1933 Act File No. 33-48907
1940 Act File No. 811-7047
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----
Pre-Effective Amendment No. ....................
Post-Effective Amendment No. 22 .................... X
------- ----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 22 .................................. X
-------- ----
MARSHALL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notice should be sent to the Agent for Service)
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to paragraph (b)
on _________________, 19__ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
_ 75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro, Morin, & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
[LOGO OF MARSHALL FUNDS] Class Y Shares
- ------------------------------------------------------------------------------
Equity Funds Income Funds
Marshall Equity Income Fund Marshall Short-Term Income Fund
Marshall Large-Cap Growth & Income Fund Marshall Intermediate Bond Fund
Marshall Mid-Cap Value Fund Marshall Government Income Fund
Marshall Mid-Cap Growth Fund Marshall Intermediate Tax-Free Fund
Marshall International Stock Fund
Marshall Small-Cap Growth Fund
Money Market Fund
Marshall Money Market Fund
Table of Contents
- ------------------------------------------------------------------------------
Fund Information
Investment Risks............................... 2
Fund Goals, Strategies and Performance
.. Equity Funds
Marshall Equity Income Fund.................. 3
Marshall Large Cap Growth &Income Fund....... 3
Marshall Mid-Cap Value Fund.................. 4
Marshall Mid-Cap Growth Fund................. 4
Marshall International Stock Fund............ 5
Marshall Small-Cap Growth Fund............... 5
.. Income Funds
Marshall Short-Term Income Fund.............. 6
Marshall Intermediate Bond Fund.............. 6
Marshall Government Income Fund.............. 7
Marshall Intermediate Tax-Free Fund.......... 7
.. Money Market Fund
Marshall Money Market Fund................... 8
Summary of Fund Expenses....................... 9
What are the Main Risks of Investing in the
Marshall Funds?.............................11
How to Buy Shares...............................13
How to Redeem and Exchange Shares...............16
Account and Share Information...................19
Marshall Funds, Inc. Information................22
Financial Highlights............................24
Shares of the Marshall Funds, like shares of all mutual funds, are not bank
deposits, federally insured, or guaranteed, and may lose value.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Prospectus
December 31, 1998
Investment Risks
- -------------------------------------------------------------------------------
[INSERT GRAPHIC]
What is a Mutual Fund?
A mutual fund is a registered investment company that offers an affordable,
diversified and professionally managed way for people to invest in the financial
marketplace. A mutual fund pools the money of its shareholders to invest in a
"mix" of securities, called a portfolio, that pursues a specific objective. The
money earned from the portfolio of investments is distributed back to
shareholders as dividends, or, if any securities are sold at a profit, as
capital gains.
The Marshall Funds offer investment opportunities to a wide range of investors,
from investors with short-term goals who wish to take little investment risk to
investors with long-term goals willing to bear the risks of the stock market for
potentially greater rewards. The Marshall Funds are managed by the investment
professionals at M&I Investment Management Corp. (Adviser).
General Risks. In all types of investments, reward and risk go hand in hand. All
mutual funds, including the Marshall Funds, take investment risks. For example,
equity funds must contend with the volatility and unpredictability of the U.S.
stock market. Funds that focus on stocks of smaller companies have special risks
since those stocks have historically been more volatile than stocks of larger
companies. International funds may experience additional uncertainty in foreign
markets and with foreign currency transactions. Income and bond funds invest in
debt securities, the price of which can be expected to decrease when interest
rates increase. Mortgage-backed and asset-backed securities are subject to
prepayment risks, which generally occur when interest rates fall.
An investment in any of the Marshall Funds is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Loss of money is a risk of investing in any of the Marshall
Funds.
[INSERT GRAPHIC]
Equity Funds
Marshall Small-Cap Growth Fund
Marshall International Stock Fund
Marshall Mid-Cap Growth Fund
Marshall Mid-Cap Value Fund
Marshall Large-Cap Growth & Income Fund
Marshall Equity Income Fund
Income Funds
Marshall Government Income Fund
Marshall Intermediate Tax-Free Fund
Marshall Intermediate Bond Fund
Marshall Short-Term Income Fund
Money Market Fund
Marshall Money Market Fund
Fund Goals, Strategies, and Performance
Equity Funds
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Marshall Equity Income Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation and above-average dividend income.
Strategy: The Fund invests in a diversified portfolio of large-sized companies
whose market capitalizations exceed $10 billion. The Fund attempts to generate
dividend income at least 1% more than the income earned on stocks in the S&P 500
Index.
Annual Total Return (calendar years 1994-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 10.91%
Worst quarter (1Q94) (5.03%)
Average Annual Total Return through 12/31/97*
Since 9/30/93 1998 YTD
inception 1 Year through 9/30/98
Fund 18.50% 27.53% (1.07%)
S&P500 22.19% 33.36% X.XX%
LEIFI 17.13% 27.23% X.XX%
Marshall Large-Cap Growth & Income Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation and income.
Strategy: The Fund invests in a diversified portfolio of large-sized companies
whose market capitalizations exceed $10 billion and that have a history of
stable earnings and/or growing dividends. The Adviser looks for companies that
are typically leaders in their industry and have records of above-average
financial performance and proven superior management.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 15.37%
Worst quarter (1Q94) (4.91%)
Average Annual Total Return through 12/31/97*
Since 11/20/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 13.43% 26.24% 13.42% 2.86%
S&P500 20.08% 20.27% 33.36% X.XX%
LGIFI 26.27% 17.58% 27.05% X.XX%
*The table shows each Fund's average annual total returns compared to a
broad-based market index over a period of time. In addition, the performance of
Equity Income Fund is compared to the Lipper Equity Income Funds Index (LEIFI),
and the performance of Large-Cap Growth & Income Fund is compared to the Lipper
Growth & Income Funds Index (LGIFI), which are indices of funds with similar
investment objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Equity Funds (cont.)
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Marshall Mid-Cap Value Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation and income.
Strategy: The Fund invests generally in companies similar in size to those
within the S&P Mid-Cap 400 Index (SPMC). The Adviser selects companies that
exhibit traditional value characteristics, such as a price-to-earnings ratio
less than stocks in the S&P 500, higher-than-average dividend yields and a
lower-than-average price-to-book value. In addition, these companies may have
under appreciated assets, or be involved in company turnarounds or corporate
restructurings.
Annual Total Return (calendar years 1994-1997)
[INSERT APPENDIX]
Total Return
Best quarter (3Q97) 11.18%
Worst quarter (4Q94) (4.20%)
Average Annual Total Return through 12/31/97*
Since 9/30/93 1998 YTD
inception 1 Year through 9/30/98
Fund 15.39% 23.38% (6.42%)
SPMC 18.31% 32.22% X.XX%
LMCFI 15.28% 19.58% X.XX%
Marshall Mid-Cap Growth Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation.
Strategy: The Fund invests generally in companies similar in size to those
within the S&P Mid-Cap 400 Index (SPMC). The Adviser selects stocks of companies
with above-average earnings growth potential or where significant changes are
taking place, such as significant new products, services, or methods of
distribution, as well as overall business restructuring.
Annual Total Return (calendar years 1994-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 17.80%
Worst quarter (1Q97) (9.08%)
Average Annual Total Return through 12/31/97*
Since 9/30/93 1998 YTD
inception 1 Year through 9/30/98
Fund 16.28% 22.73% (11.40%)
SPMC 18.31% 32.22% X.XX%
LMCFI 15.28% 19.58% X.XX%
*The table shows each Fund's average annual total returns compared to a
broad-based market index over a period of time. In addition, the performance of
Mid-Cap Value Fund and Mid-Cap Growth Fund are compared to the Lipper Mid-Cap
Funds Index (LMCFI), which is an index of funds with similar investment
objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Equity Funds (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall International Stock Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation.
Strategy: The Fund invests primarily in common stocks of companies of any size
outside the United States. Templeton Investment Counsel, Inc. (Sub-adviser) uses
a value-oriented approach and selects companies in countries where political and
economic factors, including currency movements, are likely to produce
above-average opportunities for capital appreciation.
Annual Total Return (calendar years 1995-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 9.55%
Worst quarter (4Q97) (7.75%)
Average Annual Total Return through 12/31/97/1/
Since 9/1/94 1998 YTD
inception 1 Year through 9/30/98
Fund 10.32% 10.86% (11.21%)
EAFE Index 4.30% 1.78% X.XX%
LIFI 6.59% 5.47% X.XX%
Marshall Small-Cap Growth Fund/2/
[INSERT GRAPHIC]
Goal: To provide capital appreciation.
Strategy: The Fund invests in common stocks of small-sized companies whose
market capitalizations are under $1 billion. The Adviser selects stocks of
companies with above-average earnings growth potential or where significant
changes are taking place, such as new products, services or methods of
distribution, as well as overall business restructuring.
Annual Total Return (calendar year 1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 22.21%
Worst quarter (1Q97) (11.71%)
Average Annual Total Return through 12/31/97/1/
Since 11/1/95 1998 YTD
inception 1 Year through 9/30/98
Fund 43.91% 23.18% (20.63%)
Russell 2000 19.92% 22.36% (16.21%)
LSCFI 21.03% 20.69% X.XX%
/1/The table shows each Fund's average annual total returns compared to a
broad-based market index over a period of time. In addition, the performance of
International Stock Fund is compared to the Morgan Stanley Capital Europe,
Australia, Far East Index (EAFE Index), and the Lipper International Funds Index
(LIFI), and the performance of Small-Cap Growth Fund is compared to the Russell
2000, a broad-based market index and the Lipper Small Cap Funds Index (LSCFI),
which are indices of funds with similar investment objectives.
/2/The SMALL-CAP GROWTH FUND is the successor to the portfolio of a collective
trust fund managed by the Adviser. At the Fund's commencement of operations, the
assets from the collective trust fund were transferred to the Fund in exchange
for Fund shares. The Fund's average annual total return since inception
(11/1/95) is 43.91% through 12/31/97. The quoted performance data includes the
performance of the collective trust fund for periods before the SMALL-CAP GROWTH
FUND'S registration statement became effective on August 30, 1996, as adjusted
to reflect the SMALL-CAP GROWTH FUND'S expenses. The collective trust fund was
not registered under the Investment Company Act of 1940 ("1940 Act") and
therefore was not subject to certain investment restrictions that are imposed by
the 1940 Act. If the collective trust fund had been registered under the 1940
Act, the performance may have been adversely affected.
As with all mutual funds, past performance does not necessarily predict future
performance.
Income Funds
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall Short-Term Income Fund
[INSERT GRAPHIC]
Goal: To maximize total return consistent with current income.
Strategy: The Fund invests in short- to intermediate-term investment grade bonds
and notes, including corporate, asset-backed, mortgage-backed, and U.S.
government securities. The Adviser changes the Fund's weightings in these
sectors as it deems appropriate, and uses macroeconomic, credit and market
analysis to select portfolio securities. The Fund will maintain an average
dollar-weighted maturity of six months to three years.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 2.48%
Worst quarter (2Q94) 0.17%
Average Annual Total Return through 12/31/97*
Since 11/1/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 5.08% 6.40% 5.15% 4.50%
LSTIBI 5.55% 6.21% 6.62% X.XX%
DMFA 4.82% 5.55% 4.83% X.XX%
Marshall Intermediate Bond Fund
[INSERT GRAPHIC]
Goal: To maximize total return consistent with current income.
Strategy: The Fund invests in intermediate-term investment grade bonds and
notes, including corporate, asset-backed, mortgage-backed, and U.S. government
securities. The Adviser changes the Fund's weightings in these sectors as it
deems appropriate, and uses macroeconomic, credit and market analysis to select
portfolio securities. The Fund will maintain an average dollar-weighted maturity
of three to ten years.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 4.68%
Worst quarter (1Q96) (2.03%)
Average Annual Total Return through 12/31/97**
Since 11/23/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 5.67% 7.18% 5.60% 6.19%
LGCI 6.80% 7.87% 6.66% X.XX%
LSIBF 7.02% 8.58% 6.81% X.XX%
*The table shows the Fund's average annual total returns over a period of years
relative to the Lipper S-T Investment Grade Bond Index (LSTIBI), a broad-based
market index and IBC/Donoghue's Taxable Money Fund Average (DMFA), an average of
money funds.
**The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers Government/Corporate Intermediate Index (LGCI),
a broad-based market index and the Lipper Short/Intermediate Investment Grade
Bond Funds Index (LSIBF), an average of funds with similar investment
objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Income Funds (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall Government Income Fund
[INSERT GRAPHIC]
Goal: To provide current income.
Strategy: The Fund invests in securities issued by the U.S. government and its
agencies and instrumentalities, particularly mortgage-related securities. The
Adviser considers macroeconomic conditions and uses credit and market analysis
in developing the overall portfolio structure. Current and historical interest
rate relationships are used to evaluate market sectors and individual
securities. The Fund will generally maintain an average dollar-weighted maturity
of four to twelve years.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 4.92%
Worst quarter (1Q94) (2.13%)
Average Annual Total Return through 12/31/97*
Since 12/13/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 6.19% 8.43% 6.14% 6.90%
LMI 7.42% 9.48% 7.21% X.XX%
LUSMI 6.01% 8.79% 6.00% X.XX%
Marshall Intermediate Tax-Free Fund
[INSERT GRAPHIC]
Goal: To provide a high a level of current income that is exempt from federal
income tax as is consistent with preservation of capital.
Strategy: The Fund invests in investment-grade municipal securities, which
includes tax-free debt obligations of states, territories and possessions of the
U.S., and political subdivisions and financing authorities of these entities.
The Fund's assets will be invested primarily in municipal securities providing
income that is exempt from federal income tax (including the federal alternative
minimum tax). The Adviser selects Fund investments after assessing factors such
as the cyclical trend in interest rates, the shape of the municipal yield curve,
tax rates, sector valuation, and municipal bond supply factors. The Fund will
maintain an average dollar-weighted portfolio maturity of three to ten years.
Annual Total Return (calendar years 1995-1997)
[INSERT APPENDIX]
Total Return
Best quarter (1Q95) 4.31%
Worst quarter (1Q96) (0.63%)
Average Annual Total Return through 12/31/97**
Since 2/2/94 1998 YTD
inception 1 Year 3 Year through 9/30/98
Fund 4.89% 6.79% 7.34% 5.28%
LB7GOBI 5.33% 7.68% 8.86% X.XX%
LIMI 5.60% 8.86% 8.00% X.XX%
*The table shows the Fund's average annual total returns over a period of years
relative to the Lehman Brothers Mortgage-Backed Securities Index (LMI), a
broad-based market index and the Lipper U.S. Mortgage Funds Index (LUSMI), an
average of funds with similar investment objectives.
**The table shows the Fund's average annual total returns over a period of years
relative to the Lehman Brothers 7-Year G.O. Bond Index (LB7GOBI), a broad-based
market index and the Lipper Intermediate Municipal Funds Index (LIMI), an
average of funds with similar investment objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Money Market Funds
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Marshall Money Market Fund
[INSERT GRAPHIC]
Goal: To provide current income consistent with stability of principal.
Strategy: The Fund invests in high quality money market instruments maturing in
397 days or less. The Adviser uses a "bottom-up" approach, meaning that the fund
manager looks primarily at individual companies against the context of broader
market factors.
Although money market funds seek to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 1.45%
Worst quarter (2Q93) 0.72%
7-Day Net Yield
7-Day Net Yield (as of 12/31/97)* 5.50%
Average Annual Total Return through 12/31/97/1/
Since 11/23/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 4.78% 5.50% 5.08% 4.08%
IBC/Donoghue's X.XX% X.XX% X.XX% X.XX%
*Investors may call the Fund to acquire the current 7-Day Net Yield by calling
1-800-236-3863.
/1/The table shows the Fund's average total returns over a period of years
relative to the IBC/Donoghue's Money Fund Average, an average of money funds
with similar objectives.
Summary of Fund Expenses
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Class Y Shares of the Equity Funds, Income Funds, and the Money Market Fund.
<TABLE>
<CAPTION>
Large-Cap
Equity Growth &Income Mid-Cap Mid-Cap International Small-Cap
Income Fund Fund Value Fund Growth Fund Stock Fund Growth Fund
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses (fees
paid directly from your investment) None None None None None None
Annual Fund Operating Expenses (maximum
expenses that could be deducted from
assets) *
Management Fee
(before waiver) (1) 0.75% 0.75% 0.75% 0.75% 1.00% 1.00%
Distribution (12b-1) Fee None None None None None None
Shareholder Servicing Fee (2) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses 0.17% 0.21% 0.25% 0.23% 0.24% 0.35%
Total Operating Expenses (3) 1.17% 1.21% 1.25% 1.23% 1.49% 1.60%
</TABLE>
<TABLE>
<CAPTION>
Short-Term Intermediate Government Intermediate Money
Income Fund Bond Fund Income Fund Tax-Free Fund Market Fund
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses (fees
paid directly from your investment)
None None None None None
Annual Fund Operating Expenses (maximum expenses that could be deducted from
assets) *
Management Fee
(before waiver) (1) 0.60% 0.60% 0.75% 0.60% 0.50%
Distribution (12b-1) Fee None None None None None
Shareholder Servicing Fee
(before waiver) (2) 0.25% 0.25% 0.25% 0.25% 0.02%
Total Other Expenses 0.20% 0.15% 0.21% 0.27% 0.14%
Total Operating Expenses (3) 1.05% 1.00% 1.21% 1.12% 0.66%
</TABLE>
* Expenses are expressed as a percentage
of the Fund's net assets.
(1) The adviser voluntarily waived a portion of the management fee. The adviser
may terminate this voluntary waiver at any time. The management fees paid by the
Short-Term Income Fund, Intermediate Bond Fund, Government Income Fund,
Intermediate Tax-Free Fund and Money Market Fund (after the voluntary waivers)
were 0.28%, 0.54%, 0.64%, 0.32%, and 0.25% for the fiscal year ended August 31,
1998.
(2) The Shareholder Servicing Fee for Short-Term Income Fund, Intermediate Bond
Fund, Government Income Fund, and Intermediate Tax-Free Fund has been
voluntarily reduced. The shareholder servicing agent may terminate this waiver
at any time. The Shareholder Servicing Fee (after the voluntary waiver) was .02%
for Short-Term Income Fund, Intermediate Bond Fund, Government Income Fund, and
Intermediate Tax-Free Fund for the fiscal year ended August 31,1998.
(3) The actual Total Operating Expenses were 0.50%, 0.71%, 0.87%, 0.61%, and
0.41% for Short-Term Income Fund, Intermediate Bond Fund, Government Income
Fund, Intermediate Tax-Free Fund and Money Market Fund after the voluntary
reductions of the management fee and shareholder services fee for the fiscal
year ended August 31, 1998.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Marshall Funds, Inc. Information." Wire-transferred redemptions may be
subject to an additional fee.
Summary of Fund Expenses (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Example
This example is intended to help you compare the cost of investing in
the Marshall Funds with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Funds for the time
periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5%
return each year and that the Funds' operating expenses remain the
same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Large-Cap
Equity Growth &Income Mid-Cap Mid-Cap International Small-Cap
Income Fund Fund Value Fund Growth Fund Stock Fund Growth Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 119 $ 123 $ 127 $ 125 $ 152 $ 163
3 Years $ 372 $ 384 $ 397 $ 390 $ 471 $ 505
5 Years $ 644 $ 665 $ 686 $ 676 $ 813 $ 871
10 Years $1,420 $1,466 $1,511 $1,489 $1,779 $1,900
Short-Term Intermediate Government Intermediate Money
Income Fund Bond Fund Income Fund Tax-Free Fund Market Fund
1 Year $ 107 $ 102 $ 123 $ 114 $ 67
3 Years $ 334 $ 318 $ 384 $ 356 $ 211
5 Years $ 579 $ 552 $ 665 $ 617 $ 368
10 Years $1,283 $1,225 $1,466 $1,363 $ 822
</TABLE>
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
What are the Main Risks of Investing in the Marshall Funds?
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
What About Portfolio Turnover?
[INSERT GRAPHIC]
Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities will be sold without regard to the length of time they have
been held when the Funds' Adviser or Sub-adviser believes it is appropriate to
do so in light of a Fund's investment goal. A higher portfolio turnover rate
involves greater transaction expenses which must be borne directly by a Fund
(and thus, indirectly by its shareholders), and affect Fund performance. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to that Fund's
shareholders, are taxable to them.
EquitySecurities Risks. The EQUITY FUNDS are subject to fluctuations in the
stock markets, which have periods of increasing and decreasing values.
Stocks have greater volatility than debt securities. While greater
volatility increases risk, it offers the potential for greater reward.
Equity risk is also related to the size of the company issuing
stock. Companies may be categorized as having a small, medium, or large
capitalization (market value). The potential risks are higher with small-
and medium-capitalization companies and lower with large-capitalization
companies. Therefore, you should expect that investments in the SMALL-CAP
GROWTH FUND, the MID-CAP GROWTH FUND and the MID-CAP VALUE FUND will be
more volatile than broad stock market indices such as the S&P 500 or funds
that invest in large-capitalization companies, such as the LARGE-CAP
GROWTH & INCOME FUND and the EQUITY INCOME FUND.
Foreign Securities Risks. Foreign securities pose additional risks over
U.S.-based securities for a number of reasons. Because the INTERNATIONAL
STOCK FUND invests primarily in foreign securities, you should expect that
these factors may adversely affect the value of an investment in the Fund.
Foreign economic, governmental, and political systems may be less
favorable than those of the United States. Foreign governments may
exercise greater control over their economies, industries, and citizen's
rights. Specific risk factors related to foreign securities include:
inflation, structure and regulation of financial markets, liquidity and
volatility of investments, taxation policies, currency exchange rates and
regulations, and accounting standards. The INTERNATIONAL STOCK FUND may
incur higher costs and expenses when making foreign investments, which
will affect the Fund's total return.
Foreign securities may be denominated in foreign currencies.
Therefore, the value of a Fund's assets and income in U.S. dollars may be
affected by changes in exchange rates and regulations, since exchange
rates for foreign currencies change daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the United States.
Although the INTERNATIONAL STOCK FUND values its assets daily in U.S.
dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. Therefore, the Fund may be exposed to currency risks over
an extended period of time.
Fixed Income Securities Risks. Risks of fixed income securities will affect the
INCOME FUNDS.
[INSERT GRAPHIC]
Prices of fixed-rate debt securities generally move in the
opposite direction of interest rates. The interest payments on fixed-rate
debt securities do not change when interest rates change. Therefore, since
the price of these securities can be expected to decrease when interest
rates increase, you can expect that the value of investments in a Fund may
go down. Although the Adviser attempts to anticipate interest rate
movements, there is no guarantee that it will be able to do so.
What are the Main Risks of Investing in the Marshall Funds (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
What About Investment Ratings?
[INSERT GRAPHIC]
When the Funds invest in debt securities and/or convertible securities, some
will be rated in the lowest investment grade category (e.g., BBB or Baa).
Securities rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics. Unrated securities will be
determined by the Adviser to be of like quality and may have greater risk (but a
potentially higher yield) than comparable rated securities. If a security is
downgraded, the Adviser will re-evaluate the security and determine whether or
not the security is an acceptable investment.
In addition, longer-term debt securities will experience greater
price volatility than debt securities with shorter maturities. You can
expect the net asset values of a Fund to fluctuate accordingly.
The credit quality of a debt security is based upon the issuer's
ability to repay the security. If payments on a debt security are not paid
when due, that may cause the net asset value of a Fund holding the
security to go down.
Fixed Income securities may also be subject to call risk. If
interest rates decline, an issuer may repay (or "call") a debt security
held by a Fund prior to its maturity. If this occurs, the Adviser may have
to reinvest the proceeds in debt securities paying lower interest rates.
If this happens, a Fund may have a lower yield.
[INSERT GRAPHIC]
Municipal Securities Risks. An investment in the INTERMEDIATE TAX-FREE FUND will
be affected by municipal securities risks. Local political and economic
factors may adversely affect the value and liquidity of municipal
securities held by a Fund. The value of municipal securities also may be
affected more by supply and demand factors or the creditworthiness of the
issuer than by market interest rates. Repayment of municipal securities
depends on the ability of the issuer or project backing such securities to
generate taxes or revenues. There is a risk that the interest on an
otherwise tax-exempt municipal security may be subject to federal income
tax.
Asset-Backed/Mortgage-Backed Securities Risks. Asset-backed and mortgage-backed
securities are subject to risks of prepayment. This is more likely to
occur when interest rates fall because many borrowers refinance mortgages
to take advantage of more favorable rates. Prepayments on mortgage-backed
securities are also affected by other factors, such as the volume of home
sales. A Fund's yield will be reduced if cash from prepaid securities are
reinvested in securities with lower interest rates. The risk of prepayment
may also decrease the value of mortgage-backed securities.
Asset-backed securities may have a higher level of default and
recovery risk than mortgage-backed securities. However, both of these
types of securities may decline in value because of mortgage foreclosures
or defaults on the underlying obligations.
Concentration Risks. When the Fund emphasizes its investments in securities of
issuers in a particular industry, the Fund's performance is closely tied
to events in that industry.
Securities Lending Risks. When the Fund lends its portfolio securities, it may
not be able to get them back from the borrower on a timely basis. If this
occurs, the Fund may lose certain investment opportunities. The Fund is
also subject to the risks associated with the investment of cash
collateral, usually fixed-income securities risk.
Temporary Investments. To minimize potential losses and maintain liquidity to
meet shareholder redemptions during adverse market conditions, each of the
Marshall Funds (except MONEY MARKET FUND) may temporarily depart from its
principal investment strategy by investing up to 100% of Fund assets in
cash or short-term, high quality money market instruments (e.g.,
commercial paper, repurchase agreements, etc.). This may cause a Fund to
temporarily forego greater investment returns for the safety of principal.
How to Buy Shares
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
What Do Shares Cost? You can buy shares of a Fund at net asset value (NAV),
without a sales charge, on any day the New York Stock Exchange (NYSE) is
open for business. When the Fund receives your transaction request in
proper form, it is processed at the next determined public offering price.
NAV is determined for the Funds (other than MONEY MARKET FUND) at the end
of regular trading (normally 3 p.m. Central time) each day the NYSE is
open. The NAV for the MONEY MARKET FUND is determined twice daily at 12:00
p.m. (Central time) and 3:00 p.m. (Central time).
To open an account with the Marshall Funds, your first investment must be
at least $1,000. However, you can add to your existing Marshall Funds
account directly or through the Funds' Systematic Investment Program for as
little as $50. In special circumstances, these minimums may be waived or
lowered at the Funds' discretion.
How Do I Purchase Shares? You may purchase shares directly from the Fund by
completing and mailing the Account Application and sending your payment to
the Fund by check or wire.
You may purchase Fund shares by contacting Marshall Funds Investor Services
(MFIS) at 1-800-236-FUND (3863).
Trust customers of an M&I Trust Company may purchase shares by contacting
their trust account officer.
You may purchase shares through a broker-dealer, investment professional,
or financial institution (Authorized Dealers). Some Authorized Dealers may
charge a transaction fee for this service. If you purchase shares of a Fund
through a program of services offered or administered by a Authorized
Dealer or other service provider, you should read the program materials,
including information relating to fees, in conjunction with the Funds'
prospectus. Certain features of a Fund may not be available or may be
modified in connection with the program of services provided.
Your purchase order must be received by the Fund by 12:00 p.m. (Central
Time) for the MONEY MARKET FUND or 3:00 p.m. (Central Time) for all other
Funds to get that day's NAV. Each Fund reserves the right to reject any
purchase request. It is the responsibility of MFIS, any Authorized Dealer
or other service provider that has entered into an agreement with the
Funds, its distributor, or administrative or shareholder services agent, to
promptly submit purchase orders to the Funds. Orders placed through one of
these entities are considered received when the Funds are notified of the
purchase or redemption order. However, you are not the owner of Fund shares
(and therefore will not receive dividends) until payment for the shares is
received.
[INSERT GRAPHIC]
Will the Small-Cap Growth Fund always be open to new investors? It is
anticipated that the SMALL-CAP GROWTH FUND will be closed to new investors
once its assets reach $500 million, subject to certain exceptions. However,
if you own shares of the Fund prior to the closing date, you will still be
able to reinvest dividends and add to your investment in the Fund. In
addition, if you own shares of another Marshall Fund prior to the closing
date, you will be allowed to exchange those shares for shares of the Fund.
Fund Purchase Easy Reference Table
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Minimum Investments
$1,000 . To open an Account
$50 . To add to an Account (including through a
Systematic Investment Program)
[INSERT GRAPHIC]
Phone 1-800-236-FUND (3863)
. Contact Marshall Funds Investor Services (MFIS)
. Complete an application for a new account.
. If you authorized telephone exchange privileges in your account
application or by subsequently completing an authorization form, you may
exchange shares from another Fund having an identical shareholder
registration.
[INSERT GRAPHIC]
Mail
. To open an account, send your completed account application and check
payable to "Marshall Funds" to the following address:
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348
. To add to your existing Fund Account, send in your check, payable to
"Marshall Funds", to the same address. Indicate your Fund account number
on the check.
[INSERT GRAPHIC]
In Person
. Bring in your completed account application (for new accounts) and a
check payable to "Marshall Funds" to:
Marshall Funds Investor Services
1000 N. Water Street
(M-F 8-5 Central Time), to any M&I Bank employing a representative of M&I
Brokerage Services, or to any authorized broker or dealer.
[INSERT GRAPHIC]
Wire
. Notify MFIS at 1-800-236-FUND (3863) by 12:00 p.m. (Central Time) for
the MONEY MARKET FUND and 3:00 p.m. (Central Time) for the other Funds.
If your purchase order for the MONEY MARKET FUND is received by 12:00
p.m. (Central Time) and your wire is received by M&I Bank by 3:00 p.m.
(Central Time), you will begin receiving dividends on that day.
. Then wire the money to:
M&I Marshall & Ilsley Bank
ABA Number 075000051
Credit to: Federated Shareholder Services Company Deposit, Account
Number 27480
Further credit to: Class Y Shares [Identify name of Fund] Re:
[Shareholder name and account number]
. If a new Account, fax to: Marshall Funds Investor Services at
1-414-287-8511
. Mail a completed account application to the Fund at the address above
under "Mail."
. Your bank may charge a fee for wiring funds. Wire orders are accepted
only on days when the Funds and the Federal Reserve wire system are open
for business.
[INSERT GRAPHIC]
Systematic Investment Program
. You can have money automatically withdrawn from your checking account
($50.00 minimum) on predetermined dates and invest it in a Fund at the
next Fund share price determined after MFIS receives the order.
. The $1,000 minimum investment requirement is waived for investors
purchasing shares through the Systematic Investment Program.
. Call MFIS at 1-800-236-FUND (3863) to apply for this program.
[INSERT GRAPHIC]
Marshall Funds OnLine/SM/
. You may purchase Fund shares via the Internet through Marshall Funds
OnLine/SM/ at www.marshallfunds.com. See "Fund Transactions Through
Marshall Funds OnLine/SM/" in the Account and Share Information section.
[INSERT GRAPHIC]
Additional Information About Checks Used to Purchase Shares
. If your check does not clear, your purchase will be canceled and you
will be charged a $15 fee.
. If you purchase shares by check or ACH, you may not be able to receive
proceeds from a redemption for up to seven days.
How to Redeem and Exchange Shares of the Marshall Funds
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
How Do I Redeem Shares? You may redeem your Fund shares by several methods,
described below under the "Fund Redemption Easy Reference Table." You
should note that redemptions will be made only on days when the Fund
computes its NAV. When your redemption request is received in proper form,
it is processed at the next determined NAV.
Trust customers of M&I Trust Companies should contact their account officer
to make redemption requests.
Telephone or written requests for redemptions must be received in proper
form as described below and can be made through MFIS or any Authorized
Dealer. It is the responsibility of MFIS, and Authorized Dealer or service
provider to promptly submit redemption requests to a Fund.
Redemption requests for the Funds must be received by 12:00 p.m. (Central
Time) for the MONEY MARKET FUND or 3:00 p.m. (Central Time) for all after
Funds in order for shares to be redeemed at that day's NAV. Redemption
proceeds will normally be mailed, or wired if by written request, the
following business day, but in no event more than seven days, after the
request is made.
Will I Be Charged a Fee for Redemptions? You will not be charged a fee by the
Fund for redeeming shares. However, you may be charged a transaction fee if
you redeem Fund shares through an Authorized Dealer or service provider
(other than MFIS or the M&I Trust Companies). Consult your Authorized
Dealer or service provider for more information, including applicable fees.
Fund Redemption Easy Reference Table
- -------------------------------------------------------------------------------
[INSERT GRAPHIC]
Phone 1-800-236-FUND (3863) (Except Retirement Accounts)
. If you have authorized the telephone redemption privilege in your
account application or by a subsequent authorization form, you may
redeem shares by telephone. If you are a customer of an authorized
broker-dealer, you must contact your account representative.
[INSERT GRAPHIC]
Mail
. Send in your written request to the following address, indicating your
name, the Fund name, your account number, and the number of shares or
the dollar amount you want to redeem to:
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348
. If you want to redeem shares held in certificate form, you must properly
endorse the share certificates and send them by registered or certified
mail. Additional documentation may be required from corporations,
executors, administrators, trustees, or guardians.
. For additional assistance, call 1-800-236-FUND (3863).
Fund Redemption Easy Reference Table (cont.)
- -------------------------------------------------------------------------------
[INSERT GRAPHIC]
In Person
. Bring in the written redemption request with the information described in
"Mail" above to Marshall Funds Investor Services, 1000 N. Water Street.
(M-F 8-5 Central Time), or to any Authorized Dealer.
[INSERT GRAPHIC]
Wire/Electronic Transfer
. Upon written request, redemption proceeds can be directly deposited by
Electronic Funds Transfer or wired directly to a domestic commercial
bank previously designated by you in your account application or by
subsequent form.
. Wires of redemption proceeds will only be made on days on which the
Funds and the Federal Reserve wire system are open for business.
. Wire-transferred redemptions may be subject to an additional fee.
. Redemption requests for the MONEY MARKET FUND must be received by 12:00
p.m. (Central Time) if you want the proceeds to be wired the same day.
[INSERT GRAPHIC]
Systematic Withdrawal Program (Existing Accounts Only)
. If you have a Fund account balance of at least $10,000, you can have
predetermined amounts of at least $100 automatically redeemed from your
Fund account on predetermined dates on a monthly or quarterly basis.
. Contact MFIS to apply for this program.
[INSERT GRAPHIC]
Checkwriting (Money Market Fund Only)
. You can redeem shares of the MONEY MARKET FUND by writing a check in an
amount of at least $250. You must have completed the checkwriting
section of your account application and the attached signature card, or
have completed a subsequent application form. The Fund will then provide
you with the checks.
. Your check is treated as a redemption order for Fund shares equal to
the amount of the check.
. A check for an amount in excess of your available Fund account balance
will be returned marked "insufficient funds."
. Checks cannot be used to close your Fund account balance.
[INSERT GRAPHIC]
Marshall Funds OnLine/SM/
. You may redeem Fund shares via the Internet through Marshall Funds
OnLine/SM/ at www.marshallfunds.com. See "Fund Transactions Through
Marshall Funds OnLine/SM/" in the Account and Share Information section.
Additional Conditions for Redemptions
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:
. when you want a redemption to be sent to an address other than the one
you have on record with the Fund;
. when you want the redemption payable to someone other than the
shareholder of record; or
. when your redemption is to be sent to an address of record that was
changed within the last 90 days.
Your signature can be guaranteed by any federally insured financial
institution (such as a bank or credit union) or a broker/dealer that is a
domestic stock exchange member, but not by a notary public.
Limitations on Redemption Proceeds. Redemption proceeds normally are wired or
mailed within one business day after receiving a request in proper form.
However, payment may be delayed up to seven days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the
Fund. If those checks are undeliverable and returned to the Fund, the
proceeds will be reinvested in shares of the Funds that were redeemed.
Exchange Privilege. You may exchange Class Y Shares of a Fund for Class Y Shares
of any of the other Marshall Funds free of charge, provided you meet the
investment minimum of the Fund. An exchange is treated as a redemption and
a subsequent purchase, and is therefore a taxable transaction. Signatures
must be guaranteed if you request and exchange into another fund with a
different shareholder registration. The exchange privilege may be modified
or terminated at any time.
Exchanges by Telephone. If you have completed the telephone authorization
section in your account application or an authorization form obtained
through MFIS, you may telephone instructions to MFIS to exchange between
Fund accounts that have identical shareholder registrations. Customers of
broker-dealers, financial institutions, or service providers should contact
their account representative. Telephone exchange instructions must be
received before 3:00 p.m. (Central Time) for shares to be exchanged the
same day. However, you will not receive a dividend of the Fund into which
you exchange on the date of the exchange.
The Funds and their service providers will record your telephone
instructions. If the Funds do not follow reasonable procedures, the Funds
may be liable for losses due to unauthorized or fraudulent telephone
instructions. You will be notified of changes to telephone transaction
privileges.
Frequent Traders. The Funds' management or Adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to a Fund and its shareholders. If
this occurs, the Fund may terminate shareholder's purchase and/or exchange
privileges.
Account and Share Information
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Fund Transactions Through Marshall Funds OnLine/SM/. If you have previously
established an account with the Funds, and have signed an OnLine/SM/
Agreement, you may purchase, redeem, or exchange shares through the
Marshall Funds Internet Site on the World Wide Web
(http://www.marshallfunds.com) (the Web Site). You may also check your Fund
account balance(s) and historical transactions through the Web Site. You
cannot, however, establish a new Fund account through the Web Site--you may
only establish a new Fund account under the methods described in the How to
Buy Shares section.
Trust customers of M&I Trust Companies should contact their
account officer for information on the availability of transactions over
the Internet.
You should contact MFIS at 1-800-236 FUND (3863) to get started.
MFIS will provide instructions on how to create and activate your Personal
Identification Number (PIN). If you forget or lose your PIN number, contact
MFIS.
Online Conditions. Because of the costs associated with maintaining the Web
Site, purchases, redemptions, and exchanges through the Web Site are
subject to the following daily minimum and maximum transaction amounts:
<TABLE>
<CAPTION>
Minimum Maximum
<S> <C> <C>
Purchases $50 $100,000
Redemptions By ACH: $50 By ACH: $50,000
By wire: $1,000 By wire: $50,000
Exchanges $50 $100,000
</TABLE>
Shares may be redeemed or exchanged based on either a dollar amount or
number of shares. If you are redeeming or exchanging based upon number of
Fund shares, you must redeem or exchange enough shares to meet the minimum
dollar amounts described above, but not so much as to exceed the maximum
dollar amounts.
Your transactions through the Web Site are effective at the time they are
received by the Fund, and are subject to all of the conditions and
procedures described in this prospectus.
Shareholders may not change their address of record, registration, or
wiring instructions through the Web Site. The Web Site privilege may be
modified at any time, but you will be notified in writing of any
termination of the privilege.
Online Risks. Shareholders that utilize the Web Site for account
histories or transactions should be aware that the Internet is an
unsecured, unstable, unregulated, and unpredictable environment. Your
ability to use the Web Site for transactions is dependent upon the Internet
and equipment, software, systems, data and services provided by various
vendors and third parties (including telecommunications carriers, equipment
manufacturers, firewall providers and encryption system providers).
While the Funds and its service providers have established certain
security procedures, the Funds, their distributor and transfer agent cannot
assure you that inquiries or trading activity will be completely secure.
There may also be delays, malfunction, or other inconveniences generally
associated with this medium. There may be times when the Web Site is
unavailable for Fund transactions, which may be due to the Internet or the
actions or omissions of any third party--should this happen, you should
consider purchasing, redeeming or exchanging shares by another method. The
Marshall Funds, its transfer agent, distributor and MFIS are not
responsible for any such delays or malfunctions, and are not responsible
for wrongful acts by third parties, as long as reasonable security
procedures are followed.
Account and Share Information (cont.)
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
What is a Dividend and Capital Gain?
[INSERT GRAPHIC]
A dividend is the money paid to shareholders that a mutual fund has earned from
the income on its investments. A capital gain is the profit derived from the
sale of an investment, such as a stock or bond.
Confirmations and Account Statements. You will receive confirmation of
purchases, redemptions and exchanges (except for systematic program
transactions). In addition, you will receive periodic statements reporting
all account activity, including systematic program transactions, dividends
and capital gains paid.
You may request photocopies of historical confirmations from
prior years. The Funds may charge a fee for this service.
Dividends and Capital Gains. Dividends of the MONEY MARKET FUND and INCOME FUNDS
are declared daily and paid monthly. If you purchase shares by wire, you
begin earning dividends on the day your wire is received. If you purchase
shares by check, you begin earning dividends on the business day after the
Fund receives your check. In either case, you earn dividends through the
day your redemption request is received.
Dividends of the EQUITY FUNDS are declared and paid quarterly,
except for the INTERNATIONAL STOCK FUND, which declares and pays dividends
annually. Dividends are paid to all shareholders invested in the EQUITY
FUNDS on the record date.
In addition, the Funds pay any capital gains at least annually.
Your dividends and capital gains distributions will be automatically
reinvested in additional shares, unless you elect cash payments. If you
elect cash payments and the payment is returned as undeliverable, your cash
payment will be reinvested in Fund shares and your distribution option will
convert to automatic reinvestment. If any distribution check remains
uncashed for six months, the check amount will be reinvested in shares and
you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase shares just before a Fund declares a dividend or
capital gain distribution, you will pay the full price for the shares and
then receive a portion of the price back in the form of a distribution,
whether or not you reinvest the distribution in shares. Therefore, you
should consider the tax implications of purchasing shares shortly before a
Fund declares a dividend or capital gain.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, a Fund may redeem shares in your account and pay you the
proceeds if your account balance falls below the required minimum value of
$1,000.
Before shares are redeemed to close an account, you will be
notified in writing and allowed 30 days to purchase additional shares to
meet the minimum account balance requirement.
Account and Share Information (cont.)
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Multiple Classes. The Marshall Funds have adopted a plan that permits each Fund
to offer more than one class of shares. All shares of each Fund or class
have equal voting rights and will generally vote in the aggregate and not
by Fund or class. There may be circumstances, however, when shareholders of
a particular Fund or class are entitled to vote on matters affecting that
Fund or class. Share classes may have different sales charges and other
expenses, which will affect their performance.
Year 2000 Statement
- --------------------------------------------------------------------------------
Many computers cannot properly recognize dates of January 1, 2000 and
beyond. The Funds' service providers are making changes to their computer
systems to fix this problem since it could disrupt Fund operations. The
financial effect on the Funds, if any, is still being determined.
Tax Information
- --------------------------------------------------------------------------------
Federal Income Tax. The Funds send you a statement of your account activity to
assist you in completing your federal, state and local tax returns. Fund
distributions of dividends and capital gains are taxable to you whether
paid in cash or reinvested in the Fund. Fund distributions for the EQUITY
INCOME FUND and LARGE-CAP GROWTH & INCOME FUND are expected to be both
dividends and capital gains. Fund distributions for the other EQUITY FUNDS
are expected to be primarily capital gains, and fund distributions of the
INCOME FUNDS and MONEY MARKET FUND are expected to be primarily dividends.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund.
It is anticipated that INTERMEDIATE TAX-FREE FUND'S distributions will be
primarily dividends that are exempt from federal income tax, although a
portion of that Fund's dividends may not be exempt. Even if dividends are
exempt from federal income tax, they may be subject to state and local
taxes. You may have to include certain dividends as taxable income if the
federal alternative minimum tax applies to you.
Please consult your tax adviser regarding your federal, state, and local
tax liability. Redemptions and exchanges of Fund shares are taxable sales.
Marshall Funds, Inc. Information
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
Management of the Marshall Funds. The Board of Directors governs the Funds. The
Board selects and oversees the Adviser, M&I Investment Management Corp. The
Adviser manages each Fund's assets, including buying and selling portfolio
securities. The Adviser's address is 1000 North Water Street, Milwaukee,
Wisconsin, 53202. The Adviser has entered into a Subadvisory Contract with
Templeton Investment Counsel, Inc. (TICI or Sub-adviser), to manage the
INTERNATIONAL STOCK FUND, subject to oversight by the Adviser.
Adviser's Background. M&I Investment Management Corp. is a registered investment
adviser and a wholly owned subsidiary of Marshall & Ilsley Corp., a
registered bank holding company headquartered in Milwaukee, Wisconsin. As of
July 31, 1998, the Adviser had approximately $9 billion in assets under
management and has managed investments for individuals and institutions
since 1973. The Adviser has managed the Funds since 1992, and managed the
Newton Funds (predecessors to some of the Funds) since 1985.
Sub-adviser's Background. Templeton Investment Counsel, Inc. is a registered
investment adviser and a professional investment counseling firm that has
been handling investment services since 1979. As of July 31, 1998, TICI had
discretionary investment of approximately $22.3 billion in assets. TICI is
indirectly owned by Franklin Resources, Inc., which engages in various
aspects of the financial services industry through its subsidiaries. TICI
and its affiliates serve as advisers for a wide variety of mutual funds and
private clients in many nations. TICI, its affiliates and their predecessors
have been investing globally for over 50 years.
Portfolio Managers. The EQUITY INCOME FUND is managed by Bruce P. Hutson, who
has been a Vice President of the Adviser since 1973 and was a member of the
Equity Policy Group from January 1990 through 1998. Mr. Hutson holds a
B.B.A. degree from the University of Wisconsin-Whitewater.
The LARGE-CAP GROWTH & INCOME FUND is managed by William J.
O'Connor. Mr. O'Connor has been a Vice President of the Adviser since
February 1995 when he rejoined the firm after serving as Vice President and
Director of Equity Research for Arnold Investment Counsel. Prior to joining
Arnold, he had been a Vice President, portfolio manager, and research
analyst with the Adviser from 1979 to 1991. Mr. O'Connor is a Chartered
Financial Analyst and holds a bachelor's degree in Commerce from Santa Clara
University and an M.B.A. in Finance from the University of Wisconsin-
Madison.
[INSERT GRAPHIC]
The MID-CAP VALUE FUND is co-managed by Matthew B. Fahey and John
C. Potter. Mr. Fahey has been a Vice President of the Adviser since 1988. He
earned a B.A. degree in Business Administration from the University of
Wisconsin-Milwaukee and holds an M.B.A. degree from Marquette University.
Mr. Potter has been a Vice President of the Adviser since 1997. From 1994 to
June 1997, Mr. Potter was a senior securities analyst for the EQUITY INCOME
FUND. Mr. Potter is a Chartered Financial Analyst and holds a B.B.A. degree
in Finance from the University of Wisconsin-Madison.
The MID-CAP GROWTH FUND is managed by Steve D. Hayward. Prior to
joining the Adviser as a Vice President in December 1993, Mr. Hayward served
as Senior Portfolio Manager of AMOCO Corporation and managed two aggressive
growth-oriented mutual funds for American Asset Capital Management.
Mr.Hayward, who is a Chartered Financial Analyst, received a B.A. in
Economics from North Park College, and an M.B.A. in Finance from Loyola
University.
[INSERT GRAPHIC]
The INTERNATIONAL STOCK FUND is managed by Gary R. Clemons, Senior
Vice President, Portfolio Management/Research, TICI. Mr. Clemons joined the
Templeton organization in 1993 as a Portfolio Manager/Research Analyst with
responsibility for the telecommunications industries, as well as country
coverage of Columbia, Peru, Sweden and Norway. Prior to joining TICI, Mr.
Clemons worked as a Portfolio Manager/Research Analyst for Structured Asset
Management in New York, a subsidiary of Templeton Global Investors, Inc. Mr.
Clemons holds
an M.B.A. degree from the University of Wisconsin-Madison and a bachelor of
science degree from the University of Nevada-Reno.
The SMALL-CAP GROWTH FUND is co-managed by Steve D. Hayward and
David Lettenberger. Mr.Hayward's background is described above under the
MID-CAP GROWTH FUND. Prior to joining the Adviser in October 1993, Mr.
Lettenberger was employed by M&I Marshall & Ilsley Bank. Previously, he was
a senior securities analyst for MARSHALL MID-CAP GROWTH FUND from the Fund's
inception in 1993 through 1996. Mr. Lettenberger is a Chartered Financial
Analyst and holds a B.B.A. degree in Finance and Economics from Marquette
University.
[INSERT GRAPHIC]
The SHORT-TERM INCOME FUND and INTERMEDIATE BOND FUND are managed
by Mark Pittman. Mr.Pittman is a Vice President of the Adviser, which he
joined in June 1994. Prior to that time, he spent five years with Valley
Trust Company managing fixed income portfolios and common trust funds. In
addition, he was a member of the Valley Trust Company Investment Committee
and Asset Allocation Committee. Mr. Pittman is a Chartered Financial Analyst
and holds M.B.A. and B.B.A. degrees in Finance from the University of
Wisconsin-Madison.
The GOVERNMENT INCOME FUND is managed by Lawrence J. Pavelec. Mr.
Pavelec is a Vice President and the Director of Fixed Income the Adviser.
Mr.Pavelec joined M&I Marshall & Ilsley Bank in 1982 and the Adviser in
September 1985. Since 1988, he has been managing total return fixed income
portfolios. He has been a member of the Adviser's Fixed Income Policy Group
since 1985 and became Chairman in August 1993. He has managed the GOVERNMENT
INCOME FUND since August 1993. Mr. Pavelec is a Chartered Financial Analyst
and holds a B.S. degree from the University of Wisconsin-LaCrosse.
The INTERMEDIATE TAX-FREE FUND is managed by John D. Boritzke, who
is a Vice President of the Adviser responsible for tax-exempt fixed income
portfolio management. He joined the Adviser in November 1983. Since 1985, he
has been managing tax-exempt fixed income portfolios and common trust funds
of Marshall & Ilsley Trust Company. Mr. Boritzke has been a member of the
Adviser's Fixed Income Policy Group since 1985. He is a Chartered Financial
Analyst and holds M.B.A. and B.S. degrees from Marquette University.
[INSERT GRAPHIC]
The MONEY MARKET FUND is managed by Richard M. Rokus, who is a
Vice President of the Adviser. Mr.Rokus has managed the MONEY MARKET FUND
since January 1, 1994, and has been employed by the Adviser since January
1993. Mr. Rokus is a Chartered Financial Analyst and holds a B.B.A. in
Finance from the University of Wisconsin-Whitewater.
Advisory Fees. The Adviser is entitled to receive an annual investment advisory
fee equal to a percentage of each Fund's average daily net assets as
follows:
Fund Advisory Fee
--------------------------------------------------
Money Market Fund 0.50%
Short-Term Income Fund 0.60%
Intermediate Bond Fund 0.60%
Intermediate Tax-Free Fund 0.60%
Government Income Fund 0.75%
Large-Cap Growth &Income Fund 0.75%
Mid-Cap Value Fund 0.75%
Equity Income Fund 0.75%
Mid-Cap Growth Fund 0.75%
International Stock Fund 1.00%
Small-Cap Growth Fund 1.00%
The Adviser has the discretion to voluntarily waive a portion of its fee.
However, any waivers by the Adviser are voluntary and may be terminated at
any time in its sole discretion.
Affiliate Services and Fees. Marshall & Ilsley Trust Company is custodian of the
assets and securities of the Marshall Funds and provides shareholder
support, sub-transfer agency and other administrative services directly and
through its division, Marshall Funds Investor Services. Marshall & Ilsley
Trust Company receives fees based on a percentage of each Fund's average
daily net assets for shareholder support, custodial and other administrative
services, which may differ among the Funds. Marshall & Ilsley Trust Company
receives an annual per-account fee for sub-transfer agency services to trust
and institutional accounts maintained on its trust accounting system.
Financial Highlights
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated _________, 1998 is included
in the Annual Report for the Funds, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Funds.
Further information about the performance of the Funds is contained in the
Funds' Annual Report dated August 31, 1998 which may be obtained free of charge.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Distributions to
Net Realized and Shareholders
Unrealized Net Realized Gain
Gain/(Loss) on Investment
on Investments Dividends to Transactions, Distributions to
Net Asset Net Collateral, Shareholders Futures Contracts, Shareholders in
Value, Investment Futures Total from from Net and Foreign Excess of
Beginning Income/ Contracts, and Investment Investment Currency Net Investment
Period Ended August 31, of Period (Loss) Foreign Currency Operations Income Transactions Income
<S> <C> <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) 0.12 (0.32) (1.27) --
Large-Cap Growth & Income
Fund (formerly, Stock
Fund)
1993(b) $10.00 0.10 0.07 0.17 (0.09) -- --
1994 $10.08 0.07 (0.03) 0.04 (0.07) -- --
1995 $10.05 0.09 1.59 1.68 (0.09) -- --
1996 $11.64 0.16 1.17 1.33 (0.15) (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
(formerly, Value Equity
Fund)
1994(a) $10.00 0.12 0.93 1.05 (0.10) -- --
1995 $10.95 0.22 1.22 1.44 (0.20) (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
(formerly, Mid-Cap Stock
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) -- (0.00)
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
(formerly, Small-Cap
Stock Fund)
1997(d) $10.00 (0.08) 2.27 2.19 -- -- --
1998 $12.19 (0.12) (1.76) (1.88) -- (0.49) --
</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.
<TABLE>
<CAPTION>
Ratios to Average Net Assets
Net Assets,
Net Asset Net End of Period Portfolio
Total Value, End Total Investment Expense (000 Turnover
Distributions of Period Return (i) Expenses Income Waiver(k) Omitted) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund
(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 75%
Large-Cap Growth & Income
Fund (formerly, Stock
Fund)
(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 34%
Mid-Cap Value Fund
(formerly, Value Equity
Fund)
(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 62%
Mid-Cap Growth Fund
(formerly, Mid-Cap Stock
Fund)
(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%) -- $187,388 168%
International Stock Fund
(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% -- $225,206 91%
Small-Cap Growth Fund
(formerly, Small-Cap
Stock Fund)
-- $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%
</TABLE>
(i) Based on net asset value.
(j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(l) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
Financial Highlights (cont.)
[INSERT GRAPHIC]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Distributions to
Net Realized and Shareholders
Unrealized Net Realized Gain
Gain/(Loss) on Investment
on Investments Dividends to Transactions, Distributions to
Net Asset Net Collateral, Shareholders Futures Contracts, Shareholders in
Value, Investment Futures Total from from Net and Foreign Excess of
Beginning Income/ Contracts, and Investment Investment Currency Net Investment
Period Ended August 31, of Period (Loss) Foreign Currency Operations Income Transactions Income
<S> <C> <C> <C> <C> <C> <C> <C>
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) -- --
[INSERT GRAPHIC]
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) -- --
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 0.26 0.86 (0.62) -- --
1996 $ 9.51 0.62 (0.24) 0.38 (0.62) -- --
1997 $ 9.27 0.62 0.22 0.84 (0.62) -- --
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) -- --
[INSERT GRAPHIC]
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) -- --
</TABLE>
(e) Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(f) Reflects operations for the period from December 14, 1992 (date of initial
public investment) to August 31, 1993.
(g) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to August 31, 1994.
(h) Reflects operations for the period from December 17, 1992 (date of initial
public investment) to August 31, 1993.
<TABLE>
<CAPTION>
Ratios to Average Net Assets
Net Assets,
Net Asset Net End of Period Portfolio
Total Value, End Total Investment Expense (000 Turnover
Distributions of Period Return (i) Expenses Income Waiver(k) Omitted) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Short-Term Income Fund
(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%
Intermediate Bond Fund
(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%
Government Income Fund
(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% $ 280,313 415%
Intermediate Tax-Free Fund
(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%
Money Market Fund
(0.02) $ 1.00 2.33% 0.40%(j) 2.97%(j) 0.28%(j) $ 775,890 --
(0.03) $ 1.00 3.41% 0.40% 3.40% 0.29% $ 967,988 --
(0.05) $ 1.00 5.57% 0.41% 5.44% 0.26% $1,128,623 --
(0.05) $ 1.00 5.39% 0.41% 5.29% 0.26% $1,039,659 --
(0.05) $ 1.00 5.35% 0.41% 5.22% 0.26% $1,290,659 --
(0.05) $ 1.00 5.51% 0.41% 5.37% 0.25% $1,588,817 --
</TABLE>
(i) Based on net asset value. (j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(l) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
Marshall Funds, Inc. Information
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
A Statement of Additional Information (SAI) dated December 31, 1998 is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Funds' annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge write to or call Marshall Funds Investor Services at
1-414-287-8555 or 1-800-236-FUND (3863).
You can obtain information about the Marshall Funds by visiting or writing the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C., 20549-6009, or from the SEC's Internet Web site at: http://www.sec.gov.
You can call 1-800-SEC-0330 for information on the Public Reference Room's
operations and copying charges.
Marshall Funds Investor Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
414-287-8555 or 800-236-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com
G00714-01 (12/98)
SEC File No. 811-7047
Marshall Funds, Inc.
Statement of Additional Information
Class Y Shares
December 31, 1998
Equity Funds Income Funds o Marshall Equity Income Fund o Marshall
Short-Term Income Fund o Marshall Large-Cap Growth & Income Fund o
Marshall Intermediate Bond Fund o Marshall Mid-Cap Value Fund o
Marshall Intermediate Tax-Free Fund o Marshall Mid-Cap Growth Fund o
Marshall Government Income Fund o Marshall International Stock Fund o
Marshall Small-Cap Growth Fund
Money Market Fund
oMarshall Money Market Fund
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for the Marshall Funds, dated
December 31, 1998. This SAI incorporates by reference the Funds' Annual
Report. You may obtain the prospectus or Annual Report without charge by
calling Marshall Funds Investor Services at 1-414-287-8555 or 1-800-236-FUND
(3863), or you can visit the Marshall Funds' Internet site on the World Wide
Web at (http://www.marshallfunds.com).
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
G00714-03(12/98)
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS, INC.
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
How are the Funds Organized 1
Securities in Which the Funds Invest 1
Securities Descriptions, Techniques and Risks 3
Investment Limitations 11
Voting Rights 13
Who Manages the Funds 14
Other Services 17
Exchanging Securities for Shares 20
Determining Market Value of Securities 20
How Do I Redeem Shares 22
Banking Laws 22
What are the Tax Consequences 22
How Does the Fund Measure Performance 23
Performance Comparisons 25
Economic and Market Information 28
Financial Statements 28
Appendix 29
Addresses 32
<PAGE>
HOW ARE THE FUNDS ORGANIZED
Marshall Funds, Inc. (Corporation) is an open-end, management investment company
that was established as a Wisconsin corporation on July 31, 1992.
The Funds are diversified portfolios of the Corporation. The Corporation may
offer separate series of shares representing interests in separate portfolios of
securities, and the shares in any one portfolio may be offered in separate
classes. This Statement contains additional information about the Corporation
and its eleven investment portfolios. This Statement uses the same terms as
defined in the prospectus. The definitions of the terms series and class in the
Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes (WBCL)
differ from the meanings assigned to those terms in the prospectus and this
Statement of Additional Information. The Articles of Incorporation of the
Corporation reconcile this inconsistency in terminology, and provide that the
prospectus and Statement of Additional Information may define these terms
consistently with the use of those terms under the WBCL and the Internal Revenue
Code. SECURITIES IN WHICH THE FUNDS INVEST
Following is a table that indicates which types of securities are a: P =
Principal investment of a Fund; (shaded in chart) A = Acceptable (but not
principal) investment of a Fund; or N = Not an acceptable investment of a
Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS
- -----------------------------------------------------------------------------------------
Securities Equity Large-Cap Mid-Cap Mid-Cap Internatio Small-Cap
Income Growth & Value Growth Stock Growth
Income
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
American Depositary Receipts1 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Asset-Backed Securities2 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Bank Instruments3 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Borrowing4 A A A A A A
- -------------------------------
- -----------------------------------------------------------------------------------------
Common Stock P P P P P P
- ---------------------------------------------------------------------- ---------
- ------------------------------- ----------
Common Stock of Foreign A A A A P A
Companies
- ------------------------------- ------------------------------------------------
- ---------------------------------------------------------------------- ---------
Convertible Securities P A A A A A
- -----------------------------------------------------------------------------------------
- ------------------------------- ------------------------------------------------
Debt Obligations A A A A A5 A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Derivative Contracts and A A A A A A
Securities
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
European Depositary Receipts N N N N A N
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Fixed Rate Debt Obligations A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Floating Rate Debt Obligations A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Foreign Currency Hedging N N N N A N
Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Foreign Currency Transactions N N N N A N
- ---------------------------------------------------------------------- ---------
- -----------------------------------------------------------------------------------------
Foreign Securities6 A A A A P A
- -----------------------------------------------------------------------------------------
- ---------------------------------------------------------------------- ---------
Forward Commitments, A A A A A A
When-Issued and Delayed
Delivery Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Futures and Options A A A A A A
Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Global Depositary Receipts N N N N A N
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Illiquid and Restricted A A A A A A
Securities7
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Lending of Portfolio A A A A A A
Securities
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Mortgage-Backed Securities A A A A A A
- ------------------------------- ------------------------------------------------
- -----------------------------------------------------------------------------------------
Preferred Stocks P A A A A A
- -----------------------------------------------------------------------------------------
- ------------------------------- ------------------------------------------------
Prime Commercial Paper8 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Repurchase Agreements A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Reverse Repurchase Agreements A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Securities of Other A A A A A A
Investment Companies
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SWAP Transactions A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
U.S. Government Securities A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Variable Rate Demand Notes A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Warrants A A A A A A
- -----------------------------------------------------------------------------------------
INCOME FUNDS AND MONEY MARKET FUND
- -----------------------------------------------------------------------------------------
Securities Short-Term IntermediateGovernment IntermediateMoney
Income Bond Income Tax-Free Market
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Asset-Backed Securities2 P A P A A
- -------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------
Bank Instruments3 A A A A P
- -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrowing4 A A A A A
- -------------------------------
- -----------------------------------------------------------------------------------------
Debt Obligations P P P P P
- -----------------------------------------------------------------------------------------
- ------------------------------- ----------
Demand Master Notes A A N N P
- -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Derivative Contracts and A A A A A
Securities
- ------------------------------- ----------
- -----------------------------------------------------------------------------------------
Fixed Rate Debt Obligations P P P P A
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Floating Rate Debt Obligations A A A P P
- ------------------------------------------------------- -----------------------
- ------------------------------------------------------------------
Foreign Securities6 A A A N N
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Forward Commitments, A A A A A
When-Issued and Delayed
Delivery Transactions
- ------------------------------- -----------------------
- -----------------------------------------------------------------------------------------
Funding Agreements A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Futures and Options A A A A N
Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Guaranteed Investment N N N N A
Contracts
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Illiquid and Restricted A A A A A
Securities7
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Lending of Portfolio A A A A A
Securities
- ------------------------------------------------------- -----------------------
- -----------------------------------------------------------------------------------------
Mortgage-Backed Securities A A P N N
- -----------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------
Municipal Leases A A A A N
- ------------------------------------------------------------------ ----------
- -----------------------------------------------------------------------------------------
Municipal Securities A A A P N
- -----------------------------------------------------------------------------------------
- ------------------------------------------------------------------ ----------
Participation Interests N N N A N
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Preferred Stocks N N N N N
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Prime Commercial Paper8 A A A A P
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Repurchase Agreements A A A A P
- -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Reverse Repurchase Agreements9 A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Securities of Other A A A A A
Investment Companies
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SWAP Transactions A A A A N
- ------------------------------------------------------- -----------------------
- -----------------------------------------------------------------------------------------
U.S. Government Securities A A P A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Variable Rate Demand Notes A A A A A
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
1. All Funds may invest up to 20% of their respective assets, however, the
International Stock Fund has no limit.
2. The Equity Funds and Income Funds may invest in Asset-Backed Securities
rated, at the time of purchase, in the top four rating categories by an NRSRO,
or if unrated, determined by the Adviser to be of comparable quality. The Money
Market Fund will invest in only the short-term tranches, which will generally
have a maturity not exceeding 397 days. Only the Income Funds expect that they
might exceed 5% of their respective net assets in these securities. 3. The
Equity Funds and Money Market Funds may purchase foreign Bank Instruments. The
Equity Funds and Money Market Funds (except International Stock Fund) are
limited to 5% of total assets. The Income Funds may invest in foreign Bank
Instruments, although they do not presently intend to do so.
4. The International Stock Fund may pledge more than 5% of its total assets as
collateral for borrowings because it may borrow money to purchase securities, a
strategy that involves purchasing securities in amounts that exceed the amount
it has invested in the underlying securities. The excess exposure increases the
risks associated with the underlying securities and tends to exaggerate the
effect of changes in the value of its portfolio securities and consequently on
the Fund's net asset value. 5. Must be issued by U.S. corporations and rated in
the top four categories by an NRSRO or, if unrated determined by the Adviser to
be of comparable quality. 6. The Equity Funds, except International Stock Fund
may only invest up to 5% of their respective net assets in foreign securities
other than American Depositary Receipts. 7. All Funds may invest up to 15% of
their respective assets in illiquid securities except that the Money Market Fund
is limited to 10%. 8. The Small-Cap Growth Fund may purchase commercial paper
rated investment grade by an NRSRO or, if unrated determined by the Adviser to
be of comparable quality. The other Funds may purchase commercial paper rated in
the two highest rating categories by an NRSRO or, if unrated determined by the
Adviser to be of comparable quality. 9. During the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Money Market Fund will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date on the reverse repurchase agreement.
SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS As used in this section, the term
Adviser means Adviser or Subadviser, as applicable. Agency securities are issued
or guaranteed by a federal agency or other government sponsored entity acting
under federal authority. Some government entities are supported by the full,
faith and credit of the United States. Other government entities receive support
through federal subsidies, loans or other benefits. A few government entities
have no explicit financial support, but are regarded as having implied support
because the federal government sponsors their activities. Investors regard
agency securities as having low credit risk, but not as low as Treasury
securities. The Fund treats mortgage-backed securities guaranteed by a
government sponsored entity as if issued or guaranteed by a federal agency.
Although such a guarantee protects against credit risk, it does not reduce the
market and prepayment risks. Asset-Backed Securities are issued by
non-governmental entities and carry no direct or indirect government guarantee.
Asset-Backed Securities represent an interest in a pool of assets such as car
loans and credit card receivables. Almost any type of fixed income asset
(including other fixed income securities) may be used to create an asset backed
security. However, most asset-backed securities involve consumer or commercial
debts with maturities of less than ten years. Asset-backed securities may take
the form of commercial paper or notes, in addition to pass through certificates
or asset-backed bonds. Asset backed securities may also resemble some types of
CMOs. Payments on asset-backed securities depend upon assets held by the issuer
and collections of the underlying loans. The value of these securities depends
on many factors, including changing interest rates, the availability of
information about the pool and its structure, the credit quality of the
underlying assets, the market's perception of the servicer of the pool, and any
credit enhancement provided. Also, these securities may be subject to prepayment
risk. Bank Instruments. Bank Instruments are unsecured interest bearing deposits
with banks. Bank Instruments include bank accounts, time deposits, certificates
of deposit and banker's acceptances. Instruments denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars and issued by
U.S. branches of foreign banks are referred to as Yankee instruments.
The Funds will invest in bank instruments that have been issued by banks and
savings and loans that have capital, surplus and undivided profits of over $100
million or whose principal amount is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, which are administered by the Federal
Deposit Insurance Corporation. Securities that are credit-enhanced with a bank's
irrevocable letter of credit or unconditional guaranty will also be treated as
Bank Instruments.
Foreign Bank Instruments. Eurodollar Certificates of Deposit (ECDs), Yankee
Certificates of Deposit (YCDs) and Eurodollar Time Deposits (ETDs) are all
U.S. dollar denominated certificates of deposit. ECDs are issued by, and
ETDs are deposits of, foreign banks or foreign branches of U.S. banks. YCDs
are issued in the U.S. by branches and agencies of foreign banks.
ECDs, ETDs, YCDs, and Europaper have many of the same risks of other
foreign securities. Examples of these risks include economic and political
developments, that may adversely affect the payment of principal or
interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank
and the possible impact of interruptions in the flow of international
currency transactions. Also, the issuing banks or their branches are not
necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by
the Adviser in selecting these investments.
Borrowing. The Funds may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets (net assets for the Money
Market Fund, Short-Term Income Fund and Intermediate Bond Fund), and pledge some
assets as collateral. A Fund that borrows will pay interest on borrowed money
and may incur other transaction costs. These expenses could exceed the income
received or capital appreciation realized by the Fund from any securities
purchased with borrowed money. With respect to borrowings, the Funds are
required to maintain continuous asset coverage to 300% of the amount borrowed.
If the coverage declines to less than 300%, the Fund must sell sufficient
portfolio securities to restore the coverage even if it must sell the securities
at a loss.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most common types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.
Convertible Securities. Convertible securities are fixed income securities that
the Fund has the option to exchange for equity securities at a specified
conversion price. The option allows the Fund to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, if the Fund holds fixed income securities convertible into shares of
common stock at a conversion price of $10 per share, and the shares have a
market value of $12, the Fund could realize an additional $2 per share by
converting the fixed income securities.
To compensate for the value of the conversion option, convertible securities
have lower yields than comparable fixed income securities. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Credit Enhancement. Certain acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. The Adviser may evaluate a security
based, in whole or in part, upon the financial condition of the party providing
the credit enhancement (the credit enhancer). The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
For diversification purposes, credit-enhanced securities will not be treated as
having been issued by the credit enhancer, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise
credit-enhanced by the credit enhancer. In such cases, the securities will be
treated as having been issued both by the issuer and the credit enhancer.
Credit Quality. The fixed income securities in which a Fund invest will be rated
at least investment grade by a nationally recognized statistical ratings
organization (NRSRO). Investment grade securities have received one of an
NRSRO's four highest ratings. Securities receiving the fourth highest rating
(Baa by Moody's or BBB by S&P or Fitch) have speculative characteristics and
changes in the market or the economy are more likely to affect the ability of
the issuer to repay its obligations when due. The Adviser will evaluate
downgraded securities and will sell any security determined not to be an
acceptable investment. The Money Market Fund is subject to Rule 2a-7 under the
Investment Company Act of 1940, and will follow the credit quality requirements
of the Rule.
Commercial Paper and Restricted and Illiquid Securities. Commercial paper is an
issuer's draft or note with a maturity of less than nine months. Companies
typically issue commercial paper to fund current expenditures. Most issuers
constantly reissue their commercial paper and use the proceeds (or bank loans)
to repay maturing paper. Commercial paper may default if the issuer cannot
continue to obtain financing in this fashion. The short maturity of commercial
paper reduces both the market and credit risk as compared to other debt
securities of the same issuer. The Funds may invest in commercial paper issued
under Section 4(2) of the Securities Act of 1933. By law, the sale of Section
4(2) commercial paper is restricted and is generally sold only to institutional
investors, such as a Fund. A Fund purchasing Section 4(2) commercial paper must
agree to purchase the paper for investment purposes only and not with a view to
public distribution. Section 4(2) commercial paper is normally resold to other
institutional investors through investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Funds believe that Section
4(2) commercial paper and certain other restricted securities which meet the
Director's criteria for liquidity are quite liquid. Section 4(2) commercial
paper and restricted securities which are deemed liquid, will not be subject to
the investment limitation. In addition, because Section 4(2) commercial paper is
liquid, the Funds intend to not subject such paper to the limitation applicable
to restricted securities. Demand Features. The Funds may purchase securities
subject to a demand feature, which may take the form of a put or standby
commitment. Demand features permit a fund to demand payment of the value of the
security (plus an accrued interest) from either the issuer of the security or a
third-party. Demand features help make a security more liquid, although an
adverse change in the financial health of the provider of a demand feature (such
as bankruptcy), will negatively affect the liquidity of the security. Other
events may also terminate a demand feature, in which case liquidity is also
affected.
Demand Master Notes. Demand master notes are short-term borrowing arrangements
between a corporation or government agency and an institutional lender (such as
a Fund) payable upon demand by either party. A party may demand full or partial
payment and the notice period for demand typically ranges from one to seven
days. Many master notes give a Fund the option of increasing or decreasing the
principal amount of the master note on a daily or weekly basis within certain
limits. Demand master notes usually provide for floating or variable rates of
interest.
Depositary Receipts. American Depositary Receipts (ADRs) are receipts, issued by
a U.S. bank, that represent an interest in shares of a foreign-based
corporation. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) are receipts, issued by foreign banks or trust
companies, or foreign branches of U.S. banks, that represent an interest in
shares of either a foreign or U.S. corporation. Depositary Receipts may not be
denominated in the same currency as the underlying securities into which they
may be converted, and are subject to currency risks. Depositary Receipts
involves many of the same risks of investing directly in foreign securities.
Derivative Contracts. The term derivative has traditionally been applied to
certain contracts (futures, forward, option and swap contracts) that derive
their value from changes in the value of an underlying security, currency,
commodity or index. Derivatives also refer to securities that incorporate the
performance characteristics of these contracts and securities derived from the
cash flows from underlying securities, mortgages or other obligations. While the
response of certain derivatives to market changes may differ from traditional
investments like stock and bonds, they do not necessarily present greater market
risks than traditional investments. Certain types of derivative contracts and
securities can be used to reduce or increase the volatility of an investment
portfolio's total performance. Duration. Duration is a measure of volatility in
the price of a bond prior to maturity. Volatility is the magnitude of the change
in the price of a bond relative to a change in the market interest rate.
Volatility is based upon a bond's coupon rate; maturity date; and the level of
market yields of similar bonds. Generally, bonds with lower coupons or longer
maturities will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure. Equity
securities are the fundamental unit of ownership in a company. They represent a
share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or distributions. As a result, investors cannot predict the income
they will receive from equity securities. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Equity Funds
invest.
Common stocks are the most prevalent type of equity security. Common
stockholders are entitled to the net value of the issuer's earnings and
assets after the issuer pays its creditors and any preferred stockholders. As
a result, changes in an issuer's earnings directly influence the value of its
common stock. Preferred stocks have the right to receive specified dividends
or distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may provide for the issuer to redeem
the stock on a specified date. A Fund holding redeemable preferred stock may
treat it as a fixed income security. Warrants provide an option to buy the
issuer's stock or other equity securities at a specified price. A Fund
holding a warrant may buy the designated shares by paying the exercise price
before the warrant expires. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the stated expiration date.
Rights are the same as warrants, except they are typically issued to existing
stockholders.
Fixed Income Securities. Fixed income securities generally pay interest at
either a fixed or floating rate and provide more regular income than equity
securities. However, the returns on fixed income securities are limited and
normally do not increase with the issuer's earnings. This limits the potential
appreciation of fixed income securities as compared to equity securities. Fixed
rate securities and floating rate securities react differently as prevailing
interest rates change.
Fixed Rate Debt Securities. Debt securities that pay a fixed interest rate
over the life of the security and have a long-term maturity may have many
characteristics of short-term debt. For example, the market may treat fixed
rate/long-term securities as short-term debt when a security's market price
is close to the call or redemption price, or if the security is approaching
its maturity date when the issuer is more likely to call or redeem the
debt.
As interest rates change, the market prices of fixed rate debt securities
are generally more volatile than the prices of floating rate debt
securities. As interest rates rise, the prices of fixed rate debt
securities fall, and as interest rates fall, the prices of fixed rate debt
securities rise. For example, a bond that pays a fixed interest rate of 10%
is more valuable to investors when prevailing interest rates are lower;
therefore, this value is reflected in higher price, or a premium.
Conversely, if interest rates are over 10%, the bond is less attractive to
investors, and sells at a lower price, or a discount.
Floating Rate Debt Securities. The interest rate paid on floating rate debt
securities is reset periodically (e.g., every 90 days) to a predetermined
index rate. Commonly used indices include: 90-day or 180-day Treasury bill
rate; one month or three month London Interbank Offered Rate (LIBOR);
commercial paper rates; or the prime rate of interest of a bank. The prices
of floating rate debt securities are not as sensitive to changes in
interest rates as fixed rate debt securities because they behave like
shorter-term securities and their interest rate is reset periodically.
Foreign Currency Transactions. Foreign currency transactions are generally used
to obtain foreign currencies to settle securities transactions. They can also be
used as a hedge to protect assets against adverse changes in foreign currency
exchange rates or regulations. When a Fund uses foreign currency exchanges as a
hedge, it may also limit potential gain that could result from an increase in
the value of such currencies. A Fund may be affected either favorably or
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations.
Foreign Currency Hedging Transactions. Foreign currency hedging
transactions are used to protect against foreign currency exchange rate
risks. These transactions include: forward foreign currency exchange
contracts, foreign currency futures contracts, and purchasing put or call
options on foreign currencies. Forward foreign currency exchange contracts
(Forward Contracts) are used to minimize the risks associated with changes
in the relationship between the U.S. dollar and foreign currencies. They
are used to lock in the U.S. dollar price of a foreign security. A Forward
Contract is a commitment to purchase or sell a specific currency for an
agreed price at a future date. If the Adviser believes a foreign currency
will decline against the U.S. dollar, a Forward Contract may be used to
sell an amount of the foreign currency approximating the value of a Fund's
security that is denominated in the foreign currency. The success of this
hedging strategy is highly uncertain due to the difficulties of predicting
the values of foreign currencies, of precisely matching Forward Contract
amounts, and because the constantly changing value of the securities
involved. The Fund will not enter into Forward Contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's
assets denominated in that currency. Conversely, if the Adviser believes
that the U.S. dollar will decline against a foreign currency, a Forward
Contract may be used to buy that foreign currency for a fixed dollar
amount, otherwise known as cross-hedging. In these transactions, the Fund
will segregate assets with a market value equal to the amount of the
foreign currency purchased. Therefore, the Fund will always have cash,
cash equivalents or high quality debt securities available to cover
Forward Contracts or to limit any potential risk. The segregated assets
will be priced daily. Forward Contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for a Fund than if it had not engaged in such
contracts. Purchasing and writing put and call options on foreign
currencies are used to protect the Fund's portfolio against declines in
the U.S. dollar value of foreign portfolio securities and against
increases in the dollar cost of foreign securities to be acquired. Writing
an option on foreign currency constitutes only a partial hedge, up to the
amount of the premium received. The Fund could lose money if it is
required to purchase or sell foreign currencies at disadvantageous
exchange rates. If exchange rate movements are adverse to the Fund's
position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. These options are traded on U.S. and foreign
exchanges or over-the-counter.
Exchange-traded futures contracts are used for the purchase or sale of foreign
currencies (Foreign Currency Futures) and will be used to hedge against
anticipated changes in exchange rates that might adversely affect the value of a
Fund's portfolio securities or the prices of securities that a Fund intends to
purchase in the future. The successful use of Foreign Currency Futures depends
on the ability to forecast currency exchange rate movements correctly. Should
exchange rates move in an unexpected manner, a Fund may not achieve the
anticipated benefits of Foreign Currency Futures or may realize losses. Funding
Agreements (Agreements), are investment instruments issued by highly rated U.S.
insurance companies. Pursuant to such Agreements, a Fund may make cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits guaranteed interest to the Fund.
The insurance company may assess periodic charges against an Agreement for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for an Agreement becomes
part of the general assets of the issuer, and the Agreement is paid from the
general assets of the issuer. The Money Market Fund will only purchase
Agreements from issuers that meet quality and credit standards established by
the Adviser. Generally, Agreements are not assignable or transferable without
the permission of the issuing insurance companies, and an active secondary
market in Agreements does not currently exist. Also, the Money Market Fund may
not have the right to receive the principal amount of an Agreement from the
insurance company on seven days' notice or less. Therefore, Agreements are
typically considered to be illiquid investments. Futures and Options
Transactions. As a means of reducing fluctuations in its net asset value, a Fund
may buy and sell futures contracts and options on futures contracts, and buy put
and call options on portfolio securities and securities indices to hedge its
portfolio. A Fund may also write covered put and call options on portfolio
securities to attempt to increase its current income or to hedge its portfolio.
There is no assurance that a liquid secondary market will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
Futures Contracts. A futures contract is a commitment by two parties under
which one party agrees to make delivery of an asset (seller) and another
party agrees to take delivery of the asset at a certain time in the future.
A futures contract may involve a variety of assets including commodities
(such as oil, wheat, or corn) or a financial asset (such as a security). A
Fund may purchase and sell financial futures contracts to hedge against
anticipated changes in the value of its portfolio without necessarily
buying or selling the securities. Although some financial futures contracts
call for making or taking delivery of the underlying securities, in most
cases these obligations are closed out before the settlement date. The
closing of a futures contract is accomplished by purchasing or selling an
identical offsetting futures contract.
Other financial futures contracts call for cash settlements.
A Fund may purchase and sell stock index futures contracts to hedge against
anticipated price changes with respect to any stock index traded on a
recognized stock exchange or board of trade. A stock index futures contract
is an agreement in which two parties agree to take or make delivery of an
amount of cash equal to the difference between the price of the original
contract and the value of the index at the close of the last trading day of
the contract. No physical delivery of the underlying securities in the
index is made. Settlement is made in cash upon termination of the contract.
Margin In Futures Transactions. Since a Fund does not pay or receive money
upon the purchase or sale of a futures contract, it is required to deposit
an amount of initial margin in cash, U.S. government securities or
highly-liquid debt securities as a good faith deposit. The margin is
returned to the Fund upon termination of the contract. Initial margin in
futures transactions does not involve borrowing to finance the
transactions. As the value of the underlying futures contract changes
daily, the Fund pays or receives cash, called variation margin, equal to
the daily change in value of the futures contract. This process is known as
marking to market. Variation margin does not represent a borrowing or loan
by the Fund. It may be viewed as settlement between the Fund and the broker
of the amount one would owe the other if the futures contract expired. When
the Fund purchases futures contracts, an amount of cash and/or cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian to collateralize the position
and insure that the use of futures contracts is unleveraged. The Fund is
also required to deposit and maintain margin when it writes call options on
futures contracts. A Fund will not enter into a futures contract or
purchase an option thereon for other than hedging purposes if immediately
thereafter the initial margin deposits for futures contracts held by it,
plus premiums paid by it for open options on futures contracts, would
exceed 5% of the market value of its net assets, after taking into account
the unrealized profits and losses on those contracts it has entered into.
However, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing such 5%. Put
Options on Financial and Stock Index Futures Contracts. A Fund may purchase
listed put options on financial and stock index futures contracts to
protect portfolio securities against decreases in value. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a
put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price. Generally, if the hedged portfolio
securities decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option will increase
in value. In such an event, the Fund will normally close out its option by
selling an identical option. If the hedge is successful, the proceeds
received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option
plus the decrease in value of the hedged securities. Alternatively, a Fund
may exercise its put option to close out the position. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and exercise
the option. The Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out nor exercises
an option, the option will expire on the date provided in the option
contract, and only the premium paid for the contract will be lost. A Fund
may also write (sell) listed put options on financial or stock index
futures contracts to hedge its portfolio against a decrease in market
interest rates or an increase in stock prices. A Fund will use these
transactions to purchase portfolio securities in the future at price levels
existing at the time it enters into the transaction. When a Fund sells a
put on a futures contract, it receives a cash premium in exchange for
granting to the buyer of the put the right to receive from the Fund, at the
strike price, a short position in such futures contract. This is so even
though the strike price upon exercise of the option is greater than the
value of the futures position received by such holder. As market interest
rates decrease or stock prices increase, the market price of the underlying
futures contract normally increases. When the underlying futures contract
increases, the buyer of the put option has less reason to exercise the put
because the buyer can sell the same futures contract at a higher price in
the market. If the value of the underlying futures position is not such
that exercise of the option would be profitable to the option holder, the
option will generally expire without being exercised. The premium received
by the Fund can then be used to offset the higher prices of portfolio
securities to be purchased in the future. In order to avoid the exercise of
an option sold by it, generally a Fund will cancel its obligation under the
option by entering into a closing purchase transaction, unless it is
determined to be in the Fund's interest to deliver the underlying futures
position. A closing purchase transaction consists of the purchase by the
Fund of an option having the same term as the option sold by the Fund, and
has the effect of canceling the Fund's position as a seller. The premium
which the Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in
large part upon the relative price of the underlying futures position at
the time of each transaction. If the hedge is successful, the cost of
buying the second option will be less than the premium received by the Fund
for the initial option. Call Options on Financial and Stock Index Futures
Contracts. A Fund may write (sell) listed and over-the-counter call options
on financial and stock index futures contracts to hedge its portfolio. When
the Fund writes a call option on a futures contract, it undertakes to sell
a futures contract at the fixed price at any time during the life of the
option. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation to sell a futures
contract costs less to fulfill, causing the value of the Fund's call option
position to increase. In other words, as the underlying futures price goes
down below the strike price, the buyer of the option has no reason to
exercise the call, so that the Fund keeps the premium received for the
option. This premium can substantially offset the drop in value of the
Fund's portfolio securities. Prior to the expiration of a call written by a
Fund, or exercise of it by the buyer, the Fund may close out the option by
buying an identical option. If the hedge is successful, the cost of the
second option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then substantially
offset the decrease in value of the hedged securities. A Fund may buy a
listed call option on a financial or stock index futures contract to hedge
against decreases in market interest rates or increases in stock price. A
Fund will use these transactions to purchase portfolio securities in the
future at price levels existing at the time it enters into the transaction.
When a Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market value of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract. As market interest
rates fall or stock prices increase, the value of the underlying futures
contract will normally increase, resulting in an increase in value of the
Fund's option position. When the market price of the underlying futures
contract increases above the strike price plus premium paid, the Fund could
exercise its option and buy the futures contract below market price. Prior
to the exercise or expiration of the call option, the Fund could sell an
identical call option and close out its position. If the premium received
upon selling the offsetting call is greater than the premium originally
paid, the Fund has completed a successful hedge. Limitation on Open Futures
Positions. A Fund will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if together
the value of the open positions exceeds the current market value of the
Fund's portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation. Purchasing Put and Call Options on Securities. A Fund may
purchase put options on portfolio securities to protect against price
movements in the Fund's portfolio. A put option gives the Fund, in return
for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. A Fund may
purchase call options on securities acceptable for purchase to protect
against price movements by locking in on a purchase price for the
underlying security. A call option gives the Fund, in return for a premium,
the right to buy the underlying security from the seller at a specified
price during the term of the option. Writing Covered Call and Put Options
on Securities. A Fund may write covered call and put options to generate
income and thereby protect against price movements in the Fund's portfolio
securities. As writer of a call option, the Fund has the obligation, upon
exercise of the option during the option period, to deliver the underlying
security upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities which
it has the right to obtain without payment of further consideration (or has
segregated cash or U.S. government securities in the amount of any
additional consideration). As a writer of a put option, the Fund has the
obligation to purchase a security from the purchaser of the option upon the
exercise of the option. In the case of put options, the Fund will segregate
cash or U.S. Treasury obligations with a value equal to or greater than the
exercise price of the underlying securities. Stock Index Options. A Fund
may purchase or sell put or call options on stock indices listed on
national securities exchanges or traded in the over-the-counter market. A
stock index fluctuates with changes in the market values of the stocks
included in the index. Upon the exercise of the option, the holder of a
call option has the right to receive, and the writer of a put option has
the obligation to deliver, a cash payment equal to the difference between
the closing price of the index and the exercise price of the option. The
effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price
movements of the stock index selected. The value of an index option depends
upon movements in the level of the index rather than the price of a
particular stock. Accordingly, successful use by a Fund of options on stock
indices will be subject to the Adviser correctly predicting movements in
the directions of the stock market generally or of a particular industry.
This requires different skills and techniques than predicting changes in
the price of individual stocks. Over-the-Counter Options. Over-the-counter
options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while over-the-counter options may not. A Fund may
generally purchase and write over-the-counter options on portfolio
securities or securities indices in negotiated transactions with the buyers
or writers of the options when options on the Fund's portfolio securities
or securities indices are not traded on an exchange. The Fund purchases and
writes options only with investment dealers and other financial
institutions deemed creditworthy by Adviser. Risks. When a Fund uses
futures and options on futures as hedging devices, there is a risk that the
prices of the securities or foreign currency subject to the futures
contracts may not correlate perfectly with the prices of the securities or
currency in the Fund's portfolio. This may cause the futures contract and
any related options to react differently to market changes than the
portfolio securities or foreign currency. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market
factors such as stock price movements or foreign currency exchange rate
fluctuations. In these events, the Fund may lose money on the futures
contract or option. When a Fund purchases futures contracts, an amount of
cash and cash equivalents, equal to the underlying commodity value of the
futures contracts (less any related margin deposits), will be deposited in
a segregated account with the Fund's custodian or the broker, to
collateralize the position and thereby insure that the use of such futures
contract is unleveraged. When the Fund sells futures contracts, it will
either own or have the right to receive the underlying future or security,
or will make deposits to collateralize the position as discussed above.
Lending of Portfolio Securities. In order to generate additional income, a Fund
may lend portfolio securities. When a Fund lends portfolio securities, it will
receive either cash or liquid securities as collateral from the borrower. A Fund
will reinvest cash collateral in short-term liquid securities that qualify as an
otherwise acceptable investment for the Fund. If the market value of the loaned
securities increases, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to a securities lending agent or broker. Mortgage-Backed Securities
represent interests in pools of mortgages. The underlying mortgages normally
have similar interest rates, maturities and other terms. Mortgages may have
fixed or adjustable interest rates. Interests in pools of adjustable rate
mortgages are known as ARMs. Mortgage-backed securities come in a variety of
forms. Many have extremely complicated terms. The simplest form of
mortgage-backed securities is a "pass-through certificate." Holders of
pass-through certificates receive a pro rata share of the payments from the
underlying mortgages. Holders also receive a pro rata share of any prepayments,
so they assume all the prepayment risk of the underlying mortgages.
Collateralized mortgage obligations (CMOs) are complicated instruments that
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage-backed securities. This creates
different prepayment and market risks for each CMO class. In addition, CMOs may
allocate interest payments to one class (IOs) and principal payments to another
class (POs). POs increase in value when prepayment rates increase. In contrast,
IOs decrease in value when prepayments increase, because the underlying
mortgages generate less interest payments. However, IOs prices tend to increase
when interest rates rise (and prepayments fall), making IOs a useful hedge
against market risk. Generally, homeowners have the option to prepay their
mortgages at any time without penalty. Homeowners frequently refinance high rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage-backed securities, which deprives holders of the securities of the
higher yields. Conversely, when mortgage rates increase, prepayments due to
refinancings decline. This extends the life of mortgage-backed securities with
lower yields. As a result, increases in prepayments of premium mortgage-backed
securities, or decreases in prepayments of discount mortgage-backed securities,
may reduce their yield and price. This relationship between interest rates and
mortgage prepayments makes the price of mortgage-backed securities more volatile
than most other types of fixed income securities with comparable credit risks.
Mortgage-backed securities tend to pay higher yields to compensate for this
volatility. CMOs may include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and any prepayments in excess
of this rate. In addition, PACs will receive the companion classes' share of
principal payments if necessary to cover a shortfall in the prepayment rate.
This helps PACs and TACs to control prepayment risk by increasing the risk to
their companion classes. Another variant allocates interest payments between two
classes of CMOs. One class (Floaters) receives a share of interest payments
based upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages. Floater
classes receive more interest (and Inverse Floater classes receive
correspondingly less interest) as interest rates rise. This shifts prepayment
and market risks from the Floater to the Inverse Floater class, reducing the
price volatility of Floater class and increasing the price volatility of the
Inverse Floater class. CMOs must allocate all payments received from the
underlying mortgages to some class. To capture any unallocated payments, CMOs
generally have an accrual (Z) class. Z classes do not receive any payments from
the underlying mortgages until all other CMO classes have been paid off. Once
this happens, holders of Z class CMOs receive all payments and prepayments.
Similarly, REMICs have residual interests that receive any mortgage payments not
allocated to another REMIC class. The degree of increased or decreased
prepayment risk depends upon the structure of the CMOs. Z classes, IOs, POs, and
Inverse Floaters are among the most volatile investment grade fixed income
securities currently traded in the United States. However, the actual returns on
any type of mortgage backed security depends upon the performance of the
underlying pool of mortgages, which no one can predict and will vary among
pools. Municipal securities are fixed income securities issued by states,
counties, cities and other political subdivisions and authorities. Although most
municipal securities are exempt from federal income tax, municipalities may also
issue taxable securities. Tax-exempt securities are generally classified by
their source of payment.
General obligation bonds are supported by the issuer's full faith and
credit. The issuer must levy and collect taxes sufficient to pay principal
and interest on the bonds. However, the issuer's authority to levy
additional taxes may be limited by its charter or state law. Special revenue
bonds are payable solely from specific revenues received by the issuer. The
revenues may consist of specific taxes, assessments, tolls, fees or other
types of municipal revenues. For example, a municipality may issue bonds to
build a toll road, and pledge the tolls to repay the bonds. Bondholders
could not collect from the municipality's general taxes or revenues.
Therefore, any shortfall in the tolls normally would result in a default on
the bonds. Private activity bonds are special revenue bonds used to finance
private entities. For example, a municipality may issue bonds to finance a
new factory to improve its local economy. The municipality would lend the
proceeds to the company using the factory, and the company would agree make
loan payments sufficient to repay the bonds. The bonds would be payable
solely from the company's loan payments, not from any other revenues of the
municipality. Therefore, any default on the loan normally would result in a
default on the bonds. The interest on many types of private activity bonds
is subject to the federal alternative minimum tax. The Funds may invest in
bonds subject to the federal alternative minimum tax. Anticipation notes are
securities issued in anticipation of the receipt of taxes, grants, bond
proceeds or other municipal revenues. For example, many municipalities
collect property taxes once a year. Such municipalities may issue tax
anticipation notes to fund their operations prior collecting these taxes.
The issuers then repay the tax anticipation notes at the end of their fiscal
year, either with collected taxes or proceeds from newly issued notes or
bonds. Tax increment financing bonds are payable from increases in taxes or
other revenues attributable to projects financed by the bonds. For example,
a municipality may issue these bonds to redevelop a commercial area. The tax
increment financing bonds would be payable solely from any increase in sales
taxes collected from merchants in the area. The bonds could default if
merchants' sales, and related tax collections, failed to increase as
anticipated.
Municipal Securities include:
|X|TRANs: tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues; |X|TANs: tax
anticipation notes issued to finance working capital needs in anticipation of
receiving taxes |X|RANs: revenue anticipation notes issued to finance working
capital needs in anticipation of receiving revenues |X|BANs: bond anticipation
notes that are intended to be refinanced through a later issuance of longer-term
bonds |X|municipal commercial paper and other short-term notes |X|variable rate
demand notes |X|industrial development bonds |X|municipal bonds (including bonds
having serial maturities and pre-refunded bonds) and leases |X|construction loan
notes insured by the Federal Housing Administration and financed by Fannie Mae
or Ginnie Mae; and |X|participation, trust and partnership interests in any of
the foregoing obligations.
Diversification of the Intermediate Tax-Free Fund's investments is obtained
geographically by purchasing issues of Municipal Securities representative of
various areas of the U.S. and general obligations of states, cities and school
districts as well as some revenue issues which meet the Funds' acceptable
quality criteria.
Municipal Leases. A Fund may purchase participation interests that
represent an undivided proportional interest in lease payments by a
governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may provide that the participants cannot
accelerate lease obligations upon default. The participants would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the participants
would be able to obtain an acceptable substitute source of payment unless
the participation interests are credit enhanced. The Adviser must consider
the following factors in determining the liquidity of municipal lease
securities: (1) the frequency of trades and quotes for the security; (2)
the volatility of quotations and trade prices for the security; (3) the
number of dealers willing to purchase or sell the security and the number
of potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the marketplace
trades; (6) the rating of the security and the financial condition and
prospects of the issuer of the security; (7) such other factors as may be
relevant to the Funds' ability to dispose of the security; (8) whether the
lease can be terminated by the lessee; (9) the potential recovery, if any,
from a sale of the leased property upon termination of the lease; (10) the
lessee's general credit strength; (11) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (12) any
credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease. Variable Rate
Municipal Securities. Variable interest rates generally reduce changes in
the market value of Municipal Securities from their original purchase
prices. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for variable rate
Municipal Securities than for fixed rate obligations. Many Municipal
Securities with variable interest rates purchased by a Fund are subject to
repayment of principal (usually within seven days) on the Fund's demand.
For purposes of determining the Funds' average maturity, the maturities of
these variable rate demand Municipal Securities (including participation
interests) are the longer of the periods remaining until the next
readjustment of their interest rates or the periods remaining until their
principal amounts can be recovered by exercising the right to demand
payment. The terms of these variable rate demand instruments require
payment of principal and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests, or a guarantor of
either issuer.
Repurchase Agreements and Reverse Repurchase Agreements. A repurchase agreement
is a transaction in which a Fund buys a security from a dealer or bank and
agrees to sell the security back at a mutually agreed upon time and price. The
repurchase price exceeds the sale price, reflecting an agreed upon interest rate
effective for the period the buyer owns the security subject to repurchase. The
agreed upon interest rate is unrelated to the interest rate on that security.
The Adviser will continually monitor the value of the underlying security to
ensure that the value of the security always equals or exceeds the repurchase
price. A Fund's custodian is required to take possession of the securities
subject to repurchase agreements. These securities are marked to market daily.
To the extent that the original seller defaults and does not repurchase the
securities from a Fund, the Fund could receive less than the repurchase price on
any sale of such securities. In the event that such a defaulting seller files
for bankruptcy or becomes insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Funds believe that, under the
procedures normally in effect for custody of the portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy. Reverse repurchase agreement transactions are similar to borrowing
cash. In a reverse repurchase agreement, the Fund sells a portfolio security to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio at a price
equal to the original sale price plus interest. A Fund may use reverse
repurchase agreements for liquidity and may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled. Swap Transactions. In a
standard swap transaction, two parties agree to exchange (SWAP) the returns (or
differentials in rates of return) on particular securities, which may be
adjusted for an interest factor. The returns to be swapped are generally
calculated with respect to a return on a notional dollar amount invested at a
particular interest rate, or in a basket of securities representing a particular
index. For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate on $10 million principal amount in
exchange for the right to receive the equivalent of a fixed rate of interest on
$10 million principal amount. Neither party to the swap would actually advance
$10 million to the other. The Funds will usually enter into swaps on a net basis
(i.e., the two payment streams are netted out), with a Fund receiving or paying,
as the case may be, only the net amount of the two payments. The net amount of
the excess, if any, of the Funds' obligations over its entitlements with respect
to each interest rate swap will be accrued on a daily basis, and the Funds will
segregate liquid assets in an aggregate net asset value at least equal to the
accrued excess, if any, on each business day. If a Fund enters into a swap on
other than a net basis, a Fund will segregate liquid assets in the full amount
accrued on a daily basis of a Fund's obligations with respect to the swap. If
there is a default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreements related to the transaction. The
Funds expect to enter into swap transactions primarily to hedge against changes
in the price of other portfolio securities. For example, a Fund may hedge
against changes in the market value of a fixed rate security by entering into a
swap that requires the Fund to pay the same or a lower fixed rate of interest on
a notional principal amount equal to the principal amount of the security in
exchange for a variable rate of interest based on a market index. Interest
accrued on the hedged note would then equal or exceed the Funds' obligations
under the swap, while changes in the market value of the swap would largely
offset any changes in the market value of the note. The Funds may also enter
into swaps to preserve or enhance a return or spread on a portfolio security.
The Funds do not intend to use these transactions in a speculative manner. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. The Adviser has determined that, as a result,
the swap market has become relatively liquid. Interest rate caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than other swaps. To the extent
swaps, caps or floors are determined by the Adviser to be illiquid, they will be
included in a Fund's limitation on investments in illiquid securities. To the
extent a Fund sells caps and floors, it will maintain in a segregated account
cash and/or U.S. government securities having an aggregate net asset value at
least equal to the full amount, accrued on a daily basis, of a Fund's
obligations with respect to caps and floors. The use of swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Adviser is incorrect in its forecasts of market values, interest rates and other
applicable factors, the investment performance of a Fund would diminish compared
with what it would have been if these investment techniques were not utilized.
Moreover, even if the Adviser is correct in its forecasts, there is a risk that
the swap position may correlate imperfectly with the price of the portfolio
security being hedged. Swap transactions do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to a default on an interest rate swap is limited to the net
asset value of the swap together with the net amount of interest payments owed
to a Fund by the defaulting party. A default on a portfolio security hedged by
an interest rate swap would also expose a Fund to the risk of having to cover
its net obligations under the swap with income from other portfolio securities.
Temporary Investments. There may be times when market conditions warrant a
defensive position (this rarely applies to the Money Market Fund). During these
market conditions each of the Funds may temporarily invest without limit in
short-term debt obligations (money market instruments). These investments
include commercial paper, bank instruments, U.S. government obligations,
repurchase agreements, securities of other investment companies, taxable or
tax-free Municipal Securities (for the Intermediate Tax-Free Fund) and foreign
securities (for the International Stock Fund). The Intermediate Tax-Free Fund
does not currently intend to make any taxable investments although they are
permitted to do so. Each Fund's temporary investments must be of comparable
quality to its primary investments. Treasury securities are direct obligations
of the federal government of the United States. Investors regard treasury
securities as having the lowest credit risk. Warrants give the Fund the option
to buy the issuer's stock or other equity securities at a specified price. The
Fund may buy the designated shares by paying the exercise price before the
warrant expires. Warrants may become worthless if the price of the stock does
not rise above the exercise price by the expiration date. Rights are the same as
warrants, except they are typically issued to existing stockholders. When-Issued
and Delayed Delivery Transactions. These transactions are made to secure what is
considered to be an advantageous price or yield. Settlement dates may be a month
or more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. Other than normal
transaction costs, no fees or expenses are incurred. However, liquid assets of a
Fund are segregated on a Fund's records at the trade date in an amount
sufficient to make payment for the securities to be purchased. These assets are
marked to market daily and are maintained until the transaction has been
settled. INVESTMENT LIMITATIONS
FUNDAMENTAL LIMITATIONS
The following investment limitations are fundamental and cannot be changed
without shareholder approval.
Selling Short and Buying on Margin
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. A deposit or payment by a Fund
of initial or variation margin in connection with futures contracts, forward
contracts or related options transactions is not considered the purchase of a
security on margin. Issuing Senior Securities and Borrowing Money
The Funds will not issue senior securities except that each Fund may borrow
money, directly or through reverse repurchase agreements, in amounts up to
one-third of the value of its total assets (net assets in the case of the Money
Market Fund, Short-Term Income Fund, and Intermediate Bond Fund) including the
amounts borrowed; and except to the extent that a Fund is permitted to enter
into futures contracts, options or forward contracts. Except for the
International Stock Fund, a Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of its portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. Except for
the International Stock Fund, a Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding. Pledging Assets
The Funds will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, each Fund may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of its total assets at the time of the pledge. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options; and segregation of
collateral arrangements made in connection with options activities, forward
contracts or the purchase of securities on a when-issued basis. Lending Cash or
Securities
The Funds will not lend any of their assets except portfolio securities. Except
for the International Stock Fund, loans may not exceed one-third of the value of
a Fund's total assets. This shall not prevent a Fund from purchasing or holding
U.S. government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective, policies, and
limitations. Investing in Commodities
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, except for the Short-Term Income Fund, the
Intermediate Bond Fund, and the Money Market Fund, a Fund may purchase and sell
futures contracts and related options, and the International Stock Fund may also
enter into forward contracts and related options. Investing in Real Estate
The Funds will not purchase or sell real estate, including limited partnership
interests, although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or which represent interests in real estate.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, a
Fund will not purchase securities issued by any one issuer (other than cash,
cash items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer or if it
would own more than 10% of the outstanding voting securities of such issuer.
Under this limitation, the Intermediate Tax Free Fund will consider each
governmental subdivision, including states and the District of Columbia,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, a separate issuer
if its assets and revenues are separate from those of the governmental body
creating it and the security is backed only by its own assets and revenues.
Industrial developments bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user. If in the
case of an industrial development bond or government-issued security, a
governmental or some other entity guarantees the security, such guarantee would
be considered a separate security issued by the guarantor, subject to a limit on
investments in the guarantor of 10% of total assets. Concentration of
Investments
(Intermediate Tax-Free Fund only)
The Intermediate Tax-Free Fund will not invest 25% or more of the value of its
total assets in any one industry, except for temporary defensive purposes, the
Fund may invest 25% or more of the value of its total assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, and repurchase agreements collateralized by such securities.
In addition, the Intermediate Tax-Free Fund may invest more than 25% of the
value of its total assets in obligations issued by any state, territory, or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, including
tax-exempt project notes guaranteed by the U.S. government, regardless of the
location of the issuing municipality. This policy applies to securities which
are related in such a way that an economic, business, or political development
affecting one security would also affect the other securities (such as
securities paid from revenues from selected projects in transportation, public
works, education, or housing).
(All Other Funds)
A Fund will not invest 25% or more of its total assets in any one industry.
However, investing in U.S. government securities (and domestic bank instruments
for the Money Market Fund) shall not be considered investments in any one
industry. Underwriting
A Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted (the term restricted does not apply to the Intermediate
Tax-Free Fund) securities which the Fund may purchase pursuant to its investment
objective, policies and limitations. Non-Fundamental Limitations
The following investment limitations are non-fundamental and, therefore, may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Investing in Illiquid and Restricted Securities
The Funds will not invest more than 15% (10% for the Money Market Fund) of the
value of their net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, guaranteed investment contracts, and certain
restricted securities not determined by the Directors to be liquid (including
certain municipal leases). Purchasing Securities to Exercise Control
The Funds will not purchase securities of a company for the purpose of
exercising control or management.
Investing in Securities of Other Investment Companies
Each Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company, will
invest no more than 5% of total assets in any one investment company, and will
invest no more than 10% of its total assets in investment companies in general,
unless permitted to exceed these limits by an exemptive order of the SEC. The
Funds will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Money Market Fund
will limit its investments in other investment companies to those of money
market funds having investment objectives and policies similar to its own.
Investing in Options
Except for bona fide hedging purposes, a Fund may not invest more than 5% of the
value of its net assets in the sum of (a) premiums on open option positions on
futures contracts, plus (b) initial margin deposits on futures contracts. A Fund
will not purchase put options or write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is entitled to
them in deliverable form without further payment or has segregated cash in the
amount of any further payment.
A Fund will not write call options in excess of 25% of the value of its total
assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
instruments (such as certificates of deposit and demand and time deposits)
issued by a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be cash items. Regulatory Compliance. The Money Market Fund may
follow non-fundamental operational policies that are more restrictive than its
fundamental investment limitations, as set forth in the prospectus and this
statement of additional information, in order to comply with applicable laws and
regulations. In particular, the Money Market Fund will comply with the various
requirements of Rule 2a-7 under the Act, which regulates money market mutual
funds. For example, Rule 2a-7 generally prohibits the investment of more than 5%
of the Money Market Fund's total assets in the securities of any one issuer,
although the Money Market Fund's fundamental investment limitation only requires
such 5% diversification with respect to 75% of its assets. The Money Market Fund
will also determine the effective maturity of its investments, as well as its
ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Money Market Fund may change
these operational policies to reflect changes in the laws and regulations
without shareholder approval. VOTING RIGHTS Shareholders of each Fund are
entitled: (i) to one vote per full share of Common Stock; (ii) to distributions
declared by Directors; and (iii) upon liquidation of the Corporation, to
participate ratably in the assets of the Fund available for distribution. Each
share of the Fund gives the shareholder one vote in the election of Directors
and other matters submitted to shareholders for vote. All shares of each
portfolio or class in the Corporation have equal voting rights, except that only
shares of a particular portfolio or class are entitled to vote on matters
affecting that portfolio or class. Consequently, the holders of more than 50% of
the Corporation's shares of common stock voting for the election of Directors
can elect the entire Board of Directors, and, in such event, the holders of the
Corporation's remaining shares voting for the election of Directors will not be
able to elect any person or persons to the Board of Directors. The Wisconsin
Business Corporation Law (the WBCL) permits registered investment companies,
such as the Corporation, to operate without an annual meeting of shareholders
under specified circumstances if an annual meeting is not required by the Act.
The Corporation has adopted the appropriate provisions in its By-laws and does
not anticipate holding an annual meeting of shareholders to elect Directors
unless otherwise required by the Act. Directors may be removed by the
shareholders at a special meeting. A special meeting of the shareholders may be
called by the Directors upon written request of shareholders owning at least 10%
of the Corporation's outstanding voting shares. The shares are redeemable and
are transferable. All shares issued and sold by the Corporation will be fully
paid and nonassessable except as provided in WBCL Section 180.0622(2)(b).
Fractional shares of common stock entitle the holder to the same rights as whole
shares of common stock except the right to receive a certificate evidencing such
fractional shares. WHO MANAGES THE FUNDS?
OFFICERS AND DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
the following data: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years, and total
compensation received as a Director from the Corporation for its most recent
fiscal year. The Corporation is comprised of eleven funds and is the only
investment company in the Fund Complex. As of November __, 1998, the Funds'
Board and Officers as a group owned [approximately # (___%)] [less than 1%] of
the Fund's outstanding Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
October 22, 1930
Director and Treasurer
Trustee or Director of other funds distributed by Federated Securities Corp.;
President, Executive Vice President and Treasurer of other funds distributed by
Federated Securities Corp.; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp., and Passport
Research, Ltd.; Executive Vice President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services Company.
Compensation from the Corporation $0
John DeVincentis
4700 21st Street
Racine, WI 53406
March 27, 1934
Director
Independent Financial Consultant; Retired, formerly, Senior Vice President of
Finance, In-Sink-Erator Division of Emerson Electric.
Compensation from the Corporation $_____
Ody J. Fish
547 Progress Drive
Hartland, WI
June 16, 1925
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Private Investor; Formerly President Pal-O-Pak Insulation Company; Director,
Quest Technologies; President, Wisconsin Academy of Science, Arts and Letters;
formerly, Director, Stokely U.S.A.
Compensation from the Corporation $_____
Paul E. Hassett
1630 Capital Avenue
Madison, WI
September 4, 1917
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Retired, formerly President, Wisconsin Manufacturers and Commerce; formerly,
Executive Secretary for Governor Warner Knowles for three terms.
Compensation from the Corporation $_____
John M. Blaser
1000 North Water Street
Milwaukee, WI
November 2, 1956
President
Vice President, Marshall & Ilsley Trust Company; formerly, Partner, Artisan
Partners L.P.; formerly, Chief Financial Officer and Principal Administrative
and Finance Officer, Artisan Funds; formerly, Senior Vice President, Kemper
Securities.
Compensation from the Corporation $_____
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
May 22, 1962
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Director, Proprietary Client
Management and Services Group, Federated Investors; Vice President and Assistant
Treasurer of certain funds for which Federated Securities Corp. is the principal
distributor.
Compensation from the Corporation $0
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959
Secretary
Senior Vice President and Director of Mutual Funds Services, Federated Services
Company; formerly, Senior Corporate Counsel, Federated Investors, Inc.
Compensation from the Corporation $0
FUND OWNERSHIP
As of November __, 1998, the following shareholders of record owned 5% or more
of a Fund's outstanding shares:
Equity Income Fund
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately ________ shares (_____%); and Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately ________ shares (_____%).
Large-Cap Growth & Income Fund Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately ________ shares (_____%); and Mitra &
Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately __________
shares (_____%).
Mid-Cap Value Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately _______ shares (____%); Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately _______ shares (_____%);
and Mitra & Co., Marshall & Ilsley Trust Operations, owned approximately
________ shares (_____%). Mid-Cap Growth Fund Maril & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately _______ shares
(_____%); and Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately ________ shares (_____%). International Stock
Fund Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately ________ shares (_____%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately _______ shares
(_____%). Small-Cap Growth Fund Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately _______ shares (_____%); and Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately _______ shares (_____%). Short-Term Income Fund Maril & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin , owned approximately
_______ shares (_____%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately ________ shares (_____%) Intermediate
Bond Fund Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately _______ shares (_____%); and Vallee, Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately ________ shares (_____%).
<PAGE>
Government Income Fund
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately _________ shares (_____%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately ________ shares
(_____%). Intermediate Tax-Free Fund Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately _________ shares (_____%);
and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately ________
shares (____%).
Money Market Fund
Maril & Co., Milwaukee, Wisconsin, owned approximately __________ of the Class A
Shares of the Fund (_____%); Miaz & Co., Milwaukee, Wisconsin, owned
approximately _________ of the Class A Shares of the Fund (____%); Pacific
Northwest Bank, Seattle, Washington, owned approximately _______ of the Class B
Shares of the Fund (____%); M & I BSS Appleton, Appleton, Wisconsin, owned
approximately _________ of the Class B Shares of the Fund (_____%); M&I BSS
Madison, Appleton, Wisconsin, owned approximately _________ of the Class B
Shares of the Fund (_____%); and M&I BSS Janesville, Appleton, Wisconsin, owned
approximately ___________ of the Class B Shares of the Fund (_____%).
ADVISER TO THE FUNDS
The Adviser conducts investment research and makes investment decisions for the
Fund. The Funds' investment adviser is M&I Investment Management Corp.
(Adviser), a wholly owned subsidiary of Marshall & Ilsley Corp. The Adviser
shall not be liable to the Corporation, the Funds or any shareholder of the
Funds for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
Because of the internal controls maintained by the Adviser's affiliates to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of the Adviser or its affiliates' lending relationships
with an issuer.
SUBADVISER TO INTERNATIONAL STOCK FUND
Templeton Investment Counsel, Inc. (TICI) is the subadviser to the International
Stock Fund. It is the Adviser's responsibility to select a subadviser for the
International Stock Fund that has distinguished itself in its area of expertise
in asset management and to review the subadviser's performance. The Adviser
provides investment management evaluation services by performing initial due
diligence on TICI and thereafter monitoring TICI's performance through
quantitative and qualitative analysis, as well as periodic in-person, telephonic
and written consultations with TICI. In evaluating TICI, the Adviser considers,
among other factors, TICI's level of expertise; relative performance and
consistency of performance over a minimum period of time; level of adherence to
investment discipline or philosophy; personnel, facilities and financial
strength; and quality of service and client communications. The Adviser has
responsibility for communicating performance expectations and evaluations to
TICI and ultimately recommending to the Corporation's Directors whether TICI's
contract should be renewed, modified or terminated. The Adviser provides written
reports to the Directors regarding the results of its evaluation and monitoring
functions. The Adviser is also responsible for conducting all operations of the
International Stock Fund, except those operations contracted to TICI, the
custodian, the transfer agent, and the administrator. Although TICI's activities
are subject to oversight by the Directors and officers of the Corporation,
neither the Directors, the officers, nor the Adviser evaluates the investment
merits of TICI's individual security selections. TICI has complete discretion to
purchase, manage and sell portfolio securities for the International Stock Fund,
subject to the International Stock Fund's investment objective, policies and
limitations. However, TICI will furnish to the Adviser such investment advice,
statistical and other factual information as requested by the Adviser. TICI is a
Florida corporation and an indirect wholly-owned subsidiary of Franklin
Resources, Inc. (Franklin), a publicly traded company whose shares are listed on
the New York Stock Exchange. Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann are principal shareholders of Franklin and own, respectively,
approximately __%, __% and __% of its outstanding shares. Messrs. Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers. Research services may be
provided to TICI by various affiliates, including Templeton, Galbraith &
Hansberger Ltd. and Templeton Quantitative Advisors, Inc., corporations
registered under the Investment Advisers Act of 1940, and Templeton Management
Limited, a Canadian company. The research services include information,
analytical reports, computer screening studies, statistical data, and factual
resumes pertaining to securities in the United States and in various foreign
nations. Such supplemental research, when utilized, is subject to analysis by
TICI before being incorporated into the investment advisory process. TICI pays
these affiliates compensation and reimbursement of expenses as mutually agreed
upon, without cost to the Fund. These affiliates and TICI are independent
contractors and in no sense is any of them an agent for the other. Any of them
is free to discontinue such research services at any time on 30 days' notice
without cost or penalty. For the fiscal years ended August 31, 1998, 1997, and
1996, International Stock Fund paid TICI $_______, $816,182, and $544,167 of
which $___, $0, and $0 were voluntarily waived. OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services to the Funds for a fee at an
annual rate as specified below (except Small-Cap Growth Fund):
Maximum Average Aggregate Daily Net
Administrative Fee Assets Of The Corporation
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
Federated Administrative Services provides these services for an annual fee
equal to 0.12% of the Small-Cap Growth Fund's average daily net assets.
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to reimburse
a portion of its fee at any time.
The functions performed by FAS as administrator include, but are not limited to
the following:
o preparation, filing and maintenance of the Corporation's governing documents,
minutes of Directors' meetings and shareholder meetings;
o preparation and filing with the SEC and state regulatory authorities the
Corporation's registration statement and all amendments, and any other
documents required for the Funds to make a continuous offering of their
shares;
o prepare, negotiate and administer contracts on behalf of the Fund;
o supervision of the preparation of financial reports;
o preparation and filing of federal and state tax returns;
o assistance with the design, development and operation of a Fund; and
o providing advice to the Funds and Corporation's Directors.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, through its registered
transfer agent, Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type and number of accounts and transactions made by shareholders.
The fee is based on the level of the Funds' average net assets for the period
plus out-of-pocket expenses. The transfer agent may employ third parties,
including Marshall & Ilsley Trust Company, to provide sub-accounting and
sub-transfer agency services. In exchange for these services, the transfer agent
may pay such third-party providers a per account fee and out-of-pocket expenses.
CUSTODIAN
Marshall & Ilsley Trust Company (M&I Trust Company), Milwaukee, Wisconsin, a
subsidiary of Marshall & Ilsley Corp., is custodian for the securities and cash
of the Fund. For its services as custodian, M&I Trust Company receives an annual
fee, payable monthly, based on a percentage of a Fund's average aggregate daily
net assets. M&I Trust Company has entered into agreements with foreign
subcustodians approved by the Directors pursuant to Rule 17f-5 under the Act.
The foreign subcustodians may not hold certificates for the securities in their
custody, but instead have book records with domestic and foreign securities
depositories, which in turn have book records with the transfer agents of the
issuers of the securities. Compensation for the services of the foreign
subcustodians is based on a schedule of charges agreed on from time to time.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Funds.
BROKERAGE TRANSACTIONS
The Adviser and/or TICI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or TICI and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. The
Adviser, TICI, and their affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided. Research services provided by brokers and dealers
may be used by the Adviser and TICI in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser, TICI, or their affiliates might otherwise have paid, it would tend to
reduce their expenses. Texas residents must purchase shares of the Funds through
M&I Brokerage Services, Inc. at 1-800-236-FUND (3863), or through any authorized
broker-dealer. SHAREHOLDER SERVICES
The Funds (except Money Market Fund) may pay Federated Shareholder Services , a
subsidiary of Federated Investors, Inc., for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services may select
others (including MFIS) to perform these services for their customers and may
pay them fees. MFIS is the shareholder servicing agent for the Money Market
Fund. As such, MFIS provides shareholder services which include, but are not
limited to, distributing prospectuses and other information, providing
shareholder assistance, and communicating or facilitating purchases and
redemption of shares. FEES PAID BY THE FUNDS FOR SERVICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Fund Name Advisory Fee Paid/ Brokerage Commissions Administrative Fee Paid
Advisory Fee Waived Paid
------------------------------------------------
-----------------------------------------------------------------------
For the fiscal year For the fiscal year For the fiscal year
ended ended ended
August 31 August 31 August 31
-----------------------------------------------------------------------
-----------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-----------------------------------------------------------------------
Equity Income $ $1,964,$1,101,4$4 $468,108$221,712$ $227,695$131,196
Fund $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Large-Cap $ $1,877,0$2,003,$27 $309,709$918,703$ $217,817$238,801
Growth & Income $ $0 $0
Fund
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Mid-Cap Value $ $1,245,6$1,556,$51 $364,246$524,079$ $144,711$185,501
Fund1 $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Mid-Cap Growth $ $1,288,8$917,06$ $580,150$353,770$ $149,489$109,258
Fund $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
International $ $1,857,2$1,179,$10 $340,030$115,382$ $161,481$108,298
Stock Fund $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Small-Cap $ $368,209N/A $ $117,618N/A $ $44,185 N/A
Growth Fund $ $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Short-Term $736,245$540,501 N/A N/A $106,697$80,507
Income Fund $429,010$357,041
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Intermediate $ $2,440,3$2,253,$12 N/A N/A $ $354,123$335,733
Bond Fund $ $346,194$338,087
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Government $ $1,304,9$938,02$ N/A N/A $ $151,306$111,760
Income Fund $ $272,824$243,416
- ----------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------
Intermediate $ $463,700$314,33$ N/A N/A $ $67,231 $50,437
Tax-Free Fund2 $ $238,359$196,013
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Money Market $ $6,354,0$5,636,$51 N/A N/A $ $1,105,6$1,007,572
Fund $ $3,304,0$2,930,747
- ----------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended
August 31,1998
Fund Shareholder Services
Fee
- -------------------------------------------------
- -------------------------------------------------
Equity Income Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Large-Cap Growth & Income N/A
Fund
- -------------------------------------------------
- -------------------------------------------------
Mid-Cap Value Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Mid-Cap Growth Fund N/A
- -------------------------------------------------
- -------------------------------------------------
International Stock Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Small-Cap Growth Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Short-Term Income Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Intermediate Bond Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Government Income Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Intermediate Tax-Free Fund N/A
- -------------------------------------------------
- -------------------------------------------------
Money Market Fund $
- -------------------------------------------------
N/A - Not Applicable
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
DETERMINING MARKET VALUE OF SECURITIES
USE OF THE AMORTIZED COST METHOD (MONEY MARKET FUND ONLY)
The Directors have decided that the best method for determining the value of
portfolio instruments for the Money Market Fund is amortized cost. Under this
method, portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Money Market Fund's use of the amortized cost method of
valuing portfolio instruments depends on its compliance with the provisions of
Rule 2a-7 (the Rule) promulgated by the Securities and Exchange Commission under
the Act. Under the Rule, the Directors must establish procedures reasonably
designed to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. Under the Rule, the Money
Market Fund is permitted to purchase instruments which are subject to demand
features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding 397 days on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same-day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise. The Money Market Fund acquires
instruments subject to demand features and standby commitments to enhance the
instrument's liquidity. The Fund treats demand features and standby commitments
as part of the underlying instruments, because the Fund does not acquire them
for speculative purposes and cannot transfer them separately from the underlying
instruments. Therefore, although the Fund defines demand features and standby
commitments as puts, the Fund does not consider them to be corporate investments
for purposes of its investment policies. Monitoring Procedures. The Directors'
procedures include monitoring the relationship between the amortized cost value
per share and the net asset value per share based upon available indications of
market value. The Directors will decide what, if any, steps should be taken if
there is a difference of more than 0.5 of 1% between the two values. The
Directors will take any steps they consider appropriate (such as redemption in
kind or shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value. Investment Restrictions. The Rule
requires that the Money Market Fund limit its investments to instruments that,
in the opinion of the Directors, present minimal credit risks and have received
the requisite rating from one or more NRSROs. If the instruments are not rated,
the Directors must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instrument with a remaining
maturity of more than 397 days can be purchased by the Fund. Should the
disposition of a portfolio security result in a dollar-weighted average
portfolio maturity of more than 90 days, the Money Market Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible. Shares of investment companies purchased by the Fund will meet these
same criteria and will have investment policies consistent with Rule 2a-7. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio. In periods of declining interest rates, the indicated daily
yield on shares of the Money Market Fund, computed based upon amortized cost
valuation, may tend to be higher than a similar computation made by using a
method of valuation based upon market prices and estimates. In periods of rising
interest rates, the indicated daily yield on shares of the Fund computed the
same way may tend to be lower than a similar computation made by using a method
of calculation based upon market prices and estimates. MARKET VALUES (ALL OTHER
FUNDS)
Market values of portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors.
A Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its net asset value,
the International Stock Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Directors, although the actual calculation may be done by others. HOW DO I
REDEEM SHARES?
REDEMPTION IN KIND
Although the Funds intend to pay share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities. Because the Corporation has
elected to be governed by Rule 18f-1 under the Investment Company Act or 1940,
the Funds are obligated to pay share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of a Fund's net assets represented by
such share class during any 90-day period. Any share redemption payment greater
than this amount will also be in cash unless the Funds' Directors determine that
payment should be in kind. In such a case, a Fund will pay all or a portion of
the remainder of the redemption in portfolio securities, valued in the same way
as the Fund determines its net asset value. The portfolio securities will be
selected in a manner that the Funds' Directors deems fair and equitable and, to
the extent available, such securities will be readily marketable. Redemption in
kind is not as liquid as a cash redemption. If redemption is made in kind,
shareholders receiving their portfolio securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs. BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end management investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company, affiliate, or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer. M&I Corp. is subject to such banking laws
and regulations. M&I Corp. believes, based on the advice of its counsel, that
M&I Investment Management Corp. may perform the services contemplated by the
investment advisory agreement with the Corporation without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such present or
future statutes and regulations, could prevent M&I Investment Management Corp.
or M&I Corp. from continuing to perform all or a part of the services described
in the prospectus for its customers and/or the Fund. If M&I Investment
Management Corp. and M&I Corp. were prohibited from engaging in these
activities, the Directors would consider alternative advisers and means of
continuing available investment services. In such event, changes in the
operation of the Fund may occur, including possible termination of any automatic
or other Fund share investment and redemption services then being provided by
M&I Investment Management Corp. and M&I Brokerage Services or MFIS. It is not
expected that existing shareholders would suffer any adverse financial
consequences if another adviser with equivalent abilities to M&I Investment
Management Corp. is found as a result of any of these occurrences. WHAT ARE THE
TAX CONSEQUENCES?
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet the
requirements of Subchapter M of the Internal Revenue Code (Code) applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. Each Fund will be treated as a single, separate entity for
federal income tax purposes so that income earned and capital gains and losses
realized by the Corporation's other portfolios will be separate from those
realized by each Fund. Each Fund is entitled to a loss carry-forward, which may
reduce the taxable income or gain that each Fund would realize, and to which the
shareholder would be subject, in the future. The dividends received deduction
for corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Equity Funds if the Equity Funds were a regular corporation,
and to the extent designated by the Equity Funds as so qualifying. Otherwise,
these dividends and any short-term capital gains are taxable as ordinary income.
No portion of any income dividends paid by the other Funds is eligible for the
dividends received deduction available to corporations. These dividends, and any
short-term capital gains, are taxable as ordinary income. Under the Tax Reform
Act of 1986, dividends representing net interest earned on certain "private
activity" municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
Dividends of the Intermediate Tax-Free Fund representing net interest income
earned on some temporary investments and any realized net short-term gains are
taxed as ordinary income. FOREIGN INVESTMENTS
Investment income on certain foreign securities purchased by the Funds may be
subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Funds
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of the Funds' assets to be invested within various countries is
uncertain. However, the Funds' intend to operate so as to qualify for
treaty-reduced tax rates when applicable.
Distributions from the Funds may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
The Funds may invest in the stock of certain foreign corporations which would
constitute a Passive Foreign Investment Company (PFIC). The Funds may be subject
to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Funds' assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intend to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. Shareholders
must hold Fund shares for a specified period of time to claim a foreign tax
credit. The Code may limit a shareholder's ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of the Funds' foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and you should consult your
tax adviser for specific details regarding the status of your account under
state and local tax laws, including treatment of distributions as income or
return of capital. CAPITAL GAINS
Capital gains, when experienced by the Funds, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. When a Fund
realizes net long-term capital gains, it will distribute them at least once
every 12 months.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Funds may advertise each Fund's share performance by using the Securities
and Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.
Unless otherwise stated, any quoted share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in a
Fund's or any class of shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per share fluctuate daily. Both net earnings and offering price
per share are factors in the computation of yield and total return.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions. The average annual total return for a Fund shares
is the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares owned at
the end of the period by the net asset value per share at the end of the period.
The number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of any
dividends and distributions. Equity Income Fund's average annual total returns
for the one-year period ended August 31, 1998 and for the period from October 1,
1993 (date of initial public investment), to August 31, 1998 were ______% and
_____%, respectively. Large-Cap Growth & Income Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
November 23, 1992 (date of initial public investment), to August 31, 1998 were
______% and _____%, respectively. Mid-Cap Value Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
September 30, 1993 (date of initial public investment), to August 31, 1998 were
______% and _____%, respectively. Mid-Cap Growth Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
October 1, 1993 (date of initial public investment), to August 31, 1998 were
_____% and _____%, respectively. International Stock Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
September 2, 1994 (date of initial public investment), to August 31, 1998 were
_____% and _____%, respectively. Small-Cap Growth Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
November 1, 1995 (inception date of collective trust fund) to August 31, 1998
were _____% and _____%, respectively. Short-Term Income Fund's average annual
total returns for the one-year period ended August 31, 1998 and for the period
from November 2, 1993 (date of initial public investment) to August 31, 1998
were ____% and ____%, respectively. Intermediate Bond Fund's average annual
total returns for the one-year period ended August 31, 1998 and for the period
from November 23, 1992 (date of initial public investment), to August 31, 1998
were ____% and ____%, respectively. Government Income Fund's average annual
total returns for the one-year period ended August 31, 1998 and for the period
from December 14, 1992 (date of initial public investment) to August 31, 1998
were ____% and ____%, respectively. Intermediate-Tax-Free Fund's average annual
total returns for the one-year period ended August 31, 1998 and for the period
from February 2, 1994 (date of initial public investment), to August 31, 1998
were _____% and ____%, respectively. The quoted performance data for the
Small-Cap Growth Fund includes the performance of a predecessor collective trust
fund for periods before the Fund's registration statement became effective on
August 30, 1996, as adjusted to reflect the Fund's expenses. The collective
trust fund was not registered under the Investment Company Act of 1940 (1940
Act) and therefore was not subject to certain investment restrictions that are
imposed by the 1940 Act. If the collective trust fund had been registered under
the 1940 Act, the performance may have been adversely affected. YIELD (ALL
FUNDS) AND TAX-EQUIVALENT YIELD (INTERMEDIATE TAX-FREE FUND ONLY)
The Money Market Fund calculates the yield for both classes of shares daily,
based upon the seven days ending on the day of the calculation, called the base
period. This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by 365/7.
The Money Market Fund's yield for Class A Shares for the seven-day period ended
August 31, 1998, was _____%. The Fund's yield for Class B Shares was ____% for
the same period. The yield for the other Funds shares is calculated by dividing:
(i)the net investment income per share earned by a Fund's shares over a
thirty-day period; by (ii) the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The tax equivalent yield for Intermediate
Tax-Free Fund shares is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that shares would have had to earn to equal the actual
yield, assuming a specific tax rate. The yield for the Funds and in the case of
the Intermediate Tax-Free Fund, the tax-equivalent yield do not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. Equity Income Fund's yield for the 30-day
period ended August 31, 1998, was ____%. Large-Cap Growth Fund's yield for the
30-day period ended August 31, 1998, was ____%. Mid-Cap Value Fund's yield for
the 30-day period ended August 31, 1998, was ____%. Mid-Cap Growth Fund's yield
for the 30-day period ended August 31, 1998, was 0%. International Stock Fund's
yield for the 30-day period ended August 31, 1998 was ____%. Small-Cap Growth
Fund's yield for the 30-day period ended August 31, 1998 was ____%. Short-Term
Income Fund's yield for the 30-day period ended August 31, 1998, was ____%.
Intermediate Bond Fund's yield for the 30-day period ended August 31, 1998, was
____%. Government Income Fund's yield for the 30-day period ended August 31,
1998, was ____%. Intermediate Tax-Free Fund's yield for the 30-day period ended
August 31, 1998, was ____%. The Intermediate Tax-Free Fund's tax-equivalent
yield for the 30-day period ended August 31, 1998 was ____%. To the extent that
financial institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in a Fund's shares, the
Fund's shares performance is lower for shareholders paying those fees. EFFECTIVE
YIELD (MONEY MARKET FUND ONLY)
The Money Market Fund's effective yield for both classes of shares is computed
by compounding the unannualized base period return by: adding 1 to the base
period return; raising the sum to the 365/7th power; and subtracting 1 from the
result. The Money Market Fund's effective yield for Class A Shares for the
seven-day period ended August 31, 1998, was ____%. The Money Market Fund's
effective yield for Class B Shares was ____% for the same period.
TAX-EQUIVALENCY TABLE
Set forth below is a sample tax-equivalency table that the Intermediate Tax-Free
Fund may use in advertising and sales literature. This table is for illustrative
purposes only and is not representative of past or future performance of the
Fund. The interest earned by the municipal securities owned by the Fund
generally remains free from federal regular income tax* and is often free from
state and local taxes as well. However, some of the Fund's income may be subject
to the federal alternative minimum tax and state and/or local taxes.
TAXABLE YIELD EQUIVALENT FOR 1998
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. The chart above is for illustrative purposes only. It
is not an indicator of past or future performance of Fund shares. *Some portion
of the Intermediate Tax-Free Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of the Funds' shares to certain indices; o charts, graphs and
illustrations using the Funds' returns, or returns in general, that demonstrate
investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Funds' use in advertising may include:
o Morgan Stanley Capital International Europe, Australia And Far East Index
(EAFE) is a market capitalization weighted foreign securities index, which
is widely used to measure the performance of European, Australian and New
Zealand and Far Eastern stock markets. The index covers approximately
1,020 companies drawn from 18 countries in the above regions. The index
values its securities daily in both U.S. dollars and local currency and
calculates total returns monthly. EAFE U.S. dollar total return is a net
dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva, Switzerland.
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific
period of time. From time to time, a Fund will quote its Lipper ranking in
advertising and sales literature.
o Consumer Price Index is generally considered to be a measure of inflation.
o Dow Jones Industrial Average (DJIA) is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
o Standard & Poor's Daily Stock Price Index Of 500 Common Stocks, a
composite index of common stocks in industry, transportation, financial,
and public utility companies. The Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated in the Standard & Poor's figures.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
o Donoghue's Money Fund Report publishes annualized yields of over 300
taxable money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and 12 month-to-date investment
results for the same money funds.
o The S&P/BARRA Value Index and the S&P/BARRA Growth Index are constructed
by Standard & Poor's and BARRA, Inc., an investment technology and
consulting company, by separating the S&P 500 Index into value stocks and
growth stocks. The S&P/BARRA Growth and S&P/BARRA Value Indices are
constructed by dividing the stocks in the S&P 500 Index according to their
price-to-book ratios. The S&P/BARRA Growth Index, contains companies with
higher price-to-earnings ratios, low dividends yields, and high earnings
growth (concentrated in electronics, computers, health care, and drugs).
The Value Index contains companies with lower price-to-book ratios and has
50% of the capitalization of the S&P 500 Index. These stocks tend to have
lower price-to-earnings ratios, high dividend yields, and low historical
and predicted earnings growth (concentrated in energy, utility and
financial sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices are
capitalization-weighted and rebalanced semi-annually. Standard &
Poor's/BARRA calculates these total return indices with dividends
reinvested.
o Standard & Poor's Midcap 400 Stock Price Index, a composite index of 400
common stocks with market capitalizations between $200 million and $7.5
billion in industry, transportation, financial, and public utility
companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in the Standard & Poor's figures.
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and 2.99
years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith,
Inc.
o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on the composites of ratings assigned by
Standard & Poor's Corporation and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.
o Merrill Lynch 1-Year Treasury Bill Index is comprised of the most recently
issued one-year U.S. Treasury bills. Index returns are calculated as total
returns for periods of one, three, six and twelve months as well as
year-to-date.
o Merrill Lynch Corporate A-Rated (1-3 Year) Bond Index is a universe of
corporate bonds and notes with maturities between 1-3 years and rated A3
or higher.
o Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporation; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry,
public utilities, and finance. The average maturity of these bonds
approximates nine years. Traced by Lehman Brothers, Inc., the index
calculates total return for one-month, three-month, twelve-month, and
ten-year periods and year-to-date.
o Lehman Brothers Intermediate Government/Corporate Bond Index is a universe
of government and corporate bonds rated BBB or higher with maturities
between 1-10 years.
o The Salomon Brothers Total Rate-of-Return Index for mortgage pass through
securities reflects the entire mortgage pass through market and reflects
their special characteristics. The index represents data aggregated by
mortgage pool and coupon within a given sector. A market weighted
portfolio is constructed considering all newly created pools and coupons.
o The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the fixed
income market. The performance indicators capture all rating changes, new
issues, and any structural changes of the entire market.
o Lehman Brothers Mortgage-Backed Securities Index is a universe of fixed
rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC), and Federal
National Mortgage Association (FNMA).
o Lehman Brothers Five-Year State General Obligations Bonds is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as
year-to-date. Total returns are also calculated as of the index inception,
December 31, 1979.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.
o Fiduciary Consulting Grid Universe, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.
o SEI Data Base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on investor
groups and asset mix. The funds are ranked every three, six, and twelve
months.
o Mercer Meidinger, Inc. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one, three, and five
year basis.
o Russell 1000 Growth Index consists of those Russell 2000 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth rates.
o Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.
o Standard & Poor's Ratings Group Small Stock Index is a broadly diversified
index consisting of approximately 600 small capitalization common stocks
that can be used to compare to the total returns of funds whose portfolios
are invested primarily in small capitalization common stocks.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect a Fund. In addition, advertising and sales literature may quote
statistics and give general information about mutual fund industry, including
the growth of the industry, from sources such as the Investment Company
Institute (ICI). For example, according to the ICI, thirty-seven percent of
American households are pursuing their financial goals through mutual funds.
These investors, as well s business and institutions, have entrusted over $4.4
trillion to the more than 6,700 mutual funds available. FINANCIAL STATEMENTS
The financial statements for the fiscal year ended August 31, 1998, are
incorporated herein by reference from the Funds' Annual Report dated August 31,
1998 (File Nos. 33-48907 and 811-58433). A copy of the Annual Report for a Fund
may be obtained without charge by contacting Marshall Funds Investor Services at
the address located on the back cover of the SAI or by calling Marshall Funds
Investor Services at 1-414-287-8555 or 1-800-FUND (3863).
<PAGE>
APPENDIX
STANDARD AND POOR'S BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. NR--Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS AAA--Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as gilt edge. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues. Aa--Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. A--Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa--Bonds which are rated Baa are considered
as medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. NR--Not rated by Moody's. FITCH IBCA, INC. LONG-TERM
DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. A--Bonds
considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. BBB--Bonds considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. NR--NR indicates that Fitch does
not rate the specific issue. STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1. MOODY'S INVESTORS SERVICES, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. P-2--Issuers rated
PRIME-2 (for related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. FITCH IBCA, INC.
SHORT-TERM RATINGS F-1+--(Exceptionally Strong Credit Quality). Issues assigned
this rating are regarded as having the strongest degree of assurance for timely
payment. F-1--(Very Strong Credit Quality). Issues assigned to this rating
reflect an assurance of timely payment only slightly less in degree than issues
rated F-1+. F-2--(Good Credit Quality). Issues carrying this rating have a
satisfactory degree of assurance for timely payment but the margin of safety is
not as great as the F-1+ and F-1 categories. STANDARD AND POOR'S MUNICIPAL BOND
RATINGS AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong. AA --
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree. A -- Debt rated A has
a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB- Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories. NR -- NR indicates that no public rating has been requested, that
there is insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy. Plus
(+) or minus (-): The ratings AA and A may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS Aaa -- Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as gilt edge. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues. Aa -- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. A -- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. Baa- Bonds which are rated Baa are
considered as medium-grade obligations (i.e., they are neither highly protected
nor poorly secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. NR -- Not rated by Moody's. Moody's applies numerical
modifiers, 1, 2 and 3 in the generic rating classification of Aa and A in its
corporate or municipal bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category. STANDARD AND POOR'S MUNICIPAL
NOTE RATINGS SP-1 -- Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation. SP-2 -- Satisfactory capacity to pay
principal and interest. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
MIG1/VMIG1 -- This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing. MIG2/VMIG2 -- This designation
denotes high quality. Margins of protection are ample although not so large as
in the preceding group.
<PAGE>
ADDRESSES
<TABLE>
<CAPTION>
<S> <C>
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 5800 Corporate Drive
Marshall Money Market Fund Pittsburgh, Pennsylvania 15237-7010
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Adviser to all Funds
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202
Subadviser to Marshall International Stock Fund
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
Suite 2100
Ft. Lauderdale, Florida 33394-3091
Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202
Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
Shareholder Servicing Agent Marshall Funds Investor Services
Wisconsin 53201-1348 OR P.O. Box 1348
Shareholder Services Company (Money Market Fund only)
Tower Milwaukee,
1000 North Water Street
Milwaukee, Wisconsin 53202-1348
Federated
(Equity Funds, Income Funds, and
Intermediate Tax-Free Fund) Federated Investors
Pittsburgh, PA 15222-3779
Legal Counsel Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
</TABLE>
Marshall Funds Investor Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
414-287-8555 or 800-236-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com
LOGO OF MARSHALL FUNDS Class A Shares
- --------------------------------------------------------------------------------
Equity Funds Income Funds
Marshall Equity Income Fund Marshall Intermediate Bond Fund
Marshall Large-Cap Growth & Income Fund Marshall Government Income Fund
Marshall Mid-Cap Value Fund
Marshall Mid-Cap Growth Fund
Marshall International Stock Fund Money Market Fund
Marshall Small-Cap Growth Fund
Marshall Money Market Fund
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Fund Information
Investment Risks................................ 2
Fund Goals, Strategies and Performance
.. Equity Funds
Marshall Equity Income Fund.................. 3
Marshall Large Cap Growth &Income Fund....... 3
Marshall Mid-Cap Value Fund.................. 4
Marshall Mid-Cap Growth Fund................. 4
Marshall International Stock Fund............ 5
Marshall Small-Cap Growth Fund............... 5
.. Income Funds
Marshall Intermediate Bond Fund.............. 6
Marshall Government Income Fund.............. 6
.. Money Market Fund
Marshall Money Market Fund................... 7
Summary of Fund Expenses........................ 8
What are the Main Risks of Investing in the
Marshall Funds?.................................10
How to Buy Shares................................12
How to Redeem and Exchange Shares................14
Account and Share Information....................16
Marshall Funds, Inc. Information.................18
Financial Highlights.............................20
</TABLE>
Shares of the Marshall Funds, like shares of all mutual funds, are not bank
deposits, federally insured, or guaranteed, and may lose value.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Prospectus
December 31, 1998
Investment Risks
- --------------------------------------------------------------------------------
[INSERT GRAPHIC]
What is a Mutual Fund?
A mutual fund is a registered investment company that offers an affordable,
diversified and professionally managed way for people to invest in the financial
marketplace. A mutual fund pools the money of its shareholders to invest in a
"mix" of securities, called a portfolio, that pursues a specific objective. The
money earned from the portfolio of investments is distributed back to
shareholders as dividends, or, if any securities are sold at a profit, as
capital gains.
The Marshall Funds offer investment opportunities to a wide range of investors,
from investors with short-term goals who wish to take little investment risk to
investors with long-term goals willing to bear the risks of the stock market for
potentially greater rewards. The Marshall Funds are managed by the investment
professionals at M & I Investment Management Corp.
(Adviser).
General Risks. In all types of investments, reward and risk go hand in hand. All
mutual funds, including the Marshall Funds, take investment risks. For example,
equity funds must contend with the volatility and unpredictability of the U.S.
stock market. Funds that focus on stocks of smaller companies have special risks
since those stocks have historically been more volatile than stocks of larger
companies. International funds may experience additional uncertainty in foreign
markets and with foreign currency transactions. Income and bond funds invest in
debt securities, the price of which can be expected to decrease when interest
rates increase. Mortgage-backed and asset-backed securities are subject to
prepayment risks, which generally occur when interest rates fall.
An investment in any of the Marshall Funds is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Loss of money is a risk of investing in any of the Marshall
Funds.
Risk/Return Profile of Mutual Funds
[INSERT GRAPHIC]
Equity Funds
Marshall Small-Cap Growth Fund
Marshall International Stock Fund
Marshall Mid-Cap Growth Fund
Marshall Mid-Cap Value Fund
Marshall Large-Cap Growth & Income Fund
Marshall Equity Income Fund
Income Funds
Marshall Government Income Fund
Marshall Intermediate Bond Fund
Money Market Fund
Marshall Money Market Fund
Fund Goals, Strategies, and Performance
Equity Funds
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall Equity Income Fund
[INSERTGRAPHIC]
Goal: To provide capital appreciation and above-average dividend income.
Strategy: The Fund invests in a diversified portfolio of large-sized companies
whose market capitalizations exceed $10 billion. The Fund attempts to generate
dividend income at least 1% more than the income earned on stocks in the S&P 500
Index.
Annual Total Return (calendar years 1994-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 10.91%
Worst quarter (1Q94) (5.03%)
Average Annual Total Return through 12/31/97*
Since 9/30/93 1998 YTD
inception 1 Year through 9/30/98
Fund 18.50% 27.53% (1.07%)
S&P500 22.19% 33.36% X.XX%
LEIFI 17.13% 27.23% X.XX%
Marshall Large-Cap Growth & Income Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation and income.
Strategy: The Fund invests in a diversified portfolio of
large-sized companies whose market capitalizations exceed $10 billion and that
have a history of stable earnings and/or growing dividends. The Adviser looks
for companies that are typically leaders in their industry and have records of
above-average financial performance and proven superior management.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 15.37%
Worst quarter (1Q94) (4.91%)
Average Annual Total Return through 12/31/97*
Since 11/20/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 13.43% 26.24% 13.42% 2.86%
S&P500 20.08% 20.27% 33.36% X.XX%
LGIFI 26.27% 17.58% 27.05% X.XX%
NOTE: The Bar Chart and Performance Information for Equity Income Fund and
Large-Cap Growth & Income Fund above is for a class of shares not offered in
this prospectus. The return numbers for Class A Shares would be substantially
similar because the classes are invested in the same portfolio of securities and
the returns would differ only to extent that the classes do not have the same
expenses. The total returns do not reflect the payment of any sales charges.
The Funds have not imposed a sales charge. Hence, total returns displayed are
based upon net asset value.
*The table shows each Fund's average annual total returns compared to a
broad-based market index over a period of time. In addition, the performance of
Equity Income Fund is compared to the Lipper Equity Income Funds Index (LEIFI),
and the performance of Large-Cap Growth & Income Fund is compared to the Lipper
Growth & Income Funds Index (LGIFI), which are indices of funds with similar
investment objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Equity Funds (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall Mid-Cap Value Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation and income.
Strategy: The Fund invests generally in companies similar in size to those
within the S&P Mid-Cap 400 Index (SPMC). The adviser selects companies that
exhibit traditional value characteristics, such as a price-to-earnings ratio
less than stocks in the S&P 500, higher-than-average dividend yields and a
lower-than-average price-to-book value. In addition, these companies may have
under appreciated assets, or be involved in company turnarounds or corporate
restructurings.
Annual Total Return (calendar years 1994-1997)
[INSERT APPENDIX]
Total Return
Best quarter (3Q97) 11.18%
Worst quarter (4Q94) (4.20%)
Average Annual Total Return through 12/31/97*
Since 9/30/93 1998 YTD
inception 1 Year through 9/30/98
Fund 15.39% 23.38% (6.42%)
SPMC 18.31% 32.22% X.XX%
LMCFI 15.28% 19.58% X.XX%
Marshall Mid-Cap Growth Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation.
Strategy: The Fund invests generally in companies similar in size to those
within the S&P Mid-Cap 400 Index (SPMC). The Adviser selects stocks of companies
with above-average earnings growth potential or where significant changes are
taking place, such as significant new products, services, or methods of
distribution, as well as overall business restructuring.
Annual Total Return (calendar years 1994-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 17.80%
Worst quarter (1Q97) (9.08%)
Average Annual Total Return through 12/31/97*
Since 9/30/93 1998 YTD
inception 1 Year through 9/30/98
Fund 16.28% 22.73% (11.40%)
SPMC 18.31% 32.22% X.XX%
LMCFI 15.28% 19.58% X.XX%
NOTE: The Bar Chart and Performance Information for Mid-Cap Value Fund and Mid-
Cap Growth Fund above is for a class of shares not offered in this prospectus.
The return numbers for Class A Shares would be substantially similar because the
classes are invested in the same portfolio of securities and the returns would
differ only to extent that the classes do not have the same expenses. The total
returns do not reflect the payment of any sales charges.
*The table shows each Fund's average annual total returns compared to a
broad-based market index over a period of time. In addition, the performance of
Mid-Cap Value Fund and Mid-Cap Growth Fund are compared to the Lipper Mid-Cap
Funds Index (LMCFI), which is an indice of funds with similar investment
objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Equity Funds (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall International Stock Fund
[INSERT GRAPHIC]
Goal: To provide capital appreciation.
Strategy: The Fund invests primarily in common stocks of companies of any size
outside the United States. Templeton Investment Counsel, Inc. (Sub-adviser) uses
a value-oriented approach and selects companies in countries where political and
economic factors, including currency movements, are likely to produce
above-average opportunities for capital appreciation.
Annual Total Return (calendar years 1995-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 9.55%
Worst quarter (4Q97) (7.75%)
Average Annual Total Return through 12/31/97/1/
Since 9/1/94 1998 YTD
inception 1 Year through 9/30/98
Fund 10.32% 10.86% (11.21%)
EAFE Index 4.30% 1.78% X.XX%
LIFI 6.59% 5.47% X.XX%
Marshall Small-Cap Growth Fund/2/
[INSERT GRAPHIC]
Goal: To provide capital appreciation.
Strategy: The Fund invests in common stocks of small-sized companies whose
market capitalizations are under $1 billion. The Adviser selects stocks of
companies with above-average earnings growth potential or where significant
changes are taking place, such as new products, services or methods of
distribution, as well as overall business restructuring.
Annual Total Return (calendar year 1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q97) 22.21%
Worst quarter (1Q97) (11.71%)
Average Annual Total Return through 12/31/97/1/
Since 11/1/95 1998 YTD
inception 1 Year through 9/30/98
Fund 43.91% 23.18% (20.63%)
Russell 2000 19.92% 22.36% (16.21%)
LSCFI 21.03% 20.69% X.XX%
NOTE: The Bar Chart and Performance Information for International Stock Fund and
Small-Cap Growth Fund above is for a class of shares not offered in this
prospectus. The return numbers for Class A Shares would be substantially similar
because the classes are invested in the same portfolio of securities and the
returns would differ only to extent that the classes do not have the same
expenses. The total returns do not reflect the payment of any sales charges.
/1/The table shows each Fund's average annual total returns compared to a
broad-based market index over a period of time. In addition, the performance of
International Stock Fund is compared to the Morgan Stanley Capital Europe,
Australia, Far East Index (EAFE Index) and the Lipper International Funds Index
(LIFI), and the performance of Small-Cap Growth Fund is compared to Russell
2000, a broad-based market index and the Lipper Small Cap Funds Index (LSCFI),
which are indices of funds with similar investment objectives.
/2/The SMALL-CAP GROWTH FUND is the successor to the portfolio of a collective
trust fund managed by the Adviser. At the Fund's commencement of operations, the
assets from the collective trust fund were transferred to the Fund in exchange
for Fund shares.The Fund's average annual total return since inception
(11/1/95) is 43.91%
through 12/31/97. The quoted performance data includes the performance of the
collective trust fund for periods before the SMALL-CAP GROWTH FUND'S
registration statement became effective on August 30, 1996, as adjusted to
reflect the SMALL-CAP GROWTH FUND'S expenses. The collective trust fund was not
registered under the Investment Company Act of 1940 ("1940 Act") and therefore
was not subject to certain investment restrictions that are imposed by the 1940
Act. If the collective trust fund had been registered under the 1940 Act, the
performance may have been adversely affected.
As with all mutual funds, past performance does not necessarily predict future
performance.
Income Funds
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall Intermediate Bond Fund
Goal: To maximize total return consistent with current income.
Strategy: The Fund invests in intermediate-term investment grade bonds and
notes, including corporate, asset-backed, mortgage-backed, and U.S. government
securities. The Adviser changes the Fund's weightings in these sectors as it
deems appropriate, and uses macroeconomic, credit and market analysis to select
portfolio securities. The Fund will maintain an average dollar-weighted maturity
of three to ten years.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 4.68%
Worst quarter (1Q96) (2.03%)
Average Annual Total Return through 12/31/97*
Since 11/23/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 5.67% 7.18% 5.60% 6.19%
LGCI 6.80% 7.87% 6.66% X.XX%
LSIBF 7.02% 8.58% 6.81% X.XX%
Marshall Government Income Fund
[INSERT GRAPHIC]
Goal: To provide current income.
Strategy: The Fund invests in securities issued by the U.S. government and its
agencies and instrumentalities, particularly mortgage-related securities. The
Adviser considers macroeconomic conditions and uses credit and market analysis
in developing the general portfolio structure. Current and historical interest
rate relationships are used to evaluate market sectors and individual
securities. The Fund will generally maintain an average dollar-weighted maturity
of four to twelve years.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 4.92%
Worst quarter (1Q94) (2.13%)
Average Annual Total Return through 12/31/97*
Since 12/13/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 6.19% 8.43% 6.14% 6.90%
LMI 7.42% 9.48% 7.21% X.XX%
LUSMI 6.01% 8.79% 6.00% X.XX%
NOTE: The Bar Chart and Performance Information for Intermediate Bond Fund and
Government Income Fund above is for a class of shares not offered in this
prospectus. The return numbers for Class A Shares would be substantially similar
because the classes are invested in the same portfolio of securities and the
returns would differ only to extent that the classes do not have the same
expenses. The total returns do not reflect the payment of any sales charges.
*The table shows the Fund's average annual total returns over a period of years
relative to the Lehman Brothers Government/Corporate Intermediate Index (LGCI),
a broad-based market index, and Lipper Short/Intermediate Investment Grade Bond
Funds Index (LIBF), an average of funds with similar objectives.
**The table shows the Fund's average annual total returns over a period of years
relative to the Lehman Brothers Mortgage-Backed Securities Index (LMI), a
broad-based market index and the Lipper U.S. Mortgage Funds Index (LUSMI), an
average of funds with similar investment objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Money Market Funds
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Marshall Money Market Fund
[INSERT GRAPHIC]
Goal: To provide current income consistent with stability of principal.
Strategy: The Fund invests in high quality money market instruments maturing in
397 days or less. The Adviser uses a "bottom-up" approach, meaning that the fund
manager looks primarily at individual companies against the context of broader
market factors.
Although money market funds seek to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
Annual Total Return (calendar years 1993-1997)
[INSERT APPENDIX]
Total Return
Best quarter (2Q95) 1.45%
Worst quarter (2Q93) 0.72%
7-Day Net Yield
7-Day Net Yield (as of 12/31/97)* 5.50%
Average Annual Total Return through 12/31/97/1/
Since 12/17/92 1998 YTD
inception 1 Year 5 Year through 9/30/98
Fund 4.48% 5.19% 4.77% 3.85%
IBC/Donoghue's X.XX% X.XX% X.XX% X.XX%
*Investors may call the Fund to acquire the current 7-Day Net Yield by calling
1-800-236-3863.
/1/The table shows the Fund's average total return over a period of years
relative to the IBC/Donoghue's Money Fund Average, an average of money funds
with similar objectives.
Summary of Fund Expenses
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Class A Shares of the Equity Funds, Income Funds, and the Money Market Fund.
<TABLE>
<CAPTION>
Large-Cap
Equity Growth & Income Mid-Cap Mid-Cap International Small-Cap
Income Fund Fund Value Fund Growth Fund Stock Fund Growth Fund
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses (fees
paid directly from your investment)
5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
Annual Fund Operating Expenses (maximum expenses that could be deducted from
assets) *
Management Fee
(before waiver) (1) 0.75% 0.75% 0.75% 0.75% 1.00% 1.00%
Distribution (12b-1) Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Shareholder Servicing Fee
(before waiver) (2) 0.25% 0.25% 0.25% 0.25% 0.25%
0.25% ----- ----- ----- ----- ----- -----
Total Other Expenses % % % % % %
----- ----- ----- ----- ----- -----
Total Operating Expenses (3) % % % % % %
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Money Market Fund
Bond Fund Income Fund
<S> <C> <C> <C>
Shareholder Transaction Expenses (fees
paid directly from your investment)
5.75% 5.75% None
Annual Fund Operating Expenses (maximum expenses that could be deducted from
assets) *
Management Fee
(before waiver) (1) 0.60% 0.75% 0.50%
Distribution (12b-1) Fee 0.25% 0.25% 0.30%
Shareholder Servicing Fee
(before waiver) (2) 0.25% 0.25% 0.02%
----- ----- -----
Total Other Expenses % % 0.14%
- ----- ----- -----
Total Operating Expenses (3) % % 0.96%
</TABLE>
* Expenses are expressed as a percentage of the Fund's net assets. Annual Fund
Operating Expenses for Equity Income Fund, Large-Cap Growth & Income Fund, Mid-
Cap Value Fund, Mid-Cap Growth Fund, International Stock Fund, Small-Cap Growth
Fund, Intermediate Bond Fund, and Government Income Fund are estimated based on
average expenses expected to be incurred during the fiscal year ending August
31, 1999. During the course of this period, expenses may be more or less than
the average amount shown.
(1) It is anticipated that the adviser will voluntarily waive a portion of the
management fee. The adviser may terminate this voluntary waiver at any time. The
management fee (after the voluntary waiver) is expected to be 0.54% for the
Intermediate Bond Fund and 0.64% for the Government Income Fund for the fiscal
year ending August 31, 1999. The adviser voluntarily waived a portion of the
management fee for Money Market Fund for the fiscal year ended August 31, 1999.
The management fee paid by Money Market Fund was 0.25%
(2) The Funds (except the Money Market Fund) has no present intention of paying
or accruing the shareholder services fee.
(3) Total Operating Expenses are expected to be % and % for the Intermediate
Bond Fund and Government Income Fund after the anticipated voluntary reductions
described in Notes 1 and 2 for the fiscal year ended August 31, 1999. Total
Operating Expenses were 0.71% for Money Market Fund after the voluntary
reduction of the management fee for the fiscal year ended August 31, 1998.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Marshall Funds, Inc. Information." Wire-transferred redemptions may be
subject to an additional fee.
Summary of Fund Expenses (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Example
This example is intended to help you compare the cost of investing in the
Marshall Funds with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Funds for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Large-Cap
Equity Growth &Income Mid-Cap Mid-Cap International Small-Cap
Income Fund Fund Value Fund Growth Fund Stock Fund Growth Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ $ $ $ $ $
3 Years $ $ $ $ $ $
5 Years $ $ $ $ $ $
10 Years $ $ $ $ $ $
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Money Market
Bond Fund Income Fund Fund
<S> <C> <C> <C>
1 Year $ $ $
3 Years $ $ $
5 Years $ $ $
10 Years $ $ $
</TABLE>
- --------------------------------------------------------------------------------
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
What are the Main Risks of Investing in the Marshall Funds?
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
EquitySecurities Risks. The EQUITY FUNDS are subject to fluctuations in the
stock markets, which have periods of increasing and decreasing values.
Stocks have greater volatility than debt securities. While greater
volatility increases risk, it offers the potential for greater reward.
[INSERT GRAPHIC]
Equity risk is also related to the size of the company issuing
stock. Companies may be categorized as having a small, medium, or large
capitalization (market value). The potential risks are higher with small-
and medium-capitalization companies and lower with large-capitalization
companies. Therefore, you should expect that investments in the SMALL-CAP
GROWTH FUND, the MID-CAP GROWTH FUND and the MID-CAP VALUE FUND will be
more volatile than broad stock market indices such as the S&P 500 or funds
that invest in large-capitalization companies, such as the LARGE-CAP
GROWTH & INCOME FUND and the EQUITY INCOME FUND.
What About Portfolio Turnover?
[INSERT GRAPHIC]
Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities will be sold without regard to the length of time they have
been held when the Funds' Adviser or Sub-adviser believes it is appropriate to
do so in light of a Fund's investment goal. A higher portfolio turnover rate
involves greater transaction expenses which must be borne directly by a Fund
(and thus, indirectly by its shareholders), and affect Fund performance. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to that Fund's
shareholders, are taxable to them.
Foreign Securities Risks. Foreign securities pose additional risks over
U.S.-based securities for a number of reasons. Because the INTERNATIONAL
STOCK FUND invests primarily in foreign securities, you should expect that
these factors may adversely affect the value of an investment in the Fund.
Foreign economic, governmental, and political systems may be less
favorable than those of the United States. Foreign governments may
exercise greater control over their economies, industries, and citizen's
rights. Specific risk factors related to foreign securities include:
inflation, structure and regulation of financial markets, liquidity and
volatility of investments, taxation policies, currency exchange rates and
regulations, and accounting standards. The INTERNATIONAL STOCK FUND may
incur higher costs and expenses when making foreign investments, which
will affect the Fund's total return.
Foreign securities may be denominated in foreign currencies.
Therefore, the value of a Fund's assets and income in U.S. dollars may be
affected by changes in exchange rates and regulations, since exchange
rates for foreign currencies change daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the United States.
Although the INTERNATIONAL STOCK FUND values its assets daily in U.S.
dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. Therefore, the Fund may be exposed to currency risks over
an extended period of time.
Fixed Income Securities Risks. Risks of fixed income securities will affect the
INCOME FUNDS.
Prices of fixed-rate debt securities generally move in the
opposite direction of interest rates. The interest payments on fixed-rate
debt securities do not change when interest rates change. Therefore, since
the price of these securities can be expected to decrease when interest
rates increase, you can expect that the value of investments in a Fund may
go down. Although the Adviser attempts to
[INSERT GRAPHIC]
What are the Main Risks of Investing in the Marshall Funds (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
anticipate interest rate movements, there is no guarantee that it will be
able to do so.
In addition, longer-term debt securities will experience greater
price volatility than debt securities with shorter maturities. You can
expect the net asset values of a Fund to fluctuate accordingly.
The credit quality of a debt security is based upon the issuer's
ability to repay the security. If payments on a debt security are not paid
when due, that may cause the net asset value of a Fund holding the
security to go down.
What About Investment Ratings?
When the Funds invest in debt securities and/or convertible securities, some
will be rated in the lowest investment grade category (e.g., BBB or Baa).
Securities rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics. Unrated securities will be
determined by the Adviser to be of like quality and may have greater risk (but a
potentially higher yield) than comparable rated securities. If a security is
downgraded, the Adviser will re-evaluate the security and determine whether or
not the security is an acceptable investment.
Fixed Income securities may also be subject to call risk. If
interest rates decline, an issuer may repay (or "call") a debt security
held by a Fund prior to its maturity. If this occurs, the Adviser may have
to reinvest the proceeds in debt securities paying lower interest rates.
If this happens, a Fund may have a lower yield.
Asset-Backed/Mortgage-Backed Securities Risks. Asset-backed and mortgage-backed
securities are subject to risks of prepayment. This is more likely to
occur when interest rates fall because many borrowers refinance mortgages
to take advantage of more favorable rates. Prepayments on mortgage-backed
securities are also affected by other factors, such as the volume of home
sales. A Fund's yield will be reduced if cash from prepaid securities are
reinvested in securities with lower interest rates. The risk of prepayment
may also decrease the value of mortgage-backed securities.
Asset-backed securities may have a higher level of default and
recovery risk than mortgage-backed securities. However, both of these
types of securities may decline in value because of mortgage foreclosures
or defaults on the underlying obligations.
Concentration Risks. When the Fund emphasizes its investments in securities of
issuers in a particular industry, the Fund's performance is closely tied
to events in that industry.
Securities Lending Risks. When the Fund lends its portfolio securities, it may
not be able to get them back from the borrower on a timely basis. If this
occurs, the Fund may lose certain investment opportunities. The Fund is
also subject to the risks associated with the investment of cash
collateral, usually fixed-income securities risk.
Temporary Investments. To minimize potential losses and maintain liquidity to
meet shareholder redemptions during adverse market conditions, each of the
Marshall Funds (except MONEY MARKET FUND) may temporarily depart from its
principal investment strategy by investing up to 100% of Fund assets in
cash or short-term, high quality money market instruments (e.g.,
commercial paper, repurchase agreements, etc.). This may cause a Fund to
temporarily forego greater investment returns for the safety of principal.
How to Buy Shares
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
What Do Shares Cost? You can buy shares of a Fund on any day the New York Stock
Exchange (NYSE) is open for business. When the Fund receives your
transaction request in proper form, it is processed at the next determined
public offering price. The public offering price is the net asset value
(NAV) plus any applicable sales charge. NAV is determined for the Funds
(other than MONEY MARKET FUND) at the end of regular trading (normally 3
p.m. Central time) each day the NYSE is open. The NAV for the MONEY MARKET
FUND is determined twice daily at 12:00 p.m. (Central time) and 3:00 p.m.
(Central time).
If your investment representative opens an account in your name
with the Marshall Funds, your first investment must be at least $1,000.
However, you can add to your existing Marshall Funds account directly or
through the Funds' Systematic Investment Program for as little as $50. In
special circumstances, these minimums may be waived or lowered at the
Funds' discretion. Call your Authorized Dealer for any additional
limitations.
The sales charge when you purchase Class A Shares of the EQUITY
FUNDS and INCOME FUNDS is as follows:
<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge as a Sales Charge as a
Percentage of Public Percentage of NAV
Offering Price
<S> <C> <C>
Less than $50,000 5.75% 6.10%
$50,000 but less
than $100,000 4.50% 4.71%
$100,000 but less
than $250,000 3.50% 3.63%
$250,000 but less
than $500,000 2.50% 2.56%
$500,000 but less
than $1 million 2.00% 2.04%
$1 million or greater/1/ None None
</TABLE>
/1/ A contingent deferred sales charge of 1.00% applies to Class A Shares
redeemed up to 12 months after purchase of $1 million or more.
The sales charge at purchase may be reduced or eliminated by:
. quantity purchases of Class A Shares;
. combining concurrent purchases of:
* Shares by you, your spouse, and your children under age 21; or
* Class A Shares of two or more Marshall Funds;
. accumulating purchases (in calculating the sales charge on an additional
purchase, you may count the current value of previous Class A Share
purchases still invested in the Fund);
. signing a letter of intent to purchase a specific dollar amount of Class
A Shares within 13 months (call your investment representative for an
application and more information); or
. using the reinvestment privilege within 90 days of redeeming Class A
Shares of an equal or lesser amount.
If your investment qualifies, you or your investment representative must
notify the Fund's distributor at the time of purchase to reduce or
eliminate the sales charge. You will receive the reduced sales charge only
on the additional purchases, and not retroactively on previous purchases.
You should contact your investment professional for more information on
reducing or eliminating the sales charge.
In addition, no sales charge is imposed on:
. Trustees or other fiduciaries purchasing Class A Shares for employee
benefit plans of employers with ten or more employees, or
. reinvested dividends and capital gains.
The Fund may also permit purchases without a sales charge from time to
time, at its own discretion.
How to Buy Shares (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
How Do I Purchase Shares? You may purchase shares through a broker-dealer,
investment professional, or financial institution (Authorized Dealers).
Some Authorized Dealers may charge a transaction fee for this service. If
you purchase shares of a Fund through a program of services offered or
administered by a Authorized Dealer or other service provider, you should
read the program materials, including information relating to fees, in
conjunction with the Funds' prospectus. Certain features of a Fund may not
be available or may be modified in connection with the program of services
provided.
Your purchase order must be received by the Fund by 12:00 p.m. (Central
Time) for the MONEY MARKET FUND or 3:00 p.m. (Central Time) for all other
Funds to get that day's NAV. Each Fund reserves the right to reject any
purchase request. It is the responsibility of any Authorized Dealer or
other service provider that has entered into an agreement with the Funds,
its distributor, or administrative or shareholder services agent, to
promptly submit purchase orders to the Funds. Orders placed through one of
these entities are considered received when the Funds are notified of the
purchase or redemption order. However, you are not the owner of Fund shares
(and therefore will not receive dividends) until payment for the shares is
received.
Will the Small-Cap Growth Fund always be open to new investors? It is
anticipated that the SMALL-CAP GROWTH FUND will be closed to new investors
once its assets reach $500 million, subject to certain exceptions. However,
if you own shares of the Fund prior to the closing date, you will still be
able to reinvest dividends and add to your investment in the Fund. In
Addition, if you own shares of another Marshall Fund prior to the closing
date, you will be allowed to exchange those shares for shares of the Fund.
Systematic Investment Program
[INSERT GRAPHIC]
. You can have money automatically withdrawn from your checking account
($50.00 minimum) on a periodic basis.
. Call your Authorized Dealer to apply for this program.
Additional Information About Checks Used to Purchase Shares
[INSERT GRAPHIC]
. If your check does not clear, your purchase will be canceled and you will
be charged a $15 fee.
. If you purchase shares by check or ACH, you may not be able to receive
proceeds from a redemption for up to seven days.
How to Redeem and Exchange Shares of the
Marshall Funds
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
How Do I Redeem Shares? You may redeem your Fund shares by contacting your
Authorized Dealer. You should note that redemptions will be made only on
days when the Fund computes its NAV. When your redemption request is
received in proper form, it is processed at the next determined NAV.
Telephone or written requests for redemptions must be received in proper
form and can be made through any Authorized Dealer. It is the
responsibility of the Authorized Dealer or service provider to promptly
submit redemption requests to a Fund.
Redemption requests for the Funds must be received by the Funds by 12:00
p.m. (Central Time) for the MONEY MARKET FUND or 3:00 p.m. (Central Time)
for all other Funds in order for shares to be redeemed at that day's NAV.
Redemption proceeds will normally be mailed, or wired if by written
request, the following business day, but in no event more than seven days,
after the request is made.
Will I Be Charged a Fee for Redemptions? You will not be charged a fee by the
Fund for redeeming shares. However, a contingent deferred sales charge of
1.00% applies to Class A Shares redeemed up to 12 months after purchases of
$1 million or more that did not initially pay a sales charge. You may be
charged a transaction fee if you redeem Fund shares through an Authorized
Dealer or service provider. Consult your Authorized Dealer or service
provider for more information, including applicable fees.
Systematic Withdrawal Program (Existing Accounts Only)
[INSERT GRAPHIC]
. If you have a Fund account balance of at least $10,000, you can redeem
shares (at least $100) on a periodic basis.
. Contact your Authorized Dealer to apply for this program.
Checkwriting
[INSERT GRAPHIC]
. Checkwriting privileges may be available for shareholders of the MONEY
MARKET FUND. Contact your investment representative for more information.
Additional Conditions for Redemptions
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:
.. when you want a redemption to be sent to an address other than the one
you have on record with the Fund;
.. when you want the redemption payable to some one other than the
shareholder of record; or
.. when your redemption is to be sent to an address of record that was
changed within the last 90 days.
Your signature can be guaranteed by any federally insured financial
institution (such as a bank or credit union) or a broker/dealer that is a
domestic stock exchange member, but not by a notary public.
Limitations on Redemption Proceeds. Redemption proceeds normally are wired or
mailed within one business day after receiving a request in proper form.
However, payment may be delayed up to seven days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts
the Fund's ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund.
If those checks are undeliverable and returned to the Fund, the proceeds
will be reinvested in shares of the Funds that were redeemed.
Exchange Privilege. You may exchange Class A Shares of a Fund for Class A Shares
of any of the other Marshall Funds free of charge, if you have previously
paid a sales charge. An exchange is treated as a redemption and a
subsequent purchase, and is therefore a taxable transaction. Signatures
must be guaranteed if you request and exchange into another fund with a
different shareholder registration. The exchange privilege may be modified
or terminated at any time.
Exchanges by Telephone. If you have completed the telephone authorization
section in your account application or an authorization form obtained
through your Authorized Dealer, you may telephone instructions to your
investment professional to exchange between Fund accounts that have
identical shareholder registrations. Telephone exchange instructions must
be received by the Funds before 3:00 p.m. (Central Time) for shares to be
exchanged the same day. However, you will not receive a dividend of the
Fund into which you exchange on the date of the exchange.
The Funds and their service providers will record your telephone
instructions. If the Funds do not follow reasonable procedures, the Funds
may be liable for losses due to unauthorized or fraudulent telephone
instructions. You will be notified of changes to telephone transaction
privileges.
Frequent Traders. The Funds' management or Adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to a Fund and its shareholders. If
this occurs, the Fund may terminate shareholder's purchase and/or exchange
privileges.
Account and Share Information
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Confirmations and Account Statements. You will receive confirmation of
purchases, redemptions and exchanges (except for systematic program
transactions). In addition, you will receive periodic statements reporting
all account activity, including systematic program transactions, dividends
and capital gains paid.
You may request photocopies of historical confirmations from
prior years. The Funds may charge a fee for this service.
Dividends and Capital Gains. Dividends of the MONEY MARKET FUND and INCOME FUNDS
are declared daily and paid monthly. If you purchase shares by wire, you
begin earning dividends on the day your wire is received. If you purchase
shares by check, you begin earning dividends on the business day after the
Fund receives your check. In either case, you earn dividends through the
day your redemption request is received.
Dividends of the EQUITY FUNDS are declared and paid quarterly,
except for the INTERNATIONAL STOCK FUND, which declares and pays dividends
annually. Dividends are paid to all shareholders invested in the EQUITY
FUNDS on the record date.
In addition, the Funds pay any capital gains at least annually.
Your dividends and capital gains distributions will be automatically
reinvested in additional shares, unless you elect cash payments. If you
elect cash payments and the payment is returned as undeliverable, your cash
payment will be reinvested in Fund shares and your distribution option will
convert to automatic reinvestment. If any distribution check remains
uncashed for six months, the check amount will be reinvested in shares and
you will not accrue any interest or dividends on this amount prior to the
reinvestment.
What is a Dividend and Capital Gain?
[INSERT GRAPHIC]
A dividend is the money paid to shareholders that a mutual fund has earned from
the income on its investments. A capital gain is the profit derived from the
sale of an investment, such as a stock or bond.
If you purchase shares just before a Fund declares a dividend or
capital gain distribution, you will pay the full price for the shares and
then receive a portion of the price back in the form of a distribution,
whether or not you reinvest the distribution in shares. Therefore, you
should consider the tax implications of purchasing shares shortly before a
Fund declares a dividend or capital gain.
Accounts with Low Balances. Due to the high cost of maintaining accounts with
low balances, a Fund may redeem shares in your account and pay you the
proceeds if your account balance falls below the required minimum value of
$1,000.
Before shares are redeemed to close an account, you will be
notified in writing and allowed 30 days to purchase additional shares to
meet the minimum account balance requirement.
Account and Share Information (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Rule 12b-1 Plan. The Marshall Funds has adopted a Rule 12b-1 Plan on behalf of
the Class A Shares of the Funds, which allows it to pay a fee equal to a
maximum of 0.25% for the EQUITY FUNDS and INCOME FUNDS and 0.30% for the
MONEY MARKET FUND'S Class A Shares assets to the Distributor and financial
intermediaries for the sale, distribution and customer servicing of each
Fund's Class A Shares. Because these shares pay marketing fees on an
ongoing basis, your investment cost may be higher over time than shares
with different sales charges and marketing fees.
Multiple Classes. The Marshall Funds have adopted a plan that permits each Fund
to offer more than one class of shares. All shares of each Fund or class
have equal voting rights and will generally vote in the aggregate and not
by Fund or class. There may be circumstances, however, when shareholders of
a particular Fund or class are entitled to vote on matters affecting that
Fund or class. Share classes may have different sales charges and other
expenses, which will affect their performance.
Year 2000 Statement
- --------------------------------------------------------------------------------
Many computers cannot properly recognize dates of January 1, 2000 and
beyond. The Funds' service providers are making changes to their computer
systems to fix this problem since it could disrupt Fund operations. The
financial effect on the Funds, if any, is still being determined.
Tax Information
- --------------------------------------------------------------------------------
Federal Income Tax. The Funds send you a statement of your account activity to
assist you in completing your federal, state and local tax returns. Fund
distributions of dividends and capital gains are taxable to you whether
paid in cash or reinvested in the Fund. Fund distributions for the EQUITY
INCOME FUND and LARGE-CAP GROWTH & INCOME FUND are expected to be both
dividends and capital gains. Fund distributions for the other EQUITY FUNDS
are expected to be primarily capital gains, and fund distributions of the
INCOME FUNDS and MONEY MARKET FUND are expected to be primarily dividends.
Capital gains and non-exempt dividends are taxable whether paid in cash or
reinvested in the Fund.
Please consult your tax adviser regarding your federal, state, and local
tax liability. Redemptions and exchanges of Fund shares are taxable sales.
Marshall Funds, Inc. Information
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
Management of the Marshall Funds. The Board of Directors governs the Funds. The
Board selects and oversees the Adviser, M&I Investment Management Corp. The
Adviser manages each Fund's assets, including buying and selling portfolio
securities. The Adviser's address is 1000 North Water Street, Milwaukee,
Wisconsin, 53202. The Adviser has entered into a Subadvisory Contract with
Templeton Investment Counsel, Inc. (TICI or Sub-adviser), to manage the
INTERNATIONAL STOCK FUND, subject to oversight by the Adviser.
Adviser's Background. M&I Investment Management Corp. is a registered investment
adviser and a wholly owned subsidiary of Marshall & Ilsley Corp., a
registered bank holding company headquartered in Milwaukee, Wisconsin. As of
July 31, 1998, the Adviser had approximately $9 billion in assets under
management and has managed investments for individuals and institutions
since 1973. The Adviser has managed the Funds since 1992, and managed the
Newton Funds (predecessors to some of the Funds) since 1985.
Sub-adviser's Background. Templeton Investment Counsel, Inc. is a registered
investment adviser and a professional investment counseling firm that has
been handling investment services since 1979. As of July 31, 1998, TICI had
discretionary investment of approximately $22.3 billion in assets. TICI is
indirectly owned by Franklin Resources, Inc., which engages in various
aspects of the financial services industry through its subsidiaries. TICI
and its affiliates serve as advisers for a wide variety of mutual funds and
private clients in many nations. TICI, its affiliates and their predecessors
have been investing globally for over 50 years.
Portfolio Managers. The EQUITY INCOME FUND is managed by Bruce P. Hutson, who
has been a Vice President of the Adviser since 1973 and was a member of the
Equity Policy Group from January 1990 through 1998. Mr. Hutson holds a
B.B.A. degree from the University of Wisconsin-Whitewater.
The LARGE-CAP GROWTH & INCOME FUND is managed by William J.
O'Connor. Mr. O'Connor has been a Vice President of the Adviser since
February 1995 when he rejoined the firm after serving as Vice President and
Director of Equity Research for Arnold Investment Counsel. Prior to joining
Arnold, he had been a Vice President, portfolio manager, and research
analyst with the Adviser from 1979 to 1991. Mr. O'Connor is a Chartered
Financial Analyst and holds a bachelor's degree in Commerce from Santa Clara
University and an M.B.A. in Finance from the University of Wisconsin-
Madison.
[INSERT GRAPHIC]
The MID-CAP VALUE FUND is co-managed by Matthew B. Fahey and John
C. Potter. Mr. Fahey has been a Vice President of the Adviser since 1988. He
earned a B.A. degree in Business Administration from the University of
Wisconsin-Milwaukee and holds an M.B.A. degree from Marquette University.
Mr. Potter has been a Vice President of the Adviser since 1997. From 1994 to
June 1997, Mr. Potter was a senior securities analyst for the EQUITY INCOME
FUND. Mr. Potter is a Chartered Financial Analyst and holds a B.B.A. degree
in Finance from the University of Wisconsin-Madison.
The MID-CAP GROWTH FUND is managed by Steve D. Hayward. Prior to
joining the Adviser as a Vice President in December 1993, Mr. Hayward served
as Senior Portfolio Manager of AMOCO Corporation and managed two aggressive
growth-oriented mutual funds for American Asset Capital Management. Mr.
Hayward, who is a Chartered Financial Analyst, received a B.A. in Economics
from North Park College, and an M.B.A. in Finance from Loyola University.
The INTERNATIONAL STOCK FUND is managed by Gary R. Clemons, Senior
Vice President, Portfolio Management/Research, TICI. Mr. Clemons joined the
Templeton organization in 1993 as a Portfolio Manager/Research Analyst with
responsibility for the telecommunications industries, as well as country
coverage of Columbia, Peru, Sweden and Norway. Prior to joining TICI, Mr.
Clemons worked as a Portfolio Manager/Research Analyst for Structured Asset
Management in New York, a subsidiary of Templeton Global Investors, Inc. Mr.
Clemons holds
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
an M.B.A. degree from the University of Wisconsin-Madison and a bachelor of
science degree from the University of Nevada-Reno.
The SMALL-CAP GROWTH FUND is co-managed by Steve D. Hayward and David
Lettenberger. Mr. Hayward's background is described above under the MID-CAP
GROWTH FUND. Prior to joining the Adviser in October 1993, Mr. Lettenberger
was employed by M&I Marshall & Ilsley Bank. Previously, he was a senior
securities analyst for MARSHALL MID-CAP GROWTH FUND from the Fund's
inception in 1993 through 1996. Mr. Lettenberger is a Chartered Financial
Analyst and holds a B.B.A. degree in Finance and Economics from Marquette
University.
The INTERMEDIATE BOND FUND is managed by Mark Pittman. Mr. Pittman is a Vice
President of the Adviser, which he joined in June 1994. Prior to that time,
he spent five years with Valley Trust Company managing fixed income
portfolios and common trust funds. In addition, he was a member of the
Valley Trust Company Investment Committee and Asset Allocation Committee.
Mr. Pittman is a Chartered Financial Analyst and holds M.B.A. and B.B.A.
degrees in Finance from the University of Wisconsin-Madison.
[INSERT GRAPHIC]
The GOVERNMENT INCOME FUND is managed by Lawrence J. Pavelec. Mr. Pavelec is
a Vice President and the Director of Fixed Income the Adviser. Mr. Pavelec
joined M&I Marshall & Ilsley Bank in 1982 and the Adviser in September 1985.
Since 1988, he has been managing total return fixed income portfolios. He
has been a member of the Adviser's Fixed Income Policy Group since 1985 and
became Chairman in August 1993. He has managed the GOVERNMENT INCOME FUND
since August 1993. Mr. Pavelec is a Chartered Financial Analyst and holds a
B.S. degree from the University of Wisconsin-LaCrosse.
The MONEY MARKET FUND is managed by Richard M. Rokus, who is a Vice
President of the Adviser. Mr. Rokus has managed the MONEY MARKET FUND since
January 1, 1994, and has been employed by the Adviser since January 1993.
Mr. Rokus is a Chartered Financial Analyst and holds a B.B.A. in Finance
from the University of Wisconsin-Whitewater.
[INSERT GRAPHIC]
Advisory Fees. The Adviser is entitled to receive an annual investment advisory
fee equal to a percentage of each Fund's average daily net assets as
follows:
<TABLE>
<S> <C>
Fund Advisory Fee
------------------------------------------------------
Money Market Fund 0.50%
Intermediate Bond Fund 0.60%
Government Income Fund 0.75%
Large-Cap Growth &Income Fund 0.75%
Mid-Cap Value Fund 0.75%
Equity Income Fund 0.75%
Mid-Cap Growth Fund 0.75%
International Stock Fund 1.00%
Small-Cap Growth Fund 1.00%
</TABLE>
The Adviser has the discretion to voluntarily waive a portion of its fee.
However, any waivers by the Adviser are voluntary and may be terminated at
any time in its sole discretion.
Affiliate Services and Fees. Marshall & Ilsley Trust Company is custodian of the
assets and securities of the Marshall Funds and provides shareholder support
and other administrative services directly and through its division,
Marshall Funds Investor Services. For these services, Marshall & Ilsley
Trust Company receives fees based on a percentage of each Fund's average
daily net assets, which may differ among the Funds.
Financial Highlights
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated _________, 1998 is included
in the Annual Report for the Funds, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Funds.
Further information about the performance of the Funds is contained in the
Funds' Annual Report dated August 31, 1998 which may be obtained free of charge.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Distributions to
Net Realized and Shareholders
Unrealized Net Realized Gain
Gain/(Loss) on Investment
on Investments Dividends to Transactions, Distributions to
Net Asset Net Collateral, Shareholders Futures Contracts, Shareholders in
Value, Investment Futures Total from from Net and Foreign Excess of
Beginning Income/ Contracts, and Investment Investment Currency Net Investment
Period Ended August 31, of Period (Loss) Foreign Currency Operations Income Transactions Income
<S> <C> <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) 0.12 (0.32) (1.27) --
Large-Cap Growth & Income
Fund (formerly, Stock
Fund)
1993(b) $10.00 0.10 0.07 0.17 (0.09) -- --
1994 $10.08 0.07 (0.03) 0.04 (0.07) -- --
1995 $10.05 0.09 1.59 1.68 (0.09) -- --
1996 $11.64 0.16 1.17 1.33 (0.15) (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
(formerly, Value Equity
Fund)
1994(a) $10.00 0.12 0.93 1.05 (0.10) -- --
1995 $10.95 0.22 1.22 1.44 (0.20) (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
(formerly, Mid-Cap Stock
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) -- (0.00)
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
(formerly, Small-Cap
Stock Fund)
1997(d) $10.00 (0.08) 2.27 2.19 -- -- --
1998 $12.19 (0.12) (1.76) (1.88) -- (0.49) --
</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.
<TABLE>
<CAPTION>
Ratios to Average Net Assets
Net Assets,
Net Asset Net End of Period Portfolio
Total Value, End Total Investment Expense (000 Turnover
Distributions of Period Return (i) Expenses Income Waiver(k) Omitted) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund
(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 75%
Large-Cap Growth & Income
Fund (formerly, Stock
Fund)
(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 34%
Mid-Cap Value Fund
(formerly, Value Equity
Fund)
(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 62%
Mid-Cap Growth Fund
(formerly, Mid-Cap Stock
Fund)
(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%) -- $187,388 168%
International Stock Fund
(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% -- $225,206 91%
Small-Cap Growth Fund
(formerly, Small-Cap
Stock Fund)
-- $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%
</TABLE>
(i) Based on net asset value.
(j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(l) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
Financial Highlights (cont.)
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Distributions to
Net Realized and Shareholders
Unrealized Net Realized Gain
Gain/(Loss) on Investment
on Investments Dividends to Transactions, Distributions to
Net Asset Net Collateral, Shareholders Futures Contracts, Shareholders in
Value, Investment Futures Total from from Net and Foreign Excess of
Beginning Income/ Contracts, and Investment Investment Currency Net Investment
Period Ended August 31, of Period (Loss) Foreign Currency Operations Income Transactions Income
<S> <C> <C> <C> <C> <C> <C> <C>
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) -- --
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 0.26 0.86 (0.62) -- --
1996 $ 9.51 0.62 (0.24) 0.38 (0.62) -- --
1997 $ 9.27 0.62 0.22 0.84 (0.62) -- --
1998 $ 9.49 0.61 0.21 0.82 (0.61) -- --
Money Market Fund
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) -- --
</TABLE>
(f) Reflects operations for the period from December 14, 1992 (date of initial
public investment) to August 31, 1993.
(h) Reflects operations for the period from December 17, 1992 (date of initial
public investment) to August 31, 1993.
<TABLE>
<CAPTION>
Ratios to Average Net Assets
Net Assets,
Net Asset Net End of Period Portfolio
Total Value, End Total Investment Expense (000 Turnover
Distributions of Period Return (i) Expenses Income Waiver(k) Omitted) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Intermediate Bond Fund
(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%
Government Income Fund
(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% $280,313 415%
Money Market Fund
(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>
(i) Based on net asset value. (j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above. (l) Represents total commissions paid
on portfolio securities divided by total portfolio shares purchased or sold
on which commissions were charged. This disclosure is required for fiscal
years beginning on or after September 1, 1995.
Marshall Funds, Inc. Information
[INSERT GRAPHIC]
- --------------------------------------------------------------------------------
A Statement of Additional Information (SAI) dated December 31, 1998 is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is available in the Funds' annual and semi-annual reports to
shareholders. The annual report discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, the annual and semi-annual reports and other
information without charge write to or call your Authorized Dealer or call
Marshall Funds Investor Services at 1-800-236-FUND (3863).
You can obtain information about the Marshall Funds by visiting or writing the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C., 20549-6009, or from the SEC's Internet Web site at: http://www.sec.gov.
You can call 1-800-SEC-0330 for information on the Public Reference Room's
operations and copying charges.
Marshall Funds Investor Services
1000 N. Water Street
P.O. Box 1348
Milwaukee, WI 53201-1348
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Federated Securities Corp.
Distributor
G00714-02 (12/98)
SEC File No. 811-7047
Marshall Funds, Inc.
Statement of Additional Information
Class A Shares
December 31, 1998
Equity Funds Income Funds o Marshall Equity Income Fund o
Marshall Intermediate Bond Fund o Marshall Large-Cap Growth & Income
Fund o Marshall Government Income Fund o Marshall Mid-Cap Value Fund o
Marshall Mid-Cap Growth Fund o Marshall International Stock Fund Money
Market Fund o Marshall Small-Cap Growth Fund o Marshall Money Market
Fund
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the Class A Shares prospectus for the Marshall
Funds listed above, dated December 31, 1998. This SAI incorporates by
reference the Funds' Annual Report. You may obtain the prospectus or Annual
Report without charge by calling M&I Brokerage Services at 1-414-287-____ or
1-800-236-____ (____), or you can visit the Marshall Funds' Internet site on
the World Wide Web at (http://www.marshallfunds.com).
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
G00714-04(12/98)
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS, INC.
<PAGE>
Table of Contents
How are the Funds Organized 1
Securities in Which the Funds Invest 1
Securities Descriptions, Techniques and Risks 3
Investment Limitations 11
Voting Rights 13
Who Manages the Funds 14
Other Services 17
Exchanging Securities for Shares 20
Determining Market Value of Securities 20
How Do I Redeem Shares 22
Banking Laws 22
What are the Tax Consequences 22
How Does the Fund Measure Performance 23
Performance Comparisons 25
Economic and Market Information 28
Financial Statements 28
Appendix 29
Addresses 32
<PAGE>
HOW ARE THE FUNDS ORGANIZED
Marshall Funds, Inc. (Corporation) is an open-end, management investment company
that was established as a Wisconsin corporation on July 31, 1992.
The Funds are diversified portfolios of the Corporation. The Corporation may
offer separate series of shares representing interests in separate portfolios of
securities, and the shares in any one portfolio may be offered in separate
classes. This Statement contains additional information about the Corporation
and its eleven investment portfolios. This Statement uses the same terms as
defined in the prospectus. The definitions of the terms series and class in the
Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes (WBCL)
differ from the meanings assigned to those terms in the prospectus and this
Statement of Additional Information. The Articles of Incorporation of the
Corporation reconcile this inconsistency in terminology, and provide that the
prospectus and Statement of Additional Information may define these terms
consistently with the use of those terms under the WBCL and the Internal Revenue
Code. SECURITIES IN WHICH THE FUNDS INVEST
Following is a table that indicates which types of securities are a: P =
Principal investment of a Fund; (shaded in chart) A = Acceptable (but not
principal) investment of a Fund; or N = Not an acceptable investment of a
Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
EQUITY FUNDS
Securities Equity Large-Cap Mid-Cap Mid-Cap International Small-Cap
Income Growth & Value Growth Stock Growth
Income
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
American Depositary Receipts1 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Asset-Backed Securities2 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Bank Instruments3 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Borrowing4 A A A A A A
- -------------------------------
- -----------------------------------------------------------------------------------------
Common Stock P P P P P P
- ---------------------------------------------------------------------- ---------
- ------------------------------- ----------
Common Stock of Foreign A A A A P A
Companies
- ------------------------------- ------------------------------------------------
- ---------------------------------------------------------------------- ---------
Convertible Securities P A A A A A
- -----------------------------------------------------------------------------------------
- ------------------------------- ------------------------------------------------
Debt Obligations A A A A A5 A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Derivative Contracts and A A A A A A
Securities
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
European Depositary Receipts N N N N A N
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Fixed Rate Debt Obligations A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Floating Rate Debt Obligations A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Foreign Currency Hedging N N N N A N
Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Foreign Currency Transactions N N N N A N
- ---------------------------------------------------------------------- ---------
- -----------------------------------------------------------------------------------------
Foreign Securities6 A A A A P A
- -----------------------------------------------------------------------------------------
- ---------------------------------------------------------------------- ---------
Forward Commitments, A A A A A A
When-Issued and Delayed
Delivery Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Futures and Options A A A A A A
Transactions
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Global Depositary Receipts N N N N A N
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Illiquid and Restricted A A A A A A
Securities7
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Lending of Portfolio A A A A A A
Securities
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Mortgage-Backed Securities A A A A A A
- ------------------------------- ------------------------------------------------
- -----------------------------------------------------------------------------------------
Preferred Stocks P A A A A A
- -----------------------------------------------------------------------------------------
- ------------------------------- ------------------------------------------------
Prime Commercial Paper8 A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Repurchase Agreements A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Reverse Repurchase Agreements A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Securities of Other A A A A A A
Investment Companies
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SWAP Transactions A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
U.S. Government Securities A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Variable Rate Demand Notes A A A A A A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Warrants A A A A A A
- -----------------------------------------------------------------------------------------
</TABLE>
INCOME FUNDS AND MONEY MARKET FUND
- ------------------------------------------------------------------
Securities Intermediate Government Money
Bond Income Market
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Asset-Backed Securities2 A P A
- -------------------------------------------------------
- ------------------------------------------- -----------
Bank Instruments3 A A P
- ------------------------------------------------------------------
- -------------------------------------------------------
Borrowing4 A A A
- -------------------------------
- ------------------------------------------------------------------
Debt Obligations P P P
- ------------------------------------------------------------------
- ------------------------------- -----------
Demand Master Notes A N P
- ------------------------------------------------------------------
- -------------------------------------------------------
Derivative Contracts and A A A
Securities
- ------------------------------- -----------
- ------------------------------------------------------------------
Fixed Rate Debt Obligations P P A
- -------------------------------------------------------
- ------------------------------------------------------------------
Floating Rate Debt Obligations A A P
- ------------------------------------------- -----------
- -------------------------------------------------------
Foreign Securities6 A A N
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Forward Commitments, A A A
When-Issued and Delayed
Delivery Transactions
- ------------------------------- -----------
- ------------------------------------------------------------------
Funding Agreements A A A
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Futures and Options A A N
Transactions
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Guaranteed Investment N N A
Contracts
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Illiquid and Restricted A A A
Securities7
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Lending of Portfolio A A A
Securities
- ------------------------------------------- -----------
- ------------------------------------------------------------------
Mortgage-Backed Securities A P N
- ------------------------------------------------------------------
- ------------------------------------------- -----------
Municipal Leases A A N
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Municipal Securities A A N
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Prime Commercial Paper8 A A P
- -------------------------------------------------------
- ------------------------------------------------------------------
Repurchase Agreements A A P
- ------------------------------------------------------------------
- -------------------------------------------------------
Reverse Repurchase Agreements9 A A A
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Securities of Other A A A
Investment Companies
- ------------------------------------------------------------------
- ------------------------------------------------------------------
SWAP Transactions A A N
- ------------------------------------------- -----------
- ------------------------------------------------------------------
U.S. Government Securities A P A
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Variable Rate Demand Notes A A A
- ------------------------------------------------------------------
1. All Funds may invest up to 20% of their respective assets, however, the
International Stock Fund has no limit.
2. The Equity Funds and Income Funds may invest in Asset-Backed Securities
rated, at the time of purchase, in the top four rating categories by an NRSRO,
or if unrated, determined by the Adviser to be of comparable quality. The Money
Market Fund will invest in only the short-term tranches, which will generally
have a maturity not exceeding 397 days. Only the Income Funds expect that they
might exceed 5% of their respective net assets in these securities. 3. The
Equity Funds and Money Market Funds may purchase foreign Bank Instruments. The
Equity Funds and Money Market Funds (except International Stock Fund) are
limited to 5% of total assets. The Income Funds may invest in foreign Bank
Instruments, although they do not presently intend to do so.
4. The International Stock Fund may pledge more than 5% of its total assets as
collateral for borrowings because it may borrow money to purchase securities, a
strategy that involves purchasing securities in amounts that exceed the amount
it has invested in the underlying securities. The excess exposure increases the
risks associated with the underlying securities and tends to exaggerate the
effect of changes in the value of its portfolio securities and consequently on
the Fund's net asset value. 5. Must be issued by U.S. corporations and rated in
the top four categories by an NRSRO or, if unrated determined by the Adviser to
be of comparable quality. 6. The Equity Funds, except International Stock Fund
may only invest up to 5% of their respective net assets in foreign securities
other than American Depositary Receipts. 7. All Funds may invest up to 15% of
their respective assets in illiquid securities except that the Money Market Fund
is limited to 10%. 8. The Small-Cap Growth Fund may purchase commercial paper
rated investment grade by an NRSRO or, if unrated determined by the Adviser to
be of comparable quality. The other Funds may purchase commercial paper rated in
the two highest rating categories by an NRSRO or, if unrated determined by the
Adviser to be of comparable quality. 9. During the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Money Market Fund will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date on the reverse repurchase agreement.
SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS As used in this section, the term
Adviser means Adviser or Subadviser, as applicable. Agency securities are issued
or guaranteed by a federal agency or other government sponsored entity acting
under federal authority. Some government entities are supported by the full,
faith and credit of the United States. Other government entities receive support
through federal subsidies, loans or other benefits. A few government entities
have no explicit financial support, but are regarded as having implied support
because the federal government sponsors their activities. Investors regard
agency securities as having low credit risk, but not as low as Treasury
securities. The Fund treats mortgage-backed securities guaranteed by a
government sponsored entity as if issued or guaranteed by a federal agency.
Although such a guarantee protects against credit risk, it does not reduce the
market and prepayment risks. Asset-Backed Securities are issued by
non-governmental entities and carry no direct or indirect government guarantee.
Asset-Backed Securities represent an interest in a pool of assets such as car
loans and credit card receivables. Almost any type of fixed income asset
(including other fixed income securities) may be used to create an asset backed
security. However, most asset-backed securities involve consumer or commercial
debts with maturities of less than ten years. Asset-backed securities may take
the form of commercial paper or notes, in addition to pass through certificates
or asset-backed bonds. Asset backed securities may also resemble some types of
CMOs. Payments on asset-backed securities depend upon assets held by the issuer
and collections of the underlying loans. The value of these securities depends
on many factors, including changing interest rates, the availability of
information about the pool and its structure, the credit quality of the
underlying assets, the market's perception of the servicer of the pool, and any
credit enhancement provided. Also, these securities may be subject to prepayment
risk. Bank Instruments. Bank Instruments are unsecured interest bearing deposits
with banks. Bank Instruments include bank accounts, time deposits, certificates
of deposit and banker's acceptances. Instruments denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars and issued by
U.S. branches of foreign banks are referred to as Yankee instruments.
The Funds will invest in bank instruments that have been issued by banks and
savings and loans that have capital, surplus and undivided profits of over $100
million or whose principal amount is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, which are administered by the Federal
Deposit Insurance Corporation. Securities that are credit-enhanced with a bank's
irrevocable letter of credit or unconditional guaranty will also be treated as
Bank Instruments.
Foreign Bank Instruments. Eurodollar Certificates of Deposit (ECDs), Yankee
Certificates of Deposit (YCDs) and Eurodollar Time Deposits (ETDs) are all
U.S. dollar denominated certificates of deposit. ECDs are issued by, and
ETDs are deposits of, foreign banks or foreign branches of U.S. banks. YCDs
are issued in the U.S. by branches and agencies of foreign banks.
ECDs, ETDs, YCDs, and Europaper have many of the same risks of other
foreign securities. Examples of these risks include economic and political
developments, that may adversely affect the payment of principal or
interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank
and the possible impact of interruptions in the flow of international
currency transactions. Also, the issuing banks or their branches are not
necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by
the Adviser in selecting these investments.
Borrowing. The Funds may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets (net assets for the Money
Market Fund and Intermediate Bond Fund), and pledge some assets as collateral. A
Fund that borrows will pay interest on borrowed money and may incur other
transaction costs. These expenses could exceed the income received or capital
appreciation realized by the Fund from any securities purchased with borrowed
money. With respect to borrowings, the Funds are required to maintain continuous
asset coverage to 300% of the amount borrowed. If the coverage declines to less
than 300%, the Fund must sell sufficient portfolio securities to restore the
coverage even if it must sell the securities at a loss.
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most common types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.
Convertible Securities. Convertible securities are fixed income securities that
the Fund has the option to exchange for equity securities at a specified
conversion price. The option allows the Fund to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, if the Fund holds fixed income securities convertible into shares of
common stock at a conversion price of $10 per share, and the shares have a
market value of $12, the Fund could realize an additional $2 per share by
converting the fixed income securities.
To compensate for the value of the conversion option, convertible securities
have lower yields than comparable fixed income securities. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Credit Enhancement. Certain acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. The Adviser may evaluate a security
based, in whole or in part, upon the financial condition of the party providing
the credit enhancement (the credit enhancer). The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
For diversification purposes, credit-enhanced securities will not be treated as
having been issued by the credit enhancer, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise
credit-enhanced by the credit enhancer. In such cases, the securities will be
treated as having been issued both by the issuer and the credit enhancer.
Credit Quality. The fixed income securities in which a Fund invest will be rated
at least investment grade by a nationally recognized statistical ratings
organization (NRSRO). Investment grade securities have received one of an
NRSRO's four highest ratings. Securities receiving the fourth highest rating
(Baa by Moody's or BBB by S&P or Fitch) have speculative characteristics and
changes in the market or the economy are more likely to affect the ability of
the issuer to repay its obligations when due. The Adviser will evaluate
downgraded securities and will sell any security determined not to be an
acceptable investment. The Money Market Fund is subject to Rule 2a-7 under the
Investment Company Act of 1940, and will follow the credit quality requirements
of the Rule.
Commercial Paper and Restricted and Illiquid Securities. Commercial paper is an
issuer's draft or note with a maturity of less than nine months. Companies
typically issue commercial paper to fund current expenditures. Most issuers
constantly reissue their commercial paper and use the proceeds (or bank loans)
to repay maturing paper. Commercial paper may default if the issuer cannot
continue to obtain financing in this fashion. The short maturity of commercial
paper reduces both the market and credit risk as compared to other debt
securities of the same issuer. The Funds may invest in commercial paper issued
under Section 4(2) of the Securities Act of 1933. By law, the sale of Section
4(2) commercial paper is restricted and is generally sold only to institutional
investors, such as a Fund. A Fund purchasing Section 4(2) commercial paper must
agree to purchase the paper for investment purposes only and not with a view to
public distribution. Section 4(2) commercial paper is normally resold to other
institutional investors through investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Funds believe that Section
4(2) commercial paper and certain other restricted securities which meet the
Director's criteria for liquidity are quite liquid. Section 4(2) commercial
paper and restricted securities which are deemed liquid, will not be subject to
the investment limitation. In addition, because Section 4(2) commercial paper is
liquid, the Funds intend to not subject such paper to the limitation applicable
to restricted securities. Demand Features. The Funds may purchase securities
subject to a demand feature, which may take the form of a put or standby
commitment. Demand features permit a fund to demand payment of the value of the
security (plus an accrued interest) from either the issuer of the security or a
third-party. Demand features help make a security more liquid, although an
adverse change in the financial health of the provider of a demand feature (such
as bankruptcy), will negatively affect the liquidity of the security. Other
events may also terminate a demand feature, in which case liquidity is also
affected.
Demand Master Notes. Demand master notes are short-term borrowing arrangements
between a corporation or government agency and an institutional lender (such as
a Fund) payable upon demand by either party. A party may demand full or partial
payment and the notice period for demand typically ranges from one to seven
days. Many master notes give a Fund the option of increasing or decreasing the
principal amount of the master note on a daily or weekly basis within certain
limits. Demand master notes usually provide for floating or variable rates of
interest.
Depositary Receipts. American Depositary Receipts (ADRs) are receipts, issued by
a U.S. bank, that represent an interest in shares of a foreign-based
corporation. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) are receipts, issued by foreign banks or trust
companies, or foreign branches of U.S. banks, that represent an interest in
shares of either a foreign or U.S. corporation. Depositary Receipts may not be
denominated in the same currency as the underlying securities into which they
may be converted, and are subject to currency risks. Depositary Receipts
involves many of the same risks of investing directly in foreign securities.
Derivative Contracts. The term derivative has traditionally been applied to
certain contracts (futures, forward, option and swap contracts) that derive
their value from changes in the value of an underlying security, currency,
commodity or index. Derivatives also refer to securities that incorporate the
performance characteristics of these contracts and securities derived from the
cash flows from underlying securities, mortgages or other obligations. While the
response of certain derivatives to market changes may differ from traditional
investments like stock and bonds, they do not necessarily present greater market
risks than traditional investments. Certain types of derivative contracts and
securities can be used to reduce or increase the volatility of an investment
portfolio's total performance. Duration. Duration is a measure of volatility in
the price of a bond prior to maturity. Volatility is the magnitude of the change
in the price of a bond relative to a change in the market interest rate.
Volatility is based upon a bond's coupon rate; maturity date; and the level of
market yields of similar bonds. Generally, bonds with lower coupons or longer
maturities will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure. Equity
securities are the fundamental unit of ownership in a company. They represent a
share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or distributions. As a result, investors cannot predict the income
they will receive from equity securities. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Equity Funds
invest.
Common stocks are the most prevalent type of equity security. Common
stockholders are entitled to the net value of the issuer's earnings and
assets after the issuer pays its creditors and any preferred stockholders. As
a result, changes in an issuer's earnings directly influence the value of its
common stock. Preferred stocks have the right to receive specified dividends
or distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may provide for the issuer to redeem
the stock on a specified date. A Fund holding redeemable preferred stock may
treat it as a fixed income security. Warrants provide an option to buy the
issuer's stock or other equity securities at a specified price. A Fund
holding a warrant may buy the designated shares by paying the exercise price
before the warrant expires. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the stated expiration date.
Rights are the same as warrants, except they are typically issued to existing
stockholders.
Fixed Income Securities. Fixed income securities generally pay interest at
either a fixed or floating rate and provide more regular income than equity
securities. However, the returns on fixed income securities are limited and
normally do not increase with the issuer's earnings. This limits the potential
appreciation of fixed income securities as compared to equity securities. Fixed
rate securities and floating rate securities react differently as prevailing
interest rates change.
Fixed Rate Debt Securities. Debt securities that pay a fixed interest rate
over the life of the security and have a long-term maturity may have many
characteristics of short-term debt. For example, the market may treat fixed
rate/long-term securities as short-term debt when a security's market price
is close to the call or redemption price, or if the security is approaching
its maturity date when the issuer is more likely to call or redeem the
debt.
As interest rates change, the market prices of fixed rate debt securities
are generally more volatile than the prices of floating rate debt
securities. As interest rates rise, the prices of fixed rate debt
securities fall, and as interest rates fall, the prices of fixed rate debt
securities rise. For example, a bond that pays a fixed interest rate of 10%
is more valuable to investors when prevailing interest rates are lower;
therefore, this value is reflected in higher price, or a premium.
Conversely, if interest rates are over 10%, the bond is less attractive to
investors, and sells at a lower price, or a discount.
Floating Rate Debt Securities. The interest rate paid on floating rate debt
securities is reset periodically (e.g., every 90 days) to a predetermined
index rate. Commonly used indices include: 90-day or 180-day Treasury bill
rate; one month or three month London Interbank Offered Rate (LIBOR);
commercial paper rates; or the prime rate of interest of a bank. The prices
of floating rate debt securities are not as sensitive to changes in
interest rates as fixed rate debt securities because they behave like
shorter-term securities and their interest rate is reset periodically.
Foreign Currency Transactions. Foreign currency transactions are generally used
to obtain foreign currencies to settle securities transactions. They can also be
used as a hedge to protect assets against adverse changes in foreign currency
exchange rates or regulations. When a Fund uses foreign currency exchanges as a
hedge, it may also limit potential gain that could result from an increase in
the value of such currencies. A Fund may be affected either favorably or
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations.
Foreign Currency Hedging Transactions. Foreign currency hedging
transactions are used to protect against foreign currency exchange rate
risks. These transactions include: forward foreign currency exchange
contracts, foreign currency futures contracts, and purchasing put or call
options on foreign currencies. Forward foreign currency exchange contracts
(Forward Contracts) are used to minimize the risks associated with changes
in the relationship between the U.S. dollar and foreign currencies. They
are used to lock in the U.S. dollar price of a foreign security. A Forward
Contract is a commitment to purchase or sell a specific currency for an
agreed price at a future date. If the Adviser believes a foreign currency
will decline against the U.S. dollar, a Forward Contract may be used to
sell an amount of the foreign currency approximating the value of a Fund's
security that is denominated in the foreign currency. The success of this
hedging strategy is highly uncertain due to the difficulties of predicting
the values of foreign currencies, of precisely matching Forward Contract
amounts, and because the constantly changing value of the securities
involved. The Fund will not enter into Forward Contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's
assets denominated in that currency. Conversely, if the Adviser believes
that the U.S. dollar will decline against a foreign currency, a Forward
Contract may be used to buy that foreign currency for a fixed dollar
amount, otherwise known as cross-hedging. In these transactions, the Fund
will segregate assets with a market value equal to the amount of the
foreign currency purchased. Therefore, the Fund will always have cash,
cash equivalents or high quality debt securities available to cover
Forward Contracts or to limit any potential risk. The segregated assets
will be priced daily. Forward Contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for a Fund than if it had not engaged in such
contracts. Purchasing and writing put and call options on foreign
currencies are used to protect the Fund's portfolio against declines in
the U.S. dollar value of foreign portfolio securities and against
increases in the dollar cost of foreign securities to be acquired. Writing
an option on foreign currency constitutes only a partial hedge, up to the
amount of the premium received. The Fund could lose money if it is
required to purchase or sell foreign currencies at disadvantageous
exchange rates. If exchange rate movements are adverse to the Fund's
position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. These options are traded on U.S. and foreign
exchanges or over-the-counter.
Exchange-traded futures contracts are used for the purchase or sale of foreign
currencies (Foreign Currency Futures) and will be used to hedge against
anticipated changes in exchange rates that might adversely affect the value of a
Fund's portfolio securities or the prices of securities that a Fund intends to
purchase in the future. The successful use of Foreign Currency Futures depends
on the ability to forecast currency exchange rate movements correctly. Should
exchange rates move in an unexpected manner, a Fund may not achieve the
anticipated benefits of Foreign Currency Futures or may realize losses. Funding
Agreements (Agreements), are investment instruments issued by highly rated U.S.
insurance companies. Pursuant to such Agreements, a Fund may make cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits guaranteed interest to the Fund.
The insurance company may assess periodic charges against an Agreement for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for an Agreement becomes
part of the general assets of the issuer, and the Agreement is paid from the
general assets of the issuer. The Money Market Fund will only purchase
Agreements from issuers that meet quality and credit standards established by
the Adviser. Generally, Agreements are not assignable or transferable without
the permission of the issuing insurance companies, and an active secondary
market in Agreements does not currently exist. Also, the Money Market Fund may
not have the right to receive the principal amount of an Agreement from the
insurance company on seven days' notice or less. Therefore, Agreements are
typically considered to be illiquid investments. Futures and Options
Transactions. As a means of reducing fluctuations in its net asset value, a Fund
may buy and sell futures contracts and options on futures contracts, and buy put
and call options on portfolio securities and securities indices to hedge its
portfolio. A Fund may also write covered put and call options on portfolio
securities to attempt to increase its current income or to hedge its portfolio.
There is no assurance that a liquid secondary market will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
Futures Contracts. A futures contract is a commitment by two parties under
which one party agrees to make delivery of an asset (seller) and another
party agrees to take delivery of the asset at a certain time in the future.
A futures contract may involve a variety of assets including commodities
(such as oil, wheat, or corn) or a financial asset (such as a security). A
Fund may purchase and sell financial futures contracts to hedge against
anticipated changes in the value of its portfolio without necessarily
buying or selling the securities. Although some financial futures contracts
call for making or taking delivery of the underlying securities, in most
cases these obligations are closed out before the settlement date. The
closing of a futures contract is accomplished by purchasing or selling an
identical offsetting futures contract.
Other financial futures contracts call for cash settlements.
A Fund may purchase and sell stock index futures contracts to hedge against
anticipated price changes with respect to any stock index traded on a
recognized stock exchange or board of trade. A stock index futures contract
is an agreement in which two parties agree to take or make delivery of an
amount of cash equal to the difference between the price of the original
contract and the value of the index at the close of the last trading day of
the contract. No physical delivery of the underlying securities in the
index is made. Settlement is made in cash upon termination of the contract.
Margin In Futures Transactions. Since a Fund does not pay or receive money
upon the purchase or sale of a futures contract, it is required to deposit
an amount of initial margin in cash, U.S. government securities or
highly-liquid debt securities as a good faith deposit. The margin is
returned to the Fund upon termination of the contract. Initial margin in
futures transactions does not involve borrowing to finance the
transactions. As the value of the underlying futures contract changes
daily, the Fund pays or receives cash, called variation margin, equal to
the daily change in value of the futures contract. This process is known as
marking to market. Variation margin does not represent a borrowing or loan
by the Fund. It may be viewed as settlement between the Fund and the broker
of the amount one would owe the other if the futures contract expired. When
the Fund purchases futures contracts, an amount of cash and/or cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian to collateralize the position
and insure that the use of futures contracts is unleveraged. The Fund is
also required to deposit and maintain margin when it writes call options on
futures contracts. A Fund will not enter into a futures contract or
purchase an option thereon for other than hedging purposes if immediately
thereafter the initial margin deposits for futures contracts held by it,
plus premiums paid by it for open options on futures contracts, would
exceed 5% of the market value of its net assets, after taking into account
the unrealized profits and losses on those contracts it has entered into.
However, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing such 5%. Put
Options on Financial and Stock Index Futures Contracts. A Fund may purchase
listed put options on financial and stock index futures contracts to
protect portfolio securities against decreases in value. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a
put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price. Generally, if the hedged portfolio
securities decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option will increase
in value. In such an event, the Fund will normally close out its option by
selling an identical option. If the hedge is successful, the proceeds
received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option
plus the decrease in value of the hedged securities. Alternatively, a Fund
may exercise its put option to close out the position. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and exercise
the option. The Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out nor exercises
an option, the option will expire on the date provided in the option
contract, and only the premium paid for the contract will be lost. A Fund
may also write (sell) listed put options on financial or stock index
futures contracts to hedge its portfolio against a decrease in market
interest rates or an increase in stock prices. A Fund will use these
transactions to purchase portfolio securities in the future at price levels
existing at the time it enters into the transaction. When a Fund sells a
put on a futures contract, it receives a cash premium in exchange for
granting to the buyer of the put the right to receive from the Fund, at the
strike price, a short position in such futures contract. This is so even
though the strike price upon exercise of the option is greater than the
value of the futures position received by such holder. As market interest
rates decrease or stock prices increase, the market price of the underlying
futures contract normally increases. When the underlying futures contract
increases, the buyer of the put option has less reason to exercise the put
because the buyer can sell the same futures contract at a higher price in
the market. If the value of the underlying futures position is not such
that exercise of the option would be profitable to the option holder, the
option will generally expire without being exercised. The premium received
by the Fund can then be used to offset the higher prices of portfolio
securities to be purchased in the future. In order to avoid the exercise of
an option sold by it, generally a Fund will cancel its obligation under the
option by entering into a closing purchase transaction, unless it is
determined to be in the Fund's interest to deliver the underlying futures
position. A closing purchase transaction consists of the purchase by the
Fund of an option having the same term as the option sold by the Fund, and
has the effect of canceling the Fund's position as a seller. The premium
which the Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in
large part upon the relative price of the underlying futures position at
the time of each transaction. If the hedge is successful, the cost of
buying the second option will be less than the premium received by the Fund
for the initial option. Call Options on Financial and Stock Index Futures
Contracts. A Fund may write (sell) listed and over-the-counter call options
on financial and stock index futures contracts to hedge its portfolio. When
the Fund writes a call option on a futures contract, it undertakes to sell
a futures contract at the fixed price at any time during the life of the
option. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation to sell a futures
contract costs less to fulfill, causing the value of the Fund's call option
position to increase. In other words, as the underlying futures price goes
down below the strike price, the buyer of the option has no reason to
exercise the call, so that the Fund keeps the premium received for the
option. This premium can substantially offset the drop in value of the
Fund's portfolio securities. Prior to the expiration of a call written by a
Fund, or exercise of it by the buyer, the Fund may close out the option by
buying an identical option. If the hedge is successful, the cost of the
second option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then substantially
offset the decrease in value of the hedged securities. A Fund may buy a
listed call option on a financial or stock index futures contract to hedge
against decreases in market interest rates or increases in stock price. A
Fund will use these transactions to purchase portfolio securities in the
future at price levels existing at the time it enters into the transaction.
When a Fund purchases a call on a financial futures contract, it receives
in exchange for the payment of a cash premium the right, but not the
obligation, to enter into the underlying futures contract at a strike price
determined at the time the call was purchased, regardless of the
comparative market value of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract. As market interest
rates fall or stock prices increase, the value of the underlying futures
contract will normally increase, resulting in an increase in value of the
Fund's option position. When the market price of the underlying futures
contract increases above the strike price plus premium paid, the Fund could
exercise its option and buy the futures contract below market price. Prior
to the exercise or expiration of the call option, the Fund could sell an
identical call option and close out its position. If the premium received
upon selling the offsetting call is greater than the premium originally
paid, the Fund has completed a successful hedge. Limitation on Open Futures
Positions. A Fund will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if together
the value of the open positions exceeds the current market value of the
Fund's portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation. Purchasing Put and Call Options on Securities. A Fund may
purchase put options on portfolio securities to protect against price
movements in the Fund's portfolio. A put option gives the Fund, in return
for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. A Fund may
purchase call options on securities acceptable for purchase to protect
against price movements by locking in on a purchase price for the
underlying security. A call option gives the Fund, in return for a premium,
the right to buy the underlying security from the seller at a specified
price during the term of the option. Writing Covered Call and Put Options
on Securities. A Fund may write covered call and put options to generate
income and thereby protect against price movements in the Fund's portfolio
securities. As writer of a call option, the Fund has the obligation, upon
exercise of the option during the option period, to deliver the underlying
security upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities which
it has the right to obtain without payment of further consideration (or has
segregated cash or U.S. government securities in the amount of any
additional consideration). As a writer of a put option, the Fund has the
obligation to purchase a security from the purchaser of the option upon the
exercise of the option. In the case of put options, the Fund will segregate
cash or U.S. Treasury obligations with a value equal to or greater than the
exercise price of the underlying securities. Stock Index Options. A Fund
may purchase or sell put or call options on stock indices listed on
national securities exchanges or traded in the over-the-counter market. A
stock index fluctuates with changes in the market values of the stocks
included in the index. Upon the exercise of the option, the holder of a
call option has the right to receive, and the writer of a put option has
the obligation to deliver, a cash payment equal to the difference between
the closing price of the index and the exercise price of the option. The
effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price
movements of the stock index selected. The value of an index option depends
upon movements in the level of the index rather than the price of a
particular stock. Accordingly, successful use by a Fund of options on stock
indices will be subject to the Adviser correctly predicting movements in
the directions of the stock market generally or of a particular industry.
This requires different skills and techniques than predicting changes in
the price of individual stocks. Over-the-Counter Options. Over-the-counter
options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while over-the-counter options may not. A Fund may
generally purchase and write over-the-counter options on portfolio
securities or securities indices in negotiated transactions with the buyers
or writers of the options when options on the Fund's portfolio securities
or securities indices are not traded on an exchange. The Fund purchases and
writes options only with investment dealers and other financial
institutions deemed creditworthy by Adviser. Risks. When a Fund uses
futures and options on futures as hedging devices, there is a risk that the
prices of the securities or foreign currency subject to the futures
contracts may not correlate perfectly with the prices of the securities or
currency in the Fund's portfolio. This may cause the futures contract and
any related options to react differently to market changes than the
portfolio securities or foreign currency. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market
factors such as stock price movements or foreign currency exchange rate
fluctuations. In these events, the Fund may lose money on the futures
contract or option. When a Fund purchases futures contracts, an amount of
cash and cash equivalents, equal to the underlying commodity value of the
futures contracts (less any related margin deposits), will be deposited in
a segregated account with the Fund's custodian or the broker, to
collateralize the position and thereby insure that the use of such futures
contract is unleveraged. When the Fund sells futures contracts, it will
either own or have the right to receive the underlying future or security,
or will make deposits to collateralize the position as discussed above.
Lending of Portfolio Securities. In order to generate additional income, a Fund
may lend portfolio securities. When a Fund lends portfolio securities, it will
receive either cash or liquid securities as collateral from the borrower. A Fund
will reinvest cash collateral in short-term liquid securities that qualify as an
otherwise acceptable investment for the Fund. If the market value of the loaned
securities increases, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to a securities lending agent or broker. Mortgage-Backed Securities
represent interests in pools of mortgages. The underlying mortgages normally
have similar interest rates, maturities and other terms. Mortgages may have
fixed or adjustable interest rates. Interests in pools of adjustable rate
mortgages are known as ARMs. Mortgage-backed securities come in a variety of
forms. Many have extremely complicated terms. The simplest form of
mortgage-backed securities is a "pass-through certificate." Holders of
pass-through certificates receive a pro rata share of the payments from the
underlying mortgages. Holders also receive a pro rata share of any prepayments,
so they assume all the prepayment risk of the underlying mortgages.
Collateralized mortgage obligations (CMOs) are complicated instruments that
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage-backed securities. This creates
different prepayment and market risks for each CMO class. In addition, CMOs may
allocate interest payments to one class (IOs) and principal payments to another
class (POs). POs increase in value when prepayment rates increase. In contrast,
IOs decrease in value when prepayments increase, because the underlying
mortgages generate less interest payments. However, IOs prices tend to increase
when interest rates rise (and prepayments fall), making IOs a useful hedge
against market risk. Generally, homeowners have the option to prepay their
mortgages at any time without penalty. Homeowners frequently refinance high rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage-backed securities, which deprives holders of the securities of the
higher yields. Conversely, when mortgage rates increase, prepayments due to
refinancings decline. This extends the life of mortgage-backed securities with
lower yields. As a result, increases in prepayments of premium mortgage-backed
securities, or decreases in prepayments of discount mortgage-backed securities,
may reduce their yield and price. This relationship between interest rates and
mortgage prepayments makes the price of mortgage-backed securities more volatile
than most other types of fixed income securities with comparable credit risks.
Mortgage-backed securities tend to pay higher yields to compensate for this
volatility. CMOs may include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and any prepayments in excess
of this rate. In addition, PACs will receive the companion classes' share of
principal payments if necessary to cover a shortfall in the prepayment rate.
This helps PACs and TACs to control prepayment risk by increasing the risk to
their companion classes. Another variant allocates interest payments between two
classes of CMOs. One class (Floaters) receives a share of interest payments
based upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages. Floater
classes receive more interest (and Inverse Floater classes receive
correspondingly less interest) as interest rates rise. This shifts prepayment
and market risks from the Floater to the Inverse Floater class, reducing the
price volatility of Floater class and increasing the price volatility of the
Inverse Floater class. CMOs must allocate all payments received from the
underlying mortgages to some class. To capture any unallocated payments, CMOs
generally have an accrual (Z) class. Z classes do not receive any payments from
the underlying mortgages until all other CMO classes have been paid off. Once
this happens, holders of Z class CMOs receive all payments and prepayments.
Similarly, REMICs have residual interests that receive any mortgage payments not
allocated to another REMIC class. The degree of increased or decreased
prepayment risk depends upon the structure of the CMOs. Z classes, IOs, POs, and
Inverse Floaters are among the most volatile investment grade fixed income
securities currently traded in the United States. However, the actual returns on
any type of mortgage backed security depends upon the performance of the
underlying pool of mortgages, which no one can predict and will vary among
pools. Repurchase Agreements and Reverse Repurchase Agreements. A repurchase
agreement is a transaction in which a Fund buys a security from a dealer or bank
and agrees to sell the security back at a mutually agreed upon time and price.
The repurchase price exceeds the sale price, reflecting an agreed upon interest
rate effective for the period the buyer owns the security subject to repurchase.
The agreed upon interest rate is unrelated to the interest rate on that
security. The Adviser will continually monitor the value of the underlying
security to ensure that the value of the security always equals or exceeds the
repurchase price. A Fund's custodian is required to take possession of the
securities subject to repurchase agreements. These securities are marked to
market daily. To the extent that the original seller defaults and does not
repurchase the securities from a Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller files for bankruptcy or becomes insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Funds believe
that, under the procedures normally in effect for custody of the portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Funds and allow retention or disposition of such
securities. The Funds will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Adviser to be creditworthy. Reverse repurchase agreement
transactions are similar to borrowing cash. In a reverse repurchase agreement,
the Fund sells a portfolio security to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio at a price equal to the original sale price
plus interest. A Fund may use reverse repurchase agreements for liquidity and
may enable the Fund to avoid selling portfolio instruments at a time when a sale
may be deemed to be disadvantageous. When effecting reverse repurchase
agreements, liquid assets of the Fund, in a dollar amount sufficient to make
payment for the obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and maintained until the transaction
is settled. Swap Transactions. In a standard swap transaction, two parties agree
to exchange (SWAP) the returns (or differentials in rates of return) on
particular securities, which may be adjusted for an interest factor. The returns
to be swapped are generally calculated with respect to a return on a notional
dollar amount invested at a particular interest rate, or in a basket of
securities representing a particular index. For example, a $10 million LIBOR
swap would require one party to pay the equivalent of the London Interbank Offer
Rate on $10 million principal amount in exchange for the right to receive the
equivalent of a fixed rate of interest on $10 million principal amount. Neither
party to the swap would actually advance $10 million to the other. The Funds
will usually enter into swaps on a net basis (i.e., the two payment streams are
netted out), with a Fund receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Funds'
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis, and the Funds will segregate liquid assets in an
aggregate net asset value at least equal to the accrued excess, if any, on each
business day. If a Fund enters into a swap on other than a net basis, a Fund
will segregate liquid assets in the full amount accrued on a daily basis of a
Fund's obligations with respect to the swap. If there is a default by the other
party to such a transaction, the Funds will have contractual remedies pursuant
to the agreements related to the transaction. The Funds expect to enter into
swap transactions primarily to hedge against changes in the price of other
portfolio securities. For example, a Fund may hedge against changes in the
market value of a fixed rate security by entering into a swap that requires the
Fund to pay the same or a lower fixed rate of interest on a notional principal
amount equal to the principal amount of the security in exchange for a variable
rate of interest based on a market index. Interest accrued on the hedged note
would then equal or exceed the Funds' obligations under the swap, while changes
in the market value of the swap would largely offset any changes in the market
value of the note. The Funds may also enter into swaps to preserve or enhance a
return or spread on a portfolio security. The Funds do not intend to use these
transactions in a speculative manner. The swap market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and agents utilizing standardized swap documentation. The
Adviser has determined that, as a result, the swap market has become relatively
liquid. Interest rate caps and floors are more recent innovations for which
standardized documentation has not yet been developed and, accordingly, they are
less liquid than other swaps. To the extent swaps, caps or floors are determined
by the Adviser to be illiquid, they will be included in a Fund's limitation on
investments in illiquid securities. To the extent a Fund sells caps and floors,
it will maintain in a segregated account cash and/or U.S. government securities
having an aggregate net asset value at least equal to the full amount, accrued
on a daily basis, of a Fund's obligations with respect to caps and floors. The
use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of a Fund would diminish compared with what it would have been if these
investment techniques were not utilized. Moreover, even if the Adviser is
correct in its forecasts, there is a risk that the swap position may correlate
imperfectly with the price of the portfolio security being hedged. Swap
transactions do not involve the delivery of securities or other underlying
assets or principal. Accordingly, the risk of loss with respect to a default on
an interest rate swap is limited to the net asset value of the swap together
with the net amount of interest payments owed to a Fund by the defaulting party.
A default on a portfolio security hedged by an interest rate swap would also
expose a Fund to the risk of having to cover its net obligations under the swap
with income from other portfolio securities. Temporary Investments. There may be
times when market conditions warrant a defensive position (this rarely applies
to the Money Market Fund). During these market conditions each of the Funds may
temporarily invest without limit in short-term debt obligations (money market
instruments). These investments include commercial paper, bank instruments, U.S.
government obligations, repurchase agreements, securities of other investment
companies, and foreign securities (for the International Stock Fund). Treasury
securities are direct obligations of the federal government of the United
States. Investors regard treasury securities as having the lowest credit risk.
Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are typically
issued to existing stockholders. When-Issued and Delayed Delivery Transactions.
These transactions are made to secure what is considered to be an advantageous
price or yield. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Other than normal transaction costs, no fees or
expenses are incurred. However, liquid assets of a Fund are segregated on a
Fund's records at the trade date in an amount sufficient to make payment for the
securities to be purchased. These assets are marked to market daily and are
maintained until the transaction has been settled.
<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL LIMITATIONS
The following investment limitations are fundamental and cannot be changed
without shareholder approval.
Selling Short and Buying on Margin
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. A deposit or payment by a Fund
of initial or variation margin in connection with futures contracts, forward
contracts or related options transactions is not considered the purchase of a
security on margin. Issuing Senior Securities and Borrowing Money
The Funds will not issue senior securities except that each Fund may borrow
money, directly or through reverse repurchase agreements, in amounts up to
one-third of the value of its total assets (net assets in the case of the Money
Market Fund and Intermediate Bond Fund) including the amounts borrowed; and
except to the extent that a Fund is permitted to enter into futures contracts,
options or forward contracts. Except for the International Stock Fund, a Fund
will not borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency measure or to
facilitate management of its portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Except for the International Stock Fund, a Fund
will not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding. Pledging Assets
The Funds will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, each Fund may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of its total assets at the time of the pledge. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options; and segregation of
collateral arrangements made in connection with options activities, forward
contracts or the purchase of securities on a when-issued basis. Lending Cash or
Securities
The Funds will not lend any of their assets except portfolio securities. Except
for the International Stock Fund, loans may not exceed one-third of the value of
a Fund's total assets. This shall not prevent a Fund from purchasing or holding
U.S. government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective, policies, and
limitations. Investing in Commodities
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, except for the Intermediate Bond Fund and
the Money Market Fund, a Fund may purchase and sell futures contracts and
related options, and the International Stock Fund may also enter into forward
contracts and related options. Investing in Real Estate
The Funds will not purchase or sell real estate, including limited partnership
interests, although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or which represent interests in real estate.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, a
Fund will not purchase securities issued by any one issuer (other than cash,
cash items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer or if it
would own more than 10% of the outstanding voting securities of such issuer.
Concentration of Investments
A Fund will not invest 25% or more of its total assets in any one industry.
However, investing in U.S. government securities (and domestic bank instruments
for the Money Market Fund) shall not be considered investments in any one
industry. Underwriting
A Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objective, policies and limitations. Non-Fundamental Limitations
The following investment limitations are non-fundamental and, therefore, may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Investing in Illiquid and Restricted Securities
The Funds will not invest more than 15% (10% for the Money Market Fund) of the
value of their net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, guaranteed investment contracts, and certain
restricted securities not determined by the Directors to be liquid (including
certain municipal leases). Purchasing Securities to Exercise Control
The Funds will not purchase securities of a company for the purpose of
exercising control or management.
Investing in Securities of Other Investment Companies
Each Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company, will
invest no more than 5% of total assets in any one investment company, and will
invest no more than 10% of its total assets in investment companies in general,
unless permitted to exceed these limits by an exemptive order of the SEC. The
Funds will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Money Market Fund
will limit its investments in other investment companies to those of money
market funds having investment objectives and policies similar to its own.
Investing in Options
Except for bona fide hedging purposes, a Fund may not invest more than 5% of the
value of its net assets in the sum of (a) premiums on open option positions on
futures contracts, plus (b) initial margin deposits on futures contracts. A Fund
will not purchase put options or write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is entitled to
them in deliverable form without further payment or has segregated cash in the
amount of any further payment.
A Fund will not write call options in excess of 25% of the value of its total
assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
instruments (such as certificates of deposit and demand and time deposits)
issued by a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be cash items. Regulatory Compliance. The Money Market Fund may
follow non-fundamental operational policies that are more restrictive than its
fundamental investment limitations, as set forth in the prospectus and this
statement of additional information, in order to comply with applicable laws and
regulations. In particular, the Money Market Fund will comply with the various
requirements of Rule 2a-7 under the Act, which regulates money market mutual
funds. For example, Rule 2a-7 generally prohibits the investment of more than 5%
of the Money Market Fund's total assets in the securities of any one issuer,
although the Money Market Fund's fundamental investment limitation only requires
such 5% diversification with respect to 75% of its assets. The Money Market Fund
will also determine the effective maturity of its investments, as well as its
ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Money Market Fund may change
these operational policies to reflect changes in the laws and regulations
without shareholder approval. VOTING RIGHTS Shareholders of each Fund are
entitled: (i) to one vote per full share of Common Stock; (ii) to distributions
declared by Directors; and (iii) upon liquidation of the Corporation, to
participate ratably in the assets of the Fund available for distribution. Each
share of the Fund gives the shareholder one vote in the election of Directors
and other matters submitted to shareholders for vote. All shares of each
portfolio or class in the Corporation have equal voting rights, except that only
shares of a particular portfolio or class are entitled to vote on matters
affecting that portfolio or class. Consequently, the holders of more than 50% of
the Corporation's shares of common stock voting for the election of Directors
can elect the entire Board of Directors, and, in such event, the holders of the
Corporation's remaining shares voting for the election of Directors will not be
able to elect any person or persons to the Board of Directors. The Wisconsin
Business Corporation Law (the WBCL) permits registered investment companies,
such as the Corporation, to operate without an annual meeting of shareholders
under specified circumstances if an annual meeting is not required by the Act.
The Corporation has adopted the appropriate provisions in its By-laws and does
not anticipate holding an annual meeting of shareholders to elect Directors
unless otherwise required by the Act. Directors may be removed by the
shareholders at a special meeting. A special meeting of the shareholders may be
called by the Directors upon written request of shareholders owning at least 10%
of the Corporation's outstanding voting shares. The shares are redeemable and
are transferable. All shares issued and sold by the Corporation will be fully
paid and nonassessable except as provided in WBCL Section 180.0622(2)(b).
Fractional shares of common stock entitle the holder to the same rights as whole
shares of common stock except the right to receive a certificate evidencing such
fractional shares. WHO MANAGES THE FUNDS?
OFFICERS AND DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
the following data: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years, and total
compensation received as a Director from the Corporation for its most recent
fiscal year. The Corporation is comprised of eleven funds and is the only
investment company in the Fund Complex. As of November __, 1998, the Funds'
Board and Officers as a group owned [approximately # (___%)] [less than 1%] of
the Fund's outstanding Shares.
An asterisk (*) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
October 22, 1930
Director and Treasurer
Trustee or Director of other funds distributed by Federated Securities Corp.;
President, Executive Vice President and Treasurer of other funds distributed by
Federated Securities Corp.; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp., and Passport
Research, Ltd.; Executive Vice President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services Company.
Compensation from the Corporation $0
John DeVincentis
4700 21st Street
Racine, WI 53406
March 27, 1934
Director
Independent Financial Consultant; Retired, formerly, Senior Vice President of
Finance, In-Sink-Erator Division of Emerson Electric.
Compensation from the Corporation $_____
<PAGE>
Ody J. Fish
547 Progress Drive
Hartland, WI
June 16, 1925
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Private Investor; Formerly President Pal-O-Pak Insulation Company;
Director, Quest Technologies; President, Wisconsin Academy of Science, Arts and
Letters; formerly, Director, Stokely U.S.A.
Compensation from the Corporation $_____
Paul E. Hassett
1630 Capital Avenue
Madison, WI
September 4, 1917
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Retired, formerly President, Wisconsin Manufacturers and Commerce; formerly,
Executive Secretary for Governor Warner Knowles for three terms.
Compensation from the Corporation $_____
John M. Blaser
1000 North Water Street
Milwaukee, WI
November 2, 1956
President
Vice President, Marshall & Ilsley Trust Company; formerly, Partner, Artisan
Partners L.P.; formerly, Chief Financial Officer and Principal Administrative
and Finance Officer, Artisan Funds; formerly, Senior Vice President, Kemper
Securities.
Compensation from the Corporation $_____
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
May 22, 1962
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Director, Proprietary Client
Management and Services Group, Federated Investors; Vice President and Assistant
Treasurer of certain funds for which Federated Securities Corp. is the principal
distributor.
Compensation from the Corporation $0
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959
Secretary
Senior Vice President and Director of Mutual Funds Services, Federated Services
Company; formerly, Senior Corporate Counsel, Federated Investors, Inc.
Compensation from the Corporation $0
<PAGE>
FUND OWNERSHIP
As of November __, 1998, the following shareholders of record owned 5% or more
of a Fund's outstanding shares:
Equity Income Fund
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately ________ shares (_____%); and Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately ________ shares (_____%).
Large-Cap Growth & Income Fund Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately ________ shares (_____%); and Mitra &
Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately __________
shares (_____%).
Mid-Cap Value Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately _______ shares (____%); Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately _______ shares (_____%);
and Mitra & Co., Marshall & Ilsley Trust Operations, owned approximately
________ shares (_____%). Mid-Cap Growth Fund Maril & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately _______ shares
(_____%); and Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately ________ shares (_____%). International Stock
Fund Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately ________ shares (_____%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately _______ shares
(_____%). Small-Cap Growth Fund Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately _______ shares (_____%); and Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately _______ shares (_____%). Intermediate Bond Fund Mitra & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
_______ shares (_____%); and Vallee, Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately ________ shares (_____%). Government
Income Fund Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately _________ shares (_____%); and Mitra & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
________ shares (_____%). Money Market Fund Maril & Co., Milwaukee, Wisconsin,
owned approximately __________ of the Class A Shares of the Fund (_____%); Miaz
& Co., Milwaukee, Wisconsin, owned approximately _________ of the Class A Shares
of the Fund (____%); Pacific Northwest Bank, Seattle, Washington, owned
approximately _______ of the Class B Shares of the Fund (____%); M & I BSS
Appleton, Appleton, Wisconsin, owned approximately _________ of the Class B
Shares of the Fund (_____%); M&I BSS Madison, Appleton, Wisconsin, owned
approximately _________ of the Class B Shares of the Fund (_____%); and M&I BSS
Janesville, Appleton, Wisconsin, owned approximately ___________ of the Class B
Shares of the Fund (_____%). ADVISER TO THE FUNDS
The Adviser conducts investment research and makes investment decisions for the
Fund. The Funds' investment adviser is M&I Investment Management Corp.
(Adviser), a wholly owned subsidiary of Marshall & Ilsley Corp. The Adviser
shall not be liable to the Corporation, the Funds or any shareholder of the
Funds for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
Because of the internal controls maintained by the Adviser's affiliates to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of the Adviser or its affiliates' lending relationships
with an issuer.
SUBADVISER TO INTERNATIONAL STOCK FUND
Templeton Investment Counsel, Inc. (TICI) is the subadviser to the International
Stock Fund. It is the Adviser's responsibility to select a subadviser for the
International Stock Fund that has distinguished itself in its area of expertise
in asset management and to review the subadviser's performance. The Adviser
provides investment management evaluation services by performing initial due
diligence on TICI and thereafter monitoring TICI's performance through
quantitative and qualitative analysis, as well as periodic in-person, telephonic
and written consultations with TICI. In evaluating TICI, the Adviser considers,
among other factors, TICI's level of expertise; relative performance and
consistency of performance over a minimum period of time; level of adherence to
investment discipline or philosophy; personnel, facilities and financial
strength; and quality of service and client communications. The Adviser has
responsibility for communicating performance expectations and evaluations to
TICI and ultimately recommending to the Corporation's Directors whether TICI's
contract should be renewed, modified or terminated. The Adviser provides written
reports to the Directors regarding the results of its evaluation and monitoring
functions. The Adviser is also responsible for conducting all operations of the
International Stock Fund, except those operations contracted to TICI, the
custodian, the transfer agent, and the administrator. Although TICI's activities
are subject to oversight by the Directors and officers of the Corporation,
neither the Directors, the officers, nor the Adviser evaluates the investment
merits of TICI's individual security selections. TICI has complete discretion to
purchase, manage and sell portfolio securities for the International Stock Fund,
subject to the International Stock Fund's investment objective, policies and
limitations. However, TICI will furnish to the Adviser such investment advice,
statistical and other factual information as requested by the Adviser. TICI is a
Florida corporation and an indirect wholly-owned subsidiary of Franklin
Resources, Inc. (Franklin), a publicly traded company whose shares are listed on
the New York Stock Exchange. Charles B. Johnson, Rupert H. Johnson, Jr. and R.
Martin Wiskemann are principal shareholders of Franklin and own, respectively,
approximately __%, __% and __% of its outstanding shares. Messrs. Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers. Research services may be
provided to TICI by various affiliates, including Templeton, Galbraith &
Hansberger Ltd. and Templeton Quantitative Advisors, Inc., corporations
registered under the Investment Advisers Act of 1940, and Templeton Management
Limited, a Canadian company. The research services include information,
analytical reports, computer screening studies, statistical data, and factual
resumes pertaining to securities in the United States and in various foreign
nations. Such supplemental research, when utilized, is subject to analysis by
TICI before being incorporated into the investment advisory process. TICI pays
these affiliates compensation and reimbursement of expenses as mutually agreed
upon, without cost to the Fund. These affiliates and TICI are independent
contractors and in no sense is any of them an agent for the other. Any of them
is free to discontinue such research services at any time on 30 days' notice
without cost or penalty. For the fiscal years ended August 31, 1998, 1997, and
1996, International Stock Fund paid TICI $_______, $816,182, and $544,167 of
which $___, $0, and $0 were voluntarily waived. OTHER SERVICES
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services to the Funds for a fee at an
annual rate as specified below (except Small-Cap Growth Fund):
Maximum Average Aggregate Daily Net
Administrative Fee Assets Of The Corporation
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
Federated Administrative Services provides these services for an annual fee
equal to 0.12% of the Small-Cap Growth Fund's average daily net assets.
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to reimburse
a portion of its fee at any time.
The functions performed by FAS as administrator include, but are not limited to
the following:
o preparation, filing and maintenance of the Corporation's governing documents,
minutes of Directors' meetings and shareholder meetings;
o preparation and filing with the SEC and state regulatory authorities the
Corporation's registration statement and all amendments, and any other
documents required for the Funds to make a continuous offering of their
shares;
o prepare, negotiate and administer contracts on behalf of the Fund;
o supervision of the preparation of financial reports;
o preparation and filing of federal and state tax returns;
o assistance with the design, development and operation of a Fund; and
o providing advice to the Funds and Corporation's Directors.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, through its registered
transfer agent, Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type and number of accounts and transactions made by shareholders.
The fee is based on the level of the Funds' average net assets for the period
plus out-of-pocket expenses. The transfer agent may employ third parties,
including Marshall & Ilsley Trust Company, to provide sub-accounting and
sub-transfer agency services. In exchange for these services, the transfer agent
may pay such third-party providers a per account fee and out-of-pocket expenses.
CUSTODIAN
Marshall & Ilsley Trust Company (M&I Trust Company), Milwaukee, Wisconsin, a
subsidiary of Marshall & Ilsley Corp., is custodian for the securities and cash
of the Fund. For its services as custodian, M&I Trust Company receives an annual
fee, payable monthly, based on a percentage of a Fund's average aggregate daily
net assets. M&I Trust Company has entered into agreements with foreign
subcustodians approved by the Directors pursuant to Rule 17f-5 under the Act.
The foreign subcustodians may not hold certificates for the securities in their
custody, but instead have book records with domestic and foreign securities
depositories, which in turn have book records with the transfer agents of the
issuers of the securities. Compensation for the services of the foreign
subcustodians is based on a schedule of charges agreed on from time to time.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP is the independent public accountant for the Funds.
BROKERAGE TRANSACTIONS
The Adviser and/or TICI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or TICI and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. The
Adviser, TICI, and their affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided. Research services provided by brokers and dealers
may be used by the Adviser and TICI in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser, TICI, or their affiliates might otherwise have paid, it would tend to
reduce their expenses. Purchasing Shares Except under certain circumstances
described in the prospectus, Shares are sold at their net asset value (plus a
sales charge) on days the New York Stock Exchange is open for business. The
procedure for purchasing Shares is explained in the prospectus under "How to Buy
Shares" and "What Do Shares Cost." Texas residents must purchase shares of the
Funds through M&I Brokerage Services, Inc. at 1-800-236-____ (____), or through
any authorized broker-dealer. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectus, larger purchases of the same Share class reduce
or eliminate the sales charge paid. For example, the Funds will combine all
Class A Share purchases made on the same day by the investor, the investor's
spouse, and the investor's children under age 21 when it calculates the sales
charge. In addition, the sales charge, if applicable, is reduced for purchases
made at one time by a trustee or fiduciary for a single trust estate or a single
fiduciary account. If an additional purchase into the same Share class is made,
the Funds will consider the previous purchases still invested in the Funds. For
example, if a shareholder already owns Class A Shares having a current value at
the public offering price of $40,000 and he purchases $10,000 more at the
current public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 4.5%, not 5.75%. To receive the
sales charge reduction, M&I Brokerage Services must be notified by the
shareholder in writing or by his investment professional or financial
institution at the time the purchase is made that Class A Shares are already
owned or that purchases are being combined. The Funds will reduce or eliminate
the sales charge after it confirms the purchases. CONCURRENT PURCHASES
Shareholders have the privilege of combining concurrent purchases of the same
Share class of two or more Marshall Funds in calculating the applicable sales
charge. To receive a sales charge reduction or elimination, M&I Brokerage
Services must be notified by the shareholder in writing or by his investment
professional or financial institution at the time the concurrent purchases are
made. The Funds will reduce or eliminate the sales charge after it confirms the
purchases. LETTER OF INTENT
A shareholder can sign a letter of intent committing to purchase a certain
amount of the same Share class within a 13-month period in order to combine such
purchases in calculating the applicable sales charge. The Funds' custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If the
shareholder completes the commitment, the escrowed Shares will be released to
their account. If the commitment is not completed within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge. While this letter of intent will not obligate the
shareholder to purchase Class A Shares, each purchase during the period will be
at the sales charge applicable to the total amount intended to be purchased. At
the time a letter of intent is established, current balances in accounts in any
Class A Shares of any Marshall Fund, excluding money market accounts, will be
aggregated to provide a purchase credit towards fulfillment of the letter of
intent. The letter may be dated as of a prior date to include any purchase made
within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
The reinvestment privilege is available for all Shares of the Fund within the
same Share class.
Class A shareholders who redeem from the Fund may reinvest the redemption
proceeds back into the same Share class at the next determined net asset value
without any sales charge. The original Shares must have been subject to a sales
charge and the reinvestment must be within 90 days. In addition, if Shares were
reinvested through a investment professional or financial institution, the
investment professional or financial institution would not be entitled to an
advanced payment from M&I Brokerage Services on the reinvested Shares, if
otherwise applicable. M&I Brokerage Services must be notified by the shareholder
in writing or by his investment professional or financial institution of the
reinvestment in order to eliminate a sales charge or a contingent deferred sales
charge. If the shareholder redeems Shares in the Fund, there may be tax
consequences.
DISTRIBUTION PLAN
The Corporation has adopted a plan for Class A Shares of the Funds (Plan Shares)
pursuant to Rule 12b-1 (the Plan) which was promulgated by the Securities and
Exchange Commission pursuant to the Act. The Plan provides that the Funds'
distributor, Federated Securities Corp., shall act as the distributor of Plan
Shares, and it permits the payment of fees to brokers, dealers and
administrators for distribution and/or administrative services. The Plan is
designed to (i) stimulate brokers, dealers and administrators to provide
distribution and/or administrative support services to the Funds and holders of
Plan Shares. These services are to be provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to: providing office space, equipment, telephone facilities,
and various personnel, including clerical, supervisory, and computer, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investment of client account cash balances; answering routine client inquiries
regarding the Plan Shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Funds reasonably request. Other benefits which the Funds hope to achieve through
the Plan include, but are not limited to, the following: (1) an efficient and
effective administrative system; (2) a more efficient use of assets of holders
of Plan Shares by having them rapidly invested in the Funds with a minimum of
delay and administrative detail; and (3) an efficient and reliable records
system for holders of Plan Shares and prompt responses to shareholder requests
and inquiries concerning their accounts. By adopting the Plan, the Directors
expect that the Funds will be able to achieve a more predictable flow of cash
for investment purposes and to meet redemptions. This will facilitate more
efficient portfolio management and assist the Funds in seeking to achieve their
investment objectives. By identifying potential investors in Plan Shares whose
needs are served by the Funds' objectives and properly servicing these accounts,
the Funds may be able to curb sharp fluctuations in rates of redemptions and
sales. SHAREHOLDER SERVICES
The Funds (except Money Market Fund) may pay Federated Shareholder Services , a
subsidiary of Federated Investors, Inc., for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services may select
others (including MFIS) to perform these services for their customers and may
pay them fees. MFIS is the shareholder servicing agent for the Money Market
Fund. As such, MFIS provides shareholder services which include, but are not
limited to, distributing prospectuses and other information, providing
shareholder assistance, and communicating or facilitating purchases and
redemption of shares.. FEES PAID BY THE FUNDS FOR SERVICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Fund Name Advisory Fee Paid/ Brokerage Commissions Administrative Fee Paid
Advisory Fee Waived Paid
------------------------------------------------
-----------------------------------------------------------------------
For the fiscal year For the fiscal year For the fiscal year
ended ended ended
August 31 August 31 August 31
-----------------------------------------------------------------------
-----------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------
-----------------------------------------------------------------------
Equity Income $ $1,964,$1,101,4$4 $468,108$221,712$ $227,695$131,196
Fund $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Large-Cap $ $1,877,0$2,003,$27 $309,709$918,703$ $217,817$238,801
Growth & Income $ $0 $0
Fund
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Mid-Cap Value $ $1,245,6$1,556,$51 $364,246$524,079$ $144,711$185,501
Fund1 $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Mid-Cap Growth $ $1,288,8$917,06$ $580,150$353,770$ $149,489$109,258
Fund $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
International $ $1,857,2$1,179,$10 $340,030$115,382$ $161,481$108,298
Stock Fund $ $0 $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Small-Cap $ $368,209N/A $ $117,618N/A $ $44,185 N/A
Growth Fund $ $0
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Short-Term $736,245$540,501 N/A N/A $106,697$80,507
Income Fund $429,010$357,041
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Intermediate $ $2,440,3$2,253,$12 N/A N/A $ $354,123$335,733
Bond Fund $ $346,194$338,087
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Government $ $1,304,9$938,02$ N/A N/A $ $151,306$111,760
Income Fund $ $272,824$243,416
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Intermediate $ $463,700$314,33$ N/A N/A $ $67,231 $50,437
Tax-Free Fund2 $ $238,359$196,013
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Money Market $ $6,354,0$5,636,$51 N/A N/A $ $1,105,6$1,007,572
Fund $ $3,304,0$2,930,747
- ----------------------------------------------------------------------------------------
</TABLE>
---------------------------------
For the fiscal year anded
August 31, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
Fund 12b-1 Fee* Shareholder Services
Fee
- ------------------------------------------------------------
- ------------------------------------------------------------
Equity Income Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Large-Cap Growth & Income N/A N/A
Fund
- ------------------------------------------------------------
- ------------------------------------------------------------
Mid-Cap Value Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Mid-Cap Growth Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
International Stock Fund $ N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Small-Cap Growth Fund $ N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Short-Term Income Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Intermediate Bond Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Government Income Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Intermediate Tax-Free Fund N/A N/A
- ------------------------------------------------------------
- ------------------------------------------------------------
Money Market Fund $ $
- ------------------------------------------------------------
N/A - Not Applicable
* During the fiscal year ended August 31, 1998, only the Class A Shares of the
International Stock Fund, Small-Cap Growth Fund and Money Market Fund sold
shares pursuant to a Rule 12b-1 Plan.
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
DETERMINING MARKET VALUE OF SECURITIES
USE OF THE AMORTIZED COST METHOD (MONEY MARKET FUND ONLY)
The Directors have decided that the best method for determining the value of
portfolio instruments for the Money Market Fund is amortized cost. Under this
method, portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Money Market Fund's use of the amortized cost method of
valuing portfolio instruments depends on its compliance with the provisions of
Rule 2a-7 (the Rule) promulgated by the Securities and Exchange Commission under
the Act. Under the Rule, the Directors must establish procedures reasonably
designed to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. Under the Rule, the Money
Market Fund is permitted to purchase instruments which are subject to demand
features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding 397 days on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same-day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise. The Money Market Fund acquires
instruments subject to demand features and standby commitments to enhance the
instrument's liquidity. The Fund treats demand features and standby commitments
as part of the underlying instruments, because the Fund does not acquire them
for speculative purposes and cannot transfer them separately from the underlying
instruments. Therefore, although the Fund defines demand features and standby
commitments as puts, the Fund does not consider them to be corporate investments
for purposes of its investment policies. Monitoring Procedures. The Directors'
procedures include monitoring the relationship between the amortized cost value
per share and the net asset value per share based upon available indications of
market value. The Directors will decide what, if any, steps should be taken if
there is a difference of more than 0.5 of 1% between the two values. The
Directors will take any steps they consider appropriate (such as redemption in
kind or shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value. Investment Restrictions. The Rule
requires that the Money Market Fund limit its investments to instruments that,
in the opinion of the Directors, present minimal credit risks and have received
the requisite rating from one or more NRSROs. If the instruments are not rated,
the Directors must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instrument with a remaining
maturity of more than 397 days can be purchased by the Fund. Should the
disposition of a portfolio security result in a dollar-weighted average
portfolio maturity of more than 90 days, the Money Market Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible. Shares of investment companies purchased by the Fund will meet these
same criteria and will have investment policies consistent with Rule 2a-7. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio. In periods of declining interest rates, the indicated daily
yield on shares of the Money Market Fund, computed based upon amortized cost
valuation, may tend to be higher than a similar computation made by using a
method of valuation based upon market prices and estimates. In periods of rising
interest rates, the indicated daily yield on shares of the Fund computed the
same way may tend to be lower than a similar computation made by using a method
of calculation based upon market prices and estimates. MARKET VALUES (ALL OTHER
FUNDS)
Market values of portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors.
A Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its net asset value,
the International Stock Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Directors, although the actual calculation may be done by others. HOW DO I
REDEEM SHARES?
REDEMPTION IN KIND
Although the Funds intend to pay share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities. Because the Corporation has
elected to be governed by Rule 18f-1 under the Investment Company Act or 1940,
the Funds are obligated to pay share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of a Fund's net assets represented by
such share class during any 90-day period. Any share redemption payment greater
than this amount will also be in cash unless the Funds' Directors determine that
payment should be in kind. In such a case, a Fund will pay all or a portion of
the remainder of the redemption in portfolio securities, valued in the same way
as the Fund determines its net asset value. The portfolio securities will be
selected in a manner that the Funds' Directors deems fair and equitable and, to
the extent available, such securities will be readily marketable. Redemption in
kind is not as liquid as a cash redemption. If redemption is made in kind,
shareholders receiving their portfolio securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs. BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end management investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company, affiliate, or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer. M&I Corp. is subject to such banking laws
and regulations. M&I Corp. believes, based on the advice of its counsel, that
M&I Investment Management Corp. may perform the services contemplated by the
investment advisory agreement with the Corporation without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such present or
future statutes and regulations, could prevent M&I Investment Management Corp.
or M&I Corp. from continuing to perform all or a part of the services described
in the prospectus for its customers and/or the Fund. If M&I Investment
Management Corp. and M&I Corp. were prohibited from engaging in these
activities, the Directors would consider alternative advisers and means of
continuing available investment services. In such event, changes in the
operation of the Fund may occur, including possible termination of any automatic
or other Fund share investment and redemption services then being provided by
M&I Investment Management Corp. and M&I Brokerage Services or MFIS. It is not
expected that existing shareholders would suffer any adverse financial
consequences if another adviser with equivalent abilities to M&I Investment
Management Corp. is found as a result of any of these occurrences. WHAT ARE THE
TAX CONSEQUENCES?
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet the
requirements of Subchapter M of the Internal Revenue Code (Code) applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. Each Fund will be treated as a single, separate entity for
federal income tax purposes so that income earned and capital gains and losses
realized by the Corporation's other portfolios will be separate from those
realized by each Fund. Each Fund is entitled to a loss carry-forward, which may
reduce the taxable income or gain that each Fund would realize, and to which the
shareholder would be subject, in the future. The dividends received deduction
for corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Equity Funds if the Equity Funds were a regular corporation,
and to the extent designated by the Equity Funds as so qualifying. Otherwise,
these dividends and any short-term capital gains are taxable as ordinary income.
No portion of any income dividends paid by the other Funds is eligible for the
dividends received deduction available to corporations. These dividends, and any
short-term capital gains, are taxable as ordinary income. FOREIGN INVESTMENTS
Investment income on certain foreign securities purchased by the Funds may be
subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Funds
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of the Funds' assets to be invested within various countries is
uncertain. However, the Funds' intend to operate so as to qualify for
treaty-reduced tax rates when applicable.
Distributions from the Funds may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
The Funds may invest in the stock of certain foreign corporations which would
constitute a Passive Foreign Investment Company (PFIC). The Funds may be subject
to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Funds' assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intend to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. Shareholders
must hold Fund shares for a specified period of time to claim a foreign tax
credit. The Code may limit a shareholder's ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of the Funds' foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and you should consult your
tax adviser for specific details regarding the status of your account under
state and local tax laws, including treatment of distributions as income or
return of capital. CAPITAL GAINS
Capital gains, when experienced by the Funds, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. When a Fund
realizes net long-term capital gains, it will distribute them at least once
every 12 months.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Funds may advertise each Fund's share performance by using the Securities
and Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.
Unless otherwise stated, any quoted share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in a
Fund's or any class of shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per share fluctuate daily. Both net earnings and offering price
per share are factors in the computation of yield and total return.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions. The average annual total return for a Fund shares
is the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares owned at
the end of the period by the net asset value per share at the end of the period.
The number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of any
dividends and distributions. Equity Income Fund's average annual total returns
for the one-year period ended August 31, 1998 and for the period from October 1,
1993 (date of initial public investment), to August 31, 1998 were ______% and
_____%, respectively. Large-Cap Growth & Income Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
November 23, 1992 (date of initial public investment), to August 31, 1998 were
______% and _____%, respectively. Mid-Cap Value Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
September 30, 1993 (date of initial public investment), to August 31, 1998 were
______% and _____%, respectively. Mid-Cap Growth Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
October 1, 1993 (date of initial public investment), to August 31, 1998 were
_____% and _____%, respectively. International Stock Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
September 2, 1994 (date of initial public investment), to August 31, 1998 were
_____% and _____%, respectively. Small-Cap Growth Fund's average annual total
returns for the one-year period ended August 31, 1998 and for the period from
November 1, 1995 (inception date of collective trust fund) to August 31, 1998
were _____% and _____%, respectively. Intermediate Bond Fund's average annual
total returns for the one-year period ended August 31, 1998 and for the period
from November 23, 1992 (date of initial public investment), to August 31, 1998
were ____% and ____%, respectively. Government Income Fund's average annual
total returns for the one-year period ended August 31, 1998 and for the period
from December 14, 1992 (date of initial public investment) to August 31, 1998
were ____% and ____%, respectively. The quoted performance data for the
Small-Cap Growth Fund includes the performance of a predecessor collective trust
fund for periods before the Fund's registration statement became effective on
August 30, 1996, as adjusted to reflect the Fund's expenses. The collective
trust fund was not registered under the Investment Company Act of 1940 (1940
Act) and therefore was not subject to certain investment restrictions that are
imposed by the 1940 Act. If the collective trust fund had been registered under
the 1940 Act, the performance may have been adversely affected. YIELD
The Money Market Fund calculates the yield for both classes of shares daily,
based upon the seven days ending on the day of the calculation, called the base
period. This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by 365/7.
The Money Market Fund's yield for Class A Shares for the seven-day period ended
August 31, 1998, was _____%.
The yield for the other Funds' shares is calculated by dividing: (i)the net
investment income per share earned by a Fund's shares over a thirty-day period;
by (ii) the maximum offering price per share of the Fund on the last day of the
period. This number is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a 12-month period and is reinvested every six
months. Equity Income Fund's yield for the 30-day period ended August 31, 1998,
was ____%. Large-Cap Growth Fund's yield for the 30-day period ended August 31,
1998, was ____%. Mid-Cap Value Fund's yield for the 30-day period ended August
31, 1998, was ____%. Mid-Cap Growth Fund's yield for the 30-day period ended
August 31, 1998, was 0%. International Stock Fund's yield for the 30-day period
ended August 31, 1998 was ____%. Small-Cap Growth Fund's yield for the 30-day
period ended August 31, 1998 was ____%. Intermediate Bond Fund's yield for the
30-day period ended August 31, 1998, was ____%. Government Income Fund's yield
for the 30-day period ended August 31, 1998, was ____%. To the extent that
financial institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in a Fund's shares, the
Fund's shares performance is lower for shareholders paying those fees. EFFECTIVE
YIELD (MONEY MARKET FUND ONLY)
The Money Market Fund's effective yield for both classes of shares is computed
by compounding the unannualized base period return by: adding 1 to the base
period return; raising the sum to the 365/7th power; and subtracting 1 from the
result. The Money Market Fund's effective yield for Class A Shares for the
seven-day period ended August 31, 1998, was ____%. PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or performance
comparisons of the Funds' shares to certain indices; o charts, graphs and
illustrations using the Funds' returns, or returns in general, that demonstrate
investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Funds' use in advertising may include:
o Morgan Stanley Capital International Europe, Australia And Far East Index
(EAFE) is a market capitalization weighted foreign securities index, which
is widely used to measure the performance of European, Australian and New
Zealand and Far Eastern stock markets. The index covers approximately
1,020 companies drawn from 18 countries in the above regions. The index
values its securities daily in both U.S. dollars and local currency and
calculates total returns monthly. EAFE U.S. dollar total return is a net
dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva, Switzerland.
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific
period of time. From time to time, a Fund will quote its Lipper ranking in
advertising and sales literature.
o Consumer Price Index is generally considered to be a measure of inflation.
o Dow Jones Industrial Average (DJIA) is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
o Standard & Poor's Daily Stock Price Index Of 500 Common Stocks, a
composite index of common stocks in industry, transportation, financial,
and public utility companies. The Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated in the Standard & Poor's figures.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
o Donoghue's Money Fund Report publishes annualized yields of over 300
taxable money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and 12 month-to-date investment
results for the same money funds.
o The S&P/BARRA Value Index and the S&P/BARRA Growth Index are constructed
by Standard & Poor's and BARRA, Inc., an investment technology and
consulting company, by separating the S&P 500 Index into value stocks and
growth stocks. The S&P/BARRA Growth and S&P/BARRA Value Indices are
constructed by dividing the stocks in the S&P 500 Index according to their
price-to-book ratios. The S&P/BARRA Growth Index, contains companies with
higher price-to-earnings ratios, low dividends yields, and high earnings
growth (concentrated in electronics, computers, health care, and drugs).
The Value Index contains companies with lower price-to-book ratios and has
50% of the capitalization of the S&P 500 Index. These stocks tend to have
lower price-to-earnings ratios, high dividend yields, and low historical
and predicted earnings growth (concentrated in energy, utility and
financial sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices are
capitalization-weighted and rebalanced semi-annually. Standard &
Poor's/BARRA calculates these total return indices with dividends
reinvested.
o Standard & Poor's Midcap 400 Stock Price Index, a composite index of 400
common stocks with market capitalizations between $200 million and $7.5
billion in industry, transportation, financial, and public utility
companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in the Standard & Poor's figures.
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and 2.99
years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith,
Inc.
o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on the composites of ratings assigned by
Standard & Poor's Corporation and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.
o Merrill Lynch 1-Year Treasury Bill Index is comprised of the most recently
issued one-year U.S. Treasury bills. Index returns are calculated as total
returns for periods of one, three, six and twelve months as well as
year-to-date.
o Merrill Lynch Corporate A-Rated (1-3 Year) Bond Index is a universe of
corporate bonds and notes with maturities between 1-3 years and rated A3
or higher.
o Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporation; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry,
public utilities, and finance. The average maturity of these bonds
approximates nine years. Traced by Lehman Brothers, Inc., the index
calculates total return for one-month, three-month, twelve-month, and
ten-year periods and year-to-date.
o Lehman Brothers Intermediate Government/Corporate Bond Index is a universe
of government and corporate bonds rated BBB or higher with maturities
between 1-10 years.
o The Salomon Brothers Total Rate-of-Return Index for mortgage pass through
securities reflects the entire mortgage pass through market and reflects
their special characteristics. The index represents data aggregated by
mortgage pool and coupon within a given sector. A market weighted
portfolio is constructed considering all newly created pools and coupons.
o The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the fixed
income market. The performance indicators capture all rating changes, new
issues, and any structural changes of the entire market.
o Lehman Brothers Mortgage-Backed Securities Index is a universe of fixed
rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC), and Federal
National Mortgage Association (FNMA).
o Lehman Brothers Five-Year State General Obligations Bonds is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as
year-to-date. Total returns are also calculated as of the index inception,
December 31, 1979.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.
o Fiduciary Consulting Grid Universe, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.
o SEI Data Base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on investor
groups and asset mix. The funds are ranked every three, six, and twelve
months.
o Mercer Meidinger, Inc. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one, three, and five
year basis.
o Russell 1000 Growth Index consists of those Russell 2000 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth rates.
o Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.
o Standard & Poor's Ratings Group Small Stock Index is a broadly diversified
index consisting of approximately 600 small capitalization common stocks
that can be used to compare to the total returns of funds whose portfolios
are invested primarily in small capitalization common stocks.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect a Fund. In addition, advertising and sales literature may quote
statistics and give general information about mutual fund industry, including
the growth of the industry, from sources such as the Investment Company
Institute (ICI). For example, according to the ICI, thirty-seven percent of
American households are pursuing their financial goals through mutual funds.
These investors, as well s business and institutions, have entrusted over $4.4
trillion to the more than 6,700 mutual funds available. FINANCIAL STATEMENTS
The financial statements for the fiscal year ended August 31, 1998, are
incorporated herein by reference from the Funds' Annual Report dated August 31,
1998 (File Nos. 33-48907 and 811-58433). A copy of the Annual Report for a Fund
may be obtained without charge by contacting Marshall Funds Investor Services at
the address located on the back cover of the SAI or by calling Marshall Funds
Investor Services at 1-414-287-8555 or 1-800-FUND (3863).
<PAGE>
APPENDIX
STANDARD AND POOR'S BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. NR--Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS AAA--Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as gilt edge. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues. Aa--Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. A--Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa--Bonds which are rated Baa are considered
as medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. NR--Not rated by Moody's. FITCH IBCA, INC. LONG-TERM
DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+. A--Bonds
considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. BBB--Bonds considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. NR--NR indicates that Fitch does
not rate the specific issue. STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1. MOODY'S INVESTORS SERVICES, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. P-2--Issuers rated
PRIME-2 (for related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. FITCH IBCA, INC.
SHORT-TERM RATINGS F-1+--(Exceptionally Strong Credit Quality). Issues assigned
this rating are regarded as having the strongest degree of assurance for timely
payment. F-1--(Very Strong Credit Quality). Issues assigned to this rating
reflect an assurance of timely payment only slightly less in degree than issues
rated F-1+. F-2--(Good Credit Quality). Issues carrying this rating have a
satisfactory degree of assurance for timely payment but the margin of safety is
not as great as the F-1+ and F-1 categories. STANDARD AND POOR'S MUNICIPAL BOND
RATINGS AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong. AA --
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher rated issues only in small degree. A -- Debt rated A has
a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB- Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories. NR -- NR indicates that no public rating has been requested, that
there is insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy. Plus
(+) or minus (-): The ratings AA and A may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS Aaa -- Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as gilt edge. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues. Aa -- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. A -- Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. Baa- Bonds which are rated Baa are
considered as medium-grade obligations (i.e., they are neither highly protected
nor poorly secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. NR -- Not rated by Moody's. Moody's applies numerical
modifiers, 1, 2 and 3 in the generic rating classification of Aa and A in its
corporate or municipal bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category. STANDARD AND POOR'S MUNICIPAL
NOTE RATINGS SP-1 -- Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation. SP-2 -- Satisfactory capacity to pay
principal and interest. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
MIG1/VMIG1 -- This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing. MIG2/VMIG2 -- This designation
denotes high quality. Margins of protection are ample although not so large as
in the preceding group.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ADDRESSES
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 Intermediate Bond Fund Marshall
Government Income Fund
Marshall Money Market Fund 5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Adviser to all Funds
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202
Subadviser to Marshall International Stock Fund
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
Suite 2100
Ft. Lauderdale, Florida 33394-3091
Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202
Transfer Agent, Dividend Disbursing Agent and
Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
Shareholder Servicing Agent Federated Shareholder Services Company
Federated Investors Tower
Pittsburgh, PA 15222-3779
Legal Counsel Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
</TABLE>
M&I Brokerage Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
414-287-____ or 800-236-____ (____)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com
APPENDIX A
1. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Equity Income Fund (Fund) as of the
calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "-5.00%" and
increasing in increments of 5.00% up to 35.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features four distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1994 through 1997, are -1.63%, 34.22%, 21.18%, and 27.53%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was (1.07%).
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q97, was 10.91%. Its lowest quarterly return for the quarter
ended 1Q94, was (5.03%).
Average Annual Total Return for the Fund compared to Standard & Poor's 500 Index
(S&P 500) and Lipper Equity Income Funds Index (LEIFI) through December 31,
1997.
Calendar Period Fund S&P 500 LEIFI
Life of the Fund* 18.50% 22.19% 17.13%
1 Year 27.53% 33.36% 27.23%
1998 YTD thru 9/30/98 (1.07%) ____% ____%
* Since inception date of September 30, 1993.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to S&P 500, a broad-based market index and LEIFI, an average of
funds with similar investment objectives . While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
2. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Large-Cap Growth & Income Fund (Fund) as of
the calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with "-10.00%" and
increasing in increments of 5.00% up to 35.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1993 through 1997, are 3.35%, -5.79%, 33.20%, 14.66%, and 26.24%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was 2.86%.
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q97, was 15.37%. Its lowest quarterly return for the quarter
ended 1Q94, was (4.91%).
Average Annual Total Return for the Fund compared to Standard & Poor's 500 Index
(S&P 500) and Lipper Growth & Income Funds Index (LGIFI) through December 31,
1997.
Calendar Period Fund S&P 500 LGIFI
Life of the Fund* 13.43% 20.08% 26.27%
5 Year 13.42% 33.36% 27.05%
1 Year 26.24% 20.27% 17.58%
1998 YTD thru 9/30/98 2.86% ____% ____%
* Since inception date of November 20, 1992.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to S&P 500, a broad-based market index and LGIFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
3. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Mid-Cap Value Fund (Fund) as of the
calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 5.00% up to 30.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features four distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1994 through 1997, are 2.08%, 25.39%, 13.91%, and 23.38%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was (6.42%).
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 3Q97, was 11.18%. Its lowest quarterly return for the quarter
ended 4Q94, was (4.20%).
Average Annual Total Return for the Fund compared to Standard & Poor's Mid-Cap
400 Index (SPMC) and Lipper Mid-Cap Funds Index (LMCFI) through December 31,
1997.
Calendar Period Fund SPMC LMCFI
Life of the Fund* 15.39% 18.31% 15.28%
1 Year 23.38% 32.22% 19.58%
1998 YTD thru 9/30/98 (6.42%) ____% ____%
* Since inception date of September 30, 1993.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to SPMC, a broad-based market index and LMCFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
4. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Mid-Cap Growth Fund (Fund) as of the
calendar year-end for each of four years.
The `y' axis reflects the "% Total Return" beginning with "-10.00%" and
increasing in increments of 5.00% up to 35.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features four distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1994 through 1997, are -5.64%, 33.74%, 20.61%, and 22.73%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was (11.40%).
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q97 was 17.80%. Its lowest quarterly return for the quarter
ended 1Q97, was (9.08%).
Average Annual Total Return for the Fund compared to Standard & Poor's Mid-Cap
400 Index (SPMC) and Lipper Mid-Cap Funds Index (LMCFI) through December 31,
1997.
Calendar Period Fund SPMC LMCFI
Life of the Fund* 16.28% 18.31% 15.28%
1 Year 22.73% 32.22% 19.58%
1998 YTD thru 9/30/98 (11.40%) ____% ____%
* Since inception date of September 30, 1993.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to SPMC, a broad-based market index and LMCFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
5. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall International Stock Fund (Fund) as of the
calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 5.00% up to 20.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features three distinct vertical bars, each shaded
in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund which appear directly above each respective
bar, for the calendar years 1995 through 1997, are 11.55%, 19.65%, and 10.86%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was (11.21%).
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q97, was 9.55%. Its lowest quarterly return for the quarter
ended 4Q97 was (7.75%).
Average Annual Total Return for the Fund compared to Morgan Stanley Capital
Europe, Australia, Far East Index (EAFE Index) and Lipper International Funds
Index (LIFI) through December 31, 1997.
Calendar Period Fund EAFE Index LIFI
- --------------- ---- ---------- ----
Life of the Fund* 10.32% 4.30% 6.59%
1 Year 10.86% 1.78% 5.47%
1998 YTD thru 9/30/98 (11.21%) ____% ____%
* Since inception date of September 1, 1994.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to EAFE Index, a broad-based market index and LIFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
6. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Small-Cap Growth Fund (Fund) as of the
calendar year-end for each of two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 5.00% up to 25.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features two distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1996 through 1997, are ____% and 23.16%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was (20.63%).
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q97 was 22.21%. Its lowest quarterly return for the quarter
ended 1Q97 was 11.71%.
Average Annual Total Return for the Fund compared to Russell 2000 Index (Russell
2000) and Lipper Small Cap Funds Index (LSCFI) through December 31, 1997.
Calendar Period Fund Russell 2000 LSCFI
Life of the Fund* 23.73% 24.38% 18.73%
1 Year 23.18% 22.36% 20.69%
1998 YTD thru 9/30/98 (20.63%) ____% ____%
* Since inception date of November 1, 1995.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to Russell 2000, a broad-based market index and LSCFI, an average
of funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
7. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Short-Term Income Fund (Fund) as of the
calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 10.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1993 through 1997, are 3.70%, 1.83%, 8.97%, 4.97%, and 6.40%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was 4.50%.
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q95, was 2.48%. Its lowest quarterly return for the quarter
ended 2Q94 was 0.17%.
Average Annual Total Return for the Fund compared to Lipper S-T Investment Grade
Bond Index (LSTIBI) and IBC/Donoghue's Taxable Money Fund Average (DMFA) through
December 31, 1997.
Calendar Period Fund LSTIBI DMFA
Life of the Fund* 5.08% 5.55% 4.82%
5 Year 5.15% 5.62% 4.83%
1 Year 6.40% 6.21% 5.55%
1998 YTD thru 9/30/98 4.50% ____% ____%
* Since inception date of November 1, 1992.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LSTIBI, a broad-based market index and DMFA, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
8. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Intermediate Bond Fund (Fund) as of the
calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with "-5.00%" and
increasing in increments of 5.00% up to 20.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1993 through 1997, are 6.88%, -3.06%, 15.46%, 2.41%, and 7.18%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was 6.19%.
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q95 was 4.68%. Its lowest quarterly return for the quarter
ended 1Q96 was (2.03%).
Average Annual Total Return for the Fund compared to Lehman Brothers
Government/Corporate Intermediate Index (LGCI) and Lipper Short/Intermediate
Investment Grade Bond Funds Index (LSIBF) through December 31, 1997.
Calendar Period Fund LGCI LSIBF
- --------------- ---- ------ -----
Life of the Fund* 5.67% 6.80% 7.02%
5 Year 5.60% 6.66% 6.81%
1 Year 7.18% 7.87% 8.58%
1998 YTD thru 9/30/98 6.19% ____% ____%
* Since inception date of November 23, 1992.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LGCI, a broad-based market index and LSIBF, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
9. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Government Income Fund (Fund) as of the
calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with "-5.00%" and
increasing in increments of 5.00% up to 20.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1993 through 1997, are 5.99%, -2.74%, 16.97%, 3.04%, and 8.43%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was 6.90%.
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q95 was 4.92%. Its lowest quarterly return for the quarter
ended 1Q94 was (2.13%).
Average Annual Total Return for the Fund compared to Lehman Brothers
Mortgage-Backed Securities Index (LMI) and Lipper U.S. Mortgage Funds Index
(LUSMI) through December 31, 1997.
Calendar Period Fund LMI LUSMI
- --------------- ---- --- -----
Life of the Fund* 6.19% 7.42% 6.01%
5 Year 6.14% 7.21% 6.00%
1 Year 8.43% 9.48% 8.79%
1998 YTD thru 9/30/98 6.90% ____% ____%
* Since inception date of December 13, 1992.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LMI, a broad-based market index and LUSMI, an average of funds
with similar investment objectives. While past performance does not necessarily
predict future performance, this information provides you with historical
performance information so that you can analyze whether the Fund's investment
risks are balanced by its potential rewards.
<PAGE>
10. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Intermediate Tax-Free Fund (Fund) as of the
calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 12.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Fund which appear directly above each respective bar, for the
calendar years 1995 through 1997, are 11.54%, 3.84%, and 6.79%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, was 5.28%.
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 1Q95 was 4.31%. Its lowest quarterly return for the quarter
ended 1Q96 was (0.63%).
Average Annual Total Return for the Fund compared to Lehman Brothers 7-Year G.O.
Bond Index (LB7GOBI) and Lipper Intermediate Municipal Funds Index (LIMI)
through December 31, 1997.
Calendar Period Fund LB7GOBI LIMI
- --------------- ---- ------- ----
Life of the Fund* 4.89% 5.33% 5.60%
3 Year 7.34% 8.86% 8.00%
1 Year 6.79% 7.68% 7.17%
1998 YTD thru 9/30/98 5.28% ____% ____%
* Since inception date of February 2, 1994.
The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LB7GOBI, a broad-based market index and LIMI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.
<PAGE>
11. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Class Y Shares of the Marshall Money Market Fund
(Fund) as of the calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended August 31, 1998.
The light gray shaded chart features five distinct vertical bars, each shaded in
charcoal, and each visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for Class Y Shares of the Fund which appear directly above each
respective bar, for the calendar years 1993 through 1997, are 2.99%, 4.06%,
5.78%, 5.27%, and 5.44%.
The total returns displayed for Class A Shares of the Fund do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.
The Fund's average annual total return as of the most recent calendar quarter
ended September 30, 1998, for Class Y Shares was 1.34%.
Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q95 was 1.45%. Its lowest quarterly return for the quarter
ended 2Q93 was 0.72%.
The Fund's 7-day net yield for Class A Shares was 5.20% and 5.50% for Class Y
Shares.
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) Conformed copy of Articles of Incorporation of the Registrant (8.);
(i) Conformed copy of Amendment No. 1 to the Articles of
Incorporation (8.);
(ii) Conformed copy of Amendment No. 2 to the Articles of
Incorporation (8.);
(iii) Conformed copy of Amendment No. 3 to the Articles of
Incorporation (8.);
(iv) Conformed copy of Amendment No. 4 to the Articles of
Incorporation (6.);
(v) Conformed copy of Amendment No. 5 to the Articles of
Incorporation (8.);
(vi) Conformed copy of Amendment No. 6 to the Articles of
Incorporation (12.);
(vii) Conformed copy of Amendment No. 7 to the Articles of
Incorporation (14.);
(viii) Conformed copy of Amendment No. 8 to the Articles of Incorporation;+
(ix) Form of Amendment No. 9 to the Articles of Incorporation;+
(b) Copy of By-Laws of the Registrant (8.);
(c) Copy of Specimen Certificates for Shares of Capital
Stock of the Marshall Mid-Cap Growth Fund, Marshall
Large-Cap Growth & Income Fund, Marshall Mid-Cap Value
Fund, and Marshall Small-Cap Growth Fund (16.);
(d) Conformed copy of Investment Advisory Contract of the
Registrant (4.); (i) Conformed copy of Exhibit G of
the Investment Advisory Contract (5.);
(ii) Conformed copy of Exhibit H of the Investment
Advisory Contract (5.); (iii) Conformed copy of Exhibit
I of the Investment Advisory Contract (5.);
(iv) Conformed copy of Exhibit J of the Investment Advisory Contract(5.);
- ------------------------
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-48907
and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-48907
and 811-7047).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed October 21, 1994. (File Nos. 33- 48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
<PAGE>
(v) Conformed copy of Exhibit K of the Investment
Advisory Contract (7.); (vi) Conformed copy of Exhibit
L of the Investment Advisory Contract (7.);
(vii) Conformed copy of Exhibit M of the Investment
Advisory Contract; (12.); (viii) Conformed copy of
Federated Management Sub-Advisory Agreement with the
Registrant (7.);
(ix) Conformed copy of Templeton Investment Counsel,
Inc., Sub-Advisory Agreement with the M & I Investment
Management, Inc.(9.); (x) Conformed copy of Exhibit N
to the Investment Advisory Contract (14);
(e) (i) Conformed copy of Distributor's Contract of the
Registrant, including conformed copies of Exhibits A
through J; (12.); (ii) Conformed copy of Exhibit K of
the Distributor's Contract (15.); (iii) Form of Exhibit
L of the Distributor's Contract;+
(f) Not applicable;
(g) (i) Conformed copy of Custodian Contract of the
Registrant (7.); (ii) Copy of Amendment No. 1 to
Schedule A of the Sub-Custodian Agreement (16.); (iii)
Copy of Amendment No. 2 to Schedule A of the
Sub-Custodian Agreement (16.); (iv) Copy of Amendment
No. 3 to Schedule A of the Sub-Custodian Agreement
(17.); (v) Conformed copy of Sub-Transfer Agency and
Services Agreement (10.);
(h) (i) Conformed copy of Fund Accounting and Shareholder Recordkeeping
Agreement of the Registrant (11.);
- ------------------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 10 on Form N-1A filed July 1, 1994. (File
Nos. 33-48907 and 811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33-48907
and 811-7047).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (File Nos. 33-48907
and 811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
17. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 21 on Form N-1A filed October 24, 1997. (File
Nos. 33-48907 and 811-7047).
(ii) Conformed copy of Amendment No. 1 to Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement (15.);
(iii)Conformed copy of Amendment No. 2 to Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement (16.);
(iv) Conformed copy of Amendment No. 1 to Schedule C of Fund Accounting and
Shareholder Recordkeeping Agreement (15.);
(v) Conformed copy of Annex 1 to Amendment No. 2 to Schedule C of Fund
Accounting and Shareholder Recordkeeping Agreement (16.);
(vi) Conformed copy of Administrative Services Agreement (7.);
(vii)Conformed copy of Amendment No. 1 to Administrative Services Agreement
(15.);
(viii) Conformed copy of Amendment No. 2 to Administrative Services Agreement
(16.);
(ix) Conformed copy of Shareholder Services Agreement of the Registrant on
behalf of ......Marshall Equity Income Fund, Marshall Government Income
Fund, Marshall Intermediate Bond Fund, Marshall Intermediate Tax-Free Fund,
Marshall International Stock Fund, Marshall Mid-Cap Stock Fund, Marshall
Money Market Fund, Marshall Short-Term Income Fund, Marshall Short-Term
Tax-Free Fund, Marshall Stock Fund, and Marshall Value Equity Fund (4.);
- ------------------------
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-48907
and 811-7047).
7. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
<PAGE>
(x) Conformed copy of Amendment No. 1 to Schedule A
of the Shareholder Services Agreement (6.); (xi)
Conformed copy of Amendment No. 2 to Schedule A of the
Shareholder Services Agreement (7.);
(xii) Conformed copy of Amendment No. 3 to Schedule A
of the Shareholder Services Agreement (12.); (xiii) Copy
of Amendment No. 1 to Schedule B of the Shareholder
Services Agreement (11.);
(xiv) Conformed copy of Marshall Funds, Inc. Multiple
Class Plan (Marshall Money Market Fund Class A
Shares and Class B Shares)(11.);
(xiv) Conformed copy of new Shareholder Services
Agreement between the Registrant and Marshall &
Ilsley Trust Company on behalf of Marshall Equity Income Fund,
Marshall Government Income Fund,
Marshall Intermediate Bond Fund, Marshall Intermediate Tax-Free Fund,
Marshall International Stock Fund, Marshall Mid-Cap . Stock Fund, Marshall
Short-Term Income Fund, Marshall Small-Cap Stock Fund, Marshall Stock
............Fund, and Marshall Value Equity Fund (15.);
(xv) Form of Amendment #1 to Exhibit 1 of Shareholder
Services Agreement;+ (i) Conformed copy of Opinion and Consent
of Counsel as to legality of shares being registered (4.); (j)
Conformed Copy of Consent of Independent Public
Accountants;(to be filed by amendment) (k) Not applicable; (l)
Conformed copy of Initial Capital
Understanding (11.);
(m) (i) Conformed copy of Distribution Plan (4.); (ii)
Conformed copy of Exhibit B of Distribution Plan (9.);
(iii) Conformed copy of Exhibit A of Distribution Plan
(11.);
(iv) Form of Exhibit D of Distribution Plan;+
(v) Form of 12b-1 Agreement through and including
Exhibit B (11.); (vi) Copy of Exhibit C to Rule 12b-1
Agreement of the Registrant (13.);
- -------------------
+ All Exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos.33- 48907
and 811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33- 48907
and 811-7047.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33- 48907
and 811-7047).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 9, 1996. (File Nos. 33- 48907 and
811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33- 48907
and 811-7047).
(vii) Conformed copy of Exhibit C to the Distribution
Plan of the Registrant (15.); (viii)Form of Exhibit D to
the 12b-1 Agreement of the Registrant;+
(n) Copy of Financial Data Schedules;(to be filed by
amendment) (o) Form of Multiple Class Plan of the Registrant;+
(p) (i) Conformed copy of Power of Attorney (11.);
(ii) Conformed copy of Power of Attorney dated
December 27, 1993 with respect to James F.
Duca, II, President of the Corporation (6.).
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
Item 25. Indemnification: (5.)
Item 26. Business and Other Connections of Investment Adviser:
M&I INVESTMENT MANAGEMENT CORP.
(a) M&I Investment Management Corp. is a registered investment
adviser and wholly-owned subsidiary of Marshall & Ilsley
Corporation, a registered bank holding company headquartered in
Milwaukee, Wisconsin. As of October 1, 1997 M&I Investment
Management Corp. had approximately $8.4 billion in assets under
management and has managed investments for individuals and
institutions since its inception in 1973. M&I Investment
Management Corp. served as investment adviser to Newton Money
Fund, Newton Income Fund and Newton Growth Fund.
For further information about M & I Investment Mangagement
Corp., its officers and directors, response is incorporated by
reference to M & I Investment Management Corp.'s Form ADV, File
No. 801-9118, dated March 4, 1996 as amended.
TEMPLETON INVESTMENT COUNSEL, INC.
(b) Templeton Investment Counsel, Inc. ("TICI"), 500 East Broward
Blvd., Suite 2100, Ft. Lauderdale, FL 33394-3091, is a
professional investment counseling firm which has been
providing investment services since 1979. As of October 1, 1997
TICI had discretionary investment management of $24.1 billion
of assets.
11.Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33- 48907
and 811-7047).
15.Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33- 48907
and 811-7047).
17.Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed October 24, 1997. (File Nos. 33-48907
and 811-7047).
<PAGE>
For a list of the officers and directors of TICI and for
further information about TICI, any other business, vocation or
employment of a substantial nature in which a director or
officer of TICI is, or at any time in the past two fiscal years
has been, engaged for his or her own account or in the capacity
of director, officer, employee, partner or trustee, response is
incorporated by reference to TICI's Form ADV, File No.
801-15125, dated February 1, 1996 as amended.
Item 27. Principal Underwriters:
(a)...Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end investment
companies, including the Registrant:
Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; RIGGS Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Chairman, Director
Federated Investors Tower President, Federated, and Treasurer
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779 --
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joeseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President --
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable.
<PAGE>
Item 28. Location of Accounts and Records:
Marshall Funds, Inc. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent for Service at the address above)
5800 Corporate Drive
Pittsburgh, PA 15237-7010
Federated Shareholder Services Federated Investors Tower
Company 1001 Liberty Avenue
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent, and Portfolio
Accounting Services")
Federated Administrative Services Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
M & I Investment Management Corp. 1000 North Water Street
("Adviser") Milwaukee, WI 53202
Marshall & Ilsley Trust Company 1000 North Water Street
("Custodian") Milwaukee, WI 53202
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
("Sub-Adviser") Suite 2100
Ft. Lauderdale, FL 33394-3091
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholders meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MARSHALL FUNDS, INC., certifies
that it has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 21st day of October, 1998.
MARSHALL FUNDS, INC.
BY: /s/ C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 21, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/C. Todd Gibson
C. Todd Gibson Attorney In Fact October 21, 1998
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales Chairman, Director, October 21, 1998
and Treasurer (Chief
Executive Officer, Principal
Financial and Accounting
Officer)
John DeVincentis Director
Ody J. Fish Director
Paul E. Hassett Director
* By Power of Attorney
Exhibit a(viii) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K
Amendment No. 8
to
ARTICLES OF INCORPORATION
Dated July 30, 1992
THESE Articles of Incorporation are amended as follows:
Delete Section (a) of Article IV and substitute in its place the
following:
" (a) The Corporation is authorized to issue fifty billion
(50,000,000,000) shares of common stock, par value $.0001 per share. Subject to
the following paragraph, the authorized shares are classified as follows:
Authorized Number
Class Series of Shares
- ----- ------ ---------
Marshall Balanced Fund 1,000,000,000
Marshall Equity Income Fund 1,000,000,000
Marshall Government Income Fund 1,000,000,000
Marshall Intermediate Bond Fund 1,000,000,000
Marshall Mid-Cap Growth Fund 1,000,000,000
Marshall Money Market Fund A Shares 5,000,000,000
Marshall Money Market Fund B Shares 5,000,000,000
Marshall Short-Term Income Fund 1,000,000,000
Marshall Large-Cap Growth & Income Fund 1,000,000,000
Marshall Mid-Cap Value Fund 1,000,000,000
Marshall Short-Term Tax-Free Fund 1,000,000,000
Marshall Intermediate Tax-Free Fund 1,000,000,000
Marshall International Stock Fund 1,000,000,000
Marshall Small-Cap Growth Fund 1,000,000,000
The remaining 28,000,000,000 shares shall remain unclassified until action is
taken by the Board of Directors pursuant to the following paragraph."
The undersigned Secretary of Marshall Funds, Inc. certifies that the above
stated amendment is a true and correct Amendment to the Articles of
Incorporation, as adopted by the Directors of the Corporation as of the 28th day
of April, 1997, in accordance with Section 180.1002 of the Wisconsin Business
Corporation Law.
WITNESS the due execution hereof this 28th day of April, 1997.
/s/Peter J. Germain
Peter J. Germain
Secretary
Prepared by: C. Todd Gibson
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222-3779
<PAGE>
Exhibit a(ix) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
FORM OF
Amendment No. 9
to
ARTICLES OF INCORPORATION
Dated July 30, 1992
THESE Articles of Incorporation are amended as follows:
Delete Section (a) of Article IV and substitute in its place the
following:
" (a) The Corporation is authorized to issue an indefinite number of
shares of common stock, par value $.0001 per share. Subject to the following
paragraph, the authorized shares are classified as follows:
Authorized Number of
Class Series Shares
----- ------ ------
Marshall Balanced Fund Indefinite
Marshall Equity Income Fund Series A Indefinite
Marshall Equity Income Fund Series Y Indefinite
Marshall Government Income Fund Series A Indefinite
Marshall Government Income Fund Series Y Indefinite
Marshall Intermediate Bond Fund Series A Indefinite
Marshall Intermediate Bond Fund Series Y Indefinite
Marshall Mid-Cap Growth Fund Series A Indefinite
Marshall Mid-Cap Growth Fund Series Y Indefinite
Marshall Money Market Fund Series A Indefinite
Marshall Money Market Fund Series B Indefinite
Marshall Short-Term Income Fund Series Y Indefinite
Marshall Large-Cap Growth & Income Fund Series A Indefinite
Marshall Large-Cap Growth & Income Fund Series Y Indefinite
Marshall Mid-Cap Value Fund Series A Indefinite
Marshall Mid-Cap Value Fund Series Y Indefinite
Marshall Short-Term Tax-Free Fund Series Y Indefinite
Marshall Intermediate Tax-Free Fund Series Y Indefinite
Marshall International Stock Fund Series A Indefinite
Marshall International Stock Fund Series Y Indefinite
Marshall Small-Cap Growth Fund Series A Indefinite
Marshall Small-Cap Growth Fund Series Y Indefinite
<PAGE>
The undersigned Secretary of Marshall Funds, Inc. certifies that the above
stated amendment is a true and correct Amendment to the Articles of
Incorporation, as adopted by the Directors of the Corporation as of the 27th day
of July, 1998, and that shareholder action is not required, all in accordance
with Section 180.1002 of the Wisconsin Business Corporation Law.
WITNESS the due execution hereof this 26th day of October, 1998.
Peter J. Germain
Secretary
Prepared by: C. Todd Gibson
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222-3779
Exhibit e(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FORM OF
Exhibit L
to the
Distributor's Contract
MARSHALL FUNDS, INC.
Marshall Equity Income Fund
Marshall Government Income Fund
Marshall Intermediate Bond Fund
Marshall International Stock Fund
Marshall Large-Cap Growth & Income Fund
Marshall Mid-Cap Growth Fund
Marshall Mid-Cap Value Fund
Marshall Small-Cap Growth Fund
Class A Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 1st day of October, 1992 between Marshall
Funds, Inc. and Federated Securities Corp. with respect to Classes of the Funds
set forth above.
1. The Fund hereby appoints FSC to engage in activities principally
intended to result in the sale of shares. Pursuant to this appointment, FSC is
authorized to select a group of brokers ("Brokers") to sell shares of the
above-listed Fund ("Shares") at the current offering price thereof as described
and set forth in the respective prospectuses of the Fund, and to render
administrative support services to the Fund and its shareholders. In addition,
FSC is authorized to select a group of administrators ("Administrators") to
render administrative support services to the Fund and its shareholders.
2. Administrative support services may include, but are not limited to,
the following functions: 1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker's or
Administrator's premises; 2) account closings: the Broker or Administrator
communicates account closings via computer terminals; 3) enter purchase
transactions: purchase transactions are entered through the Broker's or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Fund share purchases and redemptions, confirms and reconciles
all transactions, reviews the activity in the Fund's accounts, and provides
training and supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Fund's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously provides
information about the product needs of customers.
3. During the term of this Agreement, the Fund will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of the Class A Shares of the Marshall
Equity Income Fund, Marshall Government Income Fund, Marshall Intermediate Bond
Fund, Marshall International Stock Fund, Marshall Large-Cap Growth & Income
Fund, Marshall Mid-Cap Growth Fund, Marshall Mid-Cap Value Fund and Marshall
Small-Cap Value Fund held during the month. For the month in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration of any fee payable on the basis of the number of days that the
Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Shares' expenses exceed such lower
expense limitation as FSC may, by notice to the Fund, voluntarily declare to be
effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors of the Fund on a
quarterly basis showing amounts expended hereunder including amounts paid to
Brokers and Administrators and the purpose for such payments.
7. In the event any amendment to this Agreement materially increases the
fees set forth in Paragraph 3, such amendment must be approved by a vote of a
majority of the outstanding voting securities of the particular class.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated October 1, 1992 between Marshall Funds, Inc. and Federated
Securities Corp., Marshall Funds, Inc. executes and delivers this Exhibit on
behalf of the Fund set forth in this Exhibit.
Witness the due execution hereof this day of , 1998.
MARSHALL FUNDS, INC.
By:
Name:
Title:
FEDERATED SECURITIES CORP.
By:
Name:
Title:
Exhibit h(xv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FORM OF
Amendment #1 to Exhibit 1
Shareholder Services Agreement
Marshall Equity Income Fund - Class Y Shares*
Marshall Government Income Fund - Class Y Shares*
Marshall Intermediate Bond Fund - Class Y Shares*
Marshall Intermediate Tax-Free Fund
Marshall International Stock Fund - Class Y Shares*
Marshall Large Cap Growth & Income
Fund - Class Y Shares*
Marshall Mid-Cap Growth Fund
- Class Y Shares* Marshall
Mid-Cap Value Fund - Class Y
Shares*
Marshall Short-Term Income Fund
Marshall Small-Cap Growth Fund - Class Y Shares*
Redesignated as Class Y Shares on , 1998.
Exhibit m(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FORM OF
EXHIBIT D
to the
Plan
MARSHALL FUNDS, INC.
Marshall Equity Income Fund
Marshall Government Income Fund
Marshall Intermediate Bond fund
Marshall International Stock Fund
Marshall Large-Cap Growth & Income Fund
Marshall Mid-Cap Growth Fund
Marshall Mid-Cap Value Fund
Marshall Small-Cap Growth Fund
Class A Shares
This Plan is adopted by the Marshall Funds, Inc. with respect to the
portfolio of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at the annual rate of .25 of 1% of the average
aggregate net asset value of Marshall Equity Income Fund, Marshall Government
Income Fund, Marshall Intermediate Bond Fund, Marshall International Stock Fund,
Marshall Large-Cap Growth & Income Fund, Marshall Mid-Cap Growth Fund, Marshal
Mid-Cap Value Fund and Marshall Small-Cap Growth Fund, portfolios of Marshall
Funds, Inc., held during the month.
Witness the due execution hereof this day of , 1998.
Marshall Funds, Inc.
By:
Name:
Title:
Exhibit m(viii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Marshall Funds, Inc.
FORM OF
EXHIBIT D to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay Administrator fees for the following portfolio (the "Fund")
effective as of the dates set forth below:
Name Date
Marshall Equity Income Fund - Class A Shares , 1998
------------
Marshall Government Income Fund - Class A Shares , 1998
------------
Marshall Intermediate Bond Fund - Class A Shares , 1998
-------------
Marshall International Stock Fund - Class A Shares , 1998
------------
Marshall Large-Cap Growth & Income Fund - Class A Shares , 1998
------------
Marshall Mid-Cap Growth Fund - Class A Shares , 1998
------------
Marshall Mid-Cap Value Fund - Class A Shares , 1998
------------
Marshall Small-Cap Growth Fund - Class A Shares , 1998
------------
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of the Fund. This fee will be computed at the annual
rate of .25% of the average net asset value of Shares held during the quarter in
accounts for which the Administrator provides services under this Agreement, so
long as the average net asset value of Shares in the Fund during the quarter
equals or exceeds such minimum amount as FSC shall from time to time determine
and communicate in writing to the Administrator.
2. For the quarterly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the quarter.
Dated:
Exhibit o under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") is adopted by the Marshall Funds, Inc.
(the "Corporation"), a Wisconsin corporation, with respect to the classes of
shares ("Classes") of certain of its portfolios (the "Funds") set forth in
exhibits hereto (the "Class Exhibits"). The adoption of this Plan is indicated
by the execution of one or more of the Class Exhibits.
1. Purpose
This Plan is adopted pursuant to Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "Rule"), in connection with the issuance by the
Corporation of more than one class of shares of any or all of the Funds in
reliance on the Rule .
2. Separate Arrangements / Class Differences
The arrangements for shareholders services or the distribution of
securities, or both, for each Class shall be as set forth in the applicable
Class Exhibit hereto.
3. Expense Allocations
Each Class shall be allocated those expenses actually incurred in a
different amount by that Class and which are described in the applicable Class
Exhibit hereto ("Class Expenses"). Class Expenses may include distribution
expenses; shareholder services expenses; transfer agent fees; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses, and proxies to current shareholders; blue sky
registration fees; SEC registration fees; the expense of administrative
personnel and services as required to support the shareholders of a specific
class; litigation or other legal expenses relating solely to one Class; or
directors' fees incurred as a result of issues relating to one Class of shares.
4. Conversion Features
The conversion features for shares of each Class shall be as set forth in
the applicable Class Exhibit hereto.
5. Exchange Features
The exchange features for shares of each Class shall be as set forth in
the applicable Class Exhibit hereto.
6. Effectiveness
This Plan shall become effective with respect to each Class upon execution
of an exhibit adopting this Plan with respect to such Class.
7. Amendment
Any material amendment of this Plan or any Class Exhibit hereto by the
Corporation is subject to the approval of a majority of the directors of the
Corporation, and a majority of the directors of the Corporation who are not
interested persons of the Corporation, pursuant to the Rule.
<PAGE>
EXHIBIT A
to the
Multiple Class Plan
MARSHALL FUNDS, INC.
Class A Shares
Marshall Money Market Fund
This Exhibit to the Multiple Class Plan (the "Plan") is hereby adopted by
the above-listed portfolios of the Corporation ("Funds") on whose behalf it is
executed as of the date stated below, pursuant to Sections 2, 3, 4, and 5 of the
Plan with regard to the Class A Shares of the Fund.
1. Separate Arrangements
Channel/Target Customers
Class A Shares are designed for sale to customers of M&I Corp. and its
affiliates or retail customers of institutions that have not entered into a
marketing arrangement or do not provide sales and/or administrative
services for the sale of Fund shares.
Sales Load
None
Distribution Fees
None.
Shareholder Services Fees
Maximum shareholder service fee: 0.02 of 1% of the average daily net asset
value of the Class A Shares. All or any portion of this fee may be waived
by the shareholder servicing agent from time to time.
Minimum Investments
The minimum initial investment in Class A Shares is $1,000. Subsequent
investments must be in amounts of at least $50.
Voting Rights
Each Class A Share gives the shareholder one vote in Director elections and
other matters submitted to shareholders of the entire Corporation for vote.
All shares of each portfolio or class in the Funds have equal voting
rights, except that only shares of a particular portfolio or class are
entitled to vote in matters affecting that portfolio or class.
2. Expense Allocation
Distribution Fees
No Distribution Fees are allocated to Class A Shares.
<PAGE>
Shareholder Service Fees
Shareholder Service Fees are allocated equally among the Class A Shares of
the Fund.
3. Conversion Features
Class A Shares are not convertible into shares of any other class.
4. Exchange Features
Class A Shares of any portfolio may be exchanged for Shares of other Funds
of the Corporation pursuant to the conditions described in the appropriate
prospectus.
IN WITNESS WHEREOF, this Class Exhibit has been executed on behalf
of the above-listed portfolios of the Corporation by their duly-authorized
offficer(s) as of the date(s) set forth below.
Marshall Funds, Inc.
By:
Name:
Title:
<PAGE>
EXHIBIT B
to the
Multiple Class Plan
MARSHALL FUNDS, INC.
Class B Shares
Marshall Money Market Fund
This Exhibit to the Multiple Class Plan (the "Plan") is hereby adopted by
the above-listed portfolios of the Corporation ("Funds") on whose behalf it is
executed as of the date stated below, pursuant to Sections 2, 3, 4, and 5 of the
Plan with regard to the Class B Shares of the Fund.
1. Separate Arrangements
Channel/Target Customers
Class B Shares are sold through institutions and other entities that have
entered into marketing arrangements to make Fund shares available to their
clients, customers or other specified investors, or that have agreed to
provide sales and/or administrative services as agents for holders of Class
B Shares.
Sales Load
None
Distribution Fees
0.35 of 1% of the average daily net asset value of the Class B Shares
Shareholder Services Fees
Maximum shareholder service fee: 0.02 of 1% of the average daily net asset
value of the Class B Shares. All or any portion of this fee may be waived
by the shareholder servicing agent from time to time.
Minimum Investments
The minimum initial investment in Class A Shares is $1,000. Subsequent
investments must be in amounts of at least $50.
Voting Rights
Each Class B Share gives the shareholder one vote in Director elections and
other matters submitted to shareholders of the entire Corporation for vote.
All shares of each portfolio or class in the Funds have equal voting
rights, except that only shares of a particular portfolio or class are
entitled to vote in matters affecting that portfolio or class.
2. Expense Allocation
Distribution Fees
Distribution Fees are allocated equally among the Class B Shares of the
Fund.
Shareholder Service Fees
Shareholder Service Fees are allocated equally among the Class B Shares of
the Fund.
3. Conversion Features
Class B Shares are not convertible into shares of any other class.
4. Exchange Features
Class B Shares of any Fund may be exchanged for Shares of other Funds of
the Corporation pursuant to the conditions described in the appropriate
prospectus.
IN WITNESS WHEREOF, this Class Exhibit has been executed on behalf
of the above-listed portfolios of the Corporation by their duly-authorized
offficer(s) as of the date(s) set forth below.
Marshall Funds, Inc.
By:
Name:
Title:
<PAGE>
EXHIBIT C
to the
Multiple Class Plan
MARSHALL FUNDS, INC.
Class Y Shares
Marshall Equity Income Fund
Marshall Mid-Cap Value Fund
Marshall Mid-Cap Growth Fund
Marshall International Stock Fund
Marshall Small-Cap Growth Fund
Marshall Large-Cap Growth & Income Fund
Marshall Short-Term Income Fund
Marshall Government Income Fund
Marshall Intermediate Bond Fund
Marshall Intermediate Tax-Free Fund
This Exhibit to the Multiple Class Plan (the "Plan") is hereby adopted by
the above-listed portfolios of the Corporation ("Funds") on whose behalf it is
executed as of the date stated below, pursuant to Sections 2, 3, 4, and 5 of the
Plan with regard to the Class Y Shares of the Funds.
1. Separate Arrangements
Channel/Target Customers
Class Y Shares are designed for sale to individuals, trust customers of
affiliates of M&I Bank and other financial institutions, as well as
customers of institutions that have entered into a sales arrangement with
the Funds, who prefer to invest in open-end investment company securities
sold without an initial sales load.
Sales Load
None
Distribution Fees
None.
Shareholder Services Fees
Maximum shareholder service fee: 0.25 of 1% of the average daily net asset
value of the Class Y Shares. All or any portion of this fee may be waived
by the shareholder servicing agent from time to time.
Minimum Investments
The minimum initial investment in Class Y Shares is $1,000. Subsequent
investments must be in amounts of at least $50.
<PAGE>
Voting Rights
Each Class Y Share gives the shareholder one vote in Director elections and
other matters submitted to shareholders of the entire Corporation for vote.
All shares of each portfolio or class in the Funds have equal voting
rights, except that only shares of a particular portfolio or class are
entitled to vote in matters affecting that portfolio or class.
2. Expense Allocation
Distribution Fees
No Distribution Fees are allocated to Class Y Shares.
Shareholder Service Fees
Shareholder Service Fees are allocated equally among the Class Y Shares of
each Fund.
3. Conversion Features
Class Y Shares are not convertible into shares of any other class.
4. Exchange Features
Class Y Shares of the Funds may be exchanged for Shares of other Funds of
the Corporation pursuant to the conditions described in the appropriate
prospectus.
IN WITNESS WHEREOF, this Class Exhibit has been executed on behalf
of the above-listed portfolios of the Corporation by their duly-authorized
offficer(s) as of the date(s) set forth below.
Marshall Funds, Inc.
By:
Name:
Title:
<PAGE>
EXHIBIT D
to the
Multiple Class Plan
MARSHALL FUNDS, INC.
Class A Shares
Marshall Equity Income Fund
Marshall Mid-Cap Value Fund
Marshall Mid-Cap Growth Fund
Marshall International Stock Fund
Marshall Small-Cap Growth Fund
Marshal Intermediate Bond Fund
Marshall Government Income Fund
This Exhibit to the Multiple Class Plan (the "Plan") is hereby adopted by
the above-listed portfolios of the Corporation ("Funds") on whose behalf it is
executed as of the date stated below, pursuant to Sections 2, 3, 4, and 5 of the
Plan with regard to the Class A Shares of the Funds.
1. Separate Arrangements
Channel/Target Customers
Class A Shares are designed for sale to retail customers of brokerage
affiliates of M&I Bank and other authorized broker-dealers, who prefer to
receive consultation services in connection with their investment in
open-end investment company securities.
Sales Load
Class A Shares are sold with a maximum front-end sales load of 5.75%.
Distribution Fees
0.25% of the average daily net assets of Class A Shares.
Shareholder Services Fees
None
Minimum Investments
The minimum initial investment in Class A Shares is $1,000. Subsequent
investments must be in amounts of at least $50.
Voting Rights
Each Class A Share gives the shareholder one vote in Director elections and
other matters submitted to shareholders of the entire Corporation for vote.
All shares of each portfolio or class in the Funds have equal voting
rights, except that only shares of a particular portfolio or class are
entitled to vote in matters affecting that portfolio or class.
<PAGE>
2. Expense Allocation
Distribution Fees
Distribution Fees are allocated equally among the Class A Shares of the
Fund.
Shareholder Service Fees
No Shareholder Service Fees are allocated to Class A Shares.
3. Conversion Features
Class A Shares are not convertible into shares of any other class.
4. Exchange Features
Class A Shares of any portfolio may be exchanged for Shares of other Funds
of the Corporation pursuant to the conditions described in the appropriate
prospectus.
IN WITNESS WHEREOF, this Class Exhibit has been executed on behalf
of the above-listed portfolios of the Corporation by their duly-authorized
offficer(s) as of the date(s) set forth below.
Marshall Funds, Inc.
By:
Name:
Title:
