STATEMENT OF ADDITIONAL INFORMATION
MENTOR INSTITUTIONAL TRUST
(MENTOR CASH MANAGEMENT PORTFOLIO,
MENTOR INTERMEDIATE DURATION PORTFOLIO, AND
MENTOR FIXED-INCOME PORTFOLIO)
JULY 7, 1995, AS REVISED OCTOBER 11, 1995
Mentor Institutional Trust (the "Trust") is a diversified, open-end
series investment company. This Statement of Additional Information
relates to Mentor Cash Management Portfolio, Mentor Intermediate Duration
Portfolio, and Mentor Fixed-Income Portfolio, and is not a prospectus and
should be read in conjunction with a prospectus of the Trust or any
Portfolio of the Trust. A separate Statement of Additional Information
relates to the SNAP Fund (the "SNAP Statement"). A copy of any prospectus
or of the SNAP Statement can be obtained upon request made to Mentor
Distributors, Inc., the Trust's distributor, at P.O. Box 1357, Richmond,
Virginia 23286-0109, or calling Mentor Distributors at 1-(800) 869-6042.
TABLE OF CONTENTS
CAPTION PAGE
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
CERTAIN INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . . . . 4
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . 7
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . 11
BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 14
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . 19
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 19
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 24
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 28
<PAGE>
GENERAL
Mentor Institutional Trust (the "Trust") is a diversified, open-end
investment company. The Trust is a Massachusetts business trust organized
on February 8, 1994 as IMG Institutional Trust.
Commonwealth Investment Counsel, Inc. ("Commonwealth") serves as
investment adviser to each of the Portfolios of the Trust. Mentor
Investment Group, Inc. ("Mentor") serves as administrator to each of the
Portfolios. Commonwealth is a wholly owned subsidiary of Mentor, 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 a Portfolio without approval by the holders of a majority of the
outstanding shares of that Portfolio, a Portfolio may not:
1. Purchase any security (other than U.S. Government securities) if
as a result: (i) as to 75% of such Portfolio's total assets,
more than 5% of the Portfolio's total assets (taken at current
value) would then be invested in securities of a single issuer,
or (ii) more than 25% of the Portfolio's total assets would be
invested in a single industry; except that Mentor Cash Management
Portfolio 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 Portfolio's
shares of beneficial interest.
5. Purchase or sell securities on margin (but a Portfolio 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 a Portfolio 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
a Portfolio 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 in which the
Portfolio may invest consistent with its investment policies or
by entering into repurchase agreements.
In addition, it is contrary to the current policy of each of the
Portfolios, which policy may be changed without shareholder approval, to:
1. Invest in oil, gas, or other mineral leases, rights, or royalty
contracts or in real estate (although the Portfolio may invest in
securities of issuers that invest or deal in the foregoing types
of assets or securities that are secured by or represent
interests in real estate).
2. 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 15% (10% with respect to Mentor Cash
Management Portfolio) of the Portfolio's net assets (taken at
current value) would then be invested in securities described in
(a), (b), and (c).
3. 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.
4. Make short sales or purchase puts, calls, straddles, spreads, or
any combination thereof.
5. Invest in securities of any issuer if, to the knowledge of the
Portfolio, officers and Trustees of the Portfolio and officers
and directors of Commonwealth who beneficially own more than 0.5%
of the shares or securities of that issuer together own more than
5%.
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 a Portfolio, 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 a Portfolio's investment objectives without shareholder
approval.
With respect to fundamental restriction 1, Mentor Cash Management
Portfolio currently expects to invest in certificates of deposit,
commercial paper, and banker's acceptances issued by issuers in the banking
industry. All of these investments will comply with applicable investment
policies of the Trust set out in its prospectus.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities"
of a Portfolio means the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Portfolio, 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.
CERTAIN INVESTMENT TECHNIQUES
Set forth below is information concerning certain investment
techniques in which one or more of the Portfolios may engage, and certain
of the risks they may entail. Certain of the investment techniques may not
be available to a Portfolio. See "Investment objective(s) and policies"
in the Trust's Prospectuses.
Forward Commitments
A Portfolio may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") if the Portfolio holds, and maintains until the settlement
date in a segregated account, cash or high-grade debt obligations in an
amount sufficient to meet the purchase price, or if the Portfolio enters
into offsetting contracts for the forward sale of other securities it owns.
Forward commitments may be considered securities in themselves, and involve
a risk of loss if the value of the security to be purchased declines prior
to the settlement date, which risk is in addition to the risk of decline in
the value of the Portfolio's other assets. Where such purchases are made
through dealers, the Portfolios rely on the dealer to consummate the sale.
The dealer's failure to do so may result in the loss to the Portfolio of an
advantageous yield or price.
Although a Portfolio will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, a Portfolio may
dispose of a commitment prior to settlement if its investment adviser deems
it appropriate to do so. A Portfolio may realize short-term profits or
losses upon the sale of forward commitments.
Repurchase Agreements
A Portfolio may enter into repurchase agreements. A repurchase
agreement is a contract under which the Portfolio acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Portfolio to resell such
security at a fixed time and price (representing the Portfolio's cost plus
interest). It is the Trust's present intention to enter into repurchase
agreements only with member banks of the Federal Reserve System and
securities dealers meeting certain criteria as to creditworthiness and
financial condition established by the Trustees of the Trust and only with
respect to obligations of the U.S. government or its agencies or
instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by a Portfolio which
are collateralized by the securities subject to repurchase. Commonwealth
will monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller
defaults, a Portfolio could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest
are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, a Portfolio may incur delay and costs in selling
the underlying security or may suffer a loss of principal and interest if a
Portfolio is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
When-Issued Securities
A Portfolio may from time to time purchase securities on a "when-
issued" basis. Debt securities are often issued on this basis. The price
of such securities, which may be expressed in yield terms, is fixed at the
time a commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase. During the period
between purchase and settlement, no payment is made by a Portfolio and no
interest accrues to the Portfolio. To the extent that assets of a
Portfolio are held in cash pending the settlement of a purchase of
securities, that Portfolio would earn no income. While a Portfolio may
sell its right to acquire when-issued securities prior to the settlement
date, a Portfolio intends actually to acquire such securities unless a sale
prior to settlement appears desirable for investment reasons. At the time
a Portfolio makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the amount due and the
value of the security in determining the Portfolio's net asset value. The
market value of the when-issued securities may be more or less than the
purchase price payable at the settlement date. A Portfolio will establish
a segregated account in which it will maintain cash and U.S. Government
Securities or other high-grade debt obligations at least equal in value to
commitments for when-issued securities. Such segregated securities either
will mature or, if necessary, be sold on or before the settlement date.
Collateralized mortgage obligations; other mortgage-
related securities
Collateralized mortgage obligations or "CMOs" are debt obligations or
pass-through certificates collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by
certificates issued by the Government National Mortgage Association,
("GNMA"), the Federal National Mortgage Association ("FNMA"), or the
Federal Home Loan Mortgage Corporation ("FHLMC"), but they also may be
collateralized by whole loans or private pass-through certificates (such
collateral collectively hereinafter referred to as "Mortgage Assets").
CMOs may be issued by agencies or instrumentalities of the U.S. Government,
or by private originators of, or investors in, mortgage loans.
In a CMO, a series of bonds or certificates is generally issued in
multiple classes. Each class of CMOs is issued at a specific fixed or
floating rate coupon and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on most classes of the
CMOs on a monthly, quarterly, or semi-annual basis. The principal of and
interest on the Mortgage Assets may be allocated among the several classes
of a series of a CMO in innumerable ways. In a CMO, payments of principal,
including any principal prepayments, on the Mortgage Assets are applied to
the classes of the series in a pre-determined sequence.
Zero-Coupon Securities
Zero-coupon securities in which a Portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior
to maturity. Zero-coupon securities usually trade at a deep discount from
their face or par value and are subject to greater market value
fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. As a
result, the net asset value of shares of a Portfolio investing in zero-
coupon securities may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of
interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and longer-term
bonds or notes and their unmatured interest coupons which have been
separated by their holder, typically a custodian bank or investment
brokerage firm. A number of securities firms and banks have stripped the
interest coupons from the underlying principal (the "corpus") of U.S.
Treasury securities and resold them in custodial receipt programs with a
number of different names, including Treasury Income Growth Receipts
("TIGRS") and Certificates of Accrual on Treasuries ("CATS"). The
underlying U.S. Treasury bonds and notes themselves are held in book-entry
form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial
ownership of particular interest coupons and corpus payments on Treasury
securities through the Federal Reserve book-entry record-keeping system.
The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal
of Securities." Under the STRIPS program, a Portfolio will be able to have
its beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does
not receive any rights to periodic cash interest payments. Once stripped
or separated, the corpus and coupons may be sold separately. Typically,
the coupons are sold separately or grouped with other coupons with like
maturity dates and sold in such bundled form. Purchasers of stripped
obligations acquire, in effect, discount obligations that are economically
identical to the zero-coupon securities issued directly by the obligor.
Zero-coupon securities allow an issuer to avoid the need to generate
cash to meet current interest payments. Even though zero-coupon securities
do not pay current interest in cash, a Portfolio is nonetheless required to
accrue interest income on them and to distribute the amount of that
interest at least annually to shareholders. Thus, a Portfolio could be
required at times to liquidate other investments in order to satisfy its
distribution requirement.
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 Portfolio 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; Senior Vice
President, Commonwealth
Advisors, Inc.; 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
Portfolio, 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.
Except as stated above, the principal occupations of the officers and
Trustees 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 table below shows the estimated fees to be paid to each Trustee by
the Trust for fiscal 1995 and the fees paid to each Trustee by all funds in
the Mentor family (including the Trust) during the 1994 calendar year.
Total compensation
Aggregate compensation from all
Trustees from the Trust complex funds
Daniel J. Ludeman $ 0 $ 0
Arnold H. Dreyfuss 200 18,000
Thomas F. Keller 200 15,000
Louis W. Moelchert, Jr. 200 17,000
Stanley F. Pauley 200 16,000
Troy A. Peery, Jr. 200 16,500
The Trustees do not receive pension or retirement benefits from the
Trust.
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 June 20, 1995, the officers and Trustees of the Trust owned as a
group less than one percent of the outstanding shares of each Portfolio.
To the knowledge of the Trust, no person owns more than 5% of the
outstanding shares of any Portfolio as of that date, except the following
record holders:
Shareholder Percentage Shares
CASH MANAGEMENT PORTFOLIO:
County of Augusta 13.13% 6,649,905
Stafford County 10.03% 5,079,259
Heilig Meyers 9.01% 4,562,165
Farmers Telephone Coop., Inc. 7.66% 3,880,859
INTERMEDIATE DURATION PORTFOLIO:
NationsBank C/F McQuire 78.65% 666,562
Woods & Battle Pension Plan
Longwood College Foundation, Inc. 21.13% 179,050
FIXED INCOME PORTFOLIO:
Wheat First Butcher Singer 98.17% 2,070,809
INVESTMENT ADVISORY AND OTHER SERVICES
Commonwealth, the investment advisor to each of the Portfolios, is a
wholly-owned subsidiary of Mentor, which is a wholly-owned subsidiary of
Wheat First Butcher Singer. Mentor serves as administrator of each of the
Portfolios. Mentor Distributors, Inc. ("Mentor Distributors") is the
Trust's distributor and service agent and is also a wholly-owned subsidiary
of Wheat First Butcher Singer.
Commonwealth acts as investment adviser to each Portfolio pursuant to
a Management Contract with the Trust. Mentor acts as administrator to each
of the Portfolios pursuant to an Administration Agreement with the Trust.
Subject to the supervision and direction of the Trustees, Commonwealth, as
investment adviser, manages the a Portfolio's portfolio in accordance with
the stated policies of that Portfolio and of the Trust. Commonwealth makes
investment decisions for the Portfolios and places the purchase and sale
orders for portfolio transactions. Mentor furnishes each of the Portfolios
with certain statistical and research data, clerical help, and certain
accounting, data processing, and other services required by the Portfolios,
assists in preparation of certain reports to shareholders of the
Portfolios, tax returns, and filings with the SEC and state Blue Sky
authorities, and generally assists in all aspects of the Portfolios'
operations. Commonwealth and Mentor bear all their expenses in connection
with the performance of their services. In addition, Commonwealth and
Mentor pay the salaries of all officers and employees who are employed by
them and the Trust.
Commonwealth provides the Trust with investment officers who are
authorized to execute purchases and sales of securities. Investment
decisions for the Trust and for the other investment advisory clients of
Commonwealth 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 Commonwealth'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. Commonwealth employs
professional staffs of portfolio managers who draw upon a variety of
resources, including Wheat, First Securities, for research information for
the Trust.
The proceeds received by each Portfolio 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 such
Portfolio, and constitute the underlying assets of that Portfolio. The
underlying assets of each Portfolio will be segregated on the Trust's books
of account, and will be charged with the liabilities in respect of such
Portfolio and with a share of the general liabilities of the Trust.
Expenses with respect to any two or more Portfolios may be allocated in
proportion to the net asset values of the respective Portfolios except
where allocations of direct expenses can otherwise be fairly made.
Expenses incurred in the operation of a Portfolio or otherwise
allocated to a Portfolio, 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 Portfolio.
Each of the Management Contract and the Administration Agreement is
subject to annual approval commencing in 1996 by (i) the Trustees or (ii)
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the affected Portfolio, 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,
Commonwealth, or Mentor, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Management Contracts are
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 affected Portfolio's shares, or by Commonwealth, as
applicable. The Administration Agreement is terminable without penalty,
immediately upon notice, by the Trustees or by vote of the holders of a
majority of the affected Portfolio's shares, and on not less than thirty
days' notice by Mentor. Each of the Agreements will terminate
automatically in the event of its assignment.
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by a Portfolio 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 Trust usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings,
the price paid by the Trust includes a disclosed, fixed commission or
discount retained by the underwriter or dealer. It is anticipated that
most purchases and sales of securities by Portfolios 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, those Portfolios 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, Commonwealth
receives brokerage and research services and other similar services from
many broker-dealers with which it places a Portfolio'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 Commonwealth's managers and analysts. Where the
services referred to above are not used exclusively by Commonwealth for
research purposes. Commonwealth, 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 Commonwealth and its affiliates in advising various of its clients
(including the Portfolios), although not all of these services are
necessarily useful and of value in managing the Portfolios.
Commonwealth places all orders for the purchase and sale of portfolio
investments for the Portfolios and buys and sells investments for the
Portfolios through a substantial number of brokers and dealers.
Commonwealth seeks the best overall terms available for each of the
Portfolios, except to the extent Commonwealth may be permitted to pay
higher brokerage commissions as described below. In doing so,
Commonwealth, having in mind a Portfolio'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
Contracts, Commonwealth may cause a Portfolio to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to
Commonwealth an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for the Portfolio on
an agency basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Commonwealth's
authority to cause a Portfolio to pay any such greater commissions is also
subject to such policies as the Trustees may adopt from time to time.
Commonwealth does not currently intend to cause the Portfolios 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, Commonwealth 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, Commonwealth may consider sales of shares of a
Portfolio (and, if permitted by law, of the other Mentor funds) as a factor
in the selection of broker-dealers to execute portfolio transactions for a
Portfolio.
DETERMINATION OF NET ASSET VALUE
The Trust determines net asset value per share of the Portfolios each
day the New York Stock Exchange (the "Exchange") is open. Currently, the
Exchange is closed Saturdays, Sundays, and the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving, and Christmas.
MENTOR INTERMEDIATE DURATION PORTFOLIO AND MENTOR FIXED-INCOME
PORTFOLIO. In respect of Mentor Intermediate Duration Portfolio and Mentor
Fixed-Income Portfolio, securities for which market quotations are readily
available are valued at prices which, in the opinion of the Trustees or
Commonwealth, most nearly represent the market values of such securities.
Currently, such prices are determined using the last reported sale price
or, if no sales are reported (as in the case of some securities traded
over-the-counter), the last reported bid price, except that certain U.S.
Government securities are stated at the mean between the last reported bid
and asked prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market value.
All other securities and assets are valued at their fair value following
procedures approved by the Trustees. Liabilities are deducted from the
total, and the resulting amount is divided by the number of shares of the
Portfolio outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks, tax-
exempt securities, or certain foreign securities. These investments are
stated at fair value on the basis of valuations furnished by pricing
services approved by the Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale,
Commonwealth determines their fair values. The fair value of such
securities is generally determined as the amount which a Portfolio could
reasonably expect to realize from an orderly disposition of such securities
over a reasonable period of time. The valuation procedures applied in any
specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the issuer
and other fundamental analytical data relating to the investment and to the
nature of the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Portfolio in connection
with such disposition). In addition, specific factors are also generally
considered, such as the cost of the investment, the market value of any
unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any
recent transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of
the Exchange. The values of these securities used in determining the net
asset value of a Portfolio's shares are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds, U.S. Government securities, and tax-
exempt securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
Exchange. Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will not be
reflected in the computation of a Portfolio's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value following
procedures approved by the Trustees.
MENTOR CASH MANAGEMENT PORTFOLIO ONLY. The valuation of Mentor Cash
Management Portfolio'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
Portfolio 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 Portfolio would receive if it sold the instrument.
During periods of declining interest rates, the quoted yield on shares of
the Portfolio 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 Portfolio resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in
the Portfolio would be able to obtain a somewhat higher yield if he
purchased shares of the Portfolio on that day, than would result from
investment in a fund utilizing solely market values, and existing investors
in the Portfolio would receive less investment income. The converse would
apply on a day when the use of amortized cost by the Portfolio 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 Portfolio'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, a Portfolio 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 Portfolio's price per share as computed for the
purpose of distribution, redemption and repurchase at $1.00. These
procedures include review of the Portfolio's portfolio holdings by the
Trustees, at such intervals as they may deem appropriate, to determine
whether a Portfolio'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 Portfolio is declared as a dividend each
time it is determined, the net asset value per share of the Portfolio
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 Portfolio representing the reinvestment of dividend
income is reflected by an increase in the number of shares of the Portfolio
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
Portfolio'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 Portfolio determined at any time is a negative amount, the Portfolio
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 Portfolio (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 Portfolio will reduce the number of outstanding shares by
treating the shareholder as having contributed to the capital of the
Portfolio 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 Portfolio.
Should the Portfolio incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the
Portfolio'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
Each Portfolio 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, a Portfolio 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, a Portfolio will not under present law be subject to any
excise or income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio
must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from
the sale or other dispositions of stock, securities, or foreign currencies,
and other income (including gains from options, futures, or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies; (b) derive less than 30% of its gross income
from the sale or other disposition of certain assets (including stock and
securities) 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, and other securities limited generally with respect to any one
issuer to not more than 5% of the total assets of the Portfolio and not
more than 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities
of any issuer (other than U.S. Government Securities). In order to receive
the favorable tax treatment accorded regulated investment companies and
their shareholders, moreover, a Portfolio 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 each Portfolio's "required distribution" over its actual distributions
in any calendar year. Generally, the "required distribution" is 98% of the
Portfolio'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 Portfolio so elects) plus undistributed amounts
from prior years. Each Portfolio intends to make distributions sufficient
to avoid imposition of the excise tax. Distributions declared by a
Portfolio during October, November, or December to shareholders of record
on a date in any such month and paid by the Portfolio during the following
January will be treated for federal tax purposes as paid by the Portfolio
and received by shareholders on December 31 of the year in which declared.
Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which a Portfolio has invested
and their face value ("original issue discount") is considered to be income
to the Portfolio each year, even though the Portfolio will not receive cash
interest payments from these securities. This original issue discount
(imputed income) will comprise a part of the net investment income of the
Portfolio which must be distributed to shareholders in order to maintain
the qualification of the Portfolio as a regulated investment company and to
avoid federal income tax at the level of the Portfolio.
Each Portfolio is required to withhold 31% of all income dividends and
capital gain distributions, and 31% of the gross proceeds of all
redemptions of Portfolio shares, in the case of any shareholder who does
not provide a correct taxpayer identification number, about whom a
Portfolio is notified that the shareholder has under reported income in the
past, or who fails to certify to a Portfolio 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 Portfolio with
a proper certification.
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
Portfolio, including the possibility that distributions may be subject to a
30% United States withholding tax (or a reduced rate of withholding
provided by treaty).
THE DISTRIBUTOR
Mentor Distributors, Inc. is the distributor of the Trust's shares in
the continuous offering and is acting on a best efforts basis.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, located at One Boston Place, Boston,
Massachusetts 02108, are the Portfolio'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.
CUSTODIAN
The custodian of the Portfolios, Investors Fiduciary Trust Company, is
located at 127 West 10th Street, Richmond, Virginia 64105. A custodian's
responsibilities include generally safeguarding and controlling a
Portfolio's cash and securities, handling the receipt and delivery of
securities, and collecting interest and dividends on a Portfolio's
investments.
PERFORMANCE INFORMATION
MENTOR INTERMEDIATE DURATION PORTFOLIO AND MENTOR FIXED-INCOME
PORTFOLIO. With respect to Mentor Intermediate Duration Portfolio and
Mentor Fixed Income Portfolio, total return for the life of a Portfolio
through the most recent calendar quarter is determined by calculating the
actual investment return on a $1,000 investment in the Portfolio over that
period. Total return may also be presented for other periods. Total
return calculations assume reinvestment of all Portfolio distributions at
net asset value on their respective reinvestment dates. The cumulative
total return for the life of Mentor Intermediate Duration Portfolio and
Mentor Fixed-Income Portfolio through April 30, 1995 was 5.24% and 6.25%,
respectively.
Each Portfolio's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by (i)
calculating the aggregate amount of dividends and interest earned by a
Portfolio during the base period less expenses accrued for that period, and
(ii) dividing that amount by the product of (A) the average daily number of
shares of the Portfolio outstanding during the base period and entitled to
receive dividends and (B) the net asset value per share on the last day of
the base period. The result is annualized on a compounding basis to
determine the yield. For this calculation, interest earned on debt
obligations held by a Portfolio is generally calculated using the yield to
maturity (or first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities such as
GNMA's, based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates. The yield for the Mentor Intermediate
Duration Portfolio for the thirty-day period ended April 30, 1995 was
7.39%. The yield for the Mentor Fixed-Income Portfolio for the thirty-day
period ended April 30, 1995 was 7.43%.
MENTOR CASH MANAGEMENT PORTFOLIO ONLY. The yield of Mentor Cash
Management Portfolio is computed by determining the percentage net change,
excluding capital changes, in the value of an investment in one share of
the Portfolio over the base period, and multiplying the net change by 365/7
(or approximately 52 weeks). The Portfolio'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.
Based on the seven-day period ended April 30, 1995, the Mentor Cash
Management Portfolio's yield was 6.11% and its effective yield was 6.30%.
All data for each of the Portfolios are based on past performance and
do not predict future results.
Independent statistical agencies measure a Portfolio's investment
performance and publish comparative information showing how the Portfolio,
and other investment companies, performed in specified time periods.
Agencies whose reports are commonly used for such comparisons are set forth
below. From time to time, a Portfolio may distribute these comparisons to
its shareholders or to potential investors. THE AGENCIES LISTED BELOW
MEASURE PERFORMANCE BASED ON THE BASIS OF THEIR OWN CRITERIA RATHER THAN ON
THE BASIS OF THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED ABOVE.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings
monthly. The rankings are based on total return performance
calculated by Lipper, reflecting generally changes in net asset value
adjusted for reinvestment of capital gains and income dividends. They
do not reflect deduction of any sales charges. Lipper rankings cover
a variety of performance periods, for example year-to-date, 1-year, 5-
year, and 10-year performance. Lipper classifies mutual funds by
investment objective and asset category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average,
neutral, below average and lowest. They represent a fund's historical
risk/reward ratio relative to other funds with similar objectives.
The performance factor is a weighted-average assessment of the
Portfolio's 3-year, 5-year, and 10-year total return performance (if
available) reflecting deduction of expenses and sales charges.
Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund. The ratings are derived from a purely
quantitative system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard & Poor's
Corporation and Moody's Investor Service, Inc.
WEISENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and
is distributed monthly. The rankings are based entirely on total
return calculated by Weisenberger for periods such as year-to-date, 1-
year, 3-year, 5-year and 10-year performance. Mutual funds are ranked
in general categories (e.g., international bond, international equity,
municipal bond, and maximum capital gain). Weisenberger rankings do
not reflect deduction of sales charges or fees.
Independent publications may also evaluate a Portfolio's performance.
Certain of those publications are listed below, at the request of Mentor
Distributors, which bears full responsibility for their use and the
descriptions appearing below. From time to time any or all of the
Portfolios may distribute evaluations by or excerpts from these
publications to its shareholders or to potential investors. The following
illustrates the types of information provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week
total return reflecting changes in net asset value and the
reinvestment of all distributions. They do not reflect deduction of
any sales charges. Portfolios are not categorized; they compete in a
large universe of over 2,000 funds. The source for rankings is data
generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given
category. The categories are based loosely on the type of fund, e.g.,
growth funds, balanced funds, U.S. government funds, GNMA funds,
growth and income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to 39 weeks;
performance periods for other fund groups vary from 1 year to 3 years.
Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based
strictly on total return. They do not reflect deduction of any sales
charges Performance grades are conferred from A+ to E. An A+ rating
means that the fund has performed within the top 5% of a general
universe of over 2000 funds; an A rating denotes the top 10%; an A- is
given to the top 15%, etc.
BARRON'S periodically publishes mutual fund rankings. The rankings
are based on total return performance provided by Lipper Analytical
Services. The Lipper total return data reflects changes in net asset
value and reinvestment of distributions, but does not reflect
deduction of any sales charges. The performance periods vary from
short-term intervals (current quarter or year-to-date, for example) to
long-term periods (five-year or ten-year performance, for example).
Barron's classifies the funds using the Lipper mutual fund categories,
such as Capital Appreciation Portfolios, Growth Portfolios, U.S.
Government Portfolios, Equity Income Portfolios, Global Portfolios,
etc. Occasionally, Barron's modifies the Lipper information by
ranking the funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be those with less
than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Portfolio Scorecard on a
daily basis. Each Scorecard is a ranking of the top-15 funds in a
given Lipper Analytical Services category. Lipper provides the
rankings based on its total return data reflecting changes in net
asset value and reinvestment of distributions and not reflecting any
sales charges. The Scorecard portrays 4-week, year-to-date, one-year
and 5-year performance; however, the ranking is based on the one-year
results. The rankings for any given category appear approximately
once per month.
FORTUNE magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Portfolios are
placed in stock or bond fund categories (for example, aggressive
growth stock funds, growth stock funds, small company stock funds,
junk bond funds, Treasury bond funds etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings. The
rankings are based on 3-year annualized total return reflecting
changes in net asset value and reinvestment of distributions and not
reflecting sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings on a
database of funds tracked for performance by Lipper Analytical
Services. The funds are placed in 23 stock or bond fund categories
and analyzed for five-year risk adjusted return. Total return
reflects changes in net asset value and reinvestment of all dividends
and capital gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the top 20% in
each category receive an A, the next 20% a B, etc. To be ranked, a
fund must be at least one year old, accept a minimum investment of
$25,000 or less and have had assets of at least $25 million as of a
given date.
FINANCIAL WORLD publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios
are categorized as to type, e.g., balanced funds, corporate bond
funds, global bond funds, growth and income funds, U.S. government
bond funds, etc. To compete, funds must be over one year old, have
over $1 million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states in the
United States. The funds receive a composite past performance rating,
which weighs the intermediate - and long-term past performance of each
fund versus its category, as well as taking into account its risk,
reward to risk, and fees. An A+ rated fund is one of the best, while
a D- rated fund is one of the worst. The source for Financial World
rating is Schabacker investment management in Rockville, Maryland.
FORBES magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds
are categorized by type, including stock and balanced funds, taxable
bond funds, municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The ratings are
based strictly on performance at net asset value over the given
cycles. Portfolios performing in the top 5% receive an A+ rating; the
top 15% receive an A rating; and so on until the bottom 5% receive an
F rating. Each fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three-
and five-year total return performance reflecting changes in net asset
value and reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Portfolios are ranked by
tenths: a rank of 1 means that a fund was among the highest 10% in
total return for the period; a rank of 10 denotes the bottom 10%.
Portfolios compete in categories of similar funds -- aggressive growth
funds, growth and income funds, sector funds, corporate bond funds,
global governmental bond funds, mortgage-backed securities funds, etc.
Kiplinger's also provides a risk-adjusted grade in both rising and
falling markets. Portfolios are graded against others with the same
objective. The average weekly total return over two years is
calculated. Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch
Carre & Co., a Boston research firm. Over 2000 funds are tracked and
divided into 10 equity, taxable bond and tax-free bond categories.
Portfolios compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative performance
of funds at least three years old over the last 1, 3, 5 and 10 years
and the last six bear markets. Total return reflects changes in net
asset value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges.
Results for the longer periods receive the most weight.
THE 100 BEST MUTUAL PORTFOLIOS YOU CAN BUY (1992), authored by Gordon
K. Williamson. The author's list of funds is divided into 12 equity
and bond fund categories, and the 100 funds are determined by applying
four criteria. First, equity funds whose current management teams
have been in place for less than five years are eliminated. (The
standard for bond funds is three years.) Second, the author excludes
any fund that ranks in the bottom 20 percent of its category's risk
level. Risk is determined by analyzing how many months over the past
three years the fund has underperformed a bank CD or a U.S. Treasury
bill. Third, a fund must have demonstrated strong results for current
three-year and five-year performance. Fourth, the fund must either
possess, in Mr. Williamson's judgment, "excellent" risk-adjusted
return or "superior" return with low levels of risk. Each of the 100
funds is ranked in five categories: total return, risk/volatility,
management, current income and expenses. The rankings follow a five-
point system: zero designates "poor"; one point means "fair"; two
points denote "good"; three points qualify as a "very good"; four
points rank as "superior"; and five points mean "excellent."
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 a Portfolio's
property for all loss and expense of any shareholder held personally liable
for the obligations of a Portfolio. Thus the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Portfolio would be unable to meet its
obligations.
RATINGS
The rating services' descriptions of corporate bonds are:
MOODY'S INVESTORS SERVICE, INC.:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present,
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
STANDARD & POOR'S CORPORATION:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating
assigned by S&P. Commercial paper rated A-1 by S&P has the following
characteristics:
(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>
FINANCIAL STATEMENTS
<PAGE>
Mentor Cash Management Portfolio
Portfolio of Investments
April 30, 1995 (Unaudited)
<TABLE>
Percent of Principal Market
Net Asset Amount Value
<S> <C> <C> <C>
Bankers Acceptances-Domestic 12.4%
Bank of New York, 6.06%, 5/9/95 $1,000,000 $ 998,653
First Union Corporation, 6.03% - 6.09%,
5/2/95 - 10/3/95 2,000,000 1,973,612
Nationsbank Corporation, 6.10%, 8/30/95 1,000,000 979,497
Republic Bank, 5.96%, 5/22/95 1,000,000 996,523
Wachovia Corporation Bank, 6.06%, 5/1/95 1,000,000 1,000,000
Total Bankers Acceptances-Domestic 5,948,285
Bankers Acceptances-Foreign 15.9%
Bank of Tokyo, 6.05% - 6.11%,
6/5/95 - 10/16/95 2,000,000 1,965,827
Dai-ichi Kangyo Bank, 6.02% - 6.11%,
5/30/95 - 10/16/95 2,000,000 1,966,985
European American Bank, 6.07% - 6.09%,
7/10/95 - 8/28/95 1,699,481 1,672,836
Mitsubishi Bank, 6.06%, 5/16/95 1,000,000 997,475
Sanwa Bank, 6.05%, 5/8/95 1,000,000 998,823
Total Bankers Acceptances-Foreign 7,601,946
Commercial Paper 32.9%
Bellsouth Capital, 6.09%, 10/2/95 2,000,000 1,947,897
Chase Manhattan Bank, 6.12%, 8/2/95 1,000,000 984,190
CIESCO Limited Partnership, 6.02%, 5/31/95 1,000,000 994,983
CS First Boston, 6.11% - 6.13%, 7/24/95 -
8/31/95 2,000,000 1,964,991
Ford Motor Credit Company, 6.09% - 6.12%,
5/30/95 - 7/28/95 2,000,000 1,980,183
General Electric Capital Corporation, 6.02% -
6.03%, 6/1/95 - 9/18/95 2,000,000 1,971,366
Merrill Lynch & Company, Inc., 6.12% - 6.15%,
6/6/95 - 9/11/95 2,000,000 1,963,010
Minolta Corporation, 6.06%, 7/7/95 1,000,000 988,722
National Rural Utilities, 5.97%, 5/12/95 1,000,000 998,176
Rincon Securities, Inc., 6.08%, 5/8/95 1,000,000 998,818
State Street Bank &Trust Company, 6.03%, 5/2/95 1,000,000 999,833
Total Commercial Paper 15,792,169
U.S. Government Agencies 16.7%
Federal Home Loan Bank, 5.93%, 5/1/95 6,000,000 6,000,000
Student Loan Market Agency, 5.89%, 9/14/95 2,000,000 2,000,000
Total U.S. Government Agencies 8,000,000
</TABLE>
<PAGE>
Mentor Cash Management Portfolio
Portfolio of Investments
April 30, 1995 (Unaudited)
<TABLE>
Percent of Principal Market
Net Asset Amount Value
<S> <C> <C> <C>
Repurchase Agreement 22.5%
Goldman, Sachs & Company
Dated 4/28/95, 5.90%, due 5/1/95,
collateralized by $14,086,000
Federal National Mortgage Association,
7.50%, 7/1/23 $10,813,866 $10,813,866
Total Investments (cost $48,156,266) 100.4% 48,156,266
Other Assets less Liabilities (0.4%) (201,521)
Net Assets 100.0% $47,954,745
</TABLE>
See notes to financial statements.
<PAGE>
Mentor Intermediate Duration Portfolio
Portfolio of Investments
April 30, 1995 (Unaudited)
<TABLE>
Percent of Principal Market
Net Asset Amount Value
<S> <C> <C> <C>
U.S. Government Securities and Agencies 74.0%
Federal Home Loan Bank, 7.90%, 12/20/96 $ 1,000,000 $ 1,007,870
Federal Home Loan Bank, 8.18%, 12/22/97 600,000 605,436
Federal Home Loan Mortgage Corporation, 10.50%, 2/1/03 491,271 515,849
Federal Home Loan Mortgage Corporation, 7.00%, 10/15/07 500,000 471,305
Federal National Mortgage Association, 11.00%, 7/1/01 400,434 425,466
Federal National Mortgage Association, 6.00%, 3/25/09 500,000 437,675
U.S. Treasury Note, 7.50%, 1/31/97 400,000 406,056
U.S. Treasury Note, 6.50%, 8/15/97 250,000 249,233
U.S. Treasury Note, 7.38%, 11/15/97 820,000 832,677
U.S. Treasury Note, 7.13%, 2/29/00 200,000 201,832
U.S. Treasury Note, 5.50%, 4/15/00 1,000,000 942,990
U.S. Treasury Note, 7.50%, 11/15/01 1,000,000 1,028,350
U.S. Treasury Note, 7.25%, 8/15/04 500,000 505,995
U.S. Treasury Note, 7.50%, 2/15/05 250,000 257,663
U.S. Treasury Bond, 7.50%, 11/15/24 180,000 182,456
Total U.S. Government Securities and Agencies
(cost $7,980,477) 8,070,853
Corporate Bonds 17.5%
American Home Products, 7.70%, 2/15/00 400,000 405,000
Capital One, 8.63%, 1/15/97 500,000 509,375
Lehman Brothers, Inc., 8.63%, 2/26/99 525,000 533,531
Salomon Inc., 6.00%, 1/12/98 250,000 238,125
WMX Technologies, 6.38%, 12/1/03 250,000 228,750
Total Corporate Bonds (cost $ 1,895,251) 1,914,781
Short-Term Investment 9.3%
Repurchase Agreement
NationsBank Corporation
Dated 4/28/95, 5.90%, due 5/1/95, collateralized by
$1,040,000 U.S. Treasury Note, 8.00%, 10/31/96
(cost $1,016,744) 1,016,744 1,016,744
Total Investments (cost $10,892,472) 100.8% 11,002,378
Other Assets less Liabilities (0.8%) (91,870)
Net Assets 100.0% $10,910,508
</TABLE>
See notes to financial statements.
<PAGE>
Mentor Fixed-Income Portfolio
Portfolio of Investments
April 30, 1995 (Unaudited)
<TABLE>
Percent of Principal Market
Net Asset Amount Value
<S> <C> <C> <C>
U.S. Government Securities and Agencies 72.8%
Federal Home Loan Bank, 8.22%, 12/22/97 $ 500,000 $ 504,655
Federal Home Loan Mortgage Corporation, 8.26%, 1/5/98 1,550,000 1,562,539
Federal Home Loan Mortgage Corporation, 10.50%, 2/1/03 491,271 515,849
Federal Home Loan Mortgage Corporation, 7.00%, 10/15/07 1,500,000 1,413,915
Federal National Mortgage Association, 11.00%, 7/1/01 576,236 612,256
Federal National Mortgage Association, 6.00%, 3/25/09 1,500,000 1,313,025
Student Loan Mortgage Association, 8.04%, 15/15/97 1,500,000 1,509,225
U.S. Treasury Note, 6.50%, 4/30/99 1,250,000 1,235,762
U.S. Treasury Note, 7.13%, 2/29/00 1,850,000 1,866,946
U.S. Treasury Note, 7.50%, 5/15/02 2,500,000 2,576,600
U.S. Treasury Note, 7.25%, 8/15/04 600,000 607,194
U.S. Treasury Note, 7.50%, 2/15/05 750,000 772,988
U.S. Treasury Bond, 7.25%, 5/15/16 250,000 244,815
U.S. Treasury Bond, 7.13%, 2/15/23 2,700,000 2,604,663
U.S. Treasury Bond, 7.50%, 11/15/24 2,260,000 2,290,849
Total U.S. Government Securities and Agencies 19,631,281
(cost $19,415,492)
Corporate Bonds 22.0%
American Home Products, 7.70%, 2/15/00 1,000,000 1,012,500
Capital One, 8.63%, 1/15/97 1,000,000 1,018,750
Commonwealth Edison, 6.50%, 7/15/97 1,000,000 986,250
Lehman Brothers, Inc., 8.63%, 2/26/99 1,475,000 1,498,969
Salomon Inc., 6.00%, 1/12/98 750,000 714,375
WMX Technologies, 6.38%, 12/1/03 750,000 686,250
Total Corporate Bonds (cost $5,866,629) 5,917,094
Short-Term Investment 6.1%
Repurchase Agreement
NationsBank Corporation
Dated 4/28/95, 5.90%, due 5/1/95, collateralized by
$1,730,000 U.S. Treasury Bill, 10/26/95 (cost $1,639,503) 1,639,503 1,639,503
Total Investments (cost $26,921,624) 100.9% 27,187,878
Other Assets less Liabilities (0.9%) (236,363)
Net Assets 100.0% $26,951,515
</TABLE>
See notes to financial statements.
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
[CAPTION]
<TABLE>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED-
MANAGEMENT DURATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
ASSETS
Investments, at market value * (Note 2) $48,156,266 $11,002,378 $27,187,878
Receivables
Interest 22,598 190,455 532,874
Due from management company 21,998 6,638 12,571
Deferred expenses 95,500 42,237 68,904
Total assets 48,296,362 11,241,708 27,802,227
LIABILITIES
Payables
Investments purchased - 285,323 752,217
Fund shares redeemed - - 40,000
Dividends 238,333 - -
Accrued expenses and other liabilities 103,284 45,877 58,495
Total liabilities 341,617 331,200 850,712
NET ASSETS $47,954,745 $10,910,508 $26,951,515
Net Assets represented by:
Additional paid-in capital $47,954,745 $10,573,788 $25,916,845
Undistributed net investment income - 65,314 164,675
Undistributed realized gain on
investment transactions - 161,500 603,741
Net unrealized appreciation of investments - 109,906 266,254
Net Assets $47,954,745 $10,910,508 $26,951,515
Shares Outstanding 47,954,745 845,612 2,075,636
NET ASSET VALUE PER SHARE $ 1.00 $ 12.90 $ 12.98
</TABLE>
*Investments at cost $48,156,266, $10,892,472 and $26,921,624 respectively.
See notes to financial statements.
Mentor Institutional Trust
Statements of Operations
Period Ended April 30, 1995 (Unaudited)
<TABLE>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
Investment Income
Interest $740,989 $275,448 $ 778,881
Expenses
Organizational expenses 10,611 4,693 7,656
Custodian fees 5,628 1,309 3,506
Audit expense 4,899 1,143 3,051
Legal expense 3,499 816 2,179
Shareholder reports 482 110 292
Directors fees and expenses 233 54 145
Printing and postage expenses 119 8 11
Miscellaneous expenses 1,398 326 873
Total expenses 26,869 8,459 17,713
Deduct
Reimbursement of expenses by
management company 21,998 6,638 12,567
Net expenses 4,871 1,821 5,146
Net investment income 736,118 273,627 773,735
Realized and Unrealized Gain on Investments
Net realized gain on investments (Note 2) -- 161,500 603,741
Change in unrealized appreciation of investments -- 109,906 266,254
Net realized and unrealized gain
on investments -- 271,406 869,995
Net increase in net assets
resulting from operations $736,118 $545,033 $1,643,730
</TABLE>
* For the period from December 5, 1994 (commencement of operations) to
April 30, 1995.
** For the period from December 19, 1994 (commencement of operations) to
April 30, 1995.
*** For the period from December 6, 1994 (commencement of operations) to
April 30, 1995.
See notes to financial statements.
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
[CAPTION]
<TABLE>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED-
MANAGEMENT DURATION INCOME
PERIOD ENDED APRIL 30, 1995 PORTFOLIO* PORTFOLIO** PORTFOLIO***
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $ 736,118 $ 273,627 $ 773,735
Net realized gain on investments - 161,500 603,741
Net unrealized appreciation of investments - 109,906 266,254
Increase in net assets from operations 736,118 545,033 1,643,730
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (736,118) (208,312) (609,060)
CAPITAL SHARE TRANSACTIONS (NOTE 7)
Net proceeds from sale of shares 74,118,432 10,397,006 29,173,726
Reinvested distributions 497,785 208,312 609,060
Cost of shares redeemed (26,661,472) (31,530) (3,865,941)
Change in net assets from capital
share transactions 47,954,745 10,573,788 25,916,845
Increase in net assets 47,954,745 10,910,509 26,951,515
NET ASSETS
Beginning of period - - -
End of period $ 47,954,745 $10,910,509 $26,951,515
</TABLE>
* For the period from December 5, 1994 (commencement of operations) to
April 30, 1995.
** For the period from December 19, 1994 (commencement of operations) to
April 30, 1995.
*** For the period from December 6, 1994 (commencement of operations) to
April 30, 1995.
See notes to financial statements.
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS (UNAUDITED)
[CAPTION]
<TABLE>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED-
MANAGEMENT DURATION INCOME
PERIOD ENDED APRIL 30, 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 0.02 0.33 0.38
Net realized and unrealized
gain on investments - 0.32 0.40
Total from investment operations 0.02 0.65 0.78
LESS DISTRIBUTIONS
Dividends from income (0.02) (0.25) (0.30)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 12.90 $ 12.98
Total Return 2.00% 5.24% 6.25%
Ratios / Supplemental Data
Net assets, end of period (in thousands) $47,955 $10,911 $26,952
Ratio of expenses to average net assets 0.04% (a) 0.05% (a) 0.05% (a)
Ratio of net investment income
to average net assets 6.00% (a) 7.11% (a) 7.38% (a)
Portfolio turnover rate - 398% (a) 408% (a)
</TABLE>
(a) Annualized.
* For the period from December 5, 1994 (commencement of operations) to
April 30, 1995.
** For the period from December 19, 1994 (commencement of operations) to
April 30, 1995.
*** For the period from December 6, 1994 (commencement of operations) to
April 30, 1995.
See notes to financial statements.
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995 (UNAUDITED)
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 three separate diversified portfolios (hereinafter each
individually referred to as a "Portfolio" or collectively as the "Portfolios")
at April 30, 1995 as follows:
Mentor Cash Management Portfolio (Cash Management)
Mentor Intermediate Duration Portfolio (Intermediate Duration)
Mentor Fixed-Income Portfolio (Fixed-Income)
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 Portfolio:
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 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 approved 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 and
under the general supervision and responsibility of the Trust's Board of
Directors.
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 vault 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.
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. Dividends
Dividends will be declared daily and paid monthly to all shareholders who
invested in the Cash Management Portfolio. Dividends are declared and paid
quarterly to shareholders invested in the Fixed-Income Portfolio and
Intermediate Duration Portfolio. Capital gains realized by each Portfolio, if
any, will be distributed at least once every 12 months.
F. 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.
NOTE 3: 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 Portfolio. Pursuant to this agreement,
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 reimburse the Portfolios for a certain amount of these expenses. A
potential expense reimbursement of $21,998, $6,638 and $12,567 respectively, for
the Cash Management Portfolio, Intermediate Duration Portfolio and Fixed Income
Portfolio was entered for the period ended April 30, 1995.
Mentor Investment Group, Inc. ("Mentor Group") provides administrative personnel
and services to each Portfolio, pursuant to an Administration Agreement. Mentor
Group receives no compensation for such services.
NOTE 4: DISTRIBUTION AGREEMENT
Under a Distribution Agreement between the Portfolios and Wheat, First
Securities, Inc. (Wheat), a wholly-owned subsidiary of Wheat First Butcher
Singer, Inc., Wheat serves as Distributor of the Portfolios.
NOTE 5: INVESTMENT TRANSACTIONS
Purchases, and sales of investments (excluding short-term investments), for the
period ended April 30, 1995, were as follows:
Portfolio Purchases Sales
Cash Management - -
Intermediate Duration $25,232,434 $15,361,337
Fixed-Income 68,094,119 42,821,911
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to $48,156,266
for the Cash Management, $10,892,472 for the Intermediate Duration and
$26,921,624 for the Fixed-Income at April 30, 1995. Gross unrealized
appreciation and depreciation of investments at April 30, 1995 were as follows:
[CAPTION]
<TABLE>
Gross Gross Net
Unrealized Unrealized Unrealized
Portfolio Appreciation Depreciation Appreciation
<S> <C> <C> <C>
Cash Management - - -
Intermediate Duration $117,309 $ 7,403 $109,906
Fixed-Income 293,959 27,705 266,254
</TABLE>
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
4/30/95*
Shares outstanding, beginning of period -
Shares sold 74,118,432
Shares issued upon reinvestment of distributions 497,785
Shares redeemed (26,661,472)
Shares outstanding, end of period 47,954,745
Mentor Intermediate
Duration Portfolio
Period Ended
4/30/95**
Shares outstanding, beginning of period -
Shares sold 831,756
Shares issued upon reinvestment of distributions 16,344
Shares redeemed (2,488)
Shares outstanding, end of period 845,612
Mentor Fixed-Income
Portfolio
Period Ended
4/30/95***
Shares outstanding, beginning of period -
Shares sold 2,331,660
Shares issued upon reinvestment of distributions 47,639
Shares redeemed (303,663)
Shares outstanding, end of period 2,075,636
* For the period from December 5, 1994 (commencement of operations) to
April 30, 1995.
** For the period from December 19, 1994 (commencement of operations) to
April 30, 1995.
*** For the period from December 6, 1994 (commencement of operations) to
April 30, 1995.
<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.
