MARSHALL FUNDS INC, 497, 1999-01-28

MARSHALL FUNDS INC
497, 1999-01-28

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The Marshall Family

of Funds

Investment information

and Prospectus

Class Y Shares

DECEMBER 1998

(REVISED JANUARY 1999)

> 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 Money Market Fund

> Marshall Short-Term Income Fund

> Marshall Intermediate Bond Fund

> Marshall Government Income Fund

> Marshall Intermediate Tax-Free Fund

[Marshall Funds logo]

Discipline

Worthy of Investor
Confidence

Marshall Funds is committed to providing quality investment management services
to shareholders across the country. Our goal is to assist investors in reaching
their financial goals.

. Disciplined approach to investing -- Each Marshall Fund follows a distinct,
disciplined investment approach -- and is led by a manager who doesn't bend the
rules. That means every Marshall Fund manager invests within the guidelines of
the prospectus and adheres to the straightforward philosophy or "mission" of
each fund.

. Dedicated and distinct research teams -- Each investment discipline is
supported by separate and distinct research teams, to help ensure that the
highest level of attention is given to enhancing performance.

. Portfolios built one investment at a time -- Extensive fundamental research is
conducted on each individual company. We select securities with the best
prospects, while adhering to the specific investment discipline within each
fund.

. Management focus -- Critical to our research is an evaluation of the
effectiveness of each company's management. We believe management's ability to
anticipate or effect change is a crucial component to the success of the company
and, ultimately, the fund's portfolio.

Bottom line -- You can be assured that when you invest with the Marshall Funds,
you are getting exactly what you are buying. It's our truth-in-labeling
approach, which gives you the confidence you need to make major investment
decisions.

Not FDIC Insured No Bank Guarantee May Lose Value

[Marshall Funds Logo]

<TABLE>
<CAPTION>
Class Y Shares
Table of Contents
<S> <C>

Risk/Return Profile............................ 2
. Equity Funds
Marshall Equity Income Fund.................. 3
Marshall Large-Cap Growth & Income Fund...... 3
Marshall Mid-Cap Value Fund.................. 4
Marshall Mid-Cap Growth Fund................. 4
Marshall Small-Cap Growth Fund............... 5
Marshall International Stock Fund............ 5
. Income Funds
Marshall Short-Term Income Fund.............. 6
Marshall Intermediate Bond Fund.............. 6
Marshall Government Income Fund.............. 7
Marshall Intermediate Tax-Free Fund.......... 7
. Money Market Fund
Marshall Money Market Fund................... 8
Fees and Expenses of the Funds................. 9
Main Risks of Investing in the Marshall Funds.. 10
How to Buy Shares.............................. 13
How to Redeem and Exchange Shares.............. 16
Account and Share Information.................. 19
Marshall Funds, Inc. Information............... 22
Financial Highlights........................... 24
</TABLE>

Shares of the Marshall Funds, like shares of all mutual funds, are not bank
deposits, federally insured, or guaranteed, and may lose value.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

Prospectus

December 31, 1998

(Revised January 31, 1999)

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).

Equity Funds

Marshall Equity Income Fund
Risk/Return Profile of Mutual Funds Marshall Large-Cap Growth & Income Fund
Marshall Mid-Cap Value Fund

[CHART APPEARS HERE] Marshall Mid-Cap Growth Fund
Marshall Small-Cap Growth Fund
Marshall International Stock Fund

Income Funds

Marshall Short-Term Income Fund
Marshall Intermediate Bond Fund
Marshall Intermediate Tax-Free Fund
Marshall Government Income Fund

Money Market Fund

Marshall Money Market Fund

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 X X
Income Fund
Marshall Large-Cap
Growth & Income Fund X X
Marshall Mid-Cap X X
Value Fund
Marshall Mid-Cap X X
Growth Fund
Marshall Small-Cap X X
Growth Fund
Marshall X X X
International Stock
Fund
Marshall Short-Term X X
Income Fund
Marshall X X
Intermediate Bond
Fund
Marshall X X
Intermediate
Tax-Free Fund
Marshall Government X X
Income Fund
Marshall Money X
Market Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
A complete description of these risks can be found in the "Main Risks of
Investing in the Marshall Funds" section.

Equity Funds [INSERT GRAPHIC]

Marshall Equity Income Fund

[INSERT GRAPHIC] Goal: To provide capital appreciation and above-average
dividend income.

Strategy: The Fund invests in a diversified portfolio of
common stocks of large-sized companies whose market capitalization exceed $10
billion. The Fund attempts to generate dividend income at least 1% more than the
income earned on stocks in the S&P 500 Index.

Annual Total Return (calendar years 1994-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (4Q98) 11.67%
Worst quarter (3Q98) (7.75%)
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

Since 9/30/93 1 Year 5 Year
inception
<S> <C> <C> <C>
Fund 16.93% 10.48% 17.65%
S&P 500 23.32% 28.58% 24.06%
LEIFI 16.03% 11.78% 16.62%
- --------------------------------------------------------------------------------
</TABLE>

Marshall Large-Cap Growth & Income Fund

[INSERT 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)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (4Q98) 22.67%
Worst quarter (3Q98) (10.08%)
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 11/20/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 15.43% 26.18% 18.04%
S&P 500 21.65% 28.58% 24.06%
LGIFI 17.33% 13.58% 17.83%
- ----------------------------------------------------------------------------------
</TABLE>

*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.

[INSERT GRAPHIC] Equity Funds (cont.)

Marshall Mid-Cap Value Fund

[INSERT GRAPHIC] Goal: To provide capital appreciation and income.

Strategy: The Fund invests in a diversified portfolio of common stocks of
companies similar in size to those within the S&P Mid-Cap 400 Index (SPMC). The
Adviser selects companies that exhibit traditional value characteristics, such
as a price-to-earnings ratio less than stocks in the S&P 500, higher-than-
average dividend yields 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)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (4Q98) 12.36%
Worst quarter (3Q98) (13.20%)
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 9/30/93
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 13.37% 5.15% 13.59%
SPMC 18.45% 19.09% 18.84%
LMCFI 14.89% 13.92% 15.20%
- --------------------------------------------------------------------------
</TABLE>

Marshall Mid-Cap Growth Fund

[INSERT 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 Mid-Cap 400 Index (SPMC). The
Adviser selects stocks of companies with above-average earnings growth potential
or where significant changes are taking place, such as significant new products,
services, or methods of distribution, as well as overall business restructuring.

Annual Total Return (calendar years 1994-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (4Q98) 30.61%
Worst quarter (3Q98) (22.90%)
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 9/30/93
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 16.17% 15.72% 16.67%
SPMC 18.45% 19.09% 18.84%
LMCFI 14.89% 13.92% 15.20%
- -----------------------------------------------------------------------
</TABLE>

*The table shows each Fund's average annual total returns compared to abroad-
based market index over a period of time. In addition, the performance of Mid-
Cap Value and Mid-Cap Growth Fund are compared to Lipper Mid-Cap Funds Index
(LMCFI), which is an index of funds with similar investment objectives.

As with all mutual funds, past performance does not necessarily predict future
performance.

Equity Funds (cont.) [INSERT GRAPHIC]

MARSHALL SMALL-CAP GROWTH FUND/1/

[INSERT 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)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (4Q98) 30.28%
Worst quarter (3Q98) (27.56%)
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 11/1/95
inception 1 Year
<S> <C> <C>
Fund 29.65% 3.41%
Russell 2000 11.65% (2.78%)
LSCFI 10.30% (0.85%)
- ------------------------------------------------------------------
</TABLE>

/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.

Marshall International Stock Fund

[INSERT GRAPHIC] Goal: To provide capital appreciation.

Strategy: The Fund invests primarily in a diversified portfolio of common stocks
of companies of any size outside the United States. Templeton Investment
Counsel, Inc. (Sub-adviser) uses a value-oriented approach and selects companies
selling at a discount to their long-term earning potential.

Annual Total Return (calendar years 1995-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (4Q98) 16.30%
Worst quarter (3Q98) (19.06%)
</TABLE>

Average Annual Total Return through 12/31/98**

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 9/1/94
inception 1 Year
<S> <C> <C>
Fund 8.65% 3.26%
EAFE Index 6.09% 18.23%
LIFI 8.41% 12.66%
- -------------------------------------------------------------
</TABLE>

**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 Europe, Australia, Far East Index (EAFE Index), and the Lipper
International Funds Index (LIFI), which are indices of funds with similar
investment objectives.

As with all mutual funds, past performance does not necessarily predict future
performance.

[INSERT GRAPHIC] Income Funds

Marshall Short-Term Income Fund

[INSERT GRAPHIC] Goal: To maximize total return consistent with current income.

Strategy: The Fund invests in short- to intermediate-term investment grade bonds
and notes, including corporate, asset-backed, mortgage-backed and U.S.
government securities. The Adviser changes the Fund's weightings in these
sectors as it deems appropriate and uses macroeconomic, credit and market
analysis to select portfolio securities. The Fund will maintain an average
dollar-weighted maturity of six months to three years.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (2Q95) 2.48%
Worst quarter (1Q94) 0.17%
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 11/1/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 5.05% 4.91% 5.39%
LSTIBI 5.43% 5.73% 5.43%
DMFA 4.45% 5.04% 4.86%
- -------------------------------------------------------------------------
</TABLE>

Marshall Intermediate Bond Fund

[INSERT GRAPHIC] Goal: To maximize total return consistent with current income.

Strategy: The Fund invests in intermediate-term investment grade bonds and
notes, including corporate, asset-backed, mortgage-backed and U.S. government
securities. The Adviser's strategy to achieve total return is to adjust the
Fund's weightings in these sectors as it deems appropriate and uses
macroeconomic, credit and market analysis to select portfolio securities. The
Fund will maintain an average dollar-weighted maturity of three to 10 years.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (2Q95) 4.68%
Worst quarter (1Q96) (2.03%)
</TABLE>

Average Annual Total Return through 12/31/98**

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 11/23/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 5.78% 6.33% 5.49%
LGCI 7.10% 8.44% 6.66%
LSIBF 6.23% 6.99% 5.96%
- --------------------------------------------------------------------------
</TABLE>

*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.

**The table shows the Fund's 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.

Income Funds (cont.) [INSERT GRAPHIC]

MARSHALL GOVERNMENT INCOME FUND

[INSERT GRAPHIC] Goal: To provide current income.

Strategy: The Fund invests in securities issued by the U.S. government and its
agencies and instrumentalities, particularly mortgage-related securities. The
Adviser considers macroeconomic conditions and uses credit and market analysis
in developing the overall portfolio strategy. Current and historical interest
rate relationships are used to evaluate market sectors and individual
securities. The Fund will generally maintain an average dollar-weighted maturity
of four to 12 years.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (2Q95) 4.92%
Worst quarter (1Q94) (2.13%)
</TABLE>

Average Annual Total Return through 12/31/98*

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 12/13/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 6.24% 6.51% 6.24%
LMI 7.29% 6.95% 7.23%
LUSMI 6.17% 6.13% 5.70%
- --------------------------------------------------------------------------
</TABLE>

Marshall Intermediate Tax-Free Fund

[INSERT 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)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (1Q95) 4.31%
Worst quarter (1Q96) (0.63%)
</TABLE>

Average Annual Total Return through 12/31/98**

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Since 2/2/94
inception 1 Year
<S> <C> <C>
Fund 5.04% 5.65%
LB7GOBI 5.69% 6.36%
LIMI 5.00% 5.59%
- --------------------------------------------------------
</TABLE>

*The table shows the Fund's average annual total returns over a period of years
relative to the Lehman Brothers Mortgage-Backed Securities Index (LMI), a broad-
based market index and the Lipper U.S. Mortgage Funds Index (LUSMI), an average
of funds with similar investment objectives.

**The table shows the Fund's average annual total returns over a period of years
relative to the Lehman Brothers 7-Year G.O. Bond Index (LB7GOBI), a broad-based
market index and the Lipper Intermediate Municipal Funds Index (LIMI), an
average of funds with similar investment objectives.

As with all mutual funds, past performance does not necessarily predict future
performance.

[INSERT GRAPHIC] Money Market Fund

Marshall Money Market Fund

[INSERT 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 money market funds seek to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the Fund.

*Investors may call the Fund to acquire the current 7-Day Net Yield
at 1-800-236-FUND(3863).
**The table shows the Fund's average total returns over a period of years
relative to the IBC/Donoghue's Money Fund Average (DMFA), an average of money
funds.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE - SEE APPENDIX]

<TABLE>
<CAPTION>
Total Return
<S> <C> <C>
Best quarter (2Q95) 1.45%
Worst quarter (2Q93) 0.72%
</TABLE>

<TABLE>
<CAPTION>
7-Day Net Yield
<S> <C>
7-Day Net Yield (as of 12/31/98)* 5.03%
- ------------------------------------------------------------------
</TABLE>

Average Annual Total Return through 12/31/98**

<TABLE>
<CAPTION>
Since 11/23/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 4.80% 5.42% 5.19%
DMFA 4.48% 5.04% 4.86%
- --------------------------------------------------------------------------
</TABLE>

[INSERT GRAPHIC] FEES AND EXPENSES OF THE FUNDS

This table describes the fees and expenses that you may pay if you buy and hold
Class Y Shares.

<TABLE>
<CAPTION>
Large-Cap
Equity Growth & Income Mid-Cap Mid-Cap Small-Cap International
Income Fund Value Growth Growth Stock
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
None None None None None None
Annual Fund Operating Expenses (expenses deducted and expressed as a percentage of the Fund's net assets)
Management Fee 0.75% 0.75% 0.75% 0.75% 1.00% 1.00%
Other Expenses 0.17% 0.21% 0.25% 0.23% 0.35% 0.24%
Shareholder Servicing Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Total Annual Fund Operating Expenses 1.17% 1.21% 1.25% 1.23% 1.60% 1.49%
======================================================================================================================
</TABLE>

Short-Term Intermediate Government Intermediate Money
Income Bond Income Tax-Free Market
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
None None None None None
Annual Fund Operating Expenses (expenses deducted and expressed as a percentage of the Fund's net assets)
Management Fee 0.60%(1) 0.60%(1) 0.75%(1) 0.60%(1) 0.50%(1)
Other Expenses 0.20% 0.15% 0.21% 0.27% 0.14%
Shareholder Servicing Fee 0.25%(2) 0.25%(2) 0.25%(2) 0.25%(2) 0.02%
Total Annual Fund Operating Expenses 1.05%(3) 1.00%(3) 1.21%(3) 1.12%(3) 0.66%(3)
================================================================================================================
</TABLE>

(1) The adviser voluntarily waived a portion of the management fee. The adviser
may terminate this voluntary waiver at any time. The management fees paid by the
Short-Term Income Fund, Intermediate Bond Fund, Government Income Fund,
Intermediate Tax-Free Fund and Money Market Fund (after the voluntary waivers)
were 0.28%, 0.54%, 0.64%, 0.32% and 0.25% for the fiscal year ended August 31,
1998.

(2) The Shareholder Servicing Fee for Short-Term Income Fund, Intermediate Bond
Fund, Government Income Fund and Intermediate Tax-Free Fund has been voluntarily
reduced. The shareholder servicing agent may terminate this waiver at any time.
The Shareholder Servicing Fee (after the voluntary waiver) was .02% for Short-
Term Income Fund, Intermediate Bond Fund, Government Income Fund and
Intermediate Tax-Free Fund for the fiscal year ended August 31, 1998.

(3) The Total Actual Operating Expenses were 0.50%, 0.71%, 0.87%, 0.61% and
0.41% for Short-Term Income Fund, Intermediate Bond Fund, Government Income
Fund, Intermediate Tax-Free Fund and Money Market Fund after the voluntary
reductions of the management fee and shareholder services fee for the fiscal
year ended August 31, 1998.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. Marshall & Ilsley Trust Company and its affiliates receive advisory,
custodial, shareholder service and administrative fees for the services they
provide to shareholders. For more complete descriptions of the various costs and
expenses, see "Marshall Funds, Inc. Information." Wire-transferred redemptions
may be subject to an additional fee.

Example
This example is intended to help you compare the cost of investing in the
Marshall Funds with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Funds for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
Large-Cap
Equity Growth & Income Mid-Cap Mid-Cap Small-Cap International Short-Term
Income Fund Value Growth Growth Stock Income
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 119 $ 123 $ 127 $ 125 $ 163 $ 152 $ 107
3 Years $ 372 $ 384 $ 397 $ 390 $ 505 $ 471 $ 334
5 Years $ 644 $ 665 $ 686 $ 676 $ 871 $ 813 $ 579
10 Years $1,420 $1,466 $1,511 $1,489 $1,900 $1,779 $1,283
- -------------------------------------------------------------------------------------------------
</TABLE>

Short-Term Intermediate Government Intermediate Money
Income Bond Income Tax-Free Market
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 107 $ 102 $ 123 $ 114 $ 67
3 Years $ 334 $ 318 $ 384 $ 356 $211
5 Years $ 579 $ 552 $ 665 $ 617 $368
10 Years $1,283 $1,225 $1,466 $1,363 $822
- ---------------------------------------------------------------------------------
</TABLE>

The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

[INSERT 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.

What About Portfolio Turnover?

[INSERT GRAPHIC] Although the Funds do not intend to invest for the purpose of
seeking short-term profits, securities will be sold without regard to the length
of time they have been held when the Funds' Adviser or Sub-adviser believes it
is appropriate to do so in light of a Fund's investment goal. A higher portfolio
turnover rate involves greater transaction expenses 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 that
Fund's shareholders, are taxable to them.

Stock Market Risks. The EQUITY FUNDS are subject to fluctuations in the stock
[INSERT GRAPHIC] markets, which have periods of increasing and decreasing
values. Stocks have greater volatility than debt securities. While greater
volatility increases risk, it offers the potential for greater reward.

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, structure
and regulation of financial markets, liquidity and volatility of
investments, taxation policies, currency exchange rates and regulations
and accounting standards. The INTERNATIONAL STOCK FUND may incur higher
costs and expenses when making foreign investments, which will affect the
Fund's total return.

Foreign securities may be denominated in foreign currencies.
Therefore, the value of a Fund's assets and income in U.S. dollars may be
affected by changes in exchange rates and regulations, since exchange
rates for foreign currencies change daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the United States.
Although the INTERNATIONAL STOCK FUND values its assets daily in U.S.
dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. Therefore, the Fund may be exposed to currency risks over
an extended period of time.

Main Risks of Investing in the Marshall Funds (cont.) [INSERT GRAPHIC]

bank notes on July 1, 2002. The pending unification of European currency
and decision of certain countries not to participate may create
uncertainty in the European markets and thereby increase volatility of the
various currencies and securities. The European securities markets may
also become less liquid. These events could affect a Fund's investment and
performance, as detailed under "European Currency Unification" in the
Statement of Additional Information.

Debt Securities Risks. Risks of debt securities will affect the INCOME FUNDS.

What About Bond Ratings?

[INSERT GRAPHIC] When the Funds invest in bonds and other debt securities and/or
convertible bonds 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
[INSERT GRAPHIC] 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.

[INSERT GRAPHIC] Main Risks of Investing in the Marshall Funds (cont.)

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 (e.g., commercial paper, repurchase agreements, etc.). This
may cause a Fund to temporarily forego greater investment returns for the
safety of principal.

How to Buy Shares [INSERT GRAPHIC]

What Do Shares Cost? You can buy shares of a Fund at net asset value (NAV),
without a sales charge, on any day the New York Stock Exchange (NYSE) is
open for business. When the Fund receives your transaction request in
proper form, it is processed at the next determined public offering price.
NAV is determined for the Funds (other than MONEY MARKET FUND) at the end
of regular trading (normally 3:00 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 Fund 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. In
addition, if you own shares of another Marshall Fund, you will be allowed
to exchange those shares for shares of the Fund, prior to the closing date.

[INSERT GRAPHIC] Fund Purchase Easy Reference Table

[INSERT GRAPHIC] MINIMUM INVESTMENTS

$1,000 . To open an Account

$50 . To add to an Account (including through a Systematic
Investment Program)

[INSERT GRAPHIC] Phone 1-800-236-FUND (3863)

. Contact Marshall Funds Investor Services (MFIS).

. Complete an application for a new account.

. If you authorized telephone 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.

[INSERT GRAPHIC] Mail

. To open an account, send your completed account application and check
payable to "Marshall Funds" to the following address:

Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348

. To add to your existing Fund Account, send in your check, payable to
"Marshall Funds", to the same address. Indicate your Fund account number
on the check.

[INSERT GRAPHIC] In Person

. Bring in your completed account application (for new accounts) (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

Fund Purchase Easy Reference Table (cont.) [INSERT GRAPHIC]

[INSERT GRAPHIC] Wire

. 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.

. Then wire the money to:

M&I Marshall & Ilsley Bank
ABA Number 075000051

Credit to: Federated Shareholder Services Company Deposit, Account
Number 27480 Further credit to: Class Y Shares [Identify name of Fund]
Re: [Shareholder name and account number]

. If a new Account, fax application to: Marshall Funds Investor Services
at 1-414-287-8511.

. Mail a completed account application to the Fund at the address above
under "Mail."

. Your bank may charge a fee for wiring funds. Wire orders are accepted
only on days when the Funds and the Federal Reserve wire system are open
for business.

[INSERT GRAPHIC] Systematic Investment Program

. You can have money automatically withdrawn from your checking account
($50 minimum) on predetermined dates and invest it in a Fund at the next
Fund share price determined after MFIS receives the order.

. The $1,000 minimum investment requirement is waived for investors
purchasing shares through the Systematic Investment Program.

. Call MFIS at 1-800-236-FUND (3863) to apply for this program.

[INSERT GRAPHIC] Marshall Funds OnLine/SM/

. You may purchase Fund shares via the Internet through Marshall Funds
OnLine/SM/ at www.marshallfunds.com. See "Fund Transactions Through
Marshall Funds OnLine/SM/" in the Account and Share Information section.

[INSERT GRAPHIC] Additional Information About Checks Used to Purchase Shares

. If your check does not clear, your purchase will be canceled and you will
be charged a $15 fee.

. If you purchase shares by check or ACH, you may not be able to receive
proceeds from a redemption for up to seven days.

. All checks should be made payable to the "Marshall Funds".

<PAGE>

[INSERT 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.

Fund Redemption Easy Reference Table

[INSERT GRAPHIC] Phone 1-800-236-FUND (3863) (Except Retirement Accounts)

. If you have authorized the telephone redemption privilege in your
account application or by a subsequent authorization form, you may
redeem shares by telephone. If you are a customer of an authorized
broker-dealer, you must contact your account representative.

[INSERT GRAPHIC] Mail

. Send in your written request to the following address, indicating your
name, the Fund name, your account number, and the number of shares or
the dollar amount you want to redeem to:

Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348

. If you want to redeem shares held in certificate form, you must properly
endorse the share certificates and send them by registered or certified
mail. Additional documentation may be required from corporations,
executors, administrators, trustees or guardians.

. For additional assistance, call 1-800-236-FUND (3863).

Fund Redemption Easy Reference Table (cont.) [INSERT GRAPHIC]

[INSERT GRAPHIC] In Person

. Bring in the written redemption request with the information described in
"Mail" above to Marshall Funds Investor Services, 1000 N. Water Street,
13th Floor, Milwaukee, WI, (M-F 8-5 Central Time).

[INSERT GRAPHIC] Wire/Electronic Transfer

. Upon written request, redemption proceeds can be directly deposited by
Electronic Funds Transfer or wired directly to a domestic commercial
bank previously designated by you in your account application or by
subsequent form.

. Wires of redemption proceeds will only be made on days on which the
Funds and the Federal Reserve wire system are open for business.

. Wire-transferred redemptions may be subject to an additional fee.

. Redemption requests for the MONEY MARKET FUND must be received by 12:00
Noon (Central Time) if you want the proceeds to be wired the same day.

[INSERT GRAPHIC] Systematic Withdrawal Program (Existing Accounts Only)

. If you have a Fund account balance of at least $10,000, you can have
predetermined amounts of at least $100 automatically redeemed from your
Fund account on predetermined dates on a monthly or quarterly basis.

. Contact MFIS to apply for this program.

[INSERT GRAPHIC] Checkwriting (Money Market Fund Only)

. You can redeem shares of the MONEY MARKET FUND by writing a check in an
amount of at least $250. You must have completed the checkwriting
section of your account application and the attached signature card, or
have completed a subsequent application form. The Fund will then provide
you with the checks.

. Your check is treated as a redemption order for Fund shares equal to the
amount of the check.

. A check for an amount in excess of your available Fund account balance
will be returned marked "insufficient funds."

. Checks cannot be used to close your Fund account balance.

[INSERT GRAPHIC] Marshall Funds OnLine/SM/

. You may redeem Fund shares via the Internet through Marshall Funds
OnLine/SM/ at www.marshallfunds.com. See "Fund Transactions Through
Marshall Funds OnLine/SM/" in the Account and Share Information section.

[INSERT GRAPHIC] Additional Conditions for Redemptions

Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:

. when you want a redemption to be sent to an address other than the one
you have on record with the Fund;

. when you want the redemption payable to someone other than the
shareholder of record; or

. when your redemption is to be sent to an address of record that was
changed within the last 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:

. to allow your purchase payment to clear;

. during periods of market volatility; or

. when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the
Fund. If those checks are undeliverable and returned to the Fund, the
proceeds will be reinvested in shares of the Funds that were redeemed.

Exchange Privilege. You may exchange Class Y Shares of a Fund for Class Y Shares
of any of the other Marshall Funds free of charge, provided you meet the
investment minimum of the Fund. An exchange is treated as a redemption and
a subsequent purchase, and is therefore a taxable transaction. Signatures
must be guaranteed if you request and exchange into another fund with a
different shareholder registration. The exchange privilege may be modified
or terminated at any time.

Exchanges by Telephone. If you have completed the telephone authorization
section in your account application or an authorization form obtained
through MFIS, you may telephone instructions to MFIS to exchange between
Fund accounts that have identical shareholder registrations. Customers of
broker-dealers, financial institutions or service providers should contact
their account representative. Telephone exchange instructions must be
received before 3:00 p.m. (Central Time) for shares to be exchanged the
same day. However, you will not receive a dividend of the Fund into which
you exchange on the date of the exchange.

The Funds and their service providers will record your telephone
instructions. 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 shareholders. If
this occurs, the Fund may terminate shareholder's purchase and/or exchange
privileges.

Account and Share Information [INSERT GRAPHIC]

Fund Transactions Through Marshall Funds OnLine/SM/. If you have previously
established an account with the Funds, and have signed an OnLine/SM/
Agreement, you may purchase, redeem or exchange shares through the Marshall
Funds Internet Site on the World Wide Web (http://www.marshallfunds.com)
(the Web Site). You may also check your Fund account balance(s) and
[INSERT GRAPHIC] 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:

<TABLE>
<CAPTION>
Minimum Maximum
- ------------------------------------------------------------------------------
<S> <C> <C>
Purchases $50 $100,000
- ------------------------------------------------------------------------------
Redemptions By ACH: $50 By ACH: $50,000
By wire: $1,000 By wire: $50,000
- ------------------------------------------------------------------------------
Exchanges $50 $100,000
- ------------------------------------------------------------------------------
</TABLE>

Shares may be redeemed or exchanged based on either a dollar amount or
number of shares. If you are redeeming or exchanging based upon number of
Fund shares, you must redeem or exchange enough shares to meet the minimum
dollar amounts described above, but not so much as to exceed the maximum
dollar amounts.

Your transactions through the Web Site are effective at the time they are
received by the Fund, and are subject to all of the conditions and
procedures described in this prospectus.

Shareholders may not change their address of record, registration, or
wiring instructions through the Web Site. The Web Site privilege may be
modified at any time, but you will be notified in writing of any
termination of the privilege.

Online Risks. Shareholders that utilize the Web Site for account
histories or transactions should be aware that the Internet is an
unsecured, unstable, unregulated and unpredictable environment. Your
ability to use the Web Site for transactions is dependent upon the Internet
and equipment, software, systems, data and services provided by various
vendors and third parties (including telecommunications carriers, equipment
manufacturers, firewall providers and encryption system providers).

While the Funds and its service providers have established certain
security procedures, the Funds, their distributor and transfer agent cannot
assure you that inquiries or trading activity will be completely secure.
There may also be delays, malfunction or other inconveniences generally
associated with this medium. There may be times when the Web Site is
unavailable for Fund transactions, which may be due to the Internet or the
actions or omissions of any third party--should this happen, you should
consider purchasing, redeeming or exchanging shares by another method. The
Marshall Funds, its transfer agent, distributor and MFIS are not
responsible for any such delays or malfunctions, and are not responsible
for wrongful acts by third parties, as long as reasonable security
procedures are followed.

Account and Share Information (cont.) [INSERT GRAPHIC]

Confirmations and Account Statements. You will receive confirmation of
purchases, redemptions and exchanges (except for systematic program
transactions). In addition, you will receive periodic statements reporting
all account activity, including systematic program transactions, dividends
and capital gains paid.

You may request photocopies of historical confirmations from prior years.
The Funds may charge a fee for this service.

Dividends and Capital Gains. Dividends of the MONEY MARKET FUND and INCOME FUNDS
are declared daily and paid monthly. 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.

What is a Dividend and Capital Gain?

A dividend is the money paid to shareholders that a mutual fund has earned from
[INSERT GRAPHIC] 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.

Account and Share Information (cont.) [INSERT GRAPHIC]

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 and LARGE-CAP GROWTH & INCOME FUND are expected to be both
dividends and capital gains. Fund distributions for the other EQUITY FUNDS
are expected to be primarily capital gains, and fund distributions of the
INCOME FUNDS and MONEY MARKET FUND are expected to be primarily dividends.

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.

[INSERT 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
Templeton Investment Counsel, Inc. (TICI or Sub-adviser), to manage the
INTERNATIONAL STOCK FUND, subject to oversight by the Adviser.

Adviser's Background. M&I Investment Management Corp. is a registered investment
adviser and a wholly owned subsidiary of Marshall & Ilsley Corp., a
registered bank holding company headquartered in Milwaukee, Wisconsin. As
of July 31, 1998, the Adviser had approximately $9 billion in assets under
management and has managed investments for individuals and institutions
since 1973. The Adviser has managed the Funds since 1992 and managed the
Newton Funds (predecessors to some of the Funds) since 1985.

Sub-adviser's Background. Templeton Investment Counsel, Inc. is a registered
investment adviser and a professional investment counseling firm that has
been handling investment services since 1979. As of July 31, 1998, TICI had
discretionary investment of approximately $22.3 billion in assets. TICI is
indirectly owned by Franklin Resources, Inc., which engages in various
aspects of the financial services industry through its subsidiaries. TICI
and its affiliates serve as advisers for a wide variety of mutual funds and
private clients in many nations. TICI, its affiliates and their predecessors
have been investing globally for over 50 years.

Portfolio Managers. The EQUITY INCOME FUND is managed by Bruce P. Hutson, who
has been a vice president of the Adviser since 1973 and 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.

[INSERT GRAPHIC] The MID-CAP VALUE FUND is co-managed by Matthew B. Fahey
and John C. Potter. Mr. Fahey has been a vice president of the Adviser since
1988. He earned a B.A. degree in Business Administration from the University
of Wisconsin-Milwaukee and holds an M.B.A. degree from Marquette University.
Mr. Potter has been a vice president of the Adviser since 1997. From 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 is managed by Steve D. Hayward. Prior to joining
the Adviser as a vice president in December 1993, Mr. Hayward served as
senior portfolio manager of AMOCO Corporation and managed two aggressive
growth-oriented mutual funds for American Asset Capital Management. Mr.
Hayward, who is a Chartered Financial Analyst, received a B.A. in Economics
from North Park College, and an M.B.A. in Finance from Loyola University.

The SMALL-CAP GROWTH FUND is co-managed by Steve D. Hayward and David
Lettenberger. Mr. Hayward's background is described above under the MID-CAP
GROWTH FUND. Prior to joining the Adviser in October 1993, Mr. Lettenberger
was employed by M&I Marshall & Ilsley Bank. Previously, he was a senior
securities analyst for MARSHALL MID-CAP GROWTH FUND from the Fund's
inception in 1993 through 1996. Mr. Lettenberger is a Chartered Financial
Analyst and holds a B.B.A. degree in Finance and Economics from Marquette
University.

Marshall Funds, Inc. Information (cont.) [INSERT GRAPHIC]

in New York, a subsidiary of Templeton Global Investors, Inc. Mr.
Clemons holds an M.B.A. degree from the University of Wisconsin-Madison and
a bachelor of science degree from the University of Nevada-Reno.

The SHORT-TERM INCOME FUND and INTERMEDIATE BOND FUND are managed by Mark
Pittman. Mr. Pittman is a vice president of the Adviser, which he joined in
June 1994. Prior to that time, he spent five years with Valley Trust
Company managing fixed income portfolios and common trust funds. In
addition, he was a member of the Valley Trust Company Investment Committee
and Asset Allocation Committee. Mr. Pittman is a Chartered Financial
Analyst and holds M.B.A. and B.B.A. degrees in Finance from the University
of Wisconsin-Madison.

The GOVERNMENT INCOME FUND is managed by Joseph M. Cullen. Mr. Cullen
joined the Adviser in January 1999 and has managed the Fund since that
[INSERT GRAPHIC] 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 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
[INSERT GRAPHIC] January 1, 1994, and has been employed by the Adviser since
January 93. 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:

<TABLE>
<CAPTION>
Fund Advisory Fee
<S> <C>
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%
- ---------------------------------------------------------------------
</TABLE>
The Adviser has the discretion to voluntarily waive a portion of its fee.
However, any waivers by the Adviser are voluntary and may be terminated at
any time in its sole discretion.

Affiliate Services and Fees. Marshall & Ilsley Trust Company is custodian of the
assets and securities of the Marshall Funds and provides shareholder
support, sub-transfer agency and other administrative services to
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. Effective
February 1, 1999, Marshall & Ilsley Trust Company will receive shareholder
services fees from the shareholder services agent for the Equity and Income
Funds and directly from the Money Market Fund in amounts equal to a maximum
annual percentage of the Funds' average daily net assets as follows:

<TABLE>
<CAPTION>
Shareholder Services Fee
<S> <C>
Equity Funds 0.25%
Income Funds 0.02%
Money Market Fund 0.02%
</TABLE>

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.

[INSERT GRAPHIC] Financial Highlights

The Financial Highlights will help you understand a Fund's financial
performance for its past five fiscal years or since inception, if the life of a
Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in a Fund, assuming reinvestment of any dividends and capital gains.

The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated October 23, 1998 is included
in the Annual Report for the Funds, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Funds.

Further information about the performance of the Funds is contained in the
Funds' Annual Report dated August 31, 1998, which may be obtained free of
charge.
(For a share outstanding throughout each period)

Net Net Realized and Dividends to Distributions to
Net Asset Investment Unrealized Shareholders Shareholders from
Value, Income/ Gain/(Loss) Total from from Net Net Realized Gain
Period Ended Beginning Operating on Security Investment Investment on Security Total
August 31, of Period (Loss) Transactions Operations Income Transactions Distributions
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund
1994(a) $10.00 0.28 (0.09) 0.19 (0.23) -- (0.23)
1995 $ 9.96 0.33 1.26 1.59 (0.33) -- (0.33)
1996 $11.22 0.34 2.00 2.34 (0.35) (0.21) (0.56)
1997 $13.00 0.33 3.51 3.84 (0.34) (0.86) (1.20)
1998 $15.64 0.31 (0.19)(h) 0.12 (0.32) (1.27) (1.59)
- ----------------------------------------------------------------------------------------------------------------------------------
Large-Cap Growth & Income Fund
1993(b) $10.00 0.10 0.07 0.17 (0.09) -- (0.09)
1994 $10.08 0.07 (0.03) 0.04 (0.07) -- (0.07)
1995 $10.05 0.09 1.59 1.68 (0.09) -- (0.09)
1996 $11.64 0.16 1.17 1.33 (0.15) (0.66) (0.81)
1997 $12.16 0.10 3.76 3.86 (0.12) (1.94) (2.06)
1998 $13.96 0.06 0.46 0.52 (0.06) (1.18) (1.24)
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
1994(a) $10.00 0.12 0.93 1.05 (0.10) -- (0.10)
1995 $10.95 0.22 1.22 1.44 (0.20) (0.11) (0.31)
1996 $12.08 0.21 0.78 0.99 (0.21) (0.88) (1.09)
1997 $11.98 0.15 3.05 3.20 (0.15) (1.89) (2.04)
1998 $13.14 0.10 (0.92) (0.82) (0.12) (1.95) (2.07)
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund
1994(a) $10.00 0.02 (0.29) (0.27) (0.01) (0.03) (0.04)
1995 $ 9.69 (0.00) 2.62 2.62 (0.01) -- (0.01)
1996 $12.30 (0.06) 2.24 2.18 -- (0.92) (0.92)
1997 $13.56 (0.08) 2.56 2.48 -- (1.22) (1.22)
1998 $14.82 (0.13) (0.93) (1.06) -- (1.81) (1.81)
- ----------------------------------------------------------------------------------------------------------------------------------
Small-Cap Growth Fund
1997(d) $10.00 (0.08) 2.27 2.19 -- -- --
1998 $12.19 (0.22) (1.66) (1.88) -- (0.49) (0.49)
- ----------------------------------------------------------------------------------------------------------------------------------
International Stock Fund
1995(c) $10.00 0.20 0.01 0.21 (0.05) -- (0.05)
1996 $10.16 0.21 0.96 1.17 (0.22) (0.03) (0.25)
1997 $11.08 0.18 2.29 2.47 (0.26) (0.09) (0.35)
1998 $13.20 0.26 (1.42) (1.16) (0.21) (0.29) (0.50)
- ----------------------------------------------------------------------------------------------------------------------------------
Short-Term Income Fund
1993(e) $10.00 0.40 (0.05) 0.35 (0.40) -- (0.40)
1994 $ 9.95 0.45 (0.25) 0.20 (0.44) -- (0.44)
1995 $ 9.71 0.56 0.05 0.61 (0.58) -- (0.58)
1996 $ 9.74 0.62 (0.15) 0.47 (0.62) -- (0.62)
1997 $ 9.59 0.63 0.04 0.67 (0.62) -- (0.62)
1998 $ 9.64 0.61 (0.03) 0.58 (0.61) -- (0.61)
- ----------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond Fund
1993(b) $10.00 0.46 0.33 0.79 (0.39) -- (0.39)
1994 $10.40 0.61 (0.81) (0.20) (0.67) (0.17) (0.84)
1995 $ 9.36 0.61 0.16 0.77 (0.62) -- (0.62)
1996 $ 9.51 0.58 (0.25) 0.33 (0.58) -- (0.58)
1997 $ 9.26 0.58 0.18 0.76 (0.58) -- (0.58)
1998 $ 9.44 0.58 0.16 0.74 (0.58) -- (0.58)
- ----------------------------------------------------------------------------------------------------------------------------------
Government Income Fund
1993(f) $10.00 0.47 0.16 0.63 (0.41) -- (0.41)
1994 $10.22 0.64 (0.78) (0.14) (0.68) (0.14) (0.82)
1995 $ 9.26 0.60 0.27 0.87 (0.62) -- (0.62)
1996 $ 9.51 0.62 (0.24) 0.38 (0.62) -- (0.62)
1997 $ 9.27 0.62 0.22 0.84 (0.62) -- (0.62)
1998 $ 9.49 0.61 0.21 0.82 (0.61) -- (0.61)
- ----------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Free Fund
1994(g) $10.00 0.19 (0.29) (0.10) (0.19) -- (0.19)
1995 $ 9.71 0.42 0.20 0.62 (0.42) -- (0.42)
1996 $ 9.91 0.43 (0.08) 0.35 (0.43) -- (0.43)
1997 $ 9.83 0.43 0.21 0.64 (0.43) -- (0.43)
1998 $10.04 0.43 0.29 0.72 (0.43) -- (0.43)
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund--(formerly Class A Shares)(l)
1993(b) $ 1.00 0.02 -- 0.02 (0.02) -- (0.02)
1994 $ 1.00 0.03 -- 0.03 (0.03) -- (0.03)
1995 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1996 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1997 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
1998 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05)
</TABLE>

<TABLE>
<CAPTION>
Ratios to Average Net Assets
--------------------------------
Net Assets,
Net Asset Net End of Period Portfolio
Period Ended Value, End Total Investment Expense (000 Turnover
August 31, of Period Return(i) Expenses Income Waiver(k) Omitted) Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund
1994(a) $ 9.96 2.02% 1.01%(j) 3.30%(j) 0.16%(j) $ 49,396 44%
1995 $11.22 16.40% 1.01% 3.45% 0.09% $ 107,499 43%
1996 $13.00 21.20% 0.98% 2.83% -- $ 173,402 60%
1997 $15.64 30.95% 1.22% 2.31% -- $ 331,730 61%
1998 $14.17 0.04% 1.17% 2.01% -- $ 458,865 69%
- --------------------------------------------------------------------------------------------------------
Large-Cap Growth & Income Fund
1993(b) $10.08 1.67% 0.94%(j) 1.39%(j) 0.03%(j) $ 309,128 98%
1994 $10.05 0.44% 0.99% 0.77% 0.01% $ 250,155 86%
1995 $11.64 16.85% 0.98% 0.88% 0.01% $ 257,019 79%
1996 $12.16 11.56% 0.97% 1.28% -- $ 251,583 147%
1997 $13.96 34.50% 1.23% 0.78% -- $ 269,607 43%
1998 $13.24 3.44% 1.21% 0.40% -- $ 274,821 33%
- --------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
1994(a) $10.95 10.59% 1.00%(j) 1.82%(j) 0.15%(j) $ 218,755 39%
1995 $12.08 13.57% 0.96% 1.98% -- $ 220,436 78%
1996 $11.98 8.53% 0.98% 1.68% -- $ 195,066 67%
1997 $13.14 30.20% 1.23% 1.20% -- $ 145,143 55%
1998 $10.25 (7.75%) 1.25% 0.96% -- $ 134,620 59%
- --------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund
1994(a) $ 9.69 (2.74%) 1.01%(j) 0.23%(j) 0.28%(j) $ 53,642 113%
1995 $12.30 27.06% 1.01% (0.13%) 0.08% $ 108,256 157%
1996 $13.56 18.92% 1.01% (0.47%) -- $ 143,236 189%
1997 $14.82 19.14% 1.24% (0.52%) -- $ 196,983 211%
1998 $11.95 (8.77%) 1.23% (0.79%) -- $ 187,388 167%
- --------------------------------------------------------------------------------------------------------
Small-Cap Growth Fund
1997(d) $12.19 21.90% 1.80%(j) (0.94%)(j) -- $ 56,425 183%
1998 $ 9.82 (16.25%) 1.60% 1.18% -- $ 79,858 139%
- --------------------------------------------------------------------------------------------------------
International Stock Fund
1995(c) $10.16 2.11% 1.54%(j) 2.42%(j) 0.04%(j) $ 94,048 61%
1996 $11.08 11.71% 1.35% 2.58% -- $ 143,783 26%
1997 $13.20 22.73% 1.59% 1.80% -- $ 226,849 26%
1998 $11.54 (9.09%) 1.49% 2.01% -- $ 225,248 91%
- --------------------------------------------------------------------------------------------------------
Short-Term Income Fund
1993(e) $ 9.95 3.57% 0.50%(j) 4.91%(j) 0.51%(j) $ 74,742 79%
1994 $ 9.71 2.05% 0.50% 4.58% 0.39% $ 100,452 185%
1995 $ 9.74 6.47% 0.51% 5.78% 0.40% $ 84,273 194%
1996 $ 9.59 4.92% 0.51% 6.16% 0.40% $ 100,846 144%
1997 $ 9.64 7.20% 0.49% 6.46% 0.59% $ 148,781 101%
1998 $ 9.61 6.22% 0.50% 6.40% 0.55% $ 133,186 90%
- --------------------------------------------------------------------------------------------------------
Intermediate Bond Fund
1993(b) $10.40 7.99% 0.70%(j) 6.08%(j) 0.10%(j) $ 346,808 220%
1994 $ 9.36 (2.02%) 0.71% 6.26% 0.11% $ 357,740 228%
1995 $ 9.51 8.58% 0.71% 6.50% 0.08% $ 344,071 232%
1996 $ 9.26 3.52% 0.72% 6.14% 0.09% $ 403,657 201%
1997 $ 9.44 8.42% 0.72% 6.17% 0.31% $ 398,234 144%
1998 $ 9.60 8.00% 0.71% 6.02% 0.29% $ 589,669 148%
- --------------------------------------------------------------------------------------------------------
Government Income Fund
1993(f) $10.22 6.40% 0.85%(j) 6.56%(j) 0.33%(j) $ 57,822 218%
1994 $ 9.26 (1.34%) 0.86% 6.58% 0.40% $ 64,823 175%
1995 $ 9.51 9.78% 0.86% 6.54% 0.26% $ 103,708 360%
1996 $ 9.27 4.02% 0.86% 6.51% 0.19% $ 138,458 268%
1997 $ 9.49 9.35% 0.86% 6.62% 0.38% $ 203,642 299%
1998 $ 9.70 8.92% 0.87% 6.38% 0.34% $ 280,313 353%
- --------------------------------------------------------------------------------------------------------
Intermediate Tax-Free Fund
1994(g) $ 9.71 (0.94%) 0.62%(j) 3.58%(j) 0.59%(j) $ 35,212 45%
1995 $ 9.91 6.58% 0.61% 4.35% 0.47% $ 46,051 105%
1996 $ 9.83 3.57% 0.61% 4.34% 0.37% $ 65,927 41%
1997 $10.04 6.67% 0.61% 4.35% 0.54% $ 88,108 53%
1998 $10.33 7.31% 0.61% 4.22% 0.51% $ 101,592 68%
- --------------------------------------------------------------------------------------------------------
Money Market Fund--(formerly Class A Shares)(l)
1993(b) $ 1.00 2.33% 0.40%(j) 2.97%(j) 0.28%(j) $ 775,890 --
1994 $ 1.00 3.41% 0.40% 3.40% 0.29% $ 967,988 --
1995 $ 1.00 5.57% 0.41% 5.44% 0.26% $1,128,623 --
1996 $ 1.00 5.39% 0.41% 5.29% 0.26% $1,039,659 --
1997 $ 1.00 5.35% 0.41% 5.22% 0.26% $1,290,659 --
1998 $ 1.00 5.51% 0.41% 5.37% 0.25% $1,588,817 --
</TABLE>

(a) Reflects operations for the period from October 1, 1993 (date of initial
public investment) to August 31, 1994.
(b) Reflects operations for the period from November 23, 1992 (date of initial
public investment) to August 31, 1993.
(c) Reflects operations for the period from September 2, 1994 (date of initial
public investment) to August 31, 1995.
(d) Reflects operations for the period from September 3, 1996 (date of initial
public investment) to August 31, 1997.
(e) Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(f) Reflects operations for the period from December 14, 1992 (date of initial
public investment) to August 31, 1993.
(g) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to August 31, 1994.
(h) The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized gain (loss) on security
transactions for the period due to the timing of sales and repurchases of Fund
shares in relation to fluctuating market values of the investments of the Fund.
(i) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios.
(l) Effective December 1998, Class A Shares changed its share class name to
Class Y Shares.

A Statement of Additional Information (SAI) dated December 31, 1998 (Revised
January 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 53201-1348

414-287-8555 or 800-236-FUND (3863)

Internet address: http://www.marshallfunds.com

TDD: Speech and Hearing Impaired Services
1-800-209-3520

Notes

<S> <C> <C>
Marshall Equity Funds
Marshall Equity Income Fund . Invests in common stocks of companies with market capitalization in excess of $10 billion
. Constructs a portfolio with a dividend at least 1% greater than the average dividend of the
S&P 5001
. Attempts to control volatility with strict sell discipline
. Manager with more than 27 years' investment management experience
Marshall Large-Cap Growth
& Income Fund . Invests in companies with market capitalization in excess of $10 billion
. Seeks companies with improving earnings and/or growing dividends
. Focuses on companies that have a defined catalyst for price appreciation
. Manager with more than 19 years' investment management experience
Marshall Mid-Cap Value Fund . Invests in companies with market capitalization similar to those within the S&P Mid-Cap 4002
. Seeks companies that exhibit traditional value characteristics
. Focuses on companies that may have under-appreciated assets or be involved in company
turnarounds or corporate restructuring
. Co-managers with more than 18 years' combined investment management experience
Marshall Mid-Cap Growth
Fund . Invests in companies with market capitalization similar to those within the S&P Mid-Cap 400
. Seeks to invest in successful entrepreneurs
. Focuses on companies with high expected growth rates
. Manager with more than 30 years' investment management experience
Marshall Small-Cap Growth
Fund/3/ . Invests in companies with market capitalization similar to those within the Russell 20007
. Seeks to invest in successful entrepreneurs
. Focuses on companies with high expected growth rates
. Co-managers with more than 30 years' combined investment management experience
Marshall International
Stock Fund/4/ . Invests in companies outside the U.S.
. Seeks companies selling at a discount to their long-term earnings potential
. Value-oriented investment discipline
. Sub-advised by Templeton Investment Counsel, Inc.
Marshall Income Funds
Marshall Money Market
Fund/5/ . Invests in money market instruments maturing in 397 days or less
. Seeks to preserve value of investment at $1.00 per share
. Pursues high current yield from highest quality short-term securities
. Manager investing more than $5 billion in money market instruments
Marshall Short-Term Income
Fund . Invests in short- to intermediate-term investment grade bonds and notes
. Maintains an average dollar-weighted maturity of six months to three years
. Selects portfolio securities using macro-economic, credit and market analysis
. Manager has more than nine years' investment management experience
Marshall Intermediate Bond
Fund . Invests in intermediate-term investment grade bonds and notes
. Maintains an average dollar-weighted maturity of three to 10 years
. Selects portfolio securities using macro-economic, credit and market analysis
. Manager has more than nine years' investment management experience
Marshall Government Income
Fund . Invests in securities of the U.S. Government and its agencies
. Maintains an average dollar-weighted maturity of four to 12 years
. Uses current and historical interest rate relationships to evaluate market sectors and individual
securities
. Manager has more than 8 years' experience
Marshall Intermediate
Tax-Free Fund/6/ . Invests in investment grade municipal securities providing income that is exempt from federal
income tax
. Maintains an average dollar-weighted maturity of three to 10 years

. Selects portfolio securities by evaluating cyclical
trends in interest rates and municipal bond supply factors
. Manager has more than 15 years' investment management experience
</TABLE>

/1/The S&P 500 is an unmanaged capitalization weighted index designed to measure
performance of the broad domestic economy through changes in the aggregate
market value of 500 stocks representing all major industries.

/2/The S&P 400 Mid Cap Index is an unmanaged capitalization weighted index that
measures the performance of the mid-range of the U.S. stock market.
/3/Small-cap stocks may experience a higher level of volatility than average.
/4/International investing involves special risk due to factors such as
increased volatility, currency fluctuation and differences in auditing and other
financial
standards. Templeton Investment Counsel Inc., sub-adviser to Marshall
International Stock Fund.

/5/An investment in the Fund is neither insured nor guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.

/6/Income may be subject to federal alternative minimum tax and state and local
taxes.
/7/The Russell 2000 Index is an unmanaged capitalization weighted index designed
to measure performance of smaller companies in the U.S. stock market.

Not part of the prospectus

[Marshall Funds Logo]
Marshall Funds Investor Services
1000 North Water Street
Milwaukee, Wisconsin 53202-6025
800-236-FUND(3863)
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com
Federated Securities Corp., Distributor G00714-01(1/99)
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

December 31, 1998
(Revised January 31, 1999)

Equity Funds Income Funds
o Marshall Equity Income Fund o Marshall Short-Term Income Fund
o Marshall Large-Cap Growth & Income Fund o Marshall Intermediate Bond Fund
o Marshall Mid-Cap Value Fund o Marshall Intermediate Tax-Free Fund
o Marshall Mid-Cap Growth Fund o Marshall Government Income Fund
o Marshall 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 prospectus for
the Marshall Funds, dated December 31, 1998 (Revised January 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).

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010

G00714-02(1/99)

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 16

What Do Shares Cost? 18

How is the Fund Sold? 18

How to Buy Shares 18

Account and Share Information 19

What are the Tax Consequences? 20

Who Manages the Funds? 21

How Does The Fund 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

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
- ---------------------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Securities Equity Income Large-Cap Mid-Cap Mid-Cap International Small-Cap
Growth & Value Growth Stock Growth
Income
- ---------------------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
American Depositary Receipts1 A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Asset-Backed Securities2 A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Bank Instruments3 A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Borrowing4 A A A A A A
- -----------------------------------------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Common Stock P P P P P P
- ----------------------------------------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- -------------
Common Stock of Foreign Companies A A A A P A
- ----------------------------------------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- -------------
Convertible Securities P A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- -------------
Debt Obligations A A A A A5 A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Derivative Contracts and Securities A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
European Depositary Receipts N N N N A N
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Fixed Rate Debt Obligations A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Floating Rate Debt Obligations A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Foreign Currency Hedging Transactions N N N N A N
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Foreign Currency Transactions N N N N A N
- ----------------------------------------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Foreign Securities6 A A A A P A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- -------------
Forward Commitments, When-Issued and Delayed A A A A A A
Delivery Transactions
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Futures and Options Transactions A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Global Depositary Receipts N N N N A N
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
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 Companies A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
SWAP Transactions A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
U.S. Government Securities A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Variable Rate Demand Notes A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Warrants A A A A A A
- ----------------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------

INCOME FUNDS AND MONEY MARKET FUND
- ---------------------------------------------- ---------------- ----------------- ---------------- ----------------- --------------
Securities Short-Term Intermediate Government Intermediate Money Market
Income Bond Income Tax-Free
- ---------------------------------------------- ---------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Asset-Backed Securities2 P A P A A
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
- ----------------------------------------------- --------------- ----------------- ----------------- --------------
Bank Instruments3 A A A A P
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
Borrowing4 A A A A A
- -----------------------------------------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Debt Obligations P P P P P
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------
Demand Master Notes A A N N P
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
Derivative Contracts and Securities A A A A A
- ----------------------------------------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Fixed Rate Debt Obligations P P P P A
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Floating Rate Debt Obligations A A A P P
- ----------------------------------------------- --------------- ----------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ----------------
Foreign Securities6 A A A N N
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Forward Commitments, When-Issued and Delayed A A A A A
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 A A P N N
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ----------------- --------------
Municipal Leases A A A A N
- ----------------------------------------------- --------------- ----------------- ---------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Municipal Securities A A A P N
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- --------------
Participation Interests N N N A N
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Preferred Stocks N N N N N
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Prime Commercial Paper8 A A A A P
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Repurchase Agreements A A A A P
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- -----------------
Reverse Repurchase Agreements9 A A A A A
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Securities of Other Investment Companies A A A A A
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
SWAP Transactions A A A A N
- ----------------------------------------------- --------------- ----------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
U.S. Government Securities A A P A A
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
Variable Rate Demand Notes A A A A A
- ----------------------------------------------- --------------- ----------------- ---------------- ----------------- --------------
</TABLE>

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 Funds may purchase foreign Bank
Instruments. The Equity Funds and Money Market Funds (except International Stock
Fund) are limited to 5% of total assets. The Income Funds may invest in foreign
Bank Instruments, although they do not presently intend to do so.

4. The International Stock Fund may 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 on the reverse repurchase agreement.

SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS

As used in this section, the term Adviser means Adviser or Subadviser, as
applicable. Agency securities are issued or guaranteed by a federal agency or
other government sponsored entity acting under federal authority. Some
government entities are supported by the full, faith and credit of the United
States. Other government entities receive support through federal subsidies,
loans or other benefits. A few government entities have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Investors regard agency securities as
having low credit risk, but not as low as Treasury securities.

The Fund treats mortgage-backed securities guaranteed by a government sponsored
entity as if issued or guaranteed by a federal agency. Although such a guarantee
protects against credit risk, it does not reduce the market and prepayment
risks. Asset-Backed Securities are issued by non-governmental entities and carry
no direct or indirect government guarantee. Asset-Backed Securities represent an
interest in a pool of assets such as car loans and credit card receivables.
Almost any type of fixed income asset (including other fixed income securities)
may be used to create an asset backed security. However, most asset-backed
securities involve consumer or commercial debts with maturities of less than ten
years. Asset-backed securities may take the form of commercial paper or notes,
in addition to pass through certificates or asset-backed bonds. Asset backed
securities may also resemble some types of CMOs.

Bank Instruments. Bank Instruments are unsecured interest bearing deposits with
banks. Bank Instruments include bank accounts, time deposits, certificates of
deposit and banker's acceptances. Instruments denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars and issued by
U.S. branches of foreign banks are referred to as Yankee instruments.

The Funds will invest in bank instruments that have been issued by banks and
savings and loans that have capital, surplus and undivided profits of over $100
million or whose principal amount is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, which are administered by the Federal
Deposit Insurance Corporation. Securities that are credit-enhanced with a bank's
irrevocable letter of credit or unconditional guaranty will also be treated as
Bank Instruments.

Foreign Bank Instruments. Eurodollar Certificates of Deposit (ECDs), Yankee
Certificates of Deposit (YCDs) and Eurodollar Time Deposits (ETDs) are all
U.S. dollar denominated certificates of deposit. ECDs are issued by, and
ETDs are deposits of, foreign banks or foreign branches of U.S. banks. YCDs
are issued in the U.S. by branches and agencies of foreign banks.

ECDs, ETDs, YCDs, and Europaper have many of the same risks of other
foreign securities. Examples of these risks include economic and political
developments, that may adversely affect the payment of principal or
interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank
and the possible impact of interruptions in the flow of international
currency transactions. Also, the issuing banks or their branches are not
necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by
the Adviser in selecting these investments.

Borrowing. The Funds may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets (net assets for the Money
Market Fund, Short-Term Income Fund and Intermediate Bond Fund), and pledge some
assets as collateral. A Fund that borrows will pay interest on borrowed money
and may incur other transaction costs. These expenses could exceed the income
received or capital appreciation realized by the Fund from any securities
purchased with borrowed money. With respect to borrowings, the Funds are
required to maintain continuous asset coverage to 300% of the amount borrowed.
If the coverage declines to less than 300%, the Fund must sell sufficient
portfolio securities to restore the coverage even if it must sell the securities
at a loss.

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most common types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.

Convertible Securities. Convertible securities are fixed income securities that
the Fund has the option to exchange for equity securities at a specified
conversion price. The option allows the Fund to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, if the Fund holds fixed income securities convertible into shares of
common stock at a conversion price of $10 per share, and the shares have a
market value of $12, the Fund could realize an additional $2 per share by
converting the fixed income securities.

To compensate for the value of the conversion option, convertible securities
have lower yields than comparable fixed income securities. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

Credit Enhancement. Certain acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. The Adviser may evaluate a security
based, in whole or in part, upon the financial condition of the party providing
the credit enhancement (the credit enhancer). The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.

For diversification purposes, credit-enhanced securities will not be treated as
having been issued by the credit enhancer, unless the Fund has invested more
than 10% of its assets in securities issued, guaranteed or otherwise
credit-enhanced by the credit enhancer. In such cases, the securities will be
treated as having been issued both by the issuer and the credit enhancer.

Credit Quality. The fixed income securities in which a Fund invest will be rated
at least investment grade by a nationally recognized statistical ratings
organization (NRSRO). Investment grade securities have received one of an
NRSRO's four highest ratings. Securities receiving the fourth highest rating
(Baa by Moody's or BBB by S&P or Fitch) have speculative characteristics and
changes in the market or the economy are more likely to affect the ability of
the issuer to repay its obligations when due. The Adviser will evaluate
downgraded securities and will sell any security determined not to be an
acceptable investment. The Money Market Fund is subject to Rule 2a-7 under the
Investment Company Act of 1940, and will follow the credit quality requirements
of the Rule.

Commercial Paper and Restricted and Illiquid Securities. Commercial paper is an
issuer's draft or note with a maturity of less than nine months. Companies
typically issue commercial paper to fund current expenditures. Most issuers
constantly reissue their commercial paper and use the proceeds (or bank loans)
to repay maturing paper. Commercial paper may default if the issuer cannot
continue to obtain financing in this fashion. The short maturity of commercial
paper reduces both the market and credit risk as compared to other debt
securities of the same issuer.

The Funds may invest in commercial paper issued under Section 4(2) of the
Securities Act of 1933. By law, the sale of Section 4(2) commercial paper is
restricted and is generally sold only to institutional investors, such as a
Fund. A Fund purchasing Section 4(2) commercial paper must agree to purchase the
paper for investment purposes only and not with a view to public distribution.
Section
4(2) commercial paper is normally resold to other institutional investors
through investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity.

The Funds believe that Section 4(2) commercial paper and certain other
restricted securities which meet the Director's criteria for liquidity are quite
liquid. Section 4(2) commercial paper and restricted securities which are deemed
liquid, will not be subject to the investment limitation. In addition, because
Section 4(2) commercial paper is liquid, the Funds intend to not subject such
paper to the limitation applicable to restricted securities.

Demand Features. The Funds may purchase securities subject to a demand feature,
which may take the form of a put or standby commitment. Demand features permit a
fund to demand payment of the value of the security (plus an accrued interest)
from either the issuer of the security or a third-party. Demand features help
make a security more liquid, although an adverse change in the financial health
of the provider of a demand feature (such as bankruptcy), will negatively affect
the liquidity of the security. Other events may also terminate a demand feature,
in which case liquidity is also affected.

Demand Master Notes. Demand master notes are short-term borrowing arrangements
between a corporation or government agency and an institutional lender (such as
a Fund) payable upon demand by either party. A party may demand full or partial
payment and the notice period for demand typically ranges from one to seven
days. Many master notes give a Fund the option of increasing or decreasing the
principal amount of the master note on a daily or weekly basis within certain
limits. Demand master notes usually provide for floating or variable rates of
interest.

Depositary Receipts. American Depositary Receipts (ADRs) are receipts, issued by
a U.S. bank, that represent an interest in shares of a foreign-based
corporation. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) are receipts, issued by foreign banks or trust
companies, or foreign branches of U.S. banks, that represent an interest in
shares of either a foreign or U.S. corporation. Depositary Receipts may not be
denominated in the same currency as the underlying securities into which they
may be converted, and are subject to currency risks. Depositary Receipts
involves many of the same risks of investing directly in foreign securities.

Derivative Contracts. 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 good 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, if 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 highly
rated U.S. insurance companies. Pursuant to such Agreements, a Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits guaranteed interest to the
Fund. The insurance company may assess periodic charges against an Agreement for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for an Agreement becomes
part of the general assets of the issuer, and the Agreement is paid from the
general assets of the issuer. The Money Market Fund will only purchase
Agreements from issuers that meet quality and credit standards established by
the Adviser. Generally, Agreements are not assignable or transferable without
the permission of the issuing insurance companies, and an active secondary
market in Agreements does not currently exist. Also, the Money Market Fund may
not have the right to receive the principal amount of an Agreement from the
insurance company on seven days' notice or less. Therefore, Agreements are
typically considered to be illiquid investments.

Futures and Options Transactions. As a means of reducing fluctuations in its net
asset value, a Fund may buy and sell futures contracts and options on futures
contracts, and buy put and call options on portfolio securities and securities
indices to hedge its portfolio. A Fund may also write covered put and call
options on portfolio securities to attempt to increase its current income or to
hedge its portfolio. There is no assurance that a liquid secondary market will
exist for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.

Futures Contracts. A futures contract is a commitment by two parties under
which one party agrees to make delivery of an asset (seller) and another
party agrees to take delivery of the asset at a certain time in the future.
A futures contract may involve a variety of assets including commodities
(such as oil, wheat, or corn) or a financial asset (such as a security). A
Fund may purchase and sell financial futures contracts to hedge against
anticipated changes in the value of its portfolio without necessarily
buying or selling the securities. Although some financial futures contracts
call for making or taking delivery of the underlying securities, in most
cases these obligations are closed out before the settlement date. The
closing of a futures contract is accomplished by purchasing or selling an
identical offsetting futures contract. Other financial futures contracts
call for cash settlements.

A Fund may purchase and sell stock index futures contracts to hedge against
anticipated price changes with respect to any stock index traded on a
recognized stock exchange or board of trade. A stock index futures contract
is an agreement in which two parties agree to take or make delivery of an
amount of cash equal to the difference between the price of the original
contract and the value of the index at the close of the last trading day of
the contract. No physical delivery of the underlying securities in the
index is made. Settlement is made in cash upon termination of the contract.

Margin In Futures Transactions. Since a Fund does not pay or receive money
upon the purchase or sale of a futures contract, it is required to deposit
an amount of initial margin in cash, U.S. government securities or
highly-liquid debt securities as a good faith deposit. The margin is
returned to the Fund upon termination of the contract. Initial margin in
futures transactions does not involve borrowing to finance the
transactions.

As the value of the underlying futures contract changes daily, the Fund
pays or receives cash, called variation margin, equal to the daily change
in value of the futures contract. This process is known as marking to
market. Variation margin does not represent a borrowing or loan by the
Fund. It may be viewed as settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. When the
Fund purchases futures contracts, an amount of cash and/or cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian to collateralize the position
and insure that the use of futures contracts is unleveraged. The Fund is
also required to deposit and maintain margin when it writes call options on
futures contracts.

A Fund will not enter into a futures contract or purchase an option thereon
for other than hedging purposes if immediately thereafter the initial
margin deposits for futures contracts held by it, plus premiums paid by it
for open options on futures contracts, would exceed 5% of the market value
of its net assets, after taking into account the unrealized profits and
losses on those contracts it has entered into. However, in the case of an
option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing such 5%.

Put Options on Financial and Stock Index Futures Contracts. A Fund may
purchase listed put options on financial and stock index futures contracts
to protect portfolio securities against decreases in value. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a
put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price.

Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the Fund
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option will be large enough to offset both the premium paid by the
Fund for the original option plus the decrease in value of the hedged
securities.

Alternatively, a Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.

A Fund may also write (sell) listed put options on financial or stock index
futures contracts to hedge its portfolio against a decrease in market
interest rates or an increase in stock prices. A Fund will use these
transactions to purchase portfolio securities in the future at price levels
existing at the time it enters into the transaction. When a Fund sells a
put on a futures contract, it receives a cash premium in exchange for
granting to the buyer of the put the right to receive from the Fund, at the
strike price, a short position in such futures contract. This is so even
though the strike price upon exercise of the option is greater than the
value of the futures position received by such holder. As market interest
rates decrease or stock prices increase, the market price of the underlying
futures contract normally increases. When the underlying futures contract
increases, the buyer of the put option has less reason to exercise the put
because the buyer can sell the same futures contract at a higher price in
the market. If the value of the underlying futures position is not such
that exercise of the option would be profitable to the option holder, the
option will generally expire without being exercised. The premium received
by the Fund can then be used to offset the higher prices of portfolio
securities to be purchased in the future. In order to avoid the exercise of
an option sold by it, generally a Fund will cancel its obligation under the
option by entering into a closing purchase transaction, unless it is
determined to be in the Fund's interest to deliver the underlying futures
position. A closing purchase transaction consists of the purchase by the
Fund of an option having the same term as the option sold by the Fund, and
has the effect of canceling the Fund's position as a seller. The premium
which the Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in
large part upon the relative price of the underlying futures position at
the time of each transaction. If the hedge is successful, the cost of
buying the second option will be less than the premium received by the Fund
for the initial option. Call Options on Financial and Stock Index Futures
Contracts. A Fund may write (sell) listed and over-the-counter call options
on financial and stock index futures contracts to hedge its portfolio. When
the Fund writes a call option on a futures contract, it undertakes to sell
a futures contract at the fixed price at any time during the life of the
option. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation to sell a futures
contract costs less to fulfill, causing the value of the Fund's call option
position to increase. In other words, as the underlying futures price goes
down below the strike price, the buyer of the option has no reason to
exercise the call, so that the Fund keeps the premium received for the
option. This premium can substantially offset the drop in value of the
Fund's portfolio securities.

Prior to the expiration of a call written by a Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease in value of
the hedged securities.

A Fund may buy a listed call option on a financial or stock index futures
contract to hedge against decreases in market interest rates or increases
in stock price. A Fund will use these transactions to purchase portfolio
securities in the future at price levels existing at the time it enters
into the transaction. When a Fund purchases a call on a financial futures
contract, it receives in exchange for the payment of a cash premium the
right, but not the obligation, to enter into the underlying futures
contract at a strike price determined at the time the call was purchased,
regardless of the comparative market value of such futures position at the
time the option is exercised. The holder of a call option has the right to
receive a long (or buyer's) position in the underlying futures contract. As
market interest rates fall or stock prices increase, the value of the
underlying futures contract will normally increase, resulting in an
increase in value of the Fund's option position. When the market price of
the underlying futures contract increases above the strike price plus
premium paid, the Fund could exercise its option and buy the futures
contract below market price. Prior to the exercise or expiration of the
call option, the Fund could sell an identical call option and close out its
position. If the premium received upon selling the offsetting call is
greater than the premium originally paid, the Fund has completed a
successful hedge. Limitation on Open Futures Positions. A Fund will not
maintain open positions in futures contracts it has sold or call options it
has written on futures contracts if together the value of the open
positions exceeds the current market value of the Fund's portfolio plus or
minus the unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation. Purchasing
Put and Call Options on Securities. A Fund may purchase put options on
portfolio securities to protect against price movements in the Fund's
portfolio. A put option gives the Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option. A Fund may purchase call options on
securities acceptable for purchase to protect against price movements by
locking in on a purchase price for the underlying security. A call option
gives the Fund, in return for a premium, the right to buy the underlying
security from the seller at a specified price during the term of the
option.

Writing Covered Call and Put Options on Securities. A Fund may write
covered call and put options to generate income and thereby protect against
price movements in the Fund's portfolio securities. As writer of a call
option, the Fund has the obligation, upon exercise of the option during the
option period, to deliver the underlying security upon payment of the
exercise price. The Fund may only sell call options either on securities
held in its portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash or U.S.
government securities in the amount of any additional consideration). As a
writer of a put option, the Fund has the obligation to purchase a security
from the purchaser of the option upon the exercise of the option. In the
case of put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of the
underlying securities. Stock Index Options. A Fund may purchase or sell put
or call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market. A stock index fluctuates with
changes in the market values of the stocks included in the index. Upon the
exercise of the option, the holder of a call option has the right to
receive, and the writer of a put option has the obligation to deliver, a
cash payment equal to the difference between the closing price of the index
and the exercise price of the option. The effectiveness of purchasing stock
index options will depend upon the extent to which price movements in the
Fund's portfolio correlate with price movements of the stock index
selected. The value of an index option depends upon movements in the level
of the index rather than the price of a particular stock. Accordingly,
successful use by a Fund of options on stock indices will be subject to the
Adviser correctly predicting movements in the directions of the stock
market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
stocks.

Over-the-Counter Options. Over-the-counter options are two-party contracts
with price and terms negotiated between buyer and seller. In contrast,
exchange-traded options are third-party contracts with standardized strike
prices and expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while
over-the-counter options may not. A Fund may generally purchase and write
over-the-counter options on portfolio securities or securities indices in
negotiated transactions with the buyers or writers of the options when
options on the Fund's portfolio securities or securities indices are not
traded on an exchange. The Fund purchases and writes options only with
investment dealers and other financial institutions deemed creditworthy by
Adviser.

Risks. When a Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities or foreign currency
subject to the futures contracts may not correlate perfectly with the
prices of the securities or currency in the Fund's portfolio. This may
cause the futures contract and any related options to react differently to
market changes than the portfolio securities or foreign currency. In
addition, the Adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements or
foreign currency exchange rate fluctuations. In these events, the Fund may
lose money on the futures contract or option.

When a Fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian or the broker, to
collateralize the position and thereby insure that the use of such futures
contract is unleveraged. When the Fund sells futures contracts, it will
either own or have the right to receive the underlying future or security,
or will make deposits to collateralize the position as discussed above.

Lending of Portfolio Securities. In order to generate additional income, a
Fund may lend portfolio securities. When a Fund lends portfolio securities,
it will receive either cash or liquid securities as collateral from the
borrower. A Fund will reinvest cash collateral in short-term liquid
securities that qualify as an otherwise acceptable investment for the Fund.
If the market value of the loaned securities increases, the borrower must
furnish additional collateral to the Fund. During the time portfolio
securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to a securities lending agent or broker. Mortgage-Backed
Securities represent interests in pools of mortgages. The underlying
mortgages normally have similar interest rates, maturities and other terms.
Mortgages may have fixed or adjustable interest rates. Interests in pools
of adjustable rate mortgages are known as ARMs.

Mortgage-backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage-backed securities is a
"pass-through certificate." Holders of pass-through certificates receive a
pro rata share of the payments from the underlying mortgages. Holders also
receive a pro rata share of any prepayments, so they assume all the
prepayment risk of the underlying mortgages.

Collateralized mortgage obligations (CMOs) are complicated instruments that
allocate payments and prepayments from an underlying pass-through
certificate among holders of different classes of mortgage-backed
securities. This creates different prepayment and market risks for each CMO
class.

In addition, CMOs may allocate interest payments to one class (IOs) and
principal payments to another class (POs). POs increase in value when prepayment
rates increase. In contrast, IOs decrease in value when prepayments increase,
because the underlying mortgages generate less interest payments. However, IOs
prices tend to increase when interest rates rise (and prepayments fall), making
IOs a useful hedge against market risk.

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.

Special revenue bonds are payable solely from specific revenues received by
the issuer. The revenues may consist of specific taxes, assessments, tolls,
fees or other types of municipal revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Bondholders could not collect from the municipality's general taxes or
revenues. Therefore, any shortfall in the tolls normally would result in a
default on the bonds. Private activity bonds are special revenue bonds used
to finance private entities. For example, a municipality may issue bonds to
finance a new factory to improve its local economy. The municipality would
lend the proceeds to the company using the factory, and the company would
agree make loan payments sufficient to repay the bonds. The bonds would be
payable solely from the company's loan payments, not from any other
revenues of the municipality. Therefore, any default on the loan normally
would result in a default on the bonds.

The interest on many types of private activity bonds is subject to the
federal alternative minimum tax. The Funds may invest in bonds subject to
the federal alternative minimum tax.

Anticipation notes are securities issued in anticipation of the receipt of
taxes, grants, bond proceeds or other municipal revenues. For example, many
municipalities collect property taxes once a year. Such municipalities may
issue tax anticipation notes to fund their operations prior collecting
these taxes. The issuers then repay the tax anticipation notes at the end
of their fiscal year, either with collected taxes or proceeds from newly
issued notes or bonds.

Tax increment financing bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue these bonds to redevelop a commercial area. The tax
increment financing bonds would be payable solely from any increase in
sales taxes collected from merchants in the area. The bonds could default
if merchants' sales, and related tax collections, failed to increase as
anticipated.

Municipal Securities include:

|X|TRANs: tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;

|X|TANs: tax anticipation notes issued to finance working capital needs in
anticipation of receiving taxes

|X|RANs: revenue anticipation notes issued to finance working capital needs in
anticipation of receiving revenues

|X|BANs: bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds

|X|municipal commercial paper and other short-term notes

|X|variable rate demand notes

|X|industrial development bonds

|X|municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases

|X|construction loan notes insured by the Federal Housing Administration and
financed by Fannie Mae or Ginnie Mae; and

|X|participation, trust and partnership interests in any of the foregoing
obligations.

Diversification of the Intermediate Tax-Free Fund's investments is obtained
geographically by purchasing issues of Municipal Securities representative of
various areas of the U.S. and general obligations of states, cities and school
districts as well as some revenue issues which meet the Funds' acceptable
quality criteria.

Municipal Leases. A Fund may purchase participation interests that
represent an undivided proportional interest in lease payments by a
governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may provide that the participants cannot
accelerate lease obligations upon default. The participants would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the participants
would be able to obtain an acceptable substitute source of payment unless
the participation interests are credit enhanced. The Adviser must consider
the following factors in determining the liquidity of municipal lease
securities: (1) the frequency of trades and quotes for the security; (2)
the volatility of quotations and trade prices for the security; (3) the
number of dealers willing to purchase or sell the security and the number
of potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the marketplace
trades; (6) the rating of the security and the financial condition and
prospects of the issuer of the security; (7) such other factors as may be
relevant to the Funds' ability to dispose of the security; (8) whether the
lease can be terminated by the lessee; (9) the potential recovery, if any,
from a sale of the leased property upon termination of the lease; (10) the
lessee's general credit strength; (11) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations; and (12) any
credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.

Variable Rate Municipal Securities. Variable interest rates generally
reduce changes in the market value of Municipal Securities from their
original purchase prices. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less
for variable rate Municipal Securities than for fixed rate obligations.
Many Municipal Securities with variable interest rates purchased by a Fund
are subject to repayment of principal (usually within seven days) on the
Fund's demand. For purposes of determining the Funds' average maturity, the
maturities of these variable rate demand Municipal Securities (including
participation interests) are the longer of the periods remaining until the
next readjustment of their interest rates or the periods remaining until
their principal amounts can be recovered by exercising the right to demand
payment. The terms of these variable rate demand instruments require
payment of principal and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests, or a guarantor of
either issuer.

Repurchase Agreements and Reverse Repurchase Agreements. A repurchase
agreement is a transaction in which a Fund buys a security from a dealer or
bank and agrees to sell the security back at a mutually agreed upon time
and price. The repurchase price exceeds the sale price, reflecting an
agreed upon interest rate effective for the period the buyer owns the
security subject to repurchase. The agreed upon interest rate is unrelated
to the interest rate on that security. The Adviser will continually monitor
the value of the underlying security to ensure that the value of the
security always equals or exceeds the repurchase price. A Fund's custodian
is required to take possession of the securities subject to repurchase
agreements. These securities are marked to market daily. To the extent that
the original seller defaults and does not repurchase the securities from a
Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller files for
bankruptcy or becomes insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Funds believe that, under the
procedures normally in effect for custody of the portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would
rule in favor of the Funds and allow retention or disposition of such
securities. The Funds will only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers, which
are deemed by the Adviser to be creditworthy.

Reverse repurchase agreement transactions are similar to borrowing cash. In
a reverse repurchase agreement, the Fund sells a portfolio security to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio at a price equal to the original sale price plus interest. A Fund
may use reverse repurchase agreements for liquidity and may enable the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed
to be disadvantageous. When effecting reverse repurchase agreements, liquid
assets of the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date. These
securities are marked to market daily and maintained until the transaction
is settled.

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.

Swap Transactions. In a standard swap transaction, two parties agree to
exchange (SWAP) the returns (or differentials in rates of return) on
particular securities, which may be adjusted for an interest factor. The
returns to be swapped are generally calculated with respect to a return on
a notional dollar amount invested at a particular interest rate, or in a
basket of securities representing a particular index. For example, a $10
million LIBOR swap would require one party to pay the equivalent of the
London Interbank Offer Rate on $10 million principal amount in exchange for
the right to receive the equivalent of a fixed rate of interest on $10
million principal amount. Neither party to the swap would actually advance
$10 million to the other. The Funds will usually enter into swaps on a net
basis (i.e., the two payment streams are netted out), with a Fund receiving
or paying, as the case may be, only the net amount of the two payments. The
net amount of the excess, if any, of the Funds' obligations over its
entitlements with respect to each interest rate swap will be accrued on a
daily basis, and the Funds will segregate liquid assets in an aggregate net
asset value at least equal to the accrued excess, if any, on each business
day. If a Fund enters into a swap on other than a net basis, a Fund will
segregate liquid assets in the full amount accrued on a daily basis of a
Fund's obligations with respect to the swap. If there is a default by the
other party to such a transaction, the Funds will have contractual remedies
pursuant to the agreements related to the transaction.

The Funds expect to enter into swap transactions primarily to hedge against
changes in the price of other portfolio securities. For example, a Fund may
hedge against changes in the market value of a fixed rate security by entering
into a swap that requires the Fund to pay the same or a lower fixed rate of
interest on a notional principal amount equal to the principal amount of the
security in exchange for a variable rate of interest based on a market index.
Interest accrued on the hedged note would then equal or exceed the Funds'
obligations under the swap, while changes in the market value of the swap would
largely offset any changes in the market value of the note. The Funds may also
enter into swaps to preserve or enhance a return or spread on a portfolio
security. The Funds do not intend to use these transactions in a speculative
manner.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Adviser has determined that, as a
result, the swap market has become relatively liquid. Interest rate caps and
floors are more recent innovations for which standardized documentation has not
yet been developed and, accordingly, they are less liquid than other swaps. To
the extent swaps, caps or floors are determined by the Adviser to be illiquid,
they will be included in a Fund's limitation on investments in illiquid
securities. To the extent a Fund sells caps and floors, it will maintain in a
segregated account cash and/or U.S. government securities having an aggregate
net asset value at least equal to the full amount, accrued on a daily basis, of
a Fund's obligations with respect to caps and floors. The use of swaps is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
If the Adviser is incorrect in its forecasts of market values, interest rates
and other applicable factors, the investment performance of a Fund would
diminish compared with what it would have been if these investment techniques
were not utilized. Moreover, even if the Adviser is correct in its forecasts,
there is a risk that the swap position may correlate imperfectly with the price
of the portfolio security being hedged.

Swap transactions do not involve the delivery of securities or other underlying
assets or principal. Accordingly, the risk of loss with respect to a default on
an interest rate swap is limited to the net asset value of the swap together
with the net amount of interest payments owed to a Fund by the defaulting party.
A default on a portfolio security hedged by an interest rate swap would also
expose a Fund to the risk of having to cover its net obligations under the swap
with income from other portfolio securities. Temporary Investments. There may be
times when market conditions warrant a defensive position (this rarely applies
to the Money Market Fund). During these market conditions each of the Funds may
temporarily invest without limit in short-term debt obligations (money market
instruments). These investments include commercial paper, bank instruments, U.S.
government obligations, repurchase agreements, securities of other investment
companies, taxable or tax-free Municipal Securities (for the Intermediate
Tax-Free Fund) and foreign securities (for the International Stock Fund). The
Intermediate Tax-Free Fund does not currently intend to make any taxable
investments although they are permitted to do so. Each Fund's temporary
investments must be of comparable quality to its primary investments.

Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risk.

Warrants give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are typically
issued to existing stockholders.

When-Issued and Delayed Delivery Transactions. These transactions are made to
secure what is considered to be an advantageous price or yield. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices. Other than
normal transaction costs, no fees or expenses are incurred. However, liquid
assets of a Fund are segregated on a Fund's records at the trade date in an
amount sufficient to make payment for the securities to be purchased. These
assets are marked to market daily and are maintained until the transaction has
been settled.

INVESTMENT LIMITATIONS

FUNDAMENTAL LIMITATIONS

The following investment limitations are fundamental and cannot be changed
unless authorized by the "majority of its outstanding voting securities of a
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 Short-Term Income Fund, the
Intermediate Bond Fund, and the Money Market Fund, a Fund may purchase and sell
futures contracts and related options, and the International Stock Fund may also
enter into forward contracts and related options.

Investing in Real Estate

The Funds will not purchase or sell real estate, including limited partnership
interests, although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or which represent interests in real estate.

Diversification of Investments

With respect to securities comprising 75% of the value of its total assets, a
Fund will not purchase securities issued by any one issuer (other than cash,
cash items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer or if it
would own more than 10% of the outstanding voting securities of such issuer.

Under this limitation, the Intermediate Tax Free Fund will consider each
governmental subdivision, including states and the District of Columbia,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, a separate issuer
if its assets and revenues are separate from those of the governmental body
creating it and the security is backed only by its own assets and revenues.
Industrial developments bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user. If in the
case of an industrial development bond or government-issued security, a
governmental or some other entity guarantees the security, such guarantee would
be considered a separate security issued by the guarantor, subject to a limit on
investments in the guarantor of 10% of total assets.

Concentration of Investments

(Intermediate Tax-Free Fund only)

The Intermediate Tax-Free Fund will not invest 25% or more of the value of its
total assets in any one industry, except for temporary defensive purposes, the
Fund may invest 25% or more of the value of its total assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, and repurchase agreements collateralized by such securities.
In addition, the Intermediate Tax-Free Fund may invest more than 25% of the
value of its total assets in obligations issued by any state, territory, or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, including
tax-exempt project notes guaranteed by the U.S. government, regardless of the
location of the issuing municipality. This policy applies to securities which
are related in such a way that an economic, business, or political development
affecting one security would also affect the other securities (such as
securities paid from revenues from selected projects in transportation, public
works, education, or housing).

(All Other Funds)

A Fund will not invest 25% or more of its total assets in any one industry.
However, investing in U.S. government securities (and domestic bank instruments
for the Money Market Fund) shall not be considered investments in any one
industry. Underwriting

A Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted (the term restricted does not apply to the Intermediate
Tax-Free Fund) securities which the Fund may purchase pursuant to its investment
objective, policies and limitations.

Non-Fundamental Limitations

The following investment limitations are non-fundamental and, therefore, may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Investing in Illiquid and Restricted Securities

The Funds will not invest more than 15% (10% for the Money Market Fund) of the
value of their net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, guaranteed investment contracts, and certain
restricted securities not determined by the Directors to be liquid (including
certain municipal leases).

Purchasing Securities to Exercise Control

The Funds will not purchase securities of a company for the purpose of
exercising control or management. Investing in Securities of Other Investment
Companies

Each Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company, will
invest no more than 5% of total assets in any one investment company, and will
invest no more than 10% of its total assets in investment companies in general,
unless permitted to exceed these limits by an exemptive order of the SEC. The
Funds will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Money Market Fund
will limit its investments in other investment companies to those of money
market funds having investment objectives and policies similar to its own.

Investing in Options

Except for bona fide hedging purposes, a Fund may not invest more than 5% of the
value of its net assets in the sum of (a) premiums on open option positions on
futures contracts, plus (b) initial margin deposits on futures contracts. A Fund
will not purchase put options or write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is entitled to
them in deliverable form without further payment or has segregated cash in the
amount of any further payment.

A Fund will not write call options in excess of 25% of the value of its total
assets.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
instruments (such as certificates of deposit and demand and time deposits)
issued by a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be cash items.

Regulatory Compliance. The Money Market Fund may follow non-fundamental
operational policies that are more restrictive than its fundamental investment
limitations, as set forth in the prospectus and this statement of additional
information, in order to comply with applicable laws and regulations. In
particular, the Money Market Fund will comply with the various requirements of
Rule 2a-7 under the Act, which regulates money market mutual funds. For example,
Rule 2a-7 generally prohibits the investment of more than 5% of the Money Market
Fund's total assets in the securities of any one issuer, although the Money
Market Fund's fundamental investment limitation only requires such 5%
diversification with respect to 75% of its assets. The Money Market Fund will
also determine the effective maturity of its investments, as well as its ability
to consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Money Market Fund may change these
operational policies to reflect changes in the laws and regulations without
shareholder approval.

DETERMINING MARKET VALUE OF SECURITIES

USE OF THE AMORTIZED COST METHOD (MONEY MARKET FUND ONLY)

The Directors have decided that the best method for determining the value of
portfolio instruments for the Money Market Fund is amortized cost. Under this
method, portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value.

The Money Market Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with the provisions of Rule 2a-7 (the
Rule) promulgated by the Securities and Exchange Commission under the Act. Under
the Rule, the Directors must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective. Under the Rule, the Money
Market Fund is permitted to purchase instruments which are subject to demand
features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding 397 days on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same-day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise.

The Money Market Fund acquires instruments subject to demand features and
standby commitments to enhance the instrument's liquidity. The Fund treats
demand features and standby commitments as part of the underlying instruments,
because the Fund does not acquire them for speculative purposes and cannot
transfer them separately from the underlying instruments. Therefore, although
the Fund defines demand features and standby commitments as puts, the Fund does
not consider them to be corporate investments for purposes of its investment
policies.

Monitoring Procedures. The Directors' procedures include monitoring the
relationship between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The Directors will
decide what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Directors will take any steps they
consider appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair results
arising from differences between the two methods of determining net asset value.

Investment Restrictions. The Rule requires that the Money Market Fund limit its
investments to instruments that, in the opinion of the Directors, present
minimal credit risks and have received the requisite rating from one or more
NRSROs. If the instruments are not rated, the Directors must determine that they
are of comparable quality. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days) appropriate
to the objective of maintaining a stable net asset value of $1.00 per share. In
addition, no instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. Should the disposition of a portfolio security result in
a dollar-weighted average portfolio maturity of more than 90 days, the Money
Market Fund will invest its available cash to reduce the average maturity to 90
days or less as soon as possible. Shares of investment companies purchased by
the Fund will meet these same criteria and will have investment policies
consistent with Rule 2a-7. Under the amortized cost method of valuation, neither
the amount of daily income nor the net asset value is affected by any unrealized
appreciation or depreciation of the portfolio. In periods of declining interest
rates, the indicated daily yield on shares of the Money Market Fund, computed
based upon amortized cost valuation, may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.

MARKET VALUES (ALL OTHER FUNDS)

Market values of portfolio securities are determined as follows:

o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;

o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and

o for all other securities, at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors.

A Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its net asset value,
the International Stock Fund values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the closing
of the NYSE. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Directors, although the actual calculation may be done by others.

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 IS THE FUND 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

The Funds (except Money Market Fund) may pay Federated Shareholder Services , a
subsidiary of Federated Investors, Inc., for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services may select
others (including MFIS) to perform these services for their customers and may
pay them fees.

MFIS is the shareholder servicing agent for the Money Market Fund. As such, MFIS
provides shareholder services which include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemption of
shares.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.

Investment professional 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

Because the Corporation has elected to be governed by Rule 18f-1 under the
Investment Company Act or 1940, the Funds are obligated to pay share redemptions
to any one shareholder in cash only up to the lesser of $250,000 or 1% of a
Fund's net assets represented by such share class during any 90-day period.

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 December 8, 1998, the
following shareholders of each Fund owned of record 5% or more of a Fund's
outstanding shares:

Equity Income Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 21,971,873 shares (64.89%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
9,865,602 shares (29.14%).

Large-Cap Growth & Income Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 6,407,391 shares (29.37%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
11,914,144 shares (54.60%).

Mid-Cap Value Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 7,727,499 shares (58.21%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, owned approximately 5,009,339 shares
(37.73%).

Mid-Cap Growth Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 7,003,012 shares (41.67%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
8,918,246 shares (53.08%).

Small-Cap Growth Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 2,665,298 shares (31.26%); Capinco, Firstar

Trust Company, Milwaukee, Wisconsin, owned approximately 667,303 shares (7.83%);
and Mitra & Co., Marshall & Ilsley Trust Operations,

Milwaukee, Wisconsin, owned approximately 4,384,585 shares (51.43%).

International Stock Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 7,962,789 shares (43.00%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
8,461,794 shares (45.69%).

Short-Term Income Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin , owned
approximately 5,817,999 shares (40.26%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
7,774,691 shares (53.80%)

Intermediate Bond Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 37,196,787 shares (60.13%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
23,091,907 shares (37.34%).

Government Income Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 11,973,856 shares (39.95%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
15,625,394 shares (52.14%).

Intermediate Tax-Free Fund

Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 9,624,914 shares (90.98%); and Mitra & Co.,

Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
654,066 shares (6.18%).

Money Market Fund

Maril & Co., Milwaukee, Wisconsin, owned approximately 1,034,960,622 of the
Class Y Shares of the Fund (61.73%); and Miaz & Co.,

Milwaukee, Wisconsin, owned approximately 96,803,949 of the Class Y Shares of
the Fund (5.77%).

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 dividends received deduction for corporations will apply to ordinary income
distributions to the extent the distribution represents amounts that would
qualify for the dividends received deduction to the Equity Funds if the Equity
Funds were a regular corporation, and to the extent designated by the Equity
Funds as so qualifying. Otherwise, these dividends and any short-term capital
gains are taxable as ordinary income. No portion of any income dividends paid by
the other Funds is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.

Under the Tax Reform Act of 1986, dividends representing net interest earned on
certain "private activity" municipal bonds may be included in calculating the
federal individual alternative minimum tax or the federal alternative minimum
tax for corporations. Dividends of the Intermediate Tax-Free Fund representing
net interest income earned on some temporary investments and any realized net
short-term gains are taxed as ordinary income.

FOREIGN INVESTMENTS

Investment income on certain foreign securities purchased by the Funds may be
subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Funds
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of the Funds' assets to be invested within various countries is
uncertain. However, the Funds' intend to operate so as to qualify for
treaty-reduced tax rates when applicable.

Distributions from the Funds may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

The Funds may invest in the stock of certain foreign corporations which would
constitute a Passive Foreign Investment Company (PFIC). The Funds may be subject
to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the Funds' assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intend to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. Shareholders
must hold Fund shares for a specified period of time to claim a foreign tax
credit. The Code may limit a shareholder's ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of the Funds' foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.

STATE AND LOCAL TAXES

Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and you should consult your
tax adviser for specific details regarding the status of your account under
state and local tax laws, including treatment of distributions as income or
return of capital.

CAPITAL GAINS

Capital gains, when experienced by the Funds, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. When a Fund
realizes net long-term capital gains, it will distribute them at least once
every 12 months.

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 December 8, 1998, the Funds' Board and Officers as a group owned 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.

Name Aggregate
Birthdate Compensation
Address Principal Occupations From
Position With Corporation for Past 5 Years Corporation
John DeVincentis Independent Financial Consultant; Retired, formerly, $11,000
Birthdate: March 27, 1934 Senior Vice President of Finance, In-Sink-Erator
4700 21st Street Division of Emerson Electric..
Racine, WI 53406
DIRECTOR

Ody J. Fish Formerly, Director, Newton Income Fund, Inc. and $11,000
Birthdate: June 16, 1925 Newton Growth Fund, Inc.; Private Investor; Formerly
547 Progress Drive President Pal-O-Pak Insulation Company; Director,
Hartland, WI Quest Technologies; President, Wisconsin Academy of
DIRECTOR Science, Arts and Letters; formerly, Director, Stokely
U.S.A.

Paul E. Hassett Formerly, Director, Newton Income Fund, Inc. and $11,000
Birthdate: September 4, 1917 Newton Growth Fund, Inc.; Retired, formerly President,
1630 Capital Avenue Wisconsin Manufacturers and Commerce; formerly,
Madison, WI Executive Secretary for Governor Warner Knowles for
DIRECTOR three terms.

John M. Blaser Vice President, Marshall & Ilsley Trust Company; $0
Birthdate: November 2, 1956 formerly, Partner, Artisan Partners L.P.; formerly,
1000 North Water Street Chief Financial Officer and Principal Administrative
Milwaukee, WI and Finance Officer, Artisan Funds; formerly, Senior
PRESIDENT Vice President, Kemper Securities.

Jo A. Dales Vice President, Marshall & Ilsley Trust Company. $0
Birthdate: September 20, 1961 Formerly, Senior Audit Manager of Marshall & Ilsley
1000 North Water Street Corporation and Operations Specialist for Firstar
Milwaukee, WI Trust Company.
VICE PRESIDENT

Ann K. Peirick Assistant Vice President, Marshall & Ilsley Trust $0
Birthdate: December 9, 1953 Company. Formerly, Senior Financial Analyst -
1000 North Water Street Community Bank Finance and Manager of Corporate
Milwaukee, WI Financial Analysis, Bank One, Wisconsin.
ASSISTANT VICE PRESIDENT and
TREASURER

</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 Corp. The Adviser
shall not be liable to the Corporation, the Funds or any shareholder of the
Funds for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
Because of the internal controls maintained by the Adviser's affiliates to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of the Adviser or its affiliates' lending relationships
with an issuer.

SUBADVISER TO INTERNATIONAL STOCK FUND

Templeton Investment Counsel, Inc. (TICI) is the subadviser to the International
Stock Fund. It is the Adviser's responsibility to select a subadviser for the
International Stock Fund that has distinguished itself in its area of expertise
in asset management and to review the subadviser's performance. The Adviser
provides investment management evaluation services by performing initial due
diligence on TICI and thereafter monitoring TICI's performance through
quantitative and qualitative analysis, as well as periodic in-person, telephonic
and written consultations with TICI. In evaluating TICI, the Adviser considers,
among other factors, TICI's level of expertise; relative performance and
consistency of performance over a minimum period of time; level of adherence to
investment discipline or philosophy; personnel, facilities and financial
strength; and quality of service and client communications. The Adviser has
responsibility for communicating performance expectations and evaluations to
TICI and ultimately recommending to the Corporation's Directors whether TICI's
contract should be renewed, modified or terminated. The Adviser provides written
reports to the Directors regarding the results of its evaluation and monitoring
functions. The Adviser is also responsible for conducting all operations of the
International Stock Fund, except those operations contracted to TICI, the
custodian, the transfer agent, and the administrator. Although TICI's activities
are subject to oversight by the Directors and officers of the Corporation,
neither the Directors, the officers, nor the Adviser evaluates the investment
merits of TICI's individual security selections. TICI has complete discretion to
purchase, manage and sell portfolio securities for the International Stock Fund,
subject to the International Stock Fund's investment objective, policies and
limitations. For its services under the Sub-advisory Agreement, the Sub-adviser
receives 0.50% of the International Bond Fund's advisory fee. The Sub-Adviser is
paid by the Adviser and not by the Fund. However, TICI will furnish to the
Adviser such investment advice, statistical and other factual information as
requested by the Adviser. TICI is a Florida corporation and an indirect
wholly-owned subsidiary of Franklin Resources, Inc. (Franklin), a publicly
traded company whose shares are listed on the New York Stock Exchange. Charles
B. Johnson, Rupert H. Johnson, Jr. and R. Martin Wiskemann are principal
shareholders of Franklin and own, respectively, approximately 19%, 15% and 9% of
its outstanding shares. Messrs. Charles B. Johnson and Rupert H. Johnson, Jr.
are brothers.

Research services may be provided to TICI by various affiliates, including
Templeton, Galbraith & Hansberger Ltd. and Templeton Quantitative Advisors,
Inc., corporations registered under the Investment Advisers Act of 1940, and
Templeton Management Limited, a Canadian company. The research services include
information, analytical reports, computer screening studies, statistical data,
and factual resumes pertaining to securities in the United States and in various
foreign nations. Such supplemental research, when utilized, is subject to
analysis by TICI before being incorporated into the investment advisory process.
TICI pays these affiliates compensation and reimbursement of expenses as
mutually agreed upon, without cost to the Fund. These affiliates and TICI are
independent contractors and in no sense is any of them an agent for the other.
Any of them is free to discontinue such research services at any time on 30
days' notice without cost or penalty.

For the fiscal years ended August 31, 1998, 1997, and 1996, International Stock
Fund paid TICI $1,072,613, $816,182, and $544,167.

<PAGE>

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 TICI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or TICI and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. The
Adviser, TICI, and their affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.

Research services provided by brokers and dealers may be used by the Adviser and
TICI in advising the Funds and other accounts. To the extent that receipt of
these services may supplant services for which the Adviser, TICI, or their
affiliates might otherwise have paid, it would tend to reduce their expenses.

Aggregate total commissions with brokers that provided research were $963,061 on
transactions with an aggregate principal value of $735,067,013. ADMINISTRATOR

Federated Administrative Services, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services to the Funds for a fee at an
annual rate as specified below (except Small-Cap Growth Fund):

Maximum Average Aggregate Daily Net
Administrative Fee Assets Of The Corporation
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million

Federated Administrative Services provides these services for an annual fee
equal to 0.12% of the Small-Cap Growth Fund's average daily net assets.

The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may choose voluntarily to
reimburse a portion of its fee at any time.

The functions performed by FAS as administrator include, but are not
limited to the following:

o preparation, filing and maintenance of the Corporation's governing
documents, minutes of Directors' meetings and shareholder meetings;

o preparation and filing with the SEC and state regulatory authorities the
Corporation's registration statement and all amendments, and any other
documents required for the Funds to make a continuous offering of their
shares;

o prepare, negotiate and administer contracts on behalf of the Fund;

o supervision of the preparation of financial reports;

o preparation and filing of federal and state tax returns;

o assistance with the design, development and operation of a Fund; and

o providing advice to the Funds and Corporation's Directors.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, Pittsburgh, Pennsylvania, through its registered
transfer agent, Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type and number of accounts and transactions made by shareholders.
The fee is based on the level of the Funds' average net assets for the period
plus out-of-pocket expenses.

The transfer agent may employ third parties, including Marshall & Ilsley Trust
Company, to provide sub-accounting and sub-transfer agency services. In exchange
for these services, the transfer agent may pay such third-party providers a per
account fee and out-of-pocket expenses.

CUSTODIAN

Marshall & Ilsley Trust Company (M&I Trust Company), Milwaukee, Wisconsin, a
subsidiary of Marshall & Ilsley Corp., is custodian for the securities and cash
of the Fund. For its services as custodian, M&I Trust Company receives an annual
fee, payable monthly, based on a percentage of a Fund's average aggregate daily
net assets. M&I Trust Company has entered into agreements with foreign
subcustodians approved by the Directors pursuant to Rule 17f-5 under the Act.
The foreign subcustodians may not hold certificates for the securities in their
custody, but instead have book records with domestic and foreign securities
depositories, which in turn have book records with the transfer agents of the
issuers of the securities. Compensation for the services of the foreign
subcustodians is based on a schedule of charges agreed on from time to time.

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP, Pittsburgh, Pennsylvania is the independent public
accountant for the Funds.
FEES PAID BY THE FUNDS FOR SERVICES

- ----------------------- ---------------------------------------- ---------------------------------- --------------------------------
Fund Name Advisory Fee Paid/ Brokerage Commissions Paid Administrative Fee Paid
Advisory Fee Waived
---------------------------------- --------------------------------
---------------------------------------- ---------------------------------- --------------------------------
For the fiscal year ended For the fiscal year ended For the fiscal year ended
August 31 August 31 August 31
---------------------------------------- ---------------------------------- --------------------------------
-------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------
-------------------------------------------------------------------------------------------------------------
Equity Income Fund $3,596,326 $1,964,826 $1,101,454 $861,077 $468,108 $221,712 $403,594 $227,695 $131,196
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Large-Cap Growth & $2,284,566 $1,877,032 $2,003,427 $216,531 $309,709 $918,703 $256,720 $217,817 $238,801
Income Fund $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund $1,245,164 $1,245,668 $1,556,051 $444,003 $364,246 $524,079 $139,888 $144,711 $185,501
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $1,676,595 $1,288,819 $917,068 $481,875 $580,150 $353,770 $188,403 $149,489 $109,258
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Growth Fund $857,023 $368,209 N/A $142,276 $117,618 N/A $102,843 $44,185 N/A
$0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
International Stock $2,504,141 $1,857,261 $1,179,310 $265,289 $340,030 $115,382 $211,050 $161,481 $108,298
Fund $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Income Fund $846,144 $736,245 $540,501 N/A N/A N/A $118,980 $106,697 $80,507
$451,276 $429,010 $357,041
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond Fund $3,105,550 $2,440,381 $2,253,912 N/A N/A N/A $435,828 $354,123 $335,733
$333,362 $346,194 $338,087
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Government Income Fund $1,833,350 $1,304,960 $938,027 N/A N/A N/A $205,934 $151,306 $111,760
$272,859 $272,824 $243,416
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Free $570,658 $463,700 $314,337 N/A N/A N/A $80,183 $67,231 $50,437
Fund $266,927 $238,359 $196,013
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund $7,729,527 $6,354,005 $5,636,051 N/A N/A N/A $1,302,763 $1,105,666 $1,007,572
$3,846,385 $3,304,082 $2,930,747
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

N/A - Not Applicable
For the fiscal year ended August 31,1998
- ---------------------------------------- -------------------------------
Fund Shareholder Services Fee/
Shareholder Services Fee
Waived
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Equity Income Fund $1,198,775
$0
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Large-Cap Growth & Income Fund $761,522
$0
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Mid-Cap Value Fund 415,055
$0
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Mid-Cap Growth Fund $558,865
$0
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Small-Cap Growth Fund $214,256
$0
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
International Stock Fund $626,035
$0
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Short-Term Income Fund 352,560
$324,355
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Intermediate Bond Fund 1,293,979
$1,190,461
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Government Income Fund $611,116
$562,227
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Intermediate Tax-Free Fund $237,774
$218,752
- ---------------------------------------- -------------------------------
- ---------------------------------------- -------------------------------
Money Market Fund $290,908
$0
- ---------------------------------------- -------------------------------

HOW DOES THE FUND MEASURE PERFORMANCE?

The Funds may advertise each Fund's share performance by using the Securities
and Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.

Unless otherwise stated, any quoted share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in a
Fund's or any class of shares' expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings and
offering price per share fluctuate daily. Both net earnings and offering price
per share are factors in the computation of yield and total return.

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for a Fund shares is the average compounded rate
of return for a given period that would equate a $1,000 initial investment to
the ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any additional
shares, assuming the quarterly reinvestment of any dividends and distributions.
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, 1998, was 5.32%.

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, 1998 was 6.52%. 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, 1998, was 5.46%.

<PAGE>

----------------------------- ---------------------------- -----------------------------
Fund Average Annual Total Return Yield
for the following periods for the 30-day period ended
ended August 31, 1998 August 31, 1998
---------------------------- -----------------------------
---------------------------- -----------------------------
Class Y Shares Class Y Shares
One Year
Five Year
Since Inception
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Equity Income Fund 0.04% 2.13%
N/A
13.75%(a)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Large-Cap Growth & Income 3.44% 0.46%
Fund 12.74%
11.25%(b)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Mid-Cap Value Fund (7.75%) 1.12%
N/A
10.53%(a)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Mid-Cap Growth Fund (8.77%) 0.00%
N/A
9.98%(a)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Small-Cap Growth Fund (16.25%) 0.00%
N/A
20.48%(c)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
International Stock Fund (9.09%) N/A
N/A
6.21%(d)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Short-Term Income Fund 6.22% 5.50%
5.35%
5.20%(e)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Intermediate Bond Fund 8.00% 5.73%
5.22%
5.90%(b)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Intermediate Tax-Free Fund 7.31% 3.94%
N/A
5.02%(g)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Government Income Fund 8.92% 5.24%
6.06%
6.42%(f)
----------------------------- ---------------------------- -----------------------------
----------------------------- ---------------------------- -----------------------------
Money Market Fund 5.51% 5.35%
5.04%
4.77%(b)
----------------------------- ---------------------------- -----------------------------
</TABLE>

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 1998
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:

15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450

SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450

Tax-Exempt
Yield Taxable Yield Equivalent

1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
</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 reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Funds' use in advertising may include:

o Morgan Stanley Capital International Europe, Australia And Far East
Index (EAFE) is a market capitalization weighted foreign securities
index, which is widely used to measure the performance of European,
Australian and New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the
above regions. The index values its securities daily in both U.S.
dollars and local currency and calculates total returns monthly. EAFE
U.S. dollar total return is a net dividend figure less Luxembourg
withholding tax. The EAFE is monitored by Capital International, S.A.,
Geneva, Switzerland.

o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
a Fund will quote its Lipper ranking in advertising and sales
literature.

o Consumer Price Index is generally considered to be a measure of
inflation.

o Dow Jones Industrial Average (DJIA) is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.

o Standard & Poor's Daily Stock Price Index Of 500 Common Stocks, a
composite index of common stocks in industry, transportation,
financial, and public utility companies. The Standard & Poor's index
assumes reinvestment of all dividends paid by stocks listed on the
index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in the Standard & Poor's
figures.

o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.

o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are an average of the personal account rates
offered on the Wednesday prior to the date of publication by ten of
the largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.

o Donoghue's Money Fund Report publishes annualized yields of over 300
taxable money market funds on a weekly basis and through its Money
Market Insight publication reports monthly and 12 month-to-date
investment results for the same money funds.

o The S&P/BARRA Value Index and the S&P/BARRA Growth Index are
constructed by Standard & Poor's and BARRA, Inc., an investment
technology and consulting company, by separating the S&P 500 Index
into value stocks and growth stocks. The S&P/BARRA Growth and
S&P/BARRA Value Indices are constructed by dividing the stocks in the
S&P 500 Index according to their price-to-book ratios. The S&P/BARRA
Growth Index, contains companies with higher price-to-earnings ratios,
low dividends yields, and high earnings growth (concentrated in
electronics, computers, health care, and drugs). The Value Index
contains companies with lower price-to-book ratios and has 50% of the
capitalization of the S&P 500 Index. These stocks tend to have lower
price-to-earnings ratios, high dividend yields, and low historical and
predicted earnings growth (concentrated in energy, utility and
financial sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices
are capitalization-weighted and rebalanced semi-annually. Standard &
Poor's/BARRA calculates these total return indices with dividends
reinvested.

o Standard & Poor's Midcap 400 Stock Price Index, a composite index of
400 common stocks with market capitalizations between $200 million and
$7.5 billion in industry, transportation, financial, and public
utility companies. The Standard & Poor's index assumes reinvestment of
all dividends paid by stocks listed on the index. Taxes due on any of
these distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.

o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and
2.99 years. The index is produced by Merrill Lynch, Pierce, Fenner &
Smith, Inc.

o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better.
These quality parameters are based on the composites of ratings
assigned by Standard & Poor's Corporation and Moody's Investors
Service, Inc. Only bonds with a minimum maturity of one year are
included.

o Merrill Lynch 1-Year Treasury Bill Index is comprised of the most
recently issued one-year U.S. Treasury bills. Index returns are
calculated as total returns for periods of one, three, six and twelve
months as well as year-to-date.

o Merrill Lynch Corporate A-Rated (1-3 Year) Bond Index is a universe of
corporate bonds and notes with maturities between 1-3 years and rated
A3 or higher.

o Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal corporation;
and publicly issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The average
maturity of these bonds approximates nine years. Traced by Lehman
Brothers, Inc., the index calculates total return for one-month,
three-month, twelve-month, and ten-year periods and year-to-date.

o Lehman Brothers Intermediate Government/Corporate Bond Index is a
universe of government and corporate bonds rated BBB or higher with
maturities between 1-10 years.

o The Salomon Brothers Total Rate-of-Return Index for mortgage pass
through securities reflects the entire mortgage pass through market
and reflects their special characteristics. The index represents data
aggregated by mortgage pool and coupon within a given sector. A market
weighted portfolio is constructed considering all newly created pools
and coupons.

o The Merrill Lynch Taxable Bond Indices include U.S. Treasury and
agency issues and were designed to keep pace with structural changes
in the fixed income market. The performance indicators capture all
rating changes, new issues, and any structural changes of the entire
market.

o Lehman Brothers Mortgage-Backed Securities Index is a universe of
fixed rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC),
and Federal National Mortgage Association (FNMA).

o Lehman Brothers Five-Year State General Obligations Bonds is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as
year-to-date. Total returns are also calculated as of the index
inception, December 31, 1979.

Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.

o Fiduciary Consulting Grid Universe, for example, is composed of over
1,000 funds, representing 350 different investment managers, divided
into subcategories based on asset mix. The funds are ranked quarterly
based on performance and risk characteristics.

o SEI Data Base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on
investor groups and asset mix. The funds are ranked every three, six,
and twelve months.

o Mercer Meidinger, Inc. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one, three, and five
year basis.

o Russell 1000 Growth Index consists of those Russell 2000 securities
with a greater-than-average growth orientation. Securities in this
index tend to exhibit higher price-to-book and price-earnings ratios,
lower dividend yields and higher forecasted growth rates.

o Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be
used to compare to the total returns of funds whose portfolios are
invested primarily in small capitalization common stocks.

o Standard & Poor's Ratings Group Small Stock Index is a broadly
diversified index consisting of approximately 600 small capitalization
common stocks that can be used to compare to the total returns of
funds whose portfolios are invested primarily in small capitalization
common stocks.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect a Fund. In addition, advertising and sales literature may quote
statistics and give general information about mutual fund industry, including
the growth of the industry, from sources such as the Investment Company
Institute (ICI). For example, according to the ICI, thirty-seven percent of
American households are pursuing their financial goals through mutual funds.
These investors, as well s business and institutions, have entrusted over $4.4
trillion to the more than 6,700 mutual funds available.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended August 31, 1998, are
incorporated herein by reference from the Funds' Annual Report dated August 31,
1998 (File Nos. 33-48907 and 811-58433). A copy of the Annual Report for a Fund
may be obtained without charge by contacting Marshall Funds Investor Services at
the address located on the back cover of the SAI or by calling Marshall Funds
Investor Services at 1-414-287-8555 or 1-800-FUND (3863).

<PAGE>

APPENDIX

STANDARD AND POOR'S BOND RATINGS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edge. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.

NR--Not rated by Moody's.

FITCH IBCA, INC. LONG-TERM DEBT RATINGS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.

NR--NR indicates that Fitch does not rate the specific issue.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation.

A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.

MOODY'S INVESTORS SERVICES, INC. COMMERCIAL PAPER RATINGS

P-1--Issuers rated PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.

P-2--Issuers rated PRIME-2 (for related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

FITCH IBCA, INC. SHORT-TERM RATINGS

F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as great
as the F-1+ and F-1 categories.

STANDARD AND POOR'S MUNICIPAL BOND RATINGS

AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

NR -- NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Plus (+) or
minus (-): The ratings AA and A may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS

Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
gilt edge. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa- Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.

NR -- Not rated by Moody's.

Moody's applies numerical modifiers, 1, 2 and 3 in the generic rating
classification of Aa and A in its corporate or municipal bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

STANDARD AND POOR'S MUNICIPAL NOTE RATINGS

SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS

MIG1/VMIG1 -- This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.

MIG2/VMIG2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

<PAGE>

ADDRESSES
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 Short-Term Income Fund
Marshall Intermediate Bond Fund
Marshall Government Income Fund
Marshall Intermediate Tax-Free Fund 5800 Corporate Drive
Marshall Money Market Fund Pittsburgh, Pennsylvania 15237-7010

Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Adviser to all Funds
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202

Subadviser to Marshall International Stock Fund
Templeton Investment Counsel, Inc. 500 East Broward Blvd. Suite 2100
Ft. Lauderdale, Florida 33394-3091

Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202

Transfer Agent, Dividend Disbursing Agent and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779

Shareholder Servicing Agent Marshall Funds Investor Services P.O. Box 1348
(Money Market Fund only) Milwaukee, Wisconsin 53201-1348 OR 1000 North Water
Street Milwaukee, Wisconsin 53202-1348
Federated Shareholder Services Company (Equity Funds, Income Funds, and
Intermediate Tax-Free Fund) Federated Investors Tower
Pittsburgh, PA 15222-3779

Legal Counsel Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300 Chicago, IL 60602-4207

Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
</TABLE>

Marshall Funds Investor Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
414-287-8555 or 800-236-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com

[LOGO MARSHALL FUNDS]

The Marshall Family of Funds

Investment Information
and Prospectus

Class A Shares

JANUARY 1999

. 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 Money Market Fund
. Marshall Intermediate Bond Fund
. Marshall Government Income Fund

Discipline
Worthy of Investor
Confidence

Marshall Funds is committed to providing quality investment management services
to shareholders across the country. Our goal is to assist investors in reaching
their financial goals.

Not FDIC Insured No Bank Guarantee May Lose Value

Not part of the prospectus

[LOGO MARSHALL FUNDS]

Class A Shares

Table of Contents

<TABLE>
<S> <C>
Risk/Return Profile............................ 2
. Equity Funds
Marshall Equity Income Fund.................. 3
Marshall Large-Cap Growth & Income Fund...... 3
Marshall Mid-Cap Value Fund.................. 4
Marshall Mid-Cap Growth Fund................. 4
Marshall Small-Cap Growth Fund............... 5
Marshall International Stock Fund............ 5
. Income Funds
Marshall Intermediate Bond Fund.............. 6
Marshall Government Income Fund.............. 6
. Money Market Fund
Marshall Money Market Fund................... 7
Fees and Expenses of the Funds................. 8
Main Risks of Investing in the Marshall Funds.. 9
How to Buy Shares.............................. 11
How to Redeem and Exchange Shares.............. 13
Account and Share Information.................. 15
Marshall Funds, Inc. Information............... 17
Financial Highlights........................... 19
</TABLE>

Shares of the Marshall Funds, like shares of all mutual funds, are not bank
deposits, federally insured, or guaranteed, and may lose value.

Prospectus

January 31, 1999

Risk/Return Profile

Risk/Return Profile of Mutual Funds

[GRAPH APPEARS HERE]

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 Intermediate Bond Fund

Marshall Government Income Fund

Money Market Fund
Marshall Money Market Fund

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 Intermediate Bond Fund X X
Marshall Government Income Fund X X
Marshall Money Market Fund X
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

A complete description of these risks can be found in the "Main Risks of
Investing in the Marshall Funds" section.

Equity Funds [INSERT GRAPHIC]

Marshall Equity Income Fund

[INSERT GRAPHIC]

Goal: To provide capital appreciation and above-average dividend income.

Strategy: The Fund invests in a diversified portfolio of common stocks of large-
sized companies whose market capitalization exceed $10 billion. The Fund
attempts to generate dividend income at least 1% more than the income earned on
stocks in the S&P 500 Index.

Annual Total Return (calendar years 1994-1998)

Total Return

[GRAPH APPEARS HERE]

<TABLE>
<S> <C> <C>
Best quarter (4Q98) 11.67%
Worst quarter (3Q98) (7.75%)
</TABLE>

Average Annual Total Return through 12/31/98*

<TABLE>
<CAPTION>
Since 9/30/93
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 16.93% 10.48% 17.65%
S&P 500 23.32% 28.58% 24.06%
LEIFI 16.03% 11.78% 16.62%
</TABLE>

Marshall Large-Cap Growth & Income Fund

[INSERT GRAPHIC]

Goal: To provide capital appreciation and income.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (4Q98) 22.67%
Worst quarter (3Q98) (10.08%)
</TABLE>

Average Annual Total Return through 12/31/98*

<TABLE>
<CAPTION>
Since 11/20/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 15.43% 26.18% 18.04%
S&P 500 21.65% 28.58% 24.06%
LGIFI 17.33% 13.58% 17.83%
</TABLE>

The Funds have not imposed a sales charge. Hence, total returns displayed are
based upon net asset value.

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.

[INSERT GRAPHIC] Equity Funds (cont.)

Marshall Mid-Cap Value Fund

[INSERT GRAPHIC]

Goal: To provide capital appreciation and income.

Annual Total Return (calendar years 1994-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (4Q98) 12.36%
Worst quarter (3Q98) (13.20%)
</TABLE>

Average Annual Total Return through 12/31/98*

Marshall Mid-Cap Growth Fund

[INSERT GRAPHIC]

Goal: To provide capital appreciation.

Annual Total Return (calendar years 1994-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (4Q98) 30.61%
Worst quarter (3Q98) (22.90%)
</TABLE>

Average Annual Total Return through 12/31/98*

*The table shows each Fund's average annual total returns compared to a broad-
based market index over a period of time. In addition, the performance of Mid-
Cap Value Fund and Mid-Cap Growth Fund are compared to the Lipper Mid-Cap Funds
Index (LMCFI), which is an index of funds with similar investment objectives.

As with all mutual funds, past performance does not necessarily predict future
performance.

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.

Equity Funds (cont.) [INSERT GRAPHIC]

Marshall Small-Cap Growth Fund/1/

[INSERT GRAPHIC]

Goal: To provide capital appreciation.

Annual Total Return (calendar years 1996-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (4Q98) 30.28%
Worst quarter (3Q98) (27.56%)
</TABLE>

Average Annual Total Return through 12/31/98*

<TABLE>
<CAPTION>
Since 11/1/95
inception 1 Year
<S> <C> <C>
Fund 29.65% 3.41%
Russell 2000 11.65% (2.78%)
LSCFI 10.30% (0.85%)
</TABLE>

Marshall International Stock Fund

[INSERT GRAPHIC]

Goal: To provide capital appreciation.

Annual Total Return (calendar years 1995-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (4Q98) 16.30%
Worst quarter (3Q98) (19.06%)
</TABLE>

Average Annual Total Return through 12/31/98**

<TABLE>
<CAPTION>
Since 9/1/94
inception 1 Year
<S> <C> <C>
Fund 8.65% 3.26%
EAFE Index 6.09% 18.23%
LIFI 8.41% 12.66%
</TABLE>

As with all mutual funds, past performance does not necessarily predict future
performance.

**The table shows the Fund's average annual total returns over a period of time
relative to the Morgan Stanley Capital Europe, Australia, Far East Index (EAFE
Index) and the Lipper International Funds Index (LIFI), which are indices 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.

[INSERT GRAPHIC] Income Funds

Marshall Intermediate Bond Fund

[INSERT GRAPHIC]

Goal: To maximize total return consistent with current income.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (2Q95) 4.68%
Worst quarter (1Q96) (2.03%)
</TABLE>

Average Annual Total Return through 12/31/98*

<TABLE>
<CAPTION>
Since 11/23/92
1 Year 5 Year
<S> <C> <C> <C>
Fund 5.78% 6.33% 5.49%
LGCI 7.10% 8.44% 6.66%
LSIBF 6.23% 6.99% 5.96%
</TABLE>

Marshall Government Income Fund

[INSERT GRAPHIC]

Goal: To provide current income.

Strategy: The Fund invests in securities issued by the U.S. government and its
agencies and instrumentalities, particularly mortgage-related securities. The
Adviser considers macroeconomic conditions and uses credit and market analysis
in developing the general portfolio strategy. Current and historical interest
rate relationships are used to evaluate market sectors and individual
securities. The Fund will generally maintain an average dollar-weighted maturity
of four to 12 years.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (2Q95) 4.92%
Worst quarter (1Q94) (2.13%)
</TABLE>

Average Annual Total Return through 12/31/98**

<TABLE>
<CAPTION>
Since 12/13/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 6.24% 6.51% 6.24%
LMI 7.29% 6.95% 7.23%
LUSMI 6.17% 6.13% 5.70%
</TABLE>

*The table shows the Fund's average annual total returns 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 (LIBF), an average of funds with similar objectives.

**The table shows the Fund's average annual total returns 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 average
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 Intermediate Bond Fund and
Government Income Fund above is for a class of shares not offered in this
prospectus. The return numbers for Class A Shares would be substantially similar
because the classes are invested in the same portfolio of securities and the
returns would differ only to extent that the classes do not have the same
expenses. The total returns do not reflect the payment of any sales charges.

Money Market Fund [INSERT GRAPHIC]

Marshall Money Market Fund

[INSERT GRAPHIC]

Goal: To provide current income consistent with stability of principal.

Although money market funds seek to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the Fund.

Annual Total Return (calendar years 1993-1998)

[GRAPH APPEARS HERE]

Total Return

<TABLE>
<S> <C> <C>
Best quarter (2Q95) 1.38%
Worst quarter (2Q93) 0.64%
</TABLE>

<TABLE>
<CAPTION>
7-Day Net Yield
<S> <C>
7-Day Net Yield (as of 12/31/98)* 4.73%
</TABLE>

Average Annual Total Return through 12/31/98**
<TABLE>
<CAPTION>
Since 12/17/92
inception 1 Year 5 Year
<S> <C> <C> <C>
Fund 4.50% 5.11% 4.88%
DMFA 4.48% 5.04% 4.86%
</TABLE>

*Investors may call the Fund to acquire the current 7-Day Net Yield at 1-800-
580-FUND (3863).

**The table shows the Fund's average total return over a period of time relative
to the IBC/Donoghue's Money Fund Average (DMFA), an average of money funds with
similar objectives.

[INSERT GRAPHIC] FEES AND EXPENSES OF THE FUNDS

This table describes the fees and expenses that you may pay if you buy and hold
Class A Shares.

<TABLE>
<CAPTION>
Equity Large-Cap Mid-Cap Mid-Cap Small-Cap
Income Growth & Income Value Growth Growth
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed (as a percentage of offering price)
5.75% 5.75% 5.75% 5.75% 5.75%
Annual Fund Operating Expenses (expenses deducted from Fund assets) *
Management Fee 0.75% 0.75% 0.75% 0.75% 1.00%
Distribution (12b-1) Fee 0.25% 0.25% 0.25% 0.25% 0.25%
Shareholder Servicing Fee 0.25%(2) 0.25%(2) 0.25%(2) 0.25%(2) 0.25%(2)
Other Expenses 0.17% 0.20% 0.29% 0.25% 0.38%
Total Annual Fund Operating Expenses 1.42% 1.45% 1.54% 1.50% 1.88%
</TABLE>

<TABLE>
<CAPTION>
International Intermediate Government Money
Stock Bond Income Market
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed (as a percentage of offering price)
5.75% 4.75% 4.75% None
Annual Fund Operating Expenses (expenses deducted from Fund assets) *
Management Fee 1.00% 0.60%(1) 0.75%(1) 0.50%(1)
Distribution (12b-1) Fee 0.25% 0.25% 0.25% 0.30%
Shareholder Servicing Fee 0.25%(2) 0.25%(2) 0.25%(2) 0.02%
Other Expenses 0.26% 0.16% 0.20% 0.14%
Total Annual Fund Operating Expenses 1.76% 1.26%(3) 1.45%(3) 0.96%(3)
</TABLE>

* Expenses are expressed as a percentage of the Fund's net assets. Annual Fund
Operating Expenses for Equity Income Fund, Large-Cap Growth & Income Fund, Mid-
Cap Value Fund, Mid-Cap Growth Fund, Small-Cap Growth Fund, International Stock
Fund, Intermediate Bond Fund, and Government Income Fund are estimated based on
average expenses expected to be incurred during the fiscal year ending August
31, 1999. During the course of this period, expenses may be more or less than
the average amount shown.

(1) It is anticipated that the adviser will voluntarily waive a portion of the
management fee. The adviser may terminate this voluntary waiver at any time. The
management fee (after the voluntary waiver) is expected to be 0.53% for the
Intermediate Bond Fund and 0.64% for the Government Income Fund for the fiscal
year ending August 31, 1999. The adviser voluntarily waived a portion of the
management fee for Money Market Fund for the fiscal year ended August 31, 1998.
The management fee paid by Money Market Fund was 0.25%

(2) The Shareholder Servicing Fee for Equity Income Fund, Large-Cap Growth &
Income Fund, Mid-Cap Value Fund, Mid-Cap Growth Fund, Small-Cap Growth Fund,
International Stock Fund, Intermediate Bond Fund and Government Income Fund is
expected to be voluntarily reduced. The shareholder servicing agent may
terminate this voluntary waiver at any time. The Shareholder Servicing Fee
(after the voluntary waiver) is expected to be 0.00% for Equity Income Fund,
Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-Cap Growth Fund, Small-
Cap Growth Fund, International Stock Fund, Intermediate Bond Fund and Government
Income Fund for the fiscal year ending August 31, 1999.

(3) Total Operating Expenses are expected to be 0.94% and 1.09% for the
Intermediate Bond Fund and Government Income Fund after the anticipated
voluntary reductions described in Notes 1 and 2 for the fiscal year ended August
31, 1999. Total Operating Expenses were 0.71% for Money Market Fund after the
voluntary reduction of the management fee for the fiscal year ended August 31,
1998.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. Marshall & Ilsley Trust Company and its affiliates receive fees for
advisory and custodial services, and may receive fees for administrative and
shareholder services they provide to shareholders. For more complete
descriptions of the various costs and expenses, see "Marshall Funds, Inc.
Information" Wire-transferred redemptions may be subject to an additional fee.

Example

This example is intended to help you compare the cost of investing in the
Marshall Funds with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
Equity Large-Cap Mid-Cap Mid-Cap Small-Cap International Intermediate Government Money
Income Growth & Income Value Growth Growth Stock Bond Income Market
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $711 $ 714 $ 723 $ 719 $ 755 $ 744 $597 $616 $ 98
3 Years $999 $1,007 $1,033 $1,022 $1,132 $1,098 $856 $912 $ 306
5 Years N/A N/A N/A N/A N/A N/A N/A N/A $ 531
10 Years N/A N/A N/A N/A N/A N/A N/A N/A $1,178
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

These examples are not meant to represent your actual investment results or
expenses, which may vary. Your expenses will be less if you qualify to purchase
shares at a reduced or no sales charge. This example for Equity Income Fund,
Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-Cap Growth Fund, Small-
Cap Growth Fund, International Stock Fund, Intermediate Bond Fund and Government
Income Fund is based on estimated data for the fiscal year ending August 31,
1999.

Main Risks of Investing in the Marshall Funds [INSERT 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
have greater volatility than debt securities. While greater volatility
increases risk, it offers the potential for greater reward.

[INSERT 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
involves greater 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 that Fund's 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.

On January 1, 1999, eleven of the fifteen member states of the
European Union had their currency exchange rate irrevocably fixed to a
single European currency, the "euro." The euro has become legal tender in
those countries from that date. National currencies will continue to
circulate until they are replaced by euro coins and bank notes on July 1,
2002. The pending unification of European currency and decision by certain
countries not to participate may create uncertainty in the European
markets and thereby increase volatility of the various currencies and
securities. The European securities markets may also become less liquid.
These events could affect a Fund's investment and performance, as detailed
under "European Currency Unification" in the Statement of Additional
Information.

Debt Securities Risks. Risks of debt securities will affect the INCOME FUNDS.

[INSERT 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.

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.

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.

How to Buy Shares [INSERT GRAPHIC]

What Do Shares Cost? You can buy shares of a Fund on any day the New York Stock
Exchange (NYSE) is open for business. When the Fund receives your
transaction request in proper form, it is processed at the next determined
public offering price. The public offering price is the net asset value
(NAV) plus any applicable sales charge. NAV is determined for the Funds
(other than MONEY MARKET FUND) at the end of regular trading (normally
3:00 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:

<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge
as a % of Sales Charge
Public as a % of
Offering Price NAV
<S> <C> <C>
Up to $50,000 5.75% 6.10%
$50,000 -- $100,000 4.50% 4.71%
$100,000 -- $250,000 3.50% 3.63%
$250,000 -- $500,000 2.50% 2.56%
$500,000 -- $1 million 2.00% 2.04%
$1 million or greater* None None
</TABLE>

The sales charge when you purchase Class A Shares of the INCOME
FUNDS is as follows:

<TABLE>
<CAPTION>
Class A Shares
Purchase Amount Sales Charge
as a % of Sales Charge
Public as a % of
Offering Price NAV
<S> <C> <C>
Less than $25,000 4.75% 4.99%
$25,000 -- $50,000 4.50% 4.71%
$50,000 -- $100,000 4.00% 4.17%
$100,000 -- $250,000 3.50% 3.63%
$250,000 -- $500,000 2.50% 2.56%
$500,000 -- $1 million 2.00% 2.04%
$1 million or greater* None None
</TABLE>

* 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 Fund's 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:

. sales in excess of $1,000,000;*

. quantity purchases of Class A Shares;

. combining concurrent purchases of:

-- Shares by you, your spouse, and your children under age 21; or

-- Class A Shares of two or more Marshall Funds;

. accumulating purchases (in calculating the sales charge on an additional
purchase, you may count the current value of previous Class A Share
purchases still invested in the Fund);

. signing a letter of intent to purchase a specific dollar amount of Class
A Shares within 13 months (call your investment representative for an
application and more information); or

. using the reinvestment privilege within 90 days of redeeming Class A
Shares of an equal or lesser amount.

If your investment qualifies, you or your investment representative must
notify the Fund's distributor at the time of purchase to reduce or
eliminate the sales charge. You will receive the reduced sales charge only
on the additional purchases, and not retroactively on previous purchases.
You should contact your investment professional for more information on
reducing or eliminating the sales charge.

In addition, no sales charge is imposed on:

. Trustees or other fiduciaries purchasing Class A Shares for employee
benefit plans of employers with ten or more employees, or

. reinvested dividends and capital gains.

The Fund may also permit purchases without a sales charge from time to
time, at its own discretion.

How 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).

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.

[INSERT 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.

[INSERT GRAPHIC] Additional Information About Checks Used to Purchase Shares

. If your check does not clear, your purchase will be canceled and you will
be charged a $15 fee.

. If you purchase shares by check or ACH, you may not be able to receive
proceeds from a redemption for up to seven days.

How to Redeem and Exchange Shares [INSERT GRAPHIC]

How Do I Redeem Shares? You may redeem your Fund shares by contacting your
Authorized Dealer. You should note that redemptions will be made only on
days when the Fund computes its NAV. When your redemption request is
received in proper form, it is processed at the next determined NAV.

Telephone or written requests for redemptions must be received in proper
form and can be made through any Authorized Dealer. It is the
responsibility of the Authorized Dealer or service provider to promptly
submit redemption requests to a Fund. You may redeem shares by contacting
MFIS at 1-800-580-FUND (3863).

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.

[INSERT GRAPHIC] Systematic Withdrawal Program (Existing Accounts Only)

. 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.

[INSERT GRAPHIC] Checkwriting

. Checkwriting privileges may be available for shareholders of the MONEY
MARKET FUND. Contact your Authorized Dealer for more information.

[INSERT GRAPHIC] Additional Conditions for Redemptions

Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:

. when you want a redemption to be sent to an address other than the one
you have on record with the Fund;

. when you want the redemption payable to someone other than the
shareholder of record; or

. when your redemption is to be sent to an address of record that was
changed within the last 30 days.

. to allow your purchase payment to clear;

. during periods of market volatility; or

. when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.

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.

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 shareholder's purchase and/or
exchange privileges.

Account and Share Information [INSERT GRAPHIC]

You may request photocopies of historical confirmations from prior years.
The Funds may charge a fee for this service.

[INSERT 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.

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. The Marshall Funds has adopted a Rule 12b-1 Plan on behalf of
the Class A Shares of the Funds, which allows it to pay a fee equal to a
maximum of 0.25% for the EQUITY FUNDS and INCOME FUNDS and 0.30% for the
MONEY MARKET FUND'S Class A Shares assets to the Distributor and financial
intermediaries for the sale, distribution and customer servicing of each
Fund's Class A Shares. Because these shares pay marketing fees on an
ongoing basis, your investment cost may be higher over time than shares
with different sales charges and marketing fees.

Year 2000 Readiness

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

Please consult your tax adviser regarding your federal, state and local tax
liability. Redemptions and exchanges of Fund shares are taxable sales.

Marshall Funds, Inc. Information [INSERT GRAPHIC]

Sub-adviser's Background. Templeton Investment Counsel, Inc. is a registered
investment adviser and a professional investment counseling firm that has
been handling investment services since 1979. As of July 31, 1998, TICI had
discretionary investment of approximately $22.3 billion in assets. TICI is
indirectly owned by Franklin Resources, Inc., which engages in various
aspects of the financial services industry through its subsidiaries. TICI
and its affiliates serve as advisers for a wide variety of mutual funds and
private clients in many nations. TICI, its affiliates and their
predecessors have been investing globally for over 50 years.

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 INTERNATIONAL STOCK FUND is managed by Gary R. Clemons, senior vice
president, portfolio management/research, TICI. Mr. Clemons joined the
Templeton organization in 1993 as a portfolio manager/research analyst with
responsibility for the telecommunications industries, as well as country
coverage of Columbia, Peru, Sweden and Norway. Prior to joining TICI, Mr.
Clemons worked as a portfolio manager/research analyst for Structured Asset
Management in New York, a subsidiary of Templeton Global Investors, Inc.
Mr. Clemons holds an M.B.A. degree from the University of Wisconsin-Madison
and a bachelor of science degree from the University of Nevada-Reno.

The 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 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 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:

<TABLE>
<CAPTION>
Fund Advisory Fee
<S> <C>
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%
</TABLE>

The Adviser has the discretion to voluntarily waive a portion of its fee.
However, any waivers by the Adviser are voluntary and may be terminated at
any time in its sole discretion.

Affiliate Services and Fees. Marshall & Ilsley Trust Company is custodian of the
assets and securities of the Marshall Funds and provides shareholder
support and other administrative services to Fund classes 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. from time to time marshall & ilsley trust company
may receive fees for shareholder services from the shareholder services
agent for the funds.

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.

[INSERT GRAPHIC] Financial Highlights

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in a Fund, assuming reinvestment of any dividends and capital gains.

Further information about the performance of the Funds is contained in the
Funds' Annual Report dated August 31, 1998, which may be obtained free of
charge.

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Ratios to Average Net Assets
Net Dividends to
Net Asset Investment Shareholders Net Assets,
Value, Income/ from Net Net Asset Net End of Period
Period Ended August 31, Beginning of Operating Investment Value, End Total Investment Expense (000
Period (Loss) Income of Period Return (c) Expenses Income Waiver(e) Omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund (formerly, Class B Shares)(b)
1993(a) $1.00 0.02 (0.02) $1.00 1.89% 0.72%(d) 2.72%(d) 0.28%(d) $ 1,980
1994 $1.00 0.03 (0.03) $1.00 3.11% 0.70% 3.39% 0.29% $ 11,929
1995 $1.00 0.05 (0.05) $1.00 5.25% 0.71% 5.21% 0.26% $ 30,331
1996 $1.00 0.05 (0.05) $1.00 5.07% 0.71% 4.92% 0.26% $ 84,711
1997 $1.00 0.05 (0.05) $1.00 5.04% 0.71% 4.93% 0.26% $ 89,485
1998 $1.00 0.05 (0.05) $1.00 5.19% 0.71% 5.12% 0.25% $105,125
</TABLE>

(a) Reflects operations for the period from December 17, 1992 (date of initial
public investment) to August 31, 1993.
(b) Effective December 1998, Class B Shares changed its share class name to
Class A Shares.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios.

Statement of Additional Information (SAI) dated December 31, 1998 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).

Marshall Funds Investor Services
1000 N. Water Street
P.O. Box 1348
Milwaukee, WI 53201-1348
1-800-580-FUND (3863)

TDD: Speech and Hearing Impaired Services
1-800-209-3520

Federated Securities Corp.
Distributor

G00714-03 (1/99)
SEC File No. 811-7047

Marshall Equity Funds

Marshall Equity Income Fund . Invests in common stocks of
companies with market
capitalization in excess of $10
billion
. Constructs a portfolio with a
dividend at least 1% greater than
the average dividend of the S&P
5001
. Attempts to control volatility
with strict sell discipline
. Manager with more than 27 years'
investment management experience

Marshall Large-Cap Growth & Income Fund . Invests in companies with market
capitalization in excess of $10
billion
. Seeks companies with improving
earnings and/or growing dividends
. Focuses on companies that have a
defined catalyst for price
appreciation
. Manager with more than 19 years'
investment management experience

Marshall Mid-Cap Value Fund . Invests in companies with market
capitalization similar to those
within the S&P Mid-Cap 4002
. Seeks companies that exhibit
traditional value characteristics
. Focuses on companies that may have
under-appreciated assets or be
involved in company turnarounds or
corporate restructuring
. Co-managers with more than 18
years' combined investment
management experience

Marshall Mid-Cap Growth Fund . Invests in companies with market
capitalization similar to those
within the S&P Mid-Cap 400
. Seeks to invest in successful
entrepreneurs
. Focuses on companies with high
expected growth rates
. Manager with more than 30 years'
investment management experience

Marshall Small-Cap Growth Fund/3/ . Invests in companies with market
capitalization similar to those
within the Russell 20007
. Seeks to invest in successful
entrepreneurs
. Focuses on companies with high
expected growth rates
. Co-managers with more than 30
years' combined investment
management experience

Marshall International Stock Fund/4/ . Invests in companies outside the
U.S.

. Seeks companies selling at a
discount to their long-term
earnings potential

. Value-oriented investment
discipline

. Sub-advised by Templeton
Investment Counsel, Inc.

Marshall Income Funds

Marshall Money Market Fund/5/ . Invests in money market instruments
maturing in 397 days or less

. Seeks to preserve value of
investment at $1.00 per share

. Pursues high current yield from
highest quality short-term
securities

. Manager investing more than $5
billion in money market instruments

Marshall Intermediate Bond Fund . Invests in intermediate-term
investment grade bonds and notes

. Maintains an average dollar-
weighted maturity of three to 10
years

. Selects portfolio securities using
macro-economic, credit and market
analysis

. Manager has more than nine years'
investment management experience

Marshall Government Income Fund . Invests in securities of the U.S.
Government and its agencies
. Maintains an average dollar-
weighted maturity of four to 12
years
. Uses current and historical
interest rate relationships to
evaluate market sectors and
individual securities
. Manager has more than 8 years'
experience

/2/The S&P 400 Mid Cap Index is an unmanaged capitalization weighted index that
measures the performance of the mid-range of the U.S. stock market.

/3/Small-cap stocks may experience a higher level of volatility than average.

/4/International investing involves special risk due to factors such as
increased volatility, currency fluctuation and differences in auditing and other
financial standards. Templeton Investment Counsel Inc., sub-adviser to Marshall
International Stock Fund.

/6/Income may be subject to federal alternative minimum tax and state and local
taxes.

/7/The Russell 2000 Index is an unmanaged capitalization weighted index designed
to measure performance of smaller companies in the U.S. stock market.

Not part of the prospectus

[LOGO MARSHALL FUNDS]

Marshall Funds Investor Services
1000 North Water Street
Milwaukee, Wisconsin 53202-6025
800-580-FUND(3863)
TDD: Speech and Hearing Impaired Services
800-209-3520
Federated Securities Corp., Distributor G00714-03 (1/99)
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

January 31, 1999

Equity Funds Income Funds
o Marshall Equity Income Fund o Marshall Intermediate Bond Fund
o Marshall Large-Cap Growth & Income Fund o Marshall Government Income Fund
o Marshall Mid-Cap Value Fund
o Marshall Mid-Cap Growth Fund
o Marshall Small-Cap Growth Fund Money Market Fund
o Marshall International Stock 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 January 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).

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010

G00714-04(1/99)

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 is the Fund Sold? 16

How to Buy Shares 17

Account and Share Information 18

What are the Tax Consequences? 19

Who Manages the Funds? 20

How Does The Fund Measure Performance 24

Performance Comparisons 25

Economic and Market Information 27

Financial Statements 27

Appendix 28

Addresses 31

<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.

SECURITIES IN WHICH THE FUNDS INVEST

INCOME FUNDS AND MONEY MARKET FUND
- ---------------------------------------------- ----------------- ---------------- ---------------
Securities Intermediate Government Money Market
Bond Income
- ---------------------------------------------- ----------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------- ---------------
Asset-Backed Securities2 A P A
- ----------------------------------------------- ---------------- ----------------
- ----------------------------------------------- ---------------- ---------------
Bank Instruments3 A A P
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ----------------
Borrowing4 A A A
- -----------------------------------------------
- ----------------------------------------------- ---------------- ---------------- ---------------
Debt Obligations P P P
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------
Demand Master Notes A N P
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ----------------
Derivative Contracts and 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 Delayed A A A
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 A P N
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------
Municipal Leases A A N
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------- ---------------
Municipal Securities A A N
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------- ---------------
Prime Commercial Paper8 A A P
- ----------------------------------------------- ---------------- ----------------
- ----------------------------------------------- ---------------- ---------------- ---------------
Repurchase Agreements A A P
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ----------------
Reverse Repurchase Agreements9 A A A
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------- ---------------
Securities of Other Investment Companies A A A
- ----------------------------------------------- ---------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------- ---------------
SWAP Transactions A A N
- ----------------------------------------------- ---------------- ---------------
- ----------------------------------------------- ---------------- ---------------- ---------------
U.S. Government Securities A P 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.

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%.

9. During the period any reverse repurchase agreements are outstanding, but
only to the extent necessary to assure completion of the reverse repurchase
agreements, the Money Market Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the expiration
date on the reverse repurchase agreement.

SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS

As used in this section, the term Adviser means Adviser or Subadviser, as
applicable.

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority. Some government
entities are supported by the full, faith and credit of the United States. Other
government entities receive support through federal subsidies, loans or other
benefits. A few government entities have no explicit financial support, but are
regarded as having implied support because the federal government sponsors their
activities. Investors regard agency securities as having low credit risk, but
not as low as Treasury securities.

Payments on asset-backed securities depend upon assets held by the issuer and
collections of the underlying loans. The value of these securities depends on
many factors, including changing interest rates, the availability of information
about the pool and its structure, the credit quality of the underlying assets,
the market's perception of the servicer of the pool, and any credit enhancement
provided. Also, these securities may be subject to prepayment risk. Bank
Instruments. Bank Instruments are unsecured interest bearing deposits with
banks. Bank Instruments include bank accounts, time deposits, certificates of
deposit and banker's acceptances. Instruments denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars and issued by
U.S. branches of foreign banks are referred to as Yankee instruments.

Borrowing. The Funds may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets (net assets for the Money
Market Fund and Intermediate Bond Fund), and pledge some assets as collateral. A
Fund that borrows will pay interest on borrowed money and may incur other
transaction costs. These expenses could exceed the income received or capital
appreciation realized by the Fund from any securities purchased with borrowed
money. With respect to borrowings, the Funds are required to maintain continuous
asset coverage to 300% of the amount borrowed. If the coverage declines to less
than 300%, the Fund must sell sufficient portfolio securities to restore the
coverage even if it must sell the securities at a loss.

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.

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.

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 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.

European Currency Unification

Uncertainties as Unification Nears

Volatility of Currency Exchange Rates. Exchange rates between the U.S. dollar
and European currencies will likely become more volatile and unstable.

Uncertainties after Unification of Currency

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.

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.

Lending of Portfolio Securities. In order to generate additional income, a Fund
may lend portfolio securities. When a Fund lends portfolio securities, it will
receive either cash or liquid securities as collateral from the borrower. A Fund
will reinvest cash collateral in short-term liquid securities that qualify as an
otherwise acceptable investment for the Fund. If the market value of the loaned
securities increases, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to a securities lending agent or broker. Mortgage-Backed Securities
represent interests in pools of mortgages. The underlying mortgages normally
have similar interest rates, maturities and other terms. Mortgages may have
fixed or adjustable interest rates. Interests in pools of adjustable rate
mortgages are known as ARMs.

Mortgage-backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage-backed securities is a
"pass-through certificate." Holders of pass-through certificates receive a pro
rata share of the payments from the underlying mortgages. Holders also receive a
pro rata share of any prepayments, so they assume all the prepayment risk of the
underlying mortgages.

Collateralized mortgage obligations (CMOs) are complicated instruments that
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage-backed securities. This creates
different prepayment and market risks for each CMO class.

Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high rate mortgages when
mortgage rates fall. This results in the prepayment of mortgage-backed
securities, which deprives holders of the securities of the higher yields.
Conversely, when mortgage rates increase, prepayments due to refinancings
decline. This extends the life of mortgage-backed securities with lower yields.
As a result, increases in prepayments of premium mortgage-backed securities, or
decreases in prepayments of discount mortgage-backed securities, may reduce
their yield and price. This relationship between interest rates and mortgage
prepayments makes the price of mortgage-backed securities more volatile than
most other types of fixed income securities with comparable credit risks.
Mortgage-backed securities tend to pay higher yields to compensate for this
volatility.

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.

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.

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.

Swap transactions do not involve the delivery of securities or other underlying
assets or principal. Accordingly, the risk of loss with respect to a default on
an interest rate swap is limited to the net asset value of the swap together
with the net amount of interest payments owed to a Fund by the defaulting party.
A default on a portfolio security hedged by an interest rate swap would also
expose a Fund to the risk of having to cover its net obligations under the swap
with income from other portfolio securities. Temporary Investments. There may be
times when market conditions warrant a defensive position (this rarely applies
to the Money Market Fund). During these market conditions each of the Funds may
temporarily invest without limit in short-term debt obligations (money market
instruments). These investments include commercial paper, bank instruments, U.S.
government obligations, repurchase agreements, securities of other investment
companies, and foreign securities (for the International Stock Fund). Treasury
securities are direct obligations of the federal government of the United
States. Investors regard treasury securities as having the lowest credit risk.

INVESTMENT LIMITATIONS

FUNDAMENTAL LIMITATIONS

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

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

Diversification of Investments

Concentration of Investments

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 Funds will not purchase securities of a company for the purpose of
exercising control or management. Investing in Securities of Other Investment
Companies

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.

DETERMINING MARKET VALUE OF SECURITIES

USE OF THE AMORTIZED COST METHOD (MONEY MARKET FUND ONLY)

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 all other securities, at fair value as determined in good faith by the
Board.

TRADING IN FOREIGN SECURITIES

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 IS THE FUND 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 (i)
stimulate brokers, dealers and administrators to provide distribution and/or
administrative support services to the Funds and holders of Plan Shares. These
services are to be provided by a representative who has knowledge of the
shareholder's particular circumstances and goals, and include, but are not
limited to: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investment of
client account cash balances; answering routine client inquiries regarding the
Plan Shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Funds
reasonably request.

Other benefits which the Funds hope to achieve through the Plan include, but are
not limited to, the following: (1) an efficient and effective administrative
system; (2) a more efficient use of assets of holders of Plan Shares by having
them rapidly invested in the Funds with a minimum of delay and administrative
detail; and (3) an efficient and reliable records system for holders of Plan
Shares and prompt responses to shareholder requests and inquiries concerning
their accounts.

By adopting the Plan, the Directors expect that the Funds will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Funds in seeking to achieve their investment objectives. By identifying
potential investors in Plan Shares whose needs are served by the Funds'
objectives and properly servicing these accounts, the Funds may be able to curb
sharp fluctuations in rates of redemptions and sales.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

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 a investment professional or
financial institution, the investment professional or financial institution
would not be entitled to an advanced payment from M&I Brokerage Services on the
reinvested Shares, if otherwise applicable. M&I Brokerage Services must be
notified by the shareholder in writing or by his investment professional or
financial institution of the reinvestment in order to eliminate a sales charge
or a contingent deferred sales charge. If the shareholder redeems Shares in the
Fund, there may be tax consequences.

EXCHANGING SECURITIES FOR SHARES

REDEMPTION IN KIND

Although the Funds intend to pay share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities. Because the Corporation has
elected to be governed by Rule 18f-1 under the Investment Company Act or 1940,
the Funds are obligated to pay share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of a Fund's net assets represented by
such share class during any 90-day period.

Any share redemption payment greater than this amount will also be in cash
unless the Funds' Directors determine that payment should be in kind. In such a
case, a Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its net
asset value. The portfolio securities will be selected in a manner that the
Funds' Directors deems fair and equitable and, to the extent available, such
securities will be readily marketable. Redemption in kind is not as liquid as a
cash redemption. If redemption is made in kind, shareholders receiving their
portfolio securities and selling them before their maturity could receive less
than the redemption value of their securities and could incur transaction costs.

ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS

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 December 8, 1998, the
following shareholders of the Money Market Fund owned of record 5% or more of
Money Market Fund's outstanding shares:

M&I BSS, Appleton, Wisconsin, owned approximately 52,677,117 of the Class A
Shares of the Fund (47.80%); and M&I SSC Northeast, Appleton, Wisconsin, owned
approximately 6,042,138 of the Class A Shares of the Fund (5.48%). 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

STATE AND LOCAL TAXES

CAPITAL GAINS

<PAGE>

WHO MANAGES THE FUNDS?

OFFICERS AND DIRECTORS

As of December 8, 1998, the Funds' Board and Officers as a group owned 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>

<PAGE>

ADVISER TO THE FUNDS

SUBADVISER TO INTERNATIONAL STOCK FUND

For the fiscal years ended August 31, 1998, 1997, and 1996, International Stock
Fund paid TICI $1,072,613, $816,182, and $544,167.

BANKING LAWS

BROKERAGE TRANSACTIONS

The Adviser, TICI, and their affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.

Aggregate total commissions with brokers that provided research were $963,061 on
transactions with an aggregate principal value of $735,067,013.

ADMINISTRATOR

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 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

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP, Pittsburgh, Pennsylvania is the independent public
accountant for the Funds.

FEES PAID BY THE FUNDS FOR SERVICES

- ------------------------- -------------------------------------- ---------------------------------- --------------------------------
Fund Name Advisory Fee Paid/ Brokerage Commissions Paid Administrative Fee Paid
Advisory Fee Waived
---------------------------------- --------------------------------
-------------------------------------- ---------------------------------- --------------------------------
For the fiscal year ended For the fiscal year ended For the fiscal year ended
August 31 August 31 August 31
-------------------------------------- ---------------------------------- --------------------------------
-----------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------
-----------------------------------------------------------------------------------------------------------
Equity Income Fund $3,596,326 $1,964,826 $1,101,454 $861,077 $468,108 $221,712 $403,594 $227,695 $131,196
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Large-Cap Growth & $2,284,566 $1,877,032 $2,003,427 $216,531 $309,709 $918,703 $256,720 $217,817 $238,801
Income Fund $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund $1,245,164 $1,245,668 $1,556,051 $444,003 $364,246 $524,079 $139,888 $144,711 $185,501
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund $1,676,595 $1,288,819 $917,068 $481,875 $580,150 $353,770 $188,403 $149,489 $109,258
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Growth Fund $857,023 $368,209 N/A $142,276 $117,618 N/A $102,843 $44,185 N/A
$0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
International Stock Fund $2,504,141 $1,857,261 $1,179,310 $265,289 $340,030 $115,382 $211,050 $161,481 $108,298
$0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Income Fund $846,144 $736,245 $540,501 N/A N/A N/A $118,980 $106,697 $80,507
$451,276 $429,010 $357,041
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond Fund $3,105,550 $2,440,381 $2,253,912 N/A N/A N/A $435,828 $354,123 $335,733
$333,362 $346,194 $338,087
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Government Income Fund $1,833,350 $1,304,960 $938,027 N/A N/A N/A $205,934 $151,306 $111,760
$272,859 $272,824 $243,416
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Tax-Free $570,658 $463,700 $314,337 N/A N/A N/A $80,183 $67,231 $50,437
Fund $266,927 $238,359 $196,013
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund $7,729,527 $6,354,005 $5,636,051 N/A N/A N/A $1,302,763 $1,105,666 1,007,572
$3,846,385 $3,304,082 $2,930,747
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

---------------------------------------
For the fiscal year anded August 31, 1998
- ---------------------------------------- ---------------------------------------
- ---------------------------------------- ---------------- ----------------------
Fund 12b-1 Fee* Shareholder Services Fee/
Shareholder Services Fee
Waived
- ---------------------------------------- ---------------- ----------------------
- ---------------------------------------- ---------------- ----------------------
Equity Income Fund N/A N/A
- ---------------------------------------- ---------------- ----------------------
- ---------------------------------------- ---------------- ----------------------
Large-Cap Growth & Income Fund N/A N/A
- ---------------------------------------- ---------------- ----------------------
- ---------------------------------------- ---------------- ----------------------
Mid-Cap Value Fund N/A N/A
- ---------------------------------------- ---------------- ----------------------
- ---------------------------------------- ---------------- ----------------------
Mid-Cap Growth Fund N/A N/A
- ---------------------------------------- ---------------- ----------------------
- ---------------------------------------- ---------------- ----------------------
Small-Cap Growth Fund N/A N/A
- ---------------------------------------- ---------------- ----------------------
- ---------------------------------------- ---------------- ----------------------
International Stock Fund N/A N/A
- -------------------------------- ---------------- ------------------------------
- -------------------------------- ---------------- ------------------------------
Short-Term Income Fund N/A N/A
- -------------------------------- ---------------- ------------------------------
- -------------------------------- ---------------- ------------------------------
Intermediate Bond Fund N/A N/A
- -------------------------------- ---------------- ------------------------------
- -------------------------------- ---------------- ------------------------------
Government Income Fund N/A N/A
- ------------------------------- ---------------- ------------------------------
- -------------------------------- ---------------- ------------------------------
Intermediate Tax-Free Fund N/A N/A
- -------------------------------- ---------------- ------------------------------
- -------------------------------- ---------------- ------------------------------
Money Market Fund $274,102 $18,274
$0
- -------------------------------- ---------------- ------------------------------
N/A - Not Applicable

* During the fiscal year ended August 31, 1998, only the Class A Shares of
the Money Market Fund sold shares pursuant to a Rule 12b-1 Plan. Class A
Shares of the Equity Funds and Income Funds were not offered until December
1998.

HOW DOES THE FUND MEASURE PERFORMANCE?

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.

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 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, 1998, was 5.02%. 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, 1998, was 5.14%.

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 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 quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

o Morgan Stanley Capital International Europe, Australia And Far East Index
(EAFE) is a market capitalization weighted foreign securities index, which
is widely used to measure the performance of European, Australian and New
Zealand and Far Eastern stock markets. The index covers approximately 1,020
companies drawn from 18 countries in the above regions. The index values
its securities daily in both U.S. dollars and local currency and calculates
total returns monthly. EAFE U.S. dollar total return is a net dividend
figure less Luxembourg withholding tax. The EAFE is monitored by Capital
International, S.A., Geneva, Switzerland.

o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time. From time to time, a Fund will quote its Lipper ranking in
advertising and sales literature.

o Consumer Price Index is generally considered to be a measure of inflation.

o Dow Jones Industrial Average (DJIA) is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.

o Standard & Poor's Daily Stock Price Index Of 500 Common Stocks, a composite
index of common stocks in industry, transportation, financial, and public
utility companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in the Standard & Poor's figures.

o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.

o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the lowest rate
is used. Rates are subject to change at any time specified by the
institution.

o Donoghue's Money Fund Report publishes annualized yields of over 300
taxable money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and 12 month-to-date investment results
for the same money funds.

o The S&P/BARRA Value Index and the S&P/BARRA Growth Index are constructed by
Standard & Poor's and BARRA, Inc., an investment technology and consulting
company, by separating the S&P 500 Index into value stocks and growth
stocks. The S&P/BARRA Growth and S&P/BARRA Value Indices are constructed by
dividing the stocks in the S&P 500 Index according to their price-to-book
ratios. The S&P/BARRA Growth Index, contains companies with higher
price-to-earnings ratios, low dividends yields, and high earnings growth
(concentrated in electronics, computers, health care, and drugs). The Value
Index contains companies with lower price-to-book ratios and has 50% of the
capitalization of the S&P 500 Index. These stocks tend to have lower
price-to-earnings ratios, high dividend yields, and low historical and
predicted earnings growth (concentrated in energy, utility and financial
sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices are
capitalization-weighted and rebalanced semi-annually. Standard &
Poor's/BARRA calculates these total return indices with dividends
reinvested.

o Standard & Poor's Midcap 400 Stock Price Index, a composite index of 400
common stocks with market capitalizations between $200 million and $7.5
billion in industry, transportation, financial, and public utility
companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in the Standard & Poor's figures.

o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and 2.99
years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.

o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on the composites of ratings assigned by
Standard & Poor's Corporation and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.

o Merrill Lynch 1-Year Treasury Bill Index is comprised of the most recently
issued one-year U.S. Treasury bills. Index returns are calculated as total
returns for periods of one, three, six and twelve months as well as
year-to-date.

o Merrill Lynch Corporate A-Rated (1-3 Year) Bond Index is a universe of
corporate bonds and notes with maturities between 1-3 years and rated A3 or
higher.

o Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporation; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry, public
utilities, and finance. The average maturity of these bonds approximates
nine years. Traced by Lehman Brothers, Inc., the index calculates total
return for one-month, three-month, twelve-month, and ten-year periods and
year-to-date.

o Lehman Brothers Intermediate Government/Corporate Bond Index is a universe
of government and corporate bonds rated BBB or higher with maturities
between 1-10 years.

o The Salomon Brothers Total Rate-of-Return Index for mortgage pass through
securities reflects the entire mortgage pass through market and reflects
their special characteristics. The index represents data aggregated by
mortgage pool and coupon within a given sector. A market weighted portfolio
is constructed considering all newly created pools and coupons.

o The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the fixed
income market. The performance indicators capture all rating changes, new
issues, and any structural changes of the entire market.

o Lehman Brothers Mortgage-Backed Securities Index is a universe of fixed
rate securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC), and Federal
National Mortgage Association (FNMA).

o Lehman Brothers Five-Year State General Obligations Bonds is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and represent
a variety of coupon ranges. Index figures are total returns calculated for
one, three, and twelve month periods as well as year-to-date. Total returns
are also calculated as of the index inception, December 31, 1979.

Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.

o Fiduciary Consulting Grid Universe, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.

o SEI Data Base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on investor
groups and asset mix. The funds are ranked every three, six, and twelve
months.

o Russell 1000 Growth Index consists of those Russell 2000 securities with a
greater-than-average growth orientation. Securities in this index tend to
exhibit higher price-to-book and price-earnings ratios, lower dividend
yields and higher forecasted growth rates.

o Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.

o Standard & Poor's Ratings Group Small Stock Index is a broadly diversified
index consisting of approximately 600 small capitalization common stocks
that can be used to compare to the total returns of funds whose portfolios
are invested primarily in small capitalization common stocks.

ECONOMIC AND MARKET INFORMATION

FINANCIAL STATEMENTS

<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.

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 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.

NR--Not rated by Moody's.

FITCH IBCA, INC. LONG-TERM DEBT RATINGS

NR--NR indicates that Fitch does not rate the specific issue. STANDARD AND
POOR'S COMMERCIAL PAPER RATINGS

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

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.

MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS

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.

NR -- Not rated by Moody's.

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

MIG2/VMIG2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

<PAGE>

<S> <C>

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 Intermediate Bond Fund
Marshall Government Income Fund
Marshall Money Market Fund 5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Adviser to all Funds
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202

Subadviser to Marshall International Stock Fund
Templeton Investment Counsel, Inc. 500 East Broward Blvd. Suite 2100
Ft. Lauderdale, Florida 33394-3091

Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202

Transfer Agent, Dividend Disbursing Agent and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779

Shareholder Servicing Agent Federated Shareholder Services Company Federated
Investors Tower Pittsburgh, PA 15222-3779

Legal Counsel Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300 Chicago, IL 60602-4207

Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
</TABLE>

M&I Brokerage Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
1-800-580-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com

APPENDIX A

1. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Marshall Equity Income Fund (Fund) as
of the calendar year-end for each of 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 appear 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 or fees
had been included, the returns shown would have been lower.

Within the period shown in the Chart, the Fund's highest quarterly return
for the quarter ended 4Q98, was 11.67%. Its lowest quarterly return for the
quarter ended 3Q98, was (7.75%).

Average Annual Total Return for the Fund compared to Standard & Poor's 500
Index (S&P 500) and Lipper Equity Income Funds Index (LEIFI) through December
31, 1998.

Calendar Period Fund S&P 500 LEIFI
- --------------- ---- ------- -----
Life of the Fund* 16.93% 23.25% 16.03%
1 Year 10.48% 28.15% 11.78%
5 year 17.65% 23.98% 16.62%

* Since inception date of September 30, 1993.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to S&P 500, a broad-based market index and LEIFI, an average of
funds with similar investment objectives . While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

2. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Marshall Large-Cap Growth
& Income Fund (Fund) as of the calendar year-end for each of 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 appear 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%.

Within the period shown in the Chart, the Fund's highest quarterly return
for the quarter ended 4Q98, was 22.67%. Its lowest quarterly return for the
quarter ended 3Q98, was (10.08%).

Average Annual Total Return for the Fund compared to Standard & Poor's 500
Index (S&P 500) and Lipper Growth & Income Funds Index (LGIFI) through December
31, 1998.

Calendar Period Fund S&P 500 LGIFI
- --------------- ---- ------- -----
Life of the Fund* 15.43% 23.25% 17.33%
5 Year 18.04% 23.98% 17.83%
1 Year 26.18% 28.15% 13.58%

* Since inception date of November 20, 1992.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to S&P 500, a broad-based market index and LGIFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

3. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Marshall Mid-Cap Value Fund (Fund) as
of the calendar year-end for each of five years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and
increasing in increments of 5.00% up to 30.00%.

Within the period shown in the Chart, the Fund's highest quarterly return
for the quarter ended 4Q98, was 12.36%. Its lowest quarterly return for the
quarter ended 3Q98, was (13.20%).

Average Annual Total Return for the Fund compared to Standard & Poor's
Mid-Cap 400 Index (SPMC) and Lipper Mid-Cap Funds Index (LMCFI) through December
31, 1998.

Calendar Period Fund SPMC LMCFI
- --------------- ---- --------- -----
Life of the Fund* 13.37% 18.38% 14.89%
1 Year 5.15% 18.72% 13.92%
5 Year 13.59% 18.76% 15.20%

* Since inception date of September 30, 1993.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to SPMC, a broad-based market index and LMCFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

4. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Mid-Cap Growth Fund (Fund) as of the
calendar year-end for each of 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 appear 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 or fees had been
included, the returns shown would have been lower.

Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 4Q98 was 30.61%. Its lowest quarterly return for the quarter
ended 3Q98, was (22.90%).

Average Annual Total Return for the Fund compared to Standard & Poor's Mid-Cap
400 Index (SPMC) and Lipper Mid-Cap Funds Index (LMCFI) through December 31,
1998.

Calendar Period Fund SPMC LMCFI
- --------------- ---- --------- -----
Life of the Fund* 16.17% 18.38% 14.89%
1 Year 15.72% 18.72% 13.92%
5 Year 16.67% 18.76% 15.20%

* Since inception date of September 30, 1993.

<PAGE>

5. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Small-Cap Growth
Fund (Fund) as of the calendar year-end for each of 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 total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.

Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 4Q98 was 30.28%. Its lowest quarterly return for the quarter
ended 3Q98 was (27.56%).

Average Annual Total Return for the Fund compared to Russell 2000 Index (Russell
2000) and Lipper Small Cap Funds Index (LSCFI) through December 31, 1998.

Calendar Period Fund Russell 2000 LSCFI
- --------------- ---- ------------ -----
Life of the Fund* 14.53% 11.65% 10.30%
1 Year 3.41% (2.78%) (0.85%)

* Since inception date of November 1, 1995.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to Russell 2000, a broad-based market index and LSCFI, an average
of funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

6. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall International Stock Fund (Fund) as of the
calendar year-end for each of 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 total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.

Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 4Q98, was 16.30%. Its lowest quarterly return for the quarter
ended 3Q98 was (19.06%).

Average Annual Total Return for the Fund compared to Morgan Stanley Capital
Europe, Australia, Far East Index (EAFE Index) and Lipper International Funds
Index (LIFI) through December 31, 1998.

Calendar Period Fund EAFE Index LIFI
- --------------- ---- ---------- ----
Life of the Fund* 8.65% 6.09% 8.41%
1 Year 3.26% 18.23% 12.66%

* Since inception date of September 1, 1994.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to EAFE Index, a broad-based market index and LIFI, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

7. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Marshall Short-Term Income Fund
(Fund) as of the calendar year-end for each of 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 appear 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%.

Within the period shown in the Chart, the Fund's highest quarterly return
for the quarter ended 2Q95, was 2.48%. Its lowest quarterly return for the
quarter ended 2Q94 was 0.17%.

Average Annual Total Return for the Fund compared to Lipper S-T Investment
Grade Bond Index (LSTIBI) and IBC/Donoghue's Taxable Money Fund Average (DMFA)
through December 31, 1998.

Calendar Period Fund LSTIBI DMFA
- --------------- ---- --------- ----
Life of the Fund* 5.05% 5.43% 4.45%
5 Year 5.39% 5.43% 4.86%
1 Year 4.91% 5.73% 5.04%

* Since inception date of November 1, 1992.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LSTIBI, a broad-based market index and DMFA, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

8. The graphic presentation displayed here consists of a bar chart
representing the annual total returns of Marshall Intermediate Bond Fund (Fund)
as of the calendar year-end for each of 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 appear 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%.

Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q95 was 4.68%. Its lowest quarterly return for the quarter
ended 1Q96 was (2.03%).

Average Annual Total Return for the Fund compared to Lehman Brothers
Government/Corporate Intermediate Index (LGCI) and Lipper Short/Intermediate
Investment Grade Bond Funds Index (LSIBF) through December 31, 1998.

Calendar Period Fund LGCI LSIBF
- --------------- ---- --------- -----
Life of the Fund* 5.78% 7.10% 6.23%
5 Year 5.49% 6.66% 5.96%
1 Year 6.33% 8.44% 6.99%

* Since inception date of November 23, 1992.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LGCI, a broad-based market index and LSIBF, an average of
funds with similar investment objectives. While past performance does not
necessarily predict future performance, this information provides you with
historical performance information so that you can analyze whether the Fund's
investment risks are balanced by its potential rewards.

<PAGE>

9. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Government Income Fund (Fund) as of the
calendar year-end for each of 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 appear 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 or fees had been
included, the returns shown would have been lower.

Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 2Q95 was 4.92%. Its lowest quarterly return for the quarter
ended 1Q94 was (2.13%).

Average Annual Total Return for the Fund compared to Lehman Brothers
Mortgage-Backed Securities Index (LMI) and Lipper U.S. Mortgage Funds Index
(LUSMI) through December 31, 1998.

Calendar Period Fund LMI LUSMI
- --------------- ---- --- -----
Life of the Fund* 6.24% 7.29% 6.17%
5 Year 6.24% 7.23% 5.70%
1 Year 6.51% 6.95% 6.13%

* Since inception date of December 13, 1992.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a period of
years relative to LMI, a broad-based market index and LUSMI, an average of funds
with similar investment objectives. While past performance does not necessarily
predict future performance, this information provides you with historical
performance information so that you can analyze whether the Fund's investment
risks are balanced by its potential rewards.

<PAGE>

10. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Marshall Intermediate Tax-Free Fund (Fund) as of the
calendar year-end for each of 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 total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.

Within the period shown in the Chart, the Fund's highest quarterly return for
the quarter ended 1Q95 was 4.31%. Its lowest quarterly return for the quarter
ended 1Q96 was (0.63%).

Average Annual Total Return for the Fund compared to Lehman Brothers 7-Year G.O.
Bond Index (LB7GOBI) and Lipper Intermediate Municipal Funds Index (LIMI)
through December 31, 1998.

Calendar Period Fund LB7GOBI LIMI
- --------------- ---- ------- ----
Life of the Fund* 5.04% 5.69% 5.00%
1 Year 5.65% 6.36% 5.59%

* Since inception date of February 2, 1994.

The bar chart shows the variability of the Fund's actual total return on a
yearly basis. The table shows the Fund's total returns averaged over a
period of years relative to LB7GOBI, a broad-based market index and LIMI,
an average of funds with similar investment objectives. While past
performance does not necessarily predict future performance, this
information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.

<PAGE>

11. The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Class Y Shares of the Marshall Money Market Fund
(Fund) as of the calendar year-end for each of 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 Class Y Shares of the Fund which appear 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 calculated total return percentage for
Class A Shares of the Fund which appear directly above each respective bar, for
the calendar years 1993 through 1998, are 2.68%, 3.75%, 5.47%, 4.95%, 5.13% and
5.11%.

The total returns displayed for Class A Shares of the Fund do not reflect the
payment of any sales charges or recurring shareholder account fees. If these
charges or fees had been included, the returns shown would have been lower.

Within the period shown in the Chart, the Class Y Shares highest quarterly
return for the quarter ended 2Q95 was 1.45%, and its lowest quarterly return for
the quarter ended 2Q93 was 0.72%. Within the period shown in the Chart, the
Class A Shares highest quarterly return for the quarter ended 2Q95 was 1.38%,
and its lowest quarterly return for the quarter ended 2Q93 was 0.64%.

The Fund's 7-day net yield for Class A Shares was 4.73% and 5.03% for Class Y
Shares.

Average Annual Total Return for the Fund compared to IBC/Donaghue's Money Fund
Average (DMFA) through December 31, 1998.

Calendar Period Class Y Shares* Class A Shares** DMFA
- --------------- --------------- ------------------ ----
Life of the Fund 4.80% 4.50% 4.48%
5 Year 5.19% 4.88% 4.86%
1 Year 5.42% 5.11% 5.04%

*Since inception date of November 23, 1992.
**Since inception date of December 17, 1992.

The bar chart shows the variability of the Fund's Class Y Shares and Class A
Shares actual total return on a yearly basis. The table shows the Fund's Class Y
Shares and Class A Shares total returns averaged over a period of years relative
to DMFA, , an average of funds with similar investment objectives. While past
performance does not necessarily predict future performance, this information
provides you with historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.