N-30D 1 form.htm Marshall Funds, Inc. N-30D 10/29/01

[LOGO OF MARSHALL FUNDS®

The Marshall Funds Family
Annual Report

The  Advisor  Class  of  Shares
(Class A)

4 Marshall Equity Income Fund
   
4 Marshall Large-Cap Growth & Income Fund
   
4 Marshall Mid-Cap Value Fund
   
4 Marshall Mid-Cap Growth Fund
   
4 Marshall Small-Cap Growth Fund
   
4 Marshall International Stock Fund
   
4 Marshall Government Income Fund
   
4 Marshall Intermediate Bond Fund
   
4 Marshall Short-Term Income Fund
   
4 Marshall Money Market Fund

[PHOTOS]

Table of Contents
 
President’s Message      1
 
Commentaries     
 
Marshall Equity Income Fund      2
 
Marshall Large-Cap Growth & Income Fund      4
 
Marshall Mid-Cap Value Fund      6
 
Marshall Mid-Cap Growth Fund      8
 
Marshall Small-Cap Growth Fund      10
 
Marshall International Stock Fund      12
 
Marshall Government Income Fund      14
 
Marshall Intermediate Bond Fund      16
 
Marshall Short-Term Income Fund      18
 
Marshall Money Market Fund      20
 
Financial Information     
 
Portfolio of Investments      21
 
           Marshall Equity Income Fund      21
 
           Marshall Large-Cap Growth & Income Fund      23
 
           Marshall Mid-Cap Value Fund      24
 
           Marshall Mid-Cap Growth Fund      25
 
           Marshall Small-Cap Growth Fund      26
 
           Marshall International Stock Fund      27
 
           Marshall Government Income Fund      30
 
           Marshall Intermediate Bond Fund      31
 
           Marshall Short-Term Income Fund      33
 
           Marshall Money Market Fund      35
 
Statements of Assets and Liabilities      40
 
Statements of Operations      42
 
Statements of Changes in Net Assets      44
 
Financial Highlights      47
 
Notes to Financial Statements      48
 
Directors & Officers      60
[LOGO OF MARSHALLFUNDS®]
 
Dear Marshall Funds Shareholder:
 
Since we believe the Marshall Funds are an excellent choice for a well-diversified, long-term investment strategy, we should be able to measure whether our products and services are used appropriately in times like these. As a result, we made certain measurements in response to the recent tragedies within our country, including:
 
Ÿ
listening to the silence in our shareholder service call center,
 
Ÿ
monitoring the substantial decline in on-line trading by our large number of 401(k) participants,
 
Ÿ
tracking the lack of “flight to quality” exchanges of equities funds to money market funds, and
 
Ÿ
summarizing the positive face to face discussions of our investment representatives and their clients.
 
We could not avoid obtaining a certain amount of satisfaction that our investment philosophy has gotten through to the vast majority of our shareholders. Diversification through broad asset allocation may be the primary success factor in reaching your financial goals while weathering market volatility.
 
This approach should not lack constant monitoring or pro-active re-allocation when justified by a change in your financial goals, time horizon or risk tolerance. This approach should exclude panic reactions to current events. From what we observed, our shareholders should be congratulated for remaining calm and focused on their long-term plans.
 
Going forward, our challenges remain. Looking at past letters to shareholders, however, we are reminded of how effective our approach has been when investors were euphoric over aggressive growth investing and when eulogies were being written for value and small cap investing. The same eulogies are being written today about international investing.
 
Every investor, who has committed to a broadly diversified investment program including attention to large, mid and small cap stocks; growth and value investment styles, equities and fixed income funds, and domestic and international equities, has been rewarded with competitive returns with less overall volatility. We believe our investment philosophy has only been reaffirmed and we remain committed to delivering the investment products and services that you can use to meet your goals.
 
If recent events make you anxious, or hesitant, or just uncertain, please do not hesitate to contact your M&I financial representative, or if you do not have one, contact us directly at 1-800-236-3863.
 
Congratulations on your strength, resolve and long-term outlook. As always, thank you for your investment in the Marshall Funds.
 
Sincerely,
 
/s/  John M. Blaser
 
John M. Blaser
President
Annual Report—Commentary
 
Marshall Equity Income Fund
The Marshall Equity Income Fund (the “Fund”) seeks to provide capital appreciation and above average dividend income. Fund assets are invested in a broadly-diversified portfolio of common stocks whose market capitalization typically exceeds eight billion dollars. In order to provide both capital appreciation and income, the Adviser attempts to structure the portfolio to pursue a yield at least 1% more than the income earned on the stocks in the Standard & Poor’s 500 Index (S&P 500).* The Adviser selects stocks using a unique, quantitative, value-oriented approach that uses dividends as the initial guide to competitive long-term returns with less volatility.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 2.20%,** based on net asset value, while the S&P 500 returned (24.39)% and the Lipper Equity Income Funds Index (LEIFI) returned (2.30)%.* Our outperformance over this period is the result of staying true to our value-oriented, dividend-driven investment discipline.
 
Perseverance in the Tug-of-War
In our last report we discussed the tug-of-war affecting the markets—with the positive impact of interest rate cuts from the Federal Reserve Board (the “Fed”) on one end seeking to counter the negative impact of declining corporate earnings on the other. Over the past six months, the economic slowdown overpowered the Fed’s efforts to stimulate it, with the result that corporate earnings—and stock prices—have been disappointing.
 
Few Changes to the Portfolio
Our commitment to our investment discipline did not waver when it was out of market favor, and now investors are able to enjoy the benefits of that consistency. We have maintained broad diversification and avoided bets on individual sectors relative to our custom benchmark. Central to our approach is avoiding the emotional or reactionary decisions that can seem appealing in the short run, but prove very costly over the longer haul. Our emphasis on dividend yield draws us toward more defensive areas of the marketplace. These stocks became more attractive as the economy slid toward recession, and it appears that risk-wary investors are likely to favor such stocks in the uncertain times ahead.
 
Also consistent with our long-term approach, we have made only modest changes to the portfolio. We have slightly increased our weighting in healthcare stocks, which can offer attractive relative yields and whose earnings are relatively shielded from shifts in the economy. We have also slightly decreased the Fund’s stake in financial stocks.
 
The Impact of September 11
The markets and the economy were already in a tenuous state before this September’s terrorist attacks, but this served to accelerate the downtrend. There is a great degree of uncertainty, which can be troubling, but can also present opportunities.
 
The government has taken encouraging steps that may take time to have impact, but should in time contribute to recovery. The Fed has made clear its commitment to support the economy with rate cuts and infusions of liquidity. At the same time, new government spending and tax-cut proposals, in addition to the tax relief put in place earlier this year, promise future fiscal stimulus as well. Much of the downside risk has been taken out of stock prices, with low expectations already factored into valuations.
 
As investors regain confidence in the economy and the markets, it appears that they may continue to seek more style diversification—which would likely benefit Fund performance. Although it may take several quarters for the economy and the markets to recover, we strongly believe that stock investors will be rewarded for their patience through this challenging period.
 
Sincerely,
 
/s/  Bruce P. Hutson
 
Bruce P. Hutson
Co-Manager, Marshall Equity Income Fund
 
/s/David J. Abitz, CFA
 
David J. Abitz, CFA
Co-Manager, Marshall Equity Income Fund
 
 
[PHOTO OF BRUCE P. HUTSON]
 
[PHOTO OF DAVID J. ABITZ]
n  Marshall Equity Income Fund
 
 
  *
The S&P 500 and the LEIFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
 
 **
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
***
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425). The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LEIFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †
Total returns quoted reflect all applicable sales charges.
Annual Report—Commentary
Marshall Large-Cap Growth & Income Fund
 
The Marshall Large-Cap Growth & Income Fund (the “Fund”) invests in a diversified portfolio of common stocks of companies whose market capitalizations typically exceed $10 billion. The Adviser looks for companies that are typically leaders in their industry and have records of above-average financial performance and proven superior management. These types of companies typically offer opportunities for growth and also provide dividend income.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (24.79)%, based on net asset value.* Over the same time period, the Standard & Poor’s 500 Index (S&P 500) returned (24.39)% and the Lipper Large-Cap Core Funds Index (LLCCFI) returned (26.12)%.**
 
Consumers Showing Less Resilience
The past year was marked by a rapid deceleration in corporate earnings. In response, the Federal Reserve Board (the “Fed”) took aggressive actions to shore up the economy and sustain consumer confidence with a string of interest rate cuts. After remaining surprisingly strong for some months despite the economic slowdown, consumer confidence did begin to falter and spending began to erode late in the summer. This trend was disconcerting, given that consumers account for two-thirds of the country’s economic activity.
 
Over the reporting period, we had assumed that corporate profitability would likely be worse than many expected and the Fed would continue to lower interest rates. In the end we expected the power of lowest interest rates to provide some support to the equity markets. With this in mind, we positioned the Fund in a barbell profile. Defensive stocks with predictable earnings, such as pharmaceuticals, consumer staples, and financials, occupied one end. On the other, we held carefully selected cyclical stocks, such as retail and technology companies, which were in a position to benefit from declining interest rates.
 
Dramatic Events Accelerate Trends
The terrorist attacks of September 11 came after the end of this Fund’s reporting period, but they will have repercussions in the months ahead. The attacks accelerated the negative trends that were already in place for the economy and corporate profits and it now appears clear that the economy is in the midst of a recession. The decline in consumer spending, the last piece of the puzzle, now seems certain.
 
Although the overall environment may seem discouraging, it is creating new opportunities in sectors of the market where stock valuations have been beaten down, and where quality companies are now positioned to emerge even stronger once the economy begins to recover. Most of these opportunities are emerging in the more cyclical sectors of the market, such as manufacturing and aerospace, and consumer cyclicals, such as recently pummeled travel stocks and auto-related companies. We’ll also be looking at companies in the more cyclical financial areas, such as credit-card companies and investment banks. We think these opportunities are slowly emerging and as such we will be slow to unwind our exposure to the more defensive sectors of the market while we wait for attractive valuations on these more cyclical equities. As always we are focusing on quality companies in leading industry positions with proven quality management.
 
The slowdown in consumer spending would appear to be the factor that finally pushed the U.S economy over the edge into recession, but in the end it is a necessary step toward setting the stage for recovery. Although the breadth and depth of the recession—and future global developments—at this point are uncertain, we have at least drawn one step closer toward resolution.
 
Sincerely,
 
/s/  William J. O’Connor, CFA
 

William J. O’Connor, CFA
Manager, Marshall Large-Cap Growth & Income Fund

 
[PHOTO OF WILLIAM J. O’CONNOR]
n  Marshall Large-Cap Growth & Income Fund
 
 
  * 
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **
The S&P 500 and the LLCCFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425). The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LLCCFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †
Total returns quoted reflect all applicable sales charges.
Annual Report—Commentary
 
Marshall Mid-Cap Value Fund
The Marshall Mid-Cap Value Fund (the “Fund”) invests in a diversified portfolio of common stocks of companies similar in size to those within the Standard & Poor’s Mid-Cap 400 Index (S&P 400).* The Adviser generally selects companies that exhibit traditional value characteristics, such as low price-to-earnings ratios, higher-than-average dividend yields, or a lower-than-average price/book value. In addition, companies that have underappreciated assets, or have been involved in company turnarounds or corporate restructurings, often have strong value characteristics.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 25.80%,** based on net asset value. For the same period, the S&P 400 returned (8.13)%, while the Lipper Mid-Cap Value Funds Index (LMCVFI) returned 4.60%*.
 
A Period of Strong Outperformance
Over the reporting period, the outlook for economic growth and corporate profitability continued to sour, producing considerable market volatility. The Fund performed very well in this turbulent time period, thanks largely to our diversified portfolio and disciplined value approach to stock selection. This was not the result of a lucky sector bet; our winners were broad-based, coming from many different sectors.
 
Among the Fund’s leading performers for the year were financial services firm H&R Block and nursing home operator Manor Care, which both posted more than 100% returns over the year through August. Other leading performers include Packaging Corp. of America, Ikon Office Solutions, and Mattel. What this diverse group of stocks had in common were low expectations going into the year, and improved fundamentals coming out of it.
 
Technology Stocks Still Slumping
Offsetting these positive results was the general weakness among most technology issues. We had increased our weighting in this sector late in the year as we identified attractive companies with low valuations, but unfortunately given the bleak economic picture, these stocks declined further.
 
While the increase in our technology position hurt performance over the period, this impact was muted somewhat by the fact that we made it gradually and moderately. We retain confidence in technology stocks’ potential to contribute positively going forward, and believe we have identified companies with solid long-term potential.
 
The Aftermath of September 11
Although the terrorist attacks did not have impact on results for this fiscal year, they loom large over the year ahead. Earnings expectations for the remainder of the calendar year have been ratcheted down. It appears now, according to most economists, that the domestic economy has entered into a recession.
 
Reduced earnings visibility and expectations have already weighed heavily on the equity markets, with the selloff being quite indiscriminate and cutting across virtually all sized companies. There were a few positive performers that come from sectors that investors might expect to do well under these circumstances; defense, consumer staples, and health care. Diversification remains an important element of our investment discipline, and we have some exposure to each of these sectors.
 
While the markets continue to exhibit an unusual degree of uncertainty due to both fundamental and psychological factors, we remain committed to our discipline of searching for strong companies whose stocks are temporarily undervalued. Recovery may take time, but it is our aim to identify those companies poised to prosper when it does come.
 
Sincerely,
 
/s/ Matthew B. Fahey
 
Matthew B. Fahey
Manager, Marshall Mid-Cap Value Fund
 
 
[PHOTO OF MATTHEW B. FAHEY]
 
 
n  Marshall Mid-Cap Value Fund
 
 
  * 
The S&P 400 and the LMCVFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 400 is a capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
 ** 
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
*** 
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425). The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 400 and the LMCVFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  † 
Total returns quoted reflect all applicable sales charges.
Annual Report—Commentary
 
Marshall Mid-Cap Growth Fund
The Marshall Mid-Cap Growth Fund (the “Fund”) invests in a diversified portfolio of common stocks of companies similar in size to those within the S&P Mid-Cap 400 Index (S&P 400)*. The Adviser selects stocks of companies with growth characteristics, such as above-average earnings growth potential or where significant changes are taking place, such as new products, services or expanded distribution.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (34.17)%,** based on net asset value, compared with (8.13)% for the S&P 400 and (42.59)% for the Lipper Mid-Cap Growth Funds Index (LMCGFI).*
 
Market Environment
The tragic events of September 11th clearly overshadowed all other events in the third quarter. While these events will have a lasting impact on our lives, we believe the impact on the market may prove to be temporary. While the result may have been to accelerate the economic slowdown already in place, we believe it shortened the time to an inevitable recovery.
 
The market is currently caught between two forces. First, the domestic economy continues to slow as corporate spending declines and unemployment continues to rise. Combined with economic activity slowing significantly during the days following September 11th, third and fourth quarter corporate earnings should be weaker. Secondly, the government continues to lower interest rates and inject liquidity into the financial system at an unprecedented rate. We believe Fiscal and Monetary stimulus will eventually prevail and return the health of the economy. However, volatility (a.k.a. buying opportunities) will continue to dominate the near term market environment.
 
Our Response
Our bottoms up approach to investing has not resulted in significant changes to our portfolio sector weightings. Healthcare, financials, and cable-related stocks still dominate the portfolio. However, we have begun to add to our technology holdings as we believe the risk/reward ratio on selective names has become more attractive.
 
In the current market environment, we are increasingly sensitive to valuations. By buying stocks right and selling at our price targets, we are attempting to limit the impact of the recent market correction on net asset value. Additionally, we are upgrading our holdings as the valuation gap between market leaders and laggards has narrowed. Therefore, we believe it is prudent to upgrade to the market leaders. These companies have the balance sheets to survive an economic slowdown and the business models to thrive in a recovery. We believe this strategy gives us the best opportunity to limit downside risk in a soft market and the ability to participate in a market recovery.
 
Sincerely,
 
/s/    Michael Groblewski
 
Michael D. Groblewski, CFA
Manager, Marshall Mid-Cap Growth Fund
 
 
[PHOTO OF MICHAEL D. GROBLEWSKI]
 
 
n  Marshall Mid-Cap Growth Fund
 
  * 
The S&P 400 and the LMCGFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 400 is a capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
 ** 
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
*** 
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425). The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 400 and the LMCGFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  † 
Total returns quoted reflect all applicable sales charges.
Annual Report—Commentary
 
Marshall Small-Cap Growth Fund
The Marshall Small-Cap Growth Fund (the “Fund”) seeks to provide capital appreciation. Fund assets are invested in a diversified portfolio of common stocks of small-capitalization companies* similar in size to those within the Russell 2000 Index (Russell 2000).** The Adviser selects stocks of companies with above-average earnings growth potential or where significant changes are taking place, such as new products, services or methods of distribution, as well as overall business restructuring.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (24.23)%,*** based on net asset value. Over the same period, the Russell 2000 returned (11.63)% and the Lipper Small-Cap Growth Index (LSCGI) returned (33.24)%.**
 
Consumer Exposure a Factor
Over the course of the past 12 months we built up the Fund’s position in consumer stocks. By the end of August, this position accounted for 33% of Fund assets. For most of the reporting period, consumer spending stayed quite resilient despite the persistent decline of corporate earnings and the possibility of economic recession. Consumers did, however, become somewhat less confident in July and August.
 
We continued to focus on consumer stocks that tend to be somewhat resistant to economic cycles, such as video-game producers, like such as Midway Games and Take 2 Interactive. Demand for these products tends to follow the introduction of new game systems, with Nintendo and Microsoft launching new game systems this fall, demand for video games is likely to increase significantly.
 
Technology Helps, Then Hurts
After reducing the Fund’s exposure to technology stocks in the first half of the fiscal year, we held the position at a modest overweighting for the next six months. This position made a positive contribution to performance during the spring months as technology stocks staged a rally.
 
As the summer wore on, however, investors became more concerned about the dismal outlook for corporate profitability, and as a result sold off technology issues. Although our overweight position in technology negatively impacted the Fund’s performance in July and August, we remain confident in the sector’s potential. The prices of many technology stocks have been impacted so severely that we have been able to add excellent companies to the portfolio at or near historic trough valuations.
 
Considerations After September
Shortly after the close of the fiscal year, the world experienced the shock of terrorist attacks on September 11. The trends toward weakening corporate profitability and possible economic recession accelerated after this event, with consumers losing confidence and reducing their discretionary spending.
 
Investor uncertainty in the wake of the attacks provoked a flight to quality and to liquidity. While this hurt technology stocks, it has helped the relative performance of more defensive areas such as healthcare, where we are slightly overweighted. Other areas benefiting from this trend include consumer staples and financials.
 
Although we anticipate further market volatility in the short-term, we see cause for greater optimism in the intermediate-term. The Federal Reserve Board, swift to inject liquidity in the market, has also continued its aggressive rate cutting. Lawmakers and President Bush are discussing significant fiscal stimulus packages to further bolster the economy. We believe investors will look back at the second half of September 2001 as a period that offered numerous buying opportunities for those willing to hold equities for six months or more.
 
Sincerely,
 
/s/ Sean McLeod
 
Sean A. McLeod, CFA
Manager, Marshall Small-Cap Growth Fund
 
 
[PHOTO OF SEAN A. MC LEOD]
 
 
n  Marshall Small-Cap Growth Fund
 
  *
Small-cap funds may experience a higher degree of market volatility than larger-cap funds.
 
 **
The Russell 2000 and the LSCGI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The Russell 2000 is an index of common stocks whose market capitalizations generally range from $200 million to $5 billion. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
  †
Total returns quoted reflect all applicable sales charges.
 
 ††
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425). The Fund’s performance assumes the reinvestment of all dividends and distributions. The Russell 2000 and the LSCGI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
Annual Report—Commentary
 
 
Marshall International Stock Fund
The Marshall International Stock Fund (the “Fund”) invests primarily in a diversified portfolio of common stocks of companies of any size outside the United States.* The Fund uses a value-oriented approach and invests in companies selling at a discount to their global industry peers.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (26.36)%,** based on net asset value, compared with a total return of (24.35)% by the Morgan Stanley Capital International Europe, Australasia and Far East Index (EAFE) and (24.54)% for the Lipper International Funds Index (LIFI).***
 
Global Economics Face Slowdown
The worldwide economic slowdown we commented on in our previous report worsened over the past six months. As the outlook for economic growth and corporate profitability has weakened around the world, stock prices have continued to suffer. Deep interest rate cuts from the U.S. Federal Reserve Board, part of an effort to stave off recession, were followed by more modest cuts from European central banks.
 
The Japanese economy staged a rally at the end of March, which is the end of the fiscal year there and also a traditional time for a rally in that country. The recovery peaked out in April, however, and Japanese stocks have weakened ever since. There has been much enthusiasm about the nation’s new Prime Minister and cabinet, but so far they have had little impact on that deeply troubled economy.
 
Technology Stocks Still Weak
We continued to underweight technology stocks for most of the period, although we did add to our position in this sector during the past six months. As we found specific companies with sufficiently attractive fundamentals and low valuations, we took the opportunity to add bargains to the portfolio. We are still wary of the sector as a whole, and believe that significant unresolved issues remain.
 
Consumer discretionary stocks had been an area of greater focus for the Fund. For most of the reporting period, these proved to be relatively resilient even as business conditions were not optimal, and offered reasonable valuations. Our overweighting in this area contributed positively to the year’s performance.
 
Global Impact of September 11
The terrorist attacks in the United States have, of course, had international repercussions. The downward trend in economic activity and corporate earnings accelerated sharply. Although all stock sectors were affected, among the hardest-hit were travel-related industries, particularly airlines. While prices of these stocks were already factoring in the slowing economy, there was no way the market could anticipate the virtual shutdown the industry endured.
 
Insurance companies also suffered in wake of the attack, providing us with opportunities to add to our holdings in the area as stock valuations were driven down in disproportion to the impact of attack-related claims on their businesses. We began positioning the Fund more heavily in financials in September.
 
As the quarter drew to a close, there were signs that people were beginning to return to normal for the most part, though it is clear consumers are in a more cautious and conservative mood than before. As we seek out opportunities in this challenging environment, we are redoubling our focus on careful company analysis.
 
Sincerely,
 
/s/    Daniel R. Jaworski
 
Daniel R. Jaworski, CFA
Manager, Marshall International Stock Fund
 
[PHOTO OF DANIEL R. JAWORSKI]
n  Marshall International Stock Fund
 
 
  *
Foreign investing involves 100% including 100% currency risk, increased volatility of foreign securities, and differences in auditing and other financial standards.
 **
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
***
The EAFE and the LIFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The EAFE is an unmanaged market capitalization-weighted equity index comprising 20 of the 48 countries in the Morgan Stanley Capital International universe and representing the developed world outside of North America. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
  †
Total returns quoted reflect all applicable sales charges.
 ††
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425). The Fund’s performance assumes the reinvestment of all dividends and distributions. The EAFE and the LIFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
†††
These amounts included cash equivalents of 1.2% and 1.8%, respectively.
Annual Report—Commentary
 
Marshall Government Income Fund
The Marshall Government Income Fund (the “Fund”) invests in securities issued by the United States government and its agencies and instrumentalities, particularly mortgage-related securities. The Adviser considers macroeconomic conditions and uses credit and market analysis in developing the overall portfolio strategy. Current and historical interest-rate relationships are used to evaluate market sectors and individual securities. The Fund will generally maintain an average dollar-weighted maturity of four to 12 years.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 9.77%,* based on net asset value, compared with a return of 11.83% for the Lehman Brothers Mortgage-Backed Securities Index (LMI) and a 10.83% return by the Lipper U.S. Mortgage Funds Index (LUSMI).**
 
Interest Rates Slide Down
Over the past six months—and most of the past year—interest rates have fallen quite dramatically in response to slowing economic activity. From January through August, the Federal Reserve Board (the “Fed”) took an aggressive approach to supporting the economy, cutting interest rates on seven occasions for a total of 300 basis points. While consumer spending remained fairly resilient for most of the year, business spending dropped off significantly. As concerns about the state of the economy and the future employment picture mounted, stock prices corrected. Investors increasingly favored the safer realm of short Treasury debt, driving down yields in that sector.
 
In this environment, the mortgage-backed bonds that are the focus of this Fund modestly underperformed Treasury debt. We do, however, continue to find greater value in the mortgage market, particularly among premium issues. In addition to their attractive yields, these bonds continue to offer the very high quality level that many investors seek in uncertain times.
 
Keeping an Eye on Prepayments
In the declining interest rate environment, we must consider prepayment risk—that is, the refinancing of mortgages by homeowners at lower interest rates. Such activity could force us to replace higher-yielding mortgage-backed securities that are called due to refinancing, with lower-yielding issues.
 
Mortgage rates are generally set off of 10-year Treasury yields, which have not declined as sharply as those on the short end of the yield curve. Thus refinancing pressure has been more moderate than might be assumed. In addition, in this Fund we emphasize what are known as “seasoned” mortgages—securities that have already withstood one or more refinancing cycles—rather than new-production mortgages. Seasoned bonds typically offer less risk of potential prepayments.
 
Current Concerns
Shortly after the close of the Fund’s fiscal year, we were faced with events that have had tremendous impact on the nation and the markets. Although the events of September 11 were shocking, we are heartened by the steps the government is taking to address their impact. In addition to additional rate cuts totaling 100 basis points from the Fed, the President and Congress are proposing aggressive fiscal stimulus as well.
 
Investors are understandably wary, however, and have continued their flight to short-term Treasuries. As a result, we have continued to find better values in the mortgage market, and have kept our focus there. In addition, we have added positions in agency debentures to the portfolio, allowing the Fund to benefit more directly from declining interest rates. While mortgages have underperformed Treasuries recently, we believe they are poised for better performance over the next six to twelve months.
 
Sincerely,
 
/s/ Jason Weiner, CFA
 
Jason D. Weiner, CFA
Manager, Marshall Government Income Fund
 
 
 
n  Marshall Government Income Fund
 
 
  *Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **The LMI and the LUSMI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The LMI is an index comprised of fixed rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC) and the Federal National Mortgage Association (FNMA). Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 4.75% ($10,000 investment minus $475 sales charge = $9,525). The Fund’s performance assumes the reinvestment of all dividends and distributions. The LMI and the LUSMI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †Total returns quoted reflect all applicable sales charges.
 
 ††Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
 
Annual Report—Commentary
 
Marshall Intermediate Bond Fund
The Marshall Intermediate Bond Fund (the “Fund”) invests in intermediate-term investment grade bonds and notes, including corporate, asset-backed, mortgage-backed, and United States government securities. The Adviser’s strategy to pursue total return is to adjust the Fund’s weightings in these sectors as it deems appropriate, using macroeconomic, credit, and market analysis to select portfolio securities. The Fund will maintain an average dollar-weighted maturity of three to 10 years.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 9.89%,* based on net asset value, compared with a return of 12.29% for the Lehman Brothers Intermediate Government/Credit Bond Index (LGCI) and 10.79% for the Lipper Short/Intermediate Investment Grade Bond Funds Index (LSIBF).**
 
Economic Slowdown Continues
The months from March through August generally continued the trends seen in the first half of the Fund’s fiscal year. Economic growth slowed significantly, and by the end of August the nation appeared to be edging toward recession. To counter this downslide, the Federal Reserve Board (the “Fed”) continued its campaign of aggressive interest rate cuts. From January through August, the Fed made seven cuts to the federal funds target rate totaling 300 basis points.
 
These cuts in short-term interest rates led to a market steepening of the yield curve. Just over a year ago, the curve was inverted, so this has been a dramatic change. Beside the Fed’s activity, yields on the short end of the yield curve were also pushed down by increased demand for short-term Treasuries particularly in the late summer. Investors wary of stock-market corrections and economic uncertainty flocked to these securities for their safety and quality.
 
For most of the 12-month reporting period, consumer spending remained surprisingly strong in the face of the faltering economy. In the summer, however, even consumers were beginning to grow somewhat more wary as unemployment fears mounted. This produced still more stock market volatility, and raised new questions within the corporate bond market.
 
Emphasizing Quality and Liquidity
The spread between the yields on corporate bonds and Treasuries, which was quite wide six months age, tightened somewhat through the spring and summer (though they have since widened again, dramatically). The changeable economic environment has demanded that we take a cautious approach to corporate bonds.
 
We are not turning away from the true opportunities available in this sector of the marketplace, but we are striving to improve both the quality and liquidity of our holdings. In the primary market for corporate debt, for example, we have been taking advantage of concessions being offered, but are only looking at the most liquid names and are diversifying broadly. We have also been adding some intermediate Treasuries to the portfolio. These offer far better value than their short-term brethren.
 
September’s Events
It is difficult to overstate the shock felt on September 11. Almost immediately after the terrorist attacks, the economic slowdown and erosion of consumer confidence we had seen in preceding months accelerated. It is clear that these events will resound for some time to come, and we are prepared for the uncertain environment that lies ahead. The loss of consumer confidence is troubling, as consumer spending accounts for two-thirds of U.S. economic activity.
 
More positive signs are coming from the federal government, which has been quick to complement the Fed’s monetary stimulus with fiscal stimulus. It may take time for these measures to take hold and for the markets to settle down, but we do believe they will have positive impact in helping the economy to heal. As that happens, we believe the risk premium corporate bonds currently carry should shrink a little bit, but we anticipate keeping our cautious outlook with respect to these bonds for some time to come.
 
Sincerely,
 
/s/    Mark D. Pittman, CFA
 
Mark D. Pittman, CFA
Manager, Marshall Intermediate Bond Fund
 
[PHOTO OF MARK D. PITTMAN]
 
 
n  Marshall Intermediate Bond Fund
 
  *
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **
The LGCI and the LSIBF are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The LGCI is an index comprised of government and corporate bonds rated BBB or higher with maturities between 1-10 years. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 4.75% ($10,000 investment minus $475 sales charge = $9,525). The Fund’s performance assumes the reinvestment of all dividends and distributions. The LGCI and the LSIBF have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †
Total returns quoted reflect all applicable sales charges.
 
 ††
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
Annual Report—Commentary
 
Marshall Short-Term Income Fund
The Marshall Short-Term Income Fund (the “Fund”) seeks to maximize total return consistent with current income. Fund assets are invested in short- to intermediate-term investment grade bonds and notes, including corporate, asset-backed, mortgage-backed, and U.S. government securities. The Adviser changes the Fund’s weightings in these sectors as it deems appropriate and uses macroeconomic, credit and market analysis to select portfolio securities. The Fund maintains an average dollar-weighted maturity of six months to three years.
 
Fund Performance
For the period from the Fund’s inception on October 31, 2000 through August 31, 2001, the Fund provided a total return of 8.15%,* based on net asset value, versus a 8.50% return for the Merrill Lynch 1-3 Year U.S. Government/Corporate Index (ML13) and a 8.27% return for the Lipper Short-Term Investment Grade Bond Fund Index (LSTIBI).**
 
Economy Continues to Slow
The second half of the Fund’s fiscal year was generally marked by a continuation of the trends seen in the previous six months. The pace of economic growth slowed considerably, with the country teetering toward recession. The Federal Reserve Board (the “Fed”) continued its campaign of aggressive interest rate cuts. From January through August, the Fed made seven cuts to the Federal Funds target rate, totaling 300 basis points.
 
These cuts in short-term interest rates led to a marked steepening of the yield curve—a dramatic change from its inverted profile just over a year ago. Additional pressure on the short end of the curve came from a flight to quality, particularly in the late summer, as investors discouraged by economic uncertainty and volatile equity markets flocked to the relative safety of short-term Treasury securities.
 
Nonetheless, for most of the 12-month reporting period, consumer spending remained surprisingly strong in the face of the faltering economy. In the summer, however, even consumers were beginning to grow somewhat more wary as unemployment fears mounted. This produced still more stock market volatility, and raised new questions within the corporate bond market.
 
Quality and Liquidity Are Priorities
The spread between the yields on corporate bonds and Treasuries, which was quite wide six months ago, tightened somewhat through the spring and summer (though they have since widened again, dramatically). The changeable economic environment has demanded that we take a cautious approach to corporate bonds. We are not turning away from the true opportunities available in this sector of the marketplace, but we are striving to improve both the quality and liquidity of our holdings. We have, for example, been taking advantage of concessions being offered in the primary market for corporate debt, buying only the most liquid names and diversifying broadly.
 
September’s Events
On September 11, the nation and the world were rocked by terrorist attacks. Almost immediately, the economic slowdown and erosion of consumer confidence accelerated. The repercussions of these events will certainly be felt for some time to come, and we are prepared for the uncertain environment that lies ahead. The loss of consumer confidence is troubling, as consumer spending accounts for two-thirds of U.S. economic activity.
 
More positive signs are coming from the federal government, which has been quick to complement the Fed’s monetary stimulus with fiscal stimulus. It may take time for these measures to take hold and for the markets to settle down, but we do believe they will have positive impact in helping the economy to heal. As that happens, we believe the risk premium corporate bonds currently offer should shrink a little bit, but we anticipate keeping our cautious outlook with respect to these bonds for some time to come.
 
Sincerely,
 
/s/    Mark D. Pittmanm
 
Mark D. Pittman, CFA
Manager, Marshall Short-Term Income Fund
 
[PHOTO OF MARK D. PITTMAN]
n  Marshall Short-Term Income Fund
 
  * 
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 ** 
The ML13 and LSTIBI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The ML13 is an index tracking short-term U.S. government and corporate securities with maturities between 1 and 2.99 years. The index is produced by Merrill Lynch Pierce Fenner & Smith. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
*** 
Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge = $9,800). The Fund’s performance assumes the reinvestment of all dividends and distributions. The ML13 and LSTIBI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  † 
Total returns quoted reflect all applicable sales charges.
 
 †† 
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
Annual Report—Commentary
 
Marshall Money Market Fund
The Marshall Money Market Fund (the “Fund”) invests in high-quality, short-term money market instruments.* The Adviser uses a bottom-up approach, meaning that the Fund manager looks primarily at individual securities against the context of broader market factors.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 5.00%,** based on net asset value. This compares with a return of 4.95% for the Money Fund Report Averages™ and 5.05% for the Lipper Money Market Funds Index.*** As of August 31, 2001, the Fund’s 7-day net yield was 3.16%.†
 
A Continuation of Most Trends
The past six months have been characterized by continuing signs of an economic slowdown and possible recession. The Federal Reserve Board (the “Fed”) has remained aggressive in its efforts to support the economy by cutting the federal funds target rate. From January through August, the Fed cut rates on seven occasions for a total of 300 basis points. Consumer spending remained surprisingly strong for most of the year, waning only in the late summer as concerns about possible unemployment grew.
 
Our strategy remained largely unchanged over the reporting period. Floating-rate notes continued to play a significant role in the portfolio, as they offer positive yield characteristics. The selective addition of one-year paper also helped us to pursue our goal of providing an attractive yield, particularly challenging in light of the Fed’s rate cuts. Bottom-up credit research has remained crucial to our selection process.
 
Constrained supply has continued to be a factor in the marketplace. With companies scaling back their once-ambitious plans for growth and burning off inventory, there has been less need for them to fund their continuing operations by issuing debt. Downgrades have taken other securities out of the money market realm.
 
Changes Since September 11
The cataclysmic events of mid-September accelerated many of the trends that were already in place. Consumer spending dropped suddenly, the economy was generally acknowledged as having entered a recession, and the Fed stepped in quickly to cut interest rates further. It is unclear how long these difficulties will last or how deep their impact will be, but the government’s willingness to offer fiscal stimulus to complement the Fed’s monetary actions is a positive sign.
 
We will be closely monitoring consumer confidence in coming months. If consumer spending bounces back, that may help to limit the recession’s severity. If, however, economic weakness and an uncertain global environment cause consumers to continue their retreat, there may be cause for greater concern.
 
Sincerely,
 
 
/s/  Richard M. Rokus, CFA

Richard M. Rokus, CFA
Manager, Marshall Money Market Fund

 
 
  *An investment in money market funds is neither issued nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds.
 
 **Past performance is no guarantee of future results. Yields may vary. Yields quoted for money market funds most closely reflect the fund’s current earnings.
 
***Money Fund Report™, a service of iMoneyNet, Inc. (formerly IBC Financial Data) publishes annualized yields of hundreds of money market funds on a weekly basis, and through its Money Market Insight publication reports monthly and year-to-date investment results for the same money funds. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
  †The 7-day net annualized yield is based on the average net income per share for the 7 days ended on the date of calculation and the offering price on that date. The 7-day effective yield is annualized and reflects daily compounding of the 7-day net yield.
 
August 31, 2001
Schedule of Investments 
  
 
 
Equity Income Fund
 
Shares    Description      Value
 
        Common Stocks — 96.7%
        Consumer Discretionary — 5.3%
        Automotive & Related — 1.4%
13,000      Dana Corp.      $        254,800
161,954      Ford Motor Co.      3,218,026
40,000      General Motors Corp.      2,190,000
           
          Total      5,662,826
        Homebuilder — 0.2%
30,650      KB Home      992,140
        Household Products/Wares — 0.3%
53,500      Newell Rubbermaid, Inc.      1,225,150
        Leisure & Recreation — 0.5%
35,000      Brunswick Corp.      762,650
36,000      Carnival Corp.      1,126,080
           
          Total      1,888,730
        Manufacturing — 0.5%
33,000      V.F. Corp.      1,140,810
15,000      Whirlpool Corp.      990,300
           
          Total      2,131,110
        Photographic Products — 0.4%
38,000      Eastman Kodak Co.      1,697,460
        Publishing & Printing — 1.0%
33,500      Gannett Co., Inc.      2,065,610
15,500      McGraw-Hill Cos., Inc.      918,375
25,000      New York Times Co., Class A      1,068,750
           
          Total      4,052,735
        Retail — 1.0%
55,000      Limited, Inc.      775,500
46,200      May Department Stores Co.      1,554,630
48,000      Sears, Roebuck & Co.      2,052,000
           
          Total      4,382,130
           
       Total Consumer Discretionary        22,032,281
        Consumer Staples — 13.3%
        Beverages & Foods — 7.2%
45,000      Anheuser-Busch Cos., Inc.      1,936,800
208,500      Coca-Cola Co.      10,147,695
37,000      Coors Adolph Co., Class B      1,713,100
50,000      Heinz (H.J.) Co.      2,259,000
147,550      PepsiCo, Inc.      6,934,850
125,500      Sara Lee Corp.      2,761,000
54,000      SUPERVALU, INC.      1,132,920
52,500      Unilever N.V., ADR      3,207,225
           
          Total      30,092,590
        Household Product/Wares — 3.7%
67,000      Clorox Co.      2,495,750
27,200      Colgate-Palmolive Co.      1,472,880
57,000      Kimberly-Clark Corp.      3,536,850
105,500      Procter & Gamble Co.      7,822,825
           
          Total      15,328,305
        Personal Care — 0.5%
75,500      (1)Gillette Co.      2,314,075
        Tobacco — 1.9%
171,500      Philip Morris Cos., Inc.      8,129,100
           
          Total Consumer Staples      55,864,070
        Energy — 11.4%
        Energy Services — 0.8%
111,100      Halliburton Co.      3,095,246
6,000      Schlumberger Ltd.      294,000
           
          Total      3,389,246
Shares    Description      Value
        Common Stocks (continued)
        Energy (continued)
        Domestic & International Oil — 9.5%
39,500      Chevron Corp.      $  3,584,625
469,552      Exxon Mobil Corp.       18,852,513
86,000      Occidental Petroleum Corp.      2,366,720
42,000      Phillips Petroleum Co.      2,415,000
152,600      Royal Dutch Petroleum Co., ADR      8,641,738
54,200      Texaco, Inc.      3,775,030
           
          Total      39,635,626
        Oil & Gas Products — 1.1%
14,000      Amerada Hess Corp.      1,087,940
19,000      Kerr-McGee Corp.      1,109,790
73,700      USX-Marathon Group      2,322,287
           
          Total      4,520,017
           
          Total Energy      47,544,889
        Financials — 23.8%
        Banks — 11.3%
144,000      Bank of America Corp.      8,856,000
47,300      Bank of New York Co., Inc.      1,877,810
98,500      Bank One Corp.      3,416,965
33,000      Charter One Financial, Inc.      963,600
26,000      Comerica, Inc.      1,553,500
22,000      Fifth Third Bancorp      1,282,600
114,000      First Union Corp.      3,923,880
133,620      Fleet Boston Financial Corp.      4,921,225
42,500      KeyCorp      1,066,750
37,000      Mellon Financial Corp.      1,304,250
46,000      National City Corp.      1,420,020
53,000      Regions Financial Corp.      1,558,200
30,000      SunTrust Banks, Inc.      2,049,000
150,400      U.S. Bancorp      3,645,696
51,400      Washington Mutual, Inc.      1,924,416
166,000      Wells Fargo & Co.      7,637,660
           
          Total      47,401,572
        Consumer Finance — 0.3%
23,000      Household International, Inc.      1,359,300
        Financial Services — 9.8%
14,500      Bear Stearns Cos., Inc.      756,755
405,538      Citigroup, Inc.      18,553,364
82,600      Fannie Mae      6,294,946
55,500      Freddie Mac      3,489,840
163,150      J.P. Morgan & Co., Inc.      6,428,110
102,500      Morgan Stanley      5,468,375
           
          Total      40,991,390
    
        Insurance — 2.4%
60,000      Allstate Corp.      2,035,800
12,000      Chubb Corp.      810,000
13,300      Hartford Financial Services
Group, Inc.		      861,840
37,250      Jefferson-Pilot Corp.      1,732,870
45,000      Lincoln National Corp.      2,243,700
23,500      Marsh & McLennan Cos., Inc.      2,183,150
           
          Total      9,867,360
           
          Total Financials      99,619,622
        Health Care — 14.2%
        Pharmaceuticals & Health Care — 14.2%
105,250      Abbott Laboratories      5,230,925
82,200      American Home Products Corp.      4,603,200
44,500      Bausch & Lomb, Inc.      1,618,465
179,600      Bristol-Myers Squibb Co.      10,082,744
28,000      CIGNA Corp.      2,520,000
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
Equity Income Fund (continued)
 
Shares    Description      Value
     Common Stocks (continued)
        Health Care (continued)
        Pharmaceuticals & Health Care (continued)
195,000      Johnson & Johnson      $10,278,450
97,950      Lilly (Eli) & Co.      7,603,858
186,700      Merck & Co., Inc.      12,154,170
135,500      Schering-Plough Corp.      5,166,615
           
          Total Health Care      59,258,427
        Industrials — 11.2%
        Aerospace & Defense — 2.1%
50,000      Boeing Co.      2,560,000
24,000      Goodrich Corp.      769,200
88,500      Honeywell International, Inc.      3,297,510
12,000      Northrop Grumman Corp.      984,000
58,000      Rockwell Collins      1,178,560
           
          Total      8,789,270
        Automotive & Related — 0.3%
16,200      Eaton Corp.      1,165,266
        Building Products — 0.2%
40,700      Masco Corp.      1,050,874
        Electrical Components — 0.8%
43,000      Emerson Electric Co.      2,304,800
58,000      Rockwell International Corp.      930,900
           
          Total      3,235,700
        Industrial Conglomerates — 4.5%
422,500      General Electric Co.      17,314,050
26,800      Textron, Inc.      1,404,052
           
          Total      18,718,102
        Machinery Industrial — 1.8%
48,000      Dover Corp.      1,724,160
33,000      Ingersoll-Rand Co.      1,338,810
32,000      Minnesota Mining &
Manufacturing Co.		      3,331,200
31,100      Parker-Hannifin Corp.      1,368,400
           
          Total      7,762,570
        Office Equipment — 0.6%
30,000      Avery Dennison Corp.      1,542,300
20,000      Pitney Bowes, Inc.      869,800
           
          Total      2,412,100
        Railroad — 0.5%
27,300      Burlington Northern Santa Fe      740,103
28,000      Union Pacific Corp.      1,491,560
           
          Total      2,231,663
        Services-Div./Commercial — 0.2%
28,500      Deluxe Corp.      935,370
        Trucking — 0.2%
35,000      Ryder Systems, Inc.      790,650
           
          Total Industrials      47,091,565
        Information Technology — 1.7%
        Telecommunications — 0.2%
54,000      Motorola, Inc.      939,600
        Other — 1.5%
166,000      NASDAQ 100 Shares      6,080,580
           
          Total Information Technology      7,020,180
        Materials — 3.9%
        Chemicals — 2.0%
57,608      Dow Chemical Co.      2,019,736
91,000      Du Pont (E.I.) de Nemours & Co.      3,728,270
22,000      Eastman Chemical Co.      853,380
Shares or
Principal
Amount		    Description      Value
     Common Stocks (continued)
        Materials (continued)
     Chemicals (continued)
29,000      Engelhard Corp.      $        757,770
16,250      PPG Industries, Inc.      879,450
           
          Total      8,238,606
        Gas Distribution — 0.3%
30,000      Praxair, Inc.      1,412,100
        Metals — 0.7%
79,000      Alcoa, Inc.      3,011,480
        Paper & Related Products — 0.9%
22,000      Boise Cascade Corp.      807,400
20,500      International Paper Co.      822,460
33,500      Weyerhaeuser Co.      1,901,125
           
          Total      3,530,985
           
          Total Materials      16,193,171
        Telecommunication Services — 7.0%
        Telecommunications — 7.0%
49,000      Alltel Corp.      2,842,000
301,932      SBC Communications, Inc.      12,352,038
34,500      Sprint Corp.      805,230
269,190      Verizon Communications,
Inc.		      13,459,500
           
          Total Telecommunications
Services		      29,458,768
        Utilities — 4.9%
        Electric — 3.0%
36,500      Consolidated Edison, Inc.      1,492,850
106,000      Duke Energy Corp.      4,166,860
23,000      Entergy Corp.      885,960
32,000      FPL Group, Inc.      1,739,200
40,000      PPL Corp.      1,734,000
35,000      Reliant Energy, Inc.      1,052,100
30,000      TXU Corp.      1,424,400
           
          Total      12,495,370
        Gas Distribution — 1.9%
59,200      El Paso Corp.      2,876,528
48,000      KeySpan Corp.      1,550,400
19,000      NICOR, Inc.      736,440
85,000      Williams Cos., Inc. (The)      2,766,750
           
          Total      7,930,118
           
          Total Utilities      20,425,488
           
        Total Common Stocks
(identified cost $333,686,576)		      404,508,461
        (2)U.S. Treasury Bill — 0.2%
940,000      9/13/2001 (identified cost
$938,920)		      939,312
           
        Total Investments in Securities
(identified cost $334,625,496)		      405,447,773
        (3)Repurchase Agreement — 2.7%
11,072,561      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      11,072,561
           
        Total Investments (identified
cost $345,698,057)		      $416,520,334
           
(See Notes which are an integral part of the Financial Statements)
 
August 31, 2001
Schedule of Investments 
  
 
 
Large-Cap Growth & Income Fund
 
Shares    Description      Value
 
        Common Stocks — 88.4%
        Consumer Discretionary — 10.2%
        Broadcasting — 1.3%
100,000      (4)Clear Channel
Communications, Inc.		      $5,027,000
        Diversified Operations — 1.6%
112,200      (1)Vivendi Universal SA, ADR      6,138,462
        Entertainment — 2.9%
234,350      (4)AOL Time Warner, Inc.      8,752,972
110,606      Disney (Walt) Co.      2,812,711
           
          Total      11,565,683
        Retail — 4.4%
108,300      Home Depot, Inc.      4,976,385
51,200      (4)Kohl’s Corp.      2,841,600
116,600      (1)Lowe’s Cos., Inc.      4,337,520
105,100      Wal-Mart Stores, Inc.      5,050,055
           
          Total      17,205,560
           
          Total Consumer Discretionary      39,936,705
        Consumer Staples — 7.1%
        Beverages & Foods — 3.2%
118,464      Coca-Cola Co.      5,765,643
145,300      PepsiCo, Inc.      6,829,100
           
          Total      12,594,743
        Retail — 1.3%
149,400      Walgreen Co.      5,131,890
        Tobacco — 2.6%
213,400      Philip Morris Cos., Inc.      10,115,160
           
          Total Consumer Staples      27,841,793
        Energy — 6.9%
        Domestic & International Oil — 6.9%
248,792      Exxon Mobil Corp.      9,988,999
123,900      Royal Dutch Petroleum Co., ADR      7,016,457
141,500      Texaco, Inc.      9,855,475
           
          Total Energy      26,860,931
        Financials — 11.7%
        Banks — 1.0%
95,500      Bank of New York Co., Inc.      3,791,350
        Financial Services — 5.7%
120,200      American Express Co.      4,377,684
165,933      Citigroup, Inc.      7,591,435
164,900      Federal Home Loan Mortgage
Corp.		      10,368,912
           
          Total      22,338,031
        Insurance — 5.0%
147,734      American International Group, Inc.      11,552,799
115,600      MGIC Investment Corp.      8,080,440
           
          Total      19,633,239
           
          Total Financials      45,762,620
        Health Care — 15.9%
        Pharmaceuticals & Health Care — 15.9%
159,500      Abbott Laboratories      7,927,150
78,940      American Home Products Corp.      4,420,640
100,000      (4) Amgen, Inc.      6,430,000
258,800      HCA, Inc.      11,837,512
94,840      Johnson & Johnson      4,999,016
124,700      Merck & Co., Inc.      8,117,970
192,200      Pfizer, Inc.      7,363,182
291,900      Schering Plough Corp.      11,130,147
           
          Total Health Care       62,225,617
Shares    Description      Value
 
        Common Stocks (continued)
        Industrials — 10.0%
        Aerospace & Defense — 3.1%
146,400      Boeing Co.      $7,495,680
125,000      Honeywell International,
Inc.		      4,657,500
           
          Total      12,153,180
        Electrical Equipment — 2.9%
220,600      Tyco International Ltd.      11,460,170
        Industrial Conglomerates — 4.0%
383,300      General Electric Co.      15,707,634
           
        Total Industrials      39,320,984
        Information Technology — 20.7%
        Computers — 4.1%
200,000      (1)Compaq Computer
Corp.		      2,470,000
100,200      Hewlett-Packard Co.      2,325,642
89,300      International Business
Machines Corp.		      8,930,000
208,100      (4)Sun Microsystems, Inc.      2,382,745
           
          Total      16,108,387
        Computer Services — 9.3%
200,000      (4)Agere Systems, Inc.,
Class A		      1,020,000
200,000      (4)Applied Micro Circuits
Corp.		      2,854,000
300,000      (4)BMC Software, Inc.      4,800,000
108,300      Electronic Data Systems
Corp.		      6,387,534
218,600      (4)Microsoft Corp.      12,471,130
150,000      Texas Instruments, Inc.      4,965,000
27,100      (4)Veritas Software Corp.      778,312
200,000      (4)Vitesse Semiconductor
Corp.		      2,920,000
           
          Total      36,195,976
        Communications — 1.6%
108,300      (4)QUALCOMM, Inc.      6,373,455
        Semiconductors — 5.2%
121,700      (4)Applied Materials, Inc.      5,244,053
201,400      Intel Corp.      5,631,144
113,200      Micron Technology, Inc.      4,257,452
162,400      (4)National
Semiconductor Corp.		      5,367,320
           
          Total      20,499,969
        Telecommunications — 0.5%
250,000      Lucent Technologies, Inc.      1,705,000
           
          Total Information
Technology		      80,882,787
        Telecommunication Services — 4.9%
        Telecommunications — 4.9%
150,000      AT&T Corp.      2,856,000
65,000      BellSouth Corp.      2,424,500
160,560      SBC Communications,
Inc.		      6,568,509
23,000      Sprint Corp. (FON Group)      536,820
225,000      (4)Sprint Corp.
(PCS Group)		      5,620,500
100,850      (4)WorldCom, Inc.-
WorldCom Group		      1,296,931
           
          Total Telecommunication
Services		      19,303,260
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
Large-Cap Growth & Income Fund (continued)
 
Shares or
Principal
Amount		    Description      Value
 
        Common Stocks (continued)
        Utilities — 1.0%
        Electric — 1.0%
104,100      Duke Energy Corp.      $    4,092,171
           
        Total Common Stocks (identified
cost $248,277,236)		      346,226,868
        Preferred Stocks — 0.5%
        Communications — 0.5%
30,000      Global Crossing Ltd., Conv.
Pfd., $16.88 (identified cost
$4,616,250)		      1,916,250
        Corporate Bonds — 0.9%
        Retail — 0.9%
$5,800,000      Kohl’s Corp., Sub. Note, Zero
Coupon, 6/12/2020
(identified cost $3,677,641)		      3,523,500
        (2)U.S. Treasury Bill — 0.5%
2,000,000      9/13/2001 (identified cost
$1,997,693)		      1,998,920
           
        Total Investments in Securities
(identified cost $258,568,820)		      353,665,538
        (3)Repurchase Agreement — 9.6%
37,791,985      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at amortized
cost)		      37,791,985
           
        Total Investments (identified cost
$296,360,805)		      $391,457,523
           
 
 
   Mid-Cap Value Fund
 
Shares    Description      Value
 
        Common Stocks — 84.4%
        Consumer Discretionary — 8.9%
        Automotive — 1.5%
35,000      Johnson Controls, Inc.      $    2,563,750
        Broadcasting — 1.8%
100,000      (4)Adelphia Communications
Corp., Class A		      3,155,000
        Household Products/Wares — 2.1%
160,000      Newell Rubbermaid, Inc.      3,664,000
        Manufacturing — 1.7%
170,000      Mattel, Inc.      3,058,300
        Retail — 1.8%
110,000      (1)Ross Stores, Inc.      3,223,000
           
          Total Consumer Discretionary      15,664,050
        Consumer Staples — 5.8%
        Beverages & Foods — 5.8%
100,000      (4)Kroger Co., Inc.      2,662,000
166,200      (4)Ralcorp Holdings, Inc.      3,360,564
200,000      SUPERVALU, Inc.      4,196,000
           
          Total Consumer Staples      10,218,564
        Energy — 5.7%
        Oil & Gas Products — 5.7%
65,000      Burlington Resources, Inc.      2,470,000
78,000      Noble Affiliates, Inc.      2,632,500
Shares    Description      Value
 
        Common Stocks (continued)
        Energy (continued)
        Oil & Gas Products (continued)
80,000      (4)Noble Drilling Corp.      $ 2,176,000
83,320      USX-Marathon Group      2,625,413
           
          Total Energy      9,903,913
        Financials — 7.5%
        Banks — 1.2%
61,500      Associated Banc Corp.      2,085,465
        Insurance — 5.8%
88,000      (1)ACE Ltd.      2,918,960
55,000      Jefferson-Pilot Corp.      2,558,600
26,000      MGIC Investment Corp.      1,817,400
95,000      SAFECO Corp.      2,857,600
           
          Total      10,152,560
        Services — 0.5%
50,000      (4)Phoenix Companies, Inc.      852,500
           
          Total Financials      13,090,525
        Health Care — 6.5%
        Equipment — 3.8%
180,000      (4)Boston Scientific Corp.      3,438,000
90,000      Guidant Corp.      3,250,800
           
          Total      6,688,800
        Pharmaceuticals & Health Care — 2.7%
40,000      (4)Manor Care, Inc.      1,125,200
110,000      (1)(4)Renal Care Group, Inc.      3,603,600
           
          Total      4,728,800
           
          Total Health Care      11,417,600
        Industrials — 20.3%
        Aerospace & Defense — 2.8%
37,500      Newport News Shipbuilding, Inc.      2,469,750
30,000      Northrop Grumman Corp.      2,460,000
           
          Total      4,929,750
        Electrical Components — 2.0%
100,000      (4)American Power Conversion
Corp.		      1,383,000
21,600      Brady Corp., Class A      790,560
80,700      Rockwell International Corp.      1,295,235
           
          Total      3,468,795
        Manufacturing — 2.0%
30,000      SPX Corp.      3,487,500
        Rail Road — 1.6%
80,000      CSX Corp.      2,827,200
        Services — 11.9%
103,000      (1)(4)Global Payments, Inc.      3,661,650
120,000      H&R Block, Inc.      4,669,200
100,000      Manpower, Inc.      3,082,000
100,000      (4)Republic Services, Inc.      1,985,000
284,500      (4)Spherion Corp.      2,591,795
100,000      Viad Corp.      2,630,000
90,000      (4)Watson Wyatt & Company
Holdings		      2,124,000
           
          Total      20,743,645
           
          Total Industrials      35,456,890
        Information Technology — 16.1%
        Computer Hardware — 0.9%
185,000      (1)(4)Gateway, Inc.      1,659,450
        Computer Services — 4.7%
183,500      (1)(4)American Management
System, Inc.		      3,240,610
180,000      (4)BMC Software, Inc.      2,880,000
120,100      (1)(4)Keane, Inc.      2,023,685
           
          Total      8,144,295
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Mid-Cap Value Fund (continued)
 
Shares or
Principal
Amount		    Description      Value
 
        Common Stocks (continued)
        Information Technology (continued)
        Electrical Equipment — 1.5%
90,000      (1)Hubbell, Inc., Class B      $    2,621,700
        Paper & Related Products — 1.8%
155,000      (4)Electronics for Imaging,
Inc.		      3,171,300
        Semiconductors — 2.5%
80,000      (4)National Semiconductor
Corp.		      2,644,000
55,000      (4)Teradyne, Inc.      1,802,900
           
          Total      4,446,900
        Services — 3.2%
190,000      (4)KPMG Consulting, Inc.      2,798,700
375,000      IKON Office Solutions, Inc.      2,812,500
           
          Total      5,611,200
        Telecommunications — 1.5%
120,000      (4)CommScope, Inc.      2,532,000
           
          Total Information
Technology		      28,186,845
        Materials — 8.8%
        Building Materials — 2.0%
86,000      Martin Marietta Materials,
Inc.		      3,397,000
        Metals — 1.4%
50,000      Nucor Corp.      2,430,000
        Paper & Related Products — 5.4%
75,000      Bowater, Inc.      3,558,000
165,000      (1)(4)Packaging Corp. of
America		      3,032,700
50,000      Temple-Inland, Inc.      2,918,000
           
          Total      9,508,700
           
          Total Materials      15,335,700
        Telecommunication Services — 4.8%
        Telecommunications — 4.8%
50,000      ALLTEL Corp.      2,900,000
30,000      Telephone and Data System,
Inc.		      3,097,500
185,000      WorldCom, Inc. — MCI
Group		      2,384,650
           
          Total Telecommunication
Services		      8,382,150
           
        Total Common Stocks
(identified cost $125,778,702)		      147,656,237
        (2)U.S. Treasury Bill — 0.3%
650,000      9/13/2001 (identified cost
$649,240)		      649,498
           
        Total Investments in Securities
(identified cost $126,427,942)		      148,305,735
        (3)Repurchase Agreement — 16.9%
 29,529,944      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      29,529,944
           
        Total Investments (identified
cost $155,957,886)		      $177,835,679
           
 
Mid-Cap Growth Fund
 
Shares    Description      Value
        Common Stocks — 87.9%
        Consumer Discretionary — 18.5%
        Broadcasting — 9.8%
535,000      (4)Adelphia Communications
Corp., Class A		      $16,879,250
155,000      (4)Cox Radio, Inc., Class A      3,876,550
60,000      (4)Insight Communications Co.,
Inc.		      1,367,400
50,000      (1)(4)Mediacom Communications
Corp.		      864,000
350,000      (4)USA Networks, Inc.      8,106,000
60,000      (4)Westwood One, Inc.      1,710,000
           
          Total      32,803,200
        Leisure & Recreation — 7.2%
260,000      (4)Bally Total Fitness Holding
Corp.		      6,611,800
240,000      Callaway Golf Co.      4,348,800
100,000      (1)Harley Davidson, Inc.      4,859,000
510,000      (4)Six Flags, Inc.      8,481,300
           
          Total      24,300,900
        Retail — 1.5%
105,000      (4)BJ’s Wholesale Club, Inc.      5,145,000
           
          Total Consumer Discretionary      62,249,100
        Consumer Staples — 0.6%
        Food-Wholesale Distribution — 0.6%
55,000      (4)Performance Food Group Co.      1,856,800
        Energy — 4.4%
        Domestic & International Oil — 0.8%
200,000      (4)Marine Drilling Cos., Inc.      2,580,000
        Oil & Gas Products — 3.6%
70,000      Devon Energy Corp.      3,238,900
110,000      (4)Global Marine, Inc.      1,584,000
125,000      (4)Nabors Industries, Inc.      3,065,000
130,000      Noble Affiliates, Inc.      4,387,500
           
          Total      12,275,400
           
          Total Energy      14,855,400
        Financials — 15.9%
        Insurance — 12.4%
202,000      (1)Ambac Financial Group, Inc.      11,958,400
77,500      Everest Re Group Ltd.      5,029,750
150,000      Lincoln National Corp.      7,479,000
75,000      MGIC Investment Corp.      5,242,500
40,000      PMI Group, Inc.      2,608,000
190,000      PartnerRe Ltd.      9,376,500
           
          Total      41,694,150
        Short-Term Business Credit — 3.5%
225,000      Heller Financial, Inc.      11,983,500
           
          Total Financials      53,677,650
        Health Care — 17.2%
        Pharmaceuticals & Health Care — 17.2%
162,500      (4)Accredo Health, Inc.      5,988,125
100,000      (4)AmerisourceBergen Corp.      6,444,000
85,000      (4)IDEC Pharmaceuticals Corp.      5,037,950
172,500      (1)(4)InterMune, Inc.      6,812,025
175,000      (4)King Pharmaceuticals, Inc.      7,568,750
100,000      (1)(4)Luminex Corp.      1,935,000
125,000      (4)Manor Care, Inc.      3,516,250
125,000      (4)Quest Diagnostic, Inc.      7,831,250
150,000      (4)RehabCare Group, Inc.      6,079,500
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Mid-Cap Growth Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Health Care (continued)
        Pharmaceuticals & Health Care (continued)
300,000      (1)(4)Service Corp. International      $ 2,079,000
100,000      (4)Universal Health Services, Inc.,
Class B		      4,730,000
           
          Total Health Care      58,021,850
        Industrials — 9.0%
        Computer Services — 5.1%
80,000      (4)BISYS Group, Inc.      4,632,000
150,000      (4)Concord EFS, Inc.      7,870,500
175,000      IMS Health, Inc.      4,658,500
           
          Total      17,161,000
        Electrical Equipment — 0.9%
96,250      (1)Molex, Inc.      3,038,613
        Services — 3.0%
95,000      (4)Sabre Holdings Corp.      4,007,100
255,000      (1)(4)Tetra Tech, Inc.      6,114,900
           
          Total      10,122,000
           
          Total Industrials      30,321,613
        Information Technology — 17.5%
        Computer Services — 6.9%
175,000      (1)(4)Eclipsys Corp.      4,506,250
210,000      (4)Intuit, Inc.      7,933,800
145,000      (1)(4)Manhattan Associates, Inc.      3,284,250
175,000      (4)Mentor Graphics Corp.      2,887,500
175,000      (4)Peregrine Systems, Inc.      4,581,500
           
          Total      23,193,300
        Electrical Equipment — 3.0%
225,000      (1)(4)Flextronics International Ltd.      4,936,500
100,000      (4)Optimal Robotics Corp.      4,360,000
405,000      (4)Viasystems Group, Inc.      911,250
           
          Total      10,207,750
        Product Security — 1.9%
105,000      (4)Internet Security Systems, Inc.      1,641,150
35,000      (1)(4)Macrovision Corp.      1,526,350
175,000      (1)(4)SonicWall, Inc.      3,274,250
           
          Total      6,441,750
        Semiconductors — 2.3%
165,000      (4)Chartered Semiconductor
Manufacturing Ltd., ADR		      4,420,350
95,000      (4)Microchip Technology, Inc.      3,390,550
           
          Total      7,810,900
        Telecommunications — 3.4%
700,000      (4)ADC Telecommunications, Inc.      3,059,000
250,000      (4)CommScope, Inc.      5,275,000
150,000      Scientific-Atlanta, Inc.      3,081,000
           
          Total      11,415,000
           
          Total Information Technology      59,068,700
        Telecommunication Services — 1.7%
        Telecommunications — 1.7%
190,000      (1)(4)American Tower Systems
Corp.		      2,749,300
310,000      (1)(4)Crown Castle International
Corp.		      3,158,900
           
          Total Telecommunication Services      5,908,200
Shares or
Principal
Amount		    Description      Value
        Common Stocks (continued)
        Utilities — 3.1%
        Electric — 3.1%
355,000      (1)(4)NRG Energy, Inc.      $    6,532,000
150,000      (4)NiSource, Inc.      3,781,500
           
          Total Utilities      10,313,500
           
        Total Common Stocks
(identified cost $297,487,895)		      296,272,813
        (2)U.S. Treasury Bill — 0.3%
$  1,000,000      9/13/2001 (identified cost
$998,836)		      998,836
           
        Total Investments in Securities
(identified cost $298,486,731)		      297,271,649
        (3)Repurchase Agreement — 13.3%
 44,663,390      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      44,663,390
           
        Total Investments (identified
cost $343,150,121)		      $341,935,039
           
 
 
Small-Cap Growth Fund
 
Shares    Description      Value
 
        Common Stocks — 91.6%
        Consumer Discretionary — 33.2%
        Broadcasting — 2.3%
55,000      (4)Insight Communications Co.      $1,253,450
125,000      (4)Spanish Broadcasting System,
Inc., Class A		      1,163,750
           
          Total      2,417,200
        Leisure & Recreation — 20.9%
70,000      (4)Argosy Gaming Co.      2,081,100
135,000      (4)Bally Total Fitness Holding
Corp.		      3,433,050
50,000      (4)Gtech Holdings Corp.      1,649,000
65,000      (4)Harrah’s Entertainment, Inc.      1,857,700
300,000      (4)Hollywood Casino Corp.,
Class A		      2,043,000
150,000      (1)Intrawest Corp.      2,838,000
200,000      (1)(4)Midway Games, Inc.      2,930,000
100,000      (1)(4)Orient-Express Hotels Ltd.,
Class A		      2,008,000
90,000      (1)Royal Caribbean Cruises Ltd.      2,100,600
75,000      (4)WMS Industries, Inc.      1,596,000
           
          Total      22,536,450
        Retail — 10.0%
50,000      (4)Abercrombie & Fitch Co.,
Class A		      1,517,000
50,000      (4)Barnes & Noble, Inc.      2,023,500
45,000      (4)Dollar Tree Stores, Inc.      1,067,850
150,000      (4)Galyan’s Trading Co.      1,800,000
400,000      (1)(4)Gymboree Corp.      3,120,000
50,000      (4)Tweeter Home Entertainment
Group, Inc.		      1,281,000
           
          Total      10,809,350
           
          Total Consumer Discretionary      35,763,000
        Consumer Staples — 7.1%
        Broadcasting — 2.8%
265,000      (1)(4)Pegasus Communications
Corp.		      3,047,500
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Small-Cap Growth Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Consumer Staples (continued)
        Movies & Entertainment — 1.5%
150,000      (4)Alliance Atlantis
Communications Corp., Class B		      $1,591,500
        Services — 2.8%
115,000      (1)(4)Steiner Leisure Ltd.      3,045,280
           
          Total Consumer Staples      7,684,280
        Energy — 3.0%
        Domestic & International Oil — 1.2%
30,000      (4)Cal Dive International, Inc.      525,000
80,000      (4)Energy Partners Ltd.      732,000
           
          Total      1,257,000
        Oil & Gas Products — 1.8%
30,000      Noble Affiliates, Inc.      1,012,500
75,000      (4)Pride International, Inc.      982,500
           
          Total      1,995,000
           
          Total Energy      3,252,000
        Financials — 6.7%
        Banks — 1.7%
50,000      Cullen Frost Bankers, Inc.      1,787,500
        Insurance — 5.0%
60,000      Gallagher (Arthur J.) & Co.      1,590,600
60,000      Radian Group, Inc.      2,406,600
20,000      RenaissanceRe Holdings Ltd.      1,427,000
           
          Total      5,424,200
           
          Total Financials      7,211,700
        Health Care — 13.5%
        Medical Supplies — 5.5%
240,000      (1)(4)Aspect Medical Systems, Inc.      3,057,600
50,000      (4)Cryolife, Inc.      1,788,500
230,500      (1)(4)Sonic Innovations, Inc.      1,037,250
           
          Total      5,883,350
        Pharmaceuticals & Health Care — 8.0%
37,000      (1)(4)Alexion Pharmaceuticals, Inc.      697,450
25,000      (1)(4)Cerus Corp.      1,345,500
85,000      (4)InterMune, Inc.      3,356,650
90,000      (4)Triad Hospitals, Inc.      3,253,500
           
          Total      8,653,100
           
          Total Health Care      14,536,450
        Industrials — 1.1%
        Services — 1.1%
50,000      (4)Tetra Tech, Inc.      1,199,000
        Information Technology — 24.5%
        Aerospace/Defense — 1.4%
175,000      (4)Aeroflex, Inc.      1,548,750
        Computer Services — 0.5%
30,000      (4)Digital Insight Corp.      512,100
        Electrical Equipment — 5.3%
432,500      (1)(4)ACT Manufacturing, Inc.      4,523,950
550,000      (4)Viasystems Group, Inc.      1,237,500
           
          Total      5,761,450
        Semiconductor — 9.9%
125,000      (4)Centillium Communications, Inc.      1,537,500
105,000      (4)Entegris, Inc.      1,260,000
75,000      (4)Exar Corp.      1,518,750
192,500      Multilink Technology Corp.      1,819,125
60,000      (4)Triquint Semiconductor, Inc.      1,272,000
279,000      (4)Virata Corp.      3,294,990
           
          Total      10,702,365
Shares or
Principal
Amount		    Description      Value
 
        Common Stocks (continued)
        Information Technology (continued)
        Software — 4.6%
300,000      (4)Interwoven, Inc.      $2,445,000
493,250      (4)Kana Software, Inc.      419,263
300,000      (4)Vignette Corp.      2,049,000
           
          Total      4,913,263
              
        Telecommunication Equipment — 0.2%
75,000      (4)Next Level
Communication, Inc.		      175,500
        Wireless Infrastructure — 2.6%
165,000      (4)Powerwave Technologies,
Inc.		      2,409,000
115,000      (4)WJ Communications, Inc.      379,500
           
          Total Information
Technology		      26,401,928
        Telecommunication Services — 2.5%
        Wireless — 2.5%
30,000      (4)AirGate PCS, Inc.      1,768,200
90,000      (4)UbiquiTel, Inc.      882,000
           
          Total Telecommunication
Services		      2,650,200
           
        Total Common Stocks
(identified Cost $93,848,517)		      98,698,558
        (2)U.S. Treasury Bill — 1.2%
$1,255,000      9/13/2001 (identified cost
$1,253,553)		      1,254,322
           
        Total Investments In Securities
(identified cost $95,102,070)		      99,952,880
        (3)Repurchase Agreement — 14.2%
15,266,120      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      15,266,120
           
        Total Investments (identified
cost $110,368,190)		      $115,219,000
           
 
 
International Stock Fund
 
Shares    Description      Value
 
        Common Stocks — 98.2%
        Australia — 0.9%
        Banks — 0.6%
119,800      National Australia Bank Ltd.,
Melbourne		      $2,097,062
        Insurance — 0.3%
100,000      AMP Ltd.      1,037,311
           
          Total Australia      3,134,373
        Belgium — 0.9%
        Banks — 0.9%
202,200      Dexia      3,191,116
        Bermuda — 1.5%
        Industrial Conglomerates — 1.0%
65,900      Tyco International Ltd.      3,423,505
        IT Consulting & Services — 0.5%
134,500      (4)Accenture Ltd.      2,004,050
           
          Total Bermuda      5,427,555
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
International Stock Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Brazil — 1.5%
        Aerospace & Defense — 0.3%
44,100      (4)Embraer—Empresa Brasileira de
Aeronautica SA, ADR		      $1,151,010
        Metals & Mining — 0.7%
128,300      Companhia Vale Do Rio Doce, ADR      2,580,113
        Oil & Gas Integrated — 0.5%
70,100      Petroleo Brasileiro SA, ADR      1,577,250
           
          Total Brazil      5,308,373
        Canada — 1.4%
        Banks — 0.9%
104,700      Royal Bank of Canada, Montreal      3,355,622
        Financial Services — 0.5%
57,300      Manulife Financial Corp.      1,688,016
           
          Total Canada      5,043,638
        Denmark — 0.3%
        Banks — 0.3%
71,000      Danske Bank AS      1,204,844
        Finland — 0.7%
        Telecommunications — 0.7%
162,900      Nokia Oyj, Class A, ADR      2,564,046
        France — 13.4%
        Automotive — 0.6%
41,800      Peugeot SA      1,993,120
        Banks — 0.8%
32,600      BNP Paribas SA      2,993,303
        Beverages & Foods — 0.6%
14,700      Groupe Danone      2,000,556
        Building Materials — 0.8%
19,800      Compagnie de St. Gobain      3,042,030
        Chemicals — 0.3%
7,000      L’Air Liquide      989,555
        Construction Equipment — 0.6%
14,200      (1)Technip      2,101,621
        Construction Materials — 0.2%
9,900      Lafarge SA      898,659
        Domestic & International Oil — 2.0%
49,600      Total Fina SA, Class B      7,336,364
        Electrical Equipment — 0.5%
35,200      Schneider SA      1,952,019
        Health Care — 0.7%
36,400      Aventis SA      2,663,845
        Health Care Equipment & Supplies — 0.6%
6,600      Essilor International      1,976,420
        Leisure & Recreation — 1.1%
96,500      Accor SA      3,781,083
        Media — 1.1%
71,200      Vivendi Universal SA      3,896,621
        Metals & Mining — 0.8%
58,400      Pechiney SA, Class A      2,882,865
        Multi Media — 0.4%
46,200      (4)Thomson Multimedia      1,310,833
        Pharmaceuticals & Health Care — 0.3%
15,400      Sanofi Synthelabo SA      1,008,710
        Specialty Retail — 0.8%
51,600      Castorama Dubois      2,884,938
        Water Treatment — 1.2%
61,400      Suez SA      2,093,203
53,900      (1)(4)Vivendi Environment      2,291,753
           
          Total      4,384,956
           
          Total France      48,097,498
Shares    Description      Value
 
        Common Stocks (continued)
        Germany — 7.9%
        Automotive — 1.1%
120,800      Bayerische Motoren Werke AG      $3,882,112
        Chemicals — 0.8%
66,400      (1)BASF AG      2,716,391
        Drugs — 0.8%
56,800      Schering AG      2,961,375
        Industrial Conglomerates — 0.4%
25,800      Siemens AG      1,314,875
        Insurance — 1.5%
18,850      Muenchener Rueckversicherungs-
Gesellschaft AG		      5,408,290
        Leisure & Recreation — 0.9%
105,300      Preussag AG      3,333,257
        Oil & Gas Products — 0.6%
38,800      (1)E.On AG      2,118,148
        Software — 0.7%
17,800      SAP AG (Systeme, Anwendungen,
Produkte in der
Datevnerarbeitung)		      2,412,410
        Telecommunications — 0.5%
127,200      Deutsche Telekom AG      1,960,056
        Textiles & Apparel — 0.6%
31,500      Adidas AG      2,135,149
           
          Total Germany      28,242,063
        Hong Kong — 2.4%
        Banks—0.5%
161,300      HSBC Holdings PLC      1,878,215
        Distribution & Wholesale — 0.4%
1,228,000      Li & Fung Ltd.      1,542,931
        Land & Real Estate — 0.5%
189,000      Sun Hung Kai Properties Ltd      1,647,756
        Telecommunications — 1.0%
1,149,500      (4)China Mobile (Hong Kong) Ltd.      3,588,641
           
          Total Hong Kong      8,657,543
        Ireland — 2.5%
        Banks — 2.1%
239,400      Allied Irish Banks, PLC      2,705,247
514,400      Bank of Ireland      4,905,554
           
          Total      7,610,801
        Pharmaceuticals & Health Care — 0.4%
29,200      (4)Elan Corp. PLC, ADR      1,516,940
           
          Total Ireland      9,127,741
        Israel — 0.2%
        Computers Services — 0.2%
21,000      (4)Check Point Software
Technologies Ltd.		      671,790
        Italy — 2.5%
        Banks — 0.7%
737,000      Banca Intesa SPA      2,458,925
        Insurance — 1.0%
121,600      Assicurazioni Generali      3,852,548
        Oil & Gas Products — 0.8%
212,500      (1)ENI SPA      2,820,483
           
          Total Italy      9,131,956
        Japan — 11.7%
        Air Freight & Couriers — 0.5%
91,000      Yamato Transport      1,866,215
        Automotive — 0.6%
344,000      Nissan Motor Co., Ltd.      2,010,662
        Banks — 1.2%
688,000      Asahi Bank Ltd.      1,297,949
495,000      (1)Sumitomo Trust & Banking      3,160,062
           
          Total      4,458,011
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
International Stock Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Japan (continued)
        Beverages & Foods — 0.5%
175,000      Asahi Breweries      $1,746,536
        Computers & Peripherals — 0.7%
194,000      NEC Corp.      2,370,775
        Construction & Engineering — 0.9%
356,000      JGC Corp.      3,133,195
        Electrical Equipment & Instruments — 0.5%
205,000      Hitachi Ltd.      1,681,644
        Electronics — 0.8%
67,200      Sony Corp.      2,993,961
        Financial Services — 1.1%
253,000      (1)Daiwa Securities Co., Ltd.      2,143,580
107,000      Nomura Securities Co., Ltd.      1,820,356
           
          Total      3,963,936
        Household Products — 0.5%
72,000      Kao Corp.      1,831,305
        Leisure & Recreation — 0.8%
5,700      Nintendo Corp., Ltd.      909,715
125,000      (1)Sega Enterprises      2,042,363
           
          Total      2,952,078
        Machinery — 0.5%
492,000      Mitsubishi Heavy Industries Ltd.      2,009,685
        Machinery & Machine Tools — 0.4%
372,000      Komatsu Ltd.      1,356,601
        Pharmaceuticals & Health Care — 1.1%
242,000      (1)Chugai Pharmaceutical Co., Ltd.      3,907,138
        Retail — 0.4%
421,000      (1)Mitsukoshi Ltd.      1,464,379
        Telecommunications — 1.2%
355      NTT DoCoMo, Inc.      4,365,183
           
          Total Japan      42,111,304
        Korea, Republic of — 1.4%
        Banks — 0.1%
29,090      Kookmin Bank      391,203
        Electronics — 0.3%
6,930      Samsung Electronics Co.      1,029,476
        Metals & Mining — 0.5%
103,200      Pohang Iron and Steel Co., Ltd.,
ADR		      1,796,712
        Telecommunications — 0.5%
91,900      Korea Telecom Corp., ADR      1,910,601
           
          Total Korea, Republic of      5,127,992
        Mexico — 1.4%
        Beverages & Foods — 0.6%
56,400      (4)Fomento Economico Mexicano,
SA de CV, ADR		      2,199,600
        Broadcasting & Cable TV — 0.8%
74,900      Grupo Televisa SA, GDR      2,733,850
           
          Total Mexico      4,933,450
        Netherlands — 9.2%
        Beverages & Foods — 1.1%
48,600      Heineken NV      2,039,011
60,500      Koninklijke Numico NV      1,999,270
           
          Total      4,038,281
        Chemicals — 1.1%
88,500      Akzo Nobel NV      3,918,176
        Domestic & International Oil — 2.2%
140,000      Royal Dutch Petroleum Co.      7,945,716
        Financial Services — 2.9%
323,800      ING Group NV      10,232,182
Shares    Description      Value
 
        Common Stocks (continued)
        Netherlands (continued)
        Food & Drug Retailing—1.3%
158,000      (1)Ahold NV      $ 4,719,938
        Insurance — 0.6%
72,900      Aegon NV      2,199,614
           
          Total Netherlands      33,053,907
        Norway — 0.4%
        Leisure & Recreation — 0.4%
69,600      Royal Caribbean Cruises Ltd.      1,598,763
        Spain — 2.3%
        Banks — 0.5%
202,700      Banco Santander Central Hispano,
SA		      1,848,274
        Broadcasting & Cable TV — 0.3%
39,848      (4)Sogecable SA      878,838
        Leisure & Recreation — 1.1%
530,555      (4)Amadeus Global Travel
Distribution SA		      4,070,845
        Telecommunications — 0.4%
132,500      (1)Telefonica SA      1,539,424
           
          Total Spain      8,337,381
        Sweden — 3.1%
        Banks — 1.9%
500,400      Nordbanken Holding AB      3,047,474
260,400      Svenska Handelsbanken AB,
Class A		      3,733,629
           
          Total      6,781,103
        Household Product/Wares — 0.7%
180,700      Electrolux AB, Class B      2,443,578
        Paper & Forest Products — 0.5%
87,000      Svenska Cellulosa AB, Class B      2,019,220
           
          Total Sweden      11,243,901
        Switzerland — 6.0%
        Banks — 2.4%
11,700      Julius Baer Holding Ltd., Zurich,
Class B		      3,821,467
99,000      UBS AG      4,829,558
           
          Total      8,651,025
        Beverages & Foods — 1.5%
24,500      Nestle SA      5,168,405
        Construction Materials — 1.0%
17,250      Holcim Ltd.      3,566,613
        Insurance — 0.8%
28,000      Swiss Re      2,785,569
        Pharmaceuticals & Health Care — 0.3%
33,600      (1)Novartis AG      1,225,315
           
          Total Switzerland      21,396,927
        Taiwan  — 0.8%
        Electrical Equipment — 0.8%
214,000      (4)Taiwan Semiconductor
Manufacturing Co., ADR		      2,777,720
        United Kingdom — 24.4%
        Banks — 3.5%
410,500      Lloyds TSB Group PLC      4,234,613
206,500      Royal Bank of Scotland PLC,
Edinburgh		      5,156,856
273,500      Standard Chartered PLC      3,323,681
           
          Total      12,715,150
        Beverages & Foods — 1.1%
382,700      Diageo PLC      3,861,711
        Domestic & International Oil — 1.0%
440,800      BP Amoco PLC      3,740,784
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
International Stock Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        United Kingdom (continued)
        Drugs — 0.7%
55,200      AstraZeneca PLC      $  2,666,419
        Electric Utilities — 0.5%
502,800      Innogy Holdings PLC      1,686,334
        Financial Services — 0.4%
113,500      Amvescap PLC      1,598,469
        Gas Distribution — 0.4%
335,000      BG Group PLC      1,391,065
        Leisure & Recreation — 3.2%
388,000      Bass PLC      4,151,793
1,248,900      Hilton Group PLC      4,415,330
443,600      (4)P&O Princess Cruises PLC      2,383,031
65,360      Whitbread PLC      578,866
           
          Total      11,529,020
        Media — 0.6%
210,800      WPP Group PLC      2,105,695
        Metals & Mining — 1.1%
124,900      Johnson Matthey PLC      1,813,422
111,100      Rio Tinto PLC      2,000,195
           
          Total      3,813,617
        MultiMedia — 1.7%
217,100      Pearson PLC      3,089,032
259,300      Reed International PLC      2,285,218
69,200      Reuters Group PLC      780,663
           
          Total      6,154,913
        Pharmaceuticals & Health Care — 1.8%
246,544      (4)GlaxoSmithKline PLC      6,543,455
        Real Estate — 0.4%
176,500      (4)Canary Wharf Finance PLC      1,324,225
        Restaurants & Leisure — 1.4%
645,800      (4)Compass Group PLC      4,922,592
        Retail — 1.9%
976,209      Kingfisher PLC      5,293,830
110,500      Next PLC      1,516,110
           
          Total      6,809,940
        Telecommunications — 1.7%
3,044,121      Vodafone Group PLC      6,077,166
        Tobacco — 2.0%
837,900      British American Tobacco PLC      7,165,458
        Transportation Infrastructure — 0.6%
246,500      BAA PLC      2,295,885
        Utilities — 0.4%
363,600      National Power Co., PLC      1,462,312
           
          Total United Kingdom      87,864,210
        United States — 1.4%
        Electronic — 0.4%
63,100      (4)Flextronics International Ltd.      1,384,414
        Energy Equipment & Services — 0.4%
54,700      Transocean Sedco Forex, Inc.      1,580,830
        Insurance — 0.4%
48,900      Aflac, Inc.      1,345,728
        Leisure & Recreation — 0.2%
28,200      Royal Caribbean Cruises Ltd.      658,188
           
          Total United States      4,969,160
           
        Total Common Stocks
(identified cost $376,504,762)		      353,217,251
Principal
Amount		    Description      Value
 
        (3)Repurchase Agreement — 1.2%
$4,125,000      State Street Corp., 2.500%,
dated 8/31/2001, due
9/4/2001 (at amortized
cost)		      $4,125,000
           
        Total Investments
(identified cost $380,629,762)		      $357,342,251
           
 
 
Government Income Fund
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities — 4.4%
$6,000,000      Green Tree Home Equity Loan
Trust (Series 1998-B), Class
B1, 7.810%, 11/15/2029		      $6,169,823
10,643,000      Greenwich Capital Acceptance
(Series 1995-BA1), Class A4,
7.150%, 8/10/2020		      10,823,612
           
          Total Asset-Backed Securities
(identified cost $16,665,899)		      16,993,435
        Collateralized Mortgage Obligations — 23.9%
19,589,900      (5)(7)Federal Home Loan
Mortgage Corp., 3.710%,
8/25/2001, REMIC
(Series T-32-A1)		      19,594,427
11,733,727      (5)Federal Home Loan
Mortgage Corp., 4.438%,
9/15/2001, REMIC (Series
1624-FA)		      11,804,364
15,000,000      Federal Home Loan Mortgage
Corp., 6.250%, 9/15/2023,
REMIC (Series 1666-H)		      15,374,250
10,000,000      (7)Federal Home Loan
Mortgage Corp., 6.500%,
10/15/2016, REMIC (Series
1702-PK)		      10,378,900
24,152,355      (5)(7)Federal National
Mortgage Association,
4.042%, 9/25/2001, REMIC
(Series 2001-25-FA)		      24,031,593
10,000,000      Federal National Mortgage
Association, 6.022%,
11/25/2010		      10,163,216
           
          Total Collateralized Mortgage
Obligations (identified cost
$88,680,194)		      91,346,750
        Corporate Bonds — 1.8%
3,000,000      (5)HSB Group, Inc., FRN,
4.680%, 10/15/2001		      2,854,080
5,000,000      (5)TXU Gas Capital, FRN,
6.350%, 10/1/2001		      4,194,235
           
          Total Corporate Bonds
(identified cost $7,909,300)		      7,048,315
        Mortgage Backed Securities — 78.1%
        Federal Home Loan Mortgage Corporation —
20.3%
14,463,744      (1)5.000%, 8/1/2014      13,994,558
23,875,247      (1)6.500%, 2/1/2031      24,009,426
15,000,000      (6)6.500%, 9/1/2031      15,084,300
3,406,807      7.000%, 11/1/2009      3,532,450
1,139,020      7.500%, 9/1/2013      1,184,285
3,133,755      7.500%, 4/1/2024      3,260,077
2,812,548      7.500%, 4/1/2027      2,917,147
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Government Income Fund (continued)
 
Principal
Amount		    Description      Value
 
        Mortgage Backed Securities (continued)
        Federal Home Loan Mortgage Corporation
(continued)
$7,686,525      (1)8.000%, 8/1/2030      $7,993,986
1,385,731      8.500%, 9/1/2024      1,469,068
1,926,442      9.000%, 6/1/2019      2,088,996
1,951,509      9.500%, 2/1/2025      2,124,706
           
          Total      77,658,999
        Federal National Mortgage Association —
 32.4%
12,685,255      (7)6.000%, 9/1/2013      12,800,183
10,000,000      (6)6.500%, 9/1/2016      10,187,500
25,000,000      (6)6.500%, 9/1/2031      25,109,500
5,801,597      7.000%, 12/1/2010      6,017,359
6,747,880      7.000%, 3/1/2029      6,912,393
14,681,304      (1)7.000%, 7/1/2029      15,039,234
12,784,003      (7)7.000%, 2/1/2030      13,095,677
9,272,468      7.500%, 12/1/2009      9,686,854
11,007,618      (7)7.500%, 10/1/2030      11,355,019
6,146,525      8.000%, 10/1/2028      6,436,579
6,934,996      8.000%, 4/1/2030      7,210,246
           
          Total      123,850,544
        Government National Mortgage Association —
25.4%
20,000,000      (6)6.500%, 9/15/2031      20,200,000
9,647,927      (1)7.000%, 4/15/2029      9,931,383
5,580,367      (1)7.000%, 5/15/2029      5,726,851
9,822,963      (1)7.000%, 6/15/2029      10,080,815
11,629,847      (1)7.500%, 8/15/2025      12,087,830
2,767,543      (1)7.500%, 8/15/2025      2,885,163
11,419,997      (1)7.500%, 12/15/2025      11,869,717
15,315,762      (1)7.500%, 2/15/2027      15,904,500
2,320,195      (1)8.500%, 6/15/2010      2,422,423
3,777,499      (1)9.000%, 11/15/2009      4,051,367
1,179,088      (1)9.000%, 1/15/2010      1,244,303
798,771      (1)9.500%, 10/15/2024      885,390
           
          Total      97,289,742
           
        Total Mortgage Backed
Securities (identified cost
$291,553,793)		      298,799,285
           
        Total Investments in Securities
(identified cost $404,809,186)		      414,187,785
        (3)Repurchase Agreement — 10.0%
38,196,071      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at amortized
cost)		      38,196,071
           
        Total Investments
(identified cost $443,005,257)		      $452,383,856
           
 
 
Intermediate Bond Fund
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities — 8.6%
$5,500,000      (8)(9)ARG Funding Corp., Class
A2, 5.880%, 5/20/2002		      $5,552,525
5,000,000      Citibank Credit Card Master
Trust I, (Series 1999-7), Class
A, 6.650%, 11/15/2006		      5,295,450
Principal
Amount		    Description      Value
 
        Asset-Backed Securities (continued)
$715,169      (5)(8)(9) DLJ Commercial
Mortgage Corp., (Series
1998-STF2), Class A1,
4.410%, 9/5/2001		      $715,169
5,000,000      DaimlerChrysler Auto Trust,
(Series 2000-C), Class A3,
6.820%, 9/6/2004		      5,155,000
7,750,000      First USA Credit Card Master
Trust, (Series 1998-9), Class
A, 5.280%, 9/18/2006		      7,922,903
7,000,000      Ford Credit Auto Owner Trust,
(Series 2000-G), Class A4,
6.620%, 7/15/2004		      7,251,708
7,000,000      Green Tree Home Equity Loan
Trust, (Series 1998-B), Class
B1, 7.810%, 11/15/2029		      7,198,127
12,000,000      J.P. Morgan Commercial
Mortgage Finance Corp.,
(Series 1997-C5), Class A2,
7.069%, 9/15/2029		      12,658,566
2,009,905      (8)(9)Pegasus Aviation Lease
Securitization, (Series 1999-
1A), Class A1, 6.300%,
3/25/2029		      2,040,204
1,729,096      TMS Home Equity Trust,
(Series 1996-B), Class A7,
7.550%, 2/15/2020		      1,731,378
           
          Total Asset-Backed Securities
(identified cost $53,918,304)		      55,521,030
        Collateralized Mortgage Obligations — 4.8%
5,000,000      (8)(9)Criimi Mae CMBS Corp.,
(Series 1998-1), Class A2,
6.009%, 2/20/2005		      5,072,133
6,000,000      (8)(9)Criimi Mae CMBS Corp.,
(Series 1998-1), Class A3,
6.306%, 12/20/2007		      6,157,355
3,653,721      Federal Home Loan Mortgage
Corp., (Series 1829), Class
H, 6.500%, 10/15/2021		      3,713,697
8,000,000      Government National Mortgage
Association, (Series 2001-5),
Class PK, 5.950%, 7/20/2024		      8,191,200
5,102,372      Government National Mortgage
Association, (Series 2000-
12), Class AC, 7.500%,
11/16/2027		      5,347,388
2,597,520      (8)(9)Prudential Home
Mortgage Securities, (Series
1992-B), Class 2B, 6.757%,
9/28/2008		      2,663,172
           
          Total Collateralized Mortgage
Obligations (identified cost
$30,139,008)		      31,144,945
        Corporate Bonds & Notes — 49.5%
        Automotive & Related — 6.0%
8,000,000      Ford Motor Credit Co., Note,
6.125%, 3/20/2004		      8,203,680
7,000,000      (1)Ford Motor Credit Co.,
Note, 6.700%, 7/16/2004		      7,262,920
750,000      Ford Motor Credit Co., Note,
7.375%, 10/28/2009		      781,275
5,000,000      Ford Motor Credit Co., Note,
7.750%, 3/15/2005		      5,329,700
3,000,000      General Motors Acceptance
Corp., Note, 6.380%,
1/30/2004		      3,102,060
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Intermediate Bond Fund (continued)
 
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Automotive & Related (continued)
$8,165,000      General Motors Acceptance
Corp., Unsecd. Note, 7.000%,
6/6/2003		      $8,450,040
5,000,000      General Motors Corp., Note,
7.200%, 1/15/2011		      5,244,200
           
          Total      38,373,875
        Banks — 3.8%
7,000,000      Bank of America Corp., Sr. Note,
7.125%, 9/15/2006		      7,495,040
5,000,000      (1)Bank One Corp., Sr. Note,
7.625%, 8/1/2005		      5,409,850
5,790,000      Corestates Capital, Company
Guarantee, 6.750%, 11/15/2006		      6,071,220
5,000,000      Norwest Corp., Note, (Series
MTNF), 6.500%, 6/1/2005		      5,217,550
           
          Total      24,193,660
        Beverages & Foods — 0.9%
5,000,000      Anheuser-Busch Cos., Inc., Deb.,
9.000%, 12/1/2009		      6,037,850
        Broker/Dealers — 4.2%
2,000,000      Goldman Sachs Group, Inc.,
Bond, 6.875%, 1/15/2011		      2,071,080
5,000,000      Lehman Brothers, Inc., Sr. Sub.
Note, 7.500%, 8/1/2026		      5,351,050
6,500,000      Merrill Lynch & Co., Inc., Note,
(Series MTNB), 5.350%,
6/15/2004		      6,612,190
7,000,000      (1)Morgan Stanley, Unsub.,
6.100%, 4/15/2006		      7,170,450
6,000,000      PaineWebber Group, Inc., Note,
6.450%, 12/1/2003		      6,257,340
           
          Total      27,462,110
        Chemicals — 1.2%
4,000,000      Dow Chemical Co., Note,
6.125%, 2/1/2011		      4,039,920
3,500,000      (8)(9)Dow Chemical Co., Note,
5.250%, 5/14/2004		      3,552,640
           
          Total      7,592,560
        Consumer Cyclicals — 1.4%
5,000,000      Dayton-Hudson Corp., Note,
6.400%, 2/15/2003		      5,146,850
4,000,000      Tyco International Group,
Company Guarantee, 5.800%,
8/1/2006		      4,017,680
           
          Total      9,164,530
        Electrical Equipment — 0.2%
1,500,000      Emerson Electric Co., Note,
5.000%, 10/15/2008		      1,429,335
        Federal National Mortgage Association — 1.7%
10,000,000      (1)Fannie Mae, Note, 6.625%,
10/15/2007		      10,740,100
        Financial Services — 11.2%
7,000,000      (8)(9)AIG SunAmerica Global
Financial, Note, 5.850%,
8/1/2008		      7,048,580
5,500,000      (8)(9)Allstate Financial Global,
Note, 7.125%, 9/26/2005		      5,859,315
7,500,000      Boeing Capital Corp., Bond,
6.100%, 3/1/2011		      7,552,200
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Financial Services (continued)
$5,000,000      (5)(8)(9)Credit Suisse, London,
Sub. Note, 7.900%, 5/1/2007		      $5,230,840
4,000,000      EOP Operating LP, Note,
7.375%, 11/15/2003		      4,213,560
4,000,000      General Electric Capital Corp.,
Note, 5.375%, 4/23/2004		      4,084,080
5,000,000      General Electric Capital Corp.,
Note, (Series A), 6.500%,
12/10/2007		      5,293,200
4,250,000      General Electric Capital Corp.,
Note, 7.500%, 6/5/2003		      4,490,465
4,000,000      Household Netherlands BV,
Company Guarantee, 6.200%,
12/1/2003		      4,111,880
5,000,000      (5)MBNA Global Capital
Securities, Jr. Sub. Deb.,
4.479%, 11/1/2001		      3,780,300
7,000,000      (8)(9)Systems 2001Asset Trust,
Pass Thru Cert., 6.664%,
9/15/2013		      7,206,430
7,000,000      UBS Preferred Funding Trust II,
Bank Guarantee, 7.247%,
6/29/2049		      7,229,943
6,000,000      (1)Wells Fargo Financial, Inc.,
Note, 5.875%, 8/15/2008		      6,036,780
           
          Total      72,137,573
        Forest Products & Paper — 0.4%
2,500,000      Reed Elsevier, Capital, Company
Guarantee, 6.125%, 8/1/2006		      2,556,075
        Health Care — 1.0%
6,000,000      Abbott Laboratories, Note,
5.125%, 7/1/2004		      6,086,820
        Household Product/Wares — 0.8%
5,000,000      Procter & Gamble Co., Unsub.,
6.600%, 12/15/2004		      5,240,250
        Insurance — 4.5%
5,000,000      Citigroup, Inc., Note, 5.750%,
5/10/2006		      5,084,800
7,000,000      Citigroup, Inc., Sr. Note,
6.750%, 12/1/2005		      7,409,080
5,000,000      Conseco, Inc., Note, 6.800%,
6/15/2005		      4,100,000
4,000,000      (5)HSB Group, Inc., Company
Guarantee, 4.680%,
10/15/2001		      3,805,440
3,500,000      (8)(9)John Hancock Financial
Services, Inc., 6.500%,
3/1/2011		      3,596,460
5,000,000      Prudential Funding Corp., Note,
(Series MTN), 6.600%,
5/15/2008		      5,167,950
           
          Total      29,163,730
        Media — 1.7%
1,600,000      (1)AOL Time Warner, Inc.,
Note, 6.125%, 4/15/2006		      1,635,040
4,000,000      (1)AOL Time Warner, Inc.,
Note, 6.750%, 4/15/2011		      4,100,360
3,000,000      Comcast Corp., Sr. Note,
6.750%, 1/30/2011		      3,030,060
2,000,000      Disney (Walt) Co., Note,
7.300%, 2/8/2005		      2,116,600
           
          Total      10,882,060
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Intermediate Bond Fund (continued)
 
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Metals — 0.6%
$ 1,965,000      Alcoa, Inc., Note, 5.875%,
6/1/2006		      $2,007,975
1,775,000      (1)Alcoa, Inc., Note, 6.500%,
6/1/2011		      1,842,823
           
          Total      3,850,798
        Telecommunications — 3.0%
5,000,000      (1)British Telecommunication
PLC, Note, 7.625%,
12/15/2005		      5,380,850
1,800,000      (1)Deutsche Telekom AG,
Company Guarantee,
7.750%, 6/15/2005		      1,919,088
3,000,000      (1)(8)(9)Verizon Global
Funding, Note, 6.750%,
12/1/2005		      3,155,580
5,000,000      (1)Vodafone Group PLC,
Note, 7.625%, 2/15/2005		      5,375,850
3,000,000      (1)Worldcom, Inc., Note,
7.875%, 5/15/2003		      3,131,670
           
          Total      18,963,038
        Transportation — 2.7%
4,830,305      American Trans Air, (Series
2001-1G), Pass Through
Cert., 8.039%, 1/15/2016		      5,069,019
4,369,553      Continental Airlines, Inc.,
Pass Through Cert.,
6.541%, 9/15/2008		      4,389,217
4,000,000      Delta Air Lines, Inc.,
Equipment Trust, (Series
1993-A2), 10.500%,
4/30/2016		      4,794,880
3,000,000      (1)Norfolk Southern Corp.,
Sr. Note, 6.750%, 2/15/2011		      3,072,390
           
          Total      17,325,506
        Utilities — 0.6%
4,000,000      (8)(9)Potomac Capital
Investment Corp., MTN,
7.550%, 11/19/2001		      4,022,880
        Utilities-Electric — 2.7%
4,000,000      Korea Electric Power Corp.,
Deb., 6.000%, 12/1/2026		      4,017,920
5,000,000      Limestone Electronic Trust,
Sr. Note, 8.625%, 3/15/2003		      5,201,150
5,000,000      (8)(9)Osprey Trust, Sr. Secd.
Note, 8.310%, 1/15/2003		      5,169,600
3,000,000      (8)(9)Pinnacle Partner, Sr.
Note, 8.830%, 8/15/2004		      3,140,490
           
          Total      17,529,160
        Utilities-Natural Gas — 0.9%
7,000,000      (5)TXU Gas Capital I,
Company Guarantee,
5.140%, 10/1/2001		      5,871,929
           
        Total Corporate Bonds & Notes
(identified cost $312,673,692)		      318,623,839
        Government Agencies — 9.3%
        Federal Home Loan Bank — 0.8%
5,000,000      5.430%, 11/17/2008      5,021,450
        Federal National Mortgage Association — 6.9%
7,000,000      5.125%, 2/13/2004      7,144,480
10,000,000      5.625%, 5/14/2004      10,331,300
Principal
Amount		    Description      Value
 
        Government Agencies (continued)
        Federal National Mortgage Association
(continued)
$16,000,000      6.250%, 2/11/2011      $  16,458,560
10,000,000      7.000%, 7/15/2005      10,776,600
           
          Total      44,710,940
        Tennessee Valley Authority — 1.6%
10,000,000      5.625%, 1/18/2011      9,950,600
           
        Total Government Agencies
(identified cost $58,841,326)		      59,682,990
        Mortgage Backed Securities — 5.6%
        Federal Home Loan Mortgage Corporation 
—2.4%
11,000,000      7.500%, 2/1/2031      11,354,090
4,000,001      7.500%, 6/1/2031      4,126,241
           
          Total      15,480,331
        Federal National Mortgage Association —
3.2%
15,000,000      7.000%, 2/1/2016      15,459,300
4,765,666      7.635%, 8/1/2011      5,214,135
           
          Total      20,673,435
           
        Total Mortgage Backed
Securities (identified cost
$35,988,570)		      36,153,766
        U.S. Treasury Securities — 15.0%
        U.S. Treasury Notes — 15.0%
20,000,000      5.500%, 1/31/2003      20,561,600
22,000,000      (1)6.000%, 8/15/2004      23,221,660
23,500,000      6.125%, 8/15/2007      25,360,260
25,000,000      (1)7.250%, 5/15/2004      27,125,000
           
        Total U.S. Treasury Securities
(identified cost $95,713,360)		      96,268,520
           
        Total Investments in Securities
(identified cost $587,274,260)		      597,395,090
        (3)Repurchase Agreement — 4.7%
30,539,744      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      30,539,744
           
        Total Investments
(identified cost $617,814,004)		      $627,934,834
           
 
 
Short-Term Income Fund
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities — 12.2%
$        22,427      AFC Home Equity Loan Trust,
Series 1993-2, Class A,
6.000%, 1/20/2013		      $      22,397
  3,000,000      (8)(9)ARG Funding Corp.,
Class A2, 5.880%, 5/20/2002		       3,028,650
145,798      CPS Auto Grantor Trust, Series
1997-2, Class A, 6.650%,
10/15/2002		      145,952
1,500,000      Citibank Credit Card Master
Trust I 1998-9, Class A,
5.300%, 1/9/2006		      1,533,345
286,068      (5)(8)(9)DLJ Commercial
Mortgage Corp., Series 1998-
STF2, Class A1, 4.410%,
9/5/2001		      286,068
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
Short-Term Income Fund (continued)
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities
(continued)
$2,000,000      Daimler Chrysler Auto Trust,
Class A3, 6.820%, 9/6/2004		      $2,062,000
1,000,000      Ford Credit Auto Owner Trust
2000-G, Class A4, 6.620%,
7/15/2004		      1,035,958
3,000,000      Green Tree Home Equity Loan
Trust, Series 1998-B, Class B1,
7.810%, 11/15/2029		      3,084,911
393,199      PNC Mortgage Securities Corp.,
Series 1994-1, Class T7,
6.000%, 2/25/2024		      392,843
1,004,952      (8)(9)Pegasus Aviation Lease
Securitization, Series 1999-1A,
Class A1, 6.300%, 3/25/2029		      1,020,102
1,952,605      (8)(9)Regional Jet Equipment
Trust, Note, 7.771%, 9/5/2004		      2,028,278
686,342      TMS Home Equity Trust, Series
1992-D2, Class A3, 7.550%,
1/15/2018		      686,342
           
          Total Asset-Backed Securities
(identified cost $14,999,228)		      15,326,846
        Collateralized Mortgage Obligations — 9.9%
        Federal Home Loan Mortgage Corporation — 0.8%
1,002,607      6.050%, 9/15/2020, Series 1818,
Class A		      1,016,373
        Government National Mortgage Association —
3.7%
1,600,000      5.950%, 7/20/2024, Series 2001-
5, Class PK		      1,638,240
2,935,209      7.500%, 11/16/2027, Series
2000-12, Class AC		      3,076,158
           
          Total      4,714,398
          Other Financial — 5.4%
721,163      (8)(9)Capital Asset Research
Funding, Series 1997-A, Class
A, 6.400%, 12/15/2004		      721,163
4,000,000      (8)(9)Criimi Mae CMBS Corp.,
Series 1998-1, Class A2,
6.009%, 6/20/2030		      4,057,706
1,982,865      Securitized Asset Sales, Inc.,
Series 1995-4, Class A5,
7.250%, 11/25/2025		      2,024,317
           
          Total      6,803,186
           
        Total Collateralized Mortgage
Obligations
(identified cost $12,192,144)		      12,533,957
        Mortgage Backed-Pass Through Securities —
14.3%
        Federal Home Loan Mortgage Corporation —
0.8%
247,711      9.000%, 7/1/2014      262,420
710,407      11.000%, 8/1/2019      800,316
           
          Total      1,062,736
        Federal National Mortgage Association —13.0%
5,000,001      7.000%, 12/1/2015      5,153,101
4,999,503      7.500%, 9/1/2015      5,188,534
117,895      8.000%, 8/1/2007      120,559
873,441      8.000%, 5/1/2008      906,195
327,056      9.000%, 7/1/2009      346,476
Principal
Amount		    Description      Value
 
        Mortgage Backed-Pass Through
Securities (continued)
        Federal National Mortgage
Association(continued)
$ 187,296      9.000%, 1/1/2015      $        203,626
394,158      9.500%, 12/1/2024      431,725
728,792      9.500%, 1/1/2025      798,253
569,082      9.500%, 1/1/2025      623,321
414,873      9.500%, 1/1/2025      454,933
361,605      10.000%, 7/1/2020      401,270
505,470      10.500%, 1/1/2022      559,808
1,040,568      11.000%, 12/1/2015      1,156,331
           
          Total        16,344,132
        Government National Mortgage Association —
0.5%
580,081      9.000%, 12/15/2019      631,564
           
          Total Mortgage Backed-Pass
Through Securities
(identified cost $17,921,904)		      18,038,432
        Corporate Bonds & Notes — 42.3%
        Automotive & Related — 5.7%
1,500,000      Ford Motor Credit Co., Note,
7.500%, 6/15/2003		      1,574,280
2,000,000      Ford Motor Credit Co., Sr.
Note, 6.125%, 3/20/2004		      2,050,920
2,000,000      General Motors Acceptance
Corp., Note, 6.380%,
1/30/2004		      2,068,040
1,500,000      General Motors Acceptance
Corp., Sr. Note, 5.750%,
11/10/2003		      1,530,180
           
          Total      7,223,420
        Banks — 2.5%
1,500,000      First Chicago Corp., Sub.
Note, 6.875%, 6/15/2003		      1,563,165
1,500,000      NationsBank Corp., 6.125%,
7/15/2004		      1,556,025
           
          Total      3,119,190
        Broker/Dealers — 5.9%
2,000,000      Donaldson, Lufkin and
Jenrette Securities Corp.,
Note, 6.000%, 12/1/2001		      2,011,780
1,000,000      Goldman Sachs Group, Inc.,
Bond, 7.625%, 8/17/2005		      1,076,950
1,000,000      Merrill Lynch & Co., Inc.,
Note, 6.800%, 11/3/2003		      1,050,080
1,300,000      Merrill Lynch & Co., Inc.,
Note, Series MTNB, 5.350%,
6/15/2004		      1,322,438
1,000,000      Morgan Stanley, Dean Witter
& Co., Unsub., 6.100%,
4/15/2006		      1,024,350
1,000,000      PaineWebber Group, Inc.,
Note, 6.450%, 12/1/2003		      1,042,890
           
          Total      7,528,488
        Chemicals — 1.6%
2,000,000      (8)(9)Dow Chemical Co.,
Note, Series 144A, 5.250%,
5/14/2004		            2,030,080
        Electric — 2.0%
3,000,000      (5)TXU Capital, 5.140%,
10/1/2001		      2,516,541
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Short-Term Income Fund (continued)
 
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Energy — 1.6%
$2,000,000      Osprey Trust, Sr. Secd. Note,
8.310%, 1/15/2003		      $2,067,840
        Federal Home Loan Mortgage Corp. — 4.2%
5,000,000      Federal Home Loan Mortgage
Corp., Note, 7.375%,
5/15/2003		      5,289,000
        Financial Services — 4.1%
750,000      Boeing Capital Corp., Sr. Note,
7.100%, 9/27/2005		      802,575
1,500,000      General Electric Capital Corp.,
Note, 5.375%, 4/23/2004		      1,531,530
1,000,000      General Electric Capital Corp.,
Note, 7.500%, 6/5/2003		      1,056,580
1,000,000      MBNA Global Capital
Securities, Jr. Sub. Deb.,
4.478%, 2/1/2027		      756,060
1,000,000      Salomon Smith Barney
Holdings, Inc., Note,
6.250%, 5/15/2003		      1,034,130
           
          Total         5,180,875
 
        Forest Products & Paper — 0.5%
600,000      Reed Elsevier, Inc., Company
Guarantee, 6.125%, 8/1/2006		      613,458
        Health Care — 1.6%
2,000,000      Abbott Laboratories, Note,
5.125%, 7/1/2004		      2,028,940
        Industrial Services — 0.4%
500,000      Tyco International Group,
Note, 5.800%, 8/1/2006		      502,210
        Insurance — 3.1%
1,000,000      Allstate Financial Global, Note,
7.125%, 9/26/2005		      1,065,330
3,000,000      HSB Group, Inc., Company
Guarantee, 4.680%,
7/15/2027		      2,854,080
           
          Total      3,919,410
 
        Media — 1.7%
1,000,000      AOL Time Warner, Inc., Note,
6.125%, 4/15/2006		      1,021,900
1,000,000      Walt Disney Co., 7.300%,
2/8/2005		      1,058,300
           
          Total      2,080,200
 
        Metals — 0.6%
760,000      Alcoa, Inc., Note, 5.875%,
6/1/2006		      776,621
        Real Estate — 0.8%
1,000,000      EOP Operating LP, Sr. Note,
6.375%, 2/15/2003		      1,023,980
        Telecommunications — 3.5%
700,000      British Telecommunications
PLC, Note, 7.625%,
12/15/2005		      753,319
1,055,000      Deutsche Telekom AG, Global
Bond, 7.75%, 6/15/2005		      1,124,799
700,000      (8)(9)France
Telecommunications, Note,
Series 144A, 7.200%,
3/1/2006		      739,823
  1,000,000      (8)(9)Verizon Global Funding,
Note, Series 144A, 6.750%,
12/1/2005		      $1,051,860
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Telecommunications (continued)
$      700,000      WorldCom, Inc., Sr. Note,
6.25%, 8/15/2003		      $        713,678
           
          Total      4,383,479
        Utilities — 0.8%
1,000,000      (8)(9)Potomac Capital
Investment Corp., MTN,
7.550%, 11/19/2001		      1,005,720
        Utilities — Electric — 1.7%
2,000,000      (8)(9)Limestone Electronic
Trust, Sr. Note, 8.625%,
3/15/2003		      2,080,460
           
          Total Corporate Bonds &
Notes (identified cost
$52,694,766)		      53,369,912
        Government Agencies — 4.7%
        Federal Home Loan Bank  — 0.6%
700,000      Federal Home Loan Bank
System, Bond, Series 121,
5.250%, 4/25/2002		      708,547
        Federal Home Loan Mortgage Corporation 
—4.1%
5,000,000      Federal Home Loan
Mortgage Corp., Note,
6.625%, 8/15/2002		      5,149,350
           
          Total Government
Agencies (identified cost
$5,768,128)		      5,857,897
        Note-Variable — 1.6%
        Financial Services — 1.6%
2,000,000      (5)(8)(9)Lehman Brothers
Holdings, Inc., 4.290%,
9/3/2002 (identified cost
$1,980,300)		      2,005,676
           
        U.S. Treasury Notes — 6.5%
7,000,000      5.500%, 1/31/2003      7,196,560
1,000,000      5.750%, 11/15/2005      1,054,370
           
        Total U.S. Treasury Notes
(identified cost $8,231,797)		      8,250,930
           
        Total Investments in Securities
(identified cost $113,788,267)		      115,383,650
        (3)Repurchase Agreement — 7.7%
9,704,715      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      9,704,715
           
        Total Investments (identified
cost $123,492,982)		      $125,088,365
           
 
   Money Market Fund
 
Principal
Amount		    Description      Value
 
        Certificates of Deposit — 2.8%
        Foreign Banks — 2.8%
$25,000,000      Canadian Imperial Bank of
Commerce, NY, 4.235%,
5/16/2002		      $  25,001,711
50,875,000      Credit Agricole Indosuez,
3.665%-4.610%,
3/28/2002-8/20/2002		      50,963,440
           
          Total Certificates of Deposit      75,965,151
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
 
Money Market Fund (continued)
 
Principal
Amount		    Description      Value
        (10) Commercial Paper — 5.2%
        Asset-Backed — 2.7%
$75,000,000      (8)(9)Tannehill Capital Co.,
3.650%, 10/19/2001		      $  74,635,000
        Health Care — 2.5%
70,000,000      (8)(9)American Home
Products Corp., 3.540%-
3.950%, 10/19/2001-
10/26/2001		      69,634,167
           
        Total Commercial Paper       144,269,167
        Corporate Bonds — 7.9%
        Banks — 0.5%
13,500,000      Wells Fargo & Co., 6.500%,
9/3/2002		      13,867,000
        Beverages & Foods — 1.8%
50,000,000      (8)(9) Heinz (H.J.) Co.,
6.820%, 11/15/2001		      50,000,000
        Diversified Manufacturing — 0.6%
15,000,000      Siemens Capital Corp.,
8.000%, 6/24/2002		      15,494,619
        Foreign Banks — 0.5%
15,000,000      Commerzbank AG, NY,
4.120%, 5/9/2002		      14,998,973
        Health Care — 0.6%
15,000,000      (8)(9) Lilly (Eli) & Co.,
4.700%, 3/22/2002		      15,000,000
        Mortgage Banking — 0.3%
8,750,000      Countrywide Home Loans,
Inc., 6.900%, 10/2/2001		      8,761,243
        Personal Credit — 2.1%
20,000,000      (8)(9) BMW US Capital
LLC, 4.190%, 6/7/2016		      19,988,188
8,000,000      Ford Motor Credit Co.,
7.000%, 9/25/2001		      8,001,548
13,700,000      General Motors Acceptance
Corp., 5.350%, 12/7/2001		      13,706,195
6,180,000      General Motors Acceptance
Corp., 5.500%, 1/14/2002		      6,186,834
9,315,000      General Motors Acceptance
Corp., 6.750%, 2/7/2002		      9,400,456
           
          Total      57,283,221
        Telecommunications — 1.5%
40,000,000      (8)(9) SBC
Communications, Inc.,
4.250%, 6/1/2002		      40,000,000
           
        Total Corporate Bonds      215,405,056
        (5)Variable-Rate Notes — 64.4%
        Banks — 9.6%
 15,000,000      Bank One Corp., 3.828%,
9/21/2001		      15,001,782
25,500,000      Bank One Corp., 3.870%,
10/26/2001		      25,514,460
10,000,000      Bank One Corp., 4.098%,
9/17/2001		      10,001,369
17,000,000      Bank One, Illinois, N.A.,
3.809%, 10/24/2001		      17,010,001
15,000,000      Huntington National Bank,
3.720%, 11/15/2001		      15,010,666
14,000,000      Huntington National Bank,
4.042%, 9/5/2001		      14,005,643
4,000,000      Key Bank, N.A., 3.790%,
9/22/2001		      4,001,254
44,000,000      Key Bank, N.A., 3.858%,
9/25/2001		      44,050,912
Principal
Amount		    Description      Value
 
        (5)Variable-Rate Notes (continued)
        Banks (continued)
$27,000,000      Key Bank, N.A., 4.008%,
9/18/2001		      $27,022,421
15,000,000      Mellon Financial Corp.,
4.219%, 9/14/2001		      15,047,304
45,000,000      National Bank of Commerce,
Memphis, TN, 3.610%,
9/18/2001		      44,999,597
30,580,000      Westpac Banking Co.,
3.705%, 10/26/2001		      30,580,578
           
          Total      262,245,987
        Beverages & Foods — 0.9%
25,000,000      (8)(9)Cargill, Inc., 3.623%,
11/28/2001		      25,028,919
        Broker/Dealers — 11.9%
75,000,000      Bank of America, 3.540%,
11/27/2001		      75,000,000
75,000,000      Bear Stearns Cos., Inc.,
3.953%, 9/5/2001		      75,000,000
75,000,000      Goldman Sachs & Co.,
3.928%, 9/10/2001		      75,000,000
35,000,000      (8)(9) J.P. Morgan & Co.,
Inc., 3.770%, 9/4/2001		      35,000,000
15,000,000      Merrill Lynch & Co., Inc.,
3.640%, 9/20/2001		      15,000,000
10,000,000      Merrill Lynch & Co., Inc.,
3.750%, 10/27/2001		      10,001,161
40,500,000      Merrill Lynch & Co., Inc.,
3.859%, 10/24/2001		      40,570,416
           
          Total      325,571,577
        Construction Equipment — 2.7%
75,000,000      Caterpillar Financial Services
Corp., 3.870%, 10/9/2001		      75,000,000
        Drugs — 2.6%
70,000,000      (8)(9) Bayer Corp., 4.750%,
3/19/2002		      69,993,528
        Insurance — 13.5%
40,000,000      American General Annuity
Insurance Co., 3.561%,
11/20/2001		      40,000,000
20,000,000      American General Finance
Corp., Series E, 4.149%,
9/14/2001		      20,002,244
75,000,000      (8)GE Life and Annuity
Assurance Co., 3.830%,
10/20/2001		      75,000,000
40,000,000      Jackson National Life
Insurance Co., 3.680%,
11/1/2001		      40,000,000
50,000,000      Metropolitan Life Insurance
Co., 3.990%, 9/4/2001		      50,000,000
10,000,000      (8)Monumental Life
Insurance Co., 3.850%,
10/2/2001		      10,000,000
25,000,000      (8)Monumental Life
Insurance Co., 3.860%,
10/2/2001		      25,000,000
40,000,000      (8)Monumental Life
Insurance Co., 3.860%,
9/4/2001		      40,000,000
20,000,000      (8)(9)Prudential Funding
LCC, 3.660%, 11/16/2001		      20,012,129
50,000,000      (8)Travelers Insurance Co.,
3.850%, 10/1/2001		      50,000,000
           
          Total      370,014,373
(See Notes which are an integral part of the Financial Statements)
  Money Market Fund (continued)
Principal
Amount or
Shares		    Description      Value
        (5)Variable-Rate Notes (continued)
        Leasing — 0.9%
$ 25,000,000      Paccar Financial Corp.,
4.054%, 9/4/2001		      $25,026,784
        Mortgage Banking — 4.4%
46,000,000      Countrywide Home Loans,
Inc., 3.695%,
11/15/2001		      46,004,652
75,000,000      Homeside Lending, Inc.,
4.075%, 10/9/2001		      75,117,319
           
          Total      121,121,971
        Other Consumer Non-Durables — 2.0%
55,000,000      (8)(9) Unilever Capital
Corp., 3.970%, 9/7/2001		      55,000,000
     Personal Credit — 10.8%
25,000,000      (8)(9)American Honda
Finance Corp., 3.595%,
11/13/2001		      25,000,000
50,000,000      (8)(9)American Honda
Finance Corp., 3.760%,
10/19/2001		      50,000,000
50,000,000      Associates Corp. of North
America, 3.770%,
9/26/2001		      50,000,000
10,000,000      Commerzbank AG,
3.990%, 9/4/2001		      10,000,690
36,400,000      Ford Motor Credit Co.,
3.883%, 10/17/2001		      36,409,995
16,000,000      Ford Motor Credit Co.,
3.890%, 10/15/2001		      16,002,012
12,000,000      General Motors
Acceptance Corp.,
3.769%, 11/1/2001		      12,002,654
23,000,000      General Motors
Acceptance Corp.,
4.068%, 9/10/2001		      23,008,905
35,500,000      Household Finance Corp.,
3.855%, 9/27/2001		      35,525,744
13,000,000      Household Finance Corp.,
3.890%, 9/26/2001		      13,001,387
25,000,000      Household Finance Corp.,
4.126%, 9/12/2001		      25,028,527
           
          Total      295,979,914
        Retail — 0.5%
15,000,000      Wal-Mart Stores, Inc.,
5.450%, 6/1/2002		      15,131,601
        Telecommunications — 4.6%
50,000,000      BellSouth
Telecommunications,
Inc., 3.970%, 9/4/2001		      50,000,000
75,000,000      Verizon Global Funding,
3.920%, 9/15/2001		      74,988,789
           
          Total      124,988,789
           
        Total Variable-Rate Notes      1,765,103,443
        Mutual Funds — 5.5%
 100,000,000      American Select Cash
Reserve Fund		      100,000,000
15,668,474      Dreyfus Cash Management
Fund		      15,668,474
Shares or
Principal
Amount		    Description      Value
        Mutual Funds (continued)
34,751,042      Goldman Sachs Financial
Square Money Market
Fund		      $    34,751,042
           
          Total Mutual Funds
(Shares at Net Asset
Value)		      150,419,516
           
          Total Investments In
Securities (at
amortized cost)		      2,351,162,333
        (3)Repurchase Agreements — 13.9%
$75,000,000      Deutsche Bank Financial,
Inc., 3.748%, dated
8/31/2001, due
9/4/2001		      75,000,000
125,000,000      First Union Capital
Markets, Inc., 3.750%,
dated 8/31/2001, due
9/4/2001		      125,000,000
5,767,050      Lehman Brothers, Inc.,
3.620%, dated
8/31/2001, due
9/4/2001		      5,767,050
100,000,000      Morgan Stanley Group,
Inc., 3.748%, dated
8/31/2001, due
9/4/2001		      100,000,000
75,000,000      Salomon Smith Barney,
Inc., 3.738%, dated
8/31/2001, due
9/4/2001		      75,000,000
           
          Total Repurchase
Agreements		      380,767,050
           
          Total Investments (at
amortized cost)		      $2,731,929,383
           
(See Notes which are an integral part of the Financial Statements)
 
Notes to Schedules of Investments 
  
 
Note:    The categories of investments are shown as a percentage of net assets for each Fund at August 31, 2001.
 
(1) 
Certain shares or principal amounts are temporarily on loan to unaffiliated broker-dealers.
 
(2) 
Represents the initial deposit within a margin account used to ensure the Fund is able to satisfy the obligations of its outstanding long futures contracts.
 
(3) 
The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on current market prices.
 
(4) 
Non-income producing.
 
(5) 
Current rate and next demand date shown.
 
(6) 
All or a portion of these securities are subject to dollar roll transactions.
 
(7) 
Security held as collateral for future dollar roll transactions.
 
(8) 
Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At August 31, 2001, these securities amounted to $70,183,373, $20,055,586 and $749,291,931, for Marshall Intermediate Bond Fund, Marshall Short-Term Income Fund and Marshall Money Market Fund, which represents 10.9%, 15.9% and 27.4% of net assets, respectively. Included in these amounts, securities which have been deemed liquid amounted to $70,183,373, $20,055,586 and $549,291,931, for Marshall Intermediate Bond Fund, Marshall Short-Term Income Fund and Marshall Money Market Fund, which represents 10.9%, 15.9% and 20.1% of net assets, respectively.
 
(9) 
Denotes a restricted security which has been deemed liquid by criteria approved by the fund’s board of directors.
 
(10) 
Each issue shows the rate of discount at the time of purchase.
 
 
The following acronyms are used throughout this report:
 
ADR    —American Depositary Receipt
FRN    —Floating Rate Note
GDR    —Global Depositary Receipt
MTN    —Medium Term Note
REMIC    —Real Estate Mortgage Investment Conduit
 
 
Marshall
      Cost of
Investments for
Federal Tax
Purposes
      Gross
Unrealized
Appreciation
for Federal Tax
Purposes
      Gross
Unrealized
Depreciation
for Federal
Tax Purposes
      Net Unrealized
Appreciation
(Depreciation)
for Federal Tax
Purposes
Equity Income Fund      $  347,796,549        $  78,229,644      $  9,505,859      $68,723,785  
Large-Cap Growth & Income Fund      298,523,989         105,129,913       12,196,379      92,933,534  
Mid-Cap Value Fund      156,312,443        26,873,803      5,350,567      21,523,236  
Mid-Cap Growth Fund      346,841,200        34,943,192      39,849,353      (4,906,161 )
Small-Cap Growth Fund      113,743,740        11,184,775      9,709,515      1,475,260  
International Stock Fund      381,924,339        18,114,912      42,697,000       (24,582,088 )
Government Income Fund      443,005,257        10,418,047      1,039,448      9,378,599  
Intermediate Bond Fund      617,814,004        13,471,458      3,350,628      10,120,830  
Short-Term Income Fund      123,492,982        2,373,096      777,713      1,595,383  
Money Market Fund       2,731,929,383 *      —      —      —  
 
*  at amortized cost
(See Notes which are an integral part of the Financial Statements)
[THIS PAGE INTENTIONALLY LEFT BLANK ]
 
August 31, 2001
Statements of Assets and Liabilities
    
     
     
     
 
     Equity
Income
Fund		    Large-Cap
Growth &
Income
Fund		    Mid-Cap
Value
Fund		    Mid-Cap
Growth
Fund
  
  
  
  
Assets:
        Investments in securities, at value    $405,447,773      $353,665,538      $148,305,735      $297,271,649  
        Investments in repurchase agreements    11,072,561      37,791,985      29,529,944      44,663,390  
        Short-term investments held as collateral for securities lending    326,955      —      9,676,760      24,704,938  
        Cash    —      —      12,386      —  
        Cash denominated in foreign currencies (identified cost,
        $865,015)		    —      —      —      —  
        Income receivable    1,129,509      422,514      170,823      51,714  
        Receivable for investments sold    4,252,303      —      84,070      971,982  
        Receivable for capital stock sold    84,666      218,487      77,862      95,253  
        Receivable for daily variation margin    67,700      135,000      67,275      68,000  
    
    
    
    
  
                Total assets    422,381,467      392,233,524      187,924,855      367,826,926  
Liabilities:
        Payable for capital stock redeemed    442,385      97,536      36,231      372,885  
        Payable for income distribution    —      —      —      —  
        Payable for investments purchased    2,410,494      —      2,994,885      5,589,813  
        Payable on collateral due to broker    326,955      —      9,676,760      24,704,938  
        Options written, at value (premium received $542,471)    468,113      —      —      —  
        Net payable for foreign currency exchange contracts    —      —      —      —  
        Payable for dollar roll transactions    —      —      —      —  
        Accrued expenses    454,422      453,658      209,980      390,143  
    
    
    
    
  
                Total liabilities    4,102,369      551,194      12,917,856      31,057,779  
    
    
    
    
  
        Total Net Assets    $418,279,098      $391,682,330      $175,006,999      $336,769,147  
    
    
    
    
  
Net Assets Consist of:
        Paid-in-capital    334,105,525      321,034,334      130,214,897      340,790,698  
        Net unrealized appreciation (depreciation) on investments,
        options, futures contracts and foreign currency translation		    69,853,144      92,130,458      21,591,977      (2,210,985 )
        Accumulated net realized gain (loss) on investments, options,
        futures contracts and foreign currency transactions		    13,709,388      (21,628,752 )    23,157,204      (1,810,566 )
        Undistributed net investment income (loss)    611,041      146,290      42,921      —  
    
    
    
    
  
Total Net Assets    $418,279,098      $391,682,330      $175,006,999      $336,769,147  
    
    
    
    
  
Net Asset Value, Offering Price and Redemption Proceeds Per Share
        Investor Class of Shares:
        Net Asset Value and Redemption proceeds Per Share    $14.70      $13.75      $12.72      $13.73  
        Offering Price Per Share    $14.70      $13.75      $12.72      $13.73  
        Advisor Class of Shares:
        Net Asset Value and Redemption proceeds Per Share    $14.70      $13.75      $12.72      $13.73  
        Offering Price Per Share    $15.60 *    $14.59 *    $13.50 *    $14.57 *
        Institutional Class of Shares:
        Net Asset Value and Redemption proceeds Per Share    —      —      —      —  
        Offering Price Per Share    —      —      —      —  
    
    
    
    
  
Net Assets:
        Investor Class of Shares:    $414,650,706      $386,911,474      $172,718,608      $333,718,256  
        Advisor Class of Shares:    3,628,392      4,770,856      2,288,391      3,050,891  
        Institutional Class of Shares:    —      —      —      —  
    
    
    
    
  
        Total Net Assets    $418,279,098      $391,682,330      $175,006,999      $336,769,147  
    
    
    
    
  
Shares Outstanding:
        Investor Class of Shares:    28,205,417      28,143,805      13,576,493      24,309,430  
        Advisor Class of Shares:    246,806      347,032      179,876      222,246  
        Institutional Class of Shares:    —      —      —      —  
    
    
    
    
  
                Total Shares Outstanding    28,452,223      28,490,837      13,756,369      24,531,676  
     
     
     
     
  
Investments, at identified cost    $345,698,057      $296,360,805      $155,957,886      $343,150,121  
    
    
    
    
  
 
  * Computation of offering price per share 100/94.25 of net asset value.
 ** Computation of offering price per share 100/95.25 of net asset value.
*** Computation of offering price per share 100/98.00 of net asset value.
(See Notes which are an integral part of the Financial Statements)
 
n  Marshall Funds
     
     
     
     
   
 
Small-Cap
Growth
Fund		        
International
Stock
Fund		    Government
Income
Fund		    Intermediate
Bond
Fund		    Short-Term
Income
Fund		    Money
Market
Fund
  
  
  
  
  
 
$  99,952,880      $353,217,251      $414,187,785      $597,395,090      $115,383,650      $2,351,162,333
15,266,120      4,125,000      38,196,071      30,539,744      9,704,715      380,767,050
16,800,967      24,543,972      141,678,023      52,341,960      —      —  
13,141      296      —      689      —      36,151
 
—      884,642      —      —      —      —
3,035      956,896      1,714,084      7,378,665      1,277,336      18,482,726
1,020,596      436,293      —      11,941,366      —      —
103,862      1,342,286      183,224      398,036      62,667      24,474,207
—      —      —      —      —      —
    
    
    
    
    
133,160,601      385,506,636      595,959,187      699,995,550      126,428,368      2,774,922,467
 
34,141      279,838      175,130      1,626,369      15,576      27,990,116
—      —      730,619      1,493,598      245,010      6,204,482
8,361,982      595,935      —      —      —      —
16,800,967      24,543,972      141,678,023      52,341,960      —      —
—      —      —      —      —      —
—      901      —      —      —      —
—      —      70,307,328      —      —      —
167,776      515,061      308,841      440,970      62,929      1,128,438
    
    
    
    
    
25,364,866      25,935,707      213,199,941      55,902,897      323,515      35,323,036
 
    
    
    
    
    
$107,795,735      $359,570,929      $382,759,246      $644,092,653      $126,104,853      $2,739,599,431
    
    
    
    
    
 
101,383,009      430,783,233      382,224,525      660,909,567      131,494,394      2,739,745,253
 
4,850,810      (23,251,038 )    9,378,599      10,120,830      1,595,383      —
 
1,561,916      (44,921,352 )    (8,844,143 )    (26,942,213 )    (6,984,906 )    (145,822)
—      (3,039,914 )    265      4,469      (18 )    —
    
    
    
    
    
$107,795,735      $359,570,929      $382,759,246      $644,092,653      $126,104,853      $2,739,599,431
    
    
    
    
    
 
$12.59      $10.73      $9.53      $9.51      $9.54      $1.00
$12.59      $10.73      $9.53      $9.51      $9.54      $1.00
 
$12.59      $10.73      $9.53      $9.51      $9.54      $1.00
$13.36 *    $11.38 *    $10.01 **    $9.98 **    $9.73 ***    $1.00
 
—      $10.77      —      —      —      $1.00
—      $10.77      —      —      —      $1.00
    
    
    
    
    
 
$105,397,077      $246,648,959      $380,308,214      $640,862,989      $126,008,027      $1,697,199,868
2,398,658      3,554,574      2,451,032      3,229,664      96,826      127,706,938
—      109,367,396      —      —      —      914,692,625
    
    
    
    
    
$107,795,735      $359,570,929      $382,759,246      $644,092,653      $126,104,853      $2,739,599,431
       
    
    
    
    
 
8,370,005      22,993,694      39,894,583      67,386,726      13,214,175      1,697,296,816
190,490      331,367      257,118      339,600      10,155      127,718,962
—      10,152,371      —      —      —      914,729,475
    
    
    
    
    
8,560,495      33,477,432      40,151,701      67,726,326      13,224,330      2,739,745,253
    
    
    
    
    
 
$110,368,190      $380,629,762      $443,005,257      $617,814,004      $123,492,982      $2,731,929,383
    
    
    
    
    
 
August 31, 2001
Statements of Operations
 
      
       
       
       
 
       Equity
Income
Fund		      Large-Cap
Growth &
Income Fund		      Mid-Cap
Value
Fund		      Mid-Cap
Growth
Fund
      
    
    
    
  
Investment Income:
        Interest income      $      710,422        $    1,718,298        $      721,989        $    2,507,482  
        Dividend income      9,020,064 (1)      3,667,582 (1)      1,194,329 (1)      677,644  
     
     
     
     
  
                Total income      9,730,486        5,385,880        1,916,318        3,185,126  
     
     
     
     
  
Expenses:
        Investment adviser fee      3,235,950        3,303,427        982,930        2,993,863  
        Shareholder services fees—
            Investor Class of Shares      1,071,378        1,090,102        323,669        990,584  
            Advisor Class of Shares      7,272        11,041        3,974        7,370  
        Administrative fees      412,653        420,778        123,211        381,328  
        Custodian fees      68,146        69,046        26,212        64,918  
        Portfolio accounting fees      102,937        102,557        57,694        98,195  
        Transfer and dividend disbursing agent fees      141,039        151,397        107,546        114,224  
        Registration fees      28,078        19,383        30,965        27,800  
        Auditing fees      14,483        14,483        14,482        14,483  
        Legal fees      4,323        4,223        4,279        4,323  
        Printing and postage      22,772        29,334        19,469        25,291  
        Directors’ fees      5,455        5,455        5,455        5,455  
        Insurance premiums—
            E&O/D&O      1,980        2,226        969        2,299  
            Default insurance      —        —        —        —  
        Distribution services fees—
            Advisor Class of Shares      7,272        11,041        3,974        7,370  
        Miscellaneous      12,772        11,820        4,051        11,482  
     
     
     
     
  
                Total expenses      5,136,510        5,246,313        1,708,880        4,748,985  
     
     
     
     
  
Deduct—
        Waiver of investment adviser fee      —        —        —        —  
        Waiver of shareholder services fees—
            Investor Class of Shares      —        —        —        —  
            Advisor Class of Shares      (7,272 )      (11,041 )      (3,974 )      (7,370 )
     
     
     
     
  
                Total Waivers      (7,272 )      (11,041 )      (3,974 )      (7,370 )
     
     
     
     
  
Net expenses      5,129,238        5,235,272        1,704,906        4,741,615  
     
     
     
     
  
Net investment income (net operating loss)      4,601,248        150,608        211,412        (1,556,489 )
     
     
     
     
  
Net Realized and Unrealized Gain (Loss) on
Investments, Options, Foreign Currency and
Futures Contracts:
Net realized gain (loss) on investment transactions
and options (identified cost basis)		      19,832,156        (17,367,829 )      24,875,839        7,534,050  
Net realized loss on futures contracts (identified cost
basis)		      (3,441,318 )      (1,892,744 )      (1,089,843 )      (1,534,067 )
Net realized loss on foreign currency contracts
(identified cost basis)		      —        —        —        —  
Net change in unrealized appreciation (depreciation)
on investments, options, futures contracts and
foreign currency translation		       (11,491,423 )      (108,663,462 )      3,878,691        (188,928,073 )
     
     
     
     
  
Net realized and unrealized gain (loss) on
investments, options, foreign currency and
futures contracts		      4,899,415        (127,924,035 )      27,664,687        (182,928,090 )
     
     
     
     
  
Change in net assets resulting from operations      $  9,500,663        $(127,773,427 )      $27,876,099        $(184,484,579 )
     
     
     
     
  
 
(1) 
Net of foreign taxes withheld of $52,832, $41,333, $3,769, $986 and $832,171.
(2) 
Net of dollar roll expense of $1,676,058.
(See Notes which are an integral part of the Financial Statements)
 
n  Marshall Funds
 
 
     
     
     
     
   
 
Small-Cap
Growth
Fund		    International
Stock
Fund		    Government
Income
Fund		    Intermediate
Bond
Fund		    Short-Term
Income
Fund		    Money
Market
Fund
 
   
  
  
  
  
 
$      933,707      $    1,127,461    $25,946,881 (2)    $41,952,431      $  8,292,000      $138,533,465  
132,276 (1)    6,188,286(1)    —      —      —      —  
    
 
    
    
    
  
1,065,983      7,315,747    25,946,881      41,952,431      8,292,000      138,533,465  
    
 
    
    
    
  
 
1,110,283      4,231,619    2,816,490      3,786,559      743,887      3,734,926  
 
272,656      723,445    934,086      1,571,418      308,976      4,417,915  
4,915      8,831    4,744      6,315      132      305,964  
105,181      397,420    359,874      582,362      123,125      1,256,944  
22,206      192,783    62,553      88,109      24,796      273,995  
57,282      135,182    94,947      115,914      50,903      216,051  
100,518      123,033    140,873      140,817      46,851      502,514  
20,360      33,626    25,312      26,158      21,992      112,469  
14,482      14,367    14,367      14,482      14,482      14,482  
4,279      5,223    4,939      4,424      4,122      3,294  
20,493      46,328    19,159      16,827      14,368      49,281  
5,455      5,455    5,455      5,455      5,455      5,455  
 
1,117      2,130    1,768      2,589      1,012      32,435  
—      —    —      —      —      230,920  
 
4,915      8,831    4,744      6,315      132      367,157  
13,545      12,707    12,476      16,019      4,762      41,106  
    
 
    
    
    
  
1,757,687      5,940,980    4,501,787      6,383,763      1,364,995      11,564,908  
    
 
    
    
    
  
 
—      (69,950)    (375,532 )    (378,656 )    (421,536 )    (1,244,975 )
 
—      —    (859,359 )    (1,445,704 )    (284,258 )    —  
(4,915 )    (8,831)    (4,744 )    (6,315 )    (132 )    —  
    
 
    
    
    
  
(4,915 )    (78,781)    (1,239,635 )    (1,830,675 )    (705,926 )    (1,244,975 )
    
 
    
    
    
  
1,752,772      5,862,199    3,262,152      4,553,088      659,069      10,319,933  
    
 
    
    
    
  
(686,789 )    1,453,548    22,684,729      37,399,343      7,632,931      128,213,532  
    
 
    
    
    
  
 
10,664,839      (43,502,687)    4,584,409      1,466,569      (937,731 )    (145,822 )
 
(4,176,868 )    —    —      —      —      —  
 
—      (1,316,950)    —      —      —      —  
 
(46,191,525 )    (88,132,643)    8,754,436      22,426,317      5,233,523      —  
    
 
    
    
    
  
 
(39,703,554 )    (132,952,280)    13,338,845      23,892,886      4,295,792      (145,822 )
    
 
    
    
    
  
$(40,390,343 )    $(131,498,732)    $36,023,574      $61,292,229      $11,928,723      $128,067,710  
    
 
    
    
    
  
 
 
Statements of Changes in Net Assets
  
  
 
     Equity
Income
Fund		    Large-Cap
Growth &
Income Fund
  
  
     Year Ended
August 31,
2001		    Year Ended
August 31,
2000		    Year Ended
August 31,
2001		    Year Ended
August 31,
2000
  
  
  
  
Increase (Decrease) in Net Assets
Operations—
    Net investment income (net operating loss)    $    4,601,248      $    7,141,771      $        150,608      $        747,912  
    Net realized gain (loss) on investment transactions and options    19,832,156      2,233,598      (17,367,829 )    18,273,661  
    Net realized gain (loss) on futures contracts    (3,441,318 )    (1,956,160 )    (1,892,744 )    835,082  
    Net realized gain (loss) on foreign currency contracts    —      —      —      —  
    Net change in unrealized appreciation
        (depreciation) of investments, options, futures contracts and foreign currency
        translation		     (11,491,423 )    (26,557,016 )    (108,663,462 )    56,779,442  
     
     
     
     
  
        Change in net assets resulting from operations    9,500,663       (19,137,807 )    (127,773,427 )    76,636,097  
     
     
     
     
  
Distributions to Shareholders—
    Distributions to shareholders from net investment income
        Investor Class of Shares    (4,113,180 )    (7,232,301 )    (387,709 )    (559,340 )
        Advisor Class of Shares    (25,729 )    (21,149 )    (3,696 )    (1,908 )
        Institutional Class of Shares    —      —      —      —  
    Distributions to shareholders from
        net realized gain on investments
        Investor Class of Shares    (2,914,298 )    (42,937,425 )    (21,253,461 )    (23,537,005 )
        Advisor Class of Shares    (17,420 )    (111,260 )    (199,698 )    (83,328 )
        Institutional Class of Shares    —      —      —      —  
     
     
     
     
  
        Change in net assets resulting from
distributions to shareholders		    (7,070,627 )    (50,302,135 )    (21,844,564 )    (24,181,581 )
     
     
     
     
  
Capital Stock Transactions—
    Proceeds from sale of shares    58,546,071      51,094,529      61,140,401      108,359,514  
    Net asset value of shares issued to
shareholders in payment of distributions declared		    4,633,964      45,336,115      21,325,052      23,343,663  
    Cost of shares redeemed    (73,256,581 )    (139,115,322 )    (54,975,248 )    (78,290,306 )
     
     
     
     
  
        Change in net assets resulting from
capital stock transactions		    (10,076,546 )    (42,684,678 )    27,490,205      53,412,871  
     
     
     
     
  
        Change in net assets    (7,646,510 )    (112,124,620 )    (122,127,786 )    105,867,387  
Net Assets:
    Beginning of period    425,925,608      538,050,228      513,810,116      407,942,729  
     
     
     
     
  
    End of period    $418,279,098      $425,925,608      $391,682,330      $513,810,116  
     
     
     
     
  
Undistributed net investment income (loss) included in
net assets at end of period		    $        611,041      $        148,702      $        146,290      $        387,087  
     
     
     
     
  
 
(See Notes which are an integral part of the Financial Statements)
 
n  Marshall Funds
   
  
  
  
 
Mid-Cap
Value
Fund
    Mid-Cap
Growth
Fund
    Small-Cap
Growth
Fund
    International
Stock
Fund
    Government
Income
Fund
           
Year Ended
August 31,
2001
    Year Ended
August 31,
2000
    Year Ended
August 31,
2001
    Year Ended
August 31,
2000
    Year Ended
August 31,
2001
    Year Ended
August 31,
2000
    Year Ended
August 31,
2001
    Year Ended
August 31,
2000
    Year Ended
August 31,
2001
    Year Ended
August 31,
2000
    
    
$        211,412      $        951,740      $    (1,556,489)    $    (2,892,235 )    $      (686,789 )    $    (1,455,845 )    $    1,453,548      $    (1,419,327 )    $  22,684,729      $  21,143,682  
24,875,839      7,204,028      7,534,050    94,084,907      10,664,839      12,195,721      (43,502,687 )    48,386,644      4,584,409      (6,282,615 )
 (1,089,843 )    (708,544 )    (1,534,067)    1,161,174      (4,176,868 )    (61,656 )    —      —      —      —  
—      —      —    —      —      —      (1,316,950 )    42,214      —      —  
    
    
3,878,691      1,264,711      (188,928,073)    119,851,804      (46,191,525 )    46,005,960      (88,132,643 )    34,520,660      8,754,436      6,364,707  
    
    
 
    
    
    
    
    
    
  
27,876,099      8,711,935      (184,484,579)    212,205,650      (40,390,343 )    56,684,180      (131,498,732 )    81,530,191      36,023,574      21,225,774  
    
    
 
    
    
    
    
    
    
  
    
    
(668,603 )    (612,736 )    —    —      —      —      —      (2,733,118 )    (22,613,781 )    (20,983,438 )
(7,436 )    (3,207 )    —    —      —      —      —      (8,249 )    (110,393 )    (61,948 )
—      —      —    —      —      —      —      (820,442 )    —      —  
    
    
(6,653,072 )    (14,371,836 )    (97,066,185)    (28,643,051 )    (13,280,301 )    (3,312,795 )    (33,371,017 )    (22,694,282 )    —      —  
(74,513 )    (74,699 )    (663,495)    (59,592 )    (201,636 )    (19,849 )    (390,149 )    (67,987 )    —      —  
—      —      —    —      —      —      (15,060,189 )    (6,274,748 )    —      —  
    
    
 
    
    
    
    
    
    
  
    
(7,403,624 )    (15,062,478 )    (97,729,680)    (28,702,643 )    (13,481,937 )    (3,332,644 )    (48,821,355 )    (32,598,826 )    (22,724,174 )    (21,045,386 )
    
    
 
    
    
    
    
    
    
  
    
75,859,768      23,950,177      75,745,858    231,402,879      42,699,451      100,142,944      247,575,054      947,444,950      65,432,184      307,099,408  
    
7,061,197      14,540,874      96,392,588    28,303,949      13,289,856      3,289,762      47,791,410      30,622,693      14,045,043      12,678,694  
 (36,009,370 )     (53,448,476 )     (97,686,196)     (196,206,036 )    (55,428,320 )     (99,062,882 )     (243,821,846 )     (809,396,336 )    (68,738,231 )     (279,275,501 )
    
    
 
    
    
    
    
    
    
  
    
46,911,595      (14,957,425 )    74,452,250    63,500,792      560,987      4,369,824      51,544,618      168,671,307      10,738,996      40,502,601  
    
    
 
    
    
    
    
    
    
  
67,384,070      (21,307,968 )     (207,762,009)     247,003,799      (53,311,293 )    57,721,360      (128,775,469 )    217,602,672      24,038,396      40,682,989  
    
107,622,929      128,930,897      544,531,156    297,527,357      161,107,028      103,385,668      488,346,398      270,743,726      358,720,850      318,037,861  
    
    
 
    
    
    
    
    
    
  
$175,006,999      $107,622,929      $336,769,147    $544,531,156      $107,795,735      $161,107,028      $359,570,929      $488,346,398      $382,759,246      $358,720,850  
    
    
 
    
    
    
    
    
    
  
    
$          42,921      $        507,577      $                —    $                —      $                —      $                —      $    (3,039,914 )    $    (3,817,818 )    $              265      $        (28,501 )
    
    
 
    
    
    
    
    
    
  
 
 
 
Statements of Changes in Net Assets
    
    
    
 
       Intermediate
Bond
Fund		      Short-Term
Income
Fund		      Money
Market
Fund
    
    
    
       Year Ended
August 31,
2001
      Year Ended
August 31,
2000
      Year Ended
August 31,
2001
      Year Ended
August 31,
2000
      Year Ended
August 31,
2001
      Year Ended
August 31,
2000
Increase (Decrease) in Net Assets
Operations—
    Net investment income      $  37,399,343        $  37,991,992        $    7,632,931        $    8,624,412        $    128,213,532        $    107,507,525  
    Net realized gain (loss) on investment
    transactions		      1,466,569        (3,684,098 )      (937,731 )      (961,032 )      (145,822 )      —  
    Net change in unrealized appreciation
    (depreciation) of investments		      22,426,317        2,420,621        5,233,523        (1,939,514 )      —        —  
     
     
     
     
     
     
  
    Change in net assets resulting from
    operations		      61,292,229        36,728,515        11,928,723        5,723,866        128,067,710        107,507,525  
     
     
     
     
     
     
  
Distributions to Shareholders—                                
    Distributions to shareholders from net
    investment income		                              
    Investor Class of Shares      (37,280,833 )      (37,717,011 )      (7,653,555 )      (8,574,095 )      (92,313,480 )      (97,455,147 )
    Advisor Class of Shares      (143,096 )      (94,507 )      (3,006 )      —        (6,001,217 )      (7,473,721 )
    Institutional Class of Shares      —        —        —        —        (29,898,835 )      (2,578,657 )
     
     
     
     
     
     
  
    Change in net assets from distributions
    to shareholders		      (37,423,929 )      (37,811,518 )      (7,656,561 )      (8,574,095 )      (128,213,532 )      (107,507,525 )
     
     
     
     
     
     
  
Capital Stock Transactions—                              
    Proceeds from sale of shares      161,319,013        119,622,028        42,309,425        149,710,835        9,007,684,945        6,665,307,146  
    Net asset value of shares issued to
    shareholders in payment of
    distributions declared		      17,371,080        16,258,636        4,317,480        4,863,722        30,419,965        29,925,093  
    Cost of shares redeemed       (173,414,101 )       (119,772,442 )      (47,297,424 )       (164,163,724 )       (8,357,725,162 )       (6,417,958,941 )
     
     
     
     
     
     
  
    Change in net assets from capital stock
    transactions		      5,275,992        16,108,222        (670,519 )      (9,589,167 )      680,379,748        277,273,298  
     
     
     
     
     
     
  
    Change in net assets      29,144,292        15,025,219        3,601,643        (12,439,396 )      680,233,926        277,273,298  
Net Assets:                              
    Beginning of period      614,948,361        599,923,142        122,503,210        134,942,606        2,059,365,505        1,782,092,207  
     
     
     
     
     
     
  
    End of period      $644,092,653        $614,948,361        $126,104,853        $122,503,210        $  2,739,599,431        $  2,059,365,505  
     
     
     
     
     
     
  
    Undistributed net investment income
    (loss) included in net assets at end of
    period		      $            4,469        $          (5,988 )      $                (18 )      $          25,588        $                    —        $                    —  
     
     
     
     
     
     
  
(See Notes which are an integral part of the Financial Statements)
Financial Highlights—Advisor Class of Shares (For a share outstanding throughout each period)
     Ratios to Average Net Assets
Period
Ended
August 31,
    Net asset
value,
beginning
of period
    Net
investment
income (net
operating loss)
    Net realized and
unrealized
gain (loss) on
investments, options,
futures contracts
and foreign
currency
    Total from
investment
operations
    Dividends to
shareholders
from net
investment
income
    Distributions to
shareholders from
net realized gain
on investments,
options, futures
contracts, and
foreign currency
    Total
distributions
    Net asset
value, end
of period
    Total
return(1)
    Expenses
    Net investment
income (net
operating
loss)
    Expense
waiver (2)
    Net assets,
end of
period
(000 omitted)
    Portfolio
turnover
rate
Equity Income Fund
1999(3)    $    15.88    0.16      0.81      0.97      (0.14 )    —      (0.14 )    $16.71    6.13 %    1.17 %(4)    1.68 %(4)    0.25 %(4)    $      755    72 %
2000    $    16.71    0.23      (0.73 )    (0.50 )    (0.23 )    (1.36 )    (1.59 )    $14.62    (2.80 )%    1.16 %    1.55 %    0.25 %    $    2,081    98 %
2001    $    14.62    0.16      0.16      0.32      (0.14 )    (0.10 )    (0.24 )    $14.70    2.20 %    1.19 %    1.09 %    0.25 %    $    3,628    78 %
Large-Cap Growth & Income Fund
1999(3)    $    16.34    0.02      1.14      1.16      (0.02 )    —      (0.02 )    $17.48    7.08 %    1.20 %(4)    0.15 %(4)    0.25 %(4)    $      912    32 %
2000    $    17.48    0.03      2.72      2.75      (0.02 )    (0.99 )    (1.01 )    $19.22    16.35 %    1.18 %    0.14 %    0.25 %    $    3,615    71 %
2001    $    19.22    0.01      (4.66 )    (4.65 )    (0.01 )    (0.81 )    (0.82 )    $13.75    (24.79 )%    1.19 %    0.05 %    0.25 %    $    4,771    63 %
Mid-Cap Value Fund
1999(3)    $    10.77    0.05      0.62      0.67      (0.04 )    —      (0.04 )    $11.40    6.22 %    1.26 %(4)    0.71 %(4)    0.25 %(4)    $      356    90 %
2000    $    11.40    0.09      0.79      0.88      (0.05 )    (1.38 )    (1.43 )    $10.85    9.29 %    1.33 %    1.04 %    0.25 %    $    1,054    94 %
2001    $    10.85    0.02      2.62      2.64      (0.07 )    (0.70 )    (0.77 )    $12.72    25.80 %    1.30 %    0.17 %    0.25 %    $    2,288    104 %
Mid-Cap Growth Fund
1999(3)    $    15.13    (0.02 )    2.17      2.15      —      —      —      $17.28    14.21 %    1.21 %(4)    (0.74 )%(4)    0.25 %(4)    $      278    173 %
2000    $    17.28    (0.16 )(5)    12.00      11.84      —      (1.69 )    (1.69 )    $27.43    71.91 %    1.18 %    (0.63 )%    0.25 %    $    2,726    108 %
2001    $    27.43    (0.06 )(5)    (8.67 )    (8.73 )    —      (4.97 )    (4.97 )    $13.73    (34.17 )%    1.19 %    (0.39 )%    0.25 %    $    3,051    118 %
Small-Cap Growth Fund
1999(3)    $    12.73    (0.02 )    (0.33 )    (0.35 )    —      —      —      $12.38    (2.75 )%    1.59 %(4)    (1.03 )%(4)    0.25 %(4)    $      394    219 %
2000    $    12.38    (0.18 )(5)    7.03      6.85      —      (0.41 )    (0.41 )    $18.82    56.14 %    1.59 %    (1.02 )%    0.25 %    $    1,771    105 %
2001    $    18.82    (0.08 )(5)    (4.52 )    (4.60 )    —      (1.63 )    (1.63 )    $12.59    (24.23 )%    1.58 %    (0.70 )%    0.25 %    $    2,399    287 %
International Stock Fund
1999(3)    $    12.69    0.00 (6)    1.14      1.14      —      —      —      $13.83    8.98 %    1.50 %(4)    0.13 %(4)    0.27 %(4)    $      429    182 %
2000    $    13.83    (0.05 )(5)    4.08      4.03      (0.17 )    (1.36 )    (1.53 )    $16.33    28.11 %    1.51 %    (0.32 )%    0.27 %    $    2,184    225 %
2001    $    16.33    0.04 (5)    (4.03 )    (3.99 )    —      (1.61 )    (1.61 )    $10.73    (26.36 )%    1.46 %    0.34 %    0.27 %    $    3,555    156 %
Government Income Fund
1999(3)    $      9.61    0.34      (0.39 )    (0.05 )    (0.34 )    —      (0.34 )    $  9.22    (0.56 )%    1.09 %(4)    5.55 %(4)    0.36 %(4)    $      754    232 %
2000    $      9.22    0.55      (0.02 )    0.53      (0.55 )    —      (0.55 )    $  9.20    5.96 %    1.08 %    6.06 %    0.35 %    $    1,491    192 %
2001    $      9.20    0.55      0.33      0.88      (0.55 )    —      (0.55 )    $  9.53    9.77 %    1.10 %    5.81 %    0.35 %    $    2,451    122 %
Intermediate Bond Fund
1999(3)    $      9.53    0.35      (0.36 )    (0.01 )    (0.35 )    —      (0.35 )    $  9.17    (0.09 )%    0.94 %(4)    5.79 %(4)    0.31 %(4)    $      953    181 %
2000    $      9.17    0.55      (0.01 )    0.54      (0.55 )    —      (0.55 )    $  9.16    6.10 %    0.93 %    6.12 %    0.31 %    $    1,969    243 %
2001    $      9.16    0.53      0.35      0.88      (0.53 )    —      (0.53 )    $  9.51    9.89 %    0.95 %    5.67 %    0.31 %    $    3,230    273 %
Short-Term Income Fund
2001(7)    $      9.26    0.46      0.28      0.74      (0.46 )    —      (0.46 )    $  9.54    8.15 %    0.76 %(4)    5.68 %(4)    0.59 %(4)    $        97    79 %
Money Market Fund
1997    $      1.00    0.05      —      0.05      (0.05 )    —      (0.05 )    $  1.00    5.04 %    0.71 %    4.93 %    0.26 %    $  89,485    —  
1998    $      1.00    0.05      —      0.05      (0.05 )    —      (0.05 )    $  1.00    5.19 %    0.71 %    5.12 %    0.25 %    $105,125    —  
1999    $      1.00    0.05      —      0.05      (0.05 )    —      (0.05 )    $  1.00    4.67 %    0.71 %    4.57 %    0.25 %    $118,352    —  
2000    $      1.00    0.05      —      0.05      (0.05 )    —      (0.05 )    $  1.00    5.56 %    0.74 %    5.44 %    0.16 %    $140,787    —  
2001    $      1.00    0.05      —      0.05      (0.05 )    —      (0.05 )    $  1.00    5.00 %    0.76 %    4.90 %    0.05 %    $127,707    —  
         
(1)
(2)
(3)
(4) 
Based on net asset value
This voluntary expense decrease is reflected in both the expense and net investment income (net operating loss) ratios.
Reflects operations for the period from December 31, 1998 (start of performance) to August 31, 1999.
Computed on an annualized basis. 		  (5)
(6)
(7)		 Per share information is based on average shares outstanding.
Amount represents less than $0.01 per share.
CReflects operations for the period from October 31, 2000 (start of performance) to August 31, 2001.
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Notes to Financial Statements
1. Organization
 
        Marshall Funds, Inc. (the “Corporation”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Corporation consists of eleven diversified portfolios (individually referred to as the “Fund”, or collectively as the “Funds”), ten of which are presented herein:
 
Portfolio Name
     Investment Objective
Marshall Equity Income Fund
(“Equity Income Fund”)		      To provide capital appreciation and above-average dividend income.
Marshall Large-Cap Growth & Income Fund (“Large-Cap
Growth & Income Fund”)		      To provide capital appreciation and income.
Marshall Mid-Cap Value Fund (“Mid-Cap Value Fund”)      To provide capital appreciation.
Marshall Mid-Cap Growth Fund (“Mid-Cap Growth Fund”)      To provide capital appreciation.
Marshall Small-Cap Growth Fund (“Small-Cap Growth Fund”)      To provide capital appreciation.
Marshall International Stock Fund (“International Stock Fund”)      To provide capital appreciation.
Marshall Government Income Fund (“Government Income
Fund”)		      To provide current income.
Marshall Intermediate Bond Fund (“Intermediate Bond Fund”)      To maximize total return consistent with current income.
Marshall Short-Term Income Fund (“Short-Term Income
Fund”)		      To maximize total return consistent with current income.
Marshall Money Market Fund (“Money Market Fund”)      To provide current income consistent with stability of principal.
 
        The Funds are offered in two classes of shares: Investor Class of Shares and Advisor Class of Shares. International Stock Fund and Money Market Fund offer three classes of shares: Investor Class of Shares, Advisor Class of Shares and Institutional Class of Shares. Effective October 31, 2000, Short-Term Income Fund began offering a second class of shares, Advisor Class of Shares. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. The Financial Highlights of the Investor Class of Shares and Institutional Class of Shares of the Funds are presented in separate annual reports.
 
2. Significant Accounting Policies
 
        The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with accounting principles generally accepted in the United States.
 
        Investment Valuations—Listed equity securities are valued at the last sale price reported on a national securities exchange. U.S. government securities, listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Municipal bonds are valued by an independent pricing service, taking into consideration yield, liquidity, risk, credit quality, coupon, maturity, type of issue, and any other factors or market data the pricing service deems relevant. Money Market Fund’s use of the amortized cost method to value portfolio securities is in accordance with Rule 2a-7 under the Act. For fluctuating net asset value Funds within the Corporation, short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities purchased with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Directors (the “Directors”).
 
        Repurchase Agreements—It is the policy of the Funds to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank’s vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Funds to monitor, on a daily basis, the market value of each repurchase agreement’s collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement, including accrued interest.
 
        The Funds will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Funds’ adviser (or sub-adviser with respect to International Stock Fund) to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Directors. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Funds could receive less than the repurchase price on the sale of collateral securities.
 
n  Marshall Funds
 
        Investment Income, Expenses and Distributions—Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the “Code”). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair market value. The Funds offer multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expense of the Funds based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
 
        In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the “Guide”). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Funds does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
 
        Reclassification—Income and capital gain distributions are determined in accordance with income tax regulations which differ from generally accepted accounting principles. These differences are primarily attributable to differing book/tax treatments of net operating loss and foreign currency transactions. Amounts as of August 31, 2001 have been reclassed to reflect the following:
 
     Increase (Decrease)
 
Fund Name
    Paid-in Capital
    Accumulated Net
Realized Gain/Loss
    Undistributed Net
Investment Income
Equity Income Fund    $      26,960      $    (26,960 )    $            —  
Mid-Cap Value Fund    —      29      (29 )
Mid-Cap Growth Fund    (404,091 )    (1,152,398 )     1,556,489  
Small-Cap Growth Fund    1,263,166      (1,949,955 )    686,789  
International Stock Fund     (3,797,658 )     4,473,302      (675,644 )
Government Income Fund    (70,024 )    1,813      68,211  
Intermediate Bond Fund    (35,043 )    —      35,043  
Short-Term Income Fund    2      1,974      (1,976 )
 
        Net investment income, net realized gains (losses) and net assets were not affected by this reclassification.
 
        Federal Taxes—It is the Funds’ policy to comply with the provisions of Subchapter M of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of their income. Accordingly, no provisions for federal tax are necessary.
 
        Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates.
 
        At August 31, 2001, the following Funds had capital loss carryforwards for federal tax purposes, which will reduce each Fund’s taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve each Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforwards will expire as listed below:
 
Fund
    Capital Loss
Carryforward
to Expire in
2002
    Capital Loss
Carryforward
to Expire in
2003
    Capital Loss
Carryforward
to Expire in
2004
    Capital Loss
Carryforward
to Expire in
2005
    Capital Loss
Carryforward
to Expire in
2006
    Capital Loss
Carryforward
to Expire in
2007
    Capital Loss
Carryforward
to Expire in
2008
    Capital Loss
Carryforward
to Expire in
2009
    Total
Capital Loss
Carryforward
Large-Cap
Growth &
Income Fund		    $        —    $              —    $            —    $        —    $        —    $        —    $            —    $4,529,087    $  4,529,087
International
Stock Fund		    —    —    —    —    —    —    —     2,042,934    2,042,934
Government
Income Fund		    —    —    —    —    —    —     8,704,539    —    8,704,539
Intermediate
Bond Fund		    —     10,386,677     6,100,494    —    —    —    2,990,074    —     19,477,245
Short-Term
Income Fund		     302,405    1,898,650    556,158     545,815     618,371     952,637    222,218    928,524    6,024,778
Notes to Financial Statements (continued)
        Additionally, the following net capital losses or currency losses attributable to security transactions incurred after October 31, 2000 are treated as arising on September 1, 2001, the first day of each Fund’s next taxable year:
 
Fund
      Capital Loss
      Currency Loss
Large-Cap Growth & Income Fund      $17,902,739                    —
International Stock Fund      41,583,841      $3,039,914
Government Income Fund      139,722      —  
Intermediate Bond Fund      7,468,389      —  
Short-Term Income Fund      966,080      —  
Money Market Fund      145,822      —  
 
    When-Issued and Delayed Delivery Transactions—The Funds may engage in when-issued or delayed delivery transactions. The Funds record when-issued securities on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
 
    Futures Contracts—Equity Income Fund, Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-Cap Growth Fund and Small-Cap Growth Fund purchase stock index futures contracts to manage cashflows, enhance yield, and to potentially reduce transaction costs. Upon entering into a stock index futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with changes in the value of the underlying securities.
 
        At August 31, 2001, Small-Cap Growth Fund had no outstanding futures contracts.
 
        At August 31, 2001, the Equity Income Fund had outstanding futures contracts as set forth below:
 
Expiration Date
   Contracts to Receive
   Position
    Unrealized
Depreciation
September 2001    51 S&P 500    Long    $(1,043,491 )
 

        At August 31, 2001, the Large-Cap Growth & Income Fund had outstanding futures contracts as set forth below:

Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    100 S&P 500    Long    $(2,966,260 )
 

        At August 31, 2001, the Mid-Cap Value Fund had outstanding futures contracts as set forth below:  

Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    39 S&P 400    Long    $(285,816 )

 
        At August 31, 2001, the Mid-Cap Growth Fund had outstanding futures contracts as set forth below:
 
Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    40 NASDAQ 100    Long    $(995,903 )
 
        Written Options Contracts—Equity Income Fund may write option contracts. A written option obligates the Fund to deliver a call, or to receive a put, for the contract amount upon exercise by the holder of the option. The value of the option contract is recorded as a liability and unrealized gain or loss is measured by the difference between the current value and the premium received. For the year ended August 31, 2001, the Equity Income Fund had $2,159,230 in realized gains on written options.
 
 
 
n  Marshall Funds
        The following is a summary of the Equity Income Fund’s written option activity:
Contracts
    Number of
Contracts
    Premium
Outstanding @ 8/31/00    1,495      $    435,625  
Options written    49,440      3,843,715  
Options expired    (28,025 )     (2,348,572 )
Options closed    (12,420 )    (1,388,297 )
    
    
  
Outstanding @ 8/31/01    10,490      $    542,471  
 
 
        At August 31, 2001, the Equity Income Fund had the following outstanding options:
 
 
Contract
      Type
      Expiration
Date
      Exercise
Price
      Number
of
Contracts
      Market
Value
      Unrealized
Appreciation
(Depreciation)
New York Times Co.      Call      October 2001      $50.00      250      $  3,750      $ 20,499  
Baker Hughes Inc.      Put      October 2001      30.00      500       47,500      (6,001 )
Bear Stearns Cos., Inc.      Put      October 2001      40.00      225      5,063      3,712  
Bellsouth Corp.      Put      October 2001      35.00      520      26,000      (521 )
Boeing Co.      Put      September 2001      50.00      400      40,000      (2,051 )
Burlington Resources Inc.      Put      September 2001      35.00      500      22,500      (3,001 )
Du Pont (E.I. De Nemours)      Put      October 2001      35.00      500      10,000      11,999  
El Paso Corp.      Put      September 2001      40.00      350      5,250      15,049  
Enron Corp.      Put      October 2001      30.00      1,000      77,500      (21,502 )
Ford Motor Co.      Put      September 2001      20.00      700      42,000      (18,201 )
General Electric Co.      Put      September 2001      37.50      500      16,250      7,749  
Hewlett Packard Co.      Put      September 2001      20.00      500      5,000      21,499  
Hewlett Packard Co.      Put      September 2001      22.50      500      35,000      (10,501 )
Honeywell International Inc.      Put      September 2001      30.00      645      9,675      22,509  
Limited Inc.      Put      November 2001      12.50      800      26,000      13,199  
Motorola Inc.      Put      September 2001      15.00      750      15,000      17,999  
Ryder System Inc.      Put      November 2001      15.00      1,000      17,500      21,499  
Schlumberger Ltd.      Put      September 2001      45.00      600      28,500      299  
TRW Inc.      Put      September 2001      35.00      250      35,625      (19,876 )
  
  
Net Unrealized Appreciation on Written Options Contracts      $ 74,358  
 
 
 
        Foreign Exchange Contracts—International Stock Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross hedge against either specific transactions or portfolio positions. The objective of the Fund’s foreign currency hedging transactions is to reduce the risk that the U.S. dollar value of the Fund’s foreign currency denominated securities will decline in value due to changes in foreign currency exchange rates. All foreign currency exchange contracts are “marked-to-market” daily at the applicable translation rates resulting in unrealized gains or losses. Realized gains or losses are recorded at the time the foreign currency exchange contract is offset by entering into a closing transaction or by the delivery or receipt of the currency. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. As of August 31, 2001, International Stock Fund had outstanding foreign currency exchange contracts as set forth below:
 
Settlement Date
    Foreign Currency Units to
Deliver/Receive
    In
Exchange
    Contracts
at Value
    Unrealized
Depreciation
Contract Purchased:
9/1/01    109,954 British Pound Sterling    $160,533    $159,642    $(891 )
Contract Sold:
9/1/01    4,989,130 Korean Won    3,891    3,901      (10 )
 
  
Net Unrealized Depreciation on Foreign Exchange Contracts    $(901 )
 
  
Notes to Financial Statements (continued)
        Foreign Currency Translation—The accounting records of International Stock Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (“FCs”) are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
 
        Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of FCs, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds’ books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.
 
        Dollar Roll Transactions—The Funds, except for Money Market Fund, may enter into dollar roll transactions, with respect to mortgage securities issued by Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, in which the Funds loan mortgage securities to financial institutions and simultaneously agree to accept substantially similar (same type, coupon and maturity) securities at a later date at an agreed upon price. Dollar roll transactions are short-term financing arrangements which will not exceed twelve months. The Funds will use the proceeds generated from the transactions to invest in short-term investments, which may enhance the Funds’ current yield and total return.
 
        Securities Lending—The Funds participate in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. The Funds receive cash as collateral in return for the securities and record a corresponding payable for collateral due to the respective broker. The amount of cash collateral received is maintained at a minimum level of 100% of the prior day’s market value on securities loaned. Collateral is reinvested in short-term securities including overnight repurchase agreements, commercial paper, master notes, floating rate corporate notes (with at least quarterly reset rates) and money market funds. On May 18, 2000, the Securities and Exchange Commission issued an order to the Marshall Funds that exempts certain securities lending activities from prohibitions under the Act. Under the terms of the exemptive order, (i) the Funds may pay a portion of net revenue to M&I Trust Company for its services as securities lending agent, and (ii) cash collateral received for a loan of one Fund’s securities may be invested jointly with collateral received for loans of other Funds’ securities.
 
        As of August 31, 2001, the value of securities loaned, the payable on collateral due to broker and the value of reinvested cash collateral securities were as follows:
 
Fund
      Market Value
of Securities
Loaned
      Payable on
Collateral
Due to Broker
      Reinvested
Collateral
Securities
Equity Income Fund      $        318,760      $        326,955      $        326,955
Mid-Cap Value Fund      9,434,218      9,676,760      9,676,760
Mid-Cap Growth Fund      24,085,723      24,704,938      24,704,938
Small-Cap Growth Fund      16,379,861      16,800,967      16,800,967
International Stock Fund      23,928,792      24,543,972      24,543,972
Government Income Fund       138,126,947       141,678,023       141,678,023
Intermediate Bond Fund      51,030,040      52,341,960      52,341,960
 
 
    Individual reinvested cash collateral securities at August 31, 2001 are as follows:
 
Investments
    Equity
Income
Fund
    Mid-Cap
Value
Fund
    Mid-Cap
Growth
Fund
    Small-
Cap
Growth
Fund
    International
Stock Fund
    Government
Income
Fund
    Intermediate
Bond Fund
    Total
Provident Money Market Fund    $    1,905    $      56,385    $      143,951    $      97,897    $      143,013    $      825,533    $      304,988    $  1,573,672
Merrimac Money Market Fund     146,408     4,333,163     11,062,641     7,523,316     10,990,562     63,442,098     23,438,241    120,936,429
Dreyfus Cash Management Plus    113,269    3,352,388    8,558,704    5,820,476    8,502,940    49,082,506    18,133,191    93,563,474
Financial Square Money Market
Fund		    1,211    35,830    91,475    62,208    90,879    524,591    193,806    1,000,000
JP Morgan Master Note    15,738    465,791    1,189,173    808,715    1,181,425    6,819,676    2,519,482    13,000,000
Williamette Industries Master Note    18,159    537,451    1,372,123    933,133    1,363,183    7,868,857    2,907,094    15,000,000
Danaher Corp. Master Note    12,106    358,301    914,748    622,089    908,787    5,245,905    1,938,064    10,000,000
First Union National Bank Note    18,159    537,451    1,372,123    933,133    1,363,183    7,868,857    2,907,094    15,000,000
 
 
n  Marshall Funds
 
        Restricted Securities—Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer’s expense either upon demand by the Funds or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Funds will not incur any registration costs upon such resales. The Intermediate Bond Fund’s and the Short-Term Income Fund’s restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund’s pricing committee. The Money Market Fund’s restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Act.
 
        Additional information on each restricted security held by the Money Market Fund at August 31, 2001 is as follows:
 
Security
      Fund Acquisition Date
      Acquisition Cost
GE Life & Annuity Funding Agreement      4/20/2001      $75,000,000
Monumental Life Funding Agreement      7/23/2001      40,000,000
Monumental Life Funding Agreement      5/17/2000      10,000,000
Monumental Life Funding Agreement      2/5/2001      25,000,000
Travelers Insurance Company      1/19/2001      50,000,000
 
 
        Other—Investment transactions are accounted for on a trade date basis.
 
3. Capital Stock
 
        The Articles of Incorporation permit the Directors to issue an indefinite number of full and fractional shares of common stock, par value $0.0001 per share. At August 31, 2001, the capital paid-in was as follows:
 
Fund
      Capital Paid-In
Equity Income Fund      $334,105,525
Large-Cap Growth & Income Fund      321,034,334
Mid-Cap Value Fund      130,214,897
Mid-Cap Growth Fund      340,790,698
Small-Cap Growth Fund      101,383,009
International Stock Fund      430,783,233
Government Income Fund      382,224,525
Intermediate Bond Fund      660,909,567
Short-Term Income Fund      131,494,394
Money Market Fund      2,739,745,253
 
 
        Transactions in capital stock were as follows:
 
       Equity Income Fund
      Large-Cap Growth & Income Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
 
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      3,753,785        $56,629,266        3,417,554        $  49,569,549        3,640,354        $58,100,434        6,254,839        $105,731,165  
Shares issued to shareholders
in payment of distributions
declared		      303,974        4,592,039        3,121,829        45,203,975        1,316,487        21,124,005        1,337,559        23,258,505  
Shares redeemed      (4,837,092 )      (72,875,722 )      (9,715,372 )       (138,911,369 )      (3,357,098 )       (54,334,387 )      (4,337,111 )      (78,011,838 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Investor Class of Shares
transactions		      (779,333 )      $(11,654,417 )      (3,175,989 )      $  (44,137,845 )      1,599,743        $24,890,052        3,255,287        $  50,977,832  
     
     
     
     
     
     
     
     
  
Notes to Financial Statements (continued)
 
       Equity Income Fund
      Large-Cap Growth & Income Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Advisor Class of Shares
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      126,934        $  1,916,805        101,550        $  1,524,980        188,189        $    3,039,967        146,603        $    2,628,349  
Shares issued to
shareholders in
payment of
distributions declared		      2,779        41,925        9,133        132,140        12,534        201,047        4,896        85,158  
Shares redeemed      (25,214 )      (380,859 )      (13,558 )      (203,953 )      (41,770 )      (640,861 )      (15,602 )      (278,468 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Advisor Class of Shares
transactions		      104,499        $  1,577,871        97,125        $  1,453,167        158,953        $    2,600,153        135,897        $    2,435,039  
     
     
     
     
     
     
     
     
  
Net change resulting from
Fund Share transactions		      (674,834 )      $(10,076,546 )      (3,078,864 )      $(42,684,678 )      1,758,696        $  27,490,205        3,391,184        $  53,412,871  
     
     
     
     
     
     
     
     
  
 
       Mid-Cap Value Fund
      Mid-Cap Growth Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      6,132,824        $74,762,587        2,338,505        $23,264,232        4,141,183        $  73,753,844        9,474,299        $229,362,149  
Shares issued to
shareholders in
payment of
distributions declared		      665,231        6,982,264        1,492,461        14,463,035        6,070,360        95,729,696        1,383,854        28,244,451  
Shares redeemed      (3,039,567 )      (35,807,926 )      (5,293,269 )      (53,365,756 )      (5,654,242 )      (97,229,757 )      (8,310,246 )       (196,109,010 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Investor Class of Shares
transactions		      3,758,488        $45,936,925        (1,462,303 )      $(15,638,489 )      4,557,301        $  72,253,783        2,547,907        $  61,497,590  
     
     
     
     
     
     
     
     
  
 
       Mid-Cap Value Fund
      Mid-Cap Growth Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Advisor Class of Shares
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      92,317        $  1,097,181        65,730        $      685,945        111,226        $    1,992,014        84,227        $    2,040,730  
Shares issued to
shareholders in
payment of
distributions declared		      7,508        78,933        8,026        77,839        42,035        662,892        2,915        59,498  
Shares redeemed      (17,047 )      (201,444 )      (7,850 )      (82,720 )      (30,405 )      (456,439 )      (3,854 )      (97,026 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Advisor Class of Shares
transactions		      82,778        $     974,670        65,906        $      681,064        122,856        $    2,198,467        83,288        $    2,003,202  
     
     
     
     
     
     
     
     
  
Net change resulting from
Fund Share transactions		      3,841,266        $46,911,595        (1,396,397 )      $(14,957,425 )      4,680,157        $  74,452,250        2,631,195        $  63,500,792  
     
     
     
     
     
     
     
     
  
 
       Small-Cap Growth Fund
      International Stock Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      2,979,586        $41,362,567        5,638,764        $98,910,918        15,212,008        $195,353,624        48,985,409        $812,145,186  
Shares issued to
shareholders in
payment of
distributions declared		      1,065,835        13,088,446        215,985        3,270,019        2,469,820        32,972,095        1,321,710        23,685,001  
Shares redeemed      (4,143,430 )      (55,181,701 )      (5,706,473 )      (98,875,452 )      (16,197,785 )       (209,170,751 )      (48,338,103 )      (797,167,098 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Investor Class of Shares
transactions		      (98,009 )      $   (730,688 )      148,276        $  3,305,485        1,484,043        $  19,154,968        1,969,016        $  38,663,089  
     
     
     
     
     
     
     
     
  
 
 
n  Marshall Funds
 
     Small-Cap Growth Fund
    International Stock Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
 
Advisor Class of Shares    Shares
      Amount
    Shares
      Amount
    Shares
      Amount
    Shares
      Amount
Shares sold    98,880        $  1,336,884      73,245        $    1,232,026      420,204        $    5,315,028      108,079        $    1,787,392  
Shares issued to
shareholders in payment
of distributions declared		    16,402        201,410      1,304        19,743      28,817        384,702      4,262        76,381  
Shares redeemed    (18,911 )      (246,619 )    (12,240 )      (187,430 )    (251,427 )      (2,851,448 )    (9,546 )      (148,319 )
    
    
    
    
    
    
    
    
  
Net change resulting from
Advisor Class of Shares
transactions		    96,371        $  1,291,675      62,309        $    1,064,339      197,594        $    2,848,282      102,795        $    1,715,454  
    
    
    
    
    
    
    
    
  
Net change resulting from
Fund Share transactions		    (1,638 )      $      560,987      210,585        $    4,369,824                                              
    
    
    
    
                                  
 
          International Stock Fund
 
          Year Ended
August 31, 2001
    Year Ended
August 31, 2000(1)
 
Institutional Class of Shares    Shares
      Amount
    Shares
      Amount
Shares sold    3,484,294        $  46,906,402      8,573,513        $133,512,372  
Shares issued to shareholders in payment of distributions declared    1,078,820        14,434,613      382,886        6,861,311  
Shares redeemed    (2,661,048 )       (31,799,647 )    (706,094 )      (12,080,919 )
  
     
     
     
  
Net change resulting from Institutional Class of Shares transactions    1,902,066        $  29,541,368      8,250,305        $128,292,764  
  
     
     
     
  
Net change resulting from Fund Share transactions    3,583,703        $  51,544,618      10,322,116        $168,671,307  
  
     
     
     
  
 
     Government Income Fund
    Intermediate Bond Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
 
Investor Class of Shares    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
Shares sold    6,866,098      $64,422,793      33,650,182      $306,230,995      17,120,862      $159,975,612      12,982,279      $118,238,473  
Shares issued to
shareholders in payment
of distributions declared		    1,484,020      13,955,058      1,384,984      12,631,038      1,847,000      17,238,638      1,773,855      16,166,686  
Shares redeemed    (7,287,114 )     (68,532,104 )    (30,628,885 )     (279,090,091 )    (18,527,594 )     (173,100,999 )    (13,102,959 )     (119,312,650 )
    
    
    
    
    
    
    
    
  
Net change resulting from
Investor Class of Shares
transactions		    1,063,004      $  9,845,747      4,406,281      $  39,771,942      440,268      $    4,113,251      1,653,175      $  15,092,509  
    
    
    
    
    
    
    
    
  
 
     Government Income Fund
    Intermediate Bond Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
 
Advisor Class of Shares    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
Shares sold    107,402      $  1,009,391      95,258      $        868,413      143,925      $    1,343,401      151,573      $    1,383,555  
Shares issued to
shareholders in payment
of distributions declared		    9,562      89,985      5,226      47,656      14,177      132,442      10,092      91,950  
Shares redeemed    (21,965 )    (206,127 )    (20,219 )    (185,410 )    (33,510 )    (313,102 )    (50,489 )    (459,792 )
    
    
    
    
    
    
    
    
  
Net change resulting from
Advisor Class of Shares
transactions		    94,999      $      893,249      80,265      $        730,659      124,592      $    1,162,741      111,176      $    1,015,713  
    
    
    
    
    
    
    
    
  
Net change resulting from
Fund Share transactions		    1,158,003      $10,738,996      4,486,546      $  40,502,601      564,860      $    5,275,992      1,764,351      $  16,108,222  
    
    
    
    
    
    
    
    
  
Notes to Financial Statements (continued)
 
       Short-Term Income Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      4,478,636        $      42,170,518        16,125,165        $    149,710,835  
Shares issued to shareholders in payment of distributions declared      458,652        4,314,479        522,944        4,863,722  
Shares redeemed      (5,022,532 )       (47,251,221 )      (17,696,882 )       (164,163,724 )
     
     
     
     
  
Net change resulting from Investor Class of Shares of transactions      (85,244 )      $          (766,224 )      (1,048,773 )      $        (9,589,167 )
     
     
     
     
  
 
       Short-Term Income Fund
 
       Period Ended
August 31, 2001(2)
 
Advisor Class of Shares      Shares
      Amount
Shares sold      14,727        $            138,907  
Shares issued to shareholders in payment of distributions declared      317        3,001  
Shares redeemed      (4,889 )      (46,203 )
       
       
  
Net change resulting from Advisor Class of Shares of transactions      10,155        $              95,705  
       
       
       
       
  
Net change resulting from Fund Share transactions      (75,089 )      $          (670,519 )      (1,048,773 )      $        (9,589,167 )
       
       
       
       
  
 
       Money Market Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      5,349,844,467        $  5,349,844,467        5,541,237,519        $  5,541,237,519  
Shares issued to shareholders in payment of distributions declared      22,470,409        22,470,409        22,531,652        22,531,652  
Shares redeemed      (5,451,687,216 )       (5,451,687,216 )      (5,450,839,932 )       (5,450,839,932 )
     
     
     
     
  
Net change resulting from Investor Class of Shares of transactions      (79,372,340 )      $      (79,372,340 )      112,929,239        $    112,929,239  
     
     
     
     
  
 
       Money Market Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Advisor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      440,122,578        $    440,122,578        675,776,335        $    675,776,335  
Shares issued to shareholders in payment of distributions declared      5,940,215        5,940,215        7,393,438        7,393,438  
Shares redeemed      (459,131,150 )      (459,131,150 )      (660,734,744 )      (660,734,744 )
     
     
     
     
  
Net change resulting from Advisor Class of Shares of transactions      (13,068,357 )      $      (13,068,357 )      22,435,029        $      22,435,029  
     
     
     
     
  
 
       Money Market Fund
 
       Year Ended
August 31, 2001
      Period Ended
August 31, 2000(3)
 
Institutional Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      3,217,717,900        $  3,217,717,900        448,293,292        $    448,293,292  
Shares issued to shareholders in payment of distributions declared      2,009,341        2,009,341        3        3  
Shares redeemed      (2,446,906,796 )      (2,446,906,796 )      (306,384,265 )      (306,384,265 )
     
     
     
     
  
Net change resulting from Institutional Class of Shares of transactions      772,820,445        $    772,820,445        141,909,030        $    141,909,030  
     
     
     
     
  
Net change resulting from Fund Share transactions      680,379,748        $    680,379,748        277,273,298        $    277,273,298  
     
     
     
     
  
 
(1) For the period from September 1, 1999 (start of performance) to August 31, 2000.
 
(2) For the period from October 31, 2000 (start of performance) to August 31, 2001.
 
(3) For the period from April 3, 2000 (start of performance) to August 31, 2000.
 
 
n  Marshall Funds
4. Investment Adviser Fee and Other Transactions with Affiliates
 
        Investment Adviser Fee—Marshall & Ilsley (“M&I”) Investment Management Corp., the Funds’ investment adviser (the “Adviser”), receives for its services an annual investment adviser fee based on a percentage of each Fund’s average daily net assets as listed below. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
 
 
Fund
      Annual Rate
Equity Income Fund      0.75 %
Large-Cap Growth & Income Fund      0.75 %
Mid-Cap Value Fund      0.75 %
Mid-Cap Growth Fund      0.75 %
Small-Cap Growth Fund      1.00 %
International Stock Fund      1.00 %
Government Income Fund      0.75 %
Intermediate Bond Fund      0.60 %
Short-Term Income Fund      0.60 %
Money Market Fund      0.15 %
 
 
        International Stock Fund’s sub-adviser is BPI Global Asset Management LLP (the “Sub-Adviser”). The Adviser compensates the Sub-Adviser based on the level of average aggregate daily net assets of International Stock Fund.
 
        Administrative Fee—M&I Trust Company, under the Administrative Services Agreement, provides the Funds with administrative personnel and services. The fee paid to M&I Trust Company was based on a scale that ranges from 0.150% to 0.075% of the average aggregate net assets of the Corporation (or average daily net assets in the instance of Small-Cap Growth Fund).
 
        Effective September 15, 2000, M&I Trust Company changed its administrative fee based on each Fund’s average daily net assets as follows:
 
Maximum Fee
      Fund’s ADNA
0.100%      on the first $250 million
0.095%      on the next $250 million
0.080%      on the next $250 million
0.060%      on the next $250 million
0.040%      on the next $500 million
0.020%      on assets in excess of $1.5 billion
 
 
        Federated Administrative Services (“FAS”) is the sub-administrator and will be paid by M&I Trust Company, not by the Funds.
 
        Distribution Services Fee—The Funds have adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Funds will compensate Federated Securities Corp. (“FSC”), the principal distributor, from the net assets of the Funds to finance activities intended to result in the sale of shares of the Fund’s Advisor Class of Shares. The Plan provides that the Funds may incur distribution expenses up to 0.25% of the average daily net assets of Fund’s Advisor Class of Shares (except Money Market Fund’s Advisor Class of Shares which may accrue up to 0.30%) annually, to compensate FSC.
 
        Shareholder Services Fee—Under the terms of a Shareholder Services Agreement with Marshall Funds Investor Services (“MFIS”), each Fund will pay MFIS up to 0.25% of average daily net assets of the Fund’s Investor and Advisor Class of Shares for the period. The fee paid to MFIS is used to finance certain services for shareholders and to maintain shareholder accounts. MFIS may voluntarily choose to waive any portion of its fee. MFIS can modify or terminate this voluntary waiver at any time at its sole discretion.
 
        Transfer and Dividend Disbursing Agent Fees and Expenses—Federated Services Company (“FServ”), through its subsidiary, Federated Shareholders Services Company (“FSSC”), serves as transfer and dividend disbursing agent for the Funds. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders.
 
        Portfolio Accounting Fees—FServ maintains the Funds’ accounting records for which it receives a fee. The fee is based on the level of each Fund’s average daily net assets for the period, plus out-of-pocket expenses.
Notes to Financial Statements (continued)
 
        Custodian Fees—M&I Trust Company is the Funds’ custodian. M&I Trust Company receives fees based on the level of each Fund’s average daily net assets for the period. The custodian also charges a fee in connection with securities lending activities of the Funds.
 
        Organizational Expenses—Organizational Expenses were borne initially by FAS. The Funds have reimbursed FAS for these expenses. These expenses have been deferred and are being amortized over the five-year period following each Fund’s effective date. For the year ended August 31, 2001, the Small-Cap Fund expensed the remaining balance of $7,153 over the period.
 
        General—Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees, of one or more of the above companies.
 
5. Investment Transactions
 
        Purchases and sales of investments, excluding short-term securities and long-term U.S. government securities, for the year ended August 31, 2001, were as follows:
 
Fund
      Purchases
      Sales
Equity Income Fund      $329,979,524      $351,019,590
Large-Cap Growth & Income Fund      252,283,073      266,222,981
Mid-Cap Value Fund      139,240,988      121,783,051
Mid-Cap Growth Fund      432,132,412      475,157,601
Small-Cap Growth Fund      290,605,592      307,925,695
International Stock Fund      627,444,812      617,991,402
Government Income Fund      4,998,536      9,022,142
Intermediate Bond Fund      376,312,147      396,458,042
Short-Term Income Fund      45,899,877      68,156,336
 
        Purchases and sales of long-term U.S. government securities, for the year ended August 31, 2001, were as follows:
 
Fund
      Purchases
      Sales
Large-Cap Growth & Income Fund      $      4,680,006      $                — 
Government Income Fund          521,396,057          470,491,599
Intermediate Bond Fund       1,268,016,319       1,214,324,274
Short-Term Income Fund      45,963,335      16,679,057
 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
 
        The Funds hereby designate the following distributions as capital gain dividends for the year ended August 31, 2001:
 
Equity Income Fund      $  2,931,718
Large-Cap Growth & Income Fund       21,453,159
Mid-Cap Value Fund      6,383,299
Mid-Cap Growth Fund      58,262,331
Small-Cap Growth Fund      15,432,727
International Stock Fund      15,888,938
Report of Ernst & Young LLP, Independent   n  Marshall Funds
Auditors   
 
To the Board of Directors and Shareholders of
The Marshall Funds, Inc.:
 
        We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Marshall Equity Income Fund, the Marshall Large-Cap Growth & Income Fund, the Marshall Mid-Cap Value Fund, the Marshall Mid-Cap Growth Fund, the Marshall Small-Cap Growth Fund, the Marshall International Stock Fund, the Marshall Government Income Fund, the Marshall Intermediate Bond Fund, the Marshall Short-Term Income Fund, and the Marshall Money Market Fund (ten of the portfolios within The Marshall Funds, Inc.) (the “Funds”), as of August 31, 2001, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the two years in the period ended August 31, 1998 were audited by other auditors whose report, dated October 23, 1998, expressed an unqualified opinion on those financial highlights.
 
        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2001, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from the brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
        In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting The Marshall Funds, Inc., as identified above, at August 31, 2001, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
 
 
/s/    Ernst & Young LLP
 
Boston, Massachusetts
October 16, 2001
 
 
Directors
Officers
 
John M. Blaser
John DeVincentis
Duane E. Dingmann
James Mitchell
Barbara J. Pope
David W. Schulz
John M. Blaser
President
 
John D. Boritzke
Vice President
 
William A. Frazier
Vice President
 
Brooke J. Billick
Secretary
 
Ann K. Peirick
Treasurer
 
Lori K. Hoch
Assistant Secretary
 
 
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and
are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency. Investment in
mutual funds involves investment risk, including the possible loss of principal.
 
This report is authorized for distribution to prospective investors only when preceded
or accompanied by the Funds’ prospectus, which contains facts concerning each
Fund’s objective and policies, management fees, expenses, and other information.

 

 

 

 

 

[LOGO OF MARSHALL FUNDS]

 

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

800-236-FUND (3863)

TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com

Federated Securities Corp., Distributor G01126-01(10/01)

©2001 Marshall Funds, Inc.

[LOGO OF MARSHALL FUNDS®

The Marshall Funds Family
Annual Report

The  Investor  Class  of  Shares
(Class Y)

4 Marshall Equity Income Fund
   
4 Marshall Large-Cap Growth & Income Fund
   
4 Marshall Mid-Cap Value Fund
   
4 Marshall Mid-Cap Growth Fund
   
4 Marshall Small-Cap Growth Fund
   
4 Marshall International Stock Fund
   
4 Marshall Government Income Fund
   
4 Marshall Intermediate Bond Fund
   
4 Marshall Intermediate Tax-Free Fund
   
4 Marshall Short-Term Income Fund
   
4 Marshall Money Market Fund

[PHOTOS]

 

Table of Contents
 
President’s Message      1
 
Commentaries     
 
Marshall Equity Income Fund      2
 
Marshall Large-Cap Growth & Income Fund      4
 
Marshall Mid-Cap Value Fund      6
 
Marshal Mid-Cap Growth Fund      8
 
Marshall Small-Cap Growth Fund      10
 
Marshall International Stock Fund      12
 
Marshall Government Income Fund      14
 
Marshall Intermediate Bond Fund      16
 
Marshall Intermediate Tax-Free Fund      18
 
Marshall Short-Term Income Fund      20
 
Marshall Money Market Fund      22
 
Financial Information     
 
Schedule of Investments      23
 
           Marshall Equity Income Fund      23
 
           Marshall Large-Cap Growth & Income Fund      25
 
           Marshall Mid-Cap Value Fund      26
 
           Marshall Mid-Cap Growth Fund      27
 
           Marshall Small-Cap Growth Fund      28
 
           Marshall International Stock Fund      29
 
           Marshall Government Income Fund      32
 
           Marshall Intermediate Bond Fund      33
 
           Marshall Intermediate Tax-Free Fund      35
 
           Marshall Short-Term Income Fund      40
 
           Marshall Money Market Fund      41
 
Statements of Assets and Liabilities      46
 
Statements of Operations      48
 
Statements of Changes in Net Assets      50
 
Financial Highlights      54
 
Notes to Financial Statements      56
 
Directors & Officers      69
[LOGO OF MARSHALL FUNDS®]
Dear Marshall Funds Shareholder,
 
Since we believe the Marshall Funds are an excellent choice for a well-diversified, long-term investment strategy, we should be able to measure whether our products and services are used appropriately in times like these. As a result, we made certain measurements in response to the recent tragedies within our country, including:
 
Ÿ 
listening to the silence in our shareholder service call center,
 
Ÿ 
monitoring the substantial decline in on-line trading by our large number of 401(k) participants,
 
Ÿ 
tracking the lack of “flight to quality” exchanges of equities funds to money market funds, and
 
Ÿ 
summarizing the positive face to face discussions of our investment representatives and their clients.
 
We could not avoid obtaining a certain amount of satisfaction that our investment philosophy has gotten through to the vast majority of our shareholders. Diversification through broad asset allocation may be the primary success factor in reaching your financial goals while weathering market volatility.
 
This approach should not lack constant monitoring or pro-active re-allocation when justified by a change in your financial goals, time horizon or risk tolerance. This approach should exclude panic reactions to current events. From what we observed, our shareholders should be congratulated for remaining calm and focused on their long-term plans.
 
Going forward, our challenges remain. Looking at past letters to shareholders, however, we are reminded of how effective our approach has been when investors were euphoric over aggressive growth investing and when eulogies were being written for value and small cap investing. The same eulogies are being written today about international investing.
 
Every investor, who has committed to a broadly diversified investment program including attention to large, mid and small cap stocks, growth and value investment styles, equities and fixed income funds, and domestic and international equities, has been rewarded with competitive returns with less overall volatility. We believe our investment philosophy has only been reaffirmed and we remain committed to delivering the investment products and services that you can use to meet your goals.
 
If recent events make you anxious, or hesitant, or just uncertain, please do not hesitate to contact your M&I financial representative, or if you do not have one, contact us directly at 1-800-236-3863.
 
Congratulations on your strength, resolve and long-term outlook. As always, thank you for your investment in the Marshall Funds.
 
Sincerely,
 
/s/ John M. Blaser
 
John M. Blaser
President
Annual Report—Commentary
 
Marshall Equity Income Fund
The Marshall Equity Income Fund (the “Fund”) seeks to provide capital appreciation and above-average dividend income. Fund assets are invested in a broadly-diversified portfolio of common stocks whose market capitalization typically exceeds eight billion dollars. In order to provide both capital appreciation and income, the Adviser attempts to structure the portfolio to pursue a yield at least 1% more than the income earned on the stocks in the Standard and Poor’s 500 Index (S&P 500).* The Adviser selects stocks using a unique, quantitative, value-oriented approach that uses dividends as the initial guide to competitive long-term returns with less volatility.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 2.20%,** while the S&P 500 returned (24.39)% and the Lipper Equity Income Funds Index (LEIFI) returned (2.30)%.* Our outperformance over this period is the result of staying true to our value oriented, dividend-driven investment discipline.
 
Perseverance in the Tug-of-War
In our last report, we discussed the tug-of-war affecting the markets—with the positive impact interest rate cuts from the Federal Reserve Board (the “Fed”) on one end seeking to counter the negative impact of declining corporate earnings on the other. Over the past six months, the economic slowdown overpowered the Fed’s efforts to stimulate it, with the result that corporate earnings—and stock prices—have been disappointing.
 
Few Changes to the Portfolio
Our commitment to our investment discipline did not waver when it was out of market favor, and now investors are able to enjoy the benefits of that consistency. We have maintained broad diversification and avoided bets on individual sectors relative to our custom benchmark. Central to our approach is avoiding the emotional or reactionary decisions that can seem appealing in the short run, but prove very costly over the longer haul. Our emphasis on dividend yield draws us toward more defensive areas of the marketplace. These stocks became more attractive as the economy slid toward recession, and it appears that risk-wary investors are likely to favor such stocks in the uncertain times ahead.
 
Also consistent with our long-term approach, we have made only modest changes to the portfolio. We have slightly increased our weighting in healthcare stocks, which can offer attractive relative yields and whose earnings are relatively shielded from shifts in the economy. We have also slightly decreased the Fund’s stake in financial stocks.
 
The Impact of September 11
The markets and the economy were already in a tenuous state before this September’s terrorist attacks, but this served to accelerate the downtrend. There is a great degree of uncertainty, which can be troubling, but can also present opportunities.
 
The government has taken encouraging steps that may take time to have impact, but should in time contribute to recovery. The Fed has made clear its commitment to support the economy with rate cuts and infusions of liquidity. At the same time, new government spending and tax-cut proposals, in addition to the tax relief put in place earlier this year, promise future fiscal stimulus as well. Much of the downside risk has been taken out of stock prices, with low expectations already factored into valuations.
 
As investors regain confidence in the economy and the markets, it appears that they may continue to seek more style diversification—which would likely benefit Fund performance. Although it may take several quarters for the economy and the markets to recover, we strongly believe that stock investors will be rewarded for their patience through this challenging period.
 
Sincerely,
 
/s/ Bruce P. Hutson
 
Bruce P. Hutson
Co-Manager, Marshall Equity Income Fund
 
 
/s/ David J. Abitz, CFA
 
David J. Abitz, CFA
Co-Manager, Marshall Equity Income Fund
 
[PHOTOS OF BRUCE P. HUTSON & DAVID J. ABITZ]
 
 
n  Marshall Equity Income Fund
 
  *
The S&P 500 and the LEIFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
 **
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
***
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LEIFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
Annual Report—Commentary
 
Marshall Large-Cap Growth & Income Fund
The Marshall Large-Cap Growth & Income Fund (the “Fund”) invests in a diversified portfolio of common stocks of companies whose market capitalizations typically exceed $10 billion. The Adviser looks for companies that are typically leaders in their industry and have records of above-average financial performance and proven superior management. These types of companies typically offer opportunities for growth and also provide dividend income.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (24.79)%.* Over the same time period, the Standard & Poor’s 500 Index (S&P 500) returned (24.39)% and the Lipper Large-Cap Core Funds Index (LLCCFI) returned (26.12)%.**
 
Consumers Showing Less Resilience
The past year was marked by a rapid deceleration in corporate earnings. In response, the Federal Reserve Board (the “Fed”) took aggressive actions to shore up the economy and sustain consumer confidence with a string of interest rate cuts. After remaining surprisingly strong for some months despite the economic slowdown, consumer confidence did begin to falter and spending began to erode late in the summer. This trend was disconcerting, given that consumers account for two-thirds of the country’s economic activity.
 
Over the reporting period, we had assumed that corporate profitability would likely be worse than many expected and the Fed would continue to lower interest rates. In the end we expected the power of lowest interest rates to provide some support to the equity markets. With this in mind, we positioned the Fund in a barbell profile. Defensive stocks with more predictable earnings, such as pharmaceuticals, consumer staples, and financials, occupied one end. On the other, we held carefully selected cyclical stocks, such as retail and technology companies, which were in a position to benefit from declining interest rates.
 
Dramatic Events Accelerate Trends
The terrorist attacks of September 11 came after the end of this Fund’s reporting period, but they will have repercussions in the months ahead. The attacks accelerated the negative trends that were already in place for the economy and corporate profits and it now appears clear that the economy is in the midst of a recession. The decline in consumer spending, the last piece of the puzzle, now seems certain.
 
Although the overall environment may seem discouraging, it is creating new opportunities in sectors of the market where stock valuations have been beaten down, and where quality companies are now positioned to emerge even stronger once the economy begins to recover. Most of these opportunities are emerging in the more cyclical sectors of the market, such as manufacturing and aerospace, and consumer cyclicals, such as recently pummeled travel stocks and auto-related companies. We’ll also be looking at companies in the more cyclical financial areas, such as credit-card companies and investment banks. We think these opportunities are slowly emerging and as such we will be slow to unwind our exposure to the more defensive sectors of the market while we wait for attractive valuations on these more cyclical equities. As always we are focusing on quality companies in leading industry positions with proven quality management.
 
The slowdown in consumer spending would appear to be the factor that finally pushed the U.S economy over the edge into recession, but in the end it is a necessary step toward setting the stage for recovery. Although the breadth and depth of the recession—and future global developments—at this point are uncertain, we have at least drawn one step closer toward resolution.
 
Sincerely,
 
/s/ William J. O’Conner, CFA
 
William J. O’Connor, CFA
Manager, Marshall Large-Cap Growth & Income Fund
 
 
[PHOTO OF WILLIAM J. O’CONNOR]
 
 
 
n  Marshall Large-Cap Growth & Income Fund
 
 
    *Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
  **The S&P 500 and the LLCCFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 500 and the LLCCFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
Annual Report—Commentary
 
Marshall Mid-Cap Value Fund
The Marshall Mid-Cap Value Fund (the “Fund”) invests in a diversified portfolio of common stocks of companies similar in size to those within the Standard & Poor’s Mid-Cap 400 Index (S&P 400).* The Adviser generally selects companies that exhibit traditional value characteristics, such as low price-to-earnings ratios, higher-than-average dividend yields, or a lower-than-average price/book value. In addition, companies that have underappreciated assets, or have been involved in company turnarounds or corporate restructurings, often have strong value characteristics.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 25.80%.** For the same period, the S&P 400 returned (8.13)%, while the Lipper Mid-Cap Value Funds Index (LMCVFI) returned 4.60%.*
 
A Period of Strong Outperformance
Over the reporting period, the outlook for economic growth and corporate profitability continued to sour, producing considerable market volatility. The Fund performed very well in this turbulent time period, thanks largely to our diversified portfolio and disciplined value approach to stock selection. This was not the result of a lucky sector bet; our winners were broad-based, coming from many different sectors.
 
Among the Fund’s leading performers for the year were financial services firm H&R Block and nursing home operator Manor Care, which both posted more than 100% returns over the year through August. Other leading performers include Packaging Corp. of America, Ikon Office Solutions, and Mattel. What this diverse group of stocks had in common were low expectations going into the year, and improved fundamentals coming out of it.
 
Technology Stocks Still Slumping
Offsetting these positive results was the general weakness among most technology issues. We had increased our weighting in this sector late in the year as we identified attractive companies with low valuations, but unfortunately given the bleak economic picture, these stocks declined further.
 
While the increase in our technology position hurt performance over the period, this impact was muted somewhat by the fact that we made it gradually and moderately. We retain confidence in technology stocks’ potential to contribute positively going forward, and believe we have identified companies with solid long-term potential.
 
The Aftermath of September 11
Although the terrorist attacks did not have impact on results for this fiscal year, they loom large over the year ahead. Earnings expectations for the remainder of the calendar year have been ratcheted down. It appears now, according to most economists, that the domestic economy has entered into a recession.
 
Reduced earnings visibility and expectations have already weighed heavily on the equity markets, with the selloff being quite indiscriminate and cutting across virtually all sized companies. There were a few positive performers that came from sectors that investors might expect to do well under these circumstances: defense, consumer staples, and health care. Diversification remains an important element of our investment discipline, and we have some exposure to each of these sectors.
 
While the markets continue to exhibit an unusual degree of uncertainty due to both fundamental and psychological factors, we remain committed to our discipline of searching for strong companies whose stocks are temporarily undervalued. Recovery may take time, but it is our aim to identify those companies poised to prosper when it does come.
 
Sincerely,
 
/s/ Matthew B. Fahey
 
Matthew B. Fahey
Manager, Marshall Mid-Cap Value Fund
 
[PHOTO OF MATTHEW B. FAHEY]
n  Marshall Mid-Cap Value Fund
 
    *The S&P 400 and the LMCVFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 400 is a capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
  **Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
***Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 400 and the LMCVFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
Annual Report—Commentary
 
Marshall Mid-Cap Growth Fund
The Marshall Mid-Cap Growth Fund (the “Fund”) invests in a diversified portfolio of common stocks of companies similar in size to those within the S&P Mid-Cap 400 Index (S&P 400).* The Adviser selects stocks of companies with growth characteristics, such as above-average earnings growth potential or where significant changes are taking place, such as new products, services or expanded distribution.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (34.17)%,** compared with (8.13)% for the S&P 400 and (42.59)% for the Lipper Mid-Cap Growth Funds Index (LMCGFI).*
 
Market Environment
The tragic events of September 11th clearly overshadowed all other events in the third quarter. While these events will have a lasting impact on our lives, we believe the impact on the market may prove to be temporary. While the result may have been to accelerate the economic slowdown already in place, we believe it shortened the time to an inevitable recovery.
 
The market is currently caught between two forces. First, the domestic economy continues to slow as corporate spending declines and unemployment continues to rise. Combined with economic activity slowing significantly during the days following September 11th, third and fourth quarter corporate earnings should be weaker. Secondly, the government continues to lower interest rates and inject liquidity into the financial system at an unprecedented rate. We believe Fiscal and Monetary stimulus will eventually prevail and return the health of the economy. However, volatility (a.k.a. buying opportunities) will continue to dominate the near term market environment.
 
Our Response
Our bottoms up approach to investing has not resulted in significant changes to our portfolio sector weightings. Healthcare, financials, and cable-related stocks still dominate the portfolio. However, we have begun to add to our technology holdings as we believe the risk/reward ratio on selective names has become more attractive.
 
In the current market environment, we are increasingly sensitive to valuations. By buying stocks right and selling at our price targets, we are attempting to limit the impact of the recent market correction on net asset value. Additionally, we are upgrading our holdings as the valuation gap between market leaders and laggards has narrowed. Therefore, we believe it is prudent to upgrade to the market leaders. These companies have the balance sheets to survive an economic slowdown and the business models to thrive in a recovery. We believe this strategy gives us the best opportunity to limit downside risk in a soft market and the ability to participate in a market recovery.
 
Sincerely,
 
/s/ Michael Groblewski
 
Michael D. Groblewski, CFA
Manager, Marshall Mid-Cap Growth Fund
 
 
[PHOTO OF MICHAEL GROBLEWSKI]
 
 
n  Marshall Mid-Cap Growth Fund
 
  *
The S&P 400 and the LMCGFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The S&P 400 is a capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
 **
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
***
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 400 and the LMCGFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
Annual Report—Commentary
 
Marshall Small-Cap Growth Fund
The Marshall Small-Cap Growth Fund (the “Fund”) seeks to provide capital appreciation. Fund assets are invested in a diversified portfolio of common stocks of small-capitalization companies* similar in size to those within the Russell 2000 Index (Russell 2000).** The Adviser selects stocks of companies with above-average earnings growth potential or where significant changes are taking place, such as new products, services or methods of distribution, as well as overall business restructuring.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (24.23)%.*** Over the same period, the Russell 2000 returned (11.63)% and the Lipper Small-Cap Growth Index (LSCGI) returned (33.24)%.**
 
Consumer Exposure a Factor
Over the course of the past 12 months we built up the Fund’s position in consumer stocks. By the end of August, this position accounted for 33% of Fund assets. For most of the reporting period, consumer spending stayed quite resilient despite the persistent decline of corporate earnings and the possibility of economic recession. Consumers did, however, become somewhat less confident in July and August.
 
We continued to focus on consumer stocks that tend to be somewhat resistant to economic cycles such as video-game producers like Midway Games and Take 2 Interactive. Demand for these products tends to follow the introduction of new game systems, with Nintendo and Microsoft launching new game systems this fall, demand for video games is likely to increase significantly.
 
Technology Helps, Then Hurts
After reducing the Fund’s exposure to technology stocks in the first half of the fiscal year, we held the position at a modest overweighting for the next six months. This position made a positive contribution to performance during the spring months as technology stocks staged a rally.
 
As the summer wore on, however, investors became more concerned about the dismal outlook for corporate profitability, and as a result sold off technology issues. Although our overweight position in technology negatively impacted the Fund’s performance in July and August, we remain confident in the sector’s potential. The prices of many technology stocks have been impacted so severely that we have been able to add excellent companies to the portfolio at or near historic trough valuations.
 
Considerations After September
Shortly after the close of the fiscal year, the world experienced the shock of terrorist attacks on September 11. The trends toward weakening corporate profitability and possible economic recession accelerated after this event, with consumers losing confidence and reducing their discretionary spending.
 
Investor uncertainty in the wake of the attacks provoked a flight to quality and to liquidity. While this hurt technology stocks, it has helped the relative performance of more defensive areas such as healthcare, where we are slightly overweighted. Other areas benefiting from this trend include consumer staples and financials.
 
Although we anticipate further market volatility in the short-term, we see cause for greater optimism in the intermediate-term. The Federal Reserve Board’s, swift to inject liquidity in the market, has also continued its aggressive rate cutting. Lawmakers and President Bush are discussing significant fiscal stimulus packages to further bolster the economy. We believe investors will look back at the second half of September 2001 as a period that offered numerous buying opportunities for those willing to hold equities for six months or more.
 
Sincerely,
 
/s/ Sean A. Mcleod, CFA
 
Sean A. McLeod, CFA
Manager, Marshall Small-Cap Growth Fund
 
[PHOTO OF SEAN A. MCLEOD]
 
 
n  Marshall Small-Cap Growth Fund
 
  *
Small-cap funds may experience a higher degree of market volatility than larger-cap funds.
 
 **
The Russell 2000 and the LSCGI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The Russell 2000 is an index of common stocks whose market capitalizations generally range from $200 million to $5 billion. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
  †
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The Russell 2000 and the LSCGI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
 ††
The Marshall Small-Cap Growth Fund is the successor to a collective trust fund. The quoted performance data includes performance of the collective trust fund for periods before the Fund’s registration statement became effective on August 30, 1996, as adjusted to reflect the Fund’s anticipated expenses. The collective trust fund was not registered under the Investment Company Act of 1940 (“1940 Act”) and therefore was not subject to certain diversification requirements and investment restrictions imposed by the 1940 Act and the Internal Revenue Code. If the collective trust fund had been subject to those restrictions registered under the 1940 Act, the performance may have been adversely affected.
Annual Report—Commentary
 
 
Marshall International Stock Fund
The Marshall International Stock Fund (the “Fund”) invests primarily in a diversified portfolio of common stocks of companies of any size outside the United States.* The Fund uses a value-oriented approach and invests in companies selling at a discount to their global industry peers.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (26.36)%,** compared with a total return of (24.35)% by the Morgan Stanley Capital International Europe, Australasia and Far East Index (EAFE) and (24.54)% for the Lipper International Funds Index (LIFI).***
 
Global Economics Face Slowdown
The worldwide economic slowdown we commented on in our previous report worsened over the past six months. As the outlook for economic growth and corporate profitability has weakened around the world, stock prices have continued to suffer. Deep interest rate cuts from the U.S. Federal Reserve Board, part of an effort to stave off recession, were followed by more modest cuts from European central banks.
 
The Japanese economy staged a rally at the end of March, which is the end of the fiscal year there and also a traditional time for a rally in that country. The recovery peaked out in April, however, and Japanese stocks have weakened ever since. There has been much enthusiasm about the nation’s new Prime Minister and cabinet, but so far they have had little impact on that deeply troubled economy.
 
Technology Stocks Still Weak
We continued to underweight technology stocks for most of the period, although we did add to our position in this sector during the past six months. As we found specific companies with sufficiently attractive fundamentals and low valuations, we took the opportunity to add bargains to the portfolio. We are still wary of the sector as a whole, and believe that significant unresolved issues remain.
 
Consumer discretionary stocks had been an area of greater focus for the Fund. For most of the reporting period, these proved to be relatively resilient even as business conditions were not optimal, and offered reasonable valuations. Our overweighting in this area contributed positively to the year’s performance.
 
Global Impact of September 11
The terrorist attacks in the United States have, of course, had international repercussions. The downward trend in economic activity and corporate earnings accelerated sharply. Although all stock sectors were affected, among the hardest-hit were travel-related industries, particularly airlines. While prices of these stocks were already factoring in the slowing economy, there was no way the market could anticipate the virtual shutdown the industry endured.
 
Insurance companies also suffered in wake of the attack, providing us with opportunities to add to our holdings in the area as stock valuations were driven down in disproportion to the impact of attack-related claims on their business. We began positioning the Fund more heavily in financials in September.
 
As the quarter drew to a close, there were signs that people were beginning to return to normal for the most part, though it is clear consumers are in a more cautious and conservative mood than before. As we seek out opportunities in this challenging environment, we are redoubling our focus on careful company analysis.
 
Sincerely,
 
/s/ Daniel R. Jaworski
 
Daniel R. Jaworski, CFA
Manager, Marshall International Stock Fund
 
[PHOTO OF DANIEL R. JAWARSKI]
 
n  Marshall International Stock Fund
 
  *
Foreign investing involves special risks including currency risk, increased volatility of foreign securities, and differences in auditing and other financial standards.
 
 **
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
***
The EAFE and the LIFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The EAFE is an unmanaged market capitalization-weighted equity index comprising 20 of the 48 countries in the Morgan Stanley Capital International universe and representing the developed world outside of North America. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
  †
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The EAFE and the LIFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
 ††
These amounts included cash equivalents of 1.2% and 1.8%, respectively.
Annual Report—Commentary
 
Marshall Government Income Fund
The Marshall Government Income Fund (the “Fund”) invests in securities issued by the United States government and its agencies and instrumentalities, particularly mortgage-related securities. The Adviser considers macroeconomic conditions and uses credit and market analysis in developing the overall portfolio strategy. Current and historical interest-rate relationships are used to evaluate market sectors and individual securities. The Fund will generally maintain an average dollar-weighted maturity of four to 12 years.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 10.02%,* compared with a return of 11.83% for the Lehman Brothers Mortgage-Backed Securities Index (LMI) and a 10.83% return by the Lipper U.S. Mortgage Funds Index (LUSMI).**
 
Interest Rates Slide Down
Over the past six months—and most of the past year—interest rates have fallen quite dramatically in response to slowing economic activity. From January through August, the Federal Reserve Board took an aggressive approach to supporting the economy, cutting interest rates on seven occasions for a total of 300 basis points. While consumer spending remained fairly resilient for most of the year, business spending dropped off significantly. As concerns about the state of the economy and the future employment picture mounted, stock prices corrected. Investors increasingly favored the safer realm of short Treasury debt, driving down yields in that sector.
 
In this environment, the mortgage-backed bonds that are the focus of this Fund modestly underperformed Treasury debt. We do, however, continue to find greater value in the mortgage market, particularly among premium issues. In addition to their attractive yields, these bonds continue to offer the very high quality level that many investors seek in uncertain times.
 
Keeping an Eye on Prepayments
In the declining interest rate environment, we must consider prepayment risk—that is, the refinancing of mortgages by homeowners at lower interest rates. Such activity could force us to replace higher-yielding mortgage-backed securities that are called due to refinancing, with lower-yielding issues.
 
Mortgage rates are generally set off of 10-year Treasury yields, which have not declined as sharply as those on the short end of the yield curve. Thus refinancing pressure has been more moderate than might be assumed. In addition, in this Fund we emphasize what are known as “seasoned” mortgages—securities that have already withstood one or more refinancing cycles—rather than new-production mortgages. Seasoned bonds typically offer less risk of potential prepayments.
 
Current Concerns
Shortly after the close of the Fund’s fiscal year, we were faced with events that have had tremendous impact on the nation and the markets. Although the events of September 11 were shocking, we are heartened by the steps the government is taking to address their impact. In addition to additional rate cuts totaling 100 basis points from the Fed, the President and Congress are proposing aggressive fiscal stimulus as well.
 
Investors are understandably wary, however, and have continued their flight to short-term Treasuries. As a result, we have continued to find better values in the mortgage market, and have kept our focus there. In addition, we have added positions in agency debentures to the portfolio, allowing the Fund to benefit more directly from declining interest rates. While mortgages have underperformed Treasuries recently, we believe they are poised for better performance over the next six to twelve months.
 
Sincerely,
 
/s/ Jason Weiner, CFA
 
Jason D. Weiner, CFA
Manager, Marshall Government Income Fund
 
[PHOTO OF JASON D. WEINER]
n  Marshall Government Income Fund
  *
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **
The LMI and the LUSMI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The LMI is an index comprised of fixed rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC) and the Federal National Mortgage Association (FNMA). Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The LMI and the LUSMI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
Annual Report—Commentary
 
Marshall Intermediate Bond Fund
The Marshall Intermediate Bond Fund (the “Fund”) invests in intermediate-term investment grade bonds and notes, including corporate, asset-backed, mortgage-backed, and United States government securities. The Adviser’s strategy to pursue total return is to adjust the Fund’s weightings in these sectors as it deems appropriate, using macroeconomic, credit, and market analysis to select portfolio securities. The Fund will maintain an average dollar-weighted maturity of three to 10 years.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 10.14%,* compared with a return of 12.29% for the Lehman Brothers Intermediate Government/Credit Bond Index (LGCI) and 10.79% for the Lipper Short/Intermediate Investment Grade Bond Funds Index (LSIBF).**
 
Economic Slowdown Continues
The months from March through August generally continued the trends seen in the first half of the Fund’s fiscal year. Economic growth slowed significantly, and by the end of August the nation appeared to be edging toward recession. To counter this downslide, the Federal Reserve Board (the “Fed”) continued its campaign of aggressive interest rate cuts. From January through August, the Fed made seven cuts to the federal funds target rate totaling 300 basis points.
 
These cuts in short-term interest rates led to a marked steepening of the yield curve. Just over a year ago, the curve was inverted, so this has been a dramatic change. Beside the Fed’s activity, yields on the short end of the yield curve were also pushed down by increased demand for short-term Treasuries particularly in the late summer. Investors wary of stock-market corrections and economic uncertainty flocked to these securities for their safety and quality.
 
For most of the 12-month reporting period, consumer spending remained surprisingly strong in the face of the faltering economy. In the summer, however, even consumers were beginning to grow somewhat more wary as unemployment fears mounted. This produced still more stock market volatility, and raised new questions within the corporate bond market.
 
Emphasizing Quality and Liquidity
The spread between the yields on corporate bonds and Treasuries, which was quite wide six months ago, tightened somewhat through the spring and summer (though they have since widened again, dramatically). The changeable economic environment has demanded that we take a cautious approach to corporate bonds.
 
We are not turning away from the true opportunities available in this sector of the marketplace, but we are striving to improve both the quality and liquidity of our holdings. In the primary market for corporate debt, for example, we have been taking advantage of concessions being offered, but are only looking at the most liquid names and are diversifying broadly. We have also been adding some intermediate Treasuries to the portfolio. These offer far better value than their short-term brethren.
 
September’s Events
It is difficult to overstate the shock felt on September 11. Almost immediately after the terrorist attacks, the economic slowdown and erosion of consumer confidence we had seen in preceding months accelerated. It is clear that these events will resound for some time to come, and we are prepared for the uncertain environment that lies ahead. The loss of consumer confidence is troubling, as consumer spending accounts for two-thirds of U.S. economic activity.
 
More positive signs are coming from the federal government, which has been quick to complement the Fed’s monetary stimulus with fiscal stimulus. It may take time for these measures to take hold and for the markets to settle down, but we do believe they will have positive impact in helping the economy to heal. As that happens, we believe the risk premium corporate bonds currently carry should shrink a little bit, but we anticipate keeping our cautious outlook with respect to these bonds for some time to come.
 
Sincerely,
 
/s/ Mark Pittman
 
Mark D. Pittman, CFA
Manager, Marshall Intermediate Bond Fund
 
 
[PHOTO OF MARK D. PITTMAN]
 
 
n  Marshall Intermediate Bond Fund
 
  *
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **
The LGCI and the LSIBF are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The LGCI is an index comprised of government and corporate bonds rated BBB or higher with maturities between 1-10 years. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The LGCI and the LSIBF have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
Annual Report—Commentary
 
Marshall Intermediate Tax-Free Fund
The Marshall Intermediate Tax-Free Fund (the “Fund”) invests in investment-grade municipal securities that provide income exempt from federal income tax.† The Adviser selects Fund investments after assessing factors such as the cyclical trend in interest rates, the shape of the municipal yield curve, tax rates, sector valuation and municipal bond supply factors. The Fund maintains an average dollar-weighted portfolio maturity of three to 10 years.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 8.52%,* compared with a return of 9.35% for the Lehman Brothers 7-year General Obligations Index (L7GO) and the market as represented by the Lipper Intermediate Municipal Funds Index (LIMI) return of 9.06%.**
 
Interest Rates Decline
The municipal bond market saw interest rates fall along with the hopes of an economic recovery. Municipal bond yields declined between 25 and 90 basis points over the last six months, with the Federal Reserve Board engineering a sharp decrease in short-term yields. As tax-free money market yields fell, a powerful influence to more money into bonds helped drive intermediate and long-term rates down. Dismal stock market performance encouraged some investors to seek less volatility in the bond market.
 
New issuance of municipal bonds is running 40% ahead of last year’s pace. Fortunately, retail demand for municipal bonds continues to be strong despite lower yields. Money into bond funds also creates demand as money managers invest new shareholder deposits. Instead of most new money flows targeted to stock investments as had been the case for most of the 1990s, recent net liquidation of stock funds has been a primary source of new dollars flowing toward municipal bonds and fixed income funds.
 
Credit Quality Concerns
Throughout the mid to late-1990s, states and municipalities enjoyed tax receipts well beyond budgeted expectations. Spending programs outpaced the underlying rate of inflation, while taxes in many states were actually reduced as coffers overflowed. Today, the situation is quite different. In order to close budget gaps, states and municipalities are turning to minor tax increases. The fear going forward is that the rising level of unemployment will damage consumer confidence enough to crimp spending. In that case, state and local governments relying too heavily on sales tax receipts will suffer.
 
Credit rating agencies will notice any deterioration in municipal credit quality. Already the number of credits that are upgraded vs. the number downgraded has begun to contract. States experiencing a slowdown are drawing on resources that cannot be utilized every year: surpluses from the prior fiscal year, tobacco settlement revenues, rainy day funds, and accounting tricks. It will be more important during the next year to distinguish between strong and weak credits, as the market will likely punish those names unable to adequately manage their finances during an economic slowdown. We continue to emphasize strong, highly-rated credits likely to weather economic crosscurrents without sustaining lasting damage.
 
Municipal Bonds Still A Bargain
Although bond yield levels are approaching multi-year lows, we believe municipal bonds are still one of the most attractive bond sectors available for individuals. Treasury security yields have fallen disproportionately relative to municipal bonds, creating a bargain for high marginal tax-bracket buyers of tax-free bonds. As baby boomers age and move closer to retirement, this demographic bulge ought to allow for continued support of the municipal bond market for years to come.
 
Sincerely,
 
/s/ John D. Boritzke
 
John D. Boritzke, CFA
Manager, Marshall Intermediate Tax-Free Fund
 
 
[PHOTO OF JOHN D. BORITZKE]
 
 
n  Marshall Intermediate Tax-Free Fund
 
  †
Income may be subject to state and local taxes and a portion of the fund’s dividends maybe subject to the alternative minimum tax.
 
  *
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **
The L7GO and the LIMI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The L7GO is an index comprised of general obligation bonds rated A or better with maturities between six and eight years. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The L7GO and the LIMI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
 ††
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
Annual Report—Commentary
 
Marshall Short-Term Income Fund
The Marshall Short-Term Income Fund (the “Fund”) seeks to maximize total return consistent with current income. Fund assets are invested in short- to intermediate-term investment grade bonds and notes, including corporate, asset-backed, mortgage-backed, and U.S. government securities. The Adviser changes the Fund’s weightings in these sectors as it deems appropriate and uses macroeconomic, credit and market analysis to select portfolio securities. The Fund maintains an average dollar-weighted maturity of six months to three years.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 10.16%,* versus a 9.52% return for the Merrill Lynch 1-3 year U.S. Government/ Corporate Index (ML13) and a 9.49% return for the Lipper Short-Term Investment Grade Bond Fund Index (LSTIBI).**
 
Economy Continues to Slow
The second half of the Fund’s fiscal year was generally marked by a continuation of the trends seen in the previous six months. The pace of economic growth slowed considerably, with the country teetering toward recession. The Federal Reserve Board (the “Fed”) continued its campaign of aggressive interest rate cuts. From January through August, the Fed made seven cuts to the Federal Funds target rate, totaling 300 basis points.
 
These cuts in short-term interest rates led to a marked steepening of the yield curve—a dramatic change from its inverted profile just over a year ago. Additional pressure on the short end of the curve came from a flight to quality, particularly in the late summer, as investors discouraged by economic uncertainty and volatile equity markets flocked to the relative safety of short-term Treasury securities.
 
Nonetheless, for most of the 12-month reporting period, consumer spending remained surprisingly strong in the face of the faltering economy. In the summer, however, even consumers were beginning to grow somewhat more wary as unemployment fears mounted. This produced still more stock market volatility, and raised new questions within the corporate bond market.
 
Quality and Liquidity Are Priorities
The spread between the yields on corporate bonds and Treasuries, which was quite wide six months ago, tightened somewhat through the spring and summer (though they have since widened again, dramatically). The changeable economic environment has demanded that we take a cautious approach to corporate bonds. We are not turning away from the true opportunities available in this sector of the marketplace, but we are striving to improve both the quality and liquidity of our holdings. We have, for example, been taking advantage of concessions being offered in the primary market for corporate debt, buying only the most liquid names and diversifying broadly.
 
September’s Events
On September 11, the nation and the world were rocked by terrorist attacks. Almost immediately, the economic slowdown and erosion of consumer confidence accelerated. The repercussions of these events will certainly be felt for some time to come, and we are prepared for the uncertain environment that lies ahead. The loss of consumer confidence is troubling, as consumer spending accounts for two-thirds of U.S. economic activity.
 
More positive signs are coming from the federal government, which has been quick to complement the Fed’s monetary stimulus with fiscal stimulus. It may take time for these measures to take hold and for the markets to settle down, but we do believe they will have positive impact in helping the economy to heal. As that happens, we believe the risk premium corporate bonds currently offer should shrink a little bit, but we anticipate keeping our cautious outlook with respect to these bonds for some time to come.
 
Sincerely,
 
/s/ Mark D. Pittmanm
 
Mark D. Pittman, CFA
Manager, Marshall Short-Term Income Fund
 
[PHOTO OF MARK D. PITTMAN]
 
n  Marshall Short-Term Income Fund
 
  *
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 **
The ML13 and LSTIBI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The ML13 is an index tracking short-term U.S. government and corporate securities with maturities between 1 and 2.99 years. The index is produced by Merrill Lynch Pierce Fenner & Smith. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
***
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The ML13 and LSTIBI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
  †
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
Annual Report—Commentary
 
Marshall Money Market Fund
The Marshall Money Market Fund (the “Fund”) invests in high-quality, short-term money market instruments.* The Adviser uses a bottom-up approach, meaning that the Fund manager looks primarily at individual securities against the context of broader market factors.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 5.32%.** This compares with a return of 4.95% for the Money Fund Report Averages™ and 5.05% for the Lipper Money Market Funds Index.*** As of August 31, 2001, the Fund’s 7-day net yield was 3.46%.†
 
A Continuation of Most Trends
The past six months have been characterized by continuing signs of an economic slowdown and possible recession. The Federal Reserve Board (the “Fed”) has remained aggressive in its efforts to support the economy by cutting the federal funds target rate. From January through August, the Fed cut rates on seven occasions for a total of 300 basis points. Consumer spending remained surprisingly strong for most of the year, waning only in the late summer as concerns about possible unemployment grew.
 

Our strategy remained largely unchanged over the reporting period. Floating-rate notes continued to play a significant role in the portfolio, as they offer positive yield characteristics. The selective addition of one-year paper also helped us to pursue our goal of providing an attractive yield, particularly challenging in light of the Fed’s rate cuts. Bottom-up credit research has remained crucial to our selection process.

 

 
Constrained supply has continued to be a factor in the marketplace. With companies scaling back their once-ambitious plans for growth and burning off inventory, there has been less need for them to fund their continuing operations by issuing debt. Downgrades have taken other securities out of the money market realm.
 
Changes Since September 11
The cataclysmic events of mid-September accelerated many of the trends that were already in place. Consumer spending dropped suddenly, the economy was generally acknowledged as having entered a recession, and the Fed stepped in quickly to cut interest rates further. It is unclear how long these difficulties will last or how deep their impact will be, but the government’s willingness to offer fiscal stimulus to complement the Fed’s monetary actions is a positive sign.
 
We will be closely monitoring consumer confidence in coming months. If consumer spending bounces back, that may help to limit the recession’s severity. If, however, economic weakness and an uncertain global environment cause consumers to continue their retreat, there may be cause for greater concern.
 
Sincerely,
 
 
/s/ Richard M. Rokus
 
Richard M. Rokus, CFA
Manager, Marshall Money Market Fund
 
 
[PHOTO OF RICHARD M. ROKUS]
 
  *An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds.
 
 **Past performance is no guarantee of future results. Yields may vary. Yields quoted for money market funds most closely reflect the Fund’s current earnings.
 
***Money Fund Report™, a service of iMoney Net, Inc. (formerly IBC Financial Data) publishes annualized yields of hundreds of money market funds on a weekly basis, and through its Money Market Insight publication reports monthly and year-to-date investment results for the same money funds. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Service as falling into the respective categories indicated. They do not reflect sales charges.
 
  †The 7-day net annualized yield is based on the average net income per share for the 7 days ended on the date of calculation and the offering price on that date. The 7-day effective yield is annualized and reflects daily compounding of the 7-day net yield.
August 31, 2001
Schedule of Investments 
  
 
 
Equity Income Fund
 
Shares    Description      Value
 
        Common Stocks — 96.7%
        Consumer Discretionary — 5.3%
        Automotive & Related — 1.4%
13,000      Dana Corp.      $254,800
161,954      Ford Motor Co.      3,218,026
40,000      General Motors Corp.      2,190,000
           
          Total      5,662,826
        Homebuilder — 0.2%
30,650      KB Home      992,140
        Household Products/Wares — 0.3%
53,500      Newell Rubbermaid, Inc.      1,225,150
        Leisure & Recreation — 0.5%
35,000      Brunswick Corp.      762,650
36,000      Carnival Corp.      1,126,080
           
          Total      1,888,730
        Manufacturing — 0.5%
33,000      V.F. Corp.      1,140,810
15,000      Whirlpool Corp.      990,300
           
          Total      2,131,110
        Photographic Products — 0.4%
38,000      Eastman Kodak Co.      1,697,460
        Publishing & Printing — 1.0%
33,500      Gannett Co., Inc.      2,065,610
15,500      McGraw-Hill Cos., Inc.      918,375
25,000      New York Times Co., Class A      1,068,750
           
          Total      4,052,735
        Retail — 1.0%
55,000      Limited, Inc.      775,500
46,200      May Department Stores Co.      1,554,630
48,000      Sears, Roebuck & Co.      2,052,000
           
          Total      4,382,130
           
       Total Consumer Discretionary        22,032,281
        Consumer Staples — 13.3%
        Beverages & Foods — 7.2%
45,000      Anheuser-Busch Cos., Inc.      1,936,800
208,500      Coca-Cola Co.      10,147,695
37,000      Coors Adolph Co., Class B      1,713,100
50,000      Heinz (H.J.) Co.      2,259,000
147,550      PepsiCo, Inc.      6,934,850
125,500      Sara Lee Corp.      2,761,000
54,000      SUPERVALU, Inc.      1,132,920
52,500      Unilever N.V., ADR      3,207,225
           
          Total      30,092,590
        Household Product/Wares — 3.7%
67,000      Clorox Co.      2,495,750
27,200      Colgate-Palmolive Co.      1,472,880
57,000      Kimberly-Clark Corp.      3,536,850
105,500      Procter & Gamble Co.      7,822,825
           
          Total      15,328,305
        Personal Care — 0.5%
75,500      (1)Gillette Co.      2,314,075
        Tobacco — 1.9%
171,500      Philip Morris Cos., Inc.      8,129,100
           
          Total Consumer Staples      55,864,070
        Energy — 11.4%
        Energy Services — 0.8%
111,100      Halliburton Co.      3,095,246
6,000      Schlumberger Ltd.      294,000
           
          Total      3,389,246
Shares    Description      Value
        Common Stocks (continued)
        Energy (continued)
        Domestic & International Oil — 9.5%
39,500      Chevron Corp.      $3,584,625
469,552      Exxon Mobil Corp.        18,852,513
86,000      Occidental Petroleum Corp.      2,366,720
42,000      Phillips Petroleum Co.      2,415,000
152,600      Royal Dutch Petroleum Co., ADR      8,641,738
54,200      Texaco, Inc.      3,775,030
           
          Total      39,635,626
        Oil & Gas Products — 1.1%
14,000      Amerada Hess Corp.      1,087,940
19,000      Kerr-McGee Corp.      1,109,790
73,700      USX-Marathon Group      2,322,287
           
          Total      4,520,017
           
          Total Energy      47,544,889
        Financials — 23.8%
        Banks — 11.3%
144,000      Bank of America Corp.      8,856,000
47,300      Bank of New York Co., Inc.      1,877,810
98,500      Bank One Corp.      3,416,965
33,000      Charter One Financial, Inc.      963,600
26,000      Comerica, Inc.      1,553,500
22,000      Fifth Third Bancorp      1,282,600
114,000      First Union Corp.      3,923,880
133,620      Fleet Boston Financial Corp.      4,921,225
42,500      KeyCorp      1,066,750
37,000      Mellon Financial Corp.      1,304,250
46,000      National City Corp.      1,420,020
53,000      Regions Financial Corp.      1,558,200
30,000      SunTrust Banks, Inc.      2,049,000
150,400      U.S. Bancorp      3,645,696
51,400      Washington Mutual, Inc.      1,924,416
166,000      Wells Fargo & Co.      7,637,660
           
          Total      47,401,572
        Consumer Finance — 0.3%
23,000      Household International, Inc.      1,359,300
        Financial Services — 9.8%
14,500      Bear Stearns Cos., Inc.      756,755
405,538      Citigroup, Inc.      18,553,364
82,600      Fannie Mae      6,294,946
55,500      Freddie Mac      3,489,840
163,150      J.P. Morgan & Co., Inc.      6,428,110
102,500      Morgan Stanley      5,468,375
           
          Total      40,991,390
    
        Insurance — 2.4%
60,000      Allstate Corp.      2,035,800
12,000      Chubb Corp.      810,000
13,300      Hartford Financial Services
Group, Inc.		      861,840
37,250      Jefferson-Pilot Corp.      1,732,870
45,000      Lincoln National Corp.      2,243,700
23,500      Marsh & McLennan Cos., Inc.      2,183,150
           
          Total      9,867,360
           
          Total Financials      99,619,622
        Health Care — 14.2%
        Pharmaceuticals & Health Care — 14.2%
105,250      Abbott Laboratories      5,230,925
82,200      American Home Products Corp.      4,603,200
44,500      Bausch & Lomb, Inc.      1,618,465
179,600      Bristol-Myers Squibb Co.      10,082,744
28,000      CIGNA Corp.      2,520,000
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
Equity Income Fund (continued)
 
Shares    Description      Value
     Common Stocks (continued)
        Health Care (continued)
        Pharmaceuticals & Health Care (continued)
195,000      Johnson & Johnson      $10,278,450
97,950      Lilly (Eli) & Co.      7,603,858
186,700      Merck & Co., Inc.      12,154,170
135,500      Schering-Plough Corp.      5,166,615
           
          Total Health Care      59,258,427
        Industrials — 11.2%
        Aerospace & Defense — 2.1%
50,000      Boeing Co.      2,560,000
24,000      Goodrich Corp.      769,200
88,500      Honeywell International, Inc.      3,297,510
12,000      Northrop Grumman Corp.      984,000
58,000      Rockwell Collins      1,178,560
           
          Total      8,789,270
        Automotive & Related — 0.3%
16,200      Eaton Corp.      1,165,266
        Building Products — 0.2%
40,700      Masco Corp.      1,050,874
        Electrical Components — 0.8%
43,000      Emerson Electric Co.      2,304,800
58,000      Rockwell International Corp.      930,900
           
          Total      3,235,700
        Industrial Conglomerates — 4.5%
422,500      General Electric Co.      17,314,050
26,800      Textron, Inc.      1,404,052
           
          Total      18,718,102
        Machinery Industrial — 1.8%
48,000      Dover Corp.      1,724,160
33,000      Ingersoll-Rand Co.      1,338,810
32,000      Minnesota Mining &
Manufacturing Co.		      3,331,200
31,100      Parker-Hannifin Corp.      1,368,400
           
          Total      7,762,570
        Office Equipment — 0.6%
30,000      Avery Dennison Corp.      1,542,300
20,000      Pitney Bowes, Inc.      869,800
           
          Total      2,412,100
        Railroad — 0.5%
27,300      Burlington Northern Santa Fe      740,103
28,000      Union Pacific Corp.      1,491,560
           
          Total      2,231,663
        Services-Div./Commercial — 0.2%
28,500      Deluxe Corp.      935,370
        Trucking — 0.2%
35,000      Ryder Systems, Inc.      790,650
           
          Total Industrials      47,091,565
        Information Technology — 1.7%
        Telecommunications — 0.2%
54,000      Motorola, Inc.      939,600
        Other — 1.5%
166,000      NASDAQ 100 Shares      6,080,580
           
          Total Information Technology      7,020,180
        Materials — 3.9%
        Chemicals — 2.0%
57,608      Dow Chemical Co.      2,019,736
91,000      Du Pont (E.I.) de Nemours & Co.      3,728,270
22,000      Eastman Chemical Co.      853,380
Shares or
Principal
Amount		    Description      Value
     Common Stocks (continued)
        Materials (continued)
     Chemicals (continued)
29,000      Engelhard Corp.      $757,770
16,250      PPG Industries, Inc.      879,450
           
          Total      8,238,606
        Gas Distribution — 0.3%
30,000      Praxair, Inc.      1,412,100
        Metals — 0.7%
79,000      Alcoa, Inc.      3,011,480
        Paper & Related Products — 0.9%
22,000      Boise Cascade Corp.      807,400
20,500      International Paper Co.      822,460
33,500      Weyerhaeuser Co.      1,901,125
           
          Total      3,530,985
           
          Total Materials      16,193,171
        Telecommunication Services — 7.0%
        Telecommunications — 7.0%
49,000      Alltel Corp.      2,842,000
301,932      SBC Communications, Inc.      12,352,038
34,500      Sprint Corp.      805,230
269,190      Verizon Communications,
Inc.		      13,459,500
           
          Total Telecommunications
Services		      29,458,768
        Utilities — 4.9%
        Electric — 3.0%
36,500      Consolidated Edison, Inc.      1,492,850
106,000      Duke Energy Corp.      4,166,860
23,000      Entergy Corp.      885,960
32,000      FPL Group, Inc.      1,739,200
40,000      PPL Corp.      1,734,000
35,000      Reliant Energy, Inc.      1,052,100
30,000      TXU Corp.      1,424,400
           
          Total      12,495,370
        Gas Distribution — 1.9%
59,200      El Paso Corp.      2,876,528
48,000      KeySpan Corp.      1,550,400
19,000      NICOR, Inc.      736,440
85,000      Williams Cos., Inc. (The)      2,766,750
           
          Total      7,930,118
           
          Total Utilities      20,425,488
           
        Total Common Stocks
(identified cost $333,686,576)		      404,508,461
        (2)U.S. Treasury Bill — 0.2%
$ 940,000      9/13/2001 (identified cost
$938,920)		      939,312
           
        Total Investments in Securities
(identified cost $334,625,496)		      405,447,773
        (3)Repurchase Agreement — 2.7%
11,072,561      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      11,072,561
           
        Total Investments (identified
cost $345,698,057)		      $416,520,334
           
(See Notes which are an integral part of the Financial Statements)
 
August 31, 2001
Schedule of Investments 
  
 
 
Large-Cap Growth & Income Fund
 
Shares    Description      Value
 
        Common Stocks — 88.4%
        Consumer Discretionary — 10.2%
        Broadcasting — 1.3%
100,000      (4)Clear Channel
Communications, Inc.		      $5,027,000
        Diversified Operations — 1.6%
112,200      (1)Vivendi Universal SA, ADR      6,138,462
        Entertainment — 2.9%
234,350      (4)AOL Time Warner, Inc.      8,752,972
110,606      Disney (Walt) Co.      2,812,711
           
          Total      11,565,683
        Retail — 4.4%
108,300      Home Depot, Inc.      4,976,385
51,200      (4)Kohl’s Corp.      2,841,600
116,600      (1)Lowe’s Cos., Inc.      4,337,520
105,100      Wal-Mart Stores, Inc.      5,050,055
           
          Total      17,205,560
           
          Total Consumer Discretionary      39,936,705
        Consumer Staples — 7.1%
        Beverages & Foods — 3.2%
118,464      Coca-Cola Co.      5,765,643
145,300      PepsiCo, Inc.      6,829,100
           
          Total      12,594,743
        Retail — 1.3%
149,400      Walgreen Co.      5,131,890
        Tobacco — 2.6%
213,400      Philip Morris Cos., Inc.      10,115,160
           
          Total Consumer Staples      27,841,793
        Energy — 6.9%
        Domestic & International Oil — 6.9%
248,792      Exxon Mobil Corp.      9,988,999
123,900      Royal Dutch Petroleum Co., ADR      7,016,457
141,500      Texaco, Inc.      9,855,475
           
          Total Energy      26,860,931
        Financials — 11.7%
        Banks — 1.0%
95,500      Bank of New York Co., Inc.      3,791,350
        Financial Services — 5.7%
120,200      American Express Co.      4,377,684
165,933      Citigroup, Inc.      7,591,435
164,900      Federal Home Loan Mortgage
Corp.		      10,368,912
           
          Total      22,338,031
        Insurance — 5.0%
147,734      American International Group, Inc.      11,552,799
115,600      MGIC Investment Corp.      8,080,440
           
          Total      19,633,239
           
          Total Financials      45,762,620
        Health Care — 15.9%
        Pharmaceuticals & Health Care — 15.9%
159,500      Abbott Laboratories      7,927,150
78,940      American Home Products Corp.      4,420,640
100,000      (4) Amgen, Inc.      6,430,000
258,800      HCA, Inc.      11,837,512
94,840      Johnson & Johnson      4,999,016
124,700      Merck & Co., Inc.      8,117,970
192,200      Pfizer, Inc.      7,363,182
291,900      Schering Plough Corp.      11,130,147
           
          Total Health Care       62,225,617
Shares    Description      Value
 
        Common Stocks (continued)
        Industrials — 10.0%
        Aerospace & Defense — 3.1%
146,400      Boeing Co.      $7,495,680
125,000      Honeywell International,
Inc.		      4,657,500
           
          Total      12,153,180
        Electrical Equipment — 2.9%
220,600      Tyco International Ltd.      11,460,170
        Industrial Conglomerates — 4.0%
383,300      General Electric Co.      15,707,634
           
        Total Industrials      39,320,984
        Information Technology — 20.7%
        Computers — 4.1%
200,000      (1)Compaq Computer
Corp.		      2,470,000
100,200      Hewlett-Packard Co.      2,325,642
89,300      International Business
Machines Corp.		      8,930,000
208,100      (4)Sun Microsystems, Inc.      2,382,745
           
          Total      16,108,387
        Computer Services — 9.3%
200,000      (4)Agere Systems, Inc.,
Class A		      1,020,000
200,000      (4)Applied Micro Circuits
Corp.		      2,854,000
300,000      (4)BMC Software, Inc.      4,800,000
108,300      Electronic Data Systems
Corp.		      6,387,534
218,600      (4)Microsoft Corp.      12,471,130
150,000      Texas Instruments, Inc.      4,965,000
27,100      (4)Veritas Software Corp.      778,312
200,000      (4)Vitesse Semiconductor
Corp.		      2,920,000
           
          Total      36,195,976
        Communications — 1.6%
108,300      (4)QUALCOMM, Inc.      6,373,455
        Semiconductors — 5.2%
121,700      (4)Applied Materials, Inc.      5,244,053
201,400      Intel Corp.      5,631,144
113,200      Micron Technology, Inc.      4,257,452
162,400      (4)National
Semiconductor Corp.		      5,367,320
           
          Total      20,499,969
        Telecommunications — 0.5%
250,000      Lucent Technologies, Inc.      1,705,000
           
          Total Information
Technology		      80,882,787
        Telecommunication Services — 4.9%
        Telecommunications — 4.9%
150,000      AT&T Corp.      2,856,000
65,000      BellSouth Corp.      2,424,500
160,560      SBC Communications,
Inc.		      6,568,509
23,000      Sprint Corp. (FON Group)      536,820
225,000      (4)Sprint Corp.
(PCS Group)		      5,620,500
100,850      (4)WorldCom, Inc.-
WorldCom Group		      1,296,931
           
          Total Telecommunication
Services		      19,303,260
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
Large-Cap Growth & Income Fund (continued)
 
Shares or
Principal
Amount		    Description      Value
 
        Common Stocks (continued)
        Utilities — 1.0%
        Electric — 1.0%
104,100      Duke Energy Corp.      $4,092,171
           
        Total Common Stocks (identified
cost $248,277,236)		      346,226,868
        Preferred Stocks — 0.5%
        Communications — 0.5%
30,000      Global Crossing Ltd., Conv.
Pfd., $16.88 (identified cost
$4,616,250)		      1,916,250
        Corporate Bonds — 0.9%
        Retail — 0.9%
$5,800,000      Kohl’s Corp., Sub. Note, Zero
Coupon, 6/12/2020
(identified cost $3,677,641)		      3,523,500
        (2)U.S. Treasury Bill — 0.5%
2,000,000      9/13/2001 (identified cost
$1,997,693)		      1,998,920
           
        Total Investments in Securities
(identified cost $258,568,820)		      353,665,538
        (3)Repurchase Agreement — 9.6%
37,791,985      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at amortized
cost)		      37,791,985
           
        Total Investments (identified cost
$296,360,805)		      $391,457,523
           
 
 
   Mid-Cap Value Fund
 
Shares    Description      Value
 
        Common Stocks — 84.4%
        Consumer Discretionary — 8.9%
        Automotive — 1.5%
35,000      Johnson Controls, Inc.      $2,563,750
        Broadcasting — 1.8%
100,000      (4)Adelphia Communications
Corp., Class A		      3,155,000
        Household Products/Wares — 2.1%
160,000      Newell Rubbermaid, Inc.      3,664,000
        Manufacturing — 1.7%
170,000      Mattel, Inc.      3,058,300
        Retail — 1.8%
110,000      (1)Ross Stores, Inc.      3,223,000
           
          Total Consumer Discretionary      15,664,050
        Consumer Staples — 5.8%
        Beverages & Foods — 5.8%
100,000      (4)Kroger Co., Inc.      2,662,000
166,200      (4)Ralcorp Holdings, Inc.      3,360,564
200,000      SUPERVALU, Inc.      4,196,000
           
          Total Consumer Staples      10,218,564
        Energy — 5.7%
        Oil & Gas Products — 5.7%
65,000      Burlington Resources, Inc.      2,470,000
78,000      Noble Affiliates, Inc.      2,632,500
Shares    Description      Value
 
        Common Stocks (continued)
        Energy (continued)
        Oil & Gas Products (continued)
80,000      (4)Noble Drilling Corp.      $2,176,000
83,320      USX-Marathon Group      2,625,413
           
          Total Energy      9,903,913
        Financials — 7.5%
        Banks — 1.2%
61,500      Associated Banc Corp.      2,085,465
        Insurance — 5.8%
88,000      (1)ACE Ltd.      2,918,960
55,000      Jefferson-Pilot Corp.      2,558,600
26,000      MGIC Investment Corp.      1,817,400
95,000      SAFECO Corp.      2,857,600
           
          Total      10,152,560
        Services — 0.5%
50,000      (4)Phoenix Companies, Inc.      852,500
           
          Total Financials      13,090,525
        Health Care — 6.5%
        Equipment — 3.8%
180,000      (4)Boston Scientific Corp.      3,438,000
90,000      Guidant Corp.      3,250,800
           
          Total      6,688,800
        Pharmaceuticals & Health Care — 2.7%
40,000      (4)Manor Care, Inc.      1,125,200
110,000      (1)(4)Renal Care Group, Inc.      3,603,600
           
          Total      4,728,800
           
          Total Health Care      11,417,600
        Industrials — 20.3%
        Aerospace & Defense — 2.8%
37,500      Newport News Shipbuilding, Inc.      2,469,750
30,000      Northrop Grumman Corp.      2,460,000
           
          Total      4,929,750
        Electrical Components — 2.0%
100,000      (4)American Power Conversion
Corp.		      1,383,000
21,600      Brady Corp., Class A      790,560
80,700      Rockwell International Corp.      1,295,235
           
          Total      3,468,795
        Manufacturing — 2.0%
30,000      SPX Corp.      3,487,500
        Rail Road — 1.6%
80,000      CSX Corp.      2,827,200
        Services — 11.9%
103,000      (1)(4)Global Payments, Inc.      3,661,650
120,000      H&R Block, Inc.      4,669,200
100,000      Manpower, Inc.      3,082,000
100,000      (4)Republic Services, Inc.      1,985,000
284,500      (4)Spherion Corp.      2,591,795
100,000      Viad Corp.      2,630,000
90,000      (4)Watson Wyatt & Company
Holdings		      2,124,000
           
          Total      20,743,645
           
          Total Industrials      35,456,890
        Information Technology — 16.1%
        Computer Hardware — 0.9%
185,000      (1)(4)Gateway, Inc.      1,659,450
        Computer Services — 4.7%
183,500      (1)(4)American Management
System, Inc.		      3,240,610
180,000      (4)BMC Software, Inc.      2,880,000
120,100      (1)(4)Keane, Inc.      2,023,685
           
          Total      8,144,295
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Mid-Cap Value Fund (continued)
 
Shares or
Principal
Amount		    Description      Value
 
        Common Stocks (continued)
        Information Technology (continued)
        Electrical Equipment — 1.5%
90,000      (1)Hubbell, Inc., Class B      $2,621,700
        Paper & Related Products — 1.8%
155,000      (4)Electronics for Imaging,
Inc.		      3,171,300
        Semiconductors — 2.5%
80,000      (4)National Semiconductor
Corp.		      2,644,000
55,000      (4)Teradyne, Inc.      1,802,900
           
          Total      4,446,900
        Services — 3.2%
190,000      (4)KPMG Consulting, Inc.      2,798,700
375,000      IKON Office Solutions, Inc.      2,812,500
           
          Total      5,611,200
        Telecommunications — 1.5%
120,000      (4)CommScope, Inc.      2,532,000
           
          Total Information
Technology		      28,186,845
        Materials — 8.8%
        Building Materials — 2.0%
86,000      Martin Marietta Materials,
Inc.		      3,397,000
        Metals — 1.4%
50,000      Nucor Corp.      2,430,000
        Paper & Related Products — 5.4%
75,000      Bowater, Inc.      3,558,000
165,000      (1)(4)Packaging Corp. of
America		      3,032,700
50,000      Temple-Inland, Inc.      2,918,000
           
          Total      9,508,700
           
          Total Materials      15,335,700
        Telecommunication Services — 4.8%
        Telecommunications — 4.8%
50,000      ALLTEL Corp.      2,900,000
30,000      Telephone and Data System,
Inc.		      3,097,500
185,000      WorldCom, Inc. — MCI
Group		      2,384,650
           
          Total Telecommunication
Services		      8,382,150
           
        Total Common Stocks
(identified cost $125,778,702)		      147,656,237
        (2)U.S. Treasury Bill — 0.3%
$650,000      9/13/2001 (identified cost
$649,240)		      649,498
           
        Total Investments in Securities
(identified cost $126,427,942)		      148,305,735
        (3)Repurchase Agreement — 16.9%
 29,529,944      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      29,529,944
           
        Total Investments (identified
cost $155,957,886)		      $177,835,679
           
 
Mid-Cap Growth Fund
 
Shares    Description      Value
        Common Stocks — 87.9%
        Consumer Discretionary — 18.5%
        Broadcasting — 9.8%
535,000      (4)Adelphia Communications
Corp., Class A		      $16,879,250
155,000      (4)Cox Radio, Inc., Class A      3,876,550
60,000      (4)Insight Communications Co.,
Inc.		      1,367,400
50,000      (1)(4)Mediacom Communications
Corp.		      864,000
350,000      (4)USA Networks, Inc.      8,106,000
60,000      (4)Westwood One, Inc.      1,710,000
           
          Total      32,803,200
        Leisure & Recreation — 7.2%
260,000      (4)Bally Total Fitness Holding
Corp.		      6,611,800
240,000      Callaway Golf Co.      4,348,800
100,000      (1)Harley Davidson, Inc.      4,859,000
510,000      (4)Six Flags, Inc.      8,481,300
           
          Total      24,300,900
        Retail — 1.5%
105,000      (4)BJ’s Wholesale Club, Inc.      5,145,000
           
          Total Consumer Discretionary      62,249,100
        Consumer Staples — 0.6%
        Food-Wholesale Distribution — 0.6%
55,000      (4)Performance Food Group Co.      1,856,800
        Energy — 4.4%
        Domestic & International Oil — 0.8%
200,000      (4)Marine Drilling Cos., Inc.      2,580,000
        Oil & Gas Products — 3.6%
70,000      Devon Energy Corp.      3,238,900
110,000      (4)Global Marine, Inc.      1,584,000
125,000      (4)Nabors Industries, Inc.      3,065,000
130,000      Noble Affiliates, Inc.      4,387,500
           
          Total      12,275,400
           
          Total Energy      14,855,400
        Financials — 15.9%
        Insurance — 12.4%
202,000      (1)Ambac Financial Group, Inc.      11,958,400
77,500      Everest Re Group Ltd.      5,029,750
150,000      Lincoln National Corp.      7,479,000
75,000      MGIC Investment Corp.      5,242,500
40,000      PMI Group, Inc.      2,608,000
190,000      PartnerRe Ltd.      9,376,500
           
          Total      41,694,150
        Short-Term Business Credit — 3.5%
225,000      Heller Financial, Inc.      11,983,500
           
          Total Financials      53,677,650
        Health Care — 17.2%
        Pharmaceuticals & Health Care — 17.2%
162,500      (4)Accredo Health, Inc.      5,988,125
100,000      (4)AmerisourceBergen Corp.      6,444,000
85,000      (4)IDEC Pharmaceuticals Corp.      5,037,950
172,500      (1)(4)InterMune, Inc.      6,812,025
175,000      (4)King Pharmaceuticals, Inc.      7,568,750
100,000      (1)(4)Luminex Corp.      1,935,000
125,000      (4)Manor Care, Inc.      3,516,250
125,000      (4)Quest Diagnostic, Inc.      7,831,250
150,000      (4)RehabCare Group, Inc.      6,079,500
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Mid-Cap Growth Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Health Care (continued)
        Pharmaceuticals & Health Care (continued)
300,000      (1)(4)Service Corp. International      $2,079,000
100,000      (4)Universal Health Services, Inc.,
Class B		      4,730,000
           
          Total Health Care      58,021,850
        Industrials — 9.0%
        Computer Services — 5.1%
80,000      (4)BISYS Group, Inc.      4,632,000
150,000      (4)Concord EFS, Inc.      7,870,500
175,000      IMS Health, Inc.      4,658,500
           
          Total      17,161,000
        Electrical Equipment — 0.9%
96,250      (1)Molex, Inc.      3,038,613
        Services — 3.0%
95,000      (4)Sabre Holdings Corp.      4,007,100
255,000      (1)(4)Tetra Tech, Inc.      6,114,900
           
          Total      10,122,000
           
          Total Industrials      30,321,613
        Information Technology — 17.5%
        Computer Services — 6.9%
175,000      (1)(4)Eclipsys Corp.      4,506,250
210,000      (4)Intuit, Inc.      7,933,800
145,000      (1)(4)Manhattan Associates, Inc.      3,284,250
175,000      (4)Mentor Graphics Corp.      2,887,500
175,000      (4)Peregrine Systems, Inc.      4,581,500
           
          Total      23,193,300
        Electrical Equipment — 3.0%
225,000      (1)(4)Flextronics International Ltd.      4,936,500
100,000      (4)Optimal Robotics Corp.      4,360,000
405,000      (4)Viasystems Group, Inc.      911,250
           
          Total      10,207,750
        Product Security — 1.9%
105,000      (4)Internet Security Systems, Inc.      1,641,150
35,000      (1)(4)Macrovision Corp.      1,526,350
175,000      (1)(4)SonicWall, Inc.      3,274,250
           
          Total      6,441,750
        Semiconductors — 2.3%
165,000      (4)Chartered Semiconductor
Manufacturing Ltd., ADR		      4,420,350
95,000      (4)Microchip Technology, Inc.      3,390,550
           
          Total      7,810,900
        Telecommunications — 3.4%
700,000      (4)ADC Telecommunications, Inc.      3,059,000
250,000      (4)CommScope, Inc.      5,275,000
150,000      Scientific-Atlanta, Inc.      3,081,000
           
          Total      11,415,000
           
          Total Information Technology      59,068,700
        Telecommunication Services — 1.7%
        Telecommunications — 1.7%
190,000      (1)(4)American Tower Systems
Corp.		      2,749,300
310,000      (1)(4)Crown Castle International
Corp.		      3,158,900
           
          Total Telecommunication Services      5,908,200
Shares or
Principal
Amount		    Description      Value
        Common Stocks (continued)
        Utilities — 3.1%
        Electric — 3.1%
355,000      (1)(4)NRG Energy, Inc.      $6,532,000
150,000      (4)NiSource, Inc.      3,781,500
           
          Total Utilities      10,313,500
           
        Total Common Stocks
(identified cost $297,487,895)		      296,272,813
        (2)U.S. Treasury Bill — 0.3%
$  1,000,000      9/13/2001 (identified cost
$998,836)		      998,836
           
        Total Investments in Securities
(identified cost $298,486,731)		      297,271,649
        (3)Repurchase Agreement — 13.3%
 44,663,390      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      44,663,390
           
        Total Investments (identified
cost $343,150,121)		      $341,935,039
           
 
 
Small-Cap Growth Fund
 
Shares    Description      Value
 
        Common Stocks — 91.6%
        Consumer Discretionary — 33.2%
        Broadcasting — 2.3%
55,000      (4)Insight Communications Co.      $1,253,450
125,000      (4)Spanish Broadcasting System,
Inc., Class A		      1,163,750
           
          Total      2,417,200
        Leisure & Recreation — 20.9%
70,000      (4)Argosy Gaming Co.      2,081,100
135,000      (4)Bally Total Fitness Holding
Corp.		      3,433,050
50,000      (4)Gtech Holdings Corp.      1,649,000
65,000      (4)Harrah’s Entertainment, Inc.      1,857,700
300,000      (4)Hollywood Casino Corp.,
Class A		      2,043,000
150,000      (1)Intrawest Corp.      2,838,000
200,000      (1)(4)Midway Games, Inc.      2,930,000
100,000      (1)(4)Orient-Express Hotels Ltd.,
Class A		      2,008,000
90,000      (1)Royal Caribbean Cruises Ltd.      2,100,600
75,000      (4)WMS Industries, Inc.      1,596,000
           
          Total      22,536,450
        Retail — 10.0%
50,000      (4)Abercrombie & Fitch Co.,
Class A		      1,517,000
50,000      (4)Barnes & Noble, Inc.      2,023,500
45,000      (4)Dollar Tree Stores, Inc.      1,067,850
150,000      (4)Galyan’s Trading Co.      1,800,000
400,000      (1)(4)Gymboree Corp.      3,120,000
50,000      (4)Tweeter Home Entertainment
Group, Inc.		      1,281,000
           
          Total      10,809,350
           
          Total Consumer Discretionary      35,763,000
        Consumer Staples — 7.1%
        Broadcasting — 2.8%
265,000      (1)(4)Pegasus Communications
Corp.		      3,047,500
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Small-Cap Growth Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Consumer Staples (continued)
        Movies & Entertainment — 1.5%
150,000      (4)Alliance Atlantis
Communications Corp., Class B		      $1,591,500
        Services — 2.8%
115,000      (1)(4)Steiner Leisure Ltd.      3,045,280
           
          Total Consumer Staples      7,684,280
        Energy — 3.0%
        Domestic & International Oil — 1.2%
30,000      (4)Cal Dive International, Inc.      525,000
80,000      (4)Energy Partners Ltd.      732,000
           
          Total      1,257,000
        Oil & Gas Products — 1.8%
30,000      Noble Affiliates, Inc.      1,012,500
75,000      (4)Pride International, Inc.      982,500
           
          Total      1,995,000
           
          Total Energy      3,252,000
        Financials — 6.7%
        Banks — 1.7%
50,000      Cullen Frost Bankers, Inc.      1,787,500
        Insurance — 5.0%
60,000      Gallagher (Arthur J.) & Co.      1,590,600
60,000      Radian Group, Inc.      2,406,600
20,000      RenaissanceRe Holdings Ltd.      1,427,000
           
          Total      5,424,200
           
          Total Financials      7,211,700
        Health Care — 13.5%
        Medical Supplies — 5.5%
240,000      (1)(4)Aspect Medical Systems, Inc.      3,057,600
50,000      (4)Cryolife, Inc.      1,788,500
230,500      (1)(4)Sonic Innovations, Inc.      1,037,250
           
          Total      5,883,350
        Pharmaceuticals & Health Care — 8.0%
37,000      (1)(4)Alexion Pharmaceuticals, Inc.      697,450
25,000      (1)(4)Cerus Corp.      1,345,500
85,000      (4)InterMune, Inc.      3,356,650
90,000      (4)Triad Hospitals, Inc.      3,253,500
           
          Total      8,653,100
           
          Total Health Care      14,536,450
        Industrials — 1.1%
        Services — 1.1%
50,000      (4)Tetra Tech, Inc.      1,199,000
        Information Technology — 24.5%
        Aerospace/Defense — 1.4%
175,000      (4)Aeroflex, Inc.      1,548,750
        Computer Services — 0.5%
30,000      (4)Digital Insight Corp.      512,100
        Electrical Equipment — 5.3%
432,500      (1)(4)ACT Manufacturing, Inc.      4,523,950
550,000      (4)Viasystems Group, Inc.      1,237,500
           
          Total      5,761,450
        Semiconductor — 9.9%
125,000      (4)Centillium Communications, Inc.      1,537,500
105,000      (4)Entegris, Inc.      1,260,000
75,000      (4)Exar Corp.      1,518,750
192,500      Multilink Technology Corp.      1,819,125
60,000      (4)Triquint Semiconductor, Inc.      1,272,000
279,000      (4)Virata Corp.      3,294,990
           
          Total      10,702,365
Shares or
Principal
Amount		    Description      Value
 
        Common Stocks (continued)
        Information Technology (continued)
        Software — 4.6%
300,000      (4)Interwoven, Inc.      $2,445,000
493,250      (4)Kana Software, Inc.      419,263
300,000      (4)Vignette Corp.      2,049,000
           
          Total      4,913,263
        Telecommunication Equipment — 0.2%
75,000      (4)Next Level
Communication, Inc.		      175,500
        Wireless Infrastructure — 2.6%
165,000      (4)Powerwave Technologies,
Inc.		      2,409,000
115,000      (4)WJ Communications, Inc.      379,500
           
          Total      2,788,500
           
          Total Information
Technology		      26,401,928
        Telecommunication Services — 2.5%
        Wireless — 2.5%
30,000      (4)AirGate PCS, Inc.      1,768,200
90,000      (4)UbiquiTel, Inc.      882,000
           
          Total Telecommunication
Services		      2,650,200
           
        Total Common Stocks
(identified Cost $93,848,517)		      98,698,558
        (2)U.S. Treasury Bill — 1.2%
$1,255,000      9/13/2001 (identified cost
$1,253,553)		      1,254,322
           
        Total Investments In Securities
(identified cost $95,102,070)		      99,952,880
        (3)Repurchase Agreement — 14.2%
15,266,120      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      15,266,120
           
        Total Investments (identified
cost $110,368,190)		      $115,219,000
           
 
 
International Stock Fund
 
Shares    Description      Value
 
        Common Stocks — 98.2%
        Australia — 0.9%
        Banks — 0.6%
119,800      National Australia Bank Ltd.,
Melbourne		      $2,097,062
        Insurance — 0.3%
100,000      AMP Ltd.      1,037,311
           
          Total Australia      3,134,373
        Belgium — 0.9%
        Banks — 0.9%
202,200      Dexia      3,191,116
        Bermuda — 1.5%
        Industrial Conglomerates — 1.0%
65,900      Tyco International Ltd.      3,423,505
        IT Consulting & Services — 0.5%
134,500      (4)Accenture Ltd.      2,004,050
           
          Total Bermuda      5,427,555
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
International Stock Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Brazil — 1.5%
        Aerospace & Defense — 0.3%
44,100      (4)Embraer—Empresa Brasileira de
Aeronautica SA, ADR		      $1,151,010
        Metals & Mining — 0.7%
128,300      Companhia Vale Do Rio Doce, ADR      2,580,113
        Oil & Gas Integrated — 0.5%
70,100      Petroleo Brasileiro SA, ADR      1,577,250
           
          Total Brazil      5,308,373
        Canada — 1.4%
        Banks — 0.9%
104,700      Royal Bank of Canada, Montreal      3,355,622
        Financial Services — 0.5%
57,300      Manulife Financial Corp.      1,688,016
           
          Total Canada      5,043,638
        Denmark — 0.3%
        Banks — 0.3%
71,000      Danske Bank AS      1,204,844
        Finland — 0.7%
        Telecommunications — 0.7%
162,900      Nokia Oyj, Class A, ADR      2,564,046
        France — 13.4%
        Automotive — 0.6%
41,800      Peugeot SA      1,993,120
        Banks — 0.8%
32,600      BNP Paribas SA      2,993,303
        Beverages & Foods — 0.6%
14,700      Groupe Danone      2,000,556
        Building Materials — 0.8%
19,800      Compagnie de St. Gobain      3,042,030
        Chemicals — 0.3%
7,000      L’Air Liquide      989,555
        Construction Equipment — 0.6%
14,200      (1)Technip      2,101,621
        Construction Materials — 0.2%
9,900      Lafarge SA      898,659
        Domestic & International Oil — 2.0%
49,600      Total Fina SA, Class B      7,336,364
        Electrical Equipment — 0.5%
35,200      Schneider SA      1,952,019
        Health Care — 0.7%
36,400      Aventis SA      2,663,845
        Health Care Equipment & Supplies — 0.6%
6,600      Essilor International      1,976,420
        Leisure & Recreation — 1.1%
96,500      Accor SA      3,781,083
        Media — 1.1%
71,200      Vivendi Universal SA      3,896,621
        Metals & Mining — 0.8%
58,400      Pechiney SA, Class A      2,882,865
        Multi Media — 0.4%
46,200      (4)Thomson Multimedia      1,310,833
        Pharmaceuticals & Health Care — 0.3%
15,400      Sanofi Synthelabo SA      1,008,710
        Specialty Retail — 0.8%
51,600      Castorama Dubois      2,884,938
        Water Treatment — 1.2%
61,400      Suez SA      2,093,203
53,900      (1)(4)Vivendi Environment      2,291,753
           
          Total      4,384,956
           
          Total France      48,097,498
Shares    Description      Value
 
        Common Stocks (continued)
        Germany — 7.9%
        Automotive — 1.1%
120,800      Bayerische Motoren Werke AG      $3,882,112
        Chemicals — 0.8%
66,400      (1)BASF AG      2,716,391
        Drugs — 0.8%
56,800      Schering AG      2,961,375
        Industrial Conglomerates — 0.4%
25,800      Siemens AG      1,314,875
        Insurance — 1.5%
18,850      Muenchener Rueckversicherungs-
Gesellschaft AG		      5,408,290
        Leisure & Recreation — 0.9%
105,300      Preussag AG      3,333,257
        Oil & Gas Products — 0.6%
38,800      (1)E.On AG      2,118,148
        Software — 0.7%
17,800      SAP AG (Systeme, Anwendungen,
Produkte in der
Datevnerarbeitung)		      2,412,410
        Telecommunications — 0.5%
127,200      Deutsche Telekom AG      1,960,056
        Textiles & Apparel — 0.6%
31,500      Adidas AG      2,135,149
           
          Total Germany      28,242,063
        Hong Kong — 2.4%
        Banks—0.5%
161,300      HSBC Holdings PLC      1,878,215
        Distribution & Wholesale — 0.4%
1,228,000      Li & Fung Ltd.      1,542,931
        Land & Real Estate — 0.5%
189,000      Sun Hung Kai Properties Ltd      1,647,756
        Telecommunications — 1.0%
1,149,500      (4)China Mobile (Hong Kong) Ltd.      3,588,641
           
          Total Hong Kong      8,657,543
        Ireland — 2.5%
        Banks — 2.1%
239,400      Allied Irish Banks, PLC      2,705,247
514,400      Bank of Ireland      4,905,554
           
          Total      7,610,801
        Pharmaceuticals & Health Care — 0.4%
29,200      (4)Elan Corp. PLC, ADR      1,516,940
           
          Total Ireland      9,127,741
        Israel — 0.2%
        Computers Services — 0.2%
21,000      (4)Check Point Software
Technologies Ltd.		      671,790
        Italy — 2.5%
        Banks — 0.7%
737,000      Banca Intesa SPA      2,458,925
        Insurance — 1.0%
121,600      Assicurazioni Generali      3,852,548
        Oil & Gas Products — 0.8%
212,500      (1)ENI SPA      2,820,483
           
          Total Italy      9,131,956
        Japan — 11.7%
        Air Freight & Couriers — 0.5%
91,000      Yamato Transport      1,866,215
        Automotive — 0.6%
344,000      Nissan Motor Co., Ltd.      2,010,662
        Banks — 1.2%
688,000      Asahi Bank Ltd.      1,297,949
495,000      (1)Sumitomo Trust & Banking      3,160,062
           
          Total      4,458,011
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
International Stock Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        Japan (continued)
        Beverages & Foods — 0.5%
175,000      Asahi Breweries      $1,746,536
        Computers & Peripherals — 0.7%
194,000      NEC Corp.      2,370,775
        Construction & Engineering — 0.9%
356,000      JGC Corp.      3,133,195
        Electrical Equipment & Instruments — 0.5%
205,000      Hitachi Ltd.      1,681,644
        Electronics — 0.8%
67,200      Sony Corp.      2,993,961
        Financial Services — 1.1%
253,000      (1)Daiwa Securities Co., Ltd.      2,143,580
107,000      Nomura Securities Co., Ltd.      1,820,356
           
          Total      3,963,936
        Household Products — 0.5%
72,000      Kao Corp.      1,831,305
        Leisure & Recreation — 0.8%
5,700      Nintendo Corp., Ltd.      909,715
125,000      (1)Sega Enterprises      2,042,363
           
          Total      2,952,078
        Machinery — 0.5%
492,000      Mitsubishi Heavy Industries Ltd.      2,009,685
        Machinery & Machine Tools — 0.4%
372,000      Komatsu Ltd.      1,356,601
        Pharmaceuticals & Health Care — 1.1%
242,000      (1)Chugai Pharmaceutical Co., Ltd.      3,907,138
        Retail — 0.4%
421,000      (1)Mitsukoshi Ltd.      1,464,379
        Telecommunications — 1.2%
355      NTT DoCoMo, Inc.      4,365,183
           
          Total Japan      42,111,304
        Korea, Republic of — 1.4%
        Banks — 0.1%
29,090      Kookmin Bank      391,203
        Electronics — 0.3%
6,930      Samsung Electronics Co.      1,029,476
        Metals & Mining — 0.5%
103,200      Pohang Iron and Steel Co., Ltd.,
ADR		      1,796,712
        Telecommunications — 0.5%
91,900      Korea Telecom Corp., ADR      1,910,601
           
          Total Korea, Republic of      5,127,992
        Mexico — 1.4%
        Beverages & Foods — 0.6%
56,400      (4)Fomento Economico Mexicano,
SA de CV, ADR		      2,199,600
        Broadcasting & Cable TV — 0.8%
74,900      Grupo Televisa SA, GDR      2,733,850
           
          Total Mexico      4,933,450
        Netherlands — 9.2%
        Beverages & Foods — 1.1%
48,600      Heineken NV      2,039,011
60,500      Koninklijke Numico NV      1,999,270
           
          Total      4,038,281
        Chemicals — 1.1%
88,500      Akzo Nobel NV      3,918,176
        Domestic & International Oil — 2.2%
140,000      Royal Dutch Petroleum Co.      7,945,716
        Financial Services — 2.9%
323,800      ING Group NV      10,232,182
Shares    Description      Value
 
        Common Stocks (continued)
        Netherlands (continued)
        Food & Drug Retailing—1.3%
158,000      (1)Ahold NV      $4,719,938
        Insurance — 0.6%
72,900      Aegon NV      2,199,614
           
          Total Netherlands      33,053,907
        Norway — 0.4%
        Leisure & Recreation — 0.4%
69,600      Royal Caribbean Cruises Ltd.      1,598,763
        Spain — 2.3%
        Banks — 0.5%
202,700      Banco Santander Central Hispano,
SA		      1,848,274
        Broadcasting & Cable TV — 0.3%
39,848      (4)Sogecable SA      878,838
        Leisure & Recreation — 1.1%
530,555      (4)Amadeus Global Travel
Distribution SA		      4,070,845
        Telecommunications — 0.4%
132,500      (1)Telefonica SA      1,539,424
           
          Total Spain      8,337,381
        Sweden — 3.1%
        Banks — 1.9%
500,400      Nordbanken Holding AB      3,047,474
260,400      Svenska Handelsbanken AB,
Class A		      3,733,629
           
          Total      6,781,103
        Household Product/Wares — 0.7%
180,700      Electrolux AB, Class B      2,443,578
        Paper & Forest Products — 0.5%
87,000      Svenska Cellulosa AB, Class B      2,019,220
           
          Total Sweden      11,243,901
        Switzerland — 6.0%
        Banks — 2.4%
11,700      Julius Baer Holding Ltd., Zurich,
Class B		      3,821,467
99,000      UBS AG      4,829,558
           
          Total      8,651,025
        Beverages & Foods — 1.5%
24,500      Nestle SA      5,168,405
        Construction Materials — 1.0%
17,250      Holcim Ltd.      3,566,613
        Insurance — 0.8%
28,000      Swiss Re      2,785,569
        Pharmaceuticals & Health Care — 0.3%
33,600      (1)Novartis AG      1,225,315
           
          Total Switzerland      21,396,927
        Taiwan  — 0.8%
        Electrical Equipment — 0.8%
214,000      (4)Taiwan Semiconductor
Manufacturing Co., ADR		      2,777,720
        United Kingdom — 24.4%
        Banks — 3.5%
410,500      Lloyds TSB Group PLC      4,234,613
206,500      Royal Bank of Scotland PLC,
Edinburgh		      5,156,856
273,500      Standard Chartered PLC      3,323,681
           
          Total      12,715,150
        Beverages & Foods — 1.1%
382,700      Diageo PLC      3,861,711
        Domestic & International Oil — 1.0%
440,800      BP Amoco PLC      3,740,784
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
International Stock Fund (continued)
 
Shares    Description      Value
 
        Common Stocks (continued)
        United Kingdom (continued)
        Drugs — 0.7%
55,200      AstraZeneca PLC      $2,666,419
        Electric Utilities — 0.5%
502,800      Innogy Holdings PLC      1,686,334
        Financial Services — 0.4%
113,500      Amvescap PLC      1,598,469
        Gas Distribution — 0.4%
335,000      BG Group PLC      1,391,065
        Leisure & Recreation — 3.2%
388,000      Bass PLC      4,151,793
1,248,900      Hilton Group PLC      4,415,330
443,600      (4)P&O Princess Cruises PLC      2,383,031
65,360      Whitbread PLC      578,866
           
          Total      11,529,020
        Media — 0.6%
210,800      WPP Group PLC      2,105,695
        Metals & Mining — 1.1%
124,900      Johnson Matthey PLC      1,813,422
111,100      Rio Tinto PLC      2,000,195
           
          Total      3,813,617
        MultiMedia — 1.7%
217,100      Pearson PLC      3,089,032
259,300      Reed International PLC      2,285,218
69,200      Reuters Group PLC      780,663
           
          Total      6,154,913
        Pharmaceuticals & Health Care — 1.8%
246,544      (4)GlaxoSmithKline PLC      6,543,455
        Real Estate — 0.4%
176,500      (4)Canary Wharf Finance PLC      1,324,225
        Restaurants & Leisure — 1.4%
645,800      (4)Compass Group PLC      4,922,592
        Retail — 1.9%
976,209      Kingfisher PLC      5,293,830
110,500      Next PLC      1,516,110
           
          Total      6,809,940
        Telecommunications — 1.7%
3,044,121      Vodafone Group PLC      6,077,166
        Tobacco — 2.0%
837,900      British American Tobacco PLC      7,165,458
        Transportation Infrastructure — 0.6%
246,500      BAA PLC      2,295,885
        Utilities — 0.4%
363,600      National Power Co., PLC      1,462,312
           
          Total United Kingdom      87,864,210
        United States — 1.4%
        Electronic — 0.4%
63,100      (4)Flextronics International Ltd.      1,384,414
        Energy Equipment & Services — 0.4%
54,700      Transocean Sedco Forex, Inc.      1,580,830
        Insurance — 0.4%
48,900      Aflac, Inc.      1,345,728
        Leisure & Recreation — 0.2%
28,200      Royal Caribbean Cruises Ltd.      658,188
           
          Total United States      4,969,160
           
        Total Common Stocks
(identified cost $376,504,762)		      353,217,251
Principal
Amount		    Description      Value
 
        (3)Repurchase Agreement — 1.2%
$4,125,000      State Street Corp., 2.500%,
dated 8/31/2001, due
9/4/2001 (at amortized
cost)		      $4,125,000
           
        Total Investments
(identified cost $380,629,762)		      $357,342,251
           
 
 
Government Income Fund
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities — 4.4%
$6,000,000      Green Tree Home Equity Loan
Trust (Series 1998-B), Class
B1, 7.810%, 11/15/2029		      $6,169,823
10,643,000      Greenwich Capital Acceptance
(Series 1995-BA1), Class A4,
7.150%, 8/10/2020		      10,823,612
           
          Total Asset-Backed Securities
(identified cost $16,665,899)		      16,993,435
        Collateralized Mortgage Obligations — 23.9%
19,589,900      (5)(7)Federal Home Loan
Mortgage Corp., 3.710%,
8/25/2001, REMIC
(Series T-32-A1)		      19,594,427
11,733,727      (5)Federal Home Loan
Mortgage Corp., 4.438%,
9/15/2001, REMIC (Series
1624-FA)		      11,804,364
15,000,000      Federal Home Loan Mortgage
Corp., 6.250%, 9/15/2023,
REMIC (Series 1666-H)		      15,374,250
10,000,000      (7)Federal Home Loan
Mortgage Corp., 6.500%,
10/15/2016, REMIC (Series
1702-PK)		      10,378,900
24,152,355      (5)(7)Federal National
Mortgage Association,
4.042%, 9/25/2001, REMIC
(Series 2001-25-FA)		      24,031,593
10,000,000      Federal National Mortgage
Association, 6.022%,
11/25/2010		      10,163,216
           
          Total Collateralized Mortgage
Obligations (identified cost
$88,680,194)		      91,346,750
        Corporate Bonds — 1.8%
3,000,000      (5)HSB Group, Inc., FRN,
4.680%, 10/15/2001		      2,854,080
5,000,000      (5)TXU Gas Capital, FRN,
6.350%, 10/1/2001		      4,194,235
           
          Total Corporate Bonds
(identified cost $7,909,300)		      7,048,315
        Mortgage Backed Securities — 78.1%
        Federal Home Loan Mortgage Corporation —
20.3%
14,463,744      (1)5.000%, 8/1/2014      13,994,558
23,875,247      (1)6.500%, 2/1/2031      24,009,426
15,000,000      (6)6.500%, 9/1/2031      15,084,300
3,406,807      7.000%, 11/1/2009      3,532,450
1,139,020      7.500%, 9/1/2013      1,184,285
3,133,755      7.500%, 4/1/2024      3,260,077
2,812,548      7.500%, 4/1/2027      2,917,147
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Government Income Fund (continued)
 
Principal
Amount		    Description      Value
 
        Mortgage Backed Securities (continued)
        Federal Home Loan Mortgage Corporation
(continued)
$7,686,525      (1)8.000%, 8/1/2030      $7,993,986
1,385,731      8.500%, 9/1/2024      1,469,068
1,926,442      9.000%, 6/1/2019      2,088,996
1,951,509      9.500%, 2/1/2025      2,124,706
           
          Total      77,658,999
        Federal National Mortgage Association —
 32.4%
12,685,255      (7)6.000%, 9/1/2013      12,800,183
10,000,000      (6)6.500%, 9/1/2016      10,187,500
25,000,000      (6)6.500%, 9/1/2031      25,109,500
5,801,597      7.000%, 12/1/2010      6,017,359
6,747,880      7.000%, 3/1/2029      6,912,393
14,681,304      (1)7.000%, 7/1/2029      15,039,234
12,784,003      (7)7.000%, 2/1/2030      13,095,677
9,272,468      7.500%, 12/1/2009      9,686,854
11,007,618      (7)7.500%, 10/1/2030      11,355,019
6,146,525      8.000%, 10/1/2028      6,436,579
6,934,996      8.000%, 4/1/2030      7,210,246
           
          Total      123,850,544
        Government National Mortgage Association —
25.4%
20,000,000      (6)6.500%, 9/15/2031      20,200,000
9,647,927      (1)7.000%, 4/15/2029      9,931,383
5,580,367      (1)7.000%, 5/15/2029      5,726,851
9,822,963      (1)7.000%, 6/15/2029      10,080,815
11,629,847      (1)7.500%, 8/15/2025      12,087,830
2,767,543      (1)7.500%, 8/15/2025      2,885,163
11,419,997      (1)7.500%, 12/15/2025      11,869,717
15,315,762      (1)7.500%, 2/15/2027      15,904,500
2,320,195      (1)8.500%, 6/15/2010      2,422,423
3,777,499      (1)9.000%, 11/15/2009      4,051,367
1,179,088      (1)9.000%, 1/15/2010      1,244,303
798,771      (1)9.500%, 10/15/2024      885,390
           
          Total      97,289,742
           
        Total Mortgage Backed
Securities (identified cost
$291,553,793)		      298,799,285
           
        Total Investments in Securities
(identified cost $404,809,186)		      414,187,785
        (3)Repurchase Agreement — 10.0%
38,196,071      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at amortized
cost)		      38,196,071
           
        Total Investments
(identified cost $443,005,257)		      $452,383,856
           
 
 
Intermediate Bond Fund
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities — 8.6%
$5,500,000      (8)(9)ARG Funding Corp., Class
A2, 5.880%, 5/20/2002		      $5,552,525
5,000,000      Citibank Credit Card Master
Trust I, (Series 1999-7), Class
A, 6.650%, 11/15/2006		      5,295,450
Principal
Amount		    Description      Value
 
        Asset-Backed Securities (continued)
$715,169      (5)(8)(9) DLJ Commercial
Mortgage Corp., (Series
1998-STF2), Class A1,
4.410%, 9/5/2001		      $715,169
5,000,000      DaimlerChrysler Auto Trust,
(Series 2000-C), Class A3,
6.820%, 9/6/2004		      5,155,000
7,750,000      First USA Credit Card Master
Trust, (Series 1998-9), Class
A, 5.280%, 9/18/2006		      7,922,903
7,000,000      Ford Credit Auto Owner Trust,
(Series 2000-G), Class A4,
6.620%, 7/15/2004		      7,251,708
7,000,000      Green Tree Home Equity Loan
Trust, (Series 1998-B), Class
B1, 7.810%, 11/15/2029		      7,198,127
12,000,000      J.P. Morgan Commercial
Mortgage Finance Corp.,
(Series 1997-C5), Class A2,
7.069%, 9/15/2029		      12,658,566
2,009,905      (8)(9)Pegasus Aviation Lease
Securitization, (Series 1999-
1A), Class A1, 6.300%,
3/25/2029		      2,040,204
1,729,096      TMS Home Equity Trust,
(Series 1996-B), Class A7,
7.550%, 2/15/2020		      1,731,378
           
          Total Asset-Backed Securities
(identified cost $53,918,304)		      55,521,030
        Collateralized Mortgage Obligations — 4.8%
5,000,000      (8)(9)Criimi Mae CMBS Corp.,
(Series 1998-1), Class A2,
6.009%, 2/20/2005		      5,072,133
6,000,000      (8)(9)Criimi Mae CMBS Corp.,
(Series 1998-1), Class A3,
6.306%, 12/20/2007		      6,157,355
3,653,721      Federal Home Loan Mortgage
Corp., (Series 1829), Class
H, 6.500%, 10/15/2021		      3,713,697
8,000,000      Government National Mortgage
Association, (Series 2001-5),
Class PK, 5.950%, 7/20/2024		      8,191,200
5,102,372      Government National Mortgage
Association, (Series 2000-
12), Class AC, 7.500%,
11/16/2027		      5,347,388
2,597,520      (8)(9)Prudential Home
Mortgage Securities, (Series
1992-B), Class 2B, 6.757%,
9/28/2008		      2,663,172
           
          Total Collateralized Mortgage
Obligations (identified cost
$30,139,008)		      31,144,945
        Corporate Bonds & Notes — 49.5%
        Automotive & Related — 6.0%
8,000,000      Ford Motor Credit Co., Note,
6.125%, 3/20/2004		      8,203,680
7,000,000      (1)Ford Motor Credit Co.,
Note, 6.700%, 7/16/2004		      7,262,920
750,000      Ford Motor Credit Co., Note,
7.375%, 10/28/2009		      781,275
5,000,000      Ford Motor Credit Co., Note,
7.750%, 3/15/2005		      5,329,700
3,000,000      General Motors Acceptance
Corp., Note, 6.380%,
1/30/2004		      3,102,060
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Intermediate Bond Fund (continued)
 
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Automotive & Related (continued)
$8,165,000      General Motors Acceptance
Corp., Unsecd. Note, 7.000%,
6/6/2003		      $8,450,040
5,000,000      General Motors Corp., Note,
7.200%, 1/15/2011		      5,244,200
           
          Total      38,373,875
        Banks — 3.8%
7,000,000      Bank of America Corp., Sr. Note,
7.125%, 9/15/2006		      7,495,040
5,000,000      (1)Bank One Corp., Sr. Note,
7.625%, 8/1/2005		      5,409,850
5,790,000      Corestates Capital, Company
Guarantee, 6.750%, 11/15/2006		      6,071,220
5,000,000      Norwest Corp., Note, (Series
MTNF), 6.500%, 6/1/2005		      5,217,550
           
          Total      24,193,660
        Beverages & Foods — 0.9%
5,000,000      Anheuser-Busch Cos., Inc., Deb.,
9.000%, 12/1/2009		      6,037,850
        Broker/Dealers — 4.2%
2,000,000      Goldman Sachs Group, Inc.,
Bond, 6.875%, 1/15/2011		      2,071,080
5,000,000      Lehman Brothers, Inc., Sr. Sub.
Note, 7.500%, 8/1/2026		      5,351,050
6,500,000      Merrill Lynch & Co., Inc., Note,
(Series MTNB), 5.350%,
6/15/2004		      6,612,190
7,000,000      (1)Morgan Stanley, Unsub.,
6.100%, 4/15/2006		      7,170,450
6,000,000      PaineWebber Group, Inc., Note,
6.450%, 12/1/2003		      6,257,340
           
          Total      27,462,110
        Chemicals — 1.2%
4,000,000      Dow Chemical Co., Note,
6.125%, 2/1/2011		      4,039,920
3,500,000      (8)(9)Dow Chemical Co., Note,
5.250%, 5/14/2004		      3,552,640
           
          Total      7,592,560
        Consumer Cyclicals — 1.4%
5,000,000      Dayton-Hudson Corp., Note,
6.400%, 2/15/2003		      5,146,850
4,000,000      Tyco International Group,
Company Guarantee, 5.800%,
8/1/2006		      4,017,680
           
          Total      9,164,530
        Electrical Equipment — 0.2%
1,500,000      Emerson Electric Co., Note,
5.000%, 10/15/2008		      1,429,335
        Federal National Mortgage Association — 1.7%
10,000,000      (1)Fannie Mae, Note, 6.625%,
10/15/2007		      10,740,100
        Financial Services — 11.2%
7,000,000      (8)(9)AIG SunAmerica Global
Financial, Note, 5.850%,
8/1/2008		      7,048,580
5,500,000      (8)(9)Allstate Financial Global,
Note, 7.125%, 9/26/2005		      5,859,315
7,500,000      Boeing Capital Corp., Bond,
6.100%, 3/1/2011		      7,552,200
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Financial Services (continued)
$5,000,000      (5)(8)(9)Credit Suisse, London,
Sub. Note, 7.900%, 5/1/2007		      $5,230,840
4,000,000      EOP Operating LP, Note,
7.375%, 11/15/2003		      4,213,560
4,000,000      General Electric Capital Corp.,
Note, 5.375%, 4/23/2004		      4,084,080
5,000,000      General Electric Capital Corp.,
Note, (Series A), 6.500%,
12/10/2007		      5,293,200
4,250,000      General Electric Capital Corp.,
Note, 7.500%, 6/5/2003		      4,490,465
4,000,000      Household Netherlands BV,
Company Guarantee, 6.200%,
12/1/2003		      4,111,880
5,000,000      (5)MBNA Global Capital
Securities, Jr. Sub. Deb.,
4.479%, 11/1/2001		      3,780,300
7,000,000      (8)(9)Systems 2001Asset Trust,
Pass Thru Cert., 6.664%,
9/15/2013		      7,206,430
7,000,000      UBS Preferred Funding Trust II,
Bank Guarantee, 7.247%,
6/29/2049		      7,229,943
6,000,000      (1)Wells Fargo Financial, Inc.,
Note, 5.875%, 8/15/2008		      6,036,780
           
          Total      72,137,573
        Forest Products & Paper — 0.4%
2,500,000      Reed Elsevier, Capital, Company
Guarantee, 6.125%, 8/1/2006		      2,556,075
        Health Care — 1.0%
6,000,000      Abbott Laboratories, Note,
5.125%, 7/1/2004		      6,086,820
        Household Product/Wares — 0.8%
5,000,000      Procter & Gamble Co., Unsub.,
6.600%, 12/15/2004		      5,240,250
        Insurance — 4.5%
5,000,000      Citigroup, Inc., Note, 5.750%,
5/10/2006		      5,084,800
7,000,000      Citigroup, Inc., Sr. Note,
6.750%, 12/1/2005		      7,409,080
5,000,000      Conseco, Inc., Note, 6.800%,
6/15/2005		      4,100,000
4,000,000      (5)HSB Group, Inc., Company
Guarantee, 4.680%,
10/15/2001		      3,805,440
3,500,000      (8)(9)John Hancock Financial
Services, Inc., 6.500%,
3/1/2011		      3,596,460
5,000,000      Prudential Funding Corp., Note,
(Series MTN), 6.600%,
5/15/2008		      5,167,950
           
          Total      29,163,730
        Media — 1.7%
1,600,000      (1)AOL Time Warner, Inc.,
Note, 6.125%, 4/15/2006		      1,635,040
4,000,000      (1)AOL Time Warner, Inc.,
Note, 6.750%, 4/15/2011		      4,100,360
3,000,000      Comcast Corp., Sr. Note,
6.750%, 1/30/2011		      3,030,060
2,000,000      Disney (Walt) Co., Note,
7.300%, 2/8/2005		      2,116,600
           
          Total      10,882,060
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Intermediate Bond Fund (continued)
 
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Metals — 0.6%
$1,965,000      Alcoa, Inc., Note, 5.875%,
6/1/2006		      $2,007,975
1,775,000      (1)Alcoa, Inc., Note, 6.500%,
6/1/2011		      1,842,823
           
          Total      3,850,798
        Telecommunications — 3.0%
5,000,000      (1)British Telecommunication
PLC, Note, 7.625%,
12/15/2005		      5,380,850
1,800,000      (1)Deutsche Telekom AG,
Company Guarantee,
7.750%, 6/15/2005		      1,919,088
3,000,000      (1)(8)(9)Verizon Global
Funding, Note, 6.750%,
12/1/2005		      3,155,580
5,000,000      (1)Vodafone Group PLC, Note,
7.625%, 2/15/2005		      5,375,850
3,000,000      (1)Worldcom, Inc., Note,
7.875%, 5/15/2003		      3,131,670
           
          Total      18,963,038
        Transportation — 2.7%
4,830,305      American Trans Air, (Series
2001-1G), Pass Through
Cert., 8.039%, 1/15/2016		      5,069,019
4,369,553      Continental Airlines, Inc., Pass
Through Cert., 6.541%,
9/15/2008		      4,389,217
4,000,000      Delta Air Lines, Inc.,
Equipment Trust, (Series
1993-A2), 10.500%,
4/30/2016		      4,794,880
3,000,000      (1)Norfolk Southern Corp., Sr.
Note, 6.750%, 2/15/2011		      3,072,390
           
          Total      17,325,506
        Utilities — 0.6%
4,000,000      (8)(9)Potomac Capital
Investment Corp., MTN,
7.550%, 11/19/2001		      4,022,880
        Utilities-Electric — 2.7%
4,000,000      Korea Electric Power Corp.,
Deb., 6.000%, 12/1/2026		      4,017,920
5,000,000      Limestone Electronic Trust, Sr.
Note, 8.625%, 3/15/2003		      5,201,150
5,000,000      (8)(9)Osprey Trust, Sr. Secd.
Note, 8.310%, 1/15/2003		      5,169,600
3,000,000      (8)(9)Pinnacle Partner, Sr.
Note, 8.830%, 8/15/2004		      3,140,490
           
          Total      17,529,160
        Utilities-Natural Gas — 0.9%
7,000,000      (5)TXU Gas Capital I,
Company Guarantee,
5.140%, 10/1/2001		      5,871,929
           
        Total Corporate Bonds & Notes
(identified cost $312,673,692)		      318,623,839
        Government Agencies — 9.3%
        Federal Home Loan Bank — 0.8%
5,000,000      5.430%, 11/17/2008      5,021,450
        Federal National Mortgage Association — 6.9%
7,000,000      5.125%, 2/13/2004      7,144,480
10,000,000      5.625%, 5/14/2004      10,331,300
Principal
Amount		    Description      Value
 
        Government Agencies (continued)
        Federal National Mortgage Association
(continued)
$16,000,000      6.250%, 2/11/2011      $16,458,560
10,000,000      7.000%, 7/15/2005      10,776,600
           
          Total      44,710,940
        Tennessee Valley Authority — 1.6%
10,000,000      5.625%, 1/18/2011      9,950,600
           
        Total Government Agencies
(identified cost $58,841,326)		      59,682,990
        Mortgage Backed Securities — 5.6%
        Federal Home Loan Mortgage Corporation 
—2.4%
11,000,000      7.500%, 2/1/2031      11,354,090
4,000,001      7.500%, 6/1/2031      4,126,241
           
          Total      15,480,331
        Federal National Mortgage Association —
3.2%
15,000,000      7.000%, 2/1/2016      15,459,300
4,765,666      7.635%, 8/1/2011      5,214,135
           
          Total      20,673,435
           
        Total Mortgage Backed
Securities (identified cost
$35,988,570)		      36,153,766
        U.S. Treasury Securities — 15.0%
        U.S. Treasury Notes — 15.0%
20,000,000      5.500%, 1/31/2003      20,561,600
22,000,000      (1)6.000%, 8/15/2004      23,221,660
23,500,000      6.125%, 8/15/2007      25,360,260
25,000,000      (1)7.250%, 5/15/2004      27,125,000
           
        Total U.S. Treasury Securities
(identified cost $95,713,360)		      96,268,520
           
        Total Investments in Securities
(identified cost $587,274,260)		      597,395,090
        (3)Repurchase Agreement — 4.7%
30,539,744      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      30,539,744
           
        Total Investments
(identified cost $617,814,004)		      $627,934,834
           
 
 
Intermediate Tax-Free Fund
 
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals — 99.3%
        Arizona — 5.1%
$1,000,000      Maricopa County,
AZ, School District
No. 214 Tolleson
Unified High, GO
UT, 5.100% (FSA
INS) (Original
Issue Yield:
5.099%), 7/1/2010,
Callable 7/1/2009
@ 101		    AAA/Aaa    $1,084,730
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Intermediate Tax-Free Fund (continued)
 
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Arizona (continued)
$1,885,000      Maricopa County, AZ,
School District No.
28 Kyrene
Elementary, (Series
A), 5.000% (MBIA
INS)/(Original Issue
Yield: 4.590%),
7/1/2013		    AAA/Aaa    $2,026,073
2,000,000      Phoenix, AZ, Civic
Improvement Corp.,
5.125% (FGIC
INS)/(Original Issue
Yield: 4.570%),
7/1/2014		    AAA/Aaa    2,159,140
              
          Total            5,269,943
        Arkansas — 1.5%
1,470,000      Arkansas Development
Finance Authority,
Revenue Bonds,
5.000% (AMBAC
INS)/(Original Issue
Yield: 5.055%),
7/1/2020, Callable
7/1/2007 @ 102		    AAA/Aaa    1,516,864
        Colorado — 3.2%
3,000,000      Larimer County, CO,
School District, GO
UT, 5.500% (FGIC
INS)/(Original Issue
Yield: 4.420%),
12/15/2006		    AAA/Aaa    3,306,300
        Florida — 1.1%
1,060,000      Orange County, FL,
Health Facilities
Authority,
Refunding Revenue
Bonds, (Adventist
Health Systems)
5.550% (Original
Issue Yield:
5.750%),
11/15/2004		    A-/Baa1    1,115,194
        Georgia — 2.0%
1,000,000      Burke County, GA,
Development
Authority, PCR
Bonds, 6.250%
(Oglethorpe Power
Corp. Vogtle B)/
(MBIA INS),
1/1/2003		    AAA/Aaa    1,045,370
1,000,000      Private Colleges &
Universities
Facilities of GA,
Revenue Bonds
(Series A), 5.250%
(Mercer University
Project)/(Original
Issue Yield:
5.080%), 10/1/2014,
Callable 10/1/2009
@ 101		    A3    1,052,370
              
          Total            2,097,740
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Hawaii — 1.1%
$1,000,000      Hawaii State Airport
System, Refunding
Revenue Bonds,
5.250% (FGIC
INS)/(Original
Issue Yield:
4.770%), 7/1/2011		    AAA/Aaa    $1,079,540
        Illinois — 2.1%
1,000,000      Du Page, IL, Water
Commission, GO,
Refunding Bonds,
6.250% (Original
Issue Yield:
6.450%), 3/1/2006,
Callable 3/1/2002,
Prerefunded
3/1/2002 @ 102		    AAA/Aaa    1,036,120
1,085,000      Waukegan, IL, GO
UT, 6.400% (MBIA
INS)/(Original
Issue Yield:
6.450%),
12/30/2004,
Callable
12/30/2002 @ 100		    AAA/Aaa    1,134,660
              
          Total            2,170,780
        Indiana — 3.6%
1,425,000      Indianapolis, IN,
Marion County
Indiana Public
Library, GO UT,
5.800%, 7/1/2012,
Callable 1/1/2009
@ 101		    Aa2    1,574,012
2,000,000      Petersburg, IN, PCA,
Revenue Bonds,
6.100% (MBIA
INS)/(Original
Issue Yield:
6.099%), 1/1/2016,
Callable 1/1/2003
@ 102		    AAA/Aaa    2,118,240
              
          Total            3,692,252
        Iowa — 4.1%
1,050,000      Cedar Rapids, IA, GO
UT, (Series B),
5.200% (Original
Issue Yield:
5.250%), 6/1/2007,
Callable 6/1/2004
@ 100		    Aaa    1,094,457
3,000,000      Iowa Finance
Authority, Solid
Waste Disposal
Project, Revenue
Bonds, AMT,
6.000% (Ipsco,
Inc.), Due
6/1/2027,
Mandatory Tender
6/1/2007, Callable
6/1/2007 @ 100		    NR    3,097,500
              
          Total            4,191,957
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Intermediate Tax-Free Fund (continued)
 
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Kentucky — 2.9%
$2,565,000      Kentucky State
Property &
Buildings
Commission,
Refunding Revenue
Bonds, 6.000%
(FSA INS)/
(Original Issue
Yield: 5.510%),
2/1/2011, Callable
2/1/2010 @100		    AAA/Aaa    $2,939,746
        Maryland — 1.3%
1,300,000      Maryland Health &
Higher Educational
Facilities Authority
(5% John Hopkins
Hospital), 5.140%,
5/15/2026, Callable
5/15/2011 @ 101		    AA-/A1    1,301,885
        Massachusetts — 2.8%
2,500,000      Massachusetts State,
(Series A), 6.000%
(Original Issue
Yield: 5.670%),
2/1/2014, Callable
2/1/2010 @ 101		    AA-/Aa2    2,827,675
        Michigan — 5.1%
3,300,000      Detroit, MI, City
School District,
(Series B), 5.000%
(FGIC INS)/
(Original Issue
Yield: 4.500%),
5/1/2009		    AAA/Aaa    3,524,499
1,500,000      Michigan State
Building Authority,
(Series I), 5.500%
(Original Issue
Yield: 4.250%),
10/15/2009		    AA+/Aa1    1,664,295
              
          Total                5,188,794
        Minnesota — 4.1%
1,000,000      Minneapolis/St. Paul,
MN, Housing
Authority,
Refunding Revenue
Bonds, AMT,
6.750%, (Group
Health Plan, Inc.
Project),
12/1/2013, Callable
12/1/2002 @ 102		    BBB+/Baa1    1,031,110
3,000,000      Minneapolis/St. Paul,
MN, Metropolitan
Airports
Commission
(Series B), AMT,
5.250% (FGIC
INS)/ (Original
Issue Yield:
4.070%), 1/1/2006		    AAA    3,202,410
              
          Total            4,233,520
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Missouri — 1.1%
$1,000,000      Missouri State
Environmental
Improvement &
Energy Authority,
Water Pollution
Control State
Revolving Fund
Program, Revenue
Bonds (Series B),
6.650%, 7/1/2006,
Callable 7/1/2004
@ 102, Partially
Prerefunded
7/1/2004 @ 102		    Aaa    $1,111,948
        Nevada — 3.0%
1,880,000      Clark County, NV,
School District, GO
UT (Series D),
Refunding Bonds,
5.250%, 6/15/2014,
Callable 6/15/2011
@ 105		    AAA/Aaa    2,036,679
1,000,000      Las Vegas, NV, GO
LT, Sewer
Refunding Revenue
Bonds (Series B),
4.875% (MBIA
INS)/(Original
Issue Yield:
5.050%), 1/1/2006,
Callable 1/1/2003
@ 101		    AAA/Aaa    1,028,520
              
          Total            3,065,199
        New Mexico — 3.7%
3,325,000      New Mexico State
Highway
Commission,
Refunding Revenue
Bonds, 6.000%
(Original Issue
Yield: 5.370%),
6/15/2010, Callable
6/15/2009 @ 100		    AA+/Aa2    3,758,247
        New York — 2.6%
1,100,000      Oswego County, NY,
GO UT, 6.700%
(Original Issue
Yield: 6.800%),
6/15/2010		    A2    1,330,582
1,100,000      Oswego County, NY,
GO UT, 6.700%
(Original Issue
Yield: 6.800%),
6/15/2011		    A2    1,340,251
              
          Total            2,670,833
        North Carolina — 1.8%
1,800,000      North Carolina State
Public
Improvements,
(Series A), 4.500%
(Original Issue
Yield: 4.190%),
3/1/2010		    AAA/Aaa    1,872,108
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Intermediate Tax-Free Fund (continued)
 
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        North Dakota — 4.9%
$2,940,000      Fargo, ND, Meritcare
Obligated (Series
A), 5.750% (FSA
INS)/(Original Issue
Yield: 5.300%),
6/1/2012, Callable
6/1/2010 @ 101		    AAA/Aaa    $3,270,074
1,545,000      North Dakota State
Water Authority,
Revenue Bonds
(Series A), 6.000%
(MBIA INS)
(Original Issue
Yield: 5.390%),
8/1/2011, Callable
8/1/2010 @ 100		    AAA    1,760,806
              
          Total            5,030,880
        Ohio — 5.4%
2,055,000      Cleveland, OH,
Parking Facilities,
Revenue Bonds,
7.600%, Due
9/15/2003, PRF),
9/15/2002 (@ 102)		    NR    2,201,111
395,000      Cleveland, OH, Public
Power System,
Refunding Revenue
Bonds, 7.000%
(MBIA INS)/
(Original Issue
Yield: 7.126%),
11/15/2017, Callable
11/15/2001		    AAA/Aaa    405,953
605,000      Cleveland, OH Public
Power System,
Refunding Revenue
Bonds, 7.000%
(MBIA INS)/
(Original Issue
Yield: 7.126%),
11/15/2017, Callable
11/15/2001		    AAA/Aaa    622,273
1,025,000      Ohio HFA, Mortgage
Refunding Revenue
Bonds, AMT,
Residential A-1
RMK, 5.050%
(GNMA COL),
9/1/2001		    NR/Aaa    1,025,000
1,235,000      Ohio HFA, Mortgage
Refunding Revenue
Bonds, AMT,
Residential A-1
RMK, 5.150%
(GNMA COL),
9/1/2002		    NR/Aaa    1,259,762
                 
          Total            5,514,099
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Oregon — 1.0%
$1,000,000      Salem-Keizer, OR,
School District
#24J, 5.375%
(FGIC INS)
(School Board
Guarantee)
6/1/2014, Callable
6/1/2009 @ 100		    AAA/Aaa    $1,065,980
        Pennsylvania — 6.6%
4,000,000      Commonwealth of
Pennsylvania,
6.000% (Original
Issue Yield:
5.540%),
1/15/2012, Callable
1/15/2010 @ 101		    AA/Aa2    4,534,160
2,000,000      Pottsville, PA,
Hospital Authority,
7.000% (Original
Issue Yield:
7.500%), 7/1/2014,
PRF 7/1/2004
@ 102		    AAA    2,250,820
                 
          Total            6,784,980
        South Carolina — 4.1%
1,055,000      South Carolina State,
GO UT, (Series B),
5.625% (Original
Issue Yield:
5.600%), 7/1/2011,
Callable 7/1/2006
@ 102		    AAA/Aaa    1,150,245
2,835,000      South Carolina State
Public Service
Authority, (Series
A), 5.375% (MBIA
INS)/(Original
Issue Yield:
4.800%), 1/1/2006		    AAA/Aaa    3,062,764
                 
          Total            4,213,009
        South Dakota — 1.6%
1,500,000      Heartland Consumers
Power District, SD,
Refunding Revenue
Bonds, 5.900%
(FSA INS)/
(Original Issue
Yield: 6.000%),
1/1/2004		    AAA/Aaa    1,595,655
        Tennessee — 1.3%
1,200,000      Putnam County, TN,
GO UT, 5.250%
(FGIC INS)/
(Original Issue
Yield: 4.530%),
4/1/2013		    A2    1,305,300
        Texas — 6.0%
945,000      San Angelo, TX, ISD,
GO UT, 5.300%
(PSFG GTD),
2/15/2007, Callable
2/15/2006 @ 100		    AAA/Aaa    1,011,178
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Intermediate Tax-Free Fund (continued)
 
Principal
Amount		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Texas (continued)
$2,000,000      Tarrant County, TX,
HFDC, Revenue
Bonds, 5.750%
(Texas Health
Resources
System)/(MBIA
INS), 2/15/2009
Callable 2/15/2008
@ 102		    AAA/Aaa    $2,192,300
1,500,000      Tarrant County, TX,
Jr. College District,
GO UT, 5.375%,
2/15/2012		    AAA/Aa1    1,642,395
1,180,000      Texas Water
Development Board,
State Revolving
Fund Senior Lien
Revenue Bonds
(Series A), 5.250%
(Original Issue
Yield: 4.900%),
7/15/2004		    AAA/Aaa    1,253,160
                 
          Total            6,099,033
        Utah — 2.1%
2,020,000      Jordan, UT, School
District, School
Board GTD, GO UT,
5.000% (Original
Issue Yield:
4.550%), 6/15/2003		    AAA    2,100,982
        Virginia — 2.4%
2,190,000      Loudoun County VA,
State Aid
Withholding, GO
UT (Series B),
5.750%, 1/1/2011
Callable 1/1/2010
@ 101		    AA/Aa1    2,481,226
        Washington — 1.1%
1,000,000      Port Longview, WA,
IDC, Solid Waste
Disposal Revenue
Bonds, 6.875%
(AMT for
Individuals Only)
(Weyerhaeuser Co.),
10/1/2008		    A    1,128,860
        Wisconsin — 10.6%
940,000      Cedarburg, WI, School
District (Series B),
5.375% (FSA
INS)/(Original Issue
Yield: 5.000%),
3/1/2016, Callable
3/1/2011 @ 100		    Aaa    993,270
Principal
Amount or
Shares		    Description    Credit
Rating(10)		    Value
 
        Long-Term Municipals (continued)
        Wisconsin (continued)
$895,000      Cedarburg, WI,
School District,
GO UT (Series
B) Refunding
Bonds, 5.375%
(Original Issue
Yield: 4.930%),
3/1/2015,
Callable 3/1/2011
@ 100		    Aaa    $950,660
2,250,000      Green Bay, WI,
Area Public
School District,
GO UT, 5.000%
(Original Issue
Yield: 4.740%),
4/1/2009		    Aa2    2,412,338
1,535,000      Kenosha County,
WI, (Series A),
5.000% (FGIC
INS)/(Original
Issue Yield:
4.500%),
3/1/2013, Callable
3/1/2010 @ 100		    AAA/Aaa    1,595,218
1,035,000      River Falls, WI,
School District,
GO UT, 5.100%
(FGIC INS)/
(Original Issue
Yield: 5.099%),
4/1/2012		    Aaa    1,105,608
1,650,000      Southeast WI,
Professional
Baseball Park
District, Sales
Tax Revenue
Bonds, 5.450%
(MBIA INS),
12/15/2012,
Prerefunded
3/13/2007 @ 101		    AAA/Aaa    1,824,702
1,750,000      Wisconsin State,
GO UT (Series
C), Water Utility
& Highway
Improvement
Bonds, 6.000%,
5/1/2014,
Callable 5/1/2010
@ 100		    AA/Aa3    1,958,933
               
       Total       10,840,729
               
        Total Long-Term Municipals
(identified cost $97,132,794)		    101,571,258
        Mutual Funds — 2.1%
944,109      Federated Tax-Free
Obligations Fund		    944,109
1,227,377      Fidelity Tax Exempt
Money Market Fund		    1,227,377
               
        Total Mutual Funds
(shares at net asset value)		    2,171,486
               
        Total investments
(identified cost
$99,304,280)(11)		    $103,742,744
                
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Short-Term Income Fund
 
Principal
Amount		    Description      Value
 
        Asset-Backed Securities — 12.2%
$22,427      AFC Home Equity Loan Trust,
Series 1993-2, Class A, 6.000%,
1/20/2013		      $22,397
3,000,000      (8)(9)ARG Funding Corp., Class
A2, 5.880%, 5/20/2002		      3,028,650
145,798      CPS Auto Grantor Trust, Series
1997-2, Class A, 6.650%,
10/15/2002		      145,952
1,500,000      Citibank Credit Card Master
Trust I 1998-9, Class A,
5.300%, 1/9/2006		      1,533,345
286,068      (5)(8)(9)DLJ Commercial
Mortgage Corp., Series 1998-
STF2, Class A1, 4.410%,
9/5/2001		      286,068
2,000,000      Daimler Chrysler Auto Trust,
Class A3, 6.820%, 9/6/2004		      2,062,000
1,000,000      Ford Credit Auto Owner Trust
2000-G, Class A4, 6.620%,
7/15/2004		      1,035,958
3,000,000      Green Tree Home Equity Loan
Trust, Series 1998-B, Class B1,
7.810%, 11/15/2029		      3,084,911
393,199      PNC Mortgage Securities Corp.,
Series 1994-1, Class T7,
6.000%, 2/25/2024		      392,843
1,004,952      (8)(9)Pegasus Aviation Lease
Securitization, Series 1999-1A,
Class A1, 6.300%, 3/25/2029		      1,020,102
1,952,605      (8)(9)Regional Jet Equipment
Trust, Note, 7.771%, 9/5/2004		      2,028,278
686,342      TMS Home Equity Trust, Series
1992-D2, Class A3, 7.550%,
1/15/2018		      686,342
           
          Total Asset-Backed Securities
(identified cost $14,999,228)		      15,326,846
        Collateralized Mortgage Obligations — 9.9%
        Federal Home Loan Mortgage Corporation — 0.8%
1,002,607      6.050%, 9/15/2020, Series 1818,
Class A		      1,016,373
        Government National Mortgage Association —
3.7%
1,600,000      5.950%, 7/20/2024, Series 2001-5,
Class PK		      1,638,240
2,935,209      7.500%, 11/16/2027, Series 2000-
12, Class AC		      3,076,158
           
          Total      4,714,398
        Other Financial — 5.4%
721,163      (8)(9)Capital Asset Research
Funding, Series 1997-A, Class
A, 6.400%, 12/15/2004		      721,163
4,000,000      (8)(9)Criimi Mae CMBS Corp.,
Series 1998-1, Class A2,
6.009%, 6/20/2030		      4,057,706
1,982,865      Securitized Asset Sales, Inc.,
Series 1995-4, Class A5,
7.250%, 11/25/2025		      2,024,317
           
          Total      6,803,186
           
        Total Collateralized Mortgage
Obligations
(identified cost $12,192,144)		      12,533,957
Principal
Amount		    Description      Value
 
        Mortgage Backed-Pass Through Securities —
14.3%
        Federal Home Loan Mortgage Corporation —
0.8%
$247,711      9.000%, 7/1/2014      $262,420
710,407      11.000%, 8/1/2019      800,316
           
          Total      1,062,736
        Federal National Mortgage Association —
13.0%
5,000,001      7.000%, 12/1/2015      5,153,101
4,999,503      7.500%, 9/1/2015      5,188,534
117,895      8.000%, 8/1/2007      120,559
873,441      8.000%, 5/1/2008      906,195
327,056      9.000%, 7/1/2009      346,476
187,296      9.000%, 1/1/2015      203,626
394,158      9.500%, 12/1/2024      431,725
728,792      9.500%, 1/1/2025      798,253
569,082      9.500%, 1/1/2025      623,321
414,873      9.500%, 1/1/2025      454,933
361,605      10.000%, 7/1/2020      401,270
505,470      10.500%, 1/1/2022      559,808
1,040,568      11.000%, 12/1/2015      1,156,331
           
          Total      16,344,132
        Government National Mortgage Association —
0.5%
580,081      9.000%, 12/15/2019      631,564
           
          Total Mortgage Backed-Pass
Through Securities
(identified cost $17,921,904)		      18,038,432
        Corporate Bonds & Notes — 42.3%
        Automotive & Related — 5.7%
1,500,000      Ford Motor Credit Co., Note,
7.500%, 6/15/2003		      1,574,280
2,000,000      Ford Motor Credit Co., Sr. Note,
6.125%, 3/20/2004		      2,050,920
2,000,000      General Motors Acceptance
Corp., Note, 6.380%,
1/30/2004		      2,068,040
1,500,000      General Motors Acceptance
Corp., Sr. Note, 5.750%,
11/10/2003		      1,530,180
           
          Total      7,223,420
        Banks — 2.5%
1,500,000      First Chicago Corp., Sub. Note,
6.875%, 6/15/2003		      1,563,165
1,500,000      NationsBank Corp., 6.125%,
7/15/2004		      1,556,025
           
          Total      3,119,190
        Broker/Dealers — 5.9%
2,000,000      Donaldson, Lufkin and Jenrette
Securities Corp., Note,
6.000%, 12/1/2001		      2,011,780
1,000,000      Goldman Sachs Group, Inc.,
Bond, 7.625%, 8/17/2005		      1,076,950
1,000,000      Merrill Lynch & Co., Inc., Note,
6.800%, 11/3/2003		      1,050,080
1,300,000      Merrill Lynch & Co., Inc., Note,
Series MTNB, 5.350%,
6/15/2004		      1,322,438
1,000,000      Morgan Stanley, Dean Witter &
Co., Unsub., 6.100%,
4/15/2006		      1,024,350
1,000,000      PaineWebber Group, Inc., Note,
6.450%, 12/1/2003		      1,042,890
           
          Total      7,528,488
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Short-Term Income Fund (continued)
 
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Chemicals — 1.6%
$2,000,000      (8)(9)Dow Chemical Co., Note,
Series 144A, 5.250%,
5/14/2004		      $2,030,080
        Electric — 2.0%
3,000,000      (5)TXU Capital, 5.140%,
10/1/2001		      2,516,541
        Energy — 1.6%
2,000,000      Osprey Trust, Sr. Secd. Note,
8.310%, 1/15/2003		      2,067,840
        Federal Home Loan Mortgage Corp. — 4.2%
5,000,000      Federal Home Loan Mortgage
Corp., Note, 7.375%,
5/15/2003		      5,289,000
        Financial Services — 4.1%
750,000      Boeing Capital Corp., Sr. Note,
7.100%, 9/27/2005		      802,575
1,500,000      General Electric Capital Corp.,
Note, 5.375%, 4/23/2004		      1,531,530
1,000,000      General Electric Capital Corp.,
Note, 7.500%, 6/5/2003		      1,056,580
1,000,000      MBNA Global Capital Securities,
Jr. Sub. Deb., 4.478%, 2/1/2027		      756,060
1,000,000      Salomon Smith Barney Holdings,
Inc., Note, 6.250%, 5/15/2003		      1,034,130
           
          Total      5,180,875
        Forest Products & Paper — 0.5%
600,000      Reed Elsevier, Inc., Company
Guarantee, 6.125%, 8/1/2006		      613,458
        Health Care — 1.6%
2,000,000      Abbott Laboratories, Note,
5.125%, 7/1/2004		      2,028,940
        Industrial Services — 0.4%
500,000      Tyco International Group, Note,
5.800%, 8/1/2006		      502,210
        Insurance — 3.1%
1,000,000      Allstate Financial Global, Note,
7.125%, 9/26/2005		      1,065,330
3,000,000      HSB Group, Inc., Company
Guarantee, 4.680%, 7/15/2027		      2,854,080
           
          Total      3,919,410
        Media — 1.7%
1,000,000      AOL Time Warner, Inc., Note,
6.125%, 4/15/2006		      1,021,900
1,000,000      Walt Disney Co., 7.300%,
2/8/2005		      1,058,300
           
          Total      2,080,200
        Metals — 0.6%
760,000      Alcoa, Inc., Note, 5.875%,
6/1/2006		      776,621
        Real Estate — 0.8%
1,000,000      EOP Operating LP, Sr. Note,
6.375%, 2/15/2003		      1,023,980
        Telecommunications — 3.5%
700,000      British Telecommunications PLC,
Note, 7.625%, 12/15/2005		      753,319
1,055,000      Deutsche Telekom AG, Global
Bond, 7.75%, 6/15/2005		      1,124,799
700,000      (8)(9)France
Telecommunications, Note,
Series 144A, 7.200%, 3/1/2006		      739,823
Principal
Amount		    Description      Value
 
        Corporate Bonds & Notes (continued)
        Telecommunications (continued)
$1,000,000      (8)(9)Verizon Global
Funding, Note, Series
144A, 6.750%, 12/1/2005		      $1,051,860
700,000      WorldCom, Inc., Sr. Note,
6.25%, 8/15/2003		      713,678
           
          Total      4,383,479
        Utilities — 0.8%
1,000,000      (8)(9)Potomac Capital
Investment Corp., MTN,
7.550%, 11/19/2001		      1,005,720
        Utilities — Electric — 1.7%
2,000,000      (8)(9)Limestone Electronic
Trust, Sr. Note, 8.625%,
3/15/2003		      2,080,460
           
          Total Corporate Bonds &
Notes (identified cost
$52,694,766)		      53,369,912
        Government Agencies — 4.7%
        Federal Home Loan Bank  — 0.6%
700,000      Federal Home Loan Bank
System, Bond, Series 121,
5.250%, 4/25/2002		      708,547
        Federal Home Loan Mortgage Corporation —
4.1%
5,000,000      Federal Home Loan
Mortgage Corp., Note,
6.625%, 8/15/2002		      5,149,350
           
          Total Government Agencies
(identified cost $5,768,128)		      5,857,897
        Note-Variable — 1.6%
        Financial Services — 1.6%
2,000,000      (5)(8)(9)Lehman Brothers
Holdings, Inc., 4.290%,
9/3/2002 (identified cost
$1,980,300)		      2,005,676
           
        U.S. Treasury Notes — 6.5%
7,000,000      5.500%, 1/31/2003      7,196,560
1,000,000      5.750%, 11/15/2005      1,054,370
           
        Total U.S. Treasury Notes
(identified cost $8,231,797)		      8,250,930
           
        Total Investments in Securities
(identified cost $113,788,267)		      115,383,650
        (3)Repurchase Agreement — 7.7%
9,704,715      Lehman Brothers, Inc.,
3.620%, dated 8/31/2001,
due 9/4/2001 (at
amortized cost)		      9,704,715
           
        Total Investments (identified
cost $123,492,982)		      $125,088,365
           
 
 
Money Market Fund
 
Principal
Amount		    Description      Value
 
        Certificates of Deposit — 2.8%
        Foreign Banks — 2.8%
$25,000,000      Canadian Imperial Bank of
Commerce, NY, 4.235%,
5/16/2002		      $25,001,711
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
Money Market Fund (continued)
 
Principal
Amount		    Description      Value
 
 
        Certificates of Deposit (continued)
        Foreign Banks (continued)
$50,875,000      Credit Agricole Indosuez,
3.665% – 4.610 %,
3/28/2002 – 8/20/2002		      $50,963,440
           
          Total Certificates of Deposit      75,965,151
        (12)Commercial Paper — 5.2%
        Asset-Backed — 2.7%
75,000,000      (8)(9)Tannehill Capital Co.,
3.650%, 10/19/2001		      74,635,000
        Health Care — 2.5%
70,000,000      (8)(9)American Home
Products Corp., 3.540% –
 3.950%, 10/19/2001 –
 10/26/2001		      69,634,167
           
          Total Commercial Paper      144,269,167
        Corporate Bonds — 7.9%
        Banks — 0.5%
13,500,000      Wells Fargo & Co., 6.500%,
9/3/2002		      13,867,000
        Beverages & Foods — 1.8%
50,000,000      (8)(9)Heinz (H.J.) Co.,
6.820%, 11/15/2001		      50,000,000
        Diversified Manufacturing — 0.6%
15,000,000      Siemens Capital Corp.,
8.000%, 6/24/2002		      15,494,619
        Foreign Banks — 0.5%
15,000,000      Commerzbank AG, NY,
4.120%, 5/9/2002		      14,998,973
        Health Care — 0.6%
15,000,000      (8)(9)Lilly (Eli) & Co.,
4.700%, 3/22/2002		      15,000,000
        Mortgage Banking — 0.3%
8,750,000      Countrywide Home Loans,
Inc., 6.900%, 10/2/2001		      8,761,243
        Personal Credit — 2.1%
20,000,000      (8)(9)BMW US Capital LLC,
4.190%, 6/7/2016		      19,988,188
8,000,000      Ford Motor Credit Co.,
7.000%, 9/25/2001		      8,001,548
13,700,000      General Motors Acceptance
Corp., 5.350%, 12/7/2001		      13,706,195
6,180,000      General Motors Acceptance
Corp., 5.500%, 1/14/2002		      6,186,834
9,315,000      General Motors Acceptance
Corp., 6.750%, 2/7/2002		      9,400,456
           
          Total      57,283,221
        Telecommunications — 1.5%
40,000,000      (8)(9)SBC Communications,
Inc., 4.250%, 6/1/2002		      40,000,000
           
          Total Corporate Bonds      215,405,056
        (5)Variable-Rate Notes — 64.4%
        Banks — 9.6%
15,000,000      Bank One Corp., 3.828%,
9/21/2001		      15,001,782
25,500,000      Bank One Corp., 3.870%,
10/26/2001		      25,514,460
10,000,000      Bank One Corp., 4.098%,
9/17/2001		      10,001,369
17,000,000      Bank One, Illinois, N.A.,
3.809%, 10/24/2001		      17,010,001
15,000,000      Huntington National Bank,
3.720%, 11/15/2001		      15,010,666
Principal
Amount		    Description      Value
 
 
        (5)Variable-Rate Notes (continued)
        Banks (continued)
$14,000,000      Huntington National Bank,
4.042%, 9/5/2001		      $14,005,643
4,000,000      Key Bank, N.A., 3.790%,
9/22/2001		      4,001,254
44,000,000      Key Bank, N.A., 3.858%,
9/25/2001		      44,050,912
27,000,000      Key Bank, N.A., 4.008%,
9/18/2001		      27,022,421
15,000,000      Mellon Financial Corp.,
4.219%, 9/14/2001		      15,047,304
45,000,000      National Bank of Commerce,
Memphis, TN, 3.610%,
9/18/2001		      44,999,597
30,580,000      Westpac Banking Co.,
3.705%, 10/26/2001		      30,580,578
           
          Total      262,245,987
        Beverages & Foods — 0.9%
25,000,000      (8)(9)Cargill, Inc., 3.623%,
11/28/2001		      25,028,919
        Broker/Dealers — 11.9%
75,000,000      Bank of America, 3.540%,
11/27/2001		      75,000,000
75,000,000      Bear Stearns Cos., Inc.,
3.953%, 9/5/2001		      75,000,000
75,000,000      Goldman Sachs & Co.,
3.928%, 9/10/2001		      75,000,000
35,000,000      (8)(9)J.P. Morgan & Co.,
Inc., 3.770%, 9/4/2001		      35,000,000
15,000,000      Merrill Lynch & Co., Inc.,
3.640%, 9/20/2001		      15,000,000
10,000,000      Merrill Lynch & Co., Inc.,
3.750%, 10/27/2001		      10,001,161
40,500,000      Merrill Lynch & Co., Inc.,
3.859%, 10/24/2001		      40,570,416
           
          Total      325,571,577
        Construction Equipment — 2.7%
75,000,000      Caterpillar Financial Services
Corp., 3.870%, 10/9/2001		      75,000,000
        Drugs — 2.6%
70,000,000      (8)(9)Bayer Corp., 4.750%,
3/19/2002		      69,993,528
        Insurance — 13.5%
40,000,000      American General Annuity
Insurance Co., 3.561%,
11/20/2001		      40,000,000
20,000,000      American General Finance
Corp., Series E, 4.149%,
9/14/2001		      20,002,244
75,000,000      (8)GE Life and Annuity
Assurance Co., 3.830%,
10/20/2001		      75,000,000
40,000,000      Jackson National Life
Insurance Co., 3.680%,
11/1/2001		      40,000,000
50,000,000      Metropolitan Life Insurance
Co., 3.990%, 9/4/2001		      50,000,000
10,000,000      (8)Monumental Life
Insurance Co., 3.850%,
10/2/2001		      10,000,000
25,000,000      (8)Monumental Life
Insurance Co., 3.860%,
10/2/2001		      25,000,000
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Schedule of Investments 
  
 
Money Market Fund (continued)
 
Principal
Amount		    Description      Value
 
 
        (5)Variable-Rate Notes (continued)
        Insurance (continued)
$40,000,000      (8)Monumental Life
Insurance Co., 3.860%,
9/4/2001		      $40,000,000
20,000,000      (8)(9)Prudential Funding
LCC, 3.660%, 11/16/2001		      20,012,129
50,000,000      (8) Travelers Insurance Co.,
3.850%, 10/1/2001		      50,000,000
           
          Total      370,014,373
        Leasing — 0.9%
25,000,000      Paccar Financial Corp.,
4.054%, 9/4/2001		      25,026,784
        Mortgage Banking — 4.4%
46,000,000      Countrywide Home Loans,
Inc., 3.695%, 11/15/2001		      46,004,652
75,000,000      Homeside Lending, Inc.,
4.075%, 10/9/2001		      75,117,319
           
          Total      121,121,971
        Other Consumer Non-Durables — 2.0%
55,000,000      (8)(9)Unilever Capital
Corp., 3.970%, 9/7/2001		      55,000,000
        Personal Credit — 10.8%
25,000,000      (8)(9)American Honda
Finance Corp., 3.595%,
11/13/2001		      25,000,000
50,000,000      (8)(9)American Honda
Finance Corp., 3.760%,
10/19/2001		      50,000,000
50,000,000      Associates Corp. of North
America, 3.770%,
9/26/2001		      50,000,000
10,000,000      Commerzbank AG, 3.990%,
9/4/2001		      10,000,690
36,400,000      Ford Motor Credit Co.,
3.883%, 10/17/2001		      36,409,995
16,000,000      Ford Motor Credit Co.,
3.890%, 10/15/2001		      16,002,012
12,000,000      General Motors Acceptance
Corp., 3.769%, 11/1/2001		      12,002,654
23,000,000      General Motors Acceptance
Corp., 4.068%, 9/10/2001		      23,008,905
35,500,000      Household Finance Corp.,
3.855%, 9/27/2001		      35,525,744
13,000,000      Household Finance Corp.,
3.890%, 9/26/2001		      13,001,387
25,000,000      Household Finance Corp.,
4.126%, 9/12/2001		      25,028,527
           
          Total      295,979,914
        Retail — 0.5%
15,000,000      Wal-Mart Stores, Inc.,
5.450%, 6/1/2002		      15,131,601
        Telecommunications — 4.6%
50,000,000      BellSouth
Telecommunications,
Inc., 3.970%, 9/4/2001		      50,000,000
75,000,000      Verizon Global Funding,
3.920%, 9/15/2001		      74,988,789
           
          Total      124,988,789
           
          Total Variable-Rate Notes      1,765,103,443
Shares or
Principal
Amount		    Description      Value
 
 
        Mutual Funds — 5.5%
  100,000,000      American Select Cash
Reserve Fund		      $100,000,000
15,668,474      Dreyfus Cash
Management Fund		      15,668,474
34,751,042      Goldman Sachs
Financial Square
Money Market Fund		      34,751,042
           
          Total Mutual Funds
(shares at net asset
value)		      150,419,516
           
          Total Investments in
Securities
(at amortized cost)		      2,351,162,333
        (3) Repurchase Agreements — 13.9%
$ 75,000,000      Deutsche Bank
Financial, Inc.,
3.748%, dated
8/31/2001, due
9/4/2001		      75,000,000
125,000,000      First Union Capital
Markets, Inc., 3.750%,
dated 8/31/2001, due
9/4/2001		      125,000,000
5,767,050      Lehman Brothers, Inc.,
3.620%, dated
8/31/2001, due
9/4/2001		      5,767,050
100,000,000      Morgan Stanley Group,
Inc., 3.748%, dated
8/31/2001, due
9/4/2001		      100,000,000
75,000,000      Salomon Smith Barney,
Inc., 3.738%, dated
8/31/2001, due
9/4/2001		      75,000,000
           
          Total Repurchase
Agreements		      380,767,050
           
          Total Investments
(at amortized cost)		      $2,731,929,383
           
(See Notes which are an integral part of the Financial Statements)
 
 
Notes to Schedules of Investments
Note: The categories of investments are shown as a percentage of net assets for each Fund at August 31, 2001.
 
 (1)
Certain shares or principal amounts are temporarily on loan to unaffiliated broker-dealers.
 
 (2)
Represents the initial deposit within a margin account used to ensure the Fund is able to satisfy the obligations of its outstanding long futures contracts.
 
 (3)
The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on current market prices.
 
 (4)
Non-income producing.
 
 (5)
Current rate and next demand date shown.
 
 (6)
All or a portion of these securities are subject to dollar roll transactions.
 
 (7)
Security held as collateral for future dollar roll transactions.
 
 (8)
Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At August 31, 2001, these securities amounted to $70,183,373, $20,055,586 and $749,291,931, for Marshall Intermediate Bond Fund, Marshall Short-Term Income Fund and Marshall Money Market Fund, which represents 10.9%, 15.9% and 27.4% of net assets, respectively. Included in these amounts, securities which have been deemed liquid amounted to $70,183,373, $20,055,586 and $549,291,931, for Marshall Intermediate Bond Fund, Marshall Short-Term Income Fund and Marshall Money Market Fund, which represents 10.9%, 15.9% and 20.1% of net assets, respectively.
 
 (9)
Denotes a restricted security which has been deemed liquid by criteria approved by the fund’s board of directors.
 
(10)
Current credit ratings are unaudited. Please refer to the Statement of Additional Information for an explanation of the credit ratings.
 
(11)
Securities that are subject to alternative minimum tax represent 9.4% of Intermediate Tax-Free Fund’s portfolio as calculated based upon total portfolio market value.
 
(12)
Each issue shows the rate of discount at the time of purchase.
 
 
The following acronyms are used throughout this report:
 
ADR—American Depositary Receipt
AMBAC—American Municipal Bond Assurance Corporation
AMT—Alternative Minimum Tax
COL—Collateralized
FGIC—Financial Guaranty Insurance Corporation
FRN—Floating Rate Note
FSA—Financial Security Assurance
GDR—Global Depositary Receipt
GNMA—Government National Mortgage Association
GO—General Obligation
GTD—Guaranteed
HFA—Housing Finance Authority
HFDC—Health Facility Development Corporation
IDC—Industrial Development Corporation
INS—Insured
ISD—Independent School District
LT—Limited Tax
MBIA—Municipal Bond Insurance Association
MTN—Medium Term Note
PCA—Pollution Control Authority
PCR—Pollution Control Revenue
PRF—Prerefunded
PSFG—Permanent School Fund Guarantee
REMIC—Real Estate Mortgage Investment Conduit
UT—Unlimited Tax
 
 
Marshall
      Cost of
Investments for
Federal Tax
Purposes
      Gross
Unrealized
Appreciation
for Federal
Tax Purposes
      Gross
Unrealized
Depreciation
for Federal
Tax
Purposes
      Net
Unrealized
Appreciation
(Depreciation)
for Federal
Tax Purposes
Equity Income Fund      $347,796,549        $78,229,644      $9,505,859      $68,723,785  
Large-Cap Growth & Income Fund      298,523,989        105,129,913      12,196,379      92,933,534  
Mid-Cap Value Fund      156,312,443        26,873,803      5,350,567      21,523,236  
Mid-Cap Growth Fund      346,841,200        34,943,192      39,849,353      (4,906,161 )
Small-Cap Growth Fund      113,743,740        11,184,775      9,709,515      1,475,260  
International Stock Fund      381,924,339        18,114,912      42,697,000      (24,582,088 )
Government Income Fund      443,005,257        10,418,047      1,039,448      9,378,599  
Intermediate Bond Fund      617,814,004        13,471,458      3,350,628      10,120,830  
Intermediate Tax-Free Fund      99,304,280        4,449,956      11,492      4,438,464  
Short-Term Income Fund      123,492,982        2,373,096      777,713      1,595,383  
Money Market Fund      2,731,929,383 *      —      —      —  
 
  * at amortized cost.
(See Notes which are an integral part of the Financial Statements)
[THIS PAGE INTENTIONALLY LEFT BLANK ]
August 31, 2001
Statements of Assets and Liabilities
      
       
       
     
 
       Equity
Income
Fund		      Large-Cap
Growth &
Income Fund		      Mid-Cap
Value
Fund		      Mid-Cap
Growth
Fund
      
    
    
    
Assets:                    
        Investments in securities, at value      $405,447,773        $353,665,538        $148,305,735        $297,271,649  
        Investments in repurchase agreements      11,072,561        37,791,985        29,529,944        44,663,390  
        Short-term investments held as collateral for securities
        lending		      326,955        —        9,676,760        24,704,938  
        Cash      —        —        12,386        —  
        Cash denominated in foreign currencies (identified cost,
        $865,015)		      —        —        —        —  
        Income receivable      1,129,509        422,514        170,823        51,714  
        Receivable for investments sold      4,252,303        —        84,070        971,982  
        Receivable for capital stock sold      84,666        218,487        77,862        95,253  
        Receivable for daily variation margin      67,700        135,000        67,275        68,000  
     
     
     
     
  
                Total assets      422,381,467        392,233,524        187,924,855        367,826,926  
Liabilities:                    
        Payable for capital stock redeemed      442,385        97,536        36,231        372,885  
        Payable for income distribution      —        —        —        —  
        Payable for investments purchased      2,410,494        —        2,994,885        5,589,813  
        Payable on collateral due to broker      326,955        —        9,676,760        24,704,938  
        Options written, at value (premium received $542,471)      468,113        —        —        —  
        Net payable for foreign currency exchange contracts      —        —        —        —  
        Payable for dollar roll transactions      —        —        —        —  
        Accrued expenses      454,422        453,658        209,980        390,143  
     
     
     
     
  
                Total liabilities      4,102,369        551,194        12,917,856        31,057,779  
     
     
     
     
  
        Total Net Assets      $418,279,098        $391,682,330        $175,006,999        $336,769,147  
     
     
     
     
  
Net Assets Consist of:                    
        Paid-in-capital      334,105,525        321,034,334        130,214,897        340,790,698  
        Net unrealized appreciation (depreciation) on
        investments, options, futures contracts and foreign
        currency translation		      69,853,144        92,130,458        21,591,977        (2,210,985 )
        Accumulated net realized gain (loss) on investments,
        options, futures contracts and foreign currency
        transactions		      13,709,388        (21,628,752 )      23,157,204        (1,810,566 )
        Undistributed net investment income (loss)      611,041        146,290        42,921        —  
     
     
     
     
  
        Total Net Assets      $418,279,098        $391,682,330        $175,006,999        $336,769,147  
     
     
     
     
  
Net Asset Value, Offering Price and Redemption Proceeds
Per Share		                    
        Investor Class of Shares:                    
        Net Asset Value and Redemption proceeds Per Share      $14.70        $13.75        $12.72        $13.73  
        Offering Price Per Share      $14.70        $13.75        $12.72        $13.73  
        Advisor Class of Shares:                    
        Net Asset Value and Redemption proceeds Per Share      $14.70        $13.75        $12.72        $13.73  
        Offering Price Per Share      $15.60 *      $14.59 *      $13.50 *      $14.57 *
        Institutional Class of Shares:                    
        Net Asset Value and Redemption proceeds Per Share      —        —        —        —  
        Offering Price Per Share      —        —        —        —  
Net Assets:                    
        Investor Class of Shares:      $414,650,706        $386,911,474        $172,718,608        $333,718,256  
        Advisor Class of Shares:      3,628,392        4,770,856        2,288,391        3,050,891  
        Institutional Class of Shares:      —        —        —        —  
     
     
     
     
  
        Total Net Assets      $418,279,098        $391,682,330        $175,006,999        $336,769,147  
     
     
     
     
  
Shares Outstanding:                    
        Investor Class of Shares:      28,205,417        28,143,805        13,576,493        24,309,430  
        Advisor Class of Shares:      246,806        347,032        179,876        222,246  
        Institutional Class of Shares:      —        —        —        —  
     
     
     
     
  
                Total shares outstanding      28,452,223        28,490,837        13,756,369        24,531,676  
     
     
     
     
  
        Investments, at identified cost      $345,698,057        $296,360,805        $155,957,886        $343,150,121  
     
     
     
     
  
 
    *Computation of offering price per share 100/94.25 of net asset value.
  **Computation of offering price per share 100/95.25 of net asset value.
***Computation of offering price per share 100/98.00 of net asset value.
(See Notes which are an integral part of the Financial Statements)
 
n  Marshall Funds
 
     
     
     
     
     
   
 
Small-Cap
Growth
Fund		    International
Stock
Fund		    Government
Income
Fund		    Intermediate
Bond
Fund		    Intermediate
Tax-Free
Fund		    Short-Term
Income
Fund		    Money
Market
Fund
  
  
  
  
  
  
                 
$  99,952,880      $353,217,251      $414,187,785      $597,395,090      $103,742,744      $115,383,650      $2,351,162,333
15,266,120      4,125,000      38,196,071      30,539,744      —      9,704,715      380,767,050
 
16,800,967      24,543,972      141,678,023      52,341,960      —      —      —
13,141      296      —      689      —      —      36,151
 
—      884,642      —      —      —      —      —
3,035      956,896      1,714,084      7,378,665      1,185,908      1,277,336      18,482,726
1,020,596      436,293      —      11,941,366      1,355,000      —      —
103,862      1,342,286      183,224      398,036      —      62,667      24,474,207
—      —      —      —      —      —      —
    
    
    
    
    
    
133,160,601      385,506,636      595,959,187      699,995,550      106,283,652      126,428,368      2,774,922,467
 
34,141      279,838      175,130      1,626,369      6,567      15,576      27,990,116
—      —      730,619      1,493,598      303,325      245,010      6,204,482
8,361,982      595,935      —      —      3,618,450      —      —
16,800,967      24,543,972      141,678,023      52,341,960      —      —      —
—      —      —      —      —      —      —
—      901      —      —      —      —      —
—      —      70,307,328      —      —      —      —
167,776      515,061      308,841      440,970      55,647      62,929      1,128,438
    
    
    
    
    
    
25,364,866      25,935,707      213,199,941      55,902,897      3,983,989      323,515      35,323,036
    
    
    
    
    
    
$107,795,735      $359,570,929      $382,759,246      $644,092,653      $102,299,663      $126,104,853      $2,739,599,431
    
    
    
    
    
    
                 
101,383,009      430,783,233      382,224,525      660,909,567      99,042,265      131,494,394      2,739,745,253
 
4,850,810      (23,251,038)      9,378,599      10,120,830      4,438,464      1,595,383      —
 
1,561,916      (44,921,352)      (8,844,143 )    (26,942,213 )    (1,180,662 )    (6,984,906 )    (145,822)
—      (3,039,914)      265      4,469      (404 )    (18 )    —
    
    
    
    
    
    
$107,795,735      $359,570,929      $382,759,246      $644,092,653      $102,299,663      $126,104,853      $2,739,599,431
    
    
    
    
    
    
                 
                 
 
$12.59      $10.73      $9.53      $9.51      $10.35      $9.54      $1.00
$12.59      $10.73      $9.53      $9.51      $10.35      $9.54      $1.00
                 
$12.59      $10.73      $9.53      $9.51      —      $9.54      $1.00
$13.36 *    $11.38 *    $10.01 **    $9.98 **    —      $9.73 ***    $1.00
                 
—      $10.77      —      —      —      —      $1.00
—      $10.77      —      —      —      —      $1.00
                           
$105,397,077      $246,648,959      $380,308,214      $640,862,989      $102,299,663      $126,008,027      $1,697,199,868
2,398,658      3,554,574      2,451,032      3,229,664      —      96,826      127,706,938
—      109,367,396      —      —      —      —      914,692,625
    
    
    
    
    
    
$107,795,735      $359,570,929      $382,759,246      $644,092,653      $102,299,663      $126,104,853      $2,739,599,431
    
    
    
    
    
    
                 
8,370,005      22,993,694      39,894,583      67,386,726      9,883,205      13,214,175      1,697,296,816
190,490      331,367      257,118      339,600      —      10,155      127,718,962
—      10,152,371      —      —      —      —      914,729,475
    
    
    
    
    
    
8,560,495      33,477,432      40,151,701      67,726,326      9,883,205      13,224,330      2,739,745,253
    
    
    
    
    
    
$110,368,190      $380,629,762      $443,005,257      $617,814,004      $  99,304,280      $123,492,982      $2,731,929,383
    
    
    
    
    
    
 
Year Ended August 31, 2001
Statements of Operations
    
    
    
    
    
       Equity
Income
Fund
      Large-Cap
Growth & Income
Fund
      Mid-Cap
Value
Fund
      Mid-Cap
Growth
Fund
      Small-Cap
Growth
Fund
Investment Income:
        Interest income      $      710,422        $    1,718,298        $      721,989        $    2,507,482        $      933,707  
        Dividend income      9,020,064 (1)      3,667,582 (1)      1,194,329 (1)      677,644        132,276 (1)
     
     
     
     
     
  
                Total income      9,730,486        5,385,880        1,916,318        3,185,126        1,065,983  
     
     
     
     
     
  
Expenses:
        Investment adviser fee      3,235,950        3,303,427        982,930        2,993,863        1,110,283  
        Shareholder services fees—
            Investor Class of Shares      1,071,378        1,090,102        323,669        990,584        272,656  
            Advisor Class of Shares      7,272        11,041        3,974        7,370        4,915  
        Administrative fees      412,653        420,778        123,211        381,328        105,181  
        Custodian fees      68,146        69,046        26,212        64,918        22,206  
        Portfolio accounting fees      102,937        102,557        57,694        98,195        57,282  
        Transfer and dividend disbursing agent fees      141,039        151,397        107,546        114,224        100,518  
        Registration fees      28,078        19,383        30,965        27,800        20,360  
        Auditing fees      14,483        14,483        14,482        14,483        14,482  
        Legal fees      4,323        4,223        4,279        4,323        4,279  
        Printing and postage      22,772        29,334        19,469        25,291        20,493  
        Directors’ fees      5,455        5,455        5,455        5,455        5,455  
        Insurance premiums—
            E&O/D&O      1,980        2,226        969        2,299        1,117  
            Default Insurance      —        —        —        —        —  
        Distribution services fees—
            Advisor Class of Shares      7,272        11,041        3,974        7,370        4,915  
        Miscellaneous      12,772        11,820        4,051        11,482        13,545  
     
     
     
     
     
  
                Total expenses      5,136,510        5,246,313        1,708,880        4,748,985        1,757,687  
     
     
     
     
     
  
Deduct—
        Waiver of investment adviser fee      —        —        —        —        —  
        Waiver of shareholder services fees—                         
            Investor Class of Shares      —        —        —        —        —  
            Advisor Class of Shares      (7,272 )      (11,041 )      (3,974 )      (7,370 )      (4,915 )
     
     
     
     
     
  
                Total Waivers      (7,272 )      (11,041 )      (3,974 )      (7,370 )      (4,915 )
     
     
     
     
     
  
Net expenses      5,129,238        5,235,272        1,704,906        4,741,615        1,752,772  
     
     
     
     
     
  
Net investment income (net operating loss)      4,601,248        150,608        211,412         (1,556,489 )      (686,789 )
     
     
     
     
     
  
Net Realized and Unrealized Gain (Loss) on
Investments, Options, Foreign Currency and
Futures Contracts:
        Net realized gain (loss) on investment
        transactions and options (identified cost basis)		       19,832,156         (17,367,829 )       24,875,839        7,534,050         10,664,839  
        Net realized loss on futures contracts (identified
        cost basis)		      (3,441,318 )      (1,892,744 )      (1,089,843 )      (1,534,067 )      (4,176,868 )
        Net realized loss on foreign currency contracts
        (identified cost basis)		      —        —        —        —        —  
        Net change in unrealized appreciation
        (depreciation) on investments, options,
        futures contracts and foreign currency
        translation		       (11,491,423 )      (108,663,462 )      3,878,691        (188,928,073 )      (46,191,525 )
     
     
     
     
     
  
Net realized and unrealized gain (loss) on
investments, options, foreign currency and
futures contracts		      4,899,415        (127,924,035 )      27,664,687        (182,928,090 )      (39,703,554 )
     
     
     
     
     
  
Change in net assets resulting from operations      $  9,500,663        $(127,773,427 )      $27,876,099        $(184,484,579 )      $(40,390,343 )
     
     
     
     
     
  
 
(1)
Net of foreign taxes withheld of $52,832, $41,333, $3,769, $986 and $832,171.
(2)
Net of dollar roll expense of $1,676,058.

 

(See Notes which are an integral part of the Financial Statements)
 
n  Marshall Funds
 
     
    
    
    
    
International
Stock
Fund
      Government
Income
Fund
      Intermediate
Bond
Fund
      Intermediate
Tax-Free
Fund
      Short-Term
Income
Fund
      Money
Market
Fund
 
     $    1,127,461      $25,946,881 (2)      $41,952,431        $4,660,013        $  8,292,000        $138,533,465  
     6,188,286  (1)    —        —        —        —        —  
  
     
     
     
     
  
     7,315,747      25,946,881        41,952,431        4,660,013        8,292,000        138,533,465  
  
     
     
     
     
  
 
     4,231,619      2,816,490        3,786,559        574,985        743,887        3,734,926  
 
     723,445      934,086        1,571,418        239,577        308,976        4,417,915  
     8,831      4,744        6,315        —        132        305,964  
     397,420      359,874        582,362        95,161        123,125        1,256,944  
     192,783      62,553        88,109        19,166        24,796        273,995  
     135,182      94,947        115,914        50,688        50,903        216,051  
     123,033      140,873        140,817        41,358        46,851        502,514  
     33,626      25,312        26,158        16,813        21,992        112,469  
     14,367      14,367        14,482        14,482        14,482        14,482  
     5,223      4,939        4,424        4,278        4,122        3,294  
     46,328      19,159        16,827        8,570        14,368        49,281  
     5,455      5,455        5,455        5,455        5,455        5,455  
                          
     2,130      1,768        2,589        923        1,012        32,435  
     —      —        —        —        —        230,920  
                          
     8,831      4,744        6,315        —        132        367,157  
     12,707      12,476        16,019        3,336        4,762        41,106  
  
     
     
     
     
  
     5,940,980      4,501,787        6,383,763        1,074,792        1,364,995        11,564,908  
  
     
     
     
     
  
 
     (69,950)      (375,532 )      (378,656 )      (258,743 )      (421,536 )      (1,244,975 )
                          
     —      (859,359 )      (1,445,704 )      (220,411 )      (284,258 )      —  
 
     (8,831)      (4,744 )      (6,315 )      —        (132 )      —  
  
     
     
     
     
  
     (78,781)      (1,239,635 )      (1,830,675 )      (479,154 )      (705,926 )      (1,244,975 )
  
     
     
     
     
  
     5,862,199      3,262,152        4,553,088        595,638        659,069        10,319,933  
  
     
     
     
     
  
     1,453,548      22,684,729        37,399,343        4,064,375        7,632,931        128,213,532  
  
     
     
     
     
  
                          
 
     (43,502,687)      4,584,409        1,466,569        638,957        (937,731 )      (145,822 )
                          
     —      —        —        —        —        —  
 
     (1,316,950)      —        —        —        —        —  
 
     (88,132,643)      8,754,436        22,426,317        3,255,563        5,233,523        —  
  
     
     
     
     
  
 
     (132,952,280)      13,338,845        23,892,886        3,894,520        4,295,792        (145,822 )
  
     
     
     
     
  
     $(131,498,732)      $36,023,574        $61,292,229        $7,958,895        $11,928,723        $128,067,710  
  
     
     
     
     
  
 
 
 
Statements of Changes in Net Assets
 
  
  
     Equity
Income
Fund
    Large-Cap
Growth &
Income Fund
     Year
Ended
August 31,
2001
    Year
Ended
August 31,
2000
    Year
Ended
August 31,
2001
    Year
Ended
August 31,
2000
Increase (Decrease) in Net Assets
Operations—
    Net investment income (net operating loss)    $    4,601,248      $    7,141,771      $        150,608      $        747,912  
    Net realized gain (loss) on investment transactions and options    19,832,156      2,233,598      (17,367,829 )    18,273,661  
    Net realized gain (loss) on futures contracts    (3,441,318 )    (1,956,160 )    (1,892,744 )    835,082  
    Net realized gain (loss) on foreign currency contracts    —      —      —      —  
    Net change in unrealized appreciation (depreciation) of investments, options,
    futures contracts and foreign currency translation		    (11,491,423 )    (26,557,016 )    (108,663,462 )    56,779,442  
     
     
     
     
  
    Change in net assets resulting from operations    9,500,663      (19,137,807 )    (127,773,427 )    76,636,097  
     
     
     
     
  
Distributions to Shareholders—
    Distributions to shareholders from net investment income
        Investor Class of Shares    (4,113,180 )    (7,232,301 )    (387,709 )    (559,340 )
        Advisor Class of Shares    (25,729 )    (21,149 )    (3,696 )    (1,908 )
        Institutional Class of Shares    —      —      —      —  
    Distributions to shareholders from net realized gain on investments
        Investor Class of Shares    (2,914,298 )    (42,937,425 )    (21,253,461 )    (23,537,005 )
        Advisor Class of Shares    (17,420 )    (111,260 )    (199,698 )    (83,328 )
        Institutional Class of Shares    —      —      —      —  
     
     
     
     
  
    Change in net assets resulting from distributions to shareholders    (7,070,627 )    (50,302,135 )    (21,844,564 )    (24,181,581 )
     
     
     
     
  
Capital Stock Transactions—
    Proceeds from sale of shares    58,546,071      51,094,529      61,140,401      108,359,514  
    Net asset value of shares issued to shareholders in payment of distributions
    declared		    4,633,964      45,336,115      21,325,052      23,343,663  
    Cost of shares redeemed    (73,256,581 )    (139,115,322 )    (54,975,248 )    (78,290,306 )
     
     
     
     
  
    Change in net assets resulting from capital stock transactions    (10,076,546 )    (42,684,678 )    27,490,205      53,412,871  
     
     
     
     
  
    Change in net assets    (7,646,510 )    (112,124,620 )    (122,127,786 )    105,867,387  
Net Assets:
    Beginning of period    425,925,608      538,050,228      513,810,116      407,942,729  
     
     
     
     
  
    End of period    $418,279,098      $425,925,608      $391,682,330      $513,810,116  
     
     
     
     
  
Undistributed net investment income (loss) included in net assets at end of period    $       611,041      $       148,702      $       146,290      $       387,087  
     
     
     
     
  
(See Notes which are an integral part of the Financial Statements)
 
n  Marshall Funds
   
  
  
  
  
Mid-Cap
Value Fund
   Mid-Cap
Growth Fund
   Small-Cap
Growth Fund
   International
Stock Fund
   Government
Income
Fund
Year
Ended
August 31,
2001
   Year
Ended
August 31,
2000
   Year
Ended
August 31,
2001
   Year
Ended
August 31,
2000
   Year
Ended
August 31,
2001
   Year
Ended
August 31,
2000
   Year
Ended
August 31,
2001
   Year
Ended
August 31,
2000
   Year
Ended
August 31,
2001
   Year
Ended
August 31,
2000
 
 
   $        211,412    $        951,740      $   (1,556,489 )    $   (2,892,235 )    $     (686,789 )    $   (1,455,845 )    $    1,453,548      $   (1,419,327 )    $  22,684,729      $  21,143,682  
   24,875,839    7,204,028      7,534,050      94,084,907      10,664,839      12,195,721      (43,502,687 )    48,386,644      4,584,409      (6,282,615 )
   (1,089,843 )  (708,544 )    (1,534,067 )    1,161,174      (4,176,868 )    (61,656 )    —      —      —      —  
   —    —      —      —      —      —      (1,316,950 )    42,214      —      —  
 
   3,878,691    1,264,711      (188,928,073 )    119,851,804      (46,191,525 )    46,005,960      (88,132,643 )    34,520,660      8,754,436      6,364,707  
 
    
    
    
    
    
    
    
    
  
   27,876,099    8,711,935      (184,484,579 )    212,205,650      (40,390,343 )    56,684,180      (131,498,732 )    81,530,191      36,023,574      21,225,774  
 
    
    
    
    
    
    
    
    
  
 
 
   (668,603 )   (612,736 )    —      —      —      —      —      (2,733,118 )    (22,613,781 )    (20,983,438 )
   (7,436 )   (3,207 )    —      —      —      —      —      (8,249 )    (110,393 )    (61,948 )
   —    —      —      —      —      —      —      (820,442 )    —      —  
 
   (6,653,072 )   (14,371,836 )    (97,066,185 )    (28,643,051 )    (13,280,301 )    (3,312,795 )    (33,371,017 )    (22,694,282 )    —      —  
   (74,513 )   (74,699 )    (663,495 )    (59,592 )    (201,636 )    (19,849 )    (390,149 )    (67,987 )    —      —  
   —    —      —      —      —      —      (15,060,189 )    (6,274,748 )    —      —  
 
    
    
    
    
    
    
    
    
  
   (7,403,624 )   (15,062,478 )    (97,729,680 )    (28,702,643 )    (13,481,937 )    (3,332,644 )    (48,821,355 )    (32,598,826 )    (22,724,174 )    (21,045,386 )
 
    
    
    
    
    
    
    
    
  
 
   75,859,768    23,950,177      75,745,858      231,402,879      42,699,451      100,142,944      247,575,054      947,444,950      65,432,184      307,099,408  
 
   7,061,197    14,540,874      96,392,588      28,303,949      13,289,856      3,289,762      47,791,410      30,622,693      14,045,043      12,678,694  
   (36,009,370 )   (53,448,476 )    (97,686,196 )    (196,206,036 )    (55,428,320 )    (99,062,882 )    (243,821,846 )    (809,396,336 )    (68,738,231 )    (279,275,501 )
 
    
    
    
    
    
    
    
    
  
   46,911,595    (14,957,425 )    74,452,250      63,500,792      560,987      4,369,824      51,544,618      168,671,307      10,738,996      40,502,601  
 
    
    
    
    
    
    
    
    
  
   67,384,070    (21,307,968 )    (207,762,009 )    247,003,799      (53,311,293 )    57,721,360      (128,775,469 )    217,602,672      24,038,396      40,682,989  
 
   107,622,929    128,930,897      544,531,156      297,527,357      161,107,028      103,385,668      488,346,398      270,743,726      358,720,850      318,037,861  
 
    
    
    
    
    
    
    
    
  
   $175,006,999    $107,622,929      $336,769,147      $544,531,156      $107,795,735      $161,107,028      $359,570,929      $488,346,398      $382,759,246      $358,720,850  
 
    
    
    
    
    
    
    
    
  
   $          42,921    $       507,577      $                —      $                —      $                —      $                —      $   (3,039,914 )    $   (3,817,818 )    $             265      $       (28,501 )
 
    
    
    
    
    
    
    
    
  
 
 
Statements of Changes in Net Assets
      
 
       Intermediate
Bond
Fund
       Year Ended
August 31,
2001
      Year Ended
August 31,
2000
Increase (Decrease) in Net Assets
Operations—
        Net investment income      $  37,399,343        $  37,991,992  
        Net realized gain (loss) on investment transactions      1,466,569        (3,684,098 )
        Net change in unrealized appreciation (depreciation) of investments      22,426,317        2,420,621  
     
     
  
                Change in net assets resulting from operations      61,292,229        36,728,515  
     
     
  
Distributions to Shareholders—
        Distributions to shareholders from net investment income
                Investor Class of Shares      (37,280,833 )      (37,717,011 )
                Advisor Class of Shares      (143,096 )      (94,507 )
                Institutional Class of Shares      —        —  
     
     
  
        Change in net assets resulting from distributions to shareholders      (37,423,929 )      (37,811,518 )
     
     
  
Capital Stock Transactions—
        Proceeds from sale of shares      161,319,013        119,622,028  
        Net asset value of shares issued to shareholders in payment of distributions declared      17,371,080        16,258,636  
        Cost of shares redeemed      (173,414,101 )      (119,772,442 )
     
     
  
                Change in net assets resulting from capital stock transactions      5,275,992        16,108,222  
     
     
  
                Change in net assets      29,144,292        15,025,219  
Net Assets:
        Beginning of period      614,948,361        599,923,142  
     
     
  
        End of period      $644,092,653        $614,948,361  
     
     
  
Undistributed net investment income (loss) included in net assets at end of period      $            4,469        $          (5,988 )
     
     
  
 
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
Intermediate
Tax-Free
Fund
  
Short-Term
Income
Fund
  
Money
Market
Fund
Year Ended
August 31,
2001
   Year Ended
August 31,
2000
   Year Ended
August 31,
2001
   Year Ended
August 31,
2000
   Year Ended
August 31,
2001
   Year Ended
August 31,
2000
 
$    4,064,375      $    4,360,787      $    7,632,931      $    8,624,412      $    128,213,532    $    107,507,525  
638,957      (1,398,605 )    (937,731 )    (961,032 )    (145,822)    —  
3,255,563      2,117,750      5,233,523      (1,939,514 )    —    —  
    
    
    
    
 
  
7,958,895      5,079,932      11,928,723      5,723,866      128,067,710    107,507,525  
    
    
    
    
 
  
 
(4,064,724 )    (4,360,917 )    (7,653,555 )    (8,574,095 )    (92,313,480)    (97,455,147 )
—      —      (3,006 )    —      (6,001,217)    (7,473,721 )
—      —      —      —      (29,898,835)    (2,578,657 )
    
    
    
    
 
  
(4,064,724 )    (4,360,917 )    (7,656,561 )    (8,574,095 )    (128,213,532)    (107,507,525 )
    
    
    
    
 
  
 
18,030,777      11,329,789      42,309,425      149,710,835      9,007,684,945    6,665,307,146  
379,104      353,560      4,317,480      4,863,722      30,419,965    29,925,093  
(15,558,697 )    (25,580,540 )    (47,297,424 )     (164,163,724 )     (8,357,725,162)     (6,417,958,941 )
    
    
    
    
 
  
2,851,184      (13,897,191 )    (670,519 )    (9,589,167 )    680,379,748    277,273,298  
    
    
    
    
 
  
6,745,355      (13,178,176 )    3,601,643      (12,439,396 )    680,233,926    277,273,298  
 
95,554,308       108,732,484      122,503,210      134,942,606      2,059,365,505    1,782,092,207  
    
    
    
    
 
  
$102,299,663      $  95,554,308      $126,104,853      $122,503,210      $  2,739,599,431    $  2,059,365,505  
    
    
    
    
 
  
$              (404 )    $              340      $                (18 )    $          25,588      $                    —    $                    —  
    
    
    
    
 
  
Financial Highlights—Investor Class of Shares (For a share outstanding throughout each period)
 
Period Ended
August 31,
   Net asset
value,
beginning
of period
   Net
investment
income
(operating
loss)
   Net realized and
unrealized
gain/(loss) on
investments,
options, futures
contracts and
foreign currency
   Total from
investment
operations
   Distributions to
shareholders
from net
investment
income
   Distributions to
shareholders from
net realized gain
on investments,
options, futures
contracts, and
foreign currency
   Total
distributions
   Net asset
value, end
of period
   Total
return(1)
   Ratios to Average Net Assets
   Net assets,
end of
period
(000 omitted)
   Portfolio
turnover
rate
  Expenses
   Net
investment
income/
(net operating
loss)
   Expense
waiver(2)
Equity Income Fund
1997   $13.00   0.33     3.51     3.84     (0.34 )   (0.86 )   (1.20 )   $15.64   30.95%   1.22%     2.31%     —       $    331,730   61%
1998   $15.64   0.31     (0.19 )(3)   0.12     (0.32 )   (1.27 )   (1.59 )   $14.17   0.04%   1.17%     2.01%     —       $    458,865   69%
1999   $14.17   0.28     3.59     3.87     (0.29 )   (1.04 )   (1.33 )   $16.71   27.92%   1.17%     1.73%     —       $    537,295   72%
2000   $16.71   0.23     (0.73 )   (0.50 )   (0.23 )   (1.36 )   (1.59 )   $14.62   (2.80)%   1.16%     1.54%     —       $    423,845   98%
2001   $14.62   0.16     0.16     0.32     (0.14 )   (0.10 )   (0.24 )   $14.70   2.20%   1.19%     1.07%     —       $    414,651   78%
Large-Cap Growth & Income Fund
1997   $12.16   0.10     3.76     3.86     (0.12 )   (1.94 )   (2.06 )   $13.96   34.50%   1.23%     0.78%     —       $    269,607   43%
1998   $13.96   0.06     0.46     0.52     (0.06 )   (1.18 )   (1.24 )   $13.24   3.44%   1.21%     0.40%     —       $    274,821   33%
1999   $13.24   0.06     5.01     5.07     (0.06 )   (0.77 )   (0.83 )   $17.48   38.98%   1.20%     0.32%     —       $    407,031   32%
2000   $17.48   0.03     2.72     2.75     (0.02 )   (0.99 )   (1.01 )   $19.22   16.35%   1.18%     0.16%     —       $    510,195   71%
2001   $19.22   0.01     (4.66 )   (4.65 )   (0.01 )   (0.81 )   (0.82 )   $13.75   (24.79)%   1.19%     0.03%     —       $    386,911   63%
Mid-Cap Value Fund
1997   $11.98   0.15     3.05     3.20     (0.15 )   (1.89 )   (2.04 )   $13.14   30.20%   1.23%     1.20%     —       $    145,143   55%
1998   $13.14   0.10     (0.92 )   (0.82 )   (0.12 )   (1.95 )   (2.07 )   $10.25   (7.75)%   1.25%     0.96%     —       $    134,620   59%
1999   $10.25   0.11     2.10     2.21     (0.12 )   (0.94 )   (1.06 )   $11.40   21.92%   1.25%     0.96%     —       $    128,575   90%
2000   $11.40   0.09     0.79     0.88     (0.05 )   (1.38 )   (1.43 )   $10.85   9.29%   1.33%     0.86%     —       $    106,569   94%
2001   $10.85   0.02     2.62     2.64     (0.07 )   (0.70 )   (0.77 )   $12.72   25.80%   1.30%     0.16%     —       $    172,719   104%
Mid-Cap Growth Fund
1997   $13.56   (0.08 )   2.56     2.48     —     (1.22 )   (1.22 )   $14.82   19.14%   1.24%     (0.52)%     —       $    196,983   211%
1998   $14.82   (0.13 )   (0.93 )   (1.06 )   —     (1.81 )   (1.81 )   $11.95   (8.77)%   1.23%     (0.79)%     —       $    187,388   167%
1999   $11.95   (0.11 )   6.26     6.15     —     (0.82 )   (0.82 )   $17.28   53.41%   1.21%     (0.73)%     —       $    297,249   173%
2000   $17.28   (0.16 )(4)   12.00     11.84     —     (1.69 )   (1.69 )   $27.43   71.91%   1.18%     (0.66)%     —       $    541,805   108%
2001   $27.43   (0.06 )(4)   (8.67 )   (8.73 )   —     (4.97 )   (4.97 )   $13.73   (34.17)%   1.19%     (0.39)%     —       $    333,718   118%
Small-Cap Growth Fund
1997(5)   $10.00   (0.08 )   2.27     2.19     —     —     —     $12.19   21.90%   1.80% (6)   (0.94)% (6)   —       $      56,425   183%
1998   $12.19   (0.22 )   (1.66 )   (1.88 )   —     (0.49 )   (0.49 )   $ 9.82   (16.25)%   1.60%     (1.18)%     —       $      79,858   139%
1999   $ 9.82   (0.11 )   2.69     2.58     —     (0.02 )   (0.02 )   $12.38   26.30%   1.59%     (0.90)%     —       $    102,992   219%
2000   $12.38   (0.18 )(4)   7.03     6.85     —     (0.41 )   (0.41 )   $18.82   56.14%   1.59%     (1.03)%     —       $    159,336   105%
2001   $18.82   (0.08 )(4)   (4.52 )   (4.60 )   —     (1.63 )   (1.63 )   $12.59   (24.23)%   1.58%     (0.62)%     —       $    105,397   287%
International Stock Fund
1997   $11.08   0.18     2.29     2.47     (0.26 )   (0.09 )   (0.35 )   $13.20   22.73%   1.59%     1.80%     —       $    226,849   26%
1998   $13.20   0.26     (1.42 )   (1.16 )   (0.21 )   (0.29 )   (0.50 )   $11.54   (9.09)%   1.49%     2.01%     —       $    225,248   24%
1999   $11.54   0.09     2.45     2.54     (0.25 )   —     (0.25 )   $13.83   22.20%   1.51%     0.79%     0.01%   $    270,315   182%
2000   $13.83   (0.07 )(4)   4.09     4.02     (0.16 )   (1.36 )   (1.52 )   $16.33   28.09%   1.50%     (0.40)%     0.02%   $    351,242   225%
2001   $16.33   0.03 (4)   (4.02 )   (3.99 )   —     (1.61 )   (1.61 )   $10.73   (26.36)%   1.46%     0.25%     0.02%   $    246,649   156%

 

(See Notes which are an integral part of the Financial Statements)

Financial Highlights—Investor Class of Shares (For a share outstanding throughout each period)
 
Period Ended
August 31,
   Net asset
value,
beginning
of period
   Net
investment
income
(operating
loss)
   Net realized and
unrealized
gain/(loss) on
investments,
options, futures
contracts and
foreign currency
   Total from
investment
operations
   Distributions to
shareholders
from net
investment
income
   Distributions to
shareholders from
net realized gain
on investments,
options, futures
contracts and
foreign currency
   Total
distributions
   Net asset
value, end
of period
   Total
return(1)
   Ratios to Average Net Assets
   Net assets,
end of
period
(000 omitted)
   Portfolio
turnover
rate
  Expenses
   Net
investment
income/
(net operating
loss)
   Expense
waiver(2)
Government Income Fund
1997   $  9.27   0.62   0.22     0.84   (0.62 )   —     (0.62 )   $  9.49   9.35%   0.86%   6.62%   0.38%   $    203,642   299%
1998   $  9.49   0.61   0.21     0.82   (0.61 )   —     (0.61 )   $  9.70   8.92%   0.87%   6.38%   0.34%   $    280,313   353%
1999   $  9.70   0.54   (0.48 )   0.06   (0.54 )   —     (0.54 )   $  9.22   0.62%   0.86%   5.69%   0.33%   $    317,284   232%
2000   $  9.22   0.57   (0.02 )   0.55   (0.57 )   —     (0.57 )   $  9.20   6.20%   0.85%   6.28%   0.33%   $    357,229   192%
2001   $  9.20   0.57   0.33     0.90   (0.57 )   —     (0.57 )   $  9.53   10.02%   0.87%   6.04%   0.33%   $    380,308   122%
Intermediate Bond Fund
1997   $  9.26   0.58   0.18     0.76   (0.58 )   —     (0.58 )   $  9.44   8.42%   0.72%   6.17%   0.31%   $    398,234   144%
1998   $  9.44   0.58   0.16     0.74   (0.58 )   —     (0.58 )   $  9.60   8.00%   0.71%   6.02%   0.29%   $    589,669   148%
1999   $  9.60   0.55   (0.43 )   0.12   (0.55 )   —     (0.55 )   $  9.17   1.28%   0.71%   5.85%   0.28%   $    598,970   181%
2000   $  9.17   0.57   (0.01 )   0.56   (0.57 )   —     (0.57 )   $  9.16   6.35%   0.70%   6.31%   0.29%   $    612,980   243%
2001   $  9.16   0.55   0.35     0.90   (0.55 )   —     (0.55 )   $  9.51   10.14%   0.72%   5.93%   0.29%   $    640,863   273%
Intermediate Tax-Free Fund
1997   $  9.83   0.43   0.21     0.64   (0.43 )   —     (0.43 )   $10.04   6.67%   0.61%   4.35%   0.54%   $      88,108   53%
1998   $10.04   0.43   0.29     0.72   (0.43 )   —     (0.43 )   $10.33   7.31%   0.61%   4.22%   0.51%   $    101,592   68%
1999   $10.33   0.42   (0.41 )   0.01   (0.42 )   (0.07 )   (0.49 )   $  9.85   0.02%   0.61%   4.11%   0.48%   $    108,732   53%
2000   $  9.85   0.43   0.10     0.53   (0.43 )   —     (0.43 )   $  9.95   5.58%   0.60%   4.43%   0.49%   $      95,554   71%
2001   $  9.95   0.43   0.40     0.83   (0.43 )   —     (0.43 )   $10.35   8.52%   0.62%   4.24%   0.50%   $    102,300   51%
Short-Term Income Fund
1997   $  9.59   0.63   0.04     0.67   (0.62 )   —     (0.62 )   $  9.64   7.20%   0.49%   6.46%   0.59%   $    148,781   101%
1998   $  9.64   0.61   (0.03 )   0.58   (0.61 )   —     (0.61 )   $  9.61   6.22%   0.50%   6.40%   0.55%   $    133,186   90%
1999   $  9.61   0.55   (0.21 )   0.34   (0.55 )   —     (0.55 )   $  9.40   3.59%   0.51%   5.74%   0.56%   $    134,943   163%
2000   $  9.40   0.60   (0.19 )   0.41   (0.60 )   —     (0.60 )   $  9.21   4.46%   0.50%   6.43%   0.57%   $    122,503   72%
2001   $  9.21   0.58   0.33     0.91   (0.58 )   —     (0.58 )   $  9.54   10.16%   0.53%   6.16%   0.57%   $    126,008   79%
Money Market Fund
1997   $  1.00   0.05   —     0.05   (0.05 )   —     (0.05 )   $  1.00   5.35%   0.41%   5.22%   0.26%   $1,290,659   —    
1998   $  1.00   0.05   —     0.05   (0.05 )   —     (0.05 )   $  1.00   5.51%   0.41%   5.37%   0.25%   $1,588,817   —    
1999   $  1.00   0.05   —     0.05   (0.05 )   —     (0.05 )   $  1.00   4.98%   0.41%   4.86%   0.25%   $1,663,740   —    
2000   $  1.00   0.06   —     0.06   (0.06 )   —     (0.06 )   $  1.00   5.88%   0.44%   5.73%   0.16%   $1,776,669   —    
2001   $  1.00   0.05   —     0.05   (0.05 )   —     (0.05 )   $  1.00   5.32%   0.46%   5.22%   0.05%   $1,697,200   —    
         
(1) 
(2)

(3)   		Based on net asset value.
This voluntary expense decrease is reflected in both the expense and net investment income (net operating loss) ratios shown.
The amount shown in this caption for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments, options, futures contracts and foreign currency for the period ended due to the timing of sales and repurchases of Fund shares in relation to fluctuating market values of the investments of the Fund. 		  (4)
(5)
(6) 
Per share information is based on average shares outstanding.
Reflects operations for the period from September 3, 1996 (date of initial public investment) to August 31, 1997.
Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)
 
August 31, 2001
Notes to Financial Statements

1.  Organization
 
        Marshall Funds, Inc. (the “Corporation”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Corporation consists of eleven diversified portfolios (individually referred to as the “Fund”, or collectively as the “Funds”) which are presented herein:
 
Portfolio Name
     Investment Objective
Marshall Equity Income Fund (“Equity Income Fund”)   To provide capital appreciation and above-average
    dividend income.
Marshall Large-Cap Growth & Income Fund (“Large-Cap
    Income Fund”)		      To provide capital appreciation and income.
Marshall Mid-Cap Value Fund (“Mid-Cap Value Fund”)      To provide capital appreciation.
Marshall Mid-Cap Growth Fund (“Mid-Cap Growth Fund”)      To provide capital appreciation.
Marshall Small-Cap Growth Fund (“Small-Cap Growth Fund”)      To provide capital appreciation.
Marshall International Stock Fund (“International Stock Fund”)      To provide capital appreciation.
Marshall Government Income Fund (“Government Income
    Fund”)		      To provide current income.
Marshall Intermediate Bond Fund (“Intermediate Bond
    Fund”)		      To maximize total return consistent with current income.
Marshall Intermediate Tax-Free Fund (“Intermediate Tax-Free
    Fund”)		      To provide a high level of current income that is exempt from
    federal income tax and is consistent with preservation
    of capital.
Marshall Short-Term Income Fund (“Short-Term Income
    Fund”)		      To maximize total return consistent with current income.
Marshall Money Market Fund (“Money Market Fund”)      To provide current income consistent with stability of
    principal.
 
        The Funds (except Intermediate Tax-Free Fund) are offered in two classes of shares: Investor Class of Shares and Advisor Class of Shares. International Stock Fund and Money Market Fund offer three classes of shares: Investor Class of Shares, Advisor Class of Shares and Institutional Class of Shares. Effective October 31, 2000, Short-Term Income Fund began offering a second class of shares, Advisor Class of Shares. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. The Financial Highlights of Advisor Class of Shares and Institutional Class of Shares of the Funds are presented in separate annual reports.
 
2.  Significant Accounting Policies
 
        The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with accounting principles generally accepted in the United States.
 
        Investment Valuations—Listed equity securities are valued at the last sale price reported on a national securities exchange. U.S. government securities, listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Municipal bonds are valued by an independent pricing service, taking into consideration yield, liquidity, risk, credit quality, coupon, maturity, type of issue, and any other factors or market data the pricing service deems relevant. Money Market Fund’s use of the amortized cost method to value portfolio securities is in accordance with Rule 2a-7 under the Act. For fluctuating net asset value Funds within the Corporation, short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities purchased with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Directors (the “Directors”).
 
        Repurchase Agreements—It is the policy of the Funds to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank’s vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Funds to monitor, on a daily basis, the market value of each repurchase agreement’s collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement, including accrued interest.
 
        The Funds will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Funds’ adviser (or sub-adviser with respect to International Stock Fund) to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Directors. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Funds could receive less than the repurchase price on the sale of collateral securities.
 
 
n  Marshall Funds
        Investment Income, Expenses and Distributions—Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the “Code”). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair market value. The Funds offer multiple classes of shares (except Intermediate Tax-Free Fund), which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Funds based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
 
        In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the “Guide”). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Funds does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
 
        Reclassification—Income and capital gain distributions are determined in accordance with income tax regulations which differ from generally accepted accounting principles. These differences are primarily attributable to differing book/tax treatments of net operating loss and foreign currency transactions. Amounts as of August 31, 2001 have been reclassed to reflect the following:
 
      Increase (Decrease)
 
Fund Name
  		 Paid-in Capital
     Accumulated Net
Realized Gain (Loss)
     Undistributed Net
Investment Income
    
Equity Income Fund    $      26,960      $    (26,960 )    $            —  
Mid-Cap Value Fund    —      29      (29 )
Mid-Cap Growth Fund     (404,091 )    (1,152,398 )     1,556,489  
Small-Cap Growth Fund    1,263,166       (1,949,955 )    686,789  
International Stock Fund     (3,797,658 )     4,473,302      (675,644 )
Government Income Fund    (70,024 )    1,813      68,211  
Intermediate Bond Fund    (35,043 )    —      35,043  
Intermediate Tax-Free Fund    395      —      (395 )
Short-Term Income Fund    2      1,974      (1,976 )
 
        Net investment income, net realized gains (losses) and net assets were not affected by this reclassification.
 
        Federal Taxes—It is the Funds’ policy to comply with the provisions of Subchapter M of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of their income. Accordingly, no provisions for federal tax are necessary.
 
        Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates.
 
        At August 31, 2001, the following Funds had capital loss carryforwards for federal tax purposes, which will reduce each Fund’s taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve each Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforwards will expire as listed below:
 
Fund
    Capital Loss
Carryforward
to Expire in
2002
    Capital Loss
Carryforward
to Expire in
2003
    Capital Loss
Carryforward
to Expire in
2004
    Capital Loss
Carryforward
to Expire in
2005
    Capital Loss
Carryforward
to Expire in
2006
    Capital Loss
Carryforward
to Expire in
2007
    Capital Loss
Carryforward
to Expire in
2008
    Capital Loss
Carryforward
to Expire in
2009
    Total Capital
Loss
Carryforward
Large Cap
Growth &
Income
Fund		    $        —    $              —    $            —    $        —    $        —    $        —    $            —    $4,529,087    $  4,529,087
International
Stock
Fund		    —    —    —    —    —    —    —    2,042,934    2,042,934
Government
Income
Fund		    —    —    —    —    —    —    8,704,539    —    8,704,539
Intermediate
Bond
Fund		    —     10,386,677     6,100,494    —    —    —     2,990,074    —     19,477,245
Intermediate
Tax-Free
Fund		    —    —    —    —    —    —    529,729    650,932    1,180,661
Short-Term
Income
Fund		     302,405    1,898,650    556,158     545,815     618,371     952,637    222,218    928,524    6,024,778
Notes to Financial Statements (continued)
 
        Additionally, the following net capital losses or currency losses attributable to security transactions incurred after October 31, 2000 are treated as arising on September 1, 2001, the first day of each Fund’s next taxable year:
 
 
Fund
     Capital Loss
     Currency
Loss
Large Cap Growth & Income Fund      $ 17,902,739      —
International Stock Fund      41,583,841      $3,039,914
Government Income Fund      139,722      —
Intermediate Bond Fund      7,468,389      —
Short-Term Income Fund      966,080      —
Money Market Fund      145,822      —
 
 
        When-Issued and Delayed Delivery Transactions—The Funds may engage in when-issued or delayed delivery transactions. The Funds record when-issued securities on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
 
        Futures Contracts—Equity Income Fund, Large-Cap Growth & Income Fund, Mid-Cap Value Fund, Mid-Cap Growth Fund and Small-Cap Growth Fund purchase stock index futures contracts to manage cashflows, enhance yield, and to potentially reduce transaction costs. Upon entering into a stock index futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with changes in the value of the underlying securities.
 
        At August 31, 2001, Small-Cap Growth Fund had no outstanding futures contracts.
 
        At August 31, 2001, the Equity Income Fund had outstanding futures contracts as set forth below:
 
Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    51 S&P 500    Long    $(1,043,491 )
 
        At August 31, 2001, the Large-Cap Growth & Income Fund had outstanding futures contracts as set forth below:
 
Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    100 S&P 500    Long    $(2,966,260 )
 
        At August 31, 2001, the Mid-Cap Value Fund had outstanding futures contracts as set forth below:
 
Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    39 S&P 400    Long    $(285,816 )
 
        At August 31, 2001, the Mid-Cap Growth Fund had outstanding futures contracts as set forth below:
 
Expiration Date
   Contracts to Receive
   Position
   Unrealized
Depreciation
September 2001    40 NASDAQ 100    Long    $(995,903 )
 
        Written Options Contracts—Equity Income Fund may write option contracts. A written option obligates the Fund to deliver a call, or to receive a put, for the contract amount upon exercise by the holder of the option. The value of the option contract is recorded as a liability and unrealized gain or loss is measured by the difference between the current value and the premium received. For the year ended August 31, 2001, the Equity Income Fund had $2,159,230 in realized gains on written options.
 
 
n  Marshall Funds
        The following is a summary of the Equity Income Fund’s written option activity:
 
 
Contracts
    Number of
Contracts
    Premium
Outstanding @ 8/31/00    1,495      $    435,625  
Options written    49,440      3,843,715  
Options expired    (28,025 )    (2,348,572 )
Options closed    (12,420 )     (1,388,297 )
    
    
  
Outstanding @ 8/31/01    10,490      $    542,471  
 
 
        At August 31, 2001, the Equity Income Fund had the following outstanding options:
 
 
Contract
     Type
      Expiration Date
      Exercise
Price
      Number of
Contracts
      Market
Value
      Unrealized
Appreciation
(Depreciation)
New York Times Co.      Call      October 2001      $50.00      250      $3,750      $  20,499  
Baker Hughes Inc.      Put      October 2001      30.00      500      47,500      (6,001 )
Bear Stearns Cos., Inc.      Put      October 2001      40.00      225      5,063      3,712  
Bellsouth Corp.      Put      October 2001      35.00      520      26,000      (521 )
Boeing Co.      Put      September 2001      50.00      400      40,000      (2,051 )
Burlington Resources Inc.      Put      September 2001      35.00      500      22,500      (3,001 )
Du Pont (E.I. De Nemours)      Put      October 2001      35.00      500      10,000      11,999  
El Paso Corp.      Put      September 2001      40.00      350      5,250      15,049  
Enron Corp.      Put      October 2001      30.00      1,000      77,500      (21,502 )
Ford Motor Co.      Put      September 2001      20.00      700      42,000       (18,201 )
General Electric Co.      Put      September 2001      37.50      500      16,250      7,749  
Hewlett Packard Co.      Put      September 2001      20.00      500      5,000      21,499  
Hewlett Packard Co.      Put      September 2001      22.50      500      35,000      (10,501 )
Honeywell International Inc.      Put      September 2001      30.00      645      9,675      22,509  
Limited Inc.      Put      November 2001      12.50      800      26,000      13,199  
Motorola Inc.      Put      September 2001      15.00      750      15,000      17,999  
Ryder System Inc.      Put      November 2001      15.00      1,000      17,500      21,499  
Schlumberger Ltd.      Put      September 2001      45.00      600      28,500      299  
TRW Inc.      Put      September 2001      35.00      250      35,625      (19,876 )
                                   
  
Net Unrealized Appreciation on Written Options Contracts      $  74,358  
 
 
        Foreign Exchange Contracts- International Stock Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross hedge against either specific transactions or portfolio positions. The objective of the Fund’s foreign currency hedging transactions is to reduce the risk that the U.S. dollar value of the Fund’s foreign currency denominated securities will decline in value due to changes in foreign currency exchange rates. All foreign currency exchange contracts are “marked-to-market” daily at the applicable translation rates resulting in unrealized gains or losses. Realized gains or losses are recorded at the time the foreign currency exchange contract is offset by entering into a closing transaction or by the delivery or receipt of the currency. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. As of August 31, 2001, International Stock Fund had outstanding foreign currency exchange contracts as set forth below:
 
Settlement Date
    Foreign Currency
Units to
Deliver/Receive
    In Exchange
    Contracts at
Value
    Unrealized
Depreciation
Contract Purchased:
9/1/01      109,954 British Pound Sterling      $        160,533      $          159,642    $                (891 )
Contract Sold:
9/1/01      4,989,130 Korean Won      3,891      3,901    (10 )
                       
  
Net Unrealized Depreciation on Foreign Currency Exchange Contracts    $                (901 )
                   
  
 
Notes to Financial Statements (continued)
 
        Foreign Currency Translation—The accounting records of International Stock Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (“FCs”) are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
 
        Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of FCs, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds’ books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.
 
        Dollar Roll Transactions—The Funds, except for Money Market Fund, may enter into dollar roll transactions, with respect to mortgage securities issued by Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, in which the Funds loan mortgage securities to financial institutions and simultaneously agree to accept substantially similar (same type, coupon and maturity) securities at a later date at an agreed upon price. Dollar roll transactions are short-term financing arrangements which will not exceed twelve months. The Funds will use the proceeds generated from the transactions to invest in short-term investments, which may enhance the Funds’ current yield and total return.
 
        Securities Lending—The Funds participate in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. The Funds receive cash as collateral in return for the securities and record a corresponding payable for collateral due to the respective broker. The amount of cash collateral received is maintained at a minimum level of 100% of the prior day’s market value on securities loaned. Collateral is reinvested in short-term securities including overnight repurchase agreements, commercial paper, master notes, floating rate corporate notes (with at least quarterly reset rates) and money market funds. On May 18, 2000, the Securities and Exchange Commission issued an order to the Marshall Funds that exempts certain securities lending activities from prohibitions under the Act. Under the terms of the exemptive order, (i) the Funds may pay a portion of net revenue to M&I Trust Company for its services as securities lending agent, and (ii) cash collateral received for a loan of one Fund’s securities may be invested jointly with collateral received for loans of other Funds’ securities.
 
        As of August 31, 2001, the value of securities loaned, the payable on collateral due to broker and the value of reinvested cash collateral securities were as follows:
 
Fund
    Market Value of
Securities Loaned
    Payable on Collateral
Due to Broker
    Reinvested Collateral
Securities
Equity Income Fund      $                     318,760      $    326,955      $    326,955
Mid-Cap Value Fund      9,434,218      9,676,760      9,676,760
Mid-Cap Growth Fund      24,085,723      24,704,938      24,704,938
Small-Cap Growth Fund      16,379,861      16,800,967      16,800,967
International Stock Fund      23,928,792      24,543,972      24,543,972
Government Income Fund       138,126,947      141,678,023      141,678,023
Intermediate Bond Fund      51,030,040      52,341,960      52,341,960
 
        Individual reinvested cash collateral securities at August 31, 2001 are as follows:
 
Investments
    Equity
Income
Fund
    Mid-
Cap
Value
Fund
    Mid-Cap
Growth
Fund
    Small-Cap
Growth
Fund
    International
Stock Fund
    Government
Income
Fund
    Intermediate
Bond Fund
    Total
Provident Money Market Fund    $    1,905    $      56,385    $      143,951    $      97,897    $      143,013    $      825,533    $      304,988    $    1,573,672
Merrimac Money Market Fund     146,408     4,333,163     11,062,641     7,523,316     10,990,562     63,442,098     23,438,241     120,936,429
Dreyfus Cash Management Plus    113,269    3,352,388    8,558,704    5,820,476    8,502,940    49,082,506    18,133,191    93,563,474
Financial Square Money Market Fund    1,211    35,830    91,475    62,208    90,879    524,591    193,806    1,000,000
JP Morgan Master Note    15,738    465,791    1,189,173    808,715    1,181,425    6,819,676    2,519,482    13,000,000
Williamette Ind. Master Note    18,159    537,451    1,372,123    933,133    1,363,183    7,868,857    2,907,094    15,000,000
Danaher Corp. Master Note    12,106    358,301    914,748    622,089    908,787    5,245,905    1,938,064    10,000,000
First Union National Bank Note    18,159    537,451    1,372,123    933,133    1,363,183    7,868,857    2,907,094    15,000,000
 
 
n  Marshall Funds
 
        Restricted Securities—Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer’s expense either upon demand by the Funds or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Funds will not incur any registration costs upon such resales. The Intermediate Bond Fund’s and Short-Term Income Fund’s restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund’s pricing committee. The Money Market Fund’s restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Act.
 

Additional information on each restricted security held by the Money Market Fund at August 31, 2001 is as follows:

 
Security
     Fund Acquisition Date
     Acquisition Cost
GE Life & Annuity Funding Agreement      4/20/2001      $75,000,000
Monumental Life Funding Agreement      7/23/2001      40,000,000
Monumental Life Funding Agreement      5/17/2000      10,000,000
Monumental Life Funding Agreement      2/5/2001      25,000,000
Travelers Insurance Company      1/19/2001      50,000,000
 
        Other—Investment transactions are accounted for on a trade date basis.
 
3. Capital Stock
 
        The Articles of Incorporation permit the Directors to issue an indefinite number of full and fractional shares of common stock, par value $0.0001 per share. At August 31, 2001, the capital paid-in was as follows:
 
 
Fund
     Capital Paid-In
Equity Income Fund      $  334,105,525
Large-Cap Growth & Income Fund      321,034,334
Mid-Cap Value Fund      130,214,897
Mid-Cap Growth Fund      340,790,698
Small-Cap Growth Fund      101,383,009
International Stock Fund      430,783,233
Government Income Fund      382,224,525
Intermediate Bond Fund      660,909,567
Intermediate Tax-Free Fund      99,042,265
Short-Term Income Fund      131,494,394
Money Market Fund       2,739,745,253
 
 
        Transactions in capital stock were as follows:
 
     Equity Income Fund
    Large-Cap Growth & Income Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
Investor Class of Shares    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
Shares sold    3,753,785      $56,629,266      3,417,554      $  49,569,549      3,640,354      $58,100,434      6,254,839      $105,731,165  
Shares issued to shareholders in
payment of distributions declared		    303,974      4,592,039      3,121,829      45,203,975      1,316,487      21,124,005      1,337,559      23,258,505  
Shares redeemed    (4,837,092 )    (72,875,722 )    (9,715,372 )     (138,911,369 )    (3,357,098 )     (54,334,387 )    (4,337,111 )    (78,011,838 )
    
    
    
    
    
    
    
    
  
Net change resulting from Investor
Class of Shares transactions		    (779,333 )    $(11,654,417 )    (3,175,989 )    $  (44,137,845 )    1,599,743      $24,890,052      3,255,287      $  50,977,832  
    
    
    
    
    
    
    
    
  
Notes to Financial Statements (continued)
     Equity Income Fund
    Large-Cap Growth & Income Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
Advisor Class of Shares    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
Shares sold    126,934      $  1,916,805      101,550      $  1,524,980      188,189      $    3,039,967      146,603      $    2,628,349  
Shares issued to shareholders
in payment of distributions
declared		    2,779      41,925      9,133      132,140      12,534      201,047      4,896      85,158  
Shares redeemed    (25,214 )    (380,859 )    (13,558 )    (203,953 )    (41,770 )    (640,861 )    (15,602 )    (278,468 )
    
    
    
    
    
    
    
    
  
Net change resulting from
Advisor Class of Shares
transactions		    104,499      $  1,577,871      97,125      $  1,453,167      158,953      $    2,600,153      135,897      $    2,435,039  
    
    
    
    
    
    
    
    
  
Net change resulting from
Fund Share transactions		    (674,834 )    $(10,076,546 )    (3,078,864 )    $(42,684,678 )    1,758,696      $  27,490,205      3,391,184      $  53,412,871  
    
    
    
    
    
    
    
    
  
 
     Mid-Cap Value Fund
    Mid-Cap Growth Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
Investor Class of Shares    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
Shares sold    6,132,824      $74,762,587      2,338,505      $23,264,232      4,141,183      $  73,753,844      9,474,299      $229,362,149  
Shares issued to shareholders
in payment of distributions
declared		    665,231      6,982,264      1,492,461      14,463,035      6,070,360      95,729,696      1,383,854      28,244,451  
Shares redeemed    (3,039,567 )    (35,807,926 )    (5,293,269 )    (53,365,756 )    (5,654,242 )    (97,229,757 )    (8,310,246 )    (196,109,010 )
    
    
    
    
    
    
    
    
  
Net change resulting from
Investor Class of Shares
transactions		    3,758,488      $45,936,925      (1,462,303 )    $(15,638,489 )    4,557,301      $  72,253,783      2,547,907      $  61,497,590  
    
    
    
    
    
    
    
    
  
 
     Mid-Cap Value Fund
    Mid-Cap Growth Fund
 
     Year Ended
August 31, 2001
    Year Ended
August 31, 2000
    Year Ended
August 31, 2001
    Year Ended
August 31, 2000
Advisor Class of Shares    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
    Shares
    Amount
Shares sold    92,317      $  1,097,181      65,730      $      685,945      111,226      $    1,992,014      84,227      $    2,040,730  
Shares issued to shareholders
in payment of distributions
declared		    7,508      78,933      8,026      77,839      42,035      662,892      2,915      59,498  
Shares redeemed    (17,047 )    (201,444 )    (7,850 )    (82,720 )    (30,405 )    (456,439 )    (3,854 )    (97,026 )
    
    
    
    
    
    
    
    
  
Net change resulting from
Advisor Class of Shares
transactions		    82,778      $     974,670      65,906      $      681,064      122,856      $    2,198,467      83,288      $    2,003,202  
    
    
    
    
    
    
    
    
  
Net change resulting from
Fund Share transactions		    3,841,266      $46,911,595      (1,396,397 )    $(14,957,425 )    4,680,157      $  74,452,250      2,631,195      $  63,500,792  
    
    
    
    
    
    
    
    
  
 
       Small Cap Growth Fund
      International Stock Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      2,979,586        $41,362,567        5,638,764        $98,910,918        15,212,008        $195,353,624        48,985,409        $812,145,186  
Shares issued to shareholders
in payment of distributions
declared		      1,065,835        13,088,446        215,985        3,270,019        2,469,820        32,972,095        1,321,710        23,685,001  
Shares redeemed      (4,143,430 )      (55,181,701 )      (5,706,473 )      (98,875,452 )      (16,197,785 )      (209,170,751 )      (48,338,103 )      (797,167,098 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Investor Class of Shares
transactions		      (98,009 )      $   (730,688 )      148,276        $  3,305,485        1,484,043        $  19,154,968        1,969,016        $  38,663,089  
     
     
     
     
     
     
     
     
  
 
n  Marshall Funds
 
       Small Cap Growth Fund
      International Stock Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Advisor Class of Shares      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      98,880        $1,336,884        73,245        $1,232,026        420,204        $5,315,028        108,079        $1,787,392  
Shares issued to shareholders in payment of
distributions declared		      16,402        201,410        1,304        19,743        28,817        384,702        4,262        76,381  
Shares redeemed      (18,911 )      (246,619 )      (12,240 )      (187,430 )      (251,427 )      (2,851,448 )      (9,546 )      (148,319 )
     
     
     
     
     
     
     
     
  
Net change resulting from Advisor Class of Shares
transactions		      96,371        $1,291,675        62,309        $1,064,339        197,594        $2,848,282        102,795        $1,715,454  
     
     
     
     
     
     
     
     
  
Net change resulting from Fund Share
transactions		      (1,638 )      $    560,987        210,585        $4,369,824                      
     
     
     
     
                                      
 
       International Stock Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000(1)
 
Institutional Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      3,484,294        $46,906,402        8,573,513        $133,512,372  
Shares issued to shareholders in payment of distributions declared      1,078,820        14,434,613        382,886        6,861,311  
Shares redeemed      (2,661,048 )      (31,799,647 )      (706,094 )      (12,080,919 )
     
     
     
     
  
Net change resulting from Institutional Class of Shares transactions      1,902,066        $29,541,368        8,250,305        $128,292,764  
     
     
     
     
  
Net change resulting from Fund Share transactions      3,583,703        $51,544,618        10,322,116        $168,671,307  
     
     
     
     
  
 
       Government Income Fund
      Intermediate Bond Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      6,866,098        $64,422,793        33,650,182        $306,230,995        17,120,862        $159,975,612        12,982,279        $118,238,473  
Shares issued to
shareholders in payment
of distributions declared		      1,484,020        13,955,058        1,384,984        12,631,038        1,847,000        17,238,638        1,773,855        16,166,686  
Shares redeemed      (7,287,114 )      (68,532,104 )      (30,628,885 )      (279,090,091 )      (18,527,594 )      (173,100,999 )      (13,102,959 )      (119,312,650 )
     
     
     
     
     
     
     
     
  
Net change resulting from
Investor Class of Shares
transactions		      1,063,004        $  9,845,747        4,406,281        $  39,771,942        440,268        $    4,113,251        1,653,175        $  15,092,509  
     
     
     
     
     
     
     
     
  
Notes to Financial Statements (continued)
 
       Government Income Fund
      Intermediate Bond Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
      Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Advisor Class of Shares      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
      Shares
      Amount
Shares sold      107,402        $  1,009,391        95,258        $      868,413        143,925        $1,343,401        151,573        $  1,383,555  
Shares issued to shareholders in payment
of distributions declared		      9,562        89,985        5,226        47,656        14,177        132,442        10,092        91,950  
Shares redeemed      (21,965 )      (206,127 )      (20,219 )      (185,410 )      (33,510 )      (313,102 )      (50,489 )      (459,792 )
     
     
     
     
     
     
     
     
  
Net change resulting from Advisor Class
of Shares transactions		      94,999        $      893,249        80,265        $      730,659        124,592        $1,162,741        111,176        $  1,015,713  
     
     
     
     
     
     
     
     
  
Net change resulting from Fund Share
transactions		      1,158,003        $10,738,996        4,486,546        $40,502,601        564,860        $5,275,992        1,764,351        $16,108,222  
     
     
     
     
     
     
     
     
  
 
     Intermediate Tax-Free Fund
 
     Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares    Shares
      Amount
      Shares
      Amount
Shares sold    1,780,346        $18,030,777        1,163,808        $    11,329,789  
Shares issued to shareholders in payment of distributions declared    37,466        379,104        36,291        353,560  
Shares redeemed    (1,541,044 )       (15,558,697 )      (2,631,898 )      (25,580,540 )
    
     
     
     
  
Net change resulting from Fund Share Transactions    276,768        $  2,851,184        (1,431,799 )      $    (13,897,191 )
    
     
     
     
  
 
     Short-Term Income Fund
 
     Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares    Shares
      Amount
      Shares
      Amount
Shares sold    4,478,636        $42,170,518        16,125,165        $  149,710,835  
Shares issued to shareholders in payment of distributions declared    458,652        4,314,479        522,944        4,863,722  
Shares redeemed    (5,022,532 )      (47,251,221 )      (17,696,882 )        (164,163,724 )
    
     
     
     
  
Net change resulting from Investor Class of Shares transactions    (85,244 )      $    (766,224 )      (1,048,773 )      $      (9,589,167 )
    
     
     
     
  
 
     Short-Term Income Fund
 
     Period Ended
August 31, 2001(2)
 
Advisor Class of Shares    Shares
      Amount
Shares sold    14,727        $      138,907  
Shares issued to shareholders in payment of distributions declared    317        3,001  
Shares redeemed    (4,889 )      (46,203 )
    
     
  
Net change resulting from Advisor Class of Shares transactions    10,155        $        95,705  
    
     
     
     
  
Net change resulting from Fund Share transactions    (75,089 )      $    (670,519 )      (1,048,773 )      $      (9,589,167 )
    
     
     
     
  
 
       Money Market Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      5,349,844,467        $  5,349,844,467        5,541,237,519        $  5,541,237,519  
Shares issued to shareholders in payment of distributions declared      22,470,409        22,470,409        22,531,652        22,531,652  
Shares redeemed      (5,451,687,216 )       (5,451,687,216 )      (5,450,839,932 )       (5,450,839,932 )
     
     
     
     
  
Net change resulting from Investor Class of Shares transactions      (79,372,340 )      $      (79,372,340 )      112,929,239        $    112,929,239  
     
     
     
     
  
 
 
n  Marshall Funds
       Money Market Fund
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
 
Advisor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      440,122,578        $ 440,122,578        675,776,335        $675,776,335  
Shares issued to shareholders in payment of distributions declared      5,940,215        5,940,215        7,393,438        7,393,438  
Shares redeemed      (459,131,150 )      (459,131,150 )      (660,734,744 )       (660,734,744 )
     
     
     
     
  
Net change resulting from Advisor Class of Shares transactions      (13,068,357 )      $ (13,068,357 )      22,435,029        $  22,435,029  
     
     
     
     
  
 
       Money Market Fund
 
       Year Ended
August 31, 2001
      Period Ended
August 31, 2000(3)
 
Institutional Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      3,217,717,900        $  3,217,717,900        448,293,292        $448,293,292  
Shares issued to shareholders in payment of distributions declared      2,009,341        2,009,341        3        3  
Shares redeemed      (2,446,906,796 )       (2,446,906,796 )      (306,384,265 )       (306,384,265 )
     
     
     
     
  
Net change resulting from Institutional Class of Shares transactions      772,820,445        $    772,820,445        141,909,030        $141,909,030  
     
     
     
     
  
Net change resulting from Fund Share transactions      680,379,748        $    680,379,748        277,273,298        $277,273,298  
     
     
     
     
  
 
(1) For the period from September 1, 1999 (start of performance) to August 31, 2000.
(2) For the period from October 31, 2000 (start of performance) to August 31, 2001.
(3) For the period from April 3, 2000 (start of performance) to August 31, 2000.
 
4. Investment Adviser Fee and Other Transactions with Affiliates
 
        Investment Adviser Fee—Marshall & Ilsley (“M&I”) Investment Management Corp., the Funds’ investment adviser (the “Adviser”), receives for its services an annual investment adviser fee based on a percentage of each Fund’s average daily net assets as listed below. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
 
 
Fund
     Annual Rate
Equity Income Fund     
0.75
 %
Large-Cap Growth & Income Fund     
0.75
 %
Mid-Cap Value Fund     
0.75
 %
Mid-Cap Growth Fund     
0.75
 %
Small-Cap Growth Fund     
1.00
 %
International Stock Fund     
1.00
 %
Government Income Fund     
0.75
 %
Intermediate Bond Fund     
0.60
 %
Intermediate Tax-Free Fund     
0.60
 %
Short-Term Income Fund     
0.60
 %
Money Market Fund     
0.15
 %
 
 
        International Stock Fund’s sub-adviser is BPI Global Asset Management LLP (the “Sub-Adviser”). The Adviser compensates the Sub-Adviser based on the level of average aggregate daily net assets of International Stock Fund.
 
Notes to Financial Statements (continued)
        Administrative Fee—M&I Trust Company, under the Administrative Services Agreement, provides the Funds with administrative personnel and services. The fee paid to M&I Trust Company was based on a scale that ranged from 0.150% to 0.075% of the average aggregate net assets of the Corporation (or average daily net assets in the instance of the Small-Cap Growth Fund).
 
        Effective September 15, 2000, M&I Trust Company changed its administrative fee based on each Fund’s average daily net assets as follows:
 
Maximum Fee
     Fund’s ADNA
0.100%      on the first $250 million
0.095%      on the next $250 million
0.080%      on the next $250 million
0.060%      on the next $250 million
0.040%      on the next $500 million
0.020%      on assets in excess of $1.5 billion
 
 
        Federated Administrative Services (“FAS”) is the sub-administrator and will be paid by M&I Trust Company, not by the Funds.
 
        Distribution Services Fee—The Funds have adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Funds will compensate Federated Securities Corp. (“FSC”), the principal distributor, from the net assets of the Funds to finance activities intended to result in the sale of shares of the Fund’s Advisor Class of Shares. The Plan provides that the Funds may incur distribution expenses up to 0.25% of the average daily net assets of Fund’s Advisor Class of Shares (except Money Market Fund’s Advisor Class of Shares which may accrue up to 0.30%) annually, to compensate FSC.
 
        Shareholder Services Fee—Under the terms of a Shareholder Services Agreement with Marshall Funds Investor Services (“MFIS”), each Fund will pay MFIS up to 0.25% of average daily net assets of the Fund’s Investor and Advisor Class of Shares for the period. The fee paid to MFIS is used to finance certain services for shareholders and to maintain shareholder accounts. MFIS may voluntarily choose to waive any portion of its fee. MFIS can modify or terminate this voluntary waiver at any time at its sole discretion.
 
        Transfer and Dividend Disbursing Agent Fees and Expenses—Federated Services Company (“FServ”), through its subsidiary, Federated Shareholders Services Company (“FSSC”), serves as transfer and dividend disbursing agent for the Funds. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders.
 
        Portfolio Accounting Fees—FServ maintains the Funds’ accounting records for which it receives a fee. The fee is based on the level of each Fund’s average daily net assets for the period, plus out-of-pocket expenses.
 
        Custodian Fees—M&I Trust Company is the Funds’ custodian. M&I Trust Company receives fees based on the level of each Fund’s average daily net assets for the period. The custodian also charges a fee in connection with securities lending activities of the Funds.
 
        Organizational Expenses—Organizational Expenses were borne initially by FAS. The Funds have reimbursed FAS for these expenses. These expenses have been deferred and are being amortized over the five-year period following each Fund’s effective date. For the year ended August 31, 2001, the Small-Cap Fund expensed the remaining balance of $7,153 over the period.
 
        General—Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of one or more of the above companies.
 
 
n  Marshall Funds
5.  Investment Transactions
        Purchases and sales of investments, excluding short-term securities and long-term U.S. government securities, for the year ended August 31, 2001, were as follows:
 
Fund
     Purchases
     Sales
Equity Income Fund      $  329,979,524      $  351,019,590
Large-Cap Growth & Income Fund      252,283,073      266,222,981
Mid-Cap Value Fund      139,240,988      121,783,051
Mid-Cap Growth Fund      432,132,412      475,157,601
Small-Cap Growth Fund      290,605,592      307,925,695
International Stock Fund      627,444,812      617,991,402
Government Income Fund      4,998,536      9,022,142
Intermediate Bond Fund      376,312,147      396,458,042
Intermediate Tax-Free Fund      52,655,583      47,955,307
Short-Term Income Fund      45,899,877      68,156,336
 
 
        Purchases and sales of long-term U.S. government securities, for the year ended August 31, 2001, were as follows:
 
Fund
     Purchases
     Sales
Government Income Fund      $  521,396,057      $  470,491,599
Intermediate Bond Fund       1,268,016,319       1,214,324,274
Large-Cap Growth & Income Fund      4,680,006      —
Short-Term Income Fund      45,963,335      16,679,057
 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
 
        The Funds hereby designate the following distributions as capital gain dividends for the year ended August 31, 2001:
 
Equity Income Fund      $  2,931,718
Large-Cap Growth & Income Fund       21,453,159
Mid-Cap Value Fund      6,383,299
Mid-Cap Growth Fund      58,262,331
Small-Cap Growth Fund      15,432,727
International Stock Fund      15,888,938
 
 
Report of Ernst & Young LLP, Independent Auditors
 
To the Board of Directors and Shareholders of
The Marshall Funds, Inc.:
 
        We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the Marshall Equity Income Fund, the Marshall Large-Cap Growth & Income Fund, the Marshall Mid-Cap Value Fund, the Marshall Mid-Cap Growth Fund, the Marshall Small-Cap Growth Fund, the Marshall International Stock Fund, the Marshall Government Income Fund, the Marshall Intermediate Bond Fund, the Marshall Intermediate Tax-Free Fund, the Marshall Short-Term Income Fund, and the Marshall Money Market Fund (the eleven portfolios constituting The Marshall Funds, Inc.) (the “Funds”), as of August 31, 2001, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the two years in the period ended August 31, 1998 were audited by other auditors whose report, dated October 23, 1998, expressed an unqualified opinion on those financial highlights.
 
        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2001, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from the brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
        In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting The Marshall Funds, Inc., as identified above, at August 31, 2001, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.
 
 
/s/ Ernst & Young LLP
 
Boston, Massachusetts
October 16, 2001
 
 
Directors
Officers
 
John M. Blaser
John DeVincentis
Duane E. Dingmann
James Mitchell
Barbara J. Pope
David W. Schulz
John M. Blaser
President
 
John D. Boritzke
Vice President
 
William A. Frazier
Vice President
 
Brooke J. Billick
Secretary
 
Ann K. Peirick
Treasurer
 
Lori K. Hoch
Assistant Secretary
 
 
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and
are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency. Investment in
mutual funds involves investment risk, including the possible loss of principal.
 
This report is authorized for distribution to prospective investors only when preceded
or accompanied by the Funds’ prospectus, which contains facts concerning each
Fund’s objective and policies, management fees, expenses, and other information.

 

 

 

 

 

[LOGO OF MARSHALL FUNDS]

 

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

800-236-FUND (3863)

TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com

Federated Securities Corp., Distributor G01126-01(10/01)

©2001 Marshall Funds, Inc.

 
 

[LOGO OF MARSHALL FUNDS®]

 
     
  The Marshall Funds Family  
     
     
  Annual Report  
     
  T h e   I n s t i t u t i o n a l   C l a s s   o f   S h a r e s  
  (C l a s s   I)  
     
 

A U G U S T   3 1 ,   2 0 0 1

 
     
4

Marshall Money Market Fund

 

 

Table of Contents
 
President’s Message      1
 
Commentary      2
 
Financial Information      3
 
Schedule of Investments      3
 
Statement of Assets and Liabilities      5
 
Statement of Operations      6
 
Statement of Changes in Net Assets      7
 
Financial Highlights      8
 
Notes to Financial Statements      9
 
Directors & Officers      13
[LOGO OF MARSHALL FUNDS®]
Dear Marshall Funds Shareholder:
 
Since we believe the Marshall Funds are an excellent choice for a well-diversified, long-term investment strategy, we should be able to measure whether our products and services are used appropriately in times like these. As a result, we made certain measurements in response to the recent tragedies within our country, including:
 
Ÿ
listening to the silence in our shareholder service call center,
 
Ÿ
monitoring the substantial decline in on-line trading by our large number of 401(k) participants,
 
Ÿ
tracking the lack of “flight to quality” exchanges of equities funds to money market funds, and
 
Ÿ
summarizing the positive face to face discussions of our investment representatives and their clients.
 
We could not avoid obtaining a certain amount of satisfaction that our investment philosophy has gotten through to the vast majority of our shareholders. Diversification through broad asset allocation may be the primary success factor in reaching your financial goals while weathering market volatility.
 
This approach should not lack constant monitoring or pro-active re-allocation when justified by a change in your financial goals, time horizon or risk tolerance. This approach should exclude panic reactions to current events. From what we observed, our shareholders should be congratulated for remaining calm and focused on their long-term plans.
 
Going forward, our challenges remain. Looking at past letters to shareholders, however, we are reminded of how effective our approach has been when investors were euphoric over aggressive growth investing and when eulogies were being written for value and small cap investing. The same eulogies are being written today about international investing.
 
Every investor, who has committed to a broadly diversified investment program including attention to large, mid and small cap stocks; growth and value investment styles, equities and fixed income funds, and domestic and international equities, has been rewarded with competitive returns with less overall volatility. We believe our investment philosophy has only been reaffirmed and we remain committed to delivering the investment products and services that you can use to meet your goals.
 
If recent events make you anxious, or hesitant, or just uncertain, please do not hesitate to contact your M&I financial representative, or if you do not have one, contact us directly at 1-800-236-3863.
 
Congratulations on your strength, resolve and long-term outlook. As always, thank you for your investment in the Marshall Funds.
 
Sincerely,
 
/s/ John M. Blaser
 
John M. Blaser
President
Annual Report—Commentary
 
Marshall Money Market Fund
The Marshall Money Market Fund (the “Fund”) invests in high-quality, short-term money market instruments.* The Adviser uses a bottom-up approach, meaning that the Fund manager looks primarily at individual securities against the context of broader market factors.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of 5.58%.** This compares with a return of 4.95% for the Money Fund Report Averages TM and 5.05% for the Lipper Money Market Funds Index.*** As of August 31, 2001, the Fund’s 7-day net yield was 3.71%.†
 
A Continuation of Most Trends
The past six months have been characterized by continuing signs of an economic slowdown and possible recession. The Federal Reserve Board (the “Fed”) has remained aggressive in its efforts to support the economy by cutting the federal funds target rate. From January through August, the Fed cut rates on seven occasions for a total of 300 basis points. Consumer spending remained surprisingly strong for most of the year, waning only in the late summer as concerns about possible unemployment grew.
 
Our strategy remained largely unchanged over the reporting period. Floating-rate notes continued to play a significant role in the portfolio, as they offer positive yield characteristics. The selective addition of one-year paper also helped us to pursue our goal of providing an attractive yield, particularly challenging in light of the Fed’s rate cuts. Bottom-up credit research has remained crucial to our selection process.
 
Constrained supply has continued to be a factor in the marketplace. With companies scaling back their once-ambitious plans for growth and burning off inventory, there has been less need for them to fund their continuing operations by issuing debt. Downgrades have taken other securities out of the money market realm.
 
Changes Since September 11
The cataclysmic events of mid-September accelerated many of the trends that were already in place. Consumer spending dropped suddenly, the economy was generally acknowledged as having entered a recession, and the Fed stepped in quickly to cut interest rates further. It is unclear how long these difficulties will last or how deep their impact will be, but the government’s willingness to offer fiscal stimulus to complement the Fed’s monetary actions is a positive sign.
 
We will be closely monitoring consumer confidence in coming months. If consumer spending bounces back, that may help to limit the recession’s severity. If, however, economic weakness and an uncertain global environment cause consumers to continue their retreat, there may be cause for greater concern.
 
Sincerely,
 
/s/ Richard M. Rokus
 
Richard M. Rokus, CFA
Manager, Marshall Money Market Fund

 

[PHOTO OF RICHARD M. ROKUS]
 
*
An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
**
Past performance is no guarantee of future results. Yields will vary. Yields quoted for money market funds most closely reflect the Fund’s current earnings.
***
Money Fund Report™, a service of iMoney Net, Inc. (formerly IBC Financial Data) publishes annualized yields of hundreds of money market funds on a weekly basis, and through its Money Market Insight publication reports monthly and year-to-date investment results for the same money funds. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
†
The 7-day net annualized yield is based on the average net income per share for the 7 days ended on the date of calculation and the offering price on that date. The 7-day effective yield is annualized and reflects daily compounding of the 7-day net yield.
August 31, 2001
Schedule of Investments 
  
 
 
Marshall Money Market Fund
 
Principal
Amount		    Description      Value
 
     Certificates of Deposit — 2.8%
     Foreign Banks — 2.8%
$25,000,000      Canadian Imperial Bank of
Commerce, NY,
4.235%, 5/16/2002		      $  25,001,711
50,875,000      Credit Agricole Indosuez,
3.665%-4.610%,
3/28/2002- 8/20/2002		      50,963,440
           
     Total Certificates of Deposit      75,965,151
     (1)Commercial Paper — 5.2%
     Asset-Backed — 2.7%
75,000,000      (2)(3)Tannehill Capital Co.,
3.650%, 10/19/2001		      74,635,000
     Health Care — 2.5%
70,000,000      (2)(3)American Home
Products Corp., 3.540%-
3.950%, 10/19/2001-
10/26/2001		      69,634,167
           
     Total Commercial Paper       144,269,167
     Corporate Bonds — 7.9%
     Banks — 0.5%
13,500,000      Wells Fargo & Co.,
6.500%, 9/3/2002		      13,867,000
     Beverages & Foods — 1.8%
50,000,000      (2)(3)Heinz (H.J.) Co.,
6.820%, 11/15/2001		      50,000,000
     Diversified Manufacturing — 0.6%
15,000,000      Siemens Capital Corp.,
8.000%, 6/24/2002		      15,494,619
     Foreign Banks — 0.5%
15,000,000      Commerzbank AG, NY,
4.120%, 5/9/2002		      14,998,973
     Health Care — 0.6%
15,000,000      (2)(3)Lilly (Eli) & Co.,
4.700%, 3/22/2002		      15,000,000
     Mortgage Banking — 0.3%
8,750,000      Countrywide Home Loans,
Inc., 6.900%, 10/2/2001		      8,761,243
     Personal Credit — 2.1%
20,000,000      (2)(3)BMW US Capital LLC,
4.190%, 6/7/2016		      19,988,188
8,000,000      Ford Motor Credit Co.,
7.000%, 9/25/2001		      8,001,548
13,700,000      General Motors Acceptance
Corp., 5.350%, 12/7/2001		      13,706,195
6,180,000      General Motors Acceptance
Corp., 5.500%, 1/14/2002		      6,186,834
9,315,000      General Motors Acceptance
Corp., 6.750%, 2/7/2002		      9,400,456
           
       Total      57,283,221
     Telecommunications — 1.5%
40,000,000      (2)(3)SBC Communications,
Inc., 4.250%, 6/1/2002		      40,000,000
           
     Total Corporate Bonds       215,405,056
     (4)Variable-Rate Notes — 64.4%
     Banks — 9.6%
15,000,000      Bank One Corp.,
3.828%, 9/21/2001		      15,001,782
25,500,000      Bank One Corp.,
3.870%, 10/26/2001		      25,514,460
10,000,000      Bank One Corp.,
4.098%, 9/17/2001		      10,001,369
Principal
Amount		    Description      Value
 
     (4)Variable-Rate Notes (continued)
     Banks (continued)
$17,000,000      Bank One, Illinois, N.A.,
3.809%, 10/24/2001		      $  17,010,001
15,000,000      Huntington National Bank,
3.720%, 11/15/2001		      15,010,666
14,000,000      Huntington National Bank,
4.042%, 9/5/2001		      14,005,643
4,000,000      Key Bank, N.A.,
3.790%, 9/22/2001		      4,001,254
44,000,000      Key Bank, N.A.,
3.858%, 9/25/2001		      44,050,912
27,000,000      Key Bank, N.A.,
4.008%, 9/18/2001		      27,022,421
15,000,000      Mellon Financial Corp.,
4.219%, 9/14/2001		      15,047,304
45,000,000      National Bank of Commerce,
Memphis, TN,
3.610%, 9/18/2001		      44,999,597
30,580,000      Westpac Banking Co.,
3.705%, 10/26/2001		      30,580,578
           
       Total       262,245,987
     Beverages & Foods — 0.9%
25,000,000      (2)(3)Cargill, Inc., 3.623%,
11/28/2001		      25,028,919
        Broker/Dealers — 11.9%
75,000,000      Bank of America, 3.540%,
11/27/2001		      75,000,000
75,000,000      Bear Stearns Cos., Inc.,
3.953%, 9/5/2001		      75,000,000
75,000,000      Goldman Sachs & Co.,
3.928%, 9/10/2001		      75,000,000
35,000,000      (2)(3)J.P. Morgan & Co.,
Inc., 3.770%, 9/4/2001		      35,000,000
15,000,000      Merrill Lynch & Co., Inc.,
3.640%, 9/20/2001		      15,000,000
10,000,000      Merrill Lynch & Co., Inc.,
3.750%, 10/27/2001		      10,001,161
40,500,000      Merrill Lynch & Co., Inc.,
3.859%, 10/24/2001		      40,570,416
           
          Total      325,571,577
        Construction Equipment — 2.7%
75,000,000      Caterpillar Financial Services
Corp., 3.870%, 10/9/2001		      75,000,000
        Drugs — 2.6%
70,000,000      (2)(3)Bayer Corp., 4.750%,
3/19/2002		      69,993,528
        Insurance — 13.5%
40,000,000      American General Annuity
Insurance Co., 3.561%,
11/20/2001		      40,000,000
20,000,000      American General Finance
Corp., Series E, 4.149%,
9/14/2001		      20,002,244
75,000,000      (2)GE Life and Annuity
Assurance Co., 3.830%,
10/20/2001		      75,000,000
40,000,000      Jackson National Life
Insurance Co., 3.680%,
11/1/2001		      40,000,000
50,000,000      Metropolitan Life Insurance
Co., 3.990%, 9/4/2001		      50,000,000
10,000,000      (2)Monumental Life
Insurance Co., 3.850%,
10/2/2001		      10,000,000
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
Marshall Money Market Fund (continued)
 
Principal
Amount		    Description      Value
 
     (4)Variable Rate Notes (continued)
        Insurance (continued)
$25,000,000      (2)Monumental Life
Insurance Co., 3.860%,
10/2/2001		      $  25,000,000
  40,000,000      (2)Monumental Life
Insurance Co., 3.860%,
9/4/2001		          40,000,000
20,000,000      (2)(3)Prudential Funding
LCC, 3.660%, 11/16/2001		      20,012,129
50,000,000      (2)Travelers Insurance Co.,
3.850%, 10/1/2001		      50,000,000
           
          Total       370,014,373
        Leasing — 0.9%
25,000,000      Paccar Financial Corp.,
4.054%, 9/4/2001		      25,026,784
        Mortgage Banking — 4.4%
46,000,000      Countrywide Home Loans,
Inc., 3.695%, 11/15/2001		      46,004,652
75,000,000      Homeside Lending, Inc.,
4.075%, 10/9/2001		      75,117,319
           
          Total      121,121,971
            Other Consumer Non-Durables — 2.0%
55,000,000      (2)(3)Unilever Capital Corp.,
3.970%, 9/7/2001		      55,000,000
        Personal Credit — 10.8%
25,000,000      (2)(3)American Honda
Finance Corp.,
3.595%, 11/13/2001		      25,000,000
50,000,000      (2)(3)American Honda
Finance Corp.,
3.760%, 10/19/2001		      50,000,000
50,000,000      Associates Corp. of North
America, 3.770%,
9/26/2001		      50,000,000
10,000,000      Commerzbank AG, 3.990%,
9/4/2001		      10,000,690
36,400,000      Ford Motor Credit Co.,
3.883%, 10/17/2001		      36,409,995
16,000,000      Ford Motor Credit Co.,
3.890%, 10/15/2001		      16,002,012
12,000,000      General Motors Acceptance
Corp., 3.769%, 11/1/2001		      12,002,654
23,000,000      General Motors Acceptance
Corp., 4.068%, 9/10/2001		      23,008,905
35,500,000      Household Finance Corp.,
3.855%, 9/27/2001		      35,525,744
13,000,000      Household Finance Corp.,
3.890%, 9/26/2001		      13,001,387
25,000,000      Household Finance Corp.,
4.126%, 9/12/2001		      25,028,527
           
          Total      295,979,914
        Retail — 0.5%
15,000,000      Wal-Mart Stores, Inc.,
5.450%, 6/1/2002		      15,131,601
        Telecommunications — 4.6%
50,000,000      BellSouth
Telecommunications, Inc.,
3.970%, 9/4/2001		      50,000,000
Principal
Amount or
Shares		    Description      Value
 
     (4)Variable Rate Notes (continued)
        Telecommunications (continued)
$  75,000,000      Verizon Global Funding,
3.920%, 9/15/2001		      $    74,988,789
           
          Total      124,988,789
           
     Total Variable-Rate Notes      1,765,103,443
        Mutual Funds — 5.5%
 100,000,000      American Select Cash
Reserve Fund		      100,000,000
15,668,474      Dreyfus Cash
Management Fund		      15,668,474
34,751,042      Goldman Sachs
Financial Square
Money Market Fund		      34,751,042
           
        Total Mutual Funds
(shares at net asset value)		      150,419,516
           
        Total Investments in
Securities (at
amortized cost)		      2,351,162,333
        (5)Repurchase Agreements — 13.9%
$  75,000,000      Deutsche Bank
Financial, Inc.,
3.748%, dated
8/31/2001, due
9/4/2001		      75,000,000
125,000,000      First Union Capital
Markets, Inc., 3.750%,
dated 8/31/2001, due
9/4/2001		      125,000,000
5,767,050      Lehman Brothers, Inc.,
3.620%, dated
8/31/2001, due
9/4/2001		      5,767,050
100,000,000      Morgan Stanley Group,
Inc., 3.748%, dated
8/31/2001, due
9/4/2001		      100,000,000
75,000,000      Salomon Smith Barney,
Inc., 3.738%, dated
8/31/2001, due
9/4/2001		      75,000,000
           
        Total Repurchase
Agreements		      380,767,050
           
        Total Investments (at
amortized cost)		      $2,731,929,383
           
 
        The categories of investments are shown as a percentage of net assets ($2,739,599,431) at August 31, 2001.
 
(1) 
Each issue shows the rate of discount at the time of purchase.
 
(2) 
Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At August 31, 2001, these securities amounted to $749,291,931, which represents 27.4% of net assets. Included in these amounts, securities which have been deemed liquid amounted to $549,291,931, which represents 20.1% of net assets.
 
(3) 
Denotes a restricted security which has been deemed liquid by the Fund’s board of directors.
 
(4) 
Current rate and next demand date shown.
 
(5) 
The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on current market prices.
(See Notes which are an integral part of the Financial Statements)
 
August 31, 2001
Statement of Assets and Liabilities
Assets:
        Investments in securities, at cost      $2,351,162,333  
        Investments in repurchase agreements      380,767,050  
        Cash      36,151  
        Income receivable      18,482,726  
        Receivable for capital stock sold      24,474,207  
     
  
                Total assets      2,774,922,467  
Liabilities:
        Payable for capital stock redeemed      27,990,116  
        Income distribution payable      6,204,482  
        Accrued expenses      1,128,438  
     
  
                Total liabilities      35,323,036  
     
  
        Total Net Assets      $2,739,599,431  
     
  
Net Assets Consist of:
        Paid-in-capital      2,739,745,253  
        Accumulated net realized loss on investments      (145,822 )
     
  
        Total Net Assets      $2,739,599,431  
     
  
Net Asset Value, Offering Price, and Redemption Proceeds Per Share
        Investor Class of Shares:
        Net Asset Value and Redemption proceeds Per Share      $1.00  
        Offering Price Per Share      $1.00  
        Advisor Class of Shares:
        Net Asset Value and Redemption proceeds Per Share      $1.00  
        Offering Price Per Share      $1.00  
        Institutional Class of Shares:
        Net Asset Value and Redemption proceeds Per Share      $1.00  
        Offering Price Per Share      $1.00  
Net Assets:
        Investor Class of Shares      $1,697,199,868  
        Advisor Class of Shares      127,706,938  
        Institutional Class of Shares      914,692,625  
     
  
        Total Net Assets      $2,739,599,431  
     
  
Shares Outstanding:
        Investor Class of Shares      1,697,296,816  
        Advisor Class of Shares      127,718,962  
        Institutional Class of Shares      914,729,475  
     
  
                Total shares outstanding ($0.0001 par value)      2,739,745,253  
     
  
(See Notes which are an integral part of the Financial Statements)
Year Ended August 31, 2001
Statement of Operations
Investment Income:
        Interest income      $138,533,465  
     
  
Expenses:
        Investment adviser fee      3,734,926  
        Shareholder services fees—
               Investor Class of Shares      4,417,915  
               Advisor Class of Shares      305,964  
        Administrative fees      1,256,944  
        Custodian fees      273,995  
        Portfolio accounting fees      216,051  
        Transfer and dividend disbursing agent fees      502,514  
        Registration fees      112,469  
        Auditing fees      14,482  
        Legal fees      3,294  
        Printing and postage      49,281  
        Directors’ fees      5,455  
        Insurance premiums—       
               E&O/D&O      32,435  
               Default Insurance      230,920  
        Distribution services fees—
               Advisor Class of Shares      367,157  
        Miscellaneous      41,106  
     
  
                    Total expenses      11,564,908  
Deduct—
          Waiver of investment adviser fee—      (1,244,975 )
     
  
Net expenses      10,319,933  
     
  
Net investment income      128,213,532  
     
  
Net Realized Loss on Investments:
Net realized loss on investment transactions      (145,822 )
     
  
Change in net assets resulting from operations      $128,067,710  
     
  
(See Notes which are an integral part of the Financial Statements)
 
Statement of Changes in Net Assets
       Year Ended
August 31,
2001
      Year Ended
August 31,
2000
Increase (Decrease) in Net Assets          
Operations—          
    Net investment income      $    128,213,532        $    107,507,525  
    Net realized loss on investment transactions      (145,822 )      —  
     
     
  
        Change in net assets resulting from operations      128,067,710        107,507,525  
     
     
  
Distributions to Shareholders—          
    Distributions to shareholders from net investment income:          
        Investors Class of Shares      (92,313,480 )      (97,455,147 )
        Advisor Class of Shares      (6,001,217 )      (7,473,721 )
        Institutional Class of Shares      (29,898,835 )      (2,578,657 )
     
     
  
        Change in net assets resulting from distributions to shareholders      (128,213,532 )      (107,507,525 )
     
     
  
Capital Stock Transactions—          
    Proceeds from sale of shares      9,007,684,945        6,665,307,146  
    Net asset value of shares issued to shareholders in payment of distributions
    declared		      30,419,965        29,925,093  
    Cost of shares redeemed       (8,357,725,162 )       (6,417,958,941 )
     
     
  
        Change in net assets resulting from capital stock transactions      680,379,748        277,273,298  
     
     
  
        Change in net assets      680,233,926        277,273,298  
Net Assets:          
    Beginning of period      2,059,365,505        1,782,092,207  
     
     
  
    End of period      $  2,739,599,431        $  2,059,365,505  
     
     
  
(See Notes which are an integral part of the Financial Statements)
 
Financial Highlights—Institutional Class of Shares (For a share outstanding throughout each period)
 
Year
Ended
August 31,
    Net asset
value,
beginning
of period
    Net
investment
income
    Distributions
from net
investment
income
    Net asset
value, end
of period
    Total
return(1)
    Ratios to Average Net Assets
    Net assets,
end
of period
(000 omitted)
   Expenses
    Net investment
income
    Expense
waiver(2)
2000(3)    $1.00    0.03    (0.03)    $1.00    2.63%    0.24% (4)    6.51% (4)    0.05% (4)    $141,909
2001    $1.00    0.05    (0.05)    $1.00    5.58%    0.21%      4.98%      0.05%      $914,693
 
(1)
Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
(2)
This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above.
(3)
Reflects operations for the period from April 3, 2000 (start of performance) to August 31, 2000.
(4)
Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Notes to Financial Statements
1.  Organization
 
        Marshall Funds, Inc. (the “Corporation”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Corporation consists of eleven diversified portfolios. The financial statements included herein are only those of Marshall Money Market Fund (the “Fund”). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. The investment objective of the Fund is to provide current income consistent with stability of principal.
 
        Effective April 3, 2000, the Fund began offering Institutional Class of Shares in addition to the Investor Class of Shares and Advisor Class of Shares previously offered. The Financial Highlights of Investor Class of Shares and Advisor Class of Shares of the Funds are presented in separate annual reports.
 
2.  Significant Accounting Policies
 
        The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with accounting principles generally accepted in the United States.
 
        Investment Valuations—Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities purchased with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair market value. Money Market Fund’s use of the amortized cost method to value portfolio securities is in accordance with Rule 2a-7 under the Act. Investments in other open-end regulated investment companies are valued at net asset value.
 
        Repurchase Agreements—It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank’s vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement’s collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement, including accrued interest.
 
        The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Funds’ adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Directors (the “Directors”). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities.
 
        Investment Income, Expenses and Distributions—Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the “Code”). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair market value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
 
        In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the “Guide”). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
 
        Federal Taxes—It is the Fund’s policy to comply with the provisions of Subchapter M of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary.
 
Net capital losses of $145,822 attributable to security transactions incurred after October 31, 2000 are treated as arising on September 1, 2001, the first day of the Fund’s next taxable year.
 
        When-Issued and Delayed Delivery Transactions—The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
 
n  Marshall Funds
 
        Restricted Securities—Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. Many restricted securities may be resold in the secondary market in transactions exempt from registration. In some cases, the restricted securities may be resold without registration upon exercise of a demand feature. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Money Market Fund will not incur any registration costs upon such resales. Restricted securities are valued at amortized cost in accordance with Rule 2a-7 under the Act.
 
Additional information on each restricted security held at August 31, 2001 is as follows:
 
Security
     Acquisition Date
     Acquisition Cost
GE Life & Annuity Funding Agreement      4/20/2001      $75,000,000
Monumental Life Funding Agreement      7/23/2001      $40,000,000
Monumental Life Funding Agreement      5/17/2000      $10,000,000
Monumental Life Funding Agreement      2/5/2001      $25,000,000
Travelers Insurance Company      1/19/2001      $50,000,000
 
        Other—Investment transactions are accounted for on a trade date basis.
 
3.     Capital Stock
 
        The Articles of Incorporation permit the Directors to issue an indefinite number of full and fractional shares of common stock, par value $0.0001 per share. At August 31, 2001, the capital paid-in for the Fund was $2,739,745,253.
 
        Transactions in capital stock were as follows:
 
     Year Ended August 31, 2001
      Year Ended August 31, 2000
Investor Class of Shares
     Shares
      Amount
      Shares
      Amount
Shares sold      5,349,844,467        $  5,349,844,467        5,541,237,519        $  5,541,237,519  
Shares issued to shareholders in payment of distributions
declared		      22,470,409        22,470,409        22,531,652        22,531,652  
Shares redeemed      (5,451,687,216 )       (5,451,687,216 )      (5,450,839,932 )       (5,450,839,932 )
     
     
     
     
  
Net change resulting from Investor Class of Shares
transactions		      (79,372,340 )      $      (79,372,340 )      112,929,239        $    112,929,239  
     
     
     
     
  
 
       Year Ended August 31, 2001
      Year Ended August 31, 2000
Advisor Class of Shares
     Shares
      Amount
      Shares
      Amount
Shares sold      440,122,578        $    440,122,578        675,776,335        $    675,776,335  
Shares issued to shareholders in payment of distributions
declared		      5,940,215        5,940,215        7,393,438        7,393,438  
Shares redeemed      (459,131,150 )      (459,131,150 )      (660,734,744 )      (660,734,744 )
     
     
     
     
  
Net change resulting from Advisor Class of Shares
transactions		      (13,068,357 )      $      (13,068,357 )      22,435,029        $      22,435,029  
     
     
     
     
  
 
       Year Ended August 31, 2001
      Period Ended August 31, 2000(1)
Institutional Class of Shares
     Shares
      Amount
      Shares
      Amount
Shares sold      3,217,717,900        $  3,217,717,900        448,293,292        $    448,293,292  
Shares issued to shareholders in payment of distributions
declared		      2,009,341        2,009,341        3        3  
Shares redeemed      (2,446,906,796 )      (2,446,906,796 )      (306,384,265 )      (306,384,265 )
     
     
     
     
  
Net change resulting from Institutional Class of Shares
transactions		      772,820,445        $    772,820,445        141,909,030        $    141,909,030  
     
     
     
     
  
Net change resulting from Fund Share transactions      680,379,748        $    680,379,748        277,273,298        $    277,273,298  
     
     
     
     
  
 
(1)
For the period from April 3, 2000 (start of performance) to August 31, 2000.
 
Notes to Financial Statements (continued)
 
4.     Investment Adviser Fee and Other Transactions with Affiliates
 
        Investment Adviser Fee—Marshall & Ilsley (M&I) Investment Management Corp., the Fund’s investment adviser (the “Adviser”), receives for its services an annual investment adviser fee equal to 0.15% of the Fund’s average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
 
        Administrative Fee—M&I Trust Company, under the Administrative Services Agreement, provides the Funds with administrative personnel and services. The fee paid to M&I Trust Company was based on a scale that ranged from 0.15% to 0.075% of the average net assets of the Corporation.
 
        Effective September 15, 2000, M&I Trust changed its administrative fee based on each Fund’s average daily net assets as follows:
 
Maximum Fee
      Fund’s ADNA
      0.100%       on the first $250 million
      0.095%       on the next $250 million
      0.080%       on the next $250 million
      0.060%       on the next $250 million
      0.040%       on the next $500 million
      0.020%      on assets in excess of $1.5 billion
 
 
        Federated Administrative Services (“FAS”) is the sub-administrator and will be paid by M&I Trust Company, not by the Fund.
 
        Transfer and Dividend Disbursing Agent Fees and Expenses—Federated Services Company (“FServ”), through its subsidiary, Federated Shareholder Services Company (“FSSC”), serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders.
 
        Portfolio Accounting Fees—FServ maintains the Fund’s accounting records for which it receives a fee. The fee is based on the level of each Fund’s average daily net assets for the period, plus out-of-pocket expenses.
 
        Custodian Fees—M&I Trust Company is the Fund’s custodian. M&I Trust Company receives fees based on the level of each Fund’s average daily net assets for the period.
 
        General—Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of one or more of the above companies.
 
Report of Ernst & Young LLP, Independent Auditors
 
To the Board of Directors and Shareholders of
The Marshall Funds, Inc.:
 
        We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Marshall Money Market Fund (a portfolio of The Marshall Funds, Inc.) (the “Fund”), as of August 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for the year then ended and for the period from April 3, 2000 (commencement of operations of the Class I Shares) to August 31, 2000. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
 
        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2001, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
        In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Marshall Money Market Fund, at August 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States.
 
/s/ Ernst & Young LLP
 
Boston, Massachusetts
October 16, 2001
 
Directors
Officers
 
John M. Blaser
John DeVincentis
Duane E. Dingmann
James Mitchell
Barbara J. Pope
David W. Schulz
John M. Blaser
President
 
John D. Boritzke
Vice President
 
William A. Frazier
Vice President
 
Brooke J. Billick
Secretary
 
Ann K. Peirick
Treasurer
 
Lori K. Hoch
Assistant Secretary
 
 
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and
are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency. Investment in
mutual funds involves investment risk, including the possible loss of principal.
 
This report is authorized for distribution to prospective investors only when preceded
or accompanied by the Funds’ prospectus, which contains facts concerning each
Fund’s objective and policies, management fees, expenses, and other information.

 

 

 

 

 

 

[LOGO OF MARSHALL FUNDS®]

 

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

1-800-236-FUND (3863) or 414-287-8595
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com

Federated Securities Corp., Distributor 25800 (10/01)

[Logo of Marshall Funds]

The Marshall Funds Family

Annual Report

The Institutional Class of Shares

(Class I)

August 31, 2001

Marshall International Stock Fund

Table of Contents

 
President’s Message    1
 
Commentary    2
 
Financial Information
 
Portfolio of Investments    5
 
Statement of Assets and Liabilities    7
 
Statement of Operations    8
 
Statement of Changes in Net Assets    9
 
Financial Highlights    10
 
Notes to Financial Statements    11
 
Directors & Officers    16
 
[LOGO OF MARSHALL FUNDS®]
 
Dear Marshall Funds Shareholder,
 
Since we believe the Marshall Funds are an excellent choice for a well-diversified, long-term investment strategy, we should be able to measure whether our products and services are used appropriately in times like these. As a result, we made certain measurements in response to the recent tragedies within our country, including:
 
Ÿ 
listening to the silence in our shareholder service call center,
 
Ÿ 
monitoring the substantial decline in on-line trading by our large number of 401(k) participants,
 
Ÿ 
tracking the lack of “flight to quality” exchanges of equities funds to money market funds, and
 
Ÿ 
summarizing the positive face to face discussions of our investment representatives and their clients.
 
We could not avoid obtaining a certain amount of satisfaction that our investment philosophy has gotten through to the vast majority of our shareholders. Diversification through broad asset allocation may be the primary success factor in reaching your financial goals while weathering market volatility.
 
This approach should not lack constant monitoring or pro-active re-allocation when justified by a change in your financial goals, time horizon or risk tolerance. This approach should exclude panic reactions to current events. From what we observed, our shareholders should be congratulated for remaining calm and focused on their long-term plans.
 
Going forward, our challenges remain. Looking at past letters to shareholders, however, we are reminded of how effective our approach has been when investors were euphoric over aggressive growth investing and when eulogies were being written for value and small cap investing. The same eulogies are being written today about international investing.
 
Every investor, who has committed to a broadly diversified investment program including attention to large, mid, and small cap stocks; growth and value investment styles, equities and fixed income funds, and domestic and international equities, has been rewarded with competitive returns with less overall volatility. We believe our investment philosophy has only been reaffirmed and we remain committed to delivering the investment products and services that you can use to meet your goals.
 
If recent events make you anxious, or hesitant, or just uncertain, please do not hesitate to contact your M&I financial representative, or if you do not have one, contact us directly at 1-800-236-3863.
 
Congratulations on your strength, resolve and long-term outlook. As always, thank you for your investment in the Marshall Funds.
 
Sincerely,
 
/s/ John M. Blaser
 
John M. Blaser
President
 
 
 
Annual Report—Commentary
 
Marshall International
The Marshall International Stock Fund (the “Fund”) invests primarily in a diversified portfolio of common stocks of companies of any size outside the United States.† The Fund uses a value-oriented approach and invests in companies selling at a discount to their global industry peers.
 
Fund Performance
For the 12 months ended August 31, 2001, the Fund provided a total return of (26.19)%* compared with a total return of (24.35)% by the Morgan Stanley Capital International Europe, Australasia and Far East Index (EAFE) and (24.54)% for the Lipper International Funds Index (LIFI).**
 
Global Economies Face Slowdown
The worldwide economic slowdown we commented on in our previous report worsened over the past six months. As the outlook for economic growth and corporate profitability has weakened around the world, stock prices have continued to suffer. Deep interest rate cuts from the U.S. Federal Reserve Board, part of an effort to stave off recession, were followed by more modest cuts from European central banks.
 
The Japanese economy staged a rally at the end of March, which is the end of the fiscal year there and also a traditional time for a rally in that country. The recovery peaked out in April, however, and Japanese stocks have weakened ever since. There has been much enthusiasm about the nation’s new Prime Minister and cabinet, but so far they have had little impact on that deeply troubled economy.
 
Technology Stocks Still Weak
We continue to underweight technology stocks for most of the period, although we did add to our position in this sector during the past six months. As we found specific companies with sufficiently attractive fundamentals and low valuations, we took the opportunity to add bargains to the portfolio. We are still wary of the sector as a whole, and believe that significant unresolved issues remain.
 
Consumer discretionary stocks had been an area of greater focus for the Fund. For most of the reporting period, these proved to be relatively resilient even as business conditions were not optimal, and offered reasonable valuations. Our overweighting in this area contributed positively to the year’s performance.
 
Global Impact of September 11
The terrorist attacks in the United States have, of course, had international repercussions. The downward trend in economic activity and corporate earnings accelerated sharply. Although all stock sectors were affected, among the hardest-hit were travel-related industries, particularly airlines. While prices of these stocks were already factoring in the slowing economy, there was no way the market could anticipate the virtual shutdown the industry endured.
 
Insurance companies also suffered in wake of the attack, providing us with opportunities to add to our holdings in the area as stock valuations were driven down in disproportion to the impact of attack-related claims on their businesses. We began positioning the Fund more heavily in financials in September.
 
As the quarter drew to a close, there were signs that people were beginning to return to normal for the most part, though it is clear consumers are in a more cautions and conservative mood than before. As we seek out opportunities in this challenging environment, we are redoubling our focus on careful company analysis.
 
Sincerely,
 
/s/ Daniel R. Jaworski
 
Daniel R. Jaworski, CFA
Manager, Marshall International Stock Fund
 
[PHOTO OF DANIEL R. JAWORSKI]
 
 
 
n  Marshall International Stock Fund
 
 
  † 
Foreign investing involves special risks including currency risk, increased volatility of foreign securities, and differences in auditing and other financial standards.
 
  * 
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
 
 ** 
The EAFE and the LIFI are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be in a mutual fund’s performance. These indices are unmanaged. Actual investments may not be made in an index. The EAFE is an unmanaged market capitalization-weighted equity index comprising 20 of the 48 countries in the Morgan Stanley Capital International universe and representing the developed world outside of North America. Lipper indexes are an average of the total return of the 30 largest mutual funds designated by Lipper Analytical Services as falling into the respective categories indicated. They do not reflect sales charges.
 
*** 
Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The EAFE and the LIFI have been adjusted to reflect reinvestment of dividends on securities in the indices.
 
 †† 
These amounts include cash equivalents of 1.2% and 1.8%, respectively.
 
 
n  Marshall Funds
 
 
International Stock Fund
 
Shares    Description      Value
 
     Common Stocks — 98.2%
     Australia — 0.9%
     Banks — 0.6%
119,800      National Australia Bank Ltd.,
Melbourne		      $2,097,062
     Insurance — 0.3%
100,000      AMP Ltd.      1,037,311
           
       Total Australia      3,134,373
     Belgium — 0.9%
     Banks — 0.9%
202,200      Dexia      3,191,116
     Bermuda — 1.5%
     Industrial Conglomerates —  1.0%
65,900      Tyco International Ltd.      3,423,505
     IT Consulting & Services — 0.5%
134,500      (1)Accenture Ltd.      2,004,050
           
       Total Bermuda      5,427,555
     Brazil — 1.5%
     Aerospace & Defense — 0.3%
44,100      (1)Embraer-Empresa Brasileira de
Aeronautica SA, ADR		      1,151,010
     Metals & Mining — 0.7%
128,300      Companhia Vale Do Rio Doce, ADR      2,580,113
     Oil & Gas Integrated — 0.5%
70,100      Petroleo Brasileiro SA, ADR      1,577,250
           
       Total Brazil      5,308,373
     Canada — 1.4%
     Banks — 0.9%
104,700      Royal Bank of Canada, Montreal      3,355,622
     Financial Services — 0.5%
57,300      Manulife Financial Corp.      1,688,016
           
       Total Canada      5,043,638
     Denmark — 0.3%
     Banks — 0.3%
71,000      Danske Bank AS      1,204,844
     Finland — 0.7%
     Telecommunications — 0.7%
162,900      Nokia Oyj, Class A, ADR      2,564,046
     France — 13.4%
     Automotive — 0.6%
41,800      Peugeot SA      1,993,120
     Banks — 0.8%
32,600      BNP Paribas SA      2,993,303
     Beverages & Foods — 0.6%
14,700      Groupe Danone      2,000,556
     Building Materials — 0.8%
19,800      Compagnie de St. Gobain      3,042,030
     Chemicals — 0.3%
7,000      L’Air Liquide      989,555
     Construction Equipment — 0.6%
14,200      (2)Technip      2,101,621
     Construction Materials — 0.2%
9,900      Lafarge SA      898,659
     Domestic & International Oil — 2.0%
49,600      Total Fina SA, Class B      7,336,364
     Electrical Equipment — 0.5%
35,200      Schneider SA      1,952,019
     Health Care — 0.7%
36,400      Aventis SA      2,663,845
     Health Care Equipment & Supplies — 0.6%
6,600      Essilor International      1,976,420
Shares    Description      Value
 
     Common Stocks (continued)
     France (continued)
     Leisure & Recreation — 1.1%
96,500      Accor SA      $ 3,781,083
     Media — 1.1%
71,200      Vivendi Universal SA      3,896,621
     Metals & Mining — 0.8%
58,400      Pechiney SA, Class A      2,882,865
     MultiMedia — 0.4%
46,200      (1)Thomson Multimedia      1,310,833
     Pharmaceuticals & Health Care — 0.3%
15,400      Sanofi Synthelabo SA      1,008,710
     Specialty Retail — 0.8%
51,600      Castorama Dubois      2,884,938
     Water Treatment — 1.2%
61,400      Suez SA      2,093,203
53,900      (1)(2)Vivendi Environment      2,291,753
           
       Total      4,384,956
           
       Total France      48,097,498
     Germany — 7.9%
     Automotive — 1.1%
120,800      Bayerische Motoren Werke AG      3,882,112
     Chemicals — 0.8%
66,400      (2)BASF AG      2,716,391
     Drugs — 0.8%
56,800      Schering AG      2,961,375
     Industrial Conglomerates — 0.4%
25,800      Siemens AG      1,314,875
     Insurance — 1.5%
18,850      Muenchener Rueckversicherungs-
Gesellschaft AG		      5,408,290
     Leisure & Recreation — 0.9%
105,300      Preussag AG      3,333,257
     Oil & Gas Products — 0.6%
38,800      (2)E.On AG      2,118,148
     Software — 0.7%
17,800      SAP AG (Systeme, Anwendungen,
Produkte in der
Datevnerarbeitung)		      2,412,410
     Telecommunications — 0.5%
127,200      Deutsche Telekom AG      1,960,056
     Textiles & Apparel — 0.6%
31,500      Adidas AG      2,135,149
           
       Total Germany      28,242,063
     Hong Kong — 2.4%
     Banks — 0.5%
161,300      HSBC Holdings PLC      1,878,215
        Distribution & Wholesale — 0.4%
1,228,000      Li & Fung Ltd.      1,542,931
        Land & Real Estate — 0.5%
189,000      Sun Hung Kai Properties      1,647,756
        Telecommunications — 1.0%
1,149,500      (1)China Mobile (Hong Kong)
Ltd.		      3,588,641
           
          Total Hong Kong      8,657,543
        Ireland — 2.5%
        Banks — 2.1%
239,400      Allied Irish Banks, PLC      2,705,247
514,400      Bank of Ireland      4,905,554
           
          Total      7,610,801
 
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Portfolio of Investments 
  
 
 
International Stock Fund (continued)
 
Shares    Description      Value
 
     Common Stocks (continued)
        Ireland (continued)
        Pharmaceuticals & Health Care — 0.4%
29,200      (1)Elan Corp. PLC, ADR      $ 1,516,940
           
          Total Ireland      9,127,741
        Israel — 0.2%
        Computers Services — 0.2%
21,000      (1)Check Point Software
Technologies Ltd.		      671,790
        Italy — 2.5%
        Banks — 0.7%
737,000      Banca Intesa SPA      2,458,925
        Insurance — 1.0%
121,600      Assicurazioni Generali      3,852,548
        Oil & Gas Products — 0.8%
212,500      (2)ENI SPA      2,820,483
           
          Total Italy      9,131,956
        Japan — 11.7%
        Air Freight & Couriers — 0.5%
91,000      Yamato Transport      1,866,215
        Automotive — 0.6%
344,000      Nissan Motor Co., Ltd.      2,010,662
        Banks — 1.2%
688,000      Asahi Bank Ltd.      1,297,949
495,000      (2)Sumitomo Trust & Banking      3,160,062
           
          Total      4,458,011
        Beverages & Foods — 0.5%
175,000      Asahi Breweries      1,746,536
        Computers & Peripherals — 0.7%
194,000      NEC Corp.      2,370,775
        Construction & Engineering — 0.9%
356,000      JGC Corp.      3,133,195
        Electric Equipment & Instruments — 0.5%
205,000      Hitachi Ltd.      1,681,644
        Electronics — 0.8%
67,200      Sony Corp.      2,993,961
        Financial Services — 1.1%
253,000      (2)Daiwa Securities Co., Ltd.      2,143,580
107,000      Nomura Securities Co., Ltd.      1,820,356
           
          Total      3,963,936
        Household Products — 0.5%
72,000      Kao Corp.      1,831,305
        Leisure & Recreation — 0.8%
5,700      Nintendo Corp., Ltd.      909,715
125,000      (2)Sega Enterprises      2,042,363
           
          Total      2,952,078
        Machinery — 0.5%
492,000      Mitsubishi Heavy Industries Ltd.      2,009,685
        Machinery & Machine Tools — 0.4%
372,000      Komatsu Ltd.      1,356,601
        Pharmaceuticals & Health Care — 1.1%
242,000      (2)Chugai Pharmaceutical Co., Ltd.      3,907,138
        Retail — 0.4%
421,000      (2)Mitsukoshi Ltd.      1,464,379
        Telecommunications — 1.2%
355      NTT DoCoMo, Inc.      4,365,183
           
          Total Japan      42,111,304
        Korea, Republic of — 1.4%
        Banks — 0.1%
29,090      Kookmin Bank      391,203
Shares    Description      Value
 
     Common Stocks (continued)
        Korea, Republic of (continued)
        Electronics — 0.3%
6,930      Samsung Electronics Co.      $ 1,029,476
        Metals & Mining — 0.5%
103,200      Pohang Iron and Steel Co., Ltd.,
ADR		      1,796,712
        Telecommunications — 0.5%
91,900      Korea Telecom Corp., ADR      1,910,601
           
          Total Korea, Republic of      5,127,992
        Mexico — 1.4%
        Beverages & Foods — 0.6%
56,400      (1)Fomento Economico
Mexicano, SA de CV, ADR		      2,199,600
        Broadcasting & Cable TV — 0.8%
74,900      Grupo Televisa SA, GDR      2,733,850
           
          Total Mexico      4,933,450
        Netherlands — 9.2%
        Beverages & Foods — 1.1%
48,600      Heineken NV      2,039,011
60,500      Koninklijke Numico NV      1,999,270
           
          Total      4,038,281
        Chemicals — 1.1%
88,500      Akzo Nobel NV      3,918,176
        Domestic & International Oil — 2.2%
140,000      Royal Dutch Petroleum Co.      7,945,716
        Financial Services — 2.9%
323,800      ING Group NV      10,232,182
        Food & Drug Retailing — 1.3%
158,000      (2)Ahold NV      4,719,938
        Insurance — 0.6%
72,900      Aegon NV      2,199,614
           
          Total Netherlands      33,053,907
        Norway — 0.4%
        Leisure & Recreation — 0.4%
69,600      Royal Caribbean Cruises Ltd      1,598,763
        Spain — 2.3%
        Banks — 0.5%
202,700      Banco Santander Central Hispano,
SA		      1,848,274
        Broadcasting & Cable TV — 0.3%
39,848      (1)Sogecable SA      878,838
        Leisure & Recreation — 1.1%
530,555      (1)Amadeus Global Travel
Distribution SA		      4,070,845
        Telecommunications — 0.4%
132,500      (2)Telefonica SA      1,539,424
           
          Total Spain      8,337,381
        Sweden — 3.1%
        Banks — 1.9%
500,400      Nordbanken Holding AB      3,047,474
260,400      Svenska Handelsbanken AB, Class A      3,733,629
           
          Total      6,781,103
        Household Product/Wares — 0.7%
180,700      Electrolux AB, Class B      2,443,578
        Paper & Forest Products — 0.5%
87,000      Svenska Cellulosa AB, Class B      2,019,220
           
          Total Sweden      11,243,901
        Switzerland — 6.0%
        Banks — 2.4%
11,700      Julius Baer Holding Ltd., Zurich,
Class B		      3,821,467
99,000      UBS AG      4,829,558
           
          Total      8,651,025
(See Notes which are an integral part of the Financial Statements)
n  Marshall Funds
 
 
International Stock Fund (continued)
 
Shares    Description      Value
 
     Common Stocks (continued)
        Switzerland (continued)
        Beverages & Foods — 1.5%
24,500      Nestle SA      $  5,168,405
        Construction Materials — 1.0%
17,250      Holcim Ltd.      3,566,613
        Insurance — 0.8%
28,000      Swiss Re      2,785,569
        Pharmaceuticals & Health Care — 0.3%
33,600      (2)Novartis AG      1,225,315
           
          Total Switzerland       21,396,927
        Taiwan — 0.8%
        Electrical Equipment — 0.8%
214,000      (1)Taiwan Semiconductor
Manufacturing Co., ADR		      2,777,720
        United Kingdom — 24.4%
        Banks — 3.5%
410,500      Lloyds TSB Group PLC      4,234,613
206,500      Royal Bank of Scotland PLC,
Edinburgh		      5,156,856
273,500      Standard Chartered PLC      3,323,681
           
          Total      12,715,150
        Beverages & Foods — 1.1%
382,700      Diageo PLC      3,861,711
        Domestic & International Oil — 1.0%
440,800      BP Amoco PLC      3,740,784
        Drugs — 0.7%
55,200      AstraZeneca PLC      2,666,419
        Electric Utilities — 0.5%
502,800      Innogy Holdings PLC      1,686,334
        Financial Services — 0.4%
113,500      Amvescap PLC      1,598,469
        Gas Distribution — 0.4%
335,000      BG Group PLC      1,391,065
        Leisure & Recreation — 3.2%
388,000      Bass PLC      4,151,793
1,248,900      Hilton Group PLC      4,415,330
443,600      (1)P&O Princess Cruises PLC      2,383,031
65,360      Whitbread PLC      578,866
           
          Total      11,529,020
        Media — 0.6%
210,800      WPP Group PLC      2,105,695
        Metals & Mining — 1.1%
124,900      Johnson Matthey PLC      1,813,422
111,100      Rio Tinto PLC      2,000,195
           
       Total      3,813,617
Shares or
Principal
Amount		    Description      Value
 
     Common Stocks (continued)
        United Kingdom (continued)
        MultiMedia — 1.7%
217,100      Pearson PLC      $    3,089,032
259,300      Reed International PLC      2,285,218
69,200      Reuters Group PLC      780,663
           
          Total      6,154,913
        Pharmaceuticals & Health Care — 1.8%
246,544      (1)GlaxoSmithKline PLC      6,543,455
        Real Estate — 0.4%
176,500      (1)Canary Wharf Finance PLC      1,324,225
        Restaurants & Leisure — 1.4%
645,800      (1)Compass Group PLC      4,922,592
        Retail — 1.9%
976,209      Kingfisher PLC      5,293,830
110,500      Next PLC      1,516,110
           
          Total      6,809,940
        Telecommunications — 1.7%
3,044,121      Vodafone Group PLC      6,077,166
        Tobacco — 2.0%
837,900      British American Tobacco PLC      7,165,458
        Transportation Infrastructure — 0.6%
246,500      BAA PLC      2,295,885
     Utilities — 0.4%
363,600      National Power Co., PLC      1,462,312
           
          Total United Kingdom      87,864,210
        United States — 1.4%
        Electronic — 0.4%
63,100      (1)Flextronics International
Ltd.		      1,384,414
        Energy Equipment & Services — 0.4%
54,700      Transocean Sedco Forex, Inc.      1,580,830
        Insurance — 0.4%
48,900      Aflac, Inc.      1,345,728
        Leisure & Recreation — 0.2%
28,200      Royal Caribbean Cruises Ltd.      658,188
           
          Total United States      4,969,160
           
        Total Common Stocks
(identified cost $376,504,762)		      353,217,251
           
        (3)Repurchase Agreement — 1.2%
$4,125,000      State Street Corp., 2.50%,
dated 8/31/2001, due
9/4/2001 (at amortized cost)		      4,125,000
           
        Total Investments (identified
cost $380,629,762)*		      $357,342,251
           
 
(1) 
Non-income producing security.
 
(2) 
Certain shares or principal amounts are temporarily on loan to unaffiliated broker-dealers.
 
(3) 
The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on current market prices.
 
*   
The cost of investments for federal tax purposes amounts to $381,924,339. The net unrealized depreciation of investments on a federal tax basis amounts to $24,582,088 which is comprised of $18,114,912 appreciation and $42,697,000 depreciation at August 31, 2001.
 
Note: The categories of investments are shown as a percentage of net assets ($359,570,929) at August 31, 2001.
 
 
The following acronyms are used throughout this portfolio:
 
ADR—American Depositary Receipt
GDR—Global Depository Receipt
 
 
(See Notes which are an integral part of the Financial Statements)
August 31, 2001

Statement of Assets and Liabilities

       International
Stock
Fund
      
Assets:     
          Investments in securities, at value      $353,217,251  
          Investments in repurchase agreements      4,125,000  
          Short-term investments held as collateral for securities lending      24,543,972  
          Cash      296  
          Cash denominated in foreign currencies (identified cost, $865,015)      884,642  
          Income receivable      956,896  
          Receivable for investments sold      436,293  
          Receivable for capital stock sold      1,342,286  
     
  
                    Total assets      385,506,636  
Liabilities:     
          Payable for capital stock redeemed      279,838  
          Payable for investments purchased      595,935  
          Payable on collateral due to broker      24,543,972  
          Net payable for foreign currency exchange contracts      901  
          Accrued expenses      515,061  
     
  
                    Total liabilities      25,935,707  
     
  
          Total Net Assets      $359,570,929  
     
  
Net Assets Consist of:     
          Paid-in-capital      430,783,233  
          Net unrealized depreciation on investments, futures contracts and foreign currency translation      (23,251,038 )
          Accumulated net realized loss on investments, futures contracts and foreign currency transactions      (44,921,352 )
          Undistributed net investment loss      (3,039,914 )
     
  
          Total Net Assets      $359,570,929  
     
  
Net Asset Value, Offering Price, and Redemption Proceeds Per Share     
          Investor Class of Shares:     
          Net Asset Value and Redemption proceeds Per Share      $10.73  
          Offering Price Per Share      $10.73  
          Advisor Class of Shares:     
          Net Asset Value and Redemption proceeds Per Share      $10.73  
          Offering Price Per Share      $11.38 *
          Institutional Class of Shares:     
          Net Asset Value and Redemption proceeds Per Share      $10.77  
          Offering Price Per Share      $10.77  
Net Assets:     
          Investor Class of Shares      $246,648,959  
          Advisor Class of Shares      3,554,574  
          Institutional Class of Shares      109,367,396  
     
  
          Total Net Assets      $359,570,929  
     
  
Shares Outstanding:     
          Investor Class of Shares      22,993,694  
          Advisor Class of Shares      331,367  
          Institutional Class of Shares      10,152,371  
     
  
                    Total shares outstanding ($0.0001 par value)      33,477,432  
     
  
          Investments, at identified cost      $380,629,762  
     
  
 
*
Computation of offering price per share 100/94.25 of net asset value.
(See Notes which are an integral part of the Financial Statements)
 
Year Ended August 31, 2001
Statement of Operations
       International
Stock
Fund
      
Investment Income:     
          Interest income      $    1,127,461  
          Dividend income      6,188,286 (1)
     
  
                    Total income      7,315,747  
Expenses:     
          Investment adviser fee      4,231,619  
          Shareholder services fees—     
                    Investor Class of Shares      723,445  
                    Advisor Class of Shares      8,831  
          Administrative fees      397,420  
          Custodian fees      192,783  
          Portfolio accounting fees      135,182  
          Transfer and dividend disbursing agent fees      123,033  
          Registration fees      33,626  
          Auditing fees      14,367  
          Legal fees      5,223  
          Printing and postage      46,328  
          Directors’ fees      5,455  
          Insurance premiums – E&O/D&O      2,130  
          Distribution services fees—     
                    Advisor Class of Shares      8,831  
          Miscellaneous      12,707  
     
  
                               Total expenses      5,940,980  
Deduct—     
          Waiver of investment adviser fee      (69,950 )
          Waiver of shareholder services fees—       
                    Advisor Class of Shares      (8,831 )
     
  
                               Total Waivers      (78,781 )
     
  
Net expenses      5,862,199  
Net investment income      1,453,548  
Realized and Unrealized Loss on Investments, Foreign Currency and Futures Contracts:     
          Net realized loss on investment transactions (identified cost basis)      (43,502,687 )
          Net realized loss on foreign currency contracts (identified cost basis)      (1,316,950 )
          Net change in unrealized appreciation on investments, futures contracts and foreign currency
          translation		      (88,132,643 )
     
  
Net realized and unrealized loss on investments, foreign currency and futures contracts      (132,952,280 )
     
  
Change in net assets resulting from operations      $(131,498,732 )
     
  
(1)
Net of foreign taxes withheld of $832,171.
(See Notes which are an integral part of the Financial Statements)
 

Statement of Changes in Net Assets

 

       International Stock Fund
       Year Ended
August 31,
2001
     Year Ended
August 31,
2000
Increase (Decrease) in Net Assets          
Operations—          
          Net investment income (net operating loss)      $    1,453,548        $    (1,419,327 )
          Net realized gain (loss) on investment transactions      (43,502,687 )      48,386,644  
          Net realized gain (loss) on foreign currency contracts      (1,316,950 )      42,214  
          Net change in unrealized appreciation of investments, futures contracts and
          foreign currency translation		      (88,132,643 )      34,520,660  
       
       
  
          Change in net assets resulting from operations       (131,498,732 )      81,530,191  
       
       
  
Distributions to Shareholders—          
          Distributions to shareholders from net investment income          
                    Investors Class of Shares      —        (2,733,118 )
                    Advisor Class of Shares      —        (8,249 )
                    Institutional Class of Shares      —        (820,442 )
          Distributions to shareholders from net realized gain on investments          
                    Investors Class of Shares      (33,371,017 )      (22,694,282 )
                    Advisor Class of Shares      (390,149 )      (67,987 )
                    Institutional Class of Shares      (15,060,189 )      (6,274,748 )
       
       
  
                    Change in net assets resulting from distributions to shareholders      (48,821,355 )      (32,598,826 )
       
       
  
Capital Stock Transactions—          
          Proceeds from sale of shares      247,575,054        947,444,950  
          Net asset value of shares issued to shareholders in payment of distributions
          declared		      47,791,410        30,622,693  
          Cost of shares redeemed      (243,821,846 )       (809,396,336 )
       
       
  
                    Change in net assets resulting from capital stock transactions      51,544,618        168,671,307  
       
       
  
                    Change in net assets      (128,775,469 )      217,602,672  
Net Assets:          
          Beginning of period      488,346,398        270,743,726  
       
       
  
          End of period      $359,570,929        $488,346,398  
       
       
  
Undistributed net investment loss included in net assets at end of period      $    (3,039,914 )      $    (3,817,818 )
       
       
  
(See Notes which are an integral part of the Financial Statements)
Financial Highlights—Marshall Funds—Institutional Class of Shares (For a share outstanding throughout each period)
 
        Ratios to Average Net Assets
Period
Ended
August 31,
   Net asset
value,
beginning
of period
   Net
investment
income
(net
operating
loss)
   Net realized and
unrealized
gain (loss) on
investments,
futures contracts,
and foreign
currency
   Total from
investment
operations
   Dividends to
shareholders
from net
investment
income
   Distributions to
shareholders from
net realized gain
on investments,
futures contracts, and
foreign currency
transactions
   Total
distributions
   Net asset
value, end
of period
   Total
return(1)
   Expenses
   Net
investment
income
(net operating
loss)
   Expense
waiver(2)
   Net assets,
end of
period
(000 omitted)
   Portfolio
turnover
rate
International Stock Fund              
2000(3)   $13.83   (0.02 )(4)   4.08     4.06     (0.18 )   (1.36 )   (1.54 )   $16.35   28.34 %   1.26 %   (0.12 )%   0.02 %   $134,920   225 %
2001   $16.35   0.07 (4)   (4.04 )   (3.97 )   —     (1.61 )   (1.61 )   $10.77   (26.19 )%   1.21 %   0.55 %   0.02 %   $109,367   156 %
 
(1)
Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
(2)
This voluntary expense decrease is reflected in both the expense and net investment income (net operating loss) ratios.
(3)
Reflects operations for the period from September 1, 1999 (start of performance) to August 31, 2000.
(4)
Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
August 31, 2001
Notes to Financial Statements
 
1. Organization
 
        Marshall Funds, Inc. (the “Corporation”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Corporation consists of eleven diversified portfolios. The financial statements included herein are only those of Marshall International Stock Fund (the “Fund”). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. The investment objective of the Fund is to provide capital appreciation.
 
        Effective September 1, 1999, the Fund began offering Institutional Class of Shares in addition to the Investor Class of Shares and Advisor Class of Shares previously offered. The Financial Highlights of Investor Class of Shares and Advisor Class of Shares of the Fund are presented in separate annual reports.
 
2. Significant Accounting Policies
 
        The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with accounting principles generally accepted in the United States.
 
        Investment Valuations—Foreign equity securities are valued at the last sale price reported in the market in which they are primarily traded. If no sale on the recognized exchange is reported or the security is traded over-the-counter, the foreign securities are valued at the mean between the last closing bid and asked prices. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities purchased with remaining maturities of sixty days or less may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith under procedures adopted by the Board of Directors of the Fund (the “Directors”).
 
        Repurchase Agreements—It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank’s vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement’s collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement, including accrued interest.
 
        The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund’s adviser or sub-advisor to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Directors. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities.
 
        Investment Income, Expenses and Distributions—Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the “Code”). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair market value. The Fund offers multiple classes of shares which differ in their respective distribution and service fees. All shareholders bear the common expense of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
 
        In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the “Guide”). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
 
        Reclassification—Income and capital gain distributions are determined in accordance with income tax regulations which differ from generally accepted accounting principles. These differences are primarily attributable to differing book/tax treatments of net operating loss, passive foreign investment companies, and foreign currency transactions. Amounts as of August 31, 2001 have been reclassed to reflect the following:
 
Increase (Decrease)
Paid-in Capital
    Accumulated
Net Realized
Gain/Loss
    Undistributed Net
Investment Income
$(3,797,658)    $4,473,302    $(675,644)
 
        Net investment income, net realized gains/losses and net assets were not affected by this reclassification.
 
n  Marshall Funds
 
        Federal Taxes—It is the Fund’s policy to comply with the provisions of Subchapter M of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of their income. Accordingly, no provision for federal tax is necessary.
 
        Withholding taxes on foreign dividends have been provided for in accordance with the applicable country’s tax rules and rates.
 
        At August 31, 2001, the Fund, for federal tax purposes, had a capital loss carry-forward of $2,042,934, which will reduce the Fund’s taxable income arising from future net realized gain on investments, if any, to the extend permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code such capital loss carryforward will expire in 2009.
 
        Additionally, net capital losses of $41,583,841 and $3,039,914 of currency losses attributable to security transactions incurred after October 31, 2000 are treated as arising on September 1, 2001, the first day of the Fund’s next taxable year.
 
        When-Issued and Delayed Delivery Transactions—The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked-to-market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
 
        Foreign Exchange Contracts—The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross hedge against either specific transactions or portfolio positions. The objective of the Fund’s foreign currency hedging transactions is to reduce the risk that the U.S. dollar value of the Fund’s foreign currency denominated securities will decline in value due to changes in foreign currency exchange rates. All foreign currency exchange contracts are “marked-to-market” daily at the applicable translation rates resulting in unrealized gains or losses. Realized gains or losses are recorded at the time the foreign currency exchange contract is offset by entering into a closing transaction or by the delivery or receipt of the currency. Risk may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. At August 31, 2001, the Fund had outstanding foreign exchange contracts as set forth below:
 
Settlement Date
        Foreign Currency
Units to
Deliver/Receive
        In Exchange
        Contracts at
Value
          Unrealized
Depreciation
Contract Purchased:
9/1/01    109,954 British Pound Sterling    $160,533    $159,642    $(891 )
Contract Sold:
9/1/01    4,989,130 Korean Won    3,891    3,901    (10 )
                      
  
Net Unrealized Depreciation on Foreign Exchange Contracts            $(901 )
                      
  
 
        Foreign Currency Translation—The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (“FCs”) are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
 
        Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of FCs, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.
 
        Other—Investment transactions are accounted for on a trade date basis.
 
        Securities Lending—The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. The Fund receives cash as collateral in return for the securities and records a corresponding payable for collateral due to the respective broker. The amount of cash collateral received is maintained at a minimum level of 100% of the prior day’s market value on securities loaned. Collateral is reinvested by the Fund in short-term securities including overnight repurchase agreements, commercial paper, master notes, floating rate corporate notes (with at least quarterly reset rates) and money market funds. On May 18, 2000, the Securities and Exchange Commission issued an order to the Marshall Funds that exempts certain securities lending activities from prohibitions under the Investment Company Act of 1940. Under the terms of the exemptive order, (i) the Fund may pay a portion of net revenue to M & I Trust Company for its services as securities lending agent, and (ii) cash collateral received for a loan of the Fund’s securities may be invested jointly with collateral received for loans of other Marshall Funds’ securities.
 
        As of August 31, 2001, the value of securities loaned, the payable on collateral due to broker and the value of reinvested cash collateral securities were as follows:
 
Market Value of
Securities Loaned
    Payable on Collateral
Due to Broker
    Reinvested Collateral
Securities
     $23,928,792    $24,543,972    $24,543,972
 
        Individual reinvested cash collateral securities at August 31, 2001 are as follows:
 
Investments
      Total
Provident Money Market Fund      $      143,013
Merrimac Money Market Fund       10,990,562
Dreyfus Cash Management Plus      8,502,940
Financial Square Money Market Fund      90,879
JP Morgan Master Note      1,181,425
Williamette Industries Master Note      1,363,183
Danaher Corp. Master Note      908,787
First Union National Bank Note      1,363,183
 
3. Capital Stock
 
        The Articles of Incorporation permit the Directors to issue an indefinite number of full and fractional shares of common stock, par value $0.0001 per share. At August 31, 2001, the capital paid-in was $430,783,233.
 
        Transactions in capital stock were as follows:
 
     Year Ended
August 31, 2001
      Year Ended
August 31, 2000
Investor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      15,212,008        $195,353,624        48,985,409        $812,145,186  
Shares issued to shareholders in payment of distributions declared      2,469,820        32,972,095        1,321,710        23,685,001  
Shares redeemed      (16,197,785 )      (209,170,751 )      (48,338,103 )      (797,167,098 )
     
     
     
     
  
Net change resulting from Investor Class of Shares transactions      1,484,043        $  19,154,968        1,969,016        $  38,663,089  
     
     
     
     
  
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000
Advisor Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      420,204        $    5,315,028        108,079        $    1,787,392  
Shares issued to shareholders in payment of distributions declared      28,817        384,702        4,262        76,381  
Shares redeemed      (251,427 )      (2,851,448 )      (9,546 )      (148,319 )
     
     
     
     
  
Net change resulting from Advisor Class of Shares transactions      197,594        $    2,848,282        102,795        $    1,715,454  
     
     
     
     
  
 
       Year Ended
August 31, 2001
      Year Ended
August 31, 2000(1)
Institutional Class of Shares      Shares
      Amount
      Shares
      Amount
Shares sold      3,484,294        $  46,906,402        8,573,513        $133,512,372  
Shares issued to shareholders in payment of distributions declared      1,078,820        14,434,613        382,886        6,861,311  
Shares redeemed      (2,661,048 )      (31,799,647 )      (706,094 )      (12,080,919 )
     
     
     
     
  
Net change resulting from Institutional Class of Shares transactions      1,902,066        $  29,541,368        8,250,305        $128,292,764  
     
     
     
     
  
Net change resulting from Fund Share transactions      3,583,703        $  51,544,618        10,322,116        $168,671,307  
     
     
     
     
  
(1) 
For the period from September 1, 1999 (start of performance) to August 31, 2000.
 
n  Marshall Funds
 
4. Investment Adviser Fee and Other Transactions with Affiliates
 
        Investment Adviser Fee—Marshall & Ilsley (M&I) Investment Management Corp., the Fund’s investment adviser (the “Adviser”), receives for its services an annual investment adviser fee equal to 1.00% of the Fund’s average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
 
        The Fund’s sub-adviser is BPI Global Asset Management LLP (the “Sub-Adviser”). The Adviser compensates the Sub-Adviser based on the level of average aggregate daily net assets of the Fund.
 
        Administrative Fee—M&I Trust Company, under the Administrative Services Agreement, provides the Fund with Administrative personnel and services. The fee paid to M&I Trust Company was based on a scale that ranged from 0.15% to 0.075% of the average aggregate net assets of the Corporation.
 
        Effective September 15, 2000, M&I Trust changed its administrative fee based on each Fund’s average daily net assets as follows:
 
 
Maximum Fee
      Fund’s ADNA
0.100%      on the first $250 million
0.095%      on the next $250 million
0.080%      on the next $250 million
0.060%      on the next $250 million
0.040%      on the next $500 million
0.020%      on assets in excess of $1.5 billion
 
 
Federated Administrative Services (“FAS”) is the sub-administrator and will be paid by M&I Trust Company, not by the Funds.
 
        Distribution Services Fee—The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (“FSC”), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of shares of the Fund’s Advisor Class. The Plan provides that the Fund may incur distribution expenses up to 0.25% of the average daily net assets of Fund’s Advisor Class Shares annually, to compensate FSC.
 
        Shareholder Services Fee—Under the terms of a Shareholder Services Agreement with Marshall Funds Investor Services (“MFIS”), the Fund will pay MFIS up to 0.25% of average daily net assets of the Funds’ Investor Class and Advisor Class for the period. MFIS may voluntarily choose to waive any portion of its fee. MFIS can modify or terminate this voluntary waiver at any time at its sole discretion.
 
        Transfer and Dividend Disbursing Agent Fees and Expenses—Federated Services Company (“FServ”), through its subsidiary, Federated Shareholder Services Company (“FSSC”), serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders.
 
        Portfolio Accounting Fees—FServ maintains the Fund’s accounting records for which it receives a fee. The fee is based on the level of the Fund’s average daily net assets for the period, plus out-of-pocket expenses.
 
        Custodian Fees—State Street Bank is the Fund’s custodian. The fee is based on the level of the Fund’s average daily net assets for the period.
 
        General—Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of one or more of the above companies.
 
5. Investment Transactions
 
        Purchases and sales of investments, excluding short-term securities, for the year ended August 31, 2001, were as follows:
 
Purchases      $627,444,812
Sales      $617,991,402
 
 
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
 
The Fund hereby designates $15,888,938 as long-term capital gains distributions for the year ended August 31, 2001.
 
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders of
The Marshall Funds, Inc.:
 
        We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Marshall International Stock Fund (a portfolio of The Marshall Funds, Inc.) (the “Fund”), as of August 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and financial highlights for the year then ended and for the period from September 1, 1999 (commencement of operations of the Class I Shares) to August 31, 2000. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
 
        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2001, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from the brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
        In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Marshall International Stock Fund, at August 31, 2001, the results of its operations for the year then ended, the changes in its net assets and financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States.
 
/s/ Ernst & Young LLP
 
Boston, Massachusetts
October 16, 2001
 
Directors
Officers
 
John M. Blaser
John DeVincentis
Duane E. Dingmann
James Mitchell
Barbara J. Pope
David W. Schulz
John M. Blaser
President
 
John D. Boritzke
Vice President
 
William A. Frazier
Vice President
 
Brooke J. Billick
Secretary
 
Ann K. Peirick
Treasurer
 
Lori K. Hoch
Assistant Secretary
 
 
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and
are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency. Investment in
mutual funds involves investment risk, including the possible loss of principal.
 

This report is authorized for distribution to prospective investors only when preceded
or accompanied by the Funds’ prospectus, which contains facts concerning each
Fund’s objective and policies, management fees, expenses, and other information.

 

[Logo of Marshall Funds]

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

1-800-236-FUND (3863) or 414-287-8595
TDD: Speech and Hearing Impaired Services
800-209-3520
www.marshallfunds.com

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