P R O S P E C T U S March 11, 1996
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust offers investors an opportunity to design an
investment program by investing in one or more different investment portfolios.
The Portfolios are being offered principally to institutional and high net-worth
individual investors.
The MENTOR CASH MANAGEMENT PORTFOLIO is a "money market" fund, seeking as
high a rate of current income as Commonwealth Investment Counsel, Inc. believes
is consistent with preservation of capital and maintenance of liquidity. AN
INVESTMENT IN THAT PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The MENTOR INTERMEDIATE DURATION PORTFOLIO and MENTOR FIXED-INCOME
PORTFOLIO seek a high level of long-term total return by investing in
diversified portfolios of investment-grade, fixed-income securities.
Preservation of capital is a secondary objective to the extent consistent with a
Portfolio's primary objective of seeking a high level of long-term total return.
MENTOR INTERMEDIATE DURATION PORTFOLIO will normally maintain a portfolio
duration of from two to five years. MENTOR FIXED-INCOME PORTFOLIO will normally
maintain a portfolio duration of from four to seven years. There is no limit on
the average weighted portfolio maturity these Portfolios may maintain, and a
Portfolio's average weighted maturity will likely be longer than its portfolio
duration. Commonwealth Investment Counsel, Inc. is the investment adviser for
these Portfolios.
The MENTOR INTERNATIONAL PORTFOLIO seeks long-term capital appreciation by
investing in a diversified portfolio of equity securities of issuers outside the
United States. THIS PORTFOLIO MAY USE "LEVERAGE" -- THAT IS, IT MAY BORROW MONEY
TO PURCHASE ADDITIONAL PORTFOLIO SECURITIES, WHICH INVOLVES SPECIAL RISKS.
Mentor Perpetual Advisors, L.L.C. is the investment adviser for this Portfolio.
This Prospectus sets forth concisely the information about the Portfolios
that a prospective investor should know before investing. Please read this
Prospectus and retain it for future reference. INVESTORS CAN FIND MORE DETAILED
INFORMATION IN THE MARCH 11, 1996 STATEMENT OF ADDITIONAL INFORMATION, AS
AMENDED FROM TIME TO TIME. FOR A FREE COPY OF THE STATEMENT, CALL MENTOR
DISTRIBUTORS, INC. AT 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Trust's address is P.O. Box 1357, Richmond, Virginia 23286-0109.
MENTOR DISTRIBUTORS, INC.
DISTRIBUTOR
SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. The following table summarizes an investor's maximum transaction
costs from investing in the Portfolios and, except for the International
Portfolio, expenses incurred for the past fiscal year. For the International
Portfolio, the expenses reflect those that the Portfolio expects to incur in its
first full fiscal year. The Examples show the cumulative expenses attributable
to a hypothetical $1,000 investment in each Portfolio over specified periods.
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases............................. None
Maximum Sales Load Imposed on Reinvested Dividends.................. None
Deferred Sales Load................................................. None
Redemption Fees..................................................... None
Exchange Fee........................................................ None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED- MENTOR
MANAGEMENT DURATION INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
Management Fees.............................................. 0.00% 0.00% 0.00% 0.00%
12b-1 Fees................................................... 0.00% 0.00% 0.00% 0.00%
Other Expenses (after voluntary expense limitation)*......... 0.04% 0.05% 0.05% 0.30%
Total Fund Operating Expenses*............................... 0.04% 0.05% 0.05% 0.30%
</TABLE>
* Other Expenses and Total Portfolio Operating Expenses reflect a voluntary
expense limitation currently in effect. In the absence of the expense
limitation, Other Expenses and Total Fund Operating Expenses for the
Portfolios' last fiscal year would have been 0.18% for the Cash Management
Portfolio, 0.25% for the Intermediate Duration Portfolio, and 0.22% for the
Fixed-Income Portfolio, and are estimated to be 0.37% for the International
Portfolio.
EXAMPLES
An investment of $1,000 in a Portfolio would incur the following expenses,
assuming 5% annual return and redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Mentor Cash Management Portfolio................................. $1 $ 2 $ 3 $6
Mentor Intermediate Duration Portfolio........................... 1 2 3 7
Mentor Fixed-Income Portfolio.................................... 1 2 3 7
Mentor International Portfolio................................... 4 10 17 39
</TABLE>
This information is provided to help investors understand the expenses of
investing in each of the Portfolios and an investor's share of the operating
expenses of the Portfolios. The Examples should not be considered
representations of future performance; actual expenses may be more or less than
those shown.
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FINANCIAL HIGHLIGHTS
The financial highlights presented below have been derived from the Trust's
financial statements which were audited and reported on by KPMG Peat Marwick
LLP, the Trust's independent auditors. Their report dated December 8, 1995 on
the financial statements of the Trust for the fiscal period ended October 31,
1995 is included in the Trust's Annual Report to shareholders for the 1995
fiscal year, which is incorporated herein by reference. A copy of the Annual
Report may be obtained free of charge from the Trust. No shares of the
International Portfolio were outstanding during the period for which information
is shown.
<TABLE>
<CAPTION>
MENTOR MENTOR MENTOR
CASH INTERMEDIATE FIXED-
MANAGEMENT DURATION INCOME
PORTFOLIO* PORTFOLIO** PORTFOLIO***
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..................................... $ 1.00 $ 12.50 $ 12.50
Income from investment operations
Net investment income.................................................. 0.05 0.78 0.81
New realized and unrealized gain on investments........................ -- 0.74 1.14
Total from investment operations....................................... 0.05 1.52 1.95
LESS DISTRIBUTIONS
Dividends from income.................................................. (0.05) (0.71) (0.74)
NET ASSET VALUE, END OF PERIOD........................................... $ 1.00 $ 13.31 $ 13.71
TOTAL RETURN............................................................. 5.06% 12.38% 15.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................. $ 69,997 $ 11,966 $ 34,053
Ratio of expenses to average net assets.................................. 0.04%(a) 0.05%(a) 0.05%(a)
Ratio of expenses to average net assets excluding waiver................. 0.18%(a) 0.25%(a) 0.22%(a)
Ratio of net investment income to average net assets..................... 5.56%(a) 6.52%(a) 6.75%(a)
Portfolio turnover rate.................................................. -- 307% 302%
</TABLE>
(a) Annualized.
* For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
** For the period from December 19, 1994 (commencement of operations) to
October 31, 1995.
*** For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
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INVESTMENT OBJECTIVES AND POLICIES
MENTOR CASH MANAGEMENT PORTFOLIO.
THE MENTOR CASH MANAGEMENT PORTFOLIO'S INVESTMENT OBJECTIVE IS TO SEEK AS HIGH A
RATE OF CURRENT INCOME AS COMMONWEALTH INVESTMENT COUNSEL, INC. ("COMMONWEALTH")
BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL AND MAINTENANCE OF
LIQUIDITY. The Portfolio will invest in high-quality short-term instruments
including U.S. Government securities, banker's acceptances, prime commercial
paper, fixed-income securities of corporations and other private issuers, and
money market instruments. There can, of course, be no assurance that the
Portfolio will achieve its investment objective.
The Portfolio will invest in a portfolio of high-quality short-term
instruments consisting of any or all of the following:
(Bullet) U.S. GOVERNMENT SECURITIES: securities issued or guaranteed as to
principal or interest by the U.S. Government or by any of its
agencies or instrumentalities.
(Bullet) BANKER'S ACCEPTANCES: negotiable drafts or bills of exchange,
which have been "accepted" by a domestic bank (or a foreign bank
with an agency domiciled in the United States), meaning, in
effect, that the bank has unconditionally agreed to pay the face
value of the instrument on maturity.
(Bullet) PRIME COMMERCIAL PAPER: high-quality, short-term obligations
issued by banks, corporations, and other issuers organized under
the laws of a jurisdiction within the United States.
(Bullet) OTHER SHORT-TERM OBLIGATIONS: high-quality, short-term obligations
of corporate issuers.
(Bullet) REPURCHASE AGREEMENTS: with respect to U.S. Government or agency
securities.
The Portfolio will invest only in U.S. dollar-denominated high-quality
securities and other U.S. dollar-denominated money market instruments meeting
credit criteria which the Trustees of the Trust believe present minimal credit
risk. "High-quality securities" are (i) commercial paper or other short-term
obligations rated A-1 by Standard & Poor's and P-1 by Moody's Investors Service,
Inc., and (ii) obligations rated AAA or AA by Standard & Poor's and Aaa or Aa by
Moody's at the time of investment. The Portfolio will not invest in securities
rated below A-1 or P-1 (or securities not so rated whose issuer does not have
outstanding short-term debt obligations, of comparable priority and security,
rated A-1 or P-1). The Portfolio will maintain a dollar-weighted average
maturity of 90 days or less and will not invest in securities with remaining
maturities of more than thirteen months. The Portfolio may invest in variable or
floating-rate securities which bear interest at rates subject to periodic
adjustment or which provide for periodic recovery of principal on demand. Under
certain conditions, these securities may be deemed to have remaining maturities
equal to the time remaining until the next interest adjustment date or the date
on which principal can be recovered on demand. The Portfolio will not purchase
securities of any issuer if, immediately thereafter, more than 5% of its total
assets would be invested in securities of that issuer, nor will the Portfolio
make an investment in commercial paper if, immediately thereafter, more than 35%
of its total assets would be invested in commercial paper. The Portfolio follows
investment and valuation policies designed to maintain a stable net asset value
of $1.00 per share, although there is no assurance that these policies will be
successful.
Considerations of liquidity and preservation of capital mean that the
Portfolio may not necessarily invest in money market instruments paying the
highest available yield at a particular time. Consistent with its investment
objective, the Portfolio will attempt to maximize yields by portfolio trading
and by buying and selling portfolio investments in anticipation of or in
response to changing economic and money market conditions and trends. The
Portfolio may also invest to take advantage of what Commonwealth believes to be
temporary disparities in yields
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of different segments of the high-quality money market or among particular
instruments within the same segment of the market. These policies, as well as
the relatively short maturity of obligations purchased by the Portfolio, may
result in frequent changes in the securities held by the Portfolio. The
Portfolio will not usually pay brokerage commissions in connection with the
purchase or sale of portfolio securities.
The Portfolio's securities will be affected by general changes in interest
rates resulting in increases or decreases in the values of the obligations held
by the Portfolio. The value of the Portfolio's securities can be expected to
vary inversely to changes in prevailing interest rates. Withdrawals by
shareholders could require the sale of portfolio investments at a time when such
a sale might not otherwise be desirable.
CONCENTRATION. The Portfolio may invest without limit in obligations of
domestic branches of U.S. banks and U.S. branches of foreign banks (if it can be
demonstrated that they are subject to the same regulations as U.S. banks). At
times when the Portfolio has concentrated its investments in bank obligations,
the value of its portfolio securities may be especially affected by factors
pertaining to the issuers of such obligations.
MENTOR INTERMEDIATE DURATION PORTFOLIO AND MENTOR FIXED-INCOME PORTFOLIO.
The investment objective of both of these Portfolios is to seek a high
level of long-term total return. Preservation of capital is a secondary
objective to the extent consistent with a Portfolio's primary objective of
seeking a high level of long-term total return. The Portfolios will invest in
U.S. Government securities, fixed-income securities of corporations and other
private issuers, mortgage-backed securities, and other asset-backed securities.
Each of the Portfolios may also hold a portion of its assets in cash or money
market instruments. There can, of course, be no assurance that the Portfolios
will achieve their investment objectives.
The INTERMEDIATE DURATION PORTFOLIO will normally maintain a portfolio
duration of from TWO TO FIVE YEARS.
The FIXED-INCOME PORTFOLIO will normally maintain a portfolio duration of
from FOUR TO SEVEN YEARS.
A Portfolio's "portfolio duration" at any time is the dollar-weighted
average duration of its portfolio securities at that time. In general, the net
asset value of a Portfolio with a longer portfolio duration will increase or
decrease to a greater degree in response to changes in interest rates than will
the net asset value of a Portfolio with a shorter portfolio duration.
(Typically, for example, the value of a security with a three-year duration will
increase by approximately three percent in response to a one-percent decline in
interest rates, and will decline by approximately three percent in response to a
one-percent rise in interest rates; similarly, the value of a security with a
seven-year duration will increase by approximately seven percent in response to
a one-percent decline in interest rates, and will decline by approximately seven
percent in response to a one-percent rise in interest rates; and so on.)
However, because issuers of securities with longer durations typically pay
interest on those securities at rates higher than in the case of securities with
shorter durations, the current income of a Portfolio with a longer portfolio
duration will typically be greater than that of a Portfolio with a shorter
portfolio duration.
Commonwealth may take full advantage of the entire range of maturities of
the securities in which a Portfolio may invest and may, through the purchase and
sale of securities with different durations, adjust each Portfolio's portfolio
duration from time to time, depending on its assessment of the relative values
of securities of different durations and maturities and expectations of future
changes in interest rates. There can be no assurance that either Portfolio will
be able to maintain any particular portfolio duration.
A Portfolio's "total return" consists of current income, including interest
payments and discount accruals, plus any increases in the values of the
Portfolio's investments (less any decreases in the values of any of its
investments and amortizations of premiums). A Portfolio may seek to increase its
total return by investing in
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investment-grade securities which Commonwealth believes may appreciate in value
as a result of changes in interest rates or other market factors.
Traditionally, a debt security's "term to maturity" has been used to
evaluate the sensitivity of the security's price to changes in interest rates
(the security's interest-rate "volatility"). However, a security's term to
maturity measures only the period of time until the last payment of principal or
interest on the security, and does not take into account the timing of the
various payments of principal or interest to be made prior to the instrument's
maturity. By contrast, "duration" is a measure of the full stream of payments to
be received on a debt instrument, including both interest and principal
payments, based on their present values. Duration measures the periods of time
between the present time and the time when the various interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by their present values. Duration can be a more
accurate measure of interest rate volatility than term-to-maturity. There is no
limit on the average weighted maturity either Portfolio may maintain, and a
Portfolio's average weighted maturity will likely be longer than its portfolio
duration.
There are some situations where the standard duration calculation does not
properly reflect the interest-rate volatility of a security. For example,
floating and variable rate securities often have final maturities of ten years
or more; however, their interest-rate volatility is determined based principally
on the period of time until their interest rates are reset and on the terms on
which they may be reset. Another example where a security's interest-rate
volatility is not properly measured by the standard duration calculation is in
the case of mortgage-backed securities. The stated final maturity of such
securities may be up to 30 years, but the actual cash flow on the securities
will be determined by the prepayment rates on the underlying mortgage loans.
Therefore, the duration of such a security can change if prepayment rates
change. In these and other similar situations, Commonwealth will estimate a
security's duration using analytical techniques that take into account such
factors as the expected prepayment rate on the security and how the prepayment
rate might change under various market conditions. Because calculation of a
security's duration may be based in part on estimates such as these made by
Commonwealth, a Portfolio's ability to maintain a particular portfolio duration
will depend on Commonwealth's ability to make those estimates accurately.
The Fixed-Income Portfolio will normally invest at least 65% of its total
assets, determined at the time of investment, in fixed-income securities. A
fixed-income security is a debt security paying interest at a rate specified in
the terms of the security or determined based on a formula or factors specified
in the terms of the security.
The Portfolios will only invest in securities of investment grade. A
security will be deemed to be of "investment grade" if, at the time of
investment by a Portfolio, the security is rated at least Baa3 by Moody's or
BBB-by Standard & Poor's, or at a comparable rating by another nationally
recognized rating organization. Securities rated Baa or BBB lack outstanding
investment characteristics and have speculative characteristics and are subject
to greater credit and market risks than higher-rated securities. A Portfolio
will not be required to dispose of a security held by it if the security's
rating falls below investment grade, although Commonwealth will consider whether
continued investment in the security is consistent with the Portfolio's
investment objectives. See the Statement of Additional Information for
descriptions of securities ratings assigned by Moody's and Standard & Poor's.
Commonwealth may under unusual circumstances implement temporary
"defensive" strategies in order to reduce fluctuations in the value of a
Portfolio's assets. At those times, a Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Commonwealth considers consistent with such
defensive strategies, and may maintain a portfolio duration shorter than would
otherwise be consistent with its basic investment strategy.
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MENTOR INTERNATIONAL PORTFOLIO.
THE INTERNATIONAL PORTFOLIO'S INVESTMENT OBJECTIVE IS LONG-TERM CAPITAL
APPRECIATION. The Portfolio is designed for institutional investors who believe
that investment in a diversified portfolio of securities of issuers located
outside the U.S. offers the potential for long-term capital appreciation.
The Portfolio invests in a diversified portfolio of securities of issuers
located outside the United States.
The Portfolio's investments will normally include common stocks, preferred
stocks, securities convertible into common stocks or preferred stocks, and
warrants to purchase common stocks or preferred stocks. The Portfolio may also
invest to a lesser extent in debt securities and other types of investments if
Mentor Perpetual Advisors, L.L.C. ("Mentor Perpetual") believes they would help
achieve the Portfolio's objective. The Portfolio may hold a portion of its
assets in cash or money market instruments.
The Portfolio will not limit its investments to any particular type of
company. The Portfolio may invest in companies, large or small, whose earnings
are believed to be in a relatively strong growth trend, or in companies in which
significant further growth is not anticipated but whose market value per share
is thought to be undervalued.
It is likely that, at times, a substantial portion of the Portfolio's
assets will be invested in securities of issuers in emerging markets, including
under-developed and developing nations. Investments in emerging markets are
subject to the same risks applicable to foreign investments generally, although
those risks may be increased due to conditions in such markets. For example, the
securities markets and legal systems in emerging markets may only be in a
developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Portfolio may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets. The Portfolio may also invest a substantial
portion of its assets in securities traded in the over-the-counter markets and
not on any exchange, which may affect the liquidity of the investment and expose
the Portfolio to the credit risk of its counterparties in trading those
investments. See "Other investment practices -- Foreign securities."
Fixed-income securities in which the Portfolio may invest will be of
investment grade. A security will be deemed to be of "investment grade" if, at
the time of investment by the Portfolio, the security is rated at least Baa3 by
Moody's or BBB- by Standard & Poor's, or at a comparable rating by another
nationally recognized rating organization. Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative characteristics and
are subject to greater credit and market risks than higher-rated securities. The
Portfolio will not be required to dispose of a security held by it if the
security's rating falls below investment grade, although Mentor Perpetual will
consider whether continued investment in the security is consistent with the
Portfolio's investment objective. See the Statement of Additional Information
for descriptions of securities ratings assigned by Moody's and Standard &
Poor's.
Mentor Perpetual may under unusual circumstances implement temporary
"defensive" strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Mentor Perpetual considers consistent with
such defensive strategies.
The International Portfolio may invest a substantial portion of its assets
in securities issued by small companies. Such companies may offer greater
opportunities for capital appreciation than larger companies, but investments in
such companies may involve certain special risks. Such companies may have
limited product lines, markets, or financial resources and may be dependent on a
limited management group. While the markets in
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securities of such companies have grown rapidly in recent years, such securities
may trade less frequently and in smaller volume than more widely held
securities. The values of these securities may fluctuate more sharply than those
of other securities, and the Portfolio may experience some difficulty in
establishing or closing out positions in these securities at prevailing market
prices. There may be less publicly-available information about the issuers of
these securities or less market interest in such securities than in the case of
larger companies, and it may take a longer period of time for the prices of such
securities to reflect the full value of their issuers' underlying earnings
potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The ability of the Portfolio to dispose of such
securities may be greatly limited, and the Portfolio may have to continue to
hold such securities during periods when Mentor Perpetual would otherwise have
sold the security. It is possible that Mentor Perpetual or its affiliates or
clients may hold securities issued by the same issuers, and may in some cases
have acquired the securities at different times, on more favorable terms, or at
more favorable prices, than the Portfolio.
FOREIGN SECURITIES. Investment in foreign securities entails certain risks.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Portfolio's assets may be affected favorably or
unfavorably by currency exchange rates and exchange control regulations. There
may be less information publicly available about a foreign company than about a
U.S. company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of the Portfolio's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the value of the Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable or
unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
OTHER INVESTMENT PRACTICES AND RISKS
Each of the Portfolios (except as noted below) may engage in the other
investment practices described below. See the Statement of Additional
Information for a more detailed description of these practices and certain risks
they may involve.
MORTGAGE-BACKED SECURITIES. The Intermediate Duration and Fixed-Income
Portfolios may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including collateralized
mortgage obligations. Interest and principal payments on the mortgages
underlying mortgage-backed
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securities are passed through to the holders of the mortgage-backed securities.
Mortgage-backed securities currently offer yields higher than those available
from many other types of fixed-income securities, but because of their
prepayment aspects, their price volatility and yield characteristics will change
based on changes in prepayment rates. Generally, prepayment rates increase if
interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolios' mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-income
securities of comparable maturities, although such obligations may have a
comparable or greater risk of decline in market value during periods of rising
interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
OTHER ASSET-BACKED SECURITIES. The Intermediate Duration and Fixed-Income
Portfolios may invest in securities representing interests in other types of
financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities are subject to many of the same risks as are
mortgage-backed securities, including prepayment risks, refinancing risks, and
risks of foreclosure. They may or may not be secured by the receivables
themselves or may be unsecured obligations of their issuers.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Intermediate Duration
and Fixed-Income Portfolios may purchase securities on a "when-issued" basis.
The price of such securities is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date (normally within one month of purchase). Each of these Portfolios may
also purchase securities for future delivery. "When-issued" securities and
forward commitments may increase a Portfolio's overall investment exposure and
may result in losses.
REPURCHASE AGREEMENTS; SECURITIES LOANS. The Portfolios may enter into
repurchase agreements and (in the case of the International Portfolio)
securities loans. Under a repurchase agreement, a Portfolio purchases a debt
instrument for a relatively short period (usually not more than one week), which
the seller agrees to repurchase at a fixed time and price, representing the
Portfolio's cost plus interest. Under a securities loan, a Portfolio lends
portfolio securities. A Portfolio will enter into repurchase agreements and (in
the case of the International Portfolio) securities loans only with commercial
banks and with registered broker-dealers who are members of a national
securities exchange or market makers in government securities, and in the case
of repurchase agreements, only if the debt instrument is a U.S. Government
security. Although Commonwealth or Mentor Perpetual, as the case may be, will
monitor these transactions to ensure that they will be fully collateralized at
all times, a Portfolio bears a risk of loss if the other party defaults on its
obligation and the Portfolio is delayed or prevented from exercising its rights
to dispose of the collateral. If the other party should become involved in
bankruptcy or insolvency proceedings, it is possible that the Portfolio may be
treated as an unsecured creditor and be required to return the underlying
collateral to the other party's estate.
BORROWING AND LEVERAGE. The International Portfolio may borrow money to
invest in additional portfolio securities. This practice, known as "leverage",
increases the Portfolio's market exposure and its risk. When the
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Portfolio has borrowed money for leverage and its investments increase or
decrease in value, the Portfolio's net asset value will normally increase or
decrease more than if it had not borrowed money. The interest the Portfolio must
pay on borrowed money will reduce the amount of any potential gains or increase
any losses. The extent to which the Portfolio will borrow money, and the amount
it may borrow, depend on market conditions and interest rates. Successful use of
leverage depends on Mentor Perpetual's ability to predict market movements
correctly.
OPTIONS AND FUTURES. Each of the Portfolios (other than the Cash Management
Portfolio) may buy and sell call and put options to hedge against changes in net
asset value or to realize a greater current return. In addition, through the
purchase and sale of futures contracts and related options, these Portfolios may
at times seek to hedge against fluctuations in net asset value and, to the
extent consistent with applicable law, to increase investment return.
A Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that a
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Transactions in options and futures contracts involve brokerage costs and
may require a Portfolio to segregate assets to cover its outstanding positions.
For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolios (other than the Cash Management
Portfolio) may buy and sell index futures contracts ("index futures") and
options on index futures and on indices for hedging purposes (or may purchase
warrants whose value is based on the value from time to time of one or more
foreign securities indices). An "index future" is a contract to buy or sell
units of a particular bond or stock index at an agreed price on a specified
future date. Depending on the change in value of the index between the time when
a Portfolio enters into and terminates an index futures or option transaction,
the Portfolio realizes a gain or loss. The Portfolios (other than the Cash
Management Portfolio) may also, to the extent consistent with applicable law,
buy and sell index futures and options to increase its investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. OPTIONS AND FUTURES
TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN LOSSES. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by a Portfolio that are the subject of a hedge.
The successful use by a Portfolio of the strategies described above further
depends on the ability of its investment adviser to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close out
futures or options positions. Although a Portfolio will enter into options or
futures transactions only if its investment adviser believes that a liquid
secondary market exists for such options or futures contracts, there can be no
assurance that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price. Certain provisions of the Internal
Revenue Code may limit a Portfolio's ability to engage in options and futures
transactions.
Each Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. A Portfolio may in certain instances purchase
and sell options in the over-the-counter markets. A Portfolio's ability to
terminate options in the over-the-counter markets may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would be unable to meet their obligations to
the Portfolio. A Portfolio will, however, engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of its investment adviser, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their obligations.
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A Portfolio will not purchase futures or options on futures or sell futures
if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
As a matter of policy, the Trustees will not materially change a
Portfolio's investment objective without shareholder approval. (Any such change
could, of course, result in a change in the nature of the securities in which a
Portfolio may invest and the risks involved in an investment in that Portfolio.)
MANAGEMENT
The Trustees of the Trust are responsible for generally overseeing the
conduct of the Trust's business. COMMONWEALTH INVESTMENT COUNSEL, INC., located
at 901 East Byrd Street, Richmond, Virginia 23219, acts as investment adviser to
the Cash Management, Fixed-Income, and Intermediate Duration Portfolios pursuant
to a Management Contract with the Trust. MENTOR PERPETUAL ADVISORS, L.L.C.,
located at 901 East Byrd Street, Richmond, Virginia, acts as investment adviser
to the International Portfolio pursuant to a Management Contract with the Trust.
Mentor Investment Group, Inc. ("Mentor") serves as administrator to the
Portfolios. None of Commonwealth, Mentor Perpetual, or Mentor receives
compensation from the Portfolios for the performance of such services. Mentor
has agreed to bear certain expenses of the Portfolios pursuant to a voluntary
expense limitation currently in effect. This limitation may be terminated at any
time.
Commonwealth is a wholly owned subsidiary of Mentor, which is a wholly
owned subsidiary of Wheat First Butcher Singer, Inc. ("Wheat First Butcher
Singer"). Wheat First Butcher Singer, through other subsidiaries, also engages
in securities brokerage, investment banking, and related businesses.
Commonwealth currently has assets under management of approximately $4 billion,
and serves as investment adviser to Cash Resource Trust, an open-end series
investment company, the Mentor Balanced Portfolio, the Mentor Short-Duration
Income Portfolio, SNAP Fund, and America's Utility Fund, Inc., each of which is
an open-end investment company, and Mentor Income Fund, Inc., a closed-end
investment company. All investment decisions for the Cash Management,
Fixed-Income, and Intermediate Duration Portfolios are made by investment
committees at Commonwealth which are made up of investment professionals at
Commonwealth.
Mentor Perpetual is a newly organized investment advisory firm owned
equally by Perpetual plc and Mentor. The Perpetual organization currently serves
as investment adviser for assets of more than $6 billion. It clients include 28
unit investment trusts and other public investment pools for over 150 clients,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the Mentor
Perpetual Global Portfolio, an open-end mutual fund which is a series of The
Mentor Funds. Investment decisions for the Portfolio are made by a team of
investment professionals at Mentor Perpetual. Mentor is a wholly owned
subsidiary of Wheat First Butcher Singer.
Subject to the general oversight of the Trustees, Commonwealth and Mentor
Perpetual manage their respective Portfolios in accordance with the stated
policies of each such Portfolio. Each of Commonwealth and Mentor Perpetual makes
investment decisions for its respective Portfolios and places the purchase and
sale orders for each Portfolio's portfolio transactions. In selecting
broker-dealers, Commonwealth and Mentor Perpetual may consider research and
brokerage services furnished to them and their affiliates. Subject to seeking
the best overall terms available, Commonwealth and Mentor Perpetual may consider
sales of shares of a Portfolio (and, if permitted by law, of other funds in the
Mentor family) as a factor in the selection of broker-dealers to execute
portfolio transactions for that Portfolio. Commonwealth and Mentor Perpetual may
at times cause the Portfolios to pay commissions to broker-dealers which are
affiliated with Commonwealth or Mentor Perpetual.
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PORTFOLIO TURNOVER (ALL PORTFOLIOS OTHER THAN THE CASH MANAGEMENT
PORTFOLIO). The length of time a Portfolio has held a particular security is not
generally a consideration in investment decisions. A change in the securities
held by a Portfolio is known as "portfolio turnover." As a result of each
Portfolio's investment policies, under certain market conditions a Portfolio's
portfolio turnover rate may be higher than that of other mutual funds. Portfolio
turnover generally involves some expense to a Portfolio, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Such transactions may result in
realization of taxable capital gains. Although it is impossible to predict
portfolio turnover, Mentor Perpetual expects that the annual portfolio turnover
rate for the International Portfolio for its first full fiscal year will not
exceed 200%. The portfolio turnover rate for the Fixed-Income and Intermediate
Duration Portfolios for the 1995 fiscal period is shown in the section
"Financial Highlights."
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each of the Portfolios (other than the Cash Management Portfolio)
calculates the net asset value of its shares by dividing the total value of its
assets, less liabilities, by the number of its shares outstanding. Shares are
valued as of the close of regular trading on the New York Stock Exchange each
day the Exchange is open. Portfolio securities for which market quotations are
readily available are stated at market value. Short-term investments that will
mature in 60 days or less are stated at amortized cost, which has been
determined to approximate the fair market value of such investments. All other
securities and assets are valued at their fair values.
INTERNATIONAL PORTFOLIO ONLY. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rates or at such other
rates as the Trustees may determine in computing net asset value. As a result,
fluctuations in the values of such currencies in relation to the U.S. dollar
will affect the net asset value of Portfolio shares even though there has not
been any change in the values of such securities as quoted in such foreign
currencies.
The CASH MANAGEMENT PORTFOLIO values its shares twice each day, once at
12:00 noon and again at the close of regular trading on the Exchange. The
Portfolio's investments are valued at amortized cost according to Securities and
Exchange Commission Rule 2a-7. The Portfolio will not normally have unrealized
gains or losses so long as it values its investments by the amortized cost
method.
HOW DISTRIBUTIONS ARE MADE
The FIXED-INCOME and INTERMEDIATE DURATION PORTFOLIOS distribute net
investment income quarterly and any net realized capital gains at least
annually. The INTERNATIONAL PORTFOLIO distributes net investment income and any
net realized capital gains at least annually. Distributions from capital gains
are made after applying any available capital loss carryovers.
The CASH MANAGEMENT PORTFOLIO determines its net income as of the close of
regular trading on the New York Stock Exchange each day the Exchange is open.
Each determination of the Portfolio's net income includes (i) all accrued
interest on the Portfolio's investments, (ii) plus or minus all realized and
unrealized gains and losses on the Portfolio's investments, (iii) less all
accrued expenses of the Portfolio.
The Cash Management Portfolio declares all of its net interest income as a
distribution on each day the New York Stock Exchange is open for business, as a
dividend to shareholders of record immediately prior to the close of regular
trading on the Exchange. Shareholders who purchase shares of the Portfolio as of
12:00 noon on any day will receive the dividend declared by the Portfolio for
that day; shareholders who purchase shares after 12:00 noon will begin earning
dividends on the day after the Portfolio accepts their order. The Portfolio's
net income for Saturdays, Sundays, and holidays is declared as a dividend on the
preceding business day. Dividends for the
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immediately preceding month will be paid on the last business day of each
calendar month (or, if that day is not a business day, on the next business
day), except that the Portfolio's schedule for payment of dividends during the
month of December may be adjusted to assist in tax reporting and distribution
requirements. A shareholder that withdraws the entire balance of an account at
any time during the month will be paid all dividends declared through the date
immediately prior to the withdrawal. Since the net income of the Portfolio is
declared as a dividend each day, the net asset value per share of the Portfolio
normally remains at $1 per share immediately after each determination and
dividend declaration.
All Portfolio distributions will be invested in additional Portfolio
shares, unless the shareholder instructs a Portfolio otherwise.
TAXES
Each of the Portfolios intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other requirements that
are necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolios will distribute substantially all of
their net investment income and capital gain net income on a current basis.
THE FOLLOWING IS INTENDED PRINCIPALLY FOR SHAREHOLDERS SUBJECT TO FEDERAL
INCOME TAXATION:
All Portfolio distributions, other than exempt-interest dividends, will be
taxable to shareholders as ordinary income, except that any distributions of net
capital gain will be taxed as long-term capital gain, regardless of how long a
shareholder has held the shares (although the loss on a sale of shares held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain distribution received with respect to those shares).
Distributions will be taxable as described above whether received in cash or in
shares through the reinvestment of distributions. Early in each year the Trust
will notify shareholders of the amount and tax status of distributions paid by a
Portfolio for the preceding year. In buying or selling securities for a
Portfolio, an investment adviser will not normally take into account the effect
any purchase or sale of securities will have on the tax positions of the
Portfolio's shareholders.
INTERNATIONAL PORTFOLIO ONLY. Shareholders of the Portfolio who are U.S.
citizens or residents may be able to claim a foreign tax credit or deduction on
their U.S. income tax returns with respect to foreign taxes paid by the
Portfolio. If, at the end of the fiscal year of the Portfolio, more than 50% of
the Portfolio's total assets are represented by securities of foreign
corporations, the Portfolio intends to make an election permitted by the
Internal Revenue Code to treat any foreign taxes it paid as paid by its
shareholders. In that case, shareholders who are U.S. citizens, U.S.
corporations, and, in some cases, U.S. residents will be required to include in
U.S. taxable income their pro rata share of such taxes, but may then be entitled
to claim a foreign tax credit or deduction (but not both) for their share of
such taxes.
The foregoing is a summary of certain federal income tax consequences of
investing in a Portfolio. Dividends and distributions also may be subject to
state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of a Portfolio, including the possibility that distributions
may be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
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PURCHASE OF SHARES
Shares of the FIXED-INCOME, INTERMEDIATE DURATION, and INTERNATIONAL
PORTFOLIOS are sold at the net asset value next determined after a purchase
order is received by a Portfolio. Purchase orders that are received prior to the
close of trading on the New York Stock Exchange on a particular day are priced
according to the net asset value determined on that day.
The CASH MANAGEMENT PORTFOLIO offers its shares continuously at a price of
$1.00 per share. Because the Portfolio seeks to be fully invested at all times,
investments must be in Same Day Funds to be accepted. "Same Day Funds" are funds
credited by the applicable regional Federal Reserve Bank to the account of the
Portfolio at its designated bank.
Mentor Distributors, Inc. ("Mentor Distributors"), 901 East Byrd Street,
Richmond, Virginia 23219, serves as distributor of the Portfolios' shares.
Mentor Distributors is not obligated to sell any specific amount of shares of
any of the Portfolios.
An investor may make an initial purchase of shares of any of the Portfolios
by submitting a completed application along with its purchase order, and by
making payment to Mentor Distributors. Investors will be required to make
minimum initial investments of $500,000 in the Portfolios and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolios reserve the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolios may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to a Portfolio's investment adviser, or (iii) a
combination of such securities and cash. Purchase of shares of a Portfolio in
exchange for securities is subject in each case to the determination by the
Portfolio's investment adviser that the securities to be exchanged are
acceptable for purchase by the Portfolio. Securities accepted by a Portfolio's
investment adviser in exchange for shares will be valued in the same manner as
the Portfolio's assets as of the time of the Portfolio's next determination of
net asset value after such acceptance. All dividends and subscription or other
rights which are reflected in the market price of accepted securities at the
time of valuation become the property of the Portfolio and must be delivered to
the Portfolio upon receipt by the investor from the issuer. A gain or loss for
federal income tax purposes would be realized upon the exchange by an investor
that is subject to federal income taxation, depending upon the investor's basis
in the securities tendered. A shareholder who wishes to purchase shares by
exchanging securities should obtain instructions by calling Mentor Distributors
at 1-800-869-6042.
In all cases Commonwealth, Mentor Perpetual, or Mentor Distributors
reserves the right to reject any investment.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of its shares in a Portfolio at
any time upon request, by following the procedures set forth below. Redemptions
will be effected at the net asset value per share of a Portfolio next determined
after the receipt by the Portfolio of redemption instructions in "good order" as
described below. Shares may be redeemed by submitting a written request for
redemption to Mentor Distributors, or to the Trust at the following address:
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Mentor Institutional Trust
P.O. Box 1357
Richmond, Virginia 23286-0109
Upon receipt of a request in "good order," the Trust will determine the
amount of the net asset value of the redeemed shares, based upon the net asset
value of the Portfolio next determined after the redemption request has been
received. A check for the proceeds will normally be mailed on the next business
day.
If shares of a Portfolio to be redeemed represent an investment made by
check, the Trust reserves the right not to transmit the redemption proceeds to
the shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed, and identifies the shareholder's Portfolio account number;
(2) the request is signed by each registered owner exactly as the shares
are registered; and
(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed for transfer (or are accompanied by an
endorsed stock power) and accompany the redemption request.
Each Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, a
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, each Portfolio reserves
the right, if conditions exist which make cash payments undesirable, to honor
any request for redemption by making payment in whole or in part by securities
valued in the same way as they would be valued for purposes of computing the
Portfolio's per share net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting those securities into
cash.
EXCHANGE PRIVILEGE. Shareholders may exchange their shares in a Portfolio
for shares of any other Portfolio offered by this Prospectus at their respective
net asset values beginning 15 days after purchase. Shares of certain of the
Portfolios are not available in all states. To exchange shares, simply complete
an exchange authorization form and send it to Mentor Distributors. Exchange
authorization forms are available from the Trust and from Mentor Distributors.
The Trust reserves the right to change or suspend the exchange privilege at any
time. Shareholders would be notified before any such change or suspension.
Consult Mentor Distributors before requesting an exchange.
MENTOR INSTITUTIONAL TRUST
Mentor Institutional Trust is a Massachusetts business trust organized on
February 8, 1994 as IMG Institutional Trust. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
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The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into five
series, four of which are being offered by this Prospectus. Each share has one
vote, with fractional shares voting proportionally. Shares of each class will
vote together as a single class except when required by law or determined by the
Trustees. Shares of the Portfolios are freely transferable, are entitled to
dividends as declared by the Trustees, and, if a Portfolio were liquidated,
would receive the net assets of the Portfolio. The Trust may suspend the sale of
shares at any time and may refuse any order to purchase shares. Although the
Trust and the Portfolios are not required to hold annual meetings of its
shareholders, shareholders have the right to call a meeting to elect or remove
Trustees, or to take other actions as provided in the Agreement and Declaration
of Trust.
In the interest of economy and convenience, a Portfolio will not issue
certificates for its shares except at the shareholder's request.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolios' custodian. State Street Bank and Trust
Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive, North
Quincy, Massachusettes 02171, serves as the Portfolios' transfer and dividend
agent.
PERFORMANCE INFORMATION
The INTERMEDIATE DURATION PORTFOLIO, FIXED-INCOME PORTFOLIO, and
INTERNATIONAL PORTFOLIO. Yield and total return data may from time to time be
included in advertisements about the Portfolios. Each Portfolio's "yield" is
calculated by dividing the Portfolio's annualized net investment income per
share during a recent 30-day period by its net asset value on the last day of
that period. "Total return" for the one-, five-, and ten-year periods (or for
the life of a Portfolio, if shorter) through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the Portfolio over the period.
The CASH MANAGEMENT PORTFOLIO. The Portfolio's yield may from time to time
be included in advertisements about the Portfolio. The Portfolio's "yield" is
calculated by determining the percentage net change, excluding capital changes,
in the value of an investment in one share of the Portfolio over the base
period, and multiplying the net change by 365/7 (or approximately 52 weeks). The
Portfolio's "effective yield" represents a compounding of the yield by adding 1
to the number representing the percentage change in the value of the investment
during the base period, raising that sum to a power equal to 365/7, and
subtracting 1 from the result.
A Portfolio's performance may be compared to various indices. See the
Statement of Additional Information. Information may be presented in
advertisements about the Portfolios describing the background and professional
experience of the Portfolios' investment adviser or its investment personnel.
All data is based on each Portfolio's past investment results and does not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Portfolio's
investments, and that Portfolio's operating expenses. Investment performance
also often reflects the risks associated with a Portfolio's investment
objectives and policies. These factors should be considered when comparing a
Portfolio's investment results to those of other mutual funds and other
investment vehicles.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE. THIS PROSPECTUS OMITS CERTAIN INFORMATION CONTAINED IN THE
REGISTRATION STATEMENT, TO WHICH REFERENCE IS MADE, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. ITEMS WHICH ARE THUS OMITTED, INCLUDING CONTRACTS AND
OTHER DOCUMENTS REFERRED TO OR SUMMARIZED HEREIN, MAY BE OBTAINED FROM THE
COMMISSION UPON PAYMENT OF THE PRESCRIBED FEES.
ADDITIONAL INFORMATION CONCERNING THE SECURITIES OFFERED HEREBY AND THE
TRUST IS TO BE FOUND IN THE REGISTRATION STATEMENT, INCLUDING VARIOUS EXHIBITS
THERETO AND FINANCIAL STATEMENTS INCLUDED OR INCORPORATED THEREIN, WHICH MAY BE
INSPECTED AT THE OFFICE OF THE COMMISSION.
MENTOR
INSTITUTIONAL
TRUST
[MENTOR LOGO]
PROSPECTUS
MENTOR DISTRIBUTORS, INC.
