MENTOR INSTITUTIONAL TRUST
ANNUAL REPORT
OCTOBER 31, 1995
DEAR SHAREHOLDERS:
It is a pleasure to bring you the Annual Shareholders' Report for Mentor
Institutional Trust for the year ended October 31, 1995. During the period the
Trust has made it possible for institutional and high-net-worth investors to
participate in a pooled investment program advised by Commonwealth Investment
Counsel, Inc.
By investing in the Trust shareholders gain the opportunity to benefit from the
experience of Commonwealth's investment professionals, as well as from the
economies, efficiencies, and diversification that pooled vehicles can provide.
The Trust is designed to fulfill a broad spectrum of investment needs for
clients that include public funds, corporations, endowments, foundations, and
high-net-worth individuals.
Many of the Trust's shareholders are investment-advisory clients of Commonwealth
for whom we manage balanced (stocks, bonds, and cash) portfolios. Many of these
clients have chosen to move the fixed-income portion of their balanced
portfolios from investments in individually-owned government and agency
securities, to the actively-managed institutional Portfolios. The Portfolios
offer them the opportunity to own securities from a wide variety of the
high-quality sectors of the bond market, and to obtain the many advantages that
investing in large pools of securities can provide.
The past year was a favorable one for the financial markets in general, and for
the Portfolios of Mentor Institutional Trust in particular. On the following
pages you will find detailed information about each of the Portfolios, including
commentary from each of the managers, a look at investment performance, and a
summary of the holdings in each Portfolio.
We welcome your questions, thank you for your support, and look forward to a
continuing relationship with you.
Our sincere best wishes to you for a prosperous new year,
/s/ DANIEL J. LUDEMAN /s/ PAUL F. COSTELLO
Daniel J. Ludeman Paul F. Costello
CHAIRMAN PRESIDENT
1
<PAGE>
MANAGER'S COMMENTARY
MENTOR INSTITUTIONAL TRUST
CASH MANAGEMENT PORTFOLIO
Mentor Institutional Trust Cash Management Portfolio successfully navigated its
first year of operation, despite a challenging market environment.
The Portfolio was launched during the derivatives crisis and a period of rising
interest rates. Subsequently, we witnessed a reversal of Federal Reserve
monetary policy, serious deterioration in the Japanese financial markets, and
uncertainty caused by the federal budget discord.
On February 1, 1995, the Federal Reserve raised the key Federal Funds rate to
6.00%, the seventh increase in 12 months. At that time the economy was perceived
to be moving ahead strongly and to contain a threat of inflation. Almost
immediately, however, economic growth began to slow as consumers took an
unscheduled holiday.
Federal Reserve sentiment gradually shifted until, on July 5, 1995, policy was
reversed and rates were lowered to 5.75%. For the balance of the year rates
stayed in a narrow trading range, buffeted on one side by sluggish economic
growth, and on the other by concern over Japan's banking system and the failure
of our government to reach a budget agreement.
Such a turbulent year in the markets presented an exceptional challenge to
portfolio managers, testing to the fullest their skills in the areas of credit
analysis, market timing, and selectivity. The Cash Portfolio's high-quality
standards and conservative investment policies enabled it to provide current
income while simultaneously allowing Commonwealth to meet all client liquidity
demands.
Our philosophy is that the primary purpose of the Portfolio is to seek current
income only when consistent with preserving the investor's principal and
providing funds when needed. Accordingly, our emphasis will continue to remain
always on safety and liquidity.
Sincerely,
/s/ R. PRESTON NUTTALL
R. Preston Nuttall, CFA
DIRECTOR OF CASH MANAGEMENT
2
<PAGE>
MANAGER'S COMMENTARY
MENTOR INSTITUTIONAL TRUST
INTERMEDIATE-DURATION AND FIXED-INCOME PORTFOLIOS
The year ended October 31, 1995 was a good one for U.S. bond market
participants.
Throughout 1995 interest rates declined and the yield curve flattened as
longer-term interest rates fell more than short-term interest rates. This
decline in yields was the result of slower growth in the U.S. economy and lower
current and projected levels of inflation. During most of this period we
maintained Portfolio durations modestly longer than those of the Lehman Brothers
Government/Corporate Bond and Intermediate Government/Corporate Bond Index
benchmarks.*
The Federal Reserve acknowledged that inflationary pressures were receding when
they lowered the Federal Funds rate .25% in early July. Returns for the six-
month period ended October 31, as measured by the Lehman Brothers
Government/Corporate and Intermediate Government/Corporate Bond Indexes were
8.61%* and 6.60%,* respectively. Since the end of this statement period interest
rates have continued to fall. In the present market environment we are
maintaining a duration-neutral position relative to our benchmarks, although
this position is subject to change.
Looking ahead, we have two slightly different views, one near-term and the other
longer-term. In the near term we believe the bond market has priced three
factors into the current term structure of interest rates: (1) several
reductions in the Federal Funds rate by the Federal Reserve; (2) a meaningful
outcome to the balanced budget negotiations; and (3) the distinct possibility of
a recession in 1996. An unhappy surprise on any of these fronts could cause a
sharp sell-off in the bond market, which we would view as a wonderful buying
opportunity.
Longer-term, we cannot ignore the positive fundamentals underlying the
fixed-income market as we enter 1996. The economy is expanding, corporate
profits are at record highs, unemployment is low, and, yet inflation is
receding. If the economy were to slow further because of high consumer debt
levels or some other factor, interest rates could fall much further. Under this
scenario a return to the interest rate levels of the 1950s and '60s would not be
impossible.
Sincerely,
/s/ WILLIAM H. WEST, JR.
William H. West, Jr., CFA
CO-HEAD, FIXED-INCOME MANAGEMENT
* The Lehman Brothers Government/Corporate Bond
Index and the Lehman Brothers Intermediate
Government/Corporate Bond Index are commonly used
to compare performance of income-oriented portfolios.
They include treasuries, agencies, and publicly-issued,
fixed-rate, non-convertible, investment-grade, dollar-
denominated debt. Investors cannot invest in the
Indexes.
3
<PAGE>
MENTOR INSTITUTIONAL TRUST
PERFORMANCE COMPARISONS
MENTOR INTERMEDIATE-DURATION
PORTFOLIO
[GRAPH APPEARS HERE]
12/94 10/95
Lehman Brothers Intermediate $10,000 $11,303
Gov't Corporate Bond Index
Mentor Intermediate $10,000 $11,238
Duration Portfolio
TOTAL RETURN
SINCE INCEPTION 12/19/94
PERIOD ENDING 10/31/95
12.38%
MENTOR FIXED-INCOME
PORTFOLIO
[GRAPH APPEARS HERE]
12/94 10/95
Lehman Brothers Gov't $10,000 $11,637
Corporate Bond Index
Mentor Fixed-Income Portfolio $10,000 $11,590
TOTAL RETURN
SINCE INCEPTION 12/6/94
PERIOD ENDING 10/31/95
15.90%
The graphs compare the investment performance of each Portfolio, from inception,
to an appropriate broad-based securities index. Each graph reflects the
performance of a $10,000 investment from the date of inception through October
31, 1995. Returns do not reflect taxes payable on distributions.
In comparing the performance of a Portfolio to an index, please recognize that
market indexes do not take into account brokerage commissions that would be
incurred if the individual securities of the index were purchased. They also do
not include taxes payable on dividends and interest payments, or operating
expenses necessary to maintain a portfolio investing in the index.
The performance data quoted in this report are historical and do not predict
future investment results. Investment return and principal value will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Performance is cited as of October 31, 1995, and includes changes in share price
and reinvestment of dividends and capital gains. The Portfolio results do not
reflect deduction of any fees or charges payable by investors with respect to
investment accounts through which they had shares of a Portfolio.
4
<PAGE>
MENTOR CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal
Net Assets Amount Value
<S> <C> <C> <C>
BANK NOTE 4.29%
Harris Trust, 5.75%, 11/30/95 $ 3,000,000 $ 3,000,000
BANKERS ACCEPTANCES 22.81%
Chase Manhattan Bank, 5.70%, 12/29/95 1,058,874 1,049,150
Citibank, 5.72%, 11/10/95 2,000,000 1,997,140
Corestates Bank, 5.57%-5.62%, 2/20/96-2/23/96 2,000,000 1,965,029
Credit Suisse New York, 5.66%, 11/14/95 2,000,000 1,995,912
Mellon Bank, 5.71%-5.72%, 11/13/95-1/26/96 3,470,310 3,442,407
Nationsbank, 5.70%-5.75%, 2/23/96-3/20/96 3,000,000 2,940,245
State Street Bank & Trust Company, 5.63%, 1/30/96 2,616,492 2,579,665
Total Bankers Acceptances 15,969,548
COMMERCIAL PAPER 28.45%
ABN-Amro North America Finance, Inc.,
5.55%, 2/21/96 2,000,000 1,965,467
Associates Corporation of North America,
5.71%, 11/28/95 2,000,000 1,991,435
CS First Boston, 5.65%-5.71%, 11/9/95-1/18/96 2,000,000 1,986,489
Electronic Data Systems Corporation, 5.72%, 1/30/96 2,000,000 1,971,400
Internationale Nederlanden Funding Corporation, 5.72%,
11/22/95 3,000,000 2,989,990
Merrill Lynch & Company, Inc., 5.58%, 3/8/96 2,000,000 1,960,320
Morgan Stanley Group, Inc., 5.60%-5.73%,
12/20/95-1/25/96 3,000,000 2,971,227
National Rural Utilities Cooperative
Finance Corporation, 5.70%, 11/2/95 2,000,000 1,999,683
Rincon Securities, Inc., 5.70%-5.72%,
12/15/95-1/12/96 2,100,000 2,080,910
Total Commercial Paper 19,916,921
U.S. GOVERNMENT AGENCIES 8.57%
Federal Home Loan Bank, 5.17%, 11/6/95 2,000,000 1,999,688
Student Loan Market Association, 5.00%-5.75%,
8/9/96-8/4/97 (a) 4,000,000 3,998,434
Total U.S. Government Agencies 5,998,122
</TABLE>
5
<PAGE>
MENTOR CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal
Net Assets Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 35.67%
Goldman, Sachs & Company
Dated 10/31/95, 5.90%, due 11/1/95, collateralized by
$9,984,748 Federal Home Loan Mortgage Corporation, 7.50%,
1/1/00 $ 9,968,182 $ 9,968,182
Nationsbank Corporation
Dated 10/31/95, 5.85%, due 11/1/95, collateralized by
$13,900,000 U.S. Treasury Note, 7.75%, 11/30/99 15,000,000 15,000,000
Total Repurchase Agreements 24,968,182
TOTAL INVESTMENTS (COST $69,852,773) 99.79% 69,852,773
OTHER ASSETS LESS LIABILITIES 0.21% 144,206
NET ASSETS 100.00% $69,996,979
</TABLE>
(a) Floating Rate Securities -- The rates shown are the effective rates at
October 31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
MENTOR INTERMEDIATE DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 63.22%
Federal Home Loan Mortgage Corporation,
10.50%, 2/1/03 $ 433,265 $ 459,465
Federal National Mortgage Association,
11.00%, 7/1/01 304,204 321,221
Government National Mortgage Association,
6.50%, 9/1/25, TBA* 550,000 533,841
U.S. Treasury Note, 7.50%, 1/31/97 500,000 511,245
U.S. Treasury Note, 7.38%, 11/15/97 700,000 722,911
U.S. Treasury Note, 5.50%, 2/28/99 2,100,000 2,085,342
U.S. Treasury Note, 7.50%, 11/15/01** 1,600,000 1,729,920
U.S. Treasury Note, 6.25%, 2/15/03 250,000 254,342
U.S. Treasury Note, 7.25%, 5/15/04 875,000 946,654
Total U.S. Government and Agency Securities
(cost $7,433,645) 7,564,941
CORPORATE BONDS 20.96%
Abbey National PLC, 6.69%, 10/17/05 200,000 200,560
Developers Diversified Realty, 7.63%, 5/15/00 250,000 251,830
Lehman Brothers, Inc., 9.88%, 10/15/00 525,000 591,958
Limited, Inc., 8.88%, 8/15/99 125,000 135,095
Occidental Petroleum, 8.75%, 2/14/03 300,000 314,133
Salomon, Inc., MTN, 9.75%, 7/15/97 300,000 314,355
Salomon, Inc., 6.00%, 1/12/98 250,000 245,530
Service Corporation International, 6.88%, 10/1/07 200,000 200,718
Travelers, Inc., 6.88%, 6/1/25 250,000 254,073
Total Corporate Bonds (cost $2,483,538) 2,508,252
</TABLE>
7
<PAGE>
MENTOR INTERMEDIATE DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 17.17%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 10/31/95, 5.85%, due 11/1/95, collateralized
by $1,900,000 U.S. Treasury Note, 7.75%,
11/30/99 (cost $2,053,656) $ 2,053,656 $ 2,053,656
TOTAL INVESTMENTS (COST $11,970,839) 101.35% 12,126,849
OTHER ASSETS LESS LIABILITIES (1.35%) (161,052)
NET ASSETS 100.00% $11,965,797
</TABLE>
* At October 31, 1995 cost of securities purchased on a when-issued basis
totaled $536,418.
** $1,600,000 principal amount of this security has been segregated for a
commitment to purchase
when-issued securities at October 31, 1995.
MTN - Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
MENTOR FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 56.39%
Federal Home Loan Mortgage Corporation,
10.50%, 2/1/03 $ 433,265 $ 459,465
Federal National Mortgage Association,
11.00%, 7/1/01 437,756 462,245
Government National Mortgage Association,
6.50%, 9/1/25, TBA* 1,650,000 1,601,523
U.S. Treasury Note, 5.50%, 2/28/99 3,000,000 2,979,060
U.S. Treasury Note, 5.63%, 6/30/97 3,000,000 2,999,970
U.S. Treasury Note, 6.13%, 7/31/00 500,000 506,090
U.S. Treasury Note, 7.50%, 5/15/02 1,000,000 1,086,220
U.S. Treasury Note, 6.25%, 2/15/03 1,100,000 1,119,107
U.S. Treasury Note, 7.25%, 5/15/04 1,200,000 1,298,268
U.S. Treasury Bond, 7.13%, 2/15/23** 2,450,000 2,669,152
U.S. Treasury Bond, 7.50%, 11/15/24** 2,760,000 3,152,362
U.S. Treasury Bond, 7.63%, 2/15/25 750,000 870,292
Total U.S. Government and Agency Securities
(cost $18,247,812) 19,203,754
CORPORATE BONDS 28.55%
Abbey National PLC, 6.69%, 10/17/05 800,000 802,240
Developers Diversified Realty, 7.63%, 5/15/00 750,000 755,490
Lehman Brothers, Inc., 9.88%, 10/15/00 1,475,000 1,663,122
Limited, Inc., 8.88%, 8/15/99 375,000 405,285
Lockheed Martin Corporation, 9.38%, 10/15/99 1,000,000 1,108,670
Nationsbank, 9.38%, 9/15/09 750,000 906,232
Occidental Petroleum, 8.75%, 2/14/03 1,000,000 1,047,110
Salomon, Inc., MTN, 9.75%, 7/15/97 700,000 733,495
Salomon, Inc., 6.00%, 1/12/98 750,000 736,590
Service Corporation International, 6.88%, 10/1/07 800,000 802,872
Travelers, Inc., 6.88%, 6/1/25 750,000 762,218
Total Corporate Bonds (cost $9,631,873) 9,723,324
</TABLE>
9
<PAGE>
MENTOR FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 18.40%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 10/31/95, 5.85%, due 11/1/95, collateralized by
$5,800,000 U.S. Treasury Note, 7.75%, 11/30/99 (cost
$6,265,720) $6,265,720 $ 6,265,720
TOTAL INVESTMENTS (COST $34,145,405) 103.34% 35,192,798
OTHER ASSETS LESS LIABILITIES (3.34%) (1,139,339)
NET ASSETS 100.00% $34,053,459
</TABLE>
* At October 31, 1995 cost of securities purchased on a when-issued basis
totaled $1,609,254.
** $5,210,000 principal amount of these securities have been segregated for a
commitment to purchase when-issued securities at October 31, 1995.
MTN - Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
ASSETS
Investments, at market value * (Note 2)
Investment securities $44,884,591 $ 10,073,193 $28,927,078
Repurchase agreements 24,968,182 2,053,656 6,265,720
Total investments 69,852,773 12,126,849 35,192,798
Receivables
Interest 112,548 198,625 470,263
Fund shares sold 9,579 170,000 155,533
Due from management company (Note 4) 35,983 9,702 26,135
Deferred expenses (Note 2) 27,367 5,362 27,048
Total assets 70,038,250 12,510,538 35,871,777
LIABILITIES
Payables
Investments purchased - 536,418 1,609,254
Fund shares redeemed 5,097 - 189,408
Dividends 11,131 - -
Accrued expenses and other liabilities 25,043 8,323 19,656
Total liabilities 41,271 544,741 1,818,318
NET ASSETS $69,996,979 $ 11,965,797 $34,053,459
Net Assets represented by:
Additional paid-in capital $69,996,979 $ 11,278,113 $31,480,542
Undistributed net investment income - 54,440 172,353
Undistributed realized gain on investment
transactions - 477,234 1,353,171
Net unrealized appreciation of investments - 156,010 1,047,393
Net Assets $69,996,979 $ 11,965,797 $34,053,459
Shares Outstanding 69,996,979 898,741 2,484,138
NET ASSET VALUE PER SHARE $ 1.00 $ 13.31 $ 13.71
</TABLE>
* Investments at cost $69,852,773, $11,970,839 and $34,145,405 respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
INVESTMENT INCOME
Interest (Note 2) $2,439,036 $ 668,347 $1,797,962
EXPENSES
Transfer agent fees 42,539 10,464 25,942
Custodian fees 14,749 10,158 16,836
Organizational expenses (Note 2) 6,857 1,347 6,779
Audit fees 6,762 1,356 3,555
Shareholder reports and postage expenses 3,977 895 2,222
Legal fees 3,395 800 2,345
Registration expenses 1,122 255 646
Directors' fees and expenses 441 130 329
Total expenses 79,842 25,405 58,654
Deduct
Reimbursement of expenses by management
company (Note 4) 63,607 20,703 45,996
Net expenses 16,235 4,702 12,658
Net investment income 2,422,801 663,645 1,785,304
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments (Note 2) - 468,099 1,341,178
Change in unrealized appreciation of investments - 156,010 1,047,393
Net realized and unrealized gain on investments - 624,109 2,388,571
Net increase in net assets resulting from operations $2,422,801 $1,287,754 $4,173,875
</TABLE>
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Period Ended October 31, 1995 Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $ 2,422,801 $ 663,645 $ 1,785,304
Net realized gain on investments - 468,099 1,341,178
Change in net unrealized appreciation of investments - 156,010 1,047,393
Increase in net assets from operations 2,422,801 1,287,754 4,173,875
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (2,422,801) (600,070) (1,600,958)
CAPITAL SHARE TRANSACTIONS (NOTE 7)
Net proceeds from sale of shares 137,216,173 10,710,006 34,992,343
Reinvested distributions 2,407,807 599,637 1,600,958
Cost of shares redeemed (69,627,001) (31,530) (5,112,759)
Change in net assets from capital share transactions 69,996,979 11,278,113 31,480,542
Increase in net assets 69,996,979 11,965,797 34,053,459
NET ASSETS
Beginning of period - - -
End of period $ 69,996,979 $11,965,797 $ 34,053,459
</TABLE>
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Period Ended October 31, 1995 Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 12.50 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.78 0.81
Net realized and unrealized gain on
investments - 0.74 1.14
Total from investment operations 0.05 1.52 1.95
LESS DISTRIBUTIONS
Dividends from income (0.05) (0.71) (0.74)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 13.31 $13.71
Total Return 5.06% 12.38% 15.90%
Ratios / Supplemental Data
Net assets, end of period (in thousands) $ 69,997 $ 11,966 $34,053
Ratio of expenses to average net assets 0.04%(a) 0.05%(a) 0.05%(a)
Ratio of expenses to average net assets
excluding waiver 0.18%(a) 0.25%(a) 0.22%(a)
Ratio of net investment income to average
net assets 5.56%(a) 6.52%(a) 6.75%(a)
Portfolio turnover rate - 307% 302%
</TABLE>
(a) Annualized.
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1: ORGANIZATION
Mentor Institutional Trust, formerly IMG Institutional Trust, was organized on
February 8, 1994, and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. On June 27, 1995, the
name of the the Trust was changed to Mentor Institutional Trust ("Trust"). The
Trust consists of four separate diversified portfolios (hereinafter each
individually referred to as a "Portfolio" or collectively as the "Portfolios")
at October 31, 1995. These financial statements include the following
Portfolios:
Mentor Cash Management Portfolio
("Cash Management Portfolio")
Mentor Intermediate Duration Portfolio
("Intermediate Duration Portfolio")
Mentor Fixed-Income Portfolio
("Fixed-Income Portfolio")
The assets of each Portfolio of the Trust are segregated and a shareholder's
interest is limited to the Portfolio in which shares are held.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios:
A. Valuation of Securities
Securities held by the Cash Management Portfolio are stated at amortized cost,
which approximates market value. In the event that a deviation of 1/2 of 1% or
more exists between the Portfolio's $1.00 per share net asset value, calculated
at amortized cost, and the net asset value calculated by reference to
market-based values, or if there is any other deviation that the Board of
Trustees believes would result in a material dilution to shareholders or
purchasers, the Board of Trustees will promptly consider what action should be
initiated.
U.S. Government obligations held by the Intermediate Duration Portfolio and the
Fixed-Income Portfolio are valued at the mean between the over-the-counter bid
and asked prices as furnished by an independent pricing service. Listed
corporate bonds, other fixed income
15
<PAGE>
securities, mortgage backed securities, mortgage related and other related
securities are valued at the prices provided by an independent pricing service.
Security valuations not available from an independent pricing service are
provided by dealers reviewed by the Board of Trustees. In determining value, the
dealers use information with respect to transactions in such securities, market
transactions in comparable securities, various relationships between securities,
and yield to maturity. Any securities for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by the Board of Trustees.
B. Repurchase Agreements
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book entry system, or to have
segregated within the custodian bank's possession all securities held as
collateral in support of repurchase agreement investments. Additionally,
procedures have been established by the Trust to monitor, on a daily basis, the
market value of each repurchase agreement's underlying securities to ensure the
existence of a proper level of collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Trust's adviser to be creditworthy pursuant to guidelines established by the
Trustees. Risks may arise from the potential inability of counterparties to
honor the terms of the repurchase agreement. Accordingly, the Trust could
receive less than the repurchase price on the sale of collateral securities.
C. Security Transactions and Interest Income
Security transactions for the Portfolios are accounted for on a trade date
basis. Interest income is recorded on the accrual basis and includes
amortization of premium and discount on investments. Realized and unrealized
gains and losses on investment security transactions are calculated on an
identified cost basis.
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D. Expenses
Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Trust expenses are allocated among the Portfolios in proportion to their
relative net assets.
E. Federal Taxes
No provision for federal income taxes has been made since it is each Portfolio's
intent to comply with the provisions applicable to regulated investment
companies under the Internal Revenue Code and to distribute to its shareholders
within allowable time limit substantially all taxable income and realized
capital gains.
F. When-Issued and Delayed Delivery Transactions
The Fixed-Income Portfolio and Intermediate-Duration Portfolio may engage in
when-issued or delayed delivery transactions. To the extent the Portfolios
engage in such transactions, they will do so for the purpose of acquiring
portfolio securities consistent with their investment objectives and policies
and not for the purpose of investment leverage. The Portfolios will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Portfolios will maintain security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
G. Deferred Expenses
Costs incurred by the Portfolios in connection with their initial share
registration and organization costs were deferred by the Portfolios and are
being amortized on a straight-line basis over a five-year period.
H. Distributions
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to deferral of wash sales.
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NOTE 3: DIVIDENDS
Dividends will be declared daily and paid monthly by the Cash Management
Portfolio. Dividends are declared and paid quarterly by the Fixed-Income
Portfolio and Intermediate Duration Portfolio. Capital gains realized by each
Portfolio, if any, will be distributed annually.
NOTE 4: INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENTS
Each Portfolio has entered into an Investment Management Agreement with
Commonwealth Investment Counsel, Inc. ("Commonwealth") to provide investment
advisory services to each of the Portfolios. Commonwealth receives no
compensation for its services. Commonwealth is a wholly-owned subsidiary of
Mentor Investment Group, Inc. (formerly Investment Management Group, Inc.),
which is a wholly-owned subsidiary of Wheat First Butcher Singer, Inc.
In order to limit the annual operating expenses of the Portfolios, Commonwealth
may bear certain expenses incurred in connection with the operation of the
Portfolios. For the period ended October 31, 1995 Commonwealth bore expenses of
$63,607, $20,703 and $45,996 respectively, for the Cash Management Portfolio,
Intermediate Duration Portfolio and Fixed-Income Portfolio.
Mentor Investment Group, Inc. ("Mentor") provides administrative personnel and
services to each Portfolio, pursuant to an Administration Agreement. Mentor
receives no compensation for such services.
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NOTE 5: INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), for the
period ended October 31, 1995, were as follows:
Portfolio Purchases Sales
Cash Management - -
Intermediate Duration $ 40,537,215 $30,926,612
Fixed-Income 108,125,131 81,374,809
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to $69,852,773
for the Cash Management, $11,970,839 for the Intermediate Duration and
$34,145,844 for the Fixed-Income at October 31, 1995. Gross unrealized
appreciation and depreciation of investments at October 31, 1995 were as
follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Portfolio Appreciation Depreciation Appreciation
Cash Management - - -
Intermediate Duration $ 156,945 $ 935 $ 156,010
Fixed-Income 1,048,299 1,345 1,046,954
NOTE 7: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in Portfolio
shares were as follows:
Mentor Cash
Management Portfolio
Period Ended
10/31/95*
Shares sold 137,216,173
Shares issued upon reinvestment of distributions 2,407,807
Shares redeemed (69,627,001)
Change in net assets from capital share transactions 69,996,979
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Mentor Intermediate
Duration Portfolio
Period Ended
10/31/95**
Shares sold 855,389
Shares issued upon reinvestment of distributions 45,840
Shares redeemed (2,488)
Change in net assets from capital
share transactions 898,741
Mentor Fixed-Income
Portfolio
Period Ended
10/31/95***
Shares sold 2,759,545
Shares issued upon reinvestment of distributions 120,672
Shares redeemed (396,079)
Change in net assets from capital
share transactions 2,484,138
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
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MENTOR INSTITUTIONAL TRUST
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
MENTOR INSTITUTIONAL TRUST
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Cash Management Portfolio, Intermediate
Duration Portfolio and Fixed Income Portfolio, portfolios of Mentor
Institutional Trust (the Trust) as of October 31, 1995 and the related
statements of operations, statements of changes in net assets and financial
highlights for the period from December 5, 1994 (commencement of operations) to
October 31, 1995 for the Cash Management Portfolio, for the period from December
19, 1994 (commencement of operations) to October 31, 1995 for the Intermediate
Duration Portfolio and for the period from December 6, 1994 (commencement of
operations) to October 31, 1995 for the Fixed-Income Portfolio. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cash Management Portfolio, Intermediate Duration Portfolio and Fixed Income
Portfolio, portfolios of Mentor Institutional Trust as of October 31, 1995, and
the results of their operations, the changes in their net assets and their
financial highlights for the periods specified in the first paragraph above, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
December 8, 1995
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INVESTMENT MANAGER
CORPORATE OFFICE
Commonwealth Investment Counsel, Inc.
Riverfront Plaza, 901 East Byrd Street
Richmond, Virginia 23219
TRUSTEES
Daniel J. Ludeman, TRUSTEE & CHAIRMAN
Chairman and Chief Executive Officer
Mentor Investment Group, Inc.
Arnold H. Dreyfuss, TRUSTEE
Former Chairman and Chief Executive Officer
Hamilton Beach/Proctor-Silex, Inc.
Thomas F. Keller, TRUSTEE
Dean, Fuqua School of Business
Duke University
Louis W. Moelchert, Jr., TRUSTEE
Vice President for Business & Finance
University of Richmond
Stanley F. Pauley, Jr., TRUSTEE
Chairman and Chief Executive Officer
E. R. Carpenter Company, Incorporated
Troy A. Peery, Jr., TRUSTEE
President
Heilig-Meyers Company
OFFICERS
Paul F. Costello, PRESIDENT
Managing Director
Mentor Investment Group, Inc.
Terry L. Perkins, TREASURER
Vice President
Mentor Investment Group, Inc.
John M. Ivan, SECRETARY
Managing Director/Assistant General Counsel
Wheat First Butcher Singer, Inc.
Michael A. Wade, ASSISTANT TREASURER
Associate Vice President
Mentor Investment Group, Inc.
[LOGO]
MENTOR INSTITUTIONAL TRUST
ANNUAL REPORT
OCTOBER 31, 1995
<PAGE>
THIS INFORMATION IS AUTHORIZED FOR USE WITH PROSPECTIVE INVESTORS ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS FOR MENTOR INSTITUTIONAL SERIES
TRUST, WHICH CONTAINS COMPLETE INFORMATION ABOUT THE PORTFOLIOS, INCLUDING
CHARGES, EXPENSES, INVESTMENT OBJECTIVES AND OPERATING POLICIES. READ IT
CAREFULLY BEFORE YOU INVEST OR SEND MONEY. THE PORTFOLIOS ARE DISTRIBUTED BY
MENTOR DISTRIBUTORS, INC., AN AFFILIATE OF COMMONWEALTH INVESTMENT COUNSEL, AND
A PROSPECTUS MAY BE OBTAINED BY CALLING (800) 869-6042.
