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
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Pre-Effective Amendment No. ..............................
Post-Effective Amendment No. 27 ............................. X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 27 ............................................ X
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MARSHALL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
1000 North Water Street
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices)
(414) 287-8555
(Registrant's Telephone Number)
Michael A. Hatfield, Esquire
770 North Water Street
Milwaukee, Wisconsin 53202
(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 _________________
pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a)(i)
X on OCTOBER 31, 1999 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: Janet Olsen, Esquire
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
The Marshall Family
of Funds
Investment information
and Prospectus
Class Y Shares
OCTOBER 1999
[Graphic] Marshall Equity Income Fund
[Graphic] Marshall Large-Cap Growth & Income Fund
[Graphic] Marshall Mid-Cap Value Fund
[Graphic] Marshall Mid-Cap Growth Fund
[Graphic] Marshall Small-Cap Growth Fund
[Graphic] Marshall International Stock Fund
[Graphic] Marshall Government Income Fund
[Graphic] Marshall Intermediate Bond Fund
[Graphic] Marshall Intermediate Tax-Free Fund
[Graphic] Marshall Short-Term Income Fund
[Graphic] Marshall Money Market Fund
[Marshall Funds logo]
<PAGE>
<PAGE>
[Marshall Funds Logo]
Class Y Shares
Table of Contents
[Table of Contents to be filed by amendment]
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
October 31, 1999
<PAGE>
Risk/Return Profile
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).
[Graphic]
Potential Return
Equity Funds
Income Funds
Money Market Funds
Potential Risk
Equity Funds
Marshall Equity Income Fund
Marshall Large-Cap Growth & Income Fund
Marshall Mid-Cap Value Fund
Marshall Mid-Cap Growth Fund
Marshall Small-Cap Growth Fund
Marshall International Stock Fund
Income Funds
Marshall GovernmentIncome Fund
Marshall Intermediate Bond Fund
Marshall Intermediate Tax-Free Fund
Marshall Short-Term Income Fund
Money Market Fund
Marshall Money Market Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Risks of the Funds
Stock Foreign Debt Municipal Asset/Mortgage
Market Securities Securities Securities Backed Securities Sector
Risks Risks Risks Risks Risks Risks
<S> <C> <C> <C> <C> <C> <C>
Marshall Equity
Income Fund X X
Marshall Large-Cap
Growth & Income Fund X X
Marshall Mid-Cap
Value Fund X X
Marshall Mid-Cap
Growth Fund X X
Marshall Small-Cap
Growth Fund X X
Marshall International
Stock Fund X X X
Marshall Government
Income Fund X X
Marshall Intermediate
Bond Fund X X
Marshall Intermediate
Tax-Free Fund X X X
Marshall Short-Term
Income Fund X X
Marshall Money Market
Fund X X
</TABLE>
A complete description of these risks can be found in the "Main Risks of
Investing in the Marshall Funds" section.
Equity Funds [Graphic]
Marshall Equity Income Fund
[Graphic] Goal: To provide capital appreciation and above-average dividend
income.
Strategy: The Fund invests in a diversified portfolio of common stocks of
large-sized companies. The Fund attempts to generate dividend income at least 1%
more than the income earned on stocks in the S&P 500 Index (S&P 500).
Annual Total Return (calendar years 1994-1998)
The graphic presentation here displayed 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 five 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 December 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 appears directly above each
respective bar, for the calendar years 1994 through 1998, are: -1.63%, 34.22%,
21.18%, 27.53%, and 10.48%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 11.67%
Worst quarter (3Q98) (7.75%)
Most recent quarter (2Q99) 11.45%
<PAGE>
Average Annual Total Return through 12/31/98*
Since 9/30/93 1 Year 5 Year
inception
Fund 16.93% 10.48% 17.65%
S&P 500 23.32% 28.58% 24.06%
LEIFI 16.03% 11.78% 16.62%
Marshall Large-Cap Growth & Income Fund
[Graphic] Goal: To provide capital appreciation and income.
Strategy: The Fund invests in a diversified portfolio of common stocks of
large-sized companies whose market capitalization 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 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 3.35%, -5.79%,
33.20%, 14.66%, 26.24% and 26.18%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 22.67%
Worst quarter (3Q98) (10.08%)
Most recent quarter (2Q99) 7.98%
Average Annual Total Return through 12/31/98*
Since 11/20/92
inception 1 Year 5 Year
Fund 15.43% 26.18% 18.04%
S&P 500 21.65% 28.58% 24.06%
LGIFI 17.33% 13.58% 17.83%
*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.
<PAGE>
Marshall Mid-Cap Value Fund
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in a diversified portfolio of common stocks of
companies similar in size to those within the S&P 400 Mid-Cap 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 or 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 1994-1998)
The graphic presentation here displayed 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 five 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 December 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 appears directly above each
respective bar, for the calendar years 1994 through 1998, are: 2.08%, 25.39%,
13.91%, 23.38%, and 5.15%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 12.36%
Worst quarter (3Q98) (13.20%)
Most recent quarter (2Q99) 16.73%
Average Annual Total Return through 12/31/98*
Since 9/30/93
inception 1 Year 5 Year
Fund 13.37% 5.15% 13.59%
SPMC 18.45% 19.09% 18.84%
LMCFI 14.89% 13.92% 15.20%
Marshall Mid-Cap Growth Fund
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in a diversified portfolio of common stocks of
companies similar in size to those within the S&P 400 Mid-Cap 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 1994-1998)
The graphic presentation here displayed 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 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 December 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 appears directly above each
respective bar, for the calendar years 1994 through 1998, are: -5.64%, 33.74%,
20.61%, 22.73%, and 15.72%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 30.61%
Worst quarter (3Q98) (22.90%)
Most recent quarter (2Q99) 7.50%
<PAGE>
Average Annual Total Return through 12/31/98*
Since 9/30/93
inception 1 Year 5 Year
Fund 16.17% 15.72% 16.67%
SPMC 18.45% 19.09% 18.84%
LMCFI 14.89% 13.92% 15.20%
*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 and Mid-Cap Growth Fund is 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.
<PAGE>
MARSHALL SMALL-CAP GROWTH FUND/1/
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in a diversified portfolio of common stocks of
small-sized companies similar in size to those within the Russell 2000 Index.
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 years 1996-1998)
The graphic presentation here displayed 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 three years.
The "y" axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 10.00% up to 60.00%.
The "x" axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 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 appears directly above each
respective bar, for the calendar years 1996 through 1998, are: 50.39%, 23.18%,
and 3.41%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 30.28%
Worst quarter (3Q98) (27.56%)
Most recent quarter (2Q99) 8.78%
Average Annual Total Return through 12/31/98*
Since 11/1/95
inception 1 Year
Fund 29.65% 3.41%
Russell 2000 11.65% (2.78%)
LSCFI 10.30% (0.85%)
/1/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 29.65% through 12/31/98. 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.
*The table shows the Fund's average annual total returns over a period of time
relative 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.
<PAGE>
Marshall International Stock Fund
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in common stocks of companies located outside the
United States. BPI Global Asset Management, LLP is the sub-adviser of the Fund.
BPI uses a "bottom-up" approach to international investing within overall
portfolio management guidelines. The stock selection process begins with
identifying companies of any size within industry groups that have historically
been successful and have a competitive advantage as evidenced by above-average
profit margins, high returns on equity, low leverage and adequate cash flow. The
selection process seeks to identify quality companies with attractive returns on
equity, shareholder-oriented management, and a strong capital structure. Stocks
are selected and retained when they are attractively valued within their
industry by using traditional valuation measures such as price-to-book and
price-to-earnings ratios, resulting in an approach described as "quality
companies at a reasonable price." The portfolio management team closely monitors
the Fund's industry weightings and country weightings in relation to its
performance benchmark.
Annual Total Return (calendar years 1995-1998)
The graphic presentation here displayed 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 four 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 December 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 appears directly above each
respective bar, for the calendar years 1995 through 1998, are: 11.55%, 19.65%,
10.86%, and 3.26%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 16.30%
Worst quarter (3Q98) (19.06%)
Most recent quarter (2Q99) 2.98%
Average Annual Total Return through 12/31/98**
Since 9/1/94
inception 1 Year
Fund 8.65% 3.26%
EAFE Index 7.28% 20.00%
LIFI 8.41% 12.66%
**The table shows the Fund's average annual total returns over a period of time.
In addition, the performance of International Stock Fund relative to the Morgan
Stanley Capital International Europe, Australia and Far East Index (EAFE Index),
which is an index of international stocks and the Lipper International Funds
Index (LIFI), which is an index of funds with similar investment objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
<PAGE>
Income Funds
MARSHALL GOVERNMENT INCOME FUND
[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 strategy. Current and historical
interest rate relationships are used to evaluate market sectors and individual
securities. The Fund generally maintains an average dollar-weighted maturity of
four to 12 years.
Annual Total Return (calendar years 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 5.99%, -2.74%,
16.97%, 3.04%, 8.43%, and 6.51%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 4.92%
Worst quarter (1Q94) (2.13%)
Most recent quarter (2Q99) (0.37%)
Average Annual Total Return through 12/31/98*
Since 12/13/92
inception 1 Year 5 Year
Fund 6.24% 6.51% 6.24%
LMI 7.29% 6.95% 7.23%
LUSMI 6.17% 6.13% 5.70%
Marshall Intermediate Bond Fund
[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's strategy to achieve total return is to adjust the
Fund's weightings in these sectors as it deems appropriate. The Adviser uses
macroeconomic, credit and market analysis to select portfolio securities. The
Fund maintains an average dollar-weighted maturity of three to 10 years.
<PAGE>
Annual Total Return (calendar years 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 6.88%, -3.06%,
15.46%, 2.41%, 7.18%, and 6.33%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 4.68%
Worst quarter (1Q96) (2.03%)
Most recent quarter (2Q99) (0.13%)
Average Annual Total Return through 12/31/98**
Since 11/23/92
inception 1 Year 5 Year
Fund 5.78% 6.33% 5.49%
LGCI 7.10% 8.44% 6.66%
LSIBF 6.23% 6.99% 5.96%
*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
index of funds with similar investment objectives.
**The table shows the Fund's average annual total returns averaged over a period
of time 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.
<PAGE>
Marshall Intermediate Tax-Free Fund
[Graphic] Goal: To provide a high 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 10 years.
Annual Total Return (calendar years 1995-1998)
The graphic presentation here displayed 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 four 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 December 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 appears directly above each
respective bar, for the calendar years 1995 through 1998, are: 11.54%, 3.84%,
6.79%, and 5.65%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (1Q95) 4.31%
Worst quarter (1Q96) (0.63%)
Most recent quarter (2Q99) (2.12%)
Average Annual Total Return through 12/31/98*
Since 2/2/94
inception 1 Year
Fund 5.04% 5.65%
LB7GOBI 5.69% 6.36%
LIMI 5.00% 5.59%
<PAGE>
MARSHALL SHORT-TERM INCOME FUND
[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 maintains an average
dollar-weighted maturity of six months to three years.
Annual Total Return (calendar years 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 3.70%, 1.83%,
8.97%, 4.97%, 6.40%, and 4.91%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 2.48%
Worst quarter (1Q94) 0.17%
Most recent quarter (2Q99) 0.83%
Average Annual Total Return through 12/31/98**
Since 11/1/92
inception 1 Year 5 Year
Fund 5.05% 4.91% 5.39%
LSTIBI 5.43% 5.73% 5.43%
DMFA 4.45% 5.04% 4.86%
*The table shows the Fund's average annual total returns over a period of
time 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.
**The table shows the Fund's average annual total returns over a period of time
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.
As with all mutual funds, past performance does not necessarily predict future
performance.
<PAGE>
Money Market Fund
Marshall Money Market Fund
[Graphic] Goal: To provide current income consistent with stability of
principal.
Strategy: The Fund invests in high quality, short-term money market
instruments. 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 the Fund seeks 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 1993-1998)
The graphic presentation here displayed consists of a bar chart representing the
annual total returns of Marshall Money Market Fund (Fund) as of the calendar
year-end for each of six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 2.99%, 4.06%,
5.78%, 5.27%, 5.44%, and 5.42%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 1.45%
Worst quarter (2Q93) 0.72%
Most recent quarter (2Q99) 1.17%
<PAGE>
7-Day Net Yield
7-Day Net Yield (as of 12/31/98)* 5.03%
Average Annual Total Return through 12/31/98**
Since 11/23/92
inception 1 Year 5 Year
Fund 4.80% 5.42% 5.19%
DMFA 4.48% 5.04% 4.86%
*Investors may call the Fund to learn the current 7-Day Net Yield at
1-800-236-FUND(3863).
**The table shows the Fund's average annual total returns over a period of time
relative to the IBC/Donoghue's Money Fund Average (DMFA), an average of money
funds.
<PAGE>
Fees and Expenses of the Funds
[To be filed by amendment]
<PAGE>
[Graphic] Main Risks of Investing in the Marshall Funds
General Risks. An investment in any of the Marshall Funds is not 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.
[Graphic] What About Portfolio Turnover?
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 increases transaction expenses that 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 shareholders, are
taxable to them.
Stock Market Risks. The EQUITY FUNDS are subject to fluctuations in the
stock markets, which have periods of increasing and decreasing values. Stocks
are more volatile than debt securities. Greater volatility increases risk, but
offers the potential for greater reward.
Stock market 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, 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.
Euro Risks. The INTERNATIONAL STOCK FUND makes significant investments in
securities denominated in the Euro, the new single currency of the European
Monetary Union (EMU). Therefore, the exchange rate between the Euro and the U.S.
dollar will have a significant impact on the value of the INTERNATIONAL STOCK
FUND'S investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals.
Debt Securities Risks. Risks of debt securities will affect the INCOME FUNDS.
[Graphic] What About Bond Ratings?
When the Funds invest in bonds and other debt securities and/or convertible
securities, some will be rated in the lowest investment grade category (e.g.,
BBB or Baa). Bonds rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics. Unrated bonds will be
determined by the Adviser to be of like quality and may have greater risk (but a
potentially higher yield) than comparable rated bonds. If a bond is downgraded,
the Adviser will re-evaluate the bond and determine whether or not the bond is
an acceptable investment.
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.
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.
Debt 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.
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.
Sector Risks. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
Temporary Defensive 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 (for example, 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 [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 NAV. NAV is determined for the Funds (other
than MONEY MARKET FUND) at the end of regular trading (normally 3:00 p.m.
Central Time) each day the NYSE is open. The NAV for the MONEY MARKET FUND is
determined twice daily at 12:00 Noon (Central Time) and 3:00 p.m. (Central
Time). In calculating NAV, a Fund's portfolio is valued using market prices.
Securities held by the INTERNATIONAL STOCK FUND may trade on foreign exchanges
on days (such as weekends) when the INTERNATIONAL STOCK FUND does not calculate
NAV. As a result, the NAV of the INTERNATIONAL STOCK FUND's shares may change on
days when you cannot purchase or sell the Fund's shares.
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. Keep in mind that Authorized Dealers may charge you fees for
their services in connection with your share transactions.
How Do I Purchase Shares? You may purchase shares directly from the
Funds by completing and mailing the Account Application and sending your payment
to the Fund by check or wire.
Once you have opened an account with an Authorized Dealer, you may purchase
additional 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 an 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 Noon (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.
In order to purchase shares, you must reside in a jurisdiction where Fund shares
may lawfully be offered for sale. In addition, you must have a Social Security
or tax identification number.
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.
[Graphic] Fund Purchase Easy Reference Table
[Graphic] MINIMUM INVESTMENTS
$1,000 . To open an Account
$50 . To add to an Account (including through a Systematic Investment Program)
[Graphic] Phone 1-800-236-FUND (3863)
o Contact Marshall Funds Investor Services (MFIS).
o Complete an application for a new account.
o If you authorized telephone privileges in your account application or by
subsequently completing an authorization form, you may purchase additional
shares or exchange shares from another Fund having an identical shareholder
registration.
[Graphic] Mail
o 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 53202
o 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.
<PAGE>
[Graphic] In Person
o Bring in your completed account application (for new accounts) (M-F 8-5
Central Time) and a check payable to "Marshall Funds" to:
Marshall Funds Investor Services
1000 N. Water Street, 13th Floor
Milwaukee, WI 53202
[Graphic] Wire
o Notify MFIS at 1-800-236-FUND (3863) by 12:00 Noon (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 Noon (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.
o Then wire the money to:
M&I Marshall & Ilsley Bank
ABA Number 075000051
CREDIT TO: MARSHALL FUNDS, DEPOSIT ACCOUNT, Account Number 27480;
Further credit to: Class Y Shares [Identify name of Fund] Re: [Shareholder name
and Account number]
o If a new Account, fax application to: Marshall Funds Investor Services at
1-414-287-8511.
o Mail a completed account application to the Fund at the address above
under "Mail."
o 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.
[Graphic] Systematic Investment Program
o You can have money automatically withdrawn from your checking account
($50 minimum) on predetermined dates and invest it in a Fund at the next Fund
share price determined after MFIS receives the order.
o The $1,000 minimum investment requirement is waived for investors
purchasing shares through the Systematic Investment Program.
o Call MFIS at 1-800-236-FUND (3863) to apply for this program.
[Graphic] Marshall Funds OnLine/SM/
o 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.
[Graphic] Additional Information About Checks Used to Purchase Shares
o If your check does not clear, your purchase will be canceled and you will
be charged a $15 fee.
o If you purchase shares by check or ACH, you may not be able to receive
proceeds from a redemption for up to seven days.
o All checks should be made payable to the "Marshall Funds".
[Graphic] How to Redeem and Exchange Shares
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 Noon (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, 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), or if you are redeeming by wire. Consult your
Authorized Dealer or service provider for more information, including applicable
fees.
<PAGE>
Fund Redemption Easy Reference Table
[Graphic] Phone 1-800-236-FUND (3863) (Except Retirement Accounts)
o 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.
[Graphic] Mail
o 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
o 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.
o For additional assistance, call 1-800-236-FUND (3863).
[Graphic] In Person
o Bring in the written redemption request with the information described in
"Mail" above to Marshall Funds Investor Services, 1000 N. Water Street, 13th
Floor, Milwaukee, WI, (M-F 8-5 Central Time).
[Graphic] Wire/Electronic Transfer
o 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.
o Wires of redemption proceeds will only be made on days on which the Funds
and the Federal Reserve wire system are open for business.
o Wire-transferred redemptions may be subject to an additional fee.
o Redemption requests for the MONEY MARKET FUND must be received by 12:00
Noon (Central Time) if you want the proceeds to be wired the same day.
<PAGE>
[Graphic] Systematic Withdrawal Program (Existing Accounts Only)
o 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.
o Contact MFIS to apply for this program.
[Graphic]Checkwriting (Money Market Fund Only)
o 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.
o Your check is treated as a redemption order for Fund shares equal to the
amount of the check.
o A check for an amount in excess of your available Fund account balance will be
returned marked "insufficient funds."
o Checks cannot be used to close your Fund account balance.
o Checks deposited or cashed through foreign banks or financial
institutions may be subject to local bank charges.
[Graphic] Marshall Funds OnLine/SM/
o 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.
[Graphic] Additional Conditions for Redemptions
Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:
o when you want a redemption to be sent to an address other than the one you
have on record with the Fund;
o when you want the redemption payable to someone other than the shareholder
of record; or
o when your redemption is to be sent to an address of record that was changed
within the last 30 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:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o 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.
The Funds will not be liable for losses due to unauthorized or fraudulent
telephone instructions as long as reasonable security procedures are followed.
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 that is detrimental to a Fund and its other shareholders. If
this occurs, the Fund may terminate a shareholder's purchase and/or exchange
privileges.
Account and Share Information [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 security concerns and 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:
Minimum Maximum
Purchases $50 $100,000
Redemptions By ACH: $50 By ACH: $50,000
By wire: $1,000 By wire: $50,000
Exchanges $50 $100,000
Shares may be redeemed or exchanged based on either 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.
You may not change your 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. If you utilize the Web Site for account histories or transactions,
you 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 their 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, malfunctions 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
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.
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 INCOME FUNDS and MONEY MARKET
FUND are declared daily and paid monthly. You will receive dividends declared
subsequent to the issuance of your shares, through the day your shares are
redeemed.
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.
[Graphic] What is a Dividend and Capital Gain?
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.
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 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Funds.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions to basic financial and operational
functions. The Funds shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems could also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase. However, this may be difficult with certain issuers. For example,
Funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Funds is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Funds.
<PAGE>
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,
LARGE-CAP GROWTH & INCOME FUND, and MID-CAP VALUE 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.
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.
[Graphic] Marshall Funds, Inc. Information
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 BPI
Global Asset Management LLP (BPI 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 June 30, 1999,
the Adviser had approximately $10.5 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. BPI Global Asset Management LLP is a registered
investment adviser and provides management for investment companies,
corporations, trusts, estates, pension and profit sharing plans, individuals and
other institutions located in both Canada and the United States. As of June 30,
1999, BPI had approximately $1.9 billion in assets under management. The
Sub-adviser's address is Tower Place at the Summit, 1900 Summit Tower Boulevard,
Suite 450, Orlando, Florida 32810.
Portfolio Managers. The EQUITY INCOME FUND is managed by Bruce P. Hutson,
who has been a vice president of the Adviser since 1973 and a member of the
equity policy group since January 1990. Mr. Hutson holds a B.B.A. degree from
the University of Wisconsin-Whitewater.
The LARGE-CAP GROWTH & INCOME FUND is managed by William J. O'Connor. Mr.
O'Connor has been a vice president of 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.
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 April 1994 to
June 1997, Mr. Potter was a senior securities analyst for the EQUITY INCOME
FUND. Previously, from November 1991 to April 1994, he was a senior auditor for
Marshall & Ilsley Corporation. 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 and the SMALL-CAP GROWTH FUND are 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 Daniel R. Jaworski, founder,
Managing Director and Chief Investment officer of the Sub-adviser. Prior to
founding BPI in March 1997, Mr. Jaworski was a portfolio manager at Lazard
Freres & Co. LLC, from June 1993 to December 1994, and from January 1995 to
March 1997 was a portfolio manager at STI Capital Management. Mr. Jaworski
received a B.A. in Economics and Computer Science from Concordia College and
received his M.B.A. in Finance from the University of Minnesota.
The GOVERNMENT INCOME FUND is managed by Joseph M. Cullen. Mr. Cullen
joined the Adviser in January 1999 and has managed the Fund since that time. He
was formerly a portfolio manager at Lincoln Investment Management, Inc. from
1997 to 1998, and was a portfolio analyst from 1991 to 1994. From 1994 to 1997
he was a fixed income portfolio manager at The Boston Company Asset Management,
Inc. Mr. Cullen, who is a Chartered Financial Analyst, received a B.A. in
Economics with a Minor in Mathematics from Ripon College, and a M.B.A. in
Finance from Carnegie Mellon University.
The INTERMEDIATE BOND FUND and SHORT-TERM INCOME 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 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 and has been the Director of the Group since
1998. He is a Chartered Financial Analyst and holds M.B.A. and B.S. degrees from
Marquette University.
The MONEY MARKET FUND is managed by Richard M. Rokus, who is a vice
president of 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%
Small-Cap Growth Fund 1.00%
International Stock 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, an affiliate of
the Adviser, is custodian of the assets and securities of the Marshall Funds,
shareholder services agent of the Funds, and provides sub-transfer agency and
other administrative services to the Funds and their shareholders directly and
through its division, Marshall Funds Investor Services. For each domestic Fund,
the annual custody fees are .02% of the first $250 million of assets held plus
..01% of assets exceeding $250 million, calculated on each Fund's average daily
net assets. The annual custody fees of the INTERNATIONAL STOCK FUND are 0.02% of
the first $250 million of assets held plus 0.01% of assets exceeding $250
million, calculated on the INTERNATIONAL STOCK FUND'S average daily net assets.
Marshall & Ilsley Trust Company is entitled to receive shareholder services fees
directly from the Equity and Income Funds and from the Money Market Fund in
amounts up to a maximum annual percentage of the Funds' average daily net assets
as follows:
Shareholder Services Fee
Equity Funds 0.25%
Income Funds 0.025%
Money Market Fund 0.02%
As shareholder services agent, Marshall & Ilsley Trust Company has the
discretion to waive a portion of its fees. However, any waivers of shareholder
services fees are voluntary and may be terminated at any time in its sole
discretion.
Marshall & Ilsley Trust Company receives an annual per-account fee which differs
among the Funds for sub-transfer agency services to trust and institutional
accounts maintained on its trust accounting system. Marshall & Ilsley Trust
Company also, from time to time, receives reimbursement from the Funds'
distributor and its affiliates for certain expenses incurred in marketing the
Funds and for other administrative services on behalf of shareholders.
<PAGE>
SUPPLEMENTAL PERFORMANCE INFORMATION OF THE SUB-ADVISER TO THE MARSHALL
INTERNATIONAL STOCK FUND
BPI Global Asset Management LLP (BPI) has served as sub-adviser for the Marshall
International Stock Fund ("the Fund") since March 29, 1999. Since the Fund's
inception on September 2, 1994 through March 29, 1999, the Fund had an
alternative sub-adviser. Daniel R. Jaworski, BPI's Managing Director, currently
serves as the portfolio manager for the Fund. Supplemental information is
presented below to summarize Mr. Jaworski's historical performance results for
various entities OTHER THAN THE MARSHALL INTERNATIONAL STOCK FUND. Historical
performance of these other accounts is not indicative of future results of the
Fund.
Mr. Jaworski was employed at STI Capital Management and managed the SUNTRUST
COMMINGLED FUND (a commingled investment fund with similar investment
objectives, policies, strategies and risks to the International Stock Fund) for
the period from February 1, 1995 to November 30, 1995. The following table
summarizes the returns of the Sun Trust Commingled Fund for the entire period
during which Mr. Jaworski managed the fund, as compared to the Morgan Stanley
Capital International Europe, Australia, and Far East Index (MSCI-EAFE).
<TABLE>
<CAPTION>
GROSS NET MSCI-EAFE The commingled fund was not a mutual fund
of Fees of Fees Performance registered under the Investment Company Act
of 1940 and therefore was not subject to
<S> <C> <C> <C> <C>
- ------------- ----------- ----------- ------------
1Q1995 (1) 6.70 6.46 5.93 certain diversification and investment
restrictions imposed by the
- ------------- ----------- ----------- ------------
- ------------- ----------- ----------- ------------
2Q1995 12.18 11.79 0.73 1940 Act. If the commingled fund had been
registerd under the
- ------------- ----------- ----------- ------------
3Q1995 11.94 11.55 4.17 1940 Act, the performance may have been
adversely affected.
- ------------- ----------- ----------- ------------
4Q1995 (2) 4.57 4.20 4.05
</TABLE>
(1) Not a full quarter - excludes performance from 1/1/1995 to 1/31/1995.
(2) Not a full quarter - excludes performance from 12/1/1995 to 12/31/1995.
Mr. Jaworski was subsequently promoted to Director of International Portfolio
Management & Research and Senior Portfolio Manager for the STI Classic
International Equity Fund (a mutual fund with investment objectives, policies,
strategies and risks similar to those of the Marshall International Stock Fund)
from December 1, 1995 to March 31, 1997. The following table summarizes the
returns of the STI CLASSIC INTERNATIONAL EQUITY FUND for the entire period
during which Mr. Jaworski managed the fund, as compared to the MSCI-EAFE Index:
<TABLE>
<CAPTION>
- ------------------ ---------- ----------- ------------ ---------------------------------------
GROSS NET MSCI-EAFE The average annual total return for
of Fees of Fees Performance the STI Classic International Fund
for the one-year from 4/1/96
<S> <C> <C> <C> <C>
- ------------------ ---------- ----------- ------------
12/1/95 - to 3/31/97 was 21.31% as compared
12/31/95 to 1.44% for the
- ------------------ ---------- ----------- ------------
1Q1996 MSCI-EAFE for the same period. In
addition, the
---------- ----------- ------------
---------- ----------- ------------
2Q1996 fund's average annual total return
from its inception on
---------- ----------- ------------
---------- ----------- ------------
3Q1996 12/1/95 to 3/31/97 was 32.00%,
compared to 6.39%
---------- ----------- ------------
---------- ----------- ------------
4Q1996 for the MSCI-EAFE for the same
period.
- ------------------ ---------- ----------- ------------
Annual 1996
---------- ----------- ------------
- ------------------
1Q1997
- ------------------ ---------- ----------- ------------ ---------------------------------------
Mr. Jaworski left STI Capital Management, along with several other investment
team members, to create BPI and serve as its Managing Director and Chief
Investment Officer. The following table sets forth BPI's composite performance
information relating to the performance of institutional private accounts
managed by BPI, during the periods indicated, that have investment objectives,
policies, strategies, and risks substantially similar to those of the Marshall
International Stock Fund. The performance information is provided to illustrate
BPI's historical performance in managing similar accounts as measured against
the MSCI-EAFE Index
<PAGE>
- -------------- ------------ ----------- ------------ -----------------------------------------
GROSS NET MSCI-EAFE The following accounts managed by BPI
of Fees of Fees Performance and Mr. Jaworski are not included in
the composite performance for
------------ ----------- ------------
- -------------- ------------ ----------- ------------
1Q1997 N/A N/A N/A the reasons noted include:
------------ ----------- ------------
------------ ----------- ------------
2Q1997 16.96 16.73 12.98 (1) three Canadian international
mutual funds, where
------------ ----------- ------------
------------ ----------- ------------
3Q1997 8.67 8.54 -0.70 "international" as defined by a
Canadian investor
------------ ----------- ------------
------------ ----------- ------------
4Q1997 -3.36 -3.48 -7.83 includes an allocation to the
U.S. and no allocation
- -------------- ------------ ----------- ------------
ANNUAL 1997 to Canada;
------------ ----------- ------------
- --------------
1Q1998 18.20 18.06 14.71 (2) Masters' Select International
Fund, a fund that uses
------------ ----------- ------------
------------ ----------- ------------
2Q1998 4.14 4.01 1.06 multiple subadvisers, one of
which is BPI; and
------------ ----------- ------------
------------ ----------- ------------
3Q1998 -12.38 -12.56 -14.21 (3) one private account that only
holds American
------------ ----------- ------------
------------ ----------- ------------
4Q1998 14.84 14.62 20.66 Depositary Receipts (ADRs).
- --------------
------------ ----------- ------------
ANNUAL 1998 23.86 23.06 20.00
------------ ----------- ------------
- --------------
1Q1999 0.35 0.15 1.39
------------ ----------- ------------
------------ ----------- ------------
2Q1999
- -------------- ------------ ----------- ------------ -----------------------------------------
</TABLE>
BPI represents that the composite performance information shown above has been
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"). AIMR is a non-profit membership and
education organization with more than 60,000 members worldwide that, among other
things, has formulated a set of performance presentation standards for
investment advisers (such as BPI). These AIMR performance presentation standards
are intended to (1) promote full and fair presentations by investment advisers
of their performance results, and (2) ensure uniformity in reporting so that
performance results of investment advisers are directly comparable.
The returns in each of the above tables are calculated on a total return basis
and include all dividends and interest, accrued income and all realized and
unrealized gains and losses. The "BPI/STI NET" figures reflect the deduction of
advisory and other fees paid by the accounts - "BPI/STI GROSS" does not include
these fees, but does include certain trading costs and embedded fees (e.g.,
"wrap fees") that cannot be unbundled and have been deducted. The investment
results of BPI have been audited up to September 30, 1998. Information from that
date to May 1, 1999 has not been verified by the Marshall Funds or Federated
Securities Corp. and is unaudited.
The BPI performance composite includes all actual, fee-paying, discretionary
institutional accounts managed by BPI that have investment objectives, policies,
strategies, and risks similar to those of the Marshall International Stock Fund.
Mr. Jaworski is the portfolio manager of each account included in the composite.
However, the Sun Trust Commingled Fund and BPI institutional accounts included
in BPI's composite differ from the Marshall International Stock Fund, in that
they are not subject to:
o the same types of expenses as the Marshall International Stock Fund;
o the investment limitations, diversification requirements, and other
restrictions imposed by the Investment Company Act of 1940; and o the
requirements of Subchapter M of the Internal Revenue Code.
As a result, the performance results for the Sun Trust Commingled Fund and BPI
institutional accounts could have been adversely affected if they had been
regulated as investment companies under the restrictions outlined above. In
addition, the performance figures are for a short period of time and should not
be indicative of long-term results.
Although the STI Classic International Equity Fund has objectives policies,
strategies, and risks similar to those of the Marshall International Stock Fund,
it is a separate fund and its performance is not indicative of the potential
performance of the Marshall International Stock Fund.
The MSCI-EAFE Index is a capitalization-weighted foreign securities index, which
is widely used to measure the performance of European, Australian, New Zealand,
and Far Eastern stock markets. The MSCI-EAFE is unmanaged. Investments may not
be made in an index. The Funds' Statement of Additional Information contains
further information on calculation of average annual total returns.
<PAGE>
Financial Highlights
[Financial Highlights to be filed by amendment]
<PAGE>
A Statement of Additional Information (SAI) dated October 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Funds' 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 each Fund's performance during their 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 53202
414-287-8555 or 800-236-FUND (3863)
Internet address: http://www.marshallfunds.com
TDD: Speech and Hearing Impaired Services
1-800-209-3520
G00714-01 (10/99)
SEC File No. 811-7047
<PAGE>
<PAGE>
[Marshall Funds Logo]
Marshall Funds Investor Services
1000 North Water Street
Milwaukee, Wisconsin 53202
800-236-FUND(3863)
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com
Federated Securities Corp., Distributor G00714-01(10/99)
M&I Investment Management Corp, Investment Adviser
(C)1999 Marshall Funds, Inc. All rights reserved.
MARSHALL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
CLASS Y SHARES
October 31, 1999
EQUITY FUNDS INCOME FUNDS
O MARSHALL EQUITY INCOME FUND O MARSHALL GOVERNMENTINCOME 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 SHORT-TERM INCOME FUND
O MARSHALL SMALL-CAP GROWTH FUND
O MARSHALL INTERNATIONAL STOCK FUND
MONEY MARKET FUND
O MARSHALL MONEY MARKET FUND
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the Class Y Shares prospectus for the Marshall
Funds listed above, dated October 31, 1999. 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).
1000 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
G00714-02(10/99)
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 14
DETERMINING MARKET VALUE OF SECURITIES 17
WHAT DO SHARES COST? 18
HOW ARE THE FUND SHARES SOLD? 18
HOW TO BUY SHARES 19
ACCOUNT AND SHARE INFORMATION 19
WHAT ARE THE TAX CONSEQUENCES? 20
WHO MANAGES THE FUNDS? 21
HOW DO THE FUNDS MEASURE PERFORMANCE? 28
PERFORMANCE COMPARISONS 31
ECONOMIC AND MARKET INFORMATION 34
FINANCIAL STATEMENTS 34
APPENDIX 35
ADDRESSES 38
<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
Under normal market conditions, the INTERNATIONAL STOCK FUND will invest at
least 65% of its assets in equity securities of companies located in at least
three
different countries outside the United States. Following is a table that
indicates which types of securities are a:
o P = PRINCIPAL investment of a Fund; (shaded in chart) o A = ACCEPTABLE (but
not principal) investment of a Fund; or o N = NOT AN ACCEPTABLE investment of a
Fund.
EQUITY FUNDS
<TABLE>
<CAPTION>
- -------------------------------------- ----------- ----------- ---------- ----------- ---------- -----------
SECURITIES EQUITY LARGE-CAP MID-CAP MID-CAP SMALL-CAP INTERNATIONAL
INCOME GROWTH & VALUE GROWTH GROWTH STOCK
INCOME
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------- ----------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
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 COMPANIES A A A A A P
- --------------------------------------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- -----------
CONVERTIBLE SECURITIES P A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ----------- ---------- ----------- ---------- -----------
DEBT OBLIGATIONS A A A A A A5
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
DERIVATIVE CONTRACTS AND SECURITIES A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
EUROPEAN DEPOSITARY RECEIPTS N N N N N A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FIXED RATE DEBT OBLIGATIONS A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FLOATING RATE DEBT OBLIGATIONS A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FOREIGN CURRENCY HEDGING TRANSACTIONS N N N N N A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FOREIGN CURRENCY TRANSACTIONS N N N N N A
- --------------------------------------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FOREIGN SECURITIES6 A A A A A P
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- -----------
FORWARD COMMITMENTS, WHEN-ISSUED AND A A A A A A
DELAYED DELIVERY TRANSACTIONS
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FUTURES AND OPTIONS TRANSACTIONS A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
GLOBAL DEPOSITARY RECEIPTS N N N N N A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
ILLIQUID AND RESTRICTED SECURITIES7 A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
LENDING OF PORTFOLIO SECURITIES A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
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 INVESTMENT A A A A A A
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 GOVERNMENT INTERMEDIATE INTERMEDIATE SHORT-TERM MONEY
INCOME BOND TAX-FREE INCOME MARKET
- -------------------------------------- ------------- ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
ASSET-BACKED SECURITIES2 P A A P A
- --------------------------------------- ------------ ------------- ------------- --------------
- --------------------------------------- ------------ ------------- ------------
BANK INSTRUMENTS3 A A A A P
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- --------------
BORROWING4 A A A A A
- ---------------------------------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
DEBT OBLIGATIONS P P P P P
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------
DEMAND MASTER NOTES N A N A P
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- --------------
DERIVATIVE CONTRACTS AND SECURITIES A A A A A
- --------------------------------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
FIXED RATE DEBT OBLIGATIONS P P P P A
- --------------------------------------- ------------ -------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
FLOATING RATE DEBT OBLIGATIONS A A P A P
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ -------------
FOREIGN SECURITIES6 A A N A N
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
FORWARD COMMITMENTS, WHEN-ISSUED AND A A A A A
DELAYED DELIVERY TRANSACTIONS
- --------------------------------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
FUNDING AGREEMENTS A A A A A
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
FUTURES AND OPTIONS TRANSACTIONS A A A A N
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
GUARANTEED INVESTMENT CONTRACTS N N N N A
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
ILLIQUID AND RESTRICTED SECURITIES7 A A A A A
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
LENDING OF PORTFOLIO SECURITIES A A A A A
- --------------------------------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
MORTGAGE-BACKED SECURITIES P A N A A
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------- -------------- ------------
MUNICIPAL LEASES A A A A N
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
MUNICIPAL SECURITIES A A P A N
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------
PARTICIPATION INTERESTS N N A N 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 INVESTMENT A A A A A
COMPANIES
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
SWAP TRANSACTIONS A A A A N
- --------------------------------------- ------------- -------------- ------------
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
U.S. GOVERNMENT SECURITIES P A A A A
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
- --------------------------------------- ------------- -------------- ------------
VARIABLE RATE DEMAND NOTES A A A A A
- --------------------------------------- ------------ ------------- ------------- -------------- ------------
</TABLE>
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 a
nationally recognized statistical rating organization (NRSRO) (securities rated
AAA, AA, A or BBB by Standard & Poor's (S&P) and Fitch IBCA, Inc. (Fitch) and
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)), 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 FUND may purchase foreign Bank Instruments. The EQUITY
FUNDS and MONEY MARKET FUND (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 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. The Fund may pledge more than 5% of its total assets
to secure such borrowings. 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 of 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
dollar 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 dollar 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 as 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 equal 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 securities. 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. Derivative contracts are financial instruments that
require payments based upon changes in the values of designated (or underlying)
securities, currencies, commodities, financial indices or other assets. Some
derivative contracts (such as futures, forwards and options) require payments
relating to a future trade involving the underlying asset. Other derivative
contracts (such as swaps) require payments relating to the income or returns
from the underlying asset. The other party to a derivative contract is referred
to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges.
In this case, the exchange sets all the terms of the contract except for the
price. Investors make payments due under their contracts through the exchange.
Most exchanges require investors to maintain margin accounts through their
brokers to cover their potential obligations to the exchange. Parties to the
contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty.
Trading contracts on an exchange also allows investors to close out their
contracts by entering into offsetting contracts. For example, the Fund could
close out an open contract to buy an asset at a future date by entering into an
offsetting contract to sell the same asset on the same date. If the offsetting
sale price is more than the original purchase price, the Fund realizes a gain;
if it is less, the Fund realizes a loss. Exchanges may limit the amount of open
contracts permitted at any one time. Such limits may prevent the Fund from
closing out a position. If this happens, the Fund will be required to keep the
contract open (even if it is losing money on the contract), and to make any
payments required under the contract (even if it has to sell portfolio
securities at unfavorable prices to do so). Inability to close out a contract
could also harm the Fund by preventing it from disposing of or trading any
assets it has been using to secure its obligations under the contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. 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.
EUROPEAN CURRENCY UNIFICATION
Eleven of the fifteen member countries of the European Union will adopt a single
European currency, the euro. The euro will become legal tender in these
countries effective January 1, 1999. The countries participating in the Economic
and Monetary Union (EMU) are Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The notable
countries missing from the new unified currency are Great Britain, Denmark,
Sweden and Greece. A new European Central Bank (ECB) will be created to manage
the monetary policy of the new unified region. On the same day, the exchange
rates will be irrevocably fixed between the EMU member countries. National
currencies will continue to circulate until they are replaced by euro coins and
bank notes by the middle of 2002. This change is likely to significantly impact
the European capital markets in which the fund invests a portion of its assets.
The biggest changes will be the additional risks that the fund will face in
pursuing its investment objective. All of the risks described below may increase
the fund's share price volatility. UNCERTAINTIES AS UNIFICATION NEARS TAXES. IRS
regulations generally provide that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent the taxpayer's rights and
obligations are altered solely by reason of the euro conversion. However, other
change that may occur contemporaneously to indices, accrual periods, holiday
conventions, or other features may require the realization of gain or loss by
the Fund. VOLATILITY OF CURRENCY EXCHANGE RATES. Exchange rates between the U.S.
dollar and European currencies will likely become more volatile and unstable.
CAPITAL MARKET REACTION. Uncertainly in the lead-up to introduction of the euro
may lead to a shift by institutional money managers away from European
currencies and into other currencies. This reaction may make markets less liquid
and thus more difficult for the Fund to pursue its investment strategy.
CONVERSION COSTS. European issuers of securities in which the fund invests,
particularly those that deal in goods and services, may face substantial
conversion costs. These costs may not be accurately anticipated and therefore
present another risk factor that may affect issuer profitability and
creditworthiness. UNCERTAINTIES AFTER UNIFICATION OF CURRENCY CONTRACT
CONTINUITY. Some financial contracts may become unenforceable when the
currencies are unified. These financial contracts may include bank loan
agreements, master agreements for swaps and other derivatives, master agreements
for foreign exchange and currency option transactions and debt securities. The
risk of unenforceability may arise in a number of ways: For example, a contract
used to hedge against exchange-rate volatility between two EU currencies will
become "fixed," rather than "variable," as part of the conversion since the
currencies have, in effect, disappeared for exchange purposes. The European
Council has enacted laws and regulations designed to ensure that financial
contracts will continue to be enforceable after conversion. There is no
guarantee, however, that these laws will be completely effective in preventing
disputes from arising. Disputes and litigation over these contract issues could
negatively impact the Fund's portfolio holdings and may create uncertainties in
the valuation of financial contracts the Fund holds. ECB POLICYMAKING. As the
ECB and European market participants search for a common understanding of policy
targets and instruments, interest rates and exchange rates could become more
volatile.
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 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 other 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 the 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. The Funds currently lend
their portfolio securities through M&I Trust Company, as agent, and reimburse
M&I Trust for its costs. The Funds and M&I Trust have applied to the Securities
and Exchange Commission for an order that would permit M&I Trust to charge, and
the Funds to pay, market-based compensation for M&I Trust's services. 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 investments of cash collateral, usually fixed-income
securities risk. 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, IO
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 higher 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, real estate mortgage investment
conduits (REMICs) (offerings of multiple class mortgage backed securities which
qualify and elect treatment as such under provisions of the Internal Revenue
Code) 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.
<PAGE>
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 may 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.
<PAGE>
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
investing in short-term debt securities, taxable or tax-free Municipal
Securities (for the INTERMEDIATE TAX-FREE FUND) and foreign short-term debt
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
for a Fund unless authorized by the "majority of the outstanding voting
securities" of that Fund, as defined by the Investment Company Act. 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 the INTERMEDIATE BOND FUND,
the SHORT-TERM INCOME 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 development 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).
<PAGE>
(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 liquid
assets 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. 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 a fair value as determined in good faith
by the Board.
The Funds may value securities at prices provided by independent pricing
services that may not rely 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. WHAT DO SHARES
COST?
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value 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?" HOW ARE THE FUND SHARES
SOLD?
Under the Distributor's Contract with the Funds, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
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
Marshall & Ilsley Trust Company, through MFIS, is the shareholder servicing
agent for the MONEY MARKET FUND. As such, MFIS provides shareholder services
which include, but are not limited to, distributing prospectuses and other
information, providing shareholder assistance, and communicating or facilitating
purchases and redemption of shares. The Funds may pay Marshall & Ilsley Trust
Company for providing shareholder services and maintaining shareholder accounts.
Marshall & Ilsley Trust Company may select others (including Federated
Shareholder Services, a subsidiary of Federated Investors, Inc.) to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Marshall & Ilsley Trust Company (but not out of Fund assets). The
Distributor and/or Marshall & Ilsley Trust Company may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, Authorized Dealers may be paid
cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the Authorized Dealer sells or
may sell and/or upon the type and nature of sales or marketing support furnished
by the Authorized Dealer.
HOW TO BUY SHARES
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.
REDEMPTION IN KIND
Although the Funds intend to pay share redemptions in cash, the Funds reserve
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 of
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. ACCOUNT AND SHARE
INFORMATION 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. As of October __,
1999, the following shareholders of each Fund owned of record 5% or more of a
Fund's outstanding Shares: [To be filed by amendment]
Shareholders owning 25% or more of the outstanding Shares of a Fund may be in
control and be able to affect the outcome of certain matters presented for a
vote of shareholders.
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. If these requirements are not met, it will not receive
special tax treatment and will pay federal income tax. 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.
<PAGE>
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 are
classified as Passive Foreign Investment Companies (PFIC). The Funds may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of a Fund's 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 provisions 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 a Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns. The Funds expect that only INTERNATIONAL STOCK FUND will qualify
for these Code provisions.
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 realized by the Funds, could result in an increase in
distributions. Capital losses could result in a decrease in distributions. When
a Fund realizes net long-term capital gains, it will distribute them at least
once every 12 months. 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 October __, 1999, the Funds'
Board and Officers as a group owned [approximately # (__%)] [less than 1%] of a
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.
<PAGE>
<TABLE>
<CAPTION>
NAME AGGREGATE
BIRTHDATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH FOR PAST 5 YEARS CORPORATION
CORPORATION
<S> <C> <C>
JOHN DEVINCENTIS Independent Financial Consultant; Retired, $15,000
formerly, Senior Vice President of Finance,
Age: 65 In-Sink-Erator Division of Emerson Electric.
4700 21st Street
Racine, WI 53406
DIRECTOR
<PAGE>
NAME AGGREGATE
BIRTHDATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH FOR PAST 5 YEARS CORPORATION
CORPORATION
JAMES MITCHELL** Group Vice President, Citation Corporation; $15,000
Age: 52 President and Chief Executive Officer,
4051 North 27th Street Interstate Forging Industries; Chairman,
Milwaukee, WI Ayrshire Precision Engineering.
DIRECTOR
DUANE E. DINGMANN** Retired; formerly President and owner, $15,000
Age: 68 Trubilt Auto Body, Inc. and Telephone
1631 Harding Avenue Specialists, Inc.; formerly Class B
Eau Claire, WI 54701 (nonbanking) Director, Ninth Federal
DIRECTOR Reserve District, Minneapolis, MN.
BARBARA J. POPE** President, Barbara J. Pope, P.C., a $15,000
Age: 51 financial consulting firm; President,
115 South LaSalle Street Sedgwick Street Partners LLC general
Suite 2285 partner of a private investment partnership.
Chicago, IL
DIRECTOR
JOHN M. BLASER**+ Vice President, Marshall & Ilsley Trust $0
Age: 42 Company; formerly, Partner and Chief
1000 North Water Street Financial Officer, Artisan Partners Limited
Milwaukee, WI Partnership; formerly, Chief Financial
PRESIDENT and DIRECTOR Officer and Principal Administrative and
Finance Officer, Artisan Funds, Inc.;
formerly, Senior Vice President, Kemper
Securities.
DAVID W. SCHULZ**+ President and Director, M&I Investment $0
Age: 41 Management Corp.; Vice President, Marshall
1000 North Water Street & Ilsley Trust Company.
Milwaukee, WI 53202
DIRECTOR
JO A. DALES Vice President, Marshall & Ilsley Trust $0
Age: 38 Company. Formerly, Senior Audit Manager of
1000 North Water Street Marshall & Ilsley Corporation and
Milwaukee, WI Operations Specialist for Firstar Trust
VICE PRESIDENT Company.
ANN K. PEIRICK Assistant Vice President, Marshall & Ilsley $0
Age: 45 Trust Company. Formerly, Senior Financial
1000 North Water Street Analyst - Community Bank Finance and
Milwaukee, WI Manager of Corporate Financial Analysis,
TREASURER Bank One, Wisconsin.
BROOKE J. BILLICK Vice President and Securities Counsel, $0
Age: 45 Marshall & Ilsley Trust Company, M&I
1000 North Water Street Investment Management Corp.; formerly,
Milwaukee, WI shareholder, Gibbs, Roper, Loots & Williams
SECRETARY SC.
** Elected as a Director on May 24, 1999.
</TABLE>
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 Corporation. 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 lending relationships affiliates of the Adviser
with an issuer. SUB-ADVISER TO INTERNATIONAL STOCK FUND
BPI Global Asset Management LLP (BPI) is the Sub-adviser to the INTERNATIONAL
STOCK FUND. It is the Adviser's responsibility to select a Sub-adviser for the
INTERNATIONAL STOCK FUND that has distinguished itself in its area of expertise
in asset management and to review the Sub-adviser's performance. The Adviser
provides investment management evaluation services by performing initial due
diligence on BPI and thereafter monitoring BPI's performance through
quantitative and qualitative analysis, as well as periodic in-person, telephonic
and written consultations with BPI. In evaluating BPI, the Adviser considers,
among other factors, BPI'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 BPI
and ultimately recommending to the Corporation's Directors whether BPI'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 BPI, the
custodian, the transfer agent, and the administrator. Although BPI'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 BPI's individual security selections. BPI has complete discretion to
purchase, manage and sell portfolio securities for the INTERNATIONAL STOCK FUND,
subject to the INTERNATIONAL STOCK FUND'S investment goal, policies and
limitations. For its services under the Sub-advisory Agreement, the Sub-adviser
receives a fee at the annual rate of 0.40% of the INTERNATIONAL STOCK FUND'S
average daily net assets. The Sub-adviser is paid by the Adviser and not by the
INTERNATIONAL STOCK FUND. However, BPI will furnish to the Adviser such
investment advice, statistical andother factual information as requested by the
Adviser. BPI, headquartered in Orlando, Florida, provides portfolio management
services for investment companies, corporations, trusts, estates, pension and
profit sharing plans, individuals, and other institutions located in both Canada
and the United States, and is an investment adviser registered with the U.S.
Securities and Exchange Commission. BPI was formed in March 1997 as a Delaware
limited liability partnership between BPI Global Holdings USA, Inc. (BPI
Holdings USA) as a 51% partner, and JBS Advisors, Inc. (JBS) as a 49% partner.
BPI Holdings USA is a wholly-owned subsidiary of BPI Global Holdings, Inc.,
which is a wholly-owned subsidiary of BPI Financial Corporation, located at
Toronto, Ontario (Canada). JBS is owned by BPI's portfolio managers and its
President. For the period from May 1, 1999 to August 31, 1999, the Adviser paid
BPI $______. BPI became Sub-adviser on March 29, 1999, but was compensated for
advisory services beginning May 1, 1999. Prior to March 26, 1999, Templeton
Investment Counsel, Inc. (TICI) served as the INTERNATIONAL STOCK FUND'S former
Sub-adviser. For the period from September 1, 1998 to May 1, 1999 (the effective
date of termination of TICI's sub-advisory contract), the Adviser paid TICI
$______. For the fiscal years ended August 31, 1998 and 1997, the Adviser paid
TICI $1,072,613 and $816,182, respectively. 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.
<PAGE>
BROKERAGE TRANSACTIONS
The Adviser and/or BPI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or BPI 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, BPI, 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 BPI in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser, BPI, or their affiliates might otherwise have paid, it would tend to
reduce their expenses. Aggregate total commissions with brokers that
provided research were $_______ on transactions with an aggregate principal
value of $_________. ADMINISTRATOR
Federated Administrative Services (FAS), 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):
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 AUDITORS
Ernst & Young LLP, Boston, Massachusetts is the independent auditor for the
Funds.
FEES PAID BY THE FUNDS FOR SERVICES
<TABLE>
<CAPTION>
- ------------------- --------------------------------- ---------------------------- -------------------------------
FUND NAME ADVISORY FEE PAID/ BROKERAGE COMMISSIONS PAID ADMINISTRATIVE FEE PAID
ADVISORY FEE WAIVED
<S> <C> <C> <C>
---------------------------- -------------------------------
--------------------------------- ---------------------------- -------------------------------
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
AUGUST 31 AUGUST 31 AUGUST 31
--------------------------------- ---------------------------- -------------------------------
-----------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- -------------------
-----------------------------------------------------------------------------------------------
EQUITY INCOME FUND $___ $3,596,326 $1,964,826 $___ $861,077 $468,108 $___ $403,594 $227,695
$0 $0
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LARGE-CAP GROWTH $___ $2,284,566 $1,877,032 $___ $216,531 $309,709 $___ $256,720 $217,817
& INCOME FUND $0 $0
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
MID-CAP VALUE FUND $___ $1,245,164 $1,245,668 $___ $444,003 $364,246 $___ $139,888 $144,711
$0 $0
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
MID-CAP GROWTH $___ $1,676,595 $1,288,819 $___ $481,875 $580,150 $___ $188,403 $149,489
FUND $0 $0
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
SMALL-CAP GROWTH $___ $857,023 $368,209 $___ $142,276 $117,618 $___ $102,843 $44,185
FUND $0 $0
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
INTERNATIONAL $___ $2,504,141 $1,857,261 $___ $265,289 $340,030 $___ $211,050 $161,481
STOCK FUND $0 $0
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME $___ $1,833,350 $1,304,960 N/A N/A N/A $___ $205,934 $151,306
FUND $272,859 $272,824
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
INTERMEDIATE BOND $___ $3,105,550 $2,440,381 N/A N/A N/A $___ $435,828 $354,123
FUND $333,362 $346,194
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
INTERMEDIATE $___ $570,658 $463,700 N/A N/A N/A $___ $80,183 $67,231
TAX-FREE FUND $266,927 $238,359
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
SHORT-TERM INCOME $___ $846,144 $736,245 N/A N/A N/A $___ $118,980 $106,697
FUND $451,276 $429,010
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND $___ $7,729,527 $6,354,005 N/A N/A N/A $___ $1,302,763 $1,105,666
$3,846,385 $3,304,082
- ------------------------------------------------------------------------------------------------------------------
N/A - NOT APPLICABLE
</TABLE>
<PAGE>
FOR THE FISCAL YEAR ENDED AUGUST 31,1999
- --------------------------------- -------------------------
FUND SHAREHOLDER SERVICES
FEE/
SHAREHOLDER SERVICES
FEE WAIVED
- --------------------------------- -------------------------
- --------------------------------- -------------------------
EQUITY INCOME FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
LARGE-CAP GROWTH & INCOME FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
MID-CAP VALUE FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
MID-CAP GROWTH FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
SMALL-CAP GROWTH FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
INTERNATIONAL STOCK FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
GOVERNMENT INCOME FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
INTERMEDIATE BOND FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
INTERMEDIATE TAX-FREE FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
SHORT-TERM INCOME FUND $_____
$---
- --------------------------------- -------------------------
- --------------------------------- -------------------------
MONEY MARKET FUND $________
- --------------------------------- -------------------------
HOW DO THE FUNDS 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.
<PAGE>
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. 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 Class Y 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 Y Shares (formerly, Class A
Shares) for the seven-day period ended August 31, 1999, 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. 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. The INTERMEDIATE TAX-FREE FUND'S tax-equivalent yield for
the 30-day period ended August 31, 1999 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 Class Y 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 Y Shares (formerly, Class A
Shares) for the seven-day period ended August 31, 1999, was ____%.
<PAGE>
------------------------ ----------------------- -----------------------
FUND AVERAGE ANNUAL TOTAL YIELD
RETURN for the 30-day period
for the following ended August 31, 1999
periods ended August
31, 1999
----------------------- -----------------------
----------------------- -----------------------
CLASS Y SHARES CLASS Y SHARES
One Year
Five Year
Since Inception
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Equity Income Fund ___% ___%
---%
___%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Large-Cap Growth & ___% ___%
Income Fund ___%
___%(b)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Mid-Cap Value Fund ___% ___%
---%
___%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Mid-Cap Growth Fund ___% ___%
---%
___%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Small-Cap Growth Fund ___% ___%
N/A
___%(c)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
International Stock ___% N/A
Fund N/A
___%(d)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Government Income Fund ___% ___%
---%
___%(f)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Intermediate Bond Fund ___% ___%
---%
___%(b)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Intermediate Tax-Free ___% ___%
Fund N/A
___%(g)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Short-Term Income Fund ___% ___%
---%
___%(e)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Money Market Fund ___% ___%
---%
___%(b)
------------------------ ----------------------- -----------------------
A) October 1, 1993
B) November 23, 1992
C) September 3, 1996
D) September 2, 1994
E) November 2, 1992
F) December 14, 1992
G) February 2, 1994
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 1999
MULTISTATE MUNICIPAL FUND
<TABLE>
<CAPTION>
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
JOINT $1- $43,051- $104,051- $158,551- OVER
RETURN 42,050 104,050 158,550 283,150 $283,150
SINGLE $1- $25,751- $62,451- $130,251- OVER
RETURN 25,750 62,450 130,250 283,150 $283,150
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%
</TABLE>
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.
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 sources the Funds believe are
reliable 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, 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 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 RUSSELL 1000 GROWTH INDEX consists of those Russell 2000 securities
with a greater-than-average growth orientation. Securities in this index
tend to exhibit higher price-to-book and price-earnings ratios, lower
dividend yields and higher forecasted growth rates.
o RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used
to compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.
o STANDARD & POOR'S RATINGS GROUP SMALL STOCK INDEX is a broadly
diversified index consisting of approximately 600 small capitalization
common stocks that can be used to compare to the total returns of funds
whose portfolios are invested primarily in small capitalization common
stocks.
o 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.
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 $5
trillion to the more than 7,300 mutual funds available. FINANCIAL STATEMENTS
[Financial Statements to be filed by amendment]
<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.
<PAGE>
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
MARSHALL EQUITY INCOME FUND MARSHALL LARGE-CAP GROWTH & INCOME FUND MARSHALL
MID-CAP VALUE FUND MARSHALL MID-CAP GROWTH FUND MARSHALL SMALL-CAP GROWTH FUND
MARSHALL INTERNATIONAL STOCK FUND MARSHALL GOVERNMENT INCOME FUND MARSHALL
INTERMEDIATE BOND FUND
MARSHALL INTERMEDIATE TAX-FREE FUND
MARSHALL SHORT-TERM INCOME FUND
MARSHALL MONEY MARKET FUND
1000 North Water Street
Milwaukee, Wisconsin 53202
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
Sub-adviser to MARSHALL INTERNATIONAL STOCK FUND
BPI Global Asset Management LLP 1900 Summit Tower Boulevard
Suite 450
Orlando, Florida 32810
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, a division of 1000 North Water Street
Marshall & Ilsley Trust Company P.O. Box 1348
Milwaukee, Wisconsin 53202
Legal Counsel Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, IL 60602-4207
Independent Auditors
Ernst & Young LLP 200 Clarendon Street
Boston, MA 02116-5072
Marshall Funds Investor Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53202
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 MARSHALL FUNDS]
The Marshall Family of Funds
Investment Information
and Prospectus
Class A Shares
OCTOBER 1999
[Graphic] Marshall Equity Income Fund
[Graphic] Marshall Large-Cap Growth & Income Fund
[Graphic] Marshall Mid-Cap Value Fund
[Graphic] Marshall Mid-Cap Growth Fund
[Graphic] Marshall Small-Cap Growth Fund
[Graphic] Marshall International Stock Fund
[Graphic] Marshall Government Income Fund
[Graphic] Marshall Intermediate Bond Fund
[Graphic] Marshall Money Market Fund
<PAGE>
<PAGE>
[LOGO MARSHALL FUNDS]
Class A Shares
Table of Contents
[Table of Contents to be filed by amendment.]
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
October 31, 1999
<PAGE>
Risk/Return Profile
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).
Risk/Return Profile of Mutual Funds
[Graphic]
Potential Return
Equity Funds
Income Funds
Money Market Funds
Potential Risk
Equity Funds
Marshall Equity Income Fund
Marshall Large-Cap Growth & Income Fund
Marshall Mid-Cap Value Fund
Marshall Mid-Cap Growth Fund
Marshall Small-Cap Growth Fund
Marshall International Stock Fund
Income Funds
Marshall Government Income Fund
Marshall Intermediate Bond Fund
Money Market Fund
Marshall Money Market Fund
<PAGE>
Principal Risks of the Funds
<TABLE>
<CAPTION>
Stock Foreign Debt Municipal Asset/Mortgage
Market Securities Securities Securities Backed Securities Sector
Risks Risks Risks Risks Risks Risks
<S> <C> <C> <C> <C> <C> <C>
Marshall Equity
Income Fund X X
Marshall Large-Cap
Growth & Income Fund X X
Marshall Mid-Cap
Value Fund X X
Marshall Mid-Cap
Growth Fund X X
Marshall Small-Cap
Growth Fund X X
Marshall International
Stock Fund X X X
Marshall Government IncomeFund X X
Marshall Intermediate Bond Fund X X
Marshall Money Market
Fund X X
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A complete description of these risks can be found in the "Main Risks of
Investing in the Marshall Funds" section.
<PAGE>
Equity Funds [Graphic]
Marshall Equity Income Fund
[Graphic] Goal: To provide capital appreciation and above-average dividend
income.
Strategy: The Fund invests in a diversified portfolio of common stocks of
large-sized companies. The Fund attempts to generate dividend income at least 1%
more than the income earned on stocks in the S&P 500 Index (S&P 500).
Annual Total Return (calendar years 1994-1998)
The graphic presentation here displayed 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 five 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 December 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 appears directly above each
respective bar, for the calendar years 1994 through 1998, are: -1.63%, 34.22%,
21.18%, 27.53%, and 10.48%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 11.67%
Worst quarter (3Q98) (7.75%)
Most recent quarter (2Q99) 11.45%
Average Annual Total Return through 12/31/98*
Since 9/30/93
inception 1 Year 5 Year
Fund 16.93% 10.48% 17.65%
S&P 500 23.32% 28.58% 24.06%
LEIFI 16.03% 11.78% 16.62%
Marshall Large-Cap Growth & Income Fund
[Graphic] Goal: To provide capital appreciation and income.
Strategy: The Fund invests in a diversified portfolio of common stocks of
large-sized companies whose market capitalization 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 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 3.35%, -5.79%,
33.20%, 14.66%, 26.24% and 26.18%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 22.67%
Worst quarter (3Q98) (10.08%)
Most recent quarter (2Q99) 7.98%
<PAGE>
Average Annual Total Return through 12/31/98*
Since 11/20/92
inception 1 Year 5 Year
Fund 15.43% 26.18% 18.04%
S&P 500 21.65% 28.58% 24.06%
LGIFI 17.33% 13.58% 17.83%
*The table shows each Fund's average annual total returns for the Class Y
Shares compared to a broad-based market index over a period of time. In
addition, the performance of Equity Income Fund's Class Y Shares is compared to
the Lipper Equity Income Funds Index (LEIFI), and the performance of Large-Cap
Growth & Income Fund's Class Y Shares 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.
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,
which would lower these returns.
<PAGE>
Marshall Mid-Cap Value Fund
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in a diversified portfolio of common stocks of
companies similar in size to those within the S&P 400 Mid-Cap 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 or 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 1994-1998)
The graphic presentation here displayed 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 five 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 December 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 appears directly above each
respective bar, for the calendar years 1994 through 1998, are: 2.08%, 25.39%,
13.91%, 23.38%, and 5.15%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 12.36%
Worst quarter (3Q98) (13.20%)
Most recent quarter (2Q99) 16.73%
Average Annual Total Return through 12/31/98*
Since 9/30/93
inception 1 Year 5 Year
Fund 13.37% 5.15% 13.59%
SPMC 18.45% 19.09% 18.84%
LMCFI 14.89% 13.92% 15.20%
Marshall Mid-Cap Growth Fund
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in a diversified portfolio of common stocks of
companies similar in size to those within the S&P 400 Mid-Cap 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 1994-1998)
The graphic presentation here displayed 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 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 December 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 appears directly above each
respective bar, for the calendar years 1994 through 1998, are: -5.64%, 33.74%,
20.61%, 22.73%, and 15.72%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 30.61%
Worst quarter (3Q98) (22.90%)
Most recent quarter (2Q99) 7.50%
<PAGE>
Average Annual Total Return through 12/31/98*
Since 9/30/93
inception 1 Year 5 Year
Fund 16.17% 15.72% 16.67%
SPMC 18.45% 19.09% 18.84%
LMCFI 14.89% 13.92% 15.20%
*The table shows each Fund's average annual total returns for the Class Y
Shares compared to a broad-based market index over a period of time. In
addition, the performance of Class Y Shares for the Mid-Cap Value Fund and
Mid-Cap Growth Fund is 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.
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, which would lower these
returns.
<PAGE>
Marshall Small-Cap Growth Fund/1/
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in a diversified portfolio of common stocks of
small-sized companies similar in size to those within the Russell 2000 Index.
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 years 1996-1998)
The graphic presentation here displayed 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 three years.
The "y" axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 10.00% up to 60.00%.
The "x" axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 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 appears directly above each
respective bar, for the calendar years 1996 through 1998, are: 50.39%, 23.18%,
and 3.41%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 30.28%
Worst quarter (3Q98) (27.56%)
Most recent quarter (2Q99) 8.78%
Average Annual Total Return through 12/31/98*
Since 11/1/95
inception 1 Year
Fund 29.65% 3.41%
Russell 2000 11.65% (2.78%)
LSCFI 10.30% (0.85%)
Marshall International Stock Fund
[Graphic] Goal: To provide capital appreciation.
Strategy: The Fund invests in common stocks of companies located outside the
United States. BPI Global Asset Management, LLP is the sub-adviser of the Fund.
BPI uses a "bottom-up" approach to international investing within overall
portfolio management guidelines. The stock selection process begins with
identifying companies of any size within industry groups that have historically
been successful and have a competitive advantage as evidenced by above-average
profit margins, high returns on equity, low leverage and adequate cash flow. The
selection process seeks to identify quality companies with attractive returns on
equity, shareholder-oriented management, and a strong capital structure. Stocks
are selected and retained when they are attractively valued within their
industry by using traditional valuation measures such as price-to-book and
price-to-earnings ratios, resulting in an approach described as "quality
companies at a reasonable price." The portfolio management team closely monitors
the Fund's industry weightings and country weightings in relation to its
performance benchmark.
Annual Total Return (calendar years 1995-1998)
The graphic presentation here displayed 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 four 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 December 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 appears directly above each
respective bar, for the calendar years 1995 through 1998, are: 11.55%, 19.65%,
10.86%, and 3.26%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (4Q98) 16.30%
Worst quarter (3Q98) (19.06%)
Most recent quarter (2Q99) 2.98%
<PAGE>
Average Annual Total Return through 12/31/98**
Since 9/1/94
inception 1 Year
Fund 8.65% 3.26%
EAFE Index 7.73% 20.00%
LIFI 8.41% 12.66%
/1/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 29.65% through 12/31/98. 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.
*The table shows the Fund's average annual total returns for the Class Y
Shares over a period of time relative 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.
As with all mutual funds, past performance does not necessarily predict future
performance.
**The table shows the Fund's average annual total returns for the Class Y Shares
over a period of time relative to the Morgan Stanley Capital International
Europe, Australia and Far East Index (EAFE Index), which is an index of
international stocks and the Lipper International Funds Index (LIFI), which is
an index of funds with similar investment objectives.
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,
which would lower these returns.
<PAGE>
[Graphic] Income Funds
Marshall Government Income Fund
[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 strategy. Current and historical
interest rate relationships are used to evaluate market sectors and individual
securities. The Fund generally maintains an average dollar-weighted maturity of
four to 12 years.
Annual Total Return (calendar years 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 5.99%, -2.74%,
16.97%, 3.04%, 8.43%, and 6.51%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 4.92%
Worst quarter (1Q94) (2.13%)
Most recent quarter (2Q99) (0.37%)
Average Annual Total Return through 12/31/98*
Since 12/13/92
inception 1 Year 5 Year
Fund 6.24% 6.51% 6.24%
LMI 7.29% 6.95% 7.23%
LUSMI 6.17% 6.13% 5.70%
Marshall Intermediate Bond Fund
[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's strategy to achieve total return is to adjust the
Fund's weightings in these sectors as it deems appropriate. The Adviser uses
macroeconomic, credit and market analysis to select portfolio securities. The
Fund maintains an average dollar-weighted maturity of three to 10 years.
<PAGE>
Annual Total Return (calendar years 1993-1998)
The graphic presentation here displayed 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 six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 6.88%, -3.06%,
15.46%, 2.41%, 7.18%, and 6.33%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 4.68%
Worst quarter (1Q96) (2.03%)
Most recent quarter (2Q99) (0.13%)
Average Annual Total Return through 12/31/98**
Since 11/23/92
inception 1 Year 5 Year
Fund 5.78% 6.33% 5.49%
LGCI 7.10% 8.44% 6.66%
LSIBF 6.23% 6.99% 5.96%
*The table shows the Fund's average annual total returns for the Class Y
Shares over a period of time 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 index of funds with similar investment objectives.
**The table shows the Fund's average annual total returns for the Class Y Shares
over a period of time relative to the Lehman Brothers Government/Corporate
Intermediate Index (LGCI), a broad-based market index, and Lipper
Short/Intermediate Investment Grade Bond Funds Index (LSIBF), an average of
funds with similar objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
NOTE: The Bar Chart and Performance Information for Government Income Fund and
Intermediate Bond 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 the extent that the classes do not have the same
expenses. The total returns do not reflect the payment of any sales charges.
<PAGE>
Money Market Fund [Graphic]
Marshall Money Market Fund
[Graphic] Goal: To provide current income consistent with stability of
principal.
Strategy: The Fund invests in high quality, short-term money market
instruments. 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 the Fund seeks 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 1993-1998)
The graphic presentation here displayed consists of a bar chart representing the
annual total returns of Marshall Money Market Fund (Fund) as of the calendar
year-end for each of six 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 December 31,
1998. The light gray shaded chart features six 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 appears directly above each
respective bar, for the calendar years 1993 through 1998, are: 2.99%, 4.06%,
5.78%, 5.27%, 5.44%, and 5.42%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges had been
included, the returns shown would have been lower.
Total Return
Best quarter (2Q95) 1.38%
Worst quarter (2Q93) 0.64%
Most recent quarter (2Q99) 1.17%
7-Day Net Yield
7-Day Net Yield (as of 12/31/98)* 4.73%
Average Annual Total Return through 12/31/98**
Since 12/17/92
inception 1 Year 5 Year
Fund 4.50% 5.11% 4.88%
DMFA 4.48% 5.04% 4.86%
*Investors may call the Fund to learn the current 7-Day Net Yield at 1-800-
580-FUND(3863).
**The table shows the Fund's average annual total returns over a period of time
relative to the IBC/Donoghue's Money Fund Average(DMFA), an average of money
funds with similar objectives.
<PAGE>
Fees and Expenses of the Funds
[To be filed by amendment]
<PAGE>
Main Risks of Investing in the Marshall Funds [Graphic]
General Risks. 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.
Stock Market Risks. The EQUITY FUNDS are subject to fluctuations in the
stock markets, which have periods of increasing and decreasing values. Stocks
are more volatile than debt securities. Greater volatility increases risk, but
offers the potential for greater reward.
[Graphic] What About Portfolio Turnover?
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 increases transaction expenses that 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 shareholders, are
taxable to them.
Stock market 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, 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.
<PAGE>
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.
Euro Risks. The INTERNATIONAL STOCK FUND makes significant investments in
securities denominated in the Euro, the new single currency of the European
Monetary Union (EMU). Therefore, the exchange rate between the Euro and the U.S.
dollar will have a significant impact on the value of the INTERNATIONAL STOCK
FUND'S investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals.
Debt Securities Risks. Risks of debt 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 anticipate interest rate movements, there is no guarantee that it
will be able to do so.
[Graphic] What About Bond Ratings?
When the Funds invest in bonds and other debt securities and/or convertible
securities,some will be rated in the lowest investment grade category (e.g., BBB
or Baa). Bonds rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics. Unrated bonds will be
determined by the Adviser to be of like quality and may have greater risk (but a
potentially higher yield) than comparable rated bonds. If a bond is downgraded,
the Adviser will re-evaluate the bond and determine whether or not the bond 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.
<PAGE>
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.
Debt 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.
Sector Risks. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
Temporary Defensive 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 (for example, 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 [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 NAV.
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 3:00 p.m. Central Time) each day the NYSE is
open. The NAV for the MONEY MARKET FUND is determined twice daily at 12:00 Noon
(Central Time) and 3:00 p.m. (Central Time). In calculating NAV, a Fund's
portfolio is valued using market prices.
Securities held by the INTERNATIONAL STOCK FUND may trade on foreign exchanges
on days (such as weekends) when the INTERNATIONAL STOCK FUND does not calculate
NAV. As a result, the NAV of the INTERNATIONAL STOCK FUND's shares may change on
days when you cannot purchase or sell the Fund's shares.
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. Keep in mind that Authorized
Dealers may charge you fees for their services in connection with your share
transactions.
The sales charge when you purchase Class A Shares of the EQUITY FUNDS is as
follows:
Class A Shares
Sales Charge
as a % of Sales Charge
Public as a % of
Purchase Amount Offering Price NAV
Up to $49,999 5.75% 6.10%
$50,000 -- $99,999 4.50% 4.71%
$100,000 -- $249,999 3.50% 3.63%
$250,000 -- $499,999 2.50% 2.56%
$500,000 -- $999,999 million 2.00% 2.04%
$1 million or greater* None None
The sales charge when you purchase Class A Shares of the INCOME FUNDS is as
follows:
Class A Shares
Sales Charge
as a % of Sales Charge
Public as a % of
Purchase Amount Offering Price NAV
Less than $24,999 4.75% 4.99%
$25,000 -- $49,999 4.50% 4.71%
$50,000 -- $99,999 4.00% 4.17%
$100,000 -- $249,999 3.50% 3.63%
$250,000 -- $499,999 2.50% 2.56%
$500,000 -- $999,999 2.00% 2.04%
$1 million or greater* None None
* 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.
When the Funds' distributor receives sales charges and marketing fees, it may
pay some or all of them to Authorized Dealers. The distributor and its
affiliates may pay out of their own assets amounts (including items of material
value) to Authorized Dealers or other service providers for marketing and/or
servicing shareholders.
The sales charge at purchase may be reduced or eliminated by:
o sales in excess of $1,000,000;*
o quantity purchases of Class A Shares;
o 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;
o 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);
o 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
o 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:
o Trustees or other fiduciaries purchasing Class A Shares for employee benefit
plans of employers with ten or more employees, or
o reinvested dividends and capital gains.
The Fund may also permit purchases without a sales charge from time to time, at
its own discretion.
<PAGE>
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 an 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.
Once you have opened an account with an Authorized Dealer, you may purchase
additional Fund shares by contacting Marshall Funds Investor Services (MFIS) at
1-800-580-FUND (3863), if you have pre-authorized the telephone purchase
privilege.
Your purchase order must be received by the Fund by 12:00 Noon. (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.
In order to purchase shares, you must reside in a jurisdiction where Fund shares
may lawfully be offered for sale. In addition, you must have a Social Security
or tax identification number.
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. [Graphic]
Systematic Investment Program
You can have money automatically withdrawn from your checking account($50
minimum) on a periodic basis.
Call your Authorized Dealer to apply for this program.
[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 [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. You may redeem shares by contacting MFIS at 1-800-580-FUND (3863), if
you have pre-authorized the telephone redemption privilege.
Redemption requests for the Funds must be received by the Funds by 12:00 Noon
(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%
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, or if you are redeeming by wire. Consult your Authorized
Dealer or service provider for more information, including applicable fees.
[Graphic] Systematic Withdrawal Program
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.
[Graphic] Checkwriting
Checkwriting privileges may be available for shareholders of the MONEY MARKET
FUND. Contact your Authorized Dealer for more information.
Additional Conditions for Redemptions
Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:
o when you want a redemption to be sent to an address other than the one
you have on record with the Fund;
o when you want the redemption payable to someone other than the
shareholder of record; or
o when your redemption is to be sent to an address of record that was
changed within the last 30 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:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o 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 Authorized Dealer
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. You may also exchange Shares by contacting Marshall Funds Investor
Services at 1-800-580 (3863), if you pre-authorized the telephone exchange
privilege.
The Funds and their service providers will record your telephone instructions.
The Funds will not be liable for losses due to unauthorized or fraudulent
telephone instructions as long as reasonable security procedures are followed.
You will be notified of changes to telephone transaction privileges.
<PAGE>
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 that is detrimental to a Fund and its other shareholders. If
this occurs, the Fund may terminate a shareholder's purchase and/or exchange
privileges.
Account and Share Information [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 INCOME FUNDS and MONEY MARKET
FUND are declared daily and paid monthly. You will receive dividends declared
subsequent to the issuance of your shares, through the day your shares are
redeemed.
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.
[Graphic] What is a Dividend and Capital Gain?
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.
<PAGE>
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.
Rule 12b-1 Plan. Each Marshall Fund has a Rule 12b-1 Plan 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
that 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 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Funds.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions to basic financial and operational
functions. The Funds' shareholders could experience errors or disruptions in
Fund share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems could also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase. However, this may be difficult with certain issuers. For example,
Funds dealing with foreign service providers or investing in foreign securities,
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Funds is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Funds.
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,
LARGE-CAP GROWTH & INCOME FUND and MID-CAP VALUE 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.
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 [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 BPI
Global Asset Management LLP (BPI 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 June 30, 1999,
the Adviser had approximately $10.5 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. BPI Global Asset Management LLP is a registered
investment adviser and provides management for investment companies,
corporations, trusts, estates, pension and profit sharing plans, individuals and
other institutions located in both Canada and the United States. As of June 30,
1999, BPI had approximately $1.9 billion in assets under management. The
Sub-adviser's address is Tower Place at the Summit, 1900 Summit Tower Boulevard,
Suite 450, Orlando, Florida 32810.
Portfolio Managers. The EQUITY INCOME FUND is managed by Bruce P. Hutson,
who has been a vice president of the Adviser since 1973 and a member of the
equity policy group since January 1990. Mr. Hutson holds a B.B.A. degree from
the University of Wisconsin-Whitewater.
The LARGE-CAP GROWTH & INCOME FUND is managed by William J. O'Connor. Mr.
O'Connor has been a vice president of 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.
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 April 1994 to
June 1997, Mr. Potter was a senior securities analyst for the EQUITY INCOME
FUND. Previously, from November 1991 to April 1994, he was a senior auditor for
Marshall & Ilsley Corporation. 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 and the SMALL CAP GROWTH FUND are 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 Daniel R. Jaworski, founder,
Managing Director and Chief Investment officer of the Sub-adviser. Prior to
founding BPI in March 1997, Mr. Jaworski was a portfolio manager at Lazard
Freres & Co. LLC, from June 1993 to December 1994, and from January 1995 to
March 1997 was a portfolio manager at STI Capital Management. Mr. Jaworski
received a B.A. in Economics and Computer Science from Concordia College and
received his M.B.A. in Finance from the University of Minnesota.
The GOVERNMENT INCOME FUND is managed by Joseph M. Cullen. Mr. Cullen
joined the Adviser in January 1999 and has managed the Fund since that time. He
was formerly a portfolio manager at Lincoln Investment Management, Inc. from
1997 to 1998, and was a portfolio analyst from 1991 to 1994. From 1994 to 1997
he was a fixed income portfolio manager at the Boston Company Asset Management,
Inc. Mr. Cullen, who is a Chartered Financial Analyst, received a B.A. in
Economics with a Minor in Mathematics from Ripon College, and a M.B.A. in
Finance from Carnegie Mellon 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.
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.
<PAGE>
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%
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%
Small-Cap Growth Fund 1.00%
International Stock 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, an affiliate of
the Adviser, is custodian of the assets and securities of the Marshall Funds,
shareholder services agent of the Funds, and provides other administrative
services to the Funds and their shareholders directly and through its division,
Marshall Funds Investor Services. For each domestic Fund, the annual custody
fees are .02% of the first $250 million of assets held plus .01% of assets
exceeding $250 million, calculated on each Fund's average daily net assets. The
annual custody fees of the INTERNATIONAL STOCK FUND are 0.02% of the first $250
million of assets held plus 0.01% of assets exceeding $250 million, calculated
on the INTERNATIONAL STOCK FUND'S average daily net assets. Marshall & Ilsley
Trust Company receives shareholder services fees from the shareholder services
agent or directly from the Funds in amounts equal to a maximum annual percentage
of the Funds' average daily net assets as follows:
Shareholder Services Fee
Equity Funds 0.25%
Income Funds 0.025%
Money Market Fund 0.02%
Marshall & Ilsley Trust Company may also, from time to time, receive
reimbursement of expenses from the Funds' distributor and its affiliates for
certain administrative services on behalf of shareholders.
<PAGE>
SUPPLEMENTAL PERFORMANCE INFORMATION OF THE SUB-ADVISER TO THE MARSHALL
INTERNATIONAL STOCK FUND
BPI Global Asset Management LLP (BPI) has served as sub-adviser for the Marshall
International Stock Fund ("the Fund") since March 29, 1999. Since the Fund's
inception on September 2, 1994 through March 29, 1999, the Fund had an
alternative sub-adviser. Daniel R. Jaworski, BPI's Managing Director, currently
serves as the portfolio manager for the Fund. Supplemental information is
presented below to summarize Mr. Jaworski's historical performance results for
various entities OTHER THAN THE MARSHALL INTERNATIONAL STOCK FUND. Historical
performance of these other accounts is not indicative of future results of the
Fund.
Mr. Jaworski was employed at STI Capital Management and managed the SUNTRUST
COMMINGLED FUND (a commingled investment fund with similar investment
objectives, policies, strategies and risks to the International Stock Fund) for
the period from February 1, 1995 to November 30, 1995. The following table
summarizes the returns of the Sun Trust Commingled Fund for the entire period
during which Mr. Jaworski managed the fund, as compared to the Morgan Stanley
Capital International Europe, Australia, and Far East Index (MSCI-EAFE).
<TABLE>
<CAPTION>
- ------------- ----------- ----------- ------------ -------------------------------------------
GROSS NET MSCI-EAFE The commingled fund was not a mutual fund
of Fees of Fees Performance registered under the Investment Company Act
of 1940 and therefore was not subject to
<S> <C> <C> <C> <C>
- ------------- ----------- ----------- ------------
1Q1995 (1) 6.70 6.46 5.93 certain diversification and investment
restrictions imposed by the
- ------------- ----------- ----------- ------------
- ------------- ----------- ----------- ------------
2Q1995 12.18 11.79 0.73 1940 Act. If the commingled fund had been
registerd under the
- ------------- ----------- ----------- ------------
3Q1995 11.94 11.55 4.17 1940 Act, the performance may have been
adversely affected.
- ------------- ----------- ----------- ------------
4Q1995 (2) 4.57 4.20 4.05
- ------------- ----------- ----------- ------------ -------------------------------------------
(1) Not a full quarter - excludes performance from 1/1/1995 to 1/31/1995.
(2) Not a full quarter - excludes performance from 12/1/1995 to 12/31/1995.
Mr. Jaworski was subsequently promoted to Director of International Portfolio
Management & Research and Senior Portfolio Manager for the STI Classic
International Equity Fund (a mutual fund with investment objectives, policies,
strategies and risks similar to those of the Marshall International Stock Fund)
from December 1, 1995 to March 31, 1997. The following table summarizes the
returns of the STI CLASSIC INTERNATIONAL EQUITY FUND for the entire period
during which Mr. Jaworski managed the fund, as compared to the MSCI-EAFE Index:
- ------------------ ---------- ----------- ------------ ---------------------------------------
GROSS NET MSCI-EAFE The average annual total return for
of Fees of Fees Performance the STI Classic International Fund
for the one-year from 4/1/96
- ------------------ ---------- ----------- ------------
12/1/95 - to 3/31/97 was 21.31% as compared
12/31/95 to 1.44% for the
- ------------------ ---------- ----------- ------------
1Q1996 MSCI-EAFE for the same period. In
addition, the
---------- ----------- ------------
---------- ----------- ------------
2Q1996 fund's average annual total return
from its inception on
---------- ----------- ------------
---------- ----------- ------------
3Q1996 12/1/95 to 3/31/97 was 32.00%,
compared to 6.39%
---------- ----------- ------------
---------- ----------- ------------
4Q1996 for the MSCI-EAFE for the same
period.
- ------------------ ---------- ----------- ------------
Annual 1996
---------- ----------- ------------
- ------------------
1Q1997
- ------------------ ---------- ----------- ------------ ---------------------------------------
Mr. Jaworski left STI Capital Management, along with several other investment
team members, to create BPI and serve as its Managing Director and Chief
Investment Officer. The following table sets forth BPI's composite performance
information relating to the performance of institutional private accounts
managed by BPI, during the periods indicated, that have investment objectives,
policies, strategies, and risks substantially similar to those of the Marshall
International Stock Fund. The performance information is provided to illustrate
BPI's historical performance in managing similar accounts as measured against
the MSCI-EAFE Index
<PAGE>
- -------------- ------------ ----------- ------------ -----------------------------------------
GROSS NET MSCI-EAFE The following accounts managed by BPI
of Fees of Fees Performance and Mr. Jaworski are not included in
the composite performance for
------------ ----------- ------------
- -------------- ------------ ----------- ------------
1Q1997 N/A N/A N/A the reasons noted include:
------------ ----------- ------------
------------ ----------- ------------
2Q1997 16.96 16.73 12.98 (1) three Canadian international
mutual funds, where
------------ ----------- ------------
------------ ----------- ------------
3Q1997 8.67 8.54 -0.70 "international" as defined by a
Canadian investor
------------ ----------- ------------
------------ ----------- ------------
4Q1997 -3.36 -3.48 -7.83 includes an allocation to the
U.S. and no allocation
- -------------- ------------ ----------- ------------
ANNUAL 1997 to Canada;
------------ ----------- ------------
- --------------
1Q1998 18.20 18.06 14.71 (2) Masters' Select International
Fund, a fund that uses
------------ ----------- ------------
------------ ----------- ------------
2Q1998 4.14 4.01 1.06 multiple subadvisers, one of
which is BPI; and
------------ ----------- ------------
------------ ----------- ------------
3Q1998 -12.38 -12.56 -14.21 (3) one private account that only
holds American
------------ ----------- ------------
------------ ----------- ------------
4Q1998 14.84 14.62 20.66 Depositary Receipts (ADRs).
- --------------
------------ ----------- ------------
ANNUAL 1998 23.86 23.06 20.00
------------ ----------- ------------
- --------------
1Q1999 0.35 0.15 1.39
------------ ----------- ------------
------------ ----------- ------------
2Q1999
</TABLE>
BPI represents that the composite performance information shown above has been
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"). AIMR is a non-profit membership and
education organization with more than 60,000 members worldwide that, among other
things, has formulated a set of performance presentation standards for
investment advisers (such as BPI). These AIMR performance presentation standards
are intended to (1) promote full and fair presentations by investment advisers
of their performance results, and (2) ensure uniformity in reporting so that
performance results of investment advisers are directly comparable.
The returns in each of the above tables are calculated on a total return basis
and include all dividends and interest, accrued income and all realized and
unrealized gains and losses. The "BPI/STI NET" figures reflect the deduction of
advisory and other fees paid by the accounts "BPI/STI GROSS" does not include
these fees, but does include certain trading costs and embedded fees (e.g.,
"wrap fees") that cannot be unbundled and have been deducted. The investment
results of BPI have been audited up to September 30, 1998. Information from that
date to May 1, 1999 has not been verified by the Marshall Funds or Federated
Securities Corp. and is unaudited.
The BPI performance composite includes all actual, fee-paying, discretionary
institutional accounts managed by BPI that have investment objectives, policies,
strategies, and risks similar to those of the Marshall International Stock Fund.
Mr. Jaworski is the portfolio manager of each account included in the composite.
However, the Sun Trust Commingled Fund and BPI institutional accounts included
in BPI's composite differ from the Marshall International Stock Fund, in that
they are not subject to:
o the same types of expenses as the Marshall International Stock Fund;
o the investment limitations, diversification requirements, and other
restrictions imposed by the Investment Company Act of 1940; and o the
requirements of Subchapter M of the Internal Revenue Code.
As a result, the performance results for the Sun Trust Commingled Fund and BPI
institutional accounts could have been adversely affected if they had been
regulated as investment companies under the restrictions outlined above. In
addition, the performance figures are for a short period of time and should not
be indicative of long-term results.
Although the STI Classic International Equity Fund has objectives, policies,
strategies, and risks similar to those of the Marshall International Stock Fund,
it is a separate fund and its performance is not indicative of the potential
performance of the Marshall International Stock Fund.
The MSCI-EAFE Index is a capitalization-weighted foreign securities index, which
is widely used to measure the performance of European, Australian, New Zealand,
and Far Eastern stock markets. The MSCI-EAFE is unmanaged. Investments may not
be made in an index. The Funds' Statement of Additional Information contains
further information on calculation of average annual total returns.
<PAGE>
Financial Highlights
[To be filed by amendment]
<PAGE>
A Statement of Additional Information (SAI) dated October 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Funds' 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 each Fund's performance during their 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 1-800-580-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 53202
1-800-580-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-209-3520
Federated Securities Corp.
Distributor
G00714-03 (10/99)
SEC File No. 811-7047
<PAGE>
<PAGE>
[LOGO MARSHALL FUNDS]
Marshall Funds Investor Services
1000 North Water Street
Milwaukee, Wisconsin 53202
800-580-FUND(3863)
TDD: Speech and Hearing Impaired Services
800-209-3520
Federated Securities Corp., Distributor G00714-03 (10/99)
M&I Investment Management Corp, Investment Adviser
(C)1999 Marshall Funds, Inc. All rights reserved.
953-240
MARSHALL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
October 31, 1999
EQUITY FUNDS INCOME FUNDS O MARSHALL EQUITY INCOME FUND O
MARSHALL GOVERNMENT INCOME FUND O MARSHALL LARGE-CAP GROWTH & INCOME
FUND O MARSHALL INTERMEDIATE BOND FUND O MARSHALL MID-CAP VALUE FUND
O MARSHALL MID-CAP GROWTH FUND O MARSHALL SMALL CAP GROWTH FUND O
MARSHALL INTERNATIONAL STOCK FUND MONEY MARKET 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 October 31, 1999. 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 1-800-580-FUND
(3863), or you can visit the Marshall Funds' Internet site on the World
Wide Web at (http://www.marshallfunds.com).
1000 NORTH WATER STREETMILWAUKEE, WISCONSIN 53202
G00714-04(10/99)
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 13
DETERMINING MARKET VALUE OF SECURITIES 15
WHAT DO SHARES COST? 16
HOW ARE THE FUND SHARES SOLD? 16
HOW TO BUY SHARES 17
ACCOUNT AND SHARE INFORMATION 19
WHAT ARE THE TAX CONSEQUENCES? 19
WHO MANAGES THE FUNDS? 20
HOW DO THE FUNDS MEASURE PERFORMANCE? 26
PERFORMANCE COMPARISONS 28
ECONOMIC AND MARKET INFORMATION 31
FINANCIAL STATEMENTS 31
APPENDIX 32
ADDRESSES 35
<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
Under normal market conditions, the INTERNATIONAL STOCK FUND will invest at
least 65% of its assets in equity securities of companies located in at least
three
different countries outside the United States. Following is a table that
indicates which types of securities are a:
o P = PRINCIPAL investment of a Fund; (shaded in chart) o A = ACCEPTABLE (but
not principal) investment of a Fund; or o N = NOT AN ACCEPTABLE investment of a
Fund.
EQUITY FUNDS
<TABLE>
<CAPTION>
- -------------------------------------- ----------- ----------- ---------- ----------- ---------- -----------
SECURITIES EQUITY LARGE-CAP MID-CAP MID-CAP SMALL-CAP INTERNATIONAL
INCOME GROWTH & VALUE GROWTH GROWTH STOCK
INCOME
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------- ----------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
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 COMPANIES A A A A A P
- --------------------------------------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- -----------
CONVERTIBLE SECURITIES P A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ----------- ---------- ----------- ---------- -----------
DEBT OBLIGATIONS A A A A A A5
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
DERIVATIVE CONTRACTS AND SECURITIES A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
EUROPEAN DEPOSITARY RECEIPTS N N N N N A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FIXED RATE DEBT OBLIGATIONS A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FLOATING RATE DEBT OBLIGATIONS A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FOREIGN CURRENCY HEDGING TRANSACTIONS N N N N N A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FOREIGN CURRENCY TRANSACTIONS N N N N N A
- --------------------------------------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FOREIGN SECURITIES6 A A A A A P
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- -----------
FORWARD COMMITMENTS, WHEN-ISSUED AND A A A A A A
DELAYED DELIVERY TRANSACTIONS
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
FUTURES AND OPTIONS TRANSACTIONS A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
GLOBAL DEPOSITARY RECEIPTS N N N N N A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
ILLIQUID AND RESTRICTED SECURITIES7 A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
LENDING OF PORTFOLIO SECURITIES A A A A A A
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
- --------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
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 INVESTMENT A A A A A A
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 GOVERNMENT INTERMEDIATE MONEY
INCOME BOND MARKET
- -------------------------------------- -------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
ASSET-BACKED SECURITIES2 P A A
- --------------------------------------- ------------- -------------
- --------------------------------------- ------------
BANK INSTRUMENTS3 A A P
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- -------------
BORROWING4 A A A
- ---------------------------------------
- --------------------------------------- ------------- ------------- ------------
DEBT OBLIGATIONS P P P
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------
DEMAND MASTER NOTES N A P
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- -------------
DERIVATIVE CONTRACTS AND SECURITIES A A A
- --------------------------------------- ------------
- --------------------------------------- ------------- ------------- ------------
FIXED RATE DEBT OBLIGATIONS P P A
- --------------------------------------- ------------- -------------
- --------------------------------------- ------------- ------------- ------------
FLOATING RATE DEBT OBLIGATIONS A A P
- --------------------------------------- ------------- ------------
- --------------------------------------- ------------- -------------
FOREIGN SECURITIES6 A A N
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
FORWARD COMMITMENTS, WHEN-ISSUED AND A A A
DELAYED DELIVERY TRANSACTIONS
- --------------------------------------- ------------
- --------------------------------------- ------------- ------------- ------------
FUNDING AGREEMENTS A A A
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
FUTURES AND OPTIONS TRANSACTIONS A A N
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
GUARANTEED INVESTMENT CONTRACTS N N A
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
ILLIQUID AND RESTRICTED SECURITIES7 A A A
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
LENDING OF PORTFOLIO SECURITIES A A A
- --------------------------------------- ------------
- --------------------------------------- ------------- ------------- ------------
MORTGAGE-BACKED SECURITIES P A A
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------
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 INVESTMENT A A A
COMPANIES
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------- ------------- ------------
SWAP TRANSACTIONS A A N
- --------------------------------------- ------------
- --------------------------------------- ------------- ------------- ------------
U.S. GOVERNMENT SECURITIES P A A
- --------------------------------------- ------------- ------------- ------------
- --------------------------------------- ------------
VARIABLE RATE DEMAND NOTES A A A
- --------------------------------------- ------------- ------------- ------------
</TABLE>
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 a
nationally recognized statistical rating organization (NRSRO) (securities rated
AAA, AA, A or BBB by Standard & Poor's (S&P) and Fitch IBCA, Inc. (Fitch) and
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. (Moody's)), 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 FUND may purchase foreign Bank Instruments. The EQUITY
FUNDS and MONEY MARKET FUND (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 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. The Fund may pledge more than 5% of its total assets
to secure such borrowings. 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 of 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
dollar 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
dollar 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 as 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 equal 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 securities. 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. Derivative contracts are financial instruments that
require payments based upon changes in the values of designated (or underlying)
securities, currencies, commodities, financial indices or other assets. Some
derivative contracts (such as futures, forwards and options) require payments
relating to a future trade involving the underlying asset. Other derivative
contracts (such as swaps) require payments relating to the income or returns
from the underlying asset. The other party to a derivative contract is referred
to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges.
In this case, the exchange sets all the terms of the contract except for the
price. Investors make payments due under their contracts through the exchange.
Most exchanges require investors to maintain margin accounts through their
brokers to cover their potential obligations to the exchange. Parties to the
contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty.
Trading contracts on an exchange also allows investors to close out their
contracts by entering into offsetting contracts. For example, the Fund could
close out an open contract to buy an asset at a future date by entering into an
offsetting contract to sell the same asset on the same date. If the offsetting
sale price is more than the original purchase price, the Fund realizes a gain;
if it is less, the Fund realizes a loss. Exchanges may limit the amount of open
contracts permitted at any one time. Such limits may prevent the Fund from
closing out a position. If this happens, the Fund will be required to keep the
contract open (even if it is losing money on the contract), and to make any
payments required under the contract (even if it has to sell portfolio
securities at unfavorable prices to do so). Inability to close out a contract
could also harm the Fund by preventing it from disposing of or trading any
assets it has been using to secure its obligations under the contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. 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.
EUROPEAN CURRENCY UNIFICATION
Eleven of the fifteen member countries of the European Union will adopt a single
European currency, the euro. The euro will become legal tender in these
countries effective January 1, 1999. The countries participating in the Economic
and Monetary Union (EMU) are Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The notable
countries missing from the new unified currency are Great Britain, Denmark,
Sweden and Greece. A new European Central Bank (ECB) will be created to manage
the monetary policy of the new unified region. On the same day, the exchange
rates will be irrevocably fixed between the EMU member countries. National
currencies will continue to circulate until they are replaced by euro coins and
bank notes by the middle of 2002. This change is likely to significantly impact
the European capital markets in which the fund invests a portion of its assets.
The biggest changes will be the additional risks that the fund will face in
pursuing its investment objective. All of the risks described below may increase
the fund's share price volatility. UNCERTAINTIES AS UNIFICATION NEARS TAXES. IRS
regulations generally provide that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent the taxpayer's rights and
obligations are altered solely by reason of the euro conversion. However, other
change that may occur contemporaneously to indices, accrual periods, holiday
conventions, or other features may require the realization of gain or loss by
the Fund. VOLATILITY OF CURRENCY EXCHANGE RATES. Exchange rates between the U.S.
dollar and European currencies will likely become more volatile and unstable.
CAPITAL MARKET REACTION. Uncertainly in the lead-up to introduction of the euro
may lead to a shift by institutional money managers away from European
currencies and into other currencies. This reaction may make markets less liquid
and thus more difficult for the Fund to pursue its investment strategy.
CONVERSION COSTS. European issuers of securities in which the fund invests,
particularly those that deal in goods and services, may face substantial
conversion costs. These costs may not be accurately anticipated and therefore
present another risk factor that may affect issuer profitability and
creditworthiness. UNCERTAINTIES AFTER UNIFICATION OF CURRENCY CONTRACT
CONTINUITY. Some financial contracts may become unenforceable when the
currencies are unified. These financial contracts may include bank loan
agreements, master agreements for swaps and other derivatives, master agreements
for foreign exchange and currency option transactions and debt securities. The
risk of unenforceability may arise in a number of ways: For example, a contract
used to hedge against exchange-rate volatility between two EU currencies will
become "fixed," rather than "variable," as part of the conversion since the
currencies have, in effect, disappeared for exchange purposes. The European
Council has enacted laws and regulations designed to ensure that financial
contracts will continue to be enforceable after conversion. There is no
guarantee, however, that these laws will be completely effective in preventing
disputes from arising. Disputes and litigation over these contract issues could
negatively impact the Fund's portfolio holdings and may create uncertainties in
the valuation of financial contracts the Fund holds. ECB POLICYMAKING. As the
ECB and European market participants search for a common understanding of policy
targets and instruments, interest rates and exchange rates could become more
volatile.
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 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 other 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 the 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. The Funds currently lend
their portfolio securities through M&I Trust Company, as agent, and reimburse
M&I Trust for its costs. The Funds and M&I Trust have applied to the Securities
and Exchange Commission for an order that would permit M&I Trust to charge, and
the Funds to pay, market-based compensation for M&I Trust's services. 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 investments of cash collateral, usually fixed-income
securities risk. 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, IO 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 higher 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, real estate mortgage investment
conduits (REMICs) (offerings of multiple class mortgage backed securities which
qualify and elect treatment as such under provisions of the Internal Revenue
Code) 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 investing in
short-term debt securities, and foreign short-term debt 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. INVESTMENT
LIMITATIONS
FUNDAMENTAL LIMITATIONS
The following investment limitations are fundamental and cannot be changed
for a Fund unless authorized by the "majority of the outstanding voting
securities" of that Fund, as defined by the Investment Company Act. 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 liquid
assets 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. 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.
<PAGE>
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 a fair value as determined in good faith by
the Board.
The Funds may value securities at prices provided by independent pricing
services that may not rely 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. WHAT DO SHARES
COST?
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." HOW
ARE THE FUND SHARES SOLD?
Under the Distributor's Contract with the Funds, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
Texas residents must purchase shares of the Funds through M&I Brokerage
Services, Inc. at 1-800-580-FUND (3863), or through any authorized
broker-dealer. FRONT-END SALES CHARGE REALLOWANCE The distributor receives a
front-end sales charge on certain Share sales. The Distributor generally pays up
to 90% (and as much as 100%) of this charge to a broker-dealer, investment
professional, or financial institution (Authorized Dealers) for sales and/or
administrative services. Any payments to an Authorized Dealer in excess of 90%
of the front-end sales charge are considered supplemental payments. The
distributor retains any portion not paid to an Authorized Dealer. 12B-1 PLAN
The Corporation has adopted a compensation-type 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 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 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 lessen fluctuations in rates of redemptions and sales.
SHAREHOLDER SERVICES
Marshall & Ilsley Trust Company, through MFIS, is the shareholder servicing
agent for the MONEY MARKET FUND. As such, MFIS provides shareholder services
which include, but are not limited to, distributing prospectuses and other
information, providing shareholder assistance, and communicating or facilitating
purchases and redemption of shares. The Funds may pay Marshall & Ilsley Trust
Company for providing shareholder services and maintaining shareholder accounts.
Marshall & Ilsley Trust Company may select others (including Federated
Shareholder Services, a subsidiary of Federated Investors, Inc.) to perform
these services for their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Marshall & Ilsley Trust Company (but not out of Fund assets). The
Distributor and/or Marshall & Ilsley Trust Company may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, Authorized Dealers may be paid
cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the Authorized Dealer sells or
may sell and/or upon the type and nature of sales or marketing support furnished
by the Authorized Dealer.
HOW TO BUY SHARES
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 an 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. 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.
REDEMPTION IN KIND
Although the Funds intend to pay share redemptions in cash, the Funds reserve
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 of
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. ACCOUNT AND SHARE
INFORMATION 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. As of October __,
1999, the following shareholders of each Fund owned 5% or more of a Fund's
outstanding Shares: [To be filed by amendment] Shareholders owning 25% or
more of the outstanding Shares of a Fund may be in control and be able to affect
the outcome of certain matters presented for a vote of shareholders. 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. If these requirements are not met, it will not receive
special tax treatment and will pay federal income tax. 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 are
classified as Passive Foreign Investment Companies (PFIC). The Funds may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of a Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code provisions 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 a Fund's foreign taxes
rather than take the foreign tax credit must itemize deductions on their income
tax returns. The Funds expect that only INTERNATIONAL STOCK FUND will qualify
for these Code provisions.
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 realized by the Funds, could result in an increase in
distributions. Capital losses could result in a decrease in distributions. When
a Fund realizes net long-term capital gains, it will distribute them at least
once every 12 months. 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 October __, 1999, the Funds'
Board and Officers as a group owned [approximately # (__%)] [less than 1%] of a
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.
<PAGE>
<TABLE>
<CAPTION>
NAME AGGREGATE
BIRTHDATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH FOR PAST 5 YEARS CORPORATION
CORPORATION
<S> <C> <C>
JOHN DEVINCENTIS Independent Financial Consultant; Retired, $15,000
Age: 65 formerly, Senior Vice President of Finance,
4700 21st Street In-Sink-Erator Division of Emerson Electric.
Racine, WI 53406
DIRECTOR
JAMES MITCHELL** Group Vice President, Citation Corporation; $15,000
Age: 52 President and Chief Executive Officer,
4051 North 27th Street Interstate Forging Industries; Chairman,
Milwaukee, WI Ayrshire Precision Engineering.
DIRECTOR
DUANE E. DINGMANN** Retired; formerly President and owner, $15,000
Age: 68 Trubilt Auto Body, Inc. and Telephone
1631 Harding Avenue Specialists, Inc.; formerly Class B
Eau Claire, WI (nonbanking) Director, Ninth Federal
DIRECTOR Reserve District, Minneapolis, MN.
BARBARA J. POPE** President, Barbara J. Pope, P.C., a $15,000
Age: 51 financial consulting firm; President,
115 South LaSalle Street Sedgwick Street Partners LLC general
Suite 2285 partner of a private investment partnership.
Chicago, IL
DIRECTOR
JOHN M. BLASER**+ Vice President, Marshall & Ilsley Trust $0
Age: 42 Company; formerly, Partner and Chief
1000 North Water Street Financial Officer, Artisan Partners Limited
Milwaukee, WI Partnership; formerly, Chief Financial
PRESIDENT and DIRECTOR Officer and Principal Administrative and
Finance Officer, Artisan Funds, Inc.;
formerly, Senior Vice President, Kemper
Securities.
DAVID W. SCHULZ**+ President and Director, M&I Investment $0
Age: 41 Management Corp.; Vice President, Marshall
1000 North Water Street & Ilsley Trust Company.
Milwaukee, WI 53202
DIRECTOR
<PAGE>
NAME AGGREGATE
BIRTHDATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH FOR PAST 5 YEARS CORPORATION
CORPORATION
JO A. DALES Vice President, Marshall & Ilsley Trust $0
Age: 38 Company. Formerly, Senior Audit Manager of
1000 North Water Street Marshall & Ilsley Corporation and
Milwaukee, WI 53202 Operations Specialist for Firstar Trust
VICE PRESIDENT Company.
ANN K. PEIRICK Assistant Vice President, Marshall & Ilsley $0
Age: 45 Trust Company. Formerly, Senior Financial
1000 North Water Street Analyst - Community Bank Finance and
Milwaukee, WI Manager of Corporate Financial Analysis,
TREASURER Bank One, Wisconsin.
BROOKE J. BILLICK Vice President and Securities Counsel, $0
Age: 45 Marshall & Ilsley Trust Company, M&I
1000 North Water Street Investment Management Corp.; formerly,
Milwaukee, WI shareholder, Gibbs, Roper, Loots & Williams
SECRETARY SC.
</TABLE>
** Elected as a Director on May 24, 1999.
<PAGE>
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 Corporation. 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 lending relationships affiliates of the Adviser may
have with an issuer. SUB-ADVISER TO INTERNATIONAL STOCK FUND
BPI Global Asset Management LLP (BPI) is the Sub-adviser to the INTERNATIONAL
STOCK FUND. It is the Adviser's responsibility to select a Sub-adviser for the
INTERNATIONAL STOCK FUND that has distinguished itself in its area of expertise
in asset management and to review the Sub-adviser's performance. The Adviser
provides investment management evaluation services by performing initial due
diligence on BPI and thereafter monitoring BPI's performance through
quantitative and qualitative analysis, as well as periodic in-person, telephonic
and written consultations with BPI. In evaluating BPI, the Adviser considers,
among other factors, BPI'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 BPI
and ultimately recommending to the Corporation's Directors whether BPI'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 BPI, the
custodian, the transfer agent, and the administrator. Although BPI'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 BPI's individual security selections. BPI has complete discretion to
purchase, manage and sell portfolio securities for the INTERNATIONAL STOCK FUND,
subject to the INTERNATIONAL STOCK FUND'S investment goal, policies and
limitations. For its services under the Sub-advisory Agreement, the Sub-adviser
receives a fee at the annual rate of 0.40% of the INTERNATIONAL STOCK FUND'S
average daily net assets. The Sub-adviser is paid by the Adviser and not by the
INTERNATIONAL STOCK FUND. However, BPI will furnish to the Adviser such
investment advice, statistical and other factual information as requested by the
Adviser. BPI, headquartered in Orlando, Florida, provides portfolio management
services for investment companies, corporations, trusts, estates, pension and
profit sharing plans, individuals, and other institutions located in both Canada
and the United States, and is an investment adviser registered with the U.S.
Securities and Exchange Commission. BPI was formed in March 1997 as a Delaware
limited liability partnership between BPI Global Holdings USA, Inc. (BPI
Holdings USA) as a 51% partner, and JBS Advisors, Inc. (JBS) as a 49% partner.
BPI Holdings USA is a wholly-owned subsidiary of BPI Global Holdings, Inc.,
which is awholly-owned subsidiary of BPI Financial Corporation, located at
Toronto, Ontario (Canada). JBS is owned by BPI's portfolio managers and its
President. For the period from May 1, 1999 to August 31, 1999, the Adviser paid
BPI $______. BPI became sub-adviser on March 29, 1999, but was compensated for
advisory services beginning May 1, 1999. Prior to March 26, 1999, Templeton
Investment Counsel, Inc. (TICI) served as the INTERNATIONAL STOCK FUND'S former
Sub-adviser. For the period from September 1, 1998 to May 1, 1999 (the effective
date of termination of TICI's sub-advisory contract), the Adviser paid TICI
$________. For the fiscal years ended August 31, 1998 and 1997, the Adviser paid
TICI $1,072,613 and $816,182, respectively. 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. BROKERAGE
TRANSACTIONS
The Adviser and/or BPI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or BPI 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, BPI, 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 BPI in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser, BPI, or their affiliates might otherwise have paid, it would tend to
reduce their expenses. Aggregate total commissions with brokers that provided
research were $_____ on transactions with an aggregate principal value of
$______.
<PAGE>
ADMINISTRATOR
Federated Administrative Services (FAS), 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):
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 AUDITORS
Ernst & Young LLP, Boston, Massachusetts is the independent auditor for the
Funds.
<PAGE>
FEES PAID BY THE FUNDS FOR SERVICES
<TABLE>
<CAPTION>
- --------------------- ------------------------------- ---------------------------- ------------------------------
FUND NAME ADVISORY FEE PAID/ BROKERAGE COMMISSIONS PAID ADMINISTRATIVE FEE PAID
ADVISORY FEE WAIVED
<S> <C> <C> <C>
---------------------------- ------------------------------
------------------------------- ---------------------------- ------------------------------
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
AUGUST 31 AUGUST 31 AUGUST 31
------------------------------- ---------------------------- ------------------------------
--------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------
--------------------------------------------------------------------------------------------
EQUITY INCOME FUND $____ $3,596,326 $1,964,826 $____ $861,077 $468,108 $____ $403,594 $227,695
$____ $0 $0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
LARGE-CAP GROWTH & $____ $2,284,566 $1,877,032 $____ $216,531 $309,709 $____ $256,720 $217,817
INCOME FUND $____ $0 $0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MID-CAP VALUE FUND $____ $1,245,164 $1,245,668 $____ $444,003 $364,246 $____ $139,888 $144,711
$____ $0 $0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MID-CAP GROWTH FUND $____ $1,676,595 $1,288,819 $____ $481,875 $580,150 $____ $188,403 $149,489
$____ $0 $0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SMALL-CAP GROWTH $____ $857,023 $368,209 $____ $142,276 $117,618 $____ $102,843 $44,185
FUND $____ $0 $0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
INTERNATIONAL STOCK $____ $2,504,141 $1,857,261 $____ $265,289 $340,030 $____ $211,050 $161,481
FUND $____ $0 $0
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME $____ $1,833,350 $1,304,960 N/A N/A N/A $____ $205,934 $151,306
FUND $____ $272,859 $272,824
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
INTERMEDIATE BOND $____ $3,105,550 $2,440,381 N/A N/A N/A $____ $435,828 $354,123
FUND $____ $333,362 $346,194
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND $____ $7,729,527 $6,354,005 N/A N/A N/A $____ $1,302,763 $1,105,666
$____ $3,846,385 $3,304,082
- -----------------------------------------------------------------------------------------------------------------
N/A Not applicable
</TABLE>
<PAGE>
---------------------------------------
FOR THE FISCAL YEAR ENDED AUGUST 31,
1999
- --------------------------------- ---------------------------------------
- --------------------------------- ------------- -------------------------
FUND 12B-1 FEE SHAREHOLDER SERVICES
FEE/
SHAREHOLDER SERVICES FEE
WAIVED
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
EQUITY INCOME FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
LARGE-CAP GROWTH & INCOME FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
MID-CAP VALUE FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
MID-CAP GROWTH FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
SMALL-CAP GROWTH FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
INTERNATIONAL STOCK FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
GOVERNMENT INCOME FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
INTERMEDIATE BOND FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
- --------------------------------- ------------- -------------------------
MONEY MARKET FUND $____ $____
$----
- --------------------------------- ------------- -------------------------
HOW DO THE FUNDS 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.
<PAGE>
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. 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. Class A Shares for the EQUITY
FUNDS and INCOME FUNDS were not offered until December 1998. YIELD
The MONEY MARKET FUND calculates the yield for Class A 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 (formerly, Class B Shares)
for the seven-day period ended August 31, 1999, 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. 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. Class A Shares for the EQUITY and INCOME FUNDS were not offered
until December 1998. EFFECTIVE YIELD (MONEY MARKET FUND ONLY)
The MONEY MARKET FUND's effective yield for Class A 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 (formerly, Class B
Shares) for the seven-day period ended August 31, 1999, was ____%.
<PAGE>
------------------------ ----------------------- -----------------------
FUND AVERAGE ANNUAL TOTAL YIELD
RETURN for the 30-day period
for the following ended August 31, 1999
periods ended August
31, 1999
----------------------- -----------------------
----------------------- -----------------------
CLASS A SHARES CLASS A SHARES
One Year
Five Year
Since Inception
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Equity Income Fund N/A ___%
N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Large-Cap Growth & N/A ___%
Income Fund N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Mid-Cap Value Fund N/A ___%
N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Mid-Cap Growth Fund N/A ___%
N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Small-Cap Growth Fund N/A ___%
N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
International Stock N/A N/A
Fund N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Government Income Fund N/A ___%
N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Intermediate Bond Fund N/A ___%
N/A
____%(a)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Money Market Fund ____% ___%
----%
____%(b)
------------------------ ----------------------- -----------------------
A) Reflects period from December 31, 1998 (start of performance) to
August 31, 1999.
B) December 17, 1992
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 sources the Funds believe are
reliable 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, 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 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 RUSSELL 1000 GROWTH INDEX consists of those Russell 2000 securities
with a greater-than-average growth orientation. Securities in this index
tend to exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth rates.
o RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested primarily in
small capitalization common stocks.
o STANDARD & POOR'S RATINGS GROUP SMALL STOCK INDEX is a broadly
diversified index consisting of approximately 600 small capitalization common
stocks that can be used to compare to the total returns of funds whose
portfolios are invested primarily in small capitalization common stocks.
o 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.
<PAGE>
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 $5
trillion to the more than 7,300 mutual funds available. FINANCIAL STATEMENTS
[Financial Statements to be filed by amendment]
<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.
<PAGE>
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
MARSHALL EQUITY INCOME FUND MARSHALL LARGE-CAP GROWTH & INCOME FUND MARSHALL
MID-CAP VALUE FUND MARSHALL MID-CAP GROWTH FUND MARSHALL SMALL-CAP GROWTH FUND
MARSHALL INTERNATIONAL STOCK FUND MARSHALL GOVERNMENT INCOME FUND MARSHALL
INTERMEDIATE BOND FUND
MARSHALL MONEY MARKET FUND
1000 North Water Street
Milwaukee, Wisconsin 53202
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
Sub-adviser to MARSHALL INTERNATIONAL STOCK FUND
BPI Global Asset Management LLP 1900 Summit Tower Boulevard
. Suite 450
Orlando, Florida 32810
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, a division of 1000 North Water Street
Marshall & Ilsley Trust Company P.O. Box 1348
Milwaukee, Wisconsin 53202
Legal Counsel Bell, Boyd & Lloyd Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, IL 60602-4207
Independent Auditors
Ernst & Young LLP 200 Clarendon Streett
Boston, MA 02116-5072
M&I Brokerage Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53202
1-800-580-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com
PART C. OTHER INFORMATION.
Item 23. EXHIBITS:
(a) (i) Conformed copy of Articles of Incorporation of the Registrant; (8)
(ii) Conformed copy of Amendment No. 1 to the Articles of Incorporation; (8)
(iii) Conformed copy of Amendment No. 2 to the Articles of Incorporation; (8)
(iv) Conformed copy of Amendment No. 3 to the Articles of Incorporation; (8)
(v) Conformed copy of Amendment No. 4 to the Articles of Incorporation; (6)
(vi) Conformed copy of Amendment No. 5 to the Articles of Incorporation; (8)
(vii) Conformed copy of Amendment No. 6 to the Articles of Incorporation; (12)
(viii) Conformed copy of Amendment No. 7 to the Articles of Incorporation; (14)
(ix) Conformed copy of Amendment No. 8 to the Articles of Incorporation; (18)
(x) Conformed copy of Amendment No. 9 to the Articles of Incorporation; +
(b) (i) Copy of By-Laws of the Registrant; (8)
(ii) Copy of Amendment No. 1 to the By-Laws of the Registrant; (19)
(iii) Copy of Amendment No. 2 to the By-Laws of the Registrant; (19)
(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)
- ------------------------
+ All exhibits have been filed electronically.
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).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed October 21, 1998. (File Nos. 33-48907
and 811-7047).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed August 19, 1999. (File Nos. 33-48907
and 811-7047).
<PAGE>
(d) (i) Conformed copy of Investment Advisory
Contract of the Registrant; (4) (ii) Conformed
copy of Exhibit G of the Investment Advisory
Contract of the Registrant; (5)
(iii) Conformed copy of Exhibit H of the
Investment Advisory Contract of the Registrant;
(5) (iv) Conformed copy of Exhibit I of the
Investment Advisory Contract of the Registrant;
(5)
(v) Conformed copy of Exhibit J of the
Investment Advisory Contract of the Registrant;
(5) (vi) Conformed copy of Exhibit K of the
Investment Advisory Contract of the Registrant;
(7)
(vii) Conformed copy of Exhibit L of the
Investment Advisory Contract of the Registrant; (7)
(viii) Conformed copy of Exhibit M of the
Investment Advisory Contract of the Registrant;
(12)
(ix) Conformed copy of Federated Management
Sub-Advisory Agreement with the Registrant; (7)
(x) Conformed copy of Templeton Investment
Counsel, Inc., Sub-Advisory Agreement with the M
& I Investment Management, Inc.; (9) (xi)
Conformed copy of Exhibit N to the Investment
Advisory Contract of the Registrant; (14)
(xii) Conformed copy of Subadvisory Contract between M&I Investment
Management Corp. and BPI Global Asset Management LLP dated March 29, 1999 (20)
(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 of the
Registrant; (15)
(iii) Conformed copy of Exhibit L of the
Distributor's Contract of the Registrant; + (iv)
Conformed copy of Exhibit M of the Distributor's
Contract of the Registrant; (19)
- ------------------------
+ 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).
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).
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).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed August 19, 1999. (File Nos. 33-48907
and 811-7047).
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed July 23, 1999. (File Nos. 33-48907 and
811-7047).
<PAGE>
(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 of the
Registrant; (16)
(iii)Copy of Amendment No. 2 to Schedule A of the Sub-Custodian Agreement of
the Registrant; (16)
(iv) Copy of Amendment No. 3 to Schedule A of the Sub-Custodian Agreement of the
Registrant; (17)
(v) Conformed copy of Sub-Transfer Agency and Services Agreement of the
Registrant; (10)
(h) (i) Conformed copy of Fund Accounting and Shareholder Recordkeeping
Agreement of the Registrant; (11)
(ii) Conformed copy of Amendment No. 1 to Schedule A of the Fund Accounting and
Shareholder Recordkeeping Agreement of the Registrant; (15)
(iii)Conformed copy of Amendment No. 2 to Schedule A of the Fund Accounting and
Shareholder Recordkeeping Agreement of the Registrant; (16)
(iv) Conformed copy of Amendment No. 1 to Schedule C of the Fund Accounting and
Shareholder Recordkeeping Agreement of the Registrant; (15)
(v) Conformed copy of Annex 1 to Amendment No. 2 to Schedule C of the Fund
Accounting and Shareholder Recordkeeping Agreement of the Registrant; (16)
(vi) Conformed copy of Administrative Services Agreement of the Registrant; (7)
(vii)Conformed copy of Amendment No. 1 to the Administrative Services Agreement
of the Registrant; (15)
(viii) Conformed copy of Amendment No. 2 to the Administrative Services
Agreement of the Registrant; (16)
- ------------------------
+ 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).
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).
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>
(ix) Conformed copy of Shareholder Services Agreement of the
Registrant on behalf of Marshall Equity Income Fund,
Marshall Government Income Fund, Marshall Intermediate
Bond Fund, Marshall Intermediate Tax-Free Fund,
Marshall International Stock Fund, Marshall Mid-Cap
Stock Fund, Marshall Money Market Fund, Marshall
Short-Term Income Fund, Marshall Short-Term Tax-Free
Fund, Marshall Stock Fund, and Marshall Value Equity
Fund; (4)
(x) Conformed copy of Amendment No. 1 to Schedule A of the
Shareholder Services Agreement of the Registrant; (6)
(xi) Conformed copy of Amendment No. 2 to Schedule A of the
Shareholder Services Agreement of the Registrant; (7)
(xii)Conformed copy of Amendment No. 3 to Schedule A of the
Shareholder Services Agreement of the Registrant; (12)
(xiii) Copy of Amendment No. 1 to Schedule B of the
Shareholder Services Agreement of the Registrant; (11)
(xiv)Conformed copy of Marshall Funds, Inc. Multiple Class
Plan (Marshall Money Market Fund Class A Shares and
Class B Shares); (11) (xv)..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)
(xvi)Conformed copy of Amendment No.1 to Exhibit 1 of
Shareholder Services Agreement of the Registrant; +
(xvii) Conformed copy of Mutual Funds Service Agreement of
the Registrant; (19)
- -------------------
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).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed August 19, 1999. (File Nos. 33-48907
and 811-7047).
<PAGE>
(i) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (4) (j) Conformed
Copy of Consent of Independent Auditors (To be filed by
amendment); (k) Not applicable; (l) Conformed copy of
Initial Capital
Understanding; (11)
(m) (i) Conformed copy of Distribution Plan of the
Registrant; (4) (ii) Conformed copy of Exhibit A
of the Distribution Plan of the Registrant; (11)
(iii) Conformed copy of Exhibit B of the
Distribution Plan of the Registrant; (9) (iv)
Conformed copy of Exhibit C to the Distribution
Plan of the Registrant; (15)
(v) Conformed copy of Exhibit D of the
Distribution Plan of the Registrant; + (vi) Form
of 12b-1 Agreement of the Registrant; +
(vii) Copy of Exhibit A to the 12b-1 Agreement of
the Registrant; (19) (viii) Copy of Exhibit B to
the 12b-1 Agreement of the Registrant; (11)
(ix) Copy of Exhibit C to the Rule 12b-1
Agreement of the Registrant; (13) (x) Copy of
Exhibit D to the 12b-1 Agreement of the
Registrant; +
(n) Conformed copy of Multiple Class Plan of the
Registrant including Exhibits A through D; (19) (o) (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)
(iii) Conformed copy of Power of Attorney; +
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND:
None
Item 25. INDEMNIFICATION: (5)
- -------------------
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).
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).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed August 19, 1999. (File Nos. 33-48907
and 811-7047).
<PAGE>
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE 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.
BPI Global Asset Management LLP.
(b) BPI Global Asset Management LLP ("BPI") is a registered
investment adviser and provides management services for
investment companies, corporations, trusts, estates, pension
and profit sharing plans, individuals and other institutions
located in both Canada and the United States. As of June 30,
1999, BPI had approximately $1.9 billion of total assets
under management. BPI's address is Tower Place at the
Summit, 1900 Summit Tower Boulevard, Suite 450, Orlando,
Florida 32810.
For a list of the officers and directors of BPI and for
further information about BPI, any other business, vocation
or employment of a substantial nature in which a director or
officer of BPI 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 BPI's Form ADV,
File No. ________, dated ___________________.
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:
Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; 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 Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal 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.; ; Hibernia Funds; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; 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; Regions Funds; RIGGS Funds; SouthTrust Funds;
Tax-Free Instruments Trust; The Planters Funds; The Wachovia Funds; The
Wachovia Municipal Funds; Vision Group of Funds, Inc.; World Investment
Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; DG
Investor Series; High Yield Cash Trust; Investment Series Trust; Star
Funds; Targeted Duration Trust; The Virtus Funds; Trust for Financial
Institutions.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
<S> <C> <C>
Richard B. Fisher Chairman, Chief Executive --
Federated Investors Tower Officer, Chief Operating
1001 Liberty Avenue Officer, Asst. Secretary
Pittsburgh, PA 15222-3779 and Asst. Treasurer,
Federated Securities Corp.
Arthur L. Cherry Director --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales --
Federated Investors Tower and Director
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward C. Gonzales Executive Vice President --
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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown 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
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen 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.
1001 Liberty Avenue
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 Securities 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
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
Mark A. Gessner 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
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph 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
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss 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
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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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 J. Segura 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
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
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
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
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest L. Linane 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Matthew S. Hardin Secretary, --
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. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
MARSHALL FUNDS, INC................770 North Water Street
--------------------
Milwaukee, Wisconsin 53202
(Notices should be sent to
the Agent for Service at the
address above)
1000 North Water Street
Milwaukee, WI 53202
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
BPI GLOBAL ASSET MANAGEMENT LLP 1900 Summit Tower Blvd.
("Sub-Adviser") Suite 450
Orlando, Florida 32810
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. 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 27th day of August, 1999.
MARSHALL FUNDS, INC.
BY: /s/ C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for John M. Blaser
August 27, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/C. Todd Gibson
C. Todd Gibson Attorney In Fact August 27, 1999
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John M. Blaser* President and Director
Ann K. Peirick* Treasurer (Principal
Financial and
Accounting Officer)
John DeVincentis* Director
Duane E. Dingmann* Director
James Mitchell* Director
Barbara J. Pope* Director
David W. Schulz* Director
* By Power of Attorney
Exhibit (a)(x) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
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 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
Article III shall be amended to read:
The purpose for which the Corporation is formed is to act as an open-end
investment company of the management type registered as such with the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940 (15 USC
80a - 1 to 80a - 64) and to exercise and generally enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by Chapter 180
of the Wisconsin Statues, as amended from time to time (the "WBCL").
<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.
/S/ PETER J. GERMAIN
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
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.
<PAGE>
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 1st day of December, 1998.
MARSHALL FUNDS, INC.
By: /S/ JOSEPH S. MACHI
Name: Joseph S. Machi
Title: Vice President
FEDERATED SECURITIES CORP.
By: /S/ DAVID M. TAYLOR
Name: David M. Taylor
Title: Executive Vice President
<PAGE>
Exhibit (h)(xvi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDMENT #1 TO EXHIBIT 1
SHAREHOLDER SERVICES AGREEMENT
Marshall Equity Income Fund - Class A Shares
Marshall Equity Income Fund - Class Y Shares*
Marshall Government Income Fund - Class A Shares
Marshall Government Income Fund - Class Y Shares*
Marshall Intermediate Bond Fund - Class A Shares
Marshall Intermediate Bond Fund - Class Y Shares*
Marshall Intermediate Tax-Free Fund - Class A Shares
Marshall Intermediate Tax-Free Fund - Class Y Shares*
Marshall International Stock Fund - Class A Shares
Marshall International Stock Fund - Class Y Shares*
Marshall Large Cap Growth & Income Fund - Class A Shares
Marshall Large Cap Growth & Income Fund - Class Y Shares*
Marshall Mid-Cap Growth Fund - Class A Shares
Marshall Mid-Cap Growth Fund - Class Y Shares*
Marshall Mid-Cap Value Fund - Class A Shares
Marshall Mid-Cap Value Fund - Class Y Shares*
Marshall Short-Term Income Fund - Class A Shares
Marshall Short-Term Income Fund - Class Y Shares*
Marshall Small-Cap Growth Fund - Class A Shares
Marshall Small-Cap Growth Fund - Class Y Shares*
Redesignated as Class Y Shares on December 1, 1998.
Exhibit (m)(v) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
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 1st day of December, 1998.
Marshall Funds, Inc.
By:/S/ JOSEPH S. MACHI
Name: Joseph S. Machi
Title: Vice President
Exhibit (m)(vi) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
RULE 12B-1 AGREEMENT
This Agreement is made between the Institution executing this Agreement
("Administrator") and Federated Securities Corp. ("FSC") for the mutual funds
(referred to individually as the "Fund" and collectively as the "Funds") for
which FSC serves as Distributor of shares of beneficial interest or capital
stock ("Shares") and which have adopted a Rule 12b-1 Plan ("Plan") and approved
this form of agreement pursuant to Rule 12b-1 under the Investment Company Act
of 1940. In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. FSC hereby appoints Administrator to render or cause to be rendered
sales and/or administrative support services to the Funds and their
shareholders.
2. The services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating account openings through computer terminals located
on the Administrator's premises ("computer terminals"), through a
toll-free telephone number or otherwise;
(b) communicating account closings via the computer terminals, through
a toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchases and redemptions, and confirming and reconciling all such transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel;
(h) maintaining and distributing current copies of prospectuses and
shareholder reports;
(i) advertising the availability of its services and products;
(j) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of making
such materials accessible to customers and potential customers; and
(k) responding to customers' and potential customers' questions about
the Funds.
The services listed above are illustrative. The Administrator is not
required to perform each service and may at any time perform either more or
fewer services than described above.
3. During the term of this Agreement, FSC will pay the Administrator fees
for each Fund as set forth in a written schedule delivered to the Administrator
pursuant to this Agreement. FSC's fee schedule for Administrator may be changed
by FSC sending a new fee schedule to Administrator pursuant to Paragraph 12 of
this Agreement. For the payment period in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of the fee on the basis
of the number of days that the Rule 12b-1 Agreement is in effect during the
quarter.
4. The Administrator will not perform or provide any duties which would
cause it to be a fiduciary under Section 4975 of the Internal Revenue Code, as
amended. For purposes of that Section, the Administrator understands that any
person who exercises any discretionary authority or discretionary control with
respect to any individual retirement account or its assets, or who renders
investment advice for a fee, or has any authority or responsibility to do so, or
has any discretionary authority or discretionary responsibility in the
administration of such an account, is a fiduciary.
5. The Administrator understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department of
Labor has not issued any exemptive order or advisory opinion that would exempt
fiduciaries from this interpretation. Without specific authorization from the
Department of Labor, fiduciaries should carefully avoid investing discretionary
assets in any fund pursuant to an arrangement where the fiduciary is to be
compensated by the fund for such investment. Receipt of such compensation could
violate ERISA provisions against fiduciary self-dealing and conflict of interest
and could subject the fiduciary to substantial penalties.
6. The Administrator agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the Fund or Funds, unless a court of competent jurisdiction shall
have determined that the conduct of a majority of the Board of Directors of the
Fund or Funds constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties. This paragraph 6 will survive the term of
this Agreement.
7. With respect to each Fund, this Agreement shall continue in effect for
one year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved at least annually by the
Directors of the Fund, including a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Fund's Plan or in
any related documents to the Plan ("Disinterested Directors ") cast in person at
a meeting called for that purpose.
8. Notwithstanding paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund as defined
in the Investment Company Act of 1940 on not more than sixty (60)
days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined
in the Investment Company Act of 1940 or upon the termination of the
"Administrative Support and Distributor's Contract" or "Distributor's
Contract" between the Fund and FSC; and
(c) by either party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its
intention to terminate.
9. The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
10. The Administrator agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide FSC or its
designee with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation of any
required backup withholding.
11. This Agreement supersedes any prior service agreements between the
parties for the Funds.
12. This Agreement may be amended by FSC from time to time by the following
procedure. FSC will mail a copy of the amendment to the Administrator's address,
as shown below. If the Administrator does not object to the amendment within
thirty (30) days after its receipt, the amendment will become part of the
Agreement. The Administrator's objection must be in writing and be received by
FSC within such thirty days.
13. This Agreement shall be construed in accordance with the Laws of the
Commonwealth of Pennsylvania.
----------------------------------
[ADMINISTRATOR]
---------------------------------
Address
---------------------------------
City State Zip Code
Dated:_______________________ By:______________________________
Authorized Signature
----------------------------------
Title
----------------------------------
Print Name of Authorized Signature
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:_________________________________
Richard B. Fisher, President
<PAGE>
MARSHALL FUNDS, INC.
EXHIBIT A to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
PORTFOLIOS
FSC will pay Administrator fees for the following portfolios (the
"Funds") effective as of the dates set forth below:
NAME DATE
MARSHALL MONEY MARKET FUND OCTOBER 1, 1992
INVESTMENT SHARES
ADMINISTRATIVE FEES
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of each Fund. This fee will be computed at the annual
rate of .30% 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 each 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.
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MARSHALL FUNDS, INC.
EXHIBIT B to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
PORTFOLIOS
FSC will pay Administrator fees for the following portfolio (the "Fund")
effective as of the dates set forth below:
NAME DATE
MARSHALL INTERNATIONAL STOCK FUND AUGUST 1, 1994
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.
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MARSHALL FUNDS, INC.
EXHIBIT A to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
PORTFOLIOS
FSC will pay Administrator fees for the following portfolios (the
"Funds") effective as of the dates set forth below:
NAME DATE
MARSHALL MONEY MARKET FUND OCTOBER 1, 1992
CLASS B SHARES
(formerly Investment Shares prior to January 1, 1995)
ADMINISTRATIVE FEES
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of each Fund. This fee will be computed at the annual
rate of .30% 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 each 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.
Exhibit (m)(x) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
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 December 1, 1998
Marshall Government Income Fund - Class A Shares December 1, 1998
Marshall Intermediate Bond Fund - Class A Shares December 1, 1998
Marshall International Stock Fund - Class A Shares December 1, 1998
Marshall Large-Cap Growth & Income Fund - Class A Shares December 1, 1998
Marshall Mid-Cap Growth Fund - Class A Shares December 1, 1998
Marshall Mid-Cap Value Fund - Class A Shares December 1, 1998
Marshall Small-Cap Growth Fund - Class A Shares December 1, 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: December 1, 1998