 703,562
20,000 European Vinyls Corp., International N.V. 252,929
76,950 ING Groep, N.V. 4,543,917
9,657 Koninklijke Bijenkorf Beheer 669,020
74,000 Philips Electronics N.V. 4,839,501
----------
Total 12,935,398
----------
NEW ZEALAND -- 0.3%
802,000 (a)Air New Zealand Ltd.,
Class B 755,424
----------
NORWAY -- 1.8%
56,000 Elkem A.S., Class A 638,770
61,800 Kvaerner A.S., Class B 1,108,875
178,665 Nycomed Amersham PLC 1,133,472
60,500 (a)Saga Petroleum ASA,
Class A 639,699
39,500 Unitor Ships Service 470,811
----------
Total 3,991,627
----------
PERU -- 0.3%
43,700 (a)CPT Telefonica del Peru S.A., Class B, ADR 562,639
----------
PHILIPPINES -- 0.3%
48,205 (a)Philippine Long Distance Telephone Co., ADR 753,203
----------
PORTUGAL -- 0.9%
34,500 BPI-SGPS S.A. 1,120,673
52,320 Banco Pinto & Sotto Mayor 1,004,093
----------
Total 2,124,766
----------
SINGAPORE -- 0.2%
588,229 Dairy Farm International Holdings Ltd. 558,818
----------
SPAIN -- 6.7%
91,500 (a)Corporacion Bancaria de Espana SA, ADR 3,351,188
98,000 Endesa S.A. 1,867,573
191,500 Iberdrola SA 2,828,438
53,500 Repsol SA 2,418,950
118,500 Telefonica SA 4,548,228
----------
Total 15,014,377
----------
SWEDEN -- 4.0%
28,600 Autoliv, Inc., ADR 882,858
47,000 Esselte AB, Class A 786,606
59,100 Granges AB 798,619
39,750 (d)Saab AB, Class B 330,170
98,000 Stora Kopparbergs, Class B 1,190,633
75,000 Svenska Handelsbanken, Stockholm 2,919,555
76,500 Volvo AB, Class B 2,114,910
----------
Total 9,023,351
----------
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND (continued)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Shares Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
SWITZERLAND -- 4.3%
13,800 Credit Suisse Group $2,426,006
350 (a)Reiseburo Kuoni AG, Class B 1,189,320
300 Societe Generale de Surveillance Holding SA, Class B 334,951
9,500 (d)Zurich Versicherungsgesellschaft 5,705,270
-----------
Total 9,655,547
-----------
THAILAND -- 0.4%
1,145,200 (a)Bangkok Bank Public Co., Ltd. 806,286
-----------
UNITED STATES -- 2.6%
89,600 Autoliv, Inc. 2,643,200
47,100 (d)Excel Ltd. 3,146,869
-----------
Total 5,790,069
-----------
VENEZUELA -- 0.5%
107,900 (a)Compania Anonima Nacional Telefonos de Venezuela,
Class D, ADR 1,132,950
-----------
TOTAL COMMON STOCKS (identified cost $189,708,855) 198,373,016
-----------
PREFERRED STOCKS -- 3.1%
AUSTRALIA -- 2.0%
66,614 National Australia Bank, Ltd., Melbourne,
Exchangeable Capital Unit, $1.97 1,806,905
491,572 News Corp. Ltd., Pfd. 2,677,061
-----------
Total 4,483,966
-----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (continued)
GERMANY -- 0.5%
27,963 Moebel Walther AG, Pfd. $1,065,651
------------
GREAT BRITIAN -- 0.1%
107,100 Hyder PLC, Pfd. 224,639
------------
UNITED STATES -- 0.5%
33,700 SBC Communications, Inc., Conv. Pfd., $3.07 1,213,200
------------
TOTAL PREFERRED STOCKS (identified cost $6,729,068) 6,987,456
------------
GOVERNMENT AGENCIES -- 0.7%
$50,000 Federal Farm Credit Bank, 5.53%, 10/1/1998 50,019
1,610,000 (g)Federal Home Loan Mortgage Corp., Discount
Notes, 5.58%, 9/4/1998 1,609,791
------------
TOTAL GOVERNMENT AGENCIES (identified cost
$1,659,270) 1,659,810
------------
U.S. TREASURY ISSUES -- 7.1%
2,176,000 (a)Treasury Bill, 10/29/1998 2,159,767
388,000 Treasury Bill, 11/12/1998 384,372
108,000 Treasury Bill, 11/27/1998 106,786
12,867,000 Treasury Bill, 12/10/1998 12,699,086
556,000 Treasury Bill, 12/17/1998 548,238
------------
TOTAL U.S. TREASURY ISSUES (identified cost
$15,881,761) 15,898,249
------------
TOTAL INVESTMENTS (identified cost $213,978,954) $222,918,531
============
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND (continued)
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
Percentage of
Net Assets
--------------------------------------------------
<S> <C>
Telephone 12.9%
Banking 11.8%
U.S. Treasury Securities 7.1%
Electric Utilities 5.3%
Conglomerates 4.4%
Chemicals 4.3%
Financial Services 4.1%
Insurance 3.7%
Household Appliances & Furnishings 3.4%
Electrical Equipment 3.2%
Pharmaceuticals & Health Care 2.9%
Steel 2.8%
Petroleum Services 2.7%
Automobile 2.6%
Retail Trade 2.5%
Services 2.5%
Food & Beverage 2.5%
Oil 2.3%
Automotive 2.0%
Industrial 1.7%
Broadcasting 1.3%
Construction Equipment 1.2%
Paper 1.2%
Gas & Pipeline Utilities 1.1%
Air Travel 1.0%
Commercial Services 1.0%
Energy 0.9%
Oil & Gas 0.8%
Electronics 0.7%
Government Agencies 0.7%
Non-Ferrous Metals 0.6%
Electronic Technology 0.5%
Industrial Machinery 0.5%
Leisure 0.5%
Metals 0.4%
Pollution Control 0.4%
Business Services 0.2%
Container & Glass 0.2%
Water Utilities 0.1%
Other Assets and Liabilities, Net 2.0%
-------
Total 100.00%
=======
</TABLE>
- --------------------------------------------------------------------------------
SMALL-CAP GROWTH FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Shares Description Value
--------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 90.5%
CAPITAL GOODS -- 17.0%
COMPUTER SERVICES
30,000 (d)Apex MPC Solutions, Inc. $513,750
50,000 (d)Diamond Technology Partners, Class A 1,162,500
22,500 (d)Sapient Corp. 878,906
40,000 (d)Splash Technology Holdings, Inc. 600,000
75,000 (d)Transaction Systems Architects, Inc., Class A 2,484,375
---------
Total 5,639,531
---------
ELECTRONICS
35,000 (d)Flextronics International Ltd. 945,000
45,000 Power Integrations, Inc. 410,625
---------
Total 1,355,625
---------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Shares Description Value
-----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CAPITAL GOODS (continued)
OTHER CAPITAL GOODS
110,000 (d)Kellstrom Industries, Inc. $2,536,875
80,000 (d)Pentacon, Inc. 640,000
58,400 (d)Triumph Group, Inc. 1,898,000
105,000 Watsco, Inc. 1,535,625
----------
Total 6,610,500
----------
Total Capital Goods 13,605,656
----------
CONSUMER NON-DURABLES -- 65.4%
BROADCASTING
50,000 (d)Cox Radio, Inc., Class A 2,134,375
60,000 (d)Heftel Broadcasting Corp., Class A 1,815,000
40,000 (d)Westwood One, Inc. 772,500
----------
Total 4,721,875
----------
COMMERCIAL SERVICES
105,000 (d)Leisure & Recrestin 2,310,000
85,000 (d)MSC Industrial Direct Co. 1,790,312
30,000 (d)Metzler Group, Inc. 840,000
60,000 (d)NOVA Corp. 1,556,250
20,000 (d)PMT Services, Inc. 340,000
90,000 (d)SteriGenics International, Inc. 1,496,250
60,000 (d)Waste Industries, Inc. 1,290,000
----------
Total 9,622,812
----------
DRUGS
55,000 (d)Coulter Pharmaceutical, Inc. 770,000
115,000 (d)NBTY, Inc. 1,049,375
75,000 (d)North American Vaccine, Inc. 515,625
42,500 (d)Parexel International Corp. 1,057,187
----------
Total 3,392,187
----------
HEALTH CARE
100,000 (d)Hanger Orthopedic Group, Inc. 1,493,750
52,500 (d)Province Heathcare Co. 1,417,500
75,000 (d)Sunrise Assisted Living, Inc. 1,978,125
----------
Total 4,889,375
----------
LEISURE & RECREATION
45,000 (d)American Classic Voyages 624,375
----------
MANUFACTURING
95,000 (d)Novel Denim Holdings Ltd. 1,276,562
110,000 (d)Rayovac Corp. 1,533,125
100,000 Windmere Corp. 2,375,000
----------
Total 5,184,687
----------
MEDICAL SUPPLIES
70,000 (d)Henry Schein, Inc. 2,695,000
----------
RESTAURANTS
50,000 (d)Landrys Seafood Restaurants, Inc. 420,312
----------
RETAIL
65,000 (d)99 Cents Only Stores 2,283,125
120,000 Casey's General Stores, Inc. 1,552,500
85,000 (d)Party City Corp. 1,232,500
50,000 (d)United Auto Group, Inc. 665,625
----------
Total 5,733,750
----------
SERVICES
70,000 (d)ABR Information Services, Inc. 1,015,000
35,000 (d)Brightpoint, Inc. 317,188
75,000 (d)CSG Systems International, Inc. 2,756,250
67,500 (d)Carey International, Inc. 1,080,000
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
SMALL-CAP GROWTH FUND (continued)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Shares or
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
85,000 (d)Carriage Services, Inc. $1,668,125
50,000 (d)Casella Waste Systems, Inc. 1,256,250
65,000 (d)Coach USA, Inc. 1,710,313
100,000 (d)Educational Medical, Inc. 850,000
70,000 (d)Getty Images, Inc. 988,750
40,000 (d)ITT Educational Services, Inc. 1,100,000
40,000 (d)Information Holdings, Inc. 380,000
75,000 (d)Rental Service Corp. 1,804,688
-----------
Total 14,926,564
-----------
Total Consumer Non-Durables 52,210,937
-----------
ENERGY -- 0.9%
OIL & GAS EQUIPMENT & SERVICES
35,000 (d)Cal Dive International, Inc. 450,625
50,000 (d)Newpark Resources, Inc. 284,375
-----------
Total 735,000
-----------
FINANCIAL -- 0.4%
50,000 Sirrom Capital Corp. 278,125
-----------
TELECOMMUNICATIONS -- 6.8%
110,000 (d)American Tower Systems Corp. 1,732,500
60,000 (d)Pacific Gateway Exchange, Inc. 2,111,250
45,000 (d)Specialty Teleconstructors 1,096,875
50,000 Terayon Communication Systems, Inc. 481,250
-----------
Total 5,421,875
-----------
TOTAL COMMON STOCKS (identified cost $87,628,388) 72,251,593
-----------
(E)U.S. TREASURY -- 0.2%
$150,000 U.S. Treasury Bill, 11/5/1998 (identified cost
$148,692) 148,763
-----------
TOTAL INVESTMENTS IN SECURITIES (identified cost
$87,777,080) 72,400,356
-----------
(C)REPURCHASE AGREEMENT -- 11.2%
8,944,620 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 8,944,620
-----------
TOTAL INVESTMENTS (identified cost $96,721,700) $81,344,976
===========
</TABLE>
- --------------------------------------------------------------------------------
SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 17.4%
$1,769,180 CPS Auto Grantor Trust 1997-2, Class A, 6.65%,
10/15/2002 $1,793,444
785,594 Contitrade Services Home Equity Loan Trust 1991-1,
Class A, 8.80%, 1/15/2006 787,558
1,870,751 Contitrade Services Home Equity Loan Trust 1991-2,
Class A, 7.70%, 9/15/2006 1,874,876
2,000,000 DLJ Leverage Loan Funding, Class B1, 7.2375%, 9/15/2005 2,000,000
351,782 Equicon Home Equity Loan Trust 1992-7, Class A,
5.90%, 9/18/2005 352,665
2,619,240 Green Tree Home Equity Loan 96-C, Class A2, 7.10%,
6/15/2026 2,642,158
98,843 HFC Revolving Home Equity Loan Trust 1992-1, Class A, 6.1175%,
11/15/2017 99,090
747,408 New York City Tax Lien, Class B, 6.56%, 5/5/2025 754,419
325,035 Olympic Automobile Receivables Trust 1994-A,
5.65%, 1/15/2001 325,289
563,710 Olympic Automobile Receivables Trust 1995-B, Class
A2, 7.35%, 10/15/2001 566,528
1,419,595 PNC Mortgage Securities Corp. 1994-1, Class T7,
6.00%, 2/25/2024 1,426,139
24,474 Premier Auto Tr 1993-4, Class A2, 4.65%, 2/2/1999 24,474 505,646
RFMS 1993-S41, Class A1, 6.85%, 9/25/2023 505,355 934,858 Residential Asset
Securitization Trust 1996-A8,
Class A1, 8.00%, 12/25/2026 943,823
1,339,634 TMS Home Equity Trust Series 1992-D2, Class A3,
7.55%, 1/15/2018 1,419,530
1,487,658 The Money Store Home Equity Trust 1995-C, Class
A2, 6.25%, 8/15/2016 1,491,682
3,730,900 UCFC Home Equity Loan 1995-A1, Class A5, 8.55%,
1/10/2020 3,968,511
2,000,000 UCFC Home Equity Loan 1996-A, Class A4, 6.30%,
12/31/2099 2,009,420
209,230 Western Financial Grantor Trust 1994-2, Class A1,
6.375%, 9/1/1999 209,365
----------
TOTAL ASSET-BACKED SECURITIES (identified cost
$23,025,382) 23,194,326
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 35.4%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 6.4%
3,384,236 6.05%, 9/15/2020, Series 1818, Class A 3,403,492
3,056,697 7.00%, 1/15/2020, Series 1834, Class A 3,105,456
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
SHORT-TERM INCOME FUND (continued)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (continued)
FEDERAL HOME LOAN MORTGAGE
CORPORATION (continued)
$1,759,663 11.00%, 8/1/2019 $1,971,368
----------
Total 8,480,316
----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 9.3%
776,365 8.00%, 8/1/2007 798,445
2,627,860 8.00%, 5/1/2008 2,725,591
1,130,758 9.50%, 12/1/2024 1,224,012
1,984,353 9.50%, 1/1/2025 2,148,002
1,188,481 9.50%, 1/1/2025 1,285,414
894,675 9.50%, 1/1/2025 968,459
805,774 10.00%, 7/1/2020 881,065
2,101,682 11.00%, 12/1/2015 2,347,978
----------
Total 12,378,966
----------
OTHER FINANCIAL -- 19.7% 50,332 BCF L.L.C., Series 1996-C2, Class
A, 7.615%,
4/15/1999 50,332
2,568,796 Capital Asset Research Funding, Series 1997, Class
A, 6.40%, 12/15/2004 2,607,328
2,708,516 Collateralized Mortgage Securities Corp., Series
1990-5, Class H, 9.25%, 7/20/2020 2,751,581
1,419,119 Countrywide Home Loans, Inc., Series 1997-5, Class
A2, 9.00%, 9/25/2027 1,441,287
4,000,000 (b)Criimi Mae CMBS Corp., Series 1998-1, Class A2,
6.009%, 2/20/2005 3,996,240
5,000,000 DLJ Commercial Mortgage Corp., Series 1998-STF, Class A3, 6.2575%,
1/8/2011 5,000,000
1,320,465 GE Capital Mortgage Services, Inc., Series 1997-6, Class A18,
9.00%, 7/25/2027 1,356,740
3,000,000 Green Tree Home Equity Loan Trust, Series 98-B,
Class B1, 7.81%, 11/15/2029 3,112,500
1,178,308 Independent National Mortgage Corp., Series 1995-R,
Class A1, 7.25%, 11/25/2010 1,194,199
74,454 Norwest Asset Securities Corp., Series 1996-9,
Class A5, 10.00%, 1/25/2027 74,762
427,421 PNC Mortgage Securities Corp., Series 1997-3, Class
2A3, 7.50%, 5/25/2027 427,684
1,199,818 Residential Accredit Loans, Inc., Series 1996-QS5,
Class AI5, 7.60%, 9/25/2026 1,199,788
2,930,769 Securitized Asset Sales, Inc., Series 1995-4, Class A5, 7.25%,
11/25/2025 3,025,433
----------
Total 26,237,874
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(identified cost $46,646,225) 47,097,156
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Description Value
-------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS -- 37.5%
DOMESTIC & INTERNATIONAL OIL -- 1.9%
$2,500,000 Occidental Petroleum Corp., Note, 6.40%, 4/1/2003 $2,545,350
------------
FINANCE -- 4.6%
3,000,000 Lehman Brothers Holdings, Inc., Note, 6.90%,
1/29/2001 3,070,440
3,000,000 Lehman Brothers Holdings, Inc., 6.206%, 9/3/2002 2,984,700
------------
Total 6,055,140
------------
OTHER FINANCIAL -- 25.8%
3,000,000 Conseco, Inc., Note, 6.40%, 6/15/2001 3,042,240
5,000,000 (b)Edison Funding Co., Sr. Note, 6.75%, 12/17/1999 5,092,300
3,000,000 Ensearch Corp., 7.069%, 7/1/2028 2,983,200
3,000,000 (b)EOP Operating LP, Sr. Note, 6.375%, 2/15/2003 3,053,220
3,250,000 (b)Florida Windstorm Under, Bond, 6.50%, 8/25/2002 3,321,500
4,000,000 HSB Group, Inc., Company Guarantee, 6.65662%,
7/15/2027 3,968,796
5,000,000 (b)Household Capital Trust III, Company Guarantee,
6.25625%, 6/26/2004 4,993,030
1,000,000 MBNA Global Capital Securities, Jr. Sub. Deb.,
6.51875%, 2/1/2027 930,030
3,000,000 Old Kent Capital Trust I, 6.4875%, 2/1/2027 2,918,355
4,000,000 (b)Skandinaviska Enskilda, Sub. Note, Series 144A,
6.50%, 12/29/2049 4,049,892
------------
Total 34,352,563
------------
UTILITIES -- 5.2%
4,000,000 Washington Water Power II, Bond, 6.75391%, 6/1/2037 3,892,540
3,000,000 WorldCom, Inc., Sr. Note, 6.125%, 8/15/2001 3,021,690
------------
Total 6,914,230
------------
TOTAL CORPORATE BONDS (identified cost $49,451,849) 49,867,283
------------
U.S. TREASURY NOTES -- 7.8%
5,000,000 6.375%, 9/30/2001 5,189,500
5,000,000 7.75%, 1/31/2000 5,181,250
------------
TOTAL U.S. TREASURY NOTES (identified cost
$10,383,594) 10,370,750
------------
TOTAL INVESTMENTS IN SECURITIES (identified cost
$129,507,050) 130,529,515
------------
(C)REPURCHASE AGREEMENT -- 12.0%
16,006,353 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 16,006,353
------------
TOTAL INVESTMENTS (identified cost $145,513,403) $146,535,868
============
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 11.2%
$10,000,000 Bridgestone/Firestone Master Trust 1996-1, Class A,
6.17%, 7/1/2003 $10,155,950
6,760,081 Contimortgage Home Equity Loan Trust 1995-4,
Class A5, 6.56%, 12/15/2010 6,772,282
6,000,000 DLJ Leverage Loan Funding, Class B1, 7.2375%,
9/15/2005 6,000,000
12,000,000 J.P. Morgan Commercial Mortgage Finance Corp. 1997-
C5, Class A2, 7.069%, 9/15/2029 12,735,780
10,000,000 Metris Master Trust 1997-1, Class A, 6.87%,
10/20/2005 10,353,100
2,989,679 Olympic Automobile Receivables Trust 1995-D, Class
A4, 6.05%, 11/15/2000 2,997,556
4,496,848 Rasta 1996-A, Class A2, 7.50%, 11/25/2011 4,494,667
12,000,000 TMS Home Equity Trust
1996-B, Class A7, 7.55%, 2/15/2020 12,632,280
-----------
TOTAL ASSET-BACKED SECURITIES (identified cost
$64,462,868) 66,141,615
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 16.5% 4,366,521 Countrywide
Home Loans, Inc., Series 1997-5,
Class A2, 9.00%, 9/25/2027 4,434,728
5,000,000 (b)Criimi Mae CMBS Corp. 1998-1, Series 1998-1,
Class A2, 6.009%, 2/20/2005 4,995,300
6,000,000 Criimi Mae CMBS Corp., Series 1998-1, Class A3,
6.306%, 12/20/2007 6,019,590
9,000,000 DLJ Commercial Mortgage Corp., Series 1998-CG1,
Class A1B, 6.40999985%, 5/10/2008 9,207,225
9,699,053 Federal Home Loan Mortgage Corp., Series 1829,
Class H, 6.50%, 10/15/2021 9,850,474
7,336,071 Federal Home Loan Mortgage Corp., Series 1834,
Class A, 7.00%, 1/15/2020 7,453,093
15,000,000 Federal National Mortgage Association, Series 1997-
17, Class PD, 7.00%, 4/18/2021 15,243,933
5,122,059 GE Capital Mortgage Services, Inc., Series 1997-6,
Class A18, 9.00%, 7/25/2027 5,262,770
5,000,000 GMAC Commercial Mortgage Securities, Inc., Series
1998-C2, Class A2, 6.42%, 5/15/2031 5,091,400
7,185,000 Green Tree Financial Corp., Series 1994-7, Class
A4, 8.35%, 3/15/2020 7,382,336
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (continued)
$11,875,613 Green Tree Financial Corp., Series 1996-6, Class
A3, 6.75%, 8/15/2015 $12,024,058
7,000,000 Green Tree Home Equity Loan Trust, Series 98-B,
Class B1, 7.81%, 11/15/2029 7,262,500
270,361 Norwest Asset Securities Corp., Series 1996-9,
Class A5, 10.00%, 1/25/2027 271,479
2,677,312 Residential Accredit Loans, Inc., Series 1996-QS5,
Class AI5, 7.60%, 9/25/2026 2,677,245
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(identified cost $95,742,477) 97,176,131
-----------
CORPORATE BONDS -- 45.2%
BANKING -- 7.5%
12,000,000 Mercantile Capital Trust I, Company Guarantee,
6.60%, 2/1/2027 12,005,004
10,000,000 (b)Skandinaviska Enskilda, Sub. Note, Series 144A,
6.50%, 12/29/2049 10,124,730
12,500,000 Starbank Capital Trust, Note, 6.453%, 6/15/2027 12,189,650
10,000,000 Toronto-Dominion Bank, Sub. Note, 7.875%, 8/15/2004 10,150,000
-----------
Total 44,469,384
-----------
BROKER/DEALERS -- 3.9%
8,000,000 Bear Stearns Cos., Inc., Sr. Note, 7.00%, 1/15/2027 8,242,280
9,000,000 Lehman Brothers Holdings, Inc., Note, 6.90%,
1/29/2001 9,211,320
5,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.50%,
8/1/2026 5,330,750
-----------
Total 22,784,350
-----------
FINANCE -- 19.4%
10,000,000 Aristar, Inc., Note, 6.30%, 10/1/2002 10,188,200
15,000,000 Conseco, Inc., Note, 6.80%, 6/15/2005 15,102,900
12,000,000 (b)Credit Suisse, London, Sub. Note, 7.90%,
5/1/2007 13,048,056
10,000,000 (b)Edison Funding Co., Sr. Note, 6.75%, 12/17/1999 10,184,600
12,550,000 Firstar Capital Trust I, Company Guarantee, 8.32%,
12/15/2026 14,086,873
10,000,000 (b)Florida Windstorm Under, Bond, 6.50%, 8/25/2002 10,220,000
8,165,000 General Motors Acceptance Corp., Unsecd. Note,
7.00%, 6/6/2003 8,554,879
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
FINANCE (continued)
$4,000,000 HSB Group, Inc., Company Guarantee, 6.65662%,
7/15/2027 $3,968,796
5,000,000 MBNA Global Capital Securities, Jr. Sub. Deb.,
6.51875%, 2/1/2027 4,650,150
12,000,000 Old Kent Capital Trust I, Note, 6.4875%, 2/1/2027 11,673,420
12,000,000 Sears Roebuck Acceptance Corp., Series III, Note,
7.01%, 9/19/2002 12,550,080
-----------
Total 114,227,954
-----------
INDUSTRIAL SERVICES -- 9.7%
5,000,000 Dayton-Hudson Corp., Unsecd. Note, 6.40%, 2/15/2003 5,123,700
10,000,000 Dayton-Hudson Corp., Unsecd. Note, 9.75%, 7/1/2002 11,356,900
7,000,000 Enserch Corp., Note, 7.069%, 7/1/2028 6,960,800
10,000,000 IMC Global, Inc., Deb., 6.875%, 7/15/2007 10,280,400
7,000,000 WMX Technologies, Inc., Deb. 7.65%, 3/15/2011 7,683,690
3,210,000 WMX Technologies, Inc., Note, 7.00%, 10/15/2006 3,319,718
7,000,000 WMX Technologies, Inc., Unsecd. Note, 5.375,
10/1/2002 7,421,120
5,000,000 Waste Management, Inc., Note, 6.625%, 7/15/2002 5,132,200
-----------
Total 57,278,528
-----------
TRANSPORTATION -- 1.8%
5,000,000 Continental Airlines, Inc., Pass Thru Cert., 6.541%,
3/15/2008 5,141,925
4,000,000 Delta Air Lines, Inc., Series 1993-A2, Note, 10.50%,
4/30/2016 5,376,080
-----------
Total 10,518,005
-----------
UTILITIES-TELEPHONE -- 2.9%
10,000,000 Telephone and Data System, Inc., Bond, 7.00%,
8/1/2006 10,281,800
7,000,000 WorldCom, Inc., Sr. Bond, 6.125%, 8/15/2001 7,050,610
-----------
Total 17,332,410
-----------
TOTAL CORPORATE BONDS (identified cost $261,423,316) 266,610,631
-----------
CORPORATE NOTES -- 3.9%
BROKER/DEALERS -- 2.1%
12,000,000 Bear Stearns Cos., Inc., Sr. Note, 6.75%, 5/1/2001 12,256,200
-----------
TOBACCO -- 1.8%
10,000,000 Philip Morris Cos., Inc., Note, 7.25%, 9/15/2001 10,341,800
-----------
TOTAL CORPORATE NOTES (identified cost $21,921,780) 22,598,000
-----------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE BACKED SECURITIES -- 0.0%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 0.0%
$116,622 8.75%, 4/1/2001 (identified cost $83,626) $119,270
------------
U.S. TREASURY NOTES -- 15.9%
10,000,000 (a)5.75%, 11/15/2000 10,161,500
10,000,000 6.25%, 1/31/2002 10,378,100
30,500,000 (a)6.25%, 8/31/2000 31,257,010
30,000,000 6.375%, 9/30/2001 31,137,000
5,000,000 7.75%, 1/31/2000 5,181,250
5,000,000 (a)7.875%, 8/15/2001 5,388,550
------------
TOTAL U.S. TREASURY NOTES (identified cost
$93,025,469) 93,503,410
------------
TOTAL INVESTMENTS IN SECURITIES (identified cost
$536,659,536) 546,149,057
------------
(C)REPURCHASE AGREEMENT -- 10.6%
62,302,620 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 62,302,620
------------
TOTAL INVESTMENTS (identified cost $598,962,156) $608,451,677
============
- ------------------------------------------------------------------------------
</TABLE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 11.2%
$912,535 Contitrade Services Home Equity Loan Trust, 7.70%,
9/15/2006, (Series 1991-2) $914,547
3,000,000 DLJ Leverage Loan Funding, 7.238%, 9/15/2005 3,000,000
817,004 Green Tree Financial Corp., 6.75%, 8/15/2015,
(Series 1996-6) 820,623
6,000,000 Green Tree Home Equity Loan Trust, 7.81%,
11/15/2029, (Series 1998-B) 6,225,000
10,643,000 Greenwich Capital Acceptance, 7.150%, 8/10/2020 11,161,740
4,994,512 Merill Lynch Mortgage Investors, Inc., 5.917%,
11/4/2001, (Series 1998-H1) 4,994,512
3,119,717 (f)Nationscredit Home Equity Loan Trust, 6.500%,
10/15/2028 3,155,781
1,207,218 Residential Asset Securitization Trust, 8.000%,
12/25/2026, (Series 1996-A8) 1,218,794
----------
TOTAL ASSET-BACKED SECURITIES (identified cost
$40,465,877) 31,490,997
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 23.2%
64,996 BCF L.L.C., 7.615%, 4/15/1999, (Series 1996-C2) 64,996
6,019,302 Bear Stearns Mortgage Securities, Inc., 9.851%,
9/25/2027, (Series 1996-4) 6,337,182
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (continued)
$2,904,222 Chase Mortgage Finance Corp., 6.25%, 11/25/2009,
(Series 1993-M, Cl-A6) $2,934,469
13,400,000 Federal Home Loan Mortgage Corp., 8.00%, 6/15/2023,
REMIC (Series 1748-B) 14,282,792
3,542,151 Federal National Mortgage Association, 6.10%,
9/25/2004, REMIC (Series 1992-179-E) 3,543,957
2,200,775 GE Capital Mortgage Services, Inc. 1997-6, 9.00%,
7/25/2027 2,261,234
5,924,300 IMC Excess Cashflow Securities Trust 1997-A, 7.41%,
11/26/2028 5,942,843
1,986,682 Independent National Mortgage Corp., 7.25%,
11/25/2010, (Series 1995-M-A2) 2,013,476
6,450,000 Independent National Mortgage Corp., 7.50%,
9/25/2025, (Series 1995-M-C) 6,609,785
2,167,658 Norwest Asset Securities Corp. 1997-12, 7.10%,
7/25/2005 2,165,241
4,992,825 Prudential Home Mortgage Securities 1992-B, 7.40%,
5/25/2007 4,992,825
10,000,000 Residential Funding Mortgage Securities I 1997-S7,
7.50%, 5/25/2027 10,286,299
3,618,813 Saxon Mortgage Securities Corp. 1993-10, 5.68%,
11/25/2023 3,595,599
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(identified cost $70,116,431) 65,030,698
----------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 15.1%
1,658,000 Chase Commercial Mortgage Securities Corp., 6.60%,
11/19/2007, (Series 1997-2) 1,736,597
3,300,000 DLJ Commercial Mortgage Corp., 6.568%, 12/8/2000,
(Series 1998-STFA) 3,300,000
1,150,000 GMAC Commercial Mortgage Secuities, Inc., 6.853%,
9/15/2006, (Series 1997-C1) 1,206,931
5,500,000 GMAC Commercial Mortgage Securities, Inc., 6.566%,
11/15/2007, (Series
1997-C2) 5,685,543
6,000,000 GMAC Commercial Mortgage Securities, Inc., 6.42%, 5/15/2035,
(Series 1998-C2) 6,109,680
8,955,000 Merrill Lynch Mortgage Investors, Inc., 6.540%,
12/10/2029, (Series
1997-C2) 9,249,754
6,500,000 Nomura Asset Securities Corp., 6.769%, 3/17/2028,
(Series 1998-D6) 6,955,163
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL MORTGAGE BACKED
SECURITIES (continued)
$ 8,000,000 Nomura Depositor Trust Commercial Mortgage Pass-Thru
1998-ST I Floating Rate Note, 6.061%, 1/15/2003 $8,006,240
----------
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
(identified cost $25,772,371) 42,249,908
----------
MORTGAGE BACKED SECURITIES -- 72.4%
FEDERAL HOME LOAN MORTGAGE
CORPORATION -- 28.9%
7,365,772 7.00%, 11/1/2009 7,542,992
5,209,915 7.00%, 5/1/2027 5,307,601
35,000,000 7.00%, TBA 35,656,250
4,665,732 7.50%, 5/1/2024 4,837,804
5,335,877 8.00%, 2/1/2010 5,532,664
5,285,842 8.00%, 4/1/2008 5,480,783
5,687,822 8.00%, 4/1/2026 5,890,422
773,717 8.00%, 8/1/2025 801,525
743,986 8.50%, 2/1/2009 770,725
3,709,670 8.50%, 9/1/2024 3,870,818
16,935 8.75%, 4/1/2001 17,320
413,491 9.00%, 5/1/2017 440,496
4,520,435 9.00%, 6/1/2019 4,803,957
5,225 9.50%, 2/1/2001 5,363
8,715 10.50%, 10/1/2000 8,901
----------
Total 80,967,621
----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 15.0%
30,000,000 (h)6.00%, TBA 29,578,200
5,273,499 6.34%, 2/1/2008 5,498,572
2,280,694 8.00%, 5/1/2025 2,377,624
931,638 8.00%, 8/1/2007 958,134
943,508 8.50%, 3/1/2023 989,136
416,541 11.00%, 6/1/2020 466,613
223,212 11.50%, 10/1/2015 251,663
1,020,794 11.50%, 5/20/2021 1,185,999
746,804 11.50%, 7/1/2006 813,763
----------
Total 42,119,704
----------
GOVERNMENT NATIONAL MORTGAGE
ASSOC. -- 28.5%
35,000,000 6.50%, TBA 35,240,800
30,000,000 (h)7.00%, TBA 30,628,200
2,495,079 7.00%, 6/15/2023 2,559,802
801,224 8.00%, 6/15/2022 828,266
544,373 8.00%, 7/15/2022 562,745
605,322 8.00%, 8/15/2022 625,752
5,428,028 8.00%, 8/15/2024 5,633,261
835,728 9.00%, 2/15/2020 896,578
2,102,394 9.50%, 10/15/2024 2,290,958
312,779 9.50%, 7/15/2019 340,442
293,681 10.00%, 11/15/2020 323,508
5,040 10.50%, 10/15/2000 5,199
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOC. (continued)
$9,309 10.50%, 10/15/2000 $9,603
17,919 11.00%, 11/15/2000 18,634
------------
Total 79,963,748
------------
TOTAL MORTGAGE BACKED SECURITIES (identified cost
$201,310,649) 203,051,073
------------
GOVERNMENT AGENCIES -- 1.8%
3,891,257 National Archive Facility Trust, 8.50%, 9/1/2019
(identified cost $4,705,969) 4,906,680
------------
(I)VARIABLE RATE NOTES -- 9.0%
5,000,000 Donaldson, Lufkin and Jenrette Securities Corp.,
5.94%, 9/18/2002 4,999,435
5,000,000 Enserch Corp. Floating Rate Note, 7.069%, 7/1/2028 4,972,000
4,000,000 HSB Group, Inc. Floating Rate Note, 6.657%,
10/15/1998 3,968,796
7,500,000 Lehman Brothers Holdings, Inc. Floating Rate Note,
6.206%, 9/3/2002 7,461,750
4,000,000 MBNA Global Capital Securities, 6.519%, 2/1/2027 3,720,120
------------
TOTAL VARIABLE RATE NOTES (identified cost
$25,063,768) 25,122,101
------------
TOTAL INVESTMENTS IN SECURITIES (identified cost
$367,435,065) 371,851,457
------------
(C)REPURCHASE AGREEMENT -- 13.6%
38,112,578 Lehman Brothers, Inc., 5.77%, dated 8/31/1998, due
9/1/1998 (at amortized cost) 38,112,578
------------
TOTAL INVESTMENTS (identified cost $405,547,643) $409,964,035
============
- ------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE TAX-FREE FUND
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Principal Credit
Amount Description Rating(j) Value
-----------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- 97.8%
ARIZONA -- 4.2%
$1,000,000 Maricopa County, AZ Community College
District, GO UT Bonds (Series A), 6.00%,
7/1/2006 AA $1,089,230
1,000,000 Maricopa County, AZ School District No. 4,
GO UT Bonds, 5.375% (FGIC INS)/(Original
Issue Yield: 5.40%), 7/1/2009 AAA 1,072,400
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal Credit
Amount Description Rating(j) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
ARIZONA (continued)
$2,000,000 Maricopa County, AZ Unified School District
No. 41, Certificate Participation, 5.00%
(FSA INS), 1/1/2002 AAA $2,074,260
----------
Total 4,235,890
----------
ARKANSAS -- 3.8%
2,700,000 Arkansas Development Finance Authority,
Revenue Bonds, 5.00% (AMBAC INS)/
(Original Issue Yield: 5.055%), 7/1/2020 AAA 2,791,125
1,070,000 University of Arkansas, Revenue Refunding
Bonds, 4.60%, 9/15/2004 A1 1,097,745
----------
Total 3,888,870
----------
CALIFORNIA -- 1.0%
1,000,000 California Health Facilities Financing
Authority, Refunding Revevue Bonds (Series
A), 5.00% (Casa De Las
Campanas)/(California Mortgage Insurance
INS), 8/1/2004 A+ 1,036,690
----------
COLORADO -- 4.1%
1,950,000 Castle Rock Ranch, CO Public Improvement
Authority, Revenue Bonds, 5.70%, 12/1/2006 AA 2,127,782
2,000,000 Jefferson County, CO School District
NO R-001, GO UT, 5.00% (FGIC
INS)/(Original Issue Yield: 5.22%),
12/15/2017 AAA 2,016,300
----------
Total 4,144,082
----------
FLORIDA -- 5.2%
3,000,000 Dade County, FL, Aviation Revenue Bonds,
5.00% (Miami International Airport)/(FSA
INS), 10/1/2005 AAA 3,151,170
2,000,000 Florida State, GO UT Bonds, 5.125%
(Original Issue Yield: 5.25%), 7/1/2009 AA+ 2,114,000
----------
Total 5,265,170
----------
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal Credit
Amount Description Rating(j) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
HAWAII -- 1.1%
$1,000,000 Hawaii State, GO UT Bonds (Series CA),
5.50% (Original Issue Yield: 6.00%),
1/1/2012 A+ $1,080,560
----------
ILLINOIS -- 6.1%
1,500,000 Arlington Heights, IL, GO UT Refunding
Bonds (Series B), 4.55%, 12/1/2001 Aa2 1,538,100
2,500,000 Illinois State, GO UT Bonds, 5.25% (FGIC
INS), 9/1/2004 AAA 2,654,150
800,000 Illinois State, GO UT Refunding Bonds,
5.125% (FGIC INS)/(Original Issue Yield:
5.15%), 12/1/2007 AAA 854,264
1,085,000 Waukegan, IL, GO UT Bonds, 6.40% (MBIA
INS)/(Original Issue Yield: 6.45%),
12/30/2004 AAA 1,182,455
----------
Total 6,228,969
----------
IOWA -- 4.2%
1,050,000 Cedar Rapids, IA, GO UT Bonds (Series B),
5.20% (Original Issue Yield: 5.25%),
6/1/2007 Aaa 1,104,128
3,000,000 Iowa Finance Authority, Revenue Bonds,
6.00% (Ipsco Inc.), Mandatory Tender,
6/1/2007 NR 3,173,130
----------
Total 4,277,258
----------
MARYLAND -- 2.3%
2,190,000 Washington Suburban Sanitation District,
MD, Refunding Bonds GO UT, 5.00%, 6/1/2007 AA 2,320,261
----------
MICHIGAN -- 3.5%
2,000,000 Roseville, MI School District, GO UT Bonds, 4.60% (FSA INS)/
(Original Issue Yield: 4.70%), 5/1/2009 AAA 2,026,380
1,500,000 Wayland, MI University School District, GO
UT, 5.125% (FGIC INS), 5/1/2017 AAA 1,519,260
----------
Total 3,545,640
----------
MISSISSIPPI -- 3.7%
3,600,000 Mississippi State, GO UT Bonds, 5.00%,
6/1/2004 AA 3,781,044
----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal Credit
Amount Description Rating(j) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
MISSOURI -- 1.1%
$1,000,000 Missouri State Environmental Improvement &
Energy Authority, Water Pollution Control
State Revolving Fund Program Revenue Bonds
(Series B), 6.65%, 7/1/2006 Aa1 $1,141,110
----------
NEVADA -- 1.5%
1,500,000 Las Vegas, NV, GO LT Sewer Refunding
Revenue Bonds (Series B), 4.875% (MBIA
INS)/(Original Issue Yield: 5.05%),
1/1/2006 AAA 1,553,940
----------
NEW YORK -- 11.7%
3,000,000 New York State Environmental Facilities
Corp., Revenue Bonds, 4.55% (General
Electric Capital Corp.), Mandatory Put,
11/30/2001 @ 100 AAA 3,071,550
1,500,000 New York State Environmental Facilities
Corp., Revenue Bonds, 5.70% (Original
Issue Yield: 5.75%), 6/15/2006 Aa2 1,637,955
2,800,000 Onondaga County, NY, GO UT Bonds, 5.00%,
5/1/2011 AA 2,874,564
1,100,000 Oswego County, NY, GO UT, 6.70% (Original
Issue Yield: 6.80%), 6/15/2010 A 1,324,961
1,100,000 Oswego County, NY, GO UT, 6.70% (Original
Issue Yield: 6.80%), 6/15/2011 A 1,334,410
1,500,000 Triborough Bridge & Tunnel Authority, NY,
Refunding Revenue Bonds, 5.50% (FGIC INS),
1/1/2008 AAA 1,634,610
----------
Total 11,878,050
----------
NORTH CAROLINA -- 3.0%
3,000,000 Charlotte, NC, GO UT Water Utility and
Sewer Improvements, 4.75%, 2/1/2010 AAA 3,090,570
----------
OHIO -- 7.0%
2,055,000 Cleveland, OH Parking Facilities, Revenue
Bonds, 7.60% (United States Treasury PRF),
9/15/2002 (@102) AAA 2,369,703
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal Credit
Amount Description Rating(j) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
OHIO (continued)
$1,125,000 Ohio HFA, Revenue Refunding Bonds, 5.05%
(GNMA COL), 9/1/2001 AAA $1,153,238
1,410,000 Ohio HFA, Revenue Refunding Bonds, 5.15%
(GNMA COL), 9/1/2002 AAA 1,456,163
2,000,000 Ohio State Water Development Authority,
Revenue Bonds, 5.00% (MBIA INS), 6/1/2009 AAA 2,101,740
----------
Total 7,080,844
----------
OKLAHOMA -- 2.1%
2,000,000 Oklahoma HFA, Refunding Revenue Bonds
(Series A-3), 5.50% (Federal National
Mortgage Association COL), 11/1/2005
(@100) AAA 2,104,480
----------
SOUTH CAROLINA -- 1.1% 1,055,000 South Carolina State, GO UT Bonds
(Series
B), 5.625%, 7/1/2011 AAA 1,146,669
----------
SOUTH DAKOTA -- 1.6%
1,500,000 Heartland Consumers Power District, SD,
Refunding Revenue Bonds, 5.90% (FSA
INS)/(Original Issue Yield: 6.00%),
1/1/2004 AAA 1,626,405
----------
TEXAS -- 14.7%
1,000,000 Brazosport, TX Independent School District,
GO UT, 5.10% (PSFG GTD), 2/15/2009 Aaa 1,046,770
2,000,000 Garland, TX, GO LT, 4.50%, 2/15/2010 AA 2,006,060 3,470,000
Killeen, TX Independent School District, GO
UT Refunding Bonds, 4.75% (PSFG
INS)/(Original Issue Yield: 4.80%),
2/15/2010 AAA 3,528,088
945,000 San Angelo, TX Independent School District,
GO UT Bonds, 5.30% (PSFG GTD), 2/15/2007 AAA 1,009,638
2,000,000 Tarrant County, TX Health Facilities
Development Corp., Revenue Bonds, 5.75%
(Texas Health Resources System)/
(MBIA INS), 2/15/2009 AAA 2,218,880
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal Credit
Amount Description Rating(j) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
TEXAS (continued)
$5,000,000 Texas State Public Finance Authority, GO UT
Refunding Bonds, 5.00% (Original Issue
Yield: 5.05%), 10/1/2012 AA $5,118,300
----------
Total 14,927,736
----------
UTAH -- 6.2%
1,965,000 Intermountain Power Agency, UT, Revenue
Bonds, 6.00% (Original Issue Yield:
6.393%), PRF, 7/1/2002 @ 102 A+ 2,139,040
2,020,000 Jordan, UT School District, GO UT, 5.00%,
6/15/2003 AAA 2,111,506
1,000,000 Washington County, UT School District, GO
UT, 5.00%, 3/1/2007 AAA 1,058,860
1,000,000 Washington County, UT School District, GO
UT, 5.00%, 3/1/2008 AAA 1,050,820
----------
Total 6,360,226
----------
VIRGINIA -- 1.6%
1,500,000 Virginia State Housing Development
Authority, Mortgage Revenue Bonds (Series
A1), 6.40%, 7/1/2002 AA+ 1,585,575
----------
WASHINGTON -- 1.2%
1,000,000 Port Longview, WA Industrial Development
Corp., Solid Waste Disposal Revenue Bonds,
6.875% (Weyerhaeuser Co.), 10/1/2008 A 1,180,890
----------
WISCONSIN -- 5.8%
1,650,000 Southeast WI, Professional Baseball Park
District, Sales Tax Revenue Bonds, 5.45%
(MBIA INS), 12/15/2012 AAA 1,755,914
1,000,000 Wisconsin Health and Educational Facilities
Authority, Refunding Revenue Bonds, 5.125%
(Lawrence University, WI)/(Original Issue
Yield: 5.25%), 10/15/2018 A3 996,210
</TABLE>
(See Notes to Portfolios of Investments)
MARSHALL FUNDS
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Principal
Amount Credit
or Shares Description Rating(j) Value
-----------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
WISCONSIN (continued)
$2,950,000 Wisconsin State, GO UT Bonds (Series C),
5.30% (Original Issue Yield: 5.40%),
5/1/2008 AA $3,148,061
------------
Total 5,900,185
------------
TOTAL LONG-TERM MUNICIPALS (identified
cost $95,860,444) 99,381,114
------------
MUTUAL FUNDS -- 2.6%
674,447 Federated Tax-Free Obligations Fund 674,447
1,927,743 Fidelity Tax Exempt Money Market 1,927,743
------------
Total (shares at net asset value) 2,602,190
------------
(K)TOTAL INVESTMENTS (identified cost
$98,462,634) $101,983,304
============
</TABLE>
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- 6.6%
BANKING -- 6.6%
$25,000,000 Bankers Trust Co., New York, 6.000%, 12/10/1998 $25,000,000
50,000,000 Dauphin Deposit Bank and Trust, 5.769%, 9/2/1998 49,999,927
17,000,000 Deutsche Bank, AG, 5.770%-6.000%, 10/22/1998-
3/30/1999 16,995,306
20,000,000 Societe Generale, New York, 5.960%-6.030%,
10/15/1998-10/27/1998 19,998,696
-----------
TOTAL CERTIFICATES OF DEPOSIT 111,993,929
-----------
(G)COMMERCIAL PAPER -- 3.7%
ASSET-BACKED -- 3.7%
30,567,000 Broadway Capital Corp., 5.705%-5.708%, 9/10/1998-
9/18/1998 30,504,019
31,884,000 Gotham Funding Corp., 5.700%-5.725%, 9/4/1998-
9/16/1998 31,838,889
-----------
TOTAL COMMERCIAL PAPER 62,342,908
-----------
CORPORATE BONDS -- 1.8%
BEVERAGES & FOODS -- 0.1%
2,500,000 PepsiCo, Inc., 6.250%, 9/1/1999 2,511,580
-----------
BROKER/DEALERS -- 0.7%
11,100,000 Morgan Stanley Group, Inc., 5.625%, 3/1/1999 11,095,395
-----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
SHORT-TERM BUSINESS CREDIT -- 1.0%
$8,000,000 Sears Roebuck Acceptance Corp., 5.600%, 11/30/1998 $7,993,277
8,785,000 Sears, Roebuck & Co., 8.450%, 11/1/1998 8,819,674
-----------
Total 16,812,951
-----------
TOTAL CORPORATE BONDS 30,419,926
-----------
CORPORATE NOTES -- 6.2%
ASSET-BACKED -- 0.9%
15,000,000 Sigma Finance, 5.890%, 5/5/1999 15,000,000
-----------
BROKER/DEALERS -- 1.2%
6,000,000 Lehman Brothers Holdings, Inc., 7.120%, 7/30/1999 6,071,667
5,000,000 Merrill Lynch & Co., Inc., 5.938%, 5/25/1999 5,009,857
10,000,000 Republic National Bank of New York, 5.756%, 9/1/1998 10,000,000
-----------
Total 21,081,524
-----------
FOREST PRODUCTS -- 1.3%
22,000,000 (b)Willamette Industries, Inc., 5.718%, 10/1/1998 22,000,000
-----------
PERSONAL CREDIT -- 1.2%
15,000,000 General Motors Acceptance Corp., 5.568%, 9/21/1998 14,999,432
5,800,000 General Motors Acceptance Corp., 5.650%, 10/13/1998 5,797,867
-----------
Total 20,797,299
-----------
SHORT-TERM BUSINESS CREDIT -- 1.5%
25,000,000 CIT Group Holdings, Inc., 5.560%, 2/22/1999 24,993,040
-----------
TRANSPORTATION -- 0.1%
2,000,000 McDonnell Douglas Finance Corp., 6.750%, 9/17/1999 2,020,140
-----------
TOTAL CORPORATE NOTES 105,892,003
-----------
GOVERNMENTS/AGENCIES -- 0.5%
FOREIGN BANKS -- 0.5%
8,700,000 African Development Bank, 6.750%, 7/30/1999 8,771,718
-----------
(I)VARIABLE RATE NOTES -- 71.9%
ASSET-BACKED -- 10.2%
62,000,000 Liberty Lighthouse US Capital Co., 5.710%, 1/15/1999 62,000,000
60,000,000 Restructured Asset Certificates Enhanced Return
Series, 1998 MM 8 3 Variable Rate Note (144A),
dated 8/28/1998, due 1/20/1999 60,000,000
50,000,000 Triangle Funding Ltd., 5.691%, 11/15/1998 50,000,000
-----------
Total 172,000,000
-----------
BANKING -- 7.6%
25,000,000 Bankers Trust Co., New York, 5.590%, 6/4/1999 24,986,727
25,000,000 Bankers Trust Co., New York, 5.668%, 11/19/1998 24,998,243
8,000,000 First USA Bank, 5.978%, 10/30/1998 8,004,318
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1998
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
MONEY MARKET FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
(I)VARIABLE RATE NOTES (continued)
BANKING (continued)
45,000,000 NationsBank Corp., 5.638%, 9/12/1998 45,000,000
$25,000,000 PNC Bank Corp., 5.600%, 9/2/1998 $24,998,595
-----------
Total 127,987,883
-----------
BROKER/DEALERS -- 15.1%
30,000,000 Bear Stearns Cos., Inc., (Ser B), 5.638%,
11/12/1998 30,000,000
20,000,000 Bear Stearns Cos., Inc., 5.639%, 11/26/1998 20,000,000
5,000,000 (b)Donaldson, Lufkin and Jenrette Securities Corp.,
Master Note, 5.736%, 9/1/1998 5,000,000
71,200,000 (b)Goldman Sachs & Co., 5.691%, 9/26/1998 71,200,000 10,000,000
Lehman Brothers Holdings, Inc., 5.720%, 9/2/1998 10,001,207 30,000,000
Merrill Lynch & Co., Inc., (Series B), 5.710%,
10/11/1998 30,000,000
15,000,000 Merrill Lynch & Co., Inc., (Series B), 5.698%,
9/10/1998 15,001,949
35,000,000 Morgan Stanley, Dean Witter & Co., (Series C),
5.638%, 10/15/1998 35,000,000
$40,000,000 Salomon Brothers, Inc., 5.728%, 10/21/1998 $40,000,000
-----------
Total 256,203,156
-----------
INSURANCE -- 21.8%
25,000,000 (b)Combined Insurance Corp. of America, 5.678%,
9/16/1998 25,000,000
20,000,000 (b)Combined Insurance Corp. of America, 5.768%,
11/3/1998 20,000,000
10,000,000 (b)Commonwealth Life Insurance, 5.840%, 10/1/1998 10,000,000
40,000,000 (b)Commonwealth Life Insurance, 5.840%, 9/1/1998 40,000,000
60,000,000 (b)General American Life Insurance Co., 5.856%,
9/1/1998 60,000,000
50,000,000 (b)Jackson National Life Insurance Co., 5.700%,
11/1/1998 50,000,000
60,000,000 (b)Transamerica Life Insurance and Annuity Co.,
5.709%, 10/4/1998 60,000,000
15,000,000 (b)Transamerica Occidental Life Insurance Co.,
5.729%, 11/5/1998 15,000,000
50,000,000 (b)Travelers Insurance Company, 5.729%, 10/1/1998 50,000,000
40,000,000 (b)Western National Life Insurance Co., 5.688%,
11/18/1998 40,000,000
-----------
Total 370,000,000
-----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
(I)VARIABLE RATE NOTES (continued)
LEASING -- 3.3%
$10,000,000 General Electric Capital Corp., 5.668%,
10/9/1998 $10,000,116
15,000,000 PHH Corp., 5.588%, 9/10/1998 14,997,988
30,000,000 PHH Corp., 5.590%, 11/10/1998 29,993,472
--------------
Total 54,991,576
--------------
PERSONAL CREDIT -- 8.8%
20,000,000 American Honda Finance Corp., 5.688%, 10/19/1998 20,000,000
50,000,000 American Honda Finance Corp., 5.688%, 10/20/1998 50,000,000
39,000,000 General Motors Acceptance Corp., 5.628%,
11/12/1998 38,997,942
15,000,000 General Motors Acceptance Corp., 5.813%,
11/6/1998 15,004,384
25,000,000 Household Finance Corp., 5.788%, 9/4/1998 25,027,421
--------------
Total 149,029,747
--------------
SHORT-TERM BUSINESS CREDIT -- 4.5% 5,000,000 Deere (John) Capital
Corp., (Series C), 5.688%,
10/8/1998 5,000,214
72,000,000 (b)Heller Financial, Inc., 5.688%, 9/1/1998 72,000,000
--------------
Total 77,000,214
--------------
UTILITIES -- 0.6%
10,000,000 (b)Wisconsin Public Service, 5.606%, 9/2/1998 10,000,000
--------------
TOTAL VARIABLE RATE NOTES 1,217,212,576
--------------
TOTAL INVESTMENTS IN SECURITIES 1,536,633,060
--------------
(C)REPURCHASE AGREEMENT -- 8.9%
150,713,239 Lehman Brothers, Inc., 5.770%, dated 8/31/1998,
due 9/1/1998 150,713,239
--------------
TOTAL INVESTMENTS (at amortized cost) $1,687,346,299
==============
</TABLE>
(See Notes to Portfolios of Investments)
NOTES TO PORTFOLIOS OF INVESTMENTS
(a) Certain shares or principal amounts on loan to broker.
(b) Securities exempt from registration under the Securities Act of 1933, as
amended and may only be sold to dealers and other exempt investors. These
securities have been determined to be liquid according to guidelines
established by the board of directors.
(c) The repurchase agreements are fully collateralized by U.S. Government and/or
agency obligations based on market prices at date of the portfolio.
(d) Non-income producing.
(e) Represents the initial deposit within a margin account used to ensure the
Fund is able to satisfy the obligations of its outstanding long futures
contracts.
(f) Denotes a restricted security which is subject to restrictions on resale
under Federal and International Securities laws. At the end of the period,
these securities amounted to $2,419,508 and $3,155,781 which represents 1.1%
and 1.1% of Marshall International Stock Fund and Marshall Government
Income Fund net assets, respectively.
(g) Each issue shows the rate of discount at the time of purchase. (h) Includes
securities subject to dollar roll transactions.
(i) Current rate and next demand date shown.
(j) Current credit ratings are unaudited. Please refer to the Statement of
Additional Information for an explanation of the credit ratings.
(k) Securities that are subject to alternative minimum tax represent 11.4% of
Intermediate Tax-Free Fund's portfolio as calculated based upon total
portfolio market value.
- --------------------------------------------------------------------------------
The following abbreviations are used in these portfolios:
ADR--American Depositary Receipt INS--Insured
AMBAC--American Municipal Bond LT--Limited Tax
Assurance Corporation MBIA--Municipal Bond Investors
COL--Collateralized Insurance
FGIC--Financial Guaranty PLC--Public Limited Company
Insurance Company PRF--Prerefunded
FSA--Financial Security PSFG--Permanent School Fund
Assurance Guarantee
GO--General Obligation REMIC--Real Estate Mortgage
GDR--Global Depositary Receipt Investment Conduit
GNMA--Government National TBA--To Be Announced
Mortgage Association UT--Unlimited Tax
GTD--Guaranteed
HFA--Housing Finance Authority
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET UNREALIZED GROSS GROSS
COST OF APPRECIATION/ UNREALIZED UNREALIZED
INVESTMENTS (DEPRECIATION) APPRECIATION DEPRECIATION
FOR FEDERAL TAX FOR FEDERAL FOR FEDERAL FOR FEDERAL TOTAL NET
MARSHALL FUNDS PURPOSES TAX PURPOSES TAX PURPOSES TAX PURPOSES ASSETS**
- -------------- --------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund $ 410,912,561 $ 35,195,706 $60,623,333 $25,427,627 $ 458,864,786
Large-Cap Growth &
Income Fund 207,627,262 64,364,486 72,331,903 7,967,417 274,821,404
Mid-Cap Value Fund 122,682,047 4,270,140 13,182,340 8,912,200 134,619,810
Mid-Cap Growth Fund 186,354,511 (7,062,113) 20,791,154 27,853,267 187,388,415
International Stock Fund 214,087,177 8,831,354 43,598,173 34,766,819 225,248,510
Small-Cap Growth Fund 97,008,623 (15,663,647) 3,704,719 19,368,366 79,858,005
Short-Term Income Fund 145,513,403 1,022,465 1,356,343 333,878 133,186,149
Intermediate Bond Fund 598,962,156 9,489,521 11,136,008 1,646,487 589,669,027
Government Income Fund 405,547,643 4,416,392 4,695,983 279,591 280,312,614
Intermediate Tax-Free
Fund 98,462,634 3,520,670 3,520,670 -- 101,592,112
Money Market Fund 1,687,346,299* -- -- -- 1,693,941,745
</TABLE>
*At amortized cost.
**The categories of investments are shown as a percentage of net assets at
August 31, 1998.
(See Notes which are an integral part of the Financial Statements)
August 31, 1998
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
------------ ------------ ------------ ------------ ------------
EQUITY LARGE-CAP MID-CAP MID-CAP INTERNATIONAL
INCOME GROWTH & VALUE GROWTH STOCK
FUND INCOME FUND FUND FUND FUND
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value $411,603,256 $246,241,166 $113,467,655 $169,166,331 $222,918,531
Investments in
repurchase agreements 34,505,011 25,750,582 13,484,532 10,126,067 --
Short term investments
held as collateral
for securities
lending 129,708,215 82,751,578 31,496,810 59,647,896 46,808,306
Cash -- -- 22,370 27,360 --
Cash denominated in
foreign currencies
(at cost, $1,242,161) -- -- -- -- 1,258,746
Income receivable 1,673,177 444,813 272,072 46,343 1,768,198
Receivable for
investments sold 31,298,315 4,228,795 12,407,534 11,837,488 4,536,308
Receivable for capital
stock sold 93,833 20,292 48,544 304,711 60,910
Net Receivable for
forward foreign
currency exchange
contracts -- -- -- -- 58,067
Deferred expenses -- -- -- 1,790 6,650
Deferred
organizational costs -- -- -- -- 5,986
------------ ------------ ------------ ------------ ------------
Total assets 608,881,807 359,437,226 171,199,517 251,157,986 277,421,702
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Payable to Bank 85,394 23,849 -- -- 86,126
Income distribution
payable -- -- -- -- --
Payable for
investments purchased 17,896,910 -- 4,062,257 1,595,474 4,148,886
Payable for capital
stock redeemed 1,698,189 415,206 836,585 2,095,590 503,725
Payable on collateral
due to broker 129,708,215 82,751,578 31,496,810 59,647,896 46,808,306
Payable for daily
variation margin -- 1,039,500 -- 154,000 --
Payable for dollar
roll transactions -- -- -- -- --
Net payable for
forward foreign
currency exchange
contracts -- -- -- -- --
Accrued expenses 628,313 385,689 184,055 276,611 626,149
------------ ------------ ------------ ------------ ------------
Total liabilities 150,017,021 84,615,822 36,579,707 63,769,571 52,173,192
------------ ------------ ------------ ------------ ------------
NET ASSETS CONSIST OF:
Paid-in-capital 389,898,889 197,692,483 118,368,222 181,485,509 212,074,457
Net unrealized
appreciation
(depreciation) on
investments,
collateral, futures
contracts and foreign
currency translation 35,195,706 62,729,150 4,460,675 (6,644,928) 8,954,752
Accumulated net
realized gain (loss)
on investments,
futures contracts and
foreign currency
transactions 33,122,656 14,155,075 11,419,109 12,547,834 (365,671)
Undistributed net
investment income 647,535 244,696 371,804 -- 4,584,972
------------ ------------ ------------ ------------ ------------
Total Net Assets $458,864,786 $274,821,404 $134,619,810 $187,388,415 $225,248,510
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
Offering Price and
Redemption Proceeds Per
Share:
Class A Shares $14.17 $13.24 $10.25 $11.95 $11.54
Class B Shares -- -- -- -- --
------------ ------------ ------------ ------------ ------------
SHARES OUTSTANDING:
Class A Shares 32,384,473 20,750,695 13,133,135 15,682,137 19,519,077
Class B Shares -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total shares
outstanding ($0.0001
par value) 32,384,473 20,750,695 13,133,135 15,682,137 19,519,077
============ ============ ============ ============ ============
Investments, at
identified cost $410,912,561 $207,531,419 $122,491,512 $185,636,225 $213,978,954
============ ============ ============ ============ ============
Investments, at tax
cost $410,912,561 $207,627,262 $122,682,047 $186,354,511 $214,087,177
============ ============ ============ ============ ============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
- ----------- ------------ ------------ ------------ ----------- --------------
SMALL-CAP SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE MONEY
GROWTH INCOME BOND INCOME TAX-FREE MARKET
FUND FUND FUND FUND FUND FUND
- ----------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
$72,400,356 $130,529,515 $546,149,057 $371,851,457 $101,983,304 $1,536,633,060
8,944,620 16,006,353 62,302,620 38,112,578 -- 150,713,239
-- -- 58,878,750 -- -- --
25,858 -- 155,620 -- 6,943 --
-- -- -- -- -- --
14,934 1,044,537 6,358,201 2,390,840 1,378,055 14,472,267
51,971 -- 15,859,333 130,939,258 1,960,576 --
577,394 88,401 185,361 81,298 -- 460,805
-- -- -- -- -- --
-- -- -- -- 1,763 200,000
22,501 -- -- -- 1,616 --
- ----------- ------------ ------------ ------------ ------------ --------------
82,037,634 147,668,806 689,888,942 543,375,431 105,332,257 1,702,479,371
- ----------- ------------ ------------ ------------ ------------ --------------
-- 429,879 -- 576,118 -- 43,334
-- 331,282 1,733,765 558,680 322,705 6,849,211
245,600 13,565,457 38,701,304 201,819,768 2,929,902 --
1,647,629 38,023 467,819 238,363 410,820 833,517
-- -- 58,878,750 -- --
98,775 -- -- -- -- --
-- -- -- 59,579,062 -- --
-- -- -- -- -- --
187,625 118,016 438,277 290,826 76,718 811,564
- ----------- ------------ ------------ ------------ ------------ --------------
2,179,629 14,482,657 100,219,915 263,062,817 3,740,145 8,537,626
- ----------- ------------ ------------ ------------ ------------ --------------
95,334,302 137,022,819 601,920,571 277,510,971 97,576,723 1,693,941,745
(15,753,713) 1,022,465 9,489,521 4,416,392 3,520,670 --
277,416 (4,859,135) (21,741,065) (1,614,749) 491,210 --
-- -- -- -- 3,509 --
- ----------- ------------ ------------ ------------ ------------ --------------
$79,858,005 $133,186,149 $589,669,027 $280,312,614 $101,592,112 $1,693,941,745
- ----------- ------------ ------------ ------------ ------------ --------------
$9.82 $9.61 $9.60 $9.70 $10.33 $1.00
-- -- -- -- -- $1.00
- ----------- ------------ ------------ ------------ ------------ --------------
8,133,014 13,855,829 61,409,724 28,890,168 9,830,378 1,588,816,988
-- -- -- -- -- 105,124,757
- ----------- ------------ ------------ ------------ ------------ --------------
8,133,014 13,855,829 61,409,724 28,890,168 9,830,378 1,693,941,745
=========== ============ ============ ============ ============ ==============
$96,721,700 $145,513,403 $598,962,156 $405,547,643 $98,462,634 $1,687,346,299
=========== ============ ============ ============ ============ ==============
$97,008,623 $145,513,403 $598,962,156 $405,547,643 $98,462,634 $1,687,346,299
=========== ============ ============ ============ ============ ==============
</TABLE>
Year Ended August 31, 1998
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------- ------- ------- ------- --------
EQUITY LARGE-CAP MID-CAP INTERNATIONAL
INCOME GROWTH & MID-CAP GROWTH STOCK
FUND INCOME FUND VALUE FUND FUND FUND
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,565,306 $ 786,334 $ 600,059 $ 536,936 $ 1,881,204
Dividend income 12,691,667 4,133,116 3,068,199 427,538 6,890,632(a)
----------- ---------- ----------- ------------ ------------
Total income 15,256,973 4,919,450 3,668,258 964,474 8,771,836
----------- ---------- ----------- ------------ ------------
EXPENSES:
Investment advisory fee 3,596,326 2,284,566 1,245,164 1,676,595 2,504,141
Directors' fees 2,190 2,555 2,920 2,920 5,001
Administrative fees 403,594 256,720 139,888 188,403 211,050
Custodian fees 80,791 60,206 39,044 48,359 98,637
Portfolio accounting
fees 102,365 84,906 50,366 67,450 81,334
Transfer and dividend
disbursing agent fees
and expenses 119,056 122,003 72,500 95,585 86,360
Shareholder services
fees 1,198,775 761,522 415,055 558,865 626,035
Registration fees 43,746 34,579 37,911 30,394 23,028
Auditing fees 12,722 14,600 13,140 12,775 18,211
Legal fees 2,990 6,205 5,110 4,552 6,257
Printing and postage 11,883 9,855 9,855 9,113 19,148
Insurance premiums 3,650 3,760 3,103 3,650 3,954
Distribution services
fees -- -- -- -- --
Taxes 35,309 21,354 21,343 15,330 20,197
Miscellaneous 16,674 28,771 16,997 25,747 39,519
----------- ---------- ----------- ------------ ------------
Total expenses 5,630,071 3,691,602 2,072,396 2,739,738 3,742,872
----------- ---------- ----------- ------------ ------------
DEDUCT--
Waiver of investment
advisory fee -- -- -- -- --
Waiver of shareholder
services fees -- -- -- -- --
----------- ---------- ----------- ------------ ------------
Total Waivers -- -- -- -- --
----------- ---------- ----------- ------------ ------------
NET EXPENSES 5,630,071 3,691,602 2,072,396 2,739,738 3,742,872
----------- ---------- ----------- ------------ ------------
NET INVESTMENT INCOME
(NET OPERATING LOSS) 9,626,902 1,227,848 1,595,862 (1,775,264) 5,028,964
----------- ---------- ----------- ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS,
COLLATERAL, FOREIGN
CURRENCY AND FUTURES
CONTRACTS:
Net realized gain
(loss) on investment
transactions
(identified cost
basis) 40,283,486 18,456,573 11,719,164 17,091,286 309,389
Net realized (loss) on
foreign currency
transactions -- -- -- -- (233,199)
Net realized gain
(loss) on futures
contracts (identified
cost basis) -- (844,292) -- 264,890 --
Net change in
unrealized
appreciation
(depreciation) on
investments,
collateral, futures
contracts and foreign
currency translation (23,760,894) (9,032,687) (16,549,975) (36,178,485) (29,288,960)
----------- ---------- ----------- ------------ ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS,
COLLATERAL, FOREIGN
CURRENCY AND FUTURES
CONTRACTS 16,522,592 8,579,594 (4,830,811) (18,822,309) (29,212,770)
----------- ---------- ----------- ------------ ------------
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS $26,149,494 $9,807,442 $(3,234,949) $(20,597,573) $(24,183,806)
=========== ========== =========== ============ ============
</TABLE>
(a)Net of Foreign taxes withheld of $629,053.
(b)Net of dollar roll interest expense of $2,707,822.
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
- ------------ ------- ------- ------- ------- -------
SMALL-CAP SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE MONEY
GROWTH INCOME BOND INCOME TAX-FREE MARKET
FUND FUND FUND FUND FUND FUND
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 322,759 $ 9,721,611 $34,860,237 $17,620,192(b) $4,590,861 $89,421,706
30,948 -- -- -- -- --
- ------------ ----------- ----------- ----------- ---------- -----------
353,707 9,721,611 34,860,237 17,620,192 4,590,861 89,421,706
- ------------ ----------- ----------- ----------- ---------- -----------
857,023 846,144 3,105,550 1,833,350 570,658 7,729,527
1,460 2,555 2,920 3,650 3,752 2,920
102,843 118,980 435,828 205,934 80,183 1,302,763
20,791 28,205 81,759 51,900 23,022 165,591
46,568 28,022 107,481 67,450 50,836 162,980
61,442 38,976 52,892 72,174 36,222 172,902
214,256 352,560 1,293,979 611,116 237,774 309,182
18,318 7,795 26,785 27,899 15,592 103,633
12,410 15,504 14,965 14,600 13,071 16,060
2,920 6,205 1,997 4,015 5,971 9,831
7,589 11,535 10,757 10,585 8,528 18,674
2,920 3,346 4,211 3,650 3,088 10,392
-- -- -- -- -- 274,102
6,760 14,407 38,925 18,716 6,099 124,552
13,593 1,460 26,221 21,955 7,641 25,552
- ------------ ----------- ----------- ----------- ---------- -----------
1,368,893 1,475,694 5,204,270 2,946,994 1,062,437 10,428,661
- ------------ ----------- ----------- ----------- ---------- -----------
-- (451,276) (333,362) (272,859) (266,927) (3,846,385)
-- (324,355) (1,190,461) (562,227) (218,752) --
- ------------ ----------- ----------- ----------- ---------- -----------
-- (775,631) (1,523,823) (835,086) (485,679) (3,846,385)
- ------------ ----------- ----------- ----------- ---------- -----------
1,368,893 700,063 3,680,447 2,111,908 576,758 6,582,276
- ------------ ----------- ----------- ----------- ---------- -----------
(1,015,186) 9,021,548 31,179,790 15,508,284 4,014,103 82,839,430
- ------------ ----------- ----------- ----------- ---------- -----------
3,744,474 (1,166,498) 1,740,828 1,854,374 825,890 --
-- -- -- -- -- --
(200,587) -- -- -- -- --
(23,578,293) 619,229 7,755,997 3,216,704 1,904,633 --
- ------------ ----------- ----------- ----------- ---------- -----------
(20,034,406) (547,269) 9,496,825 5,071,078 2,730,523 --
- ------------ ----------- ----------- ----------- ---------- -----------
$(21,049,592) $ 8,474,279 $40,676,615 $20,579,362 $6,744,626 $82,839,430
============ =========== =========== =========== ========== ===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
-------------------------- -------------------------- --------------------------
EQUITY LARGE-CAP
INCOME GROWTH & INCOME MID-CAP
FUND FUND VALUE FUND
-------------------------- -------------------------- --------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS--
Net investment income
(net operating loss) $ 9,626,902 $ 6,060,269 $ 1,227,848 $ 1,955,944 $ 1,595,862 $ 1,995,035
Net realized gain
(loss) on investment
transactions 40,283,486 21,575,654 18,456,573 19,212,749 11,719,164 23,414,759
Net realized gain
(loss) on foreign
currency transactions -- -- -- -- -- --
Net realized gain
(loss) on futures
contracts -- -- (844,292) 439,089 -- 61,447
Net change in
unrealized
appreciation
(depreciation) of
investments,
collateral, futures
contracts and foreign
currency translation (23,760,894) 39,482,101 (9,032,687) 52,299,522 (16,549,975) 18,167,215
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets
resulting from
operations 26,149,494 67,118,024 9,807,442 73,907,304 (3,234,949) 43,638,456
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS--
Dividends to
shareholders from
net investment income (9,687,514) (5,919,458) (1,128,306) (2,297,758) (1,713,554) (2,184,196)
Distributions to
shareholders from net
realized gain on
investments (27,002,639) (13,127,663) (23,055,255) (35,001,329) (21,031,640) (28,282,066)
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets
from distributions to
shareholders (36,690,153) (19,047,121) (24,183,561) (37,299,087) (22,745,194) (30,466,262)
------------ ------------ ------------ ------------ ------------ ------------
CAPITAL STOCK
TRANSACTIONS--
Proceeds from sale of
shares 212,523,763 146,405,603 59,962,072 40,678,770 57,448,236 27,454,375
Net asset value of
shares issued
to shareholders in
payment
of distributions
declared 29,988,247 8,266,120 23,601,015 28,520,410 21,339,106 17,779,222
Cost of shares redeemed (104,836,067) (44,415,622) (63,972,861) (87,783,174) (63,330,825) (108,327,995)
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets
from capital stock
transactions 137,675,943 110,256,101 19,590,226 (18,583,994) 15,456,517 (63,094,398)
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets 127,135,284 158,327,004 5,214,107 18,024,223 (10,523,626) (49,922,204)
NET ASSETS:
Beginning of period 331,729,502 173,402,498 269,607,297 251,583,074 145,143,436 195,065,640
------------ ------------ ------------ ------------ ------------ ------------
End of period $458,864,786 $331,729,502 $274,821,404 $269,607,297 $134,619,810 $145,143,436
============ ============ ============ ============ ============ ============
Undistributed net
investment
income included in net
assets at end of period $ 647,535 $ 708,147 $ 244,696 $ 145,154 $ 371,804 $ 489,724
============ ============ ============ ============ ============ ============
Net gain (loss) as
computed for federal
tax purposes $ 40,283,486 $ 21,559,963 $ 15,866,698 $ 19,705,533 $ 11,887,632 $ 23,476,206
============ ============ ============ ============ ============ ============
</TABLE>
*For the period from September 3, 1996 (date of initial public investment) to
August 31, 1997.
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
-------------------------- -------------------------- ------------------------ --------------------------
SHORT-TERM
MID-CAP INTERNATIONAL SMALL-CAP INCOME
GROWTH FUND STOCK FUND GROWTH FUND FUND
-------------------------- -------------------------- ------------------------ --------------------------
Year Year Year Year Year Period Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1998 1997 1998 1997 1998 1997* 1998 1997
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (1,775,264) $ (891,593) $ 5,028,964 $ 3,347,648 $(1,015,186) $ (347,801) $ 9,021,548 $ 7,930,182
17,091,286 22,473,728 309,389 4,406,045 3,744,474 487,900 (1,166,498) (434,668)
-- -- (233,199) 718,647 -- -- -- --
264,890 636,447 -- -- (200,587) 94,291 -- --
(36,178,485) 8,132,461 (29,288,960) 27,902,734 (23,578,293) 7,824,580 619,229 1,053,138
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
(20,597,573) 30,351,043 (24,183,806) 36,375,074 (21,049,592) 8,058,970 8,474,279 8,548,652
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
-- -- (3,675,610) (3,691,414) -- -- (9,021,548) (7,930,182)
(23,952,792) (13,454,023) (4,959,734) (1,303,354) (2,485,675) -- -- --
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
(23,952,792) (13,454,023) (8,635,344) (4,994,768) (2,485,675) -- (9,021,548) (7,930,182)
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
99,091,260 81,363,769 163,353,256 97,240,204 76,581,765 58,053,558 68,282,147 89,532,721
23,567,478 7,216,847 6,828,038 2,303,869 2,464,966 -- 4,343,981 3,439,474
(87,703,412) (51,730,069) (138,963,126) (47,857,918) (32,078,052) (9,687,935) (87,673,401) (45,656,058)
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
34,955,326 36,850,547 31,218,168 51,686,155 46,968,679 48,365,623 (15,047,273) 47,316,137
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
(9,595,039) 53,747,567 (1,600,982) 83,066,461 23,433,412 56,424,593 (15,594,542) 47,934,607
196,983,454 143,235,887 226,849,492 143,783,031 56,424,593 -- 148,780,691 100,846,084
------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------
$187,388,415 $196,983,454 $225,248,510 $226,849,492 $79,858,005 $56,424,593 $133,186,149 $148,780,691
============ ============ ============ ============ =========== =========== ============ ============
-- -- $ 4,584,972 $ 3,464,817 -- -- -- --
============ ============ ============ ============ =========== =========== ============ ============
$ 17,342,069 $ 23,469,546 $ 673,502 $ 4,285,886 $ 2,972,697 $ 1,063,315 $ (618,371) $ (545,815)
============ ============ ============ ============ =========== =========== ============ ============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
--------------------------
INTERMEDIATE
BOND FUND
--------------------------
Year Year
Ended Ended
August 31, August 31,
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS--
Net investment income $ 31,179,790 $ 25,114,571
Net realized gain (loss) on investments 1,740,828 (851,277)
Net change in unrealized appreciation
(depreciation) of investments, collateral,
futures contracts, and foreign currency
transactions 7,755,997 8,464,908
------------ ------------
Change in net assets resulting from operations 40,676,615 32,728,202
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
Dividends to shareholders from net investment
income:
Class A Shares (31,179,790) (25,114,571)
Class B Shares -- --
------------ ------------
Change in net assets from distributions to
shareholders (31,179,790) (25,114,571)
------------ ------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 256,079,048 100,375,816
Net asset value of shares issued to shareholders
in payment of dividends declared 13,270,752 14,243,926
Cost of shares redeemed (87,411,885) (127,655,812)
------------ ------------
Change in net assets from capital stock
transactions 181,937,915 (13,036,070)
------------ ------------
Change in net assets 191,434,740 (5,422,439)
NET ASSETS:
Beginning of period 398,234,287 403,656,726
------------ ------------
End of period $589,669,027 $398,234,287
============ ============
Undistributed net investment income included in
net assets at end of period -- --
============ ============
Net gain (loss) as computed for federal tax
purposes $ 760,870 $ 128,681
============ ============
</TABLE>
MARSHALL FUNDS
<TABLE>
<CAPTION>
-------------------------- ------------------------- --------------------------------
GOVERNMENT INTERMEDIATE MONEY
INCOME TAX-FREE MARKET
FUND FUND FUND
-------------------------- ------------------------- --------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 15,508,284 $ 11,518,785 $ 4,014,103 $ 3,360,927 $ 82,839,430 $ 66,237,736
1,854,374 (523,651) 825,890 167,317 -- --
3,216,704 4,021,921 1,904,633 1,370,043 -- --
------------ ------------ ------------ ----------- --------------- ---------------
20,579,362 15,017,055 6,744,626 4,898,287 82,839,430 66,237,736
------------ ------------ ------------ ----------- --------------- ---------------
(15,508,284) (11,518,785) (4,010,594) (3,360,927) (78,163,550) (61,191,127)
-- -- -- -- (4,675,880) (5,046,609)
------------ ------------ ------------ ----------- --------------- ---------------
(15,508,284) (11,518,785) (4,010,594) (3,360,927) (82,839,430) (66,237,736)
------------ ------------ ------------ ----------- --------------- ---------------
98,456,886 83,480,146 27,565,906 29,527,383 5,479,189,898 4,388,043,812
8,809,411 6,106,482 369,721 316,077 18,085,713 17,152,907
(35,667,208) (27,900,306) (17,185,505) (9,200,113) (5,183,477,454) (4,149,423,646)
------------ ------------ ------------ ----------- --------------- ---------------
71,599,089 61,686,322 10,750,122 20,643,347 313,798,157 255,773,073
------------ ------------ ------------ ----------- --------------- ---------------
76,670,167 65,184,592 13,484,154 22,180,707 313,798,157 255,773,073
203,642,447 138,457,855 88,107,958 65,927,251 1,380,143,588 1,124,370,515
------------ ------------ ------------ ----------- --------------- ---------------
$280,312,614 $203,642,447 $101,592,112 $88,107,958 $ 1,693,941,745 $ 1,380,143,588
============ ============ ============ =========== =============== ===============
-- -- $ 3,509 -- -- --
============ ============ ============ =========== =============== ===============
$ 1,948,002 $ (1,184,492) $ 825,890 $ 167,317 -- --
============ ============ ============ =========== =============== ===============
</TABLE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Distributions to
Shareholders from
Net Realized and Net Realized Gain
Unrealized on Investment
Gain/(Loss) on Dividends to Transactions,
Net Asset Net Investments, Shareholders Futures
Value, Investment Collateral, Futures Total from from Net Contracts, and
beginning Income/ Contracts, and Investment Investment Foreign Currency
Perod Ended August 31, of period Operating (Loss) Foreign Currency Operations Income Transactions
- ----------------------- --------- ---------------- ------------------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
1994(a) $10.00 0.28 (0.09) 0.19 (0.23) --
1995 $ 9.96 0.33 1.26 1.59 (0.33) --
1996 $11.22 0.34 2.00 2.34 (0.35) (0.21)
1997 $13.00 0.33 3.51 3.84 (0.34) (0.86)
1998 $15.64 0.31 (0.19)(m) 0.12 (0.32) (1.27)
LARGE-CAP GROWTH & INCOME FUND
1993(b) $10.00 0.10 0.07 0.17 (0.09) --
1994 $10.08 0.07 (0.03) 0.04 (0.07) --
1995 $10.05 0.09 1.59 1.68 (0.09) --
1996 $11.64 0.16 1.17 1.33 (0.15) (0.66)
1997 $12.16 0.10 3.76 3.86 (0.12) (1.94)
1998 $13.96 0.06 0.46 0.52 (0.06) (1.18)
MID-CAP VALUE FUND
1994(a) $10.00 0.12 0.93 1.05 (0.10) --
1995 $10.95 0.22 1.22 1.44 (0.20) (0.11)
1996 $12.08 0.21 0.78 0.99 (0.21) (0.88)
1997 $11.98 0.15 3.05 3.20 (0.15) (1.89)
1998 $13.14 0.10 (0.92) (0.82) (0.12) (1.95)
MID-CAP GROWTH FUND
1994(a) $10.00 0.02 (0.29) (0.27) (0.01) (0.03)
1995 $ 9.69 (0.00) 2.62 2.62 (0.01) --
1996 $12.30 (0.06) 2.24 2.18 -- (0.92)
1997 $13.56 (0.08) 2.56 2.48 -- (1.22)
1998 $14.82 (0.13) (0.93) (1.06) -- (1.81)
INTERNATIONAL STOCK FUND
1995(c) $10.00 0.20 0.01 0.21 (0.05) --
1996 $10.16 0.21 0.96 1.17 (0.22) (0.03)
1997 $11.08 0.18 2.29 2.47 (0.26) (0.09)
1998 $13.20 0.26 (1.42) (1.16) (0.21) (0.29)
SMALL-CAP GROWTH FUND
1997(d) $10.00 (0.08) 2.27 2.19 -- --
1998 $12.19 (0.22) (1.66) (1.88) -- (0.49)
SHORT-TERM INCOME FUND
1993(e) $10.00 0.40 (0.05) 0.35 (0.40) --
1994 $ 9.95 0.45 (0.25) 0.20 (0.44) --
1995 $ 9.71 0.56 0.05 0.61 (0.58) --
1996 $ 9.74 0.62 (0.15) 0.47 (0.62) --
1997 $ 9.59 0.63 0.04 0.67 (0.62) --
1998 $ 9.64 0.61 (0.03) 0.58 (0.61) --
INTERMEDIATE BOND FUND
1993(b) $10.00 0.46 0.33 0.79 (0.39) --
1994 $10.40 0.61 (0.81) (0.20) (0.67) (0.17)
1995 $ 9.36 0.61 0.16 0.77 (0.62) --
1996 $ 9.51 0.58 (0.25) 0.33 (0.58) --
1997 $ 9.26 0.58 0.18 0.76 (0.58) --
1998 $ 9.44 0.58 0.16 0.74 (0.58) --
<CAPTION>
Distributions to
Shareholders in
Excess of
Net Investment
Perod Ended August 31, Income
- ----------------------- ---------------
<S> <C>
EQUITY INCOME FUND
1994(a) --
1995 --
1996 --
1997 --
1998 --
LARGE-CAP GROWTH & INCOME FUND
1993(b) --
1994 --
1995 --
1996 --
1997 --
1998 --
MID-CAP VALUE FUND
1994(a) --
1995 --
1996 --
1997 --
1998 --
MID-CAP GROWTH FUND
1994(a) --
1995 (0.00)(l)
1996 --
1997 --
1998 --
INTERNATIONAL STOCK FUND
1995(c) --
1996 --
1997 --
1998 --
SMALL-CAP GROWTH FUND
1997(d) --
1998 --
SHORT-TERM INCOME FUND
1993(e) --
1994 --
1995 --
1996 --
1997 --
1998 --
INTERMEDIATE BOND FUND
1993(b) --
1994 --
1995 --
1996 --
1997 --
1998 --
</TABLE>
(a) Reflects operations for the period from October 1, 1993 (date of initial
public investment) to August 31, 1994.
(b) Reflects operations for the period from November 23, 1992 (date of initial
public investment) to August 31, 1993.
(c) Reflects operations for the period from September 2, 1994 (date of initial
public investment) to August 31, 1995.
(d) Reflects operations for the period from September 3, 1996 (date of initial
public investment) to August 31, 1997.
(e) Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(f) Reflects operations for the period from December 14, 1992 (date of initial
public investment) to August 31, 1993.
(g) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to August 31, 1994.
(h) Reflects operations for the period from December 17, 1992 (date of initial
public investment) to August 31, 1993.
(i) Based on net asset value. (j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(l) Distributions less than one cent per share.
(m) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on investments,
collateral, Futures Contracts and foreign currency for the period ended due
to the timing of sales and repurchases of Fund shares in relation to
fluctuating market values of the investments of the Fund.
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
Ratios to Average Net Assets
----------------------------------
Net Assets,
Net Asset Net end Portfolio
Total Value, end Total Investment Expense of period Turnover
Distributions of period Return(i) Expenses Income Waiver(k) (000 omitted) Rate
- ------------- ---------- --------- -------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.23) $ 9.96 2.02% 1.01%(j) 3.30%(j) 0.16%(j) $ 49,396 44%
(0.33) $11.22 16.40% 1.01% 3.45% 0.09% $107,499 43%
(0.56) $13.00 21.20% 0.98% 2.83% -- $173,402 60%
(1.20) $15.64 30.95% 1.22% 2.31% -- $331,730 61%
(1.59) $14.17 0.04% 1.17% 2.01% -- $458,865 69%
(0.09) $10.08 1.67% 0.94%(j) 1.39%(j) 0.03%(j) $309,128 98%
(0.07) $10.05 0.44% 0.99% 0.77% 0.01% $250,155 86%
(0.09) $11.64 16.85% 0.98% 0.88% 0.01% $257,019 79%
(0.81) $12.16 11.56% 0.97% 1.28% -- $251,583 147%
(2.06) $13.96 34.50% 1.23% 0.78% -- $269,607 43%
(1.24) $13.24 3.44% 1.21% 0.40% -- $274,821 33%
(0.10) $10.95 10.59% 1.00%(j) 1.82%(j) 0.15%(j) $218,755 39%
(0.31) $12.08 13.57% 0.96% 1.98% -- $220,436 78%
(1.09) $11.98 8.53% 0.98% 1.68% -- $195,066 67%
(2.04) $13.14 30.20% 1.23% 1.20% -- $145,143 55%
(2.07) $10.25 (7.75%) 1.25% 0.96% -- $134,620 59%
(0.04) $ 9.69 (2.74%) 1.01%(j) 0.23%(j) 0.28%(j) $ 53,642 113%
(0.01) $12.30 27.06% 1.01% (0.13%) 0.08% $108,256 157%
(0.92) $13.56 18.92% 1.01% (0.47%) -- $143,236 189%
(1.22) $14.82 19.14% 1.24% (0.52%) -- $196,983 211%
(1.81) $11.95 (8.77%) 1.23% (0.79%) -- $187,388 167%
(0.05) $10.16 2.11% 1.54%(j) 2.42%(j) 0.04%(j) $ 94,048 61%
(0.25) $11.08 11.71% 1.35% 2.58% -- $143,783 26%
(0.35) $13.20 22.73% 1.59% 1.80% -- $226,849 26%
(0.50) $11.54 (9.09%) 1.49% 2.01% -- $225,248 91%
-- $12.19 21.90% 1.80%(j) (0.94%)(j) -- $ 56,425 183%
(0.49) $ 9.82 (16.25%) 1.60% (1.18%) -- $ 79,858 139%
(0.40) $ 9.95 3.57% 0.50%(j) 4.91%(j) 0.51%(j) $ 74,742 79%
(0.44) $ 9.71 2.05% 0.50% 4.58% 0.39% $100,452 185%
(0.58) $ 9.74 6.47% 0.51% 5.78% 0.40% $ 84,273 194%
(0.62) $ 9.59 4.92% 0.51% 6.16% 0.40% $100,846 144%
(0.62) $ 9.64 7.20% 0.49% 6.46% 0.59% $148,781 101%
(0.61) $ 9.61 6.22% 0.50% 6.40% 0.55% $133,186 90%
(0.39) $10.40 7.99% 0.70%(j) 6.08%(j) 0.10%(j) $346,808 220%
(0.84) $ 9.36 (2.02%) 0.71% 6.26% 0.11% $357,740 228%
(0.62) $ 9.51 8.58% 0.71% 6.50% 0.08% $344,071 232%
(0.58) $ 9.26 3.52% 0.72% 6.14% 0.09% $403,657 201%
(0.58) $ 9.44 8.42% 0.72% 6.17% 0.31% $398,234 144%
(0.58) $ 9.60 8.00% 0.71% 6.02% 0.29% $589,669 148%
</TABLE>
FINANCIAL HIGHLIGHTS (continued)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Distributions to
Shareholders from
Net Realized and Net Realized Gain
Unrealized on Investment
Gain/(Loss) on Dividends to Transactions,
Net Asset Net Investments, Shareholders Futures
Value, Investment Collateral, Futures Total from from Net Contracts, and
beginning Income/ Contracts, and Investment Investment Foreign Currency
Period Ended August 31, of period Operating (Loss) Foreign Currency Operations Income Transactions
- ----------------------- --------- ---------------- ------------------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
1993(f) $10.00 0.47 0.16 0.63 (0.41) --
1994 $10.22 0.64 (0.78) (0.14) (0.68) (0.14)
1995 $ 9.26 0.60 0.27 0.87 (0.62) --
1996 $ 9.51 0.62 (0.24) 0.38 (0.62) --
1997 $ 9.27 0.62 0.22 0.84 (0.62) --
1998 $ 9.49 0.61 0.21 0.82 (0.61) --
INTERMEDIATE TAX-FREE FUND
1994(g) $10.00 0.19 (0.29) (0.10) (0.19) --
1995 $ 9.71 0.42 0.20 0.62 (0.42) --
1996 $ 9.91 0.43 (0.08) 0.35 (0.43) --
1997 $ 9.83 0.43 0.21 0.64 (0.43) --
1998 $10.04 0.43 0.29 0.72 (0.43) --
MONEY MARKET FUND--CLASS A SHARES
1993(b) $ 1.00 0.02 -- 0.02 (0.02) --
1994 $ 1.00 0.03 -- 0.03 (0.03) --
1995 $ 1.00 0.05 -- 0.05 (0.05) --
1996 $ 1.00 0.05 -- 0.05 (0.05) --
1997 $ 1.00 0.05 -- 0.05 (0.05) --
1998 $ 1.00 0.05 -- 0.05 (0.05) --
MONEY MARKET FUND--CLASS B SHARES
1993(h) $ 1.00 0.02 -- 0.02 (0.02) --
1994 $ 1.00 0.03 -- 0.03 (0.03) --
1995 $ 1.00 0.05 -- 0.05 (0.05) --
1996 $ 1.00 0.05 -- 0.05 (0.05) --
1997 $ 1.00 0.05 -- 0.05 (0.05) --
1998 $ 1.00 0.05 -- 0.05 (0.05) --
<CAPTION>
Distributions to
Shareholders in
Excess of
Net Investment
Period Ended August 31, Income
- ----------------------- ---------------
<S> <C>
GOVERNMENT INCOME FUND
1993(f) --
1994 --
1995 --
1996 --
1997 --
1998 --
INTERMEDIATE TAX-FREE FUND
1994(g) --
1995 --
1996 --
1997 --
1998 --
MONEY MARKET FUND--CLASS A SHARES
1993(b) --
1994 --
1995 --
1996 --
1997 --
1998 --
MONEY MARKET FUND--CLASS B SHARES
1993(h) --
1994 --
1995 --
1996 --
1997 --
1998 --
</TABLE>
(a) Reflects operations for the period from October 1, 1993 (date of initial
public investment) to August 31, 1994.
(b) Reflects operations for the period from November 23, 1992 (date of initial
public investment) to August 31, 1993.
(c) Reflects operations for the period from September 2, 1994 (date of initial
public investment) to August 31, 1995.
(d) Reflects operations for the period from September 3, 1996 (date of initial
public investment) to August 31, 1997.
(e) Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(f) Reflects operations for the period from December 14, 1992 (date of initial
public investment) to August 31, 1993.
(g) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to August 31, 1994.
(h) Reflects operations for the period from December 17, 1992 (date of initial
public investment) to August 31, 1993.
(i) Based on net asset value. (j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
Ratios to Average Net Assets
--------------------------------
Net Assets,
Net Asset Net end Portfolio
Total Value, end Total Investment Expense of period Turnover
Distributions of period Return(i) Expenses Income Waiver(k) (000 omitted) Rate
- ------------- ---------- --------- -------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.41) $10.22 6.40% 0.85%(j) 6.56%(j) 0.33%(j) $ 57,822 218%
(0.82) $ 9.26 (1.34%) 0.86% 6.58% 0.40% $ 64,823 175%
(0.62) $ 9.51 9.78% 0.86% 6.54% 0.26% $ 103,708 360%
(0.62) $ 9.27 4.02% 0.86% 6.51% 0.19% $ 138,458 268%
(0.62) $ 9.49 9.35% 0.86% 6.62% 0.38% $ 203,642 299%
(0.61) $ 9.70 8.92% 0.87% 6.38% 0.34% $ 280,313 353%
(0.19) $ 9.71 (0.94%) 0.62%(j) 3.58%(j) 0.59%(j) $ 35,212 45%
(0.42) $ 9.91 6.58% 0.61% 4.35% 0.47% $ 46,051 105%
(0.43) $ 9.83 3.57% 0.61% 4.34% 0.37% $ 65,927 41%
(0.43) $10.04 6.67% 0.61% 4.35% 0.54% $ 88,108 53%
(0.43) $10.33 7.31% 0.61% 4.22% 0.51% $ 101,592 68%
(0.02) $ 1.00 2.33% 0.40%(j) 2.97%(j) 0.28%(j) $ 7775,890 --
(0.03) $ 1.00 3.41% 0.40% 3.40% 0.29% $ 967,988 --
(0.05) $ 1.00 5.57% 0.41% 5.44% 0.26% $1,128,623 --
(0.05) $ 1.00 5.39% 0.41% 5.29% 0.26% $1,039,659 --
(0.05) $ 1.00 5.35% 0.41% 5.22% 0.26% $1,290,659 --
(0.05) $ 1.00 5.51% 0.41% 5.37% 0.25% $1,588,817 --
(0.02) $ 1.00 1.89% 0.72%(j) 2.72%(j) 0.28%(j) $ 1,980 --
(0.03) $ 1.00 3.11% 0.70% 3.39% 0.29% $ 11,929 --
(0.05) $ 1.00 5.25% 0.71% 5.21% 0.26% $ 30,331 --
(0.05) $ 1.00 5.07% 0.71% 4.92% 0.26% $ 84,711 --
(0.05) $ 1.00 5.04% 0.71% 4.93% 0.26% $ 89,485 --
(0.05) $ 1.00 5.19% 0.71% 5.12% 0.25% $ 105,125 --
</TABLE>
August 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Marshall Funds, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end management investment
company. The Corporation consists of eleven diversified portfolios (individually
referred to as the "Fund", or collectively as the "Funds") which are presented
herein:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
-------------- --------------------
<S> <C>
Marshall Equity Income Above-average dividend income with appreciation of
capital.
Fund ("Equity Income
Fund")
Marshall Large-Cap Growth of capital and income.
Growth & Income Fund
("Large-Cap Growth &
Income Fund")
Marshall Mid-Cap Value Long-term capital growth and income.
Fund ("Mid-Cap Value
Fund")
Marshall Mid-Cap Growth Appreciation of capital.
Fund ("Mid-Cap Growth
Fund")
Marshall International Long-term capital growth.
Stock Fund
("International Stock
Fund")
Marshall Small-Cap Appreciation of capital.
Growth Fund ("Small-Cap
Growth Fund")
Marshall Short-Term Maximize total return consistent with current income.
Income Fund ("Short-
Term Income Fund")
Marshall Intermediate Maximize total return consistent with current income.
Bond Fund
("Intermediate Bond
Fund")
Marshall Government Current income.
Income Fund
("Government Income
Fund")
Marshall Intermediate Provide as high a level of income that is exempt from federal
Tax-Free Fund income tax as is consistent with preservation of capital.
("Intermediate Tax-Free
Fund")
Marshall Money Market Current income consistent with stability of principal.
Fund ("Money Market
Fund")
</TABLE>
Money Market Fund is offered in two classes of shares: Class A Shares and
Class B Shares. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
On December 22, 1997, the Equity Income Fund, Mid-Cap Value Fund, and
Intermediate Bond Fund acquired portfolios of a common trust fund managed by the
Adviser. The acquisition was accomplished by a tax-free exchange at fair market
value.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND SHARES VALUE OF SHARES
- ---- ---------- ---------------
<S> <C> <C>
Equity Income Fund 10,643,152 $162,840,218
Mid-Cap Value Fund 3,632,596 $ 40,794,056
Intermediate Bond Fund 14,808,934 $140,979,572
</TABLE>
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed corporate
bonds, other fixed income and asset-backed securities, and unlisted securities
and private placement securities are generally valued at the mean of the latest
bid and asked price as furnished by an independent pricing service. Listed
equity securities and investments in closed end investment companies are valued
at the last sale price reported on a national securities exchange. Money Market
Fund's use of the amortized cost method to value portfolio securities is in
accordance with Rule 2a-7 under the Act. For fluctuating net asset value funds
within the Corporation, short-term securities are valued at the prices provided
by an independent pricing service. However, short-term securities purchased with
remaining maturities of sixty days or less may be valued at amortized cost,
which approximates fair market value. Investments in other open-end regulated
investment companies are valued at net asset value.
Repurchase Agreements--It is the policy of the Funds to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction, including accrued interest.
MARSHALL FUNDS
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' adviser (or sub-adviser with respect to International Stock Fund) to
be creditworthy pursuant to the guidelines and/or standards reviewed or
established by the Board of Directors (the "Directors"). Risks may arise from
the potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Funds could receive less than the repurchase price
on the sale of collateral securities.
Investment Income, Expenses and Distributions--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Federal Taxes--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
However, federal taxes may be imposed on International Stock Fund upon the
disposition of investments in passive foreign investment companies. Withholding
taxes on foreign dividends have been provided for in accordance with the
International Stock Fund's understanding of the applicable country's tax rules
and rates.
At August 31, 1998, the following Funds had capital loss carryforwards for
federal tax purposes, which will reduce each Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve each Fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforwards will expire as listed
below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD CARRYFORWARD CARRYFORWARD CARRYFORWARD CARRYFORWARD TOTAL CAPITAL
TO EXPIRE IN TO EXPIRE IN TO EXPIRE IN TO EXPIRE IN TO EXPIRE IN LOSS
FUND 2002 2003 2004 2005 2006 CARRYFORWARD
- ---- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Income Fund $302,405 $ 1,898,650 $ 556,158 $ 545,815 $618,371 $ 3,921,399
Intermediate Bond Fund -- 15,641,683 6,100,494 -- -- 21,742,177
Government Income Fund -- 13,905 -- 1,184,492 -- 1,198,397
</TABLE>
- --------------------------------------------------------------------------------
Net realized capital losses on Short-Term Income Fund, and Government Income
Fund of $937,735, and $416,086, respectively, attributable to security
transactions incurred after October 31, 1997, were treated as arising on the
first day of each Fund's next taxable year (September 1, 1998).
Net realized losses on International Stock Fund of $364,576, attributable to
foreign currency transactions incurred after October 31, 1997, were treated as
arising on the first day of International Stock Fund's next taxable year
(September 1, 1998).
When-Issued and Delayed Delivery Transactions--The Funds may engage in when-
issued or delayed delivery transactions. The Funds record when-issued securities
on the trade date and maintain security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
Deferred Expenses--The costs incurred by each Fund with respect to
registration of their shares in their first fiscal year, excluding the initial
expense of registering their shares, have been deferred and are being amortized
over a period not to exceed five years from each Fund's commencement date.
Futures Contracts--Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-
Cap Growth Fund and Small-Cap Growth Fund purchase stock index futures contracts
to manage cashflows, enhance yield, and to potentially reduce transaction costs.
Upon entering into a stock index futures contract with a broker, the Fund is
required to deposit in a segregated account a specified amount of cash or U.S.
government securities. Futures contracts are valued daily and unrealized gains
or losses are recorded in a "variation margin" account. Daily, the Fund receives
from or pays to the broker a specified amount of cash based upon changes in the
variation margin account. When a contract is closed, the Fund recognizes a
realized gain or loss. Futures contracts have market risks, including the risk
that the change in the value of the contract may not correlate with changes in
the value of the underlying securities.
At August 31, 1998, Mid-Cap Value Fund had no outstanding futures contracts.
At August 31, 1998, the Large-Cap Growth & Income Fund had outstanding futures
contracts as set forth below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION DATE CONTRACTS TO RECEIVE POSITION (DEPRECIATION)
- --------------- -------------------- -------- --------------
<S> <C> <C> <C>
September 1998 54 S&P 500 Long ($1,731,179)
</TABLE>
- --------------------------------------------------------------------------------
At August 31, 1998, the Mid-Cap Growth Fund had outstanding futures contracts
as set forth below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION DATE CONTRACTS TO RECEIVE POSITION (DEPRECIATION)
- --------------- -------------------- -------- --------------
<S> <C> <C> <C>
September 1998 8 S&P 500 Long ($301,101)
</TABLE>
- --------------------------------------------------------------------------------
At August 31, 1998, the Small-Cap Growth Fund had outstanding futures
contracts as set forth below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION DATE CONTRACTS TO RECEIVE POSITION (DEPRECIATION)
- --------------- -------------------- -------- --------------
<S> <C> <C> <C>
September 1998 9 Russell 2000 Long ($376,989)
</TABLE>
- --------------------------------------------------------------------------------
Foreign Exchange Contracts--International Stock Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk.
The Fund may enter into these contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date as a hedge or cross hedge
against either specific transactions or portfolio positions. The objective of
the Fund's foreign currency hedging transactions is to reduce the risk that the
U.S. dollar value of the Fund's foreign currency denominated securities will
decline in value due to changes in foreign currency exchange rates. All foreign
currency exchange contracts are "marked to market" daily at the applicable
translation rates resulting in unrealized gains or losses. Realized gains or
losses are recorded at the time the foreign currency exchange contract is
offset by entering into a closing transaction or by the delivery or receipt of
the currency. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. At August 31, 1998, International Stock Fund had outstanding
foreign exchange contracts as set forth below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN CURRENCY UNITS CONTRACTS AT APPRECIATION
SETTLEMENT DATE TO DELIVER/RECEIVE IN EXCHANGE FOR VALUE (DEPRECIATION)
- --------------- ---------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Contracts Purchased:
9/1/1998 227,880 Deutsche Mark $ 127,307 $ 129,617 $ 2,310
9/1/1998 - 9/4/1998 1,975,293 Pound Sterling $3,255,755 $3,311,184 $55,429
9/1/1998 20,586,834 Japanese Yen $ 145,336 $ 146,130 $ 794
6/3/1998 - 8/28/1998 126,459 Swedish Krona $ 16,143 $ 15,677 $ (466)
-------
Net Unrealized Appreciation
on Foreign Exchange Contracts $58,067
=======
</TABLE>
- --------------------------------------------------------------------------------
Foreign Currency Translation--The accounting records of International Stock
Fund are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FCs") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Funds do not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Dollar Roll Transactions--The Funds, except for Money Market Fund, may enter
into dollar roll transactions, with respect to mortgage securities issued by
Government National Mortgage Association, Federal National Mortgage Association
and Federal Home Loan Mortgage Corporation, in which the Funds loan mortgage
securities to financial institutions and simultaneously agree to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Funds will use the
proceeds generated from the transactions to invest in short-term investments,
which may enhance the Funds' current yield and total return.
Securities Lending--The Funds participate in a securities lending program
providing for the lending of corporate bonds, equity and government securities
to qualified brokers. The Funds receive cash as collateral in return for the
securities and record a corresponding payable for collateral due to the
respective broker. The amount of cash collateral received is maintained at a
minimum level of 100% of the market value of securities loaned plus interest.
Collateral is reinvested in short-term securities including overnight repurchase
agreements, commercial paper, master notes, floating rate corporate notes (with
at least quarterly reset rates) and money market funds. The Funds reimburse the
custodian for the costs directly associated with the Funds' participation in the
securities lending program.
As of August 31, 1998, the value of securities loaned plus interest, the
payable on collateral due to broker and the value of reinvested cash collateral
securities were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
PAYABLE ON OF REINVESTED
MARKET VALUE OF COLLATERAL COLLATERAL
FUND SECURITIES LOANED DUE TO BROKER SECURITIES
- ---- ----------------- ------------- -------------
<S> <C> <C> <C>
Equity Income Fund $118,364,448 $129,708,215 $129,708,215
Large-Cap Growth & Income Fund $ 74,722,299 $ 82,751,578 $ 82,751,578
Mid-Cap Value Fund $ 28,942,377 $ 31,496,810 $ 31,496,810
Mid-Cap Growth Fund $ 53,924,423 $ 59,647,896 $ 59,647,896
International Stock Fund $ 39,717,677 $ 46,808,306 $ 46,808,306
Intermediate Bond Fund $ 46,294,650 $ 58,878,750 $ 58,878,750
</TABLE>
- --------------------------------------------------------------------------------
Individual reinvested cash collateral securities in excess of 5% of fund net
assets at August 31, 1998 are as follows:
- --------------------------------------------------------------------------------
Repurchase Agreements:
<TABLE>
<S> <C> <C>
Prudential Securities 5.9125% 9/1/98
(Secured by asset backed
securities and corporate bonds and
notes) Equity Income Fund $129,000,000
Morgan Stanley Co., Inc. 5.9375%, 9/1/98
(Secured by asset
backed securities and corporate bonds
and notes) Large-Cap Growth Fund $ 82,000,000
Mid-Cap Value Fund $ 29,000,000
Mid-Cap Growth Fund $ 40,500,000
International Stock Fund $ 35,000,000
Intermediate Bond Fund $ 50,500,000
</TABLE>
- --------------------------------------------------------------------------------
Reclassification--Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are attributable to differing book/tax
treatments for net operating losses, passive foreign investment companies, and
foreign currency transactions. Amounts as of August 31, 1998, have been
reclassified to reflect the following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------
ACCUMULATED
NET REALIZED UNDISTRIBUTED NET
FUND NAME GAIN/LOSS INVESTMENT INCOME
- --------- ------------ -----------------
<S> <C> <C>
Mid-Cap Value Fund $228 ($228)
Mid-Cap Growth Fund ($1,775,264) $1,775,264
Small-Cap Growth Fund ($1,015,186) $1,015,186
International Stock Fund $ 233,199 ($ 233,199)
</TABLE>
- --------------------------------------------------------------------------------
Net investment income, net realized gains/losses, and net assets were not
affected by this change.
Restricted Securities--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Directors. The Fund
will not incur any registration costs upon such resale's. International Stock
Fund's and Government Income Fund's restricted securities are valued at the
price provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing committee.
Money Market Fund's restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Act.
Additional information on each restricted security held by International Stock
Fund at August 31, 1998, is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE(S) ACQUISITION COST
- -------- ------------------- ----------------
<S> <C> <C>
Qantas Airways Ltd., ADR 7/31/95-3/7/96 $832,512
MOL Magyar Olay, ADR 11/22/95-5/7/96 $806,418
</TABLE>
- --------------------------------------------------------------------------------
Additional information on the restricted security held by Government Income
Fund at August 31, 1998, is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
- -------- ---------------- ----------------
<S> <C> <C>
Nations Credit Home Equity Loan Trust 10/31/97 $3,118,584
</TABLE>
- --------------------------------------------------------------------------------
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
Other--Investment transactions are accounted for on the trade date.
- --------------------------------------------------------------------------------
3. CAPITAL STOCK
The Articles of Incorporation permit the Directors to issue 50 billion full
and fractional shares of common stock, par value $0.0001 per share. At August
31, 1998, the capital paid-in was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND CAPITAL PAID-IN
- ---- ---------------
<S> <C>
Equity Income Fund $ 389,898,889
Large-Cap Growth & Income Fund $ 197,692,483
Mid-Cap Value Fund $ 118,368,222
Mid-Cap Growth Fund $ 181,485,509
International Stock Fund $ 212,074,457
Small-Cap Growth Fund $ 95,334,302
Short-Term Income Fund $ 137,022,819
Intermediate Bond Fund $ 601,920,571
Government Income Fund $ 277,510,971
Intermediate Tax-Free Fund $ 97,576,723
Money Market Fund $1,693,941,745
</TABLE>
- --------------------------------------------------------------------------------
Transactions in capital stock were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------- ---------------------- ----------------------
LARGE-CAP GROWTH &
EQUITY INCOME FUND INCOME FUND MID-CAP VALUE FUND
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 15,738,873 10,346,734 4,089,991 3,109,742 5,453,000 2,321,462
Shares issued to
shareholders in payment
of distributions
declared 1,937,827 598,334 1,725,616 2,355,870 1,866,937 1,614,014
Shares redeemed (6,501,126) (3,074,398) (4,377,201) (6,850,139) (5,229,996) (9,178,441)
---------- ---------- ---------- ---------- ---------- ----------
Net change resulting
from share transactions 11,175,574 7,870,670 1,438,406 (1,384,527) 2,089,941 (5,242,965)
========== ========== ========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------- ----------------------- ------------------------
SMALL-CAP
MID-CAP INTERNATIONAL GROWTH
GROWTH FUND STOCK FUND FUND
---------------------- ----------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997 1998 1997*
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 6,547,612 6,045,656 11,989,024 7,818,946 5,767,967 5,546,179
Shares issued to
shareholders in payment
of distributions
declared 1,710,267 534,978 545,806 197,927 199,269 --
Shares redeemed (5,865,009) (3,856,291) (10,197,589) (3,814,168) (2,462,788) (917,613)
---------- ---------- ----------- ---------- ---------- ---------
Net change resulting
from share transactions 2,392,870 2,724,343 2,337,241 4,202,705 3,504,448 4,628,566
========== ========== =========== ========== ========== =========
</TABLE>
- --------------------------------------------------------------------------------
* For the period from September 3, 1996 (date of initial public investment) to
August 31, 1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------- ----------------------- ----------------------
SHORT-TERM INTERMEDIATE GOVERNMENT
INCOME FUND BOND FUND INCOME FUND
---------------------- ----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 7,082,890 9,291,644 26,987,634 10,675,888 10,236,771 8,834,407
Shares issued to
shareholders in payment
of distributions
declared 451,547 356,927 1,392,283 1,513,322 916,492 646,704
Shares redeemed (9,105,232) (4,738,729) (9,172,629) (13,568,319) (3,711,734) (2,966,414)
---------- ---------- ---------- ----------- ---------- ----------
Net change resulting
from share transactions (1,570,795) 4,909,842 19,207,288 (1,379,109) 7,441,529 6,514,697
========== ========== ========== =========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------
INTERMEDIATE
TAX-FREE FUND
----------------------
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
---------- ----------
<S> <C> <C>
Shares sold 2,704,411 2,962,645
Shares issued to shareholders in payment of
distributions declared 36,231 31,656
Shares redeemed (1,685,066) (923,630)
---------- ---------
Net change resulting from share transactions 1,055,576 2,070,671
========== =========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------
MONEY MARKET FUND
------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
-------------- --------------
CLASS A SHARES
<S> <C> <C>
Shares sold 4,913,792,441 3,774,164,146
Shares issued to shareholders in payment of
distributions declared 13,477,063 12,155,219
Shares redeemed (4,629,111,222) (3,535,320,070)
-------------- --------------
Net change resulting from Class A Share
transactions 298,158,282 250,999,295
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------
MONEY MARKET FUND
--------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
---------- ----------
CLASS B SHARES
<S> <C> <C>
Shares sold 565,397,457 613,879,666
Shares issued to shareholders in payment of
distributions declared 4,608,650 4,997,688
Shares redeemed (554,366,232) (614,103,576)
------------ ------------
Net change resulting from Class B Share
transactions 15,639,875 4,773,778
------------ ------------
Net change resulting from Fund Share
transactions 313,798,157 255,773,073
============ ============
</TABLE>
- --------------------------------------------------------------------------------
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee--M&I Investment Management Corp., the Funds'
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee based on a percentage of each Fund's average daily net
assets as listed below. The Adviser may voluntarily choose to waive any portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- ---- -----------
<S> <C>
Equity Income Fund 0.75%
Large-Cap Growth & Income Fund 0.75%
Mid-Cap Value Fund 0.75%
Mid-Cap Growth Fund 0.75%
International Stock Fund 1.00%
Small-Cap Growth Fund 1.00%
Short-Term Income Fund 0.60%
Intermediate Bond Fund 0.60%
Government Income Fund 0.75%
Intermediate Tax-Free Fund 0.60%
Money Market Fund 0.50%
</TABLE>
- --------------------------------------------------------------------------------
Templeton Investment Counsel, Inc., is the sub-adviser ( the "Sub-Adviser")
for International Stock Fund. The Adviser compensates the Sub-Adviser based on
the level of average aggregate daily net assets of International Stock Fund.
Administrative Fee--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Funds with administrative
personnel and services. The fee paid to FAS is based on the level of average
aggregate daily net assets of the Corporation for the period except for the
Small Cap Growth Fund which is based on the Fund's average daily net assets.
Distribution Services Fee--Money Market Fund has adopted a Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Money Market Fund will compensate Federated Securities Corp. ("FSC"), the
principal distributor, from the net assets of Money Market Fund to finance
activities intended to result in the sale of shares of Money Market Fund's Class
B Shares. The Plan provide that Money Market Fund may incur distribution
expenses up to 0.30% of the average daily net assets of Money Market Fund's
Class B Shares annually, to compensate FSC.
Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services Company ("FSSC"), the Funds (except for
Money Market Fund) will pay FSSC up to 0.25% of average daily net assets of the
Funds for the period. The fee paid to FSSC is used to finance certain services
for shareholders and to maintain shareholder accounts. FSSC may voluntarily
choose to waive any portion of its fee. FSSC can modify or terminate this
voluntary waiver at any time at its sole discretion. Marshall Funds Investor
Services ("MFIS") is the shareholder servicing agent for the Money Market Fund.
The Money Market Fund may pay MFIS a fee equal to approximately 0.02% of the
average daily net assets for the period of the Fund shares for which MFIS
provides shareholder services. MFIS may voluntarily choose to waive any portion
of its fee. MFIS can modify or terminate this voluntary waiver at any time at
its sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses--Federated Services
Company ("FServ") through its subsidiary, FSSC, serves as transfer and dividend
disbursing agent for the Funds. The fee paid to FSSC is based on the size, type,
and number of accounts and transactions made by shareholders.
Portfolio Accounting Fees--FServ maintains the Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses. FServ may
voluntarily choose to waive any portion of its fee.
Custodian Fees--Marshall & Ilsley Trust Co. is the Funds' custodian. Marshall
& Ilsley Trust Co. receives fees based on the level of each Fund's average
daily net assets for the period. The custodian also charges a fee in connection
with securities lending activities of the Funds.
Interfund Transactions--During the year ended August 31, 1998, the Equity
Income Fund, Mid-Cap Value Fund, and Intermediate Bond Fund engaged in purchase
transactions with mutual funds and/or common trust funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase transactions were
made at current market value pursuant to Rule 17a-7 under the Act and were
attributable to a conversion of the assets of common trust fund into the funds.
Interfund transactions were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND PURCHASES
- ---- ------------
<S> <C>
Equity Income Fund $145,620,685
Mid-Cap Value Fund $ 36,406,907
Intermediate Bond Fund $127,492,457
</TABLE>
- --------------------------------------------------------------------------------
Organizational Expenses--Organizational expenses were borne initially by FAS.
The Funds have reimbursed FAS for these expenses. These expenses have been
deferred and are being amortized over the five-year period following each Fund's
effective date. For the period ended August 31, 1998, the Funds expensed the
following pursuant to this agreement:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ORGANIZATIONAL ORGANIZATIONAL
FUND EXPENSES EXPENSES PAID
- ---- -------------- --------------
<S> <C> <C>
International Stock Fund $18,401 $5,055
Small-Cap Growth Fund $35,592 $6,755
Intermediate Tax-Free Fund $16,416 $5,836
</TABLE>
- --------------------------------------------------------------------------------
General--Certain of the Officers and Directors of the Corporation are Officers
and Directors of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities and
conversion securities, for the period ended August 31, 1998, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ---- -------------- --------------
<S> <C> <C>
Equity Income Fund $ 296,328,525 $ 328,811,260
Large-Cap Growth & Income Fund $ 94,573,093 $ 122,127,307
Mid-Cap Value Fund $ 90,289,005 $ 140,588,991
Mid-Cap Growth Fund $ 356,766,693 $ 362,192,136
International Stock Fund $ 270,278,951 $ 224,826,455
Small-Cap Growth Fund $ 148,079,596 $ 110,289,187
Short-Term Income Fund $ 117,315,622 $ 115,037,973
Intermediate Bond Fund $ 736,360,822 $ 701,565,363
Government Income Fund $1,197,744,092 $1,053,484,528
Intermediate Tax-Free Fund $ 75,806,697 $ 63,937,705
</TABLE>
- --------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
International Stock Fund invests in equity and fixed income securities of
non-U.S. issuers. Although the Fund maintains a diversified investment
portfolio, the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to meet
their obligations. Additionally, political or economic developments may have an
effect on the liquidity and volatility of portfolio securities and currency
holdings.
7. YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Funds could be adversely
affected if the computer systems used by the Funds' service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. The Funds' Adviser and administrator are taking measures that
they believe are reasonably designed to address the Year 2000 issue with respect
to computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Funds' other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Funds.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
MARSHALL EQUITY INCOME FUND
MARSHALL LARGE-CAP GROWTH & INCOME FUND
MARSHALL MID-CAP VALUE FUND MARSHALL MID-CAP GROWTH FUND MARSHALL INTERNATIONAL
STOCK FUND MARSHALL SMALL-CAP GROWTH FUND MARSHALL SHORT-TERM INCOME FUND
MARSHALL INTERMEDIATE BOND FUND MARSHALL GOVERNMENT INCOME FUND MARSHALL
INTERMEDIATE TAX-FREE FUND MARSHALL MONEY MARKET FUND
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio of investments of the Marshall Equity Income Fund,
the Marshall Large-Cap Growth & Income Fund, the Marshall Mid-Cap Value Fund,
the Marshall Mid-Cap Growth Fund, the Marshall International Stock Fund, the
Marshall Small-Cap Growth Fund, the Marshall Short-Term Income Fund, the
Marshall Intermediate Bond Fund, the Marshall Government Income Fund, the
Marshall Intermediate Tax-Free Fund, and the Marshall Money Market Fund (the
eleven portfolios constituting the Marshall Funds, Inc., a Wisconsin
corporation), as of August 31, 1998, and the related statements of operations,
changes in net assets and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmation from brokers
and, when replies were not received, we carried out other alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Marshall Funds, Inc., as
identified above, the results of their operations, the changes in their net
assets and their financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
October 23, 1998
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[This Page Intentionally Left Blank]
DIRECTORS OFFICERS
John DeVincentis John M. Blaser
Ody J. Fish President
Edward C. Gonzales
Paul E. Hassett Joseph S. Machi
Vice President and Assistant Treasurer
Edward C. Gonzales
Treasurer
Peter J. Germain
Secretary
Brooke J. Billick
Assistant Secretary
C. Todd Gibson
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance
that they will be able to do so.
Thisreport is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus, which contains facts
concerning each Fund's objective and policies, management
fees, expenses, and other information.
Marshall Funds
Marshall Funds Investor Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
1-800-236-FUND (3863) or 414-287-8595
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com
Federated Securities Corp., Distributor G01126-01 (10/98)
1A. The graphic representation here displayed consists of two charts. One
chart outlines the top five industries that the Marshall Equity Income Fund
("Equity Income Fund") invests in as well as its percentage of net assets as of
August 31, 1998. The information is as follows: Domestic & International Oil,
17.2%; Banks, 13.1%; Telecommunications, 9.4%; Healthcare, 9.3%; Electric, 6.6%.
The second chart outlines the Equity Income Fund's five largest stock holdings
and its percentage of net assets as of August 31, 1998. The information is as
follows: Exxon Corp., 3.3%; Philip Morris Companies, Inc., 2.7%; SBC
Communications, Inc., 2.4%; Chevron Corp., 2.2%; AT&T Corp., 2.1%.
2A. The graphic representation here displayed consists of one chart. The
chart outlines the average annual total returns for the Equity Income Fund as of
August 31, 1998 for the 1-year, 3-year, and since inception (9/30/93) periods.
The returns are as follows: 0.04%; 16.66%; and 13.75%, respectively.
3A. The graphic presentation here displayed consists of a line graph. The
corrresponding components of the line graph are listed beneath the graphic
presentation. The Equity Income Fund is represented by a solid line, whereas
Standard & Poor's 500 Index ("S&P 500") is represented by a broken dotted line
and Lipper Equity Income Funds Index ("LEIFI") is represented by a dotted line.
The line graph is a visual representation of a comparison of change in value of
a hypothetical investment of $10,000 in the Equity Income Fund and S&P 500 and
LEIFI from its inception on September 30, 1993 to August 31, 1998. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation periods
from the ending value of the hypothetical investment in the Equity Income Fund
as compared to S&P 500 and LEIFI; the ending values are $18,854; $23,306; and
$18,153, respectively.
1B. The graphic representation here displayed consists of two charts. One
chart outlines the top five industries that the Marshall Large-Cap Growth &
Income Fund ("Large-Cap Growth & Income Fund") invests in as well as its
percentage of net assets as of August 31, 1998. The information is as follows:
Telecommunications, 9.7%; Computer Services, 8.8%; Beverages & Foods, 7.4%;
Retail, 7.0%; Drugs, 6.8%. The second chart outlines the Large-Cap Growth &
Income Fund's five largest stock holdings and its percentage of net assets as of
August 31, 1998. The information is as follows: General Electric Company, 3.5%;
Exxon Corp., 2.8%; Microsoft Corp., 2.7%; Abbott Laboratories, 2.2%; and Philip
Morris Cos., Inc., 2.2%.
2B. The graphic representation here displayed consists of one chart. The chart
outlines the average annual total returns for the Large-Cap Growth & Income Fund
as of August 31, 1998 for the 1-year, 3-year, 5-year and since inception
(11/20/92) periods. The returns are as follows: 3.44%, 15.78%; 12.74%; and
11.25%, respectively.
3B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Large-Cap Growth & Income Fund is represented by a solid line,
whereas Standard & Poor's 500 Index ("S&P 500") is represented by a broken
dotted line and Lipper Growth and Income Funds Index ("LGIFI") is represented by
a dotted line. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Large-Cap Growth
& Income Fund and S&P 500 and LGIFI from its inception on November 20, 1992 to
August 31, 1998. The "y" axis reflects the cost of the investment. The "x"
axis reflects computation periods from the ending value of the hypothetical
investment in the Large-Cap Growth & Income Fund as compared to S&P 500 and
LGIFI; the ending values are $18,519; $25,386; and $21,563, respectively.
1C. The graphic representation here displayed consists of two charts. One
chart outlines the top five industries that the Marshall Mid-Cap Value Fund
("Mid-Cap Value Fund") invests in as well as its percentage of net assets as of
August 31, 1998. The information is as follows: Electric Utilities, 9.4%;
Beverages & Foods, 8.4%; Services - Consumer, 6.9%; Services -
Telecommunications, 6.6%; Insurance, 6.2%. The second chart outlines the Mid-Cap
Value Fund's five largest stock holdings and its percentage of net assets as of
August 31, 1998. The information is as follows: UST, Inc., 2.7%; Unocal Corp.,
2.7%; Texas Utilities Co., 2.6%; Tenet Healthcare Corp., 2.5%; and IPC Holdings
LTD., 2.5%.
2C. The graphic representation here displayed consists of one chart. One chart
outlines the average annual total returns for the Mid-Cap Value Fund as of
August 31, 1998 for the 1-year, 3-year, and since inception (9/30/93) periods.
The returns are as follows: (7.75%); 9.23%; and 10.53%, respectively.
3C. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Mid-Cap Value Fund is represented by a solid line, whereas
Standard & Poor's Mid-Cap 400 Index ("SPMC") is represented by a broken dotted
line and Lipper Mid-Cap Funds Index ("LMCFI") is represented by a dotted line.
The line graph is a visual representation of a comparison of change in value of
a hypothetical investment of $10,000 in the Mid-Cap Value Fund and SPMC and
LMCFI, from its inception on September 30, 1993 to August 31, 1998. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation periods
from the ending value of the hypothetical investment in the Mid-Cap Value Fund
as compared to SPMC and LMCFI, the ending values are $16,369; $17,364; and
$15,403, respectively.
1D. The graphic representation here displayed consists of two charts. One
chart outlines the top five industries that the Marshall Mid-Cap Growth Fund
("Mid-Cap Growth Fund") invests in as well as its percentage of net assets as of
August 31, 1998. The information is as follows: Computer Services, 14.2%;
Retail, 11.3%; Broadcasting, 8.9%; Health Care, 6.5%; Leisure & Recreation,
6.2%. The second chart outlines the Mid-Cap Growth Fund's five largest stock
holdings and its percentage of net assets as of August 31, 1998. The information
is as follows: Kohl's Corp., 4.2%; Jacor Communications, Inc., 3.5%; Bed, Bath &
Beyond, Inc., 2.9%; Lexmark International Group, 2.7%; and Transaction Systems
Architects, Inc., 2.7%.
2D. The graphic representation here displayed consists of one chart. The chart
outlines the average annual total returns for the Mid-Cap Growth Fund as of
August 31, 1998 for the 1-year, 3-year, and since inception (9/30/93) periods.
The returns are as follows: (8.77%); 8.93%; and 9.98%, respectively.
3D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Mid-Cap Growth Fund is represented by a solid line, whereas
Standard & Poor's Mid-Cap 400 Index ("SPMC") is represented by a broken dotted
line and the Lipper Mid-Cap Funds Index ("LMCFI") is represented by a dotted
line. The line graph is a visual representation of a comparison of change in
value of a hypothetical investment of $10,000 in the Mid-Cap Growth Fund and
SPMC and LMCFI from its inception on September 30, 1993 to August 31, 1998.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypothetical investment in the
Mid-Cap Growth Fund as compared to SPMC and LMCFI; the ending values are
$15,975; $17,364; and $15,403, respectively.
1E. The graphic presentation here displayed consists of four charts. One
chart outlines the top five industries that the Marshall International Stock
Fund ("International Stock Fund") invests in as well as its percentage of net
assets as of August 31, 1998. The information is as follows: Telephone, 12.9%;
Banking, 11.8%; U.S. Treasury Securities, 7.1%; Electric Utilities,5.3%; and
Conglomerates, 4.4%. The second chart outlines the International Stock Fund's
five largest stock holdings and its percentage of net assets as of August 31,
1998. The information is as follows: Zurich Versicherungsgesellschaft, 2.5%;
AXA, 2.4%; TeleDanmark A.S., Class B, 2.2%; Philips Electronics N.V., 2.1%; and
Telefonica SA, 2.0%. The third chart outlines the International Stock Fund's
regional exposure and its percentage of net assets as of August 31, 1998. The
information is as follows: Europe, 59.8%; Pacific Rim, 11.9%; North America,
6.4%; Australia/New Zealand, 6.1%; and South America, 5.4%. The fourth chart
outlines the International Stock Fund's country allocations and its percentage
of net assets as of August 31, 1998. The information is as follows: Great
Britain, 14.1%; France, 9.0%;Hong Kong, 6.7%; Spain, 6.7%; and Australia/New
Zealand, 6.1%.
2E. The graphic representation here displayed consists of two charts. One chart
outlines the average annual total returns for the International Stock Fund as of
August 31, 1998 for the 1-year, 3-year and since inception (9/1/94) periods.
The returns are as follows: (9.09%), 7.62% and 6.21%, respectively.
3E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The International Stock Fund is represented by a solid line,
whereas the Morgan Stanley Capital Europe, Australia, Far East Index ("EAFE") is
represented by a broken line and the Lipper International Funds Index ("LIFI")
is represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
International Stock Fund and EAFE and LIFI from its inception on September 1,
1994 to August 31, 1998. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the ending value of the hypothetical
investment in the International Stock Fund as compared to EAFE and LIFI; the
ending values are $12,411; $11,805; and $12,526, respectively.
1F. The graphic representation here displayed consists of two charts. One
chart outlines the top five industries that the Marshall Small-Cap Growth Fund
("Small-Cap Growth Fund") invests in as well as its percentage of net assets as
of August 31, 1998. The information is as follows: Services, 18.7%; Commercial
Services, 12.0%; Other Capital Goods, 8.3%; Retail, 7.2%; Computer Services,
7.1%. The second chart outlines the Small-Cap Growth Fund's five largest stock
holdings and its percentage of net assets as of August 31, 1998. The information
is as follows: CSG Systems International, Inc., 3.5%; Henry Schein, Inc., 3.4%;
Kellstorm Industries, Inc., 3.2%; Transaction Systems Architects, Inc., 3.1%;
and Windmere Corp., 3.0%.
2F. The graphic representation here displayed consists of one chart. The
chart outlines the average annual total returns for the Small-Cap Growth Fund as
of August 31, 1998 for the 1-year and since inception (11/1/95) periods. The
returns are as follows: (16.25%) and 20.48%, respectively.
3F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Small-Cap Growth Fund is represented by a solid line, whereas
the Russell 2000 Index ("Russell 2000") is represented by a broken dotted line
and Lipper Small Cap Funds Index ("LSCFI") is represented by a dotted line. The
line graph is a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the Small-Cap Growth Fund and Russell 2000
and LSCFI from its inception on November 1, 1995 to August 31, 1998. The "y"
axis reflects the cost of the investment. The "x" axis reflects computation
periods from the ending value of the hypothetical investment in the Small-Cap
Growth Fund as compared to Russell 2000 and LSCFI; the ending values are
$16,949; $11,845; and $10,786, respectively.
1G. The graphic representation here displayed consists of two charts. One
chart outlines the portfolio diversification of the Marshall Short-Term Income
Fund ("Short-Term Income Fund") as well as its percentage of net assets as of
August 31, 1998. The information is as follows: AAA Rated Corporate Bonds,
28.1%; A Rated Corporate Bonds, 16.7%; Government Agency, 15.7%; BBB Rated
Corporate Bonds, 14.0%; Cash & Cash Equivalents, 12.0%; U.S. Treasury, 7.8%; and
AA Rated Corporate Bonds, 0.6%. The second chart outlines the Short-Term Income
Fund's fund statistics as of August 31, 1998. The information is as follows: SEC
30-day yield, 5.50%; Dollar-weighted average maturity, 2.15 years; Duration,
1.25 years.
2G. The graphic representation here displayed consists of one chart. The chart
outlines the average annual total returns for the Short-Term Income Fund as of
August 31, 1998 for the 1-year, 3-year, 5-year and since inception (11/1/92)
periods. The returns are as follows: 6.22%; 6.11%; 5.35%; and 5.20%,
respectively.
3G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Short-Term Income Fund is represented by a solid line, whereas
the Lipper Short-Term Investment Grade Bond Fund Index ("LSTIBI") is represented
by a broken line and IBC/Donoghue's Taxable Money Fund Average ("DMFA") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Short-Term Income Fund and LSTIBI and DMFA from its inception on November 1,
1992 to August 31, 1998. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the ending value of the hypothetical
investment in the Short-Term Income Fund as compared to LSTIBI and DMFA; the
ending values are $13,442; $13,641; and $12,891, respectively.
1H. The graphic representation here displayed consists of two charts. One
chart outlines the portfolio diversification of the Marshall Intermediate Bond
Fund ("Intermediate Bond Fund") as well as its percentage of net assets as of
August 31, 1998. The information is as follows: Government Agency, 26.6%; BBB
Rated Corporate Bonds, 19.6%; U.S. Treasury, 15.9%; A Rated Corporate Bonds,
14.0%; AAA Rated Corporate Bonds, 13.2%; AA Rated Corporate Bonds, 5.5%; Cash &
Cash Equivalents, 1.7%; and BB Rated Corporate Bonds, 0.8%. The second chart
outlines the Intermediate Bond Fund's fund statistics as of August 31, 1998. The
information is as follows: SEC 30-day yield, 5.73%; Dollar-weighted average
maturity, 4.39 years; Duration, 2.93 years.
2H. The graphic representation here displayed consists of one chart. The chart
outlines the average annual total returns for the Intermediate Bond Fund as of
August 31, 1998 for the 1-year, 3-year, 5-year and since inception (11/23/92)
periods. The returns are as follows: 8.00%; 6.62%; 5.22%; and 5.90%,
respectively.
3H. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Intermediate Bond Fund is represented by a solid line, whereas
Lehman Brothers Government/Corporate Bond Index ("LGCI") is represented by a
broken dotted line and Lipper Intermediate Investment Grade Bond Funds Index
("LIBF") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical investment
of $10,000 in the Intermediate Bond Fund and LGCI and LIBF from its inception on
November 23, 1992 to August 31, 1998. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Intermediate Bond Fund as compared to LGCI
and LIBF; the ending values are $13,928; $14,753; and $14,859, respectively.
1I. The graphic representation here displayed consists of two charts. One
chart outlines the portfolio diversification of the Marshall Government Income
Fund ("Government Income Fund") as well as its percentage of net assets as of
August 31, 1998. The -information is as follows: CMO/ABS, 34.4%; FHLMC/MBS,
28.9%; GNMA/MBS, 28.5%; FNMA/MBS, 15.0%; Corporate, 10.8%; and U.S. Treasury,
15.1%. The second chart outlines the Government Income Fund's fund statistics as
of August 31, 1998. Theinformation is as follows: SEC 30-day yield, 5.24%;
Dollar-Weighted Average Maturity, 7.92 years; Duration, 3.81 years.
2I. The graphic representation here displayed consists of one chart. The chart
outlines the average annual total returns for the Government Income Fund as of
August 31, 1998 for the 1-year, 3-year, 5-year and since inception (12/13/92)
periods. The returns are as follows: 8.92%; 7.40%; 6.06%; and 6.42%,
respectively.
3I. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Government Income Fund is represented by a solid line, whereas
Lehman Brothers Mortgage-Backed Securities Index ("LMI") is represented by a
broken dotted line and Lipper U.S. Mortgage Funds Index ("LUSMI") is represented
by a dotted line. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Government Income
Fund and LMI and LUSMI from its inception on December 13, 1992 to August 31,
1998. The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypothetical investment in the
Government Income Fund as compared to LMI and LUSMI; the ending values are
$14,279; $15,042; and $14,181, respectively.
1J. The graphic representation here displayed consists of two charts. One chart
outlines the portfolio diversification of the Marshall Intermediate Tax-Free
Fund ("Intermediate Tax-Free Fund") as well as its percentage of net assets as
of August, 1998. The information is as follows: Texas, 14.7%; New York,
11.7%; Ohio, 7.0%; Utah, 6.2%; Illinois, 6.1%. The second chart outlines
the Intermediate Tax-Free Fund's fund statistics as of August 31, 1998. The
information is as follows: SEC 30-day yield, 3.94%; Dollar-Weighted Average
Maturity, 7.73 years; Duration, 6.52 years.
2J. The graphic representation here displayed consists of one chart. The chart
outlines the average annual total returns for the Intermediate Tax-Free Fund as
of August 31, 1998 for the 1-year, 3-year, and since inception (2/2/94)
periods. The returns are as follows: 7.31%; 5.84%; and 5.02%, respectively.
3J. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Intermediate Tax-Free Fund is represented by a solid line,
whereas Lehman Brothers 5 Year G.O. Index ("L5GO") is represented by a broken
line, Lipper Intermediate Municipal Funds Index ("LIMI") is represented by a
dotted line, and Lehman Brothers 7 Year G.O. ("L7GO") is represented by a broken
dotted line. The line graph is a visual representation of a comparison of change
in value of a hypothetical investment of $10,000 in the Intermediate Tax-Free
Fund and L5GO, LIMI and L7GO from its inception on February 2, 1994 to August
31, 1998.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypotheticalinvestment in the
Intermediate Tax-Free Fund as compared to L5GO, LIMI and L7GO; the ending values
are $12,518; $12,621; $13,460; and $13,258, respectively.
K. The graphic representation here displayed consists of one chart which
outlines the Marshall Money Market Fund's fund statistics as of August 31,
1998. The information is as follows: Current Yield, Class A Shares--5.32%; Class
B Shares--5.02%; Effective Yield, Class A Shares--5.46%; Class B Shares, 5.14%;
Dollar-Weighted Avg. Maturity, 41 days.
