-----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, GA0uegOKG752114Q5ZHdLqFfsu5RNGoz01nj3pPW+tuXP7kp7kkm0J8HXguJzBHG uVTccSkEH1o7s1RIHs4iiA== 0000916641-97-000978.txt : 19971001 0000916641-97-000978.hdr.sgml : 19971001 ACCESSION NUMBER: 0000916641-97-000978 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970930 EFFECTIVENESS DATE: 19970930 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: 485BPOS SEC ACT: SEC FILE NUMBER: 033-65818 FILM NUMBER: 97688612 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-07862 FILM NUMBER: 97688613 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 485BPOS 1 MENTOR CASH RESOURCE TRUST 485BPOS As filed with the Securities and Exchange Commission on September 30, 1997 Registration No. 33-65818 File No. 811-7862 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A --- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ --- --- / / Pre-Effective Amendment No. --- --- Post-Effective Amendment No. 6 /X/ --- --- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY /X/ ACT OF 1940 --- --- Amendment No. 8 /X/ --- (Check appropriate box or boxes) CASH RESOURCE TRUST (Exact name of registrant as specified in charter) 901 East Byrd Street Richmond, Virginia 23219 (Address of principal executive offices) Registrant's Telephone Number, including Area Code (804) 782-3647 --------------- PAUL F. COSTELLO, President 901 East Byrd Street Richmond, Virginia 23219 (Name and address of agent for service) ----------------- Copy to: TIMOTHY W. DIGGINS, Esquire ROPES & GRAY One International Place Boston, Massachusetts 02110 -------------- It is proposed that this filing will become effective (check appropriate box): - --- /X/ immediately upon filing pursuant to paragraph (b) - --- - --- on [date] pursuant to paragraph (b) - --- - --- 60 days after filing pursuant to paragraph (a) - --- - --- on (date) pursuant to paragraph (a)(1) - --- - --- 75 days after filing pursuant to paragraph (a)(2) - --- - --- on (date) pursuant to paragraph (a)(2) of Rule 485 - --- -1- If appropriate, check the following box: - --- This post-effective amendment designates a new effective date for a previously filed post-effective amendment. - --- Cash Resource Trust registered an indefinite amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of 1940. A Rule 24f-2 notice in respect of the Trust's fiscal year ended July 31, 1997 was filed on September 23, 1997. -2- CASH RESOURCE TRUST CROSS REFERENCE SHEET (as required by Rule 404(c)) Part A
N-1A Item No. Location 1. Cover Page..................................................... Cover Page 2. Synopsis....................................................... Cover Page; Expense summary 3. Condensed Financial Information................................ Financial highlights 4. General Description of Registrant.............................. Selection of Investments; Other investment practices; How a Fund's performance is calculated; General Information 5. Management of the Fund......................................... Management; Distribution Services; General Information 5A. Management's Discussion of Fund Performance.......................................... Not Applicable 6. Capital Stock and Other Securities................................................... Buying and Selling Shares of the Funds; Tax Information; Dividends; General Information 7. Purchase of Securities Being Offered...................................................... Buying and Selling Shares of the Funds; How to Exchange Shares 8. Redemption or Repurchase....................................... Buying and Selling Shares of the Funds; How to Exchange Shares; Financial Institutions 9. Pending Legal Proceedings...................................... Not Applicable
-3- Part B
N-1A Item No. Location 10. Cover Page.................................................... Cover Page 11. Table of Contents............................................. Cover Page 12. General Information and History............................... Not Applicable 13. Investment Objectives and Policies.................................................... Investment Objective and Policies of the Trust; Investment Restrictions; Portfolio Turnover 14. Management of the Fund........................................ Management of the Trust 15. Control Persons and Principal Holders of Securities....................................... Management of the Trust; Principal Holders of Securities 16. Investment Advisory and Other Services.................................................... Management of the Trust; Investment Advisory and other Securities; Custodian; Independent Auditors 17. Brokerage Allocation.......................................... Management of the Trust 18. Capital Stock and Other Securities.................................................. Determination of Net Asset Value; Taxes; Distribution; Organization 19. Purchase, Redemption and Pricing of Securities Being Offered................................. Management of the Trust; Determination of Net Asset Value; Distribution 20. Tax Status.................................................... Taxes 21. Underwriters.................................................. Not applicable 22. Calculations of Yield Quotations of Money Market Funds....................................... Performance Information 23. Financial Statements.......................................... Financial Statements
Part C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement. -4- P R O S P E C T U S September 30, 1997 Cash Resource Trust Cash Resource Money Market Fund Cash Resource U.S. Government Money Market Fund Cash Resource Tax-Exempt Money Market Fund Cash Resource California Tax-Exempt Money Market Fund Cash Resource New York Tax-Exempt Money Market Fund The Cash Resource Funds are designed for investors who seek current income consistent with preservation of capital and maintenance of liquidity. The Funds are diversified investment portfolios of Cash Resource Trust (the "Trust"). An investment in the Trust is neither insured nor guaranteed by the U.S. Government. There can be no assurance that a Fund will be able to maintain a stable net asset value of $1.00 per share. Federal law permits Cash Resource California Tax-Exempt Money Market Fund and Cash Resource New York Tax-Exempt Money Market Fund to invest more of their assets in the securities of a single issuer than other money market funds; as a result, an investment in those Funds may involve greater risks than an investment in other types of money market funds. This Prospectus explains concisely what you should know before investing in a Fund. Please read it carefully and keep it for future reference. You can find more detailed information about the Funds in the September 30, 1997 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call 1-800-382-0016. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. EXPENSE SUMMARY Expenses are one of several factors to consider when investing in a Fund. The following table summarizes your maximum transaction costs from an investment in each of the Funds and expenses incurred by each Fund based on its most recent fiscal year (or, in the case of the California and New York Tax-Exempt Funds, based on estimates for the Funds' current fiscal year). The Examples show the cumulative expenses attributable to a hypothetical $1,000 investment in each Fund over specified periods. The information presented below does not reflect any fees or charges imposed by Financial Institutions through which you may invest in the Funds.
Cash Cash Cash Resource Resource Cash Cash Resource Resource California New York Resource U.S. Government Tax-Exempt Tax-Exempt Tax-Exempt Money Market Money Market Money Market Money Market Money Market Fund Fund Fund Fund Fund ------------ --------------- ------------ ------------ ------------ Shareholder Transaction Expenses None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) Management Fees .19% .19% .22% .22% .10%* 12b-1 Fees .38% .38% .33% .33% .38%* Other Expenses .29% .24% .16% .20% .32% Total Fund Operating Expenses .86% .81% .71% .75% .80%*
- --------------- *reflecting expense limitation Examples Your investment of $1,000 in a Fund would incur the following expenses, assuming 5% annual return and redemption at the end of each period:
1 year 3 years 5 years 10 years ------ ------- ------- -------- Cash Resource Money Market Fund $9 $27 $48 $106 Cash Resource U.S. Government Money Market Fund $8 $26 $45 $100 Cash Resource Tax-Exempt Money Market Fund $7 $23 $40 $ 88 Cash Resource California Tax-Exempt Money Market Fund $8 $24 -- -- Cash Resource New York Tax-Exempt Money Market Fund $8 $26 -- --
The table is provided to help you understand the expenses of investing in each of the Funds and your share of the operating expenses which each of the Funds incurs. Expenses shown for the New York Tax-Exempt Money Market Fund reflect expense limitations currently in effect. In the absence of the limitations, Management Fees, 12b-1 Fees, and Total Fund Operating Expenses would be .22%, .50%, and 1.04%, respectively, for the New York Tax-Exempt Money Market Fund. The Examples do not represent past or future expense levels. Actual returns and expenses may be greater or less than those shown. Federal regulations require the Examples to assume a 5% annual return, but actual annual return will vary. Because of the 12b-1 fees payable by the Funds, long-term shareholders may pay more in aggregate sales charges than the maximum initial sales charge permitted by the National Association of Securities Dealers, Inc. 2 FINANCIAL HIGHLIGHTS The financial highlights presented below for the Funds have been audited by KPMG Peat Marwick LLP, independent auditors. The report of KPMG Peat Marwick LLP is incorporated by reference into the Statement of Additional Information, which may be obtained in the manner described on the cover page of this Prospectus. Each of the Money Market, U.S. Government Money Market, and Tax-Exempt Money Market Funds began operations on December 20, 1993; each of the California and New York Tax-Exempt Money Market Funds commenced operations on December 9, 1996. See "Financial Statements" in the Funds' Statement of Additional Information.
Money Market U.S. Government Fund Money Market Fund Year or Period ------------------------------------------- ------------------------------------------------- Ended July 31, 1997 1996 1995 1994* 1997 1996 1995 1994* - -------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance Net asset value, beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations Net investment income 0.047(a) 0.050 0.050(a) 0.020 0.046(a) 0.050 0.050(a) 0.020 Distributions Net investment income (0.047) (0.050) (0.050)(a) (0.020) (0.046)(a) (0.050) (0.050) (0.020) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 - -------------------------------------------------------------------------------------------------------------------------- Total Return 4.77% 4.91% 4.97% 1.83%(c) 4.72% 4.74% 4.82% 1.82%(c) - -------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data - -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $2,941,605 $646,500 $422,657 $192,260 $2,918,711 $1,402,397 $1,216,690 $907,819 Ratio of expenses to average net assets 0.86% 0.82% 0.82% 0.89%(b) 0.81% 0.93% 0.88% 0.80%(b) Ratio of expenses to average net assets excluding waivers 0.86% 0.82% 0.82% 0.93%(b) 0.81% 0.93% 0.88% 0.83%(b) Ratio of net investment income to average net assets 4.67% 4.77% 4.96% 2.96%(b) 4.63% 4.63% 4.75% 2.91%(b) - -------------------------------------------------------------------------------------------------------------------------- California New York Money Money Tax-Exempt Market Market Money Market Fund Fund Fund Year or Period ------------------------------------------- ---------- ---------- Ended July 31, 1997 1996 1995 1994* 1997** 1997** - ---------------------------------------------------------------------------------------------- Per Share Operating Performance Net asset value, beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 - ---------------------------------------------------------------------------------------------- Income from investment operations Net investment income 0.029 0.030 0.030(a) 0.010 0.017 0.018 Distributions Net investment income (0.029) (0.030) (0.030) (0.010) (0.017) (0.018) - ---------------------------------------------------------------------------------------------- Net asset value, end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 - ---------------------------------------------------------------------------------------------- Total Return 2.91% 2.90% 3.05% 1.16%(c) 1.76%(c) 1.77%(c) - ---------------------------------------------------------------------------------------------- Ratios/Supplemental Data - ---------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $743,614 $290,891 $266,895 $195,702 $89,432 $12,071 Ratio of expenses to average net assets 0.71% 0.76% 0.72% 0.65%(b) 0.75%(b) 0.80%(b) Ratio of expenses to average net assets excluding waivers 0.71% 0.76% 0.74% 0.74%(b) 0.75%(b) 1.04%(b) Ratio of net investment income to average net assets 2.88% 2.85% 3.01% 1.87%(b) 2.70%(b) 2.77%(b) - ----------------------------------------------------------------------------------------------
* For the period from December 20, 1993 (commencement of operations) to July 31, 1994. ** For the period from December 9, 1996 (commencement of operations) to July 31, 1997. (a) Includes net realized capital gain (loss) which were under $0.001 per share. (b) Annualized. (c) Total return for periods less than one year are not annualized. 3 INVESTMENT OBJECTIVES AND POLICIES The investment objective of the Money Market Fund and the U.S. Government Money Market Fund is to seek as high a rate of current income as Mentor Investment Advisors, LLC, the Funds' investment advisor ("Mentor Advisors") believes is consistent with preservation of capital and maintenance of liquidity. The investment objective of each of the other Funds is to seek as high a rate of current income exempt from federal income tax (and, in the case of the California Tax-Exempt Money Market Fund, California personal income tax, or, in the case of the New York Tax-Exempt Money Market Fund, New York State and City personal income taxes) as Mentor Advisors believes is consistent with preservation of capital and maintenance of liquidity. The Funds seek their objectives through the investment policies described below. Because each of the Funds is a money market fund, it will only invest in the types of investments described below under "Selection of Investments". The investment objective and policies of each Fund may, unless otherwise specifically stated, be changed by the Trustees without a vote of the shareholders. As a matter of policy, the Trustees would not materially change the investment objective of a Fund without shareholder approval. None of the Funds is intended to be a complete investment program, and there is no assurance the Funds will achieve their objectives. Cash Resource Money Market Fund The Money Market Fund invests in a portfolio of high-quality money market instruments consisting exclusively of: (Bullet) bank certificates of deposit (CD's): negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. (Bullet) bankers' acceptances: negotiable drafts or bills of exchange, which have been "accepted" by a bank, meaning, in effect, that the bank has unconditionally agreed to pay the face value of the instrument on maturity. (Bullet) prime commercial paper: high-grade, short-term obligations issued by banks, corporations, and other issuers. (Bullet) corporate obligations: high-grade, short-term obligations other than prime commercial paper. (Bullet) U.S. Government securities: marketable securities issued or guaranteed as to principal or interest by the U.S. Government or by its agencies or instrumentalities. (Bullet) repurchase agreements: with respect to U.S. Treasury or U.S. Government securities. Cash Resource U.S. Government Money Market Fund The U.S. Government Money Market Fund invests exclusively in U.S. Treasury bills, notes, and bonds, and other obligations issued or guaranteed as to principal or interest by the U.S. Government, its agencies, or instrumentalities, and in repurchase agreements with respect to such obligations. Certain of these obligations, including U.S. Treasury bills, notes, and bonds, mortgage participation certificates issued or guaranteed by the Government National Mortgage Association, and Federal Housing Administration debentures, are supported by the full faith and credit of the United States. Other U.S. Government securities issued by federal agencies or government- sponsored enterprises are not supported by the full faith and credit of the United States. These securities include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Banks, and obligations supported only by the credit of an instrumentality, such as Federal National Mortgage Association bonds. 4 Short-term U.S. Government obligations generally are considered among the safest short-term investments. Because of their added safety, the yields available from U.S. Government obligations are generally lower than the yields available from comparable corporate debt securities. The U.S. Government guarantee of securities owned by the Fund does not guarantee the net asset value of the Fund's shares, which the Fund seeks to maintain at $1.00 per share. Cash Resource Tax-Exempt Money Market Fund The Tax-Exempt Money Market Fund invests, as a fundamental policy, at least 80% of its net assets in Tax-Exempt Securities (as described below). The Fund may invest the remainder of its assets in investments of any kind in which any of the other Funds may invest. The Fund will invest in only the following types of Tax-Exempt Securities: (i) municipal notes; (ii) municipal bonds; (iii) municipal securities backed by the U.S. Government or any of its agencies or instrumentalities; (iv) tax-exempt commercial paper; (v) participation interests in any of the foregoing; and (vi) unrated securities or new types of tax-exempt instruments which become available in the future if Mentor Advisors determines they meet the quality standards discussed below (collectively, "Tax-Exempt Securities"). (In the case of any such new types of tax-exempt instruments, this Prospectus would be revised as may be appropriate to describe such instruments.) In connection with the purchase of Tax-Exempt Securities, the Fund may acquire stand-by commitments, which give the Fund the right to resell the security to the dealer at a specified price. Stand-by commitments may provide additional liquidity for the Fund but are subject to the risk that the dealer may fail to meet its obligations. The Fund does not generally expect to pay additional consideration for stand-by commitments or to assign any value to them. Tax-Exempt Securities are debt obligations issued by a state (including the District of Columbia), a U.S. territory or possession, or any of their political subdivisions, the interest from which is, in the opinion of bond counsel, exempt from federal income tax. These securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses, or the refunding of outstanding debts. They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational, or medical facilities and may also include certain types of private activity and industrial development bonds issued by public authorities to finance privately owned or operated facilities. Short-term Tax-Exempt Securities are generally issued as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance various public purposes. The two principal classifications of Tax-Exempt Securities are general obligation and special obligation (or revenue) securities. General obligation securities involve the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer. Special obligation securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source, and generally are not payable from the unrestricted revenues of the issuer. Industrial development and private activity bonds are in most cases special obligation securities, the credit quality of which is directly related to the private user of a facility. For purposes of the Fund's policy to invest at least 80% of its net assets in Tax-Exempt Securities, the Fund will not treat obligations as Tax-Exempt Securities for purposes of measuring compliance with such policy if they would give rise to interest income subject to federal alternative minimum tax for individuals. To the extent that the Fund invests in these securities, individual shareholders of the Fund, depending on their own tax status, may 5 be subject to federal alternative minimum tax on the part of the Fund's distributions derived from these securities. In addition, an investment in the Fund may cause corporate shareholders to be subject to (or result in an increased liability under) the alternative minimum tax because tax-exempt income is generally included in the alternative minimum taxable income of corporations. The ability of governmental issuers to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. The amounts of tax and other revenues available to governmental issuers may be affected from time to time by economic, political, and demographic conditions affecting a particular state. In addition, constitutional or statutory restrictions may limit a government's power to raise revenues or increase taxes. The availability of federal, state, and local aid to issuers of such securities may also affect their ability to meet their obligations. Payments of principal and interest on special obligation securities will depend on the economic condition of the facility or specific revenue source from whose revenues the payments will be made, which in turn could be affected by economic, political, and demographic conditions affecting a particular state. Any reduction in the actual or perceived ability of an issuer of Tax-Exempt Securities in a particular state to meet its obligations (including a reduction in the rating of its outstanding securities) would likely affect adversely the market value and marketability of its obligations and could adversely affect the values of Tax-Exempt Securities issued by others in that state as well. The Fund may invest without limit in high quality taxable money market instruments of any type in which the other Funds may invest at any time when Mentor Advisors believes that market conditions make pursuing the Fund's basic investment strategy inconsistent with the best interests of shareholders. It is impossible to predict when, or for how long, the Fund will use these alternative defensive strategies. California Tax-Exempt Money Market Fund The California Tax-Exempt Money Market Fund will normally invest at least 80% of its assets in California Tax-Exempt Securities, which are debt obligations issued by the State of California, or any of its political subdivisions, or its agencies, instrumentalities, or other governmental units, the interest from which is, in the opinion of bond counsel, exempt from federal income tax and California personal income tax. (This 80% requirement is a fundamental policy of the Fund.) The Fund may invest the remainder of its assets in investments of any kind described under "Selection of Investments" below. California Tax-Exempt Securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses, or the refunding of outstanding debts. They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational, or medical facilities and may also include certain types of private activity and industrial development bonds issued by public authorities to finance privately owned or operated facilities. Short-term California Tax-Exempt Securities are generally issued as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance various public purposes. The two principal classifications of California Tax-Exempt Securities are general obligation and special obligation (or revenue) securities. General obligation securities involve the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer. Special obligation securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source, and generally are not payable from the unrestricted revenues of the issuer. Industrial development and private activity 6 bonds are in most cases special obligation securities, the credit quality of which is directly related to the private user of the facilities. The Fund will invest in the following types of California Tax-Exempt Securities: (i) municipal notes; (ii) municipal bonds; (iii) municipal securities backed by the U.S. Government or any of its agencies or instrumentalities; (iv) tax-exempt commercial paper; (v) participation interests in any of the foregoing; and (vi) unrated securities or new types of tax-exempt instruments which become available in the future if Mentor Advisors determines they meet the quality standards discussed below. (In the case of any such new types of tax-exempt instruments, this Prospectus would be revised as may be appropriate to describe such instruments.) In connection with the purchase of California Tax-Exempt Securities, the Fund may acquire stand-by commitments, which give the Fund the right to resell the security to the dealer at a specified price. Stand-by commitments may provide additional liquidity for the Fund but are subject to the risk that the dealer may fail to meet its obligations. The Fund does not generally expect to pay additional consideration for stand-by commitments or to assign any value to them. The Fund will normally invest at least 80% of its assets in debt obligations the interest from which is, in the opinion of bond counsel, exempt from federal income tax and that will not give rise to interest income subject to federal alternative minimum tax for individuals. To the extent the Fund invests in these securities, individual shareholders of the Fund, depending on their own tax status, may be subject to federal alternative minimum tax on the part of the Fund's distributions derived from these securities. In addition, an investment in the Fund may cause corporate shareholders to be subject to (or result in an increased liability under) the alternative minimum tax because tax-exempt income is generally included in the alternative minimum taxable income of corporations. Since the Fund invests primarily in California Tax-Exempt Securities, the value of the Fund's shares may be especially affected by factors pertaining to the economy of California and other factors specifically affecting the ability of issuers of California Tax-Exempt Securities to meet their obligations; an investment in the Fund may as a result involve greater risk than an investment in other types of money market funds. The ability of governmental issuers to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. The amounts of tax and other revenues available to governmental issuers may be affected from time to time by economic, political, and demographic conditions affecting a particular state. In addition, constitutional or statutory restrictions may limit a government's power to raise revenues or increase taxes. The availability of federal, state, and local aid to issuers of such securities may also affect their ability to meet their obligations. Payments of principal and interest on special obligation securities will depend on the economic condition of the facility or specific revenue source from whose revenues the payments will be made, which in turn could be affected by economic, political, and demographic conditions affecting the State of California. Any reduction in the actual or perceived ability of an issuer of California Tax-Exempt Securities to meet its obligations (including a reduction in the rating of its outstanding securities) would likely adversely affect the market value and marketability of its obligations and could adversely affect the values of California Tax-Exempt Securities issued by others as well. The Fund may invest in high quality taxable money market instruments at any time when Mentor Advisors believes that market conditions make pursuing the Fund's basic investment strategy inconsistent with the best interest of shareholders. These instruments may include: bank certificates of deposit, banker's acceptances, prime commercial paper, high quality short-term corporate obligations, short-term U.S. government securities or repurchase agreements, or any other securities Mentor Advisors considers consistent with such defensive strategies. 7 New York Tax-Exempt Money Market Fund The New York Tax-Exempt Money Market Fund will normally invest at least 80% of its assets in New York Tax-Exempt Securities, which are debt obligations issued by the State of New York, or any of its political subdivisions, or its agencies, instrumentalities, or other governmental units (or of other governmental issuers, such as U.S. territories), the interest from which is, in the opinion of bond counsel, exempt from federal income tax and New York State and City personal income taxes. (This 80% requirement is a fundamental policy of the Fund.) The Fund may invest the remainder of its assets in investments of any kind described under "Selection of Investments" below. New York Tax-Exempt Securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses, or the refunding of outstanding debts. They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational, or medical facilities and may also include certain types of private activity and industrial development bonds issued by public authorities to finance privately owned or operated facilities. Short-term New York Tax-Exempt Securities are generally issued as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance various public purposes. The two principal classifications of New York Tax-Exempt Securities are general obligation and special obligation (or revenue) securities. General obligation securities involve the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer. Special obligation securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source, and generally are not payable from the unrestricted revenues of the issuer. Industrial development and private activity bonds are in most cases special obligation securities, the credit quality of which is directly related to the private user of the facilities. The Fund will invest in the following types of New York Tax-Exempt Securities: (i) municipal notes; (ii) municipal bonds; (iii) municipal securities backed by the U.S. Government or any of its agencies or instrumentalities; (iv) tax-exempt commercial paper; (v) participation interests in any of the foregoing; and (vi) unrated securities or new types of tax-exempt instruments which become available in the future if Mentor Advisors determines they meet the quality standards discussed below. (In the case of any such new types of tax-exempt instruments, this Prospectus would be revised as may be appropriate to describe such instruments.) In connection with the purchase of New York Tax-Exempt Securities, the Fund may acquire stand-by commitments, which give the Fund the right to resell the security to the dealer at a specified price. Stand-by commitments may provide additional liquidity for the Fund but are subject to the risk that the dealer may fail to meet its obligations. The Fund does not generally expect to pay additional consideration for stand-by commitments or to assign any value to them. The Fund will normally invest at least 80% of its assets in debt obligations the interest from which is, in the opinion of bond counsel, exempt from federal income tax and that will not give rise to interest income subject to federal alternative minimum tax for individuals. To the extent the Fund invests in these securities, individual shareholders of the Fund, depending on their own tax status, may be subject to federal alternative minimum tax on the part of the Fund's distributions derived from these securities. In addition, an investment in the Fund may cause corporate shareholders to be subject to (or result in an increased liability under) the alternative minimum tax because tax-exempt income is generally included in the alternative minimum taxable income of corporations. 8 Since the Fund invests primarily in New York Tax-Exempt Securities, the value of the Fund's shares may be especially affected by factors pertaining to the economy of New York and other factors specifically affecting the ability of issuers of New York Tax-Exempt Securities to meet their obligations; an investment in the Fund may as a result involve greater risk than an investment in other types of money market funds. The ability of governmental issuers to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. The amounts of tax and other revenues available to governmental issuers may be affected from time to time by economic, political, and demographic conditions affecting the State or City of New York. In addition, constitutional or statutory restrictions may limit a government's power to raise revenues or increase taxes. The availability of federal, state, and local aid to issuers of such securities may also affect their ability to meet their obligations. Payments of principal and interest on special obligation securities will depend on the economic condition of the facility or specific revenue source from whose revenues the payments will be made, which in turn could be affected by economic, political, and demographic conditions affecting a particular state. Any reduction in the actual or perceived ability of an issuer of New York Tax-Exempt Securities to meet its obligations (including a reduction in the rating of its outstanding securities) would likely adversely affect the market value and marketability of its obligations and could adversely affect the values of New York Tax-Exempt Securities issued by others as well. The Fund may invest in high quality taxable money market instruments at any time when Mentor Advisors believes that market conditions make pursuing the Fund's basic investment strategy inconsistent with the best interest of shareholders. These instruments may include: bank certificates of deposit, banker's acceptances, prime commercial paper, high quality short-term corporate obligations, short-term U.S. government securities or repurchase agreements, or any other securities Mentor Advisors considers consistent with such defensive strategies. Selection of Investments Each Fund will invest only in U.S. dollar-denominated high-quality securities and other U.S. dollar-denominated money market instruments meeting credit criteria which the Trustees believe present minimal credit risk. "High-quality securities" are (i) commercial paper or other short-term obligations rated in one of the two highest short-term rating categories by at least two nationally recognized rating services (or, if only one rating service has rated the security, by that service), (ii) obligations rated at least AA by Standard & Poor's or Aa by Moody's Investors Service, Inc. at the time of investment, and (iii) unrated securities determined by Mentor Advisors to be of comparable quality. Each Fund will maintain a dollar-weighted average maturity of 90 days or less and will not invest in securities with remaining maturities of more than 397 days. A Fund may invest in variable or floating-rate securities which bear interest at rates subject to periodic adjustment or which provide for periodic recovery of principal on demand. Under certain conditions, these securities may be deemed to have remaining maturities equal to the time remaining until the next interest adjustment date or the date on which principal can be recovered on demand. Each of the Funds follows investment and valuation policies designed to maintain a stable net asset value of $1.00 per share, although there is no assurance that these policies will be successful. Considerations of liquidity and preservation of capital mean that a Fund may not necessarily invest in money market instruments paying the highest available yield at a particular time. Consistent with its investment objective, a Fund will attempt to maximize yields by portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic and money market conditions and trends. Each Fund may also invest to take advantage of what Mentor Advisors believes to be temporary disparities in the yields of different segments of the high-quality money market or among particular instruments within the same segment of the market. These policies, as well as the relatively short maturity of obligations purchased by the 9 Funds, may result in frequent changes in the Funds' portfolios. The Funds will not usually pay brokerage commissions in connection with the purchase or sale of portfolio securities. The portfolio of a Fund will be affected by general changes in interest rates resulting in increases or decreases in the values of the obligations held by the Fund. The values of the obligations in a Fund's portfolio can be expected to vary inversely to changes in prevailing interest rates. Although the Funds' investment policies are designed to minimize these changes and to maintain a net asset value of $1.00 per share, there is no assurance that these policies will be successful. Withdrawals by shareholders could require the sale of portfolio investments at a time when such a sale might not otherwise be desirable. Diversification and concentration policies Each Fund is a "diversified" investment company under the Investment Company Act of 1940. This means that each Fund may invest up to 25% of its total assets in the securities of one or more issuers, and is limited with respect to the remaining portion of its assets to investing 5% or less of its total assets in the securities of any one issuer (other than the U.S. government). However, under the current rules governing money market funds, the Funds (other than the Tax-Exempt Money Market and the California and New York Tax-Exempt Money Market Funds) generally may not invest more than 5% of their assets in any one issuer (other than the U.S. government). The 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 regulations as U.S. banks). At times when the Fund has concentrated its investments in bank obligations, the values of its portfolio securities may be especially affected by factors pertaining to the issuers of such obligations. Because of the relatively small number of issuers of California Tax-Exempt Securities and New York Tax-Exempt Securities, the California and New York Tax-Exempt Funds are more likely to invest a higher percentage of their assets in the securities of a single issuer than investment companies that invest in a broader range of securities. This practice involves an increased risk of loss to a Fund if an issuer were unable to make interest or principal payments or if the market value of these securities were to decline. Neither the Tax-Exempt Money Market Fund, the California Tax-Exempt Money Market Fund, nor the New York Tax-Exempt Money Market Fund (each, a "Tax-Exempt Fund" and collectively, the "Tax-Exempt Funds") will invest more than 25% of its total assets in any one industry. Governmental issuers of Tax-Exempt Securities, California Tax-Exempt Securities, or New York Tax-Exempt Securities are not considered part of any "industry." However, Securities backed only by the assets and revenues of nongovernmental users may for this purpose be deemed to be issued by such nongovernmental users, and the 25% limitation would apply to such obligations. It is nonetheless possible that a Tax-Exempt Fund may invest more than 25% of its assets in a broader segment of the Tax-Exempt Securities market (or the California Tax-Exempt or New York Tax-Exempt Securities Markets, as the case may be), such as revenue obligations of hospitals and other health care facilities, housing agency revenue obligations, or airport revenue obligations. This would be the case only if Mentor Advisors determined that the yields available from obligations in a particular segment of the market justified the additional risks associated with such concentration. Although such obligations could be supported by the credit of governmental users or by the credit of nongovernmental users engaged in a number of industries, economic, business, political, and other developments generally affecting the revenues of such users (for example, proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products) may have a general adverse effect on all Tax-Exempt Securities in such a market 10 segment. Each of the Tax-Exempt Funds reserves the right to invest more than 25% of its assets in industrial development bonds and private activity bonds or notes. The Tax-Exempt Money Market Fund also reserves the right to invest more than 25% of its assets in securities relating to any one or more states (including the District of Columbia), U.S. territories or possessions, or any of their political subdivisions. As a result of such an investment, the performance of that Fund may be especially affected by factors pertaining to the economy of the relevant state and other factors specifically affecting the ability of issuers of such securities to meet their obligations. As a result, the value of the Fund's shares may fluctuate more widely than the value of shares of a fund investing in securities relating to a greater number of different states. Other Investment Practices A Fund may also engage to a limited extent in the following investment practices, each of which involves certain special risks. The Statement of Additional Information contains more detailed information about these practices. Foreign investments. The Money Market Fund may invest in obligations of foreign issuers and in bank certificates of deposit and bankers' acceptances payable in U.S. dollars and issued by foreign banks (including U.S. branches of foreign banks) or by foreign branches of U.S. banks. These investments subject the Fund to investment risks different from those associated with domestic investments. Such risks include adverse political and economic developments in foreign countries, the imposition of withholding taxes on interest income, seizure or nationalization of foreign deposits, or the adoption of other governmental restrictions which may adversely affect the payment of principal and interest on such obligations. Legal remedies available to investors in certain foreign countries may be more limited than those available with respect to investments in the U.S. or in other foreign countries. Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in the recovery of the Fund's assets held abroad) and expenses not present in the settlement of domestic investments. In addition, foreign securities may be less liquid than U.S. securities, and foreign accounting and disclosure standards may differ from U.S. standards. Special tax considerations apply to foreign investments. Repurchase agreements. Under a repurchase agreement, a Fund purchases a debt instrument for a relatively short period (usually not more than one week), which the seller agrees to repurchase at a fixed time and price, representing the Fund's cost plus interest. A Fund will enter into repurchase agreements only with commercial banks and with registered broker-dealers who are members of a national securities exchange or market makers in government securities, and only if the debt instrument subject to the repurchase agreement is a U.S. Government security. Although Mentor Advisors will monitor repurchase agreement transactions to ensure that they will be fully collateralized at all times, a Fund bears a risk of loss if the other party defaults on its obligation and the Fund is delayed or prevented from exercising its rights to dispose of the collateral. If the other party should become involved in bankruptcy or insolvency proceedings, it is possible that a Fund may be treated as an unsecured creditor and required to return the collateral to the other party's estate. Securities lending. A Fund may lend portfolio securities to broker-dealers. These transactions must be fully collateralized at all times with cash or short-term debt obligations, but involve some risk to a Fund if the other party should default on its obligation and the Fund is delayed or prevented from exercising its rights in respect of the collateral. Any investment of collateral by a Fund would be made in accordance with the Fund's investment objective and policies described above. 11 Dividends The Trust determines the net income of each Fund as of the close of regular trading on the New York Stock Exchange (the "Exchange") each day the Exchange is open. Each determination of a Fund's net income includes (i) all accrued interest on the Fund's investments, (ii) plus or minus all realized and unrealized gains and losses on the Fund's investments, (iii) less all accrued expenses of the Fund. Each Fund's investments are valued at amortized cost according to Securities and Exchange Commission Rule 2a-7. A Fund will not normally have unrealized gains or losses so long as it values its investments by the amortized cost method. Daily dividends. Each Fund declares all of its net income as a distribution on each day it is open for business, as a dividend to shareholders of record immediately prior to the close of regular trading on the Exchange. Shareholders whose purchase of shares of a Fund is accepted at or before 12:00 noon on any day will receive the dividend declared by the Fund for that day; shareholders who purchase shares after 12:00 noon will begin earning dividends on the next business day after the Fund accepts their order. A Fund's net income for Saturdays, Sundays, and holidays is declared as a dividend on the preceding business day. Dividends for the immediately preceding calendar month will be paid on the fifteenth day of each calendar month (or, if that day is not a business day, on the next business day), except that a Fund's schedule for payment of dividends during the month of December may be adjusted to assist in tax reporting and distribution requirements. A shareholder who withdraws the entire balance of an account at any time during a month will be paid all dividends declared through the time of the withdrawal. Since the net income of each Fund is declared as a dividend each time it is determined, the net asset value per share of each Fund normally remains at $1 per share immediately after each determination and dividend declaration. You can choose from two distribution options: (1) automatically reinvest all distributions from a Fund in additional shares of that Fund; or (2) receive all distributions in cash. If you wish to change your distribution option, you should contact your Financial Institution (as defined below), who will be responsible for forwarding the necessary instructions to the Trust's transfer agent, Investors Fiduciary Trust Company ("IFTC"). If you do not select an option when you open your account, all distributions will be reinvested. You will receive a statement confirming reinvestment of distributions in additional shares of a Fund promptly following the month in which the reinvestment occurs. Tax information Federal taxes. Each Fund intends to qualify as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income (and gains, if any) it distributes to shareholders. Each Fund will distribute substantially all of its ordinary income (and net capital gains, if any) on a current basis. Dividends paid by a Tax-Exempt Fund that are derived from exempt-interest income (known as "exempt-interest dividends") and that are designated as such may be treated by the Fund's shareholders as items of interest excludable from their federal gross income. (Shareholders should consult their own tax adviser with respect to whether exempt-interest dividends would be excludable from gross income if the shareholder were treated as a "substantial user" of facilities financed by an obligation held by a Tax-Exempt Fund or a "related person" to such a user under the Internal Revenue Code.) If a shareholder receives an exempt-interest dividend with respect to any share held for six months or less, any loss on the sale or exchange of that share will be disallowed to the extent of the amount of the exempt-interest dividend. To the extent dividends paid to shareholders are derived from taxable income (for example, from interest on certificates of deposit) or from gains, such dividends will be subject to federal income tax, whether they are paid in the form of cash or additional shares. 12 If a Tax-Exempt Fund holds certain "private activity bonds" ("industrial development bonds" under prior law), dividends derived from interest on such obligations will be classified as an item of tax preference which could subject certain shareholders to alternative minimum tax liability. Corporate shareholders must also take all exempt-interest dividends into account in determining "adjusted current earnings" for purposes of calculating their alternative minimum tax liability. Shareholders receiving Social Security benefits or Railroad Retirement Act benefits should note that all exempt-interest dividends will be taken into account in determining the taxability of such benefits. Early in each year your Fund will notify you of the amount and tax status of distributions paid to you by the Fund for the preceding year. State taxes (California Tax-Exempt Money Market Fund). To the extent exempt-interest dividends are derived from interest on California Tax-Exempt Securities, such distributions will be exempt from California personal income tax (but not from California franchise and corporate income tax). For California tax purposes, distributions derived from investments in other than (i) California Tax-Exempt Securities and (ii) obligations of the United States (or other obligations) which pay interest exempt from California personal income taxation when held by an individual will be taxable as ordinary income or as long-term capital gain, whether paid in cash or reinvested in additional shares. Interest derived from California Tax-Exempt Securities is not subject to the California alternative minimum tax on individuals, and California personal income tax does not apply to any portion of Social Security or railroad retirement benefits. Interest on indebtedness incurred or continued to purchase or carry the Fund's shares generally will not be deductible for California personal income tax purposes. An investment in the Fund may result in liability for state and/or local taxes for shareholders subject to tax by states other than California. State taxes (New York Tax-Exempt Money Market Fund). To the extent exempt-interest dividends are derived from interest on New York Tax-Exempt Securities, such distributions will be exempt from New York State and New York City personal income taxes. However, an investment in the Fund may result in liability for state and/or local taxes for individual shareholders subject to taxation by states other than New York State or cities other than New York City, because the exemption from New York State and New York City personal income taxes does not prevent such other jurisdictions from taxing individual shareholders on dividends received from the Fund. In addition, distributions derived from interest on tax-exempt securities other than New York Tax Exempt Securities will be treated as taxable ordinary income for purposes of the New York State and New York City personal income taxes. Exempt-interest dividends, including those derived from New York Tax-Exempt Securities, are included in a corporation's net investment income for purposes of calculating such corporation's New York State corporate franchise tax and New York City general corporation tax and will be subject to such taxes to the extent that a corporation's net investment income is allocated to New York State and/or New York City. All or a portion of interest on indebtedness incurred or continued to purchase or carry the Fund's shares generally will not be deductible for federal or New York State and New York City personal income tax purposes. For New York State and City personal income tax purposes, distributions of net long-term gains will be taxable at the same rates as ordinary income. General. The foregoing is a summary of certain federal, California, and New York State and New York City income tax consequences of investing in the Funds. You should consult your tax adviser to determine the precise effect of an investment in each Fund on your particular tax situation. 13 Buying and Selling Shares of the Funds How to buy shares. The Trust offers shares of the Funds continuously at a price of $1.00 per share. The Trust determines the net asset value of each Fund twice each day, as of 12:00 noon and as of the close of regular trading on the Exchange. The shares of each Fund are sold at net asset value through a number of selected financial institutions, such as investment dealers and banks (each, a "Financial Institution"). Your Financial Institution is responsible for forwarding any necessary documentation to IFTC. There is no sales charge on sales of shares, nor is any minimum investment required for any of the Funds. Because each Fund seeks to be fully invested at all times, investments must be in Same Day Funds to be accepted. Investments which are accepted at or before 12:00 noon will be invested at the net asset value determined at that time; investments accepted after 12:00 noon will receive the net asset value determined at the close of regular trading on the Exchange. "Same Day Funds" are funds credited by the applicable regional Federal Reserve Bank to the account of the Trust at its designated bank. When payment in Same Day Funds is available to the Trust, the Trust will accept the order to purchase shares at the net asset value next determined. If you are considering redeeming shares or transferring shares to another person shortly after purchase, you should pay for those shares with wired Same Day Funds or a certified check to avoid any delay in redemption or transfer. Otherwise, the Trust may delay payment for shares until the purchase price of those shares has been collected which may be up to 15 calendar days after the purchase date. For more information on how to purchase shares of the Funds, contact your Financial Institution or Mentor Distributors, Inc. ("Mentor Distributors"), 901 East Byrd Street, Richmond, Virginia 23219, the principal underwriter of the Trust's shares. Mentor Distributors' telephone number is 1-800-382-0016. How to sell shares. You can redeem your Fund shares through your Financial Institution any day the Exchange is open, or you may redeem your shares by check or by mail. Redemption will be effected at the net asset value per share of the Fund next determined after receipt of the redemption request in good order. The Trust must receive your properly completed purchase documentation before you may sell shares. Selling shares through your Financial Institution. You may redeem your shares through your Financial Institution. Your Financial Institution is responsible for delivering your redemption request and all necessary documentation to the Trust, and may charge you for its services (including, for example, charges relating to the wiring of funds). Your Financial Institution may accept your redemption instructions by telephone. Consult your Financial Institution. Selling shares by check. If you would like the ability to write checks against your investment in a Fund, you should provide the necessary documentation to your Financial Institution and complete the signature card which you may obtain by calling your Financial Institution or your Fund. When a Fund receives your properly completed documentation and card, you will receive checks drawn on your Fund account and payable through the Fund's designated bank. These checks may be made payable to the order of any person. You will continue to earn dividends until the check clears. When a check is presented for payment, a sufficient number of full and fractional shares of the Fund in your account will be redeemed to cover the amount of the check. Your Financial Institution may limit the availability of the check-writing privilege or assess certain fees in connection with the checkwriting privilege. Shareholders using Trust checks are subject to the Trust's designated bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks, although one may be imposed in the future. Shareholders would be notified in advance of the imposition of any such charge. (In addition, if you deplete your original check supply, there may be a charge to order additional checks.) You should make sure that 14 there are sufficient shares in your account to cover the amount of the check drawn. If there is an insufficient number of shares in the account, the check will be dishonored and returned, and no shares will be redeemed. Because dividends declared on shares held in your account and prior withdrawals may cause the value of your account to change, it is impossible to determine in advance your account's total value. Accordingly, you should not write a check for the entire value of your account or close your account by writing a check. A shareholder may revoke check-writing authorization by written notice to IFTC. Selling shares by mail. You may also sell shares of a Fund by sending a written withdrawal request to IFTC. You must sign the withdrawal request and include a stock power with signature(s) guaranteed by a bank, broker/dealer, or certain other financial institutions. IFTC may require additional documentation from shareholders which are corporations, partnerships, agents, fiduciaries or surviving joint owners. Corporations, partnerships, agents, trusts, and fiduciary accounts must submit a completed resolution in proper form before selling shares. Resolution forms are available from IFTC and Mentor Distributors. A Fund generally sends you payment for your shares the business day after your request is received in good order. Under unusual circumstances, a Fund may suspend repurchases, or postpone payment for more than seven days, as permitted by federal securities law. How to Exchange Shares You can exchange your shares in any Fund for shares of any other Fund in the Trust at net asset value, except as described below. If you request an exchange through your Financial Institution, your Financial Institution will be responsible for forwarding the necessary documentation to IFTC. Exchange Authorization Forms are available from your Financial Institution or Mentor Distributors. For federal income tax purposes, an exchange is treated as a sale of shares and may result in a capital gain or loss. The Trust reserves the right to change or suspend the exchange privilege at any time. Shareholders would be notified of any change or suspension. Consult your Financial Institution or Mentor Distributors before requesting an exchange. Financial Institutions Financial Institutions provide varying arrangements for their clients with respect to the purchase and redemption of Trust shares and the confirmation thereof and may arrange with their clients for other investment or administrative services. When you effect transactions with a Fund (including among other things the purchase, redemption, or exchange of Fund shares) through a Financial Institution, the Financial Institution, and not the Fund, will be responsible for taking all steps, and furnishing all necessary documentation, to effect such transactions. Financial Institutions have the responsibility to deliver purchase and redemption requests to a Fund promptly. Some Financial Institutions may establish minimum investment requirements with respect to a Fund. They may also establish and charge fees and other amounts to their client for their services. Certain privileges, such as the check writing privilege or reinvestment options, may not be available through certain Financial Institutions or they may be available only under certain conditions. If your Financial Institution holds your investment in a Fund in its own name, then your Financial Institution will be the shareholder of record in respect of that investment; your ability to take advantage of any investment options or services of the Fund will depend on whether, and to what extent, your Financial Institution is willing to take advantage of them on your behalf. Financial Institutions, including Wheat, First Securities, Inc., a subsidiary of Wheat First Butcher Singer, Inc., and EVEREN Securities, Inc. ("EVEREN"), may charge fees to or impose restrictions on your shareholder 15 account. Consult your Financial Institution for information about any fees or restrictions or for further information concerning its services. Management The Trustees are responsible for generally overseeing the conduct of the Trust's business. Mentor Investment Advisors, L.L.C., located at 901 East Byrd Street, Richmond, Virginia 23219, serves as investment adviser to each of the Funds, providing investment advisory services and advising and assisting the officers of the Trust in taking such steps as are necessary or appropriate to carry out the decisions of the Trustees. Subject to such policies as the Trustees may determine, Mentor Advisors furnishes a continuing investment program for the Funds and makes investment decisions on their behalf. Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group, LLC ("Mentor"), which is in turn a subsidiary of Wheat First Butcher Singer, Inc., a diversified financial services holding company. Mentor Advisors and its affiliates serve as investment adviser to twenty-one separate investment portfolios in the Mentor Family of Funds, including the Funds. For a copy of the prospectus relating to any of these other funds, call Mentor Distributors at 1-800-382-0016. Mentor Advisors' address is 901 East Byrd Street, Richmond, Virginia 23219. EVEREN Capital Corporation has a 20% ownership interest in Mentor and may acquire additional ownership based principally on the amount of Mentor's revenues derived from assets attributable to clients of EVEREN and its affiliates. Mentor has informed the Trust that Wheat First Butcher Singer, Inc. will be acquired by First Union Corp. ("First Union"), in a transaction expected to occur as early as December of this year. First Union is a global financial services company with approximately $140 billion in assets and $10 billion in total stockholders' equity. The proposed arrangement does not contemplate any changes in the management or operations of Mentor or any of its investment advisory subsidiaries, including Mentor Advisors. Consummation of the acquisition, which is subject to a number of conditions, including regulatory approvals, will result in the termination of the investment advisory agreements between the Funds and Mentor Advisors. It is expected that the Trustees of the Trust will meet to consider new investment advisory agreements between the Funds and Mentor Advisors, to become effective upon consummation of the acquisition. Implementation of the new agreements, which would be substantially identical to the current investment advisory agreements, would be subject to approval of shareholders at a meeting expected to be held prior to the consummation of the acquisition. Each Fund pays management fees to Mentor Advisors monthly at the following annual rates (based on the average daily net assets of the Fund): 0.22% of the first $500 million of the 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 Funds pay all expenses not assumed by Mentor Advisors, including Trustees' fees, auditing, legal, custodial, investor servicing, and shareholder reporting expenses, and payments under their Distribution Plans. General expenses of the Trust will be charged to the assets of each Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each Fund or the nature of the services performed and relative applicability to each Fund. Expenses directly charged or attributable to a Fund will be paid from the assets of that Fund. Mentor Advisors places all orders for purchases and sales of the investments of each Fund. In selecting broker-dealers, Mentor Advisors may consider research and brokerage services furnished to it and its affiliates. 16 Subject to seeking the most favorable price and execution available, Mentor Advisors may consider sales of shares of the Funds (and, if permitted by law, of the other funds in the Mentor family) as a factor in the selection of broker-dealers. Distribution Services Each Fund has adopted a Distribution Plan (each, a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to permit each of the Funds to compensate Mentor Distributors for services provided and expenses incurred by it in promoting the sale of shares of the Fund, reducing redemptions, or maintaining or improving services provided to shareholders. The Plans provide for monthly payments by the Funds to Mentor Distributors, subject to the authority of the Trustees to reduce the amount of payments or to suspend the Plans for such periods as they may determine. Any material increase in amounts payable under a Plan would require shareholder approval. In order to compensate Financial Institutions for services provided in connection with sales of Fund shares and the maintenance of shareholder accounts (or, in the case of certain Financial Institutions which are banking institutions, for certain administrative and shareholder services), Mentor Distributors may make periodic payments (from any amounts received by it under the Plans or from its other resources) to any qualifying Financial Institution based on the average net asset value of shares for which the Financial Institution is designated as the financial institution of record. Mentor Distributors makes such payments at the annual rate of between 0.15% and 0.40% in the case of the Money Market Fund and the U.S. Government Money Market Fund, between 0.15% and 0.33% in the case of the Tax-Exempt Fund and the California Tax-Exempt Fund, and between 0.15% and 0.38% in the case of the New York Tax-Exempt Fund. Mentor Distributors may suspend or modify these payments at any time, and payments are subject to the continuation of each Fund's Plan and of applicable agreements between Mentor Distributors and the applicable Financial Institution. Financial Institutions receiving payments from Mentor Distributors include Wheat, First Securities, Inc., and EVEREN. How a Fund's Performance is Calculated Yield and effective yield data may from time to time be included in advertisements about the Funds. "Yield" is calculated by dividing a Fund's annualized net investment income per share during a recent seven-day period by the net asset value per share on the last day of that period. "Effective yield" compounds that yield for a year and is, for that reason, greater than a Fund's yield. "Tax-equivalent" yield shows the effect on performance of the tax-exempt status of distributions received from a Tax-Exempt Fund. It reflects the approximate yield that a taxable investment must earn for shareholders at stated income levels to produce an after-tax yield equivalent to the Fund's tax-exempt yield. Quotations of yield for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. A Fund's performance may be compared to various indices. See the Statement of Additional Information. All data is based on a Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of a Fund's portfolio, and a Fund's operating expenses. Investment performance also often reflects the risks associated with a Fund's investment objective and policies. These factors should be considered when comparing a Fund's investment results to those of other mutual funds and other investment vehicles. 17 General Information Cash Resource Trust is a Massachusetts business trust organized on June 14, 1993. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, diversified management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into five series of shares. Under the Agreement and Declaration of Trust, a Fund's shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights and privileges as the Trustees may determine. Each share has one vote, with fractional shares voting proportionally. Shares of each Fund are freely transferable, are entitled to dividends as declared by the Trustees, and, if a Fund were liquidated, would receive the net assets of the Fund. The Trust may suspend the sale of shares of any Fund at any time and may refuse any order to purchase shares. Although the Trust 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 Agreement and Declaration of Trust. Investors Fiduciary Trust Company, located at 127 West 10th Street, Kansas City, Missouri 64105, is the transfer agent and dividend-paying agent for the Trust. IFTC engages at its own expense certain Financial Institutions, including Wheat, First Securities, Inc. and EVEREN, to perform bookkeeping, data processing, and administrative services pertaining to the maintenance of shareholder accounts. If you own fewer shares of a Fund than a minimum amount set by the Trustees (presently 500 shares), the Trust may choose to redeem your shares and pay you for them. You will receive at least 30 days written notice before the Trust redeems your shares, and you may purchase additional shares at any time to avoid a redemption. The Trust may also redeem shares if you own shares of any Fund or of the Trust above any maximum amount set by the Trustees. There is presently no maximum, but the Trustees may establish one at any time, which could apply to both present and future shareholders. The Trust may send a single copy of shareholder reports and communications to an address where there is more than one registered shareholder with the same last name, unless a shareholder at that address requests, by calling or writing his Financial Institution or Mentor Distributors that the Trust do otherwise. 18 No person has been authorized to give any information or to make any representations other than those [logo] contained in this Prospectus and, if given or made, such other information or representations must not be relied upon as having been authorized by the Trust. This Prospectus does not constitute an Cash Resource Trust offer in any State in which, or to any person to whom, such offering may not lawfully be made. This Prospectus omits certain information contained in the Registration Statement, to which ----------------- reference is made, filed with the PROSPECTUS Securities and Exchange Commission. ----------------- Items which are thus omitted, including contracts and other documents referred to or summarized herein, may be obtained September 30, 1997 from the Commission upon payment of the prescribed fees. Additional information concerning the securities offered hereby and the Trust is to be found in the Registration Statement, including various exhibits thereto and financial statements included or incorporated therein, which may be inspected at the office of the Commission. Cash Resource Trust 901 East Byrd Street [logo] Richmond, VA 23219 (800) 382-0016 1997 Mentor Distributors, LLC CPA 040 No person has been authorized to give any information or to make any representations other than those [logo] contained in this Prospectus and, if given or made, such other information or representations must not be relied upon as having been authorized by the Trust. This Prospectus does not constitute an Cash Resource Trust offer in any State in which, or to any person to whom, such offering may not lawfully be made. This Prospectus omits certain information contained in the Registration Statement, to which ----------------- reference is made, filed with the PROSPECTUS Securities and Exchange Commission. ----------------- Items which are thus omitted, including contracts and other documents referred to or summarized herein, may be obtained September 30, 1997 from the Commission upon payment of the prescribed fees. Additional information concerning the securities offered hereby and the Trust is to be found in the Registration Statement, including various exhibits thereto and financial statements included or incorporated therein, which may be inspected at the office of the Commission. Cash Resource Trust 901 East Byrd Street [logo] Richmond, VA 23219 (800) 382-0016 1997 Mentor Distributors, LLC MK 1341 CASH RESOURCE TRUST FORM N-1A PART B STATEMENT OF ADDITIONAL INFORMATION September 30, 1997 This Statement of Additional Information contains information which may be of interest to investors but which is not included in the Prospectus dated September 30, 1997 (the "Prospectus") of Cash Resource Money Market Fund, Cash Resource U.S. Government Money Market Fund, Cash Resource Tax-Exempt Money Market Fund, Cash Resource California Tax-Exempt Money Market Fund, and Cash Resource New York 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 30, 1997. 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................................................... 6 MANAGEMENT OF THE TRUST................................................... 9 PRINCIPAL HOLDERS OF SECURITIES........................................... 13 INVESTMENT ADVISORY AND OTHER SERVICES.................................... 14 DETERMINATION OF NET ASSET VALUE.......................................... 18 TAXES ................................................................. 20 DISTRIBUTION.............................................................. 22 ORGANIZATION.............................................................. 24 PORTFOLIO TURNOVER........................................................ 25 CUSTODIAN................................................................. 25 INDEPENDENT AUDITORS...................................................... 25 PERFORMANCE INFORMATION................................................... 25 INVESTMENT PROFESSIONALS OF MENTOR INVESTMENT ADVISORS, LLC............... 34 SHAREHOLDER LIABILITY..................................................... 35 FINANCIAL STATEMENTS...................................................... 35 -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- Tax-Exempt Securities General description. As used in the prospectus and in this Statement with reference to Cash Resource Tax-Exempt Money Market Fund, Cash Resource California Tax-Exempt Money Market Fund, and Cash Resource New York Tax-Exempt Money Market Fund, the term "Tax-Exempt Securities" includes debt obligations issued by a state, its political subdivisions (for example, counties, cities, towns, villages, districts and authorities) and their agencies, instrumentalities or other governmental units, the interest from which is, in the opinion of bond counsel, exempt from federal income tax. "California Tax-Exempt Securities" are Tax-Exempt Securities issued by the State of California, or any of its political subdivisions, or its agencies, instrumentalities, or other governmental units, the interest from which is, in the opinion of bond counsel, also exempt from California personal income tax. "New York Tax-Exempt Securities" are Tax-Exempt Securities issued by the State of New York, or any of its political subdivisions, or its agencies, instrumentalities, or other governmental units (or of other governmental issuers, such as U.S. territories), the interest from which is, in the opinion of bond counsel, also exempt from New York State and City personal income taxes. For purposes of the section, the term "Tax-Exempt Securities" include California Tax-Exempt Securities and New York Tax-Exempt Securities. Such obligations are issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which Tax- Exempt Securities may be issued include the refunding of outstanding obligations or the payment of general operating expenses. Short-term Tax-Exempt Securities are generally issued by state and local governments and public authorities as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance such public purposes. In addition, certain types of "private activity" bonds may be issued by public authorities to finance such projects as privately operated housing facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal, student loans, or the obtaining of funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. Other types of private activity bonds, the proceeds of which are used for the construction, repair or improvement of, or to obtain equipment for, privately operated industrial or commercial facilities, may constitute Tax-Exempt Securities, although the current federal tax laws place substantial limitations on the size of such issues. Tax-Exempt Securities also include tax-exempt commercial paper, which are promissory notes issued by municipalities to enhance their cash flows. Participation interests. A Fund may invest in Tax-Exempt Securities either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on Tax- Exempt Securities, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on the certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related Tax- -4- Exempt Securities will be exempt from federal income tax to the same extent as interest on the Tax-Exempt Securities. A Fund may also invest in Tax-Exempt Securities by purchasing from banks participation interests in all or part of specific holdings of Tax- Exempt Securities. These participations may be backed in whole or in part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from a Fund in connection with the arrangement. A Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on Tax-Exempt Securities in which it holds such participation interests is exempt from federal, California and New York personal income taxes, as the case may be. No Fund expects to invest more than 5% of its assets in participation interests. Stand-by commitments. When a Fund purchases Tax-Exempt Securities, it has the authority to acquire stand-by commitments from banks and broker-dealers with respect to those Tax-Exempt Securities. A stand-by commitment may be considered a security independent of the state tax-exempt security to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances, would be substantially the same as the market value of the underlying Tax-Exempt Security to a third party at any time. Each Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. No Fund expects to assign any value to stand-by commitments. Yields. The yields on Tax-Exempt Securities depend on a variety of factors, including general money market conditions, effective marginal tax rates, the financial condition of the issuer, general conditions of the tax-exempt security market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The ratings of Moody's Investors Service, Inc. and Standard & Poor's represent their opinions as to the quality of the Tax-Exempt Securities which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax-Exempt Securities with the same maturity and interest rate but with different ratings may have the same yield. Yield disparities may occur for reasons not directly related to the investment quality of particular issues or the general movement of interest rates, due to such factors as changes in the overall demand or supply of various types of Tax-Exempt Securities or changes in the investment objectives of investors. Subsequent to purchase by a Fund, an issue of Tax-Exempt Securities or other investments may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Fund. Neither event will require the elimination of an investment from a Fund's portfolio, but Mentor Advisors will consider such an event in its determination of whether a Fund should continue to hold an investment in its portfolio. "Moral obligation" bonds. The Funds do not currently intend to invest in so-called "moral obligation" bonds, where repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation," meets the investment criteria established for investments by the Funds. -5- Additional risks. Securities in which a Fund may invest, including Tax-Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code (including special provisions related to municipalities and other public entities), and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power, ability or willingness of issuers to meet their obligations for the payment of interest and principal on their Tax-Exempt Securities may be materially affected. There is no assurance that any issuer of a Tax-Exempt Security will make full or timely payments of principal or interest or remain solvent. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax-exemption for interest on debt obligations issued by states and their political subdivisions. Federal tax laws limit the types and amounts of tax-exempt bonds issuable for certain purposes, especially industrial development bonds and private activity bonds. Such limits may affect the future supply and yields of these types of Tax-Exempt Securities. Further proposals limiting the issuance of tax-exempt bonds may well be introduced in the future. If it appeared that the availability of Tax-Exempt Securities for investment by a Fund and the value of the Fund's portfolio could be materially affected by such changes in law, the Trustees of the Trust would reevaluate a Fund's investment objectives and policies and consider changes in the structure of the Fund or its dissolution. INVESTMENT RESTRICTIONS The Trust has adopted the following restrictions applicable to all of the Funds (except where otherwise noted), 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 Investment Company Act of 1940, as amended (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. -6- 2. 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. 3. 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. 4. Purchase or sell commodities or commodity contracts. 5. 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. 6. 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. 7. Acquire more than 10% of the voting securities of any issuer, except that with respect to the Cash Resource California Tax-Exempt Money Market Fund and Cash Resource New York Tax-Exempt Money Market Fund this restriction only applies to 25% of such Fund's assets. 8. 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). 9. Issue any class of securities which is senior to a Fund's shares of beneficial interest, except as consistent with or permitted by the 1940 Act or as permitted by rule or order of the Securities and Exchange Commission. Other than the Cash Resource California Tax-Exempt Money Market Fund and Cash Resource New York Tax-Exempt Money Market Fund, a Fund may not: 1. 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. -7- 2. Purchase securities on margin, expect such short-term credits as may be necessary for the clearance of purchase and sales of securities. 3. 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. 4. 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. 5. Make investments for the purpose of gaining control of a company's management. 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 as fundamental and those designated in the Prospectus as fundamental, the 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. -8- 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, Mentor Funds and Mentor Institutional Trust. Arnold H. Dreyfuss Trustee Trustee, Mentor Funds and P.O. Box 18156 Mentor Institutional Trust; Richmond, Virginia 23226 formerly, Chairman and Chief Executive Officer, Hamilton Beach/Proctor-Silex, Inc. Thomas F. Keller Trustee Retired; Formerly Dean, Fuqua School of Business Fuqua School of Duke University Business, Duke University; Durham, NC 27706 Trustee, Mentor Funds and Mentor Institutional Trust. Louis W. Moelchert, Jr. Trustee Vice President of Business and University of Richmond Finance, University of Richmond, VA 23173 Richmond; Trustee, Mentor Funds and Mentor Institutional Trust; Director, America's Utility Fund, Inc.
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Principal Occupation Position Held With During Past Name and Address A Fund Five Years - ---------------- ------------------- -------------------- Stanley F. Pauley Trustee Chairman and Chief Carpenter Company, Executive Officer, Incorporated Carpenter Company; Trustee, 5016 Monument Avenue Mentor Funds and Mentor Richmond, Virginia 23261 Institutional Trust. Troy A. Peery, Jr. Trustee President, Heilig- Heilig-Meyers Company Meyers Company; 2235 Staples Mill Road Trustee, Mentor Funds and Richmond, Virginia 23230 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.; Trustee, Mentor Funds.
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Principal Occupation Position Held With During Past Name and Address A Fund Five Years - ---------------- ------------------- -------------------- Paul F. Costello President Managing Director, Wheat First 901 E. Byrd Street Butcher Singer, Inc. and Richmond, VA 23219 Mentor Investment Group, Inc.; President, 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.
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Principal Occupation Position Held With During Past Name and Address A Fund Five Years - ---------------- ------------------- -------------------- Terry L. Perkins Treasurer Senior 901 E. Byrd Street Vice President, Richmond, VA 23219 Mentor Investment Group, Inc.; Treasurer, Mentor Institutional Trust, Mentor Funds, and America's Utility Fund, Inc.; Trustee, Mentor Income Fund, Inc.; formerly, Treasurer and Comptroller, Ryland Capital Management, Inc. Michael Wade Assistant Treasurer Vice President, Mentor 901 E. Byrd Street Investment Group, LLC since Richmond, VA 23219 April 1994; Assistant Treasurer, Mentor Income Fund, Inc., Mentor Funds, Mentor Institutional Trust, and America's Utility Fund; formerly, Senior Accountant, Wheat First Butcher Singer, Inc., April 1993 through March 1994; Audit Senior, BDO Seidman, July 1989 through March 1993. John M. Ivan Secretary Managing Director and Director 10700 North Park Drive of Compliance since October Glen Allen, VA 23060 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 Mentor Funds
- ------------------------ * This Trustee is deemed to be an "interested person" of a Fund as defined in the 1940 Act. -12- 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 current fiscal year and the fees paid to each Trustee by all funds in the Mentor Family (including the Trust) during the 1996 calendar year. 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. 5,500 11,175 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, 1997, 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. -13- INVESTMENT ADVISORY AND OTHER SERVICES Under a Management Contract (the "Management Contract") between the Trust and Mentor Investment Advisors, LLC ("Mentor Advisors"), Mentor 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. Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group, LLC, which in turn is a subsidiary of Wheat First Butcher Singer Inc., a diversified financial services holding company. Until November 1, 1996, Commonwealth Advisors, Inc. served as investment advisor to each of the Funds then in existence, and Commonwealth Investment Counsel, Inc. served as sub-adviser to each of those Funds. On that date, Commonwealth Investment Counsel, Inc. was reorganized as Mentor Investment Advisors, LLC, which became investment advisor to the Funds in place of Commonwealth Advisors, Inc. The table below shows amounts paid to Mentor Advisors (or, for periods prior to November 1, 1996, to Commonwealth Advisors) by each Fund for the periods indicated:
(In Thousands) Fiscal year Fiscal Year Fiscal Year ended ended ended July 31, 1995 July 31, 1996 July 31, 1997 ------------- ------------- ------------- Cash Resource Money Market Fund $ 616 $ 1,173 $ 4,041 Cash Resource U.S. Government Money Market Fund $ 2,098 $ 2,660 $ 4,470 Cash Resource Tax-Exempt Money Market Fund $ 487 $ 632 $ 1,326 Cash Resource California Tax-Exempt Money Market Fund $ -- $ -- $ 121 Cash Resource New York Tax-Exempt Money Market Fund $ -- $ -- $ 11
-14- The amounts shown above as having been paid under the Management Contract to Commonwealth Advisors, Inc. or Mentor Advisors reflect expense reductions as follows, which are due to an expense limitation:
(In Thousands) Fiscal year Fiscal year Fiscal year ended ended ended July 31, 1995 July 31, 1996 July 31, 1997 ------------- ------------- ------------- Cash Resource Money Market Fund $ 0 $ 0 $ 0 Cash Resource U.S. Government Money Market Fund $ 0 $ 0 $ 0 Cash Resource Tax-Exempt Money Market Fund $ 49 $ 0 $ 0 Cash Resource California Tax-Exempt Money Market Fund $ -- $ -- $ 0 Cash Resource New York Tax-Exempt Money Market Fund $ -- $ -- $ 11
Mentor Advisors makes available to the Trust, without expense to the Trust, the services of such of its directors, officers, and employees as may duly be elected Trustees or officers of the Trust, subject to his individual consent to serve and to any limitations imposed by law. Mentor Advisors pays the compensation and expenses of officers and executive employees of the Trust. Mentor Advisors also provides investment advisory research and statistical facilities and all clerical services relating to such research, statistical, and investment work. Mentor 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 Mentor 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. -15- Mentor 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, Mentor Advisors will reimburse the Trust for such excess expense. This expense reimbursement obligation is not limited to the amount of Mentor Advisors' fees. Such expense reimbursement, if any, will be estimated, reconciled and paid on a monthly basis. The Management Contract provides that Mentor Advisors 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. The Management Contract may be terminated without penalty by vote of the Trustees as to any Fund or by the shareholders of that Fund, or by Mentor Advisors on 30 days written notice. The Management Contract also terminates without payment of any penalty in the event of its assignment. In addition, the Management 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 (in the case of the California and New York Tax- Exempt Funds, beginning in 1998) only so long as such 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 Mentor Advisors. 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 1940 Act. Mentor Advisors may place portfolio transactions with broker-dealers which furnish, without cost, certain research, statistical, and quotation services of value to it and its affiliates in advising the Funds and other clients, provided that it 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 Mentor Advisors . 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 Mentor Advisors on the same day. In such event, such transactions will be allocated among the clients in a manner believed by Mentor Advisors 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 Mentor Advisors in the interest of achieving the most favorable net results for the Fund. -16- 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. Mentor Advisors places 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, it uses its best efforts to obtain for the Funds the best price and execution available. In seeking the best price and execution, Mentor Advisors , having in mind the Funds' best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience, and financial stability of the broker-dealer involved, and the quality of service rendered by the broker-dealer in other transactions. 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, Mentor Advisors may receive research, statistical, and quotation services from many broker-dealers with which it places 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 Mentor Advisors and its 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 Mentor Advisors and its affiliates receive such services. As permitted by Section 28(e) of the Securities Exchange Act of 1934, and by the Management Contract , Mentor Advisors may cause a Fund to pay a broker-dealer which provides brokerage and research services to Mentor Advisors 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. Mentor Advisors' 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 -17- 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 , 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 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 Mentor Advisors 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, -18- 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 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"). -19- 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 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 and 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 total assets is invested in the securities of any issuer (other than U.S. Government Securities). In addition, until the start of a Fund's first tax year beginning after August 5, 1997, a Fund must derive less than 30% of its gross income from the sale or other disposition of certain assets (including stock or securities and certain options, futures contracts, forward contracts and foreign currencies) held for less than three months in order to qualify as a regulated investment company. 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 the sum of its taxable net investment income,its net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such 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 -20- 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 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. -21- 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 subject to change by legislative or administrative actions. Dividends and distributions also may be subject to state, local, foreign and other taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state , local or foreign 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 between Mentor Distributors and 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 by Mentor Distributors or Financial Institutions. 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 California Tax-Exempt Money Market Fund and the Cash Resource Tax- Exempt Money Market Fund and 0.50% in the case of the Cash Resource New York 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. -21- For the periods indicated, each Fund paid the following amounts to Mentor Distributors under its respective Plan:
(In thousands) Fiscal year Fiscal year Fiscal year ended ended ended July 31, 1995 July 31, 1996 July 31, 1997 ------------- ------------- ------------- Cash Resource Money Market Fund $ 1,061 $ 2,043 $ 8,221 Cash Resource U.S. Government Money Market Fund $ 3,764 $ 5,016 $ 9,126 Cash Resource Tax-Exempt Money Market Fund $ 730 $ 948 $ 2,039 Cash Resource California Tax-Exempt Money Market Fund $ -- $ -- $ 181 Cash Resource New York Tax-Exempt Money Market Fund $ -- $ -- $ 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:
(In thousands) Fiscal year Fiscal year Fiscal year ended ended ended July 31, 1995 July 31, 1996 July 31, 1997 ------------- ------------- ------------- Cash Resource Money Market Fund $ 1,061 $ 2,043 $ 8,221 Cash Resource U.S. Government Money Market Fund $ 3,764 $ 5,016 $ 9,126 Cash Resource Tax-Exempt Money Market Fund $ 730 $ 948 $ 2,039 Cash Resource California Tax-Exempt Money Market Fund $ -- $ -- $ 181 Cash Resource New York Tax-Exempt Money Market Fund $ -- $ -- $ 19
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 -23- 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 an annual rate of between 0.15% and 0.40% in the case of the Money Market Fund and the U.S. Government Money Market Fund, between 0.15% and 0.33% in the case of the Tax- Exempt Fund and in the California Tax-Exempt Fund, and between 0.15% and 0.38% in the case of the New York Tax-Exempt 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. 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 other than Mentor Advisors . 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. -24- 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. 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, 1997, Cash Resource Money Market Fund's yield was 4.84% and its effective yield was 4.95%. Based on the seven-day period ended July 31, 1997, Cash Resource U.S. Government Money Market Fund's yield was 4.80% and its effective yield was 4.91%. See below for information on how these Funds' yields and effective yields are calculated. Based on the seven-day period ended July 31, 1997, Cash Resource Tax-Exempt Money Market Fund's tax-exempt yield was 2.99%, and its tax-exempt effective yield was 3.03%. A shareholder in a 31.00% federal tax bracket would have to earn 4.33% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt yield of 2.99% and an effective yield of 4.39% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt effective yield of 3.03%. See below for information on how the Fund's tax-exempt yield and tax-exempt effective yield are calculated. Based on the seven-day period ended July 31, 1997, Cash Resource California Tax-Exempt Money Market Fund's tax-exempt yield was 2.77%, and its tax-exempt effective yield was 2.81%. A shareholder in a 31.00% federal tax bracket would have to earn -25- 4.01% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt yield of 2.77% and an effective yield of 4.07% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt effective yield of 2.81%. See below for information on how the Fund's tax-exempt yield and tax-exempt effective yield are calculated. Based on the seven-day period ended July 31, 1997, Cash Resource New York Tax-Exempt Money Market Fund's tax-exempt yield was 2.86% and its tax-exempt effective yield was 2.90% A shareholder in a 31.00% federal tax bracket would have to earn 4.14% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt yield of 2.86% and an effective yield of 4.20% from a taxable investment to produce an after-tax yield equal to the Fund's tax-exempt effective yield of 2.90%. 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 Cash Resource California Tax-Exempt Money Market Fund and the Cash Resource New York Tax- Exempt Money Market Fund, the tax-equivalent yield of each Fund during the base period may be presented for shareholders in one or more stated tax brackets. Tax-equivalent yield is calculated by adjusting a 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 a Fund's tax-exempt yield. A Fund's tax-equivalent yield will differ for shareholders in other tax brackets. -26- -27- 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 in effect for 1997. 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%.
- ----------------------------------------------------------------------------------------------------------------------------------- 1997 Marginal Taxable Income* federal Tax-exempt yield ______________ income ----------------------------------------------------------------------------- tax** Single Joint Rate 2% 3% 4% 5% 6% 7% 8% 9% 10% - ----------------------------------------------------------------------------------------------------------------------------------- Equivalent taxable yield $0 - 24,650 $0 - 41,200 15.00% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% 24,651 - 59,750 41,201 - 99,600 28.00% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% 59,751 - 124,650 99,601 - 151,750 31.00% 2.90% 4.35% 5.80% 7.25% 8.70% 10.15% 11.59% 13.04% 14.49% 124,651 - 271,050 151,751 - 271,050 36.00% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% over 271,051 over 271,051 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 in effect for 1997 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. -28- EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES California Tax-Exempt Money Market Fund The table below shows the effect of the tax status of California Tax-Exempt Securities on the effective yield received by their individual holders under the federal income tax and California personal income tax laws currently in effect for 1997. It gives the approximate yield a taxable security must earn at various income levels to produce after-tax yields equivalent to those of California Tax-Exempt Securities yielding from 2.0% to 9.0%.
- ------------------------------------------------------------------------------------------------------------------------ 1997 Combined Taxable Income* California Tax-exempt yield ______________ and ---------------------------------------------------------------- Federal Single*** Joint*** Rate** 2% 3% 4% 5% 6% 7% 8% 9% - ------------------------------------------------------------------------------------------------------------------------ Equivalent taxable yield $0 - 5,016 $0 - 10,032 15.85% 2.38% 3.57% 4.75% 5.94% 7.13% 8.32% 9.51% 10.70% 5,017 - 11,888 10,033 - 23,776 16.70% 2.40% 3.60% 4.80% 6.00% 7.20% 8.40% 9.60% 10.80% 11,889 - 18,761 23,777 - 37,522 18.40% 2.45% 3.68% 4.90% 6.13% 7.35% 8.58% 9.80% 11.03% 18,762 - 24,650 37,523 - 41,200 20.10% 2.50% 3.75% 5.01% 6.26% 7.51% 8.76% 10.01% 11.26% 24,651 - 26,045 41,201 - 52,090 32.32% 2.96% 4.43% 5.91% 7.39% 8.87% 10.34% 11.82% 13.30% 26,046 - 32,916 52,091 - 65,832 33.76% 3.02% 4.53% 6.04% 7.55% 9.06% 10.57% 12.08% 13.59% 32,917 - 59,750 65,833 - 99,600 34.70% 3.06% 4.59% 6.13% 7.66% 9.19% 10.72% 12.25% 13.78% 59,751 - 124,650 99,601 - 151,750 37.42% 3.20% 4.79% 6.39% 7.99% 9.59% 11.19% 12.78% 14.38% 124,651 - 271,050 151,751 - 271,050 41.95% 3.45% 5.17% 6.89% 8.61% 10.34% 12.06% 13.78% 15.50% over - 271,051 over - 271,051 45.22% 3.65% 5.48% 7.30% 9.13% 10.95% 12.78% 14.60% 16.43%
- ------------------ * This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code"). It assumes that taxable income as defined in the Code is the same as under the California Revenue and Taxation Code; however, California taxable income may differ due to differences in exemptions, itemized deductions, and other items. ** For federal income tax and California personal income tax purposes, these combined rates reflect the marginal rates on taxable income currently in effect for 1997. The maximum marginal California personal income tax rate for 1997 is currently 9.3%, and that is the maximum marginal California personal income tax rate used in the above Table. (These combined rates include the effect of deducting state income taxes on your federal return). *** The amount of taxable income in certain brackets may be affected by the phase-out of personal exemptions and the limitation on itemized deductions based upon adjusted gross income under the Code, and under the California Revenue and Taxation Code. Of course, there is no assurance that the Fund will achieve any specific tax-exempt yield. While it is expected that the Fund will invest principally in obligations which pay interest exempt from federal income tax and California personal income tax, other income received by the Fund may be taxable. The table does not take into account any state or local taxes payable on Fund distributions except for California personal income tax. -29- New York Tax-Exempt Money Market Fund The tables below show the effect of the tax status of New York Tax-Exempt Securities on the effective yield received by their individual holders, in the case of table 1, under the federal income tax and New York State personal income tax laws currently in effect for 1997, and in the case of table 2, under the federal, New York State and New York City personal income tax laws currently in effect for 1997. The tables give the approximate yield a taxable security must earn at various income levels to produce after-tax yields equivalent to those of New York Tax-Exempt Securities yielding from 3.0% to 8.0%. TABLE 1
- ----------------------------------------------------------------------------------------------------------------- 1997 Combined Taxable Income* New York State New York Tax-Exempt Security Yield of __________________________ and Federal -------------------------------------------------- Single Joint Tax Rate** 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% - ----------------------------------------------------------------------------------------------------------------- Equivalent taxable yield if double tax-exempt $0 - 8,000 $0 - 16,000 18.40% 3.68% 4.90% 6.13% 7.35% 8.58% 9.80% 8,001 - 11,000 16,001 - 22,000 18.83% 3.70% 4.93% 6.18% 7.39% 8.62% 9.86% 11,001 - 13,000 22,001 - 26,000 19.46% 3.73% 4.97% 6.21% 7.45% 8.69% 9.93% 13,001 - 20,000 26,001 - 40,000 20.02% 3.75% 5.00% 6.25% 7.50% 8.75% 10.00% 20,001 - 24,650 40,001 - 41,200 20.82% 3.79% 5.05% 6.32% 7.58% 8.84% 10.10% 24,651 - 59,750 41,201 - 99,600 32.93% 4.47% 5.96% 7.46% 8.85% 10.44% 11.93% 59,751 - 124,650*** 99,601 - 151,750*** 35.73% 4.69% 6.22% 7.78% 9.34% 10.89% 12.45% 124,651 - 271,050*** 151,751 - 271,050*** 40.38% 5.03% 6.71% 8.39% 10.06% 11.74% 13.42% over - 271,051*** over - 271,051*** 43.74% 5.33% 7.11% 8.89% 10.69% 12.44% 14.22%
-30- TABLE 2
- ------------------------------------------------------------------------------------------------------------------ 1997 Combined New York State, Taxable Income* New York City New York Tax-Exempt Security Yield of ________________________ and Federal --------------------------------------------------- Single Joint Tax Rate** 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% - ------------------------------------------------------------------------------------------------------------------ Equivalent taxable yield if double tax-exempt $0 - 8,000 $0 - 16,000 21.02% 3.80% 5.07% 6.33% 7.60% 8.86% 10.13% 8,001 - 11,000 16,001 - 21,600 21.44% 3.82% 5.09% 6.37% 7.64% 8.91% 10.18% 11,001 - 12,000 22.08% 3.85% 5.13% 6.42% 7.70% 8.98% 10.27% 21,601 - 22,000 22.51% 3.87% 5.16% 6.45% 7.74% 9.03% 10.32% 12,001 - 13,000 22,001 - 26,000 23.15% 3.90% 5.21% 6.51% 7.81% 9.11% 10.41% 13,001 - 20,000 26,001 - 40,000 23.70% 3.93% 5.24% 6.55% 7.86% 9.17% 10.49% 20,001 - 24,650 40,001 - 41,200 24.51% 3.97% 5.30% 6.62% 7.95% 9.27% 10.60% 24,651 - 25,000 41,201 - 45,000 36.06% 4.69% 6.26% 7.82% 9.38% 10.95% 12.51% 25,001 - 50,000 45,001 - 90,000 36.13% 4.70% 6.26% 7.83% 9.39% 10.96% 12.53% 50,001 - 59,750 90,001 - 99,600 36.14% 4.70% 6.26% 7.83% 9.40% 10.96% 12.53% 59,751 - 124,650*** 99,601 - 151,750*** 38.80% 4.90% 6.54% 8.17% 9.80% 11.44% 13.07% 124,651 - 271,050*** 151,751 - 271,050*** 43.24% 5.29% 7.05% 8.81% 10.57% 12.33% 14.09% over - 271,051*** over - 271,051*** 46.43% 5.60% 7.47% 9.33% 11.20% 13.07% 14.93%
- ------------------ * This amount represents taxable income as defined in the Code. For purposes of the foregoing tables, it is assumed that the definition of taxable income in the Code is the same as under the New York State and City Personal Income Tax law. However, New York State and City taxable income may differ due to differences in exemptions, itemized deductions, and other items. ** For federal tax purposes, these combined rates reflect the marginal rates on taxable income currently in effect for 1997. These rates include the effect of deducting state and, for the second table, state and city taxes on your federal return. For New York purposes, these combined rates reflect the expected New York State and New York City income tax rates and the New York City surcharge rates for 1997. *** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the limitation on itemized deductions, based upon adjusted gross income, under the Code. A supplemental New York State tax is also phased in for New York adjusted gross income between $100,000 and $150,000 and fully eliminates the benefit of the lower marginal brackets for taxpayers with New York adjusted gross income of $150,000 or more. This adjustment is not reflected in the tables above. Of course, there is no assurance that the Fund will achieve any specific tax-exempt yield. While it is expected that the Fund will invest principally in obligations which pay interest exempt from federal income tax and New York State and City personal income taxes, other income received by the Fund may be taxable. The tables do not take into account any state or local taxes payable on Fund distributions except for the New York State and for table 2, New York City personal income taxes. -31- 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. -32- 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 reflecting sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. -33- 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. -34- 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 thirteen 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 sixteen years of investment management experience and specializes in tax- free trades. Prior to joining the Mentor organization, Ms. Allen was portfolio group manager at PNC Institutional Management Corporation. She has her undergraduate degree in commerce and business administration from the University of Alabama. -35- 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. FINANCIAL STATEMENTS The financial statements are incorporated herein by reference from the Annual Report of the Trust to Shareholders on Form N-30D under the Investment Company Act of 1940, as amended, on September 25, 1997 (File No. 811-07862). -36- PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements: (1) Statements of Assets and Liabilities - July 31, 1997 - Incorporated by Reference in Part B. Statements of Operations - Year Ended July 31, 1997 Incorporated by Reference in Part B. Statements of Changes in Net Assets -- Years or Period Ended July 31, 1997 and 1996 -Incorporated by Reference in Part B. Financial Highlights - Included in Part A. Notes to Financial Statements - Incorporated by Reference in Part B. Independent Auditors Report - Incorporated by Reference in Part B. Included in Part C: None. (b) Exhibits (1) (A) Agreement and Declaration of Trust(1) (B) Amendments to Agreement and Declaration of Trust(2)(3) (2) Bylaws(1) (3) Inapplicable (4) (A) Forms of certificate representing shares of beneficial interest(1) (B) Portions of Agreement and Declaration of Trust Relating to Shareholders' Rights(1) (C) Portions of Bylaws Relating to Shareholders' Rights(1) (5) (A) Management Contract dated December 17, 1993(4) (B) Form of Letter of Transfer dated November 1, 1996(7) (6) Distribution Agreement dated December 17, 1993(4) (7) Inapplicable (8) Custody Agreement dated December 20, 1993(4) (9) (A) Agency Agreement dated December 20, 1993(4) (B) Draft Processing Agency Agreement dated December 20, 1993(4) (10) Opinion and Consent of Ropes & Gray(2) (11) Consent of Independent Auditors(7) (12) Inapplicable (13) Initial Capital Agreement dated December 17, 1993(4) (14) Inapplicable (15)(A) Distribution Plan and Agreement on behalf of Cash Resource Money Market Fund dated December 17, 1993(4) -1- (B) Distribution Plan and Agreement on behalf of Cash Resource U.S. Government Money Market Fund dated December 17, 1993(4) (C) Distribution Plan and Agreement on behalf of Cash Resource Tax- Exempt Money Market Fund dated December 17, 1993(4) (D) Form of Distribution Plan and Agreement on behalf of Cash Resource New York Tax-Exempt Money Market Fund (7) (E) Form of Distribution Plan and Agreement on behalf of Cash Resource California Tax-Exempt Money Market Fund (7) (16) Schedule of Computation of Performance(5) (17) Financial Data Schedules(7) (A) Cash Resource Money Market Fund (B) Cash Resource U.S. Government Money Market Fund (C) Cash Resource Tax-Exempt Money Market Fund (D) Cash Resource California Tax-Exempt Money Market Fund (E) Cash Resource New York Tax-Exempt Money Market Fund (1) Incorporated by reference from the Registrant's Registration Statement on Form N-1A under the Securities Act of 1993, as amended, filed on July 7, 1993. (2) Incorporated by reference from Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1993, as amended, filed on October 15, 1993 (File No. 33-65818). (3) Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, filed on November 5, 1993 (File No. 33- 65818). (4) Incorporated by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, filed on October 3, 1994 (File No. 33- 65818). (5) Incorporated by reference to Post-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, filed on September 29, 1995 (File No. 33- 65818). (6) Incorporated by reference to Post-Effective Amendment No. 3 to the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended, filed on August 12, 1996 (File No. 33- 65818). (7) Filed herewith. Item 25. Persons Controlled by or Under Common Control with Registrant None. -2- Item 26. Number of Record Holders of Securities The following table shows the number of holders of record of shares of beneficial interest of the Funds as of September 1, 1997 . Number of Record Series Holders ------ ---------------- Cash Resource Money Market Fund 231,356 Cash Resource U.S. Government Money Market Fund 300,731 Cash Resource Tax-Exempt Money Market Fund 28,045 Cash Resource California Tax-Exempt Money Market Fund 3,506 Cash Resource New York Tax-Exempt Money Market Fund 262 Item 27. Indemnification The information required by this item is incorporated herein by reference from the Registrant's Registration Statement on Form N-1A under the Securities Act of 1933, as amended (File No. 33-65818). Item 28. Business and Other Connections of Investment Adviser Mentor Investment Advisors, LLC ("Mentor Advisors"), located at 901 East Byrd Street, Richmond, Virginia 23219, serves as the Registrant's investment adviser. The business and other connections of each director, officer, or partner of Mentor Advisors in which such director, officer, or partner is or has been, at any time during the past two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner, or trustee are set forth in the following table. -3- Other Substantial Position with the Business, Profession, Name Investment Adviser Vocation or Employment* - ---- ------------------ ----------------------- John G. Davenport Managing Director Managing Director Mentor Investment Group, LLC R. Preston Nuttall Managing Director Managing Director Mentor Investment Group, LLC Paul F. Costello Managing Director Managing Director Mentor Investment Group, LLC and Mentor Perpetual Advisors, LLC; Senior Vice President Mentor Distributors, LLC, Executive Vice President and Chief Administrative Officer America's Utility Fund, Inc.; President Cash Resource Trust, Mentor Institutional Trust, Mentor Funds and Mentor Income Fund. Theodore W. Price Managing Director Managing Director Mentor Investment Group, LLC P. Michael Jones Managing Director Managing Director Mentor Investment Group, LLC Thomas Lee Souders Treasurer Managing Director and Chief Financial Officer, Wheat, First Securities, Inc.; Treasurer, Mentor Distributors, LLC Robert P. Wilson Assistant Treasurer Managing Director and Treasurer, Wheat, First -4- Other Substantial Position with the Business, Profession, Name Investment Adviser Vocation or Employment* - ---- ------------------ ----------------------- Securities, Inc.; Assistant Treasurer, Mentor Distributors, LLC John M. Ivan Secretary Managing Director, Assistant General Counsel, and Director of Compliance, Wheat, First Securities, Inc.; Clerk, Cash Resource Trust and Mentor Institutional Trust; Secretary, Mentor Funds and Mentor Distributors LLC * The address of Mentor Investment Group, Inc., Wheat, First Securities, Inc., Wheat First Butcher Singer, Inc., Mentor Funds, and Mentor Income Fund, Inc., is 901 East Byrd Street, Richmond, VA 23219. Item 29. Principal Underwriters (a) Mentor Distributors, Inc. acts as the principal underwriter for the Trust. (b) Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant - ------------------ --------------------- --------------------- Peter J. Quinn, Jr. President and Director Trustee 901 East Byrd Street Richmond, VA 23219 Paul F. Costello Senior Vice President President 901 East Byrd Street Richmond, VA 23219 David J. Kowach Vice President None 901 East Byrd Street Richmond, VA 23219 John M. Ivan Secretary Clerk 901 East Byrd Street Richmond, VA 23219 -5- Name and Principal Positions and Offices Positions and Offices Business Address with Underwriter with Registrant - ------------------ --------------------- --------------------- Howard T. Macrae, Jr. Assistant Secretary None 901 East Byrd Street Richmond, VA 23219 Thomas L. Souders Treasurer None 901 East Byrd Street Richmond, VA 23219 Robert P. Wilson Assistant Treasurer None 901 East Byrd Street Richmond, VA 23219 (c) Inapplicable Item 30. Location of Accounts and Records Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, John M. Ivan; Registrant's investment adviser, Mentor Advisors', and Registrant's transfer agent and custodian, Investors Fiduciary Trust Company. The address of the Clerk and Mentor Advisors is 901 East Byrd Street, Richmond, Virginia 23219. The address of the transfer agent and custodian is 127 West 10th Street, Kansas City, Missouri 64105-1716. Item 31. Management Services None. Item 32. Undertakings (a) The Registrant undertakes, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares of beneficial interest, to call a meeting of shareholders for the purpose of voting upon the question of removal of a Trustee or Trustees and to assist in communications with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. (b) The Registrant undertakes to furnish to each person to whom a prospectus of the Registrant is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge. -6- NOTICE A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers, or shareholders individually but are binding only upon the assets and property of the Registrant. -7- SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to be signed on behalf of the undersigned, thereunto duly authorized, in the City of Richmond, and the Commonwealth of Virginia on this 30th day of September, 1997. CASH RESOURCE TRUST By:/s/ Paul F. Costello --------------------- Name: Paul F. Costello Title: President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 30th day of September, 1997. Signature Title --------- ----- * Chairman; Trustee - ----------------- Daniel J. Ludeman * Trustee - ------------------ Arnold H. Dreyfuss Trustee - ---------------- Thomas F. Keller * Trustee - ----------------------- Louis W. Moelchert, Jr. Trustee - ----------------- Stanley F. Pauley * Trustee - ------------------ Troy A. Peery, Jr. Signature Title --------- ----- Trustee - -------------------- Peter J. Quinn, Jr. /s/ Paul F. Costello President; Principal Executive - -------------------- Officer Paul F. Costello /s/ Terry L. Perkins Treasurer; Principal Financial - -------------------- Officer; Principal Accounting Officer Terry L. Perkins *By:/s/ Paul F. Costello -------------------- Paul F. Costello Attorney-in-Fact EXHIBIT INDEX Exhibit No. Exhibit Page No. - ----------- ------- -------- (5) (B) Form of Letter of Transfer dated November 1, 1996 (11) Consent of Independent Auditors (15) (D) Form of Distribution Plan and Agreement on behalf of Cash Resource New York Tax- Exempt Money Market Fund (E) Form of Distribution Plan and Agreement on behalf of Cash Resource California Tax- Exempt Money Market Fund. (17) Financial Data Schedules (A) Cash Resource Money Market Fund (B) Cash Resource U.S. Government Money Market Fund (C) Cash Resource Tax-Exempt Money Market Fund (D) Cash Resource New York Tax- Exempt Money Market Fund (E) Cash Resource California Tax- Exempt Money Market Fund EX-5 2 EXHIBIT 5(B) EXHIBIT 5(B) November 1, 1996 Mentor Investment Advisors, LLC 901 East Byrd Street Richmond, Virginia 23219 Ladies and Gentlemen: Effective today, we hereby transfer to you all of our rights and obligations under the Management Contract dated December 17, 1993 in respect of the Cash Resource Money Market Fund, Cash Resource U.S. Government Money Market Fund, Cash Resource Tax Exempt Money Market Fund, Cash Resource California Tax-Exempt Money Market Fund, and Cash Resource New York Tax-Exempt Money Market Fund, each a series of Cash Resource Trust, and you hereby accept and assume any and all of such rights and obligations. If this letter is consistent with your understanding of the agreement between us, please acknowledge your acceptance by signing in the space indicated below. Very truly yours, Commonwealth Advisors, Inc. (formerly Cambridge Investment Advisors, Inc.) By: /s/ Paul F. Costello ------------------------ Name: Paul F. Costello Title: Managing Director Acknowledged and accepted: Mentor Investment Advisors, LLC By: /s/ Paul F. Costello ------------------------ Name: Paul F. Costello Title: Managing Director EX-11 3 EXHIBIT 11 EXHIBIT 11 CONSENT OF INDEPENDENT AUDITORS The Trustees Cash Resource Trust We consent to the use of our report dated September 5, 1997 incorporated herein by reference and to the reference to our firm under the captions "FINANCIAL HIGHLIGHTS" in the prospectus and "INDEPENDENT AUDITORS" in the statement of additional information. KPMG Peat Marwick LLP Boston, Massachusetts September 26, 1997 EX-15 4 EXHIBIT 15(D) EXHIBIT 15(D) DISTRIBUTION PLAN AND AGREEMENT This Plan and Agreement (the "Plan") constitutes the Distribution Plan of Cash Resource New York Tax-Exempt Money Market Fund (the "Fund"), a series of shares of beneficial interest of Cash Resource Trust, a Massachusetts business trust (the "Trust"), adopted pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), and the related agreement between the Trust and Mentor Distributors, Inc. ("Mentor Distributors"), the principal underwriter of the Trust's shares. During the effective term of this Plan, the Trust may make payments to Mentor Distributors upon the terms and conditions hereinafter set forth: Section 1. The Fund may make payments to Mentor Distributors, in the form of fees or reimbursements, to compensate Mentor Distributors for services provided and expenses incurred by it for purposes of promoting the sale of shares of the Fund, reducing redemptions of shares, or maintaining or improving services provided to shareholders by Mentor Distributors and financial institutions, including without limitation investment dealers. The amount of such payments and the purposes for which they are made shall be determined by the Qualified Trustees. Payments under this Plan shall not exceed in any fiscal year the annual rate of 0.50% of the average net asset value of the Fund, as determined at the close of each business day during the year. A majority of the Qualified Trustees (as defined below) may, at any time and from time to time, reduce the amount of such payments, or may suspend the operation of the Plan for such period or periods of time as they may determine. Section 2. This Plan shall not take effect until: (a) it has been approved by a vote of a majority of the outstanding voting securities of the Fund; and (b) it has been approved, together with any related agreements, by votes, of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of both (i) the Trustee of the Trust, and (ii) the Qualified Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 3. This Plan shall continue in effect for a period of more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Section 2(b). Section 4. Mentor Distributors shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. -1- Section 5. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees, or by vote of a majority of the Fund's outstanding voting securities. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: (a) that such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the Fund's outstanding voting securities, on not more than 60 days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding voting securities of the Fund, and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 2(b). Section 8. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment", "interested person", and "vote of a majority of the outstanding voting securities" shall have the respective meaning specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. Section 9. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers, or shareholders individually but are binding only upon the assets and property of the Fund. Executed as of September 29, 1996. MENTOR DISTRIBUTORS, INC. CASH RESOURCE TRUST on behalf of Cash Resource New York Tax-Exempt Money Market Fund By: /s/ Paul F. Costello By: /s/ Paul F. Costello -------------------- -------------------- -2- EX-15 5 EXHIBIT 15(E) EXHIBIT 15(E) DISTRIBUTION PLAN AND AGREEMENT This Plan and Agreement (the "Plan") constitutes the Distribution Plan of Cash Resource California Tax-Exempt Money Market Fund (the "Fund"), a series of shares of beneficial interest of Cash Resource Trust, a Massachusetts business trust (the "Trust"), adopted pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), and the related agreement between the Trust and Mentor Distributors, Inc. ("Mentor Distributors"), the principal underwriter of the Trust's shares. During the effective term of this Plan, the Trust may make payments to Mentor Distributors upon the terms and conditions hereinafter set forth: Section 1. The Fund may make payments to Mentor Distributors, in the form of fees or reimbursements, to compensate Mentor Distributors for services provided and expenses incurred by it for purposes of promoting the sale of shares of the Fund, reducing redemptions of shares, or maintaining or improving services provided to shareholders by Mentor Distributors and financial institutions, including without limitation investment dealers. The amount of such payments and the purposes for which they are made shall be determined by the Qualified Trustees. Payments under this Plan shall not exceed in any fiscal year the annual rate of 0.33% of the average net asset value of the Fund, as determined at the close of each business day during the year. A majority of the Qualified Trustees (as defined below) may, at any time and from time to time, reduce the amount of such payments, or may suspend the operation of the Plan for such period or periods of time as they may determine. Section 2. This Plan shall not take effect until: (a) it has been approved by a vote of a majority of the outstanding voting securities of the Fund; and (b) it has been approved, together with any related agreements, by votes, of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of both (i) the Trustee of the Trust, and (ii) the Qualified Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement. Section 3. This Plan shall continue in effect for a period of more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Section 2(b). Section 4. Mentor Distributors shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. -1- Section 5. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees, or by vote of a majority of the Fund's outstanding voting securities. Section 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: (a) that such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the Fund's outstanding voting securities, on not more than 60 days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. Section 7. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding voting securities of the Fund, and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 2(b). Section 8. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment", "interested person", and "vote of a majority of the outstanding voting securities" shall have the respective meaning specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. Section 9. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers, or shareholders individually but are binding only upon the assets and property of the Fund. Executed as of September 29, 1996. MENTOR DISTRIBUTORS, INC. CASH RESOURCE TRUST on behalf of Cash Resource California Tax-Exempt Money Market Fund By: /s/ Paul F. Costello By: /s/ Paul F. Costello -------------------- -------------------- -2- EX-27 6 FDS
6 01 CASH RESOURCE MONEY MARKET FUND 1,000 12-MOS JUL-31-1997 JUL-31-1997 2,931,813 2,931,813 18,246 106 38 2,950,203 0 0 8,598 8,598 0 2,941,605 2,941,635 646,500 0 0 0 0 0 2,941,605 0 120,023 0 18,725 101,298 (30) 0 101,268 0 101,298 0 0 11,609,162 9,410,466 96,439 2,295,105 0 0 0 0 4,041 0 18,725 2,170,424 1.00 0.05 0.00 0.00 0.05 0.00 1.00 0.86 0 0.00
EX-27 7 FDS
6 02 CASH RESOURCE U.S. GOVERNMENT MONEY MARKET FUND 1,000 12-MOS JUL-31-1997 JUL-31-1997 2,922,062 2,922,062 6,429 0 174 2,928,665 0 0 9,954 9,954 0 2,918,711 2,918,704 1,402,450 0 0 0 0 0 2,918,711 0 131,004 0 19,424 111,580 60 0 111,640 0 111,580 0 0 11,304,514 9,896,481 108,221 1,516,314 0 0 0 0 4,470 0 19,424 2,407,660 1.00 0.05 0.00 0.05 0.00 0.00 1.00 0.81 0 0.00
EX-27 8 FDS
6 03 CASH RESOURCE TAX-EXEMPT MONEY MARKET FUND 1,000 12-MOS JUL-31-1997 JUL-31-1997 740,201 740,201 5,442 0 35 745,678 0 0 2,064 2,064 0 743,614 743,617 290,894 0 0 0 0 0 743,614 0 22,237 0 4,386 17,851 0 0 17,851 0 17,851 0 0 2,957,235 2,521,741 17,229 452,723 0 0 0 0 1,326 0 4,386 619,590 1.00 0.03 0.00 0.03 0.00 0.00 1.00 0.71 0 0.00
EX-27 9 FDS
6 04 CASH RESOURCE CALIFORNIA TAX-EXEMPT MONEY MARKET FUND 12-MOS JUL-31-1997 JUL-31-1997 86,617 86,617 3,116 0 8 89,741 0 0 309 309 0 89,432 89,432 0 0 0 0 0 0 89,432 0 1,891 0 411 1,480 0 0 1,480 0 1,480 0 0 336,910 248,850 1,372 89,432 0 0 0 0 121 0 411 85,256 1.00 0.02 0.00 0.02 0.00 0.00 1.00 0.75 0 0.00
EX-27 10 FDS
6 05 CASH RESOURCE NEW YORK TAX-EXEMPT MONEY MARKET FUND 1,000 12-MOS JUL-31-1997 JUL-31-1997 12,074 12,074 51 0 2 12,127 0 0 56 56 0 12,071 12,071 0 0 0 0 0 0 12,071 0 177 0 39 138 0 0 138 0 138 0 0 40,518 28,570 123 12,071 0 0 0 0 11 0 51 7,836 1.00 0.02 0.00 0.02 0.00 0.00 1.00 0.80 0 0.00
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