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A Portfolio of WesMark Funds
A mutual fund seeking capital appreciation by investing primarily in growth-oriented common stocks of small-sized companies with above-average potential for appreciation.
Shares of the WesMark Small Company Growth Fund, like shares of all mutual funds, are not bank deposits, federally insured, or guaranteed, and may lose value.
As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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| CONTENTS | ; | |
| Fund Goal, Strategies, and Risks | 1 | |
| Performance Summary | 2 | |
| What are the Fund's Fees and Expenses? | 3 | |
| What are the Principal Securities in Which the Fund Invests? | 3 | |
| What are the Specific Risks of Investing in the Fund? | 4 | |
| What do Shares Cost? | 5 | |
| How is the Fund Sold? | 6 | |
| How to Purchase Shares | 7 | |
| How to Redeem and Exchange Shares | 8 | |
| Account and Share Information | 10 | |
| Who Manages the Fund? | 10 |
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To achieve capital appreciation.
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The Fund invests in a diversified portfolio of common stocks of small-sized companies similar in size to those within the Russell 2000 Index. As of May 31, 2000, the Index's range was $180 million to $1.6 billion, but frequently changes as the market value of the stocks that comprise the index changes or as stocks are added or removed from the index. WesBanco Trust and Investment Services (Adviser) selects stocks of companies which meet certain fundamental and technical standards of selection, and have an above-average potential for appreciation. The Fund will invest in companies in market sectors that offer the highest growth potential, which historically have been telecommunication, computer hardware and software, technology, health care, and biotechnology. However, the Fund may invest in other sectors if, in the Adviser's opinion, they offer a better opportunity for growth. The Adviser will select 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 methods of distribution, or overall business restructuring. The Fund's investment philosophy will be to select rapidly growing companies with the expectation that this rapid growth will overcome any deficiencies in either balance sheet strength or high valuation. Opportunities that are identified in more mature industries may also be selected for investment by the Fund.
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As with all mutual funds, the value of the stocks in the Fund's portfolio will go up and down, and therefore the value of your Fund shares will also change. These changes could be a long-term trend or short-term movement. The Fund's portfolio will reflect changes in the prices of individual portfolio stocks or general changes in stock valuations. Consequently, the Fund's share price could decline and you could lose money. The primary factors that may reduce the Fund's returns include:
The value of stocks will rise and fall.
Growth stocks depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks.
The smaller the capitalization of a company, the less liquid its stock and more volatile its price
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Market sectors may underperform other sectors or the market as a whole. The sectors in which the Fund invests may have special risks because of their historical volatility.
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The Fund's shares are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.
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[Graphic Representation Omitted--See Appendix]
The bar chart shows the variability of the Fund's shares total returns on a calendar year-end basis.
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The total returns displayed for the Fund do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.
The Fund's total return for the three-month period from January 1, 2000 to March 31, 2000 was 18.96%.
Within the period shown in the Chart, the Fund's highest quarterly return was 53.44% (quarter ended December 31, 1999). Its lowest quarterly return was (25.84%) (quarter ended September 30, 1988).
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The following table represents the Fund's shares Average Annual Total Return for the calendar periods ended December 31, 1999. The table shows the Fund's shares total returns over a period of years relative to the Russell 2000, a broad-based market index of small company stocks. Total returns for the indices shown do not reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
|
Calendar Period |
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Fund* |
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Russell 2000 |
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1 Year |
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111.50% |
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21.26% |
|
5 Years |
|
25.67% |
|
16.69% |
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Start of Performance** |
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22.33% |
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13.38% |
* The Fund is the successor to the portfolio of a common trust fund (CTF) managed by the Adviser. At the Fund's commencement of operations, the CTF's assets were transferred to the Fund in exchange for Fund shares. The quoted performance data includes performance for periods before the Fund's registration became effective on July 31, 2000, as adjusted to reflect the Fund's expenses. The CTF was not registered under the Investment Company Act of 1940 ("1940 Act") and was therefore not subject to the restrictions under the 1940 Act. If the CTF had been registered under the 1940 Act, the performance may have been adversely affected.
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**The Fund's Start of Performance date was December 31, 1993.
Past performance is no guarantee of future results. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential rewards.
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This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund.
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Shareholder Fees |
; |
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Fees Paid Directly From Your Investment |
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Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
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4.75% |
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Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) |
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None |
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Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price) |
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None |
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Redemption Fee (as a percentage of amount redeemed, if applicable) |
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None |
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Exchange Fee |
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None |
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Annual Fund Operating Expenses(Before Waivers)1 |
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Expenses That are Deducted From Fund Assets (as a percentage of average net assets) |
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Management Fee |
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0.75% |
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Distribution (12b-1) Fee2 |
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0.25% |
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Shareholder Services Fee3 |
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0.25% |
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Other Expenses |
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0.91% |
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Total Annual Fund Operating Expenses |
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2.16% |
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1 Although not contractually obligated to do so, the distributor and shareholder services provider expect to waive certain amounts. These are shown below along with the net expenses the Fund will actually pay for the fiscal year ending January 31, 2001. |
||
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Total Waiver of Fund Expenses |
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0.50% |
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Total Actual Annual Fund Operating Expenses (After Waivers) |
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1.66% |
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2 The Fund has no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending January 31, 2001. |
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3 The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending January 31, 2001. |
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The following Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses are before waivers as shown above and remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
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3 Years |
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5 Years |
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10 Years |
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$684 |
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$1,119 |
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$1,579 |
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$2,850 |
Equity securities represent a share of an issuer's earnings and assets, after the issuer pays its liabilities. The Fund cannot predict the income it will receive from equity securities because issuers generally have discretion as to the payment of any dividends or distributions. However, equity securities offer greater potential for appreciation than many other types of securities, because their value increases directly with the value of the issuer's business. The following describes the types of equity securities in which the Fund may invest.
Common stocks are the most prevalent type of equity security. Common stocks receive the issuer's earnings after the issuer pays its creditors and any preferred stockholders. As a result, changes in an issuer's earnings directly influence the value of its common stock.
Preferred stocks have the right to receive specified dividends or distributions before the issuer makes payments on its common stock. Some preferred stocks also participate in dividends and distributions paid on common stock. Preferred stocks may also permit the issuer to redeem the stock. The Fund may also treat such redeemable preferred stock as a fixed income security.
Depositary receipts represent interests in underlying shares issued by a foreign company. Depositary receipts are not traded in the same market as the underlying security. American Depositary Receipts (ADRs) are also traded in U.S. dollars, eliminating the need for foreign exchange transactions. The foreign securities underlying European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary Receipts (IDRs), are traded globally or outside the United States. Depositary receipts involve many of the same risks of investing directly in foreign securities, including currency risks and risks of foreign investing.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash, cash items, and shorter-term, higher-quality debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
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You can purchase, redeem, or exchange shares any day the New York Stock Exchange (NYSE) and Federal Reserve wire system are open. When the Fund receives your transaction request in proper form, it is processed at the next determined net asset value (NAV) plus the applicable sales charge (public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Funds generally value equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market. Fixed income securities are generally valued at the last sale price on a national securities exchange, if available, otherwise, as determined by an independent pricing service. Short-term obligations are valued according to the mean between bid and asked prices as furnished by an independent pricing service, except that short-term obligations with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost or at fair market value as determined by the Board.
The required minimum initial investment for Fund shares is $1,000, unless the investment is in an Individual Retirement Account, in which case the minimum initial investment is $500. Subsequent investments must be in amounts of at least $100. These minimums may be waived for purchase by the Trust Division of WesBanco for its fiduciary or custodial accounts and WesBanco employees and members of their immediate family. The Fund may waive the initial minimum investment from time to time.
An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Trust. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
The following table summarizes the minimum required investment amount and the maximum sales charge, if any, that you will pay on an investment in the Fund. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
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Amount of |
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Sales Charge |
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Sales Charge |
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Less than $50,000 |
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4.75% |
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4.99% |
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$50,000 but less |
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3.50% |
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3.63% |
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$100,000 but less |
|
2.50% |
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2.56% |
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$250,000 but less |
|
1.50% |
|
1.52% |
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$500,000 but less |
|
1.00% |
|
1.01% |
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$1,000,000 or greater |
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0.00% |
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0.00% |
Certain investors, including trust customers of WesBanco, are not subject to the sales charge.
The sales charge at purchase will be eliminated when Shares are purchased by:
Contact WesBanco Securities, Inc. for further information on reducing or eliminating the sales charge.
Edgewood Services, Inc. (Distributor) markets the shares described in this prospectus to customers of the Adviser and its affiliates and institutions or individuals, directly from the Fund or through investment professionals. When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Shares. Because these shares could pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees. The Fund is not currently paying or accruing fees under the Plan.
You may purchase shares directly from the Fund by calling WesMark Funds Shareholder Services at 1-800-864-1013, through WesBanco Securities, Inc. or through an investment professional. The Fund reserves the right to reject any request to purchase or exchange shares.
You will become the owner of Shares and your shares will be priced at the next calculated NAV after the Fund receives your payment. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
To purchase shares by Federal Reserve wire, contact your account officer for wiring instructions. Wire orders will only be accepted on days on which the Fund, WesBanco and the Federal Reserve Banks are open for business.
Make your check payable to "WesMark Small Company Growth Fund", note your account number on the check (for existing shareholders only), and mail it to:
WesMark Funds Shareholder Services
WesBanco Bank, Inc.
One Bank Plaza
Wheeling, WV 26003
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third- party checks (checks originally payable to someone other than you or the Fund).
Shares can be purchased through WesBanco Securities, Inc. (WSI) by visiting a WSI investment professional or by calling 1-800-368-3369. Once you have established your account with WSI, you may submit your purchase order to a WSI investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV, if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of shares and receive dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You may purchase Shares through an exchange from another WesMark Fund. You must meet the minimum initial investment requirement for purchasing Shares and both accounts must have identical registrations.
Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the Systematic Investment Program (SIP) section of the New Account Form or by contacting the Fund or your investment professional. The minimum investment amount for SIPs is $100.
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You may purchase shares as retirement investments (such as qualified plans and IRAs or transfer or rollover of assets). Call the Fund or your investment professional for information on retirement investments. We suggest that you discuss retirement investments with your tax adviser. You may be subject to an annual IRA account fee.
You should redeem or exchange Shares:
You may redeem or exchange shares by calling your account officer or WesMark Funds Shareholder Services at 1-800-864-1013 once you have completed the appropriate authorization form for telephone transactions. If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you will receive a redemption amount based on that day's NAV.
You may redeem or exchange shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
Send requests by mail to:
WesMark Funds Shareholder Services
WesBanco Bank, Inc.
One Bank Plaza
Wheeling, WV 26003
All requests must include:
if exchanging, the Fund Name, account number and account registration into which you are exchanging.
Call the Fund or your investment professional if you need special instructions.
Shares can be redeemed or exchanged through WSI by visiting a WSI investment professional or by calling 1-800-368-3369. Once you have established your account with WSI, you may submit your redemption or exchange order to a WSI investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from the investment professional.
Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union, or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
In the absence of your specific instructions, 10% of the value of your redemption from a retirement account in the Fund may be withheld for taxes. This withholding only applies to certain types of retirement accounts.
You may exchange shares of the Fund into shares of another WesMark Fund. To do this, you must:
An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.
The Fund may modify or terminate the exchange privilege at any time. The Fund's management or Adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other WesMark Funds.
Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must be $10,000. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income. Generally, it is not advisable to continue to purchase shares subject to a sales charge while redeeming shares using this program.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund does not issue share certificates.
You will receive confirmation of purchases, redemptions and exchanges (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends and capital gains paid.
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The Fund declares and pays dividends if any, quarterly. Dividends are paid to all shareholders invested in the Fund on the record date. The record date is the date on which a shareholder must officially own Shares in order to earn a dividend.
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In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a dividend or capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, non-retirement accounts may be closed if redemptions or exchanges cause the account balance to fall below $1,000. Before an account is closed, you will be notified and allowed 30 days to purchase additional shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state, and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, WesBanco Trust and Investment Services. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is One Bank Plaza, Wheeling, WV 26003.
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The Adviser is a wholly owned subsidiary of WesBanco, Inc. (Corporation), a registered bank holding company headquartered in Wheeling, WV. The Corporation and its subsidiaries provide a broad range of financial services to individuals and businesses in West Virginia and Ohio with 62 banking locations. The Adviser is a state chartered bank which offers financial services that include commercial and consumer loans, corporate, institutional and personal trust services, and demand and time deposit accounts. The Adviser employs an experienced staff of professional investment analysts, portfolio managers and traders. The staff manages the bond portfolios of the Corporation and its subsidiaries which include government, corporate, mortgage and municipal securities with a total value of $567 million as of December 31, 1999. In addition, the Adviser provides investment management services to the trust customers of WesBanco Trust and Investment Services. The total assets of WesBanco Trust and Investment Services ar e valued at $3.1 billion.
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Jerome B. Schmitt has been a co-portfolio manager for the Fund since its inception. He has been employed by the Adviser since 1972 and served as Senior Vice President of Trust and Investments from 1991 to 1996, and has been Executive Vice President of Trust and Investments since June 1996. Mr. Schmitt is a Chartered Financial Analyst and received his M.A. in Economics from Ohio University. Mr. Schmitt is responsible for supervising the activities of the Trust and Investment Departments of the Adviser.
David B. Ellwood has been a co-portfolio manager for the Fund since its inception. He has been employed by the Adviser since 1982 and has been Vice President--Investments since May 1997. Mr. Ellwood is a Chartered Financial Analyst and received a B.S. degree in Business Administration from Wheeling Jesuit College. Mr. Ellwood is responsible for portfolio management, investment research and assisting in the supervision of the investment activities of the Investment Department.
The Adviser receives an annual investment advisory fee of 0.75% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The Fund's fiscal year end is January 31. As this is the Fund's first fiscal year, financial information is not yet available.
[Graphic Representation Omitted--See Appendix]
A Statement of Additional Information (SAI) dated August,1, 2000 is incorporated by reference into this prospectus. To obtain the SAI and other information without charge, and make inquiries, call your investment professional or the Fund at 1-800-864-1013.
You can obtain information about the Fund (including the SAI) by writing to or visiting the Public Reference Room in Washington, DC. You may also access fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at [email protected] or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
WesMark Small Company Growth Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7010
Edgewood Services, Inc., Distributor ;
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Investment Company Act File No. 811-7925
Cusip 951025501
25506 (8/00)
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STATEMENT OF ADDITIONAL INFORMATION
WESMARK SMALL COMPANY GROWTH FUND
A PORTFOLIO OF WESMARK FUNDS
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for WesMark Small Company Growth Fund
(Fund), dated August 1, 2000. Obtain the prospectus without charge by calling
1-800-864-1013.
August 1, 2000
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Investment Ratings
Addresses
25507 (8/00)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of WesMark Funds (Trust). The Trust is an
open-end, management investment company that was established under the laws of
the Commonwealth of Massachusetts on March 1, 1996. The Trust may offer separate
series of shares representing interests in separate portfolios of securities.
The Fund is a portfolio of the Trust and was declared effective on August 1,
2000. The Fund's investment adviser is WesBanco Trust and Investment Services
(Adviser).
SECURITIES IN WHICH THE FUNDS INVEST
In pursuing their investment strategy, the Funds may invest in the following
securities for any purpose that is consistent with their investment objective.
Following table indicates which types of securities are:
o P = Principal investment of a Fund;
o A = Acceptable (but not principal) investment of a Fund; or
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SECURITIES WESMARK SMALL
COMPANY GROWTH
FUND
------------------------------------------------------------
COMMON STOCKS P
------------------------------------------------------------
PREFERRED STOCKS P
------------------------------------------------------------
REITS A
------------------------------------------------------------
WARRANTS A
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TREASURY SECURITIES A
------------------------------------------------------------
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AGENCY SECURITIES A
------------------------------------------------------------
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CORPORATE DEBT SECURITIES A
------------------------------------------------------------
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COMMERCIAL PAPER A
------------------------------------------------------------
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DEMAND INSTRUMENTS A
------------------------------------------------------------
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BANK INSTRUMENTS A
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CONVERTIBLE SECURITIES A
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DERIVATIVE CONTRACTS A
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FUTURES CONTRACTS A
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OPTIONS A
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FOREIGN SECURITIES A
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DEPOSITARY RECEIPTS P
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FOREIGN EXCHANGE CONTRACTS A
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FOREIGN GOVERNMENT SECURITIES A
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CREDIT ENHANCEMENT A
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DEMAND FEATURES A
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DEMAND MASTER NOTES A
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FOREIGN MONEY MARKET A
INSTRUMENTS
------------------------------------------------------------
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ECDS, ETDS, YCDS A
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WHEN-ISSUED AND DELAYED A
DELIVERY TRANSACTIONS
------------------------------------------------------------
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REPURCHASE AGREEMENTS A
------------------------------------------------------------
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REVERSE REPURCHASE AGREEMENTS A
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TBAS A
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DOLLAR ROLLS A
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SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may also treat
such redeemable preferred stock as a fixed income security.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
may invest.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full, faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Agency
securities are generally regarded as having low credit risks, but not as low
as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers. In addition, the credit risk of an issuer's debt security may vary
based on its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated)securities.
This means that the issuer might not make payments on subordinated securities
while continuing to make payments on senior securities. In addition, in the
event of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated securities,
such as trust preferred and capital securities notes, also permit the issuer to
defer payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company to
defer any payment that would reduce its capital below regulatory requirements.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
|_| Buy put options on portfolio securities, securities indices, and listed put
options on futures contracts in anticipation of a decrease in the value of the
underlying asset; |_| Write covered call options on portfolio securities and
listed call options on futures contracts to generate income from premiums, and
in anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by the Fund is exercised, the Fund foregoes
any possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received; |_| Write secured put options
on portfolio securities (to generate income from premiums, and in anticipation
of an increase or only limited decrease in the value of the underlying asset).
In writing puts, there is a risk that the Fund may be required to take delivery
of the underlying asset when its current market price is lower than the exercise
price; |_| When the Fund writes options on futures contracts, it will be subject
to margin requirements similar to those applied to futures contracts; and |_|
Buy or write options to close out existing options positions.
The Fund may also write call options on financial futures contracts to generate
income from premiums, and in anticipation of a decrease or only limited increase
in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the premium received.
The Fund may also write put options on financial futures contracts to generate
income from premiums, and in anticipation of an increase or only limited
decrease in the value of the underlying asset. In writing puts, there is a risk
that the Fund may be required to take delivery of the underlying asset when its
current market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide away to buy shares
of foreign-based companies in the United States rather than in overseas markets.
ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange
transactions. The foreign securities underlying European Depositary Receipts
(EDRs), Global Depositary Receipts(GDRs), and International Depositary Receipts
(IDRs), are traded globally or outside the United States. Depositary receipts
involve many of the same risks of investing directly in foreign securities,
including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
BORROWING. The Funds may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets, and pledge some assets as
collateral. A Fund that borrows will pay interest on borrowed money and may
incur other transaction costs. These expenses could exceed the income received
or capital appreciation realized by a Fund from any securities purchased with
borrowed money. With respect to borrowings, the Funds are required to maintain
continuous asset coverage equal to 300% of the amount borrowed. If the coverage
declines to less than 300%, a Fund must sell sufficient portfolio securities to
restore the coverage even if it must sell the securities at a loss.
CREDIT ENHANCEMENT. Certain acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. The Adviser may evaluate a security
based, in whole or in part, upon the financial condition of the party providing
the credit enhancement (the credit enhancer). The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security. For diversification purposes,
credit-enhanced securities will not be treated as having been issued by the
credit enhancer, unless a Fund has invested more than 10% of its assets in
securities issued, guaranteed or other wise credit-enhanced by the credit
enhancer. In such cases, the securities will be treated as having been issued
both by the issuer and the credit enhancer.
DEMAND FEATURES. The Funds may purchase securities subject to a demand feature,
which may take the form of a put or standby commitment. Demand features permit a
Fund to demand payment of the value of the security (plus an accrued interest)
from either the issuer of the security or a third-party. Demand features help
make a security more liquid, although an adverse change in the financial health
of the provider of a demand feature (such as bankruptcy), will negatively affect
the liquidity of the security. Other events may also terminate a demand feature,
in which case liquidity is also affected.
DEMAND MASTER NOTES. Demand master notes are short-term borrowing arrangements
between a corporation or government agency and an institutional lender (such as
a Fund) payable upon demand by either party. A party may demand full or partial
payment and the notice period for demand typically ranges from one to seven
days. Many master notes give a Fund the option of increasing or decreasing the
principal amount of the master note on a daily or weekly basis within certain
limits. Demand master notes usually provide for floating or variable rates of
interest.
DURATION. Duration is a measure of volatility in the price of a bond prior to
maturity. Volatility is the magnitude of the change in the price of a bond
relative to a change in the market interest rate. Volatility is based upon a
bond's coupon rate; maturity date; and the level of market yields of similar
bonds. Generally, bonds with lower coupons or longer maturities will be more
volatile than bonds with higher coupons or shorter maturities. Duration combines
these variables into a single measure.
FOREIGN MONEY MARKET INSTRUMENTS. Eurodollar Certificates of Deposit (ECDs), Yankee
dollar Certificates of Deposit (YCDs) and Eurodollar Time Deposits (ETDs) are all
U.S. dollar denominated certificates of deposit. ECDs are issued by, and ETDs are
deposits of, foreign banks or foreign branches of U.S. banks. YCDs are issued in the
U.S. by branches and agencies of foreign banks. Euro paper is dollar-denominated
commercial paper and other short-term notes issued in the U.S. by foreign issuers.
ECDS, ETDS, YCDS, and Europaper have many of the same risks as other foreign
securities. Examples of these risks include economic and political developments,
that may adversely affect the payment of principal or interest, foreign
withholding or other taxes on interest income, difficulties in obtaining or
enforcing a judgment against the issuing bank and the possible impact of
interruptions in the flow of international currency transactions. Also, the
issuing banks or their branches are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. These factors will be
carefully considered by the Adviser in selecting these investments.
TEMPORARY INVESTMENTS. There may be times when market conditions warrant a
defensive position. During these market conditions each of the Funds may
temporarily invest without limit in short-term debt obligations (money market
instruments).These investments include commercial paper, bank instruments, U.S.
government obligations, repurchase agreements, securities of other investment
companies investing in short-term debt securities, and foreign short-term debt
securities. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS.
These transactions are made to secure what is considered to be an advantageous
price or yield. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Other than normal transaction costs, no fees or
expenses are incurred. However, liquid assets of the Fund are segregated on the
Fund's records at the trade date in an amount sufficient to make payment for the
securities to be purchased. These assets are marked to market daily and are
maintained until the transaction has been settled.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default. These transactions create leverage
risks.
TO BE ANNOUNCED SECURITIES (TBAS)
As with other when-issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to accept
any security that meets specified terms. For example, in a TBA
mortgage-backed transaction, the Fund and the seller would agree upon the
issuer, interest rate and terms of the underlying mortgages. However, the
seller would not identify the specific underlying mortgages until it issues
the security. TBA mortgage-backed securities increase interest rate risks
because the underlying mortgages may be less favorable than anticipated by
the Fund.
DOLLAR ROLLS
Dollar rolls are transactions where the Fund sells mortgage backed
securities with a commitment to buy similar, but not identical,
mortgage-backed securities on a future date at a lower price. Normally, one
or both securities involved are TBA mortgage-backed securities. Dollar
rolls are subject to interest rate risks and credit risks.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks. These transactions create leverage risks.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
INTEREST RATE RISKS
|_| Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall. However, market factors, such as the demand for
particular fixed income securities, may cause the price of certain fixed income
securities to fall while the prices of other securities rise or remain
unchanged. |_| Interest rate changes have a greater effect on the price of fixed
income securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.
CREDIT RISKS
|_| Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
|_| Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment. |_|
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
|_| Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
|_| Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price. An
increase in the likelihood of a call may reduce the security's price. |_| If a
fixed income security is called, the Fund may have to reinvest the proceeds in
other fixed income securities with lower interest rates, higher credit risks, or
other less favorable characteristics.
RISKS OF FUTURES
When a Fund uses futures and options on futures as hedging devices, there is a
risk that the prices of the securities or foreign currency subject to the
futures contracts may not correlate perfectly with the prices of the securities
or currency in a Fund's portfolio. This may cause the futures contract and any
related options to react differently to market changes than the portfolio
securities or foreign currency. In addition, the Adviser could be incorrect in
its expectations about the direction or extent of market factors such as stock
price movements or foreign currency exchange rate fluctuations. In these events,
a Fund may lose money on the futures contract or option. When a Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with a Fund's custodian or
the broker, to collateralize the position and thereby insure that the use of
such futures contract is unleveraged. When a Fund sells futures contracts, it
will either own or have the right to receive the underlying future or security,
or will make deposits to collateralize the position as discussed above.
INVESTMENT LIMITATIONS
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of their total assets,
the Balanced Fund and Bond Fund will not purchase securities of any one issuer
(other than cash; cash items; securities issued or guaranteed by the government
of the United States or its agencies or instrumentalities and repurchase
agreements collateralized by such U.S. government securities; and securities of
other investment companies) if, as a result, more than 5% of the value of each
Fund's total assets would be invested in the securities of that issuer, or each
Fund would own more than 10% of the outstanding voting securities of that
issuer.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE INVESTMENT LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE
BOARD OF TRUSTEES (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING
VOTING SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
INVESTMENT LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER
APPROVAL. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE
LIMITATIONS BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
As a matter of non-fundamental policy, for purposes of concentration policy, (a)
utility companies will be divided according to their services (for example, gas,
gas transmission, electric and telephone will be considered a separate
industry); (b) financial service companies will be classified according to the
end users of their services (for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry); and (c)
asset-backed securities will be classified according to the underlying assets
securing such securities. To conform to the current view of the SEC staff that
only domestic bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Fund will not exclude
foreign bank instruments from industry concentration limitation tests so long as
the policy of the SEC remains in effect. In addition, investments in bank
instruments, and investments in certain industrial development bonds funded by
activities in a single industry, will be deemed to constitute investment in an
industry, except when held for temporary defensive purposes. The investment of
more than 25% of the value of the Fund's total assets in any one industry will
constitute `concentration.'"
As a matter of non-fundamental policy, for purposes of the commodities policy,
investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
A Fund will not enter into a futures contract or purchase an option thereon for
other than hedging purposes if immediately thereafter the initial margin
deposits for futures contracts held by it, plus premiums paid by it for open
options on futures contracts, would exceed 5% of the market value of its net
assets, after taking into account the unrealized profits and losses on those
contracts it has entered into. However, in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
computing such 5%.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
|_| for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices; |_| in the absence of recorded
sales for equity securities, according to the mean between the last closing bid
and asked prices; |_| futures contracts and options are valued at market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are valued
according to the mean between the last bid and the last asked price for the
option as provided by an investment dealer or other financial institution that
deals in the option. The Board may determine in good faith that another method
of valuing such investments is necessary to appraise their fair market value;
|_| for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and |_| for all other securities at fair value as
determined in good faith by the Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
ELIMINATING THE FRONT-END SALES CHARGE
You can eliminate the applicable front-end sales charge, as follows:
QUANTITY DISCOUNTS
Larger purchases of the WesMark Funds eliminate or reduce the sales charge you
pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
ACCUMULATED PURCHASES
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.
LETTER OF INTENT
You can sign a Letter of Intent committing to purchase a certain amount of the
WesMark Funds Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.
REINVESTMENT PRIVILEGE
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.
PURCHASES BY AFFILIATES OF THE FUND
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases the Trustees, employees, directors and officers of
WesBanco, Federated Investors, Inc. and sales representatives of the Fund, the
Adviser, the Distributor and their affiliate, and members of their immediate
families any associated person of an investment dealer who has a sales agreement
with the Distributor; and trusts, pension or profit-sharing plans for these
individuals.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Edgewood Services,
Inc.) offers shares on a continuous, best-efforts basis.
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals (including WesBanco Securities, Inc.) for sales and/or
administrative services. Any payments to investment professionals in excess of
90% of the front-end sales charge are considered supplemental payments. The
Distributor retains any portion not paid to an investment professional.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay WesBanco for providing shareholder services and maintaining
shareholder accounts. WesBanco may select others to perform these services for
their customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or WesBanco (but not out of Fund assets). The Distributor and/or WesBanco
may be reimbursed by the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
EXCHANGING SECURITIES FOR SHARES
You may contact your investment professional to request a purchase of shares in
an exchange for securities you own. The Fund reserves the right to determine
whether to accept your securities and the minimum market value to accept. The
Fund will value your securities in the same manner as it values its assets. This
exchange is treated as a sale of your securities for federal tax purposes.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund,
only Shares of that Fund are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and other notable positions held,
total compensation received as a Trustee from the Trust for its most recent
fiscal year. The Trust is comprised of five funds.
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NAME
BIRTH DATE -----------
ADDRESS PRINCIPAL OCCUPATIONS AGGREGATE
POSITION WITH TRUST FOR PAST FIVE YEARS COMPENSATION
FROM TRUST
JOHN F. DONAHUE*+# Chief Executive Officer and Director $0
Birth Date: July or Trustee of the Federated Fund
28, 1924 Complex; Chairman and Director,
Federated Investors Federated Investors, Inc.; Chairman
Tower and Trustee, Federated Investment
1001 Liberty Avenue Management Company; Chairman and
Pittsburgh, PA Director, Federated Investment
TRUSTEE AND CHAIRMAN Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
----------------------Director or Trustee of the Federated ---
THOMAS G. BIGLEY Fund Complex; Director, Member of -----------
Birth Date: Executive Committee, Children's $1,239.19
February 3, 1934 Hospital of Pittsburgh; Director,
15 Old Timber Trail Robroy Industries, Inc. (coated steel
Pittsburgh, PA conduits/computer storage equipment);
TRUSTEE formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group,
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
----------------------Director or Trustee of the Federated ---
JOHN T. CONROY, JR. Fund Complex; President, Investment -----------
Birth Date: June Properties Corporation; Senior Vice $1,363.36
23, 1937 President, John R. Wood and
Grubb & Associates, Inc., Realtors; Partner or
Ellis/Investment Trustee in private real estate
Properties ventures in Southwest Florida;
Corporation formerly: President, Naples Property
3201 Tamiami Trail Management, Inc. and Northgate Village
North Development Corporation.
Naples, FL
TRUSTEE
----------------------Director or Trustee of the Federated ---
NICHOLAS P. Fund Complex; Director, Michael Baker -----------
CONSTANTAKIS Corporation (engineering, $1,239.19
Birth Date: construction, operations and technical
September 3, 1939 services); formerly: Partner, Andersen
175 Woodshire Drive Worldwide SC.
Pittsburgh, PA
TRUSTEE
-------------------- ---------------------------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the -----------
Birth Date: March Federated Fund Complex; Chairman, $1,239.20
5, 1943 President and Chief Executive Officer,
353 El Brillo Way Cunningham & Co., Inc. (strategic
Palm Beach, FL business consulting); Trustee
TRUSTEE Associate, Boston College; Director,
Iperia Corp.
(communications/software); formerly:
Director, Redgate Communications and EMC Corporation
(computer storage systems).
Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.
----------------------------------------------------------------
LAWRENCE D. ELLIS, Director or Trustee of the Federated -----------
M.D.* Fund Complex; Professor of Medicine, $1,239.19
Birth Date: October University of Pittsburgh; Medical
11, 1932 Director, University of Pittsburgh
3471 Fifth Avenue Medical Center - Downtown;
Suite 1111 Hematologist, Oncologist, and
Pittsburgh, PA Internist, University of Pittsburgh
TRUSTEE Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.
----------------------Director or Trustee of the Federated ---
PETER E. MADDEN Fund Complex; formerly: -----------
Birth Date: March Representative, Commonwealth of $1,162.74
16, 1942 Massachusetts General Court; One Royal Palm Way President, State Street
Bank and Trust 100 Royal Palm Way Company and State Street Corporation.
Palm Beach, FL
TRUSTEE Previous Positions: Director, VISA USA
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
-------------------- Director or Trustee of some of the ---
CHARLES F. Federated Fund Complex; Executive Vice -----------
MANSFIELD, JR.++ President, Legal and External Affairs, $1,302.47
Birth Date: April Dugan Valva Contess, Inc. (marketing,
10, 1945 communications, technology and
80 South Road consulting).; formerly Management
Westhampton Beach, Consultant.
NY
-------------------- Previous Positions: Chief Executive
-------------------- Officer, PBTC International Bank;
TRUSTEE Partner, Arthur Young & Company (now
Ernst & Young LLP); Chief Financial Officer of Retail
Banking Sector, Chase Manhattan Bank; Senior Vice
President, Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance, Frank G. Zarb
School of Business, Hofstra University.
----------------------Director or Trustee of the Federated ---
JOHN E. MURRAY, Fund Complex; President, Law -----------
JR., J.D., S.J.D.# Professor, Duquesne University; $1,363.36
Birth Date: Consulting Partner, Mollica & Murray;
December 20, 1932 Director, Michael Baker Corp.
President, Duquesne (engineering, construction, operations University and
technical services).
Pittsburgh, PA
TRUSTEE Previous Positions: Dean and Professor
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.
----------------------Director or Trustee of the Federated ---
MARJORIE P. SMUTS Fund Complex; Public -----------
Birth Date: June Relations/Marketing/Conference $1,239.19
21, 1935 Planning.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National
TRUSTEE Spokesperson, Aluminum Company of
America; television producer; business owner.
----------------------Director or Trustee of some of the ---
JOHN S. WALSH++ Federated Fund Complex; President and -----------
Birth Date: Director, Heat Wagon, Inc. $1,239.19
November 28, 1957 (manufacturer of construction
2007 Sherwood Drive temporary heaters); President and
Valparaiso, IN Director, Manufacturers Products, Inc.
TRUSTEE (distributor of portable construction
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.
----------------------------------------------------------------
J. CHRISTOPHER President or Executive Vice President -----------
DONAHUE+ of the Federated Fund Complex; $0
Birth Date: April Director or Trustee of some of the
11, 1949 Funds in the Federated Fund Complex;
Federated Investors President, Chief Executive Officer and
Tower Director, Federated Investors, Inc.;
1001 Liberty Avenue President and Trustee, Federated
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE President and Trustee, Federated
PRESIDENT Investment Counseling; President and
Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
--------------------
----------------------------------------------------------------------------
EDWARD C. GONZALES* --Trustee or Director of some of the ---
Birth Date: October Funds in the Federated Fund Complex; -----------
22, 1930 President, Executive Vice President $0
Federated Investors and Treasurer of some of the Funds in
Tower the Federated Fund Complex; Vice
1001 Liberty Avenue Chairman, Federated Investors, Inc.;
Pittsburgh, PA Vice President, Federated Investment
TRUSTEE, PRESIDENT Management Company and Federated
and TREASURER Investment Counseling, Federated
Global Investment Management Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
----------------------Executive Vice President and Secretary ---
JOHN W. MCGONIGLE of the Federated Fund Complex; -----------
Birth Date: October Executive Vice President, Secretary $0
26, 1938 and Director, Federated Investors,
Federated Investors Inc.; Trustee, Federated Investment
Tower Management Company and Federated
1001 Liberty Avenue Investment Counseling; Director,
Pittsburgh, PA Federated Global Investment Management
EXECUTIVE VICE Corp., Federated Services Company and
PRESIDENT AND Federated Securities Corp.
SECRETARY
----------------------President or Vice President of some of ---
RICHARD B. FISHER the Funds in the Federated Fund -----------
Birth Date: May 17, Complex; Director or Trustee of some $0
1923 of the Funds in the Federated Fund
Federated Investors Complex; Executive Vice President,
Tower Federated Investors, Inc.; Chairman
1001 Liberty Avenue and Director, Federated Securities
Pittsburgh, PA Corp.
VICE PRESIDENT
----------------------Vice President, Federated Services ---
BETH S. BRODERICK Company since 1999; Client Services -----------
Birth Date: August Officer, Federated Services Company $0
2, 1965 from 1992 to 1997.
Federated Investors
Tower
1001 Liberty Avenue
Pittsburgh, PA
VICE PRESIDENT
---------------------------------------------------------------------------------------
* AN ASTERISK DENOTES A TRUSTEE WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE 1940 ACT. # A POUND SIGN DENOTES A MEMBER OF THE BOARD'S
EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS
MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE PRESIDENT OF
THE TRUST.
++ MESSRS. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF TRUSTEES ON
JANUARY 1, 2000. THEY DID NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE FUND.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of WesBanco, Inc.
The Adviser shall not be liable to the Trust, the Fund, or any Fund shareholder
for any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser in advising other accounts. To the extent
that receipt of these services may replace services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The Adviser and its affiliates exercise reasonable business judgment in
selecting those brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets as
specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY
NET ASSETS OF THE
TRUST
0.150 of 1% on the first
$250 million
0.125 of 1% on the next
$250 million
0.100 of 1% on the next
$250 million
0.075 of 1% on assets in excess
of $750 million
The administrative fee received during any fiscal year shall be at least $75,000
per portfolio. Federated Services Company may voluntarily waive a portion of its
fee and may reimburse the Fund for expenses. Federated Services Company also
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments for a fee based on Fund assets plus out-of-pocket
expenses.
---------------------------------------------------------------------------------------
CUSTODIAN
WesBanco Trust and Investment Services, Wheeling, West Virginia, is custodian
for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, Boston, Massachusetts, is the independent auditors for
the Fund.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the NAV per Share at the end of the period. The number of shares owned at the
end of the period is based on the number of shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional shares, assuming the annual reinvestment of all
dividends and distributions.
When shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of shares is calculated by dividing: (i) the net investment income per
Share earned by the shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
|_|...references to ratings, rankings, and financial publications and/or
performance comparisons of shares to certain indices; |_| charts, graphs and
illustrations using the Fund's returns, or returns in general, that demonstrate
investment concepts such as tax-deferred compounding, dollar-cost averaging and
systematic investment; |_| discussions of economic, financial and political
developments and their impact on the securities market, including the portfolio
manager's views on how such developments could impact the Funds; and |_|
information about the mutual fund industry from sources such as the Investment
Company Institute. The Fund may compare its performance, or performance for the
types of securities in which it invests, to a variety of other investments,
including federally insured bank products such as bank savings accounts,
certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC.
Ranks funds in various fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time. From time to time, the Fund will
quote its Lipper ranking in the "growth funds" category in advertising and sales
literature.
MORNINGSTAR, INC.
An independent rating service, is the publisher of the bi-weekly Mutual Fund
Values, which rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500)
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S & P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S & P figures.
RUSSELL 1000 GROWTH INDEX
Consists of those Russell 2000 securities with a greater-than-average growth
orientation. Securities in this index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted growth rates.
Russell 2000 Index A broadly diversified index consisting of approximately 2,000
small capitalization common stocks that can be used to compare to the total
returns of funds whose portfolios are invested primarily in small capitalization
common stocks.
RUSSELL 2000 INDEX
A broadly diversified index consisting of approximately 2,000 small
capitalization common stocks that can be used to compare the total returns of
funds whose portfolios are invested primarily in small capitalization common
stocks
CONSUMER PRICE INDEX
Generally considered to be a measure of inflation.
DOW JONES INDUSTRIAL AVERAGE ("DJIA")
An unmanaged index representing share prices of major industrial corporations,
public utilities, and transportation companies. Produced by the Dow Jones &
Company, it is cited as a principal indicator of market conditions.
BANK RATE MONITOR NATIONAL INDEX
A financial reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical Areas.
Account minimums range upward from $2,500 in each institution and compounding
methods vary. If more than one rate is offered, the lowest rate is used. Rates
are subject to change at any time specified by the institution.
THE S&P/BARRA VALUE INDEX AND THE S&P/BARRA GROWTH INDEX
Constructed by Standard & Poor's and BARRA, Inc., an investment technology and
consulting company, by separating the S&P 500 Index into value stocks and growth
stocks. The S&P/BARRA Growth and S&P/BARRA Value Indices are constructed by
dividing the stocks in the S&P 500 Index according to their price-to-book
ratios. The S&P/BARRA Growth Index, contains companies with higher
price-to-earnings ratios, low dividends yields, and high earnings growth
(concentrated in electronics, computers, health care, and drugs). The Value
Index contains companies with lower price-to-book ratios and has 50% of the
capitalization of the S&P 500 Index. These stocks tend to have lower
price-to-earnings ratios, high dividend yields, and low historical and predicted
earnings growth (concentrated in energy, utility and financial sectors). The
S&P/BARRA Value and S&P/BARRA Growth Indices are capitalization-weighted and
rebalanced semi-annually. Standard & Poor's/BARRA calculates these total return
indices with dividends reinvested.
STANDARD & POOR'S MIDCAP 400 STOCK PRICE INDEX
A composite index of 400 common stocks with market capitalizations between $200
million and $7.5 billion in industry, transportation, financial, and public
utility companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated in
the Standard & Poor's figures.
S&P 600 SMALLCAP INDEX
An unmanaged capitalization-weighted index representing all major industries in the
small-range of the U.S. stock market.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4 trillion to the more than 6,700 funds available,
according to the Investment Company Institute.
INVESTMENT RATINGS
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating. B--Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating. CCC--Debt rated CCC
has a currently identifiable vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE LONG-TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Of ten the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class. B--Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. CA--Bonds which are rated CA represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C--Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal. MOODY'S
INVESTORS SERVICE COMMERCIAL PAPER RATINGS PRIME-1--Issuers rated Prime-1 (or
related supporting institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
|_| Leading market positions in well established industries. |_| High rates of
return on funds employed.
|_| Conservative capitalization structure with moderate reliance on debt and
ample asset protection. |_| Broad margins in earning coverage of fixed financial
charges and high internal cash generation.
|_| Well established access to a range of financial markets and assured sources
of alternate liquidity. PRIME-2--Issuers rated Prime-1 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. STANDARD AND POOR'S COMMERCIAL PAPER RATINGS A-1--This
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1. FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
ADDRESSES
WesMark Small Company Growth Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7010
DISTRIBUTOR
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
INVESTMENT ADVISER
WesBanco Trust and Investment Services
One Bank Plaza
Wheeling, WV 26003
CUSTODIAN
WesBanco Trust and Investment Services
One Bank Plaza
Wheeling, WV 26003
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5072
APPENDIX 1:
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of WesMark Small Company Growth Fund as of the calendar
year-end for each of six years.
The `y' axis reflects the "% Total Return" beginning with "-25" and increasing
in increments of 25% up to 125%.
The `x' axis represents calculation periods from the earliest first full
calendar year-end of the Fund's start of business through the calendar year
ended December 31, 1999. The light gray shaded chart features six distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1999, The percentages noted are: 17.00%, 35.92%, 19.03%, 16.76%,
(21.54%), and 122.06%, respectively.
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