-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KpwoIWwu9ZVeymmxWsnRPuzcff5F7jGu7SDcZB+aOgwROKBAZilHS96esmzshDwW MSBzuGBZFALhd/dnVrkEpQ== 0000916641-96-000926.txt : 19961106 0000916641-96-000926.hdr.sgml : 19961106 ACCESSION NUMBER: 0000916641-96-000926 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19961105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASH RESOURCE TRUST /MA/ CENTRAL INDEX KEY: 0000908920 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-65818 FILM NUMBER: 96654681 BUSINESS ADDRESS: STREET 1: RIVERFRONT PLAZA, WEST TOWER STREET 2: 901 E. BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8047823294 MAIL ADDRESS: STREET 1: RIVERFRONT PLAZA, WEST TOWER STREET 2: 901 E BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23219 FORMER COMPANY: FORMER CONFORMED NAME: IMG MONEY MARKET SERIES TRUST DATE OF NAME CHANGE: 19930709 497 1 CASH RESOURCE TRUST 497(e) Reg. No. 33-65818 File No. 8117862 CASH RESOURCE TRUST (Cash Resource Money Market Fund, Cash Resource U.S. Government Money Market Fund, and Cash Resource Tax-Exempt Money Market Fund) Supplement to the Statement of Additional Information dated September 23, 1996 Mentor Investment Advisors, LLC ("Mentor Advisors") acts as investment adviser of each of the Funds. Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group, LLC ("Mentor Investment Group"), which in turn is a subsidiary of Wheat First Butcher Singer, Inc. Mentor Investment Group serves as the administrator to the Funds. Mentor Distributors, LLC serves as the Funds' principal underwriter. November 1, 1996 -1- CASH RESOURCE TRUST FORM N-1A PART B STATEMENT OF ADDITIONAL INFORMATION September 23, 1996 This Statement of Additional Information contains information which may be of interest to investors but which is not included in the Prospectus dated September 23, 1996 (the "Prospectus") of Cash Resource Money Market Fund, Cash Resource U.S. Government Money Market Fund, and Cash Resource Tax-Exempt Money Market Fund (each a "Fund" and collectively the "Funds"), each of which is a series of shares of Cash Resource Trust (the "Trust"). This Statement is not a prospectus and is only authorized for distribution when accompanied or preceded by the Prospectus of the Funds dated September 23, 1996. This Statement should be read together with the Prospectus, as amended from time to time. Investors may obtain a free copy of the Prospectus by calling Mentor Distributors, Inc. ("Mentor Distributors"), the Trust's distributor, at (800) 382-0016. Table of Contents Part I Page INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST..............................2 INVESTMENT RESTRICTIONS......................................................4 MANAGEMENT OF THE TRUST......................................................6 PRINCIPAL HOLDERS OF SECURITIES.............................................10 INVESTMENT ADVISORY AND OTHER SERVICES......................................10 DETERMINATION OF NET ASSET VALUE............................................14 TAXES ...................................................................16 DISTRIBUTION................................................................19 ORGANIZATION................................................................21 PORTFOLIO TURNOVER..........................................................21 CUSTODIAN...................................................................21 INDEPENDENT AUDITORS........................................................22 PERFORMANCE INFORMATION.....................................................22 INVESTMENT PROFESSIONALS OF MENTOR INVESTMENT ADVISORS, LLC.................27 SHAREHOLDER LIABILITY.......................................................28 FINANCIAL STATEMENTS........................................................29 -1- INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST The investment objectives and policies of each of the Funds are described in the Prospectus. This Statement contains additional information concerning certain investment practices and investment restrictions of the Funds. Except as described below under "Investment Restrictions," the investment objectives and policies described in the Prospectus and in this Statement are not fundamental, and the Trustees may change the investment objectives and policies of a Fund without a vote of shareholders. Except as otherwise noted below, the following descriptions of certain investment policies and techniques are applicable to all of the Funds. All references to the Adviser refer to the investment adviser or sub-adviser, if any, of the Funds. Repurchase Agreements Each Fund may enter into repurchase agreements. A repurchase agreement is a contract under which a Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing a Fund's cost plus interest). It is each Fund's present intention to enter into repurchase agreements only with member banks of the Federal Reserve System and securities dealers meeting certain criteria as to creditworthiness and financial condition established by the Trustees of a Fund and only with respect to obligations of the U.S. Government or its agencies or instrumentalities or other high quality short term debt obligations. Repurchase agreements may also be viewed as loans made by a Fund which are collateralized by the securities subject to repurchase. The Adviser will monitor such transactions to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, a Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate. Securities Loans A Fund may lend its portfolio securities provided: (1) the loan is secured continuously by collateral consisting of U.S. Government securities, cash, or cash equivalents adjusted daily to have market value at least equal to the current market value of the securities loaned; (2) the Fund may at any time call the loan and regain the securities loaned; (3) the Fund will receive any interest or dividends paid on the loaned securities; and (4) the aggregate market value of the securities loaned will not at any time exceed one-third of the total assets of such Fund. In -2- addition, it is anticipated that a Fund may share with the borrower some of the income received on the collateral for the loan or that it will be paid a premium for the loan. Before a Fund enters into a loan, the Adviser considers all relevant facts and circumstances including the creditworthiness of the borrower. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, a Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. A Fund will not lend portfolio securities to borrowers affiliated with the Trust. Foreign Securities Cash Resource Money Market Fund may invest in U.S. dollar denominated foreign securities which meet the criteria applicable to the Fund's domestic investments, and in certificates of deposit issued by U.S. branches of foreign banks and foreign branches of U.S. banks. Investment by the Fund in foreign securities is subject to the limitations set forth in the Prospectus. Investments in foreign securities may involve considerations different from investments in domestic securities due to limited publicly available information, non-uniform accounting standards, lower trading volume and possible consequent illiquidity, greater volatility in price, the possible imposition of withholding or confiscatory taxes, the possible adoption of foreign governmental restrictions affecting the payment of principal and interest, expropriation of assets, nationalization, or other adverse political or economic developments. Foreign companies may not be subject to auditing and financial reporting standards and requirements comparable to those which apply to U.S. companies. Foreign brokerage commissions and other fees are generally higher than in the United States. It may be more difficult to obtain and enforce a judgment against a foreign issuer. In determining whether to invest in securities of foreign issuers, the Adviser will consider the likely impact of foreign taxes on the net yield available to the Fund and its shareholders. Income received by the Fund from sources within foreign countries may be reduced by withholding and other taxes imposed by such countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine the effective rate of foreign tax in advance since the amount of the Fund's assets to be invested in various countries is not known, and tax laws and their interpretations may change from time to time and may change without advance notice. Any such taxes paid by the Fund will reduce its net income available for distribution to shareholders. -3- INVESTMENT RESTRICTIONS The Trust has adopted the following restrictions applicable to all of the Funds, which may not be changed without the affirmative vote of a "majority of the outstanding voting securities" of a Fund, which is defined in the 1940 Act to mean 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. A Fund may not: 1. Borrow money in excess of 10% 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 (not for leverage) in situations which might otherwise require the untimely disposition of portfolio investments or for extraordinary or emergency purposes. Such borrowings will be repaid before any additional investments are purchased. 2. Pledge, hypothecate, mortgage, or otherwise encumber its assets in excess of 15% of its total assets (taken at the lower of cost and current value) and then only in connection with borrowings permitted by restriction 1 above. 3. Purchase securities on margin, expect such short-term credits as may be necessary for the clearance of purchase and sales of securities. 4. Make short sales of securities or maintain a short position for the account of a Fund unless at all times when a short position is open it owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and in equal amount to, the securities sold short. 5. Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under the federal securities laws. 6. Purchase or sell real estate, although it may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities representing interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. 7. Purchase or sell commodities or commodity contracts. 8. Make loans, except by purchase of debt obligations in which a Fund may invest consistent with its investment policies and by entering into repurchase agreements and securities loans. -4- 9. Invest in securities of any issuer, if, to the knowledge of a Fund, officers and Trustees of the Trust and officers and directors of the Adviser who beneficially own more than 0.5% of the securities of that issuer together own more than 5% of such securities. 10. As to 75% of its assets, invest in securities of any issuer if, immediately after such investment, more than 5% of the total assets of the Fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to securities issued or guaranteed as to principal or interest by the U.S. Government or its agencies or instrumentalities. 11. Acquire more than 10% of the voting securities of any issuer. 12. Invest more than 25% of its assets in any one industry, except that Cash Resource Money Market Fund 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 regulation as U.S. banks). 13. Make investments for the purpose of gaining control of a company's management. 14. Issue any class of securities which is senior to a Fund's shares of beneficial interest, except as consistent with or permitted by the Investment Company Act of 1940 or as permitted by rule or order of the Securities and Exchange Commission. In addition, it is contrary to the current policy of the Trust, which may be changed without shareholder approval, to invest in the securities of other registered open-end investment companies. 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 and those designated in the Prospectus as fundamental, the other investment policies described in the Prospectus and this Statement are not fundamental and may be changed by approval of the Trustees. As a matter of policy, the Trustees would not materially change a Fund's investment objective without shareholder approval. -5- MANAGEMENT OF THE TRUST
Principal Occupation Position Held With During Past Name and Address A Fund Five Years - ---------------- ------------------ -------------------- Daniel J. Ludeman* Chairman and Chairman and Chief Executive 901 E. Byrd Street Trustee Officer since July 1991, Richmond, VA 23219 Mentor Investment Group, Inc.; 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 and Mentor Institutional Trust. Arnold H. Dreyfuss Trustee Trustee, The Mentor Funds P.O. Box 18156 and Mentor Institutional Trust; Richmond, Virginia 23226 formerly, Chairman and Chief Executive Officer, Hamilton Beach/Proctor-Silex, Inc. Thomas F. Keller Trustee Dean, Fuqua School of Fuqua School of Business Business, Duke University; Duke University Trustee, The Mentor Funds Durham, NC 27706 and Mentor Institutional Trust. Louis W. Moelchert, Jr. Trustee Vice President of Business and University of Richmond Finance, University of Richmond; Richmond, VA 23173 Trustee, The University of Richmond Mentor Funds and Mentor Institutional Trust; Director, America's Utility Fund, Inc.
-6- Stanley F. Pauley Trustee Chairman and Chief E.R. Carpenter Executive Officer, E.R. Company, Incorporated Carpenter Company 5016 Monument Avenue Incorporated; Trustee, Richmond, Virginia 23261 The Mentor Funds and Mentor and Mentor Institutional Trust. Troy A. Peery, Jr. Trustee President, Heilig- Heilig-Meyers Company Meyers Company; 2235 Staples Mill Road Trustee, The Mentor Funds Richmond, Virginia 23230 and Mentor Institutional Trust. Peter J. Quinn, Jr.* Trustee President, Mentor 901 E. Byrd Street Distributors, Inc.; Managing Richmond, VA 23219 Director, Mentor Investment Group, Inc. and Wheat First Butcher Singer, Inc.; formerly, Senior Vice President/Director of Mutual Funds, Wheat First Butcher Singer, Inc.
-7- Paul F. Costello President Managing Director, Wheat First Butcher Singer, Inc. and Mentor Investment Group, Inc.; President, The Mentor Funds, Mentor Income Fund, Inc., and Mentor Institutional Trust; Executive Vice President and Chief Administrative Officer, America's Utility Fund, Inc.; Director, Mentor Perpetual Advisors, Inc. 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.
-8- Terry L. Perkins Treasurer Vice President, 901 E. Byrd Street Mentor Investment Richmond, VA 23219 Group, Inc.; Treasurer, Mentor Institutional Trust, The Mentor Funds, and America's Utility Fund, Inc.; Trustee, Mentor Income Fund, Inc.; formerly, Treasurer and Comptroller, Ryland Capital Management, Inc. John M. Ivan Secretary Managing Director and 10700 North Park Drive Director of Compliance Glen Allen, VA 23060 since October 1992, and Assistant General Counsel, Wheat, First Securities, Inc.; Managing Director and Assistant Secretary, Wheat First Butcher Singer Inc. (formerly WFS Financial Corporation); Clerk, Mentor Institutional Trust; Secretary, Mentor Income Fund, Inc. and The Mentor Funds
- ----------------------------- * This Trustee is deemed to be an "interested person" of a Fund as defined in the 1940 Act. Except as stated above, the principal occupations of the officers and Trustees for the last five years have been with the employers as shown above, although in some cases they have held different positions with such employers. The table below shows the fees paid to each Trustee by the Trust for the 1995 fiscal year and the fees paid to each Trustee by all funds in the Mentor Family (including the Trust) during the 1995 calendar year. -9- Total compensation Aggregate compensation from all Trustees from the Trust complex funds - -------- ---------------------- ------------------ Daniel J. Ludeman -- -- Arnold H. Dreyfuss $6,000 $12,200 Thomas F. Keller $6,000 $12,200 Louis W. Moelchert, Jr. $6,000 $12,200 Stanley F. Pauley $6,000 $12,200 Troy A. Peery, Jr. $6,000 $12,200 Peter J. Quinn, Jr. -- -- The Trustees do not receive pension or retirement benefits from the Trust. The Agreement and Declaration of Trust of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Trust or that such indemnification would relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of his duties. The Trust, at its expense, may provide liability insurance for the benefit of its Trustees and officers. PRINCIPAL HOLDERS OF SECURITIES As of September 1, 1996, the officers and Trustees of the Trust owned as a group less than one percent of the outstanding shares of each Fund. To the knowledge of the Trust, no person owned of record or beneficially more than 5% of the outstanding shares of any Fund as of that date. INVESTMENT ADVISORY AND OTHER SERVICES Under a Management Contract between the Trust and Commonwealth Advisors, Inc. (the "Management Contract"), Commonwealth Advisors, at its expense, provides the Funds with investment advisory services and advises and assists the officers of the Trust in taking such steps as are necessary or appropriate to carry out the decisions of its Trustees regarding the conduct of business of the Trust and each Fund. Commonwealth Advisors is a wholly-owned subsidiary of Mentor Investment Group, Inc., which in turn is a subsidiary of Wheat First Butcher Singer Inc., a diversified financial services holding company. -10- The table below shows amounts paid to Commonwealth Advisors by each Fund under the Management Contract for the periods indicated:
December 20, 1993 Fiscal year Fiscal Year (Commencement of operations) ended ended to July 31, 1994 July 31, 1995 July 31, 1996 ------------------------------------ ------------- ------------- Cash Resource Money Market Fund $ 229,508 $ 616,369 $1,172,603 Cash Resource U.S. Government Money Market Fund $1,121,385 $2,097,838 $2,660,041 Cash Resource Tax-Exempt Money Market Fund $ 164,663 $ 486,638 $ 632,135
The amounts paid under the Management Contract to Commonwealth Advisors reflect expense reductions as follows, which are due to an expense limitation:
December 20, 1993 Fiscal year Fiscal year (Commencement of operations) ended ended to July 31, 1994 July 31, 1995 July 31, 1996 ------------------------------------ ------------- ------------- Cash Resource Money Market Fund $ 44,729 $ 0 $ 0 Cash Resource U.S. Government Money Market Fund $ 161,394 $ 0 $ 0 Cash Resource Tax-Exempt Money Market Fund $ 122,485 $48,886 $ 0
Under a Subadviser Contract (the "Subadviser Contract") between Commonwealth Investment Counsel, Inc. ("Commonwealth") and Commonwealth Advisors, Commonwealth regularly provides the Funds with investment research, advice, and supervision and furnishes continuously investment programs consistent with the investment objectives and policies of the various Funds, and determines, for the various Funds, what securities shall be purchased, what securities shall be held or sold, and what portion of a Fund's assets shall be held uninvested, subject always to the provisions of the Agreement and Declaration of Trust and By-laws, and of the 1940 Act, and to a Fund's investment objectives, policies, and restrictions, and subject further to such policies and instructions as the Trustees may from time to time establish. Commonwealth Advisors and Commonwealth make available to the Trust, without expense to the Trust, the services of such of their directors, officers, and employees as may duly be elected Trustees or officers of the Trust, subject to their individual consent to serve and to any limitations imposed by law. Commonwealth Advisors pays the compensation and expenses of officers and executive employees of the Trust. Commonwealth Advisors also provides investment advisory research and statistical facilities and all clerical services relating -11- to such research, statistical, and investment work. Commonwealth Advisors pays the Trust's office rent. Under the Management Contract, the Trust is responsible for all of its other expenses, including clerical salaries not related to investment activities; fees and expenses incurred in connection with membership in investment company organizations; brokers' commissions; payment for portfolio pricing services to a pricing agent, if any; legal expenses; auditing expenses; accounting expenses; taxes and governmental fees; fees and expenses of the transfer agent and investor servicing agents of the Trust; the cost of preparing share certificates or any other expenses, including clerical expenses, incurred in connection with the issue, sale, underwriting, redemption, or repurchase of shares; the expenses of and fees for registering or qualifying securities for sale; the fees and expenses of the Trustees of the Trust who are not affiliated with Commonwealth Advisors; the cost of preparing and distributing reports and notices to shareholders; public and investor relations expenses; and fees and disbursements of custodians of a Fund's assets. The Trust is also responsible for its expenses incurred in connection with litigation, proceedings, and claims and the legal obligation it may have to indemnify its officers and Trustees with respect thereto. Commonwealth Advisors has agreed that, if in any year the aggregate expenses of any Fund (including fees pursuant to the Management Contract but excluding interest, taxes, brokerage and distribution fees and, with the prior written consent of the necessary state securities commissions, extraordinary expenses) exceed the expense limitation of any state having jurisdiction over the Trust, Commonwealth Advisors will reimburse the Trust for such excess expense. This expense reimbursement obligation is not limited to the amount of Commonwealth Advisors' fees. Such expense reimbursement, if any, will be estimated, reconciled and paid on a monthly basis. The most stringent state expense limitation applicable to the Trust presently requires reimbursement of expenses in any year that such expenses exceed the sum of 2.5% of the first $30 million of the average daily net assets, 2.0% of the next $70 million of the average daily net assets, and 1.5% of the average daily net assets over $100 million. Each of the Management Contract and the Subadviser Contract provide that Commonwealth Advisors or Commonwealth, respectively, shall not be subject to any liability to a Fund or to any shareholder for any act or omission in the course of, or connected with, its rendering services under the relevant contract in the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its duties. Each of the Management Contract and the Subadviser Contract may be terminated without penalty by vote of the Trustees as to any Fund or by the shareholders of that Fund, or by Commonwealth Advisors (or Commonwealth) on 30 days written notice. Each of the Management Contract and the Subadviser Contract also terminates without payment of any penalty in the event of its assignment. In addition, each of the Management Contract and the Subadviser Contract may be amended only by a vote of the shareholders of the affected Fund(s), and provides that it will continue in effect from year to year only so long as such -12- continuance is approved at least annually with respect to each Fund by vote of either the Trustees or the shareholders of a Fund, and, in either case, by a majority of the Trustees who are not "interested persons" of Commonwealth Advisors (or Commonwealth). In such a case, the vote of the shareholders is the affirmative vote of a "majority of the outstanding voting securities" as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Commonwealth Advisors and Commonwealth may place portfolio transactions with broker-dealers which furnish, without cost, certain research, statistical, and quotation services of value to them and their affiliates in advising the Funds and other clients, provided that they will always seek best price and execution with respect to transactions. Certain investments may be appropriate for a Fund and for other clients advised by Commonwealth Advisors and Commonwealth. Investment decisions for a Fund and other clients are made with a view to achieving their respective investment objectives and after consideration of such factors as their current holdings, availability of cash for investment, and the size of their investments generally. Frequently, a particular security may be bought or sold for only one client or in different amounts and at different times for more than one but less than all clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In addition, purchases or sales of the same security may be made for two or more clients of Commonwealth Advisors or Commonwealth on the same day. In such event, such transactions will be allocated among the clients in a manner believed by Commonwealth Advisors or Commonwealth to be equitable to each. In some cases, this procedure could have an adverse effect on the price or amount of the securities purchased or sold by a Fund. Purchase and sale orders for a Fund may be combined with those of other clients of Commonwealth Advisors or Commonwealth, as the case may be, in the interest of achieving the most favorable net results for the Fund. Brokerage and Research Services. Transactions on U.S. stock exchanges and other agency transactions involve the payment by a Fund of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign securities often involve the payment of fixed brokerage commissions, which are generally 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 a Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by a Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. Commonwealth Advisors and/or Commonwealth place all orders for the purchase and sale of portfolio securities for the Funds and buy and sell securities for the Funds through a substantial number of brokers and dealers. In so doing, they use their best efforts to obtain for the Funds the best price and execution available. In seeking the best price and execution, Commonwealth Advisors and/or Commonwealth, having in mind the Funds' best interests, consider all factors they deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, the -13- 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. 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 research, statistical, and quotation services from broker-dealers which execute portfolio transactions for the clients of such advisers. Consistent with this practice, Commonwealth Advisors and Commonwealth may receive research, statistical, and quotation services from many broker-dealers with which they place a Fund's portfolio transactions. These services, which in some cases may also be purchased for cash, include such matters as general economic and security market reviews, industry and company reviews, evaluations of securities, and recommendations as to the purchase and sale of securities. Some of these services are of value to Commonwealth Advisors, Commonwealth, and their affiliates in advising various of their clients (including the Funds), although not all of these services are necessarily useful and of value in managing the Funds. The management fees paid by the Funds are not reduced because Commonwealth Advisors, Commonwealth, and their affiliates receive such services. As permitted by Section 28(e) of the Securities Exchange Act of 1934, and by the Management Contract and the Subadviser Contract, Commonwealth Advisors or Commonwealth, respectively, may cause a Fund to pay a broker-dealer which provides brokerage and research services to Commonwealth Advisors or Commonwealth an amount of disclosed commission for effecting a securities transaction for that Fund in excess of the commission which another broker-dealer would have charged for effecting that transaction. Commonwealth Advisors' or Commonwealth's authority to cause a Fund to pay any such greater commissions in also subject to such policies as the Trustees may adopt from time to time. Brokerage Commissions. It is anticipated that most purchases and sales of portfolio investments will be with the issuer or with major dealers in money market instruments acting as principal. Accordingly, it is not anticipated that the Funds will pay significant brokerage commissions. In underwritten offerings, the price paid by a Fund includes a disclosed, fixed commission or discount retained by the underwriter. There is generally no stated commission in the case of securities purchased from or sold to dealers, but the prices of such securities usually include an undisclosed dealer's mark-up or mark-down. None of the Funds incurred brokerage or underwriting commissions in the 1994 fiscal period or the 1995 or 1996 fiscal years. DETERMINATION OF NET ASSET VALUE The net asset value per share of each Fund is determined twice each day as of 12:00 noon and as of the close of regular trading (generally 4:00 p.m. New York time) on each day the New York Stock Exchange is open for trading. The New York Stock Exchange is normally closed on the following national holidays: New Year's Day, President's Day, Good -14- Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. The valuation of each 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, each 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 a Fund would receive if it sold the instrument. During periods of declining interest rates, the quoted yield on shares of a 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 a Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in that 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 a Fund would receive less investment income. The converse would apply on a day when the use of amortized cost by a 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 a Fund's portfolio instruments at amortized cost is permitted by Securities and Exchange Commission Rule 2a-7 and certain procedures adopted by the Trustees. Under these procedures, a 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 extent reasonably possible, a Fund's price per share as computed for the purpose of distribution, redemption and repurchase at $1.00. In the event Commonwealth Advisors or Commonwealth determines that a deviation in net asset value from $1.00 per share may result in material dilution or is otherwise unfair to existing shareholders, it will take such corrective action as it believes necessary and appropriate, including informing the President of the Trust; 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 a Fund is declared as a dividend each time it is determined, the net asset value per share of a 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 a Fund representing the reinvestment of dividend income is reflected by an increase in the number of shares of a 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 a Fund's net income will be positive each time it is determined. However, if because of realized -15- losses on sales of portfolio investments, a sudden rise in interest rates, or for any other reason the net income of a Fund determined at any time is a negative amount, a 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 a 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 his or her investment in a Fund. Should a Fund incur or anticipate, with respect to its respective portfolio, 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. The proceeds received by each 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 such Fund, and constitute the underlying assets of that Fund. The underlying assets of each Fund will be segregated on the Trust's books of account, and will be charged with the liabilities in respect of such Fund and with a share of the general liabilities of the Trust. Expenses with respect to any two or more Funds may be allocated in proportion to the net asset values of the respective Funds except where allocations of direct expenses can otherwise be fairly made. TAXES Each Fund of the Trust intends to qualify each year and elect to be taxed as a regulated investment company under Subchapter M of the United States Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company qualifying to have its tax liability determined under Subchapter M, a 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 its shareholders. As series of Massachusetts business trust, the Funds under present law will not be subject to any excise or income taxes in Massachusetts. Other than dividends from Cash Resource Tax-Exempt Money Market Fund that are excludable from income, distributions from a Fund will be taxable to a shareholder whether -16- received in cash or additional shares. Such distributions that are designated as capital gains distributions will be taxable as such, regardless of how long Fund shares are held, while other taxable distributions will be taxed as ordinary income. Loss on the sale of Fund shares held for less than six months will be treated as a long term capital loss to the extent of any capital gain distribution received with respect to such shares (and will be disallowed to the extent of exempt-interest dividends received with respect to such shares). Also interest on indebtedness incurred to purchase shares of Cash Resource Tax-Exempt Money Market Fund may be nondeductible. In order to qualify as a "regulated investment company," a 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 gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of certain assets (including stock and securities) held less than three months; (c) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the value of its total assets consists of cash, cash items, U.S. Government Securities, and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of a 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 of any issuer (other than U.S. Government Securities). In order to receive the favorable tax treatment accorded regulated investment companies and their shareholders, moreover, a Fund must in general distribute at least 90% of its interest, dividends, net short-term capital gain, and certain other income each year. To satisfy these requirements, a Fund may engage in investment techniques that affect the amount, timing and character of its income and distributions. An excise tax at the rate of 4% will be imposed on the excess, if any, of each 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. Each Fund intends to make distributions sufficient to avoid imposition of the excise tax. Distributions declared by a 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. Each 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 a Fund is notified that the shareholder has underreported income in the past, or who fails to certify to a 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 -17- Fund with a proper certification. Exempt-interest dividends. A Fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Fund's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that a Fund properly designates as exempt-interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If a Fund intends to be qualified to pay exempt-interest dividends, the Fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of a Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of a Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users. A Fund which is qualified to pay exempt-interest dividends will inform investors within 60 days of the Fund's fiscal year-end of the percentage of its income distributions designated as tax-exempt. The percentage is applied uniformly to all distributions made during the year. The percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of a Fund's income that was tax-exempt during the period covered by the distribution. Securities issued or purchased at a discount. A Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, a Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. 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 -18- 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). DISTRIBUTION Mentor Distributors, Inc. is the principal underwriter of the continually offered shares of each of the Funds pursuant to a Distribution Agreement with the Trust. Mentor Distributors is not obligated to sell any specific amount of shares of any Fund and will purchase shares of a Fund for resale only against orders for shares. The Trust, on behalf of each Fund, has adopted a Distribution Plan and Agreement pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan"). The purpose of each Plan is to permit a Fund to compensate Mentor Distributors for services provided and expenses incurred by it in promoting the sale of shares of the Funds, reducing redemptions, or maintaining or improving services provided to shareholders. Each Plan provides for payments by each Fund to Mentor Distributors at the annual rate of up to 0.38% of the Fund's average net assets (0.33% in the case of Cash Resource Tax-Exempt Money Market Fund), subject to the authority of the Trustees to reduce the amount of payments or to suspend the Plans as to any Fund for such periods as they may determine. Subject to these limitations, the amount of such payments and the specific purposes for which they are made shall be determined by the Trustees. For the periods indicated, each Fund paid the following amounts to Mentor Distributors under its respective Plan:
December 20, 1993 Fiscal year Fiscal year (Commencement of operations) ended ended to July 31, 1994 July 31, 1995 July 31, 1996 ------------------------------------ ------------- ------------- Cash Resource Money Market Fund $ 457,505 $1,060,999 $2,042,872 Cash Resource U.S. Government Money Market Fund $2,212,290 $3,764,477 $5,015,877 Cash Resource Tax-Exempt Money Market Fund $ 420,006 $ 729,833 $ 948,202
-19- Mentor Distributors paid distribution expenses to Financial Institutions (including affiliates of Mentor Distributors qualifying as Financial Institutions) in respect of the Funds as follows:
December 20, 1993 Fiscal year Fiscal year (Commencement of operations) ended ended to July 31, 1994 July 31, 1995 July 31, 1996 ------------------------------------ ------------- ------------- Cash Resource Money Market Fund $ 474,834 $1,060,999 $2,042,872 Cash Resource U.S. Government Money Market Fund $2,326,017 $3,764,477 $5,015,877 Cash Resource Tax-Exempt Money Market Fund $ 431,813 $ 729,833 $ 948,202
Continuance of a Plan is subject to annual approval by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of the Plan and related agreements (the "Qualified Trustees"), cast in person at a meeting called for that purpose. All material amendments to a Plan must be likewise approved by the Trustees and the Qualified Trustees. A Plan may not be amended in order to increase materially the costs which a Fund may bear for distribution pursuant to the Plan without also being approved by a majority of the outstanding voting securities of that Fund. Each Plan terminates automatically in the event of its assignment and may be terminated as to any Fund without penalty, at any time, by a vote of a majority of the outstanding voting securities of the Fund or by a vote of a majority of the Qualified Trustees. In order to compensate selected financial institutions, such as investment dealers and banks through which shares of each Fund are sold ("Financial Institutions") for services provided in connection with sales of shares of each Fund and/or for administrative services and the maintenance of shareholder accounts, Mentor Distributors may make periodic payments to qualifying Financial Institutions based on the average net asset value of shares of a Fund which are attributable to shareholders for whom the Financial Institutions are designated as the dealer of record. Mentor Distributors may make such payments at the annual rate of up to 0.40% of the average net asset value of such shares (0.33% in the case of Cash Resource Tax-Exempt Money Market Fund). For this purpose, "average net assets" attributable to a shareholder account means the product of (i) the average daily share balance of the Fund account times (ii) the Fund's average daily net asset value per share. For administrative reasons, Mentor Distributors may enter into agreements with certain Financial Institutions providing for the calculation of "average net assets" on the basis of assets of the accounts of the Financial Institutions' customers on an established day in this period. Mentor Distributors may suspend or modify these payments at any time, and payments are subject to the continuation of the Fund's Distribution Plan described above and the terms of related agreements between Financial Institutions and Mentor Distributors. -20- ORGANIZATION The Trust is an open-end investment company established under the laws of The Commonwealth of Massachusetts by Agreement and Declaration of Trust dated June 14, 1993. Shares entitle their holders to one vote per share, with fractional shares voting proportionally; however, separate votes will be taken by each Fund on matters affecting an individual Fund. Additionally, approval of the Management Contract is a matter to be determined separately by each Fund. Shares have noncumulative voting rights. Although a Fund is 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 Declaration of Trust. Shares have no preemptive or subscription rights, and are transferable. Shares are entitled to dividends as declared by the Trustees, and if a Fund were liquidated, the shares of that Fund would receive the net assets of that Fund. The Trust may suspend the sale of shares at any time and may refuse any order to purchase shares. Additional Funds may be created from time to time with different investment objectives. Any additional Funds may be managed by investment advisers or sub-advisers other than Commonwealth Advisors or Commonwealth. In addition, the Trustees have the right, subject to any necessary regulatory approvals, to create more than one class of shares in a Fund, with the classes being subject to different charges and expenses and having such other different rights as the Trustees may prescribe and to terminate any Fund of the Trust. PORTFOLIO TURNOVER The portfolio turnover rate of a Fund is defined by the Securities and Exchange Commission as the ratio of the lesser of annual sales or purchases to the monthly average value of the portfolio, excluding from both the numerator and the denominator securities with maturities at the time of acquisition of one year or less. Under that definition, the Funds will have no portfolio turnover. Portfolio turnover generally involves some expense to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. CUSTODIAN Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri 64105, is the custodian of the Trust's assets. The custodian's responsibilities include safeguarding and controlling the Trust's cash and securities, handling the receipt and delivery of securities, and collecting interest and dividends on the Trust's investments. The custodian does not determine the investment policies of the Trust or decide which securities the Trust will buy or sell. -21- INDEPENDENT AUDITORS KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts 02110, are the Trust's independent auditors, providing audit services, tax return preparation, and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. PERFORMANCE INFORMATION Based on the seven-day period ended July 31, 1996, Cash Resource Money Market Fund's yield was 4.66% and its effective yield was 4.77%. Based on the seven-day period ended July 31, 1996, Cash Resource U.S. Government Money Market Fund's yield was 4.47% and its effective yield was 4.57%. See below for information on how these Funds' yields and effective yields are calculated. Based on the seven-day period ended July 31, 1996, Cash Resource Tax-Exempt Money Market Fund's tax-exempt yield was 2.79%, and its tax-exempt effective yield was 2.83%. A shareholder in a 31.00% federal tax bracket would have to earn 4.04% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt yield of 2.79% and an effective yield of 4.10% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt effective yield of 2.83%. See below for information on how the Fund's tax-exempt yield and tax-exempt effective yield are calculated. The yield of each Fund is computed by determining the percentage net change, excluding capital changes, in the value of an investment in one share of such Fund over the base period, and multiplying the net change by 365/7 (or approximately 52 weeks). A 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. In the case of Cash Resource Tax-Exempt Money Market Fund, the Fund's tax-equivalent yield during the base period may be presented for shareholders in one or more stated tax brackets. Tax-equivalent yield is calculated by adjusting the Fund's tax-exempt yield by a factor designed to show the approximate yield that a taxable investment would have to earn to produce an after-tax yield equal, for that shareholder, to the Fund's tax-exempt yield. The Fund's tax-equivalent yield will differ for shareholders in other tax brackets. -22- EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES FOR THE CASH RESOURCE TAX-EXEMPT MONEY MARKET FUND The table below shows the effect of the tax status of Tax-Exempt Securities on the effective yield received by their individual holders under the federal income tax laws currently in effect for 1996. It gives the approximate yield a taxable security must earn at various income levels to produce after-tax yields equivalent to those of Tax-Exempt Securities yielding from 2.0% to 10.0%.
- ----------------------------------------------------------------------------------------------------------------------- Marginal Taxable Income* federal Tax-exempt yield ______________ income _____________________________________________________________________ tax** Joint Single Rate 2% 3% 4% 5% 6% 7% 8% 9% 10% - ----------------------------------------------------------------------------------------------------------------------- Equivalent taxable yield - ----------------------------------------------------------------------------------------------------------------------- $0 - 40,100 $0 - 24,000 15.00% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% 40,101 - 96,900 24,001 - 58,150 28.00% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% 96,901 - 147,700 58,151 - 121,300 31.00% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49% 147,701 - 263,750 121,301 - 263,750 36.00% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% over 263,750 over 263,750 39.60% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25% 14.90% 16.56%
- ------------------ * This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code"), after any deduction for personal exemptions and the greater of the standard deduction or itemized deductions. ** These rates are the marginal federal income tax rates on taxable income currently in effect for 1996 under the Code. Of course, there is no assurance that the Tax-Exempt Money Market Fund will achieve any specific tax-exempt yield. While it is expected that the Tax-Exempt Money Market Fund will invest principally in obligations which pay interest exempt from federal income tax, other income received by the Tax-Exempt Money Market Fund may be taxable. The table does not take into account any state or local taxes payable on Tax-Exempt Money Market Fund distributions. -23- From time to time, the Adviser may reduce its compensation or assume expenses of a Fund in order to reduce a Fund's expenses, as described in the Trust's current prospectus. Any such waiver or assumption would increase that Fund's yield during the period of the waiver or assumption. Independent statistical agencies measure a Fund's investment performance and publish comparative information showing how the Fund, and other investment companies, performed in specified time periods. Three agencies whose reports are commonly used for such comparisons are set forth below. From time to time, a Fund may distribute these comparisons to its shareholders or to potential investors. The agencies listed below measure performance based on their own criteria rather than on the standardized performance measures described in the preceding section. Lipper Analytical Services, Inc. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, reflecting generally changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, for example year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category. Morningstar, Inc. distributes mutual fund ratings twice a month. the ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund's historical risk/reward ratio relative to other funds with similar objectives. The performance factor is a weighted-average assessment of the Fund's 3-year, 5-year, and 10-year total return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard & Poor's Corporation and Moody's Investor Service, Inc. Weisenberger's Management Results publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year performance. Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees. Independent publications may also evaluate a Fund's performance. Certain of those publications are listed below, at the request of Mentor Distributors, which bears full responsibility for their use and the descriptions appearing below. From time to time any or all of the Funds may distribute evaluations by or excerpts from these publications to its shareholders or to potential investors. The following illustrates the types of information provided by these publications. -24- Business Week publishes mutual fund rankings in its Investment Figures of the Week column. The rankings are based on 4-week and 52-week total return reflecting changes in net asset value and the reinvestment of all distributions. They do not reflect deduction of any sales charges. Funds are not categorized; they compete in a large universe of over 2,000 funds. The source for rankings is data generated by Morningstar, Inc. Investor's Business Daily publishes mutual fund rankings on a daily basis. The rankings are depicted as the top 25 funds in a given category. The categories are based loosely on the type of fund, e.g., growth funds, balanced funds, U.S. government funds, GNMA funds, growth and income funds, corporate bond funds, etc. Performance periods for sector equity funds can vary from 4 weeks to 39 weeks; performance periods for other fund groups vary from 1 year to 3 years. Total return performance reflects changes in net asset value and reinvestment of dividends and capital gains. The rankings are based strictly on total return. They do not reflect deduction of any sales charges Performance grades are conferred from A+ to E. An A+ rating means that the fund has performed within the top 5% of a general universe of over 2000 funds; an A rating denotes the top 10%; an A- is given to the top 15%, etc. Barron's periodically publishes mutual fund rankings. The rankings are based on total return performance provided by Lipper Analytical Services. The Lipper total return data reflects changes in net asset value and reinvestment of distributions, but does not reflect deduction of any sales charges. The performance periods vary from short-term intervals (current quarter or year-to-date, for example) to long-term periods (five-year or ten-year performance, for example). Barron's classifies the funds using the Lipper mutual fund categories, such as Capital Appreciation Funds, Growth Funds, U.S. Government Funds, Equity Income Funds, Global Funds, etc. Occasionally, Barron's modifies the Lipper information by ranking the funds in asset classes. "Large funds" may be those with assets in excess of $25 million; "small funds" may be those with less than $25 million in assets. The Wall Street Journal publishes its Mutual Fund Scorecard on a daily basis. Each Scorecard is a ranking of the top-15 funds in a given Lipper Analytical Services category. Lipper provides the rankings based on its total return data reflecting changes in net asset value and reinvestment of distributions and not reflecting any sales charges. The Scorecard portrays 4-week, year-to-date, one-year and 5-year performance; however, the ranking is based on the one-year results. The rankings for any given category appear approximately once per month. Fortune magazine periodically publishes mutual fund rankings that have been compiled for the magazine by Morningstar, Inc. Funds are placed in stock or bond fund categories (for example, aggressive growth stock funds, growth stock funds, small company stock funds, junk bond funds, Treasury bond funds etc.), with the top-10 stock funds and the top-5 bond funds appearing in the rankings. The rankings are based on 3-year annualized total return reflecting changes in net asset value and reinvestment of distributions and not -25- reflecting sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. Money magazine periodically publishes mutual fund rankings on a database of funds tracked for performance by Lipper Analytical Services. The funds are placed in 23 stock or bond fund categories and analyzed for five-year risk adjusted return. Total return reflects changes in net asset value and reinvestment of all dividends and capital gains distributions and does not reflect deduction of any sales charges. Grades are conferred (from A to E): the top 20% in each category receive an A, the next 20% a B, etc. To be ranked, a fund must be at least one year old, accept a minimum investment of $25,000 or less and have had assets of at least $25 million as of a given date. Financial World publishes its monthly Independent Appraisals of Mutual Funds, a survey of approximately 1000 mutual funds. Funds are categorized as to type, e.g., balanced funds, corporate bond funds, global bond funds, growth and income funds, U.S. government bond funds, etc. To compete, funds must be over one year old, have over $1 million in assets, require a maximum of $10,000 initial investment, and should be available in at least 10 states in the United States. The funds receive a composite past performance rating, which weighs the intermediate - and long-term past performance of each fund versus its category, as well as taking into account its risk, reward to risk, and fees. An A+ rated fund is one of the best, while a D- rated fund is one of the worst. The source for Financial World rating is Schabacker investment management in Rockville, Maryland. Forbes magazine periodically publishes mutual fund ratings based on performance over at least two bull and bear market cycles. The funds are categorized by type, including stock and balanced funds, taxable bond funds, municipal bond funds, etc. Data sources include Lipper Analytical Services and CDA Investment Technologies. The ratings are based strictly on performance at net asset value over the given cycles. Funds performing in the top 5% receive an A+ rating; the top 15% receive an A rating; and so on until the bottom 5% receive an F rating. Each fund exhibits two ratings, one for performance in "up" markets and another for performance in "down" markets. Kiplinger's Personal Finance Magazine (formerly Changing Times), periodically publishes rankings of mutual funds based on one-, three- and five-year total return performance reflecting changes in net asset value and reinvestment of dividends and capital gains and not reflecting deduction of any sales charges. Funds are ranked by tenths: a rank of 1 means that a fund was among the highest 10% in total return for the period; a rank of 10 denotes the bottom 10%. Funds compete in categories of similar funds -- aggressive growth funds, growth and income funds, sector funds, corporate bond funds, global governmental bond funds, mortgage-backed securities funds, etc. Kiplinger's also provides a risk-adjusted grade in both rising and falling markets. Funds are graded against others with the same objective. The average weekly total return over two years is calculated. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. -26- U.S. News and World Report periodically publishes mutual fund rankings based on an overall performance index (OPI) devised by Kanon Bloch Carre & Co., a Boston research firm. Over 2000 funds are tracked and divided into 10 equity, taxable bond and tax-free bond categories. Funds compete within the 10 groups and three broad categories. The OPI is a number from 0-100 that measures the relative performance of funds at least three years old over the last 1, 3, 5 and 10 years and the last six bear markets. Total return reflects changes in net asset value and the reinvestment of any dividends and capital gains distributions and does not reflect deduction of any sales charges. Results for the longer periods receive the most weight. The 100 Best Mutual Funds You Can Buy (1992), authored by Gordon K. Williamson. The author's list of funds is divided into 12 equity and bond fund categories, and the 100 funds are determined by applying four criteria. First, equity funds whose current management teams have been in place for less than five years are eliminated. (The standard for bond funds is three years.) Second, the author excludes any fund that ranks in the bottom 20 percent of its category's risk level. Risk is determined by analyzing how many months over the past three years the fund has underperformed a bank CD or a U.S. Treasury bill. Third, a fund must have demonstrated strong results for current three-year and five-year performance. Fourth, the fund must either possess, in Mr. Williamson's judgment, "excellent" risk-adjusted return or "superior" return with low levels of risk. Each of the 100 funds is ranked in five categories: total return, risk/volatility, management, current income and expenses. The rankings follow a five-point system: zero designates "poor"; one point means "fair"; two points denote "good"; three points qualify as a "very good"; four points rank as "superior"; and five points mean "excellent. 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. 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 -27- PNC Institutional Management Corporation. She has her undergraduate degree in commerce and business administration from the University of Alabama. 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 Trustee. The Agreement and Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any shareholder held personally liable for the obligations of a Fund. Thus the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. -28- FINANCIAL STATEMENTS Cash Resource Trust Money Market Fund Portfolio of Investments July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Bankers Acceptances 5.98% Nationsbank Corporation, 5.39%, 8/07/96 $14,000 $ 13,987 Nationsbank of Texas, 5.31%, 11/15/96 5,000 4,922 Wachovia Bank, 5.42%, 10/29/96 20,000 19,732 Total Bankers Acceptances 38,641 Bank Notes 6.18% Bank of America, 5.54%, 10/15/96 20,000 20,000 First of America, 4.98%, 12/19/96 20,000 19,956 Total Bank Notes 39,956 Certificates of Deposit 3.09% First Alabama Bank, 5.37%, 8/05/96 5,000 5,000 First Alabama Bank, 5.47%, 9/09/96 15,000 15,000 Total Certificates of Deposit 20,000 Commercial Paper 65.96% Apparel & Accessory Stores 3.08% J.C. Penney Funding Corporation, 5.29%, 9/06/96 20,000 19,894 Asset Backed Securities 6.17% CIESCO Limited Partnership, 5.36%, 8/07/96 15,000 14,987 Greenwich Funding Corporation, 5.37%, 8/20/96 (a) 25,000 24,929 Total Asset Backed Securities 39,916 Commercial Banks 17.62% ABN-Amro North America Finance, Inc., 5.32%, 11/08/96 10,000 9,854 ABN-Amro North America Finance, Inc., 5.30%, 11/12/96 10,000 9,848 Abbey National North America, 5.29%, 11/20/96 20,000 19,674 Bank of New York, 5.42%, 9/24/96 20,000 19,837 Mellon Financial Company, 5.36%, 8/15/96 20,000 19,958 Nationsbank Corporation, 5.26%, 8/15/96 10,000 9,980 Svenska Handelsbanken, 5.50%, 10/09/96 25,000 24,736 Total Commercial Banks 113,887
3 Cash Resource Trust Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Commercial Paper (continued) Electric Services 4.97% National Rural Utilities, 5.37%, 8/19/96 $20,000 $ 19,946 Rincon Securities, Inc., 5.37%, 8/28/96 1,250 1,245 Rincon Securities, Inc., 5.35%, 9/06/96 5,000 4,973 Rincon Securities, Inc., 5.38%, 9/09/96 6,000 5,965 Total Electric Services 32,129 Insurance Agents, Brokers & Service 3.06% International Nederlanden, 5.42%, 10/21/96 10,000 9,878 International Nederlanden U.S. Insurance Holdings, Inc., 5.41%, 9/17/96 10,000 9,929 Total Insurance Agents, Brokers & Service 19,807 Metal Mining 3.86% North Financial, 5.40%, 8/13/96 25,000 24,955 Oil and Gas Field Exploration Services 1.54% Statoil, 5.30%, 8/28/96 10,000 9,960 Personal Credit Institutions 7.69% American Express, 5.30%, 8/21/96 20,000 19,941 Ford Motor Credit Company, 5.43%, 9/06/96 20,000 19,892 Ford Motor Credit Company, 5.42%, 10/17/96 10,000 9,884 Total Personal Credit Institutions 49,717 Rental & Leasing 3.04% General Electric Capital, 5.24%, 8/30/96 7,000 6,970 General Electric Capital, 5.35%, 1/21/97 13,000 12,666 Total Rental & Leasing 19,636 Security Brokers & Dealers 11.85% Bear Stearns Company, 5.40%, 9/13/96 20,000 19,871 CS First Boston, Inc., 5.33%, 8/27/96 17,000 16,935 CS First Boston, Inc., 5.40%, 9/11/96 10,000 9,939 Merrill Lynch & Company, Inc., 5.45%, 9/06/96 30,000 29,837 Total Security Brokers & Dealers 76,582
4 Cash Resource Trust Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Commercial Paper (continued) Tobacco Products 3.08% Philip Morris, 5.38%, 9/09/96 $20,000 $ 19,884 Total Commercial Paper 426,367 Corporate Obligations 2.32% Dupont E I De Nemours, 5.80%, 12/12/96 9,000 9,007 Walker & Associates, 5.54%, 07/01/11 (b) 6,000 6,000 Total Corporate Obligations 15,007 U.S. Government Securities and Agencies 7.75% U.S. Treasury Note, 7.50%, 01/31/97 10,000 10,109 Federal Home Loan Bank, 5.31%-5.67%, 12/23/96-2/14/97 (b) 15,000 15,000 Student Loan Marketing Association, 5.51%-5.54%, 11/24/97-2/22/99 (b) 25,000 24,998 Total U.S. Government Securities and Agencies 50,107 Repurchase Agreement 9.95% Goldman, Sachs & Company Dated 7/31/96, 5.65%, due 8/01/96, collateralized by $66,828 Federal National Mortgage Association, 7.50%, 3/01/26 64,345 64,345 Total Investments (cost $654,423) (d) 101.23% 654,423 Other Assets less Liabilities (1.23%) (7,923) Net Assets 100.00% $646,500
See notes to portfolios of investments. 5 Cash Resource Trust U.S. Government Money Market Fund Portfolio of Investments July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) U.S. Government Securities and Agencies 59.65% Federal Home Loan Bank 5.22%-5.36%, 10/16/96-2/19/97 $ 133,340 $ 130,837 5.31%-5.54%, 2/14/97-2/16/99 (b) 42,000 42,000 Federal Home Loan Mortgage Corporation 5.25%-5.36%, 8/05/96-10/23/96 225,459 224,838 Federal National Mortgage Association 5.17%-5.37%, 8/09/96-10/24/96 234,700 232,912 Student Loan Marketing Association 5.51%-5.55%, 10/14/97-2/08/99 (b) 105,000 104,998 U.S. Treasury Notes 6.50%-7.50%, 11/30/96-1/31/97 100,000 100,962 Total U.S. Government Securities and Agencies 836,547 Repurchase Agreements 40.55% Chase Securities, Inc. Dated 7/31/96, 5.65%, due 8/01/96, collateralized by $61,596 Federal National Mortgage Association, 7.00%-9.00%, 3/01/25-6/01/26 60,000 60,000 First Union Corporation Dated 7/31/96, 5.66%, due 8/01/96, collateralized by $34,444 U.S. Treasury Notes, 11.25%, 2/15/15 50,000 50,000 Goldman, Sachs & Company Dated 7/31/96, 5.65%, due 8/01/96, collateralized by $185,618 Federal National Mortgage Association, 7.50%, 3/01/26 178,721 178,721 Lehman Brothers, Inc. Dated 7/31/96, 5.68%, due 8/01/96, collateralized by $57,716 Federal National Mortgage Association, 9.00%-9.50%, 5/01/22-3/01/25 60,000 60,000 Merrill Lynch, Pierce, Fenner & Smith, Inc. Dated 7/31/96, 5.69%, due 8/01/96, collateralized by $35,748 Federal Home Loan Mortgage Corporation 7.00%, 11/01/25 and $27,504 Federal National Mortgage Association 7.50%, 12/01/25 60,000 60,000
6 Cash Resource Trust U.S. Government Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Repurchase Agreements (continued) Paine Webber, Inc. Dated 7/31/96, 5.68%, due 8/01/96, collateralized by $43,420 Federal National Mortgage Association, 7.00%, 6/01/23 and $20,638 Government National Mortgage Association, 7.00%, 7/15/25 $ 60,000 $ 60,000 United Bank of Switzerland Dated 7/31/96, 5.68%, due 8/01/96, collateralized by $61,267 Federal Home Loan Mortgage Corporation, 6.50%-7.00%, 1/01/24-2/01/24 and $45,330 Federal National Mortgage Association-Strips, 6.50%-7.00%, 12/01/10-2/01/26 100,000 100,000 Total Repurchase Agreements 568,721 Total Investments (cost $1,405,268) (d) 100.20% 1,405,268 Other Assets less Liabilities (0.20%) (2,871) Net Assets 100.00% $1,402,397
See notes to portfolios of investments. 7 Cash Resource Trust Tax-Exempt Money Market Fund Portfolio of Investments July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Variable Rate Tax-Exempt Demand Securities (b) 43.53% Alabama 2.20% University of Alabama Board of Trustees, 3.60%, 10/01/13 $ 6,400 $ 6,400 Arizona 6.46% Apache County IDA Tucson Electric Power Company Project, 3.65%, 6/15/20 10,000 10,000 Coconino City Tuscon Gas & Electric Service PCR Series A, 3.70%, 5/01/31 8,800 8,800 18,800 Colorado 2.54% Colorado Housing Finance Authority Series 1985, 3.60%, 5/01/97 7,400 7,400 Illinois 4.51% Chicago O'Hare International Airport American Airlines Series 1983C, 3.70%, 1/01/18 2,000 2,000 Illinois DFA Grayhill, Inc. Project IDR, 3.75%, 2/01/05 3,150 3,150 Illinois DFA Flinn Scientific Project, 3.75%, 10/01/15 4,760 4,760 Illinois HFA West Suburban Hospital, 3.65%, 7/01/05 3,200 3,200 13,110 Maryland 4.44% Anne Arundel County Oakland Hills Project, 3.65%, 5/15/15 2,052 2,052 Howard County Revenue Bond, Harmony Hall, Inc. Project, 3.65%, 10/01/10 2,868 2,868 Maryland State Health & Higher Education, Series B, 3.65%, 4/01/35 8,000 8,000 12,920 Michigan 0.69% Michigan State Strategic Fund, 3.75%, 2/01/09 2,000 2,000
8 Cash Resource Trust Tax-Exempt Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Variable Rate Tax-Exempt Demand Securities (b) (continued) North Carolina 5.16% Durham County Water & Sewer, 3.65%, 12/01/15 $ 4,800 $ 4,800 Lincoln County Industrial Facility PCR Series 1994, 3.80%, 8/01/09 6,000 6,000 North Carolina Educational Facilities Bowman Grey School, 3.55%, 9/01/20 4,200 4,200 15,000 New Mexico 0.70% Albuquerque Greater Receipts Tax, 3.65%, 7/01/22 2,050 2,050 Tennessee 0.77% Nashville and Davidson County Health and Education Facility, 3.65%, 5/01/20 2,224 2,224 Texas 2.13% North Texas Higher Education Student Loan Revenue Refund, Series 1991F, 3.65%, 4/01/20 4,000 4,000 Panhandle Plains Student Loan Revenue Series A, 3.65%, 6/01/21 1,300 1,300 Texas Education Authority Series 1985B, 3.60%, 12/01/25 885 885 6,185 Virginia 11.39% Arlington County Ballston Public Parking, 3.60%, 8/01/17 3,650 3,650 Botetourt County IDR Emkay Holdings Project, 3.60%, 10/01/05 2,700 2,700 Capital Regional Airport Series 1995C, 3.70%, 7/01/23 4,000 4,000 Chesterfield County IDR Midlothian Hotel Partnership, 3.65%, 12/01/14 6,344 6,344 Hampton Roads Regional Jail Series 1996B, 3.60%, 7/01/16 4,000 4,000 Hanover County IDR Carter Machinery, 3.65%, 11/01/98 500 500
9 Cash Resource Trust Tax-Exempt Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Variable Rate Tax-Exempt Demand Securities (b) (continued) Virginia (continued) Henrico County IDA Hermitage Project, 3.60% -- 3.65%, 5/01/24 $ 3,700 $ 3,700 Lynchburg IDA Mid-Atlantic Series G, 3.55%, 12/01/25 500 500 Richmond IDB Commonwealth Park, 3.70%, 11/01/07 1,364 1,364 Roanoke IDR Quibell Corporate Project, 3.65%, 9/01/15 292 292 Spotsylvania City IDA Residential Care Facilities, 3.65%, 10/01/20 4,684 4,684 Tazewell County IDR, 4.00%, 1/01/03 1,000 1,000 Virginia Beach Revenue Bond, 3.65%, 9/01/09 410 410 33,144 Wisconsin 0.65% Village of Pleasant Prairie Muskie Enterprise Project, Series 1995, 3.75%, 5/01/15 1,900 1,900 Wyoming 1.89% Lincoln County Exxon Series B, 3.65%, 11/01/14 1,500 1,500 Sweetwater County PCR Pacific Corporation Project Series A, 3.50%, 7/01/15 4,000 4,000 5,500 Total Variable Rate Tax-Exempt Demand Securities 126,633 Other Tax-Exempt Securities 56.80% Alabama 0.95% IDB of Fairfield USX Corporation Project, Series 1995, 3.55%, 10/01/96 2,775 2,775 Arizona 0.17% Scottsdale IDA Memorial Hospital Series A, 3.70%, 9/01/96 485 485
10 Cash Resource Trust Tax-Exempt Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Other Tax-Exempt Securities (continued) Colorado 1.04% State of Colorado General Fund TRANS Series A, 4.50%, 6/27/97 $ 3,000 $ 3,017 Florida 3.61% City of Jacksonville Series A, 3.40%, 9/10/96 5,000 5,000 Putnam County Development Authority Seminole Electric Series 1984, 3.50%, 12/15/96 3,000 3,000 Sunshine State Government Finance Commission Series 1986 Revenue Bond, 3.60%, 10/17/96 2,500 2,500 10,500 Georgia 1.72% Dekalb County TRANS, 3.75%, 12/31/96 5,000 5,012 Illinois 2.99% Chicago Illinois GO Tender Note, 3.10%, 2/04/97 2,300 2,300 City of Chicago GO Tender Notes Series 1995A, 3.65%, 10/31/96 6,400 6,400 8,700 Kentucky 0.86% Pulaski County Solid Waste Project, Series B, 3.20%, 8/15/96 2,500 2,500 Louisiana 2.23% Plaquemines Port Harbor Series C, 3.70%, 10/22/96 6,500 6,500 Maryland 0.69% Baltimore City Public Improvement, 3.40%, 8/15/96 2,000 2,000 Michigan 2.75% State of Michigan GO Note RANS, 4.00%, 9/30/96 3,000 3,004 Michigan State, Underground Storage Tank Financial Assurance Series I, 3.45%, 8/15/96 5,000 5,000 8,004
11 Cash Resource Trust Tax-Exempt Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Other Tax-Exempt Securities (continued) Minnesota 1.43% Rochester Health Care Series C, 3.60%, 8/15/96 $ 3,010 $ 3,010 University of Minnesota Revenue Bond, 3.25%, 8/01/96 1,150 1,150 4,160 Mississippi 0.79% Claiborne County PCR, 3.50%, 9/24/96 2,300 2,300 North Carolina 7.87% North Carolina Power Agency Series B, 3.10%, 8/13/96 10,000 10,000 Wake County Industrial Facility Series 1990A, 3.70%-3.80%, 8/12/96-8/20/96 12,900 12,900 22,900 New York 1.04% New York City TRANS Series A, 4.50%, 2/12/97 3,000 3,012 South Carolina 4.47% York County PCR Series 1984N-3, 3.25%, 9/15/96 8,000 8,000 Beaufort County School District BANS Series 1995, 4.13%, 8/15/96 5,000 5,001 13,001 Texas 13.97% Brazos Harbor Industrial Development Series 1986, 3.65%, 8/22/96 3,700 3,700 Harris City Health Care, 3.40%, 9/09/96 5,000 5,000 Houston TRANS, 4.50%, 6/30/97 5,000 5,032 Houston Water & Sewer Series A, 3.40%, 8/28/96 8,000 8,000 San Antonio Electric & Gas Series A, 3.60%-3.70%, 8/14/96-8/23/96 10,900 10,900 State of Texas TRANS Series A, 4.75%, 8/30/96 8,000 8,004 40,636
12 Cash Resource Trust Tax-Exempt Money Market Fund Portfolio of Investments (continued) July 31, 1996 (In thousands)
Percent of Principal Value Net Assets Amount (Note 2) Other Tax-Exempt Securities (continued) Virginia 4.45% Chesterfield County GO Bond 5.25%, 8/01/96 $ 800 $ 800 Chesterfield County IDR Series 1987B 3.60%, 10/24/96 1,000 1,000 Peninsula Port Authority, 3.55%, 8/13/96 3,135 3,135 York County IDA PCR, 3.55%-3.65% 8/08/96-9/10/96 8,000 8,000 12,935 West Virginia 3.44% West Virginia HDA, 3.55%, 8/15/96 10,000 10,000 Other 2.33% PNC Municash, 3.46%, 8/01/96 6,790 6,790 Total Other Tax-Exempt Securities 165,227 Total Investments (cost $291,860) (d) 100.33% 291,860 Other Assets less Liabilities (0.33%) (969) Net Assets 100.00% $290,891
Investment Abbreviations BANS - Bond Anticipation Notes DFA - Development Finance Authority GO - General Obligation HDA - Housing Development Authority HFA - Housing Finance Authority IDA - Industrial Development Authority IDB - Industrial Development Board IDR - Industrial Development Revenue PCR - Pollution Control Revenue RANS - Revenue Anticipation Notes TRANS - Tax and Revenue Anticipation Notes Notes to Portfolios of Investments (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 July 31, 1996. (c) Interest rates represent annualized yield to date of maturity, except for variable rate securities described in (a). (d) For each security, cost (for financial reporting and federal income tax purposes) and carrying value are the same. See notes to financial statements. 13 Cash Resource Trust Statements of Assets and Liabilities July 31, 1996 (In thousands)
U.S. Money Government Tax-Exempt Market Money Market Money Market Fund Fund Fund Assets Investments, at amortized cost (Note 2) Investment securities $590,078 $ 836,547 $291,860 Repurchase agreements 64,345 568,721 - Total investments 654,423 1,405,268 291,860 Receivables Interest receivable 1,147 1,994 1,797 Shares of the portfolio sold 201 191 26 Investments sold - - 1,003 Deferred expenses (Note 2) 65 301 66 Other 371 - 74 Total assets 656,207 1,407,754 294,826 Liabilities Payables Dividends 1,346 2,766 355 Investments purchased - - 3,012 Shares of the portfolio redeemed 8,181 2,014 514 Accrued distribution fee (Note 3) 45 117 16 Accrued expenses and other liabilities 135 460 38 Total liabilities 9,707 5,357 3,935 Net Assets $646,500 $ 1,402,397 $290,891 Shares outstanding 646,500 1,402,450 290,894 Net asset value per share $ 1.00 $ 1.00 $ 1.00
See notes to financial statements. 14 Cash Resource Trust Statements of Operations Year Ended July 31, 1996 (In thousands)
Money U.S. Government Tax-Exempt Market Money Market Money Market Fund Fund Fund Investment income Interest $30,098 $73,399 $ 10,373 Expenses Distribution fee (Note 3) 2,043 5,016 948 Management fee (Note 3) 1,173 2,660 632 Transfer agent fee (Note 3) 758 2,943 304 Custodian and accounting fees (Note 3) 198 735 140 Shareholder reports 84 344 29 Registration fees 73 274 85 Professional fees 40 137 22 Organizational expenses 10 66 12 Directors' fees 6 22 5 Other 36 122 12 Total expenses 4,421 12,319 2,189 Net investment income 25,677 61,080 8,184 Net increase in net assets resulting from operations $25,677 $61,080 $ 8,184
See notes to financial statements. 15 Cash Resource Trust Statements of Changes in Net Assets (In thousands)
Money U.S. Government Tax-Exempt Market Money Market Money Market Fund Fund Fund Year Ended July 31, 1996 1995 1996 1995 1996 1995 Increase in Net Assets Operations Net investment income $ 25,677 $ 13,949 $ 61,080 $ 47,780 $ 8,184 $ 6,665 Net realized gain (loss) on investments sold - 4 - (53) - (3) Increase in net assets from operations 25,677 13,953 61,080 47,727 8,184 6,662 Distributions to Shareholders Net investment income (25,677) (13,949) (61,080) (47,780) (8,184) (6,665) Net realized gain on investments - (4) - - - - Net decrease from distributions (25,677) (13,953) (61,080) (47,780) (8,184) (6,665) Capital Share Transactions (at $1.00 per share) Net proceeds from sale of shares 3,001,684 1,715,060 5,769,658 4,322,307 1,194,000 1,029,842 Reinvestment of dividends 25,161 13,420 60,634 46,908 8,146 6,528 Cost of shares redeemed (2,803,002) (1,498,083) (5,644,585) (4,060,291) (1,178,150) (965,174) Change in net assets from capital share transactions 223,843 230,397 185,707 308,924 23,996 71,196 Net increase in net assets 223,843 230,397 185,707 308,871 23,996 71,193 Net Assets Beginning of year 422,657 192,260 1,216,690 907,819 266,895 195,702 End of year $ 646,500 $ 422,657 $ 1,402,397 $ 1,216,690 $ 290,891 $ 266,895
See notes to financial statements. 16 Cash Resource Trust Financial Highlights
Money Market Fund Year Year Period Ended Ended Ended 7/31/96 7/31/95 7/31/94* Per Share Operating Performance Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 Income from investment operations Net investment income 0.05 0.05** 0.02 Distributions Net investment income (0.05) (0.05)** (0.02) Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 Total Return 4.91% 4.97% 1.83%(b) Ratios / Supplemental Data Net assets, end of period (in thousands) $646,500 $422,657 $192,260 Ratio of expenses to average net assets 0.82% 0.82% 0.89%(a) Ratio of expenses to average net assets excluding waivers 0.82% 0.82% 0.93%(a) Ratio of net investment income to average net assets 4.77% 4.96% 2.96%(a)
(a) Annualized. (b) Total Return for periods less than one year are not annualized. * For the period from December 20, 1993 (commencement of operations) to July 31, 1994. ** Includes net realized capital gains (losses) which were under $0.01 per share. See notes to financial statements. 17 Cash Resource Trust Financial Highlights (continued)
U.S. Government Tax-Exempt Money Market Fund Money Market Fund Year Year Period Year Year Period Ended Ended Ended Ended Ended Ended 7/31/96 7/31/95 7/31/94* 7/31/96 7/31/95 7/31/94* Per Share Operating Performance Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations Net investment income 0.05 0.05** 0.02 0.03 0.03** 0.01 Distributions Net investment income (0.05) (0.05) (0.02) (0.03) (0.03) (0.01) Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4.74% 4.82% 1.82%(b) 2.90% 3.05% 1.16%(b) Ratios / Supplemental Data Net assets, end of period (in thousands) $1,402,397 $1,216,690 $907,819 $290,891 $266,895 $195,702 Ratio of expenses to average net assets 0.93% 0.88% 0.80%(a) 0.76% 0.72% 0.65%(a) Ratio of expenses to average net assets excluding waivers 0.93% 0.88% 0.83%(a) 0.76% 0.74% 0.74%(a) Ratio of net investment income to average net assets 4.63% 4.75% 2.91%(a) 2.85% 3.01% 1.87%(a)
(a) Annualized. (b) Total Return for periods less than one year are not annualized. * For the period from December 20, 1993 (commencement of operations) to July 31, 1994. ** Includes net realized capital gains (losses) which were under $0.01 per share. See notes to financial statements. 18 Cash Resource Trust Notes to Financial Statements July 31, 1996 Note 1: Organization Cash Resource Trust ("Trust") was organized on June 14, 1993 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust consists of three separate diversified funds (hereinafter each individually referred to as a "Fund" or collectively as the "Funds") at July 31, 1996 as follows: Cash Resource Money Market Fund ("Money Market Fund") Cash Resource U.S. Government Money Market Fund ("U.S. Government Fund") Cash Resource Tax-Exempt Money Market Fund ("Tax-Exempt Fund") The investment objective of each Fund is to seek current income consistent with preservation of capital and maintenance of liquidity. The assets of each Fund of the Trust are segregated and a shareholder's interest is limited to the Fund in which shares are held. Note 2: Significant Accounting Policies The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect amounts reported herein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Funds. A. Valuation of Securities Investments are stated at amortized cost, which approximates market value. In the event that a deviation of 1/2 of 1% or more exists between a Fund's $1.00 per share net asset value, calculated at amortized cost, and the net asset value calculated by reference to market-based values, or if there is any other deviation that the Board of Trustees believes would result in a material dilution to shareholders or purchasers, the Board of Trustees will promptly consider what action should be initiated. B. Repurchase Agreements It is the policy of the Trust to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book entry system, or to have segregated within the custodian bank's vault all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Trust to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. 19 Cash Resource Trust Notes to Financial Statements (continued) The Trust will only enter into repurchase agreements with banks and other recognized financial institutions such as broker/dealers which are deemed by the Trust's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Trust could receive less than the repurchase price on the sale of collateral securities. C. Security Transactions and Interest Income Security transactions for the Funds are accounted for on a trade date basis. Interest income is recorded on the accrual basis and includes amortization of premium and discount on investments. D. Expenses Expenses arising in connection with a Fund are allocated to that Fund. Other Trust expenses are allocated among the Funds in proportion to their relative net assets. E. Fund Share Valuation and Dividends to Shareholders Fund shares are sold and redeemed on a continual basis at net asset value. The net asset value per share (NAV) of each Fund is determined daily as of 4:00 p.m. on each day that the New York Stock Exchange is open for trading. Each Fund determines its NAV by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. Each Fund declares a daily dividend, equal to its net investment income for that day and payable at month end. Distributions from net realized capital gains, if any, are paid annually. F. Federal Income Taxes No provision for federal income taxes has been made since it is each 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. At July 31, 1996, U.S. Government Fund for federal tax purposes, had a capital loss carryforward of approximately $54,000. Pursuant to the Code, such capital loss carryforwards expire as follows: $1,000 in 2002 and $53,000 in 2003. G. Deferred Expenses Costs incurred by the Trust in connection with its initial share registration and organization costs were deferred by the Funds and are being amortized on a straight-line basis over a five year period through December 1998. 20 Cash Resource Trust Notes to Financial Statements (continued) Note 3: Investment Management Agreements and Other Transactions with Affiliates Investment Management Agreement Commonwealth Advisors, Inc. (formerly Cambridge Investment Advisors, Inc.) the Funds' investment adviser ("Investment Adviser")provides investment advisory services to each of the Funds. Commonwealth Investment Counsel, Inc. ("Commonwealth"), an affiliate of the Investment Adviser, serves as sub-adviser to each of the Funds, pursuant to a sub-advisory agreement among the Investment Adviser, Commonwealth and the Trust. Commonwealth furnishes a continuing investment program for each of the Funds and makes investment decisions on their behalf. The Investment Adviser and Commonwealth are wholly-owned subsidiaries of Mentor Investment Group, Inc. ("Mentor") (formerly Investment Management Group, Inc.), which is in turn a wholly-owned subsidiary of Wheat First Butcher Singer, Inc. ("Wheat"). Each Fund pays management fees to the Investment Adviser monthly at the following annual rates, expressed as a percentage of average daily net assets: 0.22% of the first $500 million of each Fund's average net assets; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of the next $1 billion; and 0.15% of any amounts over $3 billion. The Investment Adviser in turn pays fees from its own assets to Commonwealth monthly at the following annual rates (based on the assets of each Fund taken separately): 0.17% of the first $500 million of a Fund's average net assets; 0.15% of the next $500 million; 0.125% of the next $1 billion; 0.11% of the next $1 billion; and 0.10% of any amounts over $3 billion. The Investment Adviser may from time to time voluntarily waive some or all of its investment advisory fee and may terminate any such voluntary waiver at any time at its sole discretion. For the year ended July 31, 1996, the Investment Adviser and sub-adviser earned the following advisory fees: Adviser Sub-Adviser Fee Fee Earned Earned Money Market Fund $1,172,603 $ 900,553 U.S. Government Fund 2,660,041 1,995,031 Tax-Exempt Fund 632,135 488,468 21 Cash Resource Trust Notes to Financial Statements (continued) In addition, the Funds provide direct reimbursement to Mentor for certain accounting and operations related costs not covered under the Investment Management Agreement. For the year ended July 31, 1996, the Money Market Fund, U.S. Government Fund and Tax-Exempt Fund paid $12,482, $30,947 and $6,767, respectively to Mentor for these direct reimbursements. Distribution Agreement Under a Distribution Agreement, Mentor Distributors, Inc. ("Mentor Distributors") (formerly, Cambridge Distributors, Inc.) a wholly-owned subsidiary of Mentor, was appointed Distributor for each Fund. To compensate Mentor Distributors for the services it provides and for the expenses it incurs under the Distribution Agreement, the Funds have adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, under which they pay a distribution fee, which is accrued daily and paid monthly at the annual rate of 0.38% of the Fund's average daily net assets for the Money Market Fund and U.S. Government Fund and 0.33% of the Fund's average daily net assets for the Tax-Exempt Fund. In order to compensate selected financial institutions, such as investment dealers and banks through which shares of each Fund are sold ("Financial Institutions") for services provided in connection with sales of shares of each Fund and/or for administrative services and the maintenance of shareholder accounts, Mentor Distributors may make periodic payments to qualifying Financial Institutions based on the average net asset value of shares of a Fund which are attributable to shareholders for whom the Financial Institutions are designated as the Financial Institution of record. Mentor Distributors may make such payments at the annual rate of up to 0.40% of the average net asset value of such shares (0.33% in the case of Cash Resource Tax-Exempt Money Market Fund). Transfer Agent Agreement Under a Transfer Agency Agreement, Investors Fiduciary Trust Company ("IFTC") serves as Transfer Agent and Dividend Disbursing Agent for each Fund. IFTC in turn compensates Wheat (from IFTC's own assets) for related services provided by Wheat directly to its clients. For the year ended July 31, 1996, Wheat earned fees of $757,964, $2,942,606 and $304,012, respectively, from the Money Market Fund, U.S. Government Fund and Tax-Exempt Fund. 22 Independent Auditors' Report The Trustees Cash Resource Trust We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of the Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt Money Market Fund, (portfolios of Cash Resource Trust) as of July 31, 1996 and the related statements of operations for the year then ended, and the statements of changes in net assets for each of the years in the two year period then ended, and financial highlights for each of the years in the two year period then ended and for the period from December 20, 1993 (commencement of operations) to July 31, 1994. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 1996 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt Money Market Fund as of July 31, 1996, the results of their operations for the year then ended and the changes in their net assets for each of the years in the two year period then ended and their financial highlights for the periods indicated in the first paragraph above, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Boston, Massachusetts September 6, 1996 23 -----END PRIVACY-ENHANCED MESSAGE-----