[LOGO APPEARS HERE]
The Marshall Funds Family
Annual Report
Class Y Shares
August 31, 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 Government Income Fund
> Marshall Intermediate Bond Fund
> Marshall Intermediate Tax-Free Fund
> Marshall Short-Term Income Fund
> Marshall Money Market Fund
Table of Contents
President's Message................................ 1
Commentaries
Marshall Equity Income Fund........................ 2
Marshall Large-Cap Growth & Income Fund............ 4
Marshall Mid-Cap Value Fund........................ 6
Marshall Mid-Cap Growth Fund....................... 8
Marshall Small-Cap Growth Fund..................... 10
Marshall International Stock Fund.................. 12
Marshall Government Income Fund.................... 14
Marshall Intermediate Bond Fund.................... 16
Marshall Intermediate Tax-Free Fund................ 18
Marshall Short-Term Income Fund.................... 20
Marshall Money Market Fund......................... 22
Financial Information
Portfolio of Investments........................... 24
Marshall Equity Income Fund..................... 24
Marshall Large-Cap Growth & Income Fund......... 25
Marshall Mid-Cap Value Fund..................... 27
Marshall Mid-Cap Growth Fund.................... 28
Marshall Small-Cap Growth Fund.................. 29
Marshall International Stock Fund............... 30
Marshall Government Income Fund................. 32
Marshall Intermediate Bond Fund................. 32
Marshall Intermediate Tax-Free Fund............. 34
Marshall Short-Term Income Fund................. 38
Marshall Money Market Fund...................... 39
Statements of Assets and Liabilities............... 42
Statements of Operations........................... 44
Statements of Changes in Net Assets................ 46
Financial Highlights............................... 50
Notes to Financial Statements...................... 52
Report of Ernst & Young LLP, Independent Auditors.. 60
Directors & Officers............................... 62
[Logo Appears Here]
Dear Marshall Funds Shareholder,
U.S. investors continue to enjoy one of the strongest economic periods on
record. At Marshall Funds, we remain optimistic about the long-term outlook for
the economy and markets.
Even while optimistic, we encourage all of our shareholders to review their
financial plans at least annually. Whether you manage your money independently,
or with the help of an M&I investment professional, it is important to consider
whether your situation or goals have changed. Planning for a comfortable
retirement, or for current income, should include a regular review to help
protect your investments from becoming out of line with your intentions.
In particular, large U.S. growth stocks and the mutual funds that invest in them
have done well over the past few years. As a result, many investors may now find
their portfolios invested heavily in large domestic growth companies. Should
there be a shift in favor of smaller companies, international markets or
value-style investing, however, you may want to be positioned to benefit.
Many variables can affect the direction of the market, such as interest rate
movements and economic developments, and can cause the market to move rapidly up
or down, or broaden or narrow. The best way to be prepared is the one tested and
proven technique for controlling investment risk: diversification through sound
asset allocation.
The Marshall Funds offer the key ingredients for a broadly diversified
portfolio, including fixed income and equity portfolios; large-, mid-, and
small-company focuses; growth and value investment styles; and U.S. and
international portfolios. The Marshall Funds family prides itself on five key
factors:
. Experience: M&I Investment Management Corp., the adviser to the Funds,
manages more than $10.5 billion, and was one of the first bank-sponsored
investment advisory firms in the country.
. Discipline: We employ a highly specialized, style-specific investment
approach. This means each Fund remains true to its style.
. Capability: We employ more than 50 dedicated, experienced investment
professionals who leverage some of the industry's most sophisticated
technology available.
. Research: Portfolio managers and analysts conduct exhaustive, first-hand
research.
. Efficiency: The expense ratio for each Fund is at or below average for
its peer group.
We encourage you to evaluate your investments to be sure your portfolio is well
diversified and consistent with your long-term goals. If you would like
assistance, please don't hesitate to contact your M&I investment representative,
or call us at 1-800-236-FUND(3863).
Sincerely,
/s/ John M. Blaser
John M. Blaser
President
Annual Report--Commentary
Marshall Equity Income Fund
The Marshall Equity Income Fund seeks to provide capital appreciation and
above-average dividend income. Fund assets are invested in a broadly diversified
portfolio of common stocks whose market capitalization exceeds eight billion
dollars. In order to provide both capital appreciation and income, the Adviser
attempts to structure the portfolio to pursue a yield at least 1% more than the
income earned on the stocks in the Standard & Poor's 500 Index (S&P 500).* The
Adviser selects companies that exhibit traditional value characteristics, such
as a price-to-earnings ratio less than the S&P 500, higher-than-average dividend
yields or a lower-than-average price-to-book value.
For the 12 months ended August 31, 1999, the Fund provided a total return of
27.92%,** while the Lipper Equity Income Funds Index (LEIFI)* provided a total
return of 23.57% and S&P 500 returned 39.82%. The Fund's Class Y Shares was
awarded a four star Morningstar Rating(TM) for its overall performance versus
3,210 domestic equity funds as of September 30, 1999.+
An inflection point
When the fiscal year began, the Asian economic crisis was in full swing,
resulting in a sharp drop-off in world demand. This placed downward pressure on
inflation and interest rates. The American consumer and many large growth
companies (such as technology) were the primary beneficiaries. The American
consumer benefited from lower energy costs (such as gasoline and natural gas)
and interest costs (such as lower rates on mortgages and car loans), which they
promptly spent on other goods, keeping the U.S. economy strong. Many large
growth companies not only enjoyed strong demand for their products as a result,
but also benefited from lower operating costs (low borrowing and energy costs,
etc). In addition, lower interest rates also allowed their already historically
high price to earnings multiples (P/E) to expand, as steady growth rates became
more valuable in a low inflation environment. The result was a large valuation
disparity between growth stocks and the rest of the market through the first
quarter of 1999.
When the Asian economies began to recover, investors began to shift funds out of
the large growth stocks and back into the broader market, with the belief that
stocks hurt most by the Asian crisis would be the beneficiaries of a turnaround
in Asia. The broadening out of the market helped close the gap in valuations
between growth stocks and value stocks. Going forward, if global growth remains
strong enough to support rising commodity prices, then the valuation gap between
growth and value stocks should continue to narrow.
Energy, healthcare, and financials
play an important part in the
Fund's portfolio
Energy prices, like other commodities, are sensitive to small changes in supply
and demand. With a perceived increase in demand from Asia, and OPEC reducing
supply, oil prices doubled from their December 1998 lows of $11/barrel to
$22/barrel at the end of August 1999. Energy stocks, as represented by the S&P
International Oil Index,* responded accordingly, and were up 19.90% during the
same time period. Energy stocks continue to be the Fund's largest holding,
comprising 17.8% of the portfolio. We continue to conclude that oil stocks are
attractively valued based on future earnings expectations and dividend yields.
Our largest energy holdings continue to be Exxon (3.4%), Royal Dutch Petroleum
(2.5%) and Texaco (2.3%).
Drug stocks performed well in 1998 in spite of slowing world economies. Their
earnings are less economically sensitive and therefore more predictable. As a
result, by April 1999, drug stock P/E's were trading at a 50% premium to the S&P
500. Over the last few quarters, drug stocks have underperformed, as investors
shifted money out of drugs and into economically sensitive sectors to take
advantage of a stronger world economy. As a result, this premium was reduced to
an attractive 10%. Drug stocks now offer attractive dividend yields and have
valuations that offer good total return potential. Therefore, the Fund recently
increased its weighting in the pharmaceutical sector to 11.7%. Recent purchases
include Abbott Labs (1.5%), Glaxo Wellcome (1.3%) and Eli Lilly (1.2%).
Performance of interest sensitive stocks, such as electric utilities (5.7% of
portfolio) and banks (12.4% of portfolio), were hindered by the rise in interest
rates in 1999. These stocks offer attractive values on an absolute basis and
have provided good dividend yields. The Fund continues to maintain a significant
weight in each of these areas.
Disciplined approach helps minimize volatility
By historical standards, the stock market continues to appear richly valued. The
S&P 500 is currently trading near all time valuation highs on the basis of
earnings (27 times estimated 1999 earnings) and at all time lows based on
dividend yield (1.20%). In today's richly valued and volatile markets, we remain
disciplined equity investors and our approach remains unchanged. Investing in
attractively priced companies paying above average dividends is the cornerstone
of our investment approach. The portfolio's above average dividend yield
combined with its low historic volatility should help reassure our investors
that participation in any further market advance will be built around an
investment style designed to earn competitive long-term returns with less
volatility.
Sincerely,
/s/ Bruce P. Hutson
Bruce P. Hutson
Manager, Marshall Equity Income Fund
[_] Marshall Equity Income Fund
"Graphic representation "Y-1A" omitted. See Appendix."
"Graphic representation "Y-2A" omitted. See Appendix."
"Graphic representation "Y-3A" omitted. See Appendix."
"Graphic representation "Y-4A" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on September 30, 1993 to August 31, 1999, compared to the S&P 500 and
the LEIFI.*
- --------------------------------------------------------------------------------
*The S&P 500, S&P International Oil Index and the LEIFI are not adjusted to
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in a mutual fund's performance. These indices are unmanaged. Actual
investments may not be made in an index. The S&P 500 is a capitalization-
weighted index of 500 stocks designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries. The S&P International Oil Index is a
capitalization-weighted index of all stocks within the international oil sector
designed to measure the performance of the international oil sector of the S&P
500. Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper as falling into the category
indicated.
**Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and the LEIFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
+Morningstar proprietary ratings reflect historical risk-adjusted performance as
of 9/30/99. They are subject to change every month. Ratings are calculated from
the Fund's 3-, 5- and 10-year average annual return in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and risk factor that
reflects fund performance below 90-day T-bill returns. The Fund's Class Y
Shares received 3 stars and 4 stars for the three-year and five-year periods,
rated among 3,210 and 2,010 domestic equity funds, respectively. The top ten
percent of funds in a broad asset class receive 5 stars, the next 22.5% receive
4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the
bottom 10% receive 1 star.
Annual Report--Commentary
Marshall Large-Cap Growth & Income Fund
The Marshall Large-Cap Growth & Income Fund seeks to provide capital
appreciation and income. Fund assets are invested in a diversified portfolio of
common stocks of large-sized companies whose market capitalization typically
exceeds $10 billion. The Adviser looks for companies that are leaders in their
industry and have records of above-average financial performance and proven
superior management. These types of companies typically offer opportunities for
growth and also provide dividend income.
The Fund had a good year compared to funds with similar investment objectives.
For the fiscal year ended August 31, 1999, the Fund provided a total return of
38.98%* versus 28.76% for the Lipper Growth and Income Funds Index (LGIFI)** and
39.82% for the Standard & Poor's 500 Index (S&P 500).**
The Fund's solid performance over the past year was driven by a focus on
quality, large-capitalization companies, across many different industry sectors,
which provided the strongest relative earnings performance both within their
respective industry and versus the overall market.
Emerging from the Asian meltdown
Immediately following the Asian crisis, early in the Fund's fiscal year,
investors again focused only on a few select large growth stocks and bid their
premium valuations to historic highs. During this period, the Fund was
positioned to take advantage of acceleration in earnings growth across an
expanding list of high quality, large companies. Many of these opportunities
were casualties of the Asian meltdown. For example, the Fund overweighed the
energy sector early in the year versus the overall market due to an expected
earnings pick-up in the second half of the fiscal year. While the market did
broaden somewhat in the number of stocks participating on the upside, one area
that remained a market leader was technology, as earnings growth remained strong
throughout the fiscal year. Technology group valuations now discount revenue
growth and profit margins 50% above historic rates and the Fund remains quite
selective in this area.
Looking Forward
At the time of this writing the S&P 500 is expected to report the strongest
quarterly earnings in the last four years. These growth rates will be very tough
to sustain. As such, the Fund is continuing to balance holdings in earnings
recovery stories with those of more traditional growth companies selling at
reasonable valuations. These more traditional growth names should once again
provide superior relative performance as the overall earnings growth of the
market slows. As always, the Fund will maintain our focus on the highest quality
companies across a diversified portfolio of large companies.
Sincerely,
/s/ William J. O'Connor
William J. O'Connor
Manager, Marshall Large-Cap Growth & Income Fund
[PHOTO OF WILLIAM J. O'CONNOR]
[_] Marshall Large-Cap Growth & Income Fund
"Graphic representation "Y-1B" omitted. See Appendix."
"Graphic representation "Y-2B" omitted. See Appendix."
"Graphic representation "Y-3B" omitted. See Appendix."
"Graphic representation "Y-4B" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from inception on November 20, 1992 to August 31, 1999,
compared to the S&P 500 and the LGIFI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
** The S&P 500 and the LGIFI are not adjusted to reflect sales charges, expenses
or other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made in
an index. The S&P 500 is a capitalization-weighted index of 500 stocks designed
to measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries. Lipper
figures represent the average of the total returns reported by all of the
mutual funds designated by Lipper as falling into the category indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and the LGIFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
Annual Report--Commentary
Marshall Mid-Cap Value Fund
The Marshall Mid-Cap Value Fund seeks to provide capital appreciation. Fund
assets are invested in a diversified portfolio of common stocks of companies
similar in size to those within the Standard & Poor's Mid-Cap 400 Index (S&P
400).* As of August 31, 1999, the S&P 400's range was $243 million to $11.5
billion, but frequently changes as the market value of the stocks that comprise
the S&P 400 changes or as stocks are added or removed from the S&P 400. The
Adviser selects companies that exhibit traditional value characteristics, such
as a price-to-earnings ratio less than the S&P 500,* higher-than-average
dividend yields or a lower-than-average price-to-book value. In addition, those
companies may have under-appreciated assets, or be involved in company
turnarounds or corporate restructurings.
For the 12 months ended August 31, 1999, the Fund provided a total return of
21.92%.** For the same period, the S&P Mid-Cap 400 BARRA/Value Index* returned
24.69%, and the S&P 400 returned 41.58%.
Still A Challenging Market For Value Investing
During most of the year, our value style and mid-cap universe generally
underperformed large growth stocks. While last spring offered exceptional
returns to value investors, the market's recent rally has been limited to growth
stocks, particularly technology and Internet companies.
Concentrating on four value scenarios
The Fund has experienced continued success in focusing on four categories of
out-of-favor or undervalued stocks.
1. Asset Recognition: We look for stocks that have significant financial,
tangible or intangible assets that are not currently recognized in the market.
It is not uncommon for these stocks to be noticed by other investors and
targeted for a buy-out. This fiscal year, one of the Fund's largest holdings,
Telephone and Data System, Inc., appreciated greatly as investors recognized the
deep discount valuation that had been applied to its rapidly growing
telecommunications assets.
2. Turn-arounds: Frequently, we find value opportunities when a company
implements more effective ways to conduct its core business. This year,
management changes at Lands' End helped improve the daily operations, such as
apparel selection and back-office fulfillment. The improved management focus and
newly created Internet sales strategy have led to superior returns.
3. Restructurings: When companies change their business strategy or shift to a
different business segment, patient value investors may be rewarded. During
1997, Hanson PLC shed its conglomerate status and focused solely on one business
segment, building materials. Hanson's new focus is to become a leading supplier
to the construction industry in the U.S. and U.K. This change, together with
strong operating improvements, helped the stock outperform the broader markets.
4. Inexpensive Stocks: The OPEC led decline in the price of oil this year
created several oil service stock buying opportunities. The Fund bought several
energy investments when the price of a barrel of oil neared $10; now at $22 a
barrel, the Fund is reducing its well performing positions.
Market woes provide strong opportunities
After several years of high valuations, the market is providing investors with
opportunities to buy small- and mid-cap companies at reasonable prices. We are
committed to our value approach and look forward to rewarding patient investors
through our unwavering discipline. Thank you for your continued commitment to
the Marshall Mid-Cap Value Fund.
Sincerely,
/s/ Matthew B. Fahey
Matthew B. Fahey
Co-Manager, Marshall Mid-Cap Value Fund
/s/ John C. Potter, C.F.A.
John C. Potter, C.F.A.
Co-Manager, Marshall Mid-Cap Value Fund
[PHOTO OF MATTHEW B. FAHEY AND JOHN C. POTTER]
[_] Marshall Mid-Cap Value Fund
"Graphic representation "Y-1C" omitted. See Appendix."
"Graphic representation "Y-2C" omitted. See Appendix."
"Graphic representation "Y-3C" omitted. See Appendix."
"Graphic representation "Y-4C" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on September 30, 1993 to August 31, 1999, compared to the S&P 400 and
LMCVFI.*
- --------------------------------------------------------------------------------
*The S&P 400, S&P 500, S&P Mid-Cap 400 BARRA/Value Index and the LMCVFI are
not adjusted to reflect sales charges, expenses or other fees that the SEC
requires to be reflected in a mutual fund's performance. These indices are
unmanaged. Actual investments may not be made in an index. The S&P 400 is a
capitalization-weighted index of common stocks representing all major
industries in the mid-range of the U.S. stock market. The S&P 500 is a
capitalization-weighted index of 500 stocks designed to measure performance of
the broad domestic economy through changes in the aggregate market value of 500
stocks representing all major industries. The S&P Mid-Cap 400 BARRA/Value Index
is a capitalization-weighted index of the stocks in the S&P 400 having the
highest book-to-price ratios. Lipper figures represent the average of the total
returns reported by all of the mutual funds designated by Lipper as falling
into the category indicated.
**Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 400 and the LMCVFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
Annual Report--Commentary
Marshall Mid-Cap Growth Fund
The Marshall Mid-Cap Growth Fund seeks to provide capital appreciation. Fund
assets are invested in a diversified portfolio of common stocks of companies
similar in size to those within the Standard & Poor's Mid-Cap 400 Index (S&P
400).* As of August 31, 1999, the S&P 400's range was $243 million to $11.5
billion, but frequently changes as the market value of the stocks that comprise
the S&P 400 changes or as stocks are added or removed from the S&P 400. 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, or overall business restructuring.
For the 12 months ended August 31, 1999, the Fund provided a total return of
53.41%,** compared to the S&P 400 total return of 41.58% and the Lipper Mid-Cap
Growth Funds Index (LMCGFI)* return of 44.53%.
During the first quarter of the fiscal year, the market experienced a recovery
from the liquidity crisis of late summer 1998, which had been caused by the
Asian economic meltdown and the bailout of a few large hedge funds. This crisis
had pushed investors to abandon mid-cap stocks which are generally more illiquid
than their large-cap counterparts. Fortunately, the Federal Reserve Board (the
"Fed") lowered interest rates in October 1998 in an attempt to inject capital
into the markets, leading to a significant rally in stocks. Our stocks
experienced a rapid recovery, given that fundamentally they were very sound
companies.
As we progressed through 1999, it became evident that the Fed was growing more
concerned about the ability of the U.S. economy to continue growing at its
current rate, without causing inflation. The bond market anticipated the change
in thinking by the Fed and interest rates began rising. Indeed, the Fed has
raised rates twice, and the jury is still out with respect to their next course
of action. Fortunately, this rising rate environment has not affected our higher
price to earnings stocks; however, it has hurt some growth segments of the
market-- particularly the consumer-related stocks.
While the Fund has a fair amount of exposure to consumer-related stocks, the
focus has been on radio companies, select retailers and other unique companies
such as Royal Caribbean Cruises, Ltd., which we believe are more immune to a
rising rate environment than home builders, and the like.
Energy stocks have performed extremely well over the past 12 months, given the
rebound in the price of oil from its depressed levels in 1998. We still view
this as largely a cyclical group, and therefore, our exposure is limited to a
few strategic companies with superior growth prospects. The lack of exposure to
this group has hurt the Fund's performance relative to the S&P 400 and the
LMCGFI.
Technology stocks have also performed well this year. The Fund's holdings have
been focused on communications-related companies, including components
suppliers, as we see this as the most significant growth area in our economy
today. These stocks have contributed significantly to the Fund's performance. We
had been concerned about the effect of Year 2000 (Y2K) on the business of many
technology companies, particularly software and IT services, and the Fund's lack
of exposure here also helped the Fund's performance. Given the significant
growth prospects surrounding the Internet, the Fund has maintained exposure to
the group throughout the year. While the valuations are staggering, our focus
continues to be on enabling companies, which we feel have more sustainable
business models than their content counterparts that rely mainly on advertising
revenues.
Looking forward, we continue to like the growth prospects in technology stocks
and in select consumer stocks, especially where they converge to provide
advanced communication and entertainment faster and cheaper than ever before. We
also believe that companies are well prepared for Y2K, and that businesses and
individuals will resume normal behavior shortly after the start of the
millennium.
Sincerely,
/s/ Steve D. Hayward
Steve D. Hayward
Manager, Marshall Mid-Cap Growth Fund
[PHOTO OF STEVEN D. HAYWARD]
[_] Marshall Mid-Cap Growth Fund
"Graphic representation "Y-1D" omitted. See Appendix."
"Graphic representation "Y-2D" omitted. See Appendix."
"Graphic representation "Y-3D" omitted. See Appendix."
"Graphic representation "Y-4D" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on September 30, 1993 to August 31, 1999, compared to the S&P 400 and
the LMCGFI.*
- --------------------------------------------------------------------------------
*The S&P 400 and the LMCGFI are not adjusted to reflect sales charges,
expenses or other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made in
an index. The S&P 400 is a capitalization-weighted index of common stocks
representing all major industries in the mid-range of the U.S. stock market.
Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper as falling into the category indicated.
**Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 400 and the LMCGFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
Annual Report--Commentary
Marshall Small-Cap Growth Fund
The Marshall Small-Cap Growth Fund seeks to provide capital appreciation. Fund
assets are invested in a diversified portfolio of common stocks of small-sized
companies similar in size to those within the Russell 2000 Index (Russell
2000).+ As of August 31, 1999, the Russell 2000's range was $32 million to $3.28
billion, but frequently changes as the market value of the stocks that comprise
the Russell 2000 changes or as stocks are added or removed from the Russell
2000. 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.
For the 12 months ended August 31, 1999, the Fund provided a total return of
26.30%* compared to the Russell 2000** total return of 28.36% and the Lipper
Small-Cap Funds Index (LSCFI)** return of 32.66%.
During the first quarter of the fiscal year, the market experienced a recovery
from the liquidity crisis of late summer 1998, which had been caused by the
Asian economic meltdown and the bailout of a few large hedge funds. This crisis
had pushed investors to abandon small-cap stocks which are generally more
illiquid than their large-cap counterparts, and many stocks were selling at
all-time low valuations. Fortunately, the Federal Reserve Board (the "Fed")
lowered interest rates in October 1998 in an attempt to inject capital into the
markets, leading to a significant rally in stocks. Our stocks experienced a
rapid recovery, given that fundamentally they were very sound companies.
As we progressed through 1999, it became evident that the Fed was growing more
concerned about the ability of the U.S. Economy to continue growing at its
current rate, without causing inflation. The bond market anticipated the change
in thinking by the Fed and interest rates began rising. Indeed, the Fed has
raised rates twice, and the jury is still out with respect to their next course
of action. Fortunately, this rising rate environment has not affected our higher
price to earnings stocks; however, it has hurt some growth segments of the
market-- particularly the consumer-related stocks.
While the Fund has a fair amount of exposure to consumer-related stocks, the
focus has been on radio companies, select retailers and other unique companies
such as Speedway Motorsports, Inc., which we believe are more immune to a rising
rate environment than home builders, and the like.
One area that has hurt the portfolio's returns this year is health care.
Regulatory changes and fears of change, combined with sub-par execution by some
peers caused significant downward pressure on our health care services
companies. While we still see good growth opportunity in a few well-managed
companies, we are awaiting a catalyst to re-enter the group.
Energy stocks have performed extremely well over the past 12 months, given the
rebound in the price of oil from its depressed levels in 1998. We still view
this as a largely cyclical group, and therefore, our exposure is limited to a
few strategic companies with superior growth prospects. The lack of exposure to
this group has hurt the Fund's performance relative to the Russell 2000 and the
LSCFI.
Technology stocks have also performed very well this year. The Fund's holdings
have been focused on communications-related companies, including components
suppliers, as we see this as the most significant growth area in our economy
today. These stocks have contributed significantly to the Fund's performance. An
area, which hurt in January and February 1999, was the Internet. While the Fund
did have exposure to the group, the return of the Russell 2000 was being driven
by significant upward moves in its top 20 names, 10 of which were Internet
names, and all of which were too large for the Fund to invest in, given their
market cap.
Looking forward, we continue to like the growth prospects in technology stocks,
particularly those related to the communications infrastructure build out, and
in select consumer stocks. Our strategy of buying stocks one-company-at-a-time
should pay off during this time of uncertainty with respect to the economic and
political environments, which lie ahead.
Sincerely,
/s/ Steve D. Hayward
Steve D. Hayward
Manager, Marshall Small-Cap Growth Fund
[PHOTO OF STEVE D. HAYWARD]
[_] Marshall Small-Cap Growth Fund
"Graphic representation "Y-1E" omitted. See Appendix."
"Graphic representation "Y-2E" omitted. See Appendix."
"Graphic representation "Y-3E" omitted. See Appendix."
"Graphic representation "Y-4E" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on November 1, 1995++ to August 31, 1999, compared to the Russell
2000 and the LSCFI.**
- --------------------------------------------------------------------
+Small-cap funds may experience a higher degree of market volatility than
larger-cap funds.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The Russell 2000 and the LSCFI are not adjusted to reflect sales charges,
expenses or other fees that the SEC requires to be reflected in a mutual
fund's performance. These indices are unmanaged. Actual investments may not
be made in an index. The Russell 2000 is an index of common stocks whose
market capitalizations generally range from $200 million to $5 billion.
Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper as falling into the category indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
Russell 2000 and the LSCFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
++ The Marshall Small-Cap Growth Fund is the successor to a collective trust
fund. The quoted performance data includes performance of the collective
trust fund for periods before the Fund's registration statement became
effective on August 30, 1996, as adjusted to reflect the Fund's anticipated
expenses. The collective trust fund was not registered under the Investment
Company Act of 1940 ("1940 Act") and therefore was not subject to certain
diversification requirements and investment restrictions imposed on mutual
funds by the 1940 Act and the Internal Revenue Code. If the collective trust
fund had been subject to those restrictions registered under the 1940 Act,
the performance may have been adversely affected.
Annual Report--Commentary
Marshall International Stock Fund
The Marshall International Stock Fund seeks to provide capital appreciation.
Fund assets are invested in common stocks of companies located outside the
United States.+ BPI Global Asset Management LLP (BPI) is the Sub-Adviser of the
Fund.
BPI uses a "bottom-up" approach to international investing within overall
portfolio management guidelines. The stock selection process begins with
identifying companies of any size within industry groups that have historically
been successful and have a competitive advantage as evidenced by above-average
profit margins, high returns on equity, low leverage and adequate cash flow. The
selection process seeks to identify quality companies with attractive returns on
equity, shareholder-oriented management, and a strong capital structure. Stocks
are selected and retained when they are attractively valued within their
industry by using traditional valuation measures such as price-to- book and
price-to-earnings ratios, resulting in an approach described as "quality
companies at a reasonable price." The portfolio management team closely monitors
the Fund's industry weightings and country weightings in relation to its
performance benchmark.
During the 12 months ended August 31, 1999, the Fund provided a total return of
22.20%,* compared to a total return of 23.87% by the Morgan Stanley Capital
International Europe, Australia, Far East Index (EAFE).**
Despite concern over rising interest rates in the U.S., the international equity
markets performed well over the last six months of the fiscal year. Leading the
way was the Japanese equity market, which was up an impressive 33.5% over this
period. Japan's nascent economic turnaround has been a long time coming.
However, after a decade in the doldrums, the economy is finally showing signs of
life with the latest Gross Domestic Product report reflecting economic
expansion. Investors have also been encouraged by real reform in the government
arena and restructuring among corporations. European stocks, on the other hand,
were basically flat over the last six months of the fiscal year as a continuing
decline in the Euro contributed to a difficult investment environment. General
economic data in Europe continues to be mixed.
With regard to the Fund's regional concentrations, we have increased the Fund's
exposure to Asia while reducing the Fund's exposure to Europe. The increased
exposure to Asia is primarily a reflection of our renewed interest in several
Japanese companies. The Fund's exposure to Japan has increased from 5% to 24%
over the last six months of the fiscal year. Relative to the EAFE as of August
31, 1999, the Fund has now reached a market weight in Asia (32% versus 32%) and
remains underweight in Europe (55% versus 68%).
On a sector basis, as of August 31, 1999, the Fund's largest weightings were in
the Capital Equipment and Services sectors. In the Capital Equipment sector,
data processing companies such as Netherlands' STMicroelectronics have
contributed positively to the Fund. In the Services sector, telecommunications
companies such as NTT Mobile Communication Network, Inc., Japan's largest
cellular operator, have also benefited the Fund. The data processing and
telecommunications industries continue to offer the most attractive investment
opportunities.
The environment for international equities has clearly improved over the last
six months of the fiscal year. We remain optimistic about the prospect for
continued growth in the equity markets around the world.
Sincerely,
/s/ Daniel R. Jaworski, CFA
Daniel R. Jaworski, CFA
Manager, Marshall International Stock Fund
[PHOTO OF DANIEL R. JAWORSKI]
[_] Marshall International Stock Fund
"Graphic representation "Y-1F" omitted. See Appendix."
"Graphic representation "Y-2F" omitted. See Appendix."
"Graphic representation "Y-3F" omitted. See Appendix."
"Graphic representation "Y-4F" omitted. See Appendix."
"Graphic representation "Y-5F" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on September 1, 1994 to August 31, 1999, compared to the EAFE and the
LIFI.**
- --------------------------------------------------------------------
+Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The EAFE and the LIFI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The EAFE is a market capitalization-weighted foreign securities
index, which is widely used to measure the performance of European,
Australian, New Zealand, and Far East stock markets. Lipper figures represent
the average of the total returns reported by all of the mutual funds
designated by Lipper as falling into the category indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
EAFE and the LIFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
Annual Report--Commentary
Marshall Government Income Fund
The Marshall Government Income Fund seeks to provide current income. Fund assets
are invested in securities issued by the U.S. government and its agencies and
instrumentalities, particularly mortgage-backed securities. The Fund will also
invest in dollar roll transactions. The Adviser considers macroeconomic
conditions and uses credit and market analysis in developing the overall
portfolio strategy. Current and historical interest rate relationships are used
to evaluate market sectors and individual securities. The Fund generally
maintains an average dollar-weighted maturity of four to 12 years.
Fund performance
For the 12 months ended August 31, 1999, the Fund provided a total return of
0.62%,* compared to a return of 0.49% by the Lipper U.S. Mortgage Funds Index
(LUSMI)** and 1.85% provided by the Lehman Brothers Mortgage-Backed Securities
Index (LMI).**
Inflation concerns increase
During the last 12 months, the Federal Reserve Board (the "Fed") has moved the
target for the fed funds rate five separate times. Last fall, the Fed lowered
the target rate three times totaling 0.75%, and this summer the Fed increased
the target rate two times by a total of 0.50%. Last fall, 30-year rates bottomed
at 4.72% and mortgage prepayments reached a record high. By the end of August
1999, prepayments had fallen significantly and 30-year rates increased to 6.07%.
Obviously, the Fed actions had a significant impact on interest rates, but a net
(0.25%) change in fed funds doesn't explain the 0.81% increase in 30-year rates
over the last year. The increase in rates over the last year is mainly due to
the acceleration in commodity prices, the recovery of many foreign economies,
and the fear that a very low unemployment rate (4.2%) will increase wages.
Technicals outweighed fundamentals
Technicals (supply & demand) also played a significant role in determining bond
returns over the last year. During 1999, we witnessed the continued reversal of
the "flight to quality" as investors preferred to reallocate money to the equity
markets by selling U.S. Treasuries and, thereby, pushing rates higher.
Mortgage-backed securities (MBS) benefited from the rising rates and lower
prepayments through the beginning of May 1999, allowing them to outperform U.S.
Treasuries. However, even as the fundamentals continued to be favorable, the
increased supply of non-Treasury securities and fear of potential Y2K problems
caused MBS to underperform from May through August 1999.
Maintain current strategy
Over the next six months, we will continue to be conservative and anticipate
keeping the interest rate sensitivity of the Fund equal to or less than the
mortgage index. We expect the next move by the Fed will be to increase the fed
funds rate, but we would not be surprised if they waited until next year. As
long as the foreign markets continue their recovery and U.S. equity markets do
not experience significant declines, we believe that interest rates will
continue to move higher over the next six months. Even though we do not
anticipate any significant problems related to Y2K, we will continue to
emphasize the highest quality and most liquid sectors within the Fund. We
believe that MBS represent excellent value compared to U.S. Treasuries and we
have positioned the portfolio to benefit from this relative value, as the market
will again focus on the fundamentals as we begin the next century.
Sincerely,
Joseph M. Cullen, CFA
Manager, Marshall Government Income Fund
[PHOTO OF JOSEPH M. CULLEN]
[_] Marshall Government Income Fund
"Graphic representation "Y-1G" omitted. See Appendix."
"Graphic representation "Y-2G" omitted. See Appendix."
"Graphic representation "Y-3G" omitted. See Appendix."
"Graphic representation "Y-4G" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on December 13, 1992 to August 31, 1999, compared to the LMI and the
LUSMI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The LMI and the LUSMI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The LMI is an index comprised of fixed rate securities backed by
mortgage pools of the Government National Mortgage Association (GNMA), Federal
Home Loan Mortgage Corp. (FHLMC) and the Federal National Mortgage Association
(FNMA). Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper as falling into the category
indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LMI and the LUSMI have been adjusted to reflect reinvestment of dividends on
securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
Annual Report--Commentary
Marshall Intermediate Bond Fund
The Marshall Intermediate Bond Fund seeks to maximize total return consistent
with current income. Fund assets are invested in intermediate-term investment
grade bonds and notes, including corporate, asset-backed, mortgage-backed and
U.S. government securities. The Adviser's strategy to achieve total return is to
adjust the Fund's weightings in these sectors as it deems appropriate. The
Adviser uses macroeconomic, credit and market analysis to select portfolio
securities. The Fund maintains an average dollar-weighted maturity of three to
10 years.
Bonds performed poorly during the latest fiscal year ended August 31, 1999 as
rising interest rates pushed prices lower. Interest rates climbed in response to
a strong U.S. economy and a recovery in global financial markets. The Federal
Reserve Board (the "Fed") tightened monetary policy twice to repeal the
accommodative stance that remained from last year's liquidity campaign. For
investors in U.S. Treasury securities, this meant bonds with maturities longer
than five years posted negative returns. Corporate and mortgage securities
performed even worse.
The liquidity crisis that gripped the markets in the final months of 1998
punished corporate bond investors. The Fund's fiscal year ended August 31, 1999
return of 1.28%* versus 2.20% for the Lehman Brothers Intermediate
Government/Corporate Bond Index (LGCI)** is a reflection of the Fund's
allocation to this sector.
From a strategic standpoint, we continue to favor a somewhat defensive posture
on interest rates. While rates have risen dramatically, they are rising from
artificially low levels. Economic strength in the U.S. and a recovery in markets
abroad have fueled concerns over rising commodity prices, labor shortages, a
weak U.S. dollar, and a potential "asset bubble" in U.S. stock prices. The Fed
is on heightened alert. We continue to favor high quality corporate and asset
backed securities instead of U.S. Treasuries. Last year's crisis pushed
valuations on corporate bonds to extremes and relentless supply on the part of
corporate treasurers has held them there. We believe they offer tremendous value
and ultimately investors should be rewarded for employing strategies that
enhance yield.
Sincerely,
/s/ Mark D. Pittman
Mark D. Pittman
Manager, Marshall Intermediate Bond Fund
[PHOTO OF MARK D. PITTMAN]
[_] Marshall Intermediate Bond Fund
"Graphic representation "Y-1H" omitted. See Appendix."
"Graphic representation "Y-2H" omitted. See Appendix."
"Graphic representation "Y-3H" omitted. See Appendix."
"Graphic representation "Y-4H" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class Y
Shares of the Fund from
inception on November 23, 1992 to August 31, 1999, compared to the LGCI and the
LSIBF.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The LGCI and the LSIBF are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The LGCI is an index comprised of government and corporate bonds
rated BBB or higher with maturities between 1-10 years. Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper as falling into the category indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LGCI and the LSIBF have been adjusted to reflect reinvestment of dividends on
securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
Annual Report--Commentary
+Income may be subject to state and local taxes.
Marshall Intermediate Tax-Free Fund
The Marshall Intermediate Tax-Free Fund seeks to provide a high level of current
income that is exempt from federal income tax and is consistent with
preservation of capital. Fund assets are invested in investment-grade municipal
securities, which includes debt obligations of states, territories and
possessions of the U.S. and political subdivisions and financing authorities of
these entities that provide income 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.
The primary goal of the Fund is to generate income exempt from federal income
tax.+ For the past twelve months, shareholders have also been subject to an
unstable bond market. Municipal interest rate levels have generally risen
between 50 and 75 basis points (0.5% to 0.75%). Consequently, most bond
investors have been disappointed with the recent performance of their bond fund
holdings.
Fund performance
For the 12-month period ended August 31, 1999, the Fund provided a total return
of 0.02%*, compared to the market as represented by the Lipper Intermediate
Municipal Funds Index (LIMI)** return of 0.25%. The Lehman Brothers 7-Year
General Obligations Index (L7GO)** reported a twelve-month return of 1.46%.
Municipal bonds: attractive over the long-term
The municipal bond market has become attractive for those investors wanting to
reduce their exposure to the risks of the equities market. Recently, stock
market declines have triggered municipal bond markets to rally. Given the still
lofty valuations of the equity market, we expect continued diversification from
equities will provide additional support to the municipal bond market.
Strong economy creates strong credit quality
From a fiscal perspective, municipal issuers have rarely been healthier.
Continued economic prosperity leads to higher levels of tax revenue collection,
and credit rating agencies have noticed. For the last three years, the number of
credit rating upgrades has far exceeded the number of downgrades. For municipal
issuers, the prolonged expansion allows for a cushion to be built to withstand
the next economic slowdown. The strong economy also can mask the underlying
problems of some issuers. We continue to believe municipal investors are not
rewarded with enough extra yield to invest in lower rated investment grade
securities. For this reason, the Fund expects to maintain an average quality
rating of AA or higher.
Higher levels of credit quality also may be considered prudent due to Y2K fears.
Though likely overblown, any temporary stresses will likely be handled
effectively by issuers looking to protect stellar bond ratings.
Inflation keeps the bond market in check
Venturing into longer maturities may add yield to the portfolio, but only will
be a viable strategy when the bond market senses that inflation will not rise
faster than current measures indicate. For now, some inflationary indicators
have trended higher, a side-effect of the robust domestic economy. Whenever
inflation creeps higher, overall bond market yields rise as well.
For shareholders willing to ride the inevitable ups and downs of the overall
bond market, we expect municipal bonds to benefit high tax-bracket investors
beyond opportunities in other sectors of the bond market.
Sincerely,
/s/ John D. Boritzke
John D. Boritzke
Manager, Marshall Intermediate Tax-Free Fund
[PHOTO OF JOHN D. BORITZKE]
[_] Marshall Intermediate Tax-Free Fund
"Graphic representation "Y-1I" omitted. See Appendix."
"Graphic representation "Y-2I" omitted. See Appendix."
"Graphic representation "Y-3I" omitted. See Appendix."
"Graphic representation "Y-4I" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Fund from
inception on February 2, 1994 to August 31, 1999, compared to the LIMI and
L7GO.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The LIMI and the L7GO are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The L7GO is an index comprised of general obligation bonds rated
A or better with maturities between six and eight years. Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper as falling into the category indicated.
***Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LIMI and the L7GO have been adjusted to reflect reinvestment of dividends on
securities in the indices.
++Duration is a commonly used measure of the potential volatility of a debt
security, or the aggregate market value of a portfolio of debt securities
prior to maturity. Securities with longer durations generally have more
volatile prices than securities of comparable quality with shorter durations.
Annual Report--Commentary
Marshall Short-Term Income Fund
The Marshall Short-Term Income Fund seeks to maximize total return consistent
with current income. Fund assets are invested in short- to intermediate-term
investment grade bonds and notes, including corporate, asset-backed,
mortgage-backed and U.S. government securities. The Adviser changes the Fund's
weightings in these sectors as it deems appropriate and uses macroeconomic,
credit and market analysis to select portfolio securities. The Fund maintains an
average dollar-weighted maturity of six months to three years.
Interest rates moved higher during the latest fiscal year, depressing bond
returns. Rates rose as the global financial markets recovered and the bond
market began the process of unwinding the massive "flight to quality" that
pushed rates to artificial lows. The Fund's defensive posture helped it perform
relative to its peers. For the fiscal year ended August 31, 1999, the Fund
returned 3.59%,* versus 3.34% for the Lipper Short-Term Investment Grade Bond
Fund Index (LSTIBI).**
The Federal Reserve Board (the "Fed") acted promptly in 1998 to add liquidity
necessary to save global financial turmoil. World markets have since calmed and
are making significant gains. After re-focusing on the U.S. economy, the Fed has
expressed concern over the potential for an "asset bubble" in stock prices, an
excessively tight labor market, and surging commodity prices. In response, it
has acted twice to repeal its accommodative stance by tightening monetary
policy.
From a strategic standpoint, we continue to favor a somewhat defensive posture
on interest rates. We likely witnessed secular lows in inflation and interest
rates last year. With the Fed on heightened alert, the base case suggests a
drift towards higher rates. We continue to favor high quality corporate and
asset backed securities instead of U.S. Treasuries. Last year's crisis pushed
valuations on corporate bonds to extremes and relentless supply on the part of
corporate treasurers has held them there. We believe they offer tremendous value
and ultimately investors will be rewarded for employing strategies that enhance
yield.
Sincerely,
/s/ Mark D. Pittman
Mark D. Pittman
Manager, Marshall Short-Term Income Fund
[PHOTO OF MARK D. PITTMAN]
[_] Marshall Short-Term Income Fund
"Graphic representation "Y-1J" omitted. See Appendix."
"Graphic representation "Y-2J" omitted. See Appendix."
"Graphic representation "Y-3J" omitted. See Appendix."
"Graphic representation "Y-4J" omitted. See Appendix."
The graph illustrates the hypothetical investment of $10,000 in the Fund from
inception on November 1, 1992 to August 31, 1999, compared to LSTIBI, DMFA and
ML13.**
- --------------------------------------------------------------------------------
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The LSTIBI, DMFA and ML13 are not adjusted to reflect sales charges, expenses
or other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The IBC/Donoghue's Money Fund Report(TM) publishes annualized
yields of hundreds of money market funds on a weekly basis and through its
Money Market Insight publication reports monthly and year-to-date investment
results for the same money market funds. Merrill Lynch 1-3 Year U.S.
Government/Corporate Index is an index tracking short-term U.S. government
and corporate securities with maturities between 1 and 2.99 years. The index
is produced by Merrill Lynch Pierce Fenner & Smith. Lipper figures represent
the average of the total returns reported by all of the mutual funds
designated by Lipper as falling into the category indicated. The investment
adviser has elected to change the benchmark of the Fund from the DMFA to the
ML13. The ML13 is more representative of the securities typically held by the
Fund.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LSTIBI, DMFA and ML13 have been adjusted to reflect reinvestment of
dividends on securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
Annual Report--Commentary
Marshall Money Market Fund
The Marshall Money Market Fund seeks to provide current income consistent with
stability of principal. Fund assets are invested in high quality, short-term
money market instruments.* In order to produce income which minimizes
volatility, the Adviser uses a "bottom-up" approach which evaluates debt
securities of individual companies against the context of broader market factors
such as the cyclical trend in interest rates, the shape of the yield curve and
debt security supply factors.
Although the Fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Fund.
Fund Performance
For the six months ended August 31, 1999 the Fund provided a total return of
2.40%.** This compares to 2.23% for the IBC Donoghue's Taxable Money Fund
Average and 2.26% for the Lipper Money Market Funds Index.*** For the 12 months
ended August 31, 1999, the Fund returned 4.98%.** This compares to 4.59% for IBC
Donoghue's Taxable Money Fund Average and 4.69% for the Lipper Money Market
Funds Index. As of August 31, 1999, the 7-day net yield was 4.92%.**
As we ended the fiscal year, short-term interest rates were pushed higher by the
Federal Reserve Board (the "Fed") in an effort to slow economic growth. The
overnight fed funds target rate has been raised twice for a total of 50 basis
points to 5.25%. After their last meeting, the Fed stated that it felt that the
decrease in rates that we saw in 1998 to counteract financial problems in Asia
was no longer needed. With the rebound in many of the foreign economies, the Fed
can focus on domestic demand and tight labor markets. By most measures the
domestic economy continues to perform well. Durable goods orders are strong, new
home sales, while off their peaks, are robust, and consumer confidence remains
healthy.
While inflation remains low, the best days for this area may be over. The last
several months have seen an increase in the prices of many commodities. Oil has
risen from $15 to over $22 a barrel, causing large increases in the price of
unleaded gasoline. One measure of commodities prices, the CRB/Bridge Futures
Price Index,++ has risen substantially over the last few months. Labor remains
the largest part of the cost of finished goods. With the unemployment rate
running at a low 4.2%, many economists are worried that employment costs could
escalate thereby driving up consumer prices.
While the economy remains strong and inflation is bouncing off the lows, the Fed
may not tighten rates for the rest of the year. Monetary policy takes several
months to have an effect on the economy and the Fed has the time to see if
previous rate hikes have the desired effect. Also, many market participants
believe the Fed will try to calm any worries about the new calendar year by
remaining quiet and supplying the needed liquidity to the financial markets. It
remains to be seen if the economy can slow on its own or if it will take
additional tightening by the Fed.
Sincerely,
/S/ Richard M. Rokus
Richard M. Rokus
Manager, Marshall Money Market Fund
[PHOTO OF RICHARD M. ROKUS]
"Graphic representation "Y-K" omitted. See Appendix."
* An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although money market funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
** Performance quoted represents past performance and is not indicative of
future results. Yields will vary. Yields quoted for money market funds most
closely reflect the Fund's current earnings.
*** IBC/Donoghue's Money Fund Report(TM) publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper as falling into the
category indicated.
+ The 7-day net annualized yield is based on the average net income per share
for the 7 days ended on the date of calculation and the offering price on
that date. The 7-day effective yield is annualized and reflects daily
compounding of the 7-day net yield.
++ The CRB/Bridge Futures Price Index is an unweighted geometric average of
commodity price levels relative to the base year average price. This index
is unmanaged, and investments cannot be made in an index.
Shareholder Meeting Results
A Special Meeting of Shareholders of Marshall Funds, Inc. (the "Corporation"),
was held on May 24, 1999. On March 29, 1999, the record date for shareholders
voting at the meeting, there were 2,120,444,929 total outstanding shares
(33,096,636 total outstanding shares for Marshall Equity Income Fund; 22,890,108
total outstanding shares for Marshall Large-Cap Growth & Income Fund; 12,177,023
total outstanding shares for Marshall Mid-Cap Value Fund; 16,711,096 total
outstanding shares for Marshall Mid-Cap Growth Fund; 8,725,155 total outstanding
shares for Marshall Small-Cap Growth Fund; 18,213,876 total outstanding shares
for Marshall International Stock Fund; 31,920,654 total outstanding shares for
Marshall Government Income Fund; 63,371,757 total outstanding shares for
Marshall Intermediate Bond Fund; 10,966,302 total outstanding shares for
Marshall Intermediate Tax-Free Fund; 14,068,146 total outstanding shares for
Marshall Short-Term Income Fund; and 1,888,304,176 total outstanding shares for
Marshall Money Market Fund). The following items were considered by shareholders
of the Funds and the results of their voting were as follows:
AGENDA ITEM 1: To elect six Directors--all Funds voting together.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For Authority
------------ ---------------
<S> <C> <C>
Barbara J. Pope 178,375,657 858,071
James Mitchell 178,230,273 1,003,491
Duane E. Dingmann 178,093,568 1,140,196
John DeVincentis 178,084,297 1,149,467
John M. Blaser 177,967,928 1,265,836
David W. Schulz 177,175,936 2,057,828
</TABLE>
- --------------------------------------------------------------------------------
AGENDA ITEM 2: To ratify the selection of Arthur Andersen LLP as the
Corporation's independent public accountants--each Fund voting separately.
The results of shareholders voting were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares
Fund For Against Abstaining
- ---- ------------ ------------ ----------
<S> <C> <C> <C>
Marshall Equity Income Fund 440,609 12,249 8,099
Marshall Large-Cap Growth & Income
Fund 1,369,794 4,264 46,158
Marshall Mid-Cap Value Fund 158,909 908 3,681
Marshall Mid-Cap Growth Fund 262,096 1,291 5,065
Marshall Small-Cap Growth Fund 104,420 1,327 4,503
Marshall International Stock Fund 996,494 2,854 11,635
Marshall Government Income Fund 810,647 13,119 18,880
Marshall Intermediate Bond Fund 482,185 47 7,991
Marshall Intermediate Tax-Free Fund 142,650 -- 761
Marshall Short-Term Income Fund 223,220 7,009 24,671
Marshall Money Market Fund 172,597,765 325,854 1,144,599
</TABLE>
- --------------------------------------------------------------------------------
AGENDA ITEM 3: To approve an amendment to the Fund's fundamental investment
objective--Marshall Mid-Cap Value Fund only.
The results of shareholders voting were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares
For Against Abstaining
- ------------ ------------ ----------
<S> <C> <C>
156,180 3,939 3,379
</TABLE>
- --------------------------------------------------------------------------------
AGENDA ITEM 4: To approve the Sub-Advisory Contract between M&I Investment
Management Corp. and BPI Global Asset Management LLP, on behalf of the Fund--
Marshall International Stock Fund only.
The results of shareholders voting were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares
For Against Abstaining
- ------------ ------------ ----------
<S> <C> <C>
990,633 8,847 11,503
</TABLE>
- --------------------------------------------------------------------------------
Portfolio of Investments
- --------------------------------------------------------------------------------
Equity Income Fund
<TABLE>
------------------------------------------------------
<CAPTION>
Shares Description Value
------------------------------------------------------
<C> <S> <C>
Common Stocks -- 97.6%
Capital Goods -- 3.8%
Aerospace & Defense -- 1.6%
120,000 Lockheed Martin Corp. $4,440,000
20,500 Northrop Grumman Corp. 1,486,250
33,000 Textron, Inc. 2,664,750
----------
Total 8,591,000
Building Materials -- 0.9%
50,000 Armstrong World Industries, Inc. 2,428,125
97,000 Masco Corp. 2,746,313
----------
Total 5,174,438
Electrical Equipment -- 0.9%
75,000 Emerson Electric Co. 4,696,875
Office Products -- 0.4%
45,000 (1)Xerox Corp. 2,148,750
----------
Total Capital Goods 20,611,063
Consumer Durables -- 7.4%
Automotive & Related -- 4.0%
72,000 Dana Corp. 3,136,500
82,000 Delphi Auto Systems Corp. 1,537,500
171,000 Ford Motor Co. 8,913,375
59,900 General Motors Corp. 3,960,887
30,100 Johnson Controls, Inc. 2,058,088
38,000 TRW, Inc. 2,071,000
----------
Total 21,677,350
Household Product/Wares -- 1.9%
82,000 Clorox Co. 3,710,500
68,000 Procter & Gamble Co. 6,749,000
----------
Total 10,459,500
Manufacturing -- 0.8%
60,000 Whirlpool Corp. 4,241,250
Personal Care -- 0.7%
76,000 Gillette Co. 3,543,500
----------
Total Consumer Durables 39,921,600
Consumer Non-Durables -- 22.6%
Beverages & Foods -- 5.7%
126,000 Archer-Daniels-Midland Co. 1,638,000
45,000 BestFoods 2,210,625
52,000 Campbell Soup Co. 2,297,750
225,000 ConAgra, Inc. 5,512,500
45,000 Heinz (H.J.) Co. 2,100,938
105,000 International Multifoods Corp. 2,382,187
100,000 Nabisco Group Holdings Corp. 1,775,000
180,000 PepsiCo, Inc. 6,142,500
70,000 Ralston Purina Co. 1,925,000
125,000 Sara Lee Corp. 2,773,438
26,874 (1)Unilever NV, ADR 1,850,947
----------
Total 30,608,885
Health Care -- 11.7%
190,000 Abbott Laboratories 8,241,250
182,100 American Home Products Corp. 7,557,150
175,000 Baxter International, Inc. 11,735,937
141,600 Bristol-Myers Squibb Co. 9,965,100
135,000 (1)Glaxo Wellcome PLC, ADR 7,146,563
83,000 Lilly (Eli) & Co. 6,193,875
106,200 Merck & Co., Inc. 7,135,312
70,000 Warner-Lambert Co. 4,637,500
----------
Total 62,612,687
</TABLE>
<TABLE>
----------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Non-Durables (continued)
Lodging -- 0.4%
89,000 Starwood Hotels & Resorts Worldwide, Inc. $2,119,313
Photography -- 0.6%
48,000 Eastman Kodak Co. 3,525,000
Retail -- 0.9%
40,000 Albertsons, Inc. 1,917,500
35,700 May Department Stores Co. 1,394,531
34,000 Sears, Roebuck & Co. 1,275,000
-----------
Total 4,587,031
Tobacco -- 3.3%
300,000 Philip Morris Cos., Inc. 11,231,250
212,000 UST, Inc. 6,717,750
-----------
Total 17,949,000
-----------
Total Consumer Non-Durables 121,401,916
Energy -- 17.8%
Domestic & International Oil -- 16.4%
100,000 Atlantic Richfield Co. 8,793,750
91,000 (1)BP Amoco PLC, ADR 10,203,375
25,000 Chevron Corp. 2,306,250
100,000 (1)Conoco, Inc., Class A 2,675,000
229,300 Exxon Corp. 18,086,037
85,200 Mobil Corp. 8,722,350
100,000 Occidental Petroleum Corp. 2,168,750
219,600 (1)Royal Dutch Petroleum Co., ADR 13,587,750
192,200 Texaco, Inc. 12,204,700
307,500 USX-Marathon Group 9,570,937
-----------
Total 88,318,899
Oil Refining -- 1.4%
80,000 Sunoco, Inc. 2,605,000
91,100 Ultramar Diamond Shamrock Corp. 2,379,988
130,100 Valero Energy Corp. 2,764,625
-----------
Total 7,749,613
-----------
Total Energy 96,068,512
Financial -- 20.6%
Banks -- 12.4%
128,500 Bank One Corp. 5,156,062
96,300 Bank of New York Co., Inc. 3,442,725
185,283 BankAmerica Corp 11,209,621
50,000 BankBoston Corp. 2,321,875
138,000 Chase Manhattan Corp. 11,548,875
52,000 (1)First American Corp. 2,086,500
123,000 First Union Corp. 5,104,500
120,400 Fleet Financial Group, Inc. 4,793,425
92,000 KeyCorp 2,668,000
76,000 Mellon Bank Corp. 2,536,500
80,000 U.S. Bancorp, Inc. 2,470,000
129,000 Washington Mutual, Inc. 4,095,750
230,000 (1)Wells Fargo Co. 9,156,875
-----------
Total 66,590,708
Financial Services -- 1.7%
104,000 Fannie Mae 6,461,000
64,000 Household International, Inc. 2,416,000
-----------
Total 8,877,000
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Equity Income Fund (continued)
<TABLE>
--------------------------------------------------------------
<CAPTION>
Shares Description Value
--------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Financial (continued)
Insurance -- 4.7%
115,000 Ace, Ltd. $2,465,312
148,000 Allstate Corp. 4,856,250
71,100 CIGNA Corp. 6,385,669
82,800 Hartford Financial Services Group, Inc. 3,762,225
30,000 Lincoln National Corp. 1,406,250
33,000 Marsh & McLennan Cos., Inc. 2,402,813
65,000 Reliastar Financial Corp. 2,929,063
29,200 SAFECO Corp. 1,040,250
-----------
Total 25,247,832
Real Estate Investment Trust -- 1.8%
53,000 Duke Realty Investments, Inc. 1,189,188
70,000 Equity Office Properties Trust 1,789,375
68,000 Equity Residential Properties Trust 2,992,000
151,140 Public Storage, Inc. 3,929,640
-----------
Total 9,900,203
-----------
Total Financial 110,615,743
Raw Materials/Intermediate Goods -- 4.6%
Chemicals -- 0.7%
51,000 Air Products & Chemicals, Inc. 1,734,000
61,300 Goodrich (B.F.) Co. 2,264,269
-----------
Total 3,998,269
Metals -- 0.8%
35,000 Reynolds Metals Co. 2,215,938
70,000 USX-U.S. Steel Group, Inc. 1,890,000
-----------
Total 4,105,938
Paper -- 3.1%
106,000 (1)Abitibi-Consolidated, Inc. 1,258,750
75,000 Bowater, Inc. 4,021,875
52,200 Consolidated Papers, Inc. 1,389,825
110,000 Kimberly-Clark Corp. 6,263,125
101,000 (1)Mead Corp. 3,768,562
-----------
Total 16,702,137
-----------
Total Raw Materials/ Intermediate Goods 24,806,344
Utilities -- 20.8%
Electric -- 5.7%
105,000 CMS Energy Corp. 4,154,062
121,600 Duke Energy Corp. 6,992,000
40,000 Edison International 1,015,000
54,000 FPL Group, Inc. 2,916,000
98,600 NiSource, Inc. 2,341,750
164,300 Pinnacle West Capital Corp. 6,243,400
104,000 Southern Co. 2,814,500
102,700 Texas Utilities Co. 4,152,931
-----------
Total 30,629,643
Gas Distribution -- 3.0%
43,000 Columbia Energy Group 2,539,688
32,000 Consolidated Natural Gas Co. 2,038,000
68,200 Enron Corp. 2,855,875
100,000 Sonat, Inc. 3,612,500
67,800 WICOR, Inc. 1,983,150
75,000 Williams Cos., Inc. (The) 3,093,750
-----------
Total 16,122,963
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Utilities (continued)
Telecommunications -- 12.1%
327,500 (1)AT&T Corp. $14,737,500
76,000 Alltel Corp. 5,139,500
68,000 Ameritech Corp. 4,292,500
95,000 (1)Bell Atlantic Corp. 5,818,750
229,000 GTE Corp. 15,715,125
285,560 SBC Communications, Inc. 13,706,880
106,000 U.S. West, Inc. 5,538,500
------------
Total 64,948,755
------------
Total Utilities 111,701,361
------------
Total Common Stocks (identified cost $417,224,956) 525,126,539
(2)Repurchase Agreement -- 1.9%
$10,054,577 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 10,054,577
------------
Total Investments (identified cost $427,279,533) $535,181,116
============
- -------------------------------------------------------------------------------
</TABLE>
Large-Cap Growth & Income Fund
<TABLE>
-----------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------
<C> <S> <C>
Common Stocks -- 90.7%
Basic Industries -- 4.2%
Chemicals -- 1.0%
65,000 Du Pont (E.I.) de Nemours & Co. $4,119,375
Paper -- 3.2%
100,000 Bowater, Inc. 5,362,500
136,800 Kimberly-Clark Corp. 7,789,050
----------
Total 13,151,550
----------
Total Basic Industries 17,270,925
Capital Goods -- 22.6%
Aerospace & Related -- 1.0%
92,300 Boeing Co. 4,182,344
Computer Services -- 8.1%
25,000 (3)America Online, Inc. 2,282,812
79,900 Compaq Computer Corp. 1,852,681
58,200 International Business Machines Corp. 7,249,537
157,000 (3)Microsoft Corp. 14,532,312
89,800 (3)Sun Microsystems, Inc. 7,139,100
----------
Total 33,056,442
Electrical Equipment -- 5.0%
119,600 General Electric Co. 13,432,575
70,000 Tyco International Ltd. 7,091,875
----------
Total 20,524,450
Electronics -- 8.5%
98,300 (3)Applied Materials, Inc. 6,985,444
142,400 (1)Intel Corp. 11,703,500
75,000 Micron Technology, Inc. 5,592,188
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Large-Cap Growth & Income Fund (continued)
<TABLE>
-----------------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Capital Goods (continued)
Electronics (continued)
111,800 Motorola, Inc. $10,313,550
-----------
Total 34,594,682
-----------
Total Capital Goods 92,357,918
Consumer Durables -- 2.0%
Automotive -- 1.2%
75,000 General Motors Corp. 4,959,375
Housewares -- 0.8%
75,000 Newell Rubbermaid, Inc. 3,075,000
-----------
Total Consumer Durables 8,034,375
Consumer Non-Durables -- 31.4%
Beverages & Foods -- 5.5%
95,000 (1)Coca-Cola Co. 5,682,187
139,000 PepsiCo, Inc. 4,743,375
50,000 Procter & Gamble Co. 4,962,500
105,100 (1)Quaker Oats Co. 7,021,994
-----------
Total 22,410,056
Broadcasting -- 0.9%
140,000 (1)(3)Infinity Broadcasting Corp., Class A 3,788,750
Consumer Cyclical -- 1.2%
100,800 (1)Nike, Inc., Class B 4,662,000
Drugs -- 4.2%
98,300 American Home Products Corp. 4,079,450
93,000 Merck & Co., Inc. 6,248,437
65,800 Schering Plough Corp. 3,458,612
51,100 (1)SmithKline Beecham Corp., ADR 3,257,625
-----------
Total 17,044,124
Entertainment -- 3.7%
104,400 Disney (Walt) Co. 2,897,100
140,000 Seagram Co. Ltd. 7,428,750
83,400 Time Warner, Inc. 4,946,663
-----------
Total 15,272,513
Health Care -- 1.2%
199,800 (1)Columbia/HCA Healthcare Corp. 4,920,075
Media -- 3.3%
95,900 Gannett Co., Inc. 6,515,206
179,400 New York Times Co., Class A 7,007,813
-----------
Total 13,523,019
Medical Supplies -- 4.2%
160,200 Abbott Laboratories 6,948,675
99,900 (1)Johnson & Johnson 10,214,775
-----------
Total 17,163,450
Retail -- 5.8%
125,000 (1)(3)Federated Department Stores, Inc. 5,750,000
84,500 (3)Kohl's Corp. 6,020,625
115,400 (1)(3)Safeway, Inc. 5,373,313
271,600 Walgreen Co. 6,297,725
-----------
Total 23,441,663
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Non-Durables (continued)
Tobacco -- 1.4%
156,700 Philip Morris Cos., Inc. $5,866,456
------------
Total Consumer Non-Durables 128,092,106
Energy -- 8.7%
International Oil & Gas -- 7.9%
75,000 Amerada-Hess Corp. 4,654,688
117,500 (1)Exxon Corp. 9,267,812
247,900 (1)Occidental Petroleum Corp. 5,376,331
120,300 (1)Royal Dutch Petroleum Co., ADR 7,443,562
83,300 Texaco, Inc. 5,289,550
------------
Total 32,031,943
Oil Services -- 0.8%
50,000 (1)Schlumberger Ltd. 3,337,500
------------
Total Energy 35,369,443
Financial -- 15.2%
Banks -- 5.3%
84,756 BankAmerica Corp. 5,127,738
170,400 Bank of New York Co., Inc. 6,091,800
62,200 Chase Manhattan Corp. 5,205,362
149,800 Mellon Bank Corp. 4,999,575
------------
Total 21,424,475
Insurance -- 2.9%
95,156 American International Group, Inc. 8,819,772
84,680 UNUMProvident Corp. 3,053,773
------------
Total 11,873,545
Other Financial -- 7.0%
48,800 American Express Co. 6,710,000
120,000 Citigroup, Inc. 5,332,500
80,000 Federal Home Loan Mortgage Corp. 4,120,000
150,000 Franklin Resources, Inc. 5,390,625
20,000 (3)Goldman Sachs Group, Inc. 1,196,250
135,000 MGIC Investment Corp. 5,864,063
------------
Total 28,613,438
------------
Total Financial 61,911,458
Utilities -- 6.6%
Telecommunications -- 6.6%
110,550 AT&T Corp. 4,974,750
92,900 Ameritech Corp. 5,864,313
85,800 GTE Corp. 5,888,025
64,900 (1)(3)MCI Worldcom, Inc. 4,916,175
111,700 (1)SBC Communications, Inc. 5,361,600
------------
Total 27,004,863
------------
Total Common Stocks (identified cost $226,026,610) 370,041,088
(2)Repurchase Agreement -- 8.4%
$34,311,205 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 34,311,205
------------
Total Investments (identified cost $260,337,815) $404,352,293
============
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
(See Notes to Portfolios of Investments)
- --------------------------------------------------------------------------------
Mid-Cap Value Fund
<TABLE>
-------------------------------------------------------------
<CAPTION>
Shares Description Value
-------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 95.8%
Capital Goods -- 13.8%
Aerospace & Defense -- 1.2%
20,600 Northrop Grumman, Corp. $1,493,500
Computer Services -- 1.0%
60,000 (3)Keane, Inc. 1,301,250
Computers -- 2.0%
227,500 (3)Silicon Graphics, Inc. 2,602,031
Electronics -- 4.0%
29,000 Avnet, Inc. 1,283,250
85,000 AVX Corp. 2,544,687
70,000 (3)Arrow Electronics, Inc. 1,391,250
----------
Total 5,219,187
Other Capital Goods -- 5.6%
52,500 Brady (W.H.) Co. 1,575,000
105,000 Cooper Tire & Rubber Co. 1,995,000
50,000 (3)Owens-Illinois, Inc. 1,237,500
65,000 Snap-On Tools Corp. 2,197,813
15,700 Steelcase, Inc., Class A 228,631
----------
Total 7,233,944
----------
Total Capital Goods 17,849,912
Consumer Durables -- 2.5%
Health Care -- 1.4%
90,000 (3)HCR Manor Care, Inc. 1,760,625
Household Product/Wares -- 1.1%
71,000 Jostens, Inc. 1,428,875
----------
Total Consumer Durables 3,189,500
Consumer Non-Durables -- 26.2%
Beverages & Foods -- 4.8%
39,900 Darden Restaurants, Inc. 623,437
150,000 International Multifoods Corp. 3,403,125
133,200 (3)Ralcorp Holdings, Inc. 2,181,150
----------
Total 6,207,712
Pharmaceuticals & Health Care -- 5.4%
100,000 (3)First Health Group Corp. 2,156,250
75,000 Mallinckrodt, Inc. 2,404,688
139,700 (1)(3)Tenet Healthcare Corp. 2,436,019
----------
Total 6,996,957
Retail -- 5.8%
40,000 (1)(3)Federated Department Stores, Inc. 1,840,000
35,100 (3)Lands' End, Inc. 1,768,163
40,000 (3)Payless ShoeSource, Inc. 1,995,000
65,000 Shopko Stores, Inc. 1,860,625
----------
Total 7,463,788
Services -- 7.8%
62,000 (3)Bell & Howell Group, Inc. 2,077,000
60,000 (1)Dun & Bradstreet Corp. 1,571,250
167,600 (1)Ikon Office Solutions, Inc. 1,864,550
99,500 (1)(3)Interim Services, Inc. 1,834,531
90,000 Viad Corp. 2,694,375
----------
Total 10,041,706
Tobacco -- 2.4%
96,000 UST, Inc. 3,042,000
----------
Total Consumer Non-Durables 33,752,163
</TABLE>
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Energy -- 11.9%
Oil & Gas Products -- 6.0%
90,000 Noble Affiliates, Inc. $2,790,000
73,320 USX-Marathon 2,282,085
64,500 Unocal Corp. 2,700,937
----------
Total 7,773,022
Oil Services -- 5.9%
67,000 (3)Cooper Cameron Corp. 2,788,875
166,000 (3)Rowan Companies, Inc. 3,091,750
50,000 Transocean Offshore, Inc. 1,700,000
----------
Total 7,580,625
----------
Total Energy 15,353,647
Financial -- 14.9%
Banking -- 3.9%
60,000 Amcore Financial, Inc. 1,312,500
60,000 Associated Banc Corp. 2,115,000
40,000 (1)First Midwest Bancorp, Inc. 1,595,000
----------
Total 5,022,500
Financial Services -- 1.7%
65,000 Deluxe Corp. 2,214,062
Insurance -- 4.4%
73,000 Ace, Ltd. 1,564,937
87,600 Everest Re Holdings, Inc. 2,430,900
60,400 Torchmark Corp. 1,721,400
----------
Total 5,717,237
Other Financial -- 4.9%
36,000 MGIC Investment Corp. 1,563,750
65,000 Radiant Group, Inc. 3,010,313
88,720 (1)Trizec Hahn Corp. 1,730,040
----------
Total 6,304,103
----------
Total Financial 19,257,902
Raw Materials/Intermediate Goods -- 14.0%
Chemicals -- 6.8%
125,000 Agrium, Inc. 1,265,625
50,000 Ferro Corp. 1,200,000
30,000 Fuller (H.B.) Co. 1,807,500
48,150 (1)Imperial Chemical Industries, PLC, ADR 2,202,862
100,000 Millennium Chemicals, Inc. 2,300,000
----------
Total 8,775,987
Intermediate Goods -- 1.9%
59,327 Hanson PLC, ADR 2,513,982
Paper & Related Products -- 4.2%
175,000 (1)Abitibi-Consolidated, Inc. 2,078,125
71,000 Consolidated Papers, Inc. 1,890,375
39,800 Mead Corp. 1,485,038
----------
Total 5,453,538
Steel -- 1.1%
50,000 USX-U.S. Steel Group, Inc. 1,350,000
----------
Total Raw Materials/Intermediate Goods 18,093,507
Telecommunications -- 3.7%
Services -- 3.7%
44,410 (3)AT&T Corp.-Liberty Media Group, Inc., Class A 1,421,120
47,500 Telephone and Data System, Inc. 3,301,250
----------
Total Telecommunications 4,722,370
</TABLE>
Portfolio of Investments
- --------------------------------------------------------------------------------
Mid-Cap Value Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Transportation -- 3.4%
Other Transportation -- 2.1%
112,680 Alexander and Baldwin, Inc. $2,725,448
Rails -- 1.3%
25,000 (1)Canadian National Railway Co. 1,589,063
------------
Total Transportation 4,314,511
Utilities -- 5.4%
Electric -- 3.7%
75,000 Edison International 1,903,125
75,000 Pinnacle West Capital Corp. 2,850,000
------------
Total 4,753,125
Electric Distribution -- 1.7%
95,000 NiSource, Inc. 2,256,250
------------
Total Utilities 7,009,375
------------
Total Common Stocks (identified cost $107,094,312) 123,542,887
(2)Repurchase Agreement -- 5.8%
$7,481,048 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 7,481,048
------------
Total Investments (identified cost $114,575,360) $131,023,935
============
- ------------------------------------------------------------------------------
</TABLE>
Mid-Cap Growth Fund
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 95.0%
Capital Goods -- 31.4%
Computer Services -- 2.7%
150,000 (3)FIserv, Inc. $4,621,875
80,000 (3)Transaction Systems Architects, Inc., Class A 2,355,000
70,000 (1)(3)ZDNet 1,058,750
----------
Total 8,035,625
Computers -- 3.4%
130,000 (1)(3)Lexmark Intl. Group, Class A 10,237,500
Electrical Equipment -- 1.4%
125,000 (1)Molex, Inc. 4,007,813
Semi-Conductor -- 8.6%
125,000 (3)Altera Corp. 5,265,625
85,000 (3)Conexant Systems, Inc. 6,109,375
110,000 (3)Teradyne, Inc. 7,486,875
100,000 (1)(3)Vitesse Semiconductor Corp. 6,800,000
----------
Total 25,661,875
Technology -- 15.3%
90,000 (3)CommScope, Inc. 3,099,375
25,000 (3)Gemstar International Group Ltd. 1,725,000
125,000 (3)General Instrument Corp. 6,148,438
25,000 (3)Inktomi Corp. 2,834,375
55,000 (1)(3)Intuit, Inc. 4,925,938
100,000 (3)Jabil Circuit, Inc. 4,481,250
</TABLE>
<TABLE>
-----------------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Capital Goods (continued)
Technology (continued)
100,000 (1)(3)JDS Uniphase Corp. $10,606,250
60,000 (1)(3)SDL, Inc. 4,912,500
75,000 (3)Veritas Software Corp. 4,443,750
50,000 (3)Verity, Inc. 2,437,500
-----------
Total 45,614,376
-----------
Total Capital Goods 93,557,189
Consumer Non-Durables -- 44.0%
Broadcasting -- 13.7%
125,000 (1)(3)American Tower Systems Corp. 2,843,750
125,000 (3)AMFM, Inc. 6,156,250
100,000 (3)Cox Radio, Inc., Class A 5,300,000
100,000 (3)Crown Castle International Corp. 1,512,500
100,000 (3)Cumulus Media, Inc., Class A 2,787,500
120,000 (3)Hispanic Broadcasting Corp. 8,970,000
125,000 (1)(3)Infinity Broadcasting Corp., Class A 3,382,813
110,000 (3)USA Networks, Inc. 4,936,250
125,000 (3)Westwood One, Inc. 4,796,875
-----------
Total 40,685,938
Collectibles -- 0.5%
125,000 (3)The Boyds Collection, Ltd. 1,679,688
Drugs -- 3.3%
50,000 (3)Biogen, Inc. 3,837,500
100,000 (3)Forest Labratories, Inc., Class A 4,843,750
175,000 (3)North American Vaccine, Inc. 1,203,125
-----------
Total 9,884,375
Health Care -- 2.3%
50,000 (1)(3)CareInsite, Inc. 2,387,500
50,000 (3)VISX, Inc. 4,525,000
-----------
Total 6,912,500
Leisure & Recreation -- 8.7%
125,000 Harley Davidson, Inc. 6,812,500
175,000 (1)Royal Caribbean Cruises, Ltd. 8,192,188
125,000 (1)(3)Speedway Motorsports, Inc. 4,664,063
220,000 (3)Steiner Leisure Ltd. 6,132,500
-----------
Total 25,801,251
Lodging -- 1.4%
90,000 (1)Four Seasons Hotels, Inc. 4,050,000
Publishing -- 0.5%
75,000 (1)(3)Playboy Enterprises, Inc., Class B 1,579,688
Restaurants -- 1.7%
125,000 (1)(3)Papa Johns International, Inc. 4,968,750
Retail -- 11.9%
175,000 (3)99 Cents Only Stores 6,300,000
90,000 (3)Abercrombie & Fitch Co., Class A 3,138,750
150,000 (3)Bed Bath & Beyond, Inc. 4,125,000
100,000 (3)Best Buy Co., Inc. 7,025,000
150,000 (3)Kohl's Corp. 10,687,500
175,000 (3)Rayovac Corp. 4,112,500
-----------
Total 35,388,750
-----------
Total Consumer Non-Durables 130,950,940
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Financial -- 8.4%
Banks -- 2.7%
100,000 First Tennessee National Corp. $3,200,000
100,000 (1)Zions Bancorp 4,975,000
------------
Total 8,175,000
Financial Services -- 1.7%
125,000 (1)PaineWebber Group, Inc. 4,906,250
Insurance -- 1.8%
100,000 Ambac Financial Group, Inc. 5,281,250
Other Financial -- 2.2%
150,000 MGIC Investment Corp. 6,515,625
------------
Total Financial 24,878,125
Telecommunications -- 7.6%
75,000 (1)(3)Adelphia Communications Corp., Class A 4,650,000
100,000 (3)Allegiance Telecom, Inc. 6,012,500
200,000 (3)Tellabs, Inc. 11,912,500
------------
Total Telecommunications 22,575,000
Utilities -- 3.6%
Oil & Gas -- 3.6%
125,000 (3)Nabors Industries, Inc. 3,398,438
125,000 (3)Noble Drilling Corp. 3,078,125
100,000 Williams Cos., Inc. (The) 4,125,000
------------
Total Utilities 10,601,563
------------
Total Common Stocks (identified cost $216,033,557) 282,562,817
Corporate Bonds -- 1.3%
Consumer Non-Durables -- 1.3%
Health Care -- 1.3%
$4,400,000 Sunrise Assisted Living, Inc., Sub. Note, 5.50%,
6/15/2002 (identified cost $4,382,835) 4,036,028
(4)U.S. Treasury Bill -- 0.2%
500,000 11/18/1999 (identified cost $495,006) 494,990
------------
Total Investments in Securities (identified cost
$220,911,398) 287,093,835
(2)Repurchase Agreement -- 3.3%
9,892,476 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 9,892,476
------------
Total Investments (identified cost $230,803,874) $296,986,311
============
</TABLE>
- --------------------------------------------------------------------------------
Small-Cap Growth Fund
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 93.4%
Capital Goods -- 30.3%
Computer Services -- 7.0%
65,000 (3)Cheap Tickets, Inc. $2,405,000
75,000 (3)Diamond Technology Partners, Class A 2,484,375
50,000 (3)Transaction Systems Architects, Inc., Class A 1,471,875
60,000 (3)ZDNet 907,500
----------
Total 7,268,750
Electrical Equipment -- 0.9%
75,000 (3)WESCO International, Inc. 946,875
Semi-Conductor -- 10.2%
15,000 (3)Applied Micro Circuits Corp. 1,383,750
60,000 (3)Cymer, Inc. 2,096,250
25,000 (3)Dupont Photomasks, Inc. 1,340,625
55,000 (3)Triquint Semiconductor, Inc. 2,908,125
70,000 (3)Xircom, Inc. 2,786,875
----------
Total 10,515,625
Technology -- 12.2%
5,000 (3)Agile Software Corp. 248,750
75,000 (3)Artesyn Technologies, Inc. 1,645,312
30,000 (3)Digital River, Inc. 721,875
50,000 (3)Flextronics International Ltd. 2,934,375
30,000 (3)Harmonic Lightwaves, Inc. 3,780,000
40,000 (3)SDL, Inc. 3,275,000
----------
Total 12,605,312
----------
Total Capital Goods 31,336,562
Consumer Non-Durables -- 48.6%
Banks -- 1.8%
70,000 Cullen Frost Bankers, Inc. 1,828,750
Broadcasting -- 16.3%
100,000 (3)American Tower Systems Corp. 2,275,000
40,000 (3)Cox Radio, Inc., Class A 2,120,000
75,000 (3)Cumulus Media, Inc., Class A 2,090,625
75,000 (3)Hearst-Argyle Television, Inc. 1,898,437
25,000 (3)Hispanic Broadcasting Corp. 1,868,750
110,000 (3)Pinnacle Holdings, Inc. 2,770,625
50,000 (3)Salem Communications Corp. 1,375,000
65,000 (3)Westwood One, Inc. 2,494,375
----------
Total 16,892,812
Communication Services -- 2.4%
40,000 (3)Adelphia Communications Corp., Class A 2,480,000
Drugs -- 0.5%
75,000 (3)North American Vaccine, Inc. 515,625
Education -- 0.8%
60,000 (3)Education Management Corp. 776,250
Health Care -- 2.3%
40,000 (3)Medical Manager Corp. 2,380,000
Leisure & Recreation -- 7.3%
60,000 (3)Playboy Enterprises, Inc., Class B 1,263,750
75,000 (3)Speedway Motorsports, Inc. 2,798,437
125,000 (3)Steiner Leisure Ltd. 3,484,375
----------
Total 7,546,562
Medical Supplies -- 1.9%
75,000 (3)Sybron International Corp. 1,931,250
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Small-Cap Growth Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Non-Durables (continued)
Restaurants -- 2.9%
75,000 (3)Papa Johns International, Inc. $2,981,250
Retail -- 11.0%
60,000 (3)99 Cents Only Stores 2,160,000
100,000 (3)Pacific Sunwear of California 2,325,000
100,000 (3)Rayovac Corp. 2,350,000
60,000 (3)The Boyds Collection, Ltd. 806,250
50,000 (3)Too, Inc. 878,125
50,000 (3)Williams-Sonoma, Inc. 1,950,000
125,000 (3)Zany Brainy, Inc. 953,125
------------
Total 11,422,500
Other Services -- 1.4%
50,000 (3)CoStar Group, Inc. 1,434,375
------------
Total Consumer Non-Durables 50,189,374
Energy -- 3.3%
Oil & Gas Equipment Services -- 3.3%
60,000 (3)BJ Services Co. 2,055,000
40,000 (3)Petroleum Geo-Services, ADR 817,500
75,000 (3)U.S. Liquids, Inc. 557,813
------------
Total Energy 3,430,313
Financial -- 3.6%
50,000 Radian Group, Inc. 2,315,625
75,000 Raymond James Financial, Inc. 1,467,188
------------
Total Financial 3,782,813
Telecommunications -- 7.6%
50,000 (3)Dycom Industries, Inc. 1,543,750
25,000 (3)MGC Communications, Inc. 575,000
60,000 (3)Quanta Services, Inc. 1,346,250
25,000 (3)Splitrock Services, Inc. 281,250
75,000 (3)Time Warner Telecom, Inc., Class A 2,025,000
50,000 (3)VoiceStream Wireless Corp. 2,062,500
------------
Total Telecommunications 7,833,750
------------
Total Common Stocks (identified cost $91,297,454) 96,572,812
Corporate Bonds -- 1.7%
Consumer Non-Durables -- 1.7%
Health Care -- 1.7%
$1,900,000 Sunrise Assisted Living, Inc., Sub. Note, 5.50%,
6/15/2002 (identified cost $1,893,055) 1,742,832
(4)U.S. Treasury -- 0.2%
250,000 United States Treasury Bill, 11/18/1999 (identified
cost $247,503) 247,495
------------
Total Investments in Securities (identified
cost $93,438,012) 98,563,139
(2)Repurchase Agreement -- 6.2%
6,377,872 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 6,377,872
------------
Total Investments (identified cost $99,815,884) $104,941,011
============
</TABLE>
- --------------------------------------------------------------------------------
International Stock Fund
<TABLE>
----------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 98.4%
Australia -- 2.4%
215,000 Amcor Ltd. $1,120,695
46,000 Brambles Industries Ltd. 1,281,785
111,400 Broken Hill Proprietary Co. Ltd. 1,198,334
440,000 Fosters Brewing Group Ltd. 1,289,313
115,000 National Australia Bank Ltd., Melbourne 1,739,225
----------
Total 6,629,352
Canada -- 2.9%
72,900 (3)Celestica, Inc. 3,152,925
62,800 Nortel Networks Corp. 2,578,725
49,100 Suncor Energy, Inc. 2,020,259
----------
Total 7,751,909
Finland -- 3.5%
46,900 Nokia Oyj, Class A, ADR 3,910,288
79,100 (3)Sonera Group 1,920,362
107,000 UPM-Kymmene OY 3,706,969
----------
Total 9,537,619
France -- 7.4%
9,800 Accor SA 2,361,586
8,900 (1)Alcatel 1,365,155
19,519 Axa 2,432,354
10,900 Carrefour SA 1,775,706
7,100 (1)Compagnie de St. Gobain 1,374,464
16,392 Elf Aquitaine SA 2,878,485
13,000 Groupe Danone 3,220,729
10,400 LVMH 3,169,571
17,900 Vivendi 1,384,186
----------
Total 19,962,236
Germany -- 6.5%
30,500 Bayer AG 1,327,681
23,500 DaimlerChrysler AG 1,774,966
40,700 Deutsche Bank AG 2,785,625
17,100 Mannesmann AG 2,626,556
83,200 Preussag AG 4,743,905
51,700 Siemens AG 4,353,389
----------
Total 17,612,122
Great Britain -- 15.6%
181,000 Amvescap PLC 1,552,058
271,000 BP Amoco PLC 5,026,907
180,000 British Telecommunication PLC 2,756,841
157,570 GKN PLC 2,408,238
172,000 General Electric Co. PLC 1,718,392
124,600 Glaxo Wellcome PLC 3,273,957
110,200 Imperial Chemical Industries, PLC 1,253,439
101,500 Kingfisher PLC 1,221,434
150,000 Lloyds TSB Group PLC 2,076,560
90,200 Next PLC 1,037,564
75,000 Ocean Group PLC 1,216,253
175,000 Peninsular & Oriental Steam Navigation Co. 2,815,401
69,700 Rio Tinto PLC 1,250,288
110,000 Royal Bank of Scotland PLC, Edinburgh 2,268,731
245,500 Siebe PLC 1,255,975
172,000 SmithKline Beecham Corp. 2,238,614
92,500 Standard Chartered PLC 1,346,767
209,800 Vodafone AirTouch PLC 4,225,830
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
International Stock Fund (continued)
<TABLE>
---------------------------------------------------------------------
<CAPTION>
Shares Description Value
---------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Great Britain (continued)
342,000 WPP Group PLC $3,196,719
----------
Total 42,139,968
Hong Kong -- 3.3%
320,000 HSBC Holdings PLC 3,965,714
415,000 (1)Hutchison Whampoa 4,048,506
189,000 Television Broadcasting 847,042
----------
Total 8,861,262
Ireland -- 1.7%
170,000 Bank of Ireland 1,541,181
131,400 CRH PLC 2,981,581
----------
Total 4,522,762
Israel -- 1.1%
38,400 (3)Check Point Software Technologies Ltd. 2,961,600
Italy -- 0.5%
32,000 Banca Popolare di Brescia 1,403,132
Japan -- 24.0%
288,000 Bank of Tokyo-Mitsubishi Ltd. 4,306,764
27,000 Benesse Corp. 4,692,002
49,000 Canon, Inc. 1,434,124
160,000 Daiwa Securities Co. Ltd. 1,450,222
9,500 Fast Retailing Co. Ltd. 1,537,934
237,000 Fujitsu Ltd. 6,958,155
95,000 Kao Corp. 2,702,245
36,100 Matsushita Communication 3,073,956
18,000 Murata Manufacturing Co. Ltd. 1,448,758
90,000 NEC Corp. 1,465,222
260 (3)NTT Mobile Communication Network, Inc. (New) 4,304,203
65 NTT Mobile Communication Network, Inc. 1,081,996
11,700 Nintendo Corp. Ltd. 2,033,201
310 Nippon Telegraph & Telephone Corp. 3,487,447
8,800 Ryohin Keikaku Co. Ltd. 1,738,510
117,000 Sanwa Bank Ltd, Osaka 1,605,158
12,000 Secom Co. 1,640,829
245,000 Sharp Corp. 3,742,168
82,500 Shin-Etsu Chemical Co. 3,365,345
4,400 Shokoh Fund & Co. 3,191,293
16,000 Sony Corp. 2,075,090
67,000 Takeda Chemical Industries 3,370,375
19,000 Takefuji, Corp. 3,060,228
21,000 Yamada Denki, Co. 1,344,492
----------
Total 65,109,717
Korea -- 2.4%
64,000 Kookmin Bank 894,720
43,600 (1)Pohang Iron and Steel Co. Ltd., ADR 1,602,300
80,429 (1)SK Telecom Co. Ltd., ADR 909,853
16,600 Samsung Electronics Co. 3,149,852
----------
Total 6,556,725
Mexico -- 1.3%
63,500 (3)Fomento Economico Mexicano, SA de C.V., ADR 2,099,469
20,378 (1)Telefonos de Mexico, Class L, ADR 1,515,614
----------
Total 3,615,083
</TABLE>
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Netherlands -- 9.8%
23,600 AEGON NV $2,067,123
31,500 Ahold NV 1,129,625
30,400 Akzo Nobel NV 1,416,587
44,200 (3)Benckiser NV 2,702,552
49,032 Philips Electronics NV 5,059,770
4,784 Philips Electronics NV, ADR 491,855
68,000 Royal Dutch Petroleum Co. 4,186,545
98,800 (3)STMicroelectronics NV 6,568,801
23,000 (3)United Pan-Europe Communications NV 1,396,573
37,000 VNU-Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit 1,420,798
------------
Total 26,440,229
Singapore -- 2.6%
450,000 Keppel Corp. 1,456,786
130,000 Oversea-Chinese Banking Corp. Ltd. 911,197
130,000 Singapore Airlines Ltd. 1,220,077
360,000 Venture Manufacturing (Singapore) Ltd. 3,442,827
------------
Total 7,030,887
Spain -- 3.1%
266,000 Banco Santander Central Hispano, SA 2,676,000
174,800 Repsol SA 3,653,863
20,700 Repsol SA, ADR 432,113
95,844 Telefonica SA 1,530,967
------------
Total 8,292,943
Sweden -- 2.3%
52,300 Hennes & Mauritz AB,
Class B 1,324,493
245,000 Skandia Forsakrings AB 4,999,393
------------
Total 6,323,886
Switzerland -- 5.0%
32,945 (3)ABB Ltd. 3,385,336
2,510 Adecco SA 1,385,503
9,500 Credit Suisse Group 1,796,126
1,150 Holderbank Financiere Glarus AG, Class B 1,417,829
1,050 Nestle SA 2,075,428
300 Roche Holding AG 3,474,582
------------
Total 13,534,804
United States -- 3.0%
58,700 (3)Comverse Technology, Inc. 4,578,600
18,000 Pharmacia & Upjohn, Inc. 940,500
26,000 Tyco International Ltd. 2,634,125
------------
Total 8,153,225
------------
Total Common Stocks (identified cost $236,076,454) 266,439,461
Mutual Fund -- 0.9% United States -- 0.9%
2,442,885 Seven Seas Money Market Fund (at net asset value) 2,442,885
------------
Total Investments (identified cost $238,519,339) $268,882,346
============
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Government Income Fund
<TABLE>
---------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
Asset-Backed Securities -- 5.1%
$6,000,000 Green Tree Home Equity Loan Trust, Series 1998-B,
Class B1, 7.810%, 11/15/2029 $5,878,560
10,643,000 Greenwich Capital Acceptance, 7.150%, 8/10/2020 10,431,311
----------
Total Asset-Backed Securities
(identified cost $16,665,899) 16,309,871
Collateralized Mortgage Obligations -- 3.1%
4,856,679 IMC Excess Cashflow Securities Trust 1997-A,
7.410%, 11/26/2028 4,409,719
663,557 Independent National Mortgage Corp., 7.250%,
11/25/2010 666,129
5,000,000 Salomon Brothers Mortgage Sec. VII 1999-1, 6.909%,
4/25/2029 4,801,925
----------
Total Collateralized Mortgage Obligations
(identified cost $10,511,964) 9,877,773
Corporate Bonds -- 2.7%
4,000,000 (7)HSB Group, Inc., 6.220%, 10/15/1999 3,866,480
5,000,000 (7)TXU Gas Capital, 6.699%, 10/1/1999 4,864,300
----------
Total Corporate Bonds
(identified cost $8,898,950) 8,730,780
Mortgage Backed Securities -- 68.8%
Federal Home Loan Mortgage
Corporation -- 16.6%
5,486,395 7.000%, 11/1/2009 5,453,806
3,950,432 7.000%, 5/1/2027 3,840,571
19,265,788 7.000%, 4/1/2029 18,724,034
4,340,282 7.500%, 4/1/2024 4,325,351
15,001,500 7.500%, 8/1/2029 14,912,391
2,156,375 8.500%, 9/1/2024 2,225,789
13,729 8.750%, 4/1/2001 13,894
3,069,355 9.000%, 6/1/2019 3,224,725
2,445 9.500%, 2/1/2001 2,477
3,834 10.500%, 10/1/2000 3,868
----------
Total 52,726,906
Federal National Mortgage Association -- 29.7%
20,000,000 6.500%, 9/1/2006 19,587,600
20,813,110 7.000%, 5/1/2029 19,961,022
14,988,444 7.500%, 8/1/2029 14,707,411
20,000,000 7.500%, TBA 19,862,400
3,140,309 8.000%, 11/1/2027 3,180,536
9,387,740 8.000%, 10/1/2028 9,510,907
7,471,951 8.000%, 8/1/2029 7,567,667
----------
Total 94,377,543
Government National Mortgage
Association -- 22.5%
12,630,826 7.000%, 4/15/2029 12,279,563
4,080,928 7.500%, 8/15/2025 4,060,524
15,542,005 7.500%, 8/15/2025 15,410,830
17,723,053 7.500%, 12/15/2025 17,573,470
12,782,772 8.000%, 10/15/2017 13,126,373
7,423,522 8.500%, 9/15/2028 7,676,367
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Mortgage Backed Securities (continued)
Government National Mortgage
Association (continued)
$1,306,430 9.500%, 10/15/2024 $1,411,754
3,529 10.500%, 10/15/2000 3,579
2,657 10.500%, 10/15/2000 2,695
6,734 11.000%, 11/15/2000 6,862
------------
Total 71,552,017
------------
Total Mortgage Backed Securities (identified cost
$223,195,146) 218,656,466
U.S. Treasury Note -- 4.7%
15,000,000 (1)5.250%, 5/31/2001 (identified cost $14,928,125) 14,884,650
------------
Total Investments in Securities (identified cost
$274,200,084) 268,459,540
(2)Repurchase Agreement -- 24.2%
76,866,559 Lehman Brothers, Inc., 5.460%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 76,866,559
------------
Total Investments (identified cost $351,066,643) $345,326,099
============
- -------------------------------------------------------------------------------
</TABLE>
Intermediate Bond Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Asset-Backed Securities -- 14.3%
$9,000,000 Aircraft Finance Trust, Class C, 8.000%, 5/15/2024 $8,353,035
5,500,000 ARG Funding Corp., Class A2, 5.88%, 5/20/2002 5,398,415
10,000,000 Bridgestone/Firestone Master Trust 1996-1, Class A, 6.17%,
7/1/2003 10,042,700
5,000,000 (7)DLJ Commercial Mortgage Corp. 1998-STF2, Class A1,
5.830%, 9/1/1999 5,006,650
6,000,000 (5)DLJ Leverage Loan Funding, Class B1, 6.693%,
9/15/2005 5,755,320
7,750,000 First USA Credit Card Master Trust 1998-9, Class A, 5.28%,
9/18/2006 7,338,553
7,000,000 Green Tree Home Equity Loan Trust, Series 1998-B,
Class B1, 7.81%, 11/15/2029 6,858,320
12,000,000 J.P. Morgan Commercial Mortgage Finance Corp. 1997-
C5, Class A2, 7.069%, 9/15/2029 11,926,500
10,000,000 Metris Master Trust 1997-1, Class A, 6.87%,
11/20/2005 10,109,100
2,817,630 Pegasus Aviation Lease Securitization 1999-1A, Class
A1, 6.30%, 3/25/2029 2,739,919
12,000,000 TMS Home Equity Trust 1996-B, Class A7, 7.55%,
2/15/2020 12,049,260
----------
Total Asset-Backed Securities
(identified cost $87,219,456) 85,577,772
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Intermediate Bond Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Collateralized Mortgage Obligations -- 9.8%
$5,000,000 (5)Criimi Mae CMBS Corp., Series 1998-1, Class A2,
6.009%, 2/20/2005 $4,623,650
6,000,000 (5)Criimi Mae CMBS Corp., Series 1998-1, Class A3,
6.306%, 12/20/2007 5,305,560
9,000,000 DLJ Commercial Mortgage Corp., Series 1998-CG1, Class
A1B, 6.410%, 5/10/2008 8,423,145
233,155 Delta Funding Home Equity Loan Trust, Series 1997-3,
Class A2F, 6.59%, 9/25/2012 233,155
6,931,502 Federal Home Loan Mortgage Corp., Series 1829, Class
H, 6.50%, 10/15/2021 6,854,944
2,334,892 Federal Home Loan Mortgage Corp., Series 1834, Class
A, 7.00%, 1/15/2020 2,345,399
13,930,889 Federal National Mortgage Association, Series 1997- 17, Class PD,
7.00%, 4/18/2021 13,996,643
5,000,000 First Union Chase Commercial Mortgage 1999-C2, Class
A2, 6.64%, 4/15/2009 4,763,875
2,103,656 Green Tree Financial Corp., Series 1994-7, Class A4,
8.35%, 3/15/2020 2,120,275
10,540,000 GMAC Commercial Mortgage Securities, Inc., Series 1998-C2, Class
A2, 6.42%, 8/15/2008 9,933,792
----------
Total Collateralized Mortgage Obligations (identified
cost $60,891,755) 58,600,438
Corporate Bonds -- 43.3%
Communication -- 1.1%
7,000,000 (1)WorldCom, Inc., Sr. Note, 6.125%, 8/15/2001 6,943,510
Consumer Cyclicals -- 3.9%
7,500,000 (1)DaimlerChrysler AG, Company Guarantee, 6.90%,
9/1/2004 7,472,475
5,000,000 Dayton-Hudson Corp., Unsecd. Note, 6.40%, 2/15/2003 4,933,700
10,000,000 Dayton-Hudson Corp., Unsecd. Note, 9.75%, 7/1/2002 10,775,300
----------
Total 23,181,475
Banking -- 3.9%
7,000,000 (7)Fleet Capital Trust V, 6.176%, 9/18/1999 6,977,180
7,000,000 (7)Old Kent Capital Trust I, 6.113%, 11/1/1999 6,863,800
10,000,000 (5)(7)Skandinaviska Enskilda, Sub. Note, Series 144A,
6.50%, 6/4/2003 9,331,410
----------
Total 23,172,390
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Broker/Dealers -- 4.5%
$8,000,000 (7)Bear Stearns Cos., Inc., 7.00%, 1/15/2002 $7,905,912
10,000,000 (1)Goldman Sachs Group, Inc., Sr. Unsub., 6.65%,
5/15/2009 9,409,500
5,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.50%, 8/1/2026 5,051,050
5,000,000 PaineWebber Group, Inc., Note, 6.45%, 12/1/2003 4,850,500
----------
Total 27,216,962
Finance -- 11.4%
10,000,000 Aristar, Inc., Note, 6.30%, 10/1/2002 9,811,600
12,000,000 (5)(7)Credit Suisse, London, Sub. Note, 7.90%,
5/1/2007 11,307,948
4,000,000 FINOVA Capital Corp., Note, 6.25%, 11/1/2002 3,908,160
10,400,000 (1)Ford Motor Credit Corp., Bond, 6.70%, 7/16/2004 10,252,320
5,000,000 (1)Ford Motor Credit Corp., Sr. Note, 5.80%,
1/12/2009 4,489,500
8,165,000 General Motors Acceptance Corp., Unsecd. Note, 7.00%,
6/6/2003 8,154,549
4,000,000 Household Netherlands BV, Company Guarantee, 6.20%,
12/1/2003 3,849,000
5,000,000 (7)MBNA Global Capital Securities, Jr. Sub. Deb.,
6.113%, 11/1/1999 4,371,250
12,000,000 Sears Roebuck Acceptance Corp., Note, Series III,
7.01%, 9/19/2002 12,078,000
----------
Total 68,222,327
Industrial Services -- 7.8%
10,000,000 IMC Global, Inc., Deb., 6.875%, 7/15/2007 9,495,900
9,800,000 (5)Marlin Water Trust, Sr. Note, 7.09%, 12/15/2001 9,751,039
6,600,000 NRG Energy, Inc., Sr. Note, 7.50%, 6/1/2009 6,414,210
10,000,000 Tyco International Group, Company Guarantee, 5.875%,
11/1/2004 9,412,100
5,000,000 (1)Waste Management, Inc., Note, 6.625%, 7/15/2002 4,742,600
7,000,000 (7)WMX Technologies, Inc., Unsecd. Note, 7.70%,
10/1/1999 6,809,390
----------
Total 46,625,239
Insurance -- 4.6%
15,000,000 (1)Conseco, Inc., Note, 6.80%, 6/15/2005 13,827,600
10,000,000 (5)Florida Windstorm, Bond, 6.50%, 8/25/2002 9,828,500
4,000,000 (7)HSB Group, Inc., Company Guarantee, 6.22%,
10/15/1999 3,866,480
----------
Total 27,522,580
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Intermediate Bond Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Other Finance -- 1.7%
$10,000,000 (5)Edison Funding Co., Sr. Note, 6.75%, 12/17/1999 $10,019,140
Transportation -- 1.5%
4,588,464 Continental Airlines, Inc., Pass Thru Cert.,
6.541%, 9/15/2008 4,385,103
4,000,000 Delta Air Lines, Inc., Equip. Trust, Series 1993-
A2, 10.50%, 4/30/2016 4,833,840
-----------
Total 9,218,943
Utility-Electric -- 1.8%
4,000,000 Korea Electric Power Corp., Deb., 6.00%, 12/1/2026 3,807,440
7,500,000 TXU Eastern Funding Co., Company Guarantee, 6.75%,
5/15/2009 6,902,873
-----------
Total 10,710,313
Utility-Natural Gas -- 1.1%
7,000,000 (7)TXU Gas Capital, 6.699%, 10/1/1999 6,810,020
-----------
Total Corporate Bonds
(identified cost $269,026,279) 259,642,899
Corporate Notes -- 6.4%
Broker/Dealers -- 3.6%
12,000,000 Bear Stearns Cos., Inc., Sr. Note, 6.75%, 5/1/2001 11,990,160
10,000,000 Lehman Brothers Holdings, Inc., Note, 6.625%,
4/1/2004 9,687,800
-----------
Total 21,677,960
Tobacco -- 1.7%
10,000,000 Philip Morris Cos., Inc., Note, 7.25%, 9/15/2001 10,057,300
Transportation -- 1.1%
7,000,000 AMERCO, Sr. Note, 7.20%, 4/1/2002 6,860,000
-----------
Total Corporate Notes
(identified cost $38,897,280) 38,595,260
Government Agencies -- 1.8%
Federal Home Loan Bank -- 1.8%
5,000,000 5.43%, 11/17/2008 4,476,200
6,500,000 5.58%, 8/17/2001 6,428,240
-----------
Total Government Agencies (identified cost
$11,565,695) 10,904,440
Mortgage Backed Securities -- 0.8%
Federal Home Loan Mortgage Corporation -- 0.0%
94,538 8.75%, 4/1/2001 95,680
Federal National Mortgage Association -- 0.8%
4,871,128 7.635%, 8/1/2011 5,008,104
-----------
Total Mortgage Backed Securities (identified cost
$5,343,830) 5,103,784
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
U.S. Treasury Notes -- 4.3%
$15,000,000 (1)6.375%, 8/15/2002 $15,191,550
10,000,000 (1)7.875%, 8/15/2001 10,387,200
------------
Total U.S. Treasury Notes (identified cost
$25,785,156) 25,578,750
------------
Total Investments in Securities (identified cost
$498,729,451) 484,003,343
(2)Repurchase Agreement -- 17.3%
103,740,211 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 103,740,211
------------
Total Investments (identified cost $602,469,662) $587,743,554
============
- -------------------------------------------------------------------------------
</TABLE>
Intermediate Tax-Free Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal Credit
Amount Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals -- 97.8%
Arizona -- 5.3%
$1,000,000 Maricopa County, AZ Community College
District, GO UT Bonds (Series A), 6.00%,
7/1/2006 AA $1,055,150
1,750,000 Maricopa County, AZ School District No. 28
Kyrene Elementary, (Series C), 4.60%
(Original Issue Yield: 4.70%), 7/1/2011 Aaa 1,662,430
1,000,000 Maricopa County, AZ School District No. 4,
GO UT Bonds, 5.375% (FGIC INS)/(Original
Issue Yield: 5.40%), 7/1/2009 AAA 1,029,300
2,000,000 Maricopa County, AZ Unified School District
No. 41, Certificate Participation, 5.00%
(FSA INS), 1/1/2002 AAA 2,032,800
----------
Total 5,779,680
Arkansas -- 3.1%
2,470,000 Arkansas Development Finance Authority,
Revenue Bonds, 5.00% (AMBAC INS)/(Original
Issue Yield: 5.055%), 7/1/2020 AAA 2,294,655
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Intermediate Tax-Free Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal Credit
Amount Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Arkansas (continued)
$1,070,000 University of Arkansas, Revenue Refunding
Bonds, 4.60%, 9/15/2004 A1 $1,067,602
----------
Total 3,362,257
Colorado -- 1.9%
1,950,000 Castle Rock Ranch, CO Public Improvement
Authority, Revenue Bonds, 5.70%, 12/1/2006 AA 2,046,428
Florida -- 4.7%
3,000,000 Dade County, FL, Aviation Revenue Bonds,
5.00% (Miami International Airport)/(FSA
INS), 10/1/2005 AAA 3,042,240
2,000,000 Florida State, GO UT Bonds, 5.125%
(Original Issue Yield: 5.25%), 7/1/2009 AA+ 2,022,340
----------
Total 5,064,580
Georgia -- 7.1%
2,000,000 Atlanta, GA Water & Sewer, Refunding Bonds (Series A), 5.50% (FGIC
LOC)/ (Original
Issue Yield: 4.76%), 11/1/2014 AAA 2,036,980
4,000,000 Chatham County, GA School District, GO UT,
6.75%, 8/1/2019 AAA 4,404,680
1,370,000 Private Colleges & Universities Facilities
of GA, Revenue Bonds, 5.25% (Original
Issue Yield: 5.08%), 10/1/2014 A3 1,321,543
----------
Total 7,763,203
Hawaii -- 0.9%
1,000,000 Hawaii State, GO UT Bonds (Series CA),
5.50% (Original Issue Yield: 6.00%),
1/1/2012 A+ 1,015,140
Illinois -- 1.8%
800,000 Illinois State, GO UT Refunding Bonds, 5.125% (FGIC INS)/
(Original Issue Yield:
5.15%), 12/1/2007 AAA 813,112
1,085,000 Waukegan, IL, GO UT Bonds, 6.40% (MBIA
INS)/(Original Issue Yield: 6.45%),
12/30/2004 AAA 1,146,552
----------
Total 1,959,664
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal Credit
Amount Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Indiana -- 0.9%
$1,000,000 Purdue University, IN, Refunding Revenue
Bonds, 5.50%, 7/1/2013 AA $1,013,470
Iowa -- 3.8%
1,050,000 Cedar Rapids, IA, GO UT Bonds (Series B),
5.20% (Original Issue Yield: 5.25%),
6/1/2007 Aaa 1,068,438
3,000,000 Iowa Finance Authority, Revenue Bonds,
6.00% (Ipsco, Inc.), Mandatory Tender,
6/1/2027 NR 3,059,160
----------
Total 4,127,598
Maryland -- 2.1%
2,190,000 Washington Suburban Sanitation District,
MD, Refunding Bonds GO UT, 5.00%, 6/1/2007 AA 2,219,302
Minnesota -- 1.0%
1,000,000 Minneapolis/St. Paul, MN Housing Authority,
Refunding Revenue Bonds, 6.75%, 12/1/2013 A- 1,054,870
Mississippi -- 3.4%
3,600,000 Mississippi State, GO UT Bonds, 5.00%,
6/1/2004 AA 3,672,792
Missouri -- 2.7%
1,895,000 210 Highway Transportation Development
District MS, (Series B) Revenue Bond,
5.25% (Mercantile Bank of St. Louis, NA
LOC), 7/15/2011 A- 1,862,065
1,000,000 Missouri State Environmental Improvement &
Energy Authority, Water Pollution Control
State Revolving Fund Program Revenue Bonds
(Series B), 6.65%, 7/1/2006 Aa1 1,101,990
----------
Total 2,964,055
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Intermediate Tax-Free Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal Credit
Amount Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Nevada -- 1.4%
$1,500,000 Las Vegas, NV, GO LT Sewer Refunding
Revenue Bonds (Series B), 4.875% (MBIA
INS)/ (Original Issue Yield: 5.05%),
1/1/2006 AAA $1,505,835
New Jersey -- 4.5%
4,825,000 New Jersey State, GO UT (Series F)
Refunding Bond, 5.00%, 8/1/2007 AA+ 4,897,230
New Mexico -- 1.3%
775,000 Albuquerque, NM Educational Facilities,
Refunding Revenue Bonds, 4.65% (Original
Issue Yield: 4.75%), 10/15/2014 AA- 707,180
715,000 Albuquerque, NM Educational Facilities,
Refunding Revenue Bonds, 4.70% (Original
Issue Yield: 4.80%), 10/15/2015 AA- 643,714
----------
Total 1,350,894
New York -- 6.5%
3,000,000 New York State Environmental Facilities
Corp., Revenue Bonds, 4.55% (General
Electric Capital Corp.), 12/1/2018 AAA 3,021,420
1,500,000 New York State Environmental Facilities
Corp., Revenue Bonds, 5.70% (Original
Issue Yield: 5.75%), 6/15/2006 AA- 1,586,145
1,100,000 Oswego County, NY, GO UT , 6.70% (Original
Issue Yield: 6.80%), 6/15/2010 A2 1,241,570
1,100,000 Oswego County, NY, GO UT, 6.70% (Original
Issue Yield: 6.80%), 6/15/2011 A2 1,247,026
----------
Total 7,096,161
Ohio -- 6.2%
2,055,000 Cleveland, OH Parking Facilities, Revenue
Bonds, 7.60% (United States Treasury PRF),
9/15/2003 (@102) AAA 2,280,762
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal Credit
Amount Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Ohio (continued)
$1,085,000 Ohio HFA, Revenue Refunding Bonds, 5.05%
(GNMA COL), 9/1/2001 AAA $1,096,675
1,365,000 Ohio HFA, Revenue Refunding Bonds, 5.15%
(GNMA COL), 9/1/2002 AAA 1,383,496
2,000,000 Ohio State Water Development Authority,
Revenue Bonds, 5.00% (MBIA INS), 6/1/2009 AAA 2,001,380
----------
Total 6,762,313
South Carolina -- 1.0%
1,055,000 South Carolina State, GO UT Bonds (Series
B), 5.625%, 7/1/2011 AAA 1,099,226
South Dakota -- 1.5%
1,500,000 Heartland Consumers Power District, SD,
Refunding Revenue Bonds, 5.90% (FSA
INS)/(Original Issue Yield: 6.00%),
1/1/2004 AAA 1,580,430
Tennessee -- 2.6%
1,545,000 Johnson City, TN, GO UT Refunding Bonds, 4.75% (FGIC INS)/
(Original Issue Yield:
4.85%), 6/1/2014 AAA 1,448,159
1,520,000 Johnson City, TN, GO UT Revenue Refunding
Bonds, 4.75% (FGIC INS)/ (Original Issue
Yield: 4.85%), 6/1/2014 AAA 1,415,926
----------
Total 2,864,085
Texas -- 13.2%
1,750,000 Lamar, TX Consolidated Independent School
District, GO UT, 5.25% (Original Issue
Yield: 4.70%), 2/15/2012 AAA 1,743,630
945,000 San Angelo, TX Independent School District,
GO UT Bonds, 5.30% (PSFG GTD), 2/15/2007 AAA 968,814
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Intermediate Tax-Free Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal Credit
Amount Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Texas (continued)
$2,000,000 Tarrant County, TX Health Facilities
Development Corp., Revenue Bonds, 5.75%
(Texas Health Resources System)/ (MBIA
INS), 2/15/2009 AAA $2,111,820
5,000,000 Texas State Public Finance Authority, GO UT
Refunding Bonds, 5.00% (Original Issue
Yield: 5.05%), 10/1/2012 AA 4,864,150
5,000,000 Trinity River Authority Texas Regional
Wastewater System, (Series A) Revenue
Refunding Bond, 5.00% (AMBAC
LOC)/(Original Issue Yield: 6.13%),
8/1/2016 AAA 4,664,200
----------
Total 14,352,614
Utah -- 3.8%
2,020,000 Jordan, UT School District, GO UT, 5.00%,
6/15/2003 AAA 2,068,056
1,000,000 Washington County, UT School District, GO
UT, 5.00%, 3/1/2007 AAA 1,014,980
1,000,000 Washington County, UT School District, GO
UT, 5.00%, 3/1/2008 AAA 1,008,700
----------
Total 4,091,736
Virginia -- 1.4%
1,500,000 Virginia State Housing Development
Authority, Mortgage Revenue Bonds (Series
A1), 6.40%, 7/1/2002 AA+ 1,541,475
Washington -- 9.3%
1,000,000 Port Longview, WA Industrial Development
Corp., Solid Waste Disposal Revenue Bonds,
6.875% (Weyerhaeuser Co.), 10/1/2008 A 1,092,690
3,000,000 Snohomish County, WA School District No. 6,
GO UT Refunding Bonds, 5.65% (FGIC INS),
12/1/2010 AAA 3,137,010
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Credit
or Shares Description Rating(8) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Washington (continued)
$4,050,000 Washington State, 5.00%, 1/1/2010 AA+ $4,017,519
1,870,000 Washington State, (Series C), 5.00%,
7/1/2005 AA+ 1,901,996
------------
Total 10,149,215
Wisconsin -- 4.3%
1,650,000 Southeast WI, Professional Baseball Park
District, Sales Tax Revenue Bonds, 5.45%
(MBIA INS), 12/15/2012 AAA 1,671,301
2,950,000 Wisconsin State, GO UT Bonds (Series C),
5.30% (Original Issue Yield: 5.40%),
5/1/2008 AA 3,043,426
------------
Total 4,714,727
Wyoming -- 2.1%
2,220,000 Wyoming Municipal Power Agency, Refunding
Revenue Bonds, 5.25%, (MBIA INS),
1/1/2011 AAA 2,228,615
------------
Total Long-Term Municipals (identified
cost $107,212,444) 106,277,595
Mutual Funds -- 1.8%
598,127 Federated Tax-Free Obligations Fund 598,127
1,399,344 Fidelity Tax Exempt Money Market 1,399,344
------------
Total Mutual Funds
(shares at net asset value) 1,997,471
------------
(9)Total Investments
(identified cost $109,209,915) $108,275,066
============
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Short-Term Income Fund
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Asset-Backed Securities -- 14.2%
$3,000,000 ARG Funding Corp., Class A2, 5.88%, 5/20/2002 $2,944,590
1,446,975 Capital Asset Research Funding 1997-A, Class A,
6.40%, 12/15/2004 1,446,975
992,511 CPS Auto Grantor Trust 1997-2, Class A, 6.65%,
10/15/2002 1,001,305
55,814 Delta Funding Home Equity Loan Trust 1997-3, Class
A2F, 6.59%, 9/25/2012 55,814
2,000,000 DLJ Commercial Mortgage Corp. 1998-STF2, Class A1,
5.83%, 11/5/2000 2,002,660
2,000,000 DLJ Leverage Loan Funding, Class B1, 6.693%,
9/15/2005 1,918,440
41,861 Equicon Home Equity Loan Trust 1992-7, Class A,
5.90%, 9/18/2005 41,760
3,000,000 Green Tree Home Equity Loan Trust 1998-B, Class B1,
7.81%, 11/15/2029 2,939,280
431,318 New York City Tax Lien, Class B, 6.56%, 5/25/2005 431,318
274,022 Olympic Automobile Receivables Trust 1995-B, Class
A2, 7.35%, 10/15/2001 274,760
1,408,815 Pegasus Aviation Lease Securitization 1999-1A, Class
A1, 6.30%, 3/25/2029 1,369,960
980,438 TMS Home Equity Trust Series 1992-D2, Class A3,
7.55%, 1/15/2018 986,498
3,730,900 UCFC Home Equity Loan 1995-A1, Class A5, 8.55%,
1/10/2020 3,780,651
----------
Total Asset-Backed Securities (identified cost
$19,580,679) 19,194,011
Collateralized Mortgage Obligations -- 14.3%
Federal Home Loan Mortgage
Corporation -- 2.4%
2,250,559 6.05%, 9/15/2020, Series 1818, Class A 2,224,790
974,106 7.00%, 1/15/2020, Series 1834, Class A 978,490
----------
Total 3,203,280
Other Financial -- 11.9%
4,000,000 (5)Criimi Mae CMBS Corp., 1998-1, Class A2, 6.009%,
2/20/2005 3,698,920
5,000,000 DLJ Commercial Mortgage Corp. 1998-STF, Class A3,
5.757%, 1/8/2011 4,997,175
443,302 Independent National Mortgage Corp., Series 1995-R,
Class A1, 7.25%, 11/25/2010 445,019
875,256 PNC Mortgage Securities Corp. 1994-1, Class T7,
6.00%, 2/25/2024 860,941
4,000,000 Sasco Commercial Mortgage 1998-C3A, Class A1B,
6.088%, 6/25/2000 4,011,300
</TABLE>
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
Collateralized Mortgage Obligations (continued)
Other Financial (continued)
$2,079,947 Securitized Asset Sales, Inc., Series 1995-4, Class
A5, 7.25%, 11/25/2025 $2,012,795
----------
Total 16,026,150
----------
Total Collateralized Mortgage Obligations
(identified cost $19,459,943) 19,229,430
Mortgage-Backed -- Pass Through Securities -- 8.7%
Federal Home Loan Mortgage Corporation -- 1.4%
355,572 9.00%, 7/1/2014 372,795
1,343,980 11.00%, 8/1/2019 1,492,652
----------
Total 1,865,447
Federal National Mortgage Association -- 7.3%
486,474 8.00%, 8/1/2007 495,746
1,683,185 8.00%, 5/1/2008 1,723,683
547,024 9.00%, 7/1/2009 573,522
462,457 9.00%, 1/1/2015 486,880
1,070,748 9.50%, 1/1/2025 1,145,829
862,016 9.50%, 1/1/2025 921,694
544,408 9.50%, 12/1/2024 582,582
727,717 9.50%, 1/1/2025 778,745
488,023 10.00%, 7/1/2020 527,934
827,591 10.50%, 1/1/2022 915,001
1,601,482 11.00%, 12/1/2015 1,743,613
----------
Total 9,895,229
----------
Total Morgage-Backed -- Pass Through Securities
(identified cost $11,852,346) 11,760,676
Corporate Bonds -- 40.2%
Banking -- 2.8%
4,000,000 (5)Skandinaviska Enskilda, Sub. Note, Series 144A,
6.50%, 12/29/2049 3,732,564
Broker/Dealers -- 5.8%
2,000,000 Donaldson, Lufkin and Jenrette Securities Corp.,
Note, 6.00%, 12/1/2001 1,966,060
3,000,000 Lehman Brothers Holdings, Inc., Note, 6.90%,
1/29/2001 3,001,380
3,000,000 Lehman Brothers Holdings, Inc., 5.369%, 9/03/2002 2,964,600
----------
Total 7,932,040
Communication -- 1.5%
2,000,000 WorldCom, Inc., Sr. Note, 6.125%, 8/15/2001 1,983,860
Domestic & International Oil -- 1.8%
2,500,000 Occidental Petroleum Corp., Note, 6.40%, 4/1/2003 2,423,025
Finance -- 6.3%
2,700,000 FINOVA Capital Corp., Note, 6.25%, 11/1/2002 2,638,008
5,000,000 (5)Household Capital Trust III, Company Guarantee,
5.61375%, 6/26/2004 4,918,900
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
(See Notes to Portfolios of Investments)
- --------------------------------------------------------------------------------
Short-Term Income Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Finance (continued)
$1,000,000 MBNA Global Capital Securities, Jr. Sub. Deb.,
6.1125%, 2/1/2027 $874,250
------------
Total 8,431,158
Industrial -- 4.5%
3,000,000 IMC Global, Inc., Note, 6.625%, 10/15/2001 2,969,250
2,400,000 Marlin Water Trust, Sr. Note, 7.09%, 12/15/2001 2,388,010
750,000 WMX Technologies, Inc., Note, 6.70%, 5/1/2001 729,697
------------
Total 6,086,957
Insurance -- 7.4%
3,000,000 Conseco, Inc., Note, 6.40%, 6/15/2001 2,943,990 3,250,000
(5)Florida Windstorm Under, Bond, 6.50%, 8/25/2002 3,194,262 4,000,000 HSB
Group, Inc., Company Guarantee, 6.22%,
7/15/2027 3,866,480
------------
Total 10,004,732
Natural Gas -- 2.1%
3,000,000 TXU Capital, 7/1/2028 2,918,580
Other Financial -- 3.7%
5,000,000 (5)Edison Funding Co., Sr. Note, 6.75%, 12/17/1999 5,009,570
Real Estate -- 2.1%
3,000,000 EOP Operating LP, Sr. Note, 6.375%, 2/15/2003 2,896,830
Transportation -- 2.2%
3,000,000 AMERCO, Sr. Note, 7.20%, 4/1/2002 2,940,000
------------
Total Corporate Bonds (identified cost $55,349,091) 54,359,316
------------
Total Investments in Securities (identified cost
$106,242,059) 104,543,433
(2)Repurchase Agreement -- 21.9%
29,564,645 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 29,564,645
------------
Total Investments (identified cost $135,806,704) $134,108,078
============
</TABLE>
- ------------------------------------------------------------------------------
Money Market Fund
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Certificate Of Deposit -- 0.8%
Banking -- 0.8%
$15,000,000 Commerzbank AG, NY, 5.295%, 5/19/2000 $14,994,327
(6)Commercial Paper -- 3.3%
Asset-Backed -- 2.7%
25,000,000 Atlantis One Funding Corp., 5.917%, 2/23/2000 24,301,215
25,000,000 Moat Funding LLC, 5.820%, 2/28/2000 24,272,500
-----------
Total 48,573,715
Consumer Non-Durable -- 0.6%
10,000,000 Hasbro, Inc., 5.140%, 9/13/1999 9,982,867
-----------
Total Commercial Paper 58,556,582
Corporate Bonds -- 14.7%
Asset-Backed -- 4.0%
10,000,000 Asset Backed Capital Financial Corp., Class A,
5.900%, 8/8/2000 10,000,000
25,000,000 Beta Finance, Inc., 5.140%, 1/13/2000 24,999,449
10,000,000 CC (USA), Inc., 5.670%, 6/21/2000 10,000,000
25,000,000 Centaur Corp. Inc., 5.330%, 3/6/2000 25,000,000
-----------
Total 69,999,449
Automotive -- 1.0%
17,000,000 Ford Capital BV, 9.500%, 8/9/2000 17,506,621
Banking -- 2.7%
25,000,000 Bankers Trust Co., New York, 5.190%, 2/22/2000 24,997,700
23,000,000 CCC Putable Asset Trust, 6.450%, 10/18/1999 23,038,413
-----------
Total 48,036,113
Beverages & Foods -- 0.1%
2,500,000 PepsiCo, Inc., 6.250%, 9/1/1999 2,500,000
Broker/Dealers -- 3.4%
25,000,000 Bear Stearns and Co., 5.493%, 11/26/1999 25,000,000
35,000,000 Merrill Lynch & Co., Inc., 5.681%, 9/22/1999 35,030,885
-----------
Total 60,030,885
Forest Products & Paper -- 0.8%
14,000,000 Willamette Industries, Inc., Corp. Master Note
5.718%, 9/3/1999 14,000,000
Personal Credit -- 1.5%
1,595,000 Associates Corp. of North America, 6.750%,
10/15/1999 1,597,508
10,000,000 General Motors Acceptance Corp., 8.00%, 10/1/1999 10,020,515
15,000,000 General Motors Acceptance Corp., 5.322%, 11/3/1999 15,000,358
-----------
Total 26,618,381
Short-Term Business Credit -- 0.8%
12,500,000 CIT Group, Inc., 5.800%, 7/20/2000 12,471,903
</TABLE>
Portfolio of Investments
- --------------------------------------------------------------------------------
Money Market Fund (continued)
<TABLE>
---------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Short-Term Business Credit (continued)
$2,000,000 McDonnell Douglas Finance Corp., MTN 6.750%,
9/17/1999 $2,000,846
-----------
Total 14,472,749
Telecommunications -- 0.4%
7,825,000 SBC Communications, Inc., 6.500%, 8/15/2000 7,852,906
-----------
Total Corporate Bonds 261,017,104
Variable Rate Notes -- 70.4%
Asset-Backed -- 6.5%
25,000,000 Bishop's Gate Residential Mortgage Trust 1998-2,
Class A-1, 5.380%, 9/20/1999 25,000,000
60,000,000 Sigma Finance Corp., 5.160%, 9/1/1999 60,000,000
30,000,000 Syndicated Loan Funding Trust, 5.408%, 9/15/1999 30,000,000
-----------
Total 115,000,000
Banking -- 9.5%
12,000,000 Bank One Corp., 5.123%, 9/15/1999 11,999,619
13,000,000 Chase Manhattan Corp., 5.692%, 11/28/1999 13,014,879
40,000,000 Citicorp, 5.135%, 9/1/1999 40,000,000
30,000,000 First Union National Bank, 5.572%, 11/17/1999 30,000,000
75,000,000 SMM Trust, 5.255%, 9/15/1999 75,000,000
-----------
Total 170,014,498
Broker/Dealers -- 11.0%
15,000,000 Bear Stearns & Co. (Series B), 5.557%, 11/18/1999 15,005,454
40,000,000 Bear Stearns & Co., (Series B), 5.296%, 9/10/1999 40,000,000
85,000,000 Goldman Sachs & Co., 5.000%, 9/7/1999 85,000,000
35,000,000 J.P. Morgan & Co., Inc., 5.381%, 9/1/1999 35,000,000
22,000,000 Dean Witter Discover & Co., 5.530%, 10/7/1999 22,054,020
-----------
Total 197,059,474
Construction Equipment -- 3.4%
10,000,000 Caterpillar Financial Services Corp., 5.310%,
9/13/1999 9,998,613
50,000,000 Caterpillar Financial Services Corp., 5.412%,
11/7/1999 50,007,993
-----------
Total 60,006,606
Diversified Manufacturing -- 0.3%
5,000,000 Danaher Corp., 5.202%, 9/7/1999 5,000,000
Foreign Banks -- 4.8%
10,000,000 Bank of Scotland, International Australia, Ltd.,
5.280%, 11/23/1999 9,997,975
75,000,000 Northern Rock PLC, 4.904%, 6/14/2000 75,000,000
-----------
Total 84,997,975
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Variable Rate Notes (continued)
Insurance -- 19.3%
$40,000,000 (5)Commonwealth Life Insurance, 5.670%, 9/1/1999 $40,000,000
54,000,000 (5)(10)General American Life Insurance Co.,
5.590%, 9/1/1999 54,000,000
40,000,000 (5)Jackson National Life Insurance Co., 5.320%,
9/7/1999 40,000,000
50,000,000 (5)Metropolitan Life Insurance Co., 5.041%,
10/25/1999 50,000,000
10,000,000 (5)Monumental Life Insurance Co., 5.430%,
9/30/1999 10,000,000
60,000,000 (5)Transamerica Life Insurance and Annuity Co.,
5.348%, 9/7/1999 60,000,000
50,000,000 (5)Travelers Insurance Co., 5.389%, 10/1/1999 50,000,000
40,000,000 (5)Western National Life Insurance Co., 5.468%,
9/7/1999 40,000,000
--------------
Total 344,000,000
Leasing -- 1.4%
25,000,000 General Electric Capital Corp., (Series A),
5.048%, 9/9/1999 25,000,000
Personal Credit -- 7.0%
50,000,000 American Honda Finance Corp., 5.308%, 10/21/1999 49,990,274
34,000,000 American Honda Finance Corp., 5.310%, 10/20/1999 33,993,433
25,000,000 Ford Motor Credit Corp., 5.435%, 11/18/1999 24,980,520
15,200,000 Toyota Motor Credit Corp., 5.350%, 12/17/1999 15,189,140
--------------
Total 124,153,367
Short-Term Business Credit -- 7.2%
25,000,000 CIT Group, Inc., 5.285%, 10/14/1999 24,994,880
30,000,000 CIT Group, Inc., 5.440%, 9/1/1999 29,990,167
74,000,000 (5)Heller Financial, Inc., 5.098%, 9/7/1999 74,000,000
--------------
Total 128,985,047
--------------
Total Variable Rate Notes 1,254,216,967
--------------
Total Investments
in Securities 1,588,784,980
(2)Repurchase Agreement -- 7.3%
129,744,264 Lehman Brothers, Inc., 5.460%, dated 8/31/1999,
due 9/1/1999 129,744,264
--------------
Total Investments (at amortized cost) $1,718,529,244
==============
</TABLE>
(See Notes to Portfolios of Investments)
Notes to Portfolios of Investments
(See Notes which are an integral part of the Financial Statements)
The categories of investments are shown as a percentage of net assets at August
31, 1999.
(1) Certain shares or principal amounts are temporarily on loan to unaffiliated
broker-dealers.
(2) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on current market prices.
(3) Non-income producing.
(4) Represents the initial deposit within a margin account used to ensure the
Fund is able to satisfy the obligations of its outstanding long futures
contracts.
(5) Securities exempt from registration under the Securities Act of 1933, as
amended and may only be sold to dealers and other exempt investors. These
securities have been determined to be liquid according to guidelines
established by the Funds' board of directors.
(6) Each issue shows the rate of discount at the time of purchase. (7) Current
rate and next demand date shown. (8) Current credit ratings are unaudited.
Please refer to the Statement of
Additional Information for an explanation of the credit ratings.
(9) Securities that are subject to alternative minimum tax represent 10.3% of
Intermediate Tax-Free Fund's portfolio as calculated based upon total
portfolio market value.
(10) As of August 31, 1999, the Money Market Fund held a variable rate note
issued by General American Life Insurance Co., 5.590%, 9/1/1999. As a
result of a change in General American's business, the Money Market Fund
and many other holders of similar instruments issued by General American
exercised demand put features on or about August 2, 1999, requiring
repayment within seven days. On August 9, 1999, General American formally
requested supervision from the Missouri Insurance Commissioner because of
the inability to liquidate sufficient assets to meet repayment deadlines.
General American and the Insurance Commissioner's office publicly
acknowledged a short-term liquidity problem, but stressed sufficient assets
existed to meet obligations. Regardless, an affiliate of the Fund's adviser
provided added protection to Fund shareholders by issuing a demand put to
the Fund if payment was not received in a reasonable time period. On August
31, 1999, General American agreed to be acquired by Metropolitan Life who
paid the Fund all outstanding principal and interest due on October 1,
1999.
- --------------------------------------------------------------------------------
The following acronyms are used throughout this report:
ADR--American Depositary Receipt LOC--Letter of Credit
AMBAC--American Municipal Bond LT--Limited Tax
Assurance Corporation MBIA--Municipal Bond Investors Assurance
COL--Collateralized MTN--Medium Term Note
FGIC--Financial Guaranty PRF--Prerefunded
Insurance Company PSFG--Permanent School Fund Guarantee
FSA--Financial Security Assurance REMIC--Real Estate Mortgage Investment
GO--General Obligation Guarantee
GNMA--Government National TBA--To Be Announced
Mortgage Association UT--Unlimited Tax
GTD--Guaranteed
HFA--Housing Finance Authority
INS--Insured
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized Gross Gross
Cost of Appreciation Unrealized Unrealized
Investments (Depreciation) Appreciation Depreciation
for Federal Tax for Federal for Federal for Federal Total Net
Marshall Purposes Tax Purposes Tax Purposes Tax Purposes Assets
- -------- --------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund $427,279,533 $107,901,583 $116,627,709 $8,726,126 $538,050,228
Large-Cap Growth &
Income Fund 260,361,578 143,990,715 146,620,680 2,629,965 407,942,729
Mid-Cap Value Fund 114,970,950 16,052,985 20,175,377 4,122,392 128,930,897
Mid-Cap Growth Fund 231,355,727 65,630,584 73,923,966 7,793,382 297,527,357
Small-Cap Growth Fund 99,821,926 5,119,085 13,651,712 8,532,627 103,385,668
International Stock Fund 240,196,949 28,685,397 38,920,946 10,235,549 270,743,726
Government Income Fund 351,100,627 (5,774,528) 67,014 5,841,542 318,037,861
Intermediate Bond Fund 602,829,818 (15,086,264) 1,027,936 16,114,200 599,923,142
Intermediate Tax-Free
Fund 109,209,915 (934,849) 705,319 1,640,168 108,732,484
Short-Term Income Fund 135,806,704 (1,698,626) 115,071 1,813,697 134,942,606
Money Market Fund 1,718,529,244* -- -- -- 1,782,092,207
</TABLE>
* At amortized cost
August 31, 1999
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
------- ------- ------- ------- -------
Equity Large-Cap Mid-Cap Mid-Cap Small-Cap
Income Growth & Income Value Growth Growth
Fund Fund Fund Fund Fund
------- ------- ------- ------- -------
Assets:
<S> <C> <C> <C> <C> <C>
Investments in $525,126,539 $370,041,088 $123,542,887 $287,093,835 $ 98,563,139
securities, at
value
Investments in 10,054,577 34,311,205 7,481,048 9,892,476 6,377,872
repurchase
agreements
Short-term
investments
held as
collateral for
securities
lending 37,859,400 43,964,300 13,921,950 54,475,000 --
Cash -- -- -- -- --
Cash
denominated in
foreign
currencies (at
cost,
$431,961) -- -- -- -- --
Income
receivable 1,689,988 421,833 234,960 88,114 36,778
Receivable for
investments
sold 5,236,147 3,443,051 3,091,390 -- 3,462,383
Receivable for
capital stock
sold 263,974 233,091 55,764 981,707 85,120
Receivable for
daily
variation
margin -- -- -- 23,500 22,500
Deferred
organizational
costs -- -- -- -- 15,008
------------ ------------ ------------ ------------ ------------
Total assets 580,230,625 452,414,568 148,327,999 352,554,632 108,562,800
Liabilities:
Payable to bank -- -- -- -- --
Income
distribution
payable -- -- -- -- --
Net payable for
foreign
currency
exchange
contracts -- -- -- -- --
Payable for
investments
purchased 3,637,145 -- 5,214,471 -- 5,011,739
Payable for
capital stock
redeemed 82,026 33,729 132,266 216,352 34,709
Payable on
collateral due
to broker 37,859,400 43,964,300 13,921,950 54,475,000 --
Accrued
expenses 601,826 473,810 128,415 335,923 130,684
------------ ------------ ------------ ------------ ------------
Total
liabilities 42,180,397 44,471,839 19,397,102 55,027,275 5,177,132
------------ ------------ ------------ ------------ ------------
Total Net
Assets $538,050,228 $407,942,729 $128,930,897 $297,527,357 $103,385,668
============ ============ ============ ============ ============
Net Assets
Consist of:
Paid-in-capital 386,839,789 240,131,258 98,260,727 203,241,747 96,644,875
Net unrealized
appreciation
(depreciation)
on
investments,
collateral,
futures
contracts and
foreign
currency
translation 107,901,583 144,014,478 16,448,575 66,865,284 5,036,375
Accumulated net
realized gain
(loss) on
investments,
futures
contracts and
foreign
currency
transactions 43,048,685 23,597,805 14,050,377 27,420,326 1,704,418
Undistributed
net investment
income/(loss) 260,171 199,188 171,218 -- --
------------ ------------ ------------ ------------ ------------
Total Net
Assets $538,050,228 $407,942,729 $128,930,897 $297,527,357 $103,385,668
============ ============ ============ ============ ============
Net Asset Value,
Offering Price
and Redemption
Proceeds Per
Share
Class Y Shares:
Net Asset Value
and Redemption
Proceeds Per
Share $16.71 $17.48 $11.40 $17.28 $12.38
Offering Price
Per Share $16.71 $17.48 $11.40 $17.28 $12.38
Class A Shares:
Net Asset Value
and Redemption
Proceeds Per
Share $16.71 $17.48 $11.40 $17.28 $12.38
Offering Price
Per Share $17.73* $18.55* $12.10* $18.33* $13.14*
Net Assets
Class Y Shares $537,295,397 $407,030,725 $128,575,304 $297,249,155 $102,991,800
Class A Shares: 754,831 912,004 355,593 278,202 393,868
------------ ------------ ------------ ------------ ------------
Total Net
Assets $538,050,228 $407,942,729 $128,930,897 $297,527,357 $103,385,668
============ ============ ============ ============ ============
Shares
Outstanding:
Class Y Shares 32,160,739 23,288,775 11,280,308 17,204,222 8,319,738
Class A Shares 45,182 52,182 31,192 16,102 31,810
------------ ------------ ------------ ------------ ------------
Total shares
outstanding
($0.0001 par
value) 32,205,921 23,340,957 11,311,500 17,220,324 8,351,548
============ ============ ============ ============ ============
Investments, at
identified cost $427,279,533 $260,337,815 $114,575,360 $230,803,874 $ 99,815,884
============ ============ ============ ============ ============
</TABLE>
* Computation of offering price per share 100/94.25 of net asset value.
** Computation of offering price per share 100/95.25 of net asset value.
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
------- ------- ------- ------- ------- -------
International Government Intermediate Intermediate Short-Term Money
Stock Income Bond Tax-Free Income Market
Fund Fund Fund Fund Fund Fund
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$268,882,346 $268,459,540 $484,003,343 $108,275,066 $104,543,433 $1,588,784,980
-- 76,866,559 103,740,211 -- 29,564,645 129,744,264
-- 15,362,500 60,763,800 -- -- --
-- 1,733 -- -- -- 41,701
435,910 -- -- -- -- --
762,762 1,786,215 6,623,260 1,357,352 1,104,910 14,339,124
3,465,001 11,866,828 6,327,906 50,000 -- 55,000,000
1,081,634 6,890 1,663,778 79,000 132,896 2,609,395
-- -- -- -- -- --
-- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ --------------
274,627,653 374,350,265 663,122,298 109,761,418 135,345,884 1,790,519,464
1,906,005 -- 103,666 -- 67,618 --
-- 556,200 1,743,546 357,540 259,036 5,159,402
11,961 -- -- -- -- --
-- 39,975,327 -- -- -- --
1,595,287 153,480 174,648 614,403 22,883 2,471,815
-- 15,362,500 60,763,800 -- -- --
370,674 264,897 413,496 56,991 53,741 796,040
------------ ------------ ------------ ------------ ------------ --------------
3,883,927 56,312,404 63,199,156 1,028,934 403,278 8,427,257
------------ ------------ ------------ ------------ ------------ --------------
$270,743,726 $318,037,861 $599,923,142 $108,732,484 $134,942,606 $1,782,092,207
============ ============ ============ ============ ============ ==============
214,364,944 331,052,682 639,560,396 110,087,877 141,754,078 1,782,092,207
30,360,945 (5,740,544) (14,726,108) (934,849) (1,698,626) --
26,147,344 (7,147,480) (24,724,684) (421,014) (5,088,117) --
(129,507) (126,797) (186,462) 470 (24,729) --
------------ ------------ ------------ ------------ ------------ --------------
$270,743,726 $318,037,861 $599,923,142 $108,732,484 $134,942,606 $1,782,092,207
============ ============ ============ ============ ============ ==============
$13.83 $9.22 $9.17 $9.85 $9.40 $1.00
$13.83 $9.22 $9.17 $9.85 $9.40 $1.00
$13.83 $9.22 $9.17 -- -- $1.00
$14.67* $9.68** $9.63** -- -- $1.00
$270,315,222 $317,283,575 $598,970,493 $108,732,484 $134,942,606 $1,663,739,917
428,504 754,286 952,649 -- -- 118,352,290
------------ ------------ ------------ ------------ ------------ --------------
$270,743,726 $318,037,861 $599,923,142 $108,732,484 $134,942,606 $1,782,092,207
============ ============ ============ ============ ============ ==============
19,540,635 34,425,298 65,293,283 11,038,237 14,348,192 1,663,739,917
30,978 81,854 103,832 -- -- 118,352,290
------------ ------------ ------------ ------------ ------------ --------------
19,571,613 34,507,152 65,397,115 11,038,237 14,348,192 1,782,092,207
============ ============ ============ ============ ============ ==============
$238,519,339 $351,066,643 $602,469,662 $109,209,915 $135,806,704 $1,718,529,244
============ ============ ============ ============ ============ ==============
</TABLE>
Year Ended August 31, 1999
Statements of Operations
<TABLE>
<CAPTION>
------- ------- ------- ------- --------
Equity Large-Cap Mid-Cap Small-Cap
Income Growth & Mid-Cap Growth Growth
Fund Income Fund Value Fund Fund Fund
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest income $ 1,641,385 $ 1,462,203 $ 501,735 $ 917,577 $ 639,268
Dividend income 13,847,619 4,130,402 2,492,038 360,454 49,563
------------ ------------ ----------- ------------ -----------
Total income 15,489,004 5,592,605 2,993,773 1,278,031 688,831
Expenses:
Investment advisory fee 4,006,158 2,763,976 1,033,112 1,933,093 997,009
Directors' fees 7,396 8,551 7,745 7,188 7,245
Administrative fees 448,829 310,828 118,865 218,644 123,840
Custodian fees 79,231 80,639 27,597 45,532 20,031
Portfolio accounting
fees 88,711 72,211 48,642 73,411 46,282
Transfer and dividend
disbursing agent fees 138,395 125,223 81,056 104,969 66,387
Shareholder services
fees--
Class Y Shares 1,335,022 920,954 344,176 644,251 249,070
Class A Shares 363 362 188 114 176
Registration fees 22,308 35,977 17,578 39,719 23,560
Auditing fees 12,696 15,194 12,474 13,149 13,084
Legal fees 4,087 574 2,813 3,403 2,015
Printing and postage 11,251 15,189 13,712 15,835 16,192
Insurance premiums 4,143 2,224 1,397 1,536 1,459
Distribution services
fees--
Class A Shares 364 371 194 114 182
Taxes 36,463 30,445 11,019 21,742 7,315
Miscellaneous 44,967 30,464 13,100 28,354 9,676
------------ ------------ ----------- ------------ -----------
Total expenses 6,240,384 4,413,182 1,733,668 3,151,054 1,583,523
Deduct--
Waiver of investment
advisory fee -- -- -- -- --
Waiver of shareholder
services fees--
Class Y Shares -- -- -- -- --
Class A Shares (363) (362) (188) (114) (176)
------------ ------------ ----------- ------------ -----------
Total Waivers (363) (362) (188) (114) (176)
Net expenses 6,240,021 4,412,820 1,733,480 3,150,940 1,583,347
------------ ------------ ----------- ------------ -----------
Net investment income
(net operating loss) 9,248,983 1,179,785 1,260,293 (1,872,909) (894,516)
Realized and Unrealized
Gain (Loss) on
Investments,
Collateral, Foreign
Currency and Futures
Contracts:
Net realized gain
(loss) on investment
transactions
(identified cost
basis) 43,055,381 21,925,688 14,240,749 27,484,765 1,267,142
Net realized gain on
future contracts
(identified cost
basis) -- 3,576,508 -- 2,139,745 1,241,740
Net realized loss on
foreign currency
transactions -- -- -- -- --
Net change in
unrealized
appreciation
(depreciation) on
investments,
collateral, futures
contracts and foreign
currency translation 72,705,877 81,285,328 11,987,900 73,510,212 20,790,088
------------ ------------ ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments,
collateral, foreign
currency and futures
contracts 115,761,258 106,787,524 26,228,649 103,134,722 23,298,970
------------ ------------ ----------- ------------ -----------
Change in net assets
resulting from
operations $125,010,241 $107,967,309 $27,488,942 $101,261,813 $22,404,454
============ ============ =========== ============ ===========
</TABLE>
(1)Net of Foreign taxes withheld of $439,056.
(2)Net of dollar roll interest expense of $1,926,285.
(3)Net of foreign capital tax of $61,371.
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
- ------------- ------- ------- ------- ------- -------
International Government Intermediate Intermediate Short-Term Money
Stock Income Bond Tax-Free Income Market
Fund Fund Fund Fund Fund Fund
- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 581,208 $ 19,627,198(2) $ 38,983,936 $ 5,178,120 $ 8,444,398 $93,541,888
4,505,717(1) -- -- -- -- --
----------- ------------ ------------ ----------- ----------- -----------
5,086,925 19,627,198 38,983,936 5,178,120 8,444,398 93,541,888
2,416,970 2,245,727 3,565,324 658,570 810,216 8,873,537
7,252 6,450 7,220 7,206 7,792 7,828
205,307 253,421 498,835 91,361 112,112 1,477,382
169,818 50,971 79,528 22,469 27,494 203,990
71,736 74,390 98,104 50,624 47,321 179,417
44,821 77,066 80,311 31,140 27,124 293,394
604,066 684,008 1,353,842 274,404 337,590 332,814
176 229 461 -- -- 22,127
29,521 23,896 24,602 19,744 24,816 73,112
15,270 15,138 14,909 12,806 15,111 15,670
7,106 3,135 3,673 3,022 407 7,425
8,684 13,407 16,144 10,585 13,905 18,305
1,201 1,928 4,074 985 1,509 8,490
176 233 463 -- -- 331,903
23,830 27,697 50,202 7,714 9,935 125,799
34,411 12,604 42,900 8,939 8,023 24,896
----------- ------------ ------------ ----------- ----------- -----------
3,640,345 3,490,300 5,840,592 1,199,569 1,443,355 11,996,089
(23,525) (291,548) (356,532) (277,085) (445,583) (4,436,304)
-- (624,141) (1,235,035) (252,452) (310,583) --
(176) (229) (461) -- -- --
----------- ------------ ------------ ----------- ----------- -----------
(23,701) (915,918) (1,592,028) (529,537) (756,166) (4,436,304)
3,616,644 2,574,382 4,248,564 670,032 687,189 7,559,785
----------- ------------ ------------ ----------- ----------- -----------
1,470,281 17,052,816 34,735,372 4,508,088 7,757,209 85,982,103
27,402,838(3) (5,532,998) (2,982,509) (183,666) (228,984) --
-- -- -- -- -- --
(1,420,206) -- -- -- -- --
21,406,193 (10,156,936) (24,215,629) (4,455,519) (2,721,091) --
----------- ------------ ------------ ----------- ----------- -----------
47,388,825 (15,689,934) (27,198,138) (4,639,185) (2,950,075) --
----------- ------------ ------------ ----------- ----------- -----------
$48,859,106 $ 1,362,882 $ 7,537,234 $ (131,097) $ 4,807,134 $85,982,103
=========== ============ ============ =========== =========== ===========
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
---------------------------- --------------------------
Equity Large-Cap
Income Growth &
Fund Income Fund
---------------------------- --------------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations--
Net investment income
(net operating loss) $ 9,248,983 $ 9,626,902 $ 1,179,785 $ 1,227,848
Net realized gain
(loss) on investment
transactions 43,055,381 40,283,486 21,925,688 18,456,573
Net realized gain
(loss) on futures
contracts -- -- 3,576,508 (844,292)
Net realized loss on
foreign currency
transactions -- -- -- --
Net change in
unrealized
appreciation
(depreciation) of
investments,
collateral, futures
contracts and foreign
currency translation 72,705,877 (23,760,894) 81,285,328 (9,032,687)
------------- ------------- ------------ ------------
Change in net assets
resulting from
operations 125,010,241 26,149,494 107,967,309 9,807,442
------------- ------------- ------------ ------------
Distributions to
Shareholders--
Dividends to
shareholders from net
investment income
Class Y Shares (9,616,451) (9,687,514) (1,225,905) (1,128,306)
Class A Shares (1,539) -- (125) --
Distributions to
shareholders from net
realized gain on
investments
Class Y Shares (33,129,352) (27,002,639) (16,057,392) (23,055,255)
------------- ------------- ------------ ------------
Change in net assets
from distributions to
shareholders (42,747,342) (36,690,153) (17,283,422) (24,183,561)
------------- ------------- ------------ ------------
Capital Stock
Transactions--
Proceeds from sale of
shares 62,127,664 212,523,763 68,746,185 59,962,072
Net asset value of
shares issued to
shareholders in
payment of
distributions declared 36,072,765 29,988,247 16,617,460 23,601,015
Cost of shares redeemed (101,277,886) (104,836,067) (42,926,207) (63,972,861)
------------- ------------- ------------ ------------
Change in net assets
from capital stock
transactions (3,077,457) 137,675,943 42,437,438 19,590,226
------------- ------------- ------------ ------------
Change in net assets 79,185,442 127,135,284 133,121,325 5,214,107
Net Assets:
Beginning of year 458,864,786 331,729,502 274,821,404 269,607,297
------------- ------------- ------------ ------------
End of year $ 538,050,228 $ 458,864,786 $407,942,729 $274,821,404
============= ============= ============ ============
Undistributed net
investment income
included in net assets
at end of period $ 260,171 $ 647,535 $ 199,188 $ 244,696
============= ============= ============ ============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
- -------------------------- -------------------------- -------------------------- ----------------------------
Small-Cap
Mid-Cap Mid-Cap Growth International
Value Fund Growth Fund Fund Stock Fund
- -------------------------- -------------------------- -------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998 1999 1998
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,260,293 $ 1,595,862 $ (1,872,909) $ (1,775,264) $ (894,516) $ (1,015,186) $ 1,470,281 $ 5,028,964
14,240,749 11,719,164 27,484,765 17,091,286 1,267,142 3,744,474 27,402,838 309,389
-- -- 2,139,745 264,890 1,241,740 (200,587) -- --
-- -- -- -- -- -- (1,420,206) (233,199)
11,987,900 (16,549,975) 73,510,212 (36,178,485) 20,790,088 (23,578,293) 21,406,193 (29,288,960)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
27,488,942 (3,234,949) 101,261,813 (20,597,573) 22,404,454 (21,049,592) 48,859,106 (24,183,806)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(1,460,404) (1,713,554) -- -- -- -- (4,598,552) (3,675,610)
(311) -- -- -- -- -- -- --
(11,609,645) (21,031,640) (12,958,800) (23,952,792) (187,364) (2,485,675) -- (4,959,734)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(13,070,360) (22,745,194) (12,958,800) (23,952,792) (187,364) (2,485,675) (4,598,552) (8,635,344)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
16,163,437 57,448,236 91,239,828 99,091,260 48,531,026 76,581,765 220,340,936 163,353,256
12,077,431 21,339,106 12,799,676 23,567,478 185,274 2,464,966 2,562,588 6,828,038
(48,348,363) (63,330,825) (82,203,575) (87,703,412) (47,405,727) (32,078,052) (221,668,862) (138,963,126)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(20,107,495) 15,456,517 21,835,929 34,955,326 1,310,573 46,968,679 1,234,662 31,218,168
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(5,688,913) (10,523,626) 110,138,942 (9,595,039) 23,527,663 23,433,412 45,495,216 (1,600,982)
134,619,810 145,143,436 187,388,415 196,983,454 79,858,005 56,424,593 225,248,510 226,849,492
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
$128,930,897 $134,619,810 $297,527,357 $187,388,415 $103,385,668 $ 79,858,005 $ 270,743,726 $ 225,248,510
============ ============ ============ ============ ============ ============ ============= =============
$ 171,218 $ 371,804 -- -- -- -- $ (129,507) $ 4,584,972
============ ============ ============ ============ ============ ============ ============= =============
<CAPTION>
- ---------------------------
Government
Income
Fund
- ---------------------------
Year Ended Year Ended
August 31, August 31,
1999 1998
- ------------- -------------
<C> <C>
$ 17,052,816 $ 15,508,284
(5,532,998) 1,854,374
-- --
-- --
(10,156,936) 3,216,704
- ------------- -------------
1,362,882 20,579,362
- ------------- -------------
(17,129,836) (15,508,284)
(4,991) --
-- --
- ------------- -------------
(17,134,827) (15,508,284)
- ------------- -------------
101,047,566 98,456,886
10,213,574 8,809,411
(57,763,948) (35,667,208)
- ------------- -------------
53,497,192 71,599,089
- ------------- -------------
37,725,247 76,670,167
280,312,614 203,642,447
- ------------- -------------
$318,037,861 $280,312,614
============= =============
$ (126,797) --
============= =============
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
--------------------------
Intermediate
Bond Fund
--------------------------
Year Year
Ended Ended
August 31, August 31,
1999 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations--
Net investment income $ 34,735,372 $ 31,179,790
Net realized gain (loss) on investment
transactions (2,982,509) 1,740,828
Net change in unrealized appreciation
(depreciation) of investments, collateral,
futures contracts, and foreign currency
translation (24,215,629) 7,755,997
------------ ------------
Change in net assets resulting from operations 7,537,234 40,676,615
------------ ------------
Distributions to Shareholders--
Dividends to shareholders from net investment
income:
Class Y Shares (34,884,036) (31,179,790)
Class A Shares (10,464) --
Distributions from shareholders from net realized
gain on investments
Class Y Shares -- --
------------ ------------
Change in net assets from distributions to
shareholders (34,894,500) (31,179,790)
------------ ------------
Capital Stock Transactions--
Proceeds from sale of shares 109,483,038 256,079,048
Net asset value of shares issued to shareholders
in payment of dividends declared 13,956,200 13,270,752
Cost of shares redeemed (85,827,857) (87,411,885)
------------ ------------
Change in net assets from capital stock
transactions 37,611,381 181,937,915
------------ ------------
Change in net assets 10,254,115 191,434,740
Net Assets:
Beginning of year 589,669,027 398,234,287
------------ ------------
End of year $599,923,142 $589,669,027
============ ============
Undistributed net investment income included in
net assets at end of period $ (186,462) --
============ ============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
-------------------------- -------------------------- ------------------------------
Intermediate Short-Term Money
Tax-Free Income Market
Fund Fund Fund
-------------------------- -------------------------- ------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 4,508,088 $ 4,014,103 $ 7,757,209 $ 9,021,548 $ 85,982,103 $ 82,839,430
(183,666) 825,890 (228,984) (1,166,498) -- --
(4,455,519) 1,904,633 (2,721,091) 619,229 -- --
------------ ------------ ------------ ------------ -------------- --------------
(131,097) 6,744,626 4,807,134 8,474,279 85,982,103 82,839,430
------------ ------------ ------------ ------------ -------------- --------------
(4,511,597) (4,010,594) (7,755,151) (9,021,548) (80,923,709) (78,163,550)
-- -- -- -- (5,058,394) (4,675,880)
(728,088) -- -- -- -- --
------------ ------------ ------------ ------------ -------------- --------------
(5,239,685) (4,010,594) (7,755,151) (9,021,548) (85,982,103) (82,839,430)
------------ ------------ ------------ ------------ -------------- --------------
27,474,634 27,565,906 68,590,068 68,282,147 6,113,374,930 5,479,189,898
1,063,380 369,721 4,593,648 4,343,981 24,005,312 18,085,713
(16,026,860) (17,185,505) (68,479,242) (87,673,401) (6,049,229,780) (5,183,477,454)
------------ ------------ ------------ ------------ -------------- --------------
12,511,154 10,750,122 4,704,474 (15,047,273) 88,150,462 313,798,157
------------ ------------ ------------ ------------ -------------- --------------
7,140,372 13,484,154 1,756,457 (15,594,542) 88,150,462 313,798,157
101,592,112 $ 88,107,958 133,186,149 148,780,691 1,693,941,745 1,380,143,588
------------ ------------ ------------ ------------ -------------- --------------
$108,732,484 $101,592,112 $134,942,606 $133,186,149 $1,782,092,207 $1,693,941,745
============ ============ ============ ============ ============== ==============
$ 470 $ 3,509 (24,729) -- -- --
============ ============ ============ ============ ============== ==============
</TABLE>
Financial Highlights--Class Y Shares
<TABLE>
<CAPTION>
Distributions to
shareholders from
Net realized and net realized gain
unrealized on investment
Net gain/(loss) on Dividends to transactions,
Net Asset investment investments, shareholders futures
Period value, income/ collateral, futures Total from from net contracts, and Net Asset
Ended beginning operating contracts and investment investment foreign currency Total value, end Total
August 31, of period (loss) foreign currency operations income transactions distributions of period return(3)
- ---------- --------- ---------- ------------------- ---------- ------------ ----------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund
1995 $ 9.96 0.33 1.26 1.59 (0.33) -- (0.33) $11.22 16.40%
1996 $11.22 0.34 2.00 2.34 (0.35) (0.21) (0.56) $13.00 21.20%
1997 $13.00 0.33 3.51 3.84 (0.34) (0.86) (1.20) $15.64 30.95%
1998 $15.64 0.31 (0.19)(5) 0.12 (0.32) (1.27) (1.59) $14.17 0.04%
1999 $14.17 0.28 3.59 3.87 (0.29) (1.04) (1.33) $16.71 27.92%
Large-Cap Growth & Income Fund
1995 $10.05 0.09 1.59 1.68 (0.09) -- (0.09) $11.64 16.85%
1996 $11.64 0.16 1.17 1.33 (0.15) (0.66) (0.81) $12.16 11.56%
1997 $12.16 0.10 3.76 3.86 (0.12) (1.94) (2.06) $13.96 34.50%
1998 $13.96 0.06 0.46 0.52 (0.06) (1.18) (1.24) $13.24 3.44%
1999 $13.24 0.06 5.01 5.07 (0.06) (0.77) (0.83) $17.48 38.98%
Mid-Cap Value Fund
1995 $10.95 0.22 1.22 1.44 (0.20) (0.11) (0.31) $12.08 13.57%
1996 $12.08 0.21 0.78 0.99 (0.21) (0.88) (1.09) $11.98 8.53%
1997 $11.98 0.15 3.05 3.20 (0.15) (1.89) (2.04) $13.14 30.20%
1998 $13.14 0.10 (0.92) (0.82) (0.12) (1.95) (2.07) $10.25 (7.75%)
1999 $10.25 0.11 2.10 2.21 (0.12) (0.94) (1.06) $11.40 21.92%
Mid-Cap Growth Fund
1995 $ 9.69 (0.00) 2.62 2.62 (0.01) -- (0.01) $12.30 27.06%
1996 $12.30 (0.06) 2.24 2.18 -- (0.92) (0.92) $13.56 18.92%
1997 $13.56 (0.08) 2.56 2.48 -- (1.22) (1.22) $14.82 19.14%
1998 $14.82 (0.13) (0.93) (1.06) -- (1.81) (1.81) $11.95 (8.77%)
1999 $11.95 (0.11) 6.26 6.15 -- (0.82) (0.82) $17.28 53.41%
Small-Cap Growth Fund
1997(2) $10.00 (0.08) 2.27 2.19 -- -- -- $12.19 21.90%
1998 $12.19 (0.22) (1.66) (1.88) -- (0.49) (0.49) $ 9.82 (16.25%)
1999 $ 9.82 (0.11) 2.69 2.58 -- (0.02) (0.02) $12.38 26.30%
International Stock Fund
1995(1) $10.00 0.20 0.01 0.21 (0.05) -- (0.05) $10.16 2.11%
1996 $10.16 0.21 0.96 1.17 (0.22) (0.03) (0.25) $11.08 11.71%
1997 $11.08 0.18 2.29 2.47 (0.26) (0.09) (0.35) $13.20 22.73%
1998 $13.20 0.26 (1.42) (1.16) (0.21) (0.29) (0.50) $11.54 (9.09%)
1999 $11.54 0.09 2.45 2.54 (0.25) -- (0.25) $13.83 22.20%
<CAPTION>
Ratios to Average Net Assets
--------------------------------------------------------
Net
investment Net Assets,
Period Net Expenses income end Portfolio
Ended investment (after (after of period turnover
August 31, Expenses(6) income(6) waivers) waivers) (000's omitted) rate
- ----------- -------------- -------------- ----------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund
1995 1.10% 3.36% 1.01% 3.45% $ 107,499 43%
1996 0.98% 2.83% 0.98% 2.83% $ 173,402 60%
1997 1.22% 2.31% 1.22% 2.31% $ 331,730 61%
1998 1.17% 2.01% 1.17% 2.01% $ 458,865 69%
1999 1.17% 1.73% 1.17% 1.73% $ 537,295 72%
Large-Cap Growth & Income Fund
1995 0.99% 0.87% 0.98% 0.88% $ 257,019 79%
1996 0.97% 1.28% 0.97% 1.28% $ 251,583 147%
1997 1.23% 0.78% 1.23% 0.78% $ 269,607 43%
1998 1.21% 1.40% 1.21% 0.40% $ 274,821 33%
1999 1.20% 0.32% 1.20% 0.32% $ 407,031 32%
Mid-Cap Value Fund
1995 0.96% 1.98% 0.96% 1.98% $ 220,436 78%
1996 0.98% 1.68% 0.98% 1.68% $ 195,066 67%
1997 1.23% 1.20% 1.23% 1.20% $ 145,143 55%
1998 1.25% 0.96% 1.25% 0.96% $ 134,620 59%
1999 1.25% 0.96% 1.25% 0.96% $ 128,575 90%
Mid-Cap Growth Fund
1995 1.09% (0.21%) 1.01% (0.13%) $ 108,256 157%
1996 1.01% (0.47%) 1.01% (0.47%) $ 143,236 189%
1997 1.24% (0.52%) 1.24% (0.52%) $ 196,983 211%
1998 1.23% (0.79%) 1.23% (0.79%) $ 187,388 167%
1999 1.21% (0.73%) 1.21% (0.73%) $ 297,249 173%
Small-Cap Growth Fund
1997(2) 1.80%(4) (0.94%)(4) 1.80%(4) (0.94%)(4) $ 56,425 183%
1998 1.60% (1.18%) 1.60% (1.18%) $ 79,858 139%
1999 1.59% (0.90%) 1.59% (0.90%) $ 102,992 219%
International Stock Fund
1995(1) 1.58%(4) 2.38%(4) 1.54%(4) 2.42%(4) $ 94,048 61%
1996 1.35% 2.58% 1.35% 2.58% $ 143,783 26%
1997 1.59% 1.80% 1.59% 1.80% $ 226,849 26%
1998 1.49% 2.01% 1.49% 2.01% $ 225,248 24%
1999 1.51% 0.78% 1.50% 0.79% $ 270,315 182%
</TABLE>
<TABLE>
<CAPTION>
Distributions to
shareholders from
Net realized and net realized gain
unrealized on investment
Net gain/(loss) on Dividends to transactions,
Net Asset investment investments, shareholders futures
Period value, income/ collateral, futures Total from from net contracts, and Net Asset
Ended beginning operating contracts and investment investment foreign currency Total value, end Total
August 31, of period (loss) foreign currency operations income transactions distributions of period return(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Income Fund
1995 $ 9.26 0.60 0.27 0.87 (0.62) -- (0.62) $ 9.51 9.78%
1996 $ 9.51 0.62 (0.24) 0.38 (0.62) -- (0.62) $ 9.27 4.02%
1997 $ 9.27 0.62 0.22 0.84 (0.62) -- (0.62) $ 9.49 9.35%
1998 $ 9.49 0.61 0.21 0.82 (0.61) -- (0.61) $ 9.70 8.92%
1999 $ 9.70 0.54 (0.48) 0.06 (0.54) -- (0.54) $ 9.22 0.62%
Intermediate Bond Fund
1995 $ 9.36 0.61 0.16 0.77 (0.62) -- (0.62) $ 9.51 8.58%
1996 $ 9.51 0.58 (0.25) 0.33 (0.58) -- (0.58) $ 9.26 3.52%
1997 $ 9.26 0.58 0.18 0.76 (0.58) -- (0.58) $ 9.44 8.42%
1998 $ 9.44 0.58 0.16 0.74 (0.58) -- (0.58) $ 9.60 8.00%
1999 $ 9.60 0.55 (0.43) 0.12 (0.55) -- (0.55) $ 9.17 1.28%
Intermediate Tax-Free Fund
1995 $ 9.71 0.42 0.20 0.62 (0.42) -- (0.42) $ 9.91 6.58%
1996 $ 9.91 0.43 (0.08) 0.35 (0.43) -- (0.43) $ 9.83 3.57%
1997 $ 9.83 0.43 0.21 0.64 (0.43) -- (0.43) $10.04 6.67%
1998 $10.04 0.43 0.29 0.72 (0.43) -- (0.43) $10.33 7.31%
1999 $10.33 0.42 (0.41) 0.01 (0.42) (0.07) (0.49) $ 9.85 0.02%
Short-Term Income Fund
1995 $ 9.71 0.56 0.05 0.61 (0.58) -- (0.58) $ 9.74 6.47%
1996 $ 9.74 0.62 (0.15) 0.47 (0.62) -- (0.62) $ 9.59 4.92%
1997 $ 9.59 0.63 0.04 0.67 (0.62) -- (0.62) $ 9.64 7.20%
1998 $ 9.64 0.61 (0.03) 0.58 (0.61) -- (0.61) $ 9.61 6.22%
1999 $ 9.61 0.55 (0.21) 0.34 (0.55) -- (0.55) $ 9.40 3.59%
Money Market Fund
1995 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.57%
1996 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.39%
1997 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.35%
1998 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.51%
1999 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 4.98%
<CAPTION>
Ratios to Average Net Assets
Net
investment Net Assets,
Period Net Expenses income end Portfolio
Ended investment (after (after of period turnover
August 31, Expenses(6) income(6) waivers) waivers) (000's omitted) rate
<S> <C> <C> <C> <C> <C> <C>
Government Income Fund
1995 1.12% 6.28% 0.86% 6.54% $ 103,708 360%
1996 1.05% 6.32% 0.86% 6.51% $ 138,458 268%
1997 1.24% 6.24% 0.86% 6.62% $ 203,642 299%
1998 1.21% 6.04% 0.87% 6.38% $ 280,313 353%
1999 1.19% 5.36% 0.86% 5.69% $ 317,284 232%
Intermediate Bond Fund
1995 0.79% 6.42% 0.71% 6.50% $ 344,071 232%
1996 0.81% 6.05% 0.72% 6.14% $ 403,657 201%
1997 1.03% 5.86% 0.72% 6.17% $ 398,234 144%
1998 1.00% 5.73% 0.71% 6.02% $ 589,669 148%
1999 0.99% 5.57% 0.71% 5.85% $ 598,970 181%
Intermediate Tax-Free Fund
1995 1.08% 3.88% 0.61% 4.35% $ 46,051 105%
1996 0.98% 3.97% 0.61% 4.34% $ 65,927 41%
1997 1.15% 3.81% 0.61% 4.35% $ 88,108 53%
1998 1.12% 3.71% 0.61% 4.22% $ 101,592 68%
1999 1.09% 3.63% 0.61% 4.11% $ 108,732 53%
Short-Term Income Fund
1995 0.91% 5.38% 0.51% 5.78% $ 84,273 194%
1996 0.91% 5.76% 0.51% 6.16% $ 100,846 144%
1997 1.08% 5.87% 0.49% 6.46% $ 148,781 101%
1998 1.05% 5.85% 0.50% 6.40% $ 133,186 90%
1999 1.07% 5.18% 0.51% 5.74% $ 134,943 163%
Money Market Fund
1995 0.67% 5.18% 0.41% 5.44% $1,128,623 --
1996 0.67% 5.03% 0.41% 5.29% $1,039,659 --
1997 0.67% 4.96% 0.41% 5.22% $1,290,659 --
1998 0.66% 5.12% 0.41% 5.37% $1,588,817 --
1999 0.66% 4.61% 0.41% 4.86% $1,663,740 --
</TABLE>
(1) Reflects operations for the (5) The amount shown in this caption for a
period from September 2, 1994 share outstanding does not correspond
(date of initial public with the aggregate net realized and
investment) to August 31, unrealized gain (loss) on investments,
1995. collateral, Futures Contracts and
(2) Reflects operations for the foreign currency for the period ended period
from September 3, 1996 due to the timing of sales and (date of initial
public repurchases of Fund shares in relation investment) to August 31, to
fluctuating market values of the 1997. investments of the Fund.
(3) Based on net asset value. (6) During the period, certain fees were (4)
Computed on an annualized voluntarily waived. If such waivers had
basis. not occurred, the ratios would have
been as indicated.
Notes to Financial Statements
1. Organization
Marshall Funds, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Corporation consists of eleven diversified portfolios
(individually referred to as the "Fund", or collectively as the "Funds") which
are presented herein:
<TABLE>
<CAPTION>
Portfolio Name Investment Objective
-------------- --------------------
<C> <S>
Marshall Equity Income Fund ("Equity Income Fund") Capital appreciation and
above-average dividend
income.
Marshall Large-Cap Growth & Income Fund Capital appreciation and
income.
("Large-Cap Growth & Income Fund")
Marshall Mid-Cap Value Fund ("Mid-Cap Value Fund") Capital appreciation.
Marshall Mid-Cap Growth Fund ("Mid-Cap Growth Fund") Capital appreciation.
Marshall Small-Cap Growth Fund ("Small-Cap Growth Fund") Capital appreciation.
Marshall International Stock Fund ("International Stock Fund") Capital appreciation.
Marshall Government Income Fund ("Government Income Fund") Current income.
Marshall Intermediate Bond Fund ("Intermediate Bond Fund") Maximize total return
consistent with current
income.
Marshall
Intermediate
Tax-Free
Fund
("Intermediate
Tax-Free
Fund")
Provide a
high level
of current
income that
is exempt
from
federal
income tax
and is
consistent
with
preservation
of capital.
Marshall Short-Term
Income Fund
("Short-Term
Income
Fund")
Maximize
total return
consistent
with current
income.
Marshall Money Market
Fund ("Money
Market
Fund")
Current
income
consistent
with
stability of
principal.
</TABLE>
The Funds (except Intermediate Tax-Free Fund and Short-Term Income Fund)
offered two classes of shares: Class Y Shares and Class A Shares. The assets of
each Fund are segregated and a shareholder's interest is limited to the Fund in
which shares are held. The Financial Highlights of Class A Shares of the Funds
are presented in a separate annual report.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations--Listed equity securities are valued at the last sale
price reported on a national securities exchange. U.S. government securities,
listed corporate bonds, other fixed income and asset-backed securities, and
unlisted securities and private placement securities are generally valued at the
mean of the latest bid and asked prices as furnished by an independent pricing
service. Municipal bonds are valued by an independent pricing service, taking
into consideration yield, liquidity, risk, credit quality, coupon, maturity,
type of issue, and any other factors or market data the pricing service deems
relevant. The Money Market Fund's use of the amortized cost method to value
portfolio securities is in accordance with Rule 2a-7 under the Act. For
fluctuating net asset value funds within the Corporation, short-term securities
are valued at the prices provided by an independent pricing service. However,
short-term securities purchased with remaining maturities of sixty days or less
may be valued at amortized cost, which approximates fair market value.
Investments in other open-end regulated investment companies are valued at net
asset value.
Repurchase Agreements--It is the policy of the Funds to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction, including accrued interest.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' adviser (or sub-adviser with respect to the International Stock Fund)
to be creditworthy pursuant to the guidelines and/or standards reviewed or
established by the Board of Directors (the "Directors"). Risks may arise from
the potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Funds could receive less than the repurchase price
on the sale of collateral securities.
Investment Income, Expenses and Distributions--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Federal Taxes--It is the Funds' policy to comply with the provisions of
Subchapter M of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of their income.
Accordingly, no provisions for federal tax are necessary.
[_] Marshall Funds
Withholding taxes on foreign dividends have been provided for in accordance
with the International Stock Fund's understanding of the applicable country's
tax rules and rates.
At August 31, 1999, the following Funds had capital loss carryforwards for
federal tax purposes, which will reduce each Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve each Fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforwards will expire as listed
below:
<TABLE>
<CAPTION>
Capital Loss Capital Loss Capital Loss Capital Loss
Capital Loss Capital Loss Carryforward Carryforward
Carryforward Carryforward Carryforward Carryforward
Total to Expire in to Expire in to Expire in to Expire
in to Expire in to Expire in Capital Loss
Fund 2002 2003 2004 2005 2006 2007 Carryforward
- ---- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Income Fund $ -- $ -- $ -- $385,369 $ -- $ -- $ 385,369
Intermediate Bond Fund -- 15,540,740 6,100,494 -- -- -- 21,641,234
Short-Term Income Fund 302,405 1,898,650 556,158 545,815 618,371 952,637 4,874,036
</TABLE>
Additionally, the following net capital losses or currency losses attributable
to security transactions incurred after October 31, 1998 are treated as arising
on September 1, 1999, the first day of the Fund's next taxable year:
<TABLE>
<CAPTION>
Fund Capital Loss Currency Loss
- ---- ------------ -------------
<S> <C> <C>
Mid-Cap Value Fund $ (164) $ --
Small-Cap Growth Fund (1,710,125) --
International Stock Fund -- (1,420,943)
Government Income Fund (6,728,127) --
Intermediate Bond Fund (2,723,294) --
Intermediate Tax-Free Fund (421,014) --
Short-Term Income Fund (214,081) --
</TABLE>
When-Issued and Delayed Delivery Transactions--The Funds may engage in when-
issued or delayed delivery transactions. The Funds record when-issued securities
on the trade date and maintain security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
Futures Contracts--Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-
Cap Growth Fund and Small-Cap Growth Fund purchase stock index futures contracts
to manage cashflows, enhance yield, and to potentially reduce transaction costs.
Upon entering into a stock index futures contract with a broker, the Fund is
required to deposit in a segregated account a specified amount of cash or U.S.
government securities. Futures contracts are valued daily and unrealized gains
or losses are recorded in a "variation margin" account. Daily, the Fund receives
from or pays to the broker a specified amount of cash based upon changes in the
variation margin account. When a contract is closed, the Fund recognizes a
realized gain or loss. Futures contracts have market risks, including the risk
that the change in the value of the contract may not correlate with changes in
the value of the underlying securities.
At August 31, 1999, Large-Cap Growth & Income Fund and Mid-Cap Value Fund had
no outstanding futures contracts.
At August 31, 1999, the Mid-Cap Growth Fund had outstanding futures contracts
as set forth below:
<TABLE>
<CAPTION>
Expiration Date Contracts to Receive Position Unrealized Appreciation
- --------------- -------------------- -------- -----------------------
<S> <C> <C> <C>
September 1999 20 Nasdaq 100 Long $661,848
September 1999 10 S&P 250 Long 20,999
--------
Net Unrealized
Appreciation on Futures
Contracts $682,847
</TABLE>
At August 31, 1999, the Small-Cap Growth Fund had outstanding futures
contracts as set forth below:
<TABLE>
<CAPTION>
Expiration Date Contracts to Receive Position Unrealized (Depreciation)
--------------- -------------------- -------- -------------------------
<S> <C> <C> <C>
September 1999 20 Russell 2000 Long $(88,752)
</TABLE>
Notes to Financial Statements (continued)
Foreign Exchange Contracts--International Stock Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
Fund may enter into these contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date as a hedge or cross hedge
against either specific transactions or portfolio positions. The objective of
the Fund's foreign currency hedging transactions is to reduce the risk that the
U.S. dollar value of the Fund's foreign currency denominated securities will
decline in value due to changes in foreign currency exchange rates. All foreign
currency exchange contracts are "marked-to-market" daily at the applicable
translation rates resulting in unrealized gains or losses. Realized gains or
losses are recorded at the time the foreign currency exchange contract is offset
by entering into a closing transaction or by the delivery or receipt of the
currency. Risk may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar. As of August 31, 1999, International Stock Fund had outstanding foreign
exchange contracts as set forth below:
<TABLE>
<CAPTION>
Foreign Currency Units Contracts at Unrealized
Settlement Date to Deliver In Exchange For Value (Depreciation)
- --------------- -------------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Contracts
Sold:
9/2/1999-
9/7/1999 3,424,987 Singapore Dollar $2,022,505 $2,034,444 $(11,939)
9/1/1999-
9/2/1999 3,866,808 Hong Kong Dollar $ 497,966 $ 497,988 $ (22)
--------
Net Unrealized Depreciation on Foreign Exchange Contracts $(11,961)
</TABLE>
Foreign Currency Translation--The accounting records of International Stock
Fund are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FCs") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Funds do not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Dollar Roll Transactions--The Funds, except for the Money Market Fund, may
enter into dollar roll transactions with respect to mortgage securities issued
by Government National Mortgage Association, Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation, in which the Funds loan
mortgage securities to financial institutions and simultaneously agree to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Funds will use the
proceeds generated from the transactions to invest in short-term investments,
which may enhance the Funds' current yield and total return.
Securities Lending--The Funds participate in a securities lending program
providing for the lending of corporate bonds, equity and government securities
to qualified brokers. The Funds receive cash as collateral in return for the
securities and record a corresponding payable for collateral due to the
respective broker. The amount of cash collateral received is maintained at a
minimum level of 100% of the market value on securities loaned plus interest.
Collateral is reinvested in short-term securities including overnight repurchase
agreements, commercial paper, master notes, floating rate corporate notes (with
at least quarterly reset rates) and money market funds. The Funds reimburse the
custodian for the costs directly associated with the Funds' participation in the
securities lending program.
As of August 31, 1999, the value of securities loaned, the payable on
collateral due to broker and the value of reinvested cash collateral securities
were as follows:
<TABLE>
<CAPTION>
Market Value of Payable on Collateral Reinvested Collateral
Fund Securities Loaned Due to Broker Securities
- ---- ----------------- --------------------- ---------------------
<S> <C> <C> <C>
Equity Income Fund $36,826,136 $37,859,400 $37,859,400
Large-Cap Growth &
Income Fund $42,626,009 $43,964,300 $43,964,300
Mid-Cap Value Fund $13,329,259 $13,921,950 $13,921,950
Mid-Cap Growth Fund $53,430,081 $54,475,000 $54,475,000
Government Income Fund $14,884,650 $15,362,500 $15,362,500
Intermediate Bond Fund $58,677,384 $60,763,800 $60,763,800
</TABLE>
[_] Marshall Funds
Individual reinvested cash collateral securities in excess of 5% of fund net
assets at August 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
Investment Companies:
Provident Institutional Temp Fund Mid-Cap Growth Fund $21,725,000
</TABLE>
Reclassification--Income and capital gain distributions are determined in
accordance with income tax regulations which differ from generally accepted
accounting principles. These differences are primarily attributable to differing
book/tax treatments of net operating loss, passive foreign investment companies,
and foreign currency transactions. Amounts as of August 31, 1999 have been
reclassed to reflect the following:
<TABLE>
<CAPTION>
Increase (Decrease)
----------------------------------------------
Accumulated
Net Realized Undistributed Net
Fund Name Paid-in-Capital Gain/Loss Investment Income
- --------- --------------- ------------ -----------------
<S> <C> <C> <C>
Equity Income Fund $ 18,357 $ -- $ (18,357)
Large-Cap Growth & Income Fund 1,337 (2,074) 737
Mid-Cap Value Fund -- (164) 164
Mid-Cap Growth Fund (79,691) (1,793,218) 1,872,909
Small-Cap Growth Fund -- (894,516) 894,516
International Stock Fund 1,055,825 530,383 (1,586,208)
Government Income Fund 44,519 267 (44,786)
Intermediate Bond Fund 28,444 (1,110) (27,334)
Intermediate Tax-Free Fund -- (470) 470
Short-Term Income Fund 26,785 2 (26,787)
</TABLE>
Restricted Securities--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Directors. The Fund
will not incur any registration costs upon such resales. The Funds' restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Funds' pricing committee.
Other--Investment transactions are accounted for on the trade date.
3. Capital Stock
The Articles of Incorporation permit the Directors to issue an indefinite
number of full and fractional shares of common stock, par value $0.0001 per
share. At August 31, 1999, the capital paid-in was as follows:
<TABLE>
<CAPTION>
Capital Paid-
Fund In
- ---- --------------
<S> <C>
Equity Income Fund $ 386,839,789
Large-Cap Growth & Income Fund $ 240,131,258
Mid-Cap Value Fund $ 98,260,727
Mid-Cap Growth Fund $ 203,241,747
Small-Cap Growth Fund $ 96,644,875
International Stock Fund $ 214,364,944
Government Income Fund $ 331,052,682
Intermediate Bond Fund $ 639,560,396
Intermediate Tax-Free Fund $ 110,087,877
Short-Term Income Fund $ 141,754,078
Money Market Fund $1,782,092,207
</TABLE>
Notes to Financial Statements (continued)
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Large-Cap Growth
Equity Income Fund & Income Fund Mid-Cap Value Fund
---------------------- ---------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 3,774,192 15,738,873 4,118,807 4,089,991 1,402,187 5,453,000
Shares issued to
shareholders in payment
of distributions
declared 2,268,227 1,937,827 1,056,636 1,725,616 1,089,157 1,866,937
Shares redeemed (6,266,153) (6,501,126) (2,637,363) (4,377,201) (4,344,171) (5,229,996)
---------- ---------- ---------- ---------- ---------- ----------
Net change resulting
from Class Y Share
transactions (223,734) 11,175,574 2,538,080 1,438,406 (1,852,827) 2,089,941
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Large-Cap Growth
Equity Income Fund & Income Fund Mid-Cap Value Fund
----------------------- ----------------------- -----------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999* 1998 1999* 1998 1999* 1998
Class A Shares ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 47,914 -- 52,607 -- 31,174 --
Shares issued to
shareholders in payment
of distributions
declared 89 -- 7 -- 27 --
Shares redeemed (2,821) -- (432) -- (9) --
-------- ---------- --------- --------- ---------- ---------
Net change resulting
from Class A Share
transactions 45,182 -- 52,182 -- 31,192 --
======== ========== ========= ========= ========== =========
Net change resulting
from Fund Share
transactions (178,552) 11,175,574 2,590,262 1,438,406 (1,821,635) 2,089,941
======== ========== ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Small-Cap International
Mid-Cap Growth Fund Growth Fund Stock Fund
---------------------- ---------------------- ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 5,935,509 6,547,612 4,158,729 5,767,967 16,904,131 11,989,024
Shares issued to
shareholders in payment
of distributions
declared 950,942 1,710,267 15,715 199,269 201,461 545,806
Shares redeemed (5,364,366) (5,865,009) (3,987,720) (2,462,788) (17,084,034) (10,197,589)
---------- ---------- ---------- ---------- ----------- -----------
Net change resulting
from Class Y Share
transactions 1,522,085 2,392,870 186,724 3,504,448 21,558 2,337,241
========== ========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Small-Cap International
Mid-Cap Growth Fund Growth Fund Stock Fund
----------------------- ----------------------- -----------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999* 1998 1999* 1998 1999* 1998
Class A Shares ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 16,470 -- 31,896 -- 31,064 --
Shares issued to
shareholders in payment
of distributions
declared -- -- -- -- -- --
Shares redeemed (368) -- (86) -- (86) --
--------- --------- ------- --------- ------ ---------
Net change resulting
from Class A Share
transactions 16,102 -- 31,810 -- 30,978 --
========= ========= ======= ========= ====== =========
Net change resulting
from Fund Share
transactions 1,538,187 2,392,870 218,534 3,504,448 52,536 2,337,241
========= ========= ======= ========= ====== =========
</TABLE>
*For the period from December 31, 1998 (start of performance) to August 31,
1999.
[_] Marshall Funds
<TABLE>
<CAPTION>
Government Intermediate
Income Fund Bond Fund
---------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold 10,534,385 10,236,771 11,475,295 26,987,634
Shares issued to shareholders
in payment of distributions
declared 1,074,105 916,492 1,480,740 1,392,283
Shares redeemed (6,073,360) (3,711,734) (9,072,476) (9,172,629)
---------- ---------- ---------- ----------
Net change resulting from
Class Y Share transactions 5,535,130 7,441,529 3,883,559 19,207,288
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Government Intermediate
Income Fund Bond Fund
----------------------- -----------------------
Period Ended Year Ended Period Ended Year Ended
August 31, August 31, August 31, August 31,
1999* 1998 1999* 1998
Class A Shares ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Shares sold 91,212 -- 105,916 --
Shares issued to shareholders
in payment of distributions
declared 453 -- 1,116 --
Shares redeemed (9,811) -- (3,200) --
--------- --------- --------- ----------
Net change resulting from
Class A Share transactions 81,854 -- 103,832 --
========= ========= ========= ==========
Net change resulting from Fund
Share transactions 5,616,984 7,441,529 3,987,391 19,207,288
========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Intermediate Short-Term
Tax-Free Fund Income Fund
---------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold 2,685,986 2,704,411 7,225,319 7,082,890
Shares issued to shareholders
in payment of distributions
declared 103,681 36,231 484,372 451,547
Shares redeemed (1,581,808) (1,685,066) (7,217,328) (9,105,232)
---------- ---------- ---------- ----------
Net change resulting from
Class Y Share transactions 1,207,859 1,055,576 492,363 (1,570,795)
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Money Market Fund
------------------------------
Year Ended Year Ended
August 31, August 31,
1999 1998
Class Y Shares -------------- --------------
<S> <C> <C>
Shares sold 5,558,732,228 4,913,792,441
Shares issued to shareholders in payment of
distributions declared 19,002,349 13,477,063
Shares redeemed (5,502,811,648) (4,629,111,222)
-------------- --------------
Net change resulting from Class Y Share
transactions 74,922,929 298,158,282
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Money Market Fund
--------------------------
Year Ended Year Ended
August 31, August 31,
1999 1998
Class A Shares ------------ ------------
<S> <C> <C>
Shares sold 554,642,702 565,397,457
Shares issued to shareholders in payment of
distributions declared 5,002,963 4,608,650
Shares redeemed (546,418,132) (554,366,232)
------------ ------------
Net change resulting from Class A Share
transactions 13,227,533 15,639,875
============ ============
Net change resulting from Fund Share transactions 88,150,462 313,798,157
============ ============
</TABLE>
*For the period from December 31, 1998 (start of performance) to August 31,
1999.
Notes to Financial Statements (continued)
4. Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--M&I Investment Management Corp., the Funds'
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee based on a percentage of each Fund's average daily net
assets as listed below. The Adviser may voluntarily choose to waive any portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Annual Rate
- ---- -----------
<S> <C>
Equity Income Fund 0.75%
Large-Cap Growth & Income Fund 0.75%
Mid-Cap Value Fund 0.75%
Mid-Cap Growth Fund 0.75%
Small-Cap Growth Fund 1.00%
International Stock Fund 1.00%
Government Income Fund 0.75%
Intermediate Bond Fund 0.60%
Intermediate Tax-Free Fund 0.60%
Short-Term Income Fund 0.60%
Money Market Fund 0.50%
</TABLE>
- --------------------------------------------------------------------------------
Effective March 29, 1999, the International Stock Fund changed its sub-
adviser from Templeton Investment Counsel, Inc. to BPI Global Asset Management
LLP (the "Sub-Adviser"). The Adviser compensates the Sub-Adviser based on the
level of average aggregate daily net assets of the International Stock Fund.
Administrative Fee--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Funds with administrative
personnel and services. The fee paid to FAS is based on the level of average
aggregate daily net assets of the Corporation for the period except for the
Small-Cap Growth Fund, which is based on the Fund's average daily net assets.
Distribution Services Fee--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Funds will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Funds to finance activities intended to
result in the sale of shares of the Funds Class A Shares. The Plan provides that
the Funds may incur distribution expenses up to 0.25% of the average daily net
assets of the Fund's Class A Shares (except for the Money Market Fund's Class A
Shares which may accrue up to 0.30%) annually, to compensate FSC.
Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services Company ("FSSC"), each Fund (except for the
Money Market Fund) will pay FSSC up to 0.25% of average daily net assets of the
Funds' Class Y Shares for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion. Marshall Funds
Investor Services ("MFIS") is the shareholder servicing agent for the Money
Market Fund. The Money Market Fund may pay MFIS a fee equal to approximately
0.02% of the average daily net assets for the period of the Money Market Funds'
Class Y Shares for which MFIS provides shareholder services. MFIS may
voluntarily choose to waive any portion of its fee. MFIS can modify or terminate
this voluntary waiver at any time at its sole discretion. Effective September 1,
1999, MFIS will become the Funds' shareholder servicing agent.
Transfer and Dividend Disbursing Agent Fees and Expenses--Federated Services
Company ("FServ") through its subsidiary, FSSC, serves as transfer and dividend
disbursing agent for the Funds. The fee paid to FSSC is based on the size, type,
and number of accounts and transactions made by shareholders.
Portfolio Accounting Fees--FServ maintains the Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out- of-pocket expenses. FServ may
voluntarily choose to waive any portion of its fee.
Custodian Fees--Marshall & Ilsley Trust Company is the Funds' custodian. M&I
Trust Company receives fees based on the level of each Fund's average daily net
assets for the period. The custodian also charges a fee in connection with
securities lending activities of the Funds.
[_] Marshall Funds
Organizational Expenses--Organizational expenses were borne initially by FAS.
The Funds have reimbursed FAS for these expenses. These expenses have been
deferred and are being amortized over the five-year period following each Fund's
effective date. For the year ended August 31, 1999, the Funds expensed the
following pursuant to this agreement:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Organizational Organizational
Fund Expenses Expenses Paid
- ---- -------------- --------------
<S> <C> <C>
Small-Cap Growth Fund $35,592 $7,493
International Stock Fund $18,401 $5,986
Intermediate Tax-Free Fund $16,416 $1,616
</TABLE>
- --------------------------------------------------------------------------------
General--Certain of the Officers and Directors of the Corporation are Officers
and Directors of the above companies.
5. Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1999, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---- ------------ --------------
<S> <C> <C>
Equity Income Fund $357,581,619 $ 366,208,305
Large-Cap Growth & Income Fund $129,939,898 $ 106,878,350
Mid-Cap Value Fund $115,294,710 $ 131,440,424
Mid-Cap Growth Fund $440,530,465 $ 423,714,036
Small-Cap Growth Fund $197,200,038 $ 195,508,808
International Stock Fund $435,940,891 $ 426,752,838
Government Income Fund $790,489,693 $ 708,791,578
Intermediate Bond Fund $992,945,978 $1,027,850,640
Intermediate Tax-Free Fund $ 68,565,235 $ 56,799,240
Short-Term Income Fund $198,334,930 $ 220,998,618
</TABLE>
- --------------------------------------------------------------------------------
6. Change of Independent Auditors
On July 26, 1999, the Funds' Board of Directors, upon the recommendation of
the Officers of the Corporation, requested and subsequently accepted the
resignation of Arthur Anderson LLP ("AA") as the Funds' independent auditors.
AA's reports on the Funds' financial statements for the fiscal years ended
August 31, 1997 and August 31, 1998, contained no adverse opinion or disclaimer
of opinion nor were they qualified or modified as to uncertainty, audit scope or
accounting principles. During the Funds' fiscal years ended August 31, 1997 and
August 31, 1998, (i) there were no disagreements with AA on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
AA, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports on the financial statements for
such years; and (ii) there were no reportable events of the kind described in
Item 304(a)(1)(v) of Regulation S-K under the Securities Act of 1934, as
amended.
The Funds, by action of its Directors, upon the recommendation of the Officers
of the Corporation, have engaged Ernst & Young LLP ("E&Y") as the independent
auditors to audit the Funds' financial statements for the fiscal year ended
August 31, 1999. During the Funds' fiscal years ended August 31, 1997 and August
31, 1998, neither the Funds nor anyone on behalf have consulted E&Y on items
which (i) concerned the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Funds' financial statements of (ii) concerned the
subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of
Regulation S-K) of reportable events (as described in paragraph (a)(1)(v) of
said Item 304).
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors of
The Marshall Funds, Inc.:
MARSHALL EQUITY INCOME FUND
MARSHALL LARGE-CAP GROWTH & INCOME FUND
MARSHALL MID-CAP VALUE FUND MARSHALL MID-CAP GROWTH FUND MARSHALL SMALL-CAP
GROWTH FUND MARSHALL INTERNATIONAL STOCK FUND MARSHALL GOVERNMENT INCOME FUND
MARSHALL INTERMEDIATE BOND FUND MARSHALL INTERMEDIATE TAX-FREE FUND MARSHALL
SHORT-TERM INCOME FUND MARSHALL MONEY MARKET FUND
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Marshall Equity Income Fund, the
Marshall Large-Cap Growth & Income Fund, the Marshall Mid-Cap Value Fund, the
Marshall Mid-Cap Growth Fund, the Marshall Small-Cap Growth Fund, the Marshall
International Stock Fund, the Marshall Government Income Fund, the Marshall
Intermediate Bond Fund, the Marshall Intermediate Tax-Free Fund, the Marshall
Short-Term Income Fund, and the Marshall Money Market Fund (the eleven
portfolios constituting The Marshall Funds, Inc.) as of August 31, 1999, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets for the year ended August 31, 1998 and the financial highlights for each
of the four years in the period then ended were audited by other auditors whose
report, dated October 23, 1998, expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of August 31, 1999 and
confirmation of securities not held by the custodian by correspondence with
brokers or other appropriate auditing procedures where replies from brokers were
not received. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Marshall Funds, Inc., as
identified above, at August 31, 1999, and the results of their operations,
changes in their net assets, and financial highlights for the year then ended in
conformity with generally accepted accounting principles.
[LOGO OF ERNST & YOUNG LLP]
Boston, Massachusetts
October 15, 1999
[_] Marshall Funds
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 or experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in 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.
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.
Directors Officers
John M. Blaser John M. Blaser
John DeVincentis President
Duane E. Dingmann
James Mitchell Jo A. Dales
Barbara C. Pope Vice President
David M. Schulz
Brooke J. Billick
Secretary
Ann K. Peirick
Treasurer
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
Thisreport is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus, which contains facts
concerning each Fund's objective and policies, management
fees, expenses, and other information.
[LOGO APPEARS HERE]
Marshall Funds Investor Services
P.O. Box 1348 Milwaukee, Wisconsin 53201-1348
1-800-236-FUND (3863) or 414-287-8595
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com
Federated Securities Corp., Distributor G01126-01 (10/99)
953-295Y
[Logo of MarshallFunds Appears Here]
The Marshall Funds Family
Annual Report
Class A Shares
AUGUST 31, 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 Government Income Fund
------------------------------------------------------------
.. Marshall Intermediate Bond Fund
------------------------------------------------------------
.. Marshall Money Market Fund
------------------------------------------------------------
Table of Contents
President's Message.......................................... 1
Commentaries
Marshall Equity Income Fund.................................. 2
Marshall Large-Cap Growth & Income Fund...................... 4
Marshall Mid-Cap Value Fund.................................. 6
Marshall Mid-Cap Growth Fund................................. 8
Marshall Small-Cap Growth Fund............................... 10
Marshall International Stock Fund............................ 12
Marshall Government Income Fund.............................. 14
Marshall Intermediate Bond Fund.............................. 16
Marshall Money Market Fund................................... 18
Financial Information
Portfolio of Investments..................................... 20
Marshall Equity Income Fund.................................. 20
Marshall Large-Cap Growth & Income Fund...................... 21
Marshall Mid-Cap Value Fund.................................. 23
Marshall Mid-Cap Growth Fund................................. 24
Marshall Small-Cap Growth Fund............................... 25
Marshall International Stock Fund............................ 26
Marshall Government Income Fund.............................. 28
Marshall Intermediate Bond Fund.............................. 28
Marshall Money Market Fund................................... 30
Statements of Assets and Liabilities......................... 34
Statements of Operations..................................... 36
Statements of Changes in Net Assets.......................... 38
Financial Highlights......................................... 41
Notes to Financial Statements................................ 42
Report of Ernst & Young LLP, Independent Auditors............ 50
Directors & Officers......................................... 52
[Logo of MarshallFunds Appears Here]
- --------------------------------------------------------------------------------
Dear Marshall Funds Shareholder,
U.S. investors continue to enjoy one of the strongest economic periods on
record. At Marshall Funds, we remain optimistic about the long-term outlook for
the economy and markets.
Even while optimistic, we encourage all of our shareholders to review their
financial plans at least annually. Whether you manage your money independently,
or with the help of an M&I investment professional, it is important to consider
whether your situation or goals have changed. Planning for a comfortable
retirement, or for current income, should include a regular review to help
protect your investments from becoming out of line with your intentions.
In particular, large U.S. growth stocks and the mutual funds that invest in them
have done well over the past few years. As a result, many investors may now find
their portfolios invested heavily in large domestic growth companies. Should
there be a shift in favor of smaller companies, international markets, or
value-style investing, however, you may want to be positioned to benefit.
Many variables can affect the direction of the market, such as interest rate
movements and economic developments, and can cause the market to move rapidly up
or down, or broaden or narrow. The best way to be prepared is the one tested and
proven technique for controlling investment risk: diversification through sound
asset allocation.
The Marshall Funds offer the key ingredients for a broadly diversified
portfolio, including fixed income and equity portfolios; large-, mid-, and
small-company focuses; growth and value investment styles; and U.S. and
international portfolios. The Marshall Funds family prides itself on five key
factors:
. Experience: M&I Investment Management Corp., the adviser to the Funds,
manages more than $10.5 billion, and was one of the first bank-sponsored
investment advisory firms in the country.
. Discipline: We employ a highly specialized, style-specific investment
approach. This means each Fund remains true to its style.
. Capability: We employ more than 50 dedicated, experienced investment
professionals who leverage the industry's most sophisticated technology
available.
. Research: Portfolio managers and analysts conduct exhaustive first-hand
research.
. Efficiency: The expense ratio for each Fund is at or below average for
its peer group.
We encourage you to evaluate your investments to be sure your portfolio is well
diversified and consistent with your long-term goals. If you would like
assistance, please don't hesitate to contact your M&I investment representative,
or call us at 1-800-580-FUND(3863).
Sincerely,
/s/ John M. Blaser
John M. Blaser
President
Annual Report--Commentary
[ ]
Marshall Equity Income Fund
The Marshall Equity Income Fund seeks to provide capital appreciation and
above-average dividend income. Fund assets are invested in a broadly diversified
portfolio of common stocks whose market capitalization exceeds eight billion
dollars. In order to provide both capital appreciation and income, the Adviser
attempts to structure the portfolio to pursue a yield at least 1% more than the
income earned on the stocks in the Standard & Poor's 500 Index (S&P 500).* The
Adviser selects companies that exhibit traditional value characteristics, such
as a price-to-earnings ratio less than the S&P 500, higher-than-average dividend
yields or a lower-than-average price-to-book value.
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of 6.13% based on net asset value.**
An inflection point
When the fiscal year began, the Asian economic crisis was in full swing,
resulting in a sharp drop-off in world demand. This placed downward pressure on
inflation and interest rates. The American consumer and many large growth
companies (such as technology) were the primary beneficiaries. The American
consumer benefited from lower energy costs (such as gasoline and natural gas)
and interest costs (such as lower rates on mortgages and car loans), which they
promptly spent on other goods, keeping the U.S. economy strong. Many large
growth companies not only enjoyed strong demand for their products as a result,
but also benefited from lower operating costs (low borrowing and energy costs,
etc). In addition, lower interest rates also allowed their already historically
high price to earnings multiples (P/E) to expand, as steady growth rates became
more valuable in a low inflation environment. The result was a large valuation
disparity between growth stocks and the rest of the market through the first
quarter of 1999.
When the Asian economies began to recover, investors began to shift funds out of
the large growth stocks and back into the broader market, with the belief that
stocks hurt most by the Asian crisis would be the beneficiaries of a turnaround
in Asia. The broadening out of the market helped close the gap in valuations
between growth stocks and value stocks. Going forward, if global growth remains
strong enough to support rising commodity prices, then the valuation gap between
growth and value stocks should continue to narrow.
Energy, healthcare, and financials
play an important part in the
Fund's portfolio
Energy prices, like other commodities, are sensitive to small changes in supply
and demand. With a perceived increase in demand from Asia, and OPEC reducing
supply, oil prices doubled from their December 1998 lows of $11/barrel to
$22/barrel at the end of August 1999. Energy stocks, as represented by the S&P
International Oil Index,* responded accordingly, and were up 19.90% during the
same time period. Energy stocks continue to be the Fund's largest holding,
comprising 17.8% of the portfolio. We continue to conclude that oil stocks are
attractively valued based on future earnings expectations and dividend yields.
Our largest energy holdings continue to be Exxon (3.4%), Royal Dutch Petroleum
(2.5%) and Texaco (2.3%). Drug stocks performed well in 1998 in spite of slowing
world economies. Their earnings are less economically sensitive and therefore
more predictable. As a result, by April 1999, drug stock P/E's were trading at a
50% premium to the S&P 500. Over the last few quarters, drug stocks have
underperformed, as investors shifted money out of drugs and into economically
sensitive sectors to take advantage of a stronger world economy. As a result,
this premium was reduced to an attractive 10%. Drug stocks now offer attractive
dividend yields and have valuations that offer good total return potential.
Therefore, the Fund recently increased its weighting in the pharmaceutical
sector to 11.7%. Recent purchases include Abbott Labs (1.5%), Glaxo Wellcome
(1.3%) and Eli Lilly (1.2%).
Performance of interest sensitive stocks, such as electric utilities (5.7% of
portfolio) and banks (12.4% of portfolio), were hindered by the rise in interest
rates in 1999. These stocks offer attractive values on an absolute basis and
have provided good dividend yields. The Fund continues to maintain a significant
weight in each of these areas.
Disciplined approach helps minimize volatility
By historical standards, the stock market continues to appear richly valued. The
S&P 500 is currently trading near all time valuation highs on the basis of
earnings (27 times estimated 1999 earnings) and at all time lows based on
dividend yield (1.20%). In today's richly valued and volatile markets, we remain
disciplined equity investors and our approach remains unchanged. Investing in
attractively priced companies paying above average dividends is the cornerstone
of our investment approach. The portfolio's above average dividend yield
combined with its low historic volatility should help reassure our investors
that participation in any further market advance will be built around an
investment style designed to earn competitive long-term returns with less
volatility.
Sincerely,
/s/ Bruce P. Hutson
Bruce P. Hutson
Manager, Marshall Equity Income Fund
[PHOTO OF BRUCE P. HUTSON]
[_] Marshall Equity Income Fund
"Graphic representation "A-1A" omitted. See Appendix."
"Graphic representation "A-2A" omitted. See Appendix."
"Graphic representation "A-3A" omitted. See Appendix."
"Graphic representation "A-4A" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the S&P 500 and
the LEIFI.*
- --------------------------------------------------------------------------------
* The S&P 500, S&P International Oil Index and the LEIFI are not adjusted to
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in a mutual fund's performance. These indices are unmanaged. Actual
investments may not be made in an index. The S&P 500 is a capitalization-
weighted index of 500 stocks designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries. The S&P International Oil Index is a
capitalization-weighted index of all stocks within the international oil
sector designed to measure the performance of the international oil sector of
the S&P 500. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper as falling into the
category indicated.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
*** Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.75% ($10,000 investment minus $575 sales
charge = $9,425). The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 500 and the LEIFI have been adjusted to
reflect reinvestment of dividends on securities in the indices.
+Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Large-Cap Growth & Income Fund
The Marshall Large-Cap Growth & Income Fund seeks to provide capital
appreciation and income. Fund assets are invested in a diversified portfolio of
common stocks of large-sized companies whose market capitalization typically
exceeds $10 billion. The Adviser looks for companies that are leaders in their
industry and have records of above-average financial performance and proven
superior management. These types of companies typically offer opportunities for
growth and also provide dividend income.
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of 7.08% based on net asset value.*
The Fund's performance over the past eight months was driven by a focus on
quality, large-capitalization companies, across many different industry sectors,
which provided the strongest relative earnings performance both within their
respective industry and versus the overall market.
Emerging from the Asian meltdown
Immediately following the Asian crisis, early in the Fund's fiscal year,
investors again focused only on a few select large growth stocks and bid their
premium valuations to historic highs. During this period, the Fund was
positioned to take advantage of acceleration in earnings growth across an
expanding list of high quality, large companies. Many of these opportunities
were casualties of the Asian meltdown. For example, the Fund overweighed the
energy sector early in the year versus the overall market due to an expected
earnings pick-up in the second half of the fiscal year. While the market did
broaden somewhat in the number of stocks participating on the upside, one area
that remained a market leader was technology, as earnings growth remained strong
throughout the fiscal year. Technology group valuations now discount revenue
growth and profit margins 50% above historic rates and the Fund remains quite
selective in this area.
Looking Forward
At the time of this writing the Standard & Poor's 500 Index (S&P 500)** is
expected to report the strongest quarterly earnings in the last four years.
These growth rates will be very tough to sustain. As such, the Fund is
continuing to balance holdings in earnings recovery stories with those of more
traditional growth companies selling at reasonable valuations. These more
traditional growth names should once again provide superior relative performance
as the overall earnings growth of the market slows. As always, the Fund will
maintain our focus on the highest quality companies across a diversified
portfolio of large companies.
Sincerely,
/s/ William J. O'Connor
William J. O'Connor
Manager, Marshall Large-Cap Growth & Income Fund
[PHOTO OF WILLIAM J. O'CONNOR]
[_] Marshall Large-Cap Growth & Income Fund
"Graphic representation "A-1B" omitted. See Appendix."
"Graphic representation "A-2B" omitted. See Appendix."
"Graphic representation "A-3B" omitted. See Appendix."
"Graphic representation "4-3B" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the S&P 500 and
the LGIFI.**
- --------------------------------------------------------------------------------
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The S&P 500 and the LGIFI are not adjusted to reflect sales charges, expenses
or other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The S&P 500 is a capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes
in the aggregate market value of 500 stocks representing all major
industries. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper as falling into the
category indicated.
*** Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.75% ($10,000 investment minus $575 sales
charge = $9,425). The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 500 and the LGIFI have been adjusted to
reflect reinvestment of dividends on securities in the indices.
+Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Mid-Cap Value Fund
The Marshall Mid-Cap Value Fund seeks to provide capital appreciation. Fund
assets are invested in a diversified portfolio of common stocks of companies
similar in size to those within the Standard & Poor's Mid-Cap 400 Index (S&P
400).* As of August 31, 1999, the S&P 400's range was $243 million to $11.5
billion, but frequently changes as the market value of the stocks that comprise
the S&P 400 changes or as stocks are added or removed from the S&P 400. The
Adviser selects companies that exhibit traditional value characteristics, such
as a price-to-earnings ratio less than the S&P 500,* higher-than-average
dividend yields or a lower-than-average price-to-book value. In addition, those
companies may have under-appreciated assets, or be involved in company
turnarounds or corporate restructurings.
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of 6.22% based on net asset value.**
Still A Challenging Market For Value Investing
During most of the year, our value style and mid-cap universe generally
underperformed large growth stocks. While last spring offered exceptional
returns to value investors, the market's recent rally has been limited to growth
stocks, particularly technology and Internet companies.
Concentrating on four value scenarios
The Fund has experienced continued success in focusing on four categories of
out-of-favor or undervalued stocks.
1. Asset Recognition: We look for stocks that have significant financial,
tangible or intangible assets that are not currently recognized in the market.
It is not uncommon for these stocks to be noticed by other investors and
targeted for a buy-out. This fiscal year, one of the Fund's largest holdings,
Telephone and Data System, Inc., appreciated greatly as investors recognized the
deep discount valuation that had been applied to its rapidly growing
telecommunications assets.
2. Turn-arounds: Frequently, we find value opportunities when a company
implements more effective ways to conduct its core business. This year,
management changes at Lands' End helped improve the daily operations, such as
apparel selection and back-office fulfillment. The improved management focus and
newly created Internet sales strategy have led to superior returns.
3. Restructurings: When companies change their business strategy or shift to a
different business segment, patient value investors may be rewarded. During
1997, Hanson PLC shed its conglomerate status and focused solely on one business
segment, building materials. Hanson's new focus is to become a leading supplier
to the construction industry in the U.S. and U.K. This change, together with
strong operating improvements, helped the stock outperform the broader markets.
4. Inexpensive Stocks: The OPEC led decline in the price of oil this year
created several oil service stock buying opportunities. The Fund bought several
energy investments when the price of a barrel of oil neared $10; now at $22 a
barrel, the Fund is reducing its well performing positions.
Market woes provide strong opportunities
After several years of high valuations, the market is providing investors with
opportunities to buy small- and mid-cap companies at reasonable prices. We are
committed to our value approach and look forward to rewarding patient investors
through our unwavering discipline. Thank you for your continued commitment to
the Marshall Mid-Cap Value Fund.
Sincerely,
/s/ Matthew B. Fahey
Matthew B. Fahey
Co-Manager, Marshall Mid-Cap Value Fund
/s/ John C. Potter, C.F.A.
John C. Potter, C.F.A.
Co-Manager, Marshall Mid-Cap Value Fund
[PHOTO OF MATTHEW B. FAHEY AND JOHN C. POTTER]
[_] Marshall Mid-Cap Value Fund
"Graphic representation "A-1C" omitted. See Appendix."
"Graphic representation "A-2C" omitted. See Appendix."
"Graphic representation "A-3C" omitted. See Appendix."
"Graphic representation "A-4C" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the S&P 400 and
LMCVFI.*
- --------------------------------------------------------------------------------
* The S&P 400, S&P 500 and the LMCVFI are not adjusted to reflect sales
charges, expenses or other fees that the SEC requires to be reflected in a
mutual fund's performance. These indices are unmanaged. Actual investments
may not be made in an index. The S&P 400 is a capitalization-weighted index
of common stocks representing all major industries in the mid-range of the
U.S. stock market. The S&P 500 is a capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper as falling into the
category indicated.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
*** Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.75% ($10,000 investment minus $575 sales
charge = $9,425). The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 400 and the LMCVFI have been adjusted
to reflect reinvestment of dividends on securities in the indices.
+Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Mid-Cap Growth Fund
The Marshall Mid-Cap Growth Fund seeks to provide capital appreciation. Fund
assets are invested in a diversified portfolio of common stocks of companies
similar in size to those within the Standard & Poor's Mid-Cap 400 Index (S&P
400).* As of August 31, 1999, the S&P 400's range was $243 million to $11.5
billion, but frequently changes as the market value of the stocks that comprise
the S&P 400 changes or as stocks are added or removed from the S&P 400. 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, or overall business restructuring.
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of 14.21% based on net asset value.**
During the first quarter of the fiscal year, the market experienced a recovery
from the liquidity crisis of late summer 1998, which had been caused by the
Asian economic meltdown and the bailout of a few large hedge funds. This crisis
had pushed investors to abandon mid-cap stocks which are generally more illiquid
than their large-cap counterparts. Fortunately, the Federal Reserve Board (the
"Fed") lowered interest rates in October 1998 in an attempt to inject capital
into the markets, leading to a significant rally in stocks. Our stocks
experienced a rapid recovery, given that fundamentally they were very sound
companies.
As we progressed through 1999, it became evident that the Fed was growing more
concerned about the ability of the U.S. economy to continue growing at its
current rate, without causing inflation. The bond market anticipated the change
in thinking by the Fed and interest rates began rising. Indeed, the Fed has
raised rates twice, and the jury is still out with respect to their next course
of action. Fortunately, this rising rate environment has not affected our higher
price to earnings stocks; however, it has hurt some growth segments of the
market-- particularly the consumer-related stocks.
While the Fund has a fair amount of exposure to consumer-related stocks, the
focus has been on radio companies, select retailers and other unique companies
such as Royal Caribbean Cruises, Ltd., which we believe are more immune to a
rising rate environment than home builders, and the like.
Energy stocks have performed extremely well over the past 12 months, given the
rebound in the price of oil from its depressed levels in 1998. We still view
this as largely a cyclical group, and therefore, our exposure is limited to a
few strategic companies with superior growth prospects. The lack of exposure to
this group has hurt the Fund's performance relative to the S&P 400 and the
Lipper Mid-Cap Growth Funds Index (LMCGFI).*
Technology stocks have also performed well this year. The Fund's holdings have
been focused on communications-related companies, including components
suppliers, as we see this as the most significant growth area in our economy
today. These stocks have contributed significantly to the Fund's performance. We
had been concerned about the effect of Year 2000 (Y2K) on the business of many
technology companies, particularly software and IT services, and the Fund's lack
of exposure here also helped the Fund's performance. Given the significant
growth prospects surrounding the Internet, the Fund has maintained exposure to
the group throughout the year. While the valuations are staggering, our focus
continues to be on enabling companies, which we feel have more sustainable
business models than their content counterparts that rely mainly on advertising
revenues.
Looking forward, we continue to like the growth prospects in technology stocks
and in select consumer stocks, especially where they converge to provide
advanced communication and entertainment faster and cheaper than ever before. We
also believe that companies are well prepared for Y2K, and that businesses and
individuals will resume normal behavior shortly after the start of the
millennium.
Sincerely,
/s/ Steve D. Hayward
Steve D. Hayward
Manager, Marshall Mid-Cap Growth Fund
[PHOTO OF STEVE D. HAYWARD]
[_] Marshall Mid-Cap Growth Fund
"Graphic representation "A-1D" omitted. See Appendix."
"Graphic representation "A-2D" omitted. See Appendix."
"Graphic representation "A-3D" omitted. See Appendix."
"Graphic representation "A-4D" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the S&P 400 and
the LMCGFI.*
- --------------------------------------------------------------------------------
* The S&P 400 and the LMCGFI are not adjusted to reflect sales charges,
expenses or other fees that the SEC requires to be reflected in a mutual
fund's performance. These indices are unmanaged. Actual investments may not
be made in an index. The S&P 400 is a capitalization-weighted index of
common stocks representing all major industries in the mid-range of the U.S.
stock market. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper as falling into the
category indicated.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
*** Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.75% ($10,000 investment minus $575 sales
charge = $9,425). The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 400 and the LMCGFI have been adjusted
to reflect reinvestment of dividends on securities in the indices.
+Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Small-Cap Growth Fund
The Marshall Small-Cap Growth Fund seeks to provide capital appreciation. Fund
assets are invested in a diversified portfolio of common stocks of small-sized
companies similar in size to those within the Russell 2000 Index (Russell
2000).+ As of August 31, 1999, the Russell 2000's range was $32 million to $3.28
billion, but frequently changes as the market value of the stocks that comprise
the Russell 2000 changes or as stocks are added or removed from the Russell
2000. 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.
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of (2.75%) based on net asset value.*
During the first quarter of the fiscal year, the market experienced a recovery
from the liquidity crisis of late summer 1998, which had been caused by the
Asian economic meltdown and the bailout of a few large hedge funds. This crisis
had pushed investors to abandon small-cap stocks which are generally more
illiquid than their large-cap counterparts, and many stocks were selling at
all-time low valuations. Fortunately, the Federal Reserve Board (the "Fed")
lowered interest rates in October 1998 in an attempt to inject capital into the
markets, leading to a significant rally in stocks. Our stocks experienced a
rapid recovery, given that fundamentally they were very sound companies.
As we progressed through 1999, it became evident that the Fed was growing more
concerned about the ability of the U.S. Economy to continue growing at its
current rate, without causing inflation. The bond market anticipated the change
in thinking by the Fed and interest rates began rising. Indeed, the Fed has
raised rates twice, and the jury is still out with respect to their next course
of action. Fortunately, this rising rate environment has not affected our higher
price to earnings stocks; however, it has hurt some growth segments of the
market-- particularly the consumer-related stocks.
While the Fund has a fair amount of exposure to consumer-related stocks, the
focus has been on radio companies, select retailers and other unique companies
such as Speedway Motorsports, Inc., which we believe are more immune to a rising
rate environment than home builders, and the like.
One area that has hurt the portfolio's returns this year is health care.
Regulatory changes and fears of change, combined with sub-par execution by some
peers caused significant downward pressure on our health care services
companies. While we still see good growth opportunity in a few well-managed
companies, we are awaiting a catalyst to re-enter the group.
Energy stocks have performed extremely well over the past 12 months, given the
rebound in the price of oil from its depressed levels in 1998. We still view
this as a largely cyclical group, and therefore, our exposure is limited to a
few strategic companies with superior growth prospects. The lack of exposure to
this group has hurt the Fund's performance relative to the Russell 2000 and the
Lipper Small-Cap Funds Index (LSCFI).**
Technology stocks have also performed very well this year. The Fund's holdings
have been focused on communications-related companies, including components
suppliers, as we see this as the most significant growth area in our economy
today. These stocks have contributed significantly to the Fund's performance. An
area, which hurt in January and February 1999, was the Internet. While the Fund
did have exposure to the group, the return of the Russell 2000 was being driven
by significant upward moves in its top 20 names, 10 of which were Internet
names, and all of which were too large for the Fund to invest in, given their
market cap.
Looking forward, we continue to like the growth prospects in technology stocks,
particularly those related to the communications infrastructure build out, and
in select consumer stocks. Our strategy of buying stocks one-company-at-a-time
should pay off during this time of uncertainty with respect to the economic and
political environments, which lie ahead.
Sincerely,
/s/ Steve D. Hayward
Steve D. Hayward
Manager, Marshall Small-Cap Growth Fund
[PHOTO OF STEVE D. HAYWARD]
[_] Marshall Small-Cap Growth Fund
"Graphic representation "A-1E" omitted. See Appendix."
"Graphic representation "A-2E" omitted. See Appendix."
"Graphic representation "A-3E" omitted. See Appendix."
"Graphic representation "A-4E" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the Russell 2000
and the LSCFI.**
- --------------------------------------------------------------------
+ Small-cap funds may experience a higher degree of market volatility than
larger-cap funds.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The Russell 2000 and the LSCFI are not adjusted to reflect sales charges,
expenses or other fees that the SEC requires to be reflected in a mutual
fund's performance. These indices are unmanaged. Actual investments may not
be made in an index. The Russell 2000 is an index of common stocks whose
market capitalizations generally range from $200 million to $5 billion.
Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper as falling into the category indicated.
*** Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.75% ($10,000 investment minus $575 sales
charge = $9,425). The Fund's performance assumes the reinvestment of all
dividends and distributions. The Russell 2000 and the LSCFI have been
adjusted to reflect reinvestment of dividends on securities in the indices.
++ Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall International Stock Fund
The Marshall International Stock Fund seeks to provide capital appreciation.
Fund assets are invested in common stocks of companies located outside the
United States.+ BPI Global Asset Management LLP (BPI) is the Sub-Adviser of the
Fund.
BPI uses a "bottom-up" approach to international investing within overall
portfolio management guidelines. The stock selection process begins with
identifying companies of any size within industry groups that have historically
been successful and have a competitive advantage as evidenced by above-average
profit margins, high returns on equity, low leverage and adequate cash flow. The
selection process seeks to identify quality companies with attractive returns on
equity, shareholder-oriented management, and a strong capital structure. Stocks
are selected and retained when they are attractively valued within their
industry by using traditional valuation measures such as price-to- book and
price-to-earnings ratios, resulting in an approach described as "quality
companies at a reasonable price." The portfolio management team closely monitors
the Fund's industry weightings and country weightings in relation to its
performance benchmark.
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of 8.98% based on net asset value.*
Despite concern over rising interest rates in the U.S., the international equity
markets performed well over the last six months of the fiscal year. Leading the
way was the Japanese equity market, which was up an impressive 33.5% over this
period. Japan's nascent economic turnaround has been a long time coming.
However, after a decade in the doldrums, the economy is finally showing signs of
life with the latest Gross Domestic Product report reflecting economic
expansion. Investors have also been encouraged by real reform in the government
arena and restructuring among corporations. European stocks, on the other hand,
were basically flat over the last six months of the fiscal year as a continuing
decline in the Euro contributed to a difficult investment environment. General
economic data in Europe continues to be mixed.
With regard to the Fund's regional concentrations, we have increased the Fund's
exposure to Asia while reducing the Fund's exposure to Europe. The increased
exposure to Asia is primarily a reflection of our renewed interest in several
Japanese companies. The Fund's exposure to Japan has increased from 5% to 24%
over the last six months of the fiscal year. Relative to the Morgan Stanley
Capital International Europe, Australia, Far East Index (EAFE)** as of August
31, 1999, the Fund has now reached a market weight in Asia (32% versus 32%) and
remains underweight in Europe (55% versus 68%).
On a sector basis, as of August 31, 1999, the Fund's largest weightings were in
the Capital Equipment and Services sectors. In the Capital Equipment sector,
data processing companies such as Netherlands' STMicroelectronics have
contributed positively to the Fund. In the Services sector, telecommunications
companies such as NTT Mobile Communication Network, Inc., Japan's largest
cellular operator, have also benefited the Fund. The data processing and
telecommunications industries continue to offer the most attractive investment
opportunities.
The environment for international equities has clearly improved over the last
six months of the fiscal year. We remain optimistic about the prospect for
continued growth in the equity markets around the world.
Sincerely,
/s/ Daniel R. Jaworski, CFA
Daniel R. Jaworski, CFA
Manager, Marshall International Stock Fund
[PHOTO OF DANIEL R. JAWORSKI]
[_] Marshall International Stock Fund
"Graphic representation "A-1F" omitted. See Appendix."
"Graphic representation "A-2F" omitted. See Appendix."
"Graphic representation "A-3F" omitted. See Appendix."
"Graphic representation "A-4F" omitted. See Appendix."
"Graphic representation "A-5F" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the EAFE and the
LIFI.**
- --------------------------------------------------------------------
+Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The EAFE and the LIFI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The EAFE is a market capitalization-weighted foreign securities
index, which is widely used to measure the performance of European,
Australian, New Zealand, and Far East stock markets. Lipper figures represent
the average of the total returns reported by all of the mutual funds
designated by Lipper as falling into the category indicated.
***Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge
= $9,425). The Fund's performance assumes the reinvestment of all dividends
and distributions. The EAFE and the LIFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.
++Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Government Income Fund
The Marshall Government Income Fund seeks to provide current income. Fund assets
are invested in securities issued by the U.S. government and its agencies and
instrumentalities, particularly mortgage-backed securities. The Fund will also
invest in dollar roll transactions. The Adviser considers macroeconomic
conditions and uses credit and market analysis in developing the overall
portfolio strategy. Current and historical interest rate relationships are used
to evaluate market sectors and individual securities. The Fund generally
maintains an average dollar-weighted maturity of four to 12 years.
Fund performance
For the period from December 31, 1998 (start of performance) to August 31, 1999,
the Fund provided a total return of (0.56%) based on net asset value.*
Inflation concerns increase
During the last 12 months, the Federal Reserve Board (the "Fed") has moved the
target for the fed funds rate five separate times. Last fall, the Fed lowered
the target rate three times totaling 0.75%, and this summer the Fed increased
the target rate two times by a total of 0.50%. Last fall, 30-year rates bottomed
at 4.72% and mortgage prepayments reached a record high. By the end of August
1999, prepayments had fallen significantly and 30-year rates increased to 6.07%.
Obviously, the Fed actions had a significant impact on interest rates, but a net
(0.25%) change in fed funds doesn't explain the 0.81% increase in 30-year rates
over the last year. The increase in rates over the last year is mainly due to
the acceleration in commodity prices, the recovery of many foreign economies,
and the fear that a very low unemployment rate (4.2%) will increase wages.
Technicals outweighed fundamentals
Technicals (supply & demand) also played a significant role in determining bond
returns over the last year. During 1999, we have witnessed the continued
reversal of the "flight to quality" as investors preferred to reallocate money
to the equity markets by selling U.S. Treasuries and, thereby, pushing rates
higher. Mortgage-backed securities (MBS) benefited from the rising rates and
lower pre-payments through the beginning of May 1999, allowing them to
outperform U.S. Treasuries. However, even as the fundamentals continued to be
favorable, the increased supply of non-Treasury securities and fear of potential
Y2K problems caused MBS to underperform from May through August 1999.
Maintain current strategy
Over the next six months, we will continue to be conservative and anticipate
keeping the interest rate sensitivity of the Fund equal to or less than the
mortgage index. We expect the next move by the Fed will be to increase the fed
funds rate, but we would not be surprised if they waited until next year. As
long as the foreign markets continue their recovery and U.S. equity markets do
not experience significant declines, we believe that interest rates will
continue to move higher over the next six months. Even though we do not
anticipate any significant problems related to Y2K, we will continue to
emphasize the highest quality and most liquid sectors within the Fund. We
believe that MBS represent excellent value compared to U.S. Treasuries and we
have positioned the portfolio to benefit from this relative value, as the market
will again focus on the fundamentals as we begin the next century.
Sincerely,
/s/ Joseph M. Cullen
Joseph M. Cullen, CFA
Manager, Marshall Government Income Fund
[PHOTO OF JOSEPH M. CULLEN]
[_] Marshall Government Income Fund
"Graphic representation "A-1G" omitted. See Appendix."
"Graphic representation "A-2G" omitted. See Appendix."
"Graphic representation "A-3G" omitted. See Appendix."
"Graphic representation "A-4G" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the LMI and the
LUSMI.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The LMI and the LUSMI are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The LMI is an index comprised of fixed rate securities backed by
mortgage pools of the Government National Mortgage Association (GNMA), Federal
Home Loan Mortgage Corp. (FHLMC) and the Federal National Mortgage Association
(FNMA). Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper as falling into the category
indicated.
***Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.75% ($10,000 investment minus $475 sales charge
= $9,525). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LMI and the LUSMI have been adjusted to reflect
reinvestment of dividends on securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
++Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Intermediate Bond Fund
The Marshall Intermediate Bond Fund seeks to maximize total return consistent
with current income. Fund assets are invested in intermediate-term investment
grade bonds and notes, including corporate, asset-backed, mortgage-backed and
U.S. government securities. The Adviser's strategy to achieve total return is to
adjust the Fund's weightings in these sectors as it deems appropriate. The
Adviser uses macroeconomic, credit and market analysis to select portfolio
securities. The Fund maintains an average dollar-weighted maturity of three to
10 years.
Bonds performed poorly during the latest fiscal year ended August 31, 1999 as
rising interest rates pushed prices lower. Interest rates climbed in response to
a strong U.S. economy and a recovery in global financial markets. The Federal
Reserve Board (the "Fed") tightened monetary policy twice to repeal the
accommodative stance that remained from last year's liquidity campaign. For
investors in U.S. Treasury securities, this meant bonds with maturities longer
than five years posted negative returns. Corporate and mortgage securities
performed even worse.
The liquidity crisis that gripped the markets in the final months of 1998
punished corporate bond investors. For the period from December 31, 1998 (start
of performance) to August 31, 1999, the Fund provided a total return of (0.09%)
based on net asset value.*
From a strategic standpoint, we continue to favor a somewhat defensive posture
on interest rates. While rates have risen dramatically, they are rising from
artificially low levels. Economic strength in the U.S. and a recovery in markets
abroad have fueled concerns over rising commodity prices, labor shortages, a
weak U.S. dollar, and a potential "asset bubble" in U.S. stock prices. The Fed
is on heightened alert. We continue to favor high quality corporate and asset
backed securities instead of U.S. Treasuries. Last year's crisis pushed
valuations on corporate bonds to extremes and relentless supply on the part of
corporate treasurers has held them there. We believe they offer tremendous value
and ultimately investors should be rewarded for employing strategies that
enhance yield.
Sincerely,
/s/ Mark D. Pittman
Mark D. Pittman
Manager, Marshall Intermediate Bond Fund
[PHOTO OF MARK D. PITTMAN]
[_] Marshall Intermediate Bond Fund
"Graphic representation "A-1H" omitted. See Appendix."
"Graphic representation "A-2H" omitted. See Appendix."
"Graphic representation "A-3H" omitted. See Appendix."
"Graphic representation "A-4H" omitted. See Appendix."
This graph illustrates the hypothetical investment of $10,000 in the Class A
Shares of the Fund from
inception on December 31, 1998 to August 31, 1999, compared to the LGCI and the
LSIBF.**
- --------------------------------------------------------------------------------
*Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
**The LGCI and the LSIBF are not adjusted to reflect sales charges, expenses or
other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The LGCI is an index comprised of government and corporate bonds
rated BBB or higher with maturities between 1-10 years. Lipper figures
represent the average of the total returns reported by all of the mutual funds
designated by Lipper as falling into the category indicated.
***Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.75% ($10,000 investment minus $475 sales charge
= $9,525). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LGCI and the LSIBF have been adjusted to reflect
reinvestment of dividends on securities in the indices.
+Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Securities with longer durations generally have
more volatile prices than securities of comparable quality with shorter
durations.
++Total return quoted reflects all applicable sales charges.
Annual Report--Commentary
[ ]
Marshall Money Market Fund
The Marshall Money Market Fund seeks to provide current income consistent with
stability of principal. Fund assets are invested in high quality, short-term
money market instruments.* In order to produce income which minimizes
volatility, the Adviser uses a "bottom-up" approach which evaluates debt
securities of individual companies against the context of broader market factors
such as the cyclical trend in interest rates, the shape of the yield curve and
debt security supply factors.
Although the Fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Fund.
Fund Performance
For the six months ended August 31, 1999 the Fund provided a total return of
2.24%.** This compares to 2.23% for the IBC Donoghue's Taxable Money Fund
Average and 2.26% for the Lipper Money Market Funds Index.*** For the 12 months
ended August 31, 1999, the Fund returned 4.67%.** This compares to 4.59% for IBC
Donoghue's Taxable Money Fund Average and 4.69% for the Lipper Money Market
Funds Index. As of August 31, 1999, the 7-day net yield was 4.62%.**
As we ended the fiscal year, short-term interest rates were pushed higher by the
Federal Reserve Board (the "Fed") in an effort to slow economic growth. The
overnight fed funds target rate has been raised twice for a total of 50 basis
points to 5.25%. After their last meeting, the Fed stated that it felt that the
decrease in rates that we saw in 1998 to counteract financial problems in Asia
was no longer needed. With the rebound in many of the foreign economies, the Fed
can focus on domestic demand and tight labor markets. By most measures the
domestic economy continues to perform well. Durable goods orders are strong, new
home sales, while off their peaks, are robust, and consumer confidence remains
healthy.
"Graphic representation "A-K" omitted. See Appendix."
While inflation remains low, the best days for this area may be over. The last
several months have seen an increase in the prices of many commodities. Oil has
risen from $15 to over $22 a barrel, causing large increases in the price of
unleaded gasoline. One measure of commodities prices, the CRB/Bridge Futures
Price Index,++ has risen substantially over the last few months. Labor remains
the largest part of the cost of finished goods. With the unemployment rate
running at a low 4.2%, many economists are worried that employment costs could
escalate thereby driving up consumer prices.
While the economy remains strong and inflation is bouncing off the lows, the Fed
may not tighten rates for the rest of the year. Monetary policy takes several
months to have an effect on the economy and the Fed has the time to see if
previous rate hikes have the desired effect. Also, many market participants
believe the Fed will try to calm any worries about the new calendar year by
remaining quiet and supplying the needed liquidity to the financial markets. It
remains to be seen if the economy can slow on its own or if it will take
additional tightening by the Fed.
Sincerely,
/s/ Richard M. Rokus
Richard M. Rokus
Manager, Marshall Money Market Fund
[PHOTO OF RICHARD M. ROKUS]
* An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although money market funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
** Performance quoted represents past performance and is not indicative of
future results. Yields will vary. Yields quoted for money market funds most
closely reflect the Fund's current earnings.
*** IBC/Donoghue's Money Fund Report(TM) publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds. Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper as falling into the
category indicated.
+ The 7-day net annualized yield is based on the average net income per share
for the 7 days ended on the date of calculation and the offering price on
that date. The 7-day effective yield is annualized and reflects daily
compounding of the 7-day net yield.
++ The CRB/Bridge Futures Price Index is an unweighted geometric average of
commodity price levels relative to the base year average price. This index
is unmanaged, and investments cannot be made in an index.
Shareholder Meeting Results
A Special Meeting of Shareholders of Marshall Funds, Inc. (the "Corporation"),
was held on May 24, 1999. On March 29, 1999, the record date for shareholders
voting at the meeting, there were 2,120,444,929 total outstanding shares
(33,096,636 total outstanding shares for Marshall Equity Income Fund; 22,890,108
total outstanding shares for Marshall Large-Cap Growth & Income Fund; 12,177,023
total outstanding shares for Marshall Mid-Cap Value Fund; 16,711,096 total
outstanding shares for Marshall Mid-Cap Growth Fund; 8,725,155 total outstanding
shares for Marshall Small-Cap Growth Fund; 18,213,876 total outstanding shares
for Marshall International Stock Fund; 31,920,654 total outstanding shares for
Marshall Government Income Fund; 63,371,757 total outstanding shares for
Marshall Intermediate Bond Fund; 10,966,302 total outstanding shares for
Marshall Intermediate Tax-Free Fund; 14,068,146 total outstanding shares for
Marshall Short-Term Income Fund; and 1,888,304,176 total outstanding shares for
Marshall Money Market Fund). The following items were considered by shareholders
of the Funds and the results of their voting were as follows:
AGENDA ITEM 1: To elect six Directors--all Funds voting together.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Withheld
For Authority
------------ ---------------
<S> <C> <C>
Barbara J. Pope 178,375,657 858,071
James Mitchell 178,230,273 1,003,491
Duane E. Dingmann 178,093,568 1,140,196
John DeVincentis 178,084,297 1,149,467
John M. Blaser 177,967,928 1,265,836
David W. Schulz 177,175,936 2,057,828
</TABLE>
- --------------------------------------------------------------------------------
AGENDA ITEM 2: To ratify the selection of Arthur Andersen LLP as the
Corporation's independent public accountants--each Fund voting separately.
The results of shareholders voting were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares
Fund For Against Abstaining
- ---- ------------ ------------ ----------
<S> <C> <C> <C>
Marshall Equity Income Fund 440,609 12,249 8,099
Marshall Large-Cap Growth & Income
Fund 1,369,794 4,264 46,158
Marshall Mid-Cap Value Fund 158,909 908 3,681
Marshall Mid-Cap Growth Fund 262,096 1,291 5,065
Marshall Small-Cap Growth Fund 104,420 1,327 4,503
Marshall International Stock Fund 996,494 2,854 11,635
Marshall Government Income Fund 810,647 13,119 18,880
Marshall Intermediate Bond Fund 482,185 47 7,991
Marshall Intermediate Tax-Free Fund 142,650 -- 761
Marshall Short-Term Income Fund 223,220 7,009 24,671
Marshall Money Market Fund 172,597,765 325,854 1,144,599
</TABLE>
- --------------------------------------------------------------------------------
AGENDA ITEM 3: To approve an amendment to the Fund's fundamental investment
objective--Marshall Mid-Cap Value Fund only.
The results of shareholders voting were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares
For Against Abstaining
- ------------ ------------ ----------
<S> <C> <C>
156,180 3,939 3,379
</TABLE>
- --------------------------------------------------------------------------------
AGENDA ITEM 4: To approve the Sub-Advisory Contract between M&I Investment
Management Corp. and BPI Global Asset Management LLP, on behalf of the Fund--
Marshall International Stock Fund only.
The results of shareholders voting were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares
For Against Abstaining
- ------------ ------------ ----------
<S> <C> <C>
990,633 8,847 11,503
</TABLE>
- --------------------------------------------------------------------------------
Portfolio of Investments
- --------------------------------------------------------------------------------
Equity Income Fund
<TABLE>
------------------------------------------------------
<CAPTION>
Shares Description Value
------------------------------------------------------
<C> <S> <C>
Common Stocks -- 97.6%
Capital Goods -- 3.8%
Aerospace & Defense -- 1.6%
120,000 Lockheed Martin Corp. $4,440,000
20,500 Northrop Grumman Corp. 1,486,250
33,000 Textron, Inc. 2,664,750
----------
Total 8,591,000
Building Materials -- 0.9%
50,000 Armstrong World Industries, Inc. 2,428,125
97,000 Masco Corp. 2,746,313
----------
Total 5,174,438
Electrical Equipment -- 0.9%
75,000 Emerson Electric Co. 4,696,875
Office Products -- 0.4%
45,000 (1)Xerox Corp. 2,148,750
----------
Total Capital Goods 20,611,063
Consumer Durables -- 7.4%
Automotive & Related -- 4.0%
72,000 Dana Corp. 3,136,500
82,000 Delphi Auto Systems Corp. 1,537,500
171,000 Ford Motor Co. 8,913,375
59,900 General Motors Corp. 3,960,887
30,100 Johnson Controls, Inc. 2,058,088
38,000 TRW, Inc. 2,071,000
----------
Total 21,677,350
Household Product/Wares -- 1.9%
82,000 Clorox Co. 3,710,500
68,000 Procter & Gamble Co. 6,749,000
----------
Total 10,459,500
Manufacturing -- 0.8%
60,000 Whirlpool Corp. 4,241,250
Personal Care -- 0.7%
76,000 Gillette Co. 3,543,500
----------
Total Consumer Durables 39,921,600
Consumer Non-Durables -- 22.6%
Beverages & Foods -- 5.7%
126,000 Archer-Daniels-Midland Co. 1,638,000
45,000 BestFoods 2,210,625
52,000 Campbell Soup Co. 2,297,750
225,000 ConAgra, Inc. 5,512,500
45,000 Heinz (H.J.) Co. 2,100,938
105,000 International Multifoods Corp. 2,382,187
100,000 Nabisco Group Holdings Corp. 1,775,000
180,000 PepsiCo, Inc. 6,142,500
70,000 Ralston Purina Co. 1,925,000
125,000 Sara Lee Corp. 2,773,438
26,874 (1)Unilever NV, ADR 1,850,947
----------
Total 30,608,885
Health Care -- 11.7%
190,000 Abbott Laboratories 8,241,250
182,100 American Home Products Corp. 7,557,150
175,000 Baxter International, Inc. 11,735,937
141,600 Bristol-Myers Squibb Co. 9,965,100
135,000 (1)Glaxo Wellcome PLC, ADR 7,146,563
83,000 Lilly (Eli) & Co. 6,193,875
106,200 Merck & Co., Inc. 7,135,312
70,000 Warner-Lambert Co. 4,637,500
----------
Total 62,612,687
</TABLE>
<TABLE>
----------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Non-Durables (continued)
Lodging -- 0.4%
89,000 Starwood Hotels & Resorts Worldwide, Inc. $2,119,313
Photography -- 0.6%
48,000 Eastman Kodak Co. 3,525,000
Retail -- 0.9%
40,000 Albertsons, Inc. 1,917,500
35,700 May Department Stores Co. 1,394,531
34,000 Sears, Roebuck & Co. 1,275,000
-----------
Total 4,587,031
Tobacco -- 3.3%
300,000 Philip Morris Cos., Inc. 11,231,250
212,000 UST, Inc. 6,717,750
-----------
Total 17,949,000
-----------
Total Consumer Non-Durables 121,401,916
Energy -- 17.8%
Domestic & International Oil -- 16.4%
100,000 Atlantic Richfield Co. 8,793,750
91,000 (1)BP Amoco PLC, ADR 10,203,375
25,000 Chevron Corp. 2,306,250
100,000 (1)Conoco, Inc., Class A 2,675,000
229,300 Exxon Corp. 18,086,037
85,200 Mobil Corp. 8,722,350
100,000 Occidental Petroleum Corp. 2,168,750
219,600 (1)Royal Dutch Petroleum Co., ADR 13,587,750
192,200 Texaco, Inc. 12,204,700
307,500 USX-Marathon Group 9,570,937
-----------
Total 88,318,899
Oil Refining -- 1.4%
80,000 Sunoco, Inc. 2,605,000
91,100 Ultramar Diamond Shamrock Corp. 2,379,988
130,100 Valero Energy Corp. 2,764,625
-----------
Total 7,749,613
-----------
Total Energy 96,068,512
Financial -- 20.6%
Banks -- 12.4%
128,500 Bank One Corp. 5,156,062
96,300 Bank of New York Co., Inc. 3,442,725
185,283 BankAmerica Corp 11,209,621
50,000 BankBoston Corp. 2,321,875
138,000 Chase Manhattan Corp. 11,548,875
52,000 (1)First American Corp. 2,086,500
123,000 First Union Corp. 5,104,500
120,400 Fleet Financial Group, Inc. 4,793,425
92,000 KeyCorp 2,668,000
76,000 Mellon Bank Corp. 2,536,500
80,000 U.S. Bancorp, Inc. 2,470,000
129,000 Washington Mutual, Inc. 4,095,750
230,000 (1)Wells Fargo Co. 9,156,875
-----------
Total 66,590,708
Financial Services -- 1.7%
104,000 Fannie Mae 6,461,000
64,000 Household International, Inc. 2,416,000
-----------
Total 8,877,000
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Equity Income Fund (continued)
<TABLE>
--------------------------------------------------------------
<CAPTION>
Shares Description Value
--------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Financial (continued)
Insurance -- 4.7%
115,000 Ace, Ltd. $2,465,312
148,000 Allstate Corp. 4,856,250
71,100 CIGNA Corp. 6,385,669
82,800 Hartford Financial Services Group, Inc. 3,762,225
30,000 Lincoln National Corp. 1,406,250
33,000 Marsh & McLennan Cos., Inc. 2,402,813
65,000 Reliastar Financial Corp. 2,929,063
29,200 SAFECO Corp. 1,040,250
-----------
Total 25,247,832
Real Estate Investment Trust -- 1.8%
53,000 Duke Realty Investments, Inc. 1,189,188
70,000 Equity Office Properties Trust 1,789,375
68,000 Equity Residential Properties Trust 2,992,000
151,140 Public Storage, Inc. 3,929,640
-----------
Total 9,900,203
-----------
Total Financial 110,615,743
Raw Materials/Intermediate Goods -- 4.6%
Chemicals -- 0.7%
51,000 Air Products & Chemicals, Inc. 1,734,000
61,300 Goodrich (B.F.) Co. 2,264,269
-----------
Total 3,998,269
Metals -- 0.8%
35,000 Reynolds Metals Co. 2,215,938
70,000 USX-U.S. Steel Group, Inc. 1,890,000
-----------
Total 4,105,938
Paper -- 3.1%
106,000 (1)Abitibi-Consolidated, Inc. 1,258,750
75,000 Bowater, Inc. 4,021,875
52,200 Consolidated Papers, Inc. 1,389,825
110,000 Kimberly-Clark Corp. 6,263,125
101,000 (1)Mead Corp. 3,768,562
-----------
Total 16,702,137
-----------
Total Raw Materials/ Intermediate Goods 24,806,344
Utilities -- 20.8%
Electric -- 5.7%
105,000 CMS Energy Corp. 4,154,062
121,600 Duke Energy Corp. 6,992,000
40,000 Edison International 1,015,000
54,000 FPL Group, Inc. 2,916,000
98,600 NiSource, Inc. 2,341,750
164,300 Pinnacle West Capital Corp. 6,243,400
104,000 Southern Co. 2,814,500
102,700 Texas Utilities Co. 4,152,931
-----------
Total 30,629,643
Gas Distribution -- 3.0%
43,000 Columbia Energy Group 2,539,688
32,000 Consolidated Natural Gas Co. 2,038,000
68,200 Enron Corp. 2,855,875
100,000 Sonat, Inc. 3,612,500
67,800 WICOR, Inc. 1,983,150
75,000 Williams Cos., Inc. (The) 3,093,750
-----------
Total 16,122,963
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Utilities (continued)
Telecommunications -- 12.1%
327,500 (1)AT&T Corp. $14,737,500
76,000 Alltel Corp. 5,139,500
68,000 Ameritech Corp. 4,292,500
95,000 (1)Bell Atlantic Corp. 5,818,750
229,000 GTE Corp. 15,715,125
285,560 SBC Communications, Inc. 13,706,880
106,000 U.S. West, Inc. 5,538,500
------------
Total 64,948,755
------------
Total Utilities 111,701,361
------------
Total Common Stocks (identified cost $417,224,956) 525,126,539
(2)Repurchase Agreement -- 1.9%
$10,054,577 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 10,054,577
------------
Total Investments (identified cost $427,279,533) $535,181,116
============
- -------------------------------------------------------------------------------
</TABLE>
Large-Cap Growth & Income Fund
<TABLE>
-----------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------
<C> <S> <C>
Common Stocks -- 90.7%
Basic Industries -- 4.2%
Chemicals -- 1.0%
65,000 Du Pont (E.I.) de Nemours & Co. $4,119,375
Paper -- 3.2%
100,000 Bowater, Inc. 5,362,500
136,800 Kimberly-Clark Corp. 7,789,050
----------
Total 13,151,550
----------
Total Basic Industries 17,270,925
Capital Goods -- 22.6%
Aerospace & Related -- 1.0%
92,300 Boeing Co. 4,182,344
Computer Services -- 8.1%
25,000 (3)America Online, Inc. 2,282,812
79,900 Compaq Computer Corp. 1,852,681
58,200 International Business Machines Corp. 7,249,537
157,000 (3)Microsoft Corp. 14,532,312
89,800 (3)Sun Microsystems, Inc. 7,139,100
----------
Total 33,056,442
Electrical Equipment -- 5.0%
119,600 General Electric Co. 13,432,575
70,000 Tyco International Ltd. 7,091,875
----------
Total 20,524,450
Electronics -- 8.5%
98,300 (3)Applied Materials, Inc. 6,985,444
142,400 (1)Intel Corp. 11,703,500
75,000 Micron Technology, Inc. 5,592,188
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Large-Cap Growth & Income Fund (continued)
<TABLE>
-----------------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Capital Goods (continued)
Electronics (continued)
111,800 Motorola, Inc. $10,313,550
-----------
Total 34,594,682
-----------
Total Capital Goods 92,357,918
Consumer Durables -- 2.0%
Automotive -- 1.2%
75,000 General Motors Corp. 4,959,375
Housewares -- 0.8%
75,000 Newell Rubbermaid, Inc. 3,075,000
-----------
Total Consumer Durables 8,034,375
Consumer Non-Durables -- 31.4%
Beverages & Foods -- 5.5%
95,000 (1)Coca-Cola Co. 5,682,187
139,000 PepsiCo, Inc. 4,743,375
50,000 Procter & Gamble Co. 4,962,500
105,100 (1)Quaker Oats Co. 7,021,994
-----------
Total 22,410,056
Broadcasting -- 0.9%
140,000 (1)(3)Infinity Broadcasting Corp., Class A 3,788,750
Consumer Cyclical -- 1.2%
100,800 (1)Nike, Inc., Class B 4,662,000
Drugs -- 4.2%
98,300 American Home Products Corp. 4,079,450
93,000 Merck & Co., Inc. 6,248,437
65,800 Schering Plough Corp. 3,458,612
51,100 (1)SmithKline Beecham Corp., ADR 3,257,625
-----------
Total 17,044,124
Entertainment -- 3.7%
104,400 Disney (Walt) Co. 2,897,100
140,000 Seagram Co. Ltd. 7,428,750
83,400 Time Warner, Inc. 4,946,663
-----------
Total 15,272,513
Health Care -- 1.2%
199,800 (1)Columbia/HCA Healthcare Corp. 4,920,075
Media -- 3.3%
95,900 Gannett Co., Inc. 6,515,206
179,400 New York Times Co., Class A 7,007,813
-----------
Total 13,523,019
Medical Supplies -- 4.2%
160,200 Abbott Laboratories 6,948,675
99,900 (1)Johnson & Johnson 10,214,775
-----------
Total 17,163,450
Retail -- 5.8%
125,000 (1)(3)Federated Department Stores, Inc. 5,750,000
84,500 (3)Kohl's Corp. 6,020,625
115,400 (1)(3)Safeway, Inc. 5,373,313
271,600 Walgreen Co. 6,297,725
-----------
Total 23,441,663
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Non-Durables (continued)
Tobacco -- 1.4%
156,700 Philip Morris Cos., Inc. $5,866,456
------------
Total Consumer Non-Durables 128,092,106
Energy -- 8.7%
International Oil & Gas -- 7.9%
75,000 Amerada-Hess Corp. 4,654,688
117,500 (1)Exxon Corp. 9,267,812
247,900 (1)Occidental Petroleum Corp. 5,376,331
120,300 (1)Royal Dutch Petroleum Co., ADR 7,443,562
83,300 Texaco, Inc. 5,289,550
------------
Total 32,031,943
Oil Services -- 0.8%
50,000 (1)Schlumberger Ltd. 3,337,500
------------
Total Energy 35,369,443
Financial -- 15.2%
Banks -- 5.3%
84,756 BankAmerica Corp. 5,127,738
170,400 Bank of New York Co., Inc. 6,091,800
62,200 Chase Manhattan Corp. 5,205,362
149,800 Mellon Bank Corp. 4,999,575
------------
Total 21,424,475
Insurance -- 2.9%
95,156 American International Group, Inc. 8,819,772
84,680 UNUMProvident Corp. 3,053,773
------------
Total 11,873,545
Other Financial -- 7.0%
48,800 American Express Co. 6,710,000
120,000 Citigroup, Inc. 5,332,500
80,000 Federal Home Loan Mortgage Corp. 4,120,000
150,000 Franklin Resources, Inc. 5,390,625
20,000 (3)Goldman Sachs Group, Inc. 1,196,250
135,000 MGIC Investment Corp. 5,864,063
------------
Total 28,613,438
------------
Total Financial 61,911,458
Utilities -- 6.6%
Telecommunications -- 6.6%
110,550 AT&T Corp. 4,974,750
92,900 Ameritech Corp. 5,864,313
85,800 GTE Corp. 5,888,025
64,900 (1)(3)MCI Worldcom, Inc. 4,916,175
111,700 (1)SBC Communications, Inc. 5,361,600
------------
Total 27,004,863
------------
Total Common Stocks (identified cost $226,026,610) 370,041,088
(2)Repurchase Agreement -- 8.4%
$34,311,205 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 34,311,205
------------
Total Investments (identified cost $260,337,815) $404,352,293
============
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Mid-Cap Value Fund
<TABLE>
-------------------------------------------------------------
<CAPTION>
Shares Description Value
-------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 95.8%
Capital Goods -- 13.8%
Aerospace & Defense -- 1.2%
20,600 Northrop Grumman, Corp. $1,493,500
Computer Services -- 1.0%
60,000 (3)Keane, Inc. 1,301,250
Computers -- 2.0%
227,500 (3)Silicon Graphics, Inc. 2,602,031
Electronics -- 4.0%
29,000 Avnet, Inc. 1,283,250
85,000 AVX Corp. 2,544,687
70,000 (3)Arrow Electronics, Inc. 1,391,250
----------
Total 5,219,187
Other Capital Goods -- 5.6%
52,500 Brady (W.H.) Co. 1,575,000
105,000 Cooper Tire & Rubber Co. 1,995,000
50,000 (3)Owens-Illinois, Inc. 1,237,500
65,000 Snap-On Tools Corp. 2,197,813
15,700 Steelcase, Inc., Class A 228,631
----------
Total 7,233,944
----------
Total Capital Goods 17,849,912
Consumer Durables -- 2.5%
Health Care -- 1.4%
90,000 (3)HCR Manor Care, Inc. 1,760,625
Household Product/Wares -- 1.1%
71,000 Jostens, Inc. 1,428,875
----------
Total Consumer Durables 3,189,500
Consumer Non-Durables -- 26.2%
Beverages & Foods -- 4.8%
39,900 Darden Restaurants, Inc. 623,437
150,000 International Multifoods Corp. 3,403,125
133,200 (3)Ralcorp Holdings, Inc. 2,181,150
----------
Total 6,207,712
Pharmaceuticals & Health Care -- 5.4%
100,000 (3)First Health Group Corp. 2,156,250
75,000 Mallinckrodt, Inc. 2,404,688
139,700 (1)(3)Tenet Healthcare Corp. 2,436,019
----------
Total 6,996,957
Retail -- 5.8%
40,000 (1)(3)Federated Department Stores, Inc. 1,840,000
35,100 (3)Lands' End, Inc. 1,768,163
40,000 (3)Payless ShoeSource, Inc. 1,995,000
65,000 Shopko Stores, Inc. 1,860,625
----------
Total 7,463,788
Services -- 7.8%
62,000 (3)Bell & Howell Group, Inc. 2,077,000
60,000 (1)Dun & Bradstreet Corp. 1,571,250
167,600 (1)Ikon Office Solutions, Inc. 1,864,550
99,500 (1)(3)Interim Services, Inc. 1,834,531
90,000 Viad Corp. 2,694,375
----------
Total 10,041,706
Tobacco -- 2.4%
96,000 UST, Inc. 3,042,000
----------
Total Consumer Non-Durables 33,752,163
</TABLE>
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Energy -- 11.9%
Oil & Gas Products -- 6.0%
90,000 Noble Affiliates, Inc. $2,790,000
73,320 USX-Marathon 2,282,085
64,500 Unocal Corp. 2,700,937
----------
Total 7,773,022
Oil Services -- 5.9%
67,000 (3)Cooper Cameron Corp. 2,788,875
166,000 (3)Rowan Companies, Inc. 3,091,750
50,000 Transocean Offshore, Inc. 1,700,000
----------
Total 7,580,625
----------
Total Energy 15,353,647
Financial -- 14.9%
Banking -- 3.9%
60,000 Amcore Financial, Inc. 1,312,500
60,000 Associated Banc Corp. 2,115,000
40,000 (1)First Midwest Bancorp, Inc. 1,595,000
----------
Total 5,022,500
Financial Services -- 1.7%
65,000 Deluxe Corp. 2,214,062
Insurance -- 4.4%
73,000 Ace, Ltd. 1,564,937
87,600 Everest Re Holdings, Inc. 2,430,900
60,400 Torchmark Corp. 1,721,400
----------
Total 5,717,237
Other Financial -- 4.9%
36,000 MGIC Investment Corp. 1,563,750
65,000 Radiant Group, Inc. 3,010,313
88,720 (1)Trizec Hahn Corp. 1,730,040
----------
Total 6,304,103
----------
Total Financial 19,257,902
Raw Materials/Intermediate Goods -- 14.0%
Chemicals -- 6.8%
125,000 Agrium, Inc. 1,265,625
50,000 Ferro Corp. 1,200,000
30,000 Fuller (H.B.) Co. 1,807,500
48,150 (1)Imperial Chemical Industries, PLC, ADR 2,202,862
100,000 Millennium Chemicals, Inc. 2,300,000
----------
Total 8,775,987
Intermediate Goods -- 1.9%
59,327 Hanson PLC, ADR 2,513,982
Paper & Related Products -- 4.2%
175,000 (1)Abitibi-Consolidated, Inc. 2,078,125
71,000 Consolidated Papers, Inc. 1,890,375
39,800 Mead Corp. 1,485,038
----------
Total 5,453,538
Steel -- 1.1%
50,000 USX-U.S. Steel Group, Inc. 1,350,000
----------
Total Raw Materials/Intermediate Goods 18,093,507
Telecommunications -- 3.7%
Services -- 3.7%
44,410 (3)AT&T Corp.-Liberty Media Group, Inc., Class A 1,421,120
47,500 Telephone and Data System, Inc. 3,301,250
----------
Total Telecommunications 4,722,370
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
(See Notes to Portfolios of Investments)
- --------------------------------------------------------------------------------
Mid-Cap Value Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Transportation -- 3.4%
Other Transportation -- 2.1%
112,680 Alexander and Baldwin, Inc. $2,725,448
Rails -- 1.3%
25,000 (1)Canadian National Railway Co. 1,589,063
------------
Total Transportation 4,314,511
Utilities -- 5.4%
Electric -- 3.7%
75,000 Edison International 1,903,125
75,000 Pinnacle West Capital Corp. 2,850,000
------------
Total 4,753,125
Electric Distribution -- 1.7%
95,000 NiSource, Inc. 2,256,250
------------
Total Utilities 7,009,375
------------
Total Common Stocks (identified cost $107,094,312) 123,542,887
(2)Repurchase Agreement -- 5.8%
$7,481,048 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 7,481,048
------------
Total Investments (identified cost $114,575,360) $131,023,935
============
- ------------------------------------------------------------------------------
</TABLE>
Mid-Cap Growth Fund
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 95.0%
Capital Goods -- 31.4%
Computer Services -- 2.7%
150,000 (3)FIserv, Inc. $4,621,875
80,000 (3)Transaction Systems Architects, Inc., Class A 2,355,000
70,000 (1)(3)ZDNet 1,058,750
----------
Total 8,035,625
Computers -- 3.4%
130,000 (1)(3)Lexmark Intl. Group, Class A 10,237,500
Electrical Equipment -- 1.4%
125,000 (1)Molex, Inc. 4,007,813
Semi-Conductor -- 8.6%
125,000 (3)Altera Corp. 5,265,625
85,000 (3)Conexant Systems, Inc. 6,109,375
110,000 (3)Teradyne, Inc. 7,486,875
100,000 (1)(3)Vitesse Semiconductor Corp. 6,800,000
----------
Total 25,661,875
Technology -- 15.3%
90,000 (3)CommScope, Inc. 3,099,375
25,000 (3)Gemstar International Group Ltd. 1,725,000
125,000 (3)General Instrument Corp. 6,148,438
25,000 (3)Inktomi Corp. 2,834,375
55,000 (1)(3)Intuit, Inc. 4,925,938
100,000 (3)Jabil Circuit, Inc. 4,481,250
</TABLE>
<TABLE>
-----------------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Capital Goods (continued)
Technology (continued)
100,000 (1)(3)JDS Uniphase Corp. $10,606,250
60,000 (1)(3)SDL, Inc. 4,912,500
75,000 (3)Veritas Software Corp. 4,443,750
50,000 (3)Verity, Inc. 2,437,500
-----------
Total 45,614,376
-----------
Total Capital Goods 93,557,189
Consumer Non-Durables -- 44.0%
Broadcasting -- 13.7%
125,000 (1)(3)American Tower Systems Corp. 2,843,750
125,000 (3)AMFM, Inc. 6,156,250
100,000 (3)Cox Radio, Inc., Class A 5,300,000
100,000 (3)Crown Castle International Corp. 1,512,500
100,000 (3)Cumulus Media, Inc., Class A 2,787,500
120,000 (3)Hispanic Broadcasting Corp. 8,970,000
125,000 (1)(3)Infinity Broadcasting Corp., Class A 3,382,813
110,000 (3)USA Networks, Inc. 4,936,250
125,000 (3)Westwood One, Inc. 4,796,875
-----------
Total 40,685,938
Collectibles -- 0.5%
125,000 (3)The Boyds Collection, Ltd. 1,679,688
Drugs -- 3.3%
50,000 (3)Biogen, Inc. 3,837,500
100,000 (3)Forest Labratories, Inc., Class A 4,843,750
175,000 (3)North American Vaccine, Inc. 1,203,125
-----------
Total 9,884,375
Health Care -- 2.3%
50,000 (1)(3)CareInsite, Inc. 2,387,500
50,000 (3)VISX, Inc. 4,525,000
-----------
Total 6,912,500
Leisure & Recreation -- 8.7%
125,000 Harley Davidson, Inc. 6,812,500
175,000 (1)Royal Caribbean Cruises, Ltd. 8,192,188
125,000 (1)(3)Speedway Motorsports, Inc. 4,664,063
220,000 (3)Steiner Leisure Ltd. 6,132,500
-----------
Total 25,801,251
Lodging -- 1.4%
90,000 (1)Four Seasons Hotels, Inc. 4,050,000
Publishing -- 0.5%
75,000 (1)(3)Playboy Enterprises, Inc., Class B 1,579,688
Restaurants -- 1.7%
125,000 (1)(3)Papa Johns International, Inc. 4,968,750
Retail -- 11.9%
175,000 (3)99 Cents Only Stores 6,300,000
90,000 (3)Abercrombie & Fitch Co., Class A 3,138,750
150,000 (3)Bed Bath & Beyond, Inc. 4,125,000
100,000 (3)Best Buy Co., Inc. 7,025,000
150,000 (3)Kohl's Corp. 10,687,500
175,000 (3)Rayovac Corp. 4,112,500
-----------
Total 35,388,750
-----------
Total Consumer Non-Durables 130,950,940
</TABLE>
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Financial -- 8.4%
Banks -- 2.7%
100,000 First Tennessee National Corp. $3,200,000
100,000 (1)Zions Bancorp 4,975,000
------------
Total 8,175,000
Financial Services -- 1.7%
125,000 (1)PaineWebber Group, Inc. 4,906,250
Insurance -- 1.8%
100,000 Ambac Financial Group, Inc. 5,281,250
Other Financial -- 2.2%
150,000 MGIC Investment Corp. 6,515,625
------------
Total Financial 24,878,125
Telecommunications -- 7.6%
75,000 (1)(3)Adelphia Communications Corp., Class A 4,650,000
100,000 (3)Allegiance Telecom, Inc. 6,012,500
200,000 (3)Tellabs, Inc. 11,912,500
------------
Total Telecommunications 22,575,000
Utilities -- 3.6%
Oil & Gas -- 3.6%
125,000 (3)Nabors Industries, Inc. 3,398,438
125,000 (3)Noble Drilling Corp. 3,078,125
100,000 Williams Cos., Inc. (The) 4,125,000
------------
Total Utilities 10,601,563
------------
Total Common Stocks (identified cost $216,033,557) 282,562,817
Corporate Bonds -- 1.3%
Consumer Non-Durables -- 1.3%
Health Care -- 1.3%
$4,400,000 Sunrise Assisted Living, Inc., Sub. Note, 5.50%,
6/15/2002 (identified cost $4,382,835) 4,036,028
(4)U.S. Treasury Bill -- 0.2%
500,000 11/18/1999 (identified cost $495,006) 494,990
------------
Total Investments in Securities (identified cost
$220,911,398) 287,093,835
(2)Repurchase Agreement -- 3.3%
9,892,476 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 9,892,476
------------
Total Investments (identified cost $230,803,874) $296,986,311
============
</TABLE>
- --------------------------------------------------------------------------------
Small-Cap Growth Fund
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 93.4%
Capital Goods -- 30.3%
Computer Services -- 7.0%
65,000 (3)Cheap Tickets, Inc. $2,405,000
75,000 (3)Diamond Technology Partners, Class A 2,484,375
50,000 (3)Transaction Systems Architects, Inc., Class A 1,471,875
60,000 (3)ZDNet 907,500
----------
Total 7,268,750
Electrical Equipment -- 0.9%
75,000 (3)WESCO International, Inc. 946,875
Semi-Conductor -- 10.2%
15,000 (3)Applied Micro Circuits Corp. 1,383,750
60,000 (3)Cymer, Inc. 2,096,250
25,000 (3)Dupont Photomasks, Inc. 1,340,625
55,000 (3)Triquint Semiconductor, Inc. 2,908,125
70,000 (3)Xircom, Inc. 2,786,875
----------
Total 10,515,625
Technology -- 12.2%
5,000 (3)Agile Software Corp. 248,750
75,000 (3)Artesyn Technologies, Inc. 1,645,312
30,000 (3)Digital River, Inc. 721,875
50,000 (3)Flextronics International Ltd. 2,934,375
30,000 (3)Harmonic Lightwaves, Inc. 3,780,000
40,000 (3)SDL, Inc. 3,275,000
----------
Total 12,605,312
----------
Total Capital Goods 31,336,562
Consumer Non-Durables -- 48.6%
Banks -- 1.8%
70,000 Cullen Frost Bankers, Inc. 1,828,750
Broadcasting -- 16.3%
100,000 (3)American Tower Systems Corp. 2,275,000
40,000 (3)Cox Radio, Inc., Class A 2,120,000
75,000 (3)Cumulus Media, Inc., Class A 2,090,625
75,000 (3)Hearst-Argyle Television, Inc. 1,898,437
25,000 (3)Hispanic Broadcasting Corp. 1,868,750
110,000 (3)Pinnacle Holdings, Inc. 2,770,625
50,000 (3)Salem Communications Corp. 1,375,000
65,000 (3)Westwood One, Inc. 2,494,375
----------
Total 16,892,812
Communication Services -- 2.4%
40,000 (3)Adelphia Communications Corp., Class A 2,480,000
Drugs -- 0.5%
75,000 (3)North American Vaccine, Inc. 515,625
Education -- 0.8%
60,000 (3)Education Management Corp. 776,250
Health Care -- 2.3%
40,000 (3)Medical Manager Corp. 2,380,000
Leisure & Recreation -- 7.3%
60,000 (3)Playboy Enterprises, Inc., Class B 1,263,750
75,000 (3)Speedway Motorsports, Inc. 2,798,437
125,000 (3)Steiner Leisure Ltd. 3,484,375
----------
Total 7,546,562
Medical Supplies -- 1.9%
75,000 (3)Sybron International Corp. 1,931,250
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Small-Cap Growth Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Non-Durables (continued)
Restaurants -- 2.9%
75,000 (3)Papa Johns International, Inc. $2,981,250
Retail -- 11.0%
60,000 (3)99 Cents Only Stores 2,160,000
100,000 (3)Pacific Sunwear of California 2,325,000
100,000 (3)Rayovac Corp. 2,350,000
60,000 (3)The Boyds Collection, Ltd. 806,250
50,000 (3)Too, Inc. 878,125
50,000 (3)Williams-Sonoma, Inc. 1,950,000
125,000 (3)Zany Brainy, Inc. 953,125
------------
Total 11,422,500
Other Services -- 1.4%
50,000 (3)CoStar Group, Inc. 1,434,375
------------
Total Consumer Non-Durables 50,189,374
Energy -- 3.3%
Oil & Gas Equipment Services -- 3.3%
60,000 (3)BJ Services Co. 2,055,000
40,000 (3)Petroleum Geo-Services, ADR 817,500
75,000 (3)U.S. Liquids, Inc. 557,813
------------
Total Energy 3,430,313
Financial -- 3.6%
50,000 Radian Group, Inc. 2,315,625
75,000 Raymond James Financial, Inc. 1,467,188
------------
Total Financial 3,782,813
Telecommunications -- 7.6%
50,000 (3)Dycom Industries, Inc. 1,543,750
25,000 (3)MGC Communications, Inc. 575,000
60,000 (3)Quanta Services, Inc. 1,346,250
25,000 (3)Splitrock Services, Inc. 281,250
75,000 (3)Time Warner Telecom, Inc., Class A 2,025,000
50,000 (3)VoiceStream Wireless Corp. 2,062,500
------------
Total Telecommunications 7,833,750
------------
Total Common Stocks (identified cost $91,297,454) 96,572,812
Corporate Bonds -- 1.7%
Consumer Non-Durables -- 1.7%
Health Care -- 1.7%
$1,900,000 Sunrise Assisted Living, Inc., Sub. Note, 5.50%,
6/15/2002 (identified cost $1,893,055) 1,742,832
(4)U.S. Treasury -- 0.2%
250,000 United States Treasury Bill, 11/18/1999 (identified
cost $247,503) 247,495
------------
Total Investments in Securities (identified cost
$93,438,012) 98,563,139
(2)Repurchase Agreement -- 6.2%
6,377,872 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 6,377,872
------------
Total Investments (identified cost $99,815,884) $104,941,011
============
</TABLE>
- --------------------------------------------------------------------------------
International Stock Fund
<TABLE>
----------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------
<C> <S> <C>
Common Stocks -- 98.4%
Australia -- 2.4%
215,000 Amcor Ltd. $1,120,695
46,000 Brambles Industries Ltd. 1,281,785
111,400 Broken Hill Proprietary Co. Ltd. 1,198,334
440,000 Fosters Brewing Group Ltd. 1,289,313
115,000 National Australia Bank Ltd., Melbourne 1,739,225
----------
Total 6,629,352
Canada -- 2.9%
72,900 (3)Celestica, Inc. 3,152,925
62,800 Nortel Networks Corp. 2,578,725
49,100 Suncor Energy, Inc. 2,020,259
----------
Total 7,751,909
Finland -- 3.5%
46,900 Nokia Oyj, Class A, ADR 3,910,288
79,100 (3)Sonera Group 1,920,362
107,000 UPM-Kymmene OY 3,706,969
----------
Total 9,537,619
France -- 7.4%
9,800 Accor SA 2,361,586
8,900 (1)Alcatel 1,365,155
19,519 Axa 2,432,354
10,900 Carrefour SA 1,775,706
7,100 (1)Compagnie de St. Gobain 1,374,464
16,392 Elf Aquitaine SA 2,878,485
13,000 Groupe Danone 3,220,729
10,400 LVMH 3,169,571
17,900 Vivendi 1,384,186
----------
Total 19,962,236
Germany -- 6.5%
30,500 Bayer AG 1,327,681
23,500 DaimlerChrysler AG 1,774,966
40,700 Deutsche Bank AG 2,785,625
17,100 Mannesmann AG 2,626,556
83,200 Preussag AG 4,743,905
51,700 Siemens AG 4,353,389
----------
Total 17,612,122
Great Britain -- 15.6%
181,000 Amvescap PLC 1,552,058
271,000 BP Amoco PLC 5,026,907
180,000 British Telecommunication PLC 2,756,841
157,570 GKN PLC 2,408,238
172,000 General Electric Co. PLC 1,718,392
124,600 Glaxo Wellcome PLC 3,273,957
110,200 Imperial Chemical Industries, PLC 1,253,439
101,500 Kingfisher PLC 1,221,434
150,000 Lloyds TSB Group PLC 2,076,560
90,200 Next PLC 1,037,564
75,000 Ocean Group PLC 1,216,253
175,000 Peninsular & Oriental Steam Navigation Co. 2,815,401
69,700 Rio Tinto PLC 1,250,288
110,000 Royal Bank of Scotland PLC, Edinburgh 2,268,731
245,500 Siebe PLC 1,255,975
172,000 SmithKline Beecham Corp. 2,238,614
92,500 Standard Chartered PLC 1,346,767
209,800 Vodafone AirTouch PLC 4,225,830
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
International Stock Fund (continued)
<TABLE>
---------------------------------------------------------------------
<CAPTION>
Shares Description Value
---------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Great Britain (continued)
342,000 WPP Group PLC $3,196,719
----------
Total 42,139,968
Hong Kong -- 3.3%
320,000 HSBC Holdings PLC 3,965,714
415,000 (1)Hutchison Whampoa 4,048,506
189,000 Television Broadcasting 847,042
----------
Total 8,861,262
Ireland -- 1.7%
170,000 Bank of Ireland 1,541,181
131,400 CRH PLC 2,981,581
----------
Total 4,522,762
Israel -- 1.1%
38,400 (3)Check Point Software Technologies Ltd. 2,961,600
Italy -- 0.5%
32,000 Banca Popolare di Brescia 1,403,132
Japan -- 24.0%
288,000 Bank of Tokyo-Mitsubishi Ltd. 4,306,764
27,000 Benesse Corp. 4,692,002
49,000 Canon, Inc. 1,434,124
160,000 Daiwa Securities Co. Ltd. 1,450,222
9,500 Fast Retailing Co. Ltd. 1,537,934
237,000 Fujitsu Ltd. 6,958,155
95,000 Kao Corp. 2,702,245
36,100 Matsushita Communication 3,073,956
18,000 Murata Manufacturing Co. Ltd. 1,448,758
90,000 NEC Corp. 1,465,222
260 (3)NTT Mobile Communication Network, Inc. (New) 4,304,203
65 NTT Mobile Communication Network, Inc. 1,081,996
11,700 Nintendo Corp. Ltd. 2,033,201
310 Nippon Telegraph & Telephone Corp. 3,487,447
8,800 Ryohin Keikaku Co. Ltd. 1,738,510
117,000 Sanwa Bank Ltd, Osaka 1,605,158
12,000 Secom Co. 1,640,829
245,000 Sharp Corp. 3,742,168
82,500 Shin-Etsu Chemical Co. 3,365,345
4,400 Shokoh Fund & Co. 3,191,293
16,000 Sony Corp. 2,075,090
67,000 Takeda Chemical Industries 3,370,375
19,000 Takefuji, Corp. 3,060,228
21,000 Yamada Denki, Co. 1,344,492
----------
Total 65,109,717
Korea -- 2.4%
64,000 Kookmin Bank 894,720
43,600 (1)Pohang Iron and Steel Co. Ltd., ADR 1,602,300
80,429 (1)SK Telecom Co. Ltd., ADR 909,853
16,600 Samsung Electronics Co. 3,149,852
----------
Total 6,556,725
Mexico -- 1.3%
63,500 (3)Fomento Economico Mexicano, SA de C.V., ADR 2,099,469
20,378 (1)Telefonos de Mexico, Class L, ADR 1,515,614
----------
Total 3,615,083
</TABLE>
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Netherlands -- 9.8%
23,600 AEGON NV $2,067,123
31,500 Ahold NV 1,129,625
30,400 Akzo Nobel NV 1,416,587
44,200 (3)Benckiser NV 2,702,552
49,032 Philips Electronics NV 5,059,770
4,784 Philips Electronics NV, ADR 491,855
68,000 Royal Dutch Petroleum Co. 4,186,545
98,800 (3)STMicroelectronics NV 6,568,801
23,000 (3)United Pan-Europe Communications NV 1,396,573
37,000 VNU-Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit 1,420,798
------------
Total 26,440,229
Singapore -- 2.6%
450,000 Keppel Corp. 1,456,786
130,000 Oversea-Chinese Banking Corp. Ltd. 911,197
130,000 Singapore Airlines Ltd. 1,220,077
360,000 Venture Manufacturing (Singapore) Ltd. 3,442,827
------------
Total 7,030,887
Spain -- 3.1%
266,000 Banco Santander Central Hispano, SA 2,676,000
174,800 Repsol SA 3,653,863
20,700 Repsol SA, ADR 432,113
95,844 Telefonica SA 1,530,967
------------
Total 8,292,943
Sweden -- 2.3%
52,300 Hennes & Mauritz AB,
Class B 1,324,493
245,000 Skandia Forsakrings AB 4,999,393
------------
Total 6,323,886
Switzerland -- 5.0%
32,945 (3)ABB Ltd. 3,385,336
2,510 Adecco SA 1,385,503
9,500 Credit Suisse Group 1,796,126
1,150 Holderbank Financiere Glarus AG, Class B 1,417,829
1,050 Nestle SA 2,075,428
300 Roche Holding AG 3,474,582
------------
Total 13,534,804
United States -- 3.0%
58,700 (3)Comverse Technology, Inc. 4,578,600
18,000 Pharmacia & Upjohn, Inc. 940,500
26,000 Tyco International Ltd. 2,634,125
------------
Total 8,153,225
------------
Total Common Stocks (identified cost $236,076,454) 266,439,461
Mutual Fund -- 0.9% United States -- 0.9%
2,442,885 Seven Seas Money Market Fund (at net asset value) 2,442,885
------------
Total Investments (identified cost $238,519,339) $268,882,346
============
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Government Income Fund
<TABLE>
---------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
Asset-Backed Securities -- 5.1%
$6,000,000 Green Tree Home Equity Loan Trust, Series 1998-B,
Class B1, 7.810%, 11/15/2029 $5,878,560
10,643,000 Greenwich Capital Acceptance, 7.150%, 8/10/2020 10,431,311
----------
Total Asset-Backed Securities
(identified cost $16,665,899) 16,309,871
Collateralized Mortgage Obligations -- 3.1%
4,856,679 IMC Excess Cashflow Securities Trust 1997-A,
7.410%, 11/26/2028 4,409,719
663,557 Independent National Mortgage Corp., 7.250%,
11/25/2010 666,129
5,000,000 Salomon Brothers Mortgage Sec. VII 1999-1, 6.909%,
4/25/2029 4,801,925
----------
Total Collateralized Mortgage Obligations
(identified cost $10,511,964) 9,877,773
----------
Corporate Bonds -- 2.7%
4,000,000 (7)HSB Group, Inc., 6.220%, 10/15/1999 3,866,480
5,000,000 (7)TXU Gas Capital, 6.699%, 10/1/1999 4,864,300
----------
Total Corporate Bonds
(identified cost $8,898,950) 8,730,780
Mortgage Backed Securities -- 68.8%
Federal Home Loan Mortgage
Corporation -- 16.6%
5,486,395 7.000%, 11/1/2009 5,453,806
3,950,432 7.000%, 5/1/2027 3,840,571
19,265,788 7.000%, 4/1/2029 18,724,034
4,340,282 7.500%, 4/1/2024 4,325,351
15,001,500 7.500%, 8/1/2029 14,912,391
2,156,375 8.500%, 9/1/2024 2,225,789
13,729 8.750%, 4/1/2001 13,894
3,069,355 9.000%, 6/1/2019 3,224,725
2,445 9.500%, 2/1/2001 2,477
3,834 10.500%, 10/1/2000 3,868
----------
Total 52,726,906
Federal National Mortgage Association -- 29.7%
20,000,000 6.500%, 9/1/2006 19,587,600
20,813,110 7.000%, 5/1/2029 19,961,022
14,988,444 7.500%, 8/1/2029 14,707,411
20,000,000 7.500%, TBA 19,862,400
3,140,309 8.000%, 11/1/2027 3,180,536
9,387,740 8.000%, 10/1/2028 9,510,907
7,471,951 8.000%, 8/1/2029 7,567,667
----------
Total 94,377,543
Government National Mortgage
Association -- 22.5%
12,630,826 7.000%, 4/15/2029 12,279,563
4,080,928 7.500%, 8/15/2025 4,060,524
15,542,005 7.500%, 8/15/2025 15,410,830
17,723,053 7.500%, 12/15/2025 17,573,470
12,782,772 8.000%, 10/15/2017 13,126,373
7,423,522 8.500%, 9/15/2028 7,676,367
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Mortgage Backed Securities (continued)
Government National Mortgage
Association (continued)
$1,306,430 9.500%, 10/15/2024 $1,411,754
3,529 10.500%, 10/15/2000 3,579
2,657 10.500%, 10/15/2000 2,695
6,734 11.000%, 11/15/2000 6,862
------------
Total 71,552,017
------------
Total Mortgage Backed Securities (identified cost
$223,195,146) 218,656,466
U.S. Treasury Note -- 4.7%
15,000,000 (1)5.250%, 5/31/2001 (identified cost $14,928,125) 14,884,650
------------
Total Investments in Securities (identified cost
$274,200,084) 268,459,540
(2)Repurchase Agreement -- 24.2%
76,866,559 Lehman Brothers, Inc., 5.460%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 76,866,559
------------
Total Investments (identified cost $351,066,643) $345,326,099
============
- -------------------------------------------------------------------------------
</TABLE>
Intermediate Bond Fund
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Asset-Backed Securities -- 14.3%
$9,000,000 Aircraft Finance Trust, Class C, 8.000%, 5/15/2024 $8,353,035
5,500,000 ARG Funding Corp., Class A2, 5.88%, 5/20/2002 5,398,415
10,000,000 Bridgestone/Firestone Master Trust 1996-1, Class A, 6.17%,
7/1/2003 10,042,700
5,000,000 (7)DLJ Commercial Mortgage Corp. 1998-STF2, Class A1,
5.830%, 9/1/1999 5,006,650
6,000,000 (5)DLJ Leverage Loan Funding, Class B1, 6.693%,
9/15/2005 5,755,320
7,750,000 First USA Credit Card Master Trust 1998-9, Class A, 5.28%,
9/18/2006 7,338,553
7,000,000 Green Tree Home Equity Loan Trust, Series 1998-B,
Class B1, 7.81%, 11/15/2029 6,858,320
12,000,000 J.P. Morgan Commercial Mortgage Finance Corp. 1997-
C5, Class A2, 7.069%, 9/15/2029 11,926,500
10,000,000 Metris Master Trust 1997-1, Class A, 6.87%,
11/20/2005 10,109,100
2,817,630 Pegasus Aviation Lease Securitization 1999-1A, Class
A1, 6.30%, 3/25/2029 2,739,919
12,000,000 TMS Home Equity Trust 1996-B, Class A7, 7.55%,
2/15/2020 12,049,260
----------
Total Asset-Backed Securities
(identified cost $87,219,456) 85,577,772
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Intermediate Bond Fund (continued)
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Collateralized Mortgage Obligations -- 9.8%
$5,000,000 (5)Criimi Mae CMBS Corp., Series 1998-1, Class A2,
6.009%, 2/20/2005 $4,623,650
6,000,000 (5)Criimi Mae CMBS Corp., Series 1998-1, Class A3,
6.306%, 12/20/2007 5,305,560
9,000,000 DLJ Commercial Mortgage Corp., Series 1998-CG1, Class
A1B, 6.410%, 5/10/2008 8,423,145
233,155 Delta Funding Home Equity Loan Trust, Series 1997-3,
Class A2F, 6.59%, 9/25/2012 233,155
6,931,502 Federal Home Loan Mortgage Corp., Series 1829, Class
H, 6.50%, 10/15/2021 6,854,944
2,334,892 Federal Home Loan Mortgage Corp., Series 1834, Class
A, 7.00%, 1/15/2020 2,345,399
13,930,889 Federal National Mortgage Association, Series 1997- 17, Class PD,
7.00%, 4/18/2021 13,996,643
5,000,000 First Union Chase Commercial Mortgage 1999-C2, Class
A2, 6.64%, 4/15/2009 4,763,875
2,103,656 Green Tree Financial Corp., Series 1994-7, Class A4,
8.35%, 3/15/2020 2,120,275
10,540,000 GMAC Commercial Mortgage Securities, Inc., Series 1998-C2, Class
A2, 6.42%, 8/15/2008 9,933,792
----------
Total Collateralized Mortgage Obligations (identified
cost $60,891,755) 58,600,438
Corporate Bonds -- 43.3%
Communication -- 1.1%
7,000,000 (1)WorldCom, Inc., Sr. Note, 6.125%, 8/15/2001 6,943,510
Consumer Cyclicals -- 3.9%
7,500,000 (1)DaimlerChrysler AG, Company Guarantee, 6.90%,
9/1/2004 7,472,475
5,000,000 Dayton-Hudson Corp., Unsecd. Note, 6.40%, 2/15/2003 4,933,700
10,000,000 Dayton-Hudson Corp., Unsecd. Note, 9.75%, 7/1/2002 10,775,300
----------
Total 23,181,475
Banking -- 3.9%
7,000,000 (7)Fleet Capital Trust V, 6.176%, 9/18/1999 6,977,180
7,000,000 (7)Old Kent Capital Trust I, 6.113%, 11/1/1999 6,863,800
10,000,000 (5)(7)Skandinaviska Enskilda, Sub. Note, Series 144A,
6.50%, 6/4/2003 9,331,410
----------
Total 23,172,390
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Broker/Dealers -- 4.5%
$8,000,000 (7)Bear Stearns Cos., Inc., 7.00%, 1/15/2002 $7,905,912
10,000,000 (1)Goldman Sachs Group, Inc., Sr. Unsub., 6.65%,
5/15/2009 9,409,500
5,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.50%, 8/1/2026 5,051,050
5,000,000 PaineWebber Group, Inc., Note, 6.45%, 12/1/2003 4,850,500
----------
Total 27,216,962
Finance -- 11.4%
10,000,000 Aristar, Inc., Note, 6.30%, 10/1/2002 9,811,600
12,000,000 (5)(7)Credit Suisse, London, Sub. Note, 7.90%,
5/1/2007 11,307,948
4,000,000 FINOVA Capital Corp., Note, 6.25%, 11/1/2002 3,908,160
10,400,000 (1)Ford Motor Credit Corp., Bond, 6.70%, 7/16/2004 10,252,320
5,000,000 (1)Ford Motor Credit Corp., Sr. Note, 5.80%,
1/12/2009 4,489,500
8,165,000 General Motors Acceptance Corp., Unsecd. Note, 7.00%,
6/6/2003 8,154,549
4,000,000 Household Netherlands BV, Company Guarantee, 6.20%,
12/1/2003 3,849,000
5,000,000 (7)MBNA Global Capital Securities, Jr. Sub. Deb.,
6.113%, 11/1/1999 4,371,250
12,000,000 Sears Roebuck Acceptance Corp., Note, Series III,
7.01%, 9/19/2002 12,078,000
----------
Total 68,222,327
Industrial Services -- 7.8%
10,000,000 IMC Global, Inc., Deb., 6.875%, 7/15/2007 9,495,900
9,800,000 (5)Marlin Water Trust, Sr. Note, 7.09%, 12/15/2001 9,751,039
6,600,000 NRG Energy, Inc., Sr. Note, 7.50%, 6/1/2009 6,414,210
10,000,000 Tyco International Group, Company Guarantee, 5.875%,
11/1/2004 9,412,100
5,000,000 (1)Waste Management, Inc., Note, 6.625%, 7/15/2002 4,742,600
7,000,000 (7)WMX Technologies, Inc., Unsecd. Note, 7.70%,
10/1/1999 6,809,390
----------
Total 46,625,239
Insurance -- 4.6%
15,000,000 (1)Conseco, Inc., Note, 6.80%, 6/15/2005 13,827,600
10,000,000 (5)Florida Windstorm, Bond, 6.50%, 8/25/2002 9,828,500
4,000,000 (7)HSB Group, Inc., Company Guarantee, 6.22%,
10/15/1999 3,866,480
----------
Total 27,522,580
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
- --------------------------------------------------------------------------------
Intermediate Bond Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Other Finance -- 1.7%
$10,000,000 (5)Edison Funding Co., Sr. Note, 6.75%, 12/17/1999 $10,019,140
Transportation -- 1.5%
4,588,464 Continental Airlines, Inc., Pass Thru Cert.,
6.541%, 9/15/2008 4,385,103
4,000,000 Delta Air Lines, Inc., Equip. Trust, Series 1993-
A2, 10.50%, 4/30/2016 4,833,840
-----------
Total 9,218,943
Utility-Electric -- 1.8%
4,000,000 Korea Electric Power Corp., Deb., 6.00%, 12/1/2026 3,807,440
7,500,000 TXU Eastern Funding Co., Company Guarantee, 6.75%,
5/15/2009 6,902,873
-----------
Total 10,710,313
Utility-Natural Gas -- 1.1%
7,000,000 (7)TXU Gas Capital, 6.699%, 10/1/1999 6,810,020
-----------
Total Corporate Bonds
(identified cost $269,026,279) 259,642,899
Corporate Notes -- 6.4%
Broker/Dealers -- 3.6%
12,000,000 Bear Stearns Cos., Inc., Sr. Note, 6.75%, 5/1/2001 11,990,160
10,000,000 Lehman Brothers Holdings, Inc., Note, 6.625%,
4/1/2004 9,687,800
-----------
Total 21,677,960
Tobacco -- 1.7%
10,000,000 Philip Morris Cos., Inc., Note, 7.25%, 9/15/2001 10,057,300
Transportation -- 1.1%
7,000,000 AMERCO, Sr. Note, 7.20%, 4/1/2002 6,860,000
-----------
Total Corporate Notes
(identified cost $38,897,280) 38,595,260
Government Agencies -- 1.8%
Federal Home Loan Bank -- 1.8%
5,000,000 5.43%, 11/17/2008 4,476,200
6,500,000 5.58%, 8/17/2001 6,428,240
-----------
Total Government Agencies (identified cost
$11,565,695) 10,904,440
Mortgage Backed Securities -- 0.8%
Federal Home Loan Mortgage Corporation -- 0.0%
94,538 8.75%, 4/1/2001 95,680
Federal National Mortgage Association -- 0.8%
4,871,128 7.635%, 8/1/2011 5,008,104
-----------
Total Mortgage Backed Securities (identified cost
$5,343,830) 5,103,784
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
U.S. Treasury Notes -- 4.3%
$15,000,000 (1)6.375%, 8/15/2002 $15,191,550
10,000,000 (1)7.875%, 8/15/2001 10,387,200
------------
Total U.S. Treasury Notes (identified cost
$25,785,156) 25,578,750
------------
Total Investments in Securities (identified cost
$498,729,451) 484,003,343
(2)Repurchase Agreement -- 17.3%
103,740,211 Lehman Brothers, Inc., 5.46%, dated 8/31/1999, due
9/1/1999 (at amortized cost) 103,740,211
------------
Total Investments (identified cost $602,469,662) $587,743,554
============
- -------------------------------------------------------------------------------
</TABLE>
Money Market Fund
<TABLE>
-------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-------------------------------------------------------------------------
<C> <S> <C>
Certificate Of Deposit -- 0.8%
Banking -- 0.8%
$15,000,000 Commerzbank AG, NY, 5.295%, 5/19/2000 $14,994,327
(6)Commercial Paper -- 3.3%
Asset-Backed -- 2.7%
25,000,000 Atlantis One Funding Corp., 5.917%, 2/23/2000 24,301,215
25,000,000 Moat Funding LLC, 5.820%, 2/28/2000 24,272,500
-----------
Total 48,573,715
Consumer Non-Durable -- 0.6%
10,000,000 Hasbro, Inc., 5.140%, 9/13/1999 9,982,867
-----------
Total Commercial Paper 58,556,582
Corporate Bonds -- 14.7%
Asset-Backed -- 4.0%
10,000,000 Asset Backed Capital Financial Corp., Class A,
5.900%, 8/8/2000 10,000,000
25,000,000 Beta Finance, Inc., 5.140%, 1/13/2000 24,999,449
10,000,000 CC (USA), Inc., 5.670%, 6/21/2000 10,000,000
25,000,000 Centaur Corp. Inc., 5.330%, 3/6/2000 25,000,000
-----------
Total 69,999,449
Automotive -- 1.0%
17,000,000 Ford Capital BV, 9.500%, 8/9/2000 17,506,621
Banking -- 2.7%
25,000,000 Bankers Trust Co., New York, 5.190%, 2/22/2000 24,997,700
23,000,000 CCC Putable Asset Trust, 6.450%, 10/18/1999 23,038,413
-----------
Total 48,036,113
Beverages & Foods -- 0.1%
2,500,000 PepsiCo, Inc., 6.250%, 9/1/1999 2,500,000
</TABLE>
(See Notes to Portfolios of Investments)
August 31, 1999
[_] Marshall Funds
- --------------------------------------------------------------------------------
Money Market Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Broker/Dealers -- 3.4%
$25,000,000 Bear Stearns and Co., 5.493%, 11/26/1999 $25,000,000
35,000,000 Merrill Lynch & Co., Inc., 5.681%, 9/22/1999 35,030,885
-----------
Total 60,030,885
Forest Products & Paper -- 0.8%
14,000,000 Willamette Industries, Inc., Corp. Master Note
5.718%, 9/3/1999 14,000,000
Personal Credit -- 1.5%
1,595,000 Associates Corp. of North America, 6.750%,
10/15/1999 1,597,508
10,000,000 General Motors Acceptance Corp., 8.00%, 10/1/1999 10,020,515
15,000,000 General Motors Acceptance Corp., 5.322%, 11/3/1999 15,000,358
-----------
Total 26,618,381
Short-Term Business Credit -- 0.8%
12,500,000 CIT Group, Inc., 5.800%, 7/20/2000 12,471,903
2,000,000 McDonnell Douglas Finance Corp., MTN 6.750%,
9/17/1999 2,000,846
-----------
Total 14,472,749
Telecommunications -- 0.4%
7,825,000 SBC Communications, Inc., 6.500%, 8/15/2000 7,852,906
-----------
Total Corporate Bonds 261,017,104
Variable Rate Notes -- 70.4%
Asset-Backed -- 6.5%
25,000,000 Bishop's Gate Residential Mortgage Trust 1998-2,
Class A-1, 5.380%, 9/20/1999 25,000,000
60,000,000 Sigma Finance Corp., 5.160%, 9/1/1999 60,000,000
30,000,000 Syndicated Loan Funding Trust, 5.408%, 9/15/1999 30,000,000
-----------
Total 115,000,000
Banking -- 9.5%
12,000,000 Bank One Corp., 5.123%, 9/15/1999 11,999,619
13,000,000 Chase Manhattan Corp., 5.692%, 11/28/1999 13,014,879
40,000,000 Citicorp, 5.135%, 9/1/1999 40,000,000
30,000,000 First Union National Bank, 5.572%, 11/17/1999 30,000,000
75,000,000 SMM Trust, 5.255%, 9/15/1999 75,000,000
-----------
Total 170,014,498
Broker/Dealers -- 11.0%
15,000,000 Bear Stearns & Co. (Series B), 5.557%, 11/18/1999 15,005,454
40,000,000 Bear Stearns & Co., (Series B), 5.296%, 9/10/1999 40,000,000
85,000,000 Goldman Sachs & Co., 5.000%, 9/7/1999 85,000,000
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
Variable Rate Notes (continued)
Broker/Dealers (continued)
$35,000,000 J.P. Morgan & Co., Inc., 5.381%, 9/1/1999 $35,000,000
22,000,000 Dean Witter Discover & Co., 5.530%, 10/7/1999 22,054,020
-----------
Total 197,059,474
Construction Equipment -- 3.4%
10,000,000 Caterpillar Financial Services Corp., 5.310%,
9/13/1999 9,998,613
50,000,000 Caterpillar Financial Services Corp., 5.412%,
11/7/1999 50,007,993
-----------
Total 60,006,606
Diversified Manufacturing -- 0.3%
5,000,000 Danaher Corp., 5.202%, 9/7/1999 5,000,000
Foreign Banks -- 4.8%
10,000,000 Bank of Scotland, International Australia, Ltd.,
5.280%, 11/23/1999 9,997,975
75,000,000 Northern Rock PLC, 4.904%, 6/14/2000 75,000,000
-----------
Total 84,997,975
Insurance -- 19.3%
40,000,000 (5)Commonwealth Life Insurance, 5.670%, 9/1/1999 40,000,000
54,000,000 (5)(8)General American Life Insurance Co., 5.590%,
9/1/1999 54,000,000
40,000,000 (5)Jackson National Life Insurance Co., 5.320%,
9/7/1999 40,000,000
50,000,000 (5)Metropolitan Life Insurance Co., 5.041%,
10/25/1999 50,000,000 10,000,000 (5)Monumental Life Insurance
Co., 5.430%, 9/30/1999 10,000,000 60,000,000 (5)Transamerica Life Insurance
and Annuity Co.,
5.348%, 9/7/1999 60,000,000
50,000,000 (5)Travelers Insurance Co., 5.389%, 10/1/1999 50,000,000
40,000,000 (5)Western National Life Insurance Co., 5.468%,
9/7/1999 40,000,000
-----------
Total 344,000,000
Leasing -- 1.4%
25,000,000 General Electric Capital Corp., (Series A), 5.048%,
9/9/1999 25,000,000
Personal Credit -- 7.0%
50,000,000 American Honda Finance Corp., 5.308%, 10/21/1999 49,990,274
34,000,000 American Honda Finance Corp., 5.310%, 10/20/1999 33,993,433
25,000,000 Ford Motor Credit Corp., 5.435%, 11/18/1999 24,980,520
15,200,000 Toyota Motor Credit Corp., 5.350%, 12/17/1999 15,189,140
-----------
Total 124,153,367
</TABLE>
(See Notes to Portfolios of Investments)
Portfolio of Investments
(See Notes to Portfolios of Investments)
- --------------------------------------------------------------------------------
Money Market Fund (continued)
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
Variable Rate Notes (continued)
Short-Term Business Credit -- 7.2%
$25,000,000 CIT Group, Inc., 5.285%, 10/14/1999 $24,994,880
30,000,000 CIT Group, Inc., 5.440%, 9/1/1999 29,990,167
74,000,000 (5)Heller Financial, Inc., 5.098%, 9/7/1999 74,000,000
--------------
Total 128,985,047
--------------
Total Variable Rate Notes 1,254,216,967
--------------
Total Investments in Securities 1,588,784,980
(2)Repurchase Agreement -- 7.3%
129,744,264 Lehman Brothers, Inc., 5.460%, dated 8/31/1999,
due 9/1/1999 129,744,264
--------------
Total Investments (at amortized cost) $1,718,529,244
==============
</TABLE>
Notes to Portfolios of Investments
The categories of investments are shown as a percentage of net assets at August
31, 1999.
(1) Certain shares or principal amounts are temporarily on loan to unaffiliated
broker-dealers.
(2) The repurchase agreements are fully collateralized by U.S. Government and/or
agency obligations based on current market prices.
(3) Non-income producing.
(4) Represents the initial deposit within a margin account used to ensure the
Fund is able to satisfy the obligations of its outstanding long futures
contracts.
(5) Securities exempt from registration under the Securities Act of 1933, as
amended, and may only be sold to dealers and other exempt investors. These
securities have been determined to be liquid according to guidelines
established by the Funds' board of directors.
(6) Each issue shows the rate of discount at the time of purchase. (7) Current
rate and next demand date shown. (8) As of August 31, 1999, the Money Market
Fund held a variable rate note
issued by General American Life Insurance Co., 5.590%, 9/1/1999. As a result
of a change in General American's business, the Money Market Fund and many
other holders of similar instruments issued by General American exercised
demand put features on or about August 2, 1999, requiring repayment within
seven days. On August 9, 1999, General American formally requested
supervision from the Missouri Insurance Commissioner because of the
inability to liquidate sufficient assets to meet repayment deadlines.
General American and the Insurance Commissioner's office publicly
acknowledged a short-term liquidity problem, but stressed sufficient assets
existed to meet obligations. Regardless, an affiliate of the Fund's adviser
provided added protection to Fund shareholders by issuing a demand put to
the Fund if payment was not received in a reasonable time period. On August
31, 1999, General American agreed to be acquired by Metropolitan Life who
paid the Fund all outstanding principal and interest due on October 1, 1999.
The following acronyms are used throughout this report:
- --------------------------------------------------------------------------------
ADR--American Depositary Receipt
MTN--Medium Term Note
TBA--To Be Announced
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized Gross Gross
Cost of Appreciation Unrealized Unrealized
Investments (Depreciation) Appreciation Depreciation
for Federal Tax for Federal for Federal for Federal Total Net
Marshall Purposes Tax Purposes Tax Purposes Tax Purposes Assets
- -------- --------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund $427,279,533 $107,901,583 $116,627,709 $8,726,126 $538,050,228
Large-Cap Growth &
Income Fund 260,361,578 143,990,715 146,620,680 2,629,965 407,942,729
Mid-Cap Value Fund 114,970,950 16,052,985 20,175,377 4,122,392 128,930,897
Mid-Cap Growth Fund 231,355,727 65,630,584 73,423,966 7,793,382 297,527,357
Small-Cap Growth Fund 99,821,926 5,119,085 13,651,712 8,532,627 103,385,668
International Stock Fund 240,196,949 28,685,397 38,920,946 10,235,549 270,743,726
Government Income Fund 351,100,627 (5,774,528) 67,014 5,841,542 318,037,861
Intermediate Bond Fund 602,829,818 (15,086,264) 1,027,936 16,114,200 599,923,142
Money Market Fund 1,718,529,244* -- -- -- 1,782,092,207
</TABLE>
* At amortized cost
(See Notes which are an integral part of the Financial Statements)
August 31, 1999
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
------- ------- -------
Equity Large-Cap Mid-Cap
Income Growth & Income Value
Fund Fund Fund
------- ------- -------
Assets:
<S> <C> <C> <C>
Investments in securities, at $525,126,539 $370,041,088 $123,542,887
value
Investments in repurchase 10,054,577 34,311,205 7,481,048
agreements
Short-term investments held as
collateral for securities
lending 37,859,400 43,964,300 13,921,950
Cash -- -- --
Cash denominated in foreign
currencies (at cost, $431,961) -- -- --
Income receivable 1,689,988 421,833 234,960
Receivable for investments sold 5,236,147 3,443,051 3,091,390
Receivable for capital stock
sold 263,974 233,091 55,764
Receivable for daily variation
margin -- -- --
Deferred organizational costs -- -- --
------------ ------------ ------------
Total assets 580,230,625 452,414,568 148,327,999
Liabilities:
Payable to bank -- -- --
Income distribution payable -- -- --
Net payable for foreign currency
exchange contracts -- -- --
Payable for investments
purchased 3,637,145 -- 5,214,471
Payable for capital stock
redeemed 82,026 33,729 132,266
Payable on collateral due to
broker 37,859,400 43,964,300 13,921,950
Accrued expenses 601,826 473,810 128,415
------------ ------------ ------------
Total liabilities 42,180,397 44,471,839 19,397,102
------------ ------------ ------------
Total Net Assets $538,050,228 $407,942,729 $128,930,897
============ ============ ============
Net Assets Consist of:
Paid-in-capital 386,839,789 240,131,258 98,260,727
Net unrealized appreciation
(depreciation) on investments,
collateral, futures contracts
and foreign currency
translation 107,901,583 144,014,478 16,448,575
Accumulated net realized gain
(loss) on investments, futures
contracts and foreign currency
transactions 43,048,685 23,597,805 14,050,377
Undistributed net investment
income/(loss) 260,171 199,188 171,218
------------ ------------ ------------
Total Net Assets $538,050,228 $407,942,729 $128,930,897
============ ============ ============
Net Asset Value, Offering Price
and Redemption Proceeds Per
Share
Class Y Shares:
Net Asset Value and Redemption
Proceeds Per Share $16.71 $17.48 $11.40
Offering Price Per Share $16.71 $17.48 $11.40
Class A Shares:
Net Asset Value and Redemption
Proceeds Per Share $16.71 $17.48 $11.40
Offering Price Per Share $17.73* $18.55* $12.10*
Net Assets
Class Y Shares $537,295,397 $407,030,725 $128,575,304
Class A Shares 754,831 912,004 355,593
------------ ------------ ------------
Total Net Assets $538,050,228 $407,942,729 $128,930,897
============ ============ ============
Shares Outstanding:
Class Y Shares 32,160,739 23,288,775 11,280,308
Class A Shares 45,182 52,182 31,192
------------ ------------ ------------
Total shares outstanding
($0.0001 par value) 32,205,921 23,340,957 11,311,500
============ ============ ============
Investments, at identified cost $427,279,533 $260,337,815 $114,575,360
============ ============ ============
</TABLE>
* Computation of offering price per share 100/94.25 of net asset value.
** Computation of offering price per share 100/95.25 of net asset value.
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
------- ------- ------- ------- ------- -------
Mid-Cap Small-Cap International Government Intermediate Money
Growth Growth Stock Income Bond Market
Fund Fund Fund Fund Fund Fund
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$287,093,835 $ 98,563,139 $268,882,346 $268,459,540 $484,003,343 $1,588,784,980
9,892,476 6,377,872 -- 76,866,559 103,740,211 129,744,264
54,475,000 -- -- 15,362,500 60,763,800 --
-- -- -- 1,733 -- 41,701
-- -- 435,910 -- -- --
88,114 36,778 762,762 1,786,215 6,623,260 14,339,124
-- 3,462,383 3,465,001 11,866,828 6,327,906 55,000,000
981,707 85,120 1,081,634 6,890 1,663,778 2,609,395
23,500 22,500 -- -- -- --
-- 15,008 -- -- -- --
------------ ------------ ------------ ------------ ------------ --------------
352,554,632 108,562,800 274,627,653 374,350,265 663,122,298 1,790,519,464
-- -- 1,906,005 -- 103,666 --
-- -- -- 556,200 1,743,546 5,159,402
-- -- 11,961 -- -- --
-- 5,011,739 -- 39,975,327 -- --
216,352 34,709 1,595,287 153,480 174,648 2,471,815
54,475,000 -- -- 15,362,500 60,763,800 --
335,923 130,684 370,674 264,897 413,496 796,040
------------ ------------ ------------ ------------ ------------ --------------
55,027,275 5,177,132 3,883,927 56,312,404 63,199,156 8,427,257
------------ ------------ ------------ ------------ ------------ --------------
$297,527,357 $103,385,668 $270,743,726 $318,037,861 $599,923,142 $1,782,092,207
============ ============ ============ ============ ============ ==============
203,241,747 96,644,875 214,364,944 331,052,682 639,560,396 1,782,092,207
66,865,284 5,036,375 30,360,945 (5,740,544) (14,726,108) --
27,420,326 1,704,418 26,147,344 (7,147,480) (24,724,684) --
-- -- (129,507) (126,797) (186,462) --
------------ ------------ ------------ ------------ ------------ --------------
$297,527,357 $103,385,668 $270,743,726 $318,037,861 $599,923,142 $1,782,092,207
============ ============ ============ ============ ============ ==============
$17.28 $12.38 $13.83 $9.22 $9.17 $1.00
$17.28 $12.38 $13.83 $9.22 $9.17 $1.00
$17.28 $12.38 $13.83 $9.22 $9.17 $1.00
$18.33* $13.14* $14.67* $9.68** $9.63** $1.00
$297,249,155 $102,991,800 $270,315,222 $317,283,575 $598,970,493 $1,663,739,917
278,202 393,868 428,504 754,286 952,649 118,352,290
------------ ------------ ------------ ------------ ------------ --------------
$297,527,357 $103,385,668 $270,743,726 $318,037,861 $599,923,142 $1,782,092,207
============ ============ ============ ============ ============ ==============
17,204,222 8,319,738 19,540,635 34,425,298 65,293,283 1,663,739,917
16,102 31,810 30,978 81,854 103,832 118,352,290
------------ ------------ ------------ ------------ ------------ --------------
17,220,324 8,351,548 19,571,613 34,507,152 65,397,115 1,782,092,207
============ ============ ============ ============ ============ ==============
$230,803,874 $ 99,815,884 $238,519,339 $351,066,643 $602,469,662 $1,718,529,244
============ ============ ============ ============ ============ ==============
</TABLE>
Year Ended August 31, 1999
Statements of Operations
<TABLE>
<CAPTION>
------- ------- -------
Equity Large-Cap
Income Growth & Mid-Cap
Fund Income Fund Value Fund
------- ------- -------
<S> <C> <C> <C>
Investment Income:
Interest income $ 1,641,385 $ 1,462,203 $ 501,735
Dividend income 13,847,619 4,130,402 2,492,038
------------ ------------ -----------
Total income 15,489,004 5,592,605 2,993,773
Expenses:
Investment advisory fee 4,006,158 2,763,976 1,033,112
Directors' fees 7,396 8,551 7,745
Administrative fees 448,829 310,828 118,865
Custodian fees 79,231 80,639 27,597
Portfolio accounting fees 88,711 72,211 48,642
Transfer and dividend disbursing
agent fees 138,395 125,223 81,056
Shareholder services fees--
Class Y Shares 1,335,022 920,954 344,176
Class A Shares 363 362 188
Registration fees 22,308 35,977 17,578
Auditing fees 12,696 15,194 12,474
Legal fees 4,087 574 2,813
Printing and postage 11,251 15,189 13,712
Insurance premiums 4,143 2,224 1,397
Distribution services fees--
Class A Shares 364 371 194
Taxes 36,463 30,445 11,019
Miscellaneous 44,967 30,464 13,100
------------ ------------ -----------
Total expenses 6,240,384 4,413,182 1,733,668
Deduct--
Waiver of investment advisory fee -- -- --
Waiver of shareholder services fees--
Class Y Shares -- -- --
Class A Shares (363) (362) (188)
------------ ------------ -----------
Total Waivers (363) (362) (188)
Net expenses 6,240,021 4,412,820 1,733,480
------------ ------------ -----------
Net investment income (net operating
loss) 9,248,983 1,179,785 1,260,293
Realized and Unrealized Gain (Loss) on
Investments, Collateral, Foreign
Currency and Futures Contracts:
Net realized gain (loss) on
investment transactions (identified
cost basis) 43,055,381 21,925,688 14,240,749
Net realized gain on futures
contracts (identified cost basis) -- 3,576,508 --
Net realized loss on foreign currency
transactions -- -- --
Net change in unrealized appreciation
(depreciation) on investments,
collateral, futures contracts and
foreign currency translation 72,705,877 81,285,328 11,987,900
------------ ------------ -----------
Net realized and unrealized gain
(loss) on investments, collateral,
foreign currency and futures
contracts 115,761,258 106,787,524 26,228,649
------------ ------------ -----------
Change in net assets resulting from
operations $125,010,241 $107,967,309 $27,488,942
============ ============ ===========
</TABLE>
(1)Net of Foreign taxes withheld of $439,056.
(2)Net of dollar roll interest expense of $1,926,285.
(3)Net of foreign capital tax of $61,371.
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
------- -------- ------------- ------- ------- -------
Mid-Cap Small-Cap International Government Intermediate Money
Growth Growth Stock Income Bond Market
Fund Fund Fund Fund Fund Fund
------- -------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 917,577 $ 639,268 $ 581,208 $ 19,627,198(2) $ 38,983,936 $93,541,888
360,454 49,563 4,505,717(1) -- -- --
- ------------ ----------- ----------- ------------ ------------ -----------
1,278,031 688,831 5,086,925 19,627,198 38,983,936 93,541,888
1,933,093 997,009 2,416,970 2,245,727 3,565,324 8,873,537
7,188 7,245 7,252 6,450 7,220 7,828
218,644 123,840 205,307 253,421 498,835 1,477,382
45,532 20,031 169,818 50,971 79,528 203,990
73,411 46,282 71,736 74,390 98,104 179,417
104,969 66,387 44,821 77,066 80,311 293,394
644,251 249,070 604,066 684,008 1,353,842 332,814
114 176 176 229 461 22,127
39,719 23,560 29,521 23,896 24,602 73,112
13,149 13,084 15,270 15,138 14,909 15,670
3,403 2,015 7,106 3,135 3,673 7,425
15,835 16,192 8,684 13,407 16,144 18,305
1,536 1,459 1,201 1,928 4,074 8,490
114 182 176 233 463 331,903
21,742 7,315 23,830 27,697 50,202 125,799
28,354 9,676 34,411 12,604 42,900 24,896
- ------------ ----------- ----------- ------------ ------------ -----------
3,151,054 1,583,523 3,640,345 3,490,300 5,840,592 11,996,089
-- -- (23,525) (291,548) (356,532) (4,436,304)
-- -- -- (624,141) (1,235,035) --
(114) (176) (176) (229) (461) --
- ------------ ----------- ----------- ------------ ------------ -----------
(114) (176) (23,701) (915,918) (1,592,028) (4,436,304)
3,150,940 1,583,347 3,616,644 2,574,382 4,248,564 7,559,785
- ------------ ----------- ----------- ------------ ------------ -----------
(1,872,909) (894,516) 1,470,281 17,052,816 34,735,372 85,982,103
27,484,765 1,267,142 27,402,838(3) (5,532,998) (2,982,509) --
2,139,745 1,241,740 -- -- -- --
-- -- (1,420,206) -- -- --
73,510,212 20,790,088 21,406,193 (10,156,936) (24,215,629) --
- ------------ ----------- ----------- ------------ ------------ -----------
103,134,722 23,298,970 47,388,825 (15,689,934) (27,198,138) --
- ------------ ----------- ----------- ------------ ------------ -----------
$101,261,813 $22,404,454 $48,859,106 $ 1,362,882 $ 7,537,234 $85,982,103
============ =========== =========== ============ ============ ===========
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
---------------------------- --------------------------
Equity Large-Cap
Income Growth &
Fund Income Fund
---------------------------- --------------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
Operations--
Net investment income
(net operating loss) $ 9,248,983 $ 9,626,902 $ 1,179,785 $ 1,227,848
Net realized gain
(loss) on investment
transactions 43,055,381 40,283,486 21,925,688 18,456,573
Net realized gain
(loss) on futures
contracts -- -- 3,576,508 (844,292)
Net realized loss on
foreign currency
transactions -- -- -- --
Net change in
unrealized
appreciation
(depreciation) of
investments,
collateral, futures
contracts and foreign
currency translation 72,705,877 (23,760,894) 81,285,328 (9,032,687)
------------- ------------- ------------ ------------
Change in net assets
resulting from
operations 125,010,241 26,149,494 107,967,309 9,807,442
------------- ------------- ------------ ------------
Distributions to
Shareholders--
Dividends to
shareholders from net
investment income
Class Y Shares (9,616,451) (9,687,514) (1,225,905) (1,128,306)
Class A Shares (1,539) -- (125) --
Distributions to
shareholders from net
realized gain on
investments
Class Y Shares (33,129,352) (27,002,639) (16,057,392) (23,055,255)
------------- ------------- ------------ ------------
Change in net assets
from distributions to
shareholders (42,747,342) (36,690,153) (17,283,422) (24,183,561)
------------- ------------- ------------ ------------
Capital Stock
Transactions--
Proceeds from sale of
shares 62,127,664 212,523,763 68,746,185 59,962,072
Net asset value of
shares issued to
shareholders in
payment of
distributions declared 36,072,765 29,988,247 16,617,460 23,601,015
Cost of shares redeemed (101,277,886) (104,836,067) (42,926,207) (63,972,861)
------------- ------------- ------------ ------------
Change in net assets
from capital stock
transactions (3,077,457) 137,675,943 42,437,438 19,590,226
------------- ------------- ------------ ------------
Change in net assets 79,185,442 127,135,284 133,121,325 5,214,107
Net Assets:
Beginning of year 458,864,786 331,729,502 274,821,404 269,607,297
------------- ------------- ------------ ------------
End of year $ 538,050,228 $ 458,864,786 $407,942,729 $274,821,404
============= ============= ============ ============
Undistributed net
investment income
included in net assets
at end of period $ 260,171 $ 647,535 $ 199,188 $ 244,696
============= ============= ============ ============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
[_] Marshall Funds
<TABLE>
<CAPTION>
- --------------------------- -------------------------- -------------------------- ----------------------------
Small-Cap
Mid-Cap Mid-Cap Growth International
Value Fund Growth Fund Fund Stock Fund
- --------------------------- -------------------------- -------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998 1999 1998
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,260,293 $ 1,595,862 $ (1,872,909) $ (1,775,264) $ (894,516) $ (1,015,186) $ 1,470,281 $ 5,028,964
14,240,749 11,719,164 27,484,765 17,091,286 1,267,142 3,744,474 27,402,838 309,389
-- -- 2,139,745 264,890 1,241,740 (200,587) -- --
-- -- -- -- -- -- (1,420,206) (233,199)
11,987,900 (16,549,975) 73,510,212 (36,178,485) 20,790,088 (23,578,293) 21,406,193 (29,288,960)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
27,488,942 (3,234,949) 101,261,813 (20,597,573) 22,404,454 (21,049,592) 48,859,106 (24,183,806)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(1,460,404) (1,713,554) -- -- -- -- (4,598,552) (3,675,610)
(311) -- -- -- -- -- -- --
(11,609,645) (21,031,640) (12,958,800) (23,952,792) (187,364) (2,485,675) -- (4,959,734)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(13,070,360) (22,745,194) (12,958,800) (23,952,792) (187,364) (2,485,675) (4,598,552) (8,635,344)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
16,163,437 57,448,236 91,239,828 99,091,260 48,531,026 76,581,765 220,340,936 163,353,256
12,077,431 21,339,106 12,799,676 23,567,478 185,274 2,464,966 2,562,588 6,828,038
(48,348,363) (63,330,825) (82,203,575) (87,703,412) (47,405,727) (32,078,052) (221,668,862) (138,963,126)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(20,107,495) 15,456,517 21,835,929 34,955,326 1,310,573 46,968,679 1,234,662 31,218,168
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
(5,688,913) (10,523,626) 110,138,942 (9,595,039) 23,527,663 23,433,412 45,495,216 (1,600,982)
134,619,810 145,143,436 187,388,415 196,983,454 79,858,005 56,424,593 225,248,510 226,849,492
- ------------ ------------ ------------ ------------ ------------ ------------ ------------- -------------
$128,930,897 $134,619,810 $297,527,357 $187,388,415 $103,385,668 $ 79,858,005 $ 270,743,726 $ 225,248,510
============ ============ ============ ============ ============ ============ ============= =============
$ 171,218 $ 371,804 $ -- -- $ -- -- $ (129,507) $ 4,584,972
============ ============ ============ ============ ============ ============ ============= =============
<CAPTION>
- ---------------------------
Government
Income
Fund
- ---------------------------
Year Ended Year Ended
August 31, August 31,
1999 1998
- ------------- -------------
<C> <C>
$ 17,052,816 $ 15,508,284
(5,532,998) 1,854,374
-- --
-- --
(10,156,936) 3,216,704
- ------------- -------------
1,362,882 20,579,362
- ------------- -------------
(17,046,282) (15,508,284)
(4,991) --
(83,554) --
- ------------- -------------
(17,134,827) (15,508,284)
- ------------- -------------
101,047,566 98,456,886
10,213,574 8,809,411
(57,763,948) (35,667,208)
- ------------- -------------
53,497,192 71,599,089
- ------------- -------------
37,725,247 76,670,167
280,312,614 203,642,447
- ------------- -------------
$318,037,861 $280,312,614
============= =============
$ (126,797) --
============= =============
</TABLE>
<TABLE>
<CAPTION>
-------------------------- ------------------------------
Money
Intermediate Market
Bond Fund Fund
-------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets
Operations--
Net investment income $ 34,735,372 $ 31,179,790 $ 85,982,103 $ 82,839,430
Net realized gain (loss)
on investment
transactions (2,982,509) 1,740,828 -- --
Net change in unrealized
appreciation
(depreciation) of
investments,
collateral, futures
contracts, and foreign
currency translation (24,215,629) 7,755,997 -- --
------------ ------------ -------------- --------------
Change in net assets
resulting from
operations 7,537,234 40,676,615 85,982,103 82,839,430
------------ ------------ -------------- --------------
Distributions to
Shareholders--
Dividends to
shareholders from net
investment income:
Class Y Shares (34,884,036) (31,179,790) (80,923,709) (78,163,550)
Class A Shares (10,464) -- (5,058,394) (4,675,880)
Distributions from
shareholders from net
realized gain on
investments
Class Y Shares -- -- -- --
------------ ------------ -------------- --------------
Change in net assets
from distributions to
shareholders (34,894,500) (31,179,790) (85,982,103) (82,839,430)
------------ ------------ -------------- --------------
Capital Stock
Transactions--
Proceeds from sale of
shares 109,483,038 256,079,048 6,113,374,930 5,479,189,898
Net asset value of
shares issued to
shareholders in
payment of dividends
declared 13,956,200 13,270,752 24,005,312 18,085,713
Cost of shares redeemed (85,827,857) (87,411,885) (6,049,229,780) (5,183,477,454)
------------ ------------ -------------- --------------
Change in net assets
from capital stock
transactions 37,611,381 181,937,915 88,150,462 313,798,157
------------ ------------ -------------- --------------
Change in net assets 10,254,115 191,434,740 88,150,462 313,798,157
Net Assets:
Beginning of period 589,669,027 398,234,287 1,693,941,745 1,380,143,588
------------ ------------ -------------- --------------
End of period $599,923,142 $589,669,027 $1,782,092,207 $1,693,941,745
============ ============ ============== ==============
Undistributed net
investment income
included in net assets
at end of period (186,462) -- -- --
============ ============ ============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Financial Highlights--Class A Shares
<TABLE>
<CAPTION>
Distributions to
shareholders from
Net realized and net realized gain
unrealized on investment
Net gain/(loss) on Dividends to transactions,
Net Asset investment investments, shareholders futures
Period value, income/ collateral, futures Total from from net contracts, and Net Asset
Ended beginning operating contracts and investment investment foreign currency Total value, end Total
August 31, of period (loss) foreign currency operations income transactions distributions of period return(2)
- ---------- --------- ---------- ------------------- ---------- ------------ ----------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund
1999(1) $15.88 0.16 0.81 0.97 (0.14) -- (0.14) $16.71 6.13%
Large-Cap Growth & Income Fund
1999(1) $16.34 0.02 1.14 1.16 (0.02) -- (0.02) $17.48 7.08%
Mid-Cap Value Fund
1999(1) $10.77 0.05 0.62 0.67 (0.04) -- (0.04) $11.40 6.22%
Mid-Cap Growth Fund
1999(1) $15.13 (0.02) 2.17 2.15 -- -- -- $17.28 14.21%
Small-Cap Growth Fund
1999(1) $12.73 (0.02) (0.33) (0.35) -- -- -- $12.38 (2.75%)
International Stock Fund
1999(1) $12.69 0.00 1.14 1.14 -- -- -- $13.83 8.98%
Government Income Fund
1999(1) $ 9.61 0.34 (0.39) (0.05) (0.34) -- (0.34) $ 9.22 (0.56%)
Intermediate Bond Fund
1999(1) $ 9.53 0.35 (0.36) (0.01) (0.35) -- (0.35) $ 9.17 (0.09%)
Money Market Fund
1995 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.25%
1996 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.07%
1997 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.04%
1998 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 5.19%
1999 $ 1.00 0.05 -- 0.05 (0.05) -- (0.05) $ 1.00 4.67%
<CAPTION>
Ratios to Average Net Assets
---------------------------------------------------------------
Net
investment Net Assets,
Period Net Expenses income end Portfolio
Ended investment (after (after of period turnover
August 31, Expenses(4) income(4) waivers) waivers) (000's omitted) rate
- ----------- ----------- ----------- ---------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund
1999(1) 1.42%(3) 1.43%(3) 1.17%(3) 1.68%(3) $ 755 72%
Large-Cap Growth & Income Fund
1999(1) 1.45%(3) (0.10%)(3) 1.20%(3) 0.15%(3) $ 912 32%
Mid-Cap Value Fund
1999(1) 1.51%(3) 0.46%(3) 1.26%(3) 0.71%(3) $ 356 90%
Mid-Cap Growth Fund
1999(1) 1.46%(3) (0.99%)(3) 1.21%(3) (0.74%)(3) $ 278 173%
Small-Cap Growth Fund
1999(1) 1.84%(3) (1.28%)(3) 1.59%(3) (1.03%)(3) $ 394 219%
International Stock Fund
1999(1) 1.77%(3) (0.14%)(3) 1.50%(3) 0.13%(3) $ 429 182%
Government Income Fund
1999(1) 1.45%(3) 5.19%(3) 1.09%(3) 5.55%(3) $ 754 232%
Intermediate Bond Fund
1999(1) 1.25%(3) 5.48%(3) 0.94%(3) 5.79%(3) $ 953 181%
Money Market Fund
1995 0.97% 4.95% 0.71% 5.21% $ 30,331 --
1996 0.97% 4.66% 0.71% 4.92% $ 84,711 --
1997 0.97% 4.67% 0.71% 4.93% $ 89,485 --
1998 0.96% 4.87% 0.71% 5.12% $105,125 --
1999 0.96% 4.32% 0.71% 4.57% $118,352 --
</TABLE>
(1) Reflects operations for the period from December 31, 1998 (start of
performance) to August 31, 1999.
(2) Based on net asset value. (3) Computed on an annualized basis.
(4) During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
August 31, 1999
Notes to Financial Statements
1. Organization
Marshall Funds, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Corporation consists of eleven diversified portfolios,
nine of which offer Class A Shares (individually referred to as the "Fund", or
collectively as the "Funds") which are presented below. The financial statements
for the other remaining Funds of the Corporation are presented in a separate
annual report.
<TABLE>
<CAPTION>
Portfolio Name Investment Objective
-------------- --------------------
<C> <S>
Marshall Equity Income Fund ("Equity Income Fund") Capital appreciation and
above-average dividend
income.
Marshall Large-Cap Growth & Income Fund Capital appreciation and
income.
("Large-Cap Growth & Income Fund")
Marshall Mid-Cap Value Fund ("Mid-Cap Value Fund") Capital appreciation.
Marshall Mid-Cap Growth Fund ("Mid-Cap Growth Fund") Capital appreciation.
Marshall Small-Cap Growth Fund ("Small-Cap Growth Fund") Capital appreciation.
Marshall International Stock Fund ("International Stock Fund") Capital appreciation.
Marshall Government Income Fund ("Government Income Fund") Current income.
Marshall Intermediate Bond Fund ("Intermediate Bond Fund") Maximize total return
consistent with current
income.
Marshall Money Market
Fund ("Money
Market Fund")
Current income
consistent with
stability of
principal.
</TABLE>
The Funds offered two classes of shares: Class Y Shares and Class A Shares.
The assets of each Fund are segregated and a shareholder's interest is limited
to the Fund in which shares are held. The Financial Highlights of Class Y Shares
of the Funds are presented in a separate annual report.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their accounting records and
financial statements. These policies are in conformity with generally accepted
accounting principles.
Investment Valuations--Listed equity securities are valued at the last sale
price reported on a national securities exchange. U.S. government securities,
listed corporate bonds, other fixed income and asset-backed securities, and
unlisted securities and private placement securities are generally valued at the
mean of the latest bid and asked prices as furnished by an independent pricing
service. Municipal bonds are valued by an independent pricing service, taking
into consideration yield, liquidity, risk, credit quality, coupon, maturity,
type of issue, and any other factors or market data the pricing service deems
relevant. The Money Market Fund's use of the amortized cost method to value
portfolio securities is in accordance with Rule 2a-7 under the Act. For
fluctuating net asset value funds within the Corporation, short-term securities
are valued at the prices provided by an independent pricing service. However,
short-term securities purchased with remaining maturities of sixty days or less
may be valued at amortized cost, which approximates fair market value.
Investments in other open-end regulated investment companies are valued at net
asset value.
Repurchase Agreements--It is the policy of the Funds to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction, including accrued interest.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' adviser (or sub-adviser with respect to the International Stock Fund)
to be creditworthy pursuant to the guidelines and/or standards reviewed or
established by the Board of Directors (the "Directors"). Risks may arise from
the potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Funds could receive less than the repurchase price
on the sale of collateral securities.
Investment Income, Expenses and Distributions--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Federal Taxes--It is the Funds' policy to comply with the provisions of
Subchapter M of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of their income.
Accordingly, no provisions for federal tax are necessary.
Withholding taxes on foreign dividends have been provided for in accordance
with the International Stock Fund's understanding of the applicable country's
tax rules and rates.
[_] Marshall Funds
At August 31, 1999, the following Funds had capital loss carryforwards for
federal tax purposes, which will reduce each Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve each Fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforwards will expire as listed
below:
<TABLE>
<CAPTION>
Capital Loss Capital Loss Capital Loss
Carryforward Carryforward Carryforward Total
to Expire in to Expire in to Expire in Capital Loss
Fund 2003 2004 2005 Carryforward
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Government Income Fund $ -- $ -- $385,369 $ 385,369
Intermediate Bond Fund 15,540,740 6,100,494 -- 21,641,234
</TABLE>
When-Issued and Delayed Delivery Transactions--The Funds may engage in when-
issued or delayed delivery transactions. The Funds record when-issued securities
on the trade date and maintain security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
Additionally, the following net capital losses or currency losses attributable
to security transactions incurred after October 31, 1998 are treated as arising
on September 1, 1999, the first day of the Fund's next taxable year:
<TABLE>
<CAPTION>
Fund Capital Loss Currency Loss
- ---- ------------ -------------
<S> <C> <C>
Mid-Cap Value Fund $ (164) $ --
Small-Cap Growth Fund (1,710,125) --
International Stock Fund -- (1,420,943)
Government Income Fund (6,728,127) --
Intermediate Bond Fund (2,723,294) --
</TABLE>
Futures Contracts--Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-
Cap Growth Fund and Small-Cap Growth Fund purchase stock index futures contracts
to manage cashflows, enhance yield, and to potentially reduce transaction costs.
Upon entering into a stock index futures contract with a broker, the Fund is
required to deposit in a segregated account a specified amount of cash or U.S.
government securities. Futures contracts are valued daily and unrealized gains
or losses are recorded in a "variation margin" account. Daily, the Fund receives
from or pays to the broker a specified amount of cash based upon changes in the
variation margin account. When a contract is closed, the Fund recognizes a
realized gain or loss. Futures contracts have market risks, including the risk
that the change in the value of the contract may not correlate with changes in
the value of the underlying securities.
At August 31, 1999, Large-Cap Growth & Income Fund and Mid-Cap Value Fund had
no outstanding futures contracts.
At August 31, 1999, the Mid-Cap Growth Fund had outstanding futures contracts
as set forth below:
<TABLE>
<CAPTION>
Expiration Date Contracts to Receive Position Unrealized Appreciation
- --------------- -------------------- -------- -------------------------
<S> <C> <C> <C>
September 1999 20 Nasdaq 100 Long $661,848
September 1999 10 S&P 250 Long 20,999
--------
Net Unrealized
Appreciation on Futures
Contracts $682,847
At August 31, 1999, the Small-Cap Growth Fund had outstanding futures
contracts as set forth below:
<CAPTION>
Expiration Date Contracts to Receive Position Unrealized (Depreciation)
- --------------- -------------------- -------- -------------------------
<S> <C> <C> <C>
September 1999 20 Russell 2000 Long $(88,752)
</TABLE>
Foreign Exchange Contracts--International Stock Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
Fund may enter into these contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date as a hedge or cross hedge
against either specific transactions or portfolio positions. The objective of
the Fund's foreign currency hedging transactions is to reduce the risk that the
U.S. dollar value of the Fund's foreign currency denominated securities will
decline in value due to changes in foreign currency exchange rates. All foreign
currency exchange contracts are "marked-to-market" daily at the applicable
translation rates resulting in unrealized gains or losses. Realized gains or
losses are recorded at the time the foreign currency exchange contract is offset
by entering into a closing transaction or by the delivery or receipt of the
currency. Risk may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated
Notes to Financial Statements (continued)
movements in the value of a foreign currency relative to the U.S. dollar. As
of August 31, 1999, the International Stock Fund had outstanding foreign
exchange contracts as set forth below:
<TABLE>
<CAPTION>
Foreign Currency Contracts at Unrealized
Settlement Date Units to Deliver In Exchange For Value (Depreciation)
- --------------- -------------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Contracts
Sold:
9/2/1999-
9/7/1999 3,424,987 Singapore Dollar $2,022,505 $2,034,444 $(11,939)
9/1/1999-
9/2/1999 3,866,808 Hong Kong Dollar 497,966 497,988 (22)
--------
Net Unrealized Depreciation on Foreign Exchange Contracts $(11,961)
</TABLE>
Foreign Currency Translation--The accounting records of International Stock
Fund are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FCs") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Funds do not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Dollar Roll Transactions--The Funds, except for the Money Market Fund, may
enter into dollar roll transactions with respect to mortgage securities issued
by Government National Mortgage Association, Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation, in which the Funds loan
mortgage securities to financial institutions and simultaneously agree to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Funds will use the
proceeds generated from the transactions to invest in short-term investments,
which may enhance the Funds' current yield and total return.
Securities Lending--The Funds participate in a securities lending program
providing for the lending of corporate bonds, equity and government securities
to qualified brokers. The Funds receive cash as collateral in return for the
securities and record a corresponding payable for collateral due to the
respective broker. The amount of cash collateral received is maintained at a
minimum level of 100% of the market value on securities loaned plus interest.
Collateral is reinvested in short-term securities including overnight repurchase
agreements, commercial paper, master notes, floating rate corporate notes (with
at least quarterly reset rates) and money market funds. The Funds reimburse the
custodian (an affiliate of the Funds) for the costs directly associated with the
Funds' participation in the securities lending program.
As of August 31, 1999, the value of securities loaned, the payable on
collateral due to broker and the value of reinvested cash collateral securities
were as follows:
<TABLE>
<CAPTION>
Market Value of
Market Value of Payable on Collateral Reinvested Collateral
Fund Securities Loaned Due to Broker Securities
- ---- ----------------- --------------------- ---------------------
<S> <C> <C> <C>
Equity Income Fund $36,826,136 $37,859,400 $37,859,400
Large-Cap Growth &
Income Fund $42,626,009 $43,964,300 $43,964,300
Mid-Cap Value Fund $13,329,259 $13,921,950 $13,921,950
Mid-Cap Growth Fund $53,430,081 $54,475,000 $54,475,000
Government Income Fund $14,884,650 $15,362,500 $15,362,500
Intermediate Bond Fund $58,677,384 $60,763,800 $60,763,800
</TABLE>
Individual reinvested cash collateral securities in excess of 5% of fund net
assets at August 31, 1999 are as follows:
Investment Companies:
<TABLE>
<S> <C> <C>
Provident Institutional Temp Fund Mid-Cap Growth Fund $21,725,000
</TABLE>
[_] Marshall Funds
Reclassification--Income and capital gain distributions are determined in
accordance with income tax regulations which differ from generally accepted
accounting principles. These differences are primarily attributable to differing
book/tax treatments of net operating loss, passive foreign investment companies,
and foreign currency transactions. Amounts as of August 31, 1999 have been
reclassed to reflect the following:
<TABLE>
<CAPTION>
Increase (Decrease)
----------------------------------------------
Accumulated
Net Realized Undistributed Net
Fund Name Paid-in-Capital Gain/Loss Investment Income
- --------- --------------- ------------ -----------------
<S> <C> <C> <C>
Equity Income Fund $ 18,357 $ -- $ (18,357)
Large-Cap Growth & Income Fund 1,337 (2,074) 737
Mid-Cap Value Fund -- (164) 164
Mid-Cap Growth Fund (79,691) (1,793,218) 1,872,909
Small-Cap Growth Fund -- (894,516) 894,516
International Stock Fund 1,055,825 530,383 (1,586,208)
Government Income Fund 44,519 267 (44,786)
Intermediate Bond Fund 28,444 (1,110) (27,334)
</TABLE>
Restricted Securities--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Directors. The Fund
will not incur any registration costs upon such resales. The Funds' restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Funds' pricing committee.
Other--Investment transactions are accounted for on the trade date.
3. Capital Stock
The Articles of Incorporation permit the Directors to issue an indefinite
number of full and fractional shares of common stock, par value $0.0001 per
share. At August 31, 1999, the capital paid-in was as follows:
<TABLE>
<CAPTION>
Capital Paid-
Fund In
- ---- --------------
<S> <C>
Equity Income Fund $ 386,839,789
Large-Cap Growth & Income Fund $ 240,131,258
Mid-Cap Value Fund $ 98,260,727
Mid-Cap Growth Fund $ 203,241,747
Small-Cap Growth Fund $ 96,644,875
International Stock Fund $ 214,364,944
Government Income Fund $ 331,052,682
Intermediate Bond Fund $ 639,560,396
Money Market Fund $1,782,092,207
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Large-Cap Growth
Equity Income Fund & Income Fund Mid-Cap Value Fund
---------------------- ---------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 3,774,192 15,738,873 4,118,807 4,089,991 1,402,187 5,453,000
Shares issued to
shareholders in payment
of distributions
declared 2,268,227 1,937,827 1,056,636 1,725,616 1,089,157 1,866,937
Shares redeemed (6,266,153) (6,501,126) (2,637,363) (4,377,201) (4,344,171) (5,229,996)
---------- ---------- ---------- ---------- ---------- ----------
Net change resulting
from Class Y Share
Transactions (223,734) 11,175,574 2,538,080 1,438,406 (1,852,827) 2,089,941
========== ========== ========== ========== ========== ==========
</TABLE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Large-Cap Growth
Equity Income Fund & Income Fund Mid-Cap Value Fund
----------------------- ----------------------- -----------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999* 1998 1999* 1998 1999* 1998
Class A Shares ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 47,914 -- 52,607 -- 31,174 --
Shares issued to
shareholders in payment
of distributions
declared 89 -- 7 -- 27 --
Shares redeemed (2,821) -- (432) -- (9) --
-------- ---------- --------- --------- ---------- ---------
Net change resulting
from Class A Share
Transactions 45,182 -- 52,182 -- 31,192 --
======== ========== ========= ========= ========== =========
Net change resulting
from Fund Share
Transactions (178,552) 11,175,574 2,590,262 1,438,406 (1,821,635) 2,089,941
======== ========== ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Small-Cap International
Mid-Cap Growth Fund Growth Fund Stock Fund
---------------------- ---------------------- ------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999 1998 1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 5,935,509 6,547,612 4,158,729 5,767,967 16,904,131 11,989,024
Shares issued to
shareholders in payment
of
distributions declared 950,942 1,710,267 15,715 199,269 201,461 545,806
Shares redeemed (5,364,366) (5,865,009) (3,987,720) (2,462,788) (17,084,034) (10,197,589)
---------- ---------- ---------- ---------- ----------- -----------
Net change resulting
from Class Y Share
transactions 1,522,085 2,392,870 186,724 3,504,448 21,558 2,337,241
========== ========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Small-Cap International
Mid-Cap Growth Fund Growth Fund Stock Fund
----------------------- ----------------------- -----------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1999* 1998 1999* 1998 1999* 1998
Class A Shares ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 16,470 -- 31,896 -- 31,064 --
Shares issued to
shareholders in payment
of distributions
declared -- -- -- -- -- --
Shares redeemed (368) -- (86) -- (86) --
--------- --------- ------- --------- ------ ---------
Net change resulting
from Class A Share
transactions 16,102 -- 31,810 -- 30,978 --
========= ========= ======= ========= ====== =========
Net change resulting
from Fund Share
transactions 1,538,187 2,392,870 218,534 3,504,448 52,536 2,337,241
========= ========= ======= ========= ====== =========
</TABLE>
<TABLE>
<CAPTION>
Government Income Intermediate Bond
Fund Fund
---------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
Class Y Shares ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares sold 10,534,385 10,236,771 11,475,295 26,987,634
Shares issued to shareholders
in payment of distributions
declared 1,074,105 916,492 1,480,740 1,392,283
Shares redeemed (6,073,360) (3,711,734) (9,072,476) (9,172,629)
---------- ---------- ---------- ----------
Net change resulting from
Class Y Share transactions 5,535,130 7,441,529 3,883,559 19,207,288
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Government Income Intermediate Bond
Fund Fund
----------------------- -----------------------
Period Ended Year Ended Period Ended Year Ended
August 31, August 31, August 31, August 31,
1999* 1998 1999* 1998
Class A Shares ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Shares sold 91,212 -- 105,916 --
Shares issued to shareholders
in payment of distributions
declared 453 -- 1,116 --
Shares redeemed (9,811) -- (3,200) --
--------- --------- --------- ----------
Net change resulting from
Class A Share transactions 81,854 -- 103,832 --
========= ========= ========= ==========
Net change resulting from Fund
Share transactions 5,616,984 7,441,529 3,987,391 19,207,288
========= ========= ========= ==========
</TABLE>
*For the period from December 31, 1998 (start of performance) to August 31,
1999.
[_] Marshall Funds
<TABLE>
<CAPTION>
Money Market Fund
------------------------------
Year Ended Year Ended
August 31, August 31,
1999 1998
Class Y Shares -------------- --------------
<S> <C> <C>
Shares sold 5,558,732,228 4,913,792,441
Shares issued to shareholders in payment of
distributions declared 19,002,349 13,477,063
Shares redeemed (5,502,811,648) (4,629,111,222)
-------------- --------------
Net change from resulting from Class Y Share
transactions 74,922,929 298,158,282
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Money Market Fund
--------------------------
Year Ended Year Ended
August 31, August 31,
1999 1998
Class A Shares ------------ ------------
<S> <C> <C>
Shares sold 554,642,702 565,397,457
Shares issued to shareholders in payment of
distributions declared 5,002,963 4,608,650
Shares redeemed (546,418,132) (554,366,232)
------------ ------------
Net change resulting from Class A Share
transactions 13,227,533 15,639,875
============ ============
Net change resulting from Fund Share transactions 88,150,462 313,798,157
============ ============
</TABLE>
*For the period from December 31, 1998 (start of performance) to August 31,
1999.
4. Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--M&I Investment Management Corp., the Funds'
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee based on a percentage of each Fund's average daily net
assets as listed below. The Adviser may voluntarily choose to waive any portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Annual Rate
- ---- -----------
<S> <C>
Equity Income Fund 0.75%
Large-Cap Growth & Income Fund 0.75%
Mid-Cap Value Fund 0.75%
Mid-Cap Growth Fund 0.75%
Small-Cap Growth Fund 1.00%
International Stock Fund 1.00%
Government Income Fund 0.75%
Intermediate Bond Fund 0.60%
Money Market Fund 0.50%
</TABLE>
- --------------------------------------------------------------------------------
Effective March 29, 1999, the International Stock Fund changed its sub-
adviser from Templeton Investment Counsel, Inc. to BPI Global Asset Management
LLP (the "Sub-Adviser"). The Adviser compensates the Sub-Adviser based on the
level of average aggregate daily net assets of the International Stock Fund.
Administrative Fee--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Funds with administrative
personnel and services. The fee paid to FAS is based on the level of average
aggregate daily net assets of the Corporation for the period except for the
Small-Cap Growth Fund, which is based on the Fund's average daily net assets.
Distribution Services Fee--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Funds will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Funds to finance activities intended to
result in the sale of shares of the Funds' Class A Shares. The Plan provides
that the Funds may incur distribution expenses up to 0.25% of the average daily
net assets of the Funds' Class A Shares (except for the Money Market Fund's
Class A Shares which may accrue up to 0.30%) annually, to compensate FSC.
Notes to Financial Statements (continued)
Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services Company ("FSSC"), each Fund (except for
Money Market Fund) will pay FSSC up to 0.25% of average daily net assets of the
Funds' Class A Shares for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion. Marshall Funds
Investor Services ("MFIS") is the shareholder servicing agent for the Money
Market Fund. The Money Market Fund may pay MFIS a fee equal to approximately
0.02% of the average daily net assets for the period of the Money Market Funds'
Class A Shares for which MFIS provides shareholder services. MFIS may
voluntarily choose to waive any portion of its fee. MFIS can modify or terminate
this voluntary waiver at any time at its sole discretion. Effective September 1,
1999, MFIS will become the Funds' shareholder servicing agent.
Transfer and Dividend Disbursing Agent Fees and Expenses--Federated Services
Company ("FServ") through its subsidiary, FSSC, serves as transfer and dividend
disbursing agent for the Funds. The fee paid to FSSC is based on the size, type,
and number of accounts and transactions made by shareholders.
Portfolio Accounting Fees--FServ maintains the Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses. FServ may
voluntarily choose to waive any portion of its fee.
Custodian Fees--Marshall & Ilsley Trust Company is the Funds' custodian. M&I
Trust Company receives fees based on the level of each Fund's average daily net
assets for the period. The custodian also charges a fee in connection with
securities lending activities of the Funds.
Organizational Expenses--Organizational expenses were borne initially by FAS.
The Funds have reimbursed FAS for these expenses. These expenses have been
deferred and are being amortized over the five-year period following each Fund's
effective date. For the year ended August 31, 1999, the Funds expensed the
following pursuant to this agreement:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Organizational Organizational
Fund Expenses Expenses Paid
- ---- -------------- --------------
<S> <C> <C>
Small-Cap Growth Fund $35,592 $7,493
International Stock Fund $18,401 $5,986
</TABLE>
- --------------------------------------------------------------------------------
General--Certain of the Officers and Directors of the Corporation are Officers
and Directors of the above companies.
5. Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 1999, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---- ------------ --------------
<S> <C> <C>
Equity Income Fund $357,581,619 $ 366,208,305
Large-Cap Growth & Income Fund $129,939,898 $ 106,878,350
Mid-Cap Value Fund $115,294,710 $ 131,440,424
Mid-Cap Growth Fund $440,530,465 $ 423,714,036
Small-Cap Growth Fund $197,200,038 $ 195,508,808
International Stock Fund $435,940,891 $ 426,752,838
Government Income Fund $790,489,693 $ 708,791,578
Intermediate Bond Fund $992,945,978 $1,027,850,640
</TABLE>
- --------------------------------------------------------------------------------
6. Change of Independent Auditors
On July 26, 1999, the Funds' Board of Directors, upon the recommendation of
the Officers of the Corporation, requested and subsequently accepted the
resignation of Arthur Anderson LLP ("AA") as the Funds' independent auditors.
AA's reports on the Funds' financial statements for the fiscal years ended
August 31, 1997 and August 31, 1998, contained no adverse opinion or disclaimer
of opinion nor were they qualified or modified as to uncertainty, audit scope or
accounting principles. During the Funds' fiscal years ended August 31, 1997 and
August 31, 1998, (i) there were no disagreements with AA on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
AA, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports on the financial statements for
such years; and
[_] Marshall Funds
(ii) there were no reportable events of the kind described in Item 304(a)(1)(v)
of Regulation S-K under the Securities Act of 1934, as amended.
The Funds, by action of its Directors, upon the recommendation of the Officers
of the Corporation, have engaged Ernst & Young LLP ("E&Y") as the independent
auditors to audit the Funds' financial statements for the fiscal year ended
August 31, 1999. During the Funds' fiscal years ended August 31, 1997 and August
31, 1998, neither the Funds nor anyone on their behalf have consulted E&Y on
items which (i) concerned the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Funds' financial statements of (ii)
concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv) of
Item 304 of Regulation S-K) of reportable events (as described in paragraph
(a)(1)(v) of said Item 304).
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Board of Directors of
The Marshall Funds, Inc.:
MARSHALL EQUITY INCOME FUND
MARSHALL LARGE-CAP GROWTH & INCOME FUND
MARSHALL MID-CAP VALUE FUND
MARSHALL MID-CAP GROWTH FUND
MARSHALL SMALL-CAP GROWTH FUND
MARSHALL INTERNATIONAL STOCK FUND
MARSHALL GOVERNMENT INCOME FUND
MARSHALL INTERMEDIATE BOND FUND
MARSHALL MONEY MARKET FUND
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Marshall Equity Income Fund, the
Marshall Large-Cap Growth & Income Fund, the Marshall Mid-Cap Value Fund, the
Marshall Mid-Cap Growth Fund, the Marshall Small-Cap Growth Fund, the Marshall
International Stock Fund, the Marshall Government Income Fund, the Marshall
Intermediate Bond Fund, and the Marshall Money Market Fund (nine of the eleven
portfolios constituting The Marshall Funds, Inc.) as of August 31, 1999, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets for the year ended August 31, 1998 and the financial highlights for each
of the four years in the period then ended were audited by other auditors whose
report, dated October 23, 1998, expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included verification by
examination of securities held by the custodian as of August 31, 1999 and
confirmation of securities not held by the custodian by correspondence with
brokers or other appropriate auditing procedures where replies from brokers were
not received. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Marshall Funds, Inc., as
identified above, at August 31, 1999, and the results of their operations,
changes in their net assets, and financial highlights for the year then ended in
conformity with generally accepted accounting principles.
[Logo of Ernst & Young LLP]
Boston, Massachusetts
October 15, 1999
[_] Marshall Funds
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 or experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in 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.
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.
Directors Officers
John M. Blaser John M. Blaser
John DeVincentis President
Duane E. Dingmann
James Mitchell Jo A. Dales
Barbara C. Pope Vice President
David M. Schulz
Brooke J. Billick
Secretary
Ann K. Peirick
Treasurer
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
Thisreport is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus, which contains facts
concerning each Fund's objective and policies, management
fees, expenses, and other information.
[THIS PAGE INTENTIONALLY LEFT BLANK]
[LOGO OF MARSHALLFUNDS]
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
1-800-580-FUND (3863) or 414-287-8595
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com
Federated Securities Corp., Distributor G01126-03 (10/99)
M&I Investment Management Corp., Investment Adviser
(c)1999 Marshall Funds, Inc.
953-295A
Y-1A. The graphic representation here displayed consists of a chart which
compares the industry diversification (As a % of portfolio holdings) for the
Marshall Equity Income Fund ("Equity Income Fund") for the fiscal years ended
8/31/1999 and 8/31/1998. The information is as follows:
8/31/1999 8/31/1998
Aerospace & Defense 1.6% 1.9%
Automotive & Related 4.1% 4.3%
Banks 12.4% 13.4%
Beverages & Foods 5.7% 2.0%
Building Materials 1.0% 0.0%
Chemicals 0.7% 1.5%
Domestic and International Oil 18.0% 17.7%
Electric 5.7% 6.8%
Electrical Equipment 0.9% 1.8%
Financial Services 1.7% 0.5%
Gas Distribution 3.0% 3.1%
Health Care 11.7% 9.6%
Household Product/Wares 2.0% 0.2%
Insurance 4.7% 2.4%
Machinery & Machine Tools 0.0% 0.4%
Office Products 0.4% 0.8%
Paper 3.1% 2.0%
Real Estate Investment Trust 1.8% 4.8%
Repurchase Agreements 1.8% 7.7%
Retail 0.9% 0.9%
Telecommunications 12.1% 9.7%
Tobacco 3.4% 4.0%
Other 3.3% 4.5%
------- -------
TOTAL 100.0% 100.0%
<PAGE>
Y-2A. The graphic representation here displayed consists of a chart which
outlines The Equity Income Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Exxon Corp. 3.4%
GTE Corp. 2.9%
AT&T Corp. 2.7%
SBC Communications, Inc. 2.5%
Royal Dutch Petroleum Co., ADR 2.5%
Texaco, Inc. 2.3%
Baxter International, Inc. 2.2%
Chase Manhattan Corp. 2.1%
Philip Morris Cos., Inc. 2.1%
BankAmerica Corp. 2.1%
Y-3A. The graphic representation here displayed consists of a chart. The
chart outlines the average annual total returns for the Equity Income Fund as of
8/31/1999 for the 1-year, 3-year, 5-year and since inception (9/30/1993)
periods. The returns are as follows: 27.92%, 18.78%; 18.78%; and 16.03%,
respectively.
Y-4A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Equity Income Fund (Class Y Shares) is represented by a solid
line, whereas Standard & Poor's 500 Index ("S&P 500") is represented by a broken
dotted line and Lipper Equity Income Funds Index ("LEIFI") is represented by a
dotted line. The line graph is a visual representation of a comparison of change
in value of a hypothetical investment of $10,000 in the Equity Income Fund and
S&P 500 and LEIFI from its inception on September 30, 1993 to August 31, 1999.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypothetical investment in the
Equity Income Fund as compared to S&P 500 and LEIFI; the ending values are
$24,119; $32,590; and $22,429, respectively.
<PAGE>
Y-1B. The graphic representation here displayed consists of a chart which
compares the industry diversification (As a % of portfolio holdings) for the
Marshall Large-Cap Growth & Income Fund ("Large-Cap Growth & Income Fund") for
the fiscal years ended 8/31/1999 and 8/31/1998. The information is as follows:
8/31/1999 8/31/1998
Aerospace & Related 1.0% 1.0%
Automotive 1.2% 0.0%
Banks 5.3% 6.6%
Beverages & Foods 5.5% 7.5%
Chemicals 1.3% 1.3%
Computer Services 8.2% 8.9%
Consumer Cyclical 1.2% 0.0%
Drugs 4.2% 6.9%
Electrical Equipment 5.1% 6.5%
Electronics 8.6% 1.9%
Entertainment 3.8% 1.4%
Health Care 1.2% 2.7%
Housewares 0.0% 0.0%
Insurance 2.9% 3.7%
International Oil & Gas 8.7% 7.4%
Media 3.3% 5.6%
Medical Supplies 4.2% 1.9%
Other Financials 7.1% 3.9%
Paper 3.3% 1.9%
Repurchase Agreements 8.5% 9.6%
Retail 5.8% 7.1%
Telecommunications 6.7% 9.8%
Tobacco 1.5% 2.2%
Other Industrires 0.9% 2.2%
------- -------
TOTAL 100.0% 100.0%
<PAGE>
Y-2B. The graphic representation here displayed consists of a chart which
outlines The Large-Cap Growth & Income Fund's ten largest stock holdings (As a %
of net assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Microsoft Corp. 3.6%
General Electric Co. 3.3%
Intel Corp. 2.9%
Motorola, Inc. 2.5%
Johnson & Johnson 2.5%
Exxon Corp. 2.3%
American International Group, Inc. 2.2%
Kimberly-Clark Corp. 1.9%
Royal Dutch Petroleum Co., ADR. 1.8%
Seagram Co., Ltd. 1.8%
Y-3B. The graphic representation here displayed consists of a chart. The
chart outlines the average annual total returns for the Large-Cap Growth &
Income Fund as of 8/31/1999 for the 1-year, 3-year, 5-year and since inception
(11/20/1992) periods. The returns are as follows: 38.98%, 24.58%; 20.31%; and
14.96%, respectively.
Y-4B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Large-Cap Growth & Income Fund (Class Y Shares) is represented
by a solid line, whereas Standard & Poor's 500 Index ("S&P 500") is represented
by a broken dotted line and Lipper Growth and Income Funds Index ("LGIFI") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Large-Cap Growth & Income Fund and S&P 500 and LGIFI from its inception on
November 20, 1992 to August 31, 1999. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Large-Cap Growth & Income Fund as compared to
S&P 500 and LGIFI; the ending values are $25,740; $35,498; and $27,421,
respectively.
<PAGE>
Y-1C. The graphic representation here displayed consists of a chart which
compares the industry diversification (As a % of portfolio holdings) for the
Marshall Mid-Cap Value Fund ("Mid-Cap Value Fund") for the fiscal years ended
8/31/1999 and 8/31/1998. The information is as follows:
8/31/1999 8/31/1998
Banking 3.8% 0.0%
Beverages & Food 4.7% 8.9%
Chemicals 6.7% 5.5%
Electric 3.6% 10.0%
Electronics 4.0% 0.0%
Financial 6.5% 3.0%
Insurance 4.4% 6.6%
Intermediate Goods 1.9% 4.4%
Oil & Gas Products 5.9% 6.0%
Oil Services 5.8% 0.0%
Other Capital Goods 5.5% 0.8%
Paper and Related Products 4.2% 3.9%
Pharmaceuticals & Health Care 5.3% 4.7%
Repurchase Agreements 5.8% 10.7%
Retail 5.7% 5.4%
Service-Consumer 7.7% 7.3%
Services-Telecommunications 3.6% 7.0%
Tobacco 2.4% 4.3%
Transportation 2.1% 1.7%
Other Industries 10.4% 9.8%
------- -------
TOTAL 100.0% 100.0%
<PAGE>
Y-2C. The graphic representation here displayed consists of a chart which
outlines The Mid-Cap Value Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
International Multifoods Corp. 2.6%
Telephone and Data System, Inc. 2.6%
Rowan Companies, Inc. 2.4%
UST, Inc. 2.4%
Radiant Group, Inc. 2.3%
Pinnacle West Capital Corp. 2.2%
Cooper Cameron Corp. 2.2%
Noble Affiliates, Inc. 2.2%
Alexander and Baldwin, Inc. 2.1%
Unocal Corp. 2.1%
Y-3C. The graphic representation here displayed consists of a chart. The
chart outlines the average annual total returns for the Mid-Cap Value Fund as of
8/31/1999 for the 1-year, 3-year, 5-year and since inception (9/30/1993)
periods. The returns are as follows: 21.92%, 13.55%; 12.53%; and 12.38%,
respectively.
Y-4C. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Mid-Cap Value Fund (Class Y Shares) is represented by a solid
line, whereas Standard & Poor's Mid-Cap 400 Index ("S&P 400") is represented by
a broken dotted line and Lipper Mid-Cap Value Funds Index ("LMCVFI") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Mid-Cap Value Fund and S&P 400 and LMCVFI, from its inception on September 30,
1993 to August 31, 1999. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the ending value of the hypothetical
investment in the Mid-Cap Value Fund as compared to S&P 400 and LMCVFI, the
ending values are $19,957; $24,582; and $18,621, respectively.
<PAGE>
Y-1D. The graphic representation here displayed consists of a chart which
compares the industry diversification (As a % of portfolio holdings) for the
Marshall Mid-Cap Growth Fund ("Mid-Cap Growth Fund") for the fiscal years ended
8/31/1999 and 8/31/1998. The information is as follows:
8/31/1999 8/31/1998
Banks 2.8% 0.0%
Broadcasting 13.7% 9.3%
Commercial Services 0.0% 14.9%
Computer Services 2.7% 4.9%
Computers 3.4% 2.9%
Drugs 3.3% 4.4%
Electrical Equipment 1.3% 2.0%
Financial Services 3.9% 7.2%
Health Care 3.7% 6.8%
Insurance 1.8% 0.0%
Leisure & Recreation 8.7% 6.5%
Manufacturing 0.0% 4.8%
Medical Supplies 0.0% 4.0%
Oil & Gas 3.6% 0.0%
Repurchase Agreements 3.2% 5.6%
Restaurants 1.7% 0.4%
Retail 11.9% 11.8%
Semi-Conductor 8.6% 0.0%
Services-Consumer 0.0% 5.5%
Technology 15.4% 0.0%
Telecommunications 7.6% 8.8%
Other Industries 2.7% 0.2%
------- -------
TOTAL 100.0% 100.0%
<PAGE>
Y-2D. The graphic representation here displayed consists of a chart which
outlines The Mid-Cap Growth Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Tellabs, Inc. 4.0%
Kohl's Corp. 3.6%
JDS Uniphase Corp. 3.6%
Lexmark Intl. Group, Class A 3.4%
Hispanic Broadcasting Corp. 3.0%
Royal Caribbean Cruises, Ltd. 2.8%
Teradyne, Inc. 2.5%
Best Buy Co., Inc. 2.4%
Harley Davidson, Inc. 2.3%
Vitesse Semiconductor Corp. 2.3%
Y-3D The graphic representation here displayed consists of a chart. The
chart outlines the average annual total returns for the Mid-Cap Growth Fund as
of 8/31/1999 for the 1-year, 3-year, 5-year and since inception (9/30/1993)
periods. The returns are as follows: 53.41%, 18.58%; 20.30%; and 16.34%,
respectively.
Y-4D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Mid-Cap Growth Fund (Class Y Shares) is represented by a solid
line, whereas Standard & Poor's Mid-Cap 400 Index ("S&P 400") is represented by
a broken dotted line and the Lipper Mid-Cap Growth Funds Index ("LMCGFI") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Mid-Cap Growth Fund and S&P 400 and LMCGFI from its inception on September 30,
1993 to August 31, 1999. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the ending value of the hypothetical
investment in the Mid-Cap Growth Fund as compared to S&P 400 and LMCGFI; the
ending values are $24,505; $24,582; and $23,213, respectively.
Y-1E. The graphic representation here displayed consists of a chart which
compares the industry diversification (As a % of portfolio holdings) for the
Marshall Small-Cap Growth Fund ("Small-Cap Growth Fund") for the fiscal years
ended 8/31/1999 and 8/31/1998. The information is as follows:
8/31/1999 8/31/1998
Broadcasting 16.1% 5.8%
Communication Services 2.4% 11.8%
Computer Services 6.9% 6.9%
Drugs 0.5% 4.2%
Financial 3.6% 0.3%
Health Care 3.9% 6.0%
Leisure & Recreation 7.2% 0.8%
Manufacturing 0.0% 6.4%
Medical Supplies 1.8% 3.3%
Oil & Gas Equipment Services 3.3% 0.9%
Other Capital Goods 0.0% 8.1%
Repurchase Agreements 6.1% 11.0%
Restaurants 2.8% 0.5%
Retail 10.9% 7.0%
Semi-Conductor 10.0% 0.0%
Services-Consumer 1.4% 18.4%
Technology 12.0% 0.0%
Telecommunications 7.5% 6.7%
Other Securities 3.6% 1.9%
------- -------
TOTAL 100.0% 100.0%
<PAGE>
Y-2E. The graphic representation here displayed consists of a chart which
outlines The Small-Cap Growth Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Harmonic Lightwaves, Inc. 3.7%
Steiner Leisure Ltd. 3.4%
SDL, Inc. 3.2%
Papa Johns International, Inc. 2.9%
Flextronics International Ltd. 2.8%
Triquint Semiconductor, Inc. 2.8%
Speedway Motorsports, Inc. 2.7%
Xircom, Inc. 2.7%
Pinnacle Holdings, Inc. 2.7%
Westwood One, Inc. 2.4%
Y-3E The graphic representation here displayed consists of a chart. The
chart outlines the average annual total returns for the Small-Cap Growth Fund as
of 8/31/1999 for the 1-year, 3-year and since inception (11/1/1995) periods. The
returns are as follows: 26.30%, 8.64%; and 21.97%, respectively.
Y-4E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Small-Cap Growth Fund (Class Y Shares) is represented by a
solid line, whereas the Russell 2000 Index ("Russell 2000") is represented by a
broken dotted line and Lipper Small Cap Funds Index ("LSCFI") is represented by
a dotted line. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Small-Cap Growth
Fund and Russell 2000 and LSCFI from its inception on November 1, 1995 to August
31, 1999. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the ending value of the hypothetical
investment in the Small-Cap Growth Fund as compared to Russell 2000 and LSCFI;
the ending values are $21,407; $15,205; and $14,308, respectively.
Y-1F. The graphic presentation here displayed consists of a chart which
outlines the top five industries that the Marshall International Stock Fund
("International Stock Fund") invests in as well as its percentage of net assets
as of August 31, 1999. The information is as follows: Telecommunications, 11.6%;
Data Processing; 10.8%; Banking, 9.2%; Energy, 6.6%; and Financial Services,
6.4%.
Y-2F. The graphic presentation here displayed consists of a chart which outlines
the International Stock Fund's five largest stock holdings and its percentage of
net assets as of August 31, 1999. The information is as follows: Fujitsu Ltd.,
2.6%; STMicroelectronics NV, 2.4%; NTT Mobile Communication Network, Inc., 2.0%;
Philips Electronics NV, 1.9%; and BP Amoco PLC, 1.9%.
Y-3F. The graphic representation here displayed consists of a chart. The chart
outlines the average annual total returns for the International Stock Fund as of
8/31/1999 for the 1-year, 3-year, 5-year and since inception (9/1/1994) periods.
The returns are as follows: 22.20%, 10.89%; 9.23%; and 9.23%, respectively.
Y-4F. The graphic representation here displayed consists of a chart which
compares the International Stock Fund's country allocations (As a % of portfolio
holdings) for the fiscal years ended 8/31/1999 and 8/31/1998. The information is
as follows:
Country 8/31/1999 8/31/1998
AUSTRALIA 2.5% 5.8%
Denmark 0.0% 2.2%
Finland 3.5% 2.5%
France 7.4% 9.1%
Germany 6.6% 2.4%
Great Britain 15.7% 14.2%
Ireland 1.7% 0.0%
Italy 0.5% 3.9%
Netherlands 9.8% 5.8%
Spain 3.1% 6.7%
Sweden 2.4% 4.0%
Switzerland 5.0% 4.3%
Other Europe 0.0% 5.3%
------- -------
TOTAL EUROPE 55.7% 60.4%
Canada 2.9% 2.2%
Mexico 1.3% 1.1%
United States 3.8% 10.9%
------- -------
TOTAL NORTH AMERICA 8.1% 14.2%
Hong Kong 3.3% 6.8%
Japan 24.2% 1.7%
Korea 2.5% 1.8%
Philippines 0.0% 0.3%
Singapore 2.6% 0.3%
Thailand 0.0% 0.4%
-------- -------
TOTAL PACIFIC RIM 32.6% 11.3%
Argentina 0.0% 2.6%
Brazil 0.0% 1.6%
Chile 0.0% 0.4%
Peru 0.0% 0.3%
Venezuela 0.0% 0.5%
------- -------
TOTAL SOUTH AMERICA 0.0% 5.4%
TOTAL OTHER COUNTRIES 1.1% 2.9%
------- -------
TOTAL 100.0% 100.0%
Y-5F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The International Stock Fund (Class Y Shares) is represented by a
solid line, whereas the Morgan Stanley Capital International Europe, Australia,
Far East Index ("EAFE") is represented by a broken line and the Lipper
International Funds Index ("LIFI") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the International Stock Fund and EAFE and
LIFI from its inception on September 1, 1994 to August 31, 1999. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation periods
from the ending value of the hypothetical investment in the International Stock
Fund as compared to EAFE and LIFI; the ending values are $15,555; $14,837; and
$15,442, respectively.
<PAGE>
Y-1G. The graphic representation here displayed consists of a chart which
compares portfolio diversification (As a % of portfolio holdings) of the
Marshall Government Income Fund ("Government Income Fund") for the fiscal years
ended 8/31/1999 and 8/31/1998. The information is as follows:
ASSET CLASS 8/31/1999 8/31/1998
Cash and Cash Equivalents 15.6% 9.4%
CMO/ABS 8.2% 23.5%
Corporate 2.7% 16.4%
FHLMC/MBS 16.6% 19.7%
FNMA/MBS 29.7% 10.3%
GNMA/MBS 22.5% 19.5%
Other Government Agencies 0% 1.2%
U.S. Treasury 4.7% 0%
------- -------
TOTAL 100.0% 100.0%
Y-2G. The graphic representation here displayed consists of a chart which
outline the Government Income Fund's fund statistics as of August 31, 1999. The
information is as follows: SEC 30-Day Yield, 5.55%; Average Dollar-Weighted
Maturity, 6.04 years, and Duration, 3.40 years.
Y-3G. The graphic representation here displayed consists of a chart. The chart
outlines the average annual total returns for the Government Income Fund as of
8/31/1999 for the 1-year, 3-year, 5-year and since inception (12/13/1992)
periods. The returns are as follows: 0.62%, 6.22%; 6.47%; and 5.54%,
respectively.
Y-4G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Government Income Fund (Class Y Shares) is represented by a
solid line, whereas Lehman Brothers Mortgage-Backed Securities Index ("LMI") is
represented by a broken dotted line and Lipper U.S. Mortgage Funds Index
("LUSMI") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical investment
of $10,000 in the Government Income Fund and LMI and LUSMI from its inception on
December 13, 1992 to August 31, 1999. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Government Income Fund as compared to LMI and
LUSMI; the ending values are $14,368; $15,321; and $14,240, respectively.
Y-1H. The graphic representation here displayed consists of a chart which
compares portfolio diversification (As a % of portfolio holdings) of the
Marshall Intermediate Bond Fund ("Intermediate Bond Fund") for the fiscal years
ended 8/31/1999 and 8/31/1998. The information is as follows:
ASSET CLASS 8/31/1999 8/31/1998
A Rated Corporate Bonds 30.6% 32.5%
AA Rated Corporate Bonds 0.5% 1.7%
AAA Rated Corporate Bonds 16.3% 19.8%
BAA Rated Corporate Bonds 24.7% 17.8%
Cash & Cash Equivalents 17.1% 5.0%
Government Agency 6.5% 5.5%
U.S. Treasury 4.3% 17.7%
------- -------
TOTAL 100.0% 100.0%
Y-2H. The graphic representation here displayed consists of a chart which
outline the Intermediate Bond Fund's fund statistics as of August 31, 1999. The
information is as follows: SEC 30-Day Yield, 5.93%; Average Dollar-Weighted
Maturity, 3.80 years, and Duration, 2.62 years.
Y-3H. The graphic representation here displayed consists of a chart. The chart
outlines the average annual total returns for the Intermediate Bond Fund as of
8/31/1999 for the 1-year, 3-year, 5-year and since inception (11/23/1992)
periods. The returns are as follows: 1.28%, 5.85%; 5.92%; and 5.20%,
respectively.
<PAGE>
Y-4H. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Intermediate Bond Fund (Class Y Shares) is represented by a
solid line, whereas Lehman Brothers Intermediate Government/Corporate Bond Index
("LGCI") is represented by a broken dotted line and Lipper Short/Intermediate
Bond Funds Index ("LSIBF") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a hypothetical
investment of $10,000 in the Intermediate Bond Fund and LGCI and LSIBF from its
inception on November 23, 1992 to August 31, 1999. The "y" axis reflects the
cost of the investment. The "x" axis reflects computation periods from the
ending value of the hypothetical investment in the Intermediate Bond Fund as
compared to LGCI and LSIBF; the ending values are $14,106; $15,078; and $14,390,
respectively.
Y-1I. The graphic representation here displayed consists of a chart which
compares portfolio diversification (As a % of portfolio holdings) of the
Marshall Intermediate Tax-Free Fund ("Intermediate Tax-Free Fund") for the
fiscal years ended 8/31/1999 and 8/31/1998. The information is as follows:
ASSET CLASS 8/31/1999 8/31/1998
A 5.5% 5.8%
AA 33.6% 31.3%
AAA 51.5% 52.6%
A1 2.7% 3.2%
Cash & Cash Equivalents 1.7% 1.6%
NR 5.0% 5.5%
------- -------
TOTAL 100.0% 100.0%
Y-2I. The graphic representation here displayed consists of a chart which
outline the Intermediate Tax-Free Fund's fund statistics as of August 31, 1999.
The information is as follows: SEC 30-Day Yield, 4.37%; Average Dollar-Weighted
Maturity, 8.44 years, and Duration, 6.33 years.
Y-3I. The graphic representation here displayed consists of a chart. The chart
outlines the average annual total returns for the Intermediate Tax-Free Fund as
of 8/31/1999 for the 1-year, 3-year, 5-year and since inception (2/2/1994)
periods. The returns are as follows: 0.02%, 4.61%; 4.79%; and 4.11%,
respectively.
Y-4I. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Intermediate Tax-Free Fund is represented by a solid line,
whereas Lipper Intermediate Municipal Funds Index ("LIMI") is represented by a
broken line and Lehman Brothers 7-Year General Obligations Index ("L7GO") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Intermediate Tax-Free Fund and LIMI and L7GO from its inception on February 2,
1994 to August 31, 1999.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypothetical investment in the
Intermediate Tax-Free Fund as compared to LIMI and L7GO; the ending values are
$12,521; $12,525; and $13,084, respectively.
<PAGE>
Y-1J. The graphic representation here displayed consists of a chart which
compares portfolio diversification (As a % of portfolio holdings) of the
Marshall Short-Term Income Fund ("Short-Term Income Fund") for the fiscal years
ended 8/31/1999 and 8/31/1998. The information is as follows:
ASSET CLASS 8/31/1999 8/31/1998
A Rated Corporate Bonds 22.4% 27.4%
AA Rated Corporate Bonds 1.0% 2.3%
AAA Rated Corporate Bonds 17.8% 27.5%
BBB Rated Corporate Bonds 25.9% 16.8%
Cash & Cash Equivalents 21.8% 2.0%
Government Agency 11.1% 15.9%
U.S. Treasury 0.0% 8.1%
------- -------
TOTAL 100.0% 100.0%
Y-2J. The graphic representation here displayed consists of a chart which
outline the Short-Term Income Fund's fund statistics as of August 31, 1999. The
information is as follows: SEC 30-Day Yield, 5.74%; Average Dollar-Weighted
Maturity, 2.48 years, and Duration, 1.24 years.
Y-3J. The graphic representation here displayed consists of a chart. The chart
outlines the average annual total returns for the Short-Term Income Fund as of
8/31/1999 for the 1-year, 3-year, 5-year and since inception (11/1/1992)
periods. The returns are as follows: 3.59%, 5.66%; 5.67%; and 4.97%,
respectively.
Y-4J. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Short-Term Income Fund is represented by a solid line, whereas
the Lipper Short-Term Investment Grade Bond Fund Index ("LSTIBI") is represented
by a broken dotted line, IBC/Donoghue's Taxable Money Fund Average ("DMFA") is
represented by a dotted line, and Merrill Lynch 1-3 Year U.S.
Government/Corporate Index (ML13) is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the Short-Term Income Fund and LSTIBI,
DMFA and ML13 from its inception on November 1, 1992 to August 31, 1999. The "y"
axis reflects the cost of the investment. The "x" axis reflects computation
periods from the ending value of the hypothetical investment in the Short-Term
Income Fund as compared to LSTIBI, DMFA and ML13; the ending values are $13,924;
$14,096; 13,508 and $13,541, respectively.
Y-K. The graphic representation here displayed consists of one chart which
outlines the Marshall Money Market Fund's fund statistics as of August 31, 1999.
The information is as follows: 7-day Net Yield, Class Y Shares--4.92%; 7-day
Effective Yield, Class Y Shares--5.04%; Average Dollar-Weighted Maturity, 44.99
days.
<PAGE>
A-1A. The graphic representation here displayed consists of a chart which
outlines the industry diversification (As a % of portfolio holdings) for the
Marshall Equity Income Fund ("Equity Income Fund") for the fiscal year ended
8/31/1999. The information is as follows:
8/31/1999
Aerospace & Defense 1.6%
Automotive & Related 4.1%
Banks 12.4%
Beverages & Foods 5.7%
Building Materials 1.0%
Chemicals 0.7%
Domestic and International Oil 18.0%
Electric 5.7%
Electrical Equipment 0.9%
Financial Services 1.7%
Gas Distribution 3.0%
Health Care 11.7%
Household Product/Wares 2.0%
Insurance 4.7%
Machinery & Machine Tools 0.0%
Office Products 0.4%
Paper 3.1%
Real Estate Investment Trust 1.8%
Repurchase Agreements 1.8%
Retail 0.9%
Telecommunications 12.1%
Tobacco 3.4%
Other 3.3%
TOTAL 100.0%
<PAGE>
A-2A. The graphic representation here displayed consists of a chart which
outlines The Equity Income Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Exxon Corp. 3.4%
GTE Corp. 2.9%
AT&T Corp. 2.7%
SBC Communications, Inc. 2.5%
Royal Dutch Petroleum Co., ADR 2.5%
Texaco, Inc. 2.3%
Baxter International, Inc. 2.2%
Chase Manhattan Corp. 2.1%
Philip Morris Cos., Inc. 2.1%
BankAmerica Corp. 2.1%
A-3A. The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12/31/1998) for the
Equity Income Fund as of 8/31/1999. The returns are as follows: before sales
charge, 6.13% and after sales charge, 0.02%.
A-4A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Equity Income Fund (Class A Shares) is represented by a solid
line, whereas Standard & Poor's 500 Index ("S&P 500") is represented by a broken
dotted line and Lipper Equity Income Funds Index ("LEIFI") is represented by a
dotted line. The line graph is a visual representation of a comparison of change
in value of a hypothetical investment of $10,000 in the Equity Income Fund and
S&P 500 and LEIFI from its inception on December 31, 1998 to August 31, 1999.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypothetical investment in the
Equity Income Fund as compared to S&P 500 and LEIFI; the ending values are
$10,002 $10,834; and $10,379, respectively.
<PAGE>
A-1B. The graphic representation here displayed consists of a chart which
outlines the industry diversification (As a % of portfolio holdings) for the
Marshall Large-Cap Growth & Income Fund ("Large-Cap Growth & Income Fund") for
the fiscal year ended 8/31/1999. The information is as follows:
8/31/1999
Aerospace & Related 1.0%
Automotive 1.2%
Banks 5.3%
Beverages & Foods 5.5%
Chemicals 1.3%
Computer Services 8.2%
Consumer Cyclical 1.2%
Drugs 4.2%
Electrical Equipment 5.1%
Electronics 8.6%
Entertainment 3.8%
Health Care 1.2%
Housewares 0.0%
Insurance 2.9%
International Oil & Gas 8.7%
Media 3.3%
Medical Supplies 4.2%
Other Financials 7.1%
Paper 3.3%
Repurchase Agreements 8.5%
Retail 5.8%
Telecommunications 6.7%
Tobacco 1.5%
Other Industrires 0.9%
TOTAL 100.0%
<PAGE>
A-2B. The graphic representation here displayed consists of a chart which
outlines The Large-Cap Growth & Income Fund's ten largest stock holdings (As a %
of net assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Microsoft Corp. 3.6%
General Electric Co. 3.3%
Intel Corp. 2.9%
Motorola, Inc. 2.5%
Johnson & Johnson 2.5%
Exxon Corp. 2.3%
American International Group, Inc. 2.2%
Kimberly-Clark Corp. 1.9%
Royal Dutch Petroleum Co., ADR. 1.8%
Seagram Co., Ltd. 1.8%
A-3B. The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12/31/1998) for the
Large-Cap Growth & Income Fund as of 8/31/1999. The returns are as follows:
before sales charge, 7.08% and after sales charge, 0.90%.
A-4B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Large-Cap Growth & Income Fund (Class A Shares) is represented
by a solid line, whereas Standard & Poor's 500 Index ("S&P 500") is represented
by a broken dotted line and Lipper Growth and Income Funds Index ("LGIFI") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Large-Cap Growth & Income Fund and S&P 500 and LGIFI from its inception on
December 31, 1998 to August 31, 1999. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Large-Cap Growth & Income Fund as compared to
S&P 500 and LGIFI; the ending values are $10,090; $10,466; and $10,600,
respectively.
<PAGE>
A-1C. The graphic representation here displayed consists of a chart which
outlines the industry diversification (As a % of portfolio holdings) for the
Marshall Mid-Cap Value Fund ("Mid-Cap Value Fund") for the fiscal year ended
8/31/1999. The information is as follows:
8/31/1999
Banking 3.8%
Beverages & Food 4.7%
Chemicals 6.7%
Electric 3.6%
Electronics 4.0%
Financial 6.5%
Insurance 4.4%
Intermediate Goods 1.9%
Oil & Gas Products 5.9%
Oil Services 5.8%
Other Capital Goods 5.5%
Paper and Related Products 4.2%
Pharmaceuticals & Health Care 5.3%
Repurchase Agreements 5.8%
Retail 5.7%
Service-Consumer 7.7%
Services-Telecommunications 3.6%
Tobacco 2.4%
Transportation 2.1%
Other Industries 10.4%
TOTAL 100.0%
<PAGE>
A-2C. The graphic representation here displayed consists of a chart which
outlines The Mid-Cap Value Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
International Multifoods Corp. 2.6%
Telephone and Data System, Inc. 2.6%
Rowan Companies, Inc. 2.4%
UST, Inc. 2.4%
Radiant Group, Inc. 2.3%
Pinnacle West Capital Corp. 2.2%
Cooper Cameron Corp. 2.2%
Noble Affiliates, Inc. 2.2%
Alexander and Baldwin, Inc. 2.1%
Unocal Corp. 2.1%
A-3C. The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12/31/1998) for the
Mid-Cap Value Fund as of 8/31/1999. The returns are as follows: before sales
charge, 6.22% and after sales charge, 0.09%.
A-4C. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Mid-Cap Value Fund (Class A Shares) is represented by a solid
line, whereas Standard & Poor's Mid-Cap 400 Index ("S&P 400") is represented by
a broken dotted line and Lipper Mid-Cap Value Funds Index ("LMCVFI") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Mid-Cap Value Fund and S&P 400 and LMCVFI, from its inception on December 31,
1998 to August 31, 1999. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the ending value of the hypothetical
investment in the Mid-Cap Value Fund as compared to S&P 400 and LMCVFI, the
ending values are $10,009; $10,101; and $10,677, respectively.
<PAGE>
A-1D. The graphic representation here displayed consists of a chart which
outlines the industry diversification (As a % of portfolio holdings) for the
Marshall Mid-Cap Growth Fund ("Mid-Cap Growth Fund") for the fiscal year ended
8/31/1999. The information is as follows:
8/31/1999
Banks 2.8%
Broadcasting 13.7%
Commercial Services 0.0%
Computer Services 2.7%
Computers 3.4%
Drugs 3.3%
Electrical Equipment 1.3%
Financial Services 3.9%
Health Care 3.7%
Insurance 1.8%
Leisure & Recreation 8.7%
Manufacturing 0.0%
Medical Supplies 0.0%
Oil & Gas 3.6%
Repurchase Agreements 3.2%
Restaurants 1.7%
Retail 11.9%
Semi-Conductor 8.6%
Services-Consumer 0.0%
Technology 15.4%
Telecommunications 7.6%
Other Industries 2.7%
TOTAL 100.0%
<PAGE>
A-2D. The graphic representation here displayed consists of a chart which
outlines The Mid-Cap Growth Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Tellabs, Inc. 4.0%
Kohl's Corp. 3.6%
JDS Uniphase Corp. 3.6%
Lexmark Intl. Group, Class A 3.4%
Hispanic Broadcasting Corp. 3.0%
Royal Caribbean Cruises, Ltd. 2.8%
Teradyne, Inc. 2.5%
Best Buy Co., Inc. 2.4%
Harley Davidson, Inc. 2.3%
Vitesse Semiconductor Corp. 2.3%
A-3D The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12/31/1998) for the
Mid-Cap Growth Fund as of 8/31/1999. The returns are as follows: before sales
charge, 14.21% and after sales charge, 7.66%.
A-4D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Mid-Cap Growth Fund (Class A Shares) is represented by a solid
line, whereas Standard & Poor's Mid-Cap 400 Index ("S&P 400") is represented by
a broken dotted line and the Lipper Mid-Cap Growth Funds Index ("LMCGFI") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Mid-Cap Growth Fund and S&P 400 and LMCGFI from its inception on December 31,
1998 to August 31, 1999. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the ending value of the hypothetical
investment in the Mid-Cap Growth Fund as compared to S&P 400 and LMCGFI; the
ending values are $10,766; $10,101; and $11,341, respectively.
<PAGE>
A-1E. The graphic representation here displayed consists of a chart which
outlines the industry diversification (As a % of portfolio holdings) for the
Marshall Small-Cap Growth Fund ("Small-Cap Growth Fund") for the fiscal year
ended 8/31/1999. The information is as follows:
8/31/1999
Broadcasting 16.1%
Communication Services 2.4%
Computer Services 6.9%
Drugs 0.5%
Financial 3.6%
Health Care 3.9%
Leisure & Recreation 7.2%
Manufacturing 0.0%
Medical Supplies 1.8%
Oil & Gas Equipment Services 3.3%
Other Capital Goods 0.0%
Repurchase Agreements 6.1%
Restaurants 2.8%
Retail 10.9%
Semi-Conductor 10.0%
Services-Consumer 1.4%
Technology 12.0%
Telecommunications 7.5%
Other Securities 3.6%
TOTAL 100.0%
<PAGE>
A-2E. The graphic representation here displayed consists of a chart which
outlines The Small-Cap Growth Fund's ten largest stock holdings (As a % of net
assets) for the fiscal year ended 8/31/99. The information is as follows:
SECURITY 8/31/1999
Harmonic Lightwaves, Inc. 3.7%
Steiner Leisure Ltd. 3.4%
SDL, Inc. 3.2%
Papa Johns International, Inc. 2.9%
Flextronics International Ltd. 2.8%
Triquint Semiconductor, Inc. 2.8%
Speedway Motorsports, Inc. 2.7%
Xircom, Inc. 2.7%
Pinnacle Holdings, Inc. 2.7%
Westwood One, Inc. 2.4%
A-3E The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12/31/1998) for the
Small-Cap Growth Fund as of 8/31/1999. The returns are as follows: before sales
charge, (2.75%) and after sales charge, (8.36%).
A-4E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Small-Cap Growth Fund (Class A Shares) is represented by a
solid line, whereas the Russell 2000 Index ("Russell 2000") is represented by a
broken dotted line and Lipper Small Cap Funds Index ("LSCFI") is represented by
a dotted line. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Small-Cap Growth
Fund and Russell 2000 and LSCFI from its inception on December 31, 1998 to
August 31, 1999. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the ending value of the hypothetical
investment in the Small-Cap Growth Fund as compared to Russell 2000 and LSCFI;
the ending values are $9,164; $10,235; and $10,620, respectively.
A-1F. The graphic presentation here displayed consists of a chart which
outlines the top five industries that the Marshall International Stock Fund
("International Stock Fund") invests in as well as its percentage of net assets
as of August 31, 1999. The information is as follows: Telecommunications, 11.6%;
Data Processing; 10.8%; Banking, 9.2%; Energy, 6.6%; and Financial Services,
6.4%.
A-2F. The graphic presentation here displayed consists of a chart which outlines
the International Stock Fund's five largest stock holdings and its percentage of
net assets as of August 31, 1999. The information is as follows: Fujitsu Ltd.,
2.6%; STMicroelectronics NV, 2.4%; NTT Mobile Communication Network, Inc., 2.0%;
Philips Electronics NV, 1.9%; and BP Amoco PLC, 1.9%.
A-3F. The graphic representation here displayed consists of a chart. The chart
outlines the cumulative total returns (since inception 12/31/1998) for the
International Stock Fund as of 8/31/1999. The returns are as follows: before
sales charge, 8.98% and after sales charge, 2.75%.
A-4F. The graphic representation here displayed consists of a chart which
outlines the International Stock Fund's country allocations (As a % of portfolio
holdings) for the fiscal year ended 8/31/1999. The information is as follows:
Country 8/31/1999
AUSTRALIA 2.5%
Denmark 0.0%
Finland 3.5%
France 7.4%
Germany 6.6%
Great Britain 15.7%
Ireland 1.7%
Italy 0.5%
Netherlands 9.8%
Spain 3.1%
Sweden 2.4%
Switzerland 5.0%
Other Europe 0.0%
TOTAL EUROPE 55.7%
Canada 2.9%
Mexico 1.3%
United States 3.8%
TOTAL NORTH AMERICA 8.1%
Hong Kong 3.3%
Japan 24.2%
Korea 2.5%
Philippines 0.0%
Singapore 2.6%
Thailand 0.0%
TOTAL PACIFIC RIM 32.6%
Argentina 0.0%
Brazil 0.0%
Chile 0.0%
Peru 0.0%
Venezuela 0.0%
TOTAL SOUTH AMERICA 0.0%
TOTAL OTHER COUNTRIES 1.1%
TOTAL 100.0%
A-5F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The International Stock Fund (Class A Shares) is represented by a
solid line, whereas the Morgan Stanley Capital International Europe, Australia,
Far East Index ("EAFE") is represented by a broken line and the Lipper
International Funds Index ("LIFI") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the International Stock Fund and EAFE and
LIFI from its inception on December 31, 1998 to August 31, 1999. The "y" axis
reflects the cost of the investment. The "x" axis reflects computation periods
from the ending value of the hypothetical investment in the International Stock
Fund as compared to EAFE and LIFI; the
ending values are $10,275; $10,745; and $11,016, respectively.
A-1G. The graphic representation here displayed consists of a chart which
outlines portfolio diversification (As a % of portfolio holdings) of the
Marshall Government Income Fund ("Government Income Fund") for the fiscal year
ended 8/31/1999. The information is as follows:
ASSET CLASS 8/31/1999
Cash and Cash Equivalents 15.6%
CMO/ABS 8.2%
Corporate 2.7%
FHLMC/MBS 16.6%
FNMA/MBS 29.7%
GNMA/MBS 22.5%
Other Government Agencies 0%
U.S. Treasury 4.7%
TOTAL 100.0%
A-2G. The graphic representation here displayed consists of a chart which
outline the Government Income Fund's fund statistics as of August 31, 1999. The
information is as follows: SEC 30-Day Yield, 5.32%; Average Dollar-Weighted
Maturity, 6.04 years, and Duration, 3.40 years.
A-3G. The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12.31.1998) for the
Government Income Fund as of 8/31/1999. The returns are as follows: before sales
charge, (0.56%) and after sales charge, (5.29%).
A-4G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Government Income Fund (Class A Shares) is represented by a
solid line, whereas Lehman Brothers Mortgage-Backed Securities Index ("LMI") is
represented by a broken dotted line and Lipper U.S. Mortgage Funds Index
("LUSMI") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical investment
of $10,000 in the Government Income Fund and LMI and LUSMI from its inception on
December 31, 1998 to August 31, 1999. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Government Income Fund as compared to LMI and
LUSMI; the ending values are $9,471; $9,984; and $9,884, respectively.
A-1H. The graphic representation here displayed consists of a chart which
outlines portfolio diversification (As a % of portfolio holdings) of the
Marshall Intermediate Bond Fund ("Intermediate Bond Fund") for the fiscal year
ended 8/31/1999. The information is as follows:
ASSET CLASS 8/31/1999
A Rated Corporate Bonds 30.6%
AA Rated Corporate Bonds 0.5%
AAA Rated Corporate Bonds 16.3%
BAA Rated Corporate Bonds 24.7%
Cash & Cash Equivalents 17.1%
Government Agency 6.5%
U.S. Treasury 4.3%
TOTAL 100.0%
A-2H. The graphic representation here displayed consists of a chart which
outline the Intermediate Bond Fund's fund statistics as of August 31, 1999. The
information is as follows: SEC 30-Day Yield, 5.70%; Average Dollar-Weighted
Maturity, 3.80 years, and Duration, 2.62 years.
A-3H. The graphic representation here displayed consists of a chart. The
chart outlines the cumulative total returns (since inception 12/31/1998) for the
Intermediate Bond Fund as of 8/31/1999. The returns are as follows: before sales
charge, (0.09%) and after sales charge, (4.88%).
<PAGE>
A-4H. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed beneath the graphic
presentation. The Intermediate Bond Fund (Class A Shares) is represented by a
solid line, whereas Lehman Brothers Intermediate Government/Corporate Bond Index
("LGCI") is represented by a broken dotted line and Lipper Short/Intermediate
Bond Funds Index ("LSIBF") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a hypothetical
investment of $10,000 in the Intermediate Bond Fund and LGCI and LSIBF from its
inception on December 31, 1998 to August 31, 1999. The "y" axis reflects the
cost of the investment. The "x" axis reflects computation periods from the
ending value of the hypothetical investment in the Intermediate Bond Fund as
compared to LGCI and LSIBF; the ending values are $9,512; $9,941; and $10,045,
respectively.
A-K. The graphic representation here displayed consists of one chart which
outlines the Marshall Money Market Fund's fund statistics as of August 31, 1999.
The information is as follows: 7-day Net Yield, Class A Shares--4.62%; 7-day
Effective Yield, Class A Shares--4.73%; Average Dollar-Weighted Maturity, 44.99
days.
