Rule 497(e)
Reg. No. 33-80784
File No. 811-8484
SNAP FUND
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1996
SNAP Fund (the "Fund") is a series of shares of beneficial interest of
Mentor Institutional Trust (the "Trust"), a series investment company. Prior to
July, 1995, the Fund was known as the Mentor Limited Duration Portfolio and had
no shares outstanding. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the prospectus of the Fund
dated November 1, 1996. A copy of the prospectus can be obtained upon request
made to Mentor Investment Group, LLC ("Mentor") at P.O. Box 1357, Richmond,
Virginia 23286-0109, or by calling Mentor at 1-800-570-SNAP.
TABLE OF CONTENTS
CAPTION PAGE
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..................................................12
INDEPENDENT ACCOUNTANTS.....................................13
CUSTODIAN...................................................13
PERFORMANCE INFORMATION.....................................14
SHAREHOLDER LIABILITY.......................................14
INVESTMENT PROFESSIONALS OF MENTOR INVESTMENT
ADVISORS, LLC.............................................14
RATINGS ...................................................15
FINANCIAL STATEMENTS........................................17
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INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed with
respect to the Fund without approval by the holders of a majority of the
outstanding shares of the Fund, the Fund may not:
1. Purchase any security (other than U.S. Government securities)
if as a result: (i) as to 75% of the Fund's total assets, more
than 5% of the Fund's total assets (taken at current value)
would then be invested in securities of a single issuer, or
(ii) more than 25% of the Fund's total assets would be
invested in a single industry, except that the Fund may invest
up to 100% of its assets in securities of issuers in the
banking industry.
2. Acquire more than 10% of the voting securities of any issuer.
3. Act as underwriter of securities of other issuers except to
the extent that, in connection with the disposition of
portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
4. Issue any class of securities which is senior to the Fund's
shares of beneficial interest.
5. Purchase or sell securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance
of transactions). (Margin payments in connection with
transactions in futures contracts, options, and other
financial instruments are not considered to constitute the
purchase of securities on margin for this purpose.)
6. Purchase or sell real estate or interests in real estate,
including real estate mortgage loans, although it may purchase
and sell securities which are secured by real estate and
securities of companies that invest or deal in real estate or
real estate limited partnership interests. (For purposes of
this restriction, investments by the Fund in mortgage-backed
securities and other securities representing interests in
mortgage pools shall not constitute the purchase or sale of
real estate or interests in real estate or real estate
mortgage loans.)
7. Borrow money in excess of 5% of the value (taken at the lower
of cost or current value) of its total assets (not including
the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes.
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8. Pledge, hypothecate, mortgage, or otherwise encumber its
assets in excess of 15% of its total assets (taken at current
value) and then only to secure borrowings permitted by these
investment restrictions.
9. Purchase or sell commodities or commodity contracts, except
that the Fund may purchase or sell financial futures
contracts, options on futures contracts, and futures
contracts, forward contracts, and options with respect to
foreign currencies, and may enter into swap transactions.
10. Make loans, except by purchase of debt obligations or other
instruments in which the Fund may invest consistent with its
investment policies or by entering into repurchase agreements.
In addition, it is contrary to the current policy of the Fund, which
policy may be changed without shareholder approval, to:
1. Invest in (a) securities which at the time of such investment
are not readily marketable, (b) securities restricted as to
resale, and (c) repurchase agreements maturing in more than
seven days, if, as a result, more than 10% of the Fund's net
assets (taken at current value) would then be invested in
securities described in (a), (b), and (c).
2. Invest in securities of other registered investment companies,
except by purchases in the open market involving only
customary brokerage commissions and as a result of which not
more than 5% of its total assets (taken at current value)
would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for the investment restrictions listed above as fundamental or to the extent
designated as such in a prospectus with respect to the Fund, the other
investment policies described in this Statement or in a prospectus are not
fundamental and may be changed by approval of the Trustees. As a matter of
policy, the Trustees would not materially change the Fund's investment objective
without shareholder approval.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities" of the
Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, and (2) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
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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
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<S> <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 and Cash Resource Trust;
Director, America's Utility
Fund, Inc.
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
Trustee Officer since July 1991,
Mentor Investment Group, LLC;
Managing Director of Wheat,
First Securities, Inc. since
August 1989; Managing Director
of Wheat First Butcher Singer,
Inc. since June 1991;
Director, Wheat, First
Securities, Inc., Mentor
Income Fund, Inc. and
America's Utility Fund, Inc.;
Chairman and Trustee, Cash
Resource Trust.
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Troy A. Peery, Jr. Trustee President, Heilig-Meyers
Company. Trustee, The Mentor
Funds; Trustee, Cash Resource
Trust.
Paul F. Costello President Managing Director, Wheat First
Butcher Singer, Inc. and
Mentor Investment Group, LLC;
President, The Mentor Funds,
Mentor Income Fund, Inc., and
Cash Resource Trust; Director,
Mentor Investment Advisors, LLC;
Executive Vice President and Chief
Administrative Officer,
America's Utility Fund, Inc.;
Director, Mentor Perpetual
Advisors, LLC and Mentor Trust
Company; formerly, President,
Mentor Series Trust; Director,
President and Chief Executive
Officer, First Variable Life
Insurance Company; President
and Chief Financial Officer,
Variable Investors Series
Trust; President and
Treasurer, Atlantic Capital &
Research, Inc.; Vice President
and Treasurer, Variable Stock
Fund, Inc., Monarch Investment
Series Trust, and GEICO Tax
Advantage Series Trust; Vice
President, Monarch Life
Insurance Company, GEICO
Investment Services Company,
Inc., Monarch Investment
Services Company, Inc. and
Springfield Life Insurance
Company.
Terry L. Perkins Treasurer Senior Vice President, Mentor
Investment Group, LLC;
Treasurer, Cash Resource
Trust, Mentor Income Fund
Inc., The Mentor Funds, and
America's Utility Fund;
formerly, Treasurer and
Comptroller, Ryland Capital
Management, Inc.
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Michael Wade Assistant Associate Vice President,
Treasurer Mentor Investment Group, LLC
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 current fiscal year and the fees paid to each Trustee by all funds in the
Mentor family (including the Trust) during the 1995 calendar year.
Total compensation
Aggregate compensation from all
Trustees from the Trust complex funds
Daniel J. Ludeman $ 0 --
Arnold H. Dreyfuss 200 17,200
Thomas F. Keller 175 14,700
Louis W. Moelchert, Jr. 200 16,700
Stanley F. Pauley 200 16,675
Troy A. Peery, Jr. 175 16,175
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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
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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 September 30, 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 more than 5% of the
outstanding shares of the Fund as of that date, except as follows:
City of Chesapeake
P.O. Box 15245
Chesapeake, VA 23328-5245
Total Number of Shares: 155,033,021.05
Percentage of Ownership: 18.34%
Department of Treasury
Commonwealth of Virginia
P.O. Box 1879
Richmond, VA 23215-1879
Total Number of Shares: 53,672,254.80
Percentage of Ownership: 6.35%
INVESTMENT ADVISORY AND OTHER SERVICES
Mentor Investment Advisors, LLC ("Mentor Advisors") acts as investment
adviser to the Fund pursuant to a Management Contract with the Trust. Subject to
the supervision and direction of the Trustees, Mentor Advisors, as investment
adviser, manages the Fund's portfolio in accordance with the stated policies of
the Fund and of the Trust. Mentor Advisors makes investment decisions for the
Fund and places the purchase and sale orders for portfolio transactions. Mentor
Advisors bears all expenses in connection with the performance of its services.
In addition, Mentor Advisors pays the salaries of all officers and employees who
are employed by it and the Trust.
Mentor Advisors 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 Mentor Advisors 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 Mentor Advisors' 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. Mentor Advisors employs
professional staffs of portfolio managers who draw upon a variety of resources
for research information for the Fund.
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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 Mentor Advisors, 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 Mentor Advisors, as applicable.
For the fiscal period ended June 30, 1996, the Fund paid Mentor
Advisors $667,271 pursuant to the Management Contract.
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
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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, Mentor Advisors 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 Mentor Advisors managers and analysts. Where the
services referred to above are not used exclusively by Mentor Advisors for
research purposes, Mentor Advisors, 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 Mentor Advisors 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.
Mentor Advisors 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. Mentor Advisors seeks the
best overall terms available for the Fund, except to the extent Mentor Advisors
may be permitted to pay higher brokerage commissions as described below. In
doing so, Mentor Advisors, 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, Mentor Advisors may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to
Mentor Advisors 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. Mentor Advisors' 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. Mentor Advisors does not currently intend
to cause the Fund to make such payments. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not
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apply to the payment of such greater commissions in "principal" transactions.
Accordingly, Mentor Advisors 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, Mentor Advisors 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
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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.
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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.
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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 Fund's prospectus 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.
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<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
June 30, 1996, the Fund's yield was 5.30% and its effective yield was 5.44%.
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.
INVESTMENT PROFESSIONALS OF MENTOR INVESTMENT ADVISORS, LLC
R. Preston Nuttall, CFA
Mr. Nuttall has more than thirty years of investment management experience.
Prior to his involvement with the Mentor organization, 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
Mr. White has twelve years of investment management experience. Prior to joining
the Mentor organization, he served for five years as portfolio manager with
Capitoline Investment Services. He has his undergraduate degree in business from
the University of Richmond.
-14-
<PAGE>
Kathryn T. Allen
Ms. Allen has fifteen years of investment management experience and specializes
in tax-free trades. Prior to joining the Mentor organization, 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:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances;
o typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and
o 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:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be
inherent in certain areas;
o evaluation of the issuer's products in relation to
competition and customer acceptance;
-15-
<PAGE>
o liquidity;
o amount and quality of long-term debt;
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships
which exist with the issuer; and
o 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>
FINANCIAL STATEMENTS
-17-
<PAGE>
SNAP Fund
Portfolio of Investments
June 30, 1996
<TABLE>
<CAPTION>
Percent of Principal Value
Net Assets Amount (Note 2)
<S> <C>
Bankers Acceptances 19.04%
Bank of Montreal
5.30%, 7/5/96 $16,000,000 $15,990,578
5.29%, 7/15/96 10,000,000 9,979,428
Chase Manhattan Bank
5.30%, 7/3/96 - 8/14/96 8,516,757 8,501,264
5.36%, 8/13/96 5,828,023 5,790,711
5.21%, 8/26/96 8,000,000 7,935,165
5.36%, 8/29/96 5,219,372 5,173,523
5.31%, 9/25/96 4,042,500 3,991,221
Citibank, 5.28%, 7/1/96 8,050,000 8,050,000
Corestates Bank
5.35%, 7/22/96 2,000,000 1,993,758
5.23%, 8/23/96 5,000,000 4,961,502
5.20%, 9/11/96 5,000,000 4,948,000
5.29%, 9/25/96 5,000,000 4,936,814
5.32%, 10/21/96 - 10/25/96 15,000,000 14,745,822
First National Bank of Chicago, 5.06%, 7/29/96 5,000,000 4,980,322
First Union Bank, 5.30%, 8/28/96 11,500,000 11,401,803
Mellon Bank
5.20%, 7/3/96 3,000,000 2,999,133
5.37%, 8/2/96 12,200,000 12,141,765
5.47%, 11/1/96 - 11/25/96 16,500,000 16,146,045
Nationsbank Corporation
4.90%, 7/10/96 6,000,000 5,992,650
5.31%, 7/30/96 - 11/15/96 19,625,000 19,292,148
5.26%, 9/11/96 10,000,000 9,894,800
5.33%, 10/7/96 2,000,000 1,970,981
- ---------------------------------------------------------------------------------------------------
Total Bankers Acceptances 181,817,433
- ---------------------------------------------------------------------------------------------------
Commercial Paper 35.08%
American Express, 5.28%, 8/15/96 700,000 695,380
AT&T, 5.28%, 8/15/96 700,000 695,380
Bear Sterns Companies, Inc., 5.35%, 7/15/96 26,000,000 25,945,906
CS First Boston Group, 5.29%, 7/24/96 40,000,000 39,864,811
Ford Motor Credit, 5.32%, 7/8/96 20,000,000 19,979,311
General Electric
5.24%, 8/30/96 20,000,000 19,825,333
5.30%, 11/29/96 345,000 337,330
5.36%, 1/15/97 20,000,000 19,410,400
Greenwich Funding Group (a)
5.34%, 7/1/96 20,000,000 20,000,000
5.40%, 7/15/96 20,000,000 19,958,000
<PAGE>
SNAP Fund
Portfolio of Investments
June 30, 1996
<CAPTION>
Percent of Principal Value
Net Assets Amount (Note 2)
<S> <C>
Commercial Paper (continued)
Internationale Nederland
5.28%, 7/1/96 $7,600,000 $7,600,000
5.41%, 9/17/96 9,500,000 9,388,644
5.42%, 9/19/96 17,000,000 16,795,244
Merrill Lynch
5.33%, 8/5/96 - 8/15/96 20,700,000 20,591,697
5.28%, 11/15/96 10,000,000 9,799,067
Morgan Stanley Group Inc.
5.33%, 7/12/96 10,000,000 9,983,714
5.27%, 7/30/96 30,000,000 29,872,642
National Rural Utilities, 5.30%, 7/2/96 20,000,000 19,997,056
Rincon Securities, Inc.
5.30%, 7/29/96 15,000,000 14,938,167
5.31%, 7/30/96 12,000,000 11,948,670
5.38%, 8/29/96 7,000,000 6,938,279
Societe Generale, 5.38%, 2/7/97 10,000,000 9,670,035
Walt Disney Company, 5.29%, 8/15/96 700,000 695,371
- ---------------------------------------------------------------------------------------------------
Total Commercial Paper 334,930,437
- ---------------------------------------------------------------------------------------------------
Corporate Notes 24.92%
Bank of America, 5.45%, 9/24/96 30,000,000 30,000,000
Fifth Third Bank
5.39%, 8/16/96 16,000,000 16,000,000
5.38%, 10/21/96 29,000,000 28,988,873
First of America, 4.98%, 12/19/96 35,000,000 34,905,664
First Union Bank, 5.37%, 8/1/96 28,000,000 28,000,000
National Bank of Detroit, 5.01%, 7/15/96 20,000,000 20,000,000
State Street Bank & Trust, 5.31%, 7/8/96 40,000,000 40,000,000
Wachovia Bank
5.31%, 7/3/96 20,000,000 20,000,000
5.34%, 7/19/96 - 7/24/96 20,000,000 20,000,000
- ---------------------------------------------------------------------------------------------------
Total Corporate Notes 237,894,537
- ---------------------------------------------------------------------------------------------------
U.S. Government Securities and Agencies 12.76%
Federal Home Loan Bank
5.01%, 7/24/96 8,730,000 8,702,057
5.30%, 7/29/96 30,000,000 29,876,333
Student Loan Marketing Association (b)
5.39%, 8/9/96 - 9/23/96 30,000,000 29,998,746
5.49%, 8/4/97 13,000,000 12,997,337
5.41%, 11/24/97 15,000,000 15,000,000
5.45%, 1/13/99 5,000,000 5,000,000
<PAGE>
SNAP Fund
Portfolio of Investments
June 30, 1996
<CAPTION>
Percent of Principal Value
Net Assets Amount (Note 2)
<S> <C>
U.S. Government Securities and Agencies (continued)
U.S. Treasury Note, 7.50%, 1/31/97 $20,000,000 $20,266,334
- ---------------------------------------------------------------------------------------------------
Total U.S. Government Securities and Agencies 121,840,807
- ---------------------------------------------------------------------------------------------------
Repurchase Agreement 7.91%
Goldman, Sachs & Company
Dated 6/28/96, 5.55%, Due 7/1/96; collateralized by
$78,234,891 Federal National Mortgage Association,
7.50%, 3/1/26 75,543,985 75,543,985
- ---------------------------------------------------------------------------------------------------
Total Investments (cost $952,027,199) 99.71% 952,027,199
- ---------------------------------------------------------------------------------------------------
Other Assets less Liabilities 0.29% 2,750,214
- ---------------------------------------------------------------------------------------------------
Net Assets 100.00% $954,777,413
- ---------------------------------------------------------------------------------------------------
</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) 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 that have been established by the Board of
Trustees.
(b) Floating Rate Securities- The rates shown are the effective rates at June
30, 1996.
See notes to financial statements.
<PAGE>
SNAP Fund
Period Ended June 30, 1996*
SNAP Fund
Statement of Assets and Liabilities
June 30, 1996
Assets
Investments, at amortized cost (Note 2)
Investment securities $876,483,214
Repurchase agreement 75,543,985
----------------------------------------------------------------------------
Total investments 952,027,199
Interest receivable 2,715,545
Organizational expenses (Note 2) 403,523
- ----------------------------------------------------------------------------
Total assets 955,146,267
- ----------------------------------------------------------------------------
Liabilities
Accrued expenses 368,854
- ----------------------------------------------------------------------------
Total liabilities 368,854
- ----------------------------------------------------------------------------
Net Assets $954,777,413
- ----------------------------------------------------------------------------
Shares outstanding 954,777,413
Net asset value per share $ 1.00
- ----------------------------------------------------------------------------
See notes to financial statements.
<PAGE>
Statement of Operations
Investment Income
Interest income $44,059,888
- ------------------------------------------------------------
Expenses
Advisory fees (Note 3) 667,271
Custodian fees 144,858
Amortization of organizational expenses
(Note 2) 70,395
Legal fees 29,704
Audit fees 9,370
Other 9,484
- ------------------------------------------------------------
Total expenses 931,082
- ------------------------------------------------------------
Net investment income 43,128,806
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $43,128,806
- ------------------------------------------------------------
Statement of Changes in Net Assets
Increase in Net Assets
Operations
Net investment income $43,128,806
- ------------------------------------------------------------
Increase in net assets from operations 43,128,806
- ------------------------------------------------------------
Distributions to Shareholders from net
investment income (43,128,806)
- ------------------------------------------------------------
Capital Share Transactions (at $1.00 per
share)
Net proceeds from sale of shares 1,356,378,229
Reinvestment of dividends 43,128,806
Cost of shares redeemed (1,073,065,307)
- ------------------------------------------------------------
Change in net assets from capital
share transactions 326,441,728
- ------------------------------------------------------------
Net increase in net assets 326,441,728
Net Assets
Beginning of period (Note 1) 628,335,685
- ------------------------------------------------------------
End of period $954,777,413
- ------------------------------------------------------------
*For the period from July 24, 1995 (commencement of operations as a registrant
under the Investment Company Act of 1940) to June 30, 1996.
See notes to financial statements.
<PAGE>
SNAP Fund
Financial Highlights
Period
Ended**
06/30/96
Per Share Operating Performance
Net asset value, beginning of period $1.00
Income from investment operations
Net investment income 0.05 *
Net realized gain on investments -
- ----------------------------------------------------
Total from investment operations 0.05
Distributions from net investment income (0.05)*
- ----------------------------------------------------
Net asset value, end of period $1.00
- ----------------------------------------------------
Total Return 5.29%
- ----------------------------------------------------
Ratios / Supplemental Data
- ----------------------------------------------------
Net assets, end of period (in thousands) $954,777
Ratio of expenses to average net assets 0.12%(a)
Ratio of net investment income to average
net assets 5.53%(a)
- ----------------------------------------------------
(a) Annualized.
*Includes net realized capital gains which were under $0.01 per share.
**For the period from July 24, 1995 (commencement of operations as a registrant
under the Investment Company Act of 1940) to June 30, 1996.
See notes to financial statements.
<PAGE>
SNAP Fund
Notes to Financial Statements
June 30, 1996
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 Massachusetts
business trust. Prior to July 24, 1995, the Fund was known as the Mentor Limited
Duration Portfolio and had no shares outstanding. On July 24, 1995, net
assets of the Virginia State Non-Arbitrage Program (SNAP) in the amount of
$628,335,685 were exchanged for shares of the Fund.
Note 2: Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its 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
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 the 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 trade date and the cost of
investments sold is determined by use of the specific identification method.
<PAGE>
SNAP Fund
Notes to Financial Statements (continued)
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.
E. Organizational Expenses
Organizational expenses are related to costs incurred in connection with the
registration of the Fund as a management investment company. Such expenses are
being amortized on a straight-line basis over 60 months.
F. 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.
G. 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
gains.
Note 3: Investment Management Fees
The Fund has entered into an Investment Management and Advisory 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 billion 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
June 30, 1996 are in risk category 1.
Note 5: Capital Share Information
Net assets consist entirely of paid-in-capital applicable to 954,777,413 no par
value shares of beneficial interest outstanding. An unlimited number of shares
have been authorized for issuance.
<PAGE>
Independent Auditors' Report
The Board of Trustees
Mentor Institutional Trust
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of SNAP Fund, a portfolio of Mentor Institutional
Trust, as of June 30, 1996, and the related statement of operations, statement
of changes in net assets and financial highlights for the period from July 24,
1995 (commencement of operations as a registrant under the Investment Company
Act of 1940) to June 30, 1996. These financial statements and financial
highlights are the responsibility of the Fund'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 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 June 30, 1996 by
correspondence with the custodian. 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 SNAP
Fund, a portfolio of Mentor Institutional Trust, as of June 30, 1996, and the
results of its operations, changes in its net assets and financial highlights
for the period from July 24, 1995 to June 30, 1996, in conformity with generally
accepted accounting principles.
Boston, Massachusetts
August 2, 1996
