P R O S P E C T U S September 22, 1995
SNAP FUND
SNAP Fund is a "money-market" fund, seeking as high a rate of
current income as Commonwealth Investment Counsel, Inc., its investment
adviser ("CIC"), believes is consistent with preservation of capital and
maintenance of liquidity. The Fund currently offers its shares only to
participants in the Commonwealth of Virginia State Non-Arbitrage Program
(the "SNAP Program"). The Fund is a series of shares of Mentor
Institutional Trust.
An investment in the Fund is neither insured nor guaranteed by
the U.S. Government. There can be no assurance that the Fund will be able
to maintain a stable net asset value of $1.00 per share.
This Prospectus sets forth concisely the information about the
Fund and Mentor Institutional Trust 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 September
22, 1995 Statement of Additional Information, as amended from time to time.
For a free copy of the Statement, call 1-800-570-SNAP. The Statement has
been filed with the Securities and Exchange Commission and is incorporated
into this Prospectus by reference. The Fund's address is P.O. Box 1357,
Richmond, Virginia 23286-0109.
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SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
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 REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<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 expenses the Fund
expects to incur in its first fiscal year. The Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment in the
Fund over specified periods. Shares of the Fund are currently being
offered to investors through the Commonwealth of Virginia State Non-
Arbitrage Program (the "SNAP Program"). Only expenses incurred by the Fund
are reflected in the tables and Example below; other expenses incurred by
the SNAP Program, or by participants in the SNAP Program, are not
reflected.
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 0.09%
12b-1 Fees 0.00%
Other Expenses 0.04%
Total Fund Operating Expenses 0.13%
Example
An investment of $1,000 in the Fund would incur the
following expenses, assuming 5% annual return and redemption at the end of
each period:
1 year $2
3 years $6
This information is provided to help investors
understand the operating expenses of the Fund. The information is based on
the expenses the Fund expects to incur during its first fiscal year. The
Example should not be considered a representation of future performance;
actual expenses may be more or less than those shown.
Investment objective and policies
SNAP Fund's investment objective is to seek as high a
rate of current income as CIC believes is consistent with preservation of
capital and maintenance of liquidity. There can, of course, be no
assurance that the Fund will achieve its investment objective. As a matter
of policy, the Trustees will not change the Fund's investment objective
without shareholder approval.
The Fund will invest in a portfolio of high-quality
short-term instruments consisting of any or all of the following:
(bullet) U.S. Government securities: U.S. Treasury bills,
notes, and bonds, and securities unconditionally
guaranteed as to payment of principal and interest by
the United States or any agency of the United States.
(bullet) Obligations of the Commonwealth of Virginia and of its
local governments and of other states: high-quality
evidences of indebtedness of the Commonwealth of
Virginia, and obligations of any county, city, town,
district, authority, or other public body of the
Commonwealth. The Fund may also invest in high-
quality-obligations of any other state or of any
county, city, town, or district located in any other
state.
(bullet) Bankers' acceptances: negotiable drafts or bills of
exchange, which have been "accepted" by a bank,
meaning, in effect, that the bank has unconditionally
agreed to pay the face value of the instrument on
maturity. The Fund will only purchase bankers'
acceptances issued by a bank organized in the U.S. or
by a foreign bank with an agency domiciled in the U.S.
(bullet) Certificates of deposit and interest-bearing time
deposits: of national banks or of banks chartered by
the Commonwealth of Virginia or of banks chartered by
other states and authorized to operate branches in the
Commonwealth of Virginia (if such banks chartered by
the Commonwealth or other states are under the
supervision of the Commonwealth of Virginia and the
deposits are secured as provided by the Virginia
Security for Public Deposits Act). The amount of any
deposit must be insured in its entirety by the Federal
Deposit Insurance Corporation, except to the extent
any such amount is collateralized by eligible
collateral as prescribed by law. Any time deposits
made by the Fund must mature in seven days or less.
(bullet) Prime commercial paper: high-quality, short-term
obligations issued by banks, corporations, and other
issuers organized under the laws of the United States
or of any state.
(bullet) Other short-term obligations: high-quality, short-term
obligations of corporate issuers.
(bullet) Repurchase agreements: with respect to U.S. Government
or agency securities. Under a repurchase agreement,
the Fund purchases a U.S. Government security for a
relatively short period (usually not more than one
week) which the seller agrees to repurchase at a fixed
time and price, representing the Fund's cost plus
interest. The Fund will enter into repurchase
agreements only with commercial banks having assets of
more than $1 billion and with "primary dealers" in
U.S. Government securities. Although CIC will monitor
repurchase agreement transactions to ensure that they
will be fully collateralized at all times, the Fund
bears a risk of loss if the other party defaults on
its obligation and the Fund is delayed or prevented
from exercising its rights to dispose of the
collateral. If the other party should become involved
in bankruptcy or insolvency proceedings, it is
possible that the Fund may be treated as an unsecured
creditor and be required to return the underlying
collateral to the other party's estate. The Fund
requires any U.S. Government securities serving as
collateral for a repurchase agreement to be delivered
to the Fund's custodian (or any approved
subcustodian).
The Fund will invest only in U.S. dollar-denominated
high-quality securities and other U.S. dollar-denominated money market
instruments meeting credit criteria which the Trustees believe present
minimal credit risk. "High-quality securities" are (i) commercial paper or
other short-term obligations rated A-1 by Standard & Poor's Corporation and
P-1 by Moody's Investors Service, Inc., and (ii) other obligations rated
AAA or AA by Standard & Poor's and Aaa or Aa by Moody's at the time of
investment. The Fund will not purchase securities of any issuer (other than
U.S. Government securities) if, immediately thereafter, more than 5% of the
Fund's total assets would be invested in securities of that issuer (or 1%
of the Fund's total assets, or $1 million, whichever is greater, if the
securities of such issuer owned by the Fund are not rated in the highest
rating category by a nationally recognized statistical rating
organization), nor will the Fund make an investment in commercial paper if,
immediately thereafter, more than 35% of its total assets would be invested
in commercial paper.
The Fund follows investment and valuation policies
designed to maintain a stable net asset value of $1.00 per share, although
there is no assurance that these policies will be successful. The Fund
will maintain a dollar-weighted average maturity of 90 days or less and
will not invest in securities with remaining maturities of more than one
year. The Fund may invest in variable or floating-rate securities which
bear interest at rates subject to periodic adjustment or which provide for
periodic recovery of principal on demand. Under certain conditions, these
securities may be deemed to have remaining maturities equal to the time
remaining until the next interest adjustment date or the date on which
principal can be recovered on demand.
Considerations of liquidity and preservation of
capital mean that the Fund may not necessarily invest in money market
instruments paying the highest available yield at a particular time.
Consistent with its investment objective, the Fund will attempt to maximize
yields by portfolio trading and by buying and selling portfolio investments
in anticipation of or in response to changing economic and money market
conditions and trends. The Fund may also invest to take advantage of what
CIC believes to be temporary disparities in yields of different segments of
the high-quality money market or among particular instruments within the
same segment of the market. These policies, as well as the relatively
short maturity of obligations purchased by the Fund, may result in frequent
changes in the Fund's portfolio. The Fund will not usually pay brokerage
commissions in connection with the purchase or sale of portfolio
securities.
The Fund's portfolio will be affected by general
changes in interest rates resulting in increases or decreases in the values
of the obligations held by the Fund. The value of the securities in the
Fund's portfolio can be expected to vary inversely to the changes in
prevailing interest rates. Withdrawals by shareholders could require the
sale of portfolio investments at a time when such a sale might not
otherwise be desirable.
The Fund will not lend money, other than by investment
in the instruments described above and through entry into repurchase
agreements, nor will it borrow money or pledge, hypothecate, or mortgage
its assets. The Fund will not invest in securities of an issuer if any
employee of the Fund or CIC (or, to the knowledge of the Fund or CIC, any
affiliated person of the Fund or CIC) is an officer or director of that
issuer or holds 10% of the outstanding voting securities of that issuer,
unless the investment is approved or ratified by the Trustees.
The Fund will not be responsible for determining
whether income or gains from any investment by the Fund will be excludable
from the income of participants in the SNAP Program for tax purposes, or
will otherwise be subject to or exempt from taxation under federal or state
law or be subject to rebate by participants under federal law.
------------------
All percentage limitations on investments will apply
at the time of investment and shall not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of
such investment.
Management of the Fund
The Trustees of Mentor Institutional Trust are
responsible for generally overseeing the conduct of the Trust's business.
Commonwealth Investment Counsel, Inc., located at 901 East Byrd Street,
Richmond, Virginia 23219, acts as investment adviser to the Fund pursuant
to a Management Contract between the Fund and CIC. Subject to the general
oversight of the Trustees, CIC, as investment adviser, manages the Fund's
portfolio in accordance with the stated policies of the Fund. CIC makes
investment decisions for the Fund and places the purchase and sale orders
for the Fund's portfolio transactions. As compensation for CIC's services
under the Management Contract, the Fund pays a fee, accrued daily and paid
monthly, at the following annual rate: .09% of the first $500 million of
average net assets; .08% of the next $250 million; .07% of the next $250
million; .06% of the next $250 million; and .05% of any amount over $1.25
billion. CIC is a wholly owned subsidiary of Mentor Investment Group,
Inc., which is a wholly owned subsidiary of Wheat First Butcher Singer,
Inc. ("Wheat First Butcher Singer"). Wheat First Butcher Singer, through
other subsidiaries, also engages in securities brokerage, investment
banking, and related businesses. CIC currently has assets under management
of approximately $4 billion, and serves as investment adviser to Cash
Resource Trust, an open-end series investment company, Mentor Balanced
Portfolio, Mentor Cash Management Portfolio, Mentor Fixed-Income Portfolio,
Mentor Intermediate Duration Portfolio, Mentor Quality Income Portfolio,
and Mentor Short-Duration Income Portfolio, each of which is an open-end
investment company, and Mentor Income Fund, Inc., a closed-end investment
company. The Fund pays all of its own expenses, including, among other
things, Trustees' fees, and auditing, legal, and custodial expenses.
Subject to the general oversight of the Trustees, CIC,
as investment adviser, manages the Fund in accordance with its stated
investment objective and policies. A team of investment professionals
manages the Fund for CIC.
How the Fund values its shares
The Fund values its shares twice each day, once at
12:00 noon and again at the close of regular trading on the New York Stock
Exchange. The Fund's investments are valued at amortized cost according to
Securities and Exchange Commission Rule 2a-7. The Fund will not normally
have unrealized gains or losses so long as it values its investments by the
amortized cost method.
How distributions are made
The Fund declares all of its net interest income as a
distribution on each day the New York Stock Exchange is open for business,
as a dividend to shareholders of record immediately prior to the close of
regular trading on the Exchange. Shareholders who purchase shares of the
Fund as of 12:00 noon on any day will receive the dividend declared by the
Fund for that day; shareholders who purchase shares after 12:00 noon will
begin earning dividends on the day after the Fund accepts their order. The
Fund's net income for Saturdays, Sundays, and holidays is declared as a
dividend on the preceding business day. Dividends for any month will be
paid on the last day of that month (or, if that day is not a business day,
on the preceding business day), except that the Fund's schedule for
payment of dividends during the month of December may be adjusted to assist
in the Fund's tax reporting and distribution requirements. All
distributions will be reinvested automatically in Fund shares as of the
payment date, unless the shareholder instructs the Fund to pay
distributions to it in cash. Since the net income of the Fund is declared
as dividend each time it is determined, the net asset value per share of
the Fund normally remains at $1 per share immediately after each
determination and dividend declaration.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes 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. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes.
How to participate in the Fund
Shares of the Fund are currently being offered only to
participants in the Commonwealth of Virginia State Non-Arbitrage Program
(the "SNAP Program"). Participants in the SNAP Program wishing to purchase
shares of the Fund should consult the Information Statement of the SNAP
Program, as it may be amended from time to time (the "Information
Statement"), or should contact the SNAP Program directly, for information
as to the procedures they should follow in order to purchase shares of the
Fund through the Program.
All Fund shares owned beneficially by participants in
the SNAP Program are owned of record by the Treasury Board, an agency of
the Commonwealth of Virginia, for the benefit of participants. Because the
Treasury Board will be the record owner of all shares of the Fund owned
beneficially by SNAP Program participants, a Program participant should
follow the procedures described in the Information Statement of the SNAP
Program to ensure that all instructions as to any investment by it in the
Fund--including instructions as to the purchase or sale of shares of the
Fund--are timely carried out by the SNAP Program.
Purchase orders; purchase price. The Fund offers its
shares continuously at a price of $1.00 per share. Shares of the Fund are
sold at the net asset value next determined after a purchase order is
received by the Fund from the SNAP Program. The Fund determines its net
asset value at 12:00 noon on each day the New York Stock Exchange is open.
Purchase orders that are received prior to 12:00 noon on a particular day
are priced according to the net asset value determined at that time, and
the shares purchased at that time will earn the dividend declared for that
day. Purchase orders that are received after 12:00 noon are priced based
on the net asset value determined as of the close of the New York Stock
Exchange on that day, and begin to earn dividends on the next day.
Because the Fund seeks to be fully invested at all
times, investments must be in Same Day Funds to be accepted. "Same Day
Funds" are funds credited by the applicable regional Federal Reserve Bank
to the account of the Fund at Central Fidelity National Bank. A
participant in the SNAP Program wishing to invest in the Fund must ensure
that Central Fidelity National Bank, as Depository for the SNAP Program,
receives Same Day Funds at or prior to the time the participant wishes to
invest in the Fund. Consult the Information Statement or contact the
investment manager for the SNAP Program directly for information.
How to redeem shares
Shares of the Fund may be redeemed on any day when the
New York Stock Exchange is open. Redemptions will be effected at the net
asset value per share of the Fund next determined after receipt of the
redemption request in good order. Shares redeemed at the Fund's 12:00 noon
price do not earn the income dividend declared on the day of redemption.
Participants should consult the Information Statement or contact the SNAP
Program directly to ensure that all necessary steps are taken to effect the
timely redemption of their shares.
Redemptions by check. SNAP Program participants may
elect to have a special checking account with Central Fidelity National
Bank. Checks may be drawn on the account for any amount. Upon receipt of
a completed signature card, Central Fidelity National Bank will provide the
participant with a supply of checks drawn on the account. Additional
supplies of checks are available, upon request. When a check is presented
to Central Fidelity National Bank, a number of shares in the Fund owned
beneficially by the checkwriter will be redeemed in order to pay the full
amount of the check.
Redemption by check is not appropriate for a complete
liquidation of an account. If the amount of a redemption check is greater
than the value of the shares owned beneficially by the checkwriter, the
check will be returned to the depositor due to an insufficient account
balance. The checkwriting privilege may be suspended at any time. Consult
the Information Statement or contact the SNAP Program for additional
information.
---------------
The Fund will normally redeem shares for cash;
however, the Fund reserves the right to pay the redemption price wholly or
partly in kind if the Trustees determine it to be advisable in the interest
of the remaining shareholders. If portfolio securities are distributed in
lieu of cash, the shareholder will normally incur brokerage commissions
upon subsequent disposition of any such securities.
If shares of the Fund to be redeemed represent an
investment made by check, the Fund reserves the right not to transmit the
redemption proceeds to the shareholder until the check has been collected
which may take up to 15 days after the purchase date.
Mentor Institutional Trust
Mentor Institutional Trust is a Massachusetts business
trust organized on February 8, 1994. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file
with the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end, diversified, series
management investment company with an unlimited number of authorized shares
of beneficial interest. Shares of the Trust may, without shareholder
approval, be divided into two or more series of shares representing
separate investment portfolios. Any such series of shares may be further
divided without shareholder approval into two or more classes of shares
having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into four
series, one representing the Fund, the others representing other funds with
varying investment objectives and policies. Each share has one vote, with
fractional shares voting proportionally. Shares of each class will vote
together as a single class except when required by law or determined by the
Trustees. Shares of the Fund are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were liquidated,
would receive the net assets of the Fund. The Trust may suspend the sale
of shares at any time and may refuse any order to purchase shares.
Although the Trust is not required to hold annual meetings of its
shareholders, shareholders have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the Agreement and
Declaration of Trust.
In the interest of economy and convenience, the Fund
will not issue certificates for its shares except at the shareholder's
request.
Custodian and Transfer and Dividend Agent
Central Fidelity National Bank serves as the Fund's
custodian and transfer and dividend agent. The address of Central Fidelity
National Bank is 1021 East Cary Street, P.O. Box 27602, Richmond, Virginia
23261.
Performance Information
The Fund's "yield" is computed by determining the
percentage net change, excluding capital changes, in the value of an
investment in one share of the Fund over the base period, and multiplying
the net change by 365/7 (or approximately 52 weeks). The Fund's "effective
yield" represents a compounding of the yield by adding 1 to the number
representing the percentage change in value of the investment during the
base period, raising that sum to a power equal to 365/7, and subtracting 1
from the result.
Past performance does not predict future results.
Investment performance, which will vary, is based on many factors,
including market conditions, the composition of the Fund's portfolio, 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.
SNAP Fund
Prospectus
An Open-End Management
Investment Company
September 22, 1995
<PAGE>
SNAP FUND
STATEMENT OF ADDITIONAL INFORMATION
September 22, 1995
SNAP Fund (the "Fund") is a series of shares of beneficial interest of
Mentor Institutional Trust (the "Trust"), a diversified, open-end series
investment company. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the prospectus of the
Fund dated September 22, 1995. A copy of the prospectus can be obtained
upon request made to Mentor Investment Group, Inc. ("Mentor") at P.O. Box
1357, Richmond, Virginia 23286-0109, or by calling Mentor at 1-800-570-
SNAP.
TABLE OF CONTENTS
CAPTION PAGE
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . 4
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . 7
BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 9
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . 13
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 13
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 13
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
GENERAL
SNAP Fund (the "Fund") is a series of shares of beneficial interest of
Mentor Institutional Trust (the "Trust"), a diversified, open-end
investment company. Until July 1995, the Fund was known as Mentor Limited
Duration Income Portfolio. The Trust is a Massachusetts business trust
organized on February 8, 1994 as IMG Institutional Trust.
Commonwealth Investment Counsel, Inc. ("CIC") serves as investment
adviser to the Fund. CIC is a wholly owned subsidiary of Mentor Investment
Group Inc., which is a wholly owned subsidiary of Wheat First Butcher
Singer Inc. ("Wheat First Butcher Singer").
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed with
respect to the Fund without approval by the holders of a majority of the
outstanding shares of the Fund, the Fund may not:
1. Purchase any security (other than U.S. Government securities) if
as a result: (i) as to 75% of the Fund's total assets, more than
5% of the Fund's total assets (taken at current value) would then
be invested in securities of a single issuer, or (ii) more than
25% of the Fund's total assets would be invested in a single
industry, except that the Fund may invest up to 100% of its
assets in securities of issuers in the banking industry.
2. Acquire more than 10% of the voting securities of any issuer.
3. Act as underwriter of securities of other issuers except to the
extent that, in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under certain
federal securities laws.
4. Issue any class of securities which is senior to the Fund's
shares of beneficial interest.
5. Purchase or sell securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of
transactions). (Margin payments in connection with transactions
in futures contracts, options, and other financial instruments
are not considered to constitute the purchase of securities on
margin for this purpose.)
6. Purchase or sell real estate or interests in real estate,
including real estate mortgage loans, although it may purchase
and sell securities which are secured by real estate and
securities of companies that invest or deal in real estate or
real estate limited partnership interests. (For purposes of this
restriction, investments by the Fund in mortgage-backed
securities and other securities representing interests in
mortgage pools shall not constitute the purchase or sale of real
estate or interests in real estate or real estate mortgage
loans.)
7. Borrow money in excess of 5% of the value (taken at the lower of
cost or current value) of its total assets (not including the
amount borrowed) at the time the borrowing is made, and then only
from banks as a temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes.
8. Pledge, hypothecate, mortgage, or otherwise encumber its assets
in excess of 15% of its total assets (taken at current value) and
then only to secure borrowings permitted by these investment
restrictions.
9. Purchase or sell commodities or commodity contracts, except that
the Fund may purchase or sell financial futures contracts,
options on futures contracts, and futures contracts, forward
contracts, and options with respect to foreign currencies, and
may enter into swap transactions.
10. Make loans, except by purchase of debt obligations or other
instruments in which the Fund may invest consistent with its
investment policies or by entering into repurchase agreements.
In addition, it is contrary to the current policy of the Fund, which
policy may be changed without shareholder approval, to:
1. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale,
and (c) repurchase agreements maturing in more than seven days,
if, as a result, more than 10% of the Fund's net assets (taken at
current value) would then be invested in securities described in
(a), (b), and (c).
2. Invest in securities of other registered 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.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. Except for the investment restrictions listed above as
fundamental or to the extent designated as such in a prospectus with
respect to the Fund, the other investment policies described in this
Statement or in a prospectus are not fundamental and may be changed by
approval of the Trustees. As a matter of policy, the Trustees would not
materially change the Fund's investment objective without shareholder
approval.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities"
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.
MANAGEMENT OF THE TRUST
The following table provides biographical information with respect to
each Trustee and officer of the Trust. Each Trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an
asterisk.
Position Held Principal Occupation
Name and Address with Fund During Past 5 Years
Stanley F. Pauley Trustee Chairman and Chief
Executive Officer, E.R.
Carpenter Company
Incorporated; Trustee, The
Mentor Funds; Trustee,
Cash Resource Trust.
Louis W. Moelchert, Jr. Trustee Vice President of Business
and Finance, University of
Richmond; Trustee, The
Mentor Funds; Trustee,
Cash Resource Trust.
Thomas F. Keller Trustee Dean, Fuqua School of
Business, Duke University;
Trustee, The Mentor Funds;
Trustee, Cash Resource
Trust.
Arnold H. Dreyfuss Trustee Retired. Formerly,
Chairman and Chief
Executive Officer,
Hamilton Beach/Proctor-
Silex, Inc.; Trustee, The
Mentor Funds; Trustee,
Cash Resource Trust.
*Daniel J. Ludeman Chairman; Chairman and Chief
Trustee Executive Officer since
July 1991, Mentor
Investment Group, Inc.;
Managing Director of
Wheat, First Securities,
Inc. since August 1989;
Managing Director of Wheat
First Butcher Singer since
June 1991; Director,
Mentor Income Fund, Inc.;
Chairman and Trustee, The
Mentor Funds; Chairman and
Trustee, Cash Resource
Trust.
Troy A. Peery, Jr. Trustee President, Heilig-Meyers
Company. Trustee, The
Mentor Funds; Trustee,
Cash Resource Trust.
Paul F. Costello President Managing Director, Mentor
Investment Group, Inc. and
Wheat First Butcher
Singer; President, Mentor
Income Fund, The Mentor
Funds, and Cash Resource
Trust; formerly, Director,
President and Chief
Executive Officer, First
Variable Life Insurance
Company; President and
Chief Financial Officer,
Variable Investors Series
Trust; President and
Treasurer, Atlantic
Capital & Research, Inc.;
Vice President and
Treasurer, Variable Stock
Fund, Inc., Monarch
Investment Series Trust,
and GEICO Tax Advantage
Series Trust; Vice
President, Monarch Life
Insurance Company, GEICO
Investment Services
Company, Inc., Monarch
Investment Services
Company, Inc., and
Springfield Life Insurance
Company.
Terry L. Perkins Treasurer Vice President, Mentor
Investment Group, Inc.;
Treasurer, Cash Resource
Trust; Treasurer, Mentor
Income Fund Inc.;
formerly, Treasurer and
Comptroller, Ryland
Capital Management, Inc.
John M. Ivan Clerk Managing Director since
October 1992, Director of
Compliance since October
1992, Senior Vice
President from 1990 to
October 1992, and
Assistant General Counsel
since 1985, Wheat, First
Securities, Inc.; Clerk,
Cash Resource Trust;
Secretary, The Mentor
Funds.
The Trust pays each Trustee who is not an officer, director, or
employee of Wheat First Butcher Singer, CIC, Mentor, or any of their
affiliates $100 per annum plus $25 per meeting attended and reimburses each
such Trustee for travel and out-of-pocket expenses. The mailing address of
each of the Trustees and officers is 901 East Byrd Street, Richmond,
Virginia 23219. The principal occupations of the Trustees and officers
for the last five years have been with the employers as shown above,
although in some cases they have held different positions with such
employers.
The Agreement and Declaration of Trust of the Trust provides that the
Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be
involved because of their offices with the Trust, except if it is
determined in the manner specified in the Agreement and Declaration of
Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust or that such
indemnification would relieve any officer or Trustee of any liability to
the Trust or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of his or her duties. The Trust,
at its expense, provides liability insurance for the benefit of its
Trustees and officers.
PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1995, the officers and Trustees of the Trust owned as a group
less than one percent of the outstanding shares of the Fund. To the knowledge
of the Fund, no person owns more than 5% of the outstanding shares of the Fund
as of that date. All of the shares of the Fund will be registered in the nominee
name of the Treasury Board, an agency of the Commonwealth of Virginia.
INVESTMENT ADVISORY AND OTHER SERVICES
CIC acts as investment adviser to the Fund pursuant to a Management
Contract with the Trust. Subject to the supervision and direction of the
Trustees, CIC, as investment adviser, manages the Fund's portfolio in
accordance with the stated policies of the Fund and of the Trust. CIC
makes investment decisions for the Fund and places the purchase and sale
orders for portfolio transactions. CIC bears all expenses in connection
with the performance of its services. In addition, CIC pays the salaries
of all officers and employees who are employed by it and the Trust.
CIC provides the Trust on behalf of the Fund with investment officers
who are authorized to execute purchases and sales of securities.
Investment decisions for the Fund and for the other investment advisory
clients of CIC 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 CIC's 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. In the case of short-term investments, the Treasury area of Wheat
First Butcher Singer handles purchases and sales under guidelines approved
by investment officers of the Trust. CIC employs professional staffs of
portfolio managers who draw upon a variety of resources for research
information for the Fund.
The proceeds received by the Fund for each issue or sale of its
shares, and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, will be specifically allocated to the
Fund, and constitute the underlying assets of the Fund. The underlying
assets of the Fund will be segregated on the Trust's books of account, and
will be charged with the liabilities in respect of the Fund and with a
share of the general liabilities of the Trust. Expenses with respect to
any two or more series of the Trust, including the Fund, may be allocated
in proportion to the net asset values of the respective series except where
allocations of direct expenses can otherwise be fairly made.
Expenses incurred in the operation of the Fund or otherwise allocated
to the Fund, including but not limited to taxes, interest, brokerage fees
and commissions, fees to Trustees who are not officers, directors,
stockholders, or employees of Wheat First Butcher Singer and subsidiaries,
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 entered into by the Trust in respect of the
Fund is subject to annual approval commencing in 1997 by (i) the Trustees
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 Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or CIC, 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 and not less than thirty days' notice, by the
Trustees, by vote of the holders of a majority of the Fund's shares, or by
CIC, as applicable.
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 is anticipated that
most purchases and sales of securities by the Fund investing primarily in
certain fixed-income securities will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, the Fund would not ordinarily pay significant brokerage
commissions with respect to securities transactions.
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, CIC 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 CIC's managers and analysts. Where the services referred to above are
not used exclusively by CIC for research purposes, CIC, 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 CIC 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.
CIC 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. CIC seeks the best
overall terms available for the Fund, except to the extent CIC may be
permitted to pay higher brokerage commissions as described below. In doing
so, CIC, 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.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, CIC may cause the Fund to pay a broker-dealer which provides
"brokerage and research services" (as defined in the 1934 Act) to CIC 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. CIC's authority to cause the Fund to pay any
such greater commissions is also subject to such policies as the Trustees
may adopt from time to time. CIC 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, CIC 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
Trustees may determine, CIC may consider sales of shares of the Fund (and,
if permitted by law, of other Mentor funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
DETERMINATION OF NET ASSET VALUE
The Trust determines net asset value per share of the Fund twice each
day the New York Stock Exchange (the "Exchange") is open, once at 12:00
noon and again at the close of regular trading on the New York Stock
Exchange. Currently, the Exchange is closed Saturdays, Sundays, and the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, the Fourth of July, Labor Day, Thanksgiving, and Christmas.
The valuation of the Fund's portfolio securities is based upon its
amortized cost, which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at
its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument. By using amortized cost valuation,
the Fund seeks to maintain a constant net asset value of $1.00 per share,
despite minor shifts in the market value of its portfolio securities.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. During
periods of declining interest rates, the quoted yield on shares of the Fund
may tend to be higher than a like computation made by a fund with identical
investments utilizing a method of valuation based on market prices and
estimates of market prices for all of its portfolio instruments. Thus, if
the use of amortized cost by the Fund resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Fund
would be able to obtain a somewhat higher yield if he purchased shares of
the Fund on that day, than would result from investment in a fund utilizing
solely market values, and existing investors in the Fund would receive less
investment income. The converse would apply on a day when the use of
amortized cost by the Fund resulted in a higher aggregate portfolio value.
However, as a result of certain procedures adopted by the Trust, the Trust
believes any difference will normally be minimal.
The valuation of the Fund's portfolio instruments at amortized cost is
permitted in accordance with Securities and Exchange Commission Rule 2a-7
and certain procedures adopted by the Trustees. Under these procedures,
the Fund must maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only instruments having remaining maturities of 397
days or less, and invest in securities determined by the Trustees to be of
high quality with minimal credit risks. The Trustees have also established
procedures designed to stabilize, to the extent reasonably possible, the
Fund's price per share as computed for the purpose of distribution,
redemption and repurchase at $1.00. These procedures include review of the
Fund's portfolio holdings by the Trustees, at such intervals as they may
deem appropriate, to determine whether the Fund's net asset value
calculated by using readily available market quotations deviates from $1.00
per share, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the event the
Trustees determine that such a deviation may result in material dilution or
is otherwise unfair to existing shareholders, they will take such
corrective action as they regard as necessary and appropriate, including
the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten the average portfolio maturity; withholding
dividends; redemption of shares in kind; or establishing a net asset value
per share by using readily available market quotations.
Since the net income of the Fund is declared as a dividend each time
it is determined, the net asset value per share of the Fund remains at
$1.00 per share immediately after such determination and dividend
declaration. Any increase in the value of a shareholder's investment in
the Fund representing the reinvestment of dividend income is reflected by
an increase in the number of shares of the Fund in the shareholder's
account on the last day of each month (or, if that day is not a business
day, on the next business day). It is expected that the Fund's net income
will be positive each time it is determined. However, if because of
realized losses on sales of portfolio investments, a sudden rise in
interest rates, or for any other reason the net income of the Fund
determined at any time is a negative amount, the Fund will offset such
amount allocable to each then shareholder's account from dividends accrued
during the month with respect to such account. If at the time of payment
of a dividend by the Fund (either at the regular monthly dividend payment
date, or, in the case of a shareholder who is withdrawing all or
substantially all of the shares in an account, at the time of withdrawal),
such negative amount exceeds a shareholder's accrued dividends, the Fund
will reduce the number of outstanding shares by treating the shareholder as
having contributed to the capital of the Fund that number of full and
fractional shares which represent the amount of the excess. Each
shareholder is deemed to have agreed to such contribution in these
circumstances by its investment in the Fund.
Should the Fund incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the
Fund's income for a particular period, the Trustees would at that time
consider whether to adhere to the dividend policy described above or to
revise it in light of the then prevailing circumstances in order to
ameliorate to the extent possible the disproportionate effect of such
expense or loss on then existing shareholders. Such expenses or losses may
nevertheless result in a shareholder's receiving no dividends for the
period during which the shares are held and receiving upon redemption a
price per share lower than that which was paid.
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. As a series of Massachusetts
business trust, the Fund will not under present law be subject to any
excise or income taxes in Massachusetts.
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 but not limited to gains from options, futures,
or forward contracts) derived with respect to its business of investing in
such stock, securities, or currencies; (b) derive less than 30% of its
gross income from the sale or other disposition of certain assets
(including stock and securities and certain options, futures contracts,
forward contracts, and foreign currencies) held less than three months; (c)
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, securities of other regulated
investment companies, and other securities limited generally with respect
to any one issuer to not more than 5% of the value 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 (other than U.S. Government securities or securities of
other regulated investment companies) of any issuer or two or more issuers
which the Fund controls and which are engaged in the same, similar, or
related trades or businesses. In order to receive the favorable tax
treatment accorded regulated investment companies and their shareholders,
moreover, the Fund must in general distribute at least 90% of its interest,
dividends, net short-term capital gain, and certain other income each year.
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. The Fund 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.
As stated above, it is a policy of the Fund to meet the requirements
of the code to qualify as a regulated investment company that is taxed
pursuant to Subchapter M of the Code. One of these requirements is that
less than 30% of the Fund's gross income must be derived from gains from
sale or other disposition of securities held for less than three months.
Accordingly, the Fund will be restricted in selling securities held or
considered under Code rules to have been held less than three months.
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 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 state and federal taxes. Shareholders are urged to
consult their tax advisers regarding specific questions as to federal,
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 distributions may be subject to a 30%
United States withholding tax (or a reduced rate of withholding provided by
treaty).
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, located at One Boston Place, Boston,
Massachusetts 02108, are the Trust's independent auditors, 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. The audited financial
statements incorporated by reference into or included in the Trust's
prospectuses and Statement of Additional Information have been so included
and incorporated in reliance upon the report of KPMG Peat Marwick LLP, the
independent auditors, given on the authority of said firm as experts in
auditing and accounting.
CUSTODIAN
The custodian of the Fund, Central Fidelity National Bank, is located
at 1021 East Cary Street, P.O. Box 27602, Richmond, Virginia 23261. Its
responsibilities include generally safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on the Fund's investments.
PERFORMANCE INFORMATION
The yield of the Fund is computed by determining the percentage net
change, excluding capital changes, in the value of an investment in one
share of the Fund over the base period, and multiplying the net change by
365/7 (or approximately 52 weeks). The Fund's effective yield represents a
compounding of the yield by adding 1 to the number representing the
percentage change in value of the investment during the base period,
raising that sum to a power equal to 365/7, and subtracting 1 from the
result.
All data for the Fund is based on past performance and does not
predict future results.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation, or instrument
entered into or executed by the Trust or the Trustees. The Agreement and
Declaration of Trust provides for indemnification out of the Fund's
property for all loss and expense of any shareholder held personally liable
for the obligations of the Fund. Thus the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations.
<PAGE>
RATINGS
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:
(bullet) liquidity ratios are adequate to meet cash requirements;
(bullet) long-term senior debt is rated "A" or better;
(bullet) the issuer has access to at least two additional channels of
borrowing;
(bullet) basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
(bullet) typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and
(bullet) 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:
(bullet) evaluation of the management of the issuer;
(bullet) economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in
certain areas;
(bullet) evaluation of the issuer's products in relation to competition
and customer acceptance;
(bullet) liquidity;
(bullet) amount and quality of long-term debt;
(bullet) trend of earnings over a period of ten years;
(bullet) financial strength of parent company and the relationships
which exist with the issuer; and
(bullet) 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholder
IMG Institutional Trust
We have audited the accompanying statements of assets and liabilities of
Cash Management Fund, Limited Duration Fund, Intermediate Duration Fund,
and Fixed Income Fund, portfolios of IMG Institutional Trust, as of
November 7, 1994. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements 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 statements of assets and
liabilities are free of material misstatement. An audit of a statement of
assets and liabilities includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit of a statement of assets and liabilities also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of assets
and liabilities presentation. We believe that our audits of the statements
of assets and liabilities provide a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Cash
Management Fund, Limited Duration Fund, Intermediate Duration Fund and
Fixed Income Fund, at November 7, 1994 in a conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 8, 1994
<PAGE>
IMG INSTITUTIONAL TRUST
Statements of Assets and Liabilities
November 7, 1994
Cash Limited Intermediate Fixed
Management Duration Duration Income
Fund Fund Fund Fund
ASSETS:
Cash $ 0 $ 0 $ 0 $100,000
Deferred Organization
Expenses (Note B) 73,000 36,500 18,250 54,750
Total Assets 73,000 36,500 18,250 154,750
LIABILITIES:
Accrued Organization
Expenses (Note B) 73,000 36,500 18,250 54,750
NET ASSETS: $ 0 $ 0 $ 0 $100,000
Shares Outstanding - - - 8,000
Net Asset Value Per Share
(Note E) $ 1.00 $ 12.50 $ 12.50 $ 12.50
See accompanying notes to financial statements.
<PAGE>
IMG INSTITUTIONAL TRUST
Notes to Financial Statements
November 7, 1994
(A) IMG Institutional Trust (the "Trust') was organized as a business
trust under the laws of the Commonwealth of Massachusetts on February
8, 1994. The Trust has an unlimited number of authorized shares,
which are divided into four series - Cash Management Fund, Limited
Duration Fund, Intermediate Duration Fund and Fixed Income Fund (the
Funds). The Trust has had no operations prior to November 4, 1994
other than organizational matters and activities in connection with
the purchase of 8,000 shares of the Trust by Wheat First Butcher
Singer, Inc. It is currently intended that, upon the effectiveness of
the Trust's registration statement, shares will be offered to the
public.
(B) The Trust will bear the cost of all organizational expenses including
the fees for registering and qualifying the Trust's shares for
distribution. Fees and expenses for the organization and registration
of shares of the Trust are estimated to be $182,500 and will be
amortized over the period of benefit not to exceed 60 months. In the
event any of the initial shares are redeemed by any holder thereof
during the five year amortization period or the life of a Fund,
whichever is shorter, redemption proceeds will be reduced by any
unamortized organizational expenses in the same proportion as the
number of initial shares of a Fund being redeemed bears to the number
of initial shares of a Fund outstanding at the time of the redemption.
(C) Each Fund of the Trust 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).
Thus, the Funds are relieved of any federal income tax liability by
distributing virtually all of their net investment income and capital
gains, if any, to their shareholders. The Funds intend to avoid
excise tax liability by making the required distributions under the
Code.
(D) Under the terms of the Management Contract, Commonwealth Investment
Counsel, Inc. (Commonwealth) serves as investment manager to each of
the Funds, providing investment advisory services.
(E) The net asset value per share at November 4, 1994 for the Cash
Management Fund, Limited Duration Fund and Intermediate Duration Fund
are the expected per share offering prices for the portfolios' shares
upon their initial public offering.
