As filed with the Securities and Exchange Commission on March 11, 1996
Registration No. 33-80784
File No. 811-8484
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 5 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 8 [ X ]
(Check appropriate box or boxes)
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MENTOR INSTITUTIONAL TRUST
(Exact name of registrant as specified in charter)
P.O. Box 1357
Richmond, Virginia 23286
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (804) 782-3647
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Paul F. Costello
President
Mentor Institutional Trust
901 East Byrd Street
Richmond, Virginia 23219
(Name and address of agent for service)
Copy to
Timothy W. Diggins, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
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It is proposed that this filing will become effective
(check appropriate box)
[ X ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 notice for the
fiscal year ended October 31, 1995 has been filed with the Securities and
Exchange Commission on December 28, 1995.
<PAGE>
MENTOR INSTITUTIONAL TRUST
CROSS REFERENCE SHEET
(as required by Rule 404(c))
The Cross Reference Sheet with respect to Parts A and B for the
Mentor International Portfolio is incorporated herein by reference from
Post-Effective Amendment No. 3 to the Registrant's Registration Statement on
Form N-1A (File No. 33-80784) previously filed on September 5, 1995.
Part A - Mentor Institutional Trust
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N-1A Item No. Location
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1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objectives
and policies; Mentor Institutional
Trust; Investment practices and
risks
5. Management of the Fund......................................... Investment objectives and policies;
Investment practices and risks;
Management of the Portfolios;
Mentor Institutional Trust; How the
Portfolios value their shares;
Custodian and transfer and
dividend agent; Performance
information
5A. Management's Discussion
of Fund Performance.......................................... Contained in the Registrant's
Annual Report to Shareholders
</TABLE>
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<PAGE>
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6. Capital Stock and Other
Securities................................................... Management of the Portfolios;
Mentor Institutional Trust;
Purchase of shares; How
distributions are made; tax
information; Performance
information
7. Purchase of Securities Being
Offered...................................................... Management of the Trust; Purchase
of shares
8. Redemption or Repurchase....................................... Purchase of shares; Redemption of
shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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<PAGE>
Part A - Mentor Fixed-Income Portfolio
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N-1A Item No. Location
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1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objectives
and policies; Other investment
practices and risks
5. Management of the Fund......................................... Investment objectives and policies;
Other investment practices and
risks; Management of the Portfolio;
Mentor Institutional Trust; How the
Portfolio values its shares;
Custodian and transfer and
dividend agent; Performance
information
5A. Management's Discussion
of Fund Performance.......................................... Contained in the Registrant's
Annual Report to Shareholders
6. Capital Stock and Other
Securities................................................... Management of the Portfolio;
Mentor Institutional Trust;
Purchase of shares; How
distributions are made; Taxes;
Performance information
7. Purchase of Securities Being
Offered...................................................... Management of the Portfolio;
Purchase of shares
8. Redemption or Repurchase....................................... Purchase of shares; Redemption of
shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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<PAGE>
Part A - Mentor Intermediate Duration Portfolio
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N-1A Item No. Location
<S> <C> <C>
1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objectives
and policies; Other investment
practices and risks
5. Management of the Fund......................................... Investment objectives and policies;
Other investment practices and
risks; Management of the Portfolio;
Mentor Institutional Trust; How the
Portfolio values its shares;
Custodian and transfer and
dividend agent; Performance
information
5A. Management's Discussion
of Fund Performance.......................................... Contained in the Registrant's
Annual Report to Shareholders
6. Capital Stock and Other
Securities................................................... Management of the Portfolio;
Mentor Institutional Trust;
Purchase of shares; How
distributions are made; Taxes;
Performance information
7. Purchase of Securities Being
Offered...................................................... Management of the Portfolio;
Purchase of shares
8. Redemption or Repurchase....................................... Purchase of shares; Redemption of
shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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<PAGE>
Part A - Mentor Cash Management Portfolio
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N-1A Item No. Location
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1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objective
and policies; Other investment
practices and risks
5. Management of the Fund......................................... Investment objective and policies;
Other investment practices and
risks; Management of the Portfolio;
Mentor Institutional Trust; How the
Portfolio values its shares;
Custodian and transfer and
dividend agent; Performance
information
5A. Management's Discussion
of Fund Performance.......................................... Contained in the Registrant's
Annual Report to Shareholders
6. Capital Stock and Other
Securities................................................... Management of the Portfolio;
Mentor Institutional Trust;
Purchase of shares; Dividends;
Taxes; Performance information
7. Purchase of Securities Being
Offered...................................................... Management of the Portfolio;
Purchase of shares
8. Redemption or Repurchase....................................... Purchase of shares; Redemption of
shares;
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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<PAGE>
Part A - SNAP Fund
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N-1A Item No. Location
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1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary; Financial
Highlights
4. General Description of Registrant.............................. Cover Page; Investment objective
and policies; Other investment
practices and risks
5. Management of the Fund......................................... Investment objective and policies;
Other investment practices and
risks; Management of the Fund;
Mentor Institutional Trust; How the
Fund values its shares; Custodian
and transfer and dividend agent;
Performance information
5A. Management's Discussion
of Fund Performance.......................................... Not applicable
6. Capital Stock and Other
Securities................................................... Management of the Fund; Mentor
Institutional Trust; How
distributions are made; How to
participate in the Fund; Taxes;
Performance information
7. Purchase of Securities Being
Offered...................................................... Management of the Fund; How to
participate in the Fund
8. Redemption or Repurchase....................................... How to participate in the Fund;
How to redeem shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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<PAGE>
Part B - Mentor Fixed-Income, Mentor Intermediate Duration, Mentor Cash
Management, and Mentor International Portfolios.
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N-1A Item No. Location
<S> <C> <C>
10. Cover Page.................................................... Cover Page
11. Table of Contents............................................. Cover Page
12. General Information and History............................... General
13. Investment Objectives and
Policies.................................................... Investment Restrictions; Certain
Investment Techniques
14. Management of the Fund........................................ Management of the Trust;
Investment Advisory and Other
Services; The Distributor
15. Control Persons and Principal
Holders of Securities....................................... Principal Holders of Securities
16. Investment Advisory and Other
Services.................................................... Investment Advisory and Other
Services; Management of the Trust;
Independent Accountants; Experts;
Custodian; Officers of
Commonwealth
17. Brokerage Allocation.......................................... Brokerage
18. Capital Stock and Other
Securities.................................................. Determination of Net Asset Value;
Tax Status; The Distributor;
Shareholder Liability
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Brokerage; Determination of Net
Asset Value; The Distributor
20. Tax Status.................................................... Investment Restrictions; Tax Status
21. Underwriters.................................................. The Distributor
22. Calculations of Performance Data.............................. Performance Information
</TABLE>
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<PAGE>
Part B - SNAP Fund
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<CAPTION>
N-1A Item No. Location
<S> <C> <C>
10. Cover Page.................................................... Cover Page
11. Table of Contents............................................. Cover Page
12. General Information and History............................... General
13. Investment Objectives and
Policies.................................................... Investment Restrictions
14. Management of the Fund........................................ Management of the Trust;
Investment Advisory and Other
Services
15. Control Persons and Principal
Holders of Securities....................................... Principal Holders of Securities
16. Investment Advisory and Other
Services.................................................... Investment Advisory and Other
Services; Management of the Trust;
Independent Accountants;
Custodian; Officers of
Commonwealth
17. Brokerage Allocation.......................................... Brokerage
18. Capital Stock and Other
Securities.................................................. Determination of Net Asset Value;
Tax Status; Shareholder Liability
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Brokerage; Determination of Net
Asset Value
20. Tax Status.................................................... Investment Restrictions; Tax Status
21. Underwriters.................................................. Not applicable
22. Calculations of Performance Data.............................. Performance Information
</TABLE>
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<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
PART A OF POST-EFFECTIVE AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT OF
THE REGISTRANT ON FORM N-1A (FILE NO. 33-80784) IN RESPECT OF THE MENTOR
INTERNATIONAL PORTFOLIO WHICH WAS PREVIOUSLY FILED ON SEPTEMBER 5, 1995, IS
INCORPORATED HEREIN BY REFERENCE.
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<PAGE>
P R O S P E C T U S March 11, 1996
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust offers investors an opportunity to design an
investment program by investing in one or more different investment portfolios.
The Portfolios are being offered principally to institutional and high net-worth
individual investors.
The MENTOR CASH MANAGEMENT PORTFOLIO is a "money market" fund, seeking as
high a rate of current income as Commonwealth Investment Counsel, Inc. believes
is consistent with preservation of capital and maintenance of liquidity. AN
INVESTMENT IN THAT PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The MENTOR INTERMEDIATE DURATION PORTFOLIO and MENTOR FIXED-INCOME
PORTFOLIO seek a high level of long-term total return by investing in
diversified portfolios of investment-grade, fixed-income securities.
Preservation of capital is a secondary objective to the extent consistent with a
Portfolio's primary objective of seeking a high level of long-term total return.
MENTOR INTERMEDIATE DURATION PORTFOLIO will normally maintain a portfolio
duration of from two to five years. MENTOR FIXED-INCOME PORTFOLIO will normally
maintain a portfolio duration of from four to seven years. There is no limit on
the average weighted portfolio maturity these Portfolios may maintain, and a
Portfolio's average weighted maturity will likely be longer than its portfolio
duration. Commonwealth Investment Counsel, Inc. is the investment adviser for
these Portfolios.
The MENTOR INTERNATIONAL PORTFOLIO seeks long-term capital appreciation by
investing in a diversified portfolio of equity securities of issuers outside the
United States. THIS PORTFOLIO MAY USE "LEVERAGE" -- THAT IS, IT MAY BORROW MONEY
TO PURCHASE ADDITIONAL PORTFOLIO SECURITIES, WHICH INVOLVES SPECIAL RISKS.
Mentor Perpetual Advisors, L.L.C. is the investment adviser to this Portfolio.
This Prospectus sets forth concisely the information about the Portfolios
that a prospective investor should know before investing. Please read this
Prospectus and retain it for future reference. INVESTORS CAN FIND MORE DETAILED
INFORMATION IN THE MARCH 11, 1996 STATEMENT OF ADDITIONAL INFORMATION, AS
AMENDED FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL MENTOR
DISTRIBUTORS, INC. AT 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Trust's address is P.O. Box 1357, Richmond, Virginia 23286-0109.
MENTOR DISTRIBUTORS, INC.
DISTRIBUTOR
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. The following table summarizes an investor's maximum transaction
costs from investing in the Portfolios and, except for the International
Portfolio, expenses incurred for the past fiscal year. For the International
Portfolio, the expenses reflect those that the Portfolio expects to incur in its
first full fiscal year. The Examples show the cumulative expenses attributable
to a hypothetical $1,000 investment in each Portfolio over specified periods.
SHAREHOLDER TRANSACTION EXPENSES:
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<S> <C>
Maximum Sales Load Imposed on Purchases.......................... None
Maximum Sales Load Imposed on Reinvested Dividends............... None
Deferred Sales Load.............................................. None
Redemption Fees.................................................. None
Exchange Fee..................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
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<CAPTION>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED- MENTOR
MANAGEMENT DURATION INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
Management Fees.............................................. 0.00% 0.00% 0.00% 0.00%
12b-1 Fees................................................... 0.00% 0.00% 0.00% 0.00%
Other Expenses (after voluntary expense limitation).......... 0.04%* 0.05%* 0.05%* 0.30%
Total Fund Operating Expenses................................ 0.04%* 0.05%* 0.05%* 0.30%
</TABLE>
* Other Expenses reflect a voluntary expense limitation currently in effect. In
the absence of the expense limitation, Other Expenses and Total Fund Operating
Expenses for the Portfolios' last fiscal year would have been 0.18% for the
Cash Management Portfolio, 0.25% for the Intermediate Duration Portfolio, and
0.22% for the Fixed-Income Portfolio.
EXAMPLES
An investment of $1,000 in a Portfolio would incur the following expenses,
assuming 5% annual return and redemption at the end of each period:
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<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Mentor Cash Management Portfolio................................. $1 $ 2 $ 3 $6
Mentor Intermediate Duration Portfolio........................... 1 2 3 7
Mentor Fixed-Income Portfolio.................................... 1 2 3 7
Mentor International Portfolio................................... 4 10 17 39
</TABLE>
This information is provided to help investors understand the expenses of
investing in each of the Portfolios and an investor's share of the operating
expenses of the Portfolios. The Examples should not be considered
representations of future performance; actual expenses may be more or less than
those shown.
2
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FINANCIAL HIGHLIGHTS
The financial highlights presented below have been derived from the Trust's
financial statements which were audited and reported on by KPMG Peat Marwick
LLP, the Trust's independent auditors. Their report dated December 8, 1995 on
the financial statements of the Trust for the fiscal period ended October 31,
1995 is included in the Trust's Annual Report to shareholders for the 1995
fiscal year, which is incorporated herein by reference. A copy of the Annual
Report may be obtained free of charge from the Trust. No shares of the
International Portfolio were outstanding during the period for which information
is shown.
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<CAPTION>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED-
MANAGEMENT DURATION INCOME
PORTFOLIO* PORTFOLIO** PORTFOLIO***
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................................... $ 1.00 $ 12.50 $ 12.50
Income from investment operations
Net investment income.................................................. 0.05 0.78 0.81
New realized and unrealized gain on investments........................ -- 0.74 1.14
Total from investment operations....................................... 0.05 1.52 1.95
LESS DISTRIBUTIONS
Dividends from income.................................................. (0.05) (0.71) (0.74)
NET ASSET VALUE, END OF PERIOD........................................... $ 1.00 $ 13.31 $ 13.71
TOTAL RETURN............................................................. 5.06% 12.38% 15.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................. $ 69,997 $ 11,966 $ 34,053
Ratio of expenses to average net assets.................................. 0.04%(a) 0.05%(a) 0.05%(a)
Ratio of expenses to average net assets excluding waiver................. 0.18%(a) 0.25%(a) 0.22%(a)
Ratio of net investment income to average net assets..................... 5.56%(a) 6.52%(a) 6.75%(a)
Portfolio turnover rate.................................................. -- 307% 302%
</TABLE>
(a) Annualized.
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
MENTOR CASH MANAGEMENT PORTFOLIO.
THE MENTOR CASH MANAGEMENT PORTFOLIO'S INVESTMENT OBJECTIVE IS TO SEEK AS HIGH A
RATE OF CURRENT INCOME AS COMMONWEALTH INVESTMENT COUNSEL, INC. ("COMMONWEALTH")
BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL AND MAINTENANCE OF
LIQUIDITY. The Portfolio will invest in high-quality short-term instruments
including U.S. Government securities, banker's acceptances, prime commercial
paper, fixed-income securities of corporations and other private issuers, and
money market instruments. There can, of course, be no assurance that the
Portfolio will achieve its investment objective.
The Portfolio will invest in a portfolio of high-quality short-term
instruments consisting of any or all of the following:
(Bullet) U.S. GOVERNMENT SECURITIES: securities issued or guaranteed as to
principal or interest by the U.S. Government or by any of its
agencies or instrumentalities.
(Bullet) BANKER'S ACCEPTANCES: negotiable drafts or bills of exchange,
which have been "accepted" by a domestic bank (or a foreign bank
with an agency domiciled in the United States), meaning, in
effect, that the bank has unconditionally agreed to pay the face
value of the instrument on maturity.
(Bullet) PRIME COMMERCIAL PAPER: high-quality, short-term obligations
issued by banks, corporations, and other issuers organized under
the laws of a jurisdiction within the United States.
(Bullet) OTHER SHORT-TERM OBLIGATIONS: high-quality, short-term obligations
of corporate issuers.
(Bullet) REPURCHASE AGREEMENTS: with respect to U.S. Government or agency
securities.
The Portfolio will invest only in U.S. dollar-denominated high-quality
securities and other U.S. dollar-denominated money market instruments meeting
credit criteria which the Trustees of the Trust believe present minimal credit
risk. "High-quality securities" are (i) commercial paper or other short-term
obligations rated A-1 by Standard & Poor's and P-1 by Moody's Investors Service,
Inc., and (ii) obligations rated AAA or AA by Standard & Poor's and Aaa or Aa by
Moody's at the time of investment. The Portfolio will not invest in securities
rated below A-1 or P-1 (or securities not so rated whose issuer does not have
outstanding short-term debt obligations, of comparable priority and security,
rated A-1 or P-1). The Portfolio will maintain a dollar-weighted average
maturity of 90 days or less and will not invest in securities with remaining
maturities of more than thirteen months. The Portfolio may invest in variable or
floating-rate securities which bear interest at rates subject to periodic
adjustment or which provide for periodic recovery of principal on demand. Under
certain conditions, these securities may be deemed to have remaining maturities
equal to the time remaining until the next interest adjustment date or the date
on which principal can be recovered on demand. The Portfolio will not purchase
securities of any issuer if, immediately thereafter, more than 5% of its total
assets would be invested in securities of that issuer, nor will the Portfolio
make an investment in commercial paper if, immediately thereafter, more than 35%
of its total assets would be invested in commercial paper. The Portfolio follows
investment and valuation policies designed to maintain a stable net asset value
of $1.00 per share, although there is no assurance that these policies will be
successful.
Considerations of liquidity and preservation of capital mean that the
Portfolio may not necessarily invest in money market instruments paying the
highest available yield at a particular time. Consistent with its investment
objective, the Portfolio will attempt to maximize yields by portfolio trading
and by buying and selling portfolio investments in anticipation of or in
response to changing economic and money market conditions and trends. The
Portfolio may also invest to take advantage of what Commonwealth believes to be
temporary disparities in yields
4
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of different segments of the high-quality money market or among particular
instruments within the same segment of the market. These policies, as well as
the relatively short maturity of obligations purchased by the Portfolio, may
result in frequent changes in the securities held by the Portfolio. The
Portfolio will not usually pay brokerage commissions in connection with the
purchase or sale of portfolio securities.
The Portfolio's securities will be affected by general changes in interest
rates resulting in increases or decreases in the values of the obligations held
by the Portfolio. The value of the Portfolio's securities can be expected to
vary inversely to changes in prevailing interest rates. Withdrawals by
shareholders could require the sale of portfolio investments at a time when such
a sale might not otherwise be desirable.
CONCENTRATION. The Portfolio may invest without limit in obligations of
domestic branches of U.S. banks and U.S. branches of foreign banks (if it can be
demonstrated that they are subject to the same regulations as U.S. banks). At
times when the Portfolio has concentrated its investments in bank obligations,
the value of its portfolio securities may be especially affected by factors
pertaining to the issuers of such obligations.
MENTOR INTERMEDIATE DURATION PORTFOLIO AND MENTOR FIXED-INCOME PORTFOLIO.
The investment objective of both of these Portfolios is to seek a high
level of long-term total return. Preservation of capital is a secondary
objective to the extent consistent with a Portfolio's primary objective of
seeking a high level of long-term total return. The Portfolios will invest in
U.S. Government securities, fixed-income securities of corporations and other
private issuers, mortgage-backed securities, and other asset-backed securities.
Each of the Portfolios may also hold a portion of its assets in cash or money
market instruments. There can, of course, be no assurance that the Portfolios
will achieve their investment objectives.
The INTERMEDIATE DURATION PORTFOLIO will normally maintain a portfolio
duration of from TWO TO FIVE YEARS.
The FIXED-INCOME PORTFOLIO will normally maintain a portfolio duration of
from FOUR TO SEVEN YEARS.
A Portfolio's "portfolio duration" at any time is the dollar-weighted
average duration of its portfolio securities at that time. In general, the net
asset value of a Portfolio with a longer portfolio duration will increase or
decrease to a greater degree in response to changes in interest rates than will
the net asset value of a Portfolio with a shorter portfolio duration.
(Typically, for example, the value of a security with a three-year duration will
increase by approximately three percent in response to a one-percent decline in
interest rates, and will decline by approximately three percent in response to a
one-percent rise in interest rates; similarly, the value of a security with a
seven-year duration will increase by approximately seven percent in response to
a one-percent decline in interest rates, and will decline by approximately seven
percent in response to a one-percent rise in interest rates; and so on.)
However, because issuers of securities with longer durations typically pay
interest on those securities at rates higher than in the case of securities with
shorter durations, the current income of a Portfolio with a longer portfolio
duration will typically be greater than that of a Portfolio with a shorter
portfolio duration.
Commonwealth may take full advantage of the entire range of maturities of
the securities in which a Portfolio may invest and may, through the purchase and
sale of securities with different durations, adjust each Portfolio's portfolio
duration from time to time, depending on its assessment of the relative values
of securities of different durations and maturities and expectations of future
changes in interest rates. There can be no assurance that either Portfolio will
be able to maintain any particular portfolio duration.
A Portfolio's "total return" consists of current income, including interest
payments and discount accruals, plus any increases in the values of the
Portfolio's investments (less any decreases in the values of any of its
investments and amortizations of premiums). A Portfolio may seek to increase its
total return by investing in
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<PAGE>
investment-grade securities which Commonwealth believes may appreciate in value
as a result of changes in interest rates or other market factors.
Traditionally, a debt security's "term to maturity" has been used to
evaluate the sensitivity of the security's price to changes in interest rates
(the security's interest-rate "volatility"). However, a security's term to
maturity measures only the period of time until the last payment of principal or
interest on the security, and does not take into account the timing of the
various payments of principal or interest to be made prior to the instrument's
maturity. By contrast, "duration" is a measure of the full stream of payments to
be received on a debt instrument, including both interest and principal
payments, based on their present values. Duration measures the periods of time
between the present time and the time when the various interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by their present values. Duration can be a more
accurate measure of interest rate volatility than term-to-maturity. There is no
limit on the average weighted maturity either Portfolio may maintain, and a
Portfolio's average weighted maturity will likely be longer than its portfolio
duration.
There are some situations where the standard duration calculation does not
properly reflect the interest-rate volatility of a security. For example,
floating and variable rate securities often have final maturities of ten years
or more; however, their interest-rate volatility is determined based principally
on the period of time until their interest rates are reset and on the terms on
which they may be reset. Another example where a security's interest-rate
volatility is not properly measured by the standard duration calculation is in
the case of mortgage-backed securities. The stated final maturity of such
securities may be up to 30 years, but the actual cash flow on the securities
will be determined by the prepayment rates on the underlying mortgage loans.
Therefore, the duration of such a security can change if prepayment rates
change. In these and other similar situations, Commonwealth will estimate a
security's duration using analytical techniques that take into account such
factors as the expected prepayment rate on the security and how the prepayment
rate might change under various market conditions. Because calculation of a
security's duration may be based in part on estimates such as these made by
Commonwealth, a Portfolio's ability to maintain a particular portfolio duration
will depend on Commonwealth's ability to make those estimates accurately.
The Fixed-Income Portfolio will normally invest at least 65% of its total
assets, determined at the time of investment, in fixed-income securities. A
fixed-income security is a debt security paying interest at a rate specified in
the terms of the security or determined based on a formula or factors specified
in the terms of the security.
The Portfolios will only invest in securities of investment grade. A
security will be deemed to be of "investment grade" if, at the time of
investment by a Portfolio, the security is rated at least Baa3 by Moody's or
BBB-by Standard & Poor's, or at a comparable rating by another nationally
recognized rating organization. Securities rated Baa or BBB lack outstanding
investment characteristics and have speculative characteristics and are subject
to greater credit and market risks than higher-rated securities. A Portfolio
will not be required to dispose of a security held by it if the security's
rating falls below investment grade, although Commonwealth will consider whether
continued investment in the security is consistent with the Portfolio's
investment objectives. See the Statement of Additional Information for
descriptions of securities ratings assigned by Moody's and Standard & Poor's.
Commonwealth may under unusual circumstances implement temporary
"defensive" strategies in order to reduce fluctuations in the value of a
Portfolio's assets. At those times, a Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Commonwealth considers consistent with such
defensive strategies, and may maintain a portfolio duration shorter than would
otherwise be consistent with its basic investment strategy.
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MENTOR INTERNATIONAL PORTFOLIO.
THE INTERNATIONAL PORTFOLIO'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL
APPRECIATION. The Portfolio is designed for institutional investors who believe
that investment in a diversified portfolio of securities of issuers located
outside the U.S. offers the potential for long-term capital appreciation.
The Portfolio invests in a diversified portfolio of securities of issuers
located outside the United States. The Portfolio's investments will normally
include common stocks, preferred stocks, securities convertible into common
stocks or preferred stocks, and warrants to purchase common stocks or preferred
stocks. The Portfolio may also invest to a lesser extent in debt securities and
other types of investments if Mentor Perpetual Advisors, L.L.C. ("Mentor
Perpetual") believes they would help achieve the Portfolio's objective. The
Portfolio may hold a portion of its assets in cash or money market instruments.
The Portfolio will not limit its investments to any particular type of
company. The Portfolio may invest in companies, large or small, whose earnings
are believed to be in a relatively strong growth trend, or in companies in which
significant further growth is not anticipated but whose market value per share
is thought to be undervalued.
It is likely that, at times, a substantial portion of the Portfolio's
assets will be invested in securities of issuers in emerging markets, including
under-developed and developing nations. Investments in emerging markets are
subject to the same risks applicable to foreign investments generally, although
those risks may be increased due to conditions in such markets. For example, the
securities markets and legal systems in emerging markets may only be in a
developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Portfolio may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets. The Portfolio may also invest a substantial
portion of its assets in securities traded in the over-the-counter markets and
not on any exchange, which may affect the liquidity of the investment and expose
the Portfolio to the credit risk of its counterparties in trading those
investments. See "Other investment practices -- Foreign securities."
Fixed-income securities in which the Portfolio may invest will be of
investment grade. A security will be deemed to be of "investment grade" if, at
the time of investment by the Portfolio, the security is rated at least Baa3 by
Moody's or BBB- by Standard & Poor's, or at a comparable rating by another
nationally recognized rating organization. Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative characteristics and
are subject to greater credit and market risks than higher-rated securities. The
Portfolio will not be required to dispose of a security held by it if the
security's rating falls below investment grade, although Mentor Perpetual will
consider whether continued investment in the security is consistent with the
Portfolio's investment objective. See the Statement of Additional Information
for descriptions of securities ratings assigned by Moody's and Standard &
Poor's.
Mentor Perpetual may under unusual circumstances implement temporary
"defensive" strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Mentor Perpetual considers consistent with
such defensive strategies.
The International Portfolio may invest a substantial portion of its assets
in securities issued by small companies. Such companies may offer greater
opportunities for capital appreciation than larger companies, but investments in
such companies may involve certain special risks. Such companies may have
limited product lines, markets, or financial resources and may be dependent on a
limited management group. While the markets in
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securities of such companies have grown rapidly in recent years, such securities
may trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply than those
of other securities, and the Portfolio may experience some difficulty in
establishing or closing out positions in these securities at prevailing market
prices. There may be less publicly-available information about the issuers of
these securities or less market interest in such securities than in the case of
larger companies, and it may take a longer period of time for the prices of such
securities to reflect the full value of their issuers' underlying earnings
potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of the Portfolio to dispose of such
securities may be greatly limited, and the Portfolio may have to continue to
hold such securities during periods when Mentor Perpetual would otherwise have
sold the security. It is possible that Mentor Perpetual or its affiliates or
clients may hold securities issued by the same issuers, and may in some cases
have acquired the securities at different times, on more favorable terms, or at
more favorable prices, than the Portfolio.
FOREIGN SECURITIES. Investment in foreign securities entails certain risks.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Portfolio's assets may be affected favorably or
unfavorably by currency exchange rates and exchange control regulations. There
may be less information publicly available about a foreign company than about a
U.S. company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of the Portfolio's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the value of the Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable or
unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
OTHER INVESTMENT PRACTICES AND RISKS
Each of the Portfolios (except as noted below) may engage in the other
investment practices described below. See the Statement of Additional
Information for a more detailed description of these practices and certain risks
they may involve.
MORTGAGE-BACKED SECURITIES. The Intermediate Duration and Fixed-Income
Portfolios may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including collateralized
mortgage obligations. Interest and principal payments on the mortgages
underlying mortgage-backed
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securities are passed through to the holders of the mortgage-backed securities.
Mortgage-backed securities currently offer yields higher than those available
from many other types of fixed-income securities, but because of their
prepayment aspects, their price volatility and yield characteristics will change
based on changes in prepayment rates. Generally, prepayment rates increase if
interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolios' mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-income
securities of comparable maturities, although such obligations may have a
comparable or greater risk of decline in market value during periods of rising
interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
OTHER ASSET-BACKED SECURITIES. The Intermediate Duration and Fixed-Income
Portfolios may invest in securities representing interests in other types of
financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities are subject to many of the same risks as are
mortgage-backed securities, including prepayment risks, refinancing risks, and
risks of foreclosure. They may or may not be secured by the receivables
themselves or may be unsecured obligations of their issuers.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Intermediate Duration
and Fixed-Income Portfolios may purchase securities on a "when-issued" basis.
The price of such securities is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date (normally within one month of purchase). Each of these Portfolios may
also purchase securities for future delivery. "When-issued" securities and
forward commitments may increase a Portfolio's overall investment exposure and
may result in losses.
REPURCHASE AGREEMENTS; SECURITIES LOANS. The Portfolios may enter into
repurchase agreements and (in the case of the International Portfolio)
securities loans. Under a repurchase agreement, a Portfolio purchases a debt
instrument for a relatively short period (usually not more than one week), which
the seller agrees to repurchase at a fixed time and price, representing the
Portfolio's cost plus interest. Under a securities loan, a Portfolio lends
portfolio securities. A Portfolio will enter into repurchase agreements and (in
the case of the International Portfolio) securities loans only with commercial
banks and with registered broker-dealers who are members of a national
securities exchange or market makers in government securities, and in the case
of repurchase agreements, only if the debt instrument is a U.S. Government
security. Although Commonwealth or Mentor Perpetual, as the case may be, will
monitor these transactions to ensure that they will be fully collateralized at
all times, a Portfolio bears a risk of loss if the other party defaults on its
obligation and the Portfolio is delayed or prevented from exercising its rights
to dispose of the collateral. If the other party should become involved in
bankruptcy or insolvency proceedings, it is possible that the Portfolio may be
treated as an unsecured creditor and be required to return the underlying
collateral to the other party's estate.
BORROWING AND LEVERAGE. The International Portfolio may borrow money to
invest in additional portfolio securities. This practice, known as "leverage",
increases the Portfolio's market exposure and its risk. When the
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Portfolio has borrowed money for leverage and its investments increase or
decrease in value, the Portfolio's net asset value will normally increase or
decrease more than if it had not borrowed money. The interest the Portfolio must
pay on borrowed money will reduce the amount of any potential gains or increase
any losses. The extent to which the Portfolio will borrow money, and the amount
it may borrow, depend on market conditions and interest rates. Successful use of
leverage depends on Mentor Perpetual's ability to predict market movements
correctly.
OPTIONS AND FUTURES. Each of the Portfolios (other than the Cash Management
Portfolio) may buy and sell call and put options to hedge against changes in net
asset value or to realize a greater current return. In addition, through the
purchase and sale of futures contracts and related options, these Portfolios may
at times seek to hedge against fluctuations in net asset value and, to the
extent consistent with applicable law, to increase investment return.
A Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that a
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Transactions in options and futures contracts involve brokerage costs and
may require a Portfolio to segregate assets to cover its outstanding positions.
For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolios (other than the Cash Management
Portfolio) may buy and sell index futures contracts ("index futures") and
options on index futures and on indices for hedging purposes (or may purchase
warrants whose value is based on the value from time to time of one or more
foreign securities indices). An "index future" is a contract to buy or sell
units of a particular bond or stock index at an agreed price on a specified
future date. Depending on the change in value of the index between the time when
a Portfolio enters into and terminates an index futures or option transaction,
the Portfolio realizes a gain or loss. The Portfolios (other than the Cash
Management Portfolio) may also, to the extent consistent with applicable law,
buy and sell index futures and options to increase its investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. OPTIONS AND FUTURES
TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN LOSSES. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by a Portfolio that are the subject of a hedge.
The successful use by a Portfolio of the strategies described above further
depends on the ability of its investment adviser to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close out
futures or options positions. Although a Portfolio will enter into options or
futures transactions only if its investment adviser believes that a liquid
secondary market exists for such options or futures contracts, there can be no
assurance that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price. Certain provisions of the Internal
Revenue Code may limit a Portfolio's ability to engage in options and futures
transactions.
Each Portfolio generally expects that its options transactions
will be conducted on recognized exchanges. A Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. A Portfolio's ability
to terminate options in the over-the-counter markets may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of its investment adviser, the pricing
mechanism and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations.
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A Portfolio will not purchase futures or options on futures or sell futures
if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
As a matter of policy, the Trustees will not materially change a
Portfolio's investment objective without shareholder approval. (Any such change
could, of course, result in a change in the nature of the securities in which a
Portfolio may invest and the risks involved in an investment in that Portfolio.)
MANAGEMENT
The Trustees of the Trust are responsible for generally overseeing the
conduct of the Trust's business. COMMONWEALTH INVESTMENT COUNSEL, INC., located
at 901 East Byrd Street, Richmond, Virginia 23219, acts as investment adviser to
the Cash Management, Fixed-Income, and Intermediate Duration Portfolios pursuant
to a Management Contract with the Trust. MENTOR PERPETUAL ADVISORS, L.L.C.,
located at 901 East Byrd Street, Richmond, Virginia, acts as investment adviser
to the International Portfolio pursuant to a Management Contract with the Trust.
Mentor Investment Group, Inc. ("Mentor") serves as administrator to the
Portfolios. None of Commonwealth, Mentor Perpetual, or Mentor receives
compensation from the Portfolios for the performance of such services. Mentor
has agreed to bear certain expenses of the Portfolios pursuant to a voluntary
expense limitation currently in effect. This limitation may be terminated at any
time.
Commonwealth is a wholly owned subsidiary of Mentor, which is a wholly
owned subsidiary of Wheat First Butcher Singer, Inc. ("Wheat First Butcher
Singer"). Wheat First Butcher Singer, through other subsidiaries, also engages
in securities brokerage, investment banking, and related businesses.
Commonwealth currently has assets under management of approximately $4 billion,
and serves as investment adviser to Cash Resource Trust, an open-end series
investment company, the Mentor Balanced Portfolio, the Mentor Short-Duration
Income Portfolio, SNAP Fund, and America's Utility Fund, Inc., each of which is
an open-end investment company, and Mentor Income Fund, Inc., a closed-end
investment company. All investment decisions for the Cash Management,
Fixed-Income, and Intermediate Duration Portfolios are made by investment
committees at Commonwealth which are made up of investment professionals at
Commonwealth.
Mentor Perpetual is a newly organized investment advisory firm owned
equally by Perpetual plc and Mentor. The Perpetual organization currently serves
as investment adviser for assets of more than $6 billion. It clients include 28
unit investment trusts and other public investment pools for over 150 clients,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the Mentor
Perpetual Global Portfolio, an open-end mutual fund which is a series of The
Mentor Funds. Investment decisions for the Portfolio are made by a team of
investment professionals at Mentor Perpetual. Mentor is a wholly owned
subsidiary of Wheat First Butcher Singer.
Subject to the general oversight of the Trustees, Commonwealth and Mentor
Perpetual manage their respective Portfolios in accordance with the stated
policies of each such Portfolio. Each of Commonwealth and Mentor Perpetual makes
investment decisions for its respective Portfolios and places the purchase and
sale orders for each Portfolio's portfolio transactions. In selecting
broker-dealers, Commonwealth and Mentor Perpetual may consider research and
brokerage services furnished to them and their affiliates. Subject to seeking
the best overall terms available, Commonwealth and Mentor Perpetual may consider
sales of shares of a Portfolio (and, if permitted by law, of other funds in the
Mentor family) as a factor in the selection of broker-dealers to execute
portfolio transactions for that Portfolio. Commonwealth and Mentor Perpetual may
at times cause the Portfolios to pay commissions to broker-
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dealers which are affiliated with Commonwealth or Mentor Perpetual.
PORTFOLIO TURNOVER (ALL PORTFOLIOS OTHER THAN THE CASH MANAGEMENT
PORTFOLIO). The length of time a Portfolio has held a particular security is not
generally a consideration in investment decisions. A change in the securities
held by a Portfolio is known as "portfolio turnover." As a result of each
Portfolio's investment policies, under certain market conditions a Portfolio's
portfolio turnover rate may be higher than that of other mutual funds. Portfolio
turnover generally involves some expense to a Portfolio, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Such transactions may result in
realization of taxable capital gains. Although it is impossible to predict
portfolio turnover, Mentor Perpetual expects that the annual portfolio turnover
rate for the International Portfolio for its first full fiscal year will not
exceed 200%. The portfolio turnover rate for the Fixed-Income and Intermediate
Duration Portfolios for the 1995 fiscal period is shown in the section
"Financial Highlights."
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each of the Portfolios (other than the Cash Management Portfolio)
calculates the net asset value of its shares by dividing the total value of its
assets, less liabilities, by the number of its shares outstanding. Shares are
valued as of the close of regular trading on the New York Stock Exchange each
day the Exchange is open. Portfolio securities for which market quotations are
readily available are stated at market value. Short-term investments that will
mature in 60 days or less are stated at amortized cost, which has been
determined to approximate the fair market value of such investments. All other
securities and assets are valued at their fair values.
The CASH MANAGEMENT PORTFOLIO values its shares twice each day, once at
12:00 noon and again at the close of regular trading on the Exchange. The
Portfolio's investments are valued at amortized cost according to Securities and
Exchange Commission Rule 2a-7. The Portfolio will not normally have unrealized
gains or losses so long as it values its investments by the amortized cost
method.
HOW DISTRIBUTIONS ARE MADE
The FIXED-INCOME and INTERMEDIATE DURATION PORTFOLIOS distribute net
investment income quarterly and any net realized capital gains at least
annually. The INTERNATIONAL PORTFOLIO distributes net investment income and any
net realized capital gains at least annually. Distributions from capital gains
are made after applying any available capital loss carryovers.
The CASH MANAGEMENT PORTFOLIO determines its net income as of the close of
regular trading on the New York Stock Exchange each day the Exchange is open.
Each determination of the Portfolio's net income includes (i) all accrued
interest on the Portfolio's investments, (ii) plus or minus all realized and
unrealized gains and losses on the Portfolio's investments, (iii) less all
accrued expenses of the Portfolio.
The Cash Management Portfolio declares all of its net interest income as a
distribution on each day the New York Stock Exchange is open for business, as a
dividend to shareholders of record immediately prior to the close of regular
trading on the Exchange. Shareholders who purchase shares of the Portfolio as of
12:00 noon on any day will receive the dividend declared by the Portfolio for
that day; shareholders who purchase shares after 12:00 noon will begin earning
dividends on the day after the Portfolio accepts their order. The Portfolio's
net income for Saturdays, Sundays, and holidays is declared as a dividend on the
preceding business day. Dividends for the immediately preceding month will be
paid on the last business day of each calendar month (or, if that day is not a
business day, on the next business day), except that the Portfolio's schedule
for payment of dividends during the month of December may be adjusted to assist
in tax reporting and distribution requirements. A shareholder that
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withdraws the entire balance of an account at any time during the month will be
paid all dividends declared through the date immediately prior to the
withdrawal. Since the net income of the Portfolio is declared as a dividend each
day, the net asset value per share of the Portfolio normally remains at $1 per
share immediately after each determination and dividend declaration.
All Portfolio distributions will be invested in additional Portfolio
shares, unless the shareholder instructs a Portfolio otherwise.
TAXES
Each of the Portfolios intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other requirements that
are necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolios will distribute substantially all of
their net investment income and capital gain net income on a current basis.
THE FOLLOWING IS INTENDED PRINCIPALLY FOR SHAREHOLDERS SUBJECT TO FEDERAL
INCOME TAXATION:
All Portfolio distributions, other than exempt-interest dividends, will be
taxable to shareholders as ordinary income, except that any distributions of net
capital gain will be taxed as long-term capital gain, regardless of how long a
shareholder has held the shares (although the loss on a sale of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain distribution received with respect to those shares).
Distributions will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions. Early in each year the Trust
will notify shareholders of the amount and tax status of distributions paid by a
Portfolio for the preceding year. In buying or selling securities for a
Portfolio, an investment adviser will not normally take into account the effect
any purchase or sale of securities will have on the tax positions of the
Portfolio's shareholders.
The foregoing is a summary of certain federal income tax consequences of
investing in a Portfolio. Dividends and distributions also may be subject to
state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of a 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).
PURCHASE OF SHARES
Shares of the FIXED-INCOME, INTERMEDIATE DURATION, and INTERNATIONAL
PORTFOLIOS are sold at the net asset value next determined after a purchase
order is received by a Portfolio. Purchase orders that are received prior to the
close of trading on the New York Stock Exchange on a particular day are priced
according to the net asset value determined on that day.
The CASH MANAGEMENT PORTFOLIO offers its shares continuously at a price of
$1.00 per share. Because the Portfolio seeks to be fully invested at all times,
investments must be in Same Day Funds to be accepted. "Same Day Funds" are funds
credited by the applicable regional Federal Reserve Bank to the account of the
Portfolio at its designated bank.
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Mentor Distributors, Inc. ("Mentor Distributors"), 901 East Byrd Street,
Richmond, Virginia 23219, serves as distributor of the Portfolios' shares.
Mentor Distributors is not obligated to sell any specific amount of shares of
any of the Portfolios.
An investor may make an initial purchase of shares of any of the Portfolios
by submitting a completed application along with its purchase order, and by
making payment to Mentor Distributors. Investors will be required to make
minimum initial investments of $500,000 in the Portfolios and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolios reserve the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolios may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to a Portfolio's investment adviser, or (iii) a
combination of such securities and cash. Purchase of shares of a Portfolio in
exchange for securities is subject in each case to the determination by the
Portfolio's investment adviser that the securities to be exchanged are
acceptable for purchase by the Portfolio. Securities accepted by a Portfolio's
investment adviser in exchange for shares will be valued in the same manner as
the Portfolio's assets as of the time of the Portfolio's next determination of
net asset value after such acceptance. All dividends and subscription or other
rights which are reflected in the market price of accepted securities at the
time of valuation become the property of the Portfolio and must be delivered to
the Portfolio upon receipt by the investor from the issuer. A gain or loss for
federal income tax purposes would be realized upon the exchange by an investor
that is subject to federal income taxation, depending upon the investor's basis
in the securities tendered. A shareholder who wishes to purchase shares by
exchanging securities should obtain instructions by calling Mentor Distributors
at 1-800-869-6042.
In all cases Commonwealth, Mentor Perpetual, or Mentor Distributors
reserves the right to reject any investment.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of its shares in a Portfolio at
any time upon request, by following the procedures set forth below. Redemptions
will be effected at the net asset value per share of a Portfolio next determined
after the receipt by the Portfolio of redemption instructions in "good order" as
described below. Shares may be redeemed by submitting a written request for
redemption to Mentor Distributors, or to the Trust at the following address:
Mentor Institutional Trust
P.O. Box 1357
Richmond, Virginia 23286-0109
Upon receipt of a request in "good order," the Trust will determine the
amount of the net asset value of the redeemed shares, based upon the net asset
value of the Portfolio next determined after the redemption request has been
received. A check for the proceeds will normally be mailed on the next business
day.
If shares of a Portfolio to be redeemed represent an investment made by
check, the Trust reserves the right not to transmit the redemption proceeds to
the shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
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A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed, and identifies the shareholder's Portfolio account number;
(2) the request is signed by each registered owner exactly as the shares
are registered; and
(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed for transfer (or are accompanied by an
endorsed stock power) and accompany the redemption request.
Each Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, a
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, each Portfolio reserves
the right, if conditions exist which make cash payments undesirable, to honor
any request for redemption by making payment in whole or in part by securities
valued in the same way as they would be valued for purposes of computing the
Portfolio's per share net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting those securities into
cash.
EXCHANGE PRIVILEGE. Shareholders may exchange their shares in a Portfolio
for shares of any other Portfolio offered by this Prospectus at their respective
net asset values beginning 15 days after purchase. Shares of certain of the
Portfolios are not available in all states. To exchange shares, simply complete
an exchange authorization form and send it to Mentor Distributors. Exchange
authorization forms are available from the Trust and from Mentor Distributors.
The Trust reserves the right to change or suspend the exchange privilege at any
time. Shareholders would be notified before any such change or suspension.
Consult Mentor Distributors before requesting an exchange.
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust is a Massachusetts business trust organized on
February 8, 1994 as IMG Institutional Trust. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into five
series, four of which are being offered by this Prospectus. Each share has one
vote, with fractional shares voting proportionally. Shares of each class will
vote together as a single class except when required by law or determined by the
Trustees. Shares of the Portfolios are freely transferable, are entitled to
dividends as declared by the Trustees, and, if a Portfolio were liquidated,
would receive the net assets of the Portfolio. The Trust may suspend the sale of
shares at any time and may
15
<PAGE>
refuse any order to purchase shares. Although the Trust and the Portfolios are
not required to hold annual meetings of its shareholders, shareholders have the
right to call a meeting to elect or remove Trustees, or to take other actions as
provided in the Agreement and Declaration of Trust.
In the interest of economy and convenience, a Portfolio will not issue
certificates for its shares except at the shareholder's request.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolios' custodian. State Street Bank and Trust
Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive, North
Quincy, Massachusettes 02171, serves as the Portfolios' transfer and dividend
agent.
PERFORMANCE INFORMATION
The INTERMEDIATE DURATION PORTFOLIO, FIXED-INCOME PORTFOLIO, and
INTERNATIONAL PORTFOLIO. Yield and total return data may from time to time be
included in advertisements about the Portfolios. Each Portfolio's "yield" is
calculated by dividing the Portfolio's annualized net investment income per
share during a recent 30-day period by its net asset value on the last day of
that period. "Total return" for the one-, five-, and ten-year periods (or for
the life of a Portfolio, if shorter) through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the Portfolio over the period.
The CASH MANAGEMENT PORTFOLIO. The Portfolio's yield may from time to time
be included in advertisements about the Portfolio. The Portfolio's "yield" is
calculated 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 the value of the investment
during the base period, raising that sum to a power equal to 365/7, and
subtracting 1 from the result.
A Portfolio's performance may be compared to various indices. See the
Statement of Additional Information. Information may be presented in
advertisements about the Portfolios describing the background and professional
experience of the Portfolios' investment adviser or its investment personnel.
All data is based on each Portfolio's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Portfolio's
investments, and that Portfolio's operating expenses. Investment performance
also often reflects the risks associated with a Portfolio's investment
objectives and policies. These factors should be considered when comparing a
Portfolio's investment results to those of other mutual funds and other
investment vehicles.
16
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE. THIS PROSPECTUS OMITS CERTAIN INFORMATION CONTAINED IN THE
REGISTRATION STATEMENT, TO WHICH REFERENCE IS MADE, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. ITEMS WHICH ARE THUS OMITTED, INCLUDING CONTRACTS AND
OTHER DOCUMENTS REFERRED TO OR SUMMARIZED HEREIN, MAY BE OBTAINED FROM THE
COMMISSION UPON PAYMENT OF THE PRESCRIBED FEES.
ADDITIONAL INFORMATION CONCERNING THE SECURITIES OFFERED HEREBY AND THE
TRUST IS TO BE FOUND IN THE REGISTRATION STATEMENT, INCLUDING VARIOUS EXHIBITS
THERETO AND FINANCIAL STATEMENTS INCLUDED OR INCORPORATED THEREIN, WHICH MAY BE
INSPECTED AT THE OFFICE OF THE COMMISSION.
MENTOR
INSTITUTIONAL
TRUST
PROSPECTUS
MENTOR DISTRIBUTORS, INC.
<PAGE>
PROSPECTUS March 11, 1996
MENTOR FIXED-INCOME PORTFOLIO
MENTOR FIXED-INCOME PORTFOLIO seeks a high level of long-term total
return by investing in a diversified portfolio of investment-grade, fixed-income
securities of varying maturities with a portfolio duration of from four to seven
years. As a secondary objective, the Portfolio seeks to preserve capital to the
extent consistent with seeking a high level of long-term total return. There is
no limit on the average weighted maturity the Portfolio may maintain, and the
Portfolio's average weighted maturity will likely be no longer than its
portfolio duration. Commonwealth Investment Counsel, Inc. is the Portfolio's
investment adviser. Shares of the Portfolio are being offered principally to
institutions and high net-worth individual investors.
This Prospectus sets forth concisely the information about the
Portfolio that a prospective investor should know before investing. Please read
this Prospectus and retain it for future reference. INVESTORS CAN FIND MORE
DETAILED INFORMATION IN THE MARCH 11, 1996 STATEMENT OF ADDITIONAL INFORMATION,
AS AMENDED FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL MENTOR
DISTRIBUTORS, INC. AT 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Portfolio's address is P.O. Box 1357, Richmond, Virginia
23286-0109.
-------------------------
MENTOR DISTRIBUTORS, INC.
DISTRIBUTOR
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. The following table summarizes an investor's maximum transaction
costs from investing in the Portfolio and expenses the Portfolio incurred for
the past fiscal year. The Example shows the cumulative expenses attributable to
a hypothetical $1,000 investment in the Portfolio over specified periods.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.00%
12b-1 Fees 0.00%
Other Expenses (after voluntary
expense limitation)* 0.05%
Total Fund Operating Expenses* 0.05%
- --------------------
*Other Expenses reflect a voluntary expense limitation currently in effect.
In the absence of the expense limitation, Other Expenses and Total Fund
Operating Expenses would have been 0.22%.
EXAMPLE
An investment of $1,000 in the Portfolio would incur the following
expenses, assuming 5% annual return and redemption at the end of each period:
1 year $1
3 years $2
5 years $3
10 years $7
This information is provided to help investors understand the expenses of
investing in the Portfolio and an investor's share of the estimated operating
expenses of the Portfolio. The Example should not be considered a representation
of future performance; actual expenses may be more or less than those shown.
FINANCIAL HIGHLIGHTS
The financial highlights presented below have been derived from the
financial statements of Mentor Institutional Trust (the "Trust"), which were
audited and reported on by KPMG Peat Marwick LLP, the Trust's independent
auditors. Their report dated December 8, 1995 on the financial statements of
the Trust for the fiscal period ended October 31, 1995 is included in the
Trust's Annual Report for the 1995 fiscal year, which is incorporated herein
by reference. A copy of the Annual Report may be obtained free of charge from
the Trust. No shares of the International Portfolio were outstanding during the
period for which information is shown.
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<PAGE>
<TABLE>
<CAPTION>
Mentor
Fixed
Income
Portfolio*
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $ 12.50
Income from investment operations
Net investment income................................................. 0.81
Net realized and unrealized gain on investments....................... 1.14
Total from investment operations...................................... 1.95
LESS DISTRIBUTIONS
Dividends from income................................................. (0.74)
Net asset value, end of period............................................. $ 13.71
Total Return............................................................... 15.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................... $ 34,053
Ratio of expenses to average net assets.................................... 0.05%(a)
Ratio of expenses of average net assets excluding waiver 0.22%(a)
Ratio of net investment income to average net assets 6.75%(a)
Portfolio turnover rate.................................................... 302%
</TABLE>
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(a) Annualized.
* For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVE OF MENTOR FIXED-INCOME PORTFOLIO IS TO SEEK A HIGH
LEVEL OF LONG-TERM TOTAL RETURN. Preservation of capital is a secondary
objective to the extent consistent with the Portfolio's primary objective of
seeking a high level of long-term total return. The Portfolio will invest in
U.S. Government securities, fixed-income securities of corporations and other
private issuers, mortgage-backed securities, and other asset-backed securities.
The Portfolio may also hold a portion of its assets in cash or money market
instruments. There can, of course, be no assurance that the Portfolio will
achieve its investment objectives. The Portfolio is a series of Mentor
Institutional Trust, and is an open-end, diversified, management investment
company.
The Portfolio will normally maintain a portfolio duration of from four to
seven years. The Portfolio's "portfolio duration" at any time is the
dollar-weighted average duration of its portfolio securities at that time. In
general, the net asset value of a portfolio with a longer portfolio duration
will increase or decrease to a greater degree in response to changes in interest
rates than will the net asset value of a portfolio with a shorter portfolio
duration. (Typically, for example, the value of a security with a four-year
duration will increase by approximately four percent in response to a
one-percent decline in interest rates, and will decline by approximately four
percent in response to a one-percent rise in interest rates; similarly, the
value of a security with a seven-year duration will increase by approximately
seven percent in response to a one-percent decline in interest rates, and will
decline by approximately seven percent in response to a one-percent rise in
interest rates; and so on.) However, because issuers of securities with longer
durations typically pay interest on those securities at rates higher than in the
case of securities with shorter durations, the current income of a portfolio
with a longer portfolio duration will typically be greater than that of a
portfolio with a shorter portfolio duration.
Commonwealth Investment Counsel, Inc., the Portfolio's investment adviser
("Commonwealth"), may take full advantage of the entire range of maturities of
the securities in which the Portfolio may invest and may, through the purchase
and sale of securities with different durations, adjust the Portfolio's
portfolio duration from time to time, depending on its assessment of the
relative values of securities of different durations and maturities and
expectations of future changes in interest rates. There can be no assurance that
the Portfolio will be able to maintain any particular portfolio duration.
The Portfolio's "total return" consists of current income, including
interest payments and discount accruals, plus any increases in the values of the
Portfolio's investments (less any decreases in the values of any of its
investments and amortizations of premiums). The Portfolio may seek to increase
its total return by investing in investment-grade securities which Commonwealth
believes may appreciate in value as a result of changes in interest rates or
other market factors.
Traditionally, a debt security's "term to maturity" has been used to
evaluate the sensitivity of the security's price to changes in interest rates
(the security's interest-rate "volatility"). However, a security's term to
maturity measures only the period of time until the last payment of principal or
interest on the security, and does not take into account the timing of the
various payments of principal or interest to be made prior to the instrument's
maturity. By contrast, "duration" is a measure of the full stream of payments to
be received on a debt instrument, including both interest and principal
payments, based on their present values. Duration measures the periods of time
between the present time and the time when the various interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by their present values. Duration can be a more
accurate measure of interest rate volatility than term-to-maturity. There is no
limit on the average weighted maturity the Portfolio may maintain, and the
Portfolio's average weighted maturity will likely be longer than its portfolio
duration.
There are some situations where the standard duration calculation does not
properly reflect the interest-rate volatility of a security. For example,
floating and variable rate securities often have final maturities of ten years
or more; however, their interest-rate volatility is determined based principally
on the period of time until their
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<PAGE>
interest rates are reset and on the terms on which they may be reset. Another
example where a security's interest-rate volatility is not properly measured by
the standard duration calculation is in the case of mortgage-backed
securities. The stated final maturity of such securities may be up to 30
years, but the actual cash flow on the securities will be determined by the
prepayment rates on the underlying mortgage loans. Therefore, the duration of
such a security can change if prepayment rates change. In these and other
similar situations, Commonwealth will estimate a security's duration using
analytical techniques that take into account such factors as the expected
prepayment rate on the security and how the prepayment rate might change
under various market conditions. Because calculation of a security's duration
may be based in part on estimates such as these made by Commonwealth, the
Portfolio's ability to maintain a particular portfolio duration will depend
on Commonwealth's ability to make those estimates accurately.
The Portfolio will normally invest at least 65% of its total assets,
determined at the time of investment, in fixed-income securities. A fixed-income
security is a debt security paying interest at a rate specified in the terms of
the security or determined based on a formula or factors specified in the terms
of the security.
The Portfolio will only invest in securities of investment grade. A
security will be deemed to be of "investment grade" if, at the time of
investment by the Portfolio, the security is rated at least Baa3 by Moody's
Investors Service, Inc. or BBB- by Standard & Poor's Corporation, or at a
comparable rating by another nationally recognized rating organization.
Securities rated Baa or BBB lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market risks
than higher-rated securities. The Portfolio will not be required to dispose of a
security held by it if the security's rating falls below investment grade,
although Commonwealth will consider whether continued investment in the security
is consistent with the Portfolio's investment objectives. See the Statement of
Additional Information for descriptions of securities ratings assigned by
Moody's and Standard & Poor's.
Commonwealth may under unusual circumstances implement temporary
"defensive" strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Commonwealth considers consistent with such
defensive strategies, and may maintain a portfolio duration shorter than would
otherwise be consistent with its basic investment strategy.
OTHER INVESTMENT PRACTICES AND RISKS
The Portfolio may engage in the other investment practices described below.
See the Statement of Additional Information for a more detailed description of
these practices and certain risks they may involve.
MORTGAGE-BACKED SECURITIES. The Portfolio may invest in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Interest and principal
payments on the mortgages underlying mortgage-backed securities are passed
through to the holders of the mortgage-backed securities. Mortgage-backed
securities currently offer yields higher than those available from many other
types of fixed-income securities but because of their prepayment aspects, their
price volatility and yield characteristics will change based on changes in
prepayment rates. Generally, prepayment rates increase if interest rates fall
and decrease if interest rates rise. For many types of mortgage-backed
securities, this can result in unfavorable changes in price and yield
characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolio's mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-income
securities of comparable maturities, although such obligations may have a
comparable or greater risk of decline in market value during periods of rising
interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity
-5-
<PAGE>
when the entire principal amount comes due, payments on these securities include
both interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
OTHER ASSET-BACKED SECURITIES. The Portfolio may invest in securities
representing interests in other types of financial assets, such as
automobile-finance receivables or credit-card receivables. Such securities are
subject to many of the same risks as are mortgage-backed securities, including
prepayment risks, refinancing risks, and risks of foreclosure. They may or may
not be secured by the receivables themselves or may be unsecured obligations of
their issuers.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "whenissued" basis. The price of such securities is fixed at the
time the commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date (normally within one month of
purchase). The Portfolio may also purchase securities for future delivery.
"When-issued" securities and forward commitments may increase the Portfolio's
overall investment exposure and may result in losses.
OPTIONS AND FUTURES. The Portfolio may buy and sell call and put options to
hedge against changes in net asset value or to realize a greater current return.
In addition, through the purchase and sale of futures contracts and related
options, the Portfolio may at times seek to hedge against fluctuations in net
asset value and, to the extent consistent with applicable law, to increase its
investment return.
The Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Transactions in options and futures contracts involve brokerage costs and
may require the Portfolio to segregate assets to cover its outstanding
positions. For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index futures"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
futures or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to incerase its investment return.
RISKS REALTED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by the Portfolio that are the subject of a
hedge. The successful use by the Portfolio of the strategies described above
further depends on the ability of Commonwealth to forecast market movements
correctly. Other risks arise from the Portfolio's potential inability to close
out futures or options positions. Although the portfolio will enter into options
or futures transactions only if Commonwealth believes that a liquid secondary
market exists for such options or futures contracts, there can be no assurance
that the Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price. Certain provisions of the Internal Revenue Code
may limit the Portfolio's ability to engage in options and futures transactions.
The Portfolio generally expects that its options transactions
will be conducted on recognized exchanges. The Portfolio may in certain
instances purchase and sell options in the over-the-counter markets. The
Portoflio's ability to terminate options in the over-the-counter markets may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of Commonwealth, the pricing mechanism
and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations.
The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements.
Under a repurchase agreement, the Portfolio purchases a debt instrument for a
relatively short period (usually not more than one week), which the seller
agrees to repurchase at a fixed time and price, representing the Portfolio's
cost plus interest. The Portfolio will enter into repurchase agreements only
with commercial banks and with registered broker-dealers who are members of a
national securities exchange or market makers in government securities, and only
if the debt instrument subject to the repurchase agreement is a U.S. Government
security. Although Commonwealth will monitor repurchase agreement transactions
to ensure that they will be fully collateralized at all times, the Portfolio
bears a risk of loss if the other party defaults on its obligation and the
Portfolio is delayed or prevented from exercising its rights to dispose of the
collateral. If the other party should become involved in bankruptcy or
insolvency proceedings, it is possible that the Portfolio may be treated as an
unsecured creditor and be required to return the underlying collateral to the
other party's estate.
As a matter of policy, the Trustees will not materially change the
Portfolio's investment objectives without shareholder approval. (Any such change
could, of course, result in a change in the nature of the securities in which
the Portfolio may invest and the risks involved in an investment in the
Portfolio.)
MANAGEMENT OF THE PORTFOLIO
The Trustees of the Trust are responsible for generally overseeing the
conduct of the Trust's business. COMMONWEALTH INVESTMENT COUNSEL, INC., located
at 901 East Byrd Street, Richmond, Virginia 23219, acts as investment adviser to
the Portfolio pursuant to a Management Contract between the Trust and
Commonwealth. MENTOR INVESTMENT GROUP, INC. ("Mentor") serves as administrator
to the Portfolio. Neither Commonwealth nor Mentor receives compensation from the
Portfolio for the performance of such services. Mentor has agreed to bear
certain expenses of the Portfolio pursuant to a voluntary expense limitation
currently in effect. This limitation may be terminated at any time. Commonwealth
is a wholly owned subsidiary of Mentor, which is a wholly owned subsidiary of
Wheat First Butcher Singer, Inc. ("Wheat First Butcher Singer"). Wheat First
Butcher Singer, through other subsidiaries, also engages in securities
brokerage, investment banking, and related businesses. Commonwealth currently
has assets under management of approximately $4 billion, and serves as
investment adviser to Cash Resource Trust, an open-end series investment
company, Mentor Balanced Portfolio, Mentor Quality Income Portfolio, Mentor
Short-Duration Income Portfolio, SNAP Fund, and America's Utility Fund, Inc.,
each of which is an open-end investment company, and Mentor Income Fund,
Inc., a closed-end investment company.
Subject to the general oversight of the Trustees, Commonwealth, as
investment adviser, manages the Portfolio in accordance with the stated policies
of the Portfolio. All investment decisions for the Portfolio are made by an
investment committee at Commonwealth which is made up of investment
professionals of that firm.
Commonwealth makes investment decisions for the Portfolio and places the
purchase and sale orders for the Portfolio's portfolio transactions. In
selecting broker-dealers, Commonwealth may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking the best overall
terms available, Commonwealth may consider sales of shares of the Portfolio
(and, if permitted by law, of other portfolios in the Mentor family) as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Portfolio.
PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by the Portfolio is known as "portfolio turnover." As a
result of the Portfolio's investment policies, under certain market conditions
the Portfolio's portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to the Portfolio,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The portfolio
turnover rate for the fiscal period ended October 31, 1995 for the Portfolio
is contained in the section "Financial Highlights."
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolio calculates the net asset value of its shares by dividing the
total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values.
HOW DISTRIBUTIONS ARE MADE
The Portfolio distributes net investment income quarterly and any net
realized capital gains at least annually. Distributions from capital gains are
made after applying any available capital loss carryovers. All Portfolio
distributions will be invested in additional Portfolio shares, unless the
shareholder instructs the Portfolio otherwise.
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<PAGE>
TAXES
The Portfolio intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolio will distribute substantially all of
its net investment income and capital gain net income on a current basis.
The following is intended principally for shareholders subject to federal
income taxation:
All Portfolio distributions, other than exempt-interest dividends, will be
taxable to shareholders as ordinary income, except that any distributions of net
capital gain will be taxed as long-term capital gain, regardless of how long a
shareholder has held the shares (although the loss on a sale of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain distribution received with respect to those shares).
Distributions will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions. Early in each year the Trust
will notify shareholders of the amount and tax status of distributions paid by
the Portfolio for the preceding year. In buying or selling securities for the
Portfolio, Commonwealth will not normally take into account the effect any
purchase or sale of securities will have on the tax positions of the Portfolio's
shareholders.
The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends and distributions also may be subject to
state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the 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).
PURCHASE OF SHARES
Shares of the Portfolio are sold at the net asset value next determined
after a purchase order is received by the Portfolio. Purchase orders that are
received prior to the close of trading on the New York Stock Exchange on a
particular day are priced according to the net asset value determined on that
day.
Mentor Distributors, Inc. ("Mentor Distributors"), 901 East Byrd Street,
Richmond, Virginia 23219, serves as distributor of the Portfolio's shares.
Mentor Distributors is not obligated to sell any specific amount of shares of
the Portfolio.
An investor may make an initial purchase of shares of the Portfolio by
submitting a completed Trust application along with a purchase order, and by
making payment to Mentor Distributors. Investors will be required to make
minimum initial investments of $500,000 in the Portfolio and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolio reserves the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Commonwealth, or (iii) a combination of such
securities and cash. Purchase of shares of the Portfolio in exchange for
securities is subject in each case to the determination by Commonwealth that the
securities to be exchanged are acceptable for purchase by the Portfolio.
Securities accepted by Commonwealth in exchange for Portfolio shares will be
valued in the same manner as the Portfolio's assets as of the time of the
Portfolio's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Portfolio
-8-
<PAGE>
and must be delivered to the Portfolio upon receipt by the investor from the
issuer. A gain or loss for federal income tax purposes would be realized upon
the exchange by an investor that is subject to federal income taxation,
depending upon the investor's basis in the securities tendered. A shareholder
who wishes to purchase shares by exchanging securities should obtain
instructions by calling Mentor Distributors at 1-800-869-6042.
In all cases Commonwealth or Mentor Distributors reserves the right to
reject any particular investment.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of its shares in the Portfolio
at any time upon request, by following the procedures set forth below.
Redemptions will be effected at the net asset value per share of the Portfolio
next determined after the receipt by the Portfolio of redemption instructions in
"good order" as described below. Shares may be redeemed by submitting a written
request for redemption to Mentor Distributors, or to the Trust at the following
address:
Mentor Institutional Trust
P.O. Box 1357
Richmond, Virginia 23286-0109
Upon receipt of a request in "good order," the Trust will determine the
amount of the net asset value of the redeemed shares, based upon the net asset
value of the Portfolio next determined after the redemption request has been
received. A check for the proceeds will normally be mailed on the next business
day.
If shares of the Portfolio to be redeemed represent an investment made by
check, the Trust reserves the right not to transmit the redemption proceeds to
the shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed, and identifies the shareholder's Portfolio account
number;
(2) the request is signed by each registered owner exactly as
the shares are registered; and
(3) if the shares to be redeemed were issued in certificate
form, the certificates are endorsed for transfer (or are
accompanied by an endorsed stock power) and accompany the
redemption request.
The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect Portfolio shareholders against the possibility of fraud.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, the
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, the Portfolio reserves the
right, if conditions exist which make cash payments undesirable, to honor any
request for redemption by making payment in whole or in part by securities
valued in the same way as they would be
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<PAGE>
valued for purposes of computing the Portfolio's per share net asset value. If
payment is made in securities, a shareholder may incur brokerage expenses in
converting those securities into cash.
EXCHANGE PRIVILEGE. Shareholders may exchange their shares in the Portfolio
for shares of certain other Portfolios comprising the Trust at their respective
net asset values beginning 15 days after purchase. Contact Mentor Distributors
for a prospectus of any of those Portfolios. Shares of certain of the Portfolios
are not available in all states. To exchange shares, simply complete an exchange
authorization form and send it to Mentor Distributors. Exchange authorization
forms are available from the Trust and from Mentor Distributors. The Trust
reserves the right to change or suspend the exchange privilege at any time.
Shareholders would be notified before any such change or suspension. Consult
Mentor Distributors before requesting an exchange.
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust is a Massachusetts business trust organized on
February 8, 1994 as IMG Institutional Trust. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into five
series, one representing the Portfolio, the others representing other Portfolios
with varying investment objectives and policies. Each share has one vote, with
fractional shares voting proportionally. Shares of each class will vote together
as a single class except when required by law or determined by the Trustees.
Shares of the Portfolio are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Portfolio were liquidated, would receive
the net assets of the Portfolio. The Trust may suspend the sale of shares at any
time and may refuse any order to purchase shares. Although the Portfolio
and the Trust are not required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees, or
to take other actions as provided in the Agreement and Declaration of Trust.
In the interest of economy and convenience, the Portfolio will not issue
certificates for its shares except at the shareholder's request.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. State Street Bank and
Trust Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive,
North Quincy, Massachusetts, 02171, serves as the Portfolio's transfer and
dividend agent.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Portfolio. The Portfolio's "yield" is calculated by
dividing the Portfolio's annualized net investment income per share during a
recent 30-day period by its net asset value on the last day of that period.
"Total return" for the one-, five- and ten-year periods (or for the life of the
Portfolio, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in the
Portfolio over the period. The Portfolio's performance may be compared to
various indices. See the Statement of Additional Information. Information may be
presented in advertisements about the Portfolio describing the background and
professional experience of the Portfolio's investment adviser or its investment
personnel.
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<PAGE>
All data is based on the Portfolio's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Portfolio's
investments, and the Portfolio's operating expenses. Investment performance also
often reflects the risks associated with the Portfolio's investment objectives
and policies. These factors should be considered when comparing the Portfolio's
investment results to those of other mutual funds and other investment vehicles.
-11-
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Portfolio. This Prospectus does not constitute an
offer in any State in which, or to any person to whom, such offering may not
lawfully be made. This Prospectus omits certain information contained in the
Registration Statement, to which reference is made, filed with the Securities
and Exchange Commission. Items which are thus omitted, including contracts and
other documents referred to or summarized herein, may be obtained from the
Commission upon payment of the prescribed fees.
Additional information concerning the securities offered hereby and the
Portfolio is to be found in the Registration Statement, including various
exhibits thereto and financial statements included or incorporated therein,
which may be inspected at the office of the Commission.
MENTOR
FIXED-INCOME
PORTFOLIO
----------
PROSPECTUS
----------
Mentor Distributors, Inc.
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<PAGE>
PROSPECTUS March 11, 1996
MENTOR INTERMEDIATE DURATION PORTFOLIO
MENTOR INTERMEDIATE DURATION PORTFOLIO seeks a high level of long-term
total return by investing in a diversified portfolio of investment-grade,
fixed-income securities, with a portfolio duration of from two to five years. As
a secondary objective, the Portfolio seeks to preserve capital to the extent
consistent with seeking a high level of long-term total return. There is no
limitation on the average weighted portfolio maturity the Portfolio may
maintain, and the Portfolio's average weighted maturity will likely be longer
than its portfolio duration. Commonwealth Investment Counsel, Inc. is the
Portfolio's investment adviser. Shares of the Portfolio are being offered
principally to institutional and high net-worth individual investors.
This Prospectus sets forth concisely the information about the
Portfolio that a prospective investor should know before investing. Please read
this Prospectus and retain it for future reference. INVESTORS CAN FIND MORE
DETAILED INFORMATION IN THE MARCH 11, 1996 STATEMENT OF ADDITIONAL INFORMATION,
AS AMENDED FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL MENTOR
DISTRIBUTORS, INC. AT 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Portfolio's address is P.O. Box 1357, Richmond, Virginia
23286-0109.
-------------------------
MENTOR DISTRIBUTORS, INC.
DISTRIBUTOR
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. The following table summarizes an investor's maximum transaction
costs from investing in the Portfolio and expenses the Portfolio incurred for
the past fiscal year. The Example shows the cumulative expenses attributable to
a hypothetical $1,000 investment in the Portfolio over specified periods.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.00%
12b-1 Fees 0.00%
Other Expenses (after voluntary
expense limitation)* 0.05%
Total Fund Operating Expenses* 0.05%
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*Other Expenses reflect a voluntary expense limitation currently in effect.
In the absence of the expense limitation, Other Expenses and Total Fund
Operating Expenses would have been 0.25%.
EXAMPLE
An investment of $1,000 in the Portfolio would incur the following
expenses, assuming 5% annual return and redemption at the end of each period:
1 year $1
3 years $2
This information is provided to help investors understand the expenses of
investing in the Portfolio and an investor's share of the estimated operating
expenses of the Portfolio. The Example should not be considered a representation
of future performance; actual expenses may be more or less than those shown.
FINANCIAL HIGHLIGHTS
The financial highlights presented below have been audited and reported on
by KPMG Peat Marwick LLP, the independent auditors for Mentor Institutional
Trust (the "Trust"). Their report dated December 8, 1995 on the financial
statements of the Trust for the fiscal period ended October 31, 1995 is included
in the Trust's Annual Report for the 1995 fiscal year which is incorporated
herein by reference. A copy of the Annual Report may be obtained free of
charge from the Trust. No shares of the International Portfolio were
outstanding during the period for which information is shown.
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<PAGE>
<TABLE>
<CAPTION>
Mentor
Intermediate
Duration
Portfolio*
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $ 12.50
Income from investment operations
Net investment income................................................. 0.78
Net realized and unrealized gain on investments....................... 0.74
Total from investment operations...................................... 1.52
LESS DISTRIBUTIONS
Dividends from income................................................. (0.71)
Net asset value, end of period............................................. $ 13.31
Total Return............................................................... 12.38%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................... $11,966
Ratio of expenses to average net assets.................................... 0.05%(a)
Ratio of expenses of average net assets excluding waiver 0.25%(a)
Ratio of net investment income to average net assets 6.52%(a)
Portfolio turnover rate.................................................... 307%
</TABLE>
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(a) Annualized.
* For the period from December 19, 1994 (commencement of operations) to October
31, 1995.
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVE OF MENTOR INTERMEDIATE DURATION PORTFOLIO IS TO
SEEK A HIGH LEVEL OF LONG-TERM TOTAL RETURN. Preservation of capital is a
secondary objective to the extent consistent with the Portfolio's primary
objective of seeking a high level of long-term total return. The Portfolio will
invest in U.S. Government securities, fixed-income securities of corporations
and other private issuers, mortgage-backed securities, and other asset-backed
securities. The Portfolio may also hold a portion of its assets in cash or money
market instruments. There can, of course, be no assurance that the Portfolio
will achieve its investment objectives. The Portfolio is a series of Mentor
Institutional Trust, and is an open-end, diversified, management investment
company.
The Portfolio will normally maintain a portfolio duration of from two to
five years. The Portfolio's "portfolio duration" at any time is the
dollar-weighted average duration of its portfolio securities at that time. In
general, the net asset value of a portfolio with a longer portfolio duration
will increase or decrease to a greater degree in response to changes in interest
rates than will the net asset value of a portfolio with a shorter portfolio
duration. (Typically, for example, the value of a security with a two-year
duration will increase by approximately two percent in response to a one-percent
decline in interest rates, and will decline by approximately two percent in
response to a one-percent rise in interest rates; similarly, the value of a
security with a five-year duration will increase by approximately five percent
in response to a one-percent decline in interest rates, and will decline by
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<PAGE>
approximately five percent in response to a one-percent rise in interest rates;
and so on.) However, because issuers of securities with longer durations
typically pay interest on those securities at rates higher than in the case of
securities with shorter durations, the current income of a portfolio with a
longer portfolio duration will typically be greater than that of a portfolio
with a shorter portfolio duration.
Commonwealth Investment Counsel, Inc., the Portfolio's investment adviser
("Commonwealth"), may take full advantage of the entire range of maturities of
the securities in which the Portfolio may invest and may, through the purchase
and sale of securities with different durations, adjust the Portfolio's
portfolio duration from time to time, depending on its assessment of the
relative values of securities of different durations and maturities and
expectations of future changes in interest rates. There can be no assurance that
the Portfolio will be able to maintain any particular portfolio duration.
The Portfolio's "total return" consists of current income, including
interest payments and discount accruals, plus any increases in the values of the
Portfolio's investments (less any decreases in the values of any of its
investments and amortizations of premiums). The Portfolio may seek to increase
its total return by investing in investment-grade securities which Commonwealth
believes may appreciate in value as a result of changes in interest rates or
other market factors.
Traditionally, a debt security's "term to maturity" has been used to
evaluate the sensitivity of the security's price to changes in interest rates
(the security's interest-rate "volatility"). However, a security's term to
maturity measures only the period of time until the last payment of principal or
interest on the security, and does not take into account the timing of the
various payments of principal or interest to be made prior to the instrument's
maturity. By contrast, "duration" is a measure of the full stream of payments to
be received on a debt instrument, including both interest and principal
payments, based on their present values. Duration measures the periods of time
between the present time and the time when the various interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by their present values. Duration can be a more
accurate measure of interest rate volatility than term-to-maturity. There is no
limitation on the average weighted maturity the Portfolio may maintain, and the
Portfolio's average weighted maturity will likely be longer than its portfolio
duration.
There are some situations where the standard duration calculation does not
properly reflect the interest-rate volatility of a security. For example,
floating and variable rate securities often have final maturities of ten years
or more; however, their interest-rate volatility is determined based principally
on the period of time until their interest rates are reset and on the terms on
which they may be reset. Another example where a security's interest-rate
volatility is not properly measured by the standard duration calculation is in
the case of mortgage-backed securities. The stated final maturity of such
securities may be up to 30 years, but the actual cash flow on the
securities will be determined by the prepayment rates on the underlying
mortgage loans. Therefore, the duration of such a security can change if
prepayment rates change. In these and other similar situations, Commonwealth
will estimate a security's duration using analytical techniques that take into
account such factors as the expected prepayment rate on the security and how
the prepayment rate might change under various market conditions. Because
calculation of a security's duration may be based in part on estimates such as
these made by Commonwealth, the Portfolio's ability to maintain a particular
portfolio duration will depend on Commonwealth's ability to make those estimates
accurately.
The Portfolio will normally invest in fixed-income securities. A
fixed-income security is a debt security paying interest at a rate specified in
the terms of the security or determined based on a formula or factors specified
in the terms of the security.
The Portfolio will only invest in securities of investment grade. A
security will be deemed to be of "investment grade" if, at the time of
investment by the Portfolio, the security is rated at least Baa3 by Moody's
Investors Service, Inc. or BBB- by Standard & Poor's Corporation, or at a
comparable rating by another
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<PAGE>
nationally recognized rating organization. Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative characteristics and
are subject to greater credit and market risks than higher-rated securities. The
Portfolio will not be required to dispose of a security held by it if the
security's rating falls below investment grade, although Commonwealth will
consider whether continued investment in the security is consistent with the
Portfolio's investment objectives. See the Statement of Additional Information
for descriptions of securities ratings assigned by Moody's and Standard &
Poor's.
Commonwealth may under unusual circumstances implement temporary
"defensive" strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Commonwealth considers consistent with such
defensive strategies, and may maintain a portfolio duration shorter than would
otherwise be consistent with its basic investment strategy.
OTHER INVESTMENT PRACTICES AND RISKS
The Portfolio may engage in the other investment practices described below.
See the Statement of Additional Information for a more detailed description of
these practices and certain risks they may involve.
MORTGAGE-BACKED SECURITIES. The Portfolio may invest in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Interest and principal
payments on the mortgages underlying mortgage-backed securities are passed
through to the holders of the mortgage-backed securities. Mortgage-backed
securities currently offer yields higher than those available from many other
types of fixed-income securities but because of their prepayment aspects, their
price volatility and yield characteristics will change based on changes in
prepayment rates. Generally, prepayment rates increase if interest rates fall
and decrease if interest rates rise. For many types of mortgage-backed
securities, this can result in unfavorable changes in price and yield
characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolio's mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-income
securities of comparable maturities, although such obligations may have a
comparable or greater risk of decline in market value during periods of rising
interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
OTHER ASSET-BACKED SECURITIES. The Portfolio may invest in securities
representing interests in other types of financial assets, such as
automobile-finance receivables or credit-card receivables. Such securities are
subject to many of the same risks as are mortgage-backed securities, including
prepayment risks, refinancing risks, and risks of foreclosure. They may or may
not be secured by the receivables themselves or may be unsecured obligations of
their issuers.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Portfolio may purchase
securities on a "when-issued" basis. The price of such securities is fixed at
the time the commitment to purchase is made, but delivery and payment for
the when-issued securities take place at a later date (normally within one
month of purchase). The Portfolio may also purchase securities for future
delivery. "When-issued" securities and forward commitments may increase the
Portfolio's overall investment exposure and may result in losses.
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<PAGE>
OPTIONS AND FUTURES. The Portfolio may buy and sell call and put options to
hedge against changes in net asset value or to realize a greater current return.
In addition, through the purchase and sale of futures contracts and related
options, the Portfolio may at times seek to hedge against fluctuations in net
asset value and, to the extent consistent with applicable law, to increase its
investment return.
The Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Transactions in options and futures contracts involve brokerage costs and
may require the Portfolio to segregate assets to cover its outstanding
positions. For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices or
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index futures"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
futures or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between the movements in the prices
of futures and options and movements in the prices of the underlying security or
index or of the securities held by the Portfolio that are the subject of a
hedge. The successful use by the Portfolio of the strategies described above
further depends on the ability of Commonwealth to forecast market movements
correctly. Other risks arise from the Portfolio's potential inability to close
out futures or options positions. Although the Portfolio will enter into options
or futures transactions only if Commonwealth believes that a liquid secondary
market exists for such options or futures contracts, there can be no assurance
that the Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price. Certain provisions of the Internal Revenue Code
may limit the Portfolio's ability to engage in options and futures transactions.
The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of Commonwealth, the pricing mechanism
and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations.
The Portfolio will not purchase futures or options on futures on sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements.
Under a repurchase agreement, the Portfolio purchases a debt instrument for a
relatively short period (usually not more than one week), which the seller
agrees to repurchase at a fixed time and price, representing the Portfolio's
cost plus interest. The Portfolio will enter into repurchase agreements only
with commercial banks and with registered broker-dealers who are members of a
national securities exchange or market makers in government securities, and only
if the debt instrument subject to the repurchase agreement is a U.S. Government
security. Although Commonwealth will monitor repurchase agreement transactions
to ensure that they will be fully collateralized at all times, the Portfolio
bears a risk of loss if the other party defaults on its obligation and the
Portfolio is delayed or prevented from exercising its rights to dispose of the
collateral. If the other party should become involved in bankruptcy or
insolvency proceedings, it is possible that the Portfolio may be treated as an
unsecured creditor and be required to return the underlying collateral to the
other party's estate.
As a matter of policy, the Trustees will not materially change the
Portfolio's investment objectives without shareholder approval. (Any such change
could, of course, result in a change in the nature of the securities in which
the Portfolio may invest and the risks involved in an investment in the
Portfolio.)
MANAGEMENT OF THE PORTFOLIO
The Trustees of the Trust are responsible for generally overseeing the
conduct of the Trust's business. COMMONWEALTH INVESTMENT COUNSEL, INC., located
at 901 East Byrd Street, Richmond, Virginia 23219, acts as investment adviser to
the Portfolio pursuant to a Management Contract between the Trust and
Commonwealth. MENTOR INVESTMENT GROUP, INC. ("Mentor") serves as administrator
to the Portfolio. Neither Commonwealth nor Mentor receives compensation from the
Portfolio for the performance of such services. Mentor has agreed to bear
certain expenses of the Portfolio pursuant to a voluntary expense limitation
currently in effect. This limitation may be terminated at any time. Commonwealth
is a wholly owned subsidiary of Mentor, which is a wholly owned subsidiary of
Wheat First Butcher Singer, Inc. ("Wheat First Butcher Singer"). Wheat First
Butcher Singer, through other subsidiaries, also engages in securities
brokerage, investment banking, and related businesses. Commonwealth currently
has assets under management of approximately $4 billion, and serves as
investment adviser to Cash Resource Trust, an open-end series investment
company, Mentor Balanced Portfolio, Mentor Quality Income Portfolio, Mentor
Short-Duration Income Portfolio, SNAP Fund, and America's Utility Fund,
Inc., each of which is an open-end investment company, and Mentor Income
Fund, Inc., a closed-end investment company.
Subject to the general oversight of the Trustees, Commonwealth, as
investment adviser, manages the Portfolio in accordance with the stated policies
of the Portfolio. All investment decisions for the Portfolio are made by an
investment committee at Commonwealth which is made up of investment
professionals of that firm.
Commonwealth makes investment decisions for the Portfolio and places the
purchase and sale orders for the Portfolio's portfolio transactions. In
selecting broker-dealers, Commonwealth may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking the best overall
terms available,
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Commonwealth may consider sales of shares of the Portfolio (and, if permitted by
law, of other portfolios in the Mentor family) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Portfolio.
PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by the Portfolio is known as "portfolio turnover." As a
result of the Portfolio's investment policies, under certain market conditions
the Portfolio's portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to the Portfolio,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The portfolio
turnover rate for the fiscal period ended October 31, 1995 for the Portfolio
is contained in the section "Financial Highlights."
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolio calculates the net asset value of its shares by dividing the
total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values.
HOW DISTRIBUTIONS ARE MADE
The Portfolio distributes net investment income quarterly and any net
realized capital gains at least annually. Distributions from capital gains are
made after applying any available capital loss carryovers. All Portfolio
distributions will be invested in additional Portfolio shares, unless the
shareholder instructs the Portfolio otherwise.
TAXES
The Portfolio intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolio will distribute substantially all of
its net investment income and capital gain net income on a current basis.
The following is intended principally for shareholders subject to federal
income taxation:
All Portfolio distributions, other than exempt-interest dividends, will be
taxable to shareholders as ordinary income, except that any distributions of net
capital gain will be taxed as long-term capital gain, regardless of how long a
shareholder has held the shares (although the loss on a sale of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain distribution received with respect to those shares).
Distributions will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions. Early in each year the Trust
will notify shareholders of the amount and tax status of distributions paid by
the Portfolio for the preceding year. In buying or selling securities for the
Portfolio, Commonwealth will not normally take into account the effect any
purchase or sale of securities will have on the tax positions of the Portfolio's
shareholders.
The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends and distributions also may be subject to
state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult
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<PAGE>
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).
PURCHASE OF SHARES
Shares of the Portfolio are sold at the net asset value next determined
after a purchase order is received by the Portfolio. Purchase orders that are
received prior to the close of trading on the New York Stock Exchange on a
particular day are priced according to the net asset value determined on that
day.
Mentor Distributors, Inc. ("Mentor Distributors"), 901 East Byrd Street,
Richmond, Virginia 23219, serves as distributor of the Portfolio's shares.
Mentor Distributors is not obligated to sell any specific amount of shares of
the Portfolio.
An investor may make an initial purchase of shares of the Portfolio by
submitting a completed Trust application along with a purchase order, and by
making payment to Mentor Distributors. Investors will be required to make
minimum initial investments of $500,000 in the Portfolio and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolio reserves the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Commonwealth, or (iii) a combination of such
securities and cash. Purchase of shares of the Portfolio in exchange for
securities is subject in each case to the determination by Commonwealth that the
securities to be exchanged are acceptable for purchase by the Portfolio.
Securities accepted by Commonwealth in exchange for Portfolio shares will be
valued in the same manner as the Portfolio's assets as of the time of the
Portfolio's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Portfolio and must be delivered to the Portfolio upon receipt by the investor
from the issuer. A gain or loss for federal income tax purposes would be
realized upon the exchange by an investor that is subject to federal income
taxation, depending upon the investor's basis in the securities tendered. A
shareholder who wishes to purchase shares by exchanging securities should obtain
instructions by calling Mentor Distributors at 1-800-869-6042.
In all cases Commonwealth or Mentor Distributors reserves the right to
reject any particular investment.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of its shares in the Portfolio
at any time upon request, by following the procedures set forth below.
Redemptions will be effected at the net asset value per share of the Portfolio
next determined after the receipt by the Portfolio of redemption instructions in
"good order" as described below. Shares may be redeemed by submitting a written
request for redemption to Mentor Distributors, or to the Trust at the following
address:
Mentor Institutional Trust
P.O. Box 1357
Richmond, Virginia 23286-0109
Upon receipt of a request in "good order," the Trust will determine the
amount of the net asset value of the redeemed shares, based upon the net asset
value of the Portfolio next determined after the redemption request has been
received. A check for the proceeds will normally be mailed on the next business
day.
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<PAGE>
If shares of the Portfolio to be redeemed represent an investment made by
check, the Trust reserves the right not to transmit the redemption proceeds to
the shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed, and identifies the shareholder's Portfolio account
number;
(2) the request is signed by each registered owner exactly as
the shares are registered; and
(3) if the shares to be redeemed were issued in certificate
form, the certificates are endorsed for transfer (or are
accompanied by an endorsed stock power) and accompany the
redemption request.
The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect Portfolio shareholders against the possibility of fraud.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, the
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, the Portfolio reserves the
right, if conditions exist which make cash payments undesirable, to honor any
request for redemption by making payment in whole or in part by securities
valued in the same way as they would be valued for purposes of computing the
Portfolio's per share net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting those securities into
cash.
EXCHANGE PRIVILEGE. Shareholders may exchange their shares in the Portfolio
for shares of certain other Portfolios comprising the Trust at their respective
net asset values beginning 15 days after purchase. Contact Mentor Distributors
for a prospectus of any of those Portfolios. Shares of certain of the Portfolios
are not available in all states. To exchange shares, simply complete an exchange
authorization form and send it to Mentor Distributors. Exchange authorization
forms are available from the Trust and from Mentor Distributors. The Trust
reserves the right to change or suspend the exchange privilege at any time.
Shareholders would be notified before any such change or suspension. Consult
Mentor Distributors before requesting an exchange.
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust is a Massachusetts business trust organized on
February 8, 1994 as IMG Institutional Trust. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end series management investment company, with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into five
series, one representing the Portfolio, the others representing other Portfolios
with varying investment objectives and policies. Each share has one vote, with
fractional shares voting proportionally. Shares of each
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<PAGE>
class will vote together as a single class except when required by law or
determined by the Trustees. Shares of the Portfolio are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the Portfolio were
liquidated, would receive the net assets of the Portfolio. The Trust may suspend
the sale of shares at any time and may refuse any order to purchase shares.
Although the Trust and the Portfolio are not required to hold annual meetings of
its shareholders, shareholders have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the Agreement and
Declaration of Trust.
In the interest of economy and convenience, the Portfolio will not issue
certificates for its shares except at the shareholder's request.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. State Street Bank and
Trust Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive,
North Quincy, Massachusetts, 02171, serves as the Portfolio's transfer and
dividend agent.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Portfolio. The Portfolio's "yield" is calculated by
dividing the Portfolio's annualized net investment income per share during a
recent 30-day period by its net asset value on the last day of that period.
"Total return" for the life of the Portfolio through the most recent calendar
quarter represents the average annual compound rate of return on an investment
of $1,000 in the Portfolio over the period. The Portfolio's performance
may be compared to various indices. See the Statement of Additional
Information. Information may be presented in advertisements about the
Portfolio describing the background and professional experience of the
Portfolio's investment adviser or any portfolio manager.
All data is based on the Portfolio's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Portfolio's
investments, and the Portfolio's operating expenses. Investment performance also
often reflects the risks associated with the Portfolio's investment objectives
and policies. These factors should be considered when comparing the Portfolio's
investment results to those of other mutual funds and other investment vehicles.
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Portfolio. This Prospectus does not constitute an
offer in any State in which, or to any person to whom, such offering may not
lawfully be made. This Prospectus omits certain information contained in the
Registration Statement, to which reference is made, filed with the Securities
and Exchange Commission. Items which are thus omitted, including contracts and
other documents referred to or summarized herein, may be obtained from the
Commission upon payment of the prescribed fees.
Additional information concerning the securities offered hereby and the
Portfolio is to be found in the Registration Statement, including various
exhibits thereto and financial statements included or incorporated therein,
which may be inspected at the office of the Commission.
MENTOR
INTERMEDIATE
DURATION
PORTFOLIO
----------
PROSPECTUS
----------
Mentor Distributors, Inc.
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<PAGE>
PROSPECTUS March 11, 1996
MENTOR CASH MANAGEMENT PORTFOLIO
MENTOR CASH MANAGEMENT PORTFOLIO is a "money market" fund, seeking as
high a rate of current income as Commonwealth Investment Counsel, Inc. believes
is consistent with preservation of capital and maintenance of liquidity. Shares
of the Portfolio are being offered principally to institutional and high
net-worth individual investors.
An investment in the Portfolio is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
This Prospectus sets forth concisely the information about the
Portfolio that a prospective investor should know before investing. Please read
this Prospectus and retain it for future reference. INVESTORS CAN FIND MORE
DETAILED INFORMATION IN THE MARCH 11, 1996 STATEMENT OF ADDITIONAL INFORMATION,
AS AMENDED FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL MENTOR
DISTRIBUTORS, INC. AT 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Portfolio's address is P.O. Box 1357, Richmond, Virginia
23286-0109.
-------------------------
MENTOR DISTRIBUTORS, INC.
DISTRIBUTOR
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. The following table summarizes an investor's maximum transaction
costs from investing in the Portfolio and expenses incurred for the past fiscal
year. The Example shows the cumulative expenses attributable to a hypothetical
$1,000 investment in the Portfolio over specified periods.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.00%
12b-1 Fees 0.00%
Other Expenses (after voluntary
expense limitation)* 0.04%
Total Fund Operating Expenses* 0.04%
- --------------------
*Other Expenses reflect a voluntary expense limitation currently in effect.
In the absence of the expense limitation, Other Expenses and Total Fund
Operating Expenses would have been 0.18%.
EXAMPLE
An investment of $1,000 in the Portfolio would incur the following
expenses, assuming 5% annual return and redemption at the end of each period:
1 year $1
3 years $2
5 years $3
10 years $6
This information is provided to help investors understand the expenses of
investing in the Portfolio and an investor's share of the estimated operating
expenses of the Portfolio. The Example should not be considered a representation
of future performance; actual expenses may be more or less than those shown.
FINANCIAL HIGHLIGHTS
The financial highlights presented below have been derived from the
financial statements of Mentor Institutional Trust (the "Trust"), which were
audited and reported on by KPMG Peat Marwick LLP, the Trust's independent
auditors. Their report dated December 8, 1995 on the financial statements of
the Trust for the fiscal period ended October 31, 1995 is included in the
Trust's Annual Report for the 1995 fiscal year, which is incorporated herein by
reference. A copy of the Annual Report may be obtained free of charge from the
Trust.
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<TABLE>
<CAPTION>
Mentor
Cash
Management
Portfolio*
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $ 1.00
Income from investment operations
Net investment income................................................. 0.05
Net realized and unrealized gain on investments....................... --
Total from investment operations...................................... 0.05
LESS DISTRIBUTIONS
Dividends from income................................................. (0.05)
Net asset value, end of period............................................. $ 1.00
Total Return............................................................... 5.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................... $69,997
Ratio of expenses to average net assets.................................... 0.04%(a)
Ratio of expenses of average net assets excluding waiver 0.18%(a)
Ratio of net investment income to average net assets 5.56%(a)
Portfolio turnover rate.................................................... --
</TABLE>
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(a) Annualized.
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
INVESTMENT OBJECTIVE AND POLICIES
MENTOR CASH MANAGEMENT PORTFOLIO'S INVESTMENT OBJECTIVE IS TO SEEK AS HIGH
A RATE OF CURRENT INCOME AS COMMONWEALTH INVESTMENT COUNSEL, INC.
("COMMONWEALTH") BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL AND
MAINTENANCE OF LIQUIDITY. The Portfolio will invest in high-quality short-term
instruments including U.S. Government securities, banker's acceptances, prime
commercial paper, fixed-income securities of corporations and other private
issuers, and money market instruments. There can, of course, be no assurance
that the Portfolio will achieve its investment objective. The Portfolio is a
series of Mentor Institutional Trust and is an open-end, diversified,
management investment company.
The Portfolio will invest in a portfolio of high-quality short-term
instruments consisting of any or all of the following:
(BULLET) U.S. GOVERNMENT SECURITIES: securities issued or guaranteed as to
principal or interest by the U.S. Government or by any of its
agencies or instrumentalities.
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<PAGE>
(BULLET) BANKERS' ACCEPTANCES: negotiable drafts or bills of exchange,
which have been "accepted" by a domestic bank (or a foreign
bank with an agency domiciled in the United States), meaning,
in effect, that the bank has unconditionally agreed to pay the face
value of the instrument on maturity.
(BULLET) PRIME COMMERCIAL PAPER: high-quality, short-term obligations issued
by banks, corporations, and other issuers organized under the laws
of a jurisdiction within the United States.
(BULLET) OTHER SHORT-TERM OBLIGATIONS: high-quality, short-term obligations
of corporate issuers.
(BULLET) REPURCHASE AGREEMENTS: with respect to U.S. Government or agency
securities.
The Portfolio will invest only in U.S. dollar-denominated high-quality
securities and other U.S. dollar-denominated money market instruments meeting
credit criteria which the Trustees of the Trust believe present minimal
credit risk. "High-quality securities" are (i) commercial paper or
other short-term obligations rated A-1 by Standard & Poor's Corporation
and P-1 by Moody's Investors Service, Inc., and (ii) obligations rated AAA
or AA by Standard & Poor's and Aaa or Aa by Moody's at the time of investment.
The Portfolio will not invest more than 5% (determined at the time of
investment) of its total assets in securities rated below A-1 or P-1 (or
securities not so rated whose issuer does not have outstanding short-term
debt obligations, of comparable priority and security, rated A-1 or P-1).
The Portfolio will maintain a dollar-weighted average maturity of 90 days
or less and will not invest in securities with remaining maturities of more
than thirteen months. The Portfolio may invest in variable or floating-rate
securities which bear interest at rates subject to periodic adjustment or
which provide for periodic recovery of principal on demand. Under certain
conditions, these securities may be deemed to have remaining maturities equal
to the time remaining until the next interest adjustment date or the date on
which principal can be recovered on demand. The Portfolio will not purchase
securities of any issuer if, immediately thereafter, more than 5% of its total
assets would be invested in securities of that issuer, nor will the Portfolio
make an investment in commercial paper if, immediately thereafter, more than
35% of its total assets would be invested in commercial paper. The Portfolio
follows investment and valuation policies designed to maintain a stable
net asset value of $1.00 per share, although there is no assurance that
these policies will be successful.
Considerations of liquidity and preservation of capital mean that the
Portfolio may not necessarily invest in money market instruments paying the
highest available yield at a particular time. Consistent with its investment
objective, the Portfolio will attempt to maximize yields by portfolio trading
and by buying and selling portfolio investments in anticipation of or in
response to changing economic and money market conditions and trends. The
Portfolio may also invest to take advantage of what Commonwealth believes to be
temporary disparities in yields of different segments of the high-quality money
market or among particular instruments within the same segment of the market.
These policies, as well as the relatively short maturity of obligations
purchased by the Portfolio, may result in frequent changes in the securities
held by the Portfolio. The Portfolio will not usually pay brokerage commissions
in connection with the purchase or sale of portfolio securities.
The Portfolio's securities will be affected by general changes in interest
rates resulting in increases or decreases in the values of the obligations held
by the Portfolio. The value of the Portfolio's securities can be expected to
vary inversely to changes in prevailing interest rates. Withdrawals by
shareholders could require the sale of portfolio investments at a time when such
a sale might not otherwise be desirable.
CONCENTRATION. The Portfolio may invest without limit in obligations of
domestic branches of U.S. banks and U.S. branches of foreign banks (if it can be
demonstrated that they are subject to the same regulations as U.S. banks). At
times when the Portfolio has concentrated its investments in bank obligations,
the value of its portfolio securities may be especially affected by factors
pertaining to the issuers of such obligations.
OTHER INVESTMENT PRACTICES AND RISKS
The Portfolio may engage in the other investment practices described below.
See the Statement of Additional Information for a more detailed description of
these practices and certain risks they may involve.
REPURCHASE AGREEMENTS. Under a repurchase agreement, the Portfolio
purchases a debt instrument for a relatively short period (usually not more than
one week), which the seller agrees to repurchase at a fixed time and
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<PAGE>
price, representing the Portfolio's cost plus interest. The Portfolio will enter
into repurchase agreements only with commercial banks and with registered
broker-dealers who are members of a national securities exchange or market
makers in government securities, and only if the debt instrument subject to the
repurchase agreement is a U.S. Government security. Although Commonwealth will
monitor repurchase agreement transactions to ensure that they will be fully
collateralized at all times, the Portfolio bears a risk of loss if the other
party defaults on its obligation and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral. If the other party should
become involved in bankruptcy or insolvency proceedings, it is possible that the
Portfolio may be treated as an unsecured creditor and be required to return the
underlying collateral to the other party's estate.
-------------------
As a matter of policy, the Trustees will not materially change the
Portfolio's investment objective without shareholder approval. (Any such change
could, of course, result in a change in the nature of the securities in which
the Portfolio may invest and the risks involved in an investment in the
Portfolio.)
MANAGEMENT OF THE PORTFOLIO
The Trustees of the Trust are responsible for generally overseeing the
conduct of the Trust's business. COMMONWEALTH INVESTMENT COUNSEL, INC., located
at 901 East Byrd Street, Richmond, Virginia 23219, acts as investment adviser to
the Portfolio pursuant to a Management Contract between the Trust and
Commonwealth. MENTOR INVESTMENT GROUP, INC. ("Mentor") serves as administrator
to the Portfolio. Neither Commonwealth nor Mentor receives compensation from the
Portfolio for the performance of such services. Mentor has agreed to bear
certain expenses of the Portfolio pursuant to a voluntary expense limitation
currently in effect. This limitation may be terminated at any time. Commonwealth
is a wholly owned subsidiary of Mentor, which is a wholly owned subsidiary of
Wheat First Butcher Singer, Inc. ("Wheat First Butcher Singer"). Wheat First
Butcher Singer, through other subsidiaries, also engages in securities
brokerage, investment banking, and related businesses. Commonwealth currently
has assets under management of approximately $4 billion, and serves as
investment adviser to Cash Resource Trust, an open-end series investment
company, Mentor Balanced Portfolio, Mentor Quality Income Portfolio, Mentor
Short-Duration Income Portfolio, SNAP Fund, and America's Utility, Inc.,
each of which is an open-end investment company, and Mentor Income Fund,
Inc., a closed-end investment company.
Subject to the general oversight of the Trustees, Commonwealth, as
investment adviser, manages the Portfolio in accordance with the stated policies
of the Portfolio.
Commonwealth makes investment decisions for the Portfolio and places the
purchase and sale orders for the Portfolio's portfolio transactions. In
selecting broker-dealers, Commonwealth may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking the best overall
terms available, Commonwealth may consider sales of shares of the Portfolio
(and, if permitted by law, of other portfolios in the Mentor family) as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Portfolio.
HOW THE PORTFOLIO VALUES ITS SHARES AND DISTRIBUTES INCOME
The Portfolio values its shares twice each day the New York Stock Exchange
is open, once at 12:00 noon and again at the close of regular trading on the
Exchange. The Portfolio's investments are valued at amortized cost according to
Securities and Exchange Commission Rule 2a-7. The Portfolio will not normally
have unrealized gains or losses so long as it values its investments by the
amortized cost method.
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<PAGE>
The Portfolio determines its net income as of the close of regular trading
on the Exchange each day the Exchange is open. Each determination of the
Portfolio's net income includes (i) all accrued interest in the Portfolio's
investments, (ii) plus or minus all realized and unrealized gains and losses on
the Portfolio's investments, (iii) less all accrued expenses of the Portfolio.
The Portfolio declares all of its net interest income as a distribution on
each day the Exchange is open for business, as a dividend to shareholders of
record immediately prior to the close of regular trading on the Exchange.
Shareholders who purchase shares of the Portfolio as of 12:00 noon on any day
will receive the dividend declared by the Portfolio for that day; shareholders
who purchase shares after 12:00 noon will begin earning dividends on the day
after the Portfolio accepts their order. The Portfolio's net income for
Saturdays, Sundays, and holidays is declared as a dividend on the preceding
business day. Dividends for the immediately preceding month will be paid on the
last business day of each calendar month (or, if that day is not a business day,
on the next business day), except that the Portfolio's schedule for payment of
dividends during the month of December may be adjusted to assist in tax
reporting and distribution requirements. A shareholder that withdraws the entire
balance of an account at any time during the month will be paid all dividends
declared through the date immediately prior to the withdrawal. Since the net
income of the Portfolio is declared as a dividend each day, the net asset value
per share of the Portfolio normally remains at $1 per share immediately after
each determination and dividend declaration.
----------------------
All Portfolio distributions will be invested in additional Portfolio
shares, unless the shareholder instructs the Portfolio otherwise.
TAXES
The Portfolio intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolio will distribute substantially all of
its net investment income and capital gain net income on a current basis.
The following is intended principally for shareholders subject to federal
income taxation:
All Portfolio distributions, other than exempt-interest dividends, will be
taxable to shareholders as ordinary income, except that any distributions of net
capital gain will be taxed as long-term capital gain, regardless of how long a
shareholder has held the shares (although the loss on a sale of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain distribution received with respect to those shares).
Distributions will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions. Early in each year the Trust
will notify shareholders of the amount and tax status of distributions paid by
the Portfolio for the preceding year. In buying or selling securities for the
Portfolio, Commonwealth will not normally take into account the effect any
purchase or sale of securities will have on the tax positions of the Portfolio's
shareholders.
The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends and distributions also may be subject to
state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the 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).
PURCHASE OF SHARES
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The Portfolio offers its shares continuously at a price of $1.00 per share.
Because the Portfolio seeks to be fully invested at all times, investments must
be in Same Day Funds to be accepted. "Same Day Funds" are funds credited by the
applicable regional Federal Reserve Bank to the account of the Portfolio at its
designated bank.
Mentor Distributors, Inc. ("Mentor Distributors"), 901 East Byrd Street,
Richmond, Virginia 23219, serves as distributor of the Portfolio's shares.
Mentor Distributors is not obligated to sell any specific amount of shares of
the Portfolio.
An investor may make an initial purchase of shares of the Portfolio by
submitting a completed Trust application along with its purchase order, and by
making payment to Mentor Distributors. Investors will be required to make
minimum initial investments of $500,000 in the Portfolio and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolio reserves the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Commonwealth, or (iii) a combination of such
securities and cash. Purchase of shares of the Portfolio in exchange for
securities is subject in each case to the determination by Commonwealth that the
securities to be exchanged are acceptable for purchase by the Portfolio.
Securities accepted by Commonwealth in exchange for Portfolio shares will be
valued in the same manner as the Portfolio's assets as of the time of the
Portfolio's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Portfolio and must be delivered to the Portfolio upon receipt by the investor
from the issuer. A gain or loss for federal income tax purposes would be
realized upon the exchange by an investor that is subject to federal income
taxation, depending upon the investor's basis in the securities tendered. A
shareholder who wishes to purchase shares by exchanging securities should obtain
instructions by calling Mentor Distributors at 1-800-869-6042.
In all cases Commonwealth or Mentor Distributors reserves the right to
reject any particular investment.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of its shares in the Portfolio
at any time upon request, by following the procedures set forth below.
Redemptions will be effected at the net asset value per share of the Portfolio
next determined after the receipt by the Portfolio of redemption instructions in
"good order" as described below. A check for the proceeds will normally be
mailed on the next business day. Shares may be redeemed by submitting a written
request for redemption to Mentor Distributors, or to the Trust at the following
address:
Mentor Institutional Trust
P.O. Box 1357
Richmond, Virginia 23286-0109
If shares of the Portfolio to be redeemed represent an investment made by
check, the Trust reserves the right not to transmit the redemption proceeds to
the shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed, and identifies the shareholder's Portfolio account
number;
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(2) the request is signed by each registered owner exactly as
the shares are registered; and
(3) if the shares to be redeemed were issued in certificate
form, the certificates are endorsed for transfer (or are
accompanied by an endorsed stock power) and accompany the
redemption request.
The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect Portfolio shareholders against the possibility of fraud.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, the
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, the Portfolio reserves the
right, if conditions exist which make cash payments undesirable, to honor any
request for redemption by making payment in whole or in part by securities
valued in the same way as they would be valued for purposes of computing the
Portfolio's per share net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting those securities into
cash.
EXCHANGE PRIVILEGE. Shareholders may exchange their shares in the Portfolio
for shares of certain other Portfolios comprising the Trust at their respective
net asset values beginning 15 days after purchase. Contact Mentor Distributors
for a prospectus of any of those Portfolios. Shares of certain of the Portfolios
are not available in all states. To exchange shares, simply complete an exchange
authorization form and send it to Mentor Distributors. Exchange authorization
forms are available from the Trust and from Mentor Distributors. The Trust
reserves the right to change or suspend the exchange privilege at any time.
Shareholders would be notified before any such change or suspension. Consult
Mentor Distributors before requesting an exchange.
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust is a Massachusetts business trust organized on
February 8, 1994 as IMG Institutional Trust. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into four
series, one representing the Portfolio, the others representing other Portfolios
with varying investment objectives and policies. Each share has one vote, with
fractional shares voting proportionally. Shares of each class will vote together
as a single class except when required by law or determined by the Trustees.
Shares of the Portfolio are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Portfolio were liquidated, would receive
the net assets of the Portfolio. The Trust may suspend the sale of shares at any
time and may refuse any order to purchase shares. Although the Trust and
the Portfolio are not required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees, or
to take other actions as provided in the Agreement and Declaration of Trust.
In the interest of economy and convenience, the Portfolio will not issue
certificates for its shares except at the shareholder's request.
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<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. State Street Bank and Trust
Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive, North
Quincy, Massachusetts, 02171, Providence, Rhode Island, 02940, serves as the
Portfolio's transfer and dividend agent.
PERFORMANCE INFORMATION
Yield may from time to time be included in advertisements about the
Portfolio. The Portfolio's "yield" is calculated 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. The Portfolio's performance may be compared to various indices. See
the Statement of Additional Information. Information may be presented in
advertisements about the Portfolio describing the background and professional
experience of the Portfolio's investment adviser or its investment personnel.
All data is based on the Portfolio's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of the Portfolio's
investments, and the Portfolio's operating expenses. Investment performance also
often reflects the risks associated with the Portfolio's investment objective
and policies. These factors should be considered when comparing the Portfolio's
investment results to those of other mutual funds and other investment vehicles.
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Portfolio. This Prospectus does not constitute an
offer in any State in which, or to any person to whom, such offering may not
lawfully be made. This Prospectus omits certain information contained in the
Registration Statement, to which reference is made, filed with the Securities
and Exchange Commission. Items which are thus omitted, including contracts and
other documents referred to or summarized herein, may be obtained from the
Commission upon payment of the prescribed fees.
Additional information concerning the securities offered hereby and the
Portfolio is to be found in the Registration Statement, including various
exhibits thereto and financial statements included or incorporated therein,
which may be inspected at the office of the Commission.
MENTOR
CASH MANAGEMENT
PORTFOLIO
----------
PROSPECTUS
----------
Mentor Distributors, Inc.
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P R O S P E C T U S March 11, 1996
SNAP FUND
SNAP FUND is a "money-market" fund, seeking as high a rate of current
income as Commonwealth Investment Counsel, Inc., its investment adviser ("CIC"),
believes is consistent with preservation of capital and maintenance of
liquidity. The Fund currently offers its shares only to participants in the
Commonwealth of Virginia State Non-Arbitrage Program (the "SNAP Program"). The
Fund is a series of shares of Mentor Institutional Trust.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus sets forth concisely the information about the Fund and
Mentor Institutional Trust that a prospective investor should know before
investing. Please read this Prospectus and retain it for future reference.
Investors can find more detailed information in the March 11, 1996 Statement of
Additional Information, as amended from time to time. For a free copy of the
Statement, call 1-800-570-SNAP. The Statement has been filed with the Securities
and Exchange Commission and is incorporated into this Prospectus by reference.
The Fund's address is P.O. Box 1357, Richmond, Virginia 23286-0109.
-------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in
the Fund. The following table summarizes an investor's maximum transaction costs
from investing in the Fund and expenses the Fund expects to incur in its first
fiscal year. The Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in the Fund over specified periods. Shares of the
Fund are currently being offered to investors through the Commonwealth of
Virginia State Non-Arbitrage Program (the "SNAP Program"). Only expenses
incurred by the Fund are reflected in the tables and Example below; other
expenses incurred by the SNAP Program, or by participants in the SNAP Program,
are not reflected.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.09%
12b-1 Fees 0.00%
Other Expenses 0.04%
Total Fund Operating Expenses 0.13%
EXAMPLE
An investment of $1,000 in the Fund would incur the following
expenses, assuming 5% annual return and redemption at the end of each period:
1 year $2
3 years $5
This information is provided to help investors understand the
operating expenses of the Fund. The information is based on the expenses the
Fund expects to incur during its first fiscal year. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE
OR LESS THAN THOSE SHOWN.
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<PAGE>
FINANCIAL HIGHLIGHTS
The following table presents unaudited financial information
for the Fund for the period ended December 31, 1995.
Period
Ended
12/31/95
(Unaudited)*
Per Share Operating Performance $ 1.00
Income from investment operations 0.02
Net investment income -
Net realized gain on investments
Total from investment operations 0.02
Distributions from net investment income* (0.02)
Net asset value, end or period $ 1.00
Total Return 2.55%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $897,691
Ratio of expenses to average net assets 0.12%(a)
Ratio of net investment income to average
net assets 5.72%(a)
- -----------------
*The Fund commenced operations on July 24, 1995, includes net realized
capital gains which were under $0.00001 per share.
(a) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
SNAP FUND'S INVESTMENT OBJECTIVE IS TO SEEK AS HIGH A RATE OF CURRENT
INCOME AS CIC BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL AND
MAINTENANCE OF LIQUIDITY. There can, of course, be no assurance that the Fund
will achieve its investment objective. As a matter of policy, the Trustees will
not change the Fund's investment objective without shareholder approval.
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The Fund will invest in a portfolio of high-quality short-term instruments
consisting of any or all of the following:
(BULLET) U.S.Government securities: U.S.Treasury bills, notes, and bonds,
and securities unconditionally guaranteed as to payment of
principal and interest by the United States or any agency of the
United States.
(BULLET) Obligations of the Commonwealth of Virginia and of its local
governments and of other states: high-quality evidences of
indebtedness of the Commonwealth of Virginia, and obligations
of any county, city, town, district, authority, or other public
body of the Commonwealth. The Fund may also invest in
high-quality-obligations of any other state or of any county,
city, town, or district located in any other state.
(BULLET) Bankers' acceptances: negotiable drafts or bills of exchange,
which have been "accepted" by a bank, meaning, in effect,
that the bank has unconditionally agreed to pay the face value of
the instrument on maturity. The Fund will only purchase bankers'
acceptances issued by a bank organized in the U.S. or by a foreign
bank with an agency domiciled in the U.S.
(BULLET) Certificates of deposit and interest-bearing time deposits: of
national banks or of banks chartered by the Commonwealth of Virginia
or of banks chartered by other states and authorized to operate
branches in the Commonwealth of Virginia (if such banks chartered by
the Commonwealth or other states are under the supervision of the
Commonwealth of Virginia and the deposits are secured as provided by
the Virginia Security for Public Deposits Act). The amount of any
deposit must be insured in its entirety by the Federal Deposit
Insurance Corporation, except to the extent any such amount is
collateralized by eligible collateral as prescribed by law. Any
time deposits made by the Fund must mature in seven days or less.
(BULLET) Prime commercial paper: high-quality, short-term obligations issued
by banks, corporations, and other issuers organized under the laws
of the United States or of any state.
(BULLET) Other short-term obligations: high-quality, short-term obligations
of corporate issuers.
(BULLET) Repurchase agreements: with respect to U.S. Government or agency
securities. Under a repurchase agreement, the Fund purchases a
U.S. Government security for a relatively short period (usually
not more than one week) which the seller agrees to repurchase at a
fixed time and price, representing the Fund's cost plus interest.
The Fund will enter into repurchase agreements only with
commercial banks having assets of more than $1 billion and
with "primary dealers" in U.S. Government securities. Although CIC
will monitor repurchase agreement transactions to ensure that
they will be fully collateralized at all times, the Fund bears
a risk of loss if the other party defaults on its obligation and
the Fund is delayed or prevented from exercising its rights to
dispose of the collateral. If the other party should
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<PAGE>
become involved in bankruptcy or insolvency proceedings, it is
possible that the Fund may be treated as an unsecured creditor
and be required to return the underlying collateral to the other
party's estate. The Fund requires any U.S. Government
securities serving as collateral for a repurchase agreement to
be delivered to the Fund's custodian (or any approved
subcustodian).
The Fund will invest only in U.S. dollar-denominated high-quality
securities and other U.S. dollar-denominated money market instruments meeting
credit criteria which the Trustees of the Trust believe present minimal
credit risk. "High-quality securities" are (i) commercial paper or
other short-term obligations rated A-1 by Standard & Poor's Corporation
and P-1 by Moody's Investors Service, Inc., and (ii) other obligations rated
AAA or AA by Standard & Poor's and Aaa or Aa by Moody's at the time of
investment. The Fund will not purchase securities of any issuer (other than
U.S. Government securities) if, immediately thereafter, more than 5% of the
Fund's total assets would be invested in securities of that issuer (or 1%
of the Fund's total assets, or $1 million, whichever is greater, if the
securities of such issuer owned by the Fund are not rated in the highest
rating category by a nationally recognized statistical rating
organization), nor will the Fund make an investment in commercial paper if,
immediately thereafter, more than 35% of its total assets would be invested in
commercial paper.
The Fund follows investment and valuation policies designed to maintain a
stable net asset value of $1.00 per share, although there is no assurance that
these policies will be successful. The Fund will maintain a dollar-weighted
average maturity of 90 days or less and will not invest in securities with
remaining maturities of more than one year. The Fund may invest in variable or
floating-rate securities which bear interest at rates subject to periodic
adjustment or which provide for periodic recovery of principal on demand. Under
certain conditions, these securities may be deemed to have remaining maturities
equal to the time remaining until the next interest adjustment date or the date
on which principal can be recovered on demand.
Considerations of liquidity and preservation of capital mean that the Fund
may not necessarily invest in money market instruments paying the highest
available yield at a particular time. Consistent with its investment objective,
the Fund will attempt to maximize yields by portfolio trading and by buying and
selling portfolio investments in anticipation of or in response to changing
economic and money market conditions and trends. The Fund may also invest to
take advantage of what CIC believes to be temporary disparities in yields of
different segments of the high-quality money market or among particular
instruments within the same segment of the market. These policies, as well as
the relatively short maturity of obligations purchased by the Fund, may result
in frequent changes in the Fund's portfolio. The Fund will not usually pay
brokerage commissions in connection with the purchase or sale of portfolio
securities.
The Fund's portfolio will be affected by general changes in interest rates
resulting in increases or decreases in the values of the obligations held by the
Fund. The value of the securities in the Fund's portfolio can be expected to
vary inversely to the changes in prevailing interest rates. Withdrawals by
shareholders could require the sale of portfolio investments at a time when such
a sale might not otherwise be desirable.
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<PAGE>
The Fund will not lend money, other than by investment in the instruments
described above and through entry into repurchase agreements, nor will it borrow
money or pledge, hypothecate, or mortgage its assets. The Fund will not invest
in securities of an issuer if any employee of the Fund or CIC (or, to the
knowledge of the Fund or CIC, any affiliated person of the Fund or CIC) is an
officer or director of that issuer or holds 10% of the outstanding voting
securities of that issuer, unless the investment is approved or ratified by the
Trustees.
The Fund will not be responsible for determining whether income or gains
from any investment by the Fund will be excludable from the income of
participants in the SNAP Program for tax purposes, or will otherwise be subject
to or exempt from taxation under federal or state law or be subject to rebate by
participants under federal law.
-------------------
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment.
MANAGEMENT OF THE FUND
The Trustees of Mentor Institutional Trust are responsible for generally
overseeing the conduct of the Trust's business. COMMONWEALTH INVESTMENT COUNSEL,
INC., located at 901 East Byrd Street, Richmond, Virginia 23219, acts as
investment adviser to the Fund pursuant to a Management Contract between the
Fund and CIC. Subject to the general oversight of the Trustees, CIC, as
investment adviser, manages the Fund's portfolio in accordance with the stated
policies of the Fund. CIC makes investment decisions for the Fund and places the
purchase and sale orders for the Fund's portfolio transactions. As compensation
for CIC's services under the Management Contract, the Fund pays a fee, accrued
daily and paid monthly, at the following annual rate: .09% of the first $500
million of average net assets; .08% of the next $250 million; .07% of the next
$250 million; .06% of the next $250 million; and .05% of any amount over $1.25
billion. CIC is a wholly owned subsidiary of Mentor Investment Group, Inc.,
which is a wholly owned subsidiary of Wheat First Butcher Singer, Inc. ("Wheat
First Butcher Singer"). Wheat First Butcher Singer, through other subsidiaries,
also engages in securities brokerage, investment banking, and related
businesses. CIC currently has assets under management of approximately $4
billion, and serves as investment adviser to Cash Resource Trust, an open-end
series investment company, Mentor Balanced Portfolio, Mentor Cash Management
Portfolio, Mentor Fixed-Income Portfolio, Mentor Intermediate Duration
Portfolio, Mentor Quality Income Portfolio, Mentor Short-Duration Income
Portfolio, and America's Utility Fund, Inc., each of which is an open-end
investment company, and Mentor Income Fund, Inc., a closed-end investment
company. The Fund pays all of its own expenses, including, among other
things, Trustees' fees, and auditing, legal, and custodial expenses.
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<PAGE>
Subject to the general oversight of the Trustees, CIC, as investment
adviser, manages the Fund in accordance with its stated investment objective and
policies. A team of investment professionals manages the Fund for CIC.
HOW THE FUND VALUES ITS SHARES
The Fund values its shares twice each day, once at 12:00 noon and again at
the close of regular trading on the New York Stock Exchange. The Fund's
investments are valued at amortized cost according to Securities and Exchange
Commission Rule 2a-7. The Fund will not normally have unrealized gains or losses
so long as it values its investments by the amortized cost method.
HOW DISTRIBUTIONS ARE MADE
The Fund declares all of its net interest income as a distribution on each
day the New York Stock Exchange is open for business, as a dividend to
shareholders of record immediately prior to the close of regular trading on the
Exchange. Shareholders who purchase shares of the Fund as of 12:00 noon on any
day will receive the dividend declared by the Fund for that day; shareholders
who purchase shares after 12:00 noon will begin earning dividends on the day
after the Fund accepts their order. The Fund's net income for Saturdays,
Sundays, and holidays is declared as a dividend on the preceding business day.
Dividends for any month will be paid on the last day of that month (or, if that
day is not a business day, on the preceding business day), except that the
Fund's schedule for payment of dividends during the month of December may be
adjusted to assist in the Fund's tax reporting and distribution requirements.
All distributions will be reinvested automatically in Fund shares as of the
payment date, unless the shareholder instructs the Fund to pay distributions to
it in cash. Since the net income of the Fund is declared as dividend each time
it is determined, the net asset value per share of the Fund normally remains at
$1 per share immediately after each determination and dividend declaration.
The Fund intends to qualify as a "regulated investment company" for federal
income tax purposes to be relieved of federal taxes on income and gains it
distributes to shareholders. The Fund will distribute substantially all of its
net investment income and capital gain net income on a current basis.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state, or local taxes.
HOW TO PARTICIPATE IN THE FUND
Shares of the Fund are currently being offered only to participants in the
Commonwealth of Virginia State Non-Arbitrage Program (the "SNAP Program").
Participants in the SNAP Program wishing to purchase shares of the Fund should
consult the Information Statement of the SNAP Program, as it may be amended from
time to time (the "Information Statement"), or should contact the SNAP Program
directly, for information as to the procedures they should follow in order to
purchase shares of the Fund through the Program.
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<PAGE>
All Fund shares owned beneficially by participants in the SNAP Program are
owned of record by the Treasury Board, an agency of the Commonwealth of
Virginia, for the benefit of participants. Because the Treasury Board will be
the record owner of all shares of the Fund owned beneficially by SNAP Program
participants, a Program participant should follow the procedures described in
the Information Statement of the SNAP Program to ensure that all instructions as
to any investment by it in the Fund -- including instructions as to the purchase
or sale of shares of the Fund -- are timely carried out by the SNAP Program.
PURCHASE ORDERS; PURCHASE PRICE. The Fund offers its shares continuously at
a price of $1.00 per share. Shares of the Fund are sold at the net asset value
next determined after a purchase order is received by the Fund from the SNAP
Program. The Fund determines its net asset value at 12:00 noon on each day the
New York Stock Exchange is open. Purchase orders that are received prior to
12:00 noon on a particular day are priced according to the net asset value
determined at that time, and the shares purchased at that time will earn the
dividend declared for that day. Purchase orders that are received after 12:00
noon are priced based on the net asset value determined as of the close of the
New York Stock Exchange on that day, and begin to earn dividends on the next
day.
Because the Fund seeks to be fully invested at all times, investments
must be in Same Day Funds to be accepted. "Same Day Funds" are funds credited
by the applicable regional Federal Reserve Bank to the account of the Fund at
Central Fidelity National Bank. A participant in the SNAP Program wishing to
invest in the Fund must ensure that Central Fidelity National Bank, as
Depository for the SNAP Program, receives Same Day Funds at or prior to the
time the participant wishes to invest in the Fund. Consult the Information
Statement or contact the investment manager for the SNAP Program directly for
information.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed on any day when the New York Stock
Exchange is open. Redemptions will be effected at the net asset value per share
of the Fund next determined after receipt of the redemption request in good
order. Shares redeemed at the Fund's 12:00 noon price do not earn the income
dividend declared on the day of redemption. Participants should consult the
Information Statement or contact the SNAP Program directly to ensure that all
necessary steps are taken to effect the timely redemption of their shares.
REDEMPTIONS BY CHECK. SNAP Program participants may elect to have a special
checking account with Central Fidelity National Bank. Checks may be drawn on the
account for any amount. Upon receipt of a completed signature card, Central
Fidelity National Bank will provide the participant with a supply of checks
drawn on the account. Additional supplies of checks are available, upon request.
When a check is presented to Central Fidelity National Bank, a number of shares
in the Fund owned beneficially by the checkwriter will be redeemed in order to
pay the full amount of the check.
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<PAGE>
Redemption by check is not appropriate for a complete liquidation of an
account. If the amount of a redemption check is greater than the value of the
shares owned beneficially by the checkwriter, the check will be returned to the
depositor due to an insufficient account balance. The checkwriting privilege may
be suspended at any time. Consult the Information Statement or contact the SNAP
Program for additional information.
---------------
The Fund will normally redeem shares for cash; however, the Fund reserves
the right to pay the redemption price wholly or partly in kind if the Trustees
determine it to be advisable in the interest of the remaining shareholders. If
portfolio securities are distributed in lieu of cash, the shareholder will
normally incur brokerage commissions upon subsequent disposition of any such
securities.
If shares of the Fund to be redeemed represent an investment made by check,
the Fund reserves the right not to transmit the redemption proceeds to the
shareholder until the check has been collected which may take up to 15 days
after the purchase date.
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust is a Massachusetts business trust organized on
February 8, 1994. A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts.
The Trust is an open-end series a management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into five
series, one representing the Fund, the others representing other funds with
varying investment objectives and policies. Each share has one vote, with
fractional shares voting proportionally. Shares of each class will vote together
as a single class except when required by law or determined by the Trustees.
Shares of the Fund are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the Fund were liquidated, would receive the
net assets of the Fund. The Trust may suspend the sale of shares at any time and
may refuse any order to purchase shares. Although the Trust and the Portfolio
are not required to hold annual meetings of its shareholders, shareholders have
the right to call a meeting to elect or remove Trustees, or to take other
actions as provided in the Agreement and Declaration of Trust.
In the interest of economy and convenience, the Fund will not issue
certificates for its shares except at the shareholder's request.
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CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Central Fidelity National Bank serves as the Fund's custodian and transfer
and dividend agent. The address of Central Fidelity National Bank is 1021 East
Cary Street, P.O. Box 27602, Richmond, Virginia 23261.
PERFORMANCE INFORMATION
The Fund's "yield" is computed by determining the percentage net change,
excluding capital changes, in the value of an investment in one share of the
Fund over the base period, and multiplying the net change by 365/7 (or
approximately 52 weeks). The Fund's "effective yield" represents a compounding
of the yield by adding 1 to the number representing the percentage change in
value of the investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
Past performance does not predict future results. Investment performance,
which will vary, is based on many factors, including market conditions, the
composition of the Fund's portfolio, and the Fund's operating expenses.
Investment performance also often reflects the risks associated with the Fund's
investment objective and policies. These factors should be considered when
comparing the Fund's investment results to those of other mutual funds and other
investment vehicles.
-10-
<PAGE>
SNAP FUND
Prospectus
An Open-End Management
Investment Company
March 8, 1996
-11-
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
(MENTOR CASH MANAGEMENT PORTFOLIO,
MENTOR INTERMEDIATE DURATION PORTFOLIO,
MENTOR FIXED-INCOME PORTFOLIO, AND MENTOR INTERNATIONAL PORTFOLIO)
MARCH 11, 1996
This Statement of Additional Information relates to Mentor Cash
Management Portfolio, Mentor Intermediate Duration Portfolio, Mentor
Fixed-Income Portfolio, and Mentor International Portfolio (each a "Portfolio"
and collectively the "Portfolios"). Each of the Portfolio is a series of
shares of beneficial interest in Mentor Institutional Trust (the "Trust"). This
Statement 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.....................................................20
PRINCIPAL HOLDERS OF SECURITIES.............................................24
INVESTMENT ADVISORY AND OTHER SERVICES......................................24
BROKERAGE...................................................................26
DETERMINATION OF NET ASSET VALUE............................................29
TAX STATUS..................................................................31
THE DISTRIBUTOR.............................................................34
INDEPENDENT ACCOUNTANTS.....................................................34
CUSTODIAN...................................................................34
PERFORMANCE INFORMATION.....................................................34
SHAREHOLDER LIABILITY.......................................................39
OFFICERS OF COMMONWEALTH....................................................39
RATINGS ...................................................................41
FINANCIAL STATEMENTS........................................................44
<PAGE>
GENERAL
Mentor Institutional Trust (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 Mentor Intermediate Duration Portfolio, Mentor
Fixed-Income Portfolio, and Mentor Cash Management Portfolio; Mentor Perpetual
Advisors, L.L.C. serves as investment advisor to Mentor International Portfolio.
Mentor Investment Group, Inc. ("Mentor") serves as administrator to each of the
Portfolios.
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
<PAGE>
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. (All Portfolios other than Mentor International Portfolio)
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.
(Mentor International Portfolio) Borrow more than 331/3% of
the value of its total assets less all liabilities and
indebtedness (other than such borrowings) not represented by
senior securities.
8. (All Portfolios other than Mentor International Portfolio)
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
<PAGE>
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 (other than futures contracts,
options on futures contracts or indices, and options on
foreign currencies).
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.
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
<PAGE>
policies" in the Trust's Prospectuses for a description of the investment
techniques available to a particular Portfolio.
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. The
investment adviser 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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
Options
A Portfolio may purchase and sell put and call options on its portfolio
securities to enhance investment performance and to protect against changes in
market prices.
Covered call options. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call
option, a Portfolio gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Portfolio retains the risk of loss should the price
of such securities decline. If the option expires unexercised, the Portfolio
realizes a gain equal to the premium, which may be offset by a decline in price
of the underlying security. If the option is exercised, the Portfolio realizes a
gain or loss equal to the difference between the Portfolio's cost for the
underlying security and the proceeds of sale (exercise price minus commissions)
plus the amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.
Covered put options. A Portfolio may write covered put options in order
to enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option
<PAGE>
gives the holder the right to sell, and obligates the writer to buy, a security
at the exercise price at any time before the expiration date. A put option is
"covered" if the writer segregates cash and high-grade short-term debt
obligations or other permissible collateral equal to the price to be paid if the
option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. A Portfolio may also purchase put
options to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Portfolio, as a
holder of the option, may sell the underlying security at the exercise price
regardless of any decline in its market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction costs
that the Portfolio must pay. These costs will reduce any profit the Portfolio
might have realized had it sold the underlying security instead of buying the
put option.
A Portfolio may purchase call options to hedge against an increase in
the price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
A Portfolio may also purchase put and call options to enhance its
current return.
Options on foreign securities. The Trust may, on behalf of a Portfolio,
purchase and sell options on foreign securities if in the opinion of its
investment advisor the investment characteristics of such options, including the
risks of investing in such options, are consistent with the Portfolio's
investment objectives. It is expected that risks related to such options will
not differ materially from risks related to options on U.S. securities. However,
position limits and other rules of foreign exchanges may differ from those in
the U.S. In addition, options markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the U.S.
<PAGE>
Risks involved in the sale of options. Options transactions involve
certain risks, including the risks that a Portfolio's investment adviser will
not forecast interest rate or market movements correctly, that a Portfolio may
be unable at times to close out such positions, or that hedging transactions may
not accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
investment adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when its investment adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Trust's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the Trust
and other clients of the Portfolios' investment advisers may be considered such
a group. These position limits may restrict the Trust's ability to purchase or
sell options on particular securities.
Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
Futures Contracts
In order to hedge against the effects of adverse market changes a
Portfolio may buy and sell futures contracts. A Portfolio may also, to the
extent permitted by applicable law, buy and sell futures contracts and options
on futures contracts to increase the Portfolio's current return. All such
futures and related options will, as may be required by applicable law, be
traded on exchanges that are licensed and regulated by the Commodity Futures
Trading Commission (the "CFTC").
<PAGE>
Index Futures Contracts and Options. A Portfolio may invest in debt
index futures contracts and stock index futures contracts, and in related
options. A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. Debt index futures
in which the Portfolios are presently expected to invest are not now available,
although such futures contracts are expected to become available in the future.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Portfolio enters into a futures contract to buy 100 units of
the S&P 100 Index at a specified future date at a contract price of $180 and the
S&P 100 Index is at $184 on that future date, the Portfolio will gain $400 (100
units x gain of $4). If the Portfolio enters into a futures contract to sell 100
units of the stock index at a specified future date at a contract price of $180
and the S&P 100 Index is at $182 on that future date, the Portfolio will lose
$200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, a Portfolio must invest in futures contracts with
respect to indexes or subindexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Portfolio's
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last
<PAGE>
trading day prior to the expiration date of the option, the settlement will be
made entirely in cash based on the difference between the exercise price of the
option and the closing level of the index on which the futures contract is based
on the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on
index futures contracts, each of the Portfolios which may purchase and sell
index futures contracts may purchase and sell call and put options on the
underlying indexes themselves to the extent that such options are traded on
national securities exchanges. Index options are similar to options on
individual securities in that the purchaser of an index option acquires the
right to buy (in the case of a call) or sell (in the case of a put), and the
writer undertakes the obligation to sell or buy (as the case may be), units of
an index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of an
index option has the right to receive a cash "exercise settlement amount". This
amount is equal to the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
a fixed "index multiplier".
A Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
Margin Payments. When a Portfolio purchases or sells a futures
contract, it is required to deposit with its custodian an amount of cash, U.S.
Treasury bills, or other permissible collateral equal to a small percentage of
the amount of the futures contract. This amount is known as "initial margin".
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to a Portfolio upon termination of the contract,
assuming a Portfolio satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Portfolio sells a futures contract and the value of the
underlying index rises above the delivery price, the Portfolio's position
declines in value. The Portfolio then pays the broker a variation margin
<PAGE>
payment equal to the difference between the delivery price of the futures
contract and the value of the index underlying the futures contract. Conversely,
if the price of the underlying index falls below the delivery price of the
contract, the Portfolio's futures position increases in value. The broker then
must make a variation margin payment equal to the difference between the
delivery price of the futures contract and the value of the index underlying the
futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity risks. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Portfolio would have to exercise the
options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying index or
movements in the prices of a Portfolio's securities which are the subject of a
hedge. A Portfolio's investment adviser will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related
<PAGE>
options on securities and indexes the movements of which will, in its judgment,
correlate closely with movements in the value of the underlying index and the
Portfolio's portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for
hedging purposes is also subject to its investment adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where a
Portfolio has purchased puts on futures contracts to hedge its portfolio against
a decline in the market, the index on which the puts are purchased may increase
in value and the value of securities held in the portfolio may decline. If this
occurred, the Portfolio would lose money on the puts and also experience a
decline in value in its portfolio securities. In addition, the prices of
futures, for a number of reasons, may not correlate perfectly with movements in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
index and futures markets. Second, the margin requirements in the futures
markets are less onerous than margin requirements in the securities markets in
general, and as a result the futures markets may attract more speculators than
the securities markets do. Increased participation by speculators in the futures
markets may also cause temporary price distortions. Due to the possibility of
price distortion, even a correct forecast of general market trends by a
Portfolio's investment adviser may still not result in a successful hedging
transaction over a very short time period.
Other Risks. A Portfolio will incur brokerage fees in connection with
its futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss, which may be unlimited.
Segregation of Assets
A Portfolio may at times segregate assets in respect of certain
transactions in which the Portfolio enters into a commitment to pay money or
deliver securities at some future date. Any such segregated account will
be maintained by the Trust's custodian and may contain cash, U.S.
government securities, liquid high grade debt obligations, or other appropriate
assets.
<PAGE>
Reverse Repurchase Agreements
A Portfolio may enter into reverse repurchase agreements in which the
Portfolio sells securities and agrees to repurchase them at a mutually agreed
date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
A Portfolio may also enter into reverse repurchase agreements in which
the Portfolio sells securities and agrees to repurchase them at a mutually
agreed date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
Reverse repurchase agreements may be viewed as a borrowing by the
Portfolio, secured by the security which is the subject of the agreement. In
addition to the general risks involved in leveraging, reverse repurchase
agreements involve the risk that, in the event of the bankruptcy or insolvency
of the Portfolio's counterparty, the Portfolio would be unable to recover the
security which is the subject of the agreement, the amount of cash or other
property transferred by the counterparty to the Portfolio under the agreement
prior to such insolvency or bankruptcy is less than the value of the security
subject to the agreement, or the Portfolio may be delayed or prevented, due to
such insolvency or bankruptcy, from using such cash or property or may be
required to return it to the counterparty or its trustee or receiver.
Loans of Portfolio Securities
A Portfolio may lend its portfolio securities, provided: (1) the loan
is secured continuously by collateral consisting of U.S. Government Securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Portfolio may at any
time call the loan and regain the securities loaned; (3) a Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities of any Portfolio loaned will not at any
time exceed one-third (or such other limit as the Trustee may establish) of the
total assets of the Portfolio. In addition, it is anticipated that a Portfolio
may share with the borrower some of the income received on the collateral for
the loan or that it will be paid a premium for the loan. Before a Portfolio
enters into a loan, its investment adviser considers all relevant facts and
circumstances including the creditworthiness of the borrower. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the
<PAGE>
securities or possible loss of rights in the collateral should the borrower fail
financially. Although voting rights or rights to consent with respect to the
loaned securities pass to the borrower, a Portfolio retains the right to call
the loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by a Portfolio if the holders of such securities are
asked to vote upon or consent to matters materially affecting the investment. A
Portfolio will not lend portfolio securities to borrowers affiliated with the
Portfolio.
Foreign Securities
A Portfolio may invest in foreign securities and in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.
Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that a Portfolio's foreign investments are
not United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment advisor of a Portfolio seeking current income will consider the
likely impact of foreign taxes on the net yield available to the Portfolio and
its shareholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of a Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by a Portfolio will reduce its net income available
for distribution to shareholders.
<PAGE>
Foreign Currency Transactions
A Portfolio may engage in currency exchange transactions to protect
against uncertainty in the level of future foreign currency exchange rates and
to increase current return. A Portfolio may engage in both "transaction hedging"
and "position hedging".
When it engages in transaction hedging, a Portfolio enters into foreign
currency transactions with respect to specific receivables or payables of the
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. A Portfolio will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging a Portfolio will attempt
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes a Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives a Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives a Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives a Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. A Portfolio
will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of its
investment adviser, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, a Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Portfolio are denominated or
are quoted in their principle trading markets or an increase in the value of
currency for securities which a Portfolio expects to purchase. In connection
with position hedging, a Portfolio may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts
<PAGE>
and foreign currency futures contracts. A Portfolio may also purchase or sell
foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of a
Portfolio's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
To offset some of the costs to a Portfolio of hedging against
fluctuations in currency exchange rates, the Portfolio may write covered call
options on those currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
A Portfolio may also seek to increase its current return by purchasing
and selling foreign currency on a spot basis, and by purchasing and selling
options on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no
<PAGE>
deposit requirement, and no commissions are charged at any stage for trades. A
foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency at a future date at a price
set at the time of the contract. Foreign currency futures contracts traded in
the United States are designed by and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may
either accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Portfolio will normally purchase
or sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and,
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.
Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when a Portfolio's investment adviser believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. Options on
foreign currencies are affected by all of those factors which influence exchange
rates and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a
<PAGE>
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be disadvantaged
by having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
Settlement Procedures. Settlement procedures relating to a Portfolio's
investments in foreign securities and to a Portfolio's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in a Portfolio's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and a Portfolio may be required to accept or make delivery of
the underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should a Portfolio desire
to resell that currency to the dealer.
<PAGE>
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.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name and Address with Portfolio During Past 5 Years
- ---------------- -------------- -------------------
<S> <C> <C>
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 Executive Officer
Trustee 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.
<PAGE>
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;
Executive Vice President and Chief
Administrative Officer, America's
Utility Fund, Inc.; Director, Mentor
Perpectual Advisors, L.L.C. and
Mentor Trust Company; 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, Mentor Income Fund Inc., The
Mentor Funds, and America's Utility
Fund, Inc.; formerly, Treasurer and
Comptroller, Ryland Capital
Management, Inc.
<PAGE>
Michael Wade Assistant Treasurer Associate Vice President, Mentor
Investment Group, Inc. since April
1994; Assistant Treasurer, Cash
Resource Trust, Mentor Income Fund,
Inc., The Mentor Funds, and America's
Utility Fund, Inc.; formerly,
Senior Accountant, Wheat First
Butcher Singer, Inc., April 1993
through March 1994; Audit Senior,
BDO Seidman, July 1989 through March
1993.
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.
</TABLE>
The table below shows the fees paid to each Trustee by the Trust for
the 1995 fiscal year and the fees paid to each Trustee by all funds in the
Mentor family (including the Trust) during the 1995 calendar year.
<TABLE>
<CAPTION>
Total compensation
Aggregate compensation from all
Trustees from the Trust complex funds
<S> <C> <C>
Daniel J. Ludeman $ 0 $ 0
Arnold H. Dreyfuss 200 17,200
Thomas F. Keller 200 14,700
Louis W. Moelchert, Jr. 200 16,700
Stanley F. Pauley 150 16,675
Troy A. Peery, Jr. 150 16,175
</TABLE>
- -------------
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
<PAGE>
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 February 15, 1996, 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 owned of record or beneficially more
than 5% of the outstanding shares of any Portfolio as of that date, except
the following:
SHAREHOLDER PERCENTAGE SHARES
Cash Management Portfolio:
Farmers Telephone Coop. Inc. 7.50% 6,408,239
P.O. Box 586
Kingstree, SC 29556-0588
James City County 9.85% 8,449,920
Attn: Betty S. Pettengill, Treas.
P.O. Box 8701
Williamsburg, VA 23167-8701
Roanoke County Resource Authority 6.01% 6,136,566
P.O. Box 21009
Roanoke, VA 24018-0533
Spotsylvania County 6.99% 5,980,537
Attn: Larry Pritchett
P.O. Box 65
Spotsylvania, VA 22553-0065
Stafford County 7.34% 6,273,067
P.O. Box 68
Stafford, VA 22555-0068
Intermediate Duration Portfolio:
NationsBank 74.55% 731,597
C/F McGuire Woods & Battle
Pens Plan U/A DTD 8/25/94
Attn: C. Singleton
1801 K Street NW
Washington, DC 20006-1301
Longwood College FDN Inc. 18.77% 164,216
Longwood College
C/O Jimmy H. Paul
201 High Street
Farmville, VA 23909-1600
Fixed Income Portfolio:
Wheat First Butcher Singer 99.25% 2,576,032
FBO IMG Fixed-Income
Attn: John Rice
700 N. Park Drive
Glen Allen, VA 23060
No shares of Mentor International Portfolio were outstanding for the
period for which information is shown.
INVESTMENT ADVISORY AND OTHER SERVICES
Each of Commonwealth and Mentor Perpetual act as investment advisers to
the respective Portfolios pursuant to Management Contracts with the Trust.
Mentor Investment Group 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, each investment adviser
<PAGE>
manages a Portfolio's portfolio in accordance with the stated policies of that
Portfolio and of the Trust. The investment advisers make investment decisions
for the Portfolios and place 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. Each investment adviser and Mentor bear all their
expenses in connection with the performance of their services. In addition, the
investment advisers and Mentor pay the salaries of all officers and employees
who are employed by them and the Trust.
The investment advisers provide the Portfolios with investment officers
who are authorized to execute purchases and sales of securities. Investment
decisions for the Portfolios and for the other investment advisory clients of an
investment adviser 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 the
investment adviser'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. The investment advisers
employ professional staffs of portfolio managers who draw upon a variety of
resources, including Wheat for research information for their respective
Portfolios.
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
<PAGE>
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 Contracts and the Administration Agreement is
subject to annual approval (commencing in 1996 for Mentor Intermediate Duration
Portfolio, Mentor Fixed-Income Portfolio, and Mentor Cash Management Portfolio
and commencing in 1997 for Mentor International Portfolio) 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, the investment
adviser in question, 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 the investment adviser. 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 Portfolio usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Portfolio includes a disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and sales of
portfolio 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
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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, the investment
advisers receive brokerage and research services and other similar services from
many broker-dealers with which they place the Portfolios' 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 the
investment advisers' managers and analysts. Where the services referred to above
are not used exclusively by an investment adviser for research purposes, the
investment adviser, 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 an investment adviser 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.
The investment advisers place all orders for the purchase and sale of
portfolio investments for the Portfolios and buy and sell investments for the
Portfolios through a substantial number of brokers and dealers. The investment
advisers seek the best overall terms available for the Portfolios, except to the
extent they may be permitted to pay higher brokerage commissions as described
below. In doing so, an investment adviser, 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, the investment advisers may cause the Portfolios to pay a
broker-dealer which provides "brokerage and research services" (as defined in
the 1934 Act) to them 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. The investment advisers' 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. The investment advisers do
not currently intend to cause a Portfolio 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, the investment advisers will use their best efforts
to obtain the best overall terms available with respect to such transactions, as
described above.
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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, the investment advisers 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.
The Trustees have determined that portfolio transactions for the Trust
may be effected through Wheat. The Trustees have adopted certain policies
incorporating the standards of Rule 17e-l issued by the SEC under the 1940 Act
which requires, among other things, that the commissions paid to Wheat must be
reasonable and fair compared to the commissions, fees, or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. Wheat will not
participate in brokerage commissions given by a Portfolio to other brokers or
dealers. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. A Portfolio will in no event effect
principal transactions with Wheat in over-the-counter securities in which Wheat
makes a market.
Under rules adopted by the SEC, Wheat may not execute transactions for
a Portfolio on the floor of any national securities exchange, but may effect
transactions for a Portfolio by transmitting orders for execution and arranging
for the performance of this function by members of the exchange not associated
with Wheat. Wheat will be required to pay fees charged to those persons
performing the floor brokerage elements out of the brokerage compensation it
receives from a Portfolio. The Trust has been advised by Wheat that on most
transactions, the floor brokerage generally constitutes from 5% and 10% of the
total commissions paid.
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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, MENTOR FIXED-INCOME PORTFOLIO
AND MENTOR INTERNATIONAL PORTFOLIO. In respect of Mentor Intermediate Duration
Portfolio, Mentor FixedIncome Portfolio, and Mentor International Portfolio,
securities for which market quotations are readily available are valued at
prices which, in the opinion of the Trustees or a Portfolio's investment
adviser, 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, institutionalsize 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, its
investment adviser 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,
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
Foreign currency-denominated securities and related hedging
transactions (Mentor International Portfolio only). Mentor International
Portfolio's transactions in foreign currencies, foreign currency-denominated
debt securities, and certain foreign currency options, futures contracts, and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
If more than 50% of the Portfolio's assets at year end consists of the
debt and equity securities of foreign corporations, the Portfolio may elect to
permit shareholders to claim a credit or deduction on their income tax returns
for their pro rata portion of qualified taxes paid by the Portfolio to foreign
countries. In such a case, shareholders will include in gross income from
foreign sources their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign taxes paid by the
Portfolio may be subject to certain limitations imposed by the Code, as a result
of which a shareholder may not get a full credit or deduction for the amount of
such taxes. Shareholders who do not itemize on their federal income tax returns
may claim a credit (but no deduction) for such foreign taxes.
Investment by the Portfolio in certain "passive foreign investment
companies" could subject the Portfolio to a U.S. federal income tax or other
charge on the proceeds from the sale of its investment in such a company;
however, this tax can be avoided by making an election to mark such investments
to market annually or to treat the passive foreign investment company as a
"qualified electing fund."
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should 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.
<PAGE>
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. ("Mentor Distributors") is the Trust's
distributor and service agent and is a wholly-owned subsidiary of Wheat First
Butcher Singer. Mentor Distributors is acting on a best efforts basis in the
continuous offering of the Trust's shares.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, 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, Mentor Fixed
Income Portfolio and Mentor International Portfolios, total return is determined
by calculating the actual investment return on a $1,000 investment in the
Portfolio over the applicable 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
(commencement of operations December 19, 1994) and Mentor Fixed-Income Portfolio
(commencement of operations December 6, 1994) through October 31, 1995 was
12.38% and 15.90%, respectively. NO SHARES OF MENTOR INTERNATIONAL
PORTFOLIO WERE OUTSTANDING DURING THIS PERIOD.
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
<PAGE>
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 Mentor Intermediate Duration and Mentor Fixed-Income Portfolio for the
thirty-day period ended October 31, 1995 was 6.30% and 6.36%, respectively.
NO SHARES OF MENTOR INTERNATIONAL PORTFOLIO WERE OUTSTANDING DURING THIS PERIOD.
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 October 31, 1995, Mentor Cash
Management Portfolio's yield was 5.79% and its effective yield was 5.96%.
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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,
<PAGE>
and the 100 funds are determined by applying four criteria. First,
equity funds whose current management teams have been in place for less
than five years are eliminated. (The standard for bond funds is three
years.) Second, the author excludes any fund that ranks in the bottom
20 percent of its category's risk level. Risk is determined by
analyzing how many months over the past three years the fund has
underperformed a bank CD or a U.S. Treasury bill. Third, a fund must
have demonstrated strong results for current three-year and five-year
performance. Fourth, the fund must either possess, in Mr. Williamson's
judgment, "excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in five categories:
total return, risk/volatility, management, current income and expenses.
The rankings follow a fivepoint system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points qualify as a
"very good"; four points rank as "superior"; and five points mean
"excellent."
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.
OFFICERS OF COMMONWEALTH
W. HANCE WEST, JR., CFA MANAGING DIRECTOR, TOTAL RETURN PORTFOLIO MANAGER
Mr. West has eight years of investment management experience. Mr. West serves
as co-manager for the Mentor Income Fund (formerly RAC Income Fund), a $130
million closed-end bond fund. He holds his undergraduate degree in accounting
from Virginia Polytechnic Institute and his graduate degree in business from
University of Rochester.
P. MICHAEL JONES, CFA MANAGING DIRECTOR, INCOME PORTFOLIO MANAGER
Mr. Jones has ten years of investment management experience. Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He earned his undergraduate degree from the
College of William and Mary.
<PAGE>
STEVEN C. HENDERSON ASSOCIATE VICE PRESIDENT, INCOME PORTFOLIO MANAGER
Mr. Henderson has six years of investment management experience. He has an
undergraduate degree from the University of Richmond and a masters in business
administration from George Washington University.
STEPHEN R. MCCLELLAND VICE PRESIDENT, TOTAL RETURN PORTFOLIO MANAGER
Mr. McClelland has five years of investment management experience, all of which
have been at Commonwealth. He is a Certified Public Accountant and
received his undergraduate degree in accounting from Iowa State University and
his graduate business degree from Virginia Commonwealth University.
KEITH WANTLING ASSOCIATE VICE PRESIDENT, SENIOR RESEARCH ANALYST
Mr. Wantling has four years of experience. Mr. Wantling performs analysis and
screening for credit sensitive private label mortgage-backed securities and
directs the firm's portfolio analysis effort. He holds his undergraduate degree
in accounting information systems from Virginia Polytechnic Institute.
R. PRESTON NUTTALL, CFA MANAGING DIRECTOR, DIRECTOR OF CASH MANAGEMENT AND
PORTFOLIO MANAGER
Mr. Nuttall has more than thirty years of investment management experience.
Prior to Commonwealth, he led short-term fixed-income management for fifteen
years at Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.
HUBERT R. WHITE III VICE PRESIDENT, PORTFOLIO MANAGER
Mr. White has eleven years of investment management experience. Prior to
joining Commonwealth, he served for five years as portfolio manager with
Capitoline Investment Services. He has his undergraduate degree in business
from the University of Richmond.
KATHRYN T. ALLEN VICE PRESIDENT, PORTFOLIO MANAGER
Ms. Allen has fourteen years of investment management experience and specializes
in tax-free trades. Prior to joining Commonwealth, Ms. Allen was portfolio
group manager at PNC Institutional Management Corporation. She has her
undergraduate degree in commerce and business administration from the University
of Alabama.
<PAGE>
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:
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.
<PAGE>
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;
<PAGE>
(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>
<PAGE>
MENTOR CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal
Net Assets Amount Value
<S> <C> <C> <C>
BANK NOTE 4.29%
Harris Trust, 5.75%, 11/30/95 $ 3,000,000 $ 3,000,000
BANKERS ACCEPTANCES 22.81%
Chase Manhattan Bank, 5.70%, 12/29/95 1,058,874 1,049,150
Citibank, 5.72%, 11/10/95 2,000,000 1,997,140
Corestates Bank, 5.57%-5.62%, 2/20/96-2/23/96 2,000,000 1,965,029
Credit Suisse New York, 5.66%, 11/14/95 2,000,000 1,995,912
Mellon Bank, 5.71%-5.72%, 11/13/95-1/26/96 3,470,310 3,442,407
Nationsbank, 5.70%-5.75%, 2/23/96-3/20/96 3,000,000 2,940,245
State Street Bank & Trust Company, 5.63%, 1/30/96 2,616,492 2,579,665
Total Bankers Acceptances 15,969,548
COMMERCIAL PAPER 28.45%
ABN-Amro North America Finance, Inc.,
5.55%, 2/21/96 2,000,000 1,965,467
Associates Corporation of North America,
5.71%, 11/28/95 2,000,000 1,991,435
CS First Boston, 5.65%-5.71%, 11/9/95-1/18/96 2,000,000 1,986,489
Electronic Data Systems Corporation, 5.72%, 1/30/96 2,000,000 1,971,400
Internationale Nederlanden Funding Corporation, 5.72%,
11/22/95 3,000,000 2,989,990
Merrill Lynch & Company, Inc., 5.58%, 3/8/96 2,000,000 1,960,320
Morgan Stanley Group, Inc., 5.60%-5.73%,
12/20/95-1/25/96 3,000,000 2,971,227
National Rural Utilities Cooperative
Finance Corporation, 5.70%, 11/2/95 2,000,000 1,999,683
Rincon Securities, Inc., 5.70%-5.72%,
12/15/95-1/12/96 2,100,000 2,080,910
Total Commercial Paper 19,916,921
U.S. GOVERNMENT AGENCIES 8.57%
Federal Home Loan Bank, 5.17%, 11/6/95 2,000,000 1,999,688
Student Loan Market Association, 5.00%-5.75%,
8/9/96-8/4/97 (a) 4,000,000 3,998,434
Total U.S. Government Agencies 5,998,122
</TABLE>
<PAGE>
MENTOR CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal
Net Assets Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENTS 35.67%
Goldman, Sachs & Company
Dated 10/31/95, 5.90%, due 11/1/95, collateralized by
$9,984,748 Federal Home Loan Mortgage Corporation, 7.50%,
1/1/00 $ 9,968,182 $ 9,968,182
Nationsbank Corporation
Dated 10/31/95, 5.85%, due 11/1/95, collateralized by
$13,900,000 U.S. Treasury Note, 7.75%, 11/30/99 15,000,000 15,000,000
Total Repurchase Agreements 24,968,182
TOTAL INVESTMENTS (COST $69,852,773) 99.79% 69,852,773
OTHER ASSETS LESS LIABILITIES 0.21% 144,206
NET ASSETS 100.00% $69,996,979
</TABLE>
(a) Floating Rate Securities -- The rates shown are the effective rates at
October 31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
MENTOR INTERMEDIATE DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 63.22%
Federal Home Loan Mortgage Corporation,
10.50%, 2/1/03 $ 433,265 $ 459,465
Federal National Mortgage Association,
11.00%, 7/1/01 304,204 321,221
Government National Mortgage Association,
6.50%, 9/1/25, TBA* 550,000 533,841
U.S. Treasury Note, 7.50%, 1/31/97 500,000 511,245
U.S. Treasury Note, 7.38%, 11/15/97 700,000 722,911
U.S. Treasury Note, 5.50%, 2/28/99 2,100,000 2,085,342
U.S. Treasury Note, 7.50%, 11/15/01** 1,600,000 1,729,920
U.S. Treasury Note, 6.25%, 2/15/03 250,000 254,342
U.S. Treasury Note, 7.25%, 5/15/04 875,000 946,654
Total U.S. Government and Agency Securities
(cost $7,433,645) 7,564,941
CORPORATE BONDS 20.96%
Abbey National PLC, 6.69%, 10/17/05 200,000 200,560
Developers Diversified Realty, 7.63%, 5/15/00 250,000 251,830
Lehman Brothers, Inc., 9.88%, 10/15/00 525,000 591,958
Limited, Inc., 8.88%, 8/15/99 125,000 135,095
Occidental Petroleum, 8.75%, 2/14/03 300,000 314,133
Salomon, Inc., MTN, 9.75%, 7/15/97 300,000 314,355
Salomon, Inc., 6.00%, 1/12/98 250,000 245,530
Service Corporation International, 6.88%, 10/1/07 200,000 200,718
Travelers, Inc., 6.88%, 6/1/25 250,000 254,073
Total Corporate Bonds (cost $2,483,538) 2,508,252
</TABLE>
7
<PAGE>
MENTOR INTERMEDIATE DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 17.17%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 10/31/95, 5.85%, due 11/1/95, collateralized
by $1,900,000 U.S. Treasury Note, 7.75%,
11/30/99 (cost $2,053,656) $ 2,053,656 $ 2,053,656
TOTAL INVESTMENTS (COST $11,970,839) 101.35% 12,126,849
OTHER ASSETS LESS LIABILITIES (1.35%) (161,052)
NET ASSETS 100.00% $11,965,797
</TABLE>
* At October 31, 1995 cost of securities purchased on a when-issued basis
totaled $536,418.
** $1,600,000 principal amount of this security has been segregated for a
commitment to purchase
when-issued securities at October 31, 1995.
MTN - Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
MENTOR FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 56.39%
Federal Home Loan Mortgage Corporation,
10.50%, 2/1/03 $ 433,265 $ 459,465
Federal National Mortgage Association,
11.00%, 7/1/01 437,756 462,245
Government National Mortgage Association,
6.50%, 9/1/25, TBA* 1,650,000 1,601,523
U.S. Treasury Note, 5.50%, 2/28/99 3,000,000 2,979,060
U.S. Treasury Note, 5.63%, 6/30/97 3,000,000 2,999,970
U.S. Treasury Note, 6.13%, 7/31/00 500,000 506,090
U.S. Treasury Note, 7.50%, 5/15/02 1,000,000 1,086,220
U.S. Treasury Note, 6.25%, 2/15/03 1,100,000 1,119,107
U.S. Treasury Note, 7.25%, 5/15/04 1,200,000 1,298,268
U.S. Treasury Bond, 7.13%, 2/15/23** 2,450,000 2,669,152
U.S. Treasury Bond, 7.50%, 11/15/24** 2,760,000 3,152,362
U.S. Treasury Bond, 7.63%, 2/15/25 750,000 870,292
Total U.S. Government and Agency Securities
(cost $18,247,812) 19,203,754
CORPORATE BONDS 28.55%
Abbey National PLC, 6.69%, 10/17/05 800,000 802,240
Developers Diversified Realty, 7.63%, 5/15/00 750,000 755,490
Lehman Brothers, Inc., 9.88%, 10/15/00 1,475,000 1,663,122
Limited, Inc., 8.88%, 8/15/99 375,000 405,285
Lockheed Martin Corporation, 9.38%, 10/15/99 1,000,000 1,108,670
Nationsbank, 9.38%, 9/15/09 750,000 906,232
Occidental Petroleum, 8.75%, 2/14/03 1,000,000 1,047,110
Salomon, Inc., MTN, 9.75%, 7/15/97 700,000 733,495
Salomon, Inc., 6.00%, 1/12/98 750,000 736,590
Service Corporation International, 6.88%, 10/1/07 800,000 802,872
Travelers, Inc., 6.88%, 6/1/25 750,000 762,218
Total Corporate Bonds (cost $9,631,873) 9,723,324
</TABLE>
9
<PAGE>
MENTOR FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 18.40%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 10/31/95, 5.85%, due 11/1/95, collateralized by
$5,800,000 U.S. Treasury Note, 7.75%, 11/30/99 (cost
$6,265,720) $6,265,720 $ 6,265,720
TOTAL INVESTMENTS (COST $34,145,405) 103.34% 35,192,798
OTHER ASSETS LESS LIABILITIES (3.34%) (1,139,339)
NET ASSETS 100.00% $34,053,459
</TABLE>
* At October 31, 1995 cost of securities purchased on a when-issued basis
totaled $1,609,254.
** $5,210,000 principal amount of these securities have been segregated for a
commitment to purchase when-issued securities at October 31, 1995.
MTN - Medium Term Note
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
ASSETS
Investments, at market value * (Note 2)
Investment securities $44,884,591 $ 10,073,193 $28,927,078
Repurchase agreements 24,968,182 2,053,656 6,265,720
Total investments 69,852,773 12,126,849 35,192,798
Receivables
Interest 112,548 198,625 470,263
Fund shares sold 9,579 170,000 155,533
Due from management company (Note 4) 35,983 9,702 26,135
Deferred expenses (Note 2) 27,367 5,362 27,048
Total assets 70,038,250 12,510,538 35,871,777
LIABILITIES
Payables
Investments purchased - 536,418 1,609,254
Fund shares redeemed 5,097 - 189,408
Dividends 11,131 - -
Accrued expenses and other liabilities 25,043 8,323 19,656
Total liabilities 41,271 544,741 1,818,318
NET ASSETS $69,996,979 $ 11,965,797 $34,053,459
Net Assets represented by:
Additional paid-in capital $69,996,979 $ 11,278,113 $31,480,542
Undistributed net investment income - 54,440 172,353
Undistributed realized gain on investment
transactions - 477,234 1,353,171
Net unrealized appreciation of investments - 156,010 1,047,393
Net Assets $69,996,979 $ 11,965,797 $34,053,459
Shares Outstanding 69,996,979 898,741 2,484,138
NET ASSET VALUE PER SHARE $ 1.00 $ 13.31 $ 13.71
</TABLE>
* Investments at cost $69,852,773, $11,970,839 and $34,145,405 respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
INVESTMENT INCOME
Interest (Note 2) $2,439,036 $ 668,347 $1,797,962
EXPENSES
Transfer agent fees 42,539 10,464 25,942
Custodian fees 14,749 10,158 16,836
Organizational expenses (Note 2) 6,857 1,347 6,779
Audit fees 6,762 1,356 3,555
Shareholder reports and postage expenses 3,977 895 2,222
Legal fees 3,395 800 2,345
Registration expenses 1,122 255 646
Directors' fees and expenses 441 130 329
Total expenses 79,842 25,405 58,654
Deduct
Reimbursement of expenses by management
company (Note 4) 63,607 20,703 45,996
Net expenses 16,235 4,702 12,658
Net investment income 2,422,801 663,645 1,785,304
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments (Note 2) - 468,099 1,341,178
Change in unrealized appreciation of investments - 156,010 1,047,393
Net realized and unrealized gain on investments - 624,109 2,388,571
Net increase in net assets resulting from operations $2,422,801 $1,287,754 $4,173,875
</TABLE>
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Period Ended October 31, 1995 Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $ 2,422,801 $ 663,645 $ 1,785,304
Net realized gain on investments - 468,099 1,341,178
Change in net unrealized appreciation of investments - 156,010 1,047,393
Increase in net assets from operations 2,422,801 1,287,754 4,173,875
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (2,422,801) (600,070) (1,600,958)
CAPITAL SHARE TRANSACTIONS (NOTE 7)
Net proceeds from sale of shares 137,216,173 10,710,006 34,992,343
Reinvested distributions 2,407,807 599,637 1,600,958
Cost of shares redeemed (69,627,001) (31,530) (5,112,759)
Change in net assets from capital share transactions 69,996,979 11,278,113 31,480,542
Increase in net assets 69,996,979 11,965,797 34,053,459
NET ASSETS
Beginning of period - - -
End of period $ 69,996,979 $11,965,797 $ 34,053,459
</TABLE>
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Mentor Mentor Mentor
Cash Intermediate Fixed-
Management Duration Income
Period Ended October 31, 1995 Portfolio* Portfolio** Portfolio***
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 12.50 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.78 0.81
Net realized and unrealized gain on
investments - 0.74 1.14
Total from investment operations 0.05 1.52 1.95
LESS DISTRIBUTIONS
Dividends from income (0.05) (0.71) (0.74)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 13.31 $13.71
Total Return 5.06% 12.38% 15.90%
Ratios / Supplemental Data
Net assets, end of period (in thousands) $ 69,997 $ 11,966 $34,053
Ratio of expenses to average net assets 0.04%(a) 0.05%(a) 0.05%(a)
Ratio of expenses to average net assets
excluding waiver 0.18%(a) 0.25%(a) 0.22%(a)
Ratio of net investment income to average
net assets 5.56%(a) 6.52%(a) 6.75%(a)
Portfolio turnover rate - 307% 302%
</TABLE>
(a) Annualized.
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
NOTE 1: ORGANIZATION
Mentor Institutional Trust, formerly IMG Institutional Trust, was organized on
February 8, 1994, and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. On June 27, 1995, the
name of the the Trust was changed to Mentor Institutional Trust ("Trust"). The
Trust consists of four separate diversified portfolios (hereinafter each
individually referred to as a "Portfolio" or collectively as the "Portfolios")
at October 31, 1995. These financial statements include the following
Portfolios:
Mentor Cash Management Portfolio
("Cash Management Portfolio")
Mentor Intermediate Duration Portfolio
("Intermediate Duration Portfolio")
Mentor Fixed-Income Portfolio
("Fixed-Income Portfolio")
The assets of each Portfolio of the Trust are segregated and a shareholder's
interest is limited to the Portfolio in which shares are held.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios:
A. Valuation of Securities
Securities held by the Cash Management Portfolio are stated at amortized cost,
which approximates market value. In the event that a deviation of 1/2 of 1% or
more exists between the Portfolio's $1.00 per share net asset value, calculated
at amortized cost, and the net asset value calculated by reference to
market-based values, or if there is any other deviation that the Board of
Trustees believes would result in a material dilution to shareholders or
purchasers, the Board of Trustees will promptly consider what action should be
initiated.
U.S. Government obligations held by the Intermediate Duration Portfolio and the
Fixed-Income Portfolio are valued at the mean between the over-the-counter bid
and asked prices as furnished by an independent pricing service. Listed
corporate bonds, other fixed income
15
<PAGE>
securities, mortgage backed securities, mortgage related and other related
securities are valued at the prices provided by an independent pricing service.
Security valuations not available from an independent pricing service are
provided by dealers reviewed by the Board of Trustees. In determining value, the
dealers use information with respect to transactions in such securities, market
transactions in comparable securities, various relationships between securities,
and yield to maturity. Any securities for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by the Board of Trustees.
B. Repurchase Agreements
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book entry system, or to have
segregated within the custodian bank's possession all securities held as
collateral in support of repurchase agreement investments. Additionally,
procedures have been established by the Trust to monitor, on a daily basis, the
market value of each repurchase agreement's underlying securities to ensure the
existence of a proper level of collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Trust's adviser to be creditworthy pursuant to guidelines established by the
Trustees. Risks may arise from the potential inability of counterparties to
honor the terms of the repurchase agreement. Accordingly, the Trust could
receive less than the repurchase price on the sale of collateral securities.
C. Security Transactions and Interest Income
Security transactions for the Portfolios are accounted for on a trade date
basis. Interest income is recorded on the accrual basis and includes
amortization of premium and discount on investments. Realized and unrealized
gains and losses on investment security transactions are calculated on an
identified cost basis.
16
<PAGE>
D. Expenses
Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Trust expenses are allocated among the Portfolios in proportion to their
relative net assets.
E. Federal Taxes
No provision for federal income taxes has been made since it is each Portfolio's
intent to comply with the provisions applicable to regulated investment
companies under the Internal Revenue Code and to distribute to its shareholders
within allowable time limit substantially all taxable income and realized
capital gains.
F. When-Issued and Delayed Delivery Transactions
The Fixed-Income Portfolio and Intermediate-Duration Portfolio may engage in
when-issued or delayed delivery transactions. To the extent the Portfolios
engage in such transactions, they will do so for the purpose of acquiring
portfolio securities consistent with their investment objectives and policies
and not for the purpose of investment leverage. The Portfolios will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Portfolios will maintain security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
G. Deferred Expenses
Costs incurred by the Portfolios in connection with their initial share
registration and organization costs were deferred by the Portfolios and are
being amortized on a straight-line basis over a five-year period.
H. Distributions
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to deferral of wash sales.
17
<PAGE>
NOTE 3: DIVIDENDS
Dividends will be declared daily and paid monthly by the Cash Management
Portfolio. Dividends are declared and paid quarterly by the Fixed-Income
Portfolio and Intermediate Duration Portfolio. Capital gains realized by each
Portfolio, if any, will be distributed annually.
NOTE 4: INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENTS
Each Portfolio has entered into an Investment Management Agreement with
Commonwealth Investment Counsel, Inc. ("Commonwealth") to provide investment
advisory services to each of the Portfolios. Commonwealth receives no
compensation for its services. Commonwealth is a wholly-owned subsidiary of
Mentor Investment Group, Inc. (formerly Investment Management Group, Inc.),
which is a wholly-owned subsidiary of Wheat First Butcher Singer, Inc.
In order to limit the annual operating expenses of the Portfolios, Commonwealth
may bear certain expenses incurred in connection with the operation of the
Portfolios. For the period ended October 31, 1995 Commonwealth bore expenses of
$63,607, $20,703 and $45,996 respectively, for the Cash Management Portfolio,
Intermediate Duration Portfolio and Fixed-Income Portfolio.
Mentor Investment Group, Inc. ("Mentor") provides administrative personnel and
services to each Portfolio, pursuant to an Administration Agreement. Mentor
receives no compensation for such services.
18
<PAGE>
NOTE 5: INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), for the
period ended October 31, 1995, were as follows:
Portfolio Purchases Sales
Cash Management - -
Intermediate Duration $ 40,537,215 $30,926,612
Fixed-Income 108,125,131 81,374,809
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to $69,852,773
for the Cash Management, $11,970,839 for the Intermediate Duration and
$34,145,844 for the Fixed-Income at October 31, 1995. Gross unrealized
appreciation and depreciation of investments at October 31, 1995 were as
follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Portfolio Appreciation Depreciation Appreciation
Cash Management - - -
Intermediate Duration $ 156,945 $ 935 $ 156,010
Fixed-Income 1,048,299 1,345 1,046,954
NOTE 7: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in Portfolio
shares were as follows:
Mentor Cash
Management Portfolio
Period Ended
10/31/95*
Shares sold 137,216,173
Shares issued upon reinvestment of distributions 2,407,807
Shares redeemed (69,627,001)
Change in net assets from capital share transactions 69,996,979
19
<PAGE>
Mentor Intermediate
Duration Portfolio
Period Ended
10/31/95**
Shares sold 855,389
Shares issued upon reinvestment of distributions 45,840
Shares redeemed (2,488)
Change in net assets from capital
share transactions 898,741
Mentor Fixed-Income
Portfolio
Period Ended
10/31/95***
Shares sold 2,759,545
Shares issued upon reinvestment of distributions 120,672
Shares redeemed (396,079)
Change in net assets from capital
share transactions 2,484,138
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
20
<PAGE>
MENTOR INSTITUTIONAL TRUST
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
MENTOR INSTITUTIONAL TRUST
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Cash Management Portfolio, Intermediate
Duration Portfolio and Fixed Income Portfolio, portfolios of Mentor
Institutional Trust (the Trust) as of October 31, 1995 and the related
statements of operations, statements of changes in net assets and financial
highlights for the period from December 5, 1994 (commencement of operations) to
October 31, 1995 for the Cash Management Portfolio, for the period from December
19, 1994 (commencement of operations) to October 31, 1995 for the Intermediate
Duration Portfolio and for the period from December 6, 1994 (commencement of
operations) to October 31, 1995 for the Fixed-Income Portfolio. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cash Management Portfolio, Intermediate Duration Portfolio and Fixed Income
Portfolio, portfolios of Mentor Institutional Trust as of October 31, 1995, and
the results of their operations, the changes in their net assets and their
financial highlights for the periods specified in the first paragraph above, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
December 8, 1995
21
<PAGE>
SNAP FUND
STATEMENT OF ADDITIONAL INFORMATION
March 11, 1996
SNAP Fund (the "Fund") is a series of shares of beneficial interest of
Mentor Institutional Trust (the "Trust"), and a diversified, open-end
series investment company. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the prospectus of the Fund
dated March 8, 1996. A copy of the prospectus can be obtained upon request
made to Mentor Investment Group, Inc. ("Mentor") at P.O. Box 1357,
Richmond, Virginia 23286-0109, or by calling Mentor at 1-800-570-SNAP.
TABLE OF CONTENTS
CAPTION PAGE
GENERAL .............................................................2
INVESTMENT RESTRICTIONS...............................................2
MANAGEMENT OF THE TRUST...............................................4
PRINCIPAL HOLDERS OF SECURITIES.......................................7
INVESTMENT ADVISORY AND OTHER SERVICES................................7
BROKERAGE.............................................................8
DETERMINATION OF NET ASSET VALUE.....................................10
TAX STATUS...........................................................11
INDEPENDENT ACCOUNTANTS..............................................13
CUSTODIAN............................................................13
PERFORMANCE INFORMATION..............................................13
SHAREHOLDER LIABILITY................................................14
OFFICERS OF COMMONWEALTH.............................................14
RATINGS..............................................................14
FINANCIAL STATEMENTS.................................................16
-1-
<PAGE>
GENERAL
SNAP Fund (the "Fund") is a series of shares of beneficial interest of
Mentor Institutional Trust (the "Trust"), a diversified, open-end investment
company. Until July 1995, the Fund was known as Mentor Limited Duration Income
Portfolio. The Trust is a Massachusetts business trust organized on February 8,
1994 as IMG Institutional Trust.
Commonwealth Investment Counsel, Inc. ("CIC") serves as investment
adviser to the Fund. CIC is a wholly owned subsidiary of Mentor Investment
Group Inc., which is a wholly owned subsidiary of Wheat First Butcher Singer
Inc. ("Wheat First Butcher Singer").
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed with
respect to the Fund without approval by the holders of a majority of the
outstanding shares of the Fund, the Fund may not:
1. Purchase any security (other than U.S. Government securities)
if as a result: (i) as to 75% of the Fund's total assets, more
than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer, or
(ii) more than 25% of the Fund's total assets would be
invested in a single industry, except that the Fund may invest
up to 100% of its assets in securities of issuers in the
banking industry.
2. Acquire more than 10% of the voting securities of any issuer.
3. Act as underwriter of securities of other issuers except to
the extent that, in connection with the disposition of
portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
4. Issue any class of securities which is senior to the Fund's
shares of beneficial interest.
5. Purchase or sell securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance
of transactions). (Margin payments in connection with
transactions in futures contracts, options, and other
financial instruments are not considered to constitute the
purchase of securities on margin for this purpose.)
6. Purchase or sell real estate or interests in real estate,
including real estate mortgage loans, although it may purchase
and sell securities which are secured by real estate and
securities of companies that invest or deal in real estate or
real estate limited partnership interests. (For purposes of
this restriction, investments
-2-
<PAGE>
by the Fund in mortgage-backed securities and other securities
representing interests in mortgage pools shall not constitute
the purchase or sale of real estate or interests in real
estate or real estate mortgage loans.)
7. Borrow money in excess of 5% of the value (taken at the lower
of cost or current value) of its total assets (not including
the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes.
8. Pledge, hypothecate, mortgage, or otherwise encumber its
assets in excess of 15% of its total assets (taken at current
value) and then only to secure borrowings permitted by these
investment restrictions.
9. Purchase or sell commodities or commodity contracts, except
that the Fund may purchase or sell financial futures
contracts, options on futures contracts, and futures
contracts, forward contracts, and options with respect to
foreign currencies, and may enter into swap transactions.
10. Make loans, except by purchase of debt obligations or other
instruments in which the Fund may invest consistent with its
investment policies or by entering into repurchase agreements.
In addition, it is contrary to the current policy of the Fund, which
policy may be changed without shareholder approval, to:
1. Invest in (a) securities which at the time of such investment
are not readily marketable, (b) securities restricted as to
resale, and (c) repurchase agreements maturing in more than
seven days, if, as a result, more than 10% of the Fund's net
assets (taken at current value) would then be invested in
securities described in (a), (b), and (c).
2. Invest in securities of other registered investment companies,
except by purchases in the open market involving only
customary brokerage commissions and as a result of which not
more than 5% of its total assets (taken at current value)
would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for the investment restrictions listed above as fundamental
-3-
<PAGE>
or to the extent designated as such in a prospectus with respect to the Fund,
the other investment policies described in this Statement or in a prospectus are
not fundamental and may be changed by approval of the Trustees. As a matter of
policy, the Trustees would not materially change the Fund's investment objective
without shareholder approval.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities" of the
Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, and (2) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
MANAGEMENT OF THE TRUST
The following table provides biographical information with respect to
each Trustee and officer of the Trust. Each Trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name and Address with Fund During Past 5 Years
- ---------------- --------- -------------------
<S> <C> <C>
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.
-4-
<PAGE>
*Daniel J. Ludeman Chairman; Chairman and Chief Executive Officer
Trustee 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, Wheat First
Securities, Inc. 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;
Executive Vice President and Chief
Administrative Officer, America's Utility
Fund; Director, Mentor Perpetual Advisors,
L.L.C. and Mentor Trust Company; formerly,
Director, President and Chief Executive Officer,
First Variable Life Insurance Company;
President and Chief Financial Officer,
Variable Investors Series Trust; President and
Treasurer, Atlantic Capital & Research,
Inc.; Vice President and Treasurer,
Variable Stock Fund, Inc., Monarch
Investment Series Trust, and GEICO Tax
Advantage Series Trust; Vice President,
Monarch Life Insurance Company, GEICO
Investment Services Company, Inc., Monarch
Investment Services Company, Inc., and
Springfield Life Insurance Company.
-5-
<PAGE>
terry L. Perkins Treasurer Vice President, Mentor Investment Group, Inc.;
Treasurer, Cash Resource Trust,
Mentor Income Fund Inc., The Mentor Funds,
and America's Utility Fund; formerly,
Treasurer and Comptroller, Ryland Capital Management,
Inc.
Michael Wade Assistant Associate Vice President, Mentor Investment Group,
Treasurer Inc. since April 1994;
Assistant Treasurer, Cash Resource Trust, Mentor
Income Fund, Inc., The Mentor
Funds, and America's Utility Fund; formerly,
Senior Accountant, Wheat First
Butcher Singer, Inc., April 1993 through March 1994;
Audit Senior, BDO Seidman,
July 1989 through March 1993.
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.
</TABLE>
The table below shows the fees paid to each Trustee by the Trust for
the 1995 fiscal year and the fees paid to each Trustee by all funds in the
Mentor family (including the Trust) during the 1995 calendar year.
<TABLE>
<CAPTION>
Total compensation
Aggregate compensation from all
Trustees from the Trust complex funds
<S> <C> <C>
Daniel J. Ludeman $ 0 $ 0
Arnold H. Dreyfuss 200 17,200
Thomas F. Keller 200 14,700
Louis W. Moelchert, Jr. 200 16,700
Stanley F. Pauley 150 16,675
Troy A. Peery, Jr. 150 16,175
</TABLE>
-6-
<PAGE>
- -------------
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 February 15, 1996, the officers and Trustees of the Trust owned
as a group less than one percent of the outstanding shares of the Fund. To
the knowledge of the Fund, no person owns beneficially or of record more
than 5% of the outstanding shares of the Fund as of that date except the
following. All of the shares of the Fund are registered in the nominee name
of the Treasury Board, an agency of the Commonwealth of Virginia.
SNAP Fund:
City of Chesapeake 14.10% 131,381,564
P.O. Box 15245
Chesapeake, VA 23320
City of Portsmouth 5.50% 51,008,118
P.O. Box 820
Portsmouth, VA 23705
All of the shares of the Fund are registered in the nominee name of the
Treasury Board, an agency of the Commonwealth of Virginia.
INVESTMENT ADVISORY AND OTHER SERVICES
CIC acts as investment adviser to the Fund pursuant to a Management
Contract with the Trust. Subject to the supervision and direction of the
Trustees, CIC, as investment adviser, manages the Fund's portfolio in accordance
with the stated policies of the Fund and of the Trust. CIC makes investment
decisions for the Fund and places the purchase and sale orders for portfolio
transactions. CIC bears all expenses in connection with the performance of its
services. In addition, CIC pays the salaries of all officers and employees who
are employed by it and the Trust.
CIC provides the Trust on behalf of the Fund with investment officers
who are authorized to execute purchases and sales of securities. Investment
decisions for the Fund and for the other investment advisory clients of CIC and
its affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged as to price and
allocated between such clients in a manner which in
-7-
<PAGE>
CIC's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients. In the case of short-term investments, the Treasury area of Wheat
First Butcher Singer handles purchases and sales under guidelines approved by
investment officers of the Trust. CIC employs professional staffs of portfolio
managers who draw upon a variety of resources for research information for the
Fund.
The proceeds received by the Fund for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to the Fund, and constitute
the underlying assets of the Fund. The underlying assets of the Fund will be
segregated on the Trust's books of account, and will be charged with the
liabilities in respect of the Fund and with a share of the general liabilities
of the Trust. Expenses with respect to any two or more series of the Trust,
including the Fund, may be allocated in proportion to the net asset values of
the respective series except where allocations of direct expenses can otherwise
be fairly made.
Expenses incurred in the operation of the Fund or otherwise allocated
to the Fund, including but not limited to taxes, interest, brokerage fees and
commissions, fees to Trustees who are not officers, directors, stockholders, or
employees of Wheat First Butcher Singer and subsidiaries, SEC fees and related
expenses, state Blue Sky qualification fees, charges of the custodian and
transfer and dividend disbursing agents, outside auditing, accounting, and legal
services, investor servicing fees and expenses, charges for the printing of
prospectuses and statements of additional information for regulatory purposes or
for distribution to shareholders, certain shareholder report charges and charges
relating to corporate matters are borne by the Fund.
The Management Contract entered into by the Trust in respect of the
Fund is subject to annual approval commencing in 1997 by (i) the Trustees or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance is also
approved by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust or CIC, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Management
Contract is terminable without penalty, on not more than sixty days' notice and
not less than thirty days' notice, by the Trustees, by vote of the holders of a
majority of the Fund's shares, or by CIC, as applicable.
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in
-8-
<PAGE>
the case of securities traded in the over-the-counter markets, but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
In underwritten offerings, the price paid by the Fund includes a disclosed,
fixed commission or discount retained by the underwriter or dealer. It is
anticipated that most purchases and sales of securities by the Fund investing
primarily in certain fixed-income securities will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, the Fund would not ordinarily pay significant brokerage commissions
with respect to securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")), from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, CIC receives brokerage and research services and other similar
services from many broker-dealers with which it places the Fund's portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as general economic and market
reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by CIC's managers and analysts. Where the services referred
to above are not used exclusively by CIC for research purposes, CIC, based upon
its own allocations of expected use, bears that portion of the cost of these
services which directly relates to its non-research use. Some of these services
are of value to CIC and its affiliates in advising various of its clients
(including the Fund), although not all of these services are necessarily useful
and of value in managing the Fund.
CIC places all orders for the purchase and sale of portfolio
investments for the Fund and buys and sells investments for the Fund through a
substantial number of brokers and dealers. CIC seeks the best overall terms
available for the Fund, except to the extent CIC may be permitted to pay higher
brokerage commissions as described below. In doing so, CIC, having in mind the
Fund's best interests, considers all factors it deems relevant, including, by
way of illustration, price, the size of the transaction, the nature of the
market for the security or other investment, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer involved and
the quality of service rendered by the broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, CIC may cause the Fund to pay a broker-dealer which provides
"brokerage and research services" (as defined in the 1934 Act) to CIC an amount
of disclosed commission for effecting securities transactions on stock exchanges
and other transactions for the Fund on an agency basis in excess of the
commission which another broker-dealer would have charged for effecting that
transaction. CIC's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may adopt from time
to time. CIC does not currently intend to cause the Fund to make such payments.
It is the position of the staff of the Securities
-9-
<PAGE>
and Exchange Commission that Section 28(e) does not apply to the payment of such
greater commissions in "principal" transactions. Accordingly, CIC will use its
best efforts to obtain the best overall terms available with respect to such
transactions, as described above.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to such other policies as the Trustees
may determine, CIC may consider sales of shares of the Fund (and, if permitted
by law, of other Mentor funds) as a factor in the selection of broker-dealers to
execute portfolio transactions for the Fund.
DETERMINATION OF NET ASSET VALUE
The Trust determines net asset value per share of the Fund twice each
day the New York Stock Exchange (the "Exchange") is open, once at 12:00 noon and
again at the close of regular trading on the New York Stock Exchange. Currently,
the Exchange is closed Saturdays, Sundays, and the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving, and Christmas.
The valuation of the Fund's portfolio securities is based upon its
amortized cost, which does not take into account unrealized securities gains or
losses. This method involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. By using amortized cost valuation, the Fund seeks to
maintain a constant net asset value of $1.00 per share, despite minor shifts in
the market value of its portfolio securities. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of declining interest rates,
the quoted yield on shares of the Fund may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based on market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Fund resulted
in a lower aggregate portfolio value on a particular day, a prospective investor
in the Fund would be able to obtain a somewhat higher yield if he purchased
shares of the Fund on that day, than would result from investment in a fund
utilizing solely market values, and existing investors in the Fund would receive
less investment income. The converse would apply on a day when the use of
amortized cost by the Fund resulted in a higher aggregate portfolio value.
However, as a result of certain procedures adopted by the Trust, the Trust
believes any difference will normally be minimal.
The valuation of the Fund's portfolio instruments at amortized cost is
permitted in accordance with Securities and Exchange Commission Rule 2a-7 and
certain procedures adopted by the Trustees. Under these procedures, the Fund
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less, and
invest in securities determined by the Trustees to be of high quality with
minimal credit risks. The Trustees have also established procedures designed to
stabilize, to the
-10-
<PAGE>
extent reasonably possible, the Fund's price per share as computed for the
purpose of distribution, redemption and repurchase at $1.00. These procedures
include review of the Fund's portfolio holdings by the Trustees, at such
intervals as they may deem appropriate, to determine whether the Fund's net
asset value calculated by using readily available market quotations deviates
from $1.00 per share, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the event the
Trustees determine that such a deviation may result in material dilution or is
otherwise unfair to existing shareholders, they will take such corrective action
as they regard as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
the average portfolio maturity; withholding dividends; redemption of shares in
kind; or establishing a net asset value per share by using readily available
market quotations.
Since the net income of the Fund is declared as a dividend each time it
is determined, the net asset value per share of the Fund remains at $1.00 per
share immediately after such determination and dividend declaration. Any
increase in the value of a shareholder's investment in the Fund representing the
reinvestment of dividend income is reflected by an increase in the number of
shares of the Fund in the shareholder's account on the last day of each month
(or, if that day is not a business day, on the next business day). It is
expected that the Fund's net income will be positive each time it is determined.
However, if because of realized losses on sales of portfolio investments, a
sudden rise in interest rates, or for any other reason the net income of the
Fund determined at any time is a negative amount, the Fund will offset such
amount allocable to each then shareholder's account from dividends accrued
during the month with respect to such account. If at the time of payment of a
dividend by the Fund (either at the regular monthly dividend payment date, or,
in the case of a shareholder who is withdrawing all or substantially all of the
shares in an account, at the time of withdrawal), such negative amount exceeds a
shareholder's accrued dividends, the Fund will reduce the number of outstanding
shares by treating the shareholder as having contributed to the capital of the
Fund that number of full and fractional shares which represent the amount of the
excess. Each shareholder is deemed to have agreed to such contribution in these
circumstances by its investment in the Fund.
Should the Fund incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the Fund's
income for a particular period, the Trustees would at that time consider whether
to adhere to the dividend policy described above or to revise it in light of the
then prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on then existing shareholders.
Such expenses or losses may nevertheless result in a shareholder's receiving no
dividends for the period during which the shares are held and receiving upon
redemption a price per share lower than that which was paid.
-11-
<PAGE>
TAX STATUS
The Fund intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Fund will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders. As a series of Massachusetts business trust, the
Fund will not under present law be subject to any excise or income taxes in
Massachusetts.
In order to qualify as a "regulated investment company," the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets (including stock and securities and certain
options, futures contracts, forward contracts, and foreign currencies) held less
than three months; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government securities, securities of other
regulated investment companies, and other securities limited generally with
respect to any one issuer to not more than 5% of the value of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities (other than U.S. Government securities or securities of other
regulated investment companies) of any issuer or two or more issuers which the
Fund controls and which are engaged in the same, similar, or related trades or
businesses. In order to receive the favorable tax treatment accorded regulated
investment companies and their shareholders, moreover, the Fund must in general
distribute at least 90% of its interest, dividends, net short-term capital gain,
and certain other income each year.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of the Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Fund so elects) plus undistributed amounts from prior years. The Fund
intends to make distributions sufficient to avoid imposition of the excise tax.
Distributions declared by the Fund during October, November, or December to
shareholders of record on a date in any such month and paid by the Fund during
the following January will be treated for federal tax purposes as paid by the
Fund and received by shareholders on December 31 of the year in which declared.
-12-
<PAGE>
The Fund is required to withhold 31% of all income dividends and
capital gain distributions, and 31% of the gross proceeds of all redemptions of
Fund shares, in the case of any shareholder who does not provide a correct
taxpayer identification number, about whom the Fund is notified that the
shareholder has under reported income in the past, or who fails to certify to
the Fund that the shareholder is not subject to such withholding. Tax-exempt
shareholders are not subject to these back-up withholding rules so long as they
furnish the Fund with a proper certification.
As stated above, it is a policy of the Fund to meet the requirements of
the code to qualify as a regulated investment company that is taxed pursuant to
Subchapter M of the Code. One of these requirements is that less than 30% of the
Fund's gross income must be derived from gains from sale or other disposition of
securities held for less than three months. Accordingly, the Fund will be
restricted in selling securities held or considered under Code rules to have
been held less than three months.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions. Dividends and distributions also may be subject to state
and federal taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state or local taxes. The foregoing
discussion relates solely to U.S. federal income tax law. Non-U.S. investors
should consult their tax advisers concerning the tax consequences of ownership
of shares of the Fund, including the possibility that distributions may be
subject to a 30% United States withholding tax (or a reduced rate of withholding
provided by treaty).
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, are the Trust's independent auditors, providing audit services, tax
return review, and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange Commission
filings. The audited financial statements incorporated by reference into or
included in the Trust's prospectuses and Statement of Additional Information
have been so included and incorporated in reliance upon the report of KPMG Peat
Marwick LLP, the independent auditors, given on the authority of said firm as
experts in auditing and accounting.
CUSTODIAN
The custodian of the Fund, Central Fidelity National Bank, is located
at 1021 East Cary Street, P.O. Box 27602, Richmond, Virginia 23261. Its
responsibilities include generally safeguarding and controlling the Fund's cash
and securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Fund's investments.
-13-
<PAGE>
PERFORMANCE INFORMATION
The yield of the Fund is computed by determining the percentage net
change, excluding capital changes, in the value of an investment in one share of
the Fund over the base period, and multiplying the net change by 365/7 (or
approximately 52 weeks). The Fund's effective yield represents a compounding of
the yield by adding 1 to the number representing the percentage change in value
of the investment during the base period, raising that sum to a power equal to
365/7, and subtracting 1 from the result. Based on the seven-day period ended
December 31, 1995, the Fund's yield was 5.66% and its effective yield was 5.82%.
All data for the Fund is based on past performance and does not predict
future results.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into or executed
by the Trust or the Trustees. The Agreement and Declaration of Trust provides
for indemnification out of the Fund's property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund. Thus the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to meet
its obligations.
OFFICERS OF COMMONWEALTH
R. PRESTON NUTTALL, CFA MANAGING DIRECTOR, DIRECTOR OF CASH MANAGEMENT AND
PORTFOLIO MANAGER
Mr. Nuttall has more than thirty years of investment management experience.
Prior to Commonwealth, he led short-term fixed-income management for fifteen
years at Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.
HUBERT R. WHITE III VICE PRESIDENT, PORTFOLIO MANAGER
Mr. White has eleven years of investment management experience. Prior to
joining Commonwealth, he served for five years as portfolio manager with
Capitoline Investment Services. He has his undergraduate degree in business
from the University of Richmond.
KATHRYN T. ALLEN VICE PRESIDENT, PORTFOLIO MANAGER
-14-
<PAGE>
Ms. Allen has fourteen years of investment management experience and specializes
in tax-free trades. Prior to joining Commonwealth, Ms. Allen was portfolio
group manager at PNC Institutional Management Corporation. She has her
undergraduate degree in commerce and business administration from the University
of Alabama.
RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
(BULLET) liquidity ratios are adequate to meet cash requirements;
(BULLET) long-term senior debt is rated "A" or better;
(BULLET) the issuer has access to at least two additional channels of
borrowing;
(BULLET) basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
(BULLET) typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and
(BULLET) the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(BULLET) evaluation of the management of the issuer;
(BULLET) economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be
inherent in certain areas;
(BULLET) evaluation of the issuer's products in relation to
competition and customer acceptance;
(BULLET) liquidity;
-15-
<PAGE>
(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.
-16-
<PAGE>
SNAP FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKERS ACCEPTANCES - 21.23%
Bank of Nova Scotia, 5.59%, 4/17/96 $ 7,500,000 $ 7,375,389
Chase Manhattan Bank
5.68%, 1/12/96 - 1/19/96 8,200,000 8,181,572
5.70%, 1/26/96 12,634,782 12,584,769
5.62%, 2/5/96 7,500,000 7,459,021
Citibank
5.62%, 2/20/96 4,000,000 3,968,778
5.56%, 3/5/96 3,000,000 2,970,347
Corestates Bank
5.60%, 1/8/96 5,000,000 4,994,556
5.66%, 1/16/96 5,000,000 4,988,208
5.76%, 1/16/96 10,000,000 9,976,000
5.65%, 2/5/96 5,200,000 5,171,436
5.57%, 2/20/96 2,000,000 1,984,528
5.45%, 3/21/96 5,000,000 4,939,444
First Bank Systems, 5.60%, 2/26/96 7,000,000 6,939,022
Harris Trust, 5.62%, 2/16/96 5,000,000 4,964,094
Mellon Bank
5.67%, 1/9/96 - 1/10/96 6,242,754 6,234,101
5.78%, 1/16/96 4,800,000 4,788,440
5.63%, 1/17/96 2,700,000 2,693,244
5.50%, 3/20/96 4,800,000 4,742,067
5.69%, 3/29/96 7,400,000 7,297,074
5.66%, 4/5/96 1,000,000 985,064
5.42%, 5/16/96 3,000,000 2,938,573
5.35%, 6/7/96 - 6/21/96 2,000,000 1,950,958
National Bank of Detroit
5.65%, 2/26/96 3,500,000 3,469,239
5.63%, 3/22/96 1,500,000 1,480,999
Nations Bank
5.68%, 2/12/96 5,000,000 4,966,867
5.63%, 3/5/96 5,000,000 4,949,956
5.50%, 3/18/96 10,000,000 9,882,361
5.58%, 4/24/96 7,500,000 7,367,475
5.44%, 5/10/96 3,250,000 3,186,155
Republic National Bank, NY
5.52%, 3/14/96 - 3/28/96 11,000,000 10,859,700
State Street Bank & Trust Company
5.60%, 3/12/96 - 3/19/96 6,357,252 6,283,046
Wachovia Bank
5.60%, 2/12/96 20,120,000 19,988,549
- -----------------------------------------------------------------------------------------------------------
TOTAL BANKERS ACCEPTANCES 190,561,032
- -----------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 27.69%
Abbey National North America, 5.71%, 1/12/96 $ 5,000,000 $ 4,991,276
CIESCO, LP, 5.70%, 1/11/96 20,370,000 20,337,748
CS First Boston Group
5.79%, 1/8/96 15,000,000 14,983,113
5.76%, 1/10/96 15,000,000 14,978,400
Dupont E I De Nemours, 5.56%, 2/16/96 15,000,000 14,893,433
Ford Motor Credit, 5.72%, 1/8/96 14,000,000 13,984,429
General Electric
6.03%, 1/4/96 10,000,000 9,994,975
5.50%, 4/4/96 20,000,000 19,712,778
Internationale Nederland
5.68%, 2/13/96 20,000,000 19,864,311
5.65%, 3/5/96 300,000 296,987
5.61%, 3/15/96 12,000,000 11,861,620
Merrill Lynch
5.70%, 1/31/96 - 2/9/96 10,000,000 9,945,375
5.67%, 3/29/96 15,000,000 14,792,100
Morgan Stanley Group Inc.
5.82%, 1/11/96 20,000,000 19,967,667
5.73%, 1/25/96 20,000,000 19,923,600
Pemex Capital, Inc., 5.90%, 1/17/96 10,000,000 9,973,778
Rincon Securities, Inc.
5.81%, 2/2/96 12,000,000 11,938,026
5.70%, 1/12/96 9,000,000 8,984,325
5.66%, 2/23/96 7,250,000 7,189,587
- -----------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER 248,613,528
- -----------------------------------------------------------------------------------------------------------
CORPORATE NOTES- 9.87%
First of America, 6.45%, 6/4/96 6,550,000 6,569,063
First Union Bank
5.77%, 1/12/96 5,000,000 5,000,000
5.73%, 2/12/96 25,000,000 25,000,000
Harris Trust Bank Notes, 5.73%, 1/29/96 25,000,000 25,000,000
National Bank of Detroit, 5.79%, 1/5/96 17,000,000 17,000,000
Wachovia Bank, 5.76%, 1/12/96 10,000,000 10,000,000
- -----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES 88,569,063
- -----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES - 9.40%
Federal Home Loan Bank, 5.58%, 2/16/96 10,000,000 9,928,700
Federal Home Loan Mortgage Corporation, 4.45%, 5/3/96 3,000,000 2,987,411
Federal National Mortgage Association, 6.86%, 2/28/96 8,500,000 8,513,761
U.S. GOVERNMENT SECURITIES AND AGENCIES (CONTINUED)
Student Loan Marketing Association (a)
5.20%, 8/9/96 - 9/23/96 $ 30,000,000 $ 29,992,896
5.30%, 8/4/97 13,000,000 12,996,122
5.22%, 11/24/97 15,000,000 15,000,000
5.26%, 1/13/99 5,000,000 5,000,000
- -----------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES 84,418,890
- -----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 31.64%
Goldman, Sachs & Company
Dated 12/29/95, 5.92%, Due 1/2/96; collateralized by
$96,163,721 Federal National Mortgage Association,
5.50% - 7.00%, 7/1/09 - 12/1/25 94,030,427 94,030,427
Lehman Brothers, Inc.
Dated 12/29/95, 5.92%, Due 1/2/96; collateralized by
$41,329,534 Federal National Mortgage Association,
6.50%, 1/1/24 40,000,000 40,000,000
Nationsbank Corporation
Dated 12/29/95, 5.90%, Due 1/2/96; collateralized by
$150,000,000 U.S. Treasury Notes, 6.75%, 5/31/99 150,000,000 150,000,000
- -----------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 284,030,427
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.83% (COST $896,192,940) 896,192,940
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.17% 1,498,433
- -----------------------------------------------------------------------------------------------------------
NET ASSETS - 100.00% $897,691,373
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Most bankers acceptances and commercial paper are traded at a discount. In such
cases the rate shown represents the discount received at the time of purchase by
the Fund.
(a) Floating Rate Securities- The rates shown are the effective rates at
December 31, 1995.
See notes to financial statements.
<PAGE>
SNAP FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 (UNAUDITED)
- ---------------------------------------------------------------
ASSETS
Investments, at amortized cost (Note 2)
Investment securities $612,162,513
Repurchase agreements 284,030,427
- ---------------------------------------------------------------
Total investments 896,192,940
Interest receivable 1,507,855
Deferred expenses (Note 2) 318,486
- ---------------------------------------------------------------
Total assets 898,019,281
- ---------------------------------------------------------------
LIABILITIES
Accrued advisory fee 58,205
Other liabilities 269,703
- ---------------------------------------------------------------
Total liabilities 327,908
- ---------------------------------------------------------------
NET ASSETS $897,691,373
- ---------------------------------------------------------------
Shares outstanding 897,691,373
Net asset value per share $ 1.00
- ---------------------------------------------------------------
See notes to financial statements.
<PAGE>
SNAP FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1995* (UNAUDITED)
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $18,653,160
- -------------------------------------------------------------------------------
EXPENSES
Advisory fees (Note 3) 276,448
Custodian fees 64,400
Organization expenses (Note 3) 30,137
Legal fees 9,586
Audit fees 4,412
Other 876
- -------------------------------------------------------------------------------
Total expenses 385,859
- -------------------------------------------------------------------------------
Net investment income 18,267,301
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $18,267,301
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
PERIOD
ENDED*
12/31/95
(UNAUDITED)
--------------------
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $ 18,267,301
Net realized gain on investments --
- -------------------------------------------------------------------------------
Increase in net assets from operations 18,267,301
- -------------------------------------------------------------------------------
Distributions to shareholders from net investment income (18,267,301)
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of shares 1,406,368,293
Reinvestment of dividends 18,267,301
Cost of shares redeemed (526,944,221)
- -------------------------------------------------------------------------------
Change in net assets from capital
share transactions 897,691,373
- -------------------------------------------------------------------------------
Net increase in net assets 897,691,373
NET ASSETS
Beginning of period --
- -------------------------------------------------------------------------------
End of period $ 897,691,373
- -------------------------------------------------------------------------------
*For the period from July 24, 1995 (commencement of operations) to December 31,
1995.
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
SNAP FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------
PERIOD
ENDED**
12/31/95
(UNAUDITED)
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02
Net realized gain on investments --
- -------------------------------------------------
Total from investment operations 0.02
Distributions from net investment (0.02)
income
- -------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- -------------------------------------------------
Total Return 2.55%
- -------------------------------------------------
Ratios / Supplemental Data
- -------------------------------------------------
Net assets, end of period (in
thousands) $ 897,691
Ratio of expenses to average net
assets 0.12%
Ratio of net investment income to average
net assets 5.72%
- -------------------------------------------------
</TABLE>
(a) Annualized.
** For the period from July 24, 1995
(commencement of operations)
to December 31, 1995.
* Includes net realized capital gains which were
under $0.01 per share.
** For the period from July 1, 1995 to July 31, 1995.
~ Virginia State Non-Arbitrage Program (SNAP) was established March
1, 1989, pursuant to the Local Government Non-Arbitrage Investment
Act, to assist Virginia counties, cities, towns, agencies, institutions,
and authorities with the investment of bond proceeds and related funds
in compliance with arbitrage rebate requirements of the Internal
Revenue Code of 1986, as amended. On July 24, 1995,
SNAP was registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
See notes to financial statements.
<PAGE>
SNAP FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1: ORGANIZATION
SNAP Fund (the "Fund") is an open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Fund is a series of
shares of beneficial interest of Mentor Institutional Trust, a Massachussetts
business trust.
Prior to July 24, 1995, the Fund was known as the Mentor Limited Duration
Portfolio and had no shares outstanding.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund:
A. VALUATION OF SECURITIES
Investments are stated at amortized cost, which approximates market value. In
the event that a deviation of 1/2 of 1% or more exists between a Fund'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.
B. REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book entry system, or to have
segregated within the custodian bank's possession all securities held as
collateral in support of repurchase agreement investments. Additionally,
procedures have been established by the Trust to monitor, on a daily basis, the
market value of each repurchase agreement's underlying securities to ensure the
existence of a proper level of collateral.
The Fund will enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers which are deemed by the Fund's
investment adviser to be credit-worthy, only pursuant to guidelines established
by the Board of Trustees. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly, the
Fund could receive less than the repurchase price on the sale of collateral
securities.
C. INVESTMENT TRANSACTIONS
Investment transactions are accounted for on the trade date and the cost of
investments sold is determined by use of the specific identification method.
D. INTEREST INCOME AND EXPENSES
Interest income is recorded on the accrual basis and includes amortization of
premiums and discounts on investments. Expenses arising in connection with the
operation of the Fund are recorded on the accrual basis and paid from the income
of the Fund. Organizational expenses are related to registration of the Fund as
Regulated Investment Company. Such expenses are being amortized on a
straight-line method over 60 months.
E. DISTRIBUTIONS TO SHAREHOLDERS
Dividends, equal to the net investment income plus or minus any net realized
gains or losses, are declared daily and paid monthly.
<PAGE>
SNAP FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
F. FEDERAL INCOME TAXES
No provision for federal income taxes has been made as it is the Fund's policy
to comply with the provisions applicable to regulated investment companies under
the Internal Revenue Code and to distribute to its shareholders within the
allowable time limit substantially all taxable income and realized capital gain.
NOTE 3: INVESTMENT MANAGEMENT FEES
The Fund has entered into an Investment Management Agreement with Commonwealth
Investment Counsel, Inc. ("Commonwealth") to provide investment advisory
services to the Fund. The Fund pays advisory fees to Commonwealth monthly at the
following annual rates expressed as percentage of the average daily net assets
of the Fund:
Average Daily Net Assets Rate
------------------------- --------------
First $500 million 0.09%
Next $250 million 0.08%
Next $250 million 0.07%
Next $250 million 0.06%
Over $1.25 million 0.05%
NOTE 4: INVESTMENTS
In accordance with Statement No. 3 of the Governmental Accounting Standards
Board, credit risk is the risk that an investor may not be able to obtain
possession of its investment instrument or collateral at maturity. Risk category
1 includes investments that are insured or registered or for which the
securities are held by the investor or its agent in the investor's name. Risk
category 2 includes uninsured or unregistered investments for which the
securities are held by the broker's or dealer's trust department or agent in the
investor's name. Risk category 3 includes uninsured or unregistered investments
for which the securities are held by the broker or dealer, or by its trust
department or agent but not in the investor's name. All investments held at
December 31, 1995 are in risk category 1.
NOTE 5: CAPITAL SHARE INFORMATION
Net assets consist entirely of paid-in-capital applicable to 897,691,373 no par
value shares of beneficial interest outstanding. An unlimited number of shares
have been authorized.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Supporting Schedules (Included in Parts A
and B)
(1) Mentor Cash Management Portfolio, Mentor Fixed-Income Portfolio, and
Mentor Intermediate Duration Portfolio:
Statement of Assets and Liabilities -- October 31, 1995.
Statement of Operations -- period ended October 31, 1995.
Statement of Changes in Net Assets -- period ended October 31,
1995.
Financial Highlights.
Notes to Financial Statements.
Portfolio of Investments -- October 31, 1995.
Independent Auditors Report
(2) SNAP FUND (unaudited):
Statement of Assets of Liabilities -- December 31, 1995.
Statement of Operations -- six months ended December 31, 1995.
Statement of Changes in Net Assets -- six months ended December
31, 1995.
Financial Highlights.
Notes to Financial Statements.
Portfolio of Investments -- December 31, 1995.
(b) Exhibits
(1)
(A) - Agreement and Declaration of Trust.1
(B) - Amendment to Agreement and Declaration of Trust.4
(2) - Bylaws.1
(3) - Inapplicable.
(4)
(A) - Form of certificate representing shares of beneficial
interest for each of the Portfolios.1
(B) - Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights.1
(C) - Portions of Bylaws Relating to Shareholders' Rights.1
(5)
(A) - Form of Management Contract.1 (B) - Form of Management Contract
(SNAP Fund).5
(C) - Form of Management Contract (Mentor International Portfolio).6
(D) - Form of Administration Agreement.1
(6) (A) - Form of Distribution Agreement.2
-1-
<PAGE>
(6) (B) - Form of Assignment of Distribution Agreement.5
(7) - Inapplicable.
(8)
(A) - Form of Custody Agreement.1
(B) - Form of Custody Agreement (SNAP Fund).5
(C) - Form of Transfer Agency and Services Agreement.3
(D) - Form of Transfer Agency and Services Agreement (SNAP Fund).5
(9) - Inapplicable.
(10) - Opinion of counsel, including consent.3
(11) - Consent of Independent Accountants.7
(12) - Inapplicable.
(13) - Inapplicable.
(14) - Inapplicable.
(15) - Inapplicable.
(16) - Schedules for Computation of Performance.7
(27)(a) Financial Data Schedule -- Mentor Cash Management Portfolio 7
(b) Financial Data Schedule -- Mentor Intermediate Duration
Portfolio 7
(c) Financial Data Schedule -- Mentor Fixed-Income Portfolio 7
(d) Financial Data Schedule -- SNAP Fund 7
1 Incorporated herein by reference to the Registrant's initial
Registration Statement on Form N-1A under the Investment Company Act of
1940 filed on April 15, 1994.
2 Incorporated herein by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on June 28, 1994.
3 Incorporated herein by reference to Amendment No. 2 to the Registrant's
Registration Statement on Form N-1A filed on November 18, 1994.
4 Incorporated herein by reference to Amendment No. 4 to the Registrant's
Registration Statement on Form N-1A filed on July 3, 1995.
5 Incorporated herein by reference to Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A filed on July 24, 1995.
6 Incorporated herein by reference to Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A filed on September 5, 1995.
7 Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Record Holders of Securities
The following table shows the number of holders of record of shares
of beneficial interest of each series of shares of beneficial interest of Mentor
Institutional Trust as of February 1, 1996.
-2-
<PAGE>
Number of Record
Series Holders
Mentor Cash Management Portfolio 62
SNAP Fund 432
Mentor Intermediate Duration Portfolio 10
Mentor Fixed-Income Portfolio 10
Mentor International Portfolio 1
Item 27. Indemnification
The information required by this item is incorporated herein by reference
from the Registrant's Initial Registration Statement on Form N-1A under the
Investment Company Act of 1940 (File No. 811-8484).
Item 28. Business and Other Connections of Investment Adviser
(a) Commonwealth Investment Counsel, Inc., the investment adviser of
the Mentor Cash Management, Fixed-Income, and Intermediate Duration Portfolios
and the SNAP Fund, serves as investment adviser to Cash Resource Trust, Mentor
Balanced Portfolio, Mentor Quality Income Portfolio, and Mentor Short-Duration
Portfolio, each of which is an open-end investment company, and Mentor Income
Fund, Inc., a closed-end investment company.
The following is additional information with respect to the directors
and officers of Commonwealth Investment Counsel, Inc.:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
BUSINESS, PROFESSION,
VOCATION OR EMPLOYMENT
POSITION WITH THE DURING THE PAST TWO
NAME INVESTMENT ADVISER FISCAL YEARS
<S> <C> <C>
John G. Davenport President; Director None
William F. Johnston, III Senior Vice President None
P. Michael Jones Senior Vice President None
-3-
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
R. Preston Nuttall Senior Vice President Formerly, Senior Vice
President, Capitoline
Investment Services, 919
East Main Street,
Richmond, VA 23219
Mary A. Beeghly Vice President None
John J. Kelly Vice President None
William H. West, Jr. Vice President Vice President, Mentor
Income Fund, Inc., 901
East Byrd Street,
Richmond, VA 23219;
formerly, Vice President of
Ryland Capital
Management, Inc., 11000
Broken Land Parkway,
Columbia, MD 21044;
formerly, Vice President,
RAC Income Fund, Inc.,
11000 Broken Land
Parkway, Columbia, MD
21044
Steven C. Henderson Vice President None
Stephen R. McClelland Associate Vice President Formerly, Associate Vice
President, Mentor
Investment Group, Inc.,
901 East Byrd Street,
Richmond, VA 23219
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas Lee Souders Treasurer Managing Director and
Chief Financial Officer,
Wheat, First Securities,
Inc., 901 East Byrd Street,
Richmond, VA 23219;
Trustee, Mentor Series
Trust, 901 East Byrd
Street, Richmond, VA
23219; formerly, Manager
of Internal Audit, Heilig
Myers; formerly, Manager,
Peat Marwick & Mitchell
& Company
John Michael Ivan Secretary Managing Director, Senior
Vice President and
Assistant General Counsel,
Wheat, First Securities,
Inc., 901 East Byrd Street,
Richmond, VA 23219;
Managing Director and
Assistant Secretary, Wheat
First Butcher Singer, Inc.
(formerly WFS Financial
Corporation), 901 East
Byrd Street, Richmond,
VA 23219; Clerk, Cash
Resource Trust, 901 East
Byrd Street, Richmond,
VA 23219; Secretary, The
Mentor Funds, 901 East
Byrd Street, Richmond,
VA 23219
</TABLE>
-5-
<PAGE>
(b) The following is additional information with respect to Mentor
Perpetual Advisors, L.L.C., the investment adviser to the Mentor International
Portfolio:
<TABLE>
<CAPTION>
POSITION WITH VOCATION OR EMPLOYMENT
NAME INVESTMENT ADVISER DURING THE PAST TWO FISCAL YEARS
<S> <C> <C>
Scott A. McGlashan President Director, Perpetual
Portfolio Management
Limited
Martyn Arbib Director Chairman, Perpetual
Portfolio Management
Limited
Roger C. Cornick Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited
Paul F. Costello Director Managing Director,
Mentor Investment Group,
Inc. and Managing
Director, Wheat First
Butcher Singer, Inc.
Daniel J. Ludeman Director Chairman and Chief
Executive Officer, Mentor
Investment Group;
Managing Director, Wheat
First Securities, Inc.;
Managing Director, Wheat
First Butcher Singer, Inc.
David S. Mossop Director Director, Perpetual
Portfolio Management
Limited
Richard J. Rossi Director Managing Director,
Mentor Investment Group,
Inc.
</TABLE>
-6-
<PAGE>
Item 29. Principal Underwriters
(a) Mentor Distributors, Inc. currently is acting as principal
underwriter for The Mentor Funds and Cash Resource Trust.
(b) The following is information concerning officers and directors
of Mentor Distributors, Inc.:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITERS WITH REGISTRANT
<S> <C> <C>
Peter J. Quinn, Jr. President and --
901 East Byrd Street Director, Mentor
Richmond, VA 23219 Distributors, Inc.
Paul F. Costello Senior Vice President, President
901 East Byrd Street Mentor Distributors,
Richmond, VA 23219 Inc.
Thomas Lee Souders Treasurer, Mentor --
901 East Byrd Street Distributors, Inc.
Richmond, VA 23219
John Mark Harris Secretary, Mentor --
901 East Byrd Street Distributors, Inc.
Richmond, VA 23219
John Michael Ivan Assistant Secretary, Secretary
901 East Byrd Street Mentor Distributors,
Richmond, VA 23219 Inc.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliate of
the Registrant.
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and
other documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are Registrant's
Secretary, John M. Ivan, Registrant's custodians, Investors Fiduciary Trust
Company ("IFTC") (all Portfolios other than SNAP Fund), and Central Fidelity
National Bank (SNAP Fund only), and Registrant's transfer agents, State
Street Bank and Trust Company (through Boston Financial Data Services, Inc.
("BFDS")) (all Portfolios other than SNAP Fund), and Central Fidelity National
-7-
<PAGE>
Bank (SNAP Fund only). The address of the Secretary is 901 East Byrd Street,
Richmond, Virginia, 23219. The address of BFDS is 2 Heritage Drive, North
Quincy, Massachusetts 02171. The address of IFTC is 127 West 10th Street, Kansas
City, Missouri, 64105. The address of Central Fidelity National Bank is 1021
East Cary Street, P.O. Box 27602, Richmond, Virginia 23261.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant undertakes to furnish to each person to whom a prospectus of
the Registrant is delivered a copy of the Registrant's latest annual report
to shareholders, upon request are without change.
(b) Inapplicable.
(c) Inapplicable.
(d) The undersigned Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the removal of a
trustee or trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's outstanding voting
securities and in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications.
NOTICE
A copy of the Agreement and Declaration of Trust of Mentor
Institutional Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the Trustees, officers, or shareholders individually but
are binding only upon the assets and property of the Registrant.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to the Registration Statement to be signed on behalf of the undersigned,
thereunto duly authorized, in the City of Richmond, and the Commonwealth of
Virginia on this 8th day of March, 1996.
MENTOR INSTITUTIONAL TRUST
By: /s/ PAUL F. COSTELLO
Paul F. Costello
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
- -------------------------------- Trustee
Arnold H. Dreyfuss
- -------------------------------- Trustee
Thomas F. Keller
* Trustee March 8, 1996
- --------------------------------
Daniel J. Ludeman
* Trustee March 8, 1996
- --------------------------------
Louis W. Moelchert, Jr.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
* Trustee March 8, 1996
- --------------------------------
Stanley F. Pauley
* Trustee March 8, 1996
- ---------------------------------
Troy A. Peery, Jr.
/s/ PAUL F. COSTELLO President March 8, 1996
- ---------------------------
Paul F. Costello (Principal Executive Officer)
/s/ TERRY L. PERKINS Treasurer March 8, 1996
- --------------------------
Terry L. Perkins (Principal Financial and
Accounting Officer)
*By /s/ PAUL F. COSTELLO March 8, 1996
----------------------
Paul F. Costello
Attorney-in-Fact
</TABLE>
-10-
<PAGE>
EXHIBIT INDEX
Exhibit Page
(11) Consent of Independent
Accountants
(16) Schedule for Computation of
Performance
(27)(a) Financial Data Schedule --
Mentor Cash Management
Portfolio
(27)(b) Financial Data Schedule --
Mentor Intermediate
Duration Portfolio
(27)(c) Financial Data Schedule --
Mentor Fixed-Income
Portfolio
(27)(d) Financial Data Schedule --
SNAP Fund
-11-
CONSENT OF INDEPENDENT ACCOUNTANTS
The Trustees and Shareholders
Mentor Institutional Trust
We consent to the use of our report dated December 8, 1995, included
herein, and to the reference to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus for The Mentor Cash Management Portfolio, The
Mentor Intermediate Duration Portfolio, The Mentor Fixed-Income Portfolio and
the Mentor International Portfolio, and "INDEPENDENT ACCOUNTANTS" in the
Statements of Additional Information for The Mentor Cash Management Portfolio,
The Mentor Intermediate Duration Portfolio, The Mentor Fixed-Income Portfolio,
The Mentor International Portfolio and SNAP Fund.
/s/ KPMG PEAT MARWICK, LLP
KPMG Peat Marwick, LLP
Boston, Massachusetts
March 7, 1996
EXHIBIT 16
Yield Computation Schedule
Cash Management SNAP FUND
------------------------------------
Account Balance (1 share @ 1.00) 1.000000000 1.000000000
Dividend Declaration
Cash Management SNAP
- -----------------------------------------
October 25, 1995 December 25, 1995 0.000159228 0.000154780
October 26, 1995 December 26, 1996 0.000158605 0.000154395
October 27, 1995 December 27, 1996 0.000158287 0.000153561
October 28, 1995 December 28, 1996 0.000158286 0.000153080
October 29, 1995 December 29, 1997 0.000158286 0.000156685
October 30, 1995 December 30, 1997 0.000158609 0.000156684
October 31, 1995 December 31, 1997 0.000159463 0.000156684
------------------------------------
0.001110764 0.001085869
Ending Account Balance 1.001110764 1.001085869
Less: Beginning Account Balance 1.000000000 1.000000000
------------------------------------
0.001110764 0.001085869
Base Period Return
(Difference/Beginning Account Balance) 0.001110764 0.001085869
Yield Quotation
(Base Period Return * 365/7) 5.79% 5.66%
Effective Yield Quotation
[(Base Period Return +1) ^ 367/7)] 5.96% 5.82%
30 Day Base Period Ended October 31, 1995
<TABLE>
<CAPTION>
Intermediate Fixed
Duration Income
----------------------------------
<S> <C> <C>
a= dividends and interest earned during the month 61,605.74 178,921.36
b= expenses accrued during month 482.52 1,384.64
c= average dividend shares outstanding during the month 886,374.01 2,475,039.31
d= net asset value price per share on the last day of the month 13.31 13.71
Fund Yield 2 * [((a-b)/cd+1) ^ 6.1] 6.30% 6.36%
</TABLE>
Performance Calculation
Intermediate Fixed Cash
Duration Income Management
--------------------------------------------------
Initial Investment 1,000.00 1,000.00 1,000.00
Initial NAV 12.50 12.50 1.00
Initial Shares 80.00 80.00 1,000.00
Shares from Distribution 4.43 4.54 50.60
End of Period NAV 13.31 13.71 1.00
Total Return 12.38% 15.90% 5.06%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> CASH MANAGEMENT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 69,852,773
<INVESTMENTS-AT-VALUE> 69,852,773
<RECEIVABLES> 158,110
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,367
<TOTAL-ASSETS> 70,038,250
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,271
<TOTAL-LIABILITIES> 41,271
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,996,979
<SHARES-COMMON-STOCK> 69,996,979
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 69,996,979
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,439,036
<OTHER-INCOME> 0
<EXPENSES-NET> (16,235)
<NET-INVESTMENT-INCOME> 2,422,801
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,442,801
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,442,801
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 137,216,173
<NUMBER-OF-SHARES-REDEEMED> (69,627,001)
<SHARES-REINVESTED> 2,407,807
<NET-CHANGE-IN-ASSETS> 69,996,979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,842
<AVERAGE-NET-ASSETS> 47,481,607
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> INTERMEDIATE DURATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 11,970,839
<INVESTMENTS-AT-VALUE> 12,126,849
<RECEIVABLES> 378,327
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,362
<TOTAL-ASSETS> 12,510,538
<PAYABLE-FOR-SECURITIES> 536,418
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,323
<TOTAL-LIABILITIES> 544,741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,278,113
<SHARES-COMMON-STOCK> 898,741
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 54,440
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 477,234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 156,010
<NET-ASSETS> 11,965,797
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 668,347
<OTHER-INCOME> 0
<EXPENSES-NET> (4,702)
<NET-INVESTMENT-INCOME> 663,645
<REALIZED-GAINS-CURRENT> 468,099
<APPREC-INCREASE-CURRENT> 156,010
<NET-CHANGE-FROM-OPS> 1,287,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 600,070
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 855,389
<NUMBER-OF-SHARES-REDEEMED> (2,488)
<SHARES-REINVESTED> 45,840
<NET-CHANGE-IN-ASSETS> 11,965,797
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25,405
<AVERAGE-NET-ASSETS> 11,111,285
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.78
<PER-SHARE-GAIN-APPREC> 0.74
<PER-SHARE-DIVIDEND> 0.71
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.31
<EXPENSE-RATIO> 0.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> FIXED-INCOME
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 34,145,405
<INVESTMENTS-AT-VALUE> 35,192,798
<RECEIVABLES> 651,931
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,048
<TOTAL-ASSETS> 35,871,777
<PAYABLE-FOR-SECURITIES> 1,609,254
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 209,064
<TOTAL-LIABILITIES> 1,818,318
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,480,542
<SHARES-COMMON-STOCK> 2,484,138
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 172,353
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,353,171
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,047,393
<NET-ASSETS> 34,053,459
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,797,962
<OTHER-INCOME> 0
<EXPENSES-NET> (12,658)
<NET-INVESTMENT-INCOME> 1,785,304
<REALIZED-GAINS-CURRENT> 1,341,178
<APPREC-INCREASE-CURRENT> 1,047,393
<NET-CHANGE-FROM-OPS> 4,173,875
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,600,958
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,759,545
<NUMBER-OF-SHARES-REDEEMED> (396,079)
<SHARES-REINVESTED> 120,672
<NET-CHANGE-IN-ASSETS> 34,053,459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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