1933 Act File No. 33-48907
1940 Act File No. 811-7047
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ............................
Post-Effective Amendment No. 25 ............................ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 25 .......................................... X
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MARSHALL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
770 N. Water Street
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices)
(414) 287-8555
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notice should be sent to the Agent for Service)
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to paragraph (b)
on ___________, 19__ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i) _ on __________, 1999
pursuant to paragraph (a) (i) _ 75 days after filing pursuant to paragraph
(a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to: Janet Olsen, Esquire
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
[MARSHALL LOGO]]
(Marshall International Stock Fund)
Class I Shares
Table of Contents
Risk/Return Profile...................... 2
Fees and Expenses of the Fund............ 3
The Main Risks of Investing in the Fund.. 4
How to Buy Shares........................ 6
How to Redeem Shares..................... 8
Account and Share Information............ 10
Marshall Funds, Inc. Information......... 12
Financial Information.................... 13
[COVER TO BE ADDED LATER]
An international equity mutual fund seeking to provide capital appreciation by
investing primarily in a diversified portfolio of common stocks of companies
outside of the United States.
Shares of the Marshall International Stock Fund, like shares of all mutual
funds, are not bank deposits, federally insured or guaranteed, and may lose
value.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Prospectus
August 20, 1999
[GRAPHIC] Risk/Return Profile
Marshall International Stock Fund
[GRAPHIC]
Goal: The Fund's goal is to provide capital appreciation.
Strategy: The Fund invests in common stocks of companies located outside the
United States. The Fund targets companies with strong competitive positions,
earning high returns on capital, and selling at a discount to global industry
leaders.
Risks: The Fund is subject to fluctuations in the stock markets, which have
periods of increasing and decreasing values. Foreign securities pose additional
risks over U.S.-based securities. The Fund is also subject to sector risks. The
shares offered by this prospectus are not deposits or obligations of any bank,
are not endorsed or 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.
Annual Total Return (calendar years 1995-1998)*
[GRAPH APPEARS HERE]
Total Return
Best quarter (4Q98) 16.30%
Worst quarter (3Q98) (19.06%)
Most recent quarter (2Q99) 2.98%
Average Annual Total Return through 12/31/98**
Since 9/1/94
inception 1 Year
Fund 8.65% 3.26%
EAFE Index 7.28% 20.00%
LIFI 8.41% 12.66%
* The bar chart and total return information is for the Fund's Class Y Shares
which are not offered in this prospectus. The Fund's Class I Shares would
have had similar annual returns to those shown because the Shares are
invested in the same portfolio of securities. The annual returns would differ
only to the extent that the Classes do not have the same expenses.
** The table shows the Fund's average annual total returns for the Class Y
Shares over a period of time. In addition, the performance of the Fund's
Class YShares is compared to the Morgan Stanley Capital Europe, Australia,
Far East Index (EAFE Index), and the Lipper International Funds Index (LIFI),
which are indices of funds with similar investment objectives.
As with all mutual funds, past performance does not necessarily predict future
performance.
Fees and Expenses of the Fund [GRAPHIC]
This table describes the fees and expenses that you may pay if you buy and hold
Class I Shares of the Fund.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (Before Waivers)(1)
(expenses deducted and expressed as a percentage of the Fund's net assets)
Management Fee 1.00%
Distribution (12b-1) Fee None
Shareholder Servicing Fee None
Other Expenses 0.24%
Total Annual Fund Operating Expenses 1.24%
(1) The adviser expects to voluntarily waive a portion of the advisory fee. This
amount is shown below along with the net expenses the Fund expects to actually
pay for the fiscal year ended August 31, 2000. The adviser may terminate this
voluntary waiver at any time.
Total Waivers of Fund Expenses 0.03%
Total Actual Annual Fund Operating Expenses (after waivers) 1.21%
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear either directly or
indirectly. Marshall & Ilsley Trust Company and its affiliates receive advisory,
custodial, and administrative fees for the services they provide to
shareholders. For more complete descriptions of the various costs and expenses,
see "Marshall Funds, Inc. Information." Wire-transferred redemptions may be
subject to an additional fee.
Example
This Example is intended to help you compare the cost of investing in the Fund's
Class I Shares with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund's Class I Shares for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Class I Shares operating expenses are before waivers as
shown in the table and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
Class I Shares
1 Year $ 126
3 Years $ 393
5 Years $ 681
10 Years $1,500
[GRAPHIC] The Main Risks of Investing in the Fund
Stock Market Risks. The Fund is subject to fluctuation in the stock markets,
which have periods of increasing and decreasing values. Stocks have
greater volatility than debt securities. While greater volatility
increases risk, it offers the potential for greater reward.
Stock market risk is also related to the size of the company issuing
stock. Companies may be categorized as having a small, medium or large
capitalization (market value). The potential risks are higher with small-
and medium-capitalization companies and lower with large-capitalization
companies.
Foreign Securities Risks. Foreign securities pose additional risks over U.S.-
based securities for a number of reasons. Because the Fund invests
primarily in foreign securities, you should expect that these factors may
adversely affect the value of an investment in the Fund. Foreign economic,
governmental and political systems may be less favorable than those of the
United States. Foreign governments may exercise greater control over their
economies, industries and citizens' rights. Specific risk factors related
to foreign securities include: inflation, structure volatility of
investments, taxation policies, currency exchange rates and regulations
and accounting standards. The Fund may incur costs and expenses when
making foreign investments that are higher than when making domestic
investments, which will affect the Fund's total return.
Foreign securities may be denominated in foreign currencies. Therefore,
the value of the Fund's assets and income in U.S. dollars may be affected
by changes in exchange rates and regulations, since exchange rates for
foreign securities change daily. The combination of currency risk and
market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the United States. Although
the Fund values its assets daily in U.S. dollars, it will not convert its
holding of foreign currencies to U.S. dollars daily. Therefore the Fund
may be exposed to currency risks over an extended period of time.
Euro Risks. The Fund makes significant investments in securities denominated in
the Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will
have a significant impact on the value of the Fund's investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these
countries' ability to respond to economic downturns or political
upheavals, and consequently reduce the value of securities issued by their
governments.
SectorRisks. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a
certain sector may underperform other sectors or the market as a whole. As
the Sub-adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that
sector.
The Main Risks of Investing in the Fund (cont.) [GRAPHIC]
Portfolio Turnover. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities will be sold without regard to
the length of time they have been held when the Fund's Adviser or Sub-
adviser believes it is appropriate to do so in light of the Fund's
investment goal. A higher portfolio turnover rate involves greater
transaction expenses that must be borne directly by the Fund (and thus,
indirectly by its shareholders), and affect Fund performance. In addition,
a high rate of portfolio turnover may result in the realization of larger
amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them.
Temporary Defensive Investments. The Fund may temporarily depart from its
principal investment strategies by investing its assets in cash, cash
items, and shorter-term, higher-quality debt securities and similar
obligations. It may do this to minimize potential losses and maintain
liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns
to maintain the safety of principal, that is, the original amount invested
by shareholders.
[GRAPHIC] How to Buy Shares
What Do Shares Cost? You can buy Class I Shares of the Fund at net asset value
(NAV), without a sales charge, on any day the New York Stock Exchange
(NYSE) is open for business. When the Fund receives your transaction
request in proper form, it is processed at the next determined NAV. NAV is
determined for the Fund at the end of regular trading (normally 3:00 p.m.
Central Time) each day the NYSE is open. In calculating NAV, the Fund's
portfolio is valued using market prices.
Securities held by the Fund may trade on foreign exchanges on days (such
as weekends) when the Fund does not calculate NAV. As a result, the NAV of
the Fund's shares may change on days when you cannot purchase or sell the
Fund's shares.
To open an account with the Fund, your first investment must be at least
$5 million. The minimum investment amount to add to your existing account
is $100,000. An account may be opened with a smaller amount as long as the
minimum is reached within 90 days. An institutional investor's minimum
investment is calculated by combining all accounts it maintains with the
Fund. In special circumstances, these minimums may be waived or lowered at
the Fund's discretion.
How Do I Purchase Shares? You may purchase shares directly from the Fund by
completing and mailing the Account Application and sending your payment to
the Fund by check or wire.
You may also purchase shares through a broker/dealer, investment
professional, or financial institution (Authorized Dealers). Some
Authorized Dealers may charge a transaction fee for this service. If you
purchase shares of the Fund through a program of services offered or
administered by an Authorized Dealer or other service provider, you should
read the program materials, including information relating to fees, in
conjunction with the Fund's prospectus. Certain features of the Fund may
not be available or may be modified in connection with the program of
services provided.
Your purchase order must be received by the Fund by 3:00 p.m. (Central
Time) to get that day's NAV. The Fund reserves the right to reject any
purchase request. However, you are not the owner of Fund shares (and
therefore will not receive dividends) until payment for the shares is
received.
In order to purchase shares, you must reside in a jurisdiction where Fund
shares may lawfully be offered for sale. In addition, you must have a
Social Security or tax identification number.
Fund Purchase Easy Reference Table [GRAPHIC]
[GRAPHIC] Phone
. Once you have opened an account and if you authorized telephone
privileges in your Account Application or by subsequently completing an
authorization form, you may purchase additional shares by calling MFIS at
1-800-236-FUND (3863).
[GRAPHIC] Mail
. To open an account, send your completed Account Application and check
payable to "Marshall Funds" to the following address:
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348
. To add to your existing Fund account, send in your check, payable to
"Marshall Funds," to the same address. Indicate your Fund account number
on the check.
[GRAPHIC] Wire
. Notify MFIS at 1-800-236-FUND (3863) by 3:00 p.m. (Central Time).
. Then wire the money to:
M&I Marshall & Ilsley Bank
ABA Number 075000051
. Credit to: Marshall Funds, Deposit Account, Account Number 27480;
. Further credit to: Class I Shares International Stock Fund Re:
[Shareholder name and Account number].
. If a new account, fax application to: Marshall Funds Investor Services at
1-414-287-8511.
. Mail a completed Account Application to the Fund at the address above
under "Purchases by Mail."
. Your bank may charge a fee for wiring funds. Wire orders are accepted
only on days when the Fund and the Federal Reserve Wire System are open
for business.
[GRAPHIC] How to Redeem Shares
How Do I Redeem Shares? You may redeem your Fund shares by Telephone and by
Wire/Electronic Transfer. You should note that redemptions will be made
only on days when the Fund computes its NAV. When your redemption request
is received in proper form, it is processed at the next determined NAV.
Telephone or written requests for redemptions must be received in proper
form as described below and can be made through MFIS.
Redemption requests for the Fund must be received by 3:00 p.m. (Central
Time) in order for shares to be redeemed at that day's NAV. Redemption
proceeds will normally be wired the following business day, but in no
event more than seven days, after the request is made.
Fund Redemption Easy Reference Table
[GRAPHIC] Phone
. If you have authorized the telephone redemption privilege in your Account
Application or by a subsequent authorization form, you may redeem shares
by telephone.
[GRAPHIC] Wire/Electronic Transfer
. Upon written request, redemption proceeds can be directly deposited by
Electronic Funds Transfer or wired directly to a domestic commercial bank
previously designated by you in your Account Application or subsequent
form.
. Wires of redemption proceeds will only be made on days on which the Fund
and the Federal Reserve wire system are open for business.
. Wire-transferred redemptions may be subject to an additional fee imposed
by the bank receiving the wire.
Additional Conditions for Redemptions [GRAPHIC]
Limitations on Redemption Proceeds. Redemption proceeds normally are wired
within one business day after receiving a request in proper form. However,
payment may be delayed up to seven days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
Corporate Resolutions. Corporations, trusts and institutional organizations are
required to furnish evidence of the authority of persons designated on the
account application to effect transactions on behalf of the organization.
[GRAPHIC] Account and Share Information
Confirmations and Account Statements. You will receive confirmation of purchases
and redemptions. In addition, you will receive periodic statements
reporting all account activity, including dividends and capital gains
paid.
Dividends and Capital Gains. The Fund declares and pays any dividends annually
to shareholders. Dividends are paid to all shareholders invested in the
Fund on the record date. The record date is the date on which a
shareholder must officially own shares in order to earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested
in additional shares, unless you elect cash payments. If you elect cash
payments and the payment is returned as undeliverable, your cash payment
will be reinvested in Fund shares and your distribution option will
convert to automatic reinvestment. If any distribution check remains
uncashed for six months, the check amount will be reinvested in shares and
you will not accrue any interest or dividends on this amount prior to the
reinvestment.
If you purchase shares just before a Fund declares a dividend or capital
gain distribution, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in shares. Therefore, you
should consider the tax implications of purchasing shares shortly before
the Fund declares a dividend or capital gain.
Multiple Classes. The Marshall Funds have adopted a plan that permits the Fund
to offer more than one class of shares. All shares of the Fund or class
have equal voting rights and will generally vote in the aggregate and not
by class. There may be circumstances, however, when shareholders of a
particular Marshall Fund or class are entitled to vote on matters
affecting that Fund or class. Share classes may have different sales
charges and other expenses, which will affect performance.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after
December 31, 1999 or experience other date-related problems. The Year 2000
problem may cause systems to process information incorrectly and could
disrupt businesses, such as the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the
Fund, the Fund could experience interruptions in basic financial and
operational functions. Fund shareholders could experience errors or
disruptions in Fund Share transactions or Fund communications.
The Fund's 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.
Account and Share Information (cont.) [GRAPHIC]
Year 2000 problems would also increase the risks of the Fund's
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 Fund may purchase. However, it may be difficult
to determine the Year 2000 readiness of foreign service providers or
foreign securities issuers. This is especially true of entities or issuers
in emerging markets.
The financial impact of these issues for the Fund is still being
determined. While there can be no assurance that potential Year 2000
problems would not have a material adverse effect on the Fund, the Board
of Directors and the Corporation's officers receive status reports from
the Fund's service providers to ensure that appropriate steps are being
taken to address these issues.
Tax Information
Federal Income Tax. The Fund sends an annual statement of your account activity
to assist you in completing your federal, state and local tax returns.
Fund distributions of dividends and capital gains are taxable to you
whether paid in cash or reinvested in the Fund. Dividends are taxable as
ordinary income; capital gains are taxable at different rates depending
upon the length of time the Fund holds its assets.
Fund distributions are expected to be primarily capital gains. Redemptions
are taxable sales. Please consult your tax adviser regarding your federal,
state, and local tax liability.
[GRAPHIC] Marshall Funds, Inc. Information
Management of the Marshall Funds. The Board of Directors governs the Fund. The
Board selects and oversees the Adviser, M&I Investment Management Corp.
The Adviser manages the Fund's assets, including buying and selling
portfolio securities. The Adviser's address is 1000 North Water Street,
Milwaukee, Wisconsin, 53202. The Adviser has entered into a subadvisory
contract with BPI Global Asset Management LLP (BPI or Sub-adviser) to
manage the Fund, subject to oversight by the Adviser.
Adviser's Background. M&I Investment Management Corp. is a registered investment
adviser and a wholly owned subsidiary of Marshall & Ilsley Corp., a
registered bank holding company headquartered in Milwaukee, Wisconsin. As
of June 30, 1999, the Adviser had approximately $10.5 billion in assets
under management and has managed investments for individuals and
institutions since 1973. The Adviser has managed the Funds since 1992 and
managed the Newton Funds (predecessors to some of the Marshall Funds)
since 1985.
Sub-Adviser's Background. BPI Global Asset Management LLP is a registered
investment adviser and provides management services for investment
companies, corporations, trusts, estates, pension and profit sharing
plans, individuals and other institutions located in both Canada and the
United States. As of June 30, 1999, BPI had approxi-mately $1.9 billion of
total assets under management. The Sub-adviser's address is Tower Place at
the Summit, 1900 Summit Tower Boulevard, Suite 450, Orlando, Florida
32810.
Portfolio Manager. The Fund is managed by Dan Jaworski, founder, Managing
Director and Chief Investment officer of the Sub-adviser. Prior to
founding BPI in March 1997, Mr. Jaworski was a portfolio manager at Lazard
Freres & Co. LLC, from June 1993 to December 1994, and from January 1995
to March 1997 was a portfolio manager at STI Capital Management. Mr.
Jaworski received a B.A. in Economics and Computer Science from Concordia
College and received his M.B.A. in Finance from the University of
Minnesota.
Advisory Fees. The Adviser is entitled to receive an annual investment advisory
fee equal to 1.00% of the Fund's average daily net assets.
The Adviser has the discretion to voluntarily waive a portion of its fee.
However, any waivers by the Adviser are voluntary and may be terminated at
any time in its sole discretion.
Affiliate Services and Fees. Marshall & Ilsley Trust Company is custodian of the
assets and securities of the Marshall Funds and provides shareholder
support, sub-transfer agency and other administrative services to
shareholders directly and through its division, Marshall Funds Investor
Services. The annual custody fees of the Fund are 0.02% of the first $250
million of assets held plus 0.01% of assets exceeding $250 million,
calculated on the Fund's average daily net assets.
Marshall & Ilsley Trust Company receives an annual per-account fee for
sub-transfer agency services to trust and institutional accounts
maintained on its trust accounting system.
Financial Information [GRAPHIC]
The Fund has a fiscal year end of August 31. As this is the first fiscal
year for the Fund's Class I Shares, financial information is not yet
available.
A Statement of Additional Information (SAI) dated August 20, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report dis-cusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-236-FUND (3863).
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Cusip 000000000
G00714-05 (8/99)
Investment Company Act File No. 811-7047
STATEMENT OF ADDITIONAL INFORMATION
MARSHALL INTERNATIONAL STOCK FUND
A Portfolio of Marshall Funds, Inc.
CLASS I SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for the Marshall International Stock Fund
Class I Shares, dated August 20, 1999. This SAI incorporates by reference the
Fund's Annual Report. You may obtain the prospectus or Annual Report without
charge by calling Marshall Funds Investor Services at 414-287-8555 or
1-800-236-FUND (3863), or you can visit the Marshall Funds' Internet site on the
World Wide Web at (http://www.marshallfunds.com).
august 20, 1999
CONTENTS
How are the Marshall Funds Organized? 1
Securities in Which the Fund Invests 1
Securities Descriptions, Techniques and Risks 2
Investment Limitations 11
Determining Market Value of Securities 12
What Do Shares Cost? 13
How is the Fund Sold? 13
How to Buy Shares 13
Account and Share Information 14
What are the Tax Consequences? 14
Who Manages the Fund? 15
How Does the Fund Measure Performance? 19
Performance Comparisons 19
Economic and Market Information 20
Financial Statements 21
Appendix 22
Addresses 25
PRODUCT CODE (08/99)
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS, INC.
<PAGE>
HOW ARE THE MARSHALL FUNDS ORGANIZED?
Marshall Funds, Inc. (Corporation) is an open-end, management investment
company that was established as a Wisconsin corporation on July 31, 1992.
The Fund is a diversified portfolio of the Corporation. The Corporation may
offer separate series of shares representing interests in separate portfolios of
securities, and the shares in any one portfolio may be offered in separate
classes. This Statement contains additional information about the Corporation
and the Fund. This Statement uses the same terms as defined in the prospectus.
The definitions of the terms series and class in the Wisconsin Business
Corporation Law, Chapter 180 of the Wisconsin Statutes (WBCL) differ from the
meanings assigned to those terms in the prospectus and this Statement of
Additional Information. The Articles of Incorporation of the Corporation
reconcile this inconsistency in terminology, and provide that the prospectus and
Statement of Additional Information may define these terms consistently with the
use of those terms under the WBCL and the Internal Revenue Code. SECURITIES IN
WHICH THE FUND INVESTS
Following is a table that indicates which types of securities are a:
o P = PRINCIPAL investment of the Fund (shaded in chart); or
o A = ACCEPTABLE (but not principal) investment of the Fund; or
- -------------------------------------- ----------------------
SECURITIES INTERNATIONAL STOCK
FUND
- -------------------------------------- ----------------------
- --------------------------------------- ---------------------
AMERICAN DEPOSITARY RECEIPTS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
ASSET-BACKED SECURITIES 1 A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
BANK INSTRUMENTS 2 A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
BORROWING 3 A
- ---------------------------------------
- --------------------------------------- ---------------------
COMMON STOCK P
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
COMMON STOCK OF FOREIGN COMPANIES P
- --------------------------------------- ---------------------
- ---------------------------------------
CONVERTIBLE SECURITIES A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
DEBT OBLIGATIONS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
DERIVATIVE CONTRACTS AND SECURITIES A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
EUROPEAN DEPOSITARY RECEIPTS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
FIXED RATE DEBT OBLIGATIONS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
FLOATING RATE DEBT OBLIGATIONS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
FOREIGN CURRENCY HEDGING TRANSACTIONS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
FOREIGN CURRENCY TRANSACTIONS A
- ---------------------------------------
- --------------------------------------- ---------------------
FOREIGN SECURITIES P
- --------------------------------------- ---------------------
- ---------------------------------------
FORWARD COMMITMENTS, WHEN-ISSUED AND A
DELAYED DELIVERY TRANSACTIONS
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
FUTURES AND OPTIONS TRANSACTIONS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
GLOBAL DEPOSITARY RECEIPTS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
ILLIQUID AND RESTRICTED SECURITIES 4 A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
LENDING OF PORTFOLIO SECURITIES A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
MORTGAGE-BACKED SECURITIES A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
PREFERRED STOCKS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
PRIME COMMERCIAL PAPER 5 A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
REPURCHASE AGREEMENTS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
REVERSE REPURCHASE AGREEMENTS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
SECURITIES OF OTHER INVESTMENT A
COMPANIES
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
SWAP TRANSACTIONS A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
U.S. GOVERNMENT SECURITIES A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
VARIABLE RATE DEMAND NOTES A
- --------------------------------------- ---------------------
- --------------------------------------- ---------------------
WARRANTS A
- --------------------------------------- ---------------------
1. The Fund may invest in Asset-Backed Securities rated, at the time of
purchase, in the top four rating categories by a nationally recognized
statistical rating organization (NRSRO) (securities rated AAA, AA, A or BBB
by Standard & Poor's (S&P) and Fitch IBCA, Inc. (Fitch) and Aaa, Aa, A or
Baa by Moody's Investors Service, Inc. (Moody's)) or if unrated, determined
by the Adviser to be of comparable quality.
2. The Fund may purchase foreign Bank Instruments without limit.
3. The Fund may borrow money to purchase securities, a strategy that involves
purchasing securities in amounts that exceed the amount it has invested in
the underlying securities. The excess exposure increases the risks
associated with the underlying securities and tends to exaggerate the
effect of changes in the value of its portfolio securities and consequently
on the Fund's net asset value. The Fund may pledge more than 5% of its
total assets to secure such borrowings.
4. The Fund may invest up to 15% of its assets in illiquid securities.
5. The Fund may purchase commercial paper rated in the two highest rating
categories by an NRSRO or, if unrated determined by the Adviser to be of
comparable quality. SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS
As used in this section, the term Adviser means Adviser or Sub-adviser, as
applicable.
ASSET-BACKED SECURITIES are issued by non-governmental entities and carry no
direct or indirect government guarantee. Asset-Backed Securities represent an
interest in a pool of assets such as car loans and credit card receivables.
Almost any type of fixed income asset (including other fixed income securities)
may be used to create an asset backed security. However, most asset-backed
securities involve consumer or commercial debts with maturities of less than ten
years. Asset-backed securities may take the form of commercial paper or notes,
in addition to pass through certificates or asset-backed bonds. Asset backed
securities may also resemble some types of CMOs. Payments on asset-backed
securities depend upon assets held by the issuer and collections of the
underlying loans. The value of these securities depends on many factors,
including changing interest rates, the availability of information about the
pool and its structure, the credit quality of the underlying assets, the
market's perception of the servicer of the pool, and any credit enhancement
provided. Also, these securities may be subject to prepayment risk. BANK
INSTRUMENTS. Bank Instruments are unsecured interest bearing deposits with
banks. Bank Instruments include bank accounts, time deposits, certificates of
deposit and banker's acceptances. Instruments denominated in U.S. dollars and
issued by non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars and issued by
U.S. branches of foreign banks are referred to as Yankee instruments.
The Fund will invest in bank instruments that have been issued by banks and
savings and loans that have capital, surplus and undivided profits of over $100
million or whose principal amount is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, which are administered by the Federal
Deposit Insurance Corporation. Securities that are credit-enhanced with a bank's
irrevocable letter of credit or unconditional guaranty will also be treated as
Bank Instruments.
FOREIGN BANK INSTRUMENTS. Eurodollar Certificates of Deposit (ECDs), Yankee
Certificates of Deposit (YCDs) and Eurodollar Time Deposits (ETDs) are all U.S.
dollar denominated certificates of deposit. ECDs are issued by, and ETDs are
deposits of, foreign banks or foreign branches of U.S. banks. YCDs are issued in
the U.S. by branches and agencies of foreign banks.
ECDs, ETDs, YCDs, and Europaper have many of the same risks of other
foreign securities. Examples of these risks include economic and political
developments, that may adversely affect the payment of principal or
interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank
and the possible impact of interruptions in the flow of international
currency transactions. Also, the issuing banks or their branches are not
necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by
the Adviser in selecting these investments.
BORROWING. The Fund may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets and pledge some assets as
collateral. When the Fund borrows it will pay interest on borrowed money and may
incur other transaction costs. These expenses could exceed the income received
or capital appreciation realized by the Fund from any securities purchased with
borrowed money. With respect to borrowings, the Fund is required to maintain
continuous asset coverage of 300% of the amount borrowed. If the coverage
declines to less than 300%, the Fund must sell sufficient portfolio securities
to restore the coverage even if it must sell the securities at a loss.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities that
the Fund has the option to exchange for equity securities at a specified
conversion price. The option allows the Fund to realize additional returns if
the market price of the equity securities exceeds the conversion price. For
example, if the Fund holds fixed income securities convertible into shares of
common stock at a conversion price of $10 per share, and the shares have a
market value of $12, the Fund could realize an additional $2 per share by
converting the fixed income securities.
To compensate for the value of the conversion option, convertible securities
have lower yields than comparable fixed income securities. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
COMMERCIAL PAPER AND RESTRICTED AND ILLIQUID SECURITIES. Commercial paper is an
issuer's draft or note with a maturity of less than nine months. Companies
typically issue commercial paper to fund current expenditures. Most issuers
constantly reissue their commercial paper and use the proceeds (or bank loans)
to repay maturing paper. Commercial paper may default if the issuer cannot
continue to obtain financing in this fashion. The short maturity of commercial
paper reduces both the market and credit risk as compared to other debt
securities of the same issuer. The Fund may invest in commercial paper issued
under Section 4(2) of the Securities Act of 1933. By law, the sale of Section
4(2) commercial paper is restricted and is generally sold only to institutional
investors, such as the Fund. A Fund purchasing Section 4(2) commercial paper
must agree to purchase the paper for investment purposes only and not with a
view to public distribution. Section 4(2) commercial paper is normally resold to
other institutional investors through investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Fund believes that
Section 4(2) commercial paper and certain other restricted securities which meet
the Directors' criteria for liquidity are quite liquid. Section 4(2) commercial
paper and restricted securities which are deemed liquid, will not be subject to
the investment limitation. In addition, because Section 4(2) commercial paper is
liquid, the Fund intends to not subject such paper to the limitation applicable
to restricted securities.
DEPOSITARY RECEIPTS. American Depositary Receipts (ADRs) are receipts,
issued by a U.S. bank, that represent an interest in shares of a foreign-based
corporation. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) are receipts, issued by foreign banks or trust
companies, or foreign branches of U.S. banks, that represent an interest in
shares of either a foreign or U.S. corporation. Depositary Receipts may not be
denominated in the same currency as the underlying securities into which they
may be converted, and are subject to currency risks. Depositary Receipts
involves many of the same risks of investing directly in foreign securities.
DERIVATIVE CONTRACTS. Derivative contracts are financial instruments that
require payments based upon changes in the values of designated (or underlying)
securities, currencies, commodities, financial indices or other assets. Some
derivative contracts (such as futures, forwards and options) require payments
relating to a future trade involving the underlying asset. Other derivative
contracts (such as swaps) require payments relating to the income or returns
from the underlying asset. The other party to a derivative contract is referred
to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. EQUITY SECURITIES are the fundamental
unit of ownership in a company. They represent a share of the issuer's earnings
and assets, after the issuer pays its liabilities. Generally, issuers have
discretion as to the payment of any dividends or distributions. As a result,
investors cannot predict the income they will receive from equity securities.
However, equity securities offer greater potential for appreciation than many
other types of securities, because their value increases directly with the value
of the issuer's business. The following describes the types of equity securities
in which the Fund invests.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders are entitled to the net value of the issuer's earnings and
assets after the issuer pays its creditors and any preferred stockholders.
As a result, changes in an issuer's earnings directly influence the value of
its common stock. PREFERRED STOCKS have the right to receive specified
dividends or distributions before the payment of dividends or distributions
on common stock. Some preferred stocks also participate in dividends and
distributions paid on common stock. Preferred stocks may provide for the
issuer to redeem the stock on a specified date. The Fund may treat such
redeemable preferred stock as a fixed income security. WARRANTS provide an
option to buy the issuer's stock or other equity securities at a specified
price. If the Fund holds a warrant, it may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price
by the stated expiration date. Rights are the same as warrants, except they
are typically issued to existing stockholders.
FIXED INCOME SECURITIES. Fixed income securities generally pay interest at
either a fixed or floating rate and provide more regular income than equity
securities. However, the returns on fixed income securities are limited and
normally do not increase with the issuer's earnings. This limits the potential
appreciation of fixed income securities as compared to equity securities. Fixed
rate securities and floating rate securities react differently as prevailing
interest rates change.
FIXED RATE DEBT SECURITIES. Debt securities that pay a fixed interest rate
over the life of the security and have a long-term maturity may have many
characteristics of short-term debt. For example, the market may treat
fixed rate/long-term securities as short-term debt when a security's
market price is close to the call or redemption price, or if the security
is approaching its maturity date when the issuer is more likely to call or
redeem the debt.
As interest rates change, the market prices of fixed rate debt securities
are generally more volatile than the prices of floating rate debt
securities. As interest rates rise, the prices of fixed rate debt
securities fall, and as interest rates fall, the prices of fixed rate debt
securities rise. For example, a bond that pays a fixed interest rate of
10% is more valuable to investors when prevailing interest rates are
lower; therefore, this value is reflected in higher price, or a premium.
Conversely, if interest rates are over 10%, the bond is less attractive to
investors, and sells at a lower price, or a discount.
FLOATING RATE DEBT SECURITIES. The interest rate paid on floating rate
debt securities is reset periodically (e.g., every 90 days) to a
predetermined index rate. Commonly used indices include: 90-day or 180-day
Treasury bill rate; one month or three month London Interbank Offered Rate
(LIBOR); commercial paper rates; or the prime rate of interest of a bank.
The prices of floating rate debt securities are not as sensitive to
changes in interest rates as fixed rate debt securities because they
behave like shorter-term securities and their interest rate is reset
periodically.
FOREIGN CURRENCY TRANSACTIONS. Foreign currency transactions are generally used
to obtain foreign currencies to settle securities transactions. They can also be
used as a hedge to protect assets against adverse changes in foreign currency
exchange rates or regulations. When the Fund uses foreign currency exchanges as
a hedge, it may also limit potential gain that could result from an increase in
the value of such currencies. The Fund may be affected either favorably or
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations.
FOREIGN CURRENCY HEDGING TRANSACTIONS. Foreign currency hedging
transactions are used to protect against foreign currency exchange rate
risks. These transactions include: forward foreign currency exchange
contracts, foreign currency futures contracts, and purchasing put or
call options on foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (Forward Contracts) are used to
minimize the risks associated with changes in the relationship between the U.S.
dollar and foreign currencies. They are used to lock in the U.S. dollar price of
a foreign security. A Forward Contract is a commitment to purchase or sell a
specific currency for an agreed price at a future date. If the Adviser believes
a foreign currency will decline against the U.S. dollar, a Forward Contract may
be used to sell an amount of the foreign currency approximating the value of the
Fund's security that is denominated in the foreign currency. The success of this
hedging strategy is highly uncertain due to the difficulties of predicting the
values of foreign currencies, of precisely matching Forward Contract amounts,
and because the constantly changing value of the securities involved. The Fund
will not enter into Forward Contracts for hedging purposes in a particular
currency in an amount in excess of the Fund's assets denominated in that
currency. Conversely, if the Adviser believes that the U.S. dollar will decline
against a foreign currency, a Forward Contract may be used to buy that foreign
currency for a fixed dollar amount, otherwise known as cross-hedging. In these
transactions, the Fund will segregate assets with a market value equal to the
amount of the foreign currency purchased. Therefore, the Fund will always have
cash, cash equivalents or high quality debt securities available to cover
Forward Contracts or to limit any potential risk. The segregated assets will be
priced daily. Forward Contracts may limit potential gain from a positive change
in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not engaged in such contracts.
PURCHASING AND WRITING PUT AND CALL OPTIONS on foreign currencies are used
to protect the Fund's portfolio against declines in the U.S. dollar value of
foreign portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. Writing an option on foreign currency constitutes
only a partial hedge, up to the amount of the premium received. The Fund could
lose money if it is required to purchase or sell foreign currencies at
disadvantageous exchange rates. If exchange rate movements are adverse to the
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. These options are traded on U.S. and foreign
exchanges or over-the-counter.
EXCHANGE-TRADED FUTURES CONTRACTS are used for the purchase or sale of foreign
currencies (Foreign Currency Futures) AND will be used to hedge against
anticipated changes in exchange rates that might adversely affect the value of
the Fund's portfolio securities or the prices of securities that the Fund
intends to purchase in the future. The successful use of Foreign Currency
Futures depends on the ability to forecast currency exchange rate movements
correctly. Should exchange rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of Foreign Currency Futures or may realize
losses. FUTURES AND OPTIONS TRANSACTIONS. As a means of reducing fluctuations in
its net asset value, the Fund may buy and sell futures contracts and options on
futures contracts, and buy put and call options on portfolio securities and
securities indices to hedge its portfolio. The Fund may also write covered put
and call options on portfolio securities to attempt to increase its current
income or to hedge its portfolio. There is no assurance that a liquid secondary
market will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
FUTURES CONTRACTS. A futures contract is a commitment by two parties under
which one party agrees to make delivery of an asset (seller) and another
party agrees to take delivery of the asset at a certain time in the
future. A futures contract may involve a variety of assets including
commodities (such as oil, wheat, or corn) or a financial asset (such as a
security). The Fund may purchase and sell financial futures contracts to
hedge against anticipated changes in the value of its portfolio without
necessarily buying or selling the securities. Although some financial
futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the
settlement date. The closing of a futures contract is accomplished by
purchasing or selling an identical offsetting futures contract. Other
financial futures contracts call for cash settlements. The Fund may
purchase and sell stock index futures contracts to hedge against
anticipated price changes with respect to any stock index traded on a
recognized stock exchange or board of trade. A stock index futures
contract is an agreement in which two parties agree to take or make
delivery of an amount of cash equal to the difference between the price of
the original contract and the value of the index at the close of the last
trading day of the contract. No physical delivery of the underlying
securities in the index is made. Settlement is made in cash upon
termination of the contract.
<PAGE>
MARGIN IN FUTURES TRANSACTIONS. Since the Fund does not pay or receive
money upon the purchase or sale of a futures contract, it is required to deposit
an amount of initial margin in cash, U.S. government securities or highly-liquid
debt securities as a good faith deposit. The margin is returned to the Fund upon
termination of the contract. Initial margin in futures transactions does not
involve borrowing to finance the transactions. As the value of the underlying
futures contract changes daily, the Fund pays or receives cash, called variation
margin, equal to the daily change in value of the futures contract. This process
is known as marking to market. Variation margin does not represent a borrowing
or loan by the Fund. It may be viewed as settlement between the Fund and the
broker of the amount one would owe the other if the futures contract expired.
When the Fund purchases futures contracts, an amount of cash and/or cash
equivalents, equal to the underlying commodity value of the futures contracts
(less any related margin deposits), will be deposited in a segregated account
with the Fund's custodian to collateralize the position and insure that the use
of futures contracts is unleveraged. The Fund is also required to deposit and
maintain margin when it writes call options on futures contracts. The Fund will
not enter into a futures contract or purchase an option thereon for other than
hedging purposes if immediately thereafter the initial margin deposits for
futures contracts held by it, plus premiums paid by it for open options on
futures contracts, would exceed 5% of the market value of its net assets, after
taking into account the unrealized profits and losses on those contracts it has
entered into. However, in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in computing such 5%.
PUT OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS. The Fund may
purchase listed put options on financial and stock index futures contracts to
protect portfolio securities against decreases in value. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price. Generally, if the hedged portfolio securities decrease in value
during the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the hedge is
successful, the proceeds received by the Fund upon the sale of the second option
will be large enough to offset both the premium paid by the Fund for the
original option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost. The Fund may also write
(sell) listed put options on financial or stock index futures contracts to hedge
its portfolio against a decrease in market interest rates or an increase in
stock prices. The Fund will use these transactions to purchase portfolio
securities in the future at price levels existing at the time it enters into the
transaction. When the Fund sells a put on a futures contract, it receives a cash
premium in exchange for granting to the buyer of the put the right to receive
from the Fund, at the strike price, a short position in such futures contract.
This is so even though the strike price upon exercise of the option is greater
than the value of the futures position received by such holder. As market
interest rates decrease or stock prices increase, the market price of the
underlying futures contract normally increases. When the underlying futures
contract increases, the buyer of the put option has less reason to exercise the
put because the buyer can sell the same futures contract at a higher price in
the market. If the value of the underlying futures position is not such that
exercise of the option would be profitable to the option holder, the option will
generally expire without being exercised. The premium received by the Fund can
then be used to offset the higher prices of portfolio securities to be purchased
in the future. In order to avoid the exercise of an option sold by it, generally
the Fund will cancel its obligation under the option by entering into a closing
purchase transaction, unless it is determined to be in the Fund's interest to
deliver the underlying futures position. A closing purchase transaction consists
of the purchase by the Fund of an option having the same term as the option sold
by the Fund, and has the effect of canceling the Fund's position as a seller.
The premium which the Fund will pay in executing a closing purchase transaction
may be higher than the premium received when the option was sold, depending in
large part upon the relative price of the underlying futures position at the
time of each transaction. If the hedge is successful, the cost of buying the
second option will be less than the premium received by the Fund for the initial
option.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS. The Fund may
write (sell) listed and over-the-counter call options on financial and stock
index futures contracts to hedge its portfolio. When the Fund writes a call
option on a futures contract, it undertakes to sell a futures contract at the
fixed price at any time during the life of the option. As stock prices fall or
market interest rates rise, causing the prices of futures to go down, the Fund's
obligation to sell a futures contract costs less to fulfill, causing the value
of the Fund's call option position to increase. In other words, as the
underlying futures price goes down below the strike price, the buyer of the
option has no reason to exercise the call, so that the Fund keeps the premium
received for the option. This premium can substantially offset the drop in value
of the Fund's portfolio securities. Prior to the expiration of a call written by
the Fund, or exercise of it by the buyer, the Fund may close out the option by
buying an identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the initial
option. The net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities. The Fund may buy a listed call
option on a financial or stock index futures contract to hedge against decreases
in market interest rates or increases in stock price. The Fund will use these
transactions to purchase portfolio securities in the future at price levels
existing at the time it enters into the transaction. When the Fund purchases a
call on a financial futures contract, it receives in exchange for the payment of
a cash premium the right, but not the obligation, to enter into the underlying
futures contract at a strike price determined at the time the call was
purchased, regardless of the comparative market value of such futures position
at the time the option is exercised. The holder of a call option has the right
to receive a long (or buyer's) position in the underlying futures contract. As
market interest rates fall or stock prices increase, the value of the underlying
futures contract will normally increase, resulting in an increase in value of
the Fund's option position. When the market price of the underlying futures
contract increases above the strike price plus premium paid, the Fund could
exercise its option and buy the futures contract below market price. Prior to
the exercise or expiration of the call option, the Fund could sell an identical
call option and close out its position. If the premium received upon selling the
offsetting call is greater than the premium originally paid, the Fund has
completed a successful hedge.
LIMITATION ON OPEN FUTURES POSITIONS. The Fund will not maintain open
positions in futures contracts it has sold or call options it has written on
futures contracts if together the value of the open positions exceeds the
current market value of the Fund's portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions within
this limitation.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may purchase put
options on portfolio securities to protect against price movements in the Fund's
portfolio. A put option gives the Fund, in return for a premium, the right to
sell the underlying security to the writer (seller) at a specified price during
the term of the option. The Fund may purchase call options on securities
acceptable for purchase to protect against price movements by locking in on a
purchase price for the underlying security. A call option gives the Fund, in
return for a premium, the right to buy the underlying security from the seller
at a specified price during the term of the option.
WRITING COVERED CALL AND PUT OPTIONS ON SECURITIES. The Fund may write
covered call and put options to generate income and thereby protect against
price movements in the Fund's portfolio securities. As writer of a call option,
the Fund has the obligation, upon exercise of the option during the option
period, to deliver the underlying security upon payment of the exercise price.
The Fund may only sell call options either on securities held in its portfolio
or on securities which it has the right to obtain without payment of further
consideration (or has segregated cash or U.S. government securities in the
amount of any additional consideration). As a writer of a put option, the Fund
has the obligation to purchase a security from the purchaser of the option upon
the exercise of the option. In the case of put options, the Fund will segregate
cash or U.S. Treasury obligations with a value equal to or greater than the
exercise price of the underlying securities. STOCK INDEX OPTIONS. The Fund may
purchase or sell put or call options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Upon the exercise of the option, the holder of a call option has the
right to receive, and the writer of a put option has the obligation to deliver,
a cash payment equal to the difference between the closing price of the index
and the exercise price of the option. The effectiveness of purchasing stock
index options will depend upon the extent to which price movements in the Fund's
portfolio correlate with price movements of the stock index selected. The value
of an index option depends upon movements in the level of the index rather than
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the Adviser correctly predicting
movements in the directions of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting changes
in the price of individual stocks.
OVER-THE-COUNTER OPTIONS. Over-the-counter options are two-party contracts
with price and terms negotiated between buyer and seller. In contrast,
exchange-traded options are third-party contracts with standardized strike
prices and expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while over-the-counter
options may not. The Fund may generally purchase and write over-the-counter
options on portfolio securities or securities indices in negotiated transactions
with the buyers or writers of the options when options on the Fund's portfolio
securities or securities indices are not traded on an exchange. The Fund
purchases and writes options only with investment dealers and other financial
institutions deemed creditworthy by Adviser. RISKS. When the Fund uses futures
and options on futures as hedging devices, there is a risk that the prices of
the securities or foreign currency subject to the futures contracts may not
correlate perfectly with the prices of the securities or currency in the Fund's
portfolio. This may cause the futures contract and any related options to react
differently to market changes than the portfolio securities or foreign currency.
In addition, the Adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements or foreign
currency exchange rate fluctuations. In these events, the Fund may lose money on
the futures contract or option. When the Fund purchases futures contracts, an
amount of cash and cash equivalents, equal to the underlying commodity value of
the futures contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian or the broker, to collateralize the
position and thereby insure that the use of such futures contract is
unleveraged. When the Fund sells futures contracts, it will either own or have
the right to receive the underlying future or security, or will make deposits to
collateralize the position as discussed above.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities. When the Fund lends portfolio securities, it
will receive either cash or liquid securities as collateral from the borrower.
The Fund will reinvest cash collateral in short-term liquid securities that
qualify as an otherwise acceptable investment for the Fund. If the market value
of the loaned securities increases, the borrower must furnish additional
collateral to the Fund. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities. Loans
are subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to a securities lending agent or broker. When the Fund
lends its portfolio securities, it may not be able to get them back from the
borrower on a timely basis. If this occurs, the Fund may lose certain investment
opportunities. The Fund is also subject to the risks associated with the
investments of cash collateral, usually fixed-income securities risk.
MORTGAGE-BACKED SECURITIES represent interests in pools of mortgages. The
underlying mortgages normally have similar interest rates, maturities and other
terms. Mortgages may have fixed or adjustable interest rates. Interests in pools
of adjustable rate mortgages are known as ARMs. Mortgage-backed securities come
in a variety of forms. Many have extremely complicated terms. The simplest form
of mortgage-backed securities is a "pass-through certificate." Holders of
pass-through certificates receive a pro rata share of the payments from the
underlying mortgages. Holders also receive a pro rata share of any prepayments,
so they assume all the prepayment risk of the underlying mortgages.
Collateralized mortgage obligations (CMOs) are complicated instruments that
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage-backed securities. This creates
different prepayment and market risks for each CMO class. In addition, CMOs may
allocate interest payments to one class (IOs) and principal payments to another
class (POs). POs increase in value when prepayment rates increase. In contrast,
IOs decrease in value when prepayments increase, because the underlying
mortgages generate less interest payments. However, IOs prices tend to increase
when interest rates rise (and prepayments fall), making IOs a useful hedge
against market risk. Generally, homeowners have the option to prepay their
mortgages at any time without penalty. Homeowners frequently refinance high rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage-backed securities, which deprives holders of the securities of the
higher yields. Conversely, when mortgage rates increase, prepayments due to
refinancings decline. This extends the life of mortgage-backed securities with
lower yields. As a result, increases in prepayments of premium mortgage-backed
securities, or decreases in prepayments of discount mortgage-backed securities,
may reduce their yield and price. This relationship between interest rates and
mortgage prepayments makes the price of mortgage-backed securities more volatile
than most other types of fixed income securities with comparable credit risks.
Mortgage-backed securities tend to pay higher yields to compensate for this
volatility. CMOs may include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and any prepayments in excess
of this rate. In addition, PACs will receive the companion classes' share of
principal payments if necessary to cover a shortfall in the prepayment rate.
This helps PACs and TACs to control prepayment risk by increasing the risk to
their companion classes. Another variant allocates interest payments between two
classes of CMOs. One class (Floaters) receives a share of interest payments
based upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages. Floater
classes receive more interest (and Inverse Floater classes receive
correspondingly less interest) as interest rates rise. This shifts prepayment
and market risks from the Floater to the Inverse Floater class, reducing the
price volatility of Floater class and increasing the price volatility of the
Inverse Floater class. CMOs must allocate all payments received from the
underlying mortgages to some class. To capture any unallocated payments, CMOs
generally have an accrual (Z) class. Z classes do not receive any payments from
the underlying mortgages until all other CMO classes have been paid off. Once
this happens, holders of Z class CMOs receive all payments and prepayments.
Similarly, real estate mortgage investment conduits (REMICs) (offerings of
multiple class mortgage backed securities which qualify and elect treatment as
such under provisions of the Internal Revenue Code) have residual interests that
receive any mortgage payments not allocated to another REMIC class. The degree
of increased or decreased prepayment risk depends upon the structure of the
CMOs. Z classes, IOs, POs, and Inverse Floaters are among the most volatile
investment grade fixed income securities currently traded in the United States.
However, the actual returns on any type of mortgage backed security depends upon
the performance of the underlying pool of mortgages, which no one can predict
and will vary among pools.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. A repurchase
agreement is a transaction in which the Fund buys a security from a dealer or
bank and agrees to sell the security back at a mutually agreed upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed upon interest rate is unrelated to the interest rate on
that security. The Adviser will continually monitor the value of the underlying
security to ensure that the value of the security always equals or exceeds the
repurchase price. The Fund's custodian is required to take possession of the
securities subject to repurchase agreements. These securities are marked to
market daily. To the extent that the original seller defaults and does not
repurchase the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller files for bankruptcy or becomes insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund believes
that, under the procedures normally in effect for custody of the portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which are
deemed by the Adviser to be creditworthy. Reverse repurchase agreement
transactions are similar to borrowing cash. In a reverse repurchase agreement,
the Fund sells a portfolio security to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio at a price equal to the original sale price
plus interest. The Fund may use reverse repurchase agreements for liquidity and
may enable the Fund to avoid selling portfolio instruments at a time when a sale
may be deemed to be disadvantageous. When effecting reverse repurchase
agreements, liquid assets of the Fund, in a dollar amount sufficient to make
payment for the obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and maintained until the transaction
is settled.
SWAP TRANSACTIONS. In a standard swap transaction, two parties agree to
exchange (SWAP) the returns (or differentials in rates of return) on particular
securities, which may be adjusted for an interest factor. The returns to be
swapped are generally calculated with respect to a return on a notional dollar
amount invested at a particular interest rate, or in a basket of securities
representing a particular index. For example, a $10 million LIBOR swap would
require one party to pay the equivalent of the London Interbank Offer Rate on
$10 million principal amount in exchange for the right to receive the equivalent
of a fixed rate of interest on $10 million principal amount. Neither party to
the swap would actually advance $10 million to the other. The Fund will usually
enter into swaps on a net basis (i.e., the two payment streams are netted out),
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis, and the Fund will segregate liquid assets in an
aggregate net asset value at least equal to the accrued excess, if any, on each
business day. If the Fund enters into a swap on other than a net basis, the Fund
will segregate liquid assets in the full amount accrued on a daily basis of the
Fund's obligations with respect to the swap. If there is a default by the other
party to such a transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transaction. The Fund expects to enter into swap
transactions primarily to hedge against changes in the price of other portfolio
securities. For example, the Fund may hedge against changes in the market value
of a fixed rate security by entering into a swap that requires the Fund to pay
the same or a lower fixed rate of interest on a notional principal amount equal
to the principal amount of the security in exchange for a variable rate of
interest based on a market index. Interest accrued on the hedged note would then
equal or exceed the Fund's obligations under the swap, while changes in the
market value of the swap would largely offset any changes in the market value of
the note. The Fund may also enter into swaps to preserve or enhance a return or
spread on a portfolio security. The Fund does not intend to use these
transactions in a speculative manner. The swap market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and agents utilizing standardized swap documentation. The
Adviser has determined that, as a result, the swap market has become relatively
liquid. Interest rate caps and floors are more recent innovations for which
standardized documentation has not yet been developed and, accordingly, they are
less liquid than other swaps. To the extent swaps, caps or floors are determined
by the Adviser to be illiquid, they will be included in the Fund's limitation on
investments in illiquid securities. To the extent the Fund sells caps and
floors, it will maintain in a segregated account liquid securities having an
aggregate net asset value at least equal to the full amount, accrued on a daily
basis, of the Fund's obligations with respect to caps and floors. The use of
swaps is a highly specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of market values,
interest rates and other applicable factors, the investment performance of the
Fund would diminish compared with what it would have been if these investment
techniques were not utilized. Moreover, even if the Adviser is correct in its
forecasts, there is a risk that the swap position may correlate imperfectly with
the price of the portfolio security being hedged. Swap transactions do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to a default on an interest rate swap
is limited to the net asset value of the swap together with the net amount of
interest payments owed to the Fund by the defaulting party. A default on a
portfolio security hedged by an interest rate swap would also expose the Fund to
the risk of having to cover its net obligations under the swap with income from
other portfolio securities.
TEMPORARY INVESTMENTS. There may be times when market conditions warrant a
defensive position. During these market conditions the Fund may temporarily
invest without limit in short-term debt obligations (money market instruments).
These investments include commercial paper, bank instruments, U.S. government
obligations, repurchase agreements, securities of other investment companies,
and foreign securities. The Fund's temporary investments must be of comparable
quality to its primary investments.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. These transactions are made
to secure what is considered to be an advantageous price or yield. Settlement
dates may be a month or more after entering into these transactions, and the
market values of the securities purchased may vary from the purchase prices.
Other than normal transaction costs, no fees or expenses are incurred. However,
liquid assets of the Fund are segregated on the Fund's records at the trade date
in an amount sufficient to make payment for the securities to be purchased.
These assets are marked to market daily and are maintained until the transaction
has been settled.
<PAGE>
INVESTMENT LIMITATIONS
FUNDAMENTAL LIMITATIONS
The following investment limitations are fundamental and cannot be changed
unless authorized by the "majority of its outstanding voting securities" of the
Fund, as defined by the Investment Company Act. SELLING SHORT AND BUYING ON
MARGIN The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. A deposit or payment by the Fund
of initial or variation margin in connection with futures contracts, forward
contracts or related options
transactions is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money,
directly or through reverse repurchase agreements, in amounts up to one-third of
the value of its total assets including the amounts borrowed; and except to the
extent that the Fund is permitted to enter into futures contracts, options or
forward contracts.
PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those cases, the Fund may
pledge assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of its total assets at the time of the
pledge. For purposes of this limitation, the following are not deemed to be
pledges: margin deposits for the purchase and sale of futures contracts and
related options; and segregation of collateral arrangements made in connection
with options activities, forward contracts or the purchase of securities on a
when-issued basis.
LENDING CASH OR SECURITIES The Fund will not lend any of its assets except
portfolio securities. This shall not prevent the Fund from purchasing or holding
U.S. government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment goal, policies, and
limitations.
INVESTING IN COMMODITIES The Fund will not purchase or sell commodities,
commodity contracts, or commodity futures contracts. However, the Fund may
purchase and sell futures contracts and related options, and may also enter into
forward contracts and related options.
INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate,
including limited partnership interests, although the Fund may invest in the
securities of companies whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or which represent
interests in real estate.
DIVERSIFICATION OF INVESTMENTS With respect to securities comprising 75% of
the value of its total assets, the Fund will not purchase securities issued by
any one issuer (other than cash, cash items or securities issued or guaranteed
by the government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result more
than 5% of the value of its total assets would be invested in the securities of
that issuer or if it would own more than 10% of the outstanding voting
securities of such issuer.
CONCENTRATION OF INVESTMENTS The Fund will not invest 25% or more of its
total assets in any one industry. However, investing in U.S. government
securities shall not be considered investments in any one industry.
UNDERWRITING The Fund will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may purchase
pursuant to its investment goal, policies and limitations.
NON-FUNDAMENTAL LIMITATIONS The following investment limitations are
non-fundamental and, therefore, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID AND RESTRICTED SECURITIES The Fund will not invest
more than 15% of the value of its net assets in illiquid securities, including
repurchase agreements providing for settlement in more than seven days after
notice, non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, guaranteed investment contracts, and certain
restricted securities not determined by the Directors to be liquid (including
certain municipal leases).
PURCHASING SECURITIES TO EXERCISE CONTROL The Fund will not purchase
securities of a company for the purpose of exercising control or management.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit
its investment in other investment companies to no more than 3% of the total
outstanding voting stock of any investment company, will invest no more than 5%
of total assets in any one investment company, and will invest no more than 10%
of its total assets in investment companies in general, unless permitted to
exceed these limits by an exemptive order of the SEC. The Fund will purchase
securities of closed-end investment companies only in open market transactions
involving only customary broker's commissions. However, these limitations are
not applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets.
INVESTING IN OPTIONS Except for bona fide hedging purposes, the Fund may
not invest more than 5% of the value of its net assets in the sum of (a)
premiums on open option positions on futures contracts, plus (b) initial margin
deposits on futures contracts. The Fund will not purchase put options or write
call options on securities unless the securities are held in the Fund's
portfolio or unless the Fund is entitled to them in deliverable form without
further payment or has segregated cash in the amount of any further payment. The
Fund will not write call options in excess of 25% of the value of its total
assets. Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction. For purposes of its policies and limitations, the Fund
considers instruments (such as certificates of deposit and demand and time
deposits) issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be cash items.
DETERMINING MARKET VALUE OF SECURITIES
MARKET VALUES
Market values of portfolio securities are determined as follows:
for equity securities, at the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
in the absence of recorded sales for equity securities, at the mean between
the last closing bid and asked prices;
for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
for short-term obligations, at the mean between bid and asked prices as
furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued at the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its net asset value,
the Fund values foreign securities at the latest closing price on the principal
exchange on which they are traded immediately prior to the closing of the NYSE.
Certain foreign currency exchange rates may also be determined at the latest
rate prior to the closing of the NYSE. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at current rates. Occasionally,
events that affect these values and exchange rates may occur between the times
at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Directors,
although the actual calculation may be done by others. WHAT DO SHARES COST?
Except under certain circumstances described in the prospectus, shares are sold
at their net asset value on days the New York Stock Exchange is open for
business. The procedure for purchasing shares is explained in the prospectus
under "How to Buy Shares" and "What Do Shares Cost." HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers shares on a continuous, best-efforts basis.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
or Adviser (but not out of Fund assets). The Distributor may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related
services such as sponsoring sales, providing sales literature, conducting
training seminars for employees, and engineering sales-related computer software
programs and systems. Also, Authorized Dealers or financial institutions may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of shares the Authorized Dealer or
financial institution sells or may sell and/or upon the type and nature of sales
or marketing support furnished by the Authorized Dealer or financial
institution.
HOW TO BUY SHARES
EXCHANGING SECURITIES FOR SHARES
You may contact the Distributor to request a purchase of shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes. REDEMPTION IN
KIND Although the Fund intends to pay share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities. Because the Corporation has
elected to be governed by Rule 18f-1 under the Investment Company Act or 1940,
the Fund is obligated to pay share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the Fund's net assets represented by
such share class during any 90-day period. Any share redemption payment greater
than this amount will also be in cash unless the Fund's Directors determine that
payment should be in kind. In such a case, the Fund will pay all or a portion of
the remainder of the redemption in portfolio securities, valued in the same way
as the Fund determines its net asset value. The portfolio securities will be
selected in a manner that the Fund's Directors deem fair and equitable and, to
the extent available, such securities will be readily marketable. Redemption in
kind is not as liquid as a cash redemption. If redemption is made in kind,
shareholders would incur transaction costs in selling the portfolio securities
received, and the proceeds of such sales, when made, may be more or less than
the value on the redemption date.
<PAGE>
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Shareholders of the Fund are entitled: (i) to one vote per full share of Common
Stock; (ii) to distributions declared by Directors; and (iii) upon liquidation
of the Corporation, to participate ratably in the assets of the Fund available
for distribution. Each share of the Fund gives the shareholder one vote in the
election of Directors and other matters submitted to shareholders for vote. All
shares of each portfolio or class in the Corporation have equal voting rights,
except that only shares of a particular portfolio or class are entitled to vote
on matters affecting that portfolio or class. Consequently, the holders of more
than 50% of the Corporation's shares of common stock voting for the election of
Directors can elect the entire Board of Directors, and, in such event, the
holders of the Corporation's remaining shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors. The Wisconsin Business Corporation Law (the WBCL) permits registered
investment companies, such as the Corporation, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the Act. The Corporation has adopted the appropriate provisions
in its By-laws and does not anticipate holding an annual meeting of shareholders
to elect Directors unless otherwise required by the Act. Directors may be
removed by the shareholders at a special meeting. A special meeting of the
shareholders may be called by the Directors upon written request of shareholders
owning at least 10% of the Corporation's outstanding voting shares. The shares
are redeemable and are transferable. All shares issued and sold by the
Corporation will be fully paid and nonassessable except as provided in WBCL
Section 180.0622(2)(b). Fractional shares of common stock entitle the holder to
the same rights as whole shares of common stock except the right to receive a
certificate evidencing such fractional shares. As of July 1, 1999, the following
shareholders owned of record 5% or more of the Fund's outstanding Class Y
Shares: Vallee, Marshall & Ilsley Trust Operations, Milwaukee, WI, owned
approximately 7,144,330 shares (35.80%); Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, WI, owned approximately 9,213,386 shares (31.88%); and
Enele Co., FBO: TTF International, Portland, OR, owned approximately 1,052,682
shares (5.27%). As of July 1, 1999, the following shareholder owned of record 5%
or more of the Fund's outstanding Class A Shares: Robert Sawyers & Marjorie
Sawyers, Appleton, WI, owned approximately 3,111 shares (26.83%). WHAT ARE THE
TAX CONSEQUENCES?
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code (Code) applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. If these requirements are not met, it will not receive
special tax treatment and will pay federal income tax. The Fund will be treated
as a single, separate entity for federal income tax purposes so that income
earned and capital gains and losses realized by the Corporation's other
portfolios will be separate from those realized by the Fund. The Fund is
entitled to a loss carry-forward, which may reduce the taxable income or gain
that the Fund would realize, and to which the shareholder would be subject, in
the future. The dividends received deduction for corporations will apply to
ordinary income distributions to the extent the distribution represents amounts
that would qualify for the dividends received deduction to the Fund if the Fund
were a regular corporation, and to the extent designated by the Fund as so
qualifying. Otherwise, these dividends and any short-term capital gains are
taxable as ordinary income. No portion of any income dividends paid by the Fund
is eligible for the dividends received deduction available to corporations.
These dividends, and any short-term capital gains, are taxable as ordinary
income. FOREIGN INVESTMENTS Investment income on certain foreign securities
purchased by the Fund may be subject to foreign withholding or other taxes that
could reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount of
foreign taxes to which the Funds would be subject. The effective rate of foreign
tax cannot be predicted since the amount of the Fund's assets to be invested
within various countries is uncertain. However, the Fund intends to operate so
as to qualify for treaty-reduced tax rates when applicable.
Distributions from the Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
The Fund may invest in the stock of certain foreign corporations which would
constitute a Passive Foreign Investment Company (PFIC). The Fund may be subject
to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's' assets at the end of the tax year
is represented by stock or securities of foreign corporations, the Fund intends
to qualify for certain Code stipulations that would allow shareholders to claim
a foreign tax credit or deduction on their U.S. income tax returns. Shareholders
must hold Fund shares for a specified period of time to claim a foreign tax
credit. The Code may limit a shareholder's ability to claim a foreign tax
credit. Shareholders who elect to deduct their portion of the Fund's foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and you should consult your
tax adviser for specific details regarding the status of your account under
state and local tax laws, including treatment of distributions as income or
return of capital. CAPITAL GAINS Capital gains, when experienced by the Fund,
could result in an increase in dividends. Capital losses could result in a
decrease in dividends. When the Fund realizes net long-term capital gains, it
will distribute them at least once every 12 months. WHO MANAGES THE FUND?
OFFICERS AND DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
the following data: name, address, birthdate, present position(s) held with the
Corporation, principal occupations for the past five years, and total
compensation received as a Director from the Corporation for its most recent
fiscal year ended August 31, 1998. The Corporation is comprised of eleven funds
and is the only investment company in the Fund Complex. As of July 1, 1999, the
Fund's Board and Officers as a group owned less than 1% of the Fund's
outstanding shares.
A plus sign (+) denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
<PAGE>
<TABLE>
<CAPTION>
NAME AGGREGATE
BIRTHDATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM
POSITION WITH CORPORATION FOR PAST 5 YEARS CORPORATION
<S> <C> <C>
JOHN DEVINCENTIS Independent Financial Consultant; Retired, $11,000
Age: 65 formerly, Senior Vice President of Finance,
4700 21st Street In-Sink-Erator Division of Emerson Electric.
Racine, WI
DIRECTOR
JAMES MITCHELL** Group Vice President, Citation Corporation; $0
Age: 52 formerly President and Chief Executive
4051 North 27th Street Officer, Interstate Forging Industries;
Milwaukee, WI formerly Chairman, Ayrshire Precision
DIRECTOR Engineering.
DUANE E. DINGMANN** Retired; formerly President and owner, $0
Age: 68 Trubilt Auto Body, Inc. and Telephone
1631 Harding Avenue Specialists, Inc.; formerly Class B
Eau Claire, WI (nonbanking) Director, Ninth Federal
DIRECTOR Reserve District, Minneapolis, MN.
BARBARA J. POPE** President, Barbara J. Pope, P.C., a $0
Age: 51 financial consulting firm; President;
115 South LaSalle Street Sedgwick Street Partners LLC; general
Suite 2285 partner of a private investment partnership.
Chicago, IL
DIRECTOR
JOHN M. BLASER** + Vice President, Marshall & Ilsley Trust $0
Age: 42 Company; formerly, Partner and Chief
1000 North Water Street Financial Officer, Artisan Partners Limited
Milwaukee, WI Partnership; formerly, Chief Financial
PRESIDENT AND DIRECTOR Officer and Principal Administrative and
Finance Officer, Artisan Funds, Inc.;
formerly, Senior Vice President, Kemper
Securities.
DAVID W. SHULZ** + President and Director, M&I Investment $0
Age: 41 Management Corp.; Vice President, Marshall
1000 North Water Street & Ilsley Trust Company.
Milwaukee, WI
DIRECTOR
JO A. DALES Vice President, Marshall & IIsley Trust $0
Age: 38 Company. Formerly, Senior Audit Manager of
1000 North Water Street Marshall & IIsley Corporation and
Milwaukee, WI Operations Specialist for Firstar Trust
VICE PRESIDENT Company.
ANN K. PEIRICK Assistant Vice President, Marshall & IIsley $0
Age: 45 Trust Company. Formerly, Senior Financial
1000 North Water Street Analyst-Community Bank Finance and Manager
Milwaukee, WI of Corporate Financial Analysis, Bank One,
TREASURER Wisconsin.
BROOKE J. BILLICK Vice President and Securities Counsel, $0
Age: 45 Marshall & IIsley Trust Company, M&I
1000 North Water Street Investment Management Corp.; formerly,
Milwaukee, WI shareholder Gibbs, Roper, Loots & Williams
SECRETARY SC.
</TABLE>
** Elected as a director on May 24, 1999.
ADVISER TO THE FUND
The Adviser conducts investment research and makes investment decisions for the
Fund. The Fund's investment adviser is M&I Investment Management Corp.
(Adviser), a wholly owned subsidiary of Marshall & Ilsley Corp. The Adviser
shall not be liable to the Corporation, the Fund or any shareholder of the Fund
for any losses that may be sustained in the purchase, holding, or sale of any
security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
Because of the internal controls maintained by the Adviser's affiliates to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of the Adviser or its affiliates' lending relationships
with an issuer. SUB-ADVISER TO THE FUND BPI Global Asset Management LLP (BPI) is
the Sub-adviser to the Fund. It is the Adviser's responsibility to select a
Sub-adviser for the Fund that has distinguished itself in its area of expertise
in asset management and to review the Sub-adviser's performance. The Adviser
provides investment management evaluation services by performing initial due
diligence on BPI and thereafter monitoring BPI's performance through
quantitative and qualitative analysis, as well as periodic in-person, telephonic
and written consultations with BPI. In evaluating BPI, the Adviser considers,
among other factors, BPI's level of expertise; relative performance and
consistency of performance over a minimum period of time; level of adherence to
investment discipline or philosophy; personnel, facilities and financial
strength; and quality of service and client communications. The Adviser has
responsibility for communicating performance expectations and evaluations to BPI
and ultimately recommending to the Corporation's Directors whether BPI's
contract should be renewed, modified or terminated. The Adviser provides written
reports to the Directors regarding the results of its evaluation and monitoring
functions. The Adviser is also responsible for conducting all operations of the
Fund, except those operations contracted to BPI, the custodian, the transfer
agent, and the administrator. Although BPI's activities are subject to oversight
by the Directors and officers of the Corporation, neither the Directors, the
officers, nor the Adviser evaluates the investment merits of BPI's individual
security selections. BPI has complete discretion to purchase, manage and sell
portfolio securities for the Fund, subject to the Fund's investment goal,
policies and limitations. For its services under the Sub-advisory Agreement, the
Sub-adviser receives a fee at the annual rate of 0.40% of the Fund's average
daily net assets. The Sub-Adviser is paid by the Adviser and not by the Fund.
However, BPI will furnish to the Adviser such investment advice, statistical and
other factual information as requested by the Adviser. BPI, headquartered in
Orlando, Florida, provides portfolio management services for investment
companies, corporations, trusts, estates, pension and profit sharing plans,
individuals, and other institutions located in both Canada and the United
States, and is an investment adviser registered with the U.S. Securities and
Exchange Commission. BPI was formed in March 1997 as a Delaware limited
liability partnership between BPI Global Holdings USA, Inc. (BPI Holdings USA)
as a 51% partner, and JBS Advisors, Inc. (JBS) as a 49% partner. BPI Holdings
USA is a wholly-owned subsidiary of BPI Global Holdings, Inc., which is a
wholly-owned subsidiary of BPI Financial Corporation, located at Toronto,
Ontario (Canada). JBS is owned by BPI's portfolio managers and its President.
For the fiscal years ended August 31, 1998, 1997, and 1996, the Adviser paid
Templeton Investment Counsel, Inc. (the Fund's former Sub-adviser) $1,072,613,
$816,182, and $544,167, respectively.
BANKING LAWS Banking laws and regulations presently prohibit a bank holding
company registered under the federal Bank Holding Company Act of 1956 or any
bank or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end management investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company, affiliate, or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer. M&I Corp. is subject to such banking laws
and regulations. M&I Corp. believes, based on the advice of its counsel, that
M&I Investment Management Corp. may perform the services contemplated by the
investment advisory agreement with the Corporation without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such present or
future statutes and regulations, could prevent M&I Investment Management Corp.
or M&I Corp. from continuing to perform all or a part of the services described
in the prospectus for its customers and/or the Fund. If M&I Investment
Management Corp. and M&I Corp. were prohibited from engaging in these
activities, the Directors would consider alternative advisers and means of
continuing available investment services. In such event, changes in the
operation of the Fund may occur, including possible termination of any automatic
or other Fund share investment and redemption services then being provided by
M&I Investment Management Corp. and M&I Brokerage Services or MFIS. It is not
expected that existing shareholders would suffer any adverse financial
consequences if another adviser with equivalent abilities to M&I Investment
Management Corp. is found as a result of any of these occurrences.
BROKERAGE TRANSACTIONS The Adviser and/or BPI may select
brokers and dealers who offer brokerage and research services. These services
may be furnished directly to the Fund, the Adviser, or BPI and may include:
advice as to the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. The Adviser, BPI, and their affiliates
exercise reasonable business judgment in selecting brokers who offer brokerage
and research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. Research services
provided by brokers and dealers may be used by the Adviser and BPI in advising
the Funds and other accounts. To the extent that receipt of these services may
supplant services for which the Adviser, BPI, or their affiliates might
otherwise have paid, it would tend to reduce their expenses. Aggregate total
commissions with brokers that provided research were $963,061 on transactions
with an aggregate principal value of $735,067,013 during the fiscal year ended
August 31, 1998.
ADMINISTRATOR Federated Administrative Services, a subsidiary of Federated
Investors, Inc., provides administrative personnel and services to the Fund for
a fee at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE CORPORATION
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to reimburse
a portion of its fee at any time.
The functions performed by FAS as administrator include, but are not limited to
the following:
o preparation, filing and maintenance of the Corporation's governing
documents, minutes of Directors' meetings and shareholder meetings;
o preparation and filing with the SEC and state regulatory authorities the
Corporation's registration statement and all amendments, and any other
documents required for the Funds to make a continuous offering of their
shares;
o preparation, negotiation and administration of contracts on behalf of the
Fund;
o supervision of the preparation of financial reports;
o preparation and filing of federal and state tax returns;
o assistance with the design, development and operation of the Fund; and
providing advice to the Fund's and Corporation's Directors.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, through its registered
transfer agent, Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type and number of accounts and transactions made by shareholders.
The fee is based on the level of the Fund's average net assets for the period
plus out-of-pocket expenses. The transfer agent may employ third parties,
including Marshall & Ilsley Trust Company, to provide sub-accounting and
sub-transfer agency services. In exchange for these services, the transfer agent
may pay such third-party providers a per account fee and out-of-pocket expenses.
CUSTODIAN Marshall & Ilsley Trust Company (M&I Trust Company), Milwaukee,
Wisconsin, a subsidiary of Marshall & Ilsley Corp., is custodian for the
securities and cash of the Fund. For its services as custodian, M&I Trust
Company receives an annual fee, payable monthly, based on a percentage of the
Fund's average aggregate daily net assets. SUB-CUSTODIAN State Street Bank and
Trust Company, Boston, Massachusetts, the Fund's sub-custodian, has entered into
agreements with foreign sub-custodians approved by the Directors pursuant to
Rule 17f-5 under the Act. The foreign sub-custodians may not hold certificates
for the securities in their custody, but instead have book records with domestic
and foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities. Compensation for the services
of the foreign sub-custodians is based on a schedule of charges agreed on from
time to time.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, Boston, Massachusetts is the independent public accountant
for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------- -------------------------- --------------------------
ADVISORY FEE PAID/ BROKERAGE COMMISSIONS ADMINISTRATIVE FEE PAID
ADVISORY FEE WAIVED PAID
-------------------------- --------------------------
- ---------------------------------- -------------------------- --------------------------
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR FOR THE FISCAL YEAR ENDED
AUGUST 31 ENDED AUGUST 31
AUGUST 31
- ---------------------------------- -------------------------- --------------------------
- ----------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------
$2,504,141 $1,857,261 $1,179,310 $265,289 $340,030 $115,382 $211,050 $161,481 $108,298
$0 $0 $0
- ----------------------------------------------------------------------------------------
</TABLE>
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise the Fund's share performance by using the Securities and
Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.
Unless otherwise stated, any quoted share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per share fluctuate daily. Both net earnings and offering price
per share are factors in the computation of yield and total return.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions. The average annual total return for Fund shares is
the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares owned at
the end of the period by the net asset value per share at the end of the period.
The number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of any
dividends and distributions.
YIELD
The yield for the Fund's Class I Shares is calculated by dividing: (i) the net
investment income per share earned by the Fund's shares over a thirty-day
period; by (ii) the maximum offering price per share of the Fund on the last day
of the period. This number is then annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in the Fund's shares, the Fund's shares performance is lower for
shareholders paying those fees. PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of the Fund's shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST
INDEX (EAFE) is a market capitalization weighted foreign securities
index, which is widely used to measure the performance of European,
Australian and New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the
above regions. The index values its securities daily in both U.S.
dollars and local currency and calculates total returns monthly. EAFE
U.S. dollar total return is a net dividend figure less Luxembourg
withholding tax. The EAFE is monitored by Capital International, S.A.,
Geneva, Switzerland.
LIPPER, INC. ranks funds in various fund categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period
of time. From time to time, the Fund will quote its Lipper ranking in
advertising and sales literature.
CONSUMER PRICE INDEX is generally considered to be a measure of
inflation.
DOW JONES INDUSTRIAL AVERAGE (DJIA) is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, financial,
and public utility companies. The Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated in the Standard & Poor's figures.
MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 Nasdaq-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.
FIDUCIARY CONSULTING GRID UNIVERSE, for example, is composed of over
1,000 funds, representing 350 different investment managers, divided
into subcategories based on asset mix. The funds are ranked quarterly
based on performance and risk characteristics.
SEI DATA BASE for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on
investor groups and asset mix. The funds are ranked every three, six,
and twelve months.
MERCER MEIDINGER, INC. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one, three, and five year
basis.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about mutual fund
industry, including the growth of the industry, from sources such as the
Investment Company Institute (ICI). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 mutual funds available.
FINANCIAL STATEMENTS
The Fund's financial statements for the fiscal year ended August 31, 1998, are
incorporated herein by reference from the Fund's Annual Report dated August 31,
1998 (for the fiscal year ended August 31, 1998) and Semi-Annual Report dated
February 28, 1999 (for the semi-annual period ended February 28, 1999). (File
Nos. 33-48907 and 811-58433). A copy of the Annual Report and the Semi-Annual
Report for the Fund may be obtained without charge by contacting Marshall Funds
Investor Services at the address located on the back cover of the SAI or by
calling Marshall Funds Investor Services at 1-414-287-8555 or 1-800-FUND (3863).
<PAGE>
APPENDIX
STANDARD AND POOR'S BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS AAA--Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as gilt edge. Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well. NR--Not rated by Moody's.
FITCH IBCA, INC. LONG-TERM DEBT RATINGS AAA--Bonds considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. NR--NR indicates that Fitch does not rate the specific
issue.
<PAGE>
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2--Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
MOODY'S INVESTORS SERVICES, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
P-2--Issuers rated
PRIME-2 (for related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FITCH IBCA, INC. SHORT-TERM RATINGS F-1+--(Exceptionally Strong Credit
Quality). Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1--(Very Strong Credit Quality).
Issues assigned to this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. F-2--(Good Credit Quality).
Issues carrying this rating have a satisfactory degree of assurance for timely
payment but the margin of safety is not as great as the F-1+ and F-1 categories.
STANDARD AND POOR'S MUNICIPAL BOND RATINGS AAA -- Debt rated AAA has the
highest rating assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
NR -- NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Plus (+) or
minus (-): The ratings AA and A may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS AAA -- Bonds which
are rated Aaa are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as gilt edge. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
BAA- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR -- Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3
in the generic rating classification of Aa and A in its corporate or municipal
bond rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD AND POOR'S MUNICIPAL NOTE RATINGS SP-1 -- Very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+) designation. SP-2
- -- Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS MIG1/VMIG1 -- This
designation denotes best quality. There is a present strong protection by
established cash flows, superior liquidity support or demonstrated broad based
access to the market for refinancing. MIG2/VMIG2 -- This designation denotes
high quality. Margins of protection are ample although not so large as in the
preceding group.
<PAGE>
<TABLE>
<CAPTION>
ADDRESSES
<S> <C> <C>
MARSHALL INTERNATIONAL STOCK FUND 770 North Water Street
Milwaukee, Wisconsin 53202
DISTRIBUTOR
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
ADVISER
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202
SUBADVISER
BPI Global Asset Management LLP 1900 Summit Tower Boulevard
Suite 450
Orlando, Florida 32810
CUSTODIAN
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202
SUB-CUSTODIAN
State Street Bank and Trust Company P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND PORTFOLIO ACCOUNTING SERVICES
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
LEGAL COUNSEL Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, IL 60602-4207
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP 225 Franklin Street
Boston, MA 02110-2812
Marshall Funds Investor Services
1000 North Water Street
P.O. Box 1348
Milwaukee, Wisconsin 53201-1348
</TABLE>
414-287-8555 or 800-236-FUND (3863)
TDD: Speech and Hearing Impaired Services 1-800-236-209-3520
Internet address: http://www.marshallfunds.com
PART C. OTHER INFORMATION.
Item 23. EXHIBITS:
(a) Conformed copy of Articles of Incorporation of the Registrant (8.);
(i) Conformed copy of Amendment No. 1 to the Articles of
Incorporation (8.);
(ii) Conformed copy of Amendment No. 2 to the Articles of
Incorporation (8.);
(iii)Conformed copy of Amendment No. 3 to the Articles of
Incorporation (8.);
(iv) Conformed copy of Amendment No. 4 to the Articles of
Incorporation (6.);
(v) Conformed copy of Amendment No. 5 to the Articles of
Incorporation (8.);
(vi) Conformed copy of Amendment No. 6 to the Articles of
Incorporation (12.);
(vii)Conformed copy of Amendment No. 7 to the Articles of
Incorporation (14.);
(viii) Conformed copy of Amendment No. 8 to the Articles of
Incorporation (18.);
(ix) Form of Amendment No. 9 to the Articles of Incorporation (18.);
(b) Copy of By-Laws of the Registrant (8.);
(c) Copy of Specimen Certificates for Shares of Capital
Stock of the Marshall Mid-Cap Growth Fund, Marshall
Large-Cap Growth & Income Fund, Marshall Mid-Cap
Value Fund, and Marshall Small-Cap Growth Fund
(16.);
- ------------------------
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-48907
and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-48907
and 811-7047).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed October 21, 1994. (File Nos. 33- 48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33- 48907
and
811-7047).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed October 21, 1998. (File Nos. 33-48907
and 811-7047).
<PAGE>
(d) Conformed copy of Investment Advisory Contract of
the Registrant (4.); (i) Conformed copy of
Exhibit G of the Investment Advisory Contract
(5.);
(ii) Conformed copy of Exhibit H of the Investment
Advisory Contract (5.); (iii) Conformed copy of
Exhibit I of the Investment Advisory Contract (5.);
(iv) Conformed copy of Exhibit J of the Investment
Advisory Contract (5.); (v) Conformed copy of
Exhibit K of the Investment Advisory Contract
(7.);
(vi) Conformed copy of Exhibit L of the Investment
Advisory Contract (7.); (vii) Conformed copy of
Exhibit M of the Investment Advisory Contract;
(12.); (viii) Conformed copy of Federated
Management Sub-Advisory Agreement with the
Registrant (7.);
(ix) Conformed copy of Templeton Investment
Counsel, Inc., Sub-Advisory Agreement with the M
& I Investment Management, Inc.(9.); (x)
Conformed copy of Exhibit N to the Investment
Advisory Contract (14);
(xi) Conformed copy of Subadvisory Contract
between M&I Investment Management Corp. and BPI Global
Asset Management LLP dated March 29, 1999 + (e) (i)
Conformed copy of Distributor's Contract of the
Registrant, including conformed copies of Exhibits A
through J; (12.);
- ------------------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907 and
811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33-48907
and 811-7047).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (File Nos. 33-48907
and 811-7047).
<PAGE>
(ii) Conformed copy of Exhibit K of the Distributor's Contract (15.);
(iii) Form of Exhibit L of the Distributor's Contract (18.);
(f) Not applicable;
(g) (i) Conformed copy of Custodian Contract of the Registrant (7.);
(ii) Copy of Amendment No. 1 to Schedule A of the Sub-Custodian Agreement (16.);
(iii)Copy of Amendment No. 2 to Schedule A of the Sub-Custodian Agreement
(16.);
(iv) Copy of Amendment No. 3 to Schedule A of the Sub-Custodian Agreement (17.);
(v) Conformed copy of Sub-Transfer Agency and Services Agreement (10.);
(h) (i) Conformed copy of Fund Accounting and Shareholder Recordkeeping
Agreement of the Registrant (11.);
(ii) Conformed copy of Amendment No. 1 to Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement (15.);
(iii)Conformed copy of Amendment No. 2 to Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement (16.);
(iv) Conformed copy of Amendment No. 1 to Schedule C of Fund Accounting and
Shareholder Recordkeeping Agreement (15.);
(v) Conformed copy of Annex 1 to Amendment No. 2 to Schedule C of Fund
Accounting and Shareholder Recordkeeping Agreement (16.);
- ------------------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907 and
811-7047).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed October 24, 1997. (File Nos. 33-48907
and 811-7047).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed October 21, 1998. (File Nos. 33-48907
and 811-7047).
(vi) Conformed copy of Administrative Services Agreement (7.);
(vii)Conformed copy of Amendment No. 1 to Administrative Services Agreement
(15.);
(viii) Conformed copy of Amendment No. 2 to Administrative Services Agreement
(16.);
(ix) Conformed copy of Shareholder Services Agreement of the Registrant on
behalf of Marshall Equity Income Fund, Marshall Government Income Fund,
Marshall Intermediate Bond Fund, Marshall Intermediate Tax-Free Fund,
Marshall International Stock Fund, Marshall Mid-Cap Stock Fund, Marshall
Money Market Fund, Marshall Short-Term Income Fund, Marshall Short-Term
Tax-Free Fund, Marshall Stock Fund, and Marshall Value Equity Fund (4.);
(x) Conformed copy of Amendment No. 1 to Schedule A of the Shareholder Services
Agreement (6.);
(xi) Conformed copy of Amendment No. 2 to Schedule A of the Shareholder Services
Agreement (7.);
(xii)Conformed copy of Amendment No. 3 to Schedule A of the Shareholder
Services Agreement (12.);
(xiii) Copy of Amendment No. 1 to Schedule B of the Shareholder Services
Agreement (11.);
(xiv)Conformed copy of Marshall Funds, Inc. Multiple Class Plan (Marshall Money
Market Fund Class A Shares and Class B Shares) (11.);
- -------------------
+ All Exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos.33- 48907
and 811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33- 48907
and 811-7047.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33- 48907
and 811-7047).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 9, 1996. (File Nos. 33- 48907 and
811-7047).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed December 28, 1998. (File Nos. 33-48907
and 811-7047).
(xiv)Conformed copy of new Shareholder Services Agreement between the Registrant
and Marshall & Ilsley Trust Company on behalf of Marshall Equity Income
Fund, Marshall Government Income Fund, Marshall Intermediate Bond Fund,
Marshall Intermediate Tax-Free Fund, Marshall International Stock Fund,
Marshall Mid-Cap Stock Fund, Marshall Short-Term Income Fund, Marshall
Small-Cap Stock Fund, Marshall Stock Fund, and Marshall Value Equity Fund
(15.);
(xv) Form of Amendment #1 to Exhibit 1 of Shareholder Services Agreement (18.);
(i) Conformed copy of Opinion and Consent of Counsel as to legality of
shares being registered (4.); (j) Conformed Copy of Consent of Independent
Public Accountants;(19) (k) Not applicable; (l) Conformed copy of Initial
Capital
Understanding (11.);
(m) (i) Conformed copy of Distribution Plan (4.); (ii)
Conformed copy of Exhibit B of Distribution Plan
(9.);
- -------------------
+ All Exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33- 48907
and 811-7047.
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33- 48907
and 811-7047).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 9, 1996. (File Nos. 33- 48907 and
811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33- 48907
and 811-7047).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed October 21, 1998. (File Nos. 33- 48907
and 811-7047).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed December 28, 1998. (File Nos. 33-48907
and 811-7047).
<PAGE>
(iii) Conformed copy of Exhibit A of
Distribution Plan (11.); (iv) Form of Exhibit D
of Distribution Plan (18.); (v) Form of 12b-1
Agreement through and including Exhibit B (11.);
(vi) Copy of Exhibit C to Rule 12b-1 Agreement of
the Registrant (13.); (vii) Conformed copy of
Exhibit C to the Distribution Plan of the
Registrant (15.); (viii)Form of Exhibit D to the
12b-1 Agreement of the Registrant (18.);
(n) Copy of Financial Data Schedules; (19) (o) Form of
Multiple Class Plan of the Registrant (18.); (p) (i)
Conformed copy of Power of Attorney (11.);
(ii) Conformed copy of Power of Attorney dated
December 27, 1993 with respect to
James F. Duca, II, President of the
Corporation (6.).
- -------------------
+ All Exhibits have been filed electronically.
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos.33- 48907
and 811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33- 48907
and 811-7047).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 9, 1996. (File Nos. 33- 48907 and
811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33- 48907
and 811-7047).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed October 21, 1998. (File Nos. 33- 48907
and 811-7047).
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed December 28, 1998. (File Nos. 33-48907
and 811-7047).
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
None
Item 25. INDEMNIFICATION: (5.)
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
M&I INVESTMENT MANAGEMENT CORP.
(a) M&I Investment Management Corp. is a registered investment
adviser and wholly-owned subsidiary of Marshall & Ilsley
Corporation, a registered bank holding company headquartered
in Milwaukee, Wisconsin. As of October 1, 1997 M&I
Investment Management Corp. had approximately $8.4 billion
in assets under management and has managed investments for
individuals and institutions since its inception in 1973.
M&I Investment Management Corp. served as investment adviser
to Newton Money Fund, Newton Income Fund and Newton Growth
Fund.
For further information about M & I Investment Mangagement
Corp., its officers and directors, response is incorporated
by reference to M & I Investment Management Corp.'s Form
ADV, File No. 801-9118, dated March 4, 1996 as amended.
BPI Global Asset Management LLP.
(b) BPI Global Asset Management LLP ("BPI") is a registered
investment adviser and provides management services for
investment companies, corporations, trusts, estates, pension
and profit sharing plans, individuals and other institutions
located in both Canada and the United States. As of June 30,
1999, BPI had approximately $1.9 billion of total assets
under management. BPI's address is Tower Place at the
Summit, 1900 Summit Tower Boulevard, Suite 450, Orlando,
Florida 32810. For a list of the officers and directors of
BPI and for further information about BPI, any other
business, vocation or employment of a substantial nature in
which a director or officer of BPI is, or at any time in the
past two fiscal years has been, engaged for his or her own
account or in the capacity of director, officer, employee,
partner or trustee, response is incorporated by reference to
BPI's Form ADV, File No. ________, dated
___________________.
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos.
33-48907 and 811-7047).
<PAGE>
Item 27. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end
investment companies, including the Registrant:
Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; RIGGS Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc. Federated Securities Corp. also
acts as principal underwriter for the following closed-end investment company:
Liberty Term Trust, Inc.- 1999.
<PAGE>
<TABLE>
<CAPTION>
(b)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Chairman, Director
Federated Investors Tower President, Federated, and Treasurer
1001 Liberty Avenue Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779 --
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
H. Joeseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President --
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
MARSHALL FUNDS, INC................. 770 North Water Street
Milwaukee, Wisconsin 53202
FEDERATED SHAREHOLDER SERVICES......Federated Investors Tower
COMPANY............................. 1001 Liberty Avenue
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent, and Portfolio
Accounting Services")
FEDERATED ADMINISTRATIVE SERVICES Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
M & I INVESTMENT MANAGEMENT CORP. 1000 North Water Street
("Adviser") Milwaukee, WI 53202
MARSHALL & ILSLEY TRUST COMPANY 1000 North Water Street
("Custodian") Milwaukee, WI 53202
BPI GLOBAL ASSET MANAGEMENT LLP. 1900 Summit Tower Blvd.
("Sub-Adviser") Suite 450
Orlando, Florida 32810
Item 29. MANAGEMENT SERVICES: Not applicable.
Item 30. UNDERTAKINGS:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholders meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MARSHALL FUNDS, INC., has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 23rd day of July, 1999.
MARSHALL FUNDS, INC.
BY: /s/ C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
July 23, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/C. Todd Gibson
C. Todd Gibson Attorney In Fact July 23, 1999
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales Chairman, Director,
and Treasurer (Chief
Executive Officer, Principal
Financial and Accounting
Officer)
John DeVincentis Director
Ody J. Fish Director
Paul E. Hassett Director
* By Power of Attorney
Exhibit d(xi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SUBADVISORY CONTRACT
AGREEMENT made as of the 29th day of March, 1999 by and between M&I
Investment Management Corp., an investment adviser registered under the
Investment Advisers Act of 1940, organized under the laws of Wisconsin and
having its principal place of business in Milwaukee, Wisconsin (the "Adviser"),
and BPI Global Asset Management, LLP, a limited liability partnership organized
under the laws of Delaware (the "Subadviser").
WITNESSETH:
WHEREAS, Marshall Funds, Inc. (the "Corporation") is an open-end,
management investment company, registered under the Investment Company Act of
1940, as amended (the "1940 Act"), the Corporation has eleven (11) Portfolios
including the Marshall International Stock Fund (the "Fund") and the Subadviser
is an investment adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act"), and
WHEREAS, pursuant to authority granted the Adviser by the Corporation's
Directors and pursuant to the provisions of the Investment Advisory Contract
dated October 1, 1992 between the adviser and the Corporation with respect to
the Fund (the "Advisory Contract"), the Adviser has selected the Subadviser to
act as a sub-investment adviser of the Fund and to provide certain other
services, as more fully set forth below, and to perform such services under the
terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, it is agreed as follows:
1. THE SUBADVISER'S SERVICES.
(a) Within the framework of the fundamental policies, investment
objectives, and investment restrictions of the Fund, and subject
to the supervision and review of the Adviser and of the Directors
of the Corporation, the Subadviser shall have the sole and
exclusive responsibility for the making and execution of all
investment decisions for that portion or all of the Fund's
portfolio as designated by the Adviser (the "Portfolio"),
including the purchase, retention and disposition of securities,
in accordance with the Fund's investment objectives, policies and
restrictions as stated in the Corporation's Registration
Statement, including the Prospectus and Statement of Additional
Information (such Registration Statement, as currently in effect
and as amended or supplemented from time to time, collectively
called the "Prospectus") and subject to the following
understandings:
(i) The Subadviser shall supervise the Portfolio's investments
and determine from time to time what securities will be
purchased, retained, sold or loaned by the Portfolio, and
what portion of the assets will be invested or held
uninvested as cash.
(ii) In performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the
Corporation's Articles of Incorporation and By-Laws and
the Fund's Prospectus and with the instructions and
directions received in writing from the Adviser or the
Directors of the Corporation and will conform to and
comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986, as amended (including the
requirements for qualification as a regulated investment
company) and all other applicable federal and state laws
and regulations.
(b) The Subadviser shall not be responsible for the provision of
administrative, bookkeeping or accounting services to the Fund,
except as otherwise provided herein or as may be necessary for
the Subadviser to supply to the Adviser, the Corporation or its
Directors the information required to be supplied under this
Contract.
The Subadviser shall maintain separate books and detailed records
of all matters pertaining to the Fund and the Portfolio (the
"Fund's Books and Records"), including without limitation a daily
ledger of such assets and liability relating thereto and
brokerage and other records of all securities transactions. The
Subadviser shall also require that its Access Persons (as defined
in the Corporation's Code of Ethics) provide the Subadviser with
monthly reports of their personal securities transactions. The
Fund's Books and Records shall be available by overnight delivery
of copies or for telecopying without delay to the Adviser during
any day that the Fund is open for business, upon reasonable
notice to the Subadviser.
(c) The Subadviser shall determine the securities to be purchased or
sold by the Fund in respect of the Portfolio and will place
orders with or through such persons, brokers or dealers to carry
out the policy with respect to brokerage as set forth in the
Fund's Prospectus or as the Directors may direct from time to
time. Subject to the provisions of the following paragraph, the
Subadviser will take reasonable steps to assure that Portfolio
transactions are effected at the best price and execution
available, as such phrase is sued in the Fund's Prospectus, as in
effect from time to time.
In using its best efforts to obtain for the Fund the most
favorable price and execution available, the Subadviser, bearing
in mind the Fund's best interests at all times, shall consider
all factors it deems relevant, including by way of illustration,
price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or
dealer involved and the quality of service rendered by the broker
or dealer in other transactions. Subject to such policies as the
Directors of the Corporation may determine, the Subadviser is
specifically authorized to allocate brokerage business to firms
that provide such services or facilities and to cause the Fund to
pay a member of a securities exchange or any other securities
broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission
another member of an exchange, broker, or dealer would have
charged for effecting that transaction, if the Subadviser
determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services (as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided by such member, broker,
or dealer, viewed in terms either of that particular transaction
or the Subadviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion.
Consistent with the foregoing paragraph, nothing in this
agreement is intended to inhibit the Subadviser's selection of
broker-dealers used to execute trades for the Fund, including
trades placed with broker-dealers who provide investment research
services to the Subadviser. Such research services may include,
but are not limited to, advice provided either directly or
through publications or writings, including electronic
publications, telephone contacts and personal meetings with
security analysts, economists and corporate and industry
spokespersons, and analyses and reports concerning issues,
industries, securities economic factors and trends, accounting
and tax law interpretations and political developments. Research
so provided is in addition to and not in lieu of the services
required to be performed by the Subadviser.
It is understood that the Subadviser may have advisory,
management, service or other contracts with other individuals or
entities, and may have other interests and businesses. When a
security proposed to be purchased or sold for the Fund is also
being purchased or sold for other accounts managed by the
Subadviser at the same time, the Subadviser shall make such
purchases or sales on a pro-rata, rotating or other equitable
basis so as to avoid any one account being systematically
preferred over any other account.
The Subadviser will advise the Adviser and, if instructed by the
Adviser, the Fund's custodian or sub-custodians on a prompt basis
each day by electronic telecommunication of each confirmed
purchase and sale of a Portfolio security specifying the name of
the issuer, the full description of the security including its
class, and amount or number of shares of the security purchase or
sold, the market price, commission, government charges and gross
or net price, trade date, settlement date and identity of the
clearing broker. Under no circumstances may the Subadviser or any
affiliates of the Subadviser act as a principal in a securities
transaction with the Fund or any other investment company managed
by the Adviser unless (i) permitted by an exemptive provision,
rule or order under the 1940 Act and (ii) upon obtaining prior
approval of the securities transaction from the Adviser. Any such
transactions shall be reported quarterly to the Corporation's
Directors.
(d) From time to time as the Adviser or the Directors of the
Corporation may reasonably request, the Subadviser shall furnish
to the Adviser and to each of the Corporation's Directors reports
of Portfolio transactions and reports on securities held in the
Portfolio, all in such detail as the Adviser or the Directors may
reasonably request. The Subadviser will also promptly inform the
Adviser and the Corporation's Directors of changes in investment
strategy or tactics or in key personnel.
It shall be the duty of the Subadviser to furnish to the
Corporation's Directors such information as may reasonably be
necessary in order for such Directors to evaluate this Contract
or any proposed amendments thereto for the purpose of casting a
vote pursuant to Section 8 or 9 hereof.
2. ALLOCATION OF CHARGES AND EXPENSES. The Subadviser will bear its own
costs of providing services hereunder. Other than as specifically indicated
herein the Subadviser shall not be responsible for the Corporation's or the
Adviser's expenses, including, without limitation, the expenses of organizing
the Corporation and continuing its existence; fees and expenses of Directors and
officers of the Corporation; fees for investment advisory services and
administrative personnel and services; expenses incurred in the distribution of
its shares ("Shares"), including expenses of administrative support services,
fees and expenses of preparing and printing its Registration Statements under
the Securities Act of 1933 and the 1940 Act, and any amendments thereto,
expenses of registering and qualifying the Corporation, the Fund and Shares of
the Fund under federal and state laws and regulation; expenses of preparing,
printing and distributing prospectuses (and any amendments thereto) to
shareholders, interest expense taxes, fees and commissions of every kind,
expenses of issue (including cost of Share certificates), purchase, repurchase
and redemption of Shares including expenses attributable to a program of
periodic issue, charges and expenses of custodians, transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars, printing and
mailing costs, auditing, accounting and legal expenses; reports to shareholders
and governmental officers and commissions; expenses of meetings of Directors and
shareholders and proxy solicitations in connection with such meetings; insurance
expenses; association membership dues and such nonrecurring items as may arise,
including all losses and liabilities incurred in administrating the Corporation
and the Fund. The Corporation or the Adviser, as the case may be, shall
reimburse the Subadviser for any such expenses or other expenses of the Fund or
the Adviser, as may be reasonably incurred by such Subadviser on behalf of the
Fund or the Adviser. The Subadviser shall keep and supply to the Corporation and
the Adviser adequate records of all such expenses.
3. INFORMATION SUPPLIED BY THE ADVISER. The Adviser shall provide the
Subadviser with the Corporation's Articles of Incorporation and By-Laws, the
Fund's most current Prospectus and Statement of Additional Information, and the
Corporation's Code of Ethics and instructions, policies and directions of the
Directors of the Corporation pertaining to the Adviser and the Fund, as in
effect from time to time; and the Subadviser shall have no responsibility for
actions taken in reliance on any such documents. The Adviser shall promptly
furnish to the Subadviser copies of all material amendments or supplements to
the foregoing documents.
4. REGISTRATION AS AN ADVISER. The Adviser and the Subadviser represent
and warrant to each of the Corporation and each other that they are registered
as an "investment adviser" under the Advisers Act and covenant that they will
remain so registered for the duration of this Contract.
5. SUBADVISER'S COMPENSATION. The Adviser shall pay to the Subadviser,
as compensation for the Subadviser's services hereunder 0.40% per annum of the
Fund's average daily net assets ("Sub-Advisory Fee"). Such fee shall be computed
daily and paid monthly. The method of determining net assets of the Fund for
purposes hereof shall be the same as the method of determining net assets for
purposes of establishing the offering and redemption price of Fund shares as
described in the Fund's Prospectus. If this Contract shall be effective for only
a portion of a month, the aforesaid fee shall be prorated for the portion of
such month during which this contract is in effect.
Notwithstanding any other provision of this Contract, the
Subadviser may from time to time agree not to impose all or any portion of its
fee otherwise payable hereunder (in advance of the time such fee or portion
thereof would otherwise accrue). Any such fee reduction may be discontinued or
modified by the Subadviser at any time.
6. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder,
the Subadviser is and shall be an independent contract and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Corporation in any way or otherwise be
deemed to be an agent of the Corporation or of the Adviser.
7. SALES LITERATURE. The Adviser and Subadviser acknowledge that all
sales literature for investment companies (such as the Corporation) are subject
to strict regulatory oversight. The Subadviser agrees to submit any proposed
sales literature for the Corporation (or any Fund) or for itself or its
affiliates which mentions the Corporation (or any Fund) to the Corporation's
distributor for review and filing with the appropriate regulatory authorities
prior to the public release of any such sales literature, provided, however,
that nothing herein shall be construed so as to create any obligations or duty
on the part of the Subadviser to produce sales literature for the Corporation
(or any Fund). Further, the Adviser agrees to submit to the Subadviser any and
all sales literature referencing Subadviser by name or any affiliate of
Subadviser for review and approval prior to filing or public release.
8. ASSIGNMENT AND AMENDMENTS. This Contract may not be assigned by the
Subadviser and shall automatically terminate, without the payment of any
penalty, in the event (i) of its assignment, including any change of control of
the Adviser or Subadviser, or (ii) in the event of the termination of the
Advisory Contract, provided that such termination shall not relieve the Adviser
or the Subadviser of any liability incurred hereunder. The Subadviser, as a
limited liability partnership, will promptly notify Adviser of any change in the
membership of Subadviser.
The terms of this Contract shall not be changed unless such
change is approved at a meeting by the affirmative vote of a majority of the
outstanding voting securities of the Fund and unless also approved by the
affirmative vote of a majority of Directors of the Corporation voting in person,
including a majority of the Directors who are not interested persons of the
Corporation, the Adviser or the Subadviser, at a meeting called for the purpose
of voting at such change.
9. DURATION AND TERMINATION. This Contract shall become effective as of
the date firs above written and shall terminate 120 days from such date of
execution, unless this Contract is approved by shareholders of the Fund. Upon
such shareholder approval, this contract shall remain in full force and effect
continually thereafter unless terminated automatically as set forth in Section 8
hereof or until terminated as follows
(a) The Corporation or the Adviser may at any time terminate this
Contract, without payment of any penalty, on sixty (60) days'
written notice delivered or mailed by registered mail, postage
prepaid, to the Subadviser. Action of the Corporation under this
Subsection may be taken either (i) by vote of its Directors or
(ii) by the affirmative vote of a majority of the outstanding
voting securities of the Fund.
(b) The Subadviser may at any time terminate this Contract by not less
than sixty (60) days' written notice delivered or mailed by registered
mail, postage prepaid, to the Adviser; or
(c) This Contract shall automatically terminate on May 1, of any year
beginning in 2000, in which its terms and renewal shall not have
been approved (i) a majority vote of the Directors of the
Corporation voting in person, including a majority of the
Directors who are not interested persons of the Corporation, the
Adviser or the Subadviser, at a meeting called for the purpose of
voting on such approval or (ii) the affirmative vote of a
majority of the outstanding voting securities of the Fund;
provided, however, that if the continuance of this Contract is
submitted to the shareholders of the Fund for their approval and
such shareholders fail to approve such continuance of this
contract as provided herein, the Subadviser may continue to serve
hereunder as to the Fund in a manner consistent with the 1940 Act
and the rules and regulations thereunder.
(d) Termination of this Contract pursuant to this Section shall be
without payment of any penalty.
(e) In the event of termination of this Contract for any reason, the
Subadviser shall, immediately upon notice of termination or on
such later date as may be specified in such notice, cease all
activity on behalf of the Fund and with respect to any of its
assets, except as expressly directed by the Adviser. In addition,
the Subadviser shall deliver the Fund's Books and Records to the
Adviser by such means and in accordance with such schedule as the
Adviser shall direct and shall otherwise cooperate, as reasonably
directed by the Adviser, in the transition of portfolio assets
management to any successors of the Subadviser, including the
Adviser.
10. CERTAIN DEFINITIONS. For the purposes of this Contract:
(a) "Affirmative vote of a majority of the outstanding voting securities
of the Fund" means the affirmative vote, at an annual or Annual
meeting of shareholders of the Fund, duly called and held, (a) of 67%
or more of the shares of the Fund present (in person or by proxy) and
entitled to vote at such meeting, if the holder or more than 50% of
the outstanding shares of the Fund entitled to vote at such meeting
are present (in person or by proxy), or (b) of more than 50% of the
outstanding shares of the Fund entitled to vote at such meeting,
whichever is less.
(b) "Interested persons" and "Assignment" shall have their respective
meanings as set forth in the 1940 Act, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission
under said Act.
<PAGE>
11. STANDARD OF CARE, LIABILITY AND INDEMNIFICATION.
(a) The Subadviser shall exercise its best judgment in rendering the
services provided by it under this Contract. In the absence of
willful misfeasance, bad faith or gross negligence on the part of
the Subadviser, or of reckless disregard of its obligations and
duties hereunder, the Subadviser shall not be subject to any
liability to the Adviser or the Corporation, to any shareholder
of the Fund, or to any person, firm or organization, for any act
or omission in the course of, or connected with the rendering of
services by Subadviser. Nothing herein, however, shall derogate
from the Subadviser's obligations under federal and state
securities laws.
(b) The Subadviser shall indemnify and hold the Adviser harmless from
and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to any action or failure or omission to act by the
Subadviser as a result of the Subadviser's willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder.
(c) The Adviser shall indemnify and hold the Subadviser harmless from
and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to any action or failure or omission to act by the
Adviser as a result of the Adviser's willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
and duties hereunder.
12. JURISDICTION. This Contract shall be governed by and construed to be
consistent with the Advisory Contract and in accordance with substantive laws of
the State of Wisconsin without giving regard to the conflicts of law principals
thereof and in accordance with the 1940 Act. In the case of any conflict between
state law and the 1940 Act, the 1940 Act shall control.
13. COUNTERPARTS. This Contract may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. MISCELLANEOUS.
(a) Subadviser is a limited liability partnership formed under Delaware
law. Subadviser will notify the Adviser of any changes in the membership of such
partnership within a reasonable time after such changes.
(b) Adviser acknowledges having received, not less than 48 hours prior to
entering into this Investment Advisory Agreement, and reviewed the Subadviser's
most recent Form ADV.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on behalf of their duly authorized officers as of the date first above
written.
M&I INVESTMENT MANAGEMENT CORP.
/S/ ILLEGIBLE SIGNATURE By: /S/ DAVID W. SCHULZ
President
BPI GLOBAL ASSET MANAGEMENT, LLP.
/S/ ILLEGIBLE SIGNATURE By: /S/ RYAN BURROW
President
