MENTOR INSTITUTIONAL TRUST
MESSAGE FROM THE CHAIRMAN AND PRESIDENT
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It is our privilege to send you the Mentor Institutional Trust Annual Report for
the year ended October 31, 1996.
Mentor Institutional Trust is part of Mentor Investment Group, a firm that
provides diversified investment services to a broad range of investors including
corporations, foundations, endowments, municipalities, public funds, and
individual investors. Seven different investment styles are available to
investors through Mentor, in both mutual funds and separately-invested
portfolios. The Annual Report that follows represents the four Portfolios of the
Trust. Since our most recent report to you (for the six-month period ended April
30, 1996), the Mentor Perpetual International Portfolio, an equity fund of
foreign (non-domestic) securities, has been added to the Trust.
Seven Investment Styles
[Graph here]
Reward
Lower to Higher
Cash Management
Active Fixed Income
Balanced Management
Tactical Asset Allocation
Large-Capitalization Quality Growth
Global/International Equity Growth
Small/Mid-Capitalization Growth
Risk
Lower to Higher
1
<PAGE>
MENTOR INSTITUTIONAL TRUST
MESSAGE FROM THE CHAIRMAN AND PRESIDENT (CONTINUED)
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The Trust is designed to give you flexibility in seeking to fulfill three
different fixed-income objectives, as well as to provide an alternative for
diversifying your equity assets abroad.
In the commentaries that follow, the management teams of the Mentor Portfolios
present their perspectives on the markets and their strategies for investing
your assets. Complete performance information for each Portfolio, relative to
the appropriate index, is also included in the reports.
Please review the information carefully. Should you have questions, please call
your Financial Consultant, or call us directly, (800) 382-0016. We welcome your
communications.
On behalf of all of us at Mentor Investment Group, we thank you for your
investment in Mentor Institutional Trust.
Sincerely,
/s/ Daniel J. Ludeman /s/ Paul F. Costello
- --------------------- --------------------
Daniel J. Ludeman Paul F. Costello
Chairman and CEO President
[Mentor Logo]
THE MENTOR MISSION
Our mission is to provide professional investment management services through a
firm that is second to none in the quality of its investment process, the skill
and training of its professionals, and the commitment, shared by all its
associates, to deliver the highest level of service and ethical behavior to
clients.
FOR MORE INFORMATION AND A PROSPECTUS FOR MENTOR FUNDS AND MENTOR INSTITUTIONAL
TRUST, PLEASE CALL US, (800)382-0016, OR CONTACT YOUR FINANCIAL CONSULTANT. THE
PROSPECTUSES CONTAIN COMPLETE INFORMATION REGARDING FEES, SALES CHARGES, AND
EXPENSES. PLEASE READ THEM CAREFULLY BEFORE INVESTING OR SENDING MONEY.
2
<PAGE>
MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
CASH MANAGEMENT PORTFOLIO
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Mentor Institutional Trust Cash Management Portfolio has completed its second
year of operation, and rarely has there been a period of more challenging market
conditions. Over the past 12 months alone we have felt the effects of such
things as severe winter weather, a partial government shutdown, a presidential
election, and contradictory economic indicators.
MARKET CONDITIONS
With economic trends slowing, interest rates were headed down as we entered the
fiscal year. Following a reduction in July, 1995, the Federal Reserve again
lowered rates in December and January, reaching a level of 5.25%. No sooner had
this been done than economic indicators reversed themselves and began to flash
stronger growth. Throughout the spring and early summer, it was anticipated that
the Federal Reserve would reverse policy and raise rates some time in the near
future.
Despite expectations, there were no further Federal Reserve interventions in the
short-term markets after January, but those markets nevertheless continued to
exhibit a high degree of volatility as participants continued to speculate on
the future course of Fed policy. Fueling this speculation were economic
statistics which vacillated between those that seemed to indicate strength, to
those that signaled pending weakness. On balance, however, the overall trend has
been one of sluggish growth.
Under such conditions, there is little reason for the Fed to make any change,
and this was the decision at the September meeting. Encouraged that we might not
see any Fed change the remainder of the year, the markets rallied and we
finished the Portfolio's fiscal year on a strong note.
STAYING THE COURSE
Such quick short-term swings in the market present an exceptional challenge to
the skills of portfolio managers, especially in the areas of market timing and
selectivity. Throughout the year, the Cash Management Portfolio's conservative
investment policies enabled it to provide satisfactory current income
3
<PAGE>
MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
CASH MANAGEMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
while maintaining Mentor's high quality standards and meeting all client
liquidity needs. Our philosophy is that the Portfolio's primary purpose is to
assure safety of principal and to provide funds when needed. Accordingly, our
primary emphasis will always be on safety and liquidity.*
-- the Mentor Cash Management Team
* While the portfolio managers will endeavor to manage the Portfolio in
accordance with a proprietary cash investment process, there are no guarantees
that they will be successful. Past performance does not guarantee future
comparable results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. There are no assurances that shares of the Portfolio will
maintain a stable net asset value of $1.00.
4
<PAGE>
MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
INTERMEDIATE DURATION AND FIXED-INCOME PORTFOLIOS
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MARKET CONDITIONS
The 12-month period ended October 31, 1996 saw a significant shift in the shape
of the yield curve, with rates under two-years down, and rates at two-years and
above higher. Three-month yields were down 0.35%, 30-year rates were up 0.31%.
Two and 10-year treasuries closed the period at 5.73% and 6.34%, up 0.12% and
0.32% respectively from the beginning of the period.
This steepening of the yield curve reflects several factors. First, early in the
period, the Federal Reserve chose to lower the short-term federal funds rate
(the rate member banks charge each other for overnight loans) twice by 0.25%.
This monetary easing coupled with other factors created the environment for
accelerating economic growth for most of the period. Fourth quarter 1995 GDP
(gross domestic product) growth of 0.3% was followed by first quarter 1996
growth of 2.0%, accelerating to 4.7% in the second quarter, then returning to
2.0% for the third quarter 1996, based upon preliminary estimates. The economic
momentum of the first two quarters of 1996 caused many market participants to
have increasing concerns that an overheating economy would rekindle inflation.
This scenario could force the Fed to reverse course and raise rates despite
continued modest increases in historical inflation measures.
Changing perceptions regarding the strength of the economy caused 1996 to be a
period of high interest-rate volatility. The most closely-watched economic
statistic has been the monthly non-farm payroll report. During the first half of
the year, this key indicator of underlying economic strength surprised the
market on several occasions by its growth, causing immediate market corrections
of as much as 0.25%. That volatility and uncertainty notwithstanding, the
Federal Reserve has chosen to leave the fed funds rate unchanged since January,
defying the predictions of both those calling for a tightening and loosening of
monetary policy.
PERFORMANCE
For the 12-month period ended October 31, the Mentor Intermediate Duration
Portfolio returned 5.90%, 0.08% above its Lehman Brothers Intermediate
Government/Corporate Bond Index* benchmark. The Mentor Fixed-Income Portfolio
returned 4.87% for the 12 months ending October 31, 0.52% below the return of
its Lehman Brothers
5
<PAGE>
MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
INTERMEDIATE DURATION AND FIXED-INCOME PORTFOLIOS (CONTINUED)
- --------------------------------------------------------------------------------
Government/Corporate Bond Index* benchmark.
Performance during the past 12 months was strengthened by a strong showing in
the corporate bond sector. However, the benefits of this participation were
offset by our duration extension this spring, following an initial market
correction. That decision hurt our relative performance as the market declined
as a result of continued concerns about the potential inflationary impact of the
strong economy.
MARKET OUTLOOK
The fixed-income markets have displayed high levels of volatility during the
course of the last 12 months, particularly as strong economic statistics have
raised concerns of Federal Reserve tightening. Early indications are that
third-quarter growth saw a significant deceleration from second-quarter levels.
To date, the Fed has chosen not to raise rates, but factors such as the
continued strength of the equity markets and high levels of consumer confidence
and debt have caused concerns that speculative excesses, coupled with economic
growth and tight labor markets, make an eventual credit tightening unavoidable.
We continue to remain optimistic regarding the long-term prospects for
fixed-income markets, assuming that efforts at continued deficit reduction and
government downsizing remain on track. We anticipate continuing in a market-
neutral position relative to our benchmarks until more compelling fundamental
factors convince us that a duration change is warranted.
-- the Mentor Intermediate Duration and
Fixed-Income Management Team
* The Lehman Brothers Intermediate Government/Corporate Bond Index and the
Lehman Borthers Government/Corporate Bond Index are commonly used to compare
performance of fixed-income portfolios. They include treasuries, agencies, and
publicly-issued, fixed-rate, non-convertible, investment-grade,
dollar-denominated debt. Because shares of the Portfolios of the Trust can
only be purchased in individually-managed accounts, the performance return
information does not reflect the investment advisory fees charged at each
account level.
While the portfolio managers will endeavor to manage the Portfolios in
accordance with a proprietary fixed-income investment process, there is no
guarantee that they will be successful. Past performance does not guaratee
future comparable results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Performance figures represent change in
investment value after reinvesting all dividends.
6
<PAGE>
MENTOR INSTITUTIONAL TRUST
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISONS
MENTOR INTERMEDIATE DURATION
PORTFOLIO
[Graph here]
Mentor Intermediate Lehman Brothers Intermediate
Duration Portfolio Gov't Corporate Bond Index
12/94+ $ 9,990 $ 9,987
01/95 10,158 10,147
02/95 10,368 10,340
03/95 10,427 10,401
04/95 10,556 10,523
05/95 10,875 10,858
06/95 10,948 10,940
07/95 10,949 10,915
08/95 11,049 11,023
09/95 11,128 11,111
10/95 11,252 11,238
11/95 11,399 11,385
12/95 11,519 11,518
01/96 11,618 11,617
02/96 11,482 11,491
03/96 11,423 11,420
04/96 11,383 11,357
05/96 11,374 11,348
06/96 11,495 11,467
07/96 11,529 11,504
08/96 11,539 11,550
09/96 11,699 11,700
10/96 11,906 11,901
Average Annual Returns as of 10/31/96
1-Year Since Inception+
5.90% 9.76%
MENTOR FIXED-INCOME
PORTFOLIO
[Graph here]
Mentor Fixed Income Lehman Brothers Gov't
Portfolio Corporate Bond Index
12/94++ $ 10,003 $ 10,048
01/95 10,196 10,241
02/95 10,421 10,478
03/95 10,511 10,549
04/95 10,625 10,695
05/95 11,092 11,143
06/95 11,215 11,232
07/95 11,131 11,189
08/95 11,290 11,332
09/95 11,407 11,447
10/95 11,593 11,616
11/95 11,785 11,807
12/95 11,974 11,981
01/96 12,046 12,055
02/96 11,802 11,800
03/96 11,676 11,701
04/96 11,575 11,620
05/96 11,539 11,600
06/96 11,688 11,756
07/96 11,716 11,783
08/96 11,688 11,754
09/96 11,885 11,964
10/96 12,158 12,242
Average Annual Returns as of 10/31/96
1-Year Since Inception++
4.87% 10.81%
The graphs compare the investment performance of each Portfolio, from inception,
to an appropriate broad-based securities index. Each graph reflects the
performance of a $10,000 investment from the date of inception through October
31, 1996. Returns do not reflect taxes payable on distributions.
In comparing the performance of a Portfolio to an index, please recognize that
market indexes do not take into account brokerage commissions that would be
incurred if the individual securities of the index were purchased. They also do
not include taxes payable on dividends and interest payments, or operating
expenses necessary to maintain a portfolio investing in the index.
The performance data quoted in this report are historical and do not predict
future investment results. Investment return and principal value will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Performance is cited as of October 31, 1996, and includes changes in share price
and reinvestment of dividends and capital gains. Because shares of the
Portfolios of the Trust can only be purchased in individually-managed accounts,
the performance return information does not reflect the investment advisory fees
charged at each account level.
+ Reflects operations of Mentor Intermediate Duration Portfolio from the date
of initial public investment on 12/19/94 through 10/31/96.
++ Reflects operations of Mentor Fixed-Income Portfolio from the date of initial
public investment on 12/6/94 through 10/31/96.
7
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MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
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REVIEW OF THE MARKETS
International markets were mixed over the five months subsequent to the Fund's
launch in May, 1996, with most major markets failing to keep pace with the S&P
Composite's rise of 5.4%. The Mentor Perpetual International Portfolio's return
of -3.04% was below that of the MSCI Europe, Australia, and Far East (EAFE)
Index,* which returned -0.47%.
Among international markets performance varied dramatically with the UK doing
the best, 11.28%, and Japan by far the worst, -11.67%. Europe excluding the UK
returned a respectable 4.07% and the emerging markets were a bit disappointing,
with Asia excluding Japan 1.53% and Latin America 1.89%
EUROPE
After achieving good rises in the opening months of 1996, European markets saw
some profit-taking in the summer months. However, market performance picked up
strongly in the fall. Germany was one of the best performers, with the MSCI
Germany Index rising by 9.8% in dollar terms, closely followed by France, where
the MSCI Index rose 9.1%. Sentiment toward German stocks benefited from growing
signs that the economy was moving out of recession. The Bundesbanke, taking
notice of the poor economic conditions within other European Union countries
committed to European Monetary Union, moved to bring interest rates down. The
outlook for corporate profits in these economies remained gloomy, as moves to
satisfy the Maastricht Treaty conditions for monetary union forced a tightening
in fiscal policies. Despite that, monetary policy remained loose, bond markets
were buoyant, and stock markets reacted positively to these conditions.
In the UK, which remains an outsider to the proposed single currency, the MSCI
UK Index rose by 11.28% in dollar terms. The economy was the strongest in
Europe, and corporate profit growth was satisfactory. A slight tightening of
monetary policy as represented by a 0.25% rise in base rates helped boost the
pound against both the dollar and Continental currencies, as did the rise in the
price of
8
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MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
oil since Britain remains a net oil exporter.
JAPAN
Japan was weak with both stock prices and the currency losing ground. During the
six-month period ended October 31, the MSCI Japan Index fell by 11.67% in dollar
terms. Signs that the recovery in the economy and corporate profits were already
flagging discouraged investors, and even a move in bond yields to record low
levels could not prevent stock prices falling. A general election in October
left Japan with a minority government without the mandate to effect the de-
regulation necessary to stimulate the economy over the longer term, representing
another disappointment to investors. Foreigners, who had bought stocks in record
markets for nearly two years, turned net sellers, which aggravated the air of
despondency prevailing in Japan's stock markets.
ASIA
Given the strength of Wall Street, Asia was particularly disappointing. Only in
Hong Kong, the market historically most responsive to American monetary
conditions, did investors make significant gains, with the MSCI Hong Kong Index
rising by 14.1% in dollar terms. Stocks in Hong Kong were also boosted by a
revival in property prices and by indications that Chinese economic growth was
accelerating. With the exception of Malaysia, where the MSCI Malaysia Index rose
7.0%, elsewhere in Asia returns were dismal to disastrous, as economies failed
to match growth expectations and corporate profits consequently disappointed. In
dollar-adjusted terms the MSCI Singapore Index fell by 9.35%, and the MSCI Korea
Index fell by 26.4%. The Bangkok SET Index had the region's worst performance by
falling 30.3%. Thailand was beset by not only disappointments in economic and
profits growth but also by a significant deterioration in the trade account and
political uncertainties.
LATIN AMERICA
Latin American markets were be-calmed, and the IDC Latin American Index made a
dollar gain of only 2.7%. With some commentators suggesting that another
9
<PAGE>
MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
crisis in the Mexican peso was looming, and fund flows from American and
European investors falling away, trading volumes shrank.
MARKET OUTLOOK
With the chairman of the Federal Reserve speaking of "international exuberance"
in markets only a few days after the Bank of International Settlements (BIS)
expressed concern over the "prevailing mood of euphoria," it is difficult to be
unequivocally bullish about prospects for the next few months. While the
attention of market skeptics is focused on a possibly overheated US stock
market, other world markets are vulnerable to a correction on Wall Street,
particularly as American mutual fund investors like yourselves have been
important buyers globally.
In addition to general fears that "what goes up, must come down," there are two
more specific worries for international investors. The first is that EMU be
abandoned or delayed. Securities markets on the Continent are now priced on the
basis that the 1999 deadline will be met. If it is not, there is almost certain
to be a sell-off in currencies against the Deutschemark, as well as a sell-off
of non-Deutschemark denominated bonds. Inevitably, share prices would be at
least temporarily upset. The second worry is that the Asian "miracle" is no more
and that Asian economies will grow at more pedestrian rates. International
investors are very heavily committed to these markets, which have offered an
exceptionally attractive mix of high growth on relatively modest valuations in
recent years. A concerted move to reduce weightings could have severe impact on
these markets as there is limited domestic institutional participation.
Having raised these fears, it is probably wrong to be too alarmed by them. A
breakdown in EMU is not necessarily a calamity for equity investors. While
yields would necessarily shift, economies would enjoy a boost as the abandonment
of Maastricht Treaty conditions would remove the main barrier to faster growth.
The slowdown of Asian growth (if, indeed, rates of growth between 6% and 8%
should be considered slow) should prove cyclical, not secular. The main
10
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MANAGERS' COMMENTARY
MENTOR INSTITUTIONAL TRUST
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
agents for growth - extraordinarily high levels of savings and investment, price
competitiveness, and the growing demands of a population moving beyond
subsistence standards of living - remain in place.
As to a more general correction in market levels, it is inevitable even if the
timing is uncertain - stock prices do not go up forever. However, such a
correction is unlikely to be long-lasting. Signs of economic over-heating are
absent virtually everywhere, with the possible exception of the United Kingdom.
Indeed, much of Europe and Japan has barely moved out of recession, while 1996
represents a year of economic consolidation in Asia, as already noted. In most
markets corporate profits are only at the beginning of an upswing, not at the
peak of the cycle. Moreover, on most measures of valuation, stocks are
attractively priced in Europe, Asia and even Japan compared with historic
measures of P/Es, price/book ratios, and the like, and appear to be good value
against relevant fixed interest securities.
In this environment no more than short-term caution seems warranted.
-- the Mentor Perpetual International Management Team
ALL STATISTICS ARE SOURCED FROM DATASTREAM. DATASTREAM IS A SUBSIDIARY OF THE
PRIMARK CORPORATION, A $650 MILLION PROVIDER OF GLOBAL FINANCIAL AND TECHNOLOGY
SOLUTIONS (NYSE:PMK). OTHER PRIMARK COMPANIES INCLUDE: DISCLOSURE INCORPORATED,
A LEADING SUPPLIER OF SECURITIES AND EXCHANGE COMMISSION FILINGS AND FINANCIAL
DATA ON OVER 28,000 COMPANIES AROUND THE WORLD; WORLDSCOPE/DISCLOSURE PARTNERS,
WHICH DISTRIBUTES COMPARABLE FINANCIAL DATA ON MORE THAN 12,800 COMPANIES IN
ALMOST 50 COUNTRIES; I/B/E/S, A PREMIER SOURCE OF ANALYST EARNINGS PER SHARE
FORECAST; VASTEK, WHICH DEVELOPS INVESTMENT SOFTWARE TO MANAGE AND ANALYZE
PORTFOLIOS; AND TASC (THE ANALYTICAL SCIENCES CORPORATION), A GLOBAL PROVIDER OF
INFORMATION TECHNOLOGY APPLICATIONS.
*THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE (EUROPE, AUSTRALIA, AND
FAR EAST) WORLD INDEX IS AN UNMANAGED INDEX OF APPROXIMATELY 1119 SECURITIES
ISSUED BY COMPANIES LISTED ON EUROPEAN, AUSTRALIAN, AND FAR EASTERN STOCK
EXCHANGES. IT CONTAINS NO US EQUITIES AND IS THEREFORE A BROADLY DIVERSIFIED
PROXY FOR INTERNATIONAL PERFORMANCE. THIS IS A TOTAL RETURN INDEX WITH GROSS
DIVIDENDS REINVESTED. THE INDEX IS NOT ADJUSTED TO REFLECT SALES LOADS,
EXPENSES, OR OTHER FEES THAT THE SEC REQUIRES TO BE REFLECTED IN THE PORTFOLIO'S
PERFORMANCE. INVESTORS CANNOT INVEST IN INDEXES. THE PERFORMANCE OF COUNTRIES
AND UNMANAGED INDEXES DOES NOT REFLECT EXPENSES AND MAY NOT CORRESPOND TO THE
PERFORMANCE OF MENTOR PERPETUAL INTERNATIONAL PORTFOLIO, WHICH IS ACTIVELY
MANAGED AND INCURS EXPENSES.
INVESTMENTS OUTSIDE THE US ARE SUBJECT TO CURRENCY FLUCTUATIONS, POLITICAL AND
SOCIAL INSTABILITY, DIFFERING SECURITIES REGULATIONS, AND ACCOUNTING STANDARDS.
WHILE THE PORTFOLIO MANAGERS WILL ENDEAVOR TO MANAGE THE PORTFOLIO IN ACCORDANCE
WITH THEIR PROPRIETARY INTERNATIONAL EQUITY INVESTMENT PROCESS, THERE ARE NO
GUARANTEES THAT THEY WILL BE SUCCESSFUL. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE, COMPARABLE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PERFORMANCE FIGURES REPRESENT CHANGE IN INVESTMENT VALUE
AFTER REINVESTMENT OF ALL DIVIDENDS.
11
<PAGE>
MENTOR INSTITUTIONAL TRUST
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISONS
MENTOR PERPETUAL
INTERNATIONAL PORTFOLIO
Mentor Perpetual Morgan Stanley Capital
International Portfolio International (EAFE) World Index*
5/96** $ 10,000 $ 10,000
6/96 10,064 10,059
7/96 9,736 9,767
8/96 9,816 9,791
9/96 9,920 10,054
10/96 9,696 9,953
Total Returns as of 10/31/96
1-Year Since Inception**
n/a (3.04%)
The graph compares the investment performance of the Mentor Perpetual
International Portfolio, from its inception date to the index that is most
representative of the Portfolio. The graph reflects the performance of a $10,000
investment form the date the Portfolio started through October 31, 1996. Returns
do not reflect taxes payable on distributions.
In comparing the performance of a portfolio to an index, you should keep in mind
that market indexes do not take into account brokerage commissions that would be
incurred if you purchased the individual securities that make up the index. They
also do not include taxes payable on dividends and interest payments, or
operating expenses necessary to maintain a portfolio investing in the index.
The performance data quoted in this report are historical and do not predict
future investment results. Investment return and principal value will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Performance is cited as of October 31, 1996, and includes changes in share price
and reinvestment of dividends and capital gains.
* The Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia, and
Far East) World Index is an unmanaged index of approximately 1119 securities
issued by companies listed on European, Australian, and Far Eastern stock
exchanges. It contains no US equities and is therefore a broadly diversified
proxy for international performance. This is a total return index with gross
dividends reinvested. The Index is not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the
Portfolio's performance. Investors cannot invest in the index. The
performance of countries and unmanaged indexes does not reflect expenses and
may not correspond to the performance of Mentor Perpetual International
Portfolio, which is actively managed and incurs expenses.
** Reflects operations of Mentor Perpetual International Portfolio from the date
of initial public investment on 5/29/96 through 10/31/96.
12
<PAGE>
MENTOR CASH MANAGEMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Principal
Net Assets Amount Value
<S> <C>
- --------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 54.86%
Federal Home Loan Bank, 5.50%, 11/1/96 $20,000,000 $20,000,000
Federal Home Loan Mortgage Corporation,
5.10%, 1/13/97 (a) 500,000 499,823
5.21%, 1/29/97 10,000,000 9,871,197
Federal National Mortgage Association, 5.24%-5.26%,
1/17/97- 4/10/97 8,000,000 7,873,828
Student Loan Marketing Association,
5.50%, 11/1/96 2,000,000 1,999,716
5.43%, 8/4/97 (a) 5,000,000 5,000,000
U.S. Treasury Note, 7.50%, 1/31/97 3,000,000 3,016,328
- --------------------------------------------------------------------------------------------------------------
Total U.S. Government Securities and Agencies 48,260,892
- --------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 45.43%
Chase Securities, Inc.
Dated 10/31/96, 5.55%, due 11/1/96, collateralized
by $20,018,902 Federal National Mortgage
Association, 8.00%, 7/1/26 20,000,000 20,000,000
Goldman, Sachs & Company
Dated 10/31/96, 5.55%, due 11/1/96, collateralized
by $20,353,010 Federal National Mortgage
Association, 7.50%, 6/1/26 19,963,842 19,963,842
- --------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements 39,963,842
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $88,224,734) 100.29% 88,224,734
- --------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES (0.29%) (251,506)
- --------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $87,973,228
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Floating Rate Securities- The rates shown are the effective rates at October
31, 1996. Securities shown without a date are payable within five business
days and are backed by credit support agreements from banks or insurance
institutions.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
MENTOR INTERMEDIATE DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 4.42%
Advanta Mortgage Loan Trust 1993-3, 4.75%, 2/25/10 $ 103,488 $ 99,489
AFC Home Equity Loan 1995-5, 6.60%, 2/25/27 50,494 49,914
- ------------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (cost $147,830) 149,403
- ------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 16.36%
Abbey National PLC, 6.69%, 10/17/05 50,000 49,481
Capital One Bank, 7.20%, 7/19/99 50,000 50,987
Developers Diversified Realty, 6.58%, 2/06/01 75,000 74,094
Lehman Brothers, Inc., 7.50%, 8/01/26 75,000 77,373
Lockheed Martin Corporation, 7.20%, 5/01/36 50,000 51,327
Phillips Electronics, 7.20%, 6/01/26 50,000 51,174
Salomon, Inc., 6.00%, 1/12/98 65,000 64,767
Sears Roebuck Company, 8.45%, 3/1/02 50,000 54,131
Sunamerica, Inc., 7.34%, 8/30/05 50,000 50,394
Travelers, Inc., 6.88%, 6/1/25 30,000 29,966
- ------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $544,404) 553,694
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 74.65%
Federal Home Loan Mortgage Corporation
6.50%, Series 1422, 2/15/07-CMO, REMIC 76,000 73,178
6.50%, Series 1647 B, 11/15/08-CMO, REMIC 94,844 91,207
Federal National Mortgage Association, 7.00%, 7/01/11, MBS 150,474 151,036
Government National Mortgage Association, 7.00%, 12/15/08,
MBS 140,976 142,009
U.S. Treasury Notes, 5.00%-7.50%, 11/15/97-7/15/06 2,050,000 2,068,397
- ------------------------------------------------------------------------------------------------------------------
Total U.S. Government Securities and Agencies
(cost $2,509,964) 2,525,827
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
MENTOR INTERMEDIATE DURATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Market
Net Assets Value
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $3,202,198) 95.43% $ 3,228,924
- ------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 4.57% 154,587
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $ 3,383,511
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
CMO - Collateralized Mortgage Obligation
MBS - Mortgage-Backed Securities
REMIC - Real Estate Mortgage Investment Conduit
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
MENTOR FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 11.51%
Advanta Home Equity Loan, 6.15%, 10/25/09 $ 1,456,237 $ 1,429,942
Advanta Mortgage Loan Trust 1993-3, 4.75%, 2/25/10 1,536,102 1,476,738
AFC Home Equity Loan, 6.60%, 2/25/27 949,477 938,580
AFG Receivables Trust, 6.45% - 7.05%,
9/15/00 - 4/15/01 1,910,428 1,907,668
- ------------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities (cost $5,723,769) 5,752,928
- ------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 23.56%
Abbey National PLC, 6.69%, 10/17/05 950,000 940,140
Capital One Bank, 7.15% - 7.20%, 7/19/99 - 9/15/06 1,950,000 1,986,862
Developers Diversified Realty, 6.58%, 2/6/01 1,425,000 1,407,789
Lehman Brothers, Inc., 7.50%, 8/1/26 1,425,000 1,470,090
Lockheed Martin Corporation, 7.20%, 5/1/36 950,000 975,217
Merrill Lynch, 6.64%, 9/19/02 155,000 155,218
Norwest Corporation, 6.80%, 5/15/02 270,000 273,415
Phillips Electronics, 7.20%, 6/1/26 950,000 972,305
Salomon, Inc., 6.00%, 1/12/98 935,000 931,649
Sears Roebuck Company, 8.45%, 3/1/02 950,000 1,028,489
Sunamerica Inc., 7.34%, 8/30/05 950,000 957,477
Travelers, Inc., 6.88%-8.63%, 2/1/07-6/1/25 650,000 670,624
- ------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $11,571,589) 11,769,275
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 60.85%
Federal Home Loan Mortgage Corporation,
6.50%, Series 1422, 2/15/07 - CMO, REMIC 1,523,391 1,466,819
6.50%, Series 1647 B, 11/15/08 - CMO, REMIC 1,280,873 1,231,755
Federal National Mortgage Association, 7.00%, 7/01/11, MBS 2,196,923 2,205,129
Government National Mortgage Association, 7.00%, 12/15/08 -
10/15/26, MBS 3,899,814 3,884,930
U.S. Treasury Notes, 5.00% - 7.50%,
1/31/98-11/15/24 20,970,000 21,614,468
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
MENTOR FIXED-INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Total U.S. Government Securities and Agencies
(cost $29,846,377) $30,403,101
- ------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 3.53%
- ------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company $ 1,760,966 1,760,966
Dated 10/31/96, 5.55%, due 11/1/96, collateralized by
$1,796,656 Federal National Mortgage Association, 7.50%,
4/1/26 (cost $1,760,966)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $48,902,701) 99.45% 49,686,270
- ------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 0.55% 275,478
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $49,961,748
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
CMO - Collateralized Mortgage Obligation
MBS - Mortgage-Backed Securities
REMIC - Real Estate Mortgage Investment Conduit
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Market
Net Assets Shares Value
<S> <C>
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS 88.68%
- -----------------------------------------------------------------------------------------------------------
ARGENTINA 0.29%
Perez Company~ 2,000 $ 25,260
- -----------------------------------------------------------------------------------------------------------
BRAZIL 1.81%
Cemig CIA Energetic~ (b) 1,300 41,238
Pao De Acucar 2,100 41,864
Telebras~ 530 39,485
Vale Do Rio Doche~ 1,700 35,741
- -----------------------------------------------------------------------------------------------------------
158,328
- -----------------------------------------------------------------------------------------------------------
CHILE 0.60%
Chile Fund 2,400 52,200
- -----------------------------------------------------------------------------------------------------------
FINLAND 0.67%
Cultor OY 1,280 58,455
- -----------------------------------------------------------------------------------------------------------
FRANCE 2.43%
Cie Fin Paribas 1,860 119,486
Generale Des Eaux 780 93,056
- -----------------------------------------------------------------------------------------------------------
212,542
- -----------------------------------------------------------------------------------------------------------
GERMANY 5.55%
BASF AG 1,700 54,230
Daimler Benz 1,200 70,470
Degussa 230 89,969
Fried, Krupp AG Hoes 220 34,582
Pfeiffer Vacuum Technologies 3,700 59,200
SGL Carbon 1,600 176,952
- -----------------------------------------------------------------------------------------------------------
485,403
- -----------------------------------------------------------------------------------------------------------
GREAT BRITAIN 23.42%
B.A.T. Industries PLC 18,900 131,648
British Aerospace PLC 7,500 142,198
British Airways 5,000 45,080
British Biotech 10,000 36,862
</TABLE>
18
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Market
Net Assets Shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
GREAT BRITAIN (CONTINUED)
British Gas PLC 40,200 $ 125,286
British Telecom 22,800 131,911
General Accident 12,000 143,053
Glaxo Wellcome 8,700 136,491
Guinness 5,000 35,804
Inchcape PLC 10,000 47,115
Lloyds TSB Group 5,000 31,735
Medeva 15,000 64,813
Mirror Group 15,000 56,757
National Westminster 11,600 132,432
Northern Foods 10,000 32,386
Prudential Corporation PLC 5,000 37,756
Safeway 7,000 41,524
Scotia Holdings 5,000 49,637
Standard Chartered 3,500 37,765
Sun Alliance Group PLC 5,000 34,299
Tate & Lyle PLC 5,000 38,815
Tesco PLC 28,300 153,138
Unilever PLC 6,800 142,871
United Assurance 5,000 36,007
United Utilities 15,000 139,147
UTD Assurance Group 15,000 1,220
Whitbread PLC 3,500 41,069
- -----------------------------------------------------------------------------------------------------------
2,046,819
- -----------------------------------------------------------------------------------------------------------
HONG KONG 10.12%
CDL Hotels International 50,500 26,124
Cheung Kong Holdings 10,000 80,183
Citic Pacific Limited 10,000 48,627
Henderson Land Development 5,000 44,456
Hong Kong Electric 20,000 64,017
Hong Kong Telecom, Ltd.~ 20,000 35,306
HSBC Holdings PLC 6,078 123,803
Hutchison Whampoa, Ltd. 20,000 139,674
JCG Holdings 50,000 46,558
</TABLE>
19
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Market
Net Assets Shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
HONG KONG (CONTINUED)
Mandarin Oriental 50,000 $ 67,500
National Mutual Asia 50,000 42,031
New World Development 14,000 81,476
Swire Pacific Limited- "A" 8,000 70,613
Television Broadcast, Ltd. 4,000 14,019
- -----------------------------------------------------------------------------------------------------------
884,387
- -----------------------------------------------------------------------------------------------------------
INDIA 0.47%
India Cement GDR 15,000 41,250
- -----------------------------------------------------------------------------------------------------------
ITALY 1.55%
Stet-Societa Finanz 12,000 41,431
Telecom Itialia Mobile 45,800 94,607
- -----------------------------------------------------------------------------------------------------------
136,038
- -----------------------------------------------------------------------------------------------------------
JAPAN 19.79%
Aiwa 5,000 89,513
Chudenko Corporation 1,000 30,627
Chugai Pharm 2,000 18,254
Chugai Pharm -- Warrants* 10 6,750
Eiden Sakakiya 8,000 91,268
Ezaki Glico 15,000 139,535
Fujisawa Pharm 10,000 87,758
Futaba 3,000 130,057
Hibiya Engineering 15,000 152,699
Max Co 7,000 126,547
Mos Foods 6,000 125,318
Ono Pharmaceutical 4,000 124,616
Rinnai 900 19,193
Sankura Bank, Ltd. 10,000 94,778
Sanyo Shinpan Finance Company 2,500 151,821
Sumitomo Bank 4,000 70,206
Takara Standard 15,000 139,535
Uniden 2,000 33,173
York-Benimaru 3,000 98,464
- -----------------------------------------------------------------------------------------------------------
1,730,112
- -----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Market
Net Assets Shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
KOREA 0.80%
Schroder Korea Fund 7,000 $ 70,000
- -----------------------------------------------------------------------------------------------------------
MALAYSIA 2.67%
Affin Holdings Berhad 20,000 51,444
IOI Properties 10,000 33,241
Kian Joo Can Factory 10,000 54,610
Public Finance 24,000 37,040
Resorts World 10,000 57,380
- -----------------------------------------------------------------------------------------------------------
233,715
- -----------------------------------------------------------------------------------------------------------
MEXICO 1.10%
Bufete Industrial~ 1,500 24,000
Carso Global~ 1,700 8,099
Empresas ICA~ 1,800 22,725
Grupo Carso~ 1,700 15,292
Grupo Financiero Bancomer~ (b) 23 371
Panamerica Beverages 580 25,303
- -----------------------------------------------------------------------------------------------------------
95,790
- -----------------------------------------------------------------------------------------------------------
NETHERLANDS 5.27%
DSM 550 52,575
IHC Caland NV 1,300 72,420
Polygram NV 3,570 167,375
Royal Dutch Petroleum 350 57,690
VNU-Ver Ned Uitgev V 6,110 110,702
- -----------------------------------------------------------------------------------------------------------
460,762
- -----------------------------------------------------------------------------------------------------------
PHILIPPINES 1.68%
Philippine Long Distance 1,500 89,813
Ayala Corporation 60,000 57,078
- -----------------------------------------------------------------------------------------------------------
146,891
- -----------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Market
Net Assets Shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
SINGAPORE 0.83%
Fraser & Neave 4,000 $ 39,759
Singapore Press Holdings 2,000 33,227
- -----------------------------------------------------------------------------------------------------------
72,986
- -----------------------------------------------------------------------------------------------------------
SPAIN 2.78%
Corporacion Financiera 1,185 100,180
Tabacalera~ 180 6,580
Viscofan Envolturas Celulos 9,540 135,912
- -----------------------------------------------------------------------------------------------------------
242,672
- -----------------------------------------------------------------------------------------------------------
SWEDEN 1.69%
Skandia Forsakrings 3,330 93,357
Svenska Handelsbanke 1,100 27,078
Volvo 1,300 26,964
- -----------------------------------------------------------------------------------------------------------
147,399
- -----------------------------------------------------------------------------------------------------------
SWITZERLAND 2.80%
Roche Holding AG 15 113,092
Sandoz AG Basel 114 131,352
- -----------------------------------------------------------------------------------------------------------
244,444
- -----------------------------------------------------------------------------------------------------------
TAIWAN 0.95%
Taipei Fund~ 10 83,000
- -----------------------------------------------------------------------------------------------------------
THAILAND 1.41%
Banpu Coal 3,000 55,501
First Bangkok City Bank 40,000 46,250
Krung Thai Bank 8,000 21,636
- -----------------------------------------------------------------------------------------------------------
123,387
- -----------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Percent of Principal Market
Net Assets Amount Value
<S> <C>
- -----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $7,901,438) $7,751,840
- -----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 4.44%
- -----------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation, 5.50%, 11/1/96
(cost $388,000) $388,000 388,000
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $8,289,438) 93.12% 8,139,840
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 6.88% 601,614
- -----------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $8,741,454
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing.
~ American Depository Receipts.
GDR -- Global Depository Receipts.
IDR -- International Depository Receipts.
(b) These are securities that may be resold to "qualified institutional buyers"
under Rule 144A or securities offered pursuant to Section 4 (2) of the
Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<CAPTION>
Mentor Mentor Mentor Mentor
Cash Intermediate Fixed- Perpetual
Management Duration Income International
Portfolio Portfolio Portfolio Portfolio(a)
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value * (Note 2)
Investment securities $48,260,892 $ 3,228,924 $47,925,304 $ 8,139,840
Repurchase agreements 39,963,842 - 1,760,966 -
- -------------------------------------------------------------------------------------------------------------------------
Total investments 88,224,734 3,228,924 49,686,270 8,139,840
Cash - 43,301 - -
Receivables
Dividends and Interest 97,266 52,776 730,178 30,825
Investments sold - 200,996 - 80,596
Fund shares sold 1,149 - - 500,000
Due from management company (Note 4) 35,822 20,691 33,726 -
Organizational expenses (Note 2) 20,510 4,015 20,270 18,792
Other Assets 6,000 825 2,175 801
- -------------------------------------------------------------------------------------------------------------------------
Total assets 88,385,481 3,551,528 50,472,619 8,770,854
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables
Investments purchased - 162,917 504,610 -
Fund shares redeemed - - 261 -
Dividends 408,769 - - -
Forward foreign currency exchange contracts
held (Note 7) - - - 78
Accrued expenses and other liabilities 3,484 5,100 6,000 29,322
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 412,253 168,017 510,871 29,400
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $87,973,228 $ 3,383,511 $49,961,748 $ 8,741,454
- -------------------------------------------------------------------------------------------------------------------------
Net Assets represented by:
Additional paid-in capital $87,973,228 $ 3,377,689 $49,050,307 $ 9,001,175
Accumulated net investment income (loss) - (112) 172,944 12,826
Accumulated net realized loss on investment
transactions - (20,792) (45,072) (123,574)
Net unrealized appreciation (depreciation) of
investments and foreign currency related
transactions - 26,726 783,569 (148,973)
- -------------------------------------------------------------------------------------------------------------------------
Net Assets $87,973,228 $ 3,383,511 $49,961,748 $ 8,741,454
Shares Outstanding 87,973,228 271,225 3,874,875 721,208
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 1.00 $ 12.47 $ 12.89 $ 12.12
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Investments at cost are $88,224,734, $3,202,198, $48,902,701 and $8,289,438
respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Mentor Mentor Mentor Mentor
Cash Intermediate Fixed- Perpetual
Management Duration Income International
Portfolio Portfolio Portfolio Portfolio(a)
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $5,084,112 $ 623,119 $ 2,288,576 $ 18,017
Dividends - - - 53,266*
- ------------------------------------------------------------------------------------------------------------------------
Total investment income (Note 2) 5,084,112 623,119 2,288,576 71,283
EXPENSES
Registration expenses 37,197 9,238 19,575 12,021
Custodian fees 27,559 8,468 14,570 12,228
Transfer agent fees 17,517 11,677 14,872 1,469
Shareholder reports and postage expenses 7,896 992 2,907 331
Organizational expenses (Note 2) 6,857 1,347 6,779 1,708
Legal fees 5,789 722 1,990 440
Audit fees 3,354 250 1,696 234
Directors' fees and expenses 685 108 282 29
Management fee (Note 4) - - - 35,694
Miscellaneous 589 75 206 108
- ------------------------------------------------------------------------------------------------------------------------
Total expenses 107,443 32,877 62,877 64,262
- ------------------------------------------------------------------------------------------------------------------------
Deduct
Waiver of management fee - - - 23,292
Reimbursement of expenses by management
company (Note 4) 70,426 27,679 44,556 -
- ------------------------------------------------------------------------------------------------------------------------
Net expenses 37,017 5,198 18,321 40,970
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 5,047,095 617,921 2,270,255 30,313
- ------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY RELATED
TRANSACTIONS
Net realized gain (loss) on investments and
foreign currency related transactions (Note
2) 3,914 (22,388) (37,346) (141,811)
Change in unrealized appreciation
(depreciation) of investments and foreign
currency related transactions - (129,285) (263,824) (148,973)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 3,914 (151,673) (301,170) (290,784)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $5,051,009 $ 466,248 $ 1,969,085 $(260,471)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from May 29, 1996 (commencement of operations) to October 31,
1996.
* Net of withholding taxes of $7,523.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Cash Mentor Intermediate
Management Portfolio Duration Portfolio
--------------------------- ------------------------------
Year Period Year Period
Ended Ended Ended Ended
10/31/96 10/31/95(a) 10/31/96 10/31/95(b)
<S> <C>
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $ 5,047,095 $ 2,422,801 $ 617,921 $ 663,645
Net realized gain (loss) on investments
and foreign currency
related transactions 3,914 - (22,388) 468,099
Change in unrealized appreciation
(depreciation) of investments and
foreign currency related
transactions - (129,285) 156,010
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 5,051,009 2,422,801 466,248 1,287,754
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (5,047,095) (2,422,801) (668,787) (600,070)
Net realized gain on investments (3,914) - (494,719) -
- ----------------------------------------------------------------------------------------------------------
Net decrease from distributions (5,051,009) (2,422,801) (1,163,506) (600,070)
- ----------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 8)
Net proceeds from sale of shares 169,019,163 137,216,173 584,296 10,710,006
Reinvested distributions 4,642,653 2,407,807 1,161,333 599,637
Cost of shares redeemed (155,685,567) (69,627,001) (9,630,657) (31,530)
- ----------------------------------------------------------------------------------------------------------
Change in net assets from capital
share transactions 17,976,249 69,996,979 (7,885,028) 11,278,113
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 17,976,249 69,996,979 (8,582,286) 11,965,797
NET ASSETS
Beginning of period 69,996,979 - 11,965,797 -
- ----------------------------------------------------------------------------------------------------------
End of period $ 87,973,228 $69,996,979 $ 3,383,511 $11,965,797
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
(b) For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Fixed- Mentor Perpetual
Income Portfolio International Portfolio
--------------------------- -----------------------
Year Period Period
Ended Ended Ended
10/31/96 10/31/95(c) 10/31/96(d)
<S> <C>
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $ 2,270,255 $ 1,785,304 $ 30,313
Net realized gain (loss) on investments and foreign
currency related transactions (37,346) 1,341,178 (141,811)
Change in unrealized appreciation
(depreciation) of investments and
foreign currency related transactions (263,824) 1,047,393 (148,973)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,969,085 4,173,875 (260,471)
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (2,177,204) (1,600,958) -
Net realized gain on investments (1,453,358) - -
- --------------------------------------------------------------------------------------------------------------
Net decrease from distributions (3,630,562) (1,600,958) -
- --------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 8)
Net proceeds from sale of shares 22,115,938 34,992,343 9,001,925
Reinvested distributions 3,624,390 1,600,958 -
Cost of shares redeemed (8,170,562) (5,112,759) -
- --------------------------------------------------------------------------------------------------------------
Change in net assets from capital share
transactions 17,569,766 31,480,542 9,001,925
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 15,908,289 34,053,459 8,741,454
NET ASSETS
Beginning of period 34,053,459 - -
- --------------------------------------------------------------------------------------------------------------
End of period $49,961,748 $34,053,459 $ 8,741,454
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(c) For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
(d) For the period May 29, 1996 (commencement of operations) to October 31,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Mentor Cash Mentor Intermediate
Management Portfolio Duration Portfolio
----------------------- -----------------------
Year Period Year Period
Ended Ended Ended Ended
10/31/96 10/31/95(b) 10/31/96 10/31/95(c)
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 13.31 $ 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.96 0.77
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions -* - (0.24) 0.75
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.05 0.72 1.52
LESS DISTRIBUTIONS
Dividends from income (0.05) (0.05) (1.01) (0.71)
Distributions from capital gains -* - (0.55) -
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.05) (1.56) (0.71)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 12.47 $ 13.31
- ----------------------------------------------------------------------------------------------------------------
Total Return 5.60% 5.06% 5.90% 12.38%
- ----------------------------------------------------------------------------------------------------------------
Ratios / Supplemental Data
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $87,973 $ 69,997 $ 3,384 $ 11,966
Ratio of expenses to average net assets 0.04% 0.04%(a) 0.05% 0.05%(a)
Ratio of expenses to average net assets excluding waiver 0.12% 0.18%(a) 0.31% 0.25%(a)
Ratio of net investment income to average net assets 5.54% 5.56%(a) 5.92% 6.52%(a)
Portfolio turnover rate - - 215% 307%
Average commission rate on portfolio transactions
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
(c) For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
* Reflects net realized gain (loss) which was under $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Mentor
Perpetual
Mentor Fixed-Income International
Portfolio Portfolio
----------------------- -------------
Year Period Period
Ended Ended Ended
10/31/96 10/31/95(d) 10/31/96(e)
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.71 $ 12.50 $ 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.77 0.81 0.04
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions (0.16) 1.14 (0.42)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.61 1.95 (0.38)
LESS DISTRIBUTIONS
Dividends from income (0.77) (0.74) -
Distributions from capital gains (0.66) - -
- -----------------------------------------------------------------------------------------------------------------
Total distributions (1.43) (0.74) -
NET ASSET VALUE, END OF PERIOD $ 12.89 $ 13.71 $ 12.12
- -----------------------------------------------------------------------------------------------------------------
Total Return 4.87% 15.90% (3.04%)
- -----------------------------------------------------------------------------------------------------------------
Ratios / Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $49,962 $ 34,053 $ 8,741
Ratio of expenses to average net assets 0.05% 0.05%(a) 1.10%(a)
Ratio of expenses to average net assets excluding waiver 0.17% 0.22%(a) 1.75%(a)
Ratio of net investment income to average net assets 6.22% 6.75%(a) 0.89%(a)
Portfolio turnover rate 226% 302% 59%
Average commission rate on portfolio transactions $0.0295
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(d) For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
(e) For the period from May 29, 1996 (commencement of operations) to October 31,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
NOTE 1: ORGANIZATION
Mentor 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. The Trust consists of five separate diversified portfolios
(hereinafter each individually referred to as a "Portfolio" or collectively as
the "Portfolios"). These financial statements include the following Portfolios:
Mentor Cash Management Portfolio
("Cash Management Portfolio") -- Seeks a high rate of current income
consistent with preservation of capital.
Mentor Intermediate Duration Portfolio
("Intermediate Duration Portfolio") -- Seeks a high level of long-term total
return.
Mentor Fixed-Income Portfolio
("Fixed-Income Portfolio") -- Seeks a high level of long-term total return.
Mentor Perpetual International Portfolio
("International Portfolio") -- Seeks long-term capital appreciation.
SNAP Fund
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.
These financial statements do not include SNAP Fund.
Effective November 1, 1996, the Cash Management Portfolio became the Mentor U.S.
Government Cash Management Portfolio.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolio.
30
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
A. Valuation of Securities
Securities held by the Cash Management Portfolio are stated at amortized cost,
which approximates market value. In the event that a deviation of 1/2 of 1% or
more exists between the Portfolio's $1.00 per share net asset value, calculated
at amortized cost, and the net asset value calculated by reference to
market-based values, or if there is any other deviation that the Board of
Trustees believes would result in a material dilution to shareholders or
purchasers, the Board of Trustees will promptly consider what action should be
initiated.
U.S. Government obligations held by the Intermediate Duration Portfolio and the
Fixed-Income Portfolio are valued at the mean between the over-the-counter bid
and asked prices as furnished by an independent pricing service. Listed
corporate bonds, other fixed income securities, mortgage backed securities,
mortgage related and other related securities are valued at the prices provided
by an independent pricing service. Security valuations not available from an
independent pricing service are provided by dealers approved by the Board of
Trustees. In determining value, the dealers use information with respect to
transactions in such securities, market transactions in comparable securities,
various relationships between securities, and yield to maturity. Any securities
for which current market quotations are not readily available are valued at
their fair value as determined in good faith under procedures established by the
Board of Trustees.
Listed securities held by the International Portfolio traded on national stock
exchanges and over-the-counter securities quoted on the NASDAQ National Market
System are valued at the last reported sales price or, lacking any sales, at the
last available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by the Board of
Trustees of the Portfolios as the primary market. Securities traded in the
over-the-counter market, other than those quoted on the NASDAQ National Market
System, are valued at the last available bid price.
31
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Foreign currency amounts are translated into United States dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange, purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net unrealized
foreign exchange gains/losses are a component of unrealized
appreciation/depreciation of investments.
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. Dividends are recorded on
ex-dividend date. Realized and unrealized gains and losses on investment
security transactions are calculated on an identified cost basis.
D. Expenses
Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Trust expenses are allocated among
32
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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
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. Organizational 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.
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
33
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
and Intermediate Duration Portfolio. Dividends are declared and paid annually by
the International Portfolio. Capital gains realized by each Portfolio, if any,
will be distributed annually.
NOTE 4: INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENTS
Through October 31, 1996, Commonwealth Investment Counsel, Inc. ("Commonwealth")
provided investment advisory services to each of the Cash Management Portfolio,
Intermediate Duration Portfolio and Fixed-Income Portfolio under an investment
Management Agreement. Commonwealth received no compensation for its services.
Effective November 1, 1996, Commonwealth was reorganized into Mentor Investment
Advisors, LLC ("Mentor Advisors"), at which time the obligations of Commonwealth
under the Investment Management Agreement were transferred to Mentor Advisors.
Mentor Advisors is a wholly-owned subsidiary of Mentor Investment Group, LLC,
which is a subsidiary of Wheat First Butcher Singer, Inc.
Also, effective November 1, 1996, EVEREN Capital Corporation, acquired a 20%
ownership interest in Mentor Investment Group, LLC from Wheat First Butcher
Singer, Inc. As part of the acquisition agreement, EVEREN may acquire additional
ownership based principally on the amount of Mentor Investment Group, LLC's
revenues derived from clients of EVEREN Securities, Inc. and assets attributable
to its affiliates.
The International Portfolio has entered into an Investment Advisory Agreement
with Mentor Perpetual Advisors, LLC ("Mentor Perpeutal"). Mentor Perpetual is
owned equally by Mentor Advisors and Perpetual plc, a diversified financial
services holding company. Under this agreement, Mentor Perpetual's management
fee is accrued daily and paid monthly at an annual rate of 1.00% applied to the
average daily net assets of the Portfolio. For the period ended October 31,
1996, Mentor Perpetual earned advisory fees of $35,694 and waived $23,292 of
those fees.
In order to limit the annual operating expenses of the Portfolios, the
Investment advisor to a Portfolio may bear certain
34
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
expenses incurred in connection with the operation of a Portfolio. For the year
ended October 31, 1996, Commonwealth bore expenses of $70,426, $27,679 and
$44,556 respectively, for the Cash Management Portfolio, Intermediate Duration
Portfolio and Fixed-Income Portfolio.
Through October 31, 1996, the Portfolios' administrator, Mentor Investment
Group, Inc., provided administrative personnel and services to each Portfolio,
pursuant to an Administration Agreement. Mentor Investment Group, Inc. received
no compensation for such services.
Effective November 1, 1996, Mentor Investment Group, Inc. was reorganized into
Mentor Investment Group, LLC, at which time the obligations of Mentor Investment
Group, Inc. were transferred to Mentor Investment Group, LLC.
NOTE 5: INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), for the
year ended October 31, 1996, were as follows:
Portfolio Purchases Sales
- -----------------------------------------------------
Cash Management - -
Intermediate Duration $20,555,544 $27,069,212
Fixed-Income 96,110,729 76,198,371
International (d) 12,152,024 4,127,011
- -----------------------------------------------------
(d) For the period from May 29, 1996 (Commencement of Operations) to October 31,
1996.
35
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to $88,224,734
for the Cash Management Portfolio, $3,206,874 for the Intermediate Duration
Portfolio, $48,931,040 for the Fixed-Income Portfolio and $8,290,188 for the
International Portfolio at October 31, 1996. Gross unrealized appreciation and
depreciation of investments on a tax basis at October 31, 1996 were as follows:
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation
Portfolio Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------
Cash Management - - -
Intermediate Duration $ 27,938 $ 5,888 $ 22,050
Fixed-Income 775,504 20,274 755,230
International 347,660 498,008 (150,348)
- --------------------------------------------------------------------------
NOTE 7: FORWARD CONTRACTS
In connection with portfolio purchases and sales of securities denominated in a
foreign currency, International Portfolio may enter into forward foreign
currency exchange contracts ("contracts"). Additionally, from time to time
International Portfolio may enter into contracts to hedge certain foreign
currency assets. Contracts are recorded at market value. Realized gains and
losses arising from such transactions are included in net gain (loss) on
investments and forward foreign currency exchange contracts. The Portfolio is
subject to the credit risk that the other party will not complete the
obligations of the contract. At October 31, 1996 International Portfolio had
outstanding forward contracts as set forth below.
<TABLE>
<CAPTION>
Contracts to Net Unrealized
Settlement Deliver/Receive In Exchange For Depreciation
<S> <C>
- ------------------------------------------------------------------------------------------------
Sales
11/1/96 Japanese Yen 1,879,785 $16,497 $16,419 $ 78
- ------------------------------------------------------------------------------------------------
Net Unrealized Depreciation on
Forward Contracts $ 78
- ------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8: 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:
<TABLE>
<CAPTION>
Mentor Cash Management Portfolio
Year Ended Period Ended
10/31/96 10/31/95 (a)
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Shares sold 169,019,163 137,216,173
Shares issued upon reinvestment of distributions 4,642,653 2,407,807
Shares redeemed (155,685,567) (69,627,001)
-----------------------------------
Change in net assets from capital share transactions 17,976,249 69,996,979
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mentor Intermediate Duration
Year Ended Portfolio Period Ended
10/31/96 10/31/95 (b)
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Shares sold 45,573 855,389
Shares issued upon reinvestment of distributions 91,944 45,840
Shares redeemed (765,033) (2,488)
-----------------------------------
Change in net assets from capital share transactions (627,516) 898,741
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mentor Fixed-Income Portfolio
Year Ended Period Ended
10/31/96 10/31/95 (c)
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Shares sold 1,725,003 2,759,545
Shares issued upon reinvestment of distributions 282,124 120,672
Shares redeemed (616,390) (396,079)
-----------------------------------
Change in net assets from capital share transactions 1,390,737 2,484,138
-----------------------------------
</TABLE>
37
<PAGE>
MENTOR INSTITUTIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8: CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Mentor Perpetual International Portfolio
Period Ended
10/31/96 (d)
<S> <C>
- ----------------------------------------------------------------------------------------------------------
Shares sold 721,208
Shares issued upon reinvestment of distributions -
Shares redeemed -
------------
Change in net assets from capital share transactions 721,208
------------
</TABLE>
(a) For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
(b) For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
(c) For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
(d) For the period from May 29, 1996 (commencement of operations) to October 31,
1996.
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS -- FISCAL 1996 DISTRIBUTIONS (UNAUDITED)
Information for federal tax purposes is presented below to aid shareholders in
reporting taxable distributions made by the Portfolios during the fiscal year
ended October 31, 1996. The federal tax status of ordinary income and capital
gain dividends declared during the period are presented below.
<TABLE>
<CAPTION>
Ordinary Short-term Long-term
Income Capital Gain Capital Gain
Per Share Per Share Per Share
<S> <C>
------------------------------------------
Cash Management Portfolio $0.05 - -
Intermediate Duration Portfolio 1.01 $ 0.55 -
Fixed-Income Portfolio 0.77 0.66 -
Perpetual International Portfolio - - -
</TABLE>
Tax information regarding 1996 calendar year dividend distributions will be
mailed to shareholders in January 1997.
38
<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, Fixed-Income Portfolio, and Perpetual International
Portfolio, portfolios of Mentor Institutional Trust as of October 31, 1996 and
the related statements of operations, statements of changes in net assets and
financial highlights for the year then ended for the Cash Management,
Intermediate Duration and Fixed-Income Portfolios and for the period from May
29, 1996 (commencement of operations) to October 31, 1996 for the Perpetual
International Portfolio, and the 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 audits.
We conducted our audits 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, 1996 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 audits provide 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, Fixed-Income
Portfolio, and Perpetual International Portfolio, portfolios of Mentor
Institutional Trust, as of October 31, 1996 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.
Boston, Massachusetts /s/ KPMG PEAT MARWICK LLP
December 13, 1996 ---------------------
KPMG PEAT MARWICK LLP
39
<PAGE>
INVESTMENT MANAGER
CORPORATE OFFICE
Mentor Investment Advisors, LLC
Riverfront Plaza, 901 East Byrd Street
Richmond, Virginia 23219
TRUSTEES
Daniel J. Ludeman, TRUSTEE & CHAIRMAN
Chairman and Chief Executive Officer
Mentor Investment Group, LLC
Arnold H. Dreyfuss, TRUSTEE
Former Chairman and Chief Executive Officer
Hamilton Beach/Proctor-Silex, Inc.
Thomas F. Keller, TRUSTEE
Former Dean, Fuqua School of Business
Duke University
Louis W. Moelchert, Jr., TRUSTEE
Vice President for Business & Finance
University of Richmond
Stanley F. Pauley, Jr., TRUSTEE
Chairman and Chief Executive Officer
Carpenter Company
Troy A. Peery, Jr., TRUSTEE
President
Heilig-Meyers Company
Peter J. Quinn, Jr., TRUSTEE
Managing Director
Mentor Investment Group, LLC
OFFICERS
Paul F. Costello, PRESIDENT
Managing Director
Mentor Investment Group, LLC
Terry L. Perkins, TREASURER
Senior Vice President
Mentor Investment Group, LLC
John M. Ivan, SECRETARY
Managing Director/Assistant General Counsel
Wheat First Butcher Singer, Inc.
Michael A. Wade, ASSISTANT TREASURER
Vice President
Mentor Investment Group, LLC
MENTOR INSTITUTIONAL TRUST
--------------------------------
ANNUAL REPORT
--------------------------------
OCTOBER 31, 1996
[MENTOR LOGO HERE]
