As filed with the Securities and Exchange Commission on June 3, 1998
Registration No. 33-45437
File No. 811-6549
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
-------------------------------------------------------
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940
Amendment No. 12 [X]
(Check appropriate box or boxes)
AMERICA'S UTILITY FUND, INC.
(Exact name of registrant as specified in charter)
901 East Byrd Street
Richmond, Virginia 23219
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code (804) 775-5719
---------------
Paul F. Costello, President
901 East Byrd Street
Richmond, Virginia 23219
(Name and address of agent for service)
-----------------
Copy to:
Timothy W. Diggins, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
--------------
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
AMERICA'S UTILITY FUND
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Part A
<TABLE>
<CAPTION>
N-1A Item No.
Location
<S> <C>
1. Cover Page............................. Cover Page
2. Synopsis............................... Cover Page; Expense Summary;
Example
3. Condensed Financial Information........ Financial Highlights
4. General Description of Registrant...... Cover Page; Investment Objective
and Policies; Other Investment
Practices; The Fund; Transfer and
Dividend Agent Services;
Performance Information
5. Management of the Fund................. Management of the Fund; Taxes
5A. Management's Discussion
of Fund Performance.................. Contained in the Annual Report of
the Registrant
6. Capital Stock and Other
Securities........................... How to Invest in the Fund;
Method of Investing Payments and
Distributions; Your Rights in the
Fund and Under Your Plan; Taxes
7. Purchase of Securities Being
Offered.............................. How to Invest in the Fund;
Method of Investing Payments and
Distributions;
8. Redemption or Repurchase............... Redemption of Fund Shares
9. Pending Legal Proceedings.............. Not Applicable
</TABLE>
-3-
<PAGE>
Part B
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Table of Contents
12. General Information and History....... General Information; Ratings
13. Investment Objectives and
Policies............................ Investment Restrictions; Certain
Investment Techniques
14. Management of the Fund................ Management
15. Control Persons and Principal
Holders of Securities............... Management; Control Persons and
Principal Holders of Securities
16. Investment Advisory and Other
Services............................ Investment Advisory Services;
Other Services; Brokerage;
Custodian; Independent Auditors;
Members of Investment Teams at
Mentor Advisors
17. Brokerage Allocation.................. Brokerage
18. Capital Stock and Other
Securities.......................... General Information
19. Purchase, Redemption and Pricing
of Securities Being Offered......... How to Buy Shares; Distribution;
Determination of Net Asset Value;
20. Tax Status............................ Tax Status
21. Underwriters.......................... Distribution
22. Calculations of Yield Quotations
of Money Market Funds............... Performance Information
23. Financial Statements.................. Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
-4-
<PAGE>
[AUF LOGO]
America's Utility Fund, Inc.
Prospectus dated June 3, 1998
America's Utility Fund, Inc. seeks current income and moderate capital
growth. The Fund invests primarily in the securities of utility companies.
Mentor Investment Advisors, LLC is the Fund's investment manager.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Please read this Prospectus
and retain it for future reference. INVESTORS CAN FIND MORE DETAILED
INFORMATION IN THE JUNE 3, 1998 STATEMENT OF ADDITIONAL INFORMATION, AS AMENDED
FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL AMERICA'S UTILITY
FUND, INC. AT 1-800-487-3863. The Statement has been filed with the Securities
and Exchange Commission and is incorporated into this Prospectus by reference.
The Commission maintains a Web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference into
this Prospectus, and other information regarding registrants that file
electronically with the Commission. The Fund's address is 901 East Byrd Street,
Richmond, Virginia 23219.
----------------
MENTOR DISTRIBUTORS, LLC
DISTRIBUTOR
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Expense Summary ............................... 3
Financial Highlights .......................... 4
Investment Objective and Policies ............. 5
Other Investment Practices .................... 7
Management of the Fund ........................ 7
How to Invest in the Fund ..................... 8
Taxes ......................................... 11
The Fund ...................................... 12
Transfer and Dividend Agent Services .......... 12
Performance Information ....................... 12
</TABLE>
2
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the
Fund. The following table summarizes an investor's maximum transaction costs
from investing in the Fund and Fund expenses based on its last fiscal year. The
Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in the Fund over specified periods.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* 0.23%
12b-1 Fees None
Other Expenses
Administrative Services Expenses* 0.42%
Shareholder Servicing Arrangements 0.25%
Other Fund Expenses 0.40%
Total Other Expenses 1.07%
-----
Total Fund Operating Expenses 1.30%
</TABLE>
- ----------
* The aggregate of Management Fees and Administrative Services Expenses may not
exceed 0.65% of net assets per annum.
EXAMPLE
Your investment of $1,000 in the Fund would incur the following expenses,
assuming a 5% annual return and redemption at the end of each period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- -------- --------- --------- ---------
<S> <C> <C> <C>
$13 $41 $71 $157
</TABLE>
The tables are provided to help you understand the expenses of investing
in the Fund and your share of the operating expenses of the Fund. The Example
should not be considered a representation of future performance; actual
expenses may be greater or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights presented below are derived from the financial
statements of the Fund, which have been audited by KPMG Peat Marwick LLP for
the year ended December 31, 1997 and by Deloitte & Touche LLP for each of the
periods in the five year period ended December 31, 1996. The financial
statements for the year ended December 31, 1997 and the independent auditor's
report thereon are incorporated by reference into the Statement of Additional
Information. A copy of the Fund's annual report may be obtained free of charge
from the Fund. This table should be read in conjunction with the financial
statements and related notes.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
12/31/1997 12/31/96 12/31/95
------------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, beginning of period $ 25.07 $ 24.72 $ 19.50
--------- --------- --------
Income from Investment Operations
Net investment income 0.92 0.98 0.96
Net realized and unrealized gain (loss) on
investments 4.79 0.33 5.22
--------- --------- --------
Total from investment operations 5.71 1.31 6.18
--------- --------- --------
Less Distributions
Dividends from net investment income (0.96) (0.96) (0.96)
Distributions from net realized capital gains (0.79) 0.00 0.00
--------- --------- --------
Total distributions (1.75) (0.96) (0.96)
--------- --------- --------
Net Asset Value, end of period $ 29.03 $ 25.07 $ 24.72
========= ========= ========
Total Return 23.31 % 5.46 % 32.30 %
RATIOS/
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 157.05 $ 144.42 $ 162.83
Ratio of expenses to average net assets 1.21 % 1.27 % 1.21 %
Ratio of expenses to average net assets before
expense reductions 1.30 % 1.36 % 1.34 %
Ratio of net investment income to average net
assets 3.46 % 3.90 % 4.40 %
Portfolio turnover rate 26.47 % 24.05 % 27.77 %
Average commission rate on portfolio
transactions $ 0.0689 $ 0.0680 --
<CAPTION>
For the period
5/5/92
(commencement
Year Ended Year Ended of operations)
12/31/94 12/31/93 to 12/31/92(a)
------------ ------------- ---------------
<S> <C> <C> <C>
Net Asset Value, beginning of period $ 23.54 $ 21.95 $ 20.54
--------- -------- -------
Income from Investment Operations
Net investment income 0.96 0.91 0.63
Net realized and unrealized gain (loss) on
investments (4.04) 2.00 1.80
--------- -------- -------
Total from investment operations (3.08) 2.91 2.43
--------- -------- -------
Less Distributions
Dividends from net investment income (0.96) (0.92) (0.67)
Distributions from net realized capital gains 0.00 (0.40) (0.35)
--------- -------- --------
Total distributions (0.96) (1.32) (1.02)
--------- -------- --------
Net Asset Value, end of period $ 19.50 $ 23.54 $ 21.95
========= ======== ========
Total Return (13.10%) 13.26% 18.76%
RATIOS/
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 125.01 $ 133.53 $ 43.67
Ratio of expenses to average net assets 1.21% 1.21% 1.21%
Ratio of expenses to average net assets before
expense reductions 1.33% 1.41% 1.41%
Ratio of net investment income to average net
assets 4.66% 4.19% 4.99%
Portfolio turnover rate 28.85% 21.20% 24.16%
Average commission rate on portfolio
transactions -- -- --
</TABLE>
- ----------
(a) Dividends from net investment income include investment income earned prior
to commencement of sales to the public. The total return and the ratios to
average net assets are annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income and moderate
capital growth by investing primarily in securities issued by utility
companies. The Fund's investments in utility companies may include equity
securities, including common stocks and preferred stocks, and debt securities.
Mentor Investment Advisors, LLC ("Mentor Advisors") is the Fund's investment
manager.
"Utility companies" include companies engaged in the manufacture,
production, generation, transmission, sale, or distribution of electric or gas
energy and companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave, and other communications media. Mentor
Advisors considers a particular company to be a "utility company" if at the
time of investment Mentor Advisors determines that at least 50% of the
company's assets, revenues, or profits are derived from one or more of the
activities described above (other than public broadcasting or cable
television). Under normal circumstances, the Fund will invest at least 65% of
its total assets (determined at the time of investment) in the securities of
utility companies.
The Fund may invest the remainder of its assets in other securities it
believes have the potential to produce current income, capital growth, or both.
These may include U.S. government securities, corporate bonds, notes, and
debentures, and equity securities of other kinds of companies. The types of
securities held by the Fund will vary depending on Mentor Advisors' view of
economic and market conditions, such as, for example, changes in interest
rates. The Fund may hold a portion of its assets in cash and money market
instruments.
Debt securities in which the Fund may invest will be rated at the time of
purchase at least Baa by Moody's Investors Service, Inc. or BBB by Standard &
Poor's (or comparably rated by another nationally recognized rating
organization), or may be unrated securities determined to be of comparable
quality by Mentor Advisors. Securities rated BBB or Baa have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity of the issuer to make principal and
interest payments than would likely be the case for securities with higher
credit ratings. The Fund will not necessarily dispose of a security when its
rating is reduced below its rating at the time of purchase, although Mentor
Advisors will monitor the investment to determine whether continued investment
in the security is consistent with the Fund's investment objective.
The investment policies in this prospectus are not fundamental, and the
Fund's Board of Directors may change such policies without shareholder
approval. As a matter of policy, the Board of Directors would not change the
Fund's investment objective without shareholder approval.
Risk factors regarding the Fund's investments in utility companies. Since
the Fund's investments are concentrated in securities of utility companies, the
value of its shares can be expected to change in response to factors affecting
utilities and their industries, and may fluctuate more widely than the value of
shares of a portfolio that invests in a broader range of companies. Many
utility companies, especially electric, gas, and other energy-related utility
companies, have historically been subject to risks of increase in fuel costs
and other operating costs, changes in interest rates on borrowings for capital
improvement programs, changes in applicable laws and regulations, changes in
technology which may render existing plants, equipment, or products obsolete,
the effects of energy conservation and operating constraints, and increased
costs and delays associated with compliance with environmental regulations. In
particular, regulatory changes could increase costs or impair the ability of
utility companies to operate their facilities or obtain adequate return on
invested capital. Generally, prices charged by utilities are regulated in the
United States and in foreign countries with the intention of protecting
5
<PAGE>
the public while ensuring that utility companies earn a sufficient return to
attract capital for growth while providing appropriate services. There can be
no assurance that such pricing policies or regulated rates of return will
continue in the future.
In recent years, regulatory changes in the United States have increasingly
allowed utility companies to provide services and products outside traditional
geographic areas and lines of business, creating new areas of competition
within the utilities industries. This trend toward deregulation and the
emergence of new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities industries. Mentor
Advisors believes that the emergence of competition and deregulation will
result in certain utility companies being able to earn more than their
traditional regulated rates of return, while others may be forced to defend
their core businesses from increased competition and may be less profitable.
Although Mentor Advisors seeks to take advantage of favorable investment
opportunities that may arise from these structural changes, there can be no
assurance that the Fund will benefit from any such changes.
Foreign investments. The Fund may invest in foreign securities, which
involve risks not present in domestic investments. Since foreign securities are
normally denominated and traded in foreign currencies, the value of the Fund's
assets may be affected favorably or unfavorably by changes in currency exchange
rates, or in exchange control regulations. There may be less information
publicly available about a foreign company than a comparable U.S. company, and
foreign companies are not generally subject to accounting, auditing, and
financial reporting standards and practices comparable to those in the United
States.
The securities of some foreign companies are less liquid and at times more
volatile than securities of comparable U.S. companies. Foreign brokerage
commissions and other fees are generally higher than those in the United
States. Foreign settlement procedures and trade regulations may involve certain
risks (such as delay in payment or delivery of securities or in the recovery of
Fund assets held abroad) and expenses not present in the settlement of domestic
investments. In addition, there may be a possibility of nationalization or
expropriation of assets, impositions of currency exchange controls,
confiscatory taxation, political or financial instability, and diplomatic
developments that could affect the value of investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States. The laws of some foreign countries may limit investments in
securities of certain issuers located in those foreign countries. Special tax
considerations apply to investments in foreign securities.
The Fund may buy and sell foreign currencies and foreign currency forward
and futures contracts for hedging purposes in connection with its foreign
investments.
Fixed-income securities. The values of fixed-income securities typically
fluctuate in response to changes in interest rates. A decrease in interest
rates will generally result in an increase in the value of fixed-income
securities held by the Fund. Conversely, during periods of rising interest
rates, the value of such securities will generally decline. The magnitude of
these fluctuations generally is greater for securities with longer maturities.
However, the yields on such securities are also generally higher. In addition,
the values of fixed-income securities may be affected by changes in general
economic conditions and business conditions affecting the specific industries
of their issuers.
6
<PAGE>
OTHER INVESTMENT PRACTICES
Investments in companies engaged in the oil industry. The Fund may invest
in securities of issuers engaged in the production, refining, sale, or
distribution of oil or oil-related products. Under certain market conditions,
the prices of such securities may vary inversely to the prices of securities of
utility companies, and so may provide some limited protection against a decline
in the Fund's net asset value at times of a general decline in prices of
securities of utility companies. The Fund may invest in such securities in an
attempt to gain such protection or in an attempt to increase the Fund's
investment return.
The prices of securities of companies in the oil industry and the price of
oil are subject to substantial fluctuations, and may be affected by
unpredictable economic and political circumstances, including, for example:
social, political, or military disturbances in or near oil-producing countries
or oil shipping or pipeline routes; the taxation and regulatory policies of
various governments; the activities and policies of OPEC (an organization of
major oil producing countries); the discovery of new oil and gas reserves and
the development of new techniques for producing, refining, and transporting
oil, gas, and related products; energy conservation practices; and the
development of alternative energy sources and alternative uses for oil and gas
products. In addition, the facilities and other assets of such companies may be
subject to the risks of nationalization or expropriation, confiscatory
taxation, and risks of political or financial instability and diplomatic
developments that could affect their values adversely.
Repurchase agreements. The Fund may enter into repurchase agreements with
banks, broker/dealers, and other financial institutions pursuant to procedures
approved by the Fund's Board of Directors. These transactions must be fully
collateralized at all times, but involve some risk to the Fund should the other
party default on its obligations and the Fund is delayed or prevented from
recovering the collateral.
Real estate investment trusts (REITS). The Fund may invest in REITS, which
are managed vehicles that invest in real estate or real estate-related assets.
Factors typically affecting the value of investments in REITS include those
affecting real estate investments generally such as supply of real property in
various markets, changes in zoning laws, construction, completion rates,
changes in real estate values and property taxes, levels of occupancy, and
adequacy of rents to cover operating expenses. The performance of real estate
investments may also be affected by changes in interest rates, prudent
management of insurance risks, and social and economic trends.
Portfolio turnover. The length of time the Fund has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by the Fund is known as "portfolio turnover." Portfolio
turnover generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains. Portfolio turnover rates for the life of
the Fund are shown above in "Financial Highlights."
MANAGEMENT OF THE FUND
The Board of Directors of the Fund has overall responsibility for the
management and supervision of the Fund. Mentor Investment Advisors, LLC, located
at 901 East Byrd Street, Richmond, Virginia 23219, serves as investment manager
to the Fund. Mentor Advisors, at its expense, furnishes continuously an
investment program for the Fund and makes investment decisions on behalf of the
Fund consistent with the Fund's stated investment objective, policies, and
restrictions. All investment decisions are made by a team of investment
professionals at Mentor Advisors.
7
<PAGE>
The Fund pays a monthly management fee, calculated daily, to Mentor
Advisors at the following rates, expressed as a percentage of the Fund's
average daily net assets: 0.75% of the first $5 million, 0.50% of the next $5
million, 0.25% of the next $90 million, 0.20% of the next $100 million, 0.15%
of the next $100 million, and 0.10% thereafter.
Mentor Investment Group, LLC ("Mentor"), located at 901 East Byrd Street,
Richmond, Virginia 23219, serves as administrator to the Fund. Mentor, as
administrator, continuously provides business management services to the Fund
and generally, subject to the oversight of the Board of Directors of the Fund,
manages all of the business and affairs of the Fund (other than those managed
by Mentor Advisors). The Fund pays Mentor a monthly fee at an annual rate of
0.65% of the Fund's average daily net assets, less the amount of any management
fees paid to Mentor Advisors.
Mentor Advisors has over $12 billion in assets under management and is a
wholly owned subsidiary of Mentor and its affiliates. Mentor is a subsidiary of
Wheat First Butcher Singer, Inc., which is in turn a wholly owned subsidiary of
First Union Corp. ("First Union"). First Union is a leading financial services
company with approximately $172 billion in assets and $12 billion in total
stockholders' equity as of March 31, 1998. EVEREN Capital Corporation has a 20%
ownership in Mentor and may acquire additional ownership based principally on
the amount of Mentor's revenues derived from assets attributable to clients of
EVEREN Securities, Inc. and its affiliates.
Mentor, itself or through Mentor Services Company, Inc., a wholly owned
subsidiary of Mentor, provides shareholder support services to the Fund and its
shareholders. These services might include, among other things, providing
office space, equipment, telephone facilities, and various clerical,
supervisory, and computer personnel, as necessary or beneficial to establish
and maintain shareholder accounts and records; processing purchase and
redemption transactions; answering routine shareholder inquiries regarding the
Fund; assisting shareholders in changing dividend options, account
designations, and addresses; and providing such other services as the Fund may
reasonably request. Mentor provides these services for a fee paid by the Fund
at an annual rate of 0.25% of the Fund's average daily net assets.
The Fund receives services from a number of providers which rely on the
smooth functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of computer software to distinguish the Year 2000 from
the Year 1900. Mentor Advisors is taking steps that it believes are reasonably
designed to address this potential "Year 2000" problem and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Fund's other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Fund from
this problem.
HOW TO INVEST IN THE FUND
You may invest in the Fund either through an installment plan (a "Plan"),
or by a single initial investment with a higher minimum investment amount.
8
<PAGE>
An investor may enroll in a Plan to make regular monthly payments to the
Fund over the course of a year, by selecting the monthly payment amount on the
Plan enrollment form. After receipt of an investor's monthly payment, the Fund
will credit the investor's account with shares in the Fund and any fractions
thereof, priced at the net asset value next determined after receipt of the
payment in good order. Similarly, dividends and distributions declared by the
Fund will be reinvested in additional Fund shares unless an investor otherwise
notifies the Fund in writing.
Alternatively, an investor may make a single initial investment in the
Fund. This requires a minimum initial investment of $1,000 and is the method
required for establishing an IRA ($250 minimum initial investment for an IRA)
or other retirement plan account. The Fund will credit such an investor's
account with shares in the Fund and any fractions thereof priced at net asset
value next determined after receipt by the Fund of an enrollment application
and accompanying payment in good order. Additional investments may be made at
any time in amounts of $40 or more ($100 or more for IRA accounts). Investors
using the single payment method may also participate in a monthly installment
plan, if desired.
Mentor Services Company, Mentor Advisors, or affiliates thereof, at their
own expense and out of their own assets (or in conjunction with other
entities), may also periodically sponsor programs that offer additional
compensation in connection with sales of shares of the Fund. Compensation may
include, but is not limited to, financial assistance to dealers in connection
with conferences, sales, or training programs for their employees, seminars for
the public, advertising or sales campaigns, or other dealer-sponsored special
events. In some instances, this compensation may be made available only to
certain dealers whose representatives have sold or are expected to sell
significant amounts of shares. Dealers may not use sales of the Fund's shares
to qualify for this compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc.
Investors may be charged a fee to effect transactions through a broker or
agent.
Investment Through an Installment Plan
1. To invest by making monthly installment payments from your bank account
via "ACH", complete and sign an Automatic Monthly Investment Application Form
and mail it to America's Utility Fund, P.O. Box 8507, Boston, MA 02266 no later
than the date specified on the enrollment application.
2. Decide how much you want to invest each month.
Your monthly investment can be any dollar amount that is forty dollars
($40.00) or more. Make sure that you choose an amount that you can afford each
month. Investments over the amount of your monthly installment will be accepted
and invested in Fund shares.
3. To invest by making monthly installment payment via check, you should
mail your check and account investment coupon (located on the bottom portion of
each transaction confirmation statement) each month to America's Utility Fund,
P.O. Box 8507, Boston MA 02266. ALL INSTALLMENT PAYMENTS SHOULD BE MADE BY
CHECK MADE PAYABLE TO AMERICA'S UTILITY FUND, INC.
4. If during your first year of participation in a Plan you stop
participating for any reason prior to your Plan's completion and you request a
redemption of your share account, you will receive cash in an amount equal to
the then current net asset value of your shares in the Fund.
9
<PAGE>
Investment By Single Initial Payment
1. TO INVEST IN THE FUND BY SINGLE INITIAL PAYMENT, COMPLETE THE
APPROPRIATE PORTION OF THE ENROLLMENT APPLICATION AND MAIL THE ENROLLMENT
APPLICATION, WITH A CHECK PAYABLE TO AMERICA'S UTILITY FUND, P.O. BOX 8507,
BOSTON MA 02266. If you do not have an enrollment application, you may call
America's Utility Fund at 800-487-3863 to obtain one.
2. Individual Retirement Accounts (IRAs) and other retirement accounts are
established by single initial payment, and require separate enrollment
documentation. If you are interested in an IRA, call us at 1-800-487-3863 to
request our IRA enrollment kit.
3. The minimum initial investment is $1,000 ($250 for an IRA) or more.
Subsequent investments can be made, whenever you wish, in amounts of $40 or
more except for IRAs, which require subsequent investments in amounts of $100
or more.
General. Shares of the Fund are sold at the net asset value next
determined after a purchase order in good order is received by the Fund,
whether by installment or single payment method.
The address of the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor is not obligated to sell any specific amount of shares of the
Fund. The Distributor is a wholly owned subsidiary of BISYS Fund Services, Inc.
Net Asset Value
The Fund calculates its net asset value per share by dividing the total
value of its assets, less liabilities, by the numbers of its shares
outstanding. Net asset value is computed once daily as of 4:00 P.M. on each day
the New York Stock Exchange is open for trading. Portfolio securities for which
market quotations are readily available are stated at market value. Short-term
investments that will mature in 60 days or less are stated at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair values.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rates or at such other rates as may be used in
accordance with procedures approved by the Board of Directors. As a result,
fluctuations in the values of such currencies in relation to the U.S. dollar
will affect the net asset value of Fund shares even though there has not been
any change in the values of such securities as quoted in such foreign
currencies.
Dividends and Distributions
All dividends and capital gain distributions on Fund securities will be
reinvested in additional Fund shares for your account on the payment date,
unless in a written notice received by the Administrator not less than five
business days prior to the payment date, you elect to receive such dividends
and distributions in cash. Once the Fund receives such written notice of
election to receive cash distributions, the Fund will continue to pay all such
distributions in cash until otherwise instructed in writing by you.
Dividends of ordinary income will normally be paid by the Fund quarterly,
and long-term capital gains, if any, will normally be paid annually. Investors
must report on their income tax form both dividends and capital gains, whether
received in cash or reinvested in additional Fund shares.
10
<PAGE>
Redemption of Fund Shares
Regardless of whether your participation in the Fund is through a Plan or
by the initial payment method, you may redeem all of your account and terminate
your participation at any time by sending a written request for full redemption
to the Administrator or by calling the Fund at 800-487-3863. You can also
redeem portions of your account.
The Fund may redeem and terminate those shareholder accounts which fall
below a minimum investment balance of $240. Effective September 1, 1999, the
minimum investment balance will be $1,000. If your account investment balance
is less than the required minimum, you will be given 60 days notice in which to
invest a sufficient amount to establish the minimum investment balance prior to
an involuntary redemption and termination by the Fund. However, new installment
accounts established after August 1998 will have 30 months from the date of
first investment to reach the $1,000 minimum.
All requests for redemptions made to the Administrator in writing must be
signed by the shareholder(s) of the account, in the name(s) as shown on the
account statement. It is suggested that all written redemption requests be sent
by certified mail, return receipt requested. The Fund's Custodian or
Administrator may require certain documentation. If the cash redemption is
$25,000 or more, your written redemption request must have your signature
guaranteed by a commercial bank, trust company or broker. All documents must be
in proper order before any redemptions can be made. The redemption price will
be the net asset value next determined after such documents have been received
in proper order. Your request should be sent to America's Utility Fund, c/o
Boston Financial Data Services, 2 Heritage Drive, N. Quincy, MA 02171.
The Fund may also redeem shares if you own shares of the Fund above any
maximum amount set by the Fund's Board of Directors. There is presently no
maximum, but the Board of Directors may establish one at any time, which could
apply to both present and future shareholders.
Other information concerning redemption. Under unusual circumstances, the
Fund may suspend redemptions, or postpone payment for more than seven days, as
permitted by federal securities laws. As long as the right of redemption of
shares of the Fund is suspended, no shares may be redeemed, and therefore no
cash withdrawals may be made. In addition, the Fund reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption by making payment in whole or in part by securities valued in the
same way as they would be valued for purposes of computing the Fund's per share
net asset value. If payment is made in securities, a shareholder may incur
brokerage expenses in converting those securities into cash.
TAXES
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund will distribute substantially all of its
net investment income and capital gain net income on a current basis.
All Fund distributions will be taxable to shareholders as ordinary income,
except that any distributions of net capital gain will be taxed as long-term
capital gain, regardless of how long a shareholder has held the shares (although
the loss on a sale of shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain distribution received
with respect to those shares). Pursuant to the Taxpayer Relief Act of 1997,
long-term capital gains generally will be subject to a maximum rate of 28% or
20% depending on the Funds' holding period in the portfolio investment
11
<PAGE>
generating the gains. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of distributions. Early
in each year the Fund will notify shareholders of the amount and tax status of
distributions paid by the Fund for the preceding year. In buying or selling
securities for the Fund, Mentor Advisors will not normally take into account the
effect any purchase or sale of securities will have on the tax positions of the
Fund's shareholders.
The foregoing is a summary of certain federal income tax consequences of
investing in the Fund. Dividends and distributions also may be subject to state
and local taxes. Shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state, or local taxes. Non-U.S. investors
should consult their tax advisers concerning the tax consequences of ownership
of shares of the Fund, including the possibility that distributions may be
subject to United States withholding tax.
THE FUND
America's Utility Fund, Inc. is a Maryland corporation organized on
January 28, 1992. The Fund is an open-end, diversified, management investment
company with 500,000,000 shares of authorized common stock, $.001 par value.
Each share has one vote, with fractional shares voting proportionately. Shares
of the Fund are freely transferable, are entitled to dividends as declared by
the Board of Directors, and, if the Fund were liquidated, would receive the net
assets of the Fund. The Fund may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although the Fund is not required to hold
annual meetings of its shareholders, shareholders have the right to call a
meeting to elect or remove Directors, or to take other actions as provided in
the Articles of Incorporation.
In the interest of economy and convenience, the Fund will not issue
certificates for its shares.
TRANSFER AND DIVIDEND AGENT SERVICES
Boston Financial Data Services, Inc., 2 Heritage Drive, North Quincy,
Massachusetts 02171, serves as the Fund's transfer and dividend agent.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Fund. The Fund's "yield" is calculated by dividing the
Fund's annualized net investment income per share during a recent 30-day period
by its net asset value on the last day of that period. "Total return" for the
one-, five-, and ten-year periods (or for the life of the Fund, if shorter)
through the most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the Fund over the
period. The Fund's performance may be compared to various indices. See the
Statement of Additional Information. Information may be presented in
advertisements about the Fund describing the background and professional
experience of the Fund's investment manager or its personnel.
All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which will vary, is based
on many factors, including market conditions, the composition of the Fund's
investments, and the Fund's operating expenses. Investment performance also
often reflects the risks associated with the Fund's investment objective and
policies. These factors should be considered when comparing the Fund's
investment results to those of other mutual funds and other investment
vehicles.
12
<PAGE>
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<PAGE>
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<PAGE>
MK 1157
PROSPECTUS
America's Utility Fund, Inc.
[GRAPHIC OMITTED]
Mentor Distributors, LLC
DISTRIBUTOR
Prospectus Dated June 3, 1998
<PAGE>
AMERICA'S UTILITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
June 3, 1998
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of America's Utility Fund, Inc. dated
June 3, 1998, a copy of which may be obtained by writing Mentor Services
Company, Inc., 901 East Byrd Street, P.O. Box 26501, Richmond, Virginia
23261-6501, or by calling 1-800-487-3863.
TABLE OF CONTENTS
Page
GENERAL INFORMATION.........................................................B-2
INVESTMENT RESTRICTIONS.....................................................B-2
CERTAIN INVESTMENT TECHNIQUES...............................................B-4
MANAGEMENT.................................................................B-10
CONTROL PERSONS AND PRINCIPAL HOLDERS......................................B-15
INVESTMENT ADVISORY SERVICES...............................................B-15
OTHER SERVICES.............................................................B-17
BROKERAGE..................................................................B-19
DETERMINATION OF NET ASSET VALUE...........................................B-21
TAX STATUS.................................................................B-23
DISTRIBUTION ..............................................................B-25
PERFORMANCE INFORMATION....................................................B-25
MEMBERS OF INVESTMENT TEAMS AT MENTOR ADVISORS.............................B-30
CUSTODIAN..................................................................B-32
INDEPENDENT AUDITORS.......................................................B-32
RATINGS ..................................................................B-32
FINANCIAL STATEMENTS.......................................................B-36
B-1
<PAGE>
GENERAL INFORMATION
America's Utility Fund, Inc. (the "Fund") was organized on January 28,
1992 as a Maryland corporation, and is registered as a diversified, open-end,
management investment company.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions, which may not be
changed without approval by the holders of a majority of the outstanding shares
of the Fund. The Fund will not:
1. Purchase any security (other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, for temporary investment) if as a result
more than 5% of the Fund's total assets are invested in the
securities of any one issuer; the Fund will concentrate its
investments (more than 25% of its assets) in securities issued
by utility companies.
2. Purchase any security if as a result the Fund would
then hold more than 10% of any class of securities of an
issuer (taking all common stock issues as a single class, all
preferred stock issues as a single class and all debt issues
as a single class) or more than 10% of the outstanding voting
securities of any one issuer.
3. Borrow money or securities for any purpose except to
the extent that borrowing up to 10% of the Fund's total assets
is permitted for emergency purposes. (Any such borrowings will
be made on a temporary basis from banks and will not be made
for investment purposes.) Money borrowed will be repaid before
additional portfolio securities are purchased.
4. Invest in securities of any issuer if, to the knowledge
of the Fund, any officer or director of the Fund or of the
Manager owns more than 1/2 of 1% of the outstanding securities
of such issuer, and such officers and directors who own more
than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
5. Purchase securities for the purpose of exercising
control over the issuers thereof.
6. Underwrite securities of other issuers; provided, that
this policy shall not be construed to prevent or limit in any
manner the right of the Fund to purchase securities for
investment purposes.
B-2
<PAGE>
7. Make loans to other persons other than (i) through the
purchase of a portion of an issue of publicly distributed debt
securities which are not considered loans, (ii) through the
purchase of bonds, debentures, commercial paper, corporate
notes and similar evidences of indebtedness of a type commonly
sold privately to financial institutions, or (iii) by entering
into repurchase agreements with respect to not more than 25%
of its total assets (taken at current value).
8. Buy securities on margin, or effect short sales of
securities. (Margin payments in connection with transactions
in futures contracts, options, forward contracts, and other
financial instruments are not considered to constitute the
purchase of securities on margin for this purpose.)
9. Issue senior securities other than as consistent with
borrowings permitted under 3 above.
10. Invest in the securities of other investment companies
except by purchases in the open market involving only
customary brokerage commissions and as a result of which not
more than 5% of its total assets (taken at current value)
would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
11. Own, buy or sell commodities or commodity contracts
(except that the Fund may purchase and sell foreign
currencies, foreign currency futures contracts and related
options), or real estate or interests in real estate;
provided, that the Fund may purchase and sell securities which
are secured by real estate and securities of companies which
invest or deal in real estate.
12. Invest in warrants unless acquired as a unit or
attached to other securities.
13. Invest in puts, calls, straddles, spreads, or any
combination thereof (except that the Fund may invest in
foreign currency futures and options transactions and forward
contracts).
14. Invest in limited partnerships or similar interests in
oil, gas and other mineral exploration development programs;
provided, that the Fund may invest in the securities of other
corporations whose activities include such exploration and
development.
15. Invest more than 5% of its total assets in any issuer
or issuers having a record of less than three years continuous
operation, which may include the operations of predecessor
companies.
B-3
<PAGE>
16. Purchase any security restricted as to disposition
under federal securities laws.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that the approval of a majority of the outstanding shares of the Fund
means the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of the Fund and (2) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
It is also a policy of the Fund, which may be changed without
shareholder approval, not to purchase any voting security of any electric or gas
utility company (as defined by the Public Utility Holding Company Act of 1935)
if as a result the Fund would then hold 5% or more of the outstanding voting
securities of such company.
Although not a fundamental policy, the Fund will not invest in
securities which are not readily marketable. (Foreign currency forward
contracts, futures contracts, and options are not considered securities for this
purpose.)
CERTAIN INVESTMENT TECHNIQUES
Set forth below is information concerning certain investment techniques
in which the Fund may engage, and certain of the risks they may entail.
Repurchase Agreements
A repurchase agreement is a contract under which the Fund acquires a
security for a relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to resell such
security at a fixed time and price (representing the Fund's cost plus interest).
It is the Fund's present intention to enter into repurchase agreements only with
member banks of the Federal Reserve System and securities dealers meeting
certain criteria as to creditworthiness and financial condition established by
the Board of Directors and only with respect to obligations of the U.S.
government or its agencies or instrumentalities or other high quality short term
debt obligations. Repurchase agreements may also be viewed as loans made by the
Fund which are collateralized by the securities subject to repurchase. Mentor
Advisors will monitor such transactions to ensure that the value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. If the seller
defaults, the Fund could realize a loss on the sale of the underlying security
to the extent that the proceeds of sale including accrued interest are less than
the resale price provided
B-4
<PAGE>
in the agreement including interest. In addition, if the seller should be
involved in bankruptcy or insolvency proceedings, the Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and required to return
the underlying collateral to the seller's estate.
Foreign Securities
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that the Fund's foreign investments are not
United States dollar-denominated, the Fund may be affected favorably or
unfavorably by changes in currency exchange rates; exchange control regulations;
foreign withholding taxes or restrictions or prohibitions on the repatriation of
foreign currencies and may incur costs in connection with conversion between
currencies.
Income received by the Fund from sources within foreign countries may
be reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by the Fund will reduce its net income available for distribution to
stockholders.
Foreign Currency Transactions
The Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future foreign currency exchange rates and
to increase current return. The Fund may engage in both "transaction hedging"
and "position hedging".
When it engages in transaction hedging, the Fund enters into foreign
currency transactions with respect to specific receivables or payables of the
Fund generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
B-5
<PAGE>
currency. By transaction hedging the Fund will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. The
Fund may also enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Fund the right to assume a
long position in the futures contract until the expiration of the option. A call
option on currency gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Fund are denominated or are
quoted in their principle trading markets or an increase in the value of
currency for securities which the Fund expects to purchase. In connection with
position hedging, the Fund may buy or sell foreign currency futures contracts
and put and call options on foreign currencies and on foreign currency futures
contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of the
Fund's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of the Fund if the market value of such security or securities
exceeds the amount of foreign currency the Fund is obligated to deliver.
B-6
<PAGE>
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in the value of
such currency.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
B-7
<PAGE>
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
Foreign Currency Options. Options on foreign currencies are traded
primarily in the over-the-counter market, although options on foreign currencies
have recently been listed on several exchanges. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
Options on foreign currencies are affected by all of those factors which
influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the U.S. options markets.
Settlement Procedures. Settlement procedures relating to the Fund's
investments in foreign securities and to the Fund's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and the Fund may be required to accept or make delivery of the
underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign
B-8
<PAGE>
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
B-9
<PAGE>
MANAGEMENT
Officers and Directors
The directors and officers of the Fund are as follows. Unless otherwise
noted, the address of each officer and director is 901 East Byrd Street,
Richmond, Virginia 23219.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name and Address with Portfolio During Past 5 Years
- ---------------- -------------- -------------------
<S> <C>
*Daniel J. Ludeman Chairman; Trustee Chairman and Chief Executive
Officer, Mentor Investment Group,
LLC; Managing Director, Wheat,
First Securities, Inc.; Director,
Wheat First Butcher Singer, Inc.;
Chairman and Director, Mentor
Income Fund, Inc.; Chairman and
Trustee, Mentor Institutional Trust
and Cash Resource Trust.
Louis W. Moelchert, Jr. Trustee Vice President for Investments,
University of Richmond; Trustee,
Mentor Institutional Trust and Cash
Resource Trust; Director, Mentor
Income Fund, Inc.
Thomas F. Keller Trustee Professor of Business Administration
and former Dean, Fuqua School of
Business, Duke University; Trustee,
Mentor Institutional Trust and Cash
Resource Trust; and Director, Mentor
Income Fund, Inc.
Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corp.;
formerly, Chairman and Chief
Executive Officer, Hamilton
Beach/Proctor-Silex, Inc.; Trustee,
Mentor Institutional Trust and Cash
Resource Trust; and Director, Mentor
Income Fund, Inc.
B-10
<PAGE>
Troy A. Peery, Jr. Trustee President, Heilig-Meyers Company.
Trustee, Mentor Institutional Trust and
Cash Resource Trust; and Director,
Mentor Income Fund, Inc.
*Peter J. Quinn, Jr. Trustee President, Mentor Distributors, LLC;
Managing Director, Mentor Investment
Group, LLC and Wheat First Butcher
Singer, Inc.; formerly, Senior
Vice President/Director of Mutual
Funds, Wheat First Butcher Singer,
Inc.; Trustee, Mentor Institutional
Trust and Cash Resource Trust; and
Director, Mentor Income Fund, Inc.
Arch T. Allen, III Trustee Attorney at law, Raleigh, North
Carolina; Trustee, Mentor Institutional
Trust and Cash Resource Trust;
Director, Mentor Income Fund, Inc.;
formerly, Vice Chancellor for
Development and University Relations,
University of North Carolina at Chapel
Hill.
Weston E. Edwards Trustee President, Weston Edwards &
Associates; Trustee, Mentor
Institutional Trust; Director, Mentor
Income Fund, Inc.; Founder and
Chairman, The Housing Roundtable;
formerly, President, Smart Mortgage
Access, Inc.
B-11
<PAGE>
Jerry R. Barrentine Trustee President, J.R. Barrentine & Associates;
Trustee, Mentor Institutional Trust and
Cash Resource Trust; Director, Mentor
Income Fund, Inc.; formerly, Executive
Vice President and Chief
Financial Officer, Barclays/American
Mortgage Director Corporation; Managing
Partner, Barrentine Lott & Associates.
J. Garnett Nelson Trustee Consultant, Mid-Atlantic Holdings, LLC;
Trustee, Mentor Institutional Trust and
Cash Resource Trust; Director, Mentor
Income Fund, Inc., GE Investment Funds,
Inc., and Lawyers Title Corporation;
Member, Investment Advisory
Committee, Virginia Retirement System;
formerly, Senior Vice President, The
Life Insurance Company of Virginia.
Paul F. Costello President Managing Director, Mentor Investment
Group, LLC, Wheat First Butcher Singer,
Inc., and Mentor Investment Advisors,
LLC; President, Mentor Income Fund,
Inc., Mentor Institutional Trust, and
Cash Resource Trust; Director, Mentor
Perpetual Advisors, LLC and Mentor
Trust Company.
Terry L. Perkins Treasurer Senior Vice President, Mentor
Investment Group, LLC; Treasurer, Cash
Resource Trust, Mentor Income Fund,
Inc., and Mentor Institutional Trust;
Treasurer; formerly, Treasurer and
Comptroller, Ryland Capital Management,
Inc.
B-12
<PAGE>
Michael Wade Assistant Treasurer Vice President, Mentor Investment Group,
LLC; Assistant Treasurer, Cash Resource
Trust, Mentor Income Fund, Inc., Mentor
Institutional Trust; formerly, Senior
Accountant, Wheat First Butcher Singer,
Inc.; Audit Senior, BDO Seidman.
Geoffrey B. Sale Secretary Associate Vice President Mentor Investment
Group, LLC; Clerk Mentor Institutional Trust;
Secretary Cash Resource Trust, Mentor Income
Fund, Inc., Mentor Funds and Mentor Variable
Investment Portfolios.
- ---------------------
</TABLE>
* This person is deemed to be an "interested person" of the Fund under the
Investment Company Act of 1940, as amended.
B-13
<PAGE>
Director Compensation
The table below shows the fees paid to each current Director by the
Fund for the 1997 fiscal year.
Total compensation
Aggregate Compensation from all
Trustees from the Fund complex funds (23 Funds)
- -------- ----------------------- ------------------------
Daniel J. Ludeman $ 0 $ 0
Arnold H. Dreyfuss+ $ 0 $15,200
Thomas F. Keller+ $ 0 $15,200
Louis W. Moelchert, Jr. $11,000 $26,200
Troy A. Peery, Jr.+ $ 0 $14,175
Peter J. Quinn, Jr.+ $ 0 $ 0
Arch T. Allen, III+ $11,000 $11,000
Weston E. Edwards+ $ 0 $28,000
Jerry R. Barrentine+ $ 0 $20,000
J. Garnett Nelson+ $ 0 $20,000
- -------------
+ Elected as a Director December 22, 1997
The Directors do not receive pension or retirement benefits from the
Fund.
The Articles of Incorporation of the Fund provide that the Fund will
indemnify its Directors and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Fund, except if it is determined in the manner specified in the
Articles of Incorporation that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Fund or
that such indemnification would relieve any officer or Director of any liability
to the Fund or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of his or her duties. The Fund, at its
expense, provides liability insurance for the benefit of its Directors and
officers.
B-14
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS
The Directors and officers as a group owned less than 1% of the
outstanding shares of common stock of the Fund as of May 15, 1998. To the
knowledge of the Fund, as of May 15, 1998 no person owned of record or
beneficially more than 5% of the outstanding shares of common stock of the Fund
as of such date.
INVESTMENT ADVISORY SERVICES
Investment decisions for the Fund and for the other investment advisory
clients of Mentor Advisors and its affiliates are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such clients in a manner
which in Mentor Advisors' opinion is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients. Mentor Advisors employs a professional staff of
investment personnel who draw upon a variety of resources for research
information for the Fund.
Expenses incurred in the operation of the Fund, including but not
limited to taxes, interest, brokerage fees and commissions, SEC fees and related
expenses, state Blue Sky qualification fees, charges of the custodian and
transfer and dividend disbursing agents, outside auditing, accounting, and legal
services, investor servicing fees and expenses, charges for the printing of
prospectuses and statements of additional information for regulatory purposes or
for distribution to shareholders, certain shareholder report charges, and
charges relating to corporate matters are borne by the Fund.
The Management Contract is subject to annual approval (beginning in
2000) by (i) the Board of Directors or (ii) vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the Fund, provided that in
either event the continuance is also approved by a majority of the Directors who
are not "interested persons" (as defined in the 1940 Act) of the Fund or Mentor
Advisors by vote cast in person at a meeting called for the purpose of voting on
such approval. The Management Contract is terminable without penalty, on not
more than sixty days' notice by the Fund or Mentor Advisors.
B-15
<PAGE>
Prior to September 9, 1995, Lord, Abbett & Co. ("Lord, Abbett"), the
General Motors Building, 767 Fifth Avenue, New York, New York 10153 served as
investment adviser to the Fund under an Investment Advisory Agreement dated
February 14, 1992. For its services, Lord, Abbett received $200,000 for the
period February 14, 1993 through February 13, 1994, and $300,000 for the period
February 14, 1994 through February 13, 1995. After February 13, 1995, the Fund
paid a quarterly fee to Lord, Abbett according to the same schedule for fees
under the current Management Contract with Mentor Advisors.
Management Fees
The Fund paid management fees in the following amounts for the fiscal
years indicated below:
1997 1996 1995
--------- -------- ---------
$371,906 $352,144 $323,431(1)
- ----------
(1) $198,375 of this amount was paid to Lord, Abbett.
B-16
<PAGE>
OTHER SERVICES
Administrative Services
Mentor Investment Group, LLC ("Mentor") acts as administrator to the
Fund pursuant to an Administrative Services Agreement. Pursuant to the
Administrative Services Agreement, Mentor assists the Fund in preparation of
certain reports to shareholders of the Fund, tax returns, and filings with the
SEC, prepares and furnishes reports to the Fund's Board of Directors, and
generally assists in the Fund's business operations.
The Administrative Services Agreement is subject to annual approval
(beginning in 2000) by the Board of Directors, provided that the continuance is
also approved by a majority of the Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund, or Mentor, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Agreement is
terminable without penalty, immediately upon notice, by the Board of Directors
or by vote of the holders of a majority of the Fund shares, and on not less than
thirty days' notice by Mentor.
The Fund pays Mentor for such services at an annual rate of 0.65% of
the Fund's average daily net assets, less the amount of any management fees paid
to Mentor Advisors pursuant to the Management Contract.
Prior to August 21, 1995, America's Utility Fund Service Company ("AUF
Service Company") provided administrative services and certain shareholder and
transfer and dividend payment agent services to the Fund pursuant to an
Administrative Services and Transfer Agency Agreement. For these combined
services, AUF Service Company received fees from the Fund at the annual rate of
1% of the Fund's average daily net assets. AUF Service Company also paid the
management fee for the Fund.
Administrative Fees
The Fund paid the following fees for administrative services for the
fiscal years indicated below. Amounts prior to August 21, 1995 reflect the 1%
fee paid to AUF Service Company.
1997 1996 1995
--------- --------- ---------
$596,068 $617,040 $948,530(1)
- ----------------
(1) Of this amount, $735,127 was paid to AUF Service Company.
B-17
<PAGE>
Shareholder Servicing
The Fund has entered into a Shareholder Service Agreement dated
February 1, 1998 with Mentor, pursuant to which Mentor, by itself or through
other financial institutions, provides shareholder support services to the Fund
and its shareholders. These services may include, but are not limited to,
providing office space and various clerical, supervisory, and computer personnel
for the maintenance of shareholder accounts, processing purchase and redemption
transactions, and providing assistance to shareholders. In return for providing
these services, the Fund pays Mentor a fee, at the annual rate of 0.25% of the
Fund's average daily net assets. Prior to October 31, 1997, pursuant to a
Sub-Shareholder Services Agreement between Mentor and AUF Service Company,
Mentor paid fees to AUF Service Company at the same annual rate of the Fund's
net assets in respect of which AUF Service Company provided specified
shareholder services.
The Fund paid shareholder services fees to Mentor (which in turn paid
fees to AUF Service Company) of $354,802 during fiscal year 1997.
AUF Service Company (prior to August 21, 1995) and Mentor (throughout
the period from August 21, 1995 to December 31, 1997) paid the expenses of the
Fund to the extent total Fund operating expenses exceeded 1.21% of the Fund's
average daily net assets. As a result of this expense limitation, AUF Service
Company and Mentor incurred expenses of $118,162 and $66,941 respectively, for
the Fund during the 1995 fiscal year, and Mentor incurred expenses of $144,093
and $124,524, respectively, for the 1996 and 1997 fiscal years.
Transfer agent services
Prior to December 15, 1997, AUF Service Company received fees from
State Street Bank and Trust Company ("State Street"), the Fund's transfer agent,
for services performed under a Sub-Transfer Agency Agreement dated August 21,
1995. Pursuant to that Agreement, AUF Service Company provided certain transfer
agent, dividend disbursing agent, and other services to the Fund and its
shareholders who purchased shares of the Fund through facilities made available
to Virginia Power and North Carolina Power customers. State Street paid AUF
Service Company a fee at the annual rate of 0.10% of the Fund's average net
assets attributable to shares held such shareholders. For fiscal year 1997,
these fees amounted to $337,898.
Custody Arrangements
Pursuant to a Custody Agreement dated March 1, 1995, Investors
Fiduciary Trust Corporation ("IFTC"), serves as custodian to the Fund.
B-18
<PAGE>
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")), from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, Mentor Advisors receives brokerage and research services and other
similar services from many broker-dealers with which it places the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by Mentor Advisors' managers and analysts. Where the services
referred to above are not used exclusively by Mentor Advisors for research
purposes, Mentor Advisors, based upon its own allocations of expected use, bears
that portion of the cost of these services which directly relates to its
non-research use. Some of these services are of value to Mentor Advisors and its
affiliates in advising various of its clients (including the Fund), although not
all of these services are necessarily useful and of value in managing the Fund.
Mentor Advisors places all orders for the purchase and sale of
portfolio investments for the Fund and buys and sells investments for the Fund
through a substantial number of brokers and dealers. Mentor Advisors seeks the
best overall terms available for the Fund, except to the extent it may be
permitted to pay higher brokerage commissions as described below. In doing so,
Mentor Advisors, having in mind the Fund's best interests, considers all factors
it deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other investment, the
amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealer involved, and the quality of service rendered by the
broker-dealer in other transactions.
B-19
<PAGE>
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, the Mentor Advisors may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to
Mentor Advisors an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer would have charged
for effecting that transaction. Mentor Advisors' authority to cause the Fund to
pay any such greater commissions is also subject to such policies as the Board
of Directors may adopt from time to time. Mentor Advisors does not currently
intend to cause the Fund to make such payments. It is the position of the staff
of the Securities and Exchange Commission that Section 28(e) does not apply to
the payment of such greater commissions in "principal" transactions.
Accordingly, Mentor Advisors will use its best efforts to obtain the best
overall terms available with respect to such transactions, as described above.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to such other policies as the Board of
Directors may determine, Mentor Advisors may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
The Directors have determined that portfolio transactions for the Fund
may be effected through Wheat, First Securities, Inc. ("Wheat"), and EVEREN
Securities, Inc. ("EVEREN"), broker-dealers affiliated with Mentor Advisors. The
Board of Directors has adopted certain policies incorporating the standards of
Rule 17e-l issued by the SEC under the 1940 Act which requires, among other
things, that the commissions paid to Wheat and EVEREN must be reasonable and
fair compared to the commissions, fees, or other remuneration received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. Wheat and EVEREN will not participate in
brokerage commissions given by the Fund to other brokers or dealers.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere. The Fund will in no event effect principal transactions with
Wheat and EVEREN in over-the-counter securities in which Wheat or EVEREN makes a
market, as the case may be.
Under rules adopted by the SEC, Wheat and EVEREN may not execute
transactions for the Fund on the floor of any national securities exchange, but
may effect transactions for the Fund by transmitting orders for execution and
arranging for the performance of this function by members of the exchange not
associated with them. Wheat and EVEREN will be required to pay fees charged to
those persons performing the floor brokerage elements out of the brokerage
compensation they receive from the Fund. The Fund has been advised by Wheat that
on most transactions, the floor brokerage generally constitutes from 5% and 10%
of the total commissions paid.
B-20
<PAGE>
Brokerage Commissions
The Fund paid brokerage commissions in the following amounts during the
periods set forth below:
Fiscal year Fiscal year Fiscal year
1995 1996 1997
------------ ------------ -----------
$162,737 $102,955 $161,766
The following table shows brokerage commissions paid by the Fund to
affiliated brokers for the periods indicated:
Fiscal year Fiscal year Fiscal year
1995 1996 1997
------------ ------------ -----------
Wheat First Securities, Inc. $29,539(1) $39,946 $41,440
EVEREN Securities, Inc. N/A $ 3,360(2) $18,544
- ----------------
(1) For the period September, 1995 through December 31, 1995. (2) For the period
November, 1996 through December 31, 1996.
For fiscal 1995, the brokerage commissions shown above paid to Wheat
amounted to 18.15% of the Fund's aggregate brokerage commissions on 13.51% of
the Fund's aggregate dollar amount of brokerage transactions. For fiscal 1996
the brokerage commissions shown above paid to Wheat amounted to 38.8% of the
Fund's aggregate brokerage commissions on 11.45% of the Fund's aggregate dollar
amount of brokerage transactions. For fiscal 1996 the brokerage commissions
shown above paid to EVEREN amounted to 3.26% of the Fund's aggregate brokerage
commissions on 0.71% of the Fund's aggregate dollar amount of brokerage
transactions. For fiscal 1997 the brokerage commissions shown above paid to
Wheat amounted to 25.62% of the Fund's aggregate brokerage commissions on
22.39% of the Fund's aggregate dollar amount of brokerage transaction. For
fiscal 1997 the brokerage commissions shown above paid to EVEREN amounted to
11.46% of the Fund's aggregate brokerage commissions on 11.32% of the Fund's
aggregate dollar amount of brokerage transactions.
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value per share each day the New York
Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays, and the following holidays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving, and Christmas.
B-21
<PAGE>
Securities for which market quotations are readily available are
valued at prices which, in the opinion of the Board of Directors or Mentor
Advisors, most nearly represent the market values of such securities. Currently,
such prices are determined using the last reported sale price or, if no sales
are reported (as in the case of some securities traded over-the-counter), the
last reported bid price, except that certain U.S. Government securities are
stated at the mean between the last reported bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by the Board of
Directors. Liabilities are deducted from the total, and the resulting amount is
divided by the number of shares of the Fund outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services, which determine
valuations for normal, institutional-size trading units of such securities using
methods based on market transactions for comparable securities and various
relationships between securities which are generally recognized by institutional
traders.
If any securities held by the Fund are restricted as to resale, Mentor
Advisors determines their fair values. The fair value of such securities is
generally determined as the amount which the Fund could reasonably expect to
realize from an orderly disposition of such securities over a reasonable period
of time. The valuation procedures applied in any specific instance are likely to
vary from case to case. However, consideration is generally given to the
financial position of the issuer and other fundamental analytical data relating
to the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the Fund
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
In the case of certain fixed-income securities, including certain less
common mortgage-backed securities, market quotations are not readily available
to the Fund on a daily basis, and pricing services may not provide price
quotations. In such cases, Mentor Advisors is typically able to obtain dealer
quotations for each of the securities on at least a weekly basis. On any day
when it is not practicable for Mentor Advisors to obtain an actual dealer
quotation for a security, Mentor Advisors may reprice the securities based on
changes in the value of a U.S. Treasury security of comparable duration. When
the next dealer quotation is obtained, Mentor Advisors compares the dealer quote
against the price obtained by it using its U.S. Treasuryspread calculation, and
makes any necessary adjustments to its calculation methodology. Mentor Advisors
attempts to obtain dealer quotes for each security at least weekly, and on any
day when there has been an unusual occurrence affecting the securities which, in
Mentor
B-22
<PAGE>
Advisors' view, makes pricing the securities on the basis of U.S. Treasuries
unlikely to provide a fair value of the securities.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of the Fund's shares are computed as of such times. Also, because of the amount
of time required to collect and process trading information as to large numbers
of securities issues, the values of certain securities (such as convertible
bonds, U.S. Government securities, and tax-exempt securities) are determined
based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Board of Directors.
TAX STATUS
The Fund intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders.
In order to qualify as a "regulated investment company," the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies
and (b) diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government Securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any issuer (other than U.S. Government Securities). In order to
receive the favorable tax treatment accorded regulated investment companies and
their shareholders, moreover, the Fund must in general distribute with respect
to each taxable year at least 90% of the sum of its taxable net investment
income, its net tax-exempt income, and the excess, if any, of net short-term
capital gains over net long-term capital losses for such year.
B-23
<PAGE>
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. Each Portfolio
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November, or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
The Fund is required to withhold 31% of all income dividends and
capital gain distributions, and 31% of the gross proceeds of all redemptions of
Fund shares, in the case of any shareholder who does not provide a correct
taxpayer identification number, about whom the Fund is notified that the
shareholder has under reported income in the past, or who fails to certify to
the Fund that the shareholder is not subject to such withholding. Tax-exempt
shareholders are not subject to these back-up withholding rules so long as they
furnish the Fund with a proper certification.
Foreign currency-denominated securities and related hedging
transactions. The Fund's transactions in foreign currencies, foreign
currency-denominated debt securities, and certain foreign currency options,
futures contracts, and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of stock or
securities of foreign corporations, the Fund may elect to permit shareholders to
claim a credit or deduction on their income tax returns for their pro rata
portion of qualified taxes paid by the Fund to foreign countries. In such a
case, shareholders will include in gross income from foreign sources their pro
rata shares of such taxes. A shareholder's ability to claim a foreign tax credit
or deduction in respect of foreign taxes paid by the Fund may be subject to
certain limitations imposed by the Code (including, with respect to a foreign
tax credit, a holding period requirement imposed pursuant to the Tax payer
Relief Act of 1997), as a result of which a shareholder may not get a full
credit or deduction for the amount of such taxes. Shareholders who do not
itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or other charge
on the proceeds from the sale of its investment in such a company; however, this
tax can be avoided by making an election to mark such investments to market
annually or to treat the passive foreign investment company as a "qualified
electing fund."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should
B-24
<PAGE>
be made to the pertinent Code sections and regulations. The Code and regulations
are subject to change by legislative or administrative actions. Dividends and
distributions also may be subject to foreign, state and federal taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, foreign, state or local taxes. The foregoing discussion
relates solely to U.S. federal income tax law. Non-U.S. investors should consult
their tax advisers concerning the tax consequences of ownership of shares of the
Fund, including the possibility that they could be subject to the backup
withholding rules described above or that distributions may be subject to a 30%
United States withholding tax (or a reduced rate of withholding provided by
treaty).
DISTRIBUTION
Mentor Distributors, LLC ("Mentor Distributors") serves as principal
distributor of the Fund under a Distribution Agreement dated February 1, 1998.
Pursuant to the Distribution Agreement, Mentor Distributors agrees to bear the
expenses of printing any promotional or sales literature used by Mentor
Distributors or furnished by Mentor Distributors to dealers in connection with
the public offering of the Fund's shares, including expenses of advertising in
connection with such public offerings. Mentor Distributors has not undertaken to
sell any specified number of shares of the Fund.
The Fund or Mentor Distributors may terminate the Distribution
Agreement on sixty days' written notice without penalty. The Distribution
Agreement will terminate automatically in the event of its assignment.
PERFORMANCE INFORMATION
Total return for the one-, five-, and ten-year periods (or for the life
of the Fund, if shorter) is determined by calculating the actual dollar amount
of investment return on a $1,000 investment in the Fund at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount. Total return for a period of one year is equal to the
actual return of the Fund during that period. Total return calculations assume
reinvestment of all Fund distributions at net asset value per share on their
respective reinvestment dates. The total return for the one-year period ending
December 31, 1997 and the average annual total return for the life of the Fund
(May 5, 1992 through December 31, 1997) were 23.31% and 11.96%, respectively.
The Fund's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by the Fund during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B) the net asset
value per share on the last day of the base period. The result is annualized on
a compounding basis to determine the yield. For this calculation, interest
earned on debt obligations held by
B-25
<PAGE>
the Fund is generally calculated using the yield to maturity (or first expected
call date) of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA's, based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates. The yield
for the Fund for the thirty-day period ended December 31, 1997 was 3.34%.
All data for the Fund are based on past performance and do not predict
future results.
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the Fund, and other
investment companies, performed in specified time periods. Agencies whose
reports are commonly used for such comparisons are set forth below. From time to
time, the Fund may distribute these comparisons to its shareholders or to
potential investors. The agencies listed below measure performance based on the
basis of their own criteria rather than on the basis of the standardized
performance measures described above.
Lipper Analytical Services, Inc. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated
by Lipper, reflecting generally changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, for example year-to-date, 1-year, 5-year, and
10-year performance. Lipper classifies mutual funds by investment
objective and asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. the
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent a fund's historical
risk/reward ratio relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the Portfolio's
3-year, 5-year, and 10-year total return performance (if available)
reflecting deduction of expenses and sales charges. Performance is
adjusted using quantitative techniques to reflect the risk profile of
the fund. The ratings are derived from a purely quantitative system
that does not utilize the subjective criteria customarily employed by
rating agencies such as Standard & Poor's Corporation and Moody's
Investor Service, Inc.
Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year performance. Mutual funds are ranked in
general categories (e.g., international bond, international equity,
municipal bond, and maximum capital gain). Weisenberger rankings do not
reflect deduction of sales charges or fees.
Independent publications may also evaluate the Fund's performance.
certain of those publications are listed below. The Fund may
distribute evaluations by or excerpts from these
B-26
<PAGE>
publications to its shareholders or to potential investors. The
following illustrates the types of information provided by these
publications.
Business Week publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week total
return reflecting changes in net asset value and the reinvestment of
all distributions. They do not reflect deduction of any sales charges.
Portfolios are not categorized; they compete in a large universe of
over 2,000 funds. The source for rankings is data generated by
Morningstar, Inc.
Investor's Business Daily publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given
category. The categories are based loosely on the type of fund, e.g.,
growth funds, balanced funds, U.S. government funds, GNMA funds, growth
and income funds, corporate bond funds, etc. Performance periods for
sector equity funds can vary from 4 weeks to 39 weeks; performance
periods for other fund groups vary from 1 year to 3 years. Total return
performance reflects changes in net asset value and reinvestment of
dividends and capital gains. The rankings are based strictly on total
return. They do not reflect deduction of any sales charges Performance
grades are conferred from A+ to E. An A+ rating means that the fund has
performed within the top 5% of a general universe of over 2000 funds;
an A rating denotes the top 10%; an A- is given to the top 15%, etc.
Barron's periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical
Services. The Lipper total return data reflects changes in net asset
value and reinvestment of distributions, but does not reflect deduction
of any sales charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example) to long-term
periods (five-year or ten-year performance, for example). Barron's
classifies the funds using the Lipper mutual fund categories, such as
Capital Appreciation Portfolios, Growth Portfolios, U.S. Government
Portfolios, Equity Income Portfolios, Global Portfolios, etc.
Occasionally, Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with assets in
excess of $25 million; "small funds" may be those with less than $25
million in assets.
The Wall Street Journal publishes its Mutual Portfolio Scorecard on a
daily basis. Each Scorecard is a ranking of the top-15 funds in a given
Lipper Analytical Services category. Lipper provides the rankings based
on its total return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales charges. The
Scorecard portrays 4-week, year-to-date, one-year and 5-year
performance; however, the ranking is based on the one-year results. The
rankings for any given category appear approximately once per month.
Fortune magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Portfolios are
placed in stock or bond fund
B-27
<PAGE>
categories (for example, aggressive growth stock funds, growth stock
funds, small company stock funds, junk bond funds, Treasury bond funds
etc.), with the top-10 stock funds and the top-5 bond funds appearing
in the rankings. The rankings are based on 3- year annualized total
return reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges. Performance is adjusted
using quantitative techniques to reflect the risk profile of the fund.
Money magazine periodically publishes mutual fund rankings on a
database of funds tracked for performance by Lipper Analytical
Services. The funds are placed in 23 stock or bond fund categories and
analyzed for five-year risk adjusted return. Total return reflects
changes in net asset value and reinvestment of all dividends and
capital gains distributions and does not reflect deduction of any sales
charges. Grades are conferred (from A to E): the top 20% in each
category receive an A, the next 20% a B, etc. To be ranked, a fund must
be at least one year old, accept a minimum investment of $25,000 or
less and have had assets of at least $25 million as of a given date.
Financial World publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds,
global bond funds, growth and income funds, U.S. government bond funds,
etc. To compete, funds must be over one year old, have over $1 million
in assets, require a maximum of $10,000 initial investment, and should
be available in at least 10 states in the United States. The funds
receive a composite past performance rating, which weighs the
intermediate - and long-term past performance of each fund versus its
category, as well as taking into account its risk, reward to risk, and
fees. An A+ rated fund is one of the best, while a D- rated fund is one
of the worst. The source for Financial World rating is Schabacker
investment management in Rockville, Maryland.
Forbes magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds
are categorized by type, including stock and balanced funds, taxable
bond funds, municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The ratings are
based strictly on performance at net asset value over the given cycles.
Portfolios performing in the top 5% receive an A+ rating; the top 15%
receive an A rating; and so on until the bottom 5% receive an F rating.
Each fund exhibits two ratings, one for performance in "up" markets and
another for performance in "down" markets.
Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three-
and five-year total return performance reflecting changes in net asset
value and reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Portfolios are ranked by
tenths: a rank of 1 means that a fund was among the highest 10% in
total return for the period; a rank of 10 denotes the bottom 10%.
Portfolios compete in categories of similar
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<PAGE>
funds -- aggressive growth funds, growth and income funds, sector
funds, corporate bond funds, global governmental bond funds,
mortgage-backed securities funds, etc. Kiplinger's also provides a
risk-adjusted grade in both rising and falling markets. Portfolios are
graded against others with the same objective. The average weekly total
return over two years is calculated. Performance is adjusted using
quantitative techniques to reflect the risk profile of the fund.
U.S. News and World Report periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch
Carre & Co., a Boston research firm. Over 2000 funds are tracked and
divided into 10 equity, taxable bond and tax-free bond categories.
Portfolios compete within the 10 groups and three broad categories. The
OPI is a number from 0-100 that measures the relative performance of
funds at least three years old over the last 1, 3, 5 and 10 years and
the last six bear markets. Total return reflects changes in net asset
value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges.
Results for the longer periods receive the most weight.
The 100 Best Mutual Portfolios You Can Buy (1992), authored by Gordon
K. Williamson. The author's list of funds is divided into 12 equity and
bond fund categories, and the 100 funds are determined by applying four
criteria. First, equity funds whose current management teams have been
in place for less than five years are eliminated. (The standard for
bond funds is three years.) Second, the author excludes any fund that
ranks in the bottom 20 percent of its category's risk level. Risk is
determined by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill. Third, a
fund must have demonstrated strong results for current three-year and
five-year performance. Fourth, the fund must either possess, in Mr.
Williamson's judgment, "excellent" risk-adjusted return or "superior"
return with low levels of risk. Each of the 100 funds is ranked in five
categories: total return, risk/volatility, management, current income
and expenses. The rankings follow a fivepoint system: zero designates
"poor"; one point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior"; and five
points mean "excellent."
B-29
<PAGE>
MEMBERS OF INVESTMENT TEAMS AT MENTOR ADVISORS
The following persons are investment personnel of Mentor Advisors, as
indicated.
Large Capitalization Quality Equity Growth
John G. Davenport, CFA -- Managing Director, Chief Investment Officer Mr.
Davenport has twelve years of investment management experience. He joined the
Mentor organization after heading equity research for Lowe, Brockenbrough,
Tierney, & Tattersall. He earned his undergraduate business degree from the
University of Richmond and his graduate degree in business from the University
of Virginia.
Richard H. Skeppstrom II -- Vice President, Portfolio Manager
Mr. Skeppstrom has six years of investment management experience. He has earned
both his undergraduate degree and masters of business administration from the
University of Virginia.
Richard L. Rice, CFA -- Vice President, Portfolio Manager
Mr. Rice has twenty-four years' experience in the securities industry. Prior to
joining the Mentor organization in 1993, he was a partner in the equity
management software firm, Parata Analytics Research, which was acquired by the
Mentor organization. His previous responsibilities include director of Research
for Signet Asset Management, Senior Research Analyst for Capitoline Investment
Services, and research positions at First Atlanta Corp. and Southeast Banking.
He earned his undergraduate business degree from the University of Florida.
Active Fixed-Income
P. Michael Jones, CFA -- Managing Director, Chief Investment Officer
Mr. Jones has eleven years of investment management experience. Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He earned his undergraduate degree from the
College of William and Mary.
Steven C. Henderson -- Associate Vice President, Portfolio Manager
Mr. Henderson has seven years of investment management experience. He has an
undergraduate degree from the University of Richmond and a masters in business
administration from George Washington University.
Stephen R. McClelland -- Vice President, Portfolio Manager
Mr. McClelland has six years of investment management experience, all of which
have been with the Mentor organization. He is a Certified Public Accountant and
received his undergraduate degree in accounting from Iowa State University and
his graduate business degree from Virginia Commonwealth University.
B-30
<PAGE>
Keith Wantling
Mr. Wantling has five years of experience. Mr. Wantling performs analysis and
screening for credit sensitive private label mortgage-backed securities and
directs the firm's portfolio analysis effort. He holds his undergraduate degree
in accounting information systems from Virginia Polytechnic Institute.
Small-to-Medium Capitalization Equity Growth
Theodore W. Price, CFA -- Managing Director, Chief Investment Officer
Mr. Price has over thirty years of investment management experience, with over
twenty-three years' tenure at Charter Asset Management, the predecessor to
Mentor Advisors. He has managed Mentor Growth Portfolio since its inception. He
earned both his undergraduate degree and masters of business administration from
the University of Virginia.
Linda A. Ziglar, CFA -- Portfolio Manager
Ms. Ziglar has seventeen years of investment management experience. Ms. Ziglar
joined Charter Asset Management, the predecessor to Mentor Advisors, from
Federated Investors, where she managed $300 million in equity assets. She holds
an undergraduate degree from Randolph-Macon Woman's College where she graduated
summa cum laude. She also holds a graduate degree in business administration
from the University of Pittsburgh.
Jeffrey S. Drummond, CFA -- Vice President, Portfolio Manager
Mr. Drummond has eight years of investment management experience. Mr. Drummond
began his career as a portfolio analyst in the Investment Strategy Department at
Wheat First Butcher Singer, where he shared responsibility for directing $100
million in assets following the Strategic Sectors Portfolio. He received his
undergraduate degree in finance from the University of Richmond, where he
graduated cum laude.
Edward Rick IV
Mr. Rick has two years of investment management experience. He received his
undergraduate degree in finance from the University of Richmond, where he
graduated cum laude.
Tactical Asset Allocation
Don R. Hays -- Chief Investment Officer
Mr. Hays has over twenty-seven years of investment experience and is Director of
Investment Strategy for Wheat First Butcher Singer, Inc., a position he has held
since 1984. Mr. Hays began his career as an engineer with the Von Braun
rocket-development team in 1968. He is regarded as one of the country's leading
investment strategists and his market outlook is quoted regularly in the Wall
Street Journal, Investor's Business Daily, USA Today, and other major media. He
has been a guest on the PBS series Wall $treet Week with Louis Rukeyser and is
regularly featured by Dow Jones, Reuters and Bloomberg News Services.
B-31
<PAGE>
Asa W. Graves VII, CFA -- Portfolio Manager
Mr. Graves has five years of investment management experience and works closely
with Mr. Hays to develop the analytical framework used in managing the Mentor
Strategy Portfolio. He earned his undergraduate degree from the University of
Richmond.
William P. Ryder -- Research Analyst
Mr. Ryder joined Wheat First Butcher Singer in 1991 as a member of its
Investment Strategy Group, working as a research analyst on its growth and
growth and income model portfolios. In 1995 he became part of the team
responsible for managing the Mentor Strategy Portfolio. In that capacity he
focuses primarily on conducting economic analysis, industry group studies, and
asset allocation modeling. Mr. Ryder attended Virginia Commonwealth University
and has five years' investment experience.
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri, 64105, acts as the custodian for the Fund's portfolio securities and
cash. In this capacity, it maintains certain financial and accounting books and
records pursuant to agreements with the Fund.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, are the Fund's independent accountants, providing audit services, tax
return review and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange Commission
filings. Prior to the 1997 fiscal year, Deloitte & Touche L.L.P., 707 East Main
Street, Richmond, Virginia 23219, served as the Fund's independent accountants.
RATINGS
The rating services' descriptions of corporate bonds are:
Moody's Investors Service, Inc.:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated
B-32
<PAGE>
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.
Standard & Poor's:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this category than for bonds in higher rated categories.
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
B-33
<PAGE>
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative- type risks which may be inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which
exist with the issuer; and
o recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
Note Ratings:
MIG1/VMIG1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
B-34
<PAGE>
A-1 - This highest category 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.
B-35
<PAGE>
FINANCIAL STATEMENTS
The Independent Auditor's Report, financial highlights, and financial
statements in respect of the Fund, included in the Fund's Annual Report for the
fiscal year ended December 31, 1997, filed electronically on February 26, 1998
(File No. 811-6549) (Accession No. 0000916641-98-000165), are incorporated by
reference into this Statement of Additional Information.
B-36
<PAGE>
AMERICA'S UTILITY FUND, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Financial Statements:
(1) Independent Auditor's Report (b)
(2) Statement of Assets and Liabilities -- December 31, 1997 (b)
(3) Statement of Operations -- Year Ended December 31, 1997 (b)
(4) Statements of Changes in Net Assets -- Years Ended
December 31, 1997 and 1996 (b)
(5) Financial Highlights (a)
(6) Notes to Financial Statements (b)
Supporting Schedules:
Schedule I -- Portfolio of Investments -- December 31, 1997 (b)
Schedule II through IX omitted because the required matter
is not present.
(a) Included in Part A.
(b) Incorporated by reference into Part B.
b. Exhibits
(1) Articles of Incorporation. (b)
(2) By-laws. (b)
(3) Inapplicable.
(4) Article V of the Articles of Incorporation filed
herewith, and Article I of the By-laws filed
herewith, set forth provisions related to shareholder
rights.
(5)
(A) Management Contract dated February 1, 1998. (b)
(B) Administrative Services Agreement dated February 1, 1998.(b)
(6) Distribution Agreement, dated as of February 1, 1998. (b)
(7) Inapplicable.
(8)
(A) Inapplicable
(B) Shareholder Service Agreement dated February 1, 1998. (b)
<PAGE>
(C) Transfer Agency and Services Agreement dated August 21,
1995. (a)
(D) Sub-Transfer Agency Agreement dated August 21, 1995. (a)
(E) Custody Agreement dated March 1, 1995. (a)
(9) Inapplicable.
(10)
(A) Opinion of Counsel, including consent. (b)
(B) Opinion of Special Maryland Counsel, including consent. (a)
(11)
(A) Consent of Independent Auditors. (c)
(B) Consent of Independent Auditors. (c)
(12) Inapplicable.
(13) Inapplicable.
(14) Form of Registrant's IRA Documents. (b)
(15) Inapplicable.
(16) Schedule of Computation of Performance. (a)
(19) Powers of Attorney. (b)
(27) Financial Data Schedule. (a)
(a) Incorporated by reference to Registrant's Post-Effective Amendment No. 6 on
Form N-1A filed May 1, 1997.
(b) Incorporated by reference to Registrant's Post-Effective Amendment No. 7 on
Form N-1A filed April 30, 1998.
(c) Filed herewith.
Item 25: Persons Controlled by or Under Common Control with Registrant
None
Item 26: Number of Holders of Securities (as of May 15, 1998)
- ------- -----------------------------------------------------
(1) (2)
Title of Class Number of Record Shareholders
--------------- -----------------------------
Common Stock, par 32,688
value $.001 per share
Item 27: Indemnification
The information required by this item is incorporated herein by
reference from Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form N-1A (Reg. No. 33-45437) under the
Securities Act of 1933, filed on February 16, 1995.
Item 28. Business or Other Connections of Investment Adviser
-2-
<PAGE>
(a) The following is additional information with respect to
the directors and officers of Mentor Investment Advisors, LLC:
The business and other connections of each director, officer,
or partner of Mentor Investment Advisors, LLC in which such director, officer,
or partner is or has been, at any time during the past two fiscal years, engaged
for his own account or in the capacity of director, officer, employee, partner,
or trustee are set forth in the following table.
-3-
<PAGE>
Other Substantial
Position with the Business, Profession,
Name Investment Adviser Vocation or Employment
- ----- ------------------ -----------------------
John G. Davenport Managing Director None
R. Preston Nuttall Managing Director Formerly, Senior Vice
President, Capitoline
Investment Services
Paul F. Costello Managing Director Managing Director, Wheat
First Butcher Singer, Inc.
and Mentor Investment
Group, LLC; President,
Mentor Funds, Mentor
Income Fund, Inc., Cash
Resource Trust, and
Mentor Institutional Trust;
Director, Mentor Perpetual
Advisors, LLC and Mentor
Trust Company
Theodore W. Price Managing Director Formerly, President,
Charter Asset
Management, Inc.
P. Michael Jones
Managing Director
Formerly, Managing
Director, Commonwealth
Investment Counsel, Inc.
Thomas L. Souders Treasurer Managing Director and
Chief Financial Officer,
Wheat, First Securities,
Inc.; formerly, Manager of
Internal Audit, Heilig-
Myers; formerly, Manager,
Peat Marwick & Mitchell
& Company
Robert P. Wilson Assistant Treasurer Assistant Treasurer,
Mentor Distributors, LLC
-4-
<PAGE>
Geoffrey B. Sale Secretary Associate Vice President
Mentor Investment Group,
LLC; Clerk Mentor
Institutional Trust;
Secretary America's Utility
Fund, Cash Resource Trust,
Mentor Income Fund, Inc.,
Mentor Funds and Mentor
Variable Investment
Portfolios.
Howard T. Macrae, Jr. Assistant Secretary Assistant Secretary,
Mentor Distributors, LLC
Item 29. Principal Underwriters
(a) Mentor Distributors, LLC, the Fund's principal
underwriter, acts as principal underwriter for the following investment
companies:
The Mentor Funds
o Mentor Growth Portfolio
o Mentor Strategy Portfolio
o Mentor Short-Duration Income Portfolio
o Mentor Balanced Portfolio
o Mentor Capital Growth Portfolio
o Mentor Perpetual Global Portfolio
o Mentor Income and Growth Portfolio
o Mentor Quality Income Portfolio
o Mentor Municipal Income Portfolio
o Mentor Institutional U.S. Government Money Market Portfolio
o Mentor Institutional Money Market Portfolio
Cash Resource Trust
o Cash Resource Money Market Fund
o Cash Resource U.S. Government Money Market Fund
o Cash Resource Tax-Exempt Money Market Fund
o Cash Resource California Tax-Exempt Money Market Fund
o Cash Resource New York Tax-Exempt Money Market Fund
Mentor Institutional Trust
o Mentor U. S. Government Cash Management Portfolio
o Mentor Fixed-Income Portfolio
o Mentor Perpetual International Portfolio
Mentor Investment Group
o Mentor Income Fund
o America's Utility Fund
Mentor Variable Investment Portfolios
o Mentor VIP Growth Portfolio
o Mentor VIP Strategy Portfolio
-5-
<PAGE>
o Mentor VIP Balanced Portfolio
o Mentor VIP Capital Growth Portfolio
o Mentor VIP Perpetual International Portfolio
(b) Information concerning officers of Mentor Distributors,
LLC:
Name And Principal Positions And Offices Positions And Offices
Business Address* With Underwriter With Registrant
----------------- --------------------- ---------------------
Lynn Mangum Chairman Inapplicable
D'Ray Moore President Inapplicable
Dennis Sheehan Executive Vice President Inapplicable
William J. Tomko Senior Vice President Inapplicable
Mark J. Rybarczyk Senior Vice President Inapplicable
Kevin J. Dell Vice President and Inapplicable
Secretary
Michael D. Burns Vice President Inapplicable
David Blackmore Vice President Inapplicable
Robert L. Tuch Assistant Secretary Inapplicable
Steven Ludwig Compliance Officer Inapplicable
-6-
<PAGE>
*Principal Address for all Officers:
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-8000
(c) Inapplicable.
Item 30. Location of Accounts and Records
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules
promulgated thereunder are maintained by the Fund at 901 East
Byrd Street, Richmond, Virginia 23219 or by Boston Financial
Data Services, Inc., the Registrant's transfer agent, at 2
Heritage Drive, North Quincy, Massachusetts 02171. Records
relating to the duties of the Registrant's custodian are
maintained by the Registrant's Custodian, Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri
64105. Records relating to the duties of the Registrant's
distributor are maintained by the Registrant's Distributor,
Mentor Distributors, LLC, 3435 Stelzer Road, Columbus, Ohio
432219-8000.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
-7-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, and Commonwealth of Virginia, on the 1st
day of June, 1998:
AMERICA'S UTILITY FUND, INC.
By: /s/ Paul F. Costello
-----------------------
Paul F. Costello
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on the 1st day of June, 1998:
*
______________________________ Director, President and
Daniel J. Ludeman Principal Executive Officer
______________________________ Director
Louis W. Moelchert, Jr.
______________________________ Director
Thomas F. Keller
*
______________________________ Director
Arnold H. Dreyfuss
*
______________________________ Director
Troy A. Peery, Jr.
*
______________________________ Director
Peter J. Quinn, Jr.
*
______________________________ Director
Arch T. Allen, III
-8-
<PAGE>
*
______________________________ Director
Weston E. Edwards
______________________________ Director
Jerry R. Barrentine
______________________________ Director
J. Garnett Nelson
*
______________________________ Treasurer, Principal
Terry L. Perkins Accounting Officer, and
Principal Financial
Officer
*By: /s/ Paul F. Costello
--------------------------
Paul F. Costello
Attorney-in-fact
-9-
<PAGE>
INDEX TO EXHIBITS
(11)(A) Consent of Independent Auditors
(11)(B) Consent of Independent Auditors
-10-
Consent of Independent Auditors'
The Board of Directors
America's Utility Fund, Inc.:
We consent to the use of our report dated February 6, 1998 incorporated herein
by reference and to the references to our firm under the captions "Financial
Highlights" in the prospectus and "Independent Auditors" in the statement of
additional information.
/s/ KPMG Peat Marwick LLP.
---------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
June 3, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 8 to Registration
Statement No. 33-45437 of America's Utility Fund, Inc. of our report dated
February 4, 1997, incorporated by reference in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us under the heading "Financial Highlights" appearing in the
Prospectus, which also is a part of such Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Richmond, Virginia
June 2, 1998
