MENTOR VARIABLE INVESTMENT PORTFOLIOS, 485BPOS, 1999-05-03

MENTOR VARIABLE INVESTMENT PORTFOLIOS
485BPOS, 1999-05-03

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As filed with the Securities and Exchange Commission on May 3, 1999

Registration No. 333-23939
File No. 811-08153

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X/
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 3 / X/
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X/
ACT OF 1940 ---

Amendment No. 4 / X/
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(Check appropriate box or boxes)

MENTOR VARIABLE INVESTMENT PORTFOLIOS
(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
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PAUL F. COSTELLO, President
901 East Byrd Street
Richmond, Virginia 23219
(Name and address of agent for service)
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Copy to:
TIMOTHY W. DIGGINS, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective (check appropriate box):

[X] immediately upon filing pursuant to paragraph (b)

[ ] on May 3, 1999 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)

[ ] on pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

This Amendment relates only to the Balanced, Capital Growth, Perpetual
International, Growth, and High Income Portfolios of the Registrant. No
information relating to any other portfolios is amended, deleted, or superseded
hereby.

<PAGE>

P R O S P E C T U S May 3, 1999

Mentor Variable Investment Portfolios

OFFERING INVESTMENT CHOICES FOR PURCHASE BY SEPARATE ACCOUNTS OF INSURANCE
COMPANIES

o MENTOR VIP CAPITAL GROWTH PORTFOLIO
seeking long-term appreciation of capital
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR VIP GROWTH PORTFOLIO
seeking long-term capital growth
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR VIP HIGH INCOME PORTFOLIO
seeking high current income and, secondarily, capital growth
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

You can call Mentor Services Company, Inc. at (800) 869-6042 to find out
more about these Portfolios.

This Prospectus explains what you should know about the Portfolios before
you invest. Please read it carefully.
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SHARES OF THE PORTFOLIOS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED
EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND
VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS PARTICIPATING
INSURANCE COMPANIES.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary Information ................................ 3
Principal Investment Strategies and Risks .......... 5
Other Investments and Risks ........................ 11
Management ......................................... 14
How the Portfolios Value Their Shares .............. 14
Sales and Redemptions .............................. 15
Distribution Plan .................................. 15
Exchange Privilege ................................. 16
How Distributions are Made ......................... 16
Taxes .............................................. 16
Financial Highlights ............................... 17
Appendix ........................................... 18
</TABLE>

<PAGE>

SUMMARY INFORMATION

Mentor Variable Investment Portfolios (the "Trust") provides investment
options through a number of separate investment portfolios (the "Portfolios"),
with varying investment objectives and policies, for purchase by separate
accounts of insurance companies.

The following Portfolio summaries describe each Portfolio's investment
objective (or objectives) and principal investment strategies and identify the
principal risks of investing in each Portfolio.

It is possible to lose money on investments in the Portfolios. An
investment in a Portfolio is not a deposit with a bank and is not insured by
the Federal Deposit Insurance Corporation or any other government agency.

MENTOR VIP CAPITAL GROWTH PORTFOLIO

o INVESTMENT OBJECTIVE. To provide long-term appreciation of capital.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests in a wide variety
of securities which Mentor Investment Advisors, LLC ("Mentor Advisors")
believes offer the potential for capital appreciation over both the
intermediate and long terms. In selecting investments, Mentor Advisors attempts
to identify securities it believes will provide capital appreciation over the
intermediate or long term due to changes in the financial condition of issuers,
changes in financial conditions generally, or other factors.

The Portfolio invests primarily in common stocks. The Portfolio may also
invest in preferred stocks, investment-grade bonds (I.E., rated at the time of
purchase at least Baa by Moody's Investors Service, Inc. or BBB- by Standard &
Poor's Ratings Service, Inc. or deemed by Mentor Advisors to be of comparable
quality), convertible preferred stocks, convertible debentures, and any other
class or type of security Mentor Advisors believes offers the potential for
capital appreciation.

o PRINCIPAL RISKS.

o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to
changes in interest rates) and to credit risk (the risk that the issuer may
become unable or unwilling to make timely payments of principal and
interest). Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to
greater credit and market risks than higher-rated securities. When interest
rates rise, the values of fixed-income securities held by the Portfolio
typically decline. The longer the maturity of a security, the more its
value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time
of purchase, it will not necessarily sell securities which are down-graded
after purchase.

<PAGE>

MENTOR VIP GROWTH PORTFOLIO

o INVESTMENT OBJECTIVE. Long-term capital growth.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests in companies
that, in the opinion of Mentor Advisors, have demonstrated earnings, asset
values, or growth potential not yet reflected in their market price. A key
indication of such undervaluation considered by Mentor Advisors is earnings
growth which is above average compared to the S&P 500 Index. Other important
factors in selecting investments include a strong balance sheet and product
leadership in niche markets.

Under normal circumstances at least 75% of the Portfolio's assets will be
invested in common stocks of companies domiciled or located in the United
States. Although the Portfolio may invest in companies of any size, the
Portfolio invests principally in common stocks of small to mid-sized companies.

o PRINCIPAL RISKS.

o EQUITY SECURITIES. A risk of investing in the Portfolio is the risk
that the value of the equity securities in the Portfolio will fall, or will
not appreciate as anticipated by Mentor Perpetual, due to factors that
adversely affect markets in general or particular companies in the
Portfolio. The Portfolio is more sensitive to this risk because it invests
primarily in smaller companies.

o SMALLER COMPANIES. The Portfolio invests primarily in smaller
companies, which tend to be more vulnerable than larger companies to
adverse developments affecting the companies specifically or markets
generally. Smaller companies may have limited product lines, markets, or
financial resources, or may depend on a limited management group. Their
securities may trade infrequently and in limited volumes. As a result, the
prices of these securities may fluctuate more than the prices of securities
of larger, more widely traded companies.

MENTOR VIP HIGH INCOME PORTFOLIO

o INVESTMENT OBJECTIVE. To seek high current income. Capital growth is a
secondary objective when consistent with the objective of seeking high current
income.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio normally invests at least
65% of its assets in securities rated Baa or lower by Moody's Investors
Service, Inc. or BBB or lower by Standard & Poor's Ratings Service, Inc. and in
unrated securities determined by Mentor Advisors to be of comparable quality.
The Portfolio will normally invest a substantial portion of its assets in
securities rated below Baa by Moody's Investors Service, Inc. or BBB by
Standard & Poor's Ratings Service, Inc. and in unrated securities determined by
Mentor Advisors to be of comparable quality. The Portfolio's investments will
normally include debt securities and preferred stocks, although the Portfolio
may invest in any other security Mentor Advisors believes offers the potential
for high current income or capital growth.

The Portfolio may invest in certain securities because they offer high
current income. The Portfolio may invest in other securities because Mentor
Advisors expects them to appreciate in value as a result of declines in
long-term interest rates or of favorable developments affecting the business or
prospects of the issuer which may improve the issuer's financial condition and
credit rating. The Portfolio may invest in securities of any maturity.

<PAGE>

The Portfolio may at times invest up to 10% of its assets in securities
rated in the lowest grades (Ca or C by Moody's Investors Service, Inc. and CC,
C, or D by Standard & Poor's Rating Service, Inc.) or in unrated securities
determined by Mentor Advisors to be of comparable quality, if Mentor Advisors
believes that there are prospects for an upgrade in the security's rating or a
favorable conversion of a security into other securities. The Portfolio might
also invest in such securities if Mentor Advisors were to believe that, upon
completion of any contemplated exchange offer or reorganization involving a
security or its issuer, the Portfolio would receive securities or other assets
offering significant opportunities for capital appreciation or future high
rates of current income.

The Portfolio seeks its secondary objective of capital growth, when
consistent with its primary objective of seeking high current income, by
investing in securities which may be expected to appreciate in value as a
result of declines in long-term interest rates or of favorable developments
affecting the business or prospects of the issuer which may improve the
issuer's financial condition and credit rating.

o PRINCIPAL RISKS.

o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to changes
in interest rates) and to credit risk (the risk that the issuer may become
unable or unwilling to make timely payments of principal and interest). When
interest rates rise, the values of fixed-income securities held by the
Portfolio typically decline. The longer the maturity of a security, the more
its value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time of
purchase, it will not necessarily sell securities which are downgraded after
purchase.

o LOWER-RATED SECURITIES ("JUNK BONDS"). Investors should carefully
consider their ability to assume the risks of owning shares of a mutual fund
that invests in lower-rated securities (sometimes referred to as "junk bonds").
Securities rated Baa or BBB or below lack outstanding investment
characteristics and have speculative characteristics and are subject to greater
credit and market risks than higher-rated securities. Some lower-rated
securities may be speculative to a high degree, and their prices may be highly
volatile. The ratings of lower-rated securities reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal.

PRINCIPAL INVESTMENT STRATEGIES AND RISKS

A Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolios' principal
strategies and risks.

MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES (VIP HIGH
INCOME PORTFOLIO). The VIP High Income Portfolio may invest in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Interest and principal
payments on the mortgages underlying mortgage-backed securities are passed
through to the holders of the mortgage-backed securities. Mortgage-backed
securities currently offer yields higher than those available from many other
types of fixed-income securities, but because of their prepayment aspects,
their price volatility and yield characteristics will change based on changes
in prepayment rates. Generally, prepayment rates increase if interest rates
fall, and decrease if interest rates rise. For many types of mortgage-backed
securities, this can result in unfavorable

<PAGE>

changes in price and yield characteristics in response to changes in interest
rates and other market conditions. For example, as a result of their prepayment
aspects, the Portfolio's mortgage-backed securities have less potential for
capital appreciation during periods of declining interest rates than other
fixed-income securities of comparable maturities, although such obligations may
have a comparable or greater risk of decline in market value during periods of
rising interest rates.

The Portfolio may invest in stripped mortgage-backed securities. Stripped
mortgage-backed securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage assets. The Portfolio may invest in both the interest-only -- or "IO"
- -- class and the principal-only -- or "PO" -- class. The yield to maturity and
price of an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the
Portfolio's net asset value. This would typically be the case in an environment
of falling interest rates. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, the Portfolio may under some
circumstances fail to fully recoup its initial investment in these securities.
Conversely, POs tend to increase in value if prepayments are greater than
anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolio's ability to buy or sell those securities at any
particular time.

Certain mortgage-backed securities held by the Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining interest
rates, the Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.

Mortgage-backed securities have yield and maturity characteristics that
are dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on the securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgaged-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of prepayments
may significantly lengthen the effective durations of such securities.

The VIP High Income Portfolio may also invest in other types of
mortgage-related securities, including any securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans or real property, including collateralized mortgage obligation
"residual" interests. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by the
mortgage assets underlying a series of mortgage securities is applied first to
make required payments of principal of and interest on the mortgage securities
and second to pay the related administrative expenses of the issuer. The
residual generally represents the right to any excess cash flow remaining after
the foregoing payments are made. Each payment of such excess cash flow to a
holder of the related residual represents income and/or a return of capital.
The amount of residual cash flow resulting from a series of mortgage securities
will depend on, among other things, the characteristics of the mortgage assets,
the coupon rate of each class of the mortgage securities, prevailing interest
rates, the amount of administrative expenses, and the prepayment experience on
the mortgage assets. The

<PAGE>

values of residuals are extremely sensitive to changes in interest rates. The
yield to maturity on residual interests may be extremely sensitive to
prepayments on the related underlying mortgage assets in the same manner as an
interest-only class of stripped mortgaged-backed securities. In addition, if a
series of mortgage securities includes a class that bears interest at an
adjustable rate, the yield to maturity on the related residual interest may
also be extremely sensitive to changes in the level of the index upon which
interest rate adjustments are based. In certain circumstances, there may be
little or no excess cash flow payable to residual holders. The Portfolio may
fail to recoup fully its initial investment in a residual.

Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently
may not have the liquidity of other more established securities trading in
other markets. Residuals also may be subject to certain restrictions on
transferability. As a result, the Portfolio may be unable to dispose of these
interests at prices approximating the values the Portfolio had previously
assigned to them.

The VIP High Income Portfolio may invest in securities representing
interests in other types of financial assets, such as automobile-finance
receivables or credit-card receivables. Such securities are subject to many of
the same risks as are mortgage-backed securities, including prepayment risks,
refinancing risks, and risks of foreclosure. They may or may not be secured by
the receivables themselves or may be unsecured obligations of their issuers.

FOREIGN SECURITIES (VIP CAPITAL GROWTH AND VIP HIGH INCOME PORTFOLIOS).
Investment in foreign securities entails certain risks. Since foreign
securities are normally denominated and traded in foreign currencies, the value
of a Portfolio's assets may be affected favorably or unfavorably by currency
exchange rates and exchange control regulations, foreign withholding taxes, and
restrictions or prohibitions on the repatriation of foreign currencies. There
may be less information publicly available about a foreign company than about a
U.S. company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those
in the United States. The securities of some foreign companies are less liquid
and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Portfolio's assets held abroad) and expenses not present in
the settlement of domestic investments.

In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of a Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. In the case of securities issued
by a foreign governmental entity, the issuer may in certain circumstances be
unable or unwilling to meet its obligations on the securities in accordance
with their terms, and a Portfolio may have limited recourse available to it in
the event of default. The laws of some foreign countries may limit a
Portfolio's ability to invest in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign securities. A
Portfolio may buy or sell foreign currencies and options and futures contracts
on foreign currencies for hedging purposes in connection with its foreign
investments.

<PAGE>

The VIP Capital Growth Portfolio will limit investments in foreign
securities to 15% of its total assets. (This percentage limitation does not
apply to American Depository Receipts, Global Depository Receipts, and other
U.S. dollar-denominated securities of issuers located outside of the United
States.)

JUNK BONDS (VIP HIGH INCOME PORTFOLIO). INVESTORS SHOULD CAREFULLY
CONSIDER THEIR ABILITY TO ASSUME THE RISKS OF OWNING SHARES OF A MUTUAL FUND
THAT INVESTS IN LOWER-RATED SECURITIES (SOMETIMES REFERRED TO AS "JUNK BONDS")
BEFORE MAKING AN INVESTMENT IN THE PORTFOLIO. The lower ratings of lower-rated
securities held by the Portfolio reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Portfolio more
volatile and could limit the Portfolio's ability to sell its securities at
prices approximating the values the Portfolio had placed on such securities. It
is possible that legislation may be adopted in the future limiting the ability
of certain financial institutions to purchase lower-rated securities; such
legislation may adversely affect the liquidity of such securities. In the
absence of a liquid trading market for securities held by it, the Portfolio may
be unable at times to establish the fair market value of such securities. The
rating assigned to a security by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Service, Inc. does not reflect an assessment of the volatility
of the security's market value or of the liquidity of an investment in the
security. For more information about the rating services' descriptions of
lower-rated securities, see the Appendix to this Prospectus.

Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the values of these investments. Changes in the
values of Portfolio securities generally will not affect cash income derived
from such securities, but will affect the Portfolio's net asset value. The
Portfolio will not necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase, although Mentor Advisors will monitor
the investment to determine whether continued investment in the security will
assist in meeting the Portfolio's investment objectives.

Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. In addition,
such issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The risk of
loss due to default in payment of interest or principal by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness. Certain of the
lower-rated securities in which the Portfolio may invest are issued to raise
funds in connection with the acquisition of a company, in so-called "leveraged
buy-out" transactions. The highly leveraged capital structure of such issuers
may make them especially vulnerable to adverse changes in economic conditions.

<PAGE>

managed by Mentor Advisors and its affiliates, holds a major portion or all of
such securities, which may limit the liquidity of such securities. The
Portfolio could find it difficult or impossible to sell illiquid securities
when Mentor Advisors believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
In many cases, such securities may be purchased in private placements and,
accordingly, will be subject to restrictions on resale as a matter of contract
or under securities laws. Under such circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value. In order to enforce its rights in
the event of a default under securities in cases where the Portfolio holds a
major portion or all of the outstanding issue, the Portfolio may be required to
take possession of and manage assets securing the issuer's obligations on such
securities, which may increase the Portfolio's operating expenses and adversely
affect the Portfolio's net asset value. The Portfolio may also be limited in
its ability to enforce its rights and may incur greater costs in enforcing its
rights in the event an issuer becomes the subject of bankruptcy proceedings.

The Portfolio may at times invest in so-called "payment-in-kind" bonds.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks
than bonds that pay interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required for Federal
income tax purposes to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Portfolio
could be required at times to liquidate other investments in order to satisfy
this distribution requirement.

Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates, the
Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.

Mentor Advisors seeks to minimize the risks involved in investing in
lower-rated securities through diversification and careful investment analysis.
When the Portfolio invests in high yield securities in the lower rating
categories, achievement of the Portfolio's goals depends more on Mentor
Advisors' investment analysis than would be the case if the Portfolio were
investing in securities in the higher rating categories.

ZERO-COUPON BONDS. Any Portfolio that may invest in debt securities may at
times invest in so-called "zero-coupon" bonds. Zero-coupon bonds are issued at
a significant discount from face value and pay interest only at maturity rather
than at intervals during the life of the security. Because zero-coupon bonds do
not pay current interest, their value is subject to greater fluctuation in
response to changes in market interest rates than bonds that pay interest
currently. Zero-coupon bonds allow an issuer to avoid the need to generate cash
to meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds that pay interest currently. Even though such bonds do
not pay current interest in cash, a Portfolio is nonetheless required for
federal income tax purposes to accrue interest income on such investments and
to distribute such amounts at least annually to shareholders. Thus, a Portfolio
that invests in zero-coupon bonds could be required at times to liquidate other
investments in order to satisfy this distribution requirement.

<PAGE>

SMALLER COMPANIES (VIP GROWTH PORTFOLIO). Smaller companies may offer
greater opportunities for capital appreciation than larger companies, but
investments in such companies involve certain special risks. Small companies
often have limited product lines, markets, or financial resources. They may be
dependent on a limited management group. While the markets in small company
securities have grown rapidly in recent years, such securities trade less
frequently and in smaller volume than more widely held securities. These
securities tend to fluctuate more sharply in value than other securities, and
the Portfolio may experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There is usually
less publicly-available information about small companies and less market
interest in small company securities than in large company securities, and
these securities may therefore take longer to reflect the full value of their
issuers' underlying earnings potential or assets.

Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The Portfolio may not be able to sell such
securities when it wishes. Mentor Advisors or its affiliates or clients may
hold securities issued by the same issuers, and may in some cases have acquired
the securities at different times, on more favorable terms, or at more
favorable prices, than the Portfolio.

INTEREST RATE TRANSACTIONS (VIP HIGH INCOME PORTFOLIO). The VIP High
Income Portfolio may enter into interest rate swaps and other interest rate
transactions, such as interest rate caps, floors, and collars, for hedging
purposes or to adjust the interest rate sensitivity of its Portfolio. Interest
rate swaps involve the exchange by the Portfolio with another party of
different types of interest-rate streams (E.G., and exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal). The purchase of an interest rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. The Portfolio's ability to
engage in certain interest rate transactions may be limited by tax
considerations. The use of interest rate swaps and other interest rate
transactions is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary Portfolio
securities transactions. If Mentor Advisors is incorrect in its forecasts of
market values, interest rates, or other applicable factors, the investment
performance of the Portfolio would be less favorable than it would have been if
this investment technique were not used.

TEMPORARY DEFENSIVE STRATEGIES. Mentor Advisors may implement temporary
defensive strategies in order to reduce fluctuations in the value of a
Portfolio's assets. At those times, a Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments the Advisor considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, a
Portfolio will use these defensive strategies. Implementation of temporary
defensive strategies may restrict a Portfolio's ability to achieve its
investment objective.

PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of a Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements.
A change in the securities held by a Portfolio is known as "portfolio
turnover." Portfolio turnover generally involves some expense to a Portfolio,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and

<PAGE>

reinvestment in other securities, and therefore will affect Portfolio
performance. Such sales may increase the amount of capital gains (and, in
particular, short-term gains) realized by the Portfolios, on which shareholders
pay tax.

OTHER INVESTMENTS AND RISKS

The following provides more detail about the Portfolios' investments and
risks and other circumstances which could adversely affect the Portfolios'
shares or their total return or yield.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS (VIP CAPITAL GROWTH AND VIP
HIGH INCOME PORTFOLIOS). The VIP Capital Growth and VIP High Income Portfolios
may purchase securities on a "when-issued" basis. The price of such securities
is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date (normally
within one month of purchase). A Portfolio may also purchase securities for
future delivery. "When-issued" securities and forward commitments may increase
a Portfolio's overall investment exposure and may result in losses.

LEVERAGE (VIP CAPITAL GROWTH AND VIP HIGH INCOME PORTFOLIOS). The VIP
Capital Growth and VIP High Income Portfolios may borrow money to invest in
additional portfolio securities. This practice, known as "leverage," increases
a Portfolio's market exposure and its risk and may result in losses. When a
Portfolio has borrowed money for leverage and its investments increase or
decrease in value, the Portfolio's net asset value will normally increase or
decrease more than if it had not borrowed money. The interest a Portfolio must
pay on borrowed money will reduce the amount of any potential gains or increase
any losses. The extent to which a Portfolio will borrow money, and the amount
it may borrow, depend on market conditions and interest rates. Successful use
of leverage depends on Mentor Advisors' ability to predict market movements
correctly.

OPTIONS AND FUTURES. Each of the Portfolios may buy and sell call and put
options to hedge against changes in net asset value or to realize a greater
current return. In addition, through the purchase and sale of futures contracts
and related options, the Portfolios may at times seek to hedge against
fluctuations in net asset value and, to the extent consistent with applicable
law, to increase investment return.

A Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that a
Portfolio will be able to utilize these instruments effectively for the
purposes stated above. Transactions in options and futures involve certain
risks which are described below and in the Statement of Additional Information.

Transactions in options and futures contracts involve brokerage costs and
may require a Portfolio to segregate assets to cover its outstanding positions.
For more information, see the Statement of Additional Information.

INDEX FUTURES AND OPTIONS. Each of the Portfolios may buy and sell index
futures contracts ("index futures") and options on index futures and on indices
for hedging purposes (or may purchase warrants whose value is based on the
value from time to time of one or more foreign securities indices). An "index
futures" contract is a contract to buy or sell units of a particular bond or
stock index at an agreed price on a specified future date. Depending on the
change in value of the index between the time when a Portfolio enters into and
terminates an index futures or option transaction, the Portfolio realizes a
gain or loss. The Portfolios may also, to the extent consistent with applicable
law, buy and sell index futures and options to increase their investment
return.

<PAGE>

RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
security or index or of the securities held by a Portfolio that are the subject
of a hedge. The successful use by a Portfolio of the strategies described above
further depends on the ability of Mentor Advisors to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close
out futures or options positions. Although a Portfolio will enter into options
or futures transactions only if Mentor Advisors believes that a liquid
secondary market exists for such options or futures contracts, there can be no
assurance that a Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price.

Each Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. A Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. A Portfolio's
ability to terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to a Portfolio. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of Mentor Advisors, the
pricing mechanism and liquidity of the over-the-counter markets are
satisfactory and the participants are responsible parties likely to meet their
obligations.

A Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the
Portfolio's existing futures positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the Portfolio's assets. (For
options that are "in-the-money" at the time of purchase, the amount by which
the option is "in-the-money" is excluded from this calculation.)

PREMIUM SECURITIES. Any Portfolio that may invest in debt securities may
at times invest in securities bearing coupon rates higher than prevailing
market rates. Such "premium" securities are typically purchased at prices
greater than the principal amount payable on maturity. Although the Portfolios
generally amortize the amount of any such premium into income, a Portfolio may
recognize a capital loss if such premium securities are called or sold prior to
maturity and the call or sale price is less than the purchase price.
Additionally, a Portfolio may recognize a capital loss if it holds such
securities to maturity.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Each of the Portfolios may engage
in foreign currency exchange transactions to protect against uncertainty in the
level of future currency exchange rates. The Portfolios may engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect against changes in
the value of specific portfolio positions ("position hedging").

Each of the Portfolios also may engage in transaction hedging to protect
against a change in foreign currency exchange rates between the date on which
it contracts to purchase or sell and the settlement date, or to "lock in" the
U.S. dollar equivalent of a dividend or interest payment in a foreign currency.
The Portfolios may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging.

<PAGE>

at a rate or rates that may be higher or lower than the spot rate. Foreign
currency futures contracts are standardized exchange-traded contracts and have
margin requirements. For transaction hedging purposes, each of the Portfolios
may also purchase and sell call and put options on foreign currency futures
contracts and on foreign currencies.

Each of the Portfolios may engage in position hedging to protect against a
decline in value relative to the U.S. dollar of the currencies in which
portfolio securities are denominated or quoted (or an increase in value of a
currency in which securities the Portfolio intends to buy are denominated). For
position hedging purposes, the Portfolios may purchase or sell foreign currency
futures contracts and foreign currency forward contracts, and may purchase and
sell put and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, the Portfolios may also
purchase or sell foreign currencies on a spot basis.

Although there is no limit to the amount of any Portfolio's assets that
may be invested in foreign currency exchange and foreign currency forward
contacts, each Portfolio will only enter into such transactions to the extent
necessary to effect the hedging transactions described above.

REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolios may enter into
repurchase agreements and securities loans. Under a repurchase agreement, a
Portfolio purchases a debt instrument for a relatively short period (usually
not more than one week), which the seller agrees to repurchase at a fixed time
and price, representing the Portfolio's cost plus interest. Under a securities
loan, a Portfolio lends portfolio securities. Each of the Portfolios may enter
into each type of transaction on up to one-third of its assets. A Portfolio
will enter into repurchase agreements and securities loans only with commercial
banks and with registered broker-dealers who are members of a national
securities exchange or market makers in government securities, and in the case
of repurchase agreements, only if the debt instrument is a U.S. Government
security. Although Mentor Advisors will monitor these transactions to ensure
that they will be fully collateralized at all times, a Portfolio bears a risk
of loss if the other party defaults on its obligation and a Portfolio is
delayed or prevented from exercising its rights to dispose of the collateral.
If the other party should become involved in bankruptcy or insolvency
proceedings, it is possible that a Portfolio may be treated as an unsecured
creditor and be required to return the underlying collateral to the other
party's estate.

YEAR 2000. It is generally recognized that certain computer systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. The Portfolios receive services from a number of providers which
rely on the smooth functioning of their respective systems and the systems of
others to perform those services. In addition, the Portfolios' software, that
of the issuers of securities held by the Portfolios, and the securities markets
generally could be subject to problems caused by the "Year 2000" problem.
Mentor Advisors is taking steps that it believes are reasonably designed to
address each of these potential "Year 2000" problems and to obtain satisfactory
assurances that comparable steps are being taken by the Portfolios' other major
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolios from this problem.

MANAGEMENT RISK. Although a Portfolio may have the flexibility to use some
or all of the investment strategies, securities, and derivative instruments
described in this Prospectus and in the Statement of Additional Information,
the Mentor Advisors may choose not to use a particular strategy or type of
security for a variety of reasons. Also, in some market conditions some
strategies and securities may not be available for use. These choices may cause
the Portfolio to miss opportunities, lose money, or not achieve its objective.

<PAGE>

CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change any Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and
the risks involved in an investment in the Portfolio.)

MANAGEMENT

Mentor Investment Group, LLC, located at 901 East Byrd Street, Richmond,
Virginia 23219 provides the Portfolios with certain administrative personnel
and services necessary to operate the Portfolios, such as bookkeeping and
accounting services. Mentor Investment Group provides these services to the
Portfolios at an annual rate of 0.10% of the Portfolios' average net assets.

Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group,
which is in turn a subsidiary of Wheat First Butcher Singer, Inc. ("Wheat First
Butcher Singer"). Wheat First Butcher Singer is a wholly owned subsidiary of
First Union Corp. ("First Union"), a leading financial services company with
approximately $223 billion in assets and $16 billion in total stockholders'
equity as of March 31, 1999. Mentor Advisors and its affiliates serve as
investment advisers to over twenty separate investment portfolios in the Mentor
Family of Funds, with total assets under management of more than $15 billion.

Subject to the general oversight of the Trustees, Mentor Advisors manages
the Portfolios in accordance with the stated policies of each Portfolio. Mentor
Advisors makes investment decisions for the Portfolios and places the purchase
and sale orders for each Portfolio's portfolio transactions. In selecting
broker-dealers, Mentor Advisors may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Mentor Advisors may consider sales of shares of a Portfolio (and, if
permitted by law, of other funds in the Mentor family) as a factor in the
selection of broker-dealers to execute portfolio transactions for that
Portfolio. Mentor Advisors may at times cause the Portfolios to pay commissions
to broker-dealers which are affiliated with Mentor Advisors.

HOW THE PORTFOLIOS VALUE THEIR SHARES

<PAGE>

days or less are stated at amortized cost, which has been determined to
approximate the fair market value of such investments. All other securities and
assets are valued at their fair values.

Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rates or at such other rates as may be used in
accordance with procedures approved by the Trustees. As a result, fluctuations
in the values of such currencies in relation to the U.S. dollar will affect the
net asset value of Portfolio shares even though there has not been any change
in the values of such securities as quoted in such foreign currencies. All
assets and liabilities of a Portfolio denominated in foreign currencies are
valued in U.S. dollars based on the exchange rate last quoted by a major bank
prior to the time when the net asset value of the Portfolio's shares is
calculated. Because certain of the securities in which the Portfolios may
invest trade on days when the Portfolios do not price their shares, the net
asset value of a Portfolio's shares may change on days when shareholders will
not be able to purchase or redeem their shares.

SALES AND REDEMPTIONS

The Trust has an underwriting agreement relating to the Portfolios with
Mentor Distributors, LLC ("Mentor Distributors"), located at 3435 Stelzer Road,
Columbus, Ohio 43219. Mentor Distributors offers shares of the Portfolios
continuously to separate accounts of various participating insurance companies.
Mentor Distributors is not obligated to sell any specific amount of shares.

Separate accounts of participating insurance companies place orders to
purchase and redeem shares of the Portfolios based on, among other things, the
amount of premium payments to be invested and surrender and transfer requests
to be effected on that day pursuant to variable annuity contracts and variable
life insurance policies. Orders received by the Trust or its agent are effected
on days on which the New York Stock Exchange is open for trading.

Shares of the Portfolios are sold or redeemed at the net asset value per
share next determined after receipt of a purchase or redemption request in good
order. Orders for purchases or sales of shares of the Portfolios must be
received by the Trust or its agent before the close of regular trading on the
New York Stock Exchange in order to receive that day's net asset value. No fee
is charged to a separate account when it redeems Portfolio shares.

Payment for redemptions will be made within seven days after receipt of a
redemption request in good order. Under unusual circumstances, the Trust may
suspend redemptions or postpone payment for up to seven days or longer, as
permitted by federal securities law.

Please check with your insurance company to determine if a Portfolio is
available under your variable annuity contract or variable life insurance
policy. Certain Portfolios may not be available in your state or under your
contract or policy. Inclusion in this Prospectus of a Portfolio that is not
available to you is not to be considered a solicitation. This Prospectus should
be read in conjunction with the prospectus of the separate account of the
specific insurance product which accompanies this Prospectus.

DISTRIBUTION PLAN

<PAGE>

course, any payment by a Portfolio pursuant to the Distribution Plan would have
the effect of increasing the cost to shareholders of an investment in the
Portfolio over time.) None of the Portfolios currently makes payments under the
Plan.

Payments under the Distribution Plan would be intended to compensate
Mentor Distributors for services provided and expenses incurred by it as
principal underwriter of the Portfolios' shares, including for payments to
participating insurance companies to cover various costs incurred or paid by
any such insurance companies in connection with the selling of Portfolio
shares. Depending on a participating insurance company's corporate structure
and applicable law, Mentor Distributors may remit payments to a participating
insurance company's affiliates. The schedules of such fees and the basis upon
which fees would be paid would be determined from time to time by Mentor
Distributors. Mentor Distributors may suspend or modify such payments at any
time. Such payments would also be subject to the continuation of the
Distribution Plan, the terms of any agreements between dealers and Mentor
Distributors, and any applicable limits imposed by the National Association of
Securities Dealers, Inc. Mentor Distributors may, at its expense, provide
promotional incentives to dealers that sell variable insurance products.

EXCHANGE PRIVILEGE

A shareholder may exchange shares of a Portfolio for shares of any other
Portfolio of the Trust on the basis of their respective net asset values.
Exchanges may not be made into Portfolios not offered by your variable annuity
contract or variable life policy.

The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on separate accounts. In order to limit excessive
exchange activity and in other circumstances where Mentor Distributors or the
Trustees believe doing so would be in the best interests of a Portfolio, the
Trust reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges, or reject any exchange. Your insurance
company would be notified of any such action to the extent required by law.
Before requesting an exchange, call 1-800-869-6042 for more information. See
the Statement of Additional Information to find out more about the exchange
privilege.

HOW DISTRIBUTIONS ARE MADE

The Portfolios distribute net investment income and any net realized
capital gains at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers.

All Portfolio distributions will be invested in additional Portfolio
shares of the same class, unless the shareholder instructs a Portfolio
otherwise.

TAXES

Each Portfolio intends to qualify as a "regulated investment company" that
is entitled to special tax treatment under the Internal Revenue Code. As a
result, none of the Portfolios is expected to be subject to federal income tax
on any net income or capital gains to the extent they are distributed to
shareholders. The Portfolios will distribute substantially all of their net
investment income and capital gain net income on a current basis.

<PAGE>

serve as the funding vehicles solely for such separate accounts meet certain
diversification requirements. The Portfolios intend to comply with these
requirements. For more information, see the Statement of Additional
Information.

PORTFOLIOS THAT MAY INVEST IN FOREIGN SECURITIES. A Portfolio's
investments in foreign securities may be subject to foreign withholding taxes.
In that case, a Portfolio's yield on those securities would be decreased. In
addition, a Portfolio's investments in foreign securities or foreign currencies
may increase or accelerate a Portfolio's recognition of income. This could
require a Portfolio to liquidate investments that it otherwise would not have
liquidated in order to meet distribution requirements.

The tax consequences of your investment in a Portfolio depend upon the
provisions of the variable annuity or variable life insurance plan through
which you invest. For more information, please refer to the prospectus of the
insurance company separate account that offers your annuity or life insurance
contract.

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand the
Portfolios' financial performance for the periods of their operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends
and distributions). The tables for each Portfolio have been derived from the
Financial Highlights included in Mentor Variable Investment Portfolios'
financial statements, which have been audited by KPMG Peat Marwick LLP, Mentor
Variable Investment Portfolios' independent auditors. The report of KPMG Peat
Marwick LLP, along with the Portfolios' financial statements and notes thereto,
is incorporated by reference into the Statement of Additional Information. A
copy of the Annual Report may be obtained free of charge from the Trust. Each
of the Portfolios shown below commenced investment operations on March 3, 1998.

<TABLE>
<CAPTION>
MENTOR VIP MENTOR VIP CAPITAL
GROWTH PORTFOLIO GROWTH PORTFOLIO
------------------ -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD .............................. $ 12.50 $ 12.50
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................................ 0.02 0.03
Net realized and unrealized gain (loss) on investments ........... (1.06) 1.05
-------- --------
Total from investment operations ................................. (1.04) 1.08
-------- --------
NET ASSET VALUE, END OF PERIOD .................................... $ 11.46 $ 13.58
======== ========
Total Return*(b) ................................................. (8.32)% 8.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ......................... $ 11,064 $ 20,142
Ratio of expenses to average net assets .......................... 0.97%(a) 1.05%(a)
Ratio of expenses to average net assets excluding waiver ......... 1.77%(a) 1.36%(a)
Ratio of net investment income to average net assets ............. 0.44%(a) 0.50%(a)
Portfolio turnover rate .......................................... 62% 54%
</TABLE>

- ----------
(a) Annualized.
(b) Total return does not reflect charges of the separate accounts.
* Total return does not include sales commissions and is not annualized.

<PAGE>

APPENDIX

MOODY'S INVESTORS SERVICE, INC., BOND RATINGS

Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, (I.E., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba -- Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

STANDARD AND POOR'S RATINGS SERVICE, INC., BOND RATINGS

AAA -- An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

<PAGE>

A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

Obligations rated BB, B, CCC, CC and C are regarded as having significant
speculative characteristics. BB indicates the lowest degree of speculation and
C the highest. While such obligations will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligations. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.

CCC -- An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC -- An obligation rated CC is currently highly vulnerable to nonpayment.

C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments on this
obligation are being continued.

D -- An obligation rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition, or the taking of a
similar action if payments on an obligation are jeopardized.

MOODY'S NOTE RATINGS

MIG1/VMIG1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.

MIG2/VMIG2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

<PAGE>

STANDARD AND POOR'S NOTE RATINGS

SP-1 -- Strong capacity to pay principal and interest. Issues determined
to possess overwhelming safety characteristics are given a plus sign (+)
designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

SP-3 -- Speculative capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by the following characteristics:

-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of saety is not as high as for
issues designated "A-1".

A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

<PAGE>

THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION (SAI) AND ANNUAL AND
SEMI-ANNUAL REPORTS TO SHAREHOLDERS INCLUDE ADDITIONAL INFORMATION ABOUT THE
PORTFOLIOS. THE SAI AND THE FINANCIAL STATEMENTS INCLUDED IN EACH PORTFOLIO'S
MOST RECENT ANNUAL REPORT TO SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, WHICH MEANS THEY ARE PART OF THIS PROSPECTUS FOR LEGAL
PURPOSES. EACH PORTFOLIO'S ANNUAL REPORT DISCUSSES THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED EACH PORTFOLIO'S PERFORMANCE
DURING ITS LAST FISCAL YEAR. YOU MAY GET FREE COPIES OF THESE MATERIALS,
REQUEST OTHER INFORMATION ABOUT A PORTFOLIO, OR MAKE SHAREHOLDER INQUIRIES BY
CALLING 1-800-869-6042.

YOU MAY REVIEW AND COPY INFORMATION ABOUT THE TRUST, INCLUDING ITS SAI,
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 1-800-SEC-0330 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. YOU MAY ALSO ACCESS REPORTS
AND OTHER INFORMATION ABOUT THE TRUST ON THE COMMISSION'S INTERNET SITE AT
HTTP://WWW.SEC.GOV. YOU MAY GET COPIES OF THIS INFORMATION, UPON PAYMENT OF
COPYING COSTS, BY WRITING THE PUBLIC REFERENCE SECTION OF THE COMMISSION,
WASHINGTON, D.C. 20549-6009. YOU MAY NEED TO REFER TO THE TRUST'S FILE NUMBER
UNDER THE INVESTMENT COMPANY ACT, WHICH IS 811-8153.

MENTOR INVESTMENT GROUP
901 East Byrd Street
Richmond, VA 23219
(800) 869-6042

1999 MENTOR DISTRIBUTORS, LLC

MK VIP99

MENTOR
VARIABLE
INVESTMENT
PORTFOLIOS

-------------------------
PROSPECTUS
-------------------------
May 3, 1999

[MENTOR LOGO]

<PAGE>

P R O S P E C T U S May 3, 1999

Mentor Variable Investment Portfolios
OFFERING INVESTMENT CHOICES FOR PURCHASE BY SEPARATE ACCOUNTS OF INSURANCE
COMPANIES

o MENTOR VIP BALANCED PORTFOLIO
seeking capital growth and current income
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR VIP CAPITAL GROWTH PORTFOLIO
seeking long-term appreciation of capital
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR VIP PERPETUAL INTERNATIONAL PORTFOLIO
seeking long-term capital appreciation by investing in a diversified
portfolio of securities of issuers outside the United States
ADVISOR: MENTOR PERPETUAL ADVISORS, LLC

o MENTOR VIP GROWTH PORTFOLIO
seeking long-term capital growth
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR VIP HIGH INCOME PORTFOLIO
seeking high current income and, secondarily, capital growth
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

You can call Mentor Services Company, Inc. at (800) 869-6042 to find out
more about these Portfolios.

This Prospectus explains what you should know about the Portfolios before
you invest. Please read it carefully.

----------------
SHARES OF THE PORTFOLIOS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED
EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND
VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS PARTICIPATING
INSURANCE COMPANIES.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary Information ................................ 3
Principal Investment Strategies and Risks .......... 8
Other Investments and Risks ........................ 13
Management ......................................... 16
How the Portfolios Value Their Shares .............. 17
Sales and Redemptions .............................. 18
Distribution Plan .................................. 18
Exchange Privilege ................................. 19
How Distributions are Made ......................... 19
Taxes .............................................. 19
Financial Highlights ............................... 20
Appendix ........................................... 21
</TABLE>

<PAGE>

SUMMARY INFORMATION

The following Portfolio summaries describe each Portfolio's investment
objective (or objectives) and principal investment strategies and identify the
principal risks of investing in each Portfolio.

Each of Mentor Investment Advisors, LLC and Mentor Perpetual Advisors, LLC
is sometimes referred to in this Prospectus as an "Advisor," and the two are
sometimes referred to collectively as the "Advisors."

MENTOR VIP BALANCED PORTFOLIO

o INVESTMENT OBJECTIVE. To seek capital growth and current income.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests in a diversified
portfolio of equity and fixed-income securities which Mentor Investment
Advisors, LLC ("Mentor Advisors") believes will produce both capital growth and
current income.

The Portfolio's securities will include some securities selected primarily
to provide for growth in value, others selected for current income, and others
for stability of principal.

Mentor Advisors will adjust the proportions of the Portfolio's assets
invested in the different types of securities in order to adjust to changing
market conditions. For example, under certain market conditions, Mentor
Advisors may judge that most of the Portfolio's assets should be invested in
equity securities, and that only a relatively small portion of the Portfolio's
assets should be invested in fixed-income securities. At other times, Mentor
Advisors may invest most of the Portfolio's assets in fixed-income securities,
with a corresponding reduction in the portion of the Portfolio's assets
invested in equity securities. Under normal circumstances, the Portfolio will
invest at least 25% of its assets in fixed-income securities and 25% of its
assets in equity securities. The Portfolio's investments will normally include:
common stocks, preferred stocks, and investment grade fixed-income securities
(such as U.S. Government securities, corporate bonds, bonds of other private
issuers, mortgage-backed securities, and other asset-backed securities).
"Investment grade" securities are securities rated at the time of purchase at
least Baa by Moody's Investors Service, Inc. or BBB- by Standard & Poors
Ratings Service, Inc. or deemed by Mentor Advisors to be of comparable quality.

o PRINCIPAL RISKS.

o ALLOCATION RISK. Mentor Advisors adjusts the proportions of the
Portfolio's assets allocated among different types of securities based on
its analysis of current and expected market conditions. It is possible that
Mentor Advisors will not identify or predict changes in market conditions
correctly or that an allocation made by Mentor Advisors in a particular
type of investment will not produce favorable investment returns under
market conditions prevailing at the time.

<PAGE>

o LEVERAGE. The Portfolio may borrow money by engaging in reverse
repurchase agreements to invest in additional securities. The use of
borrowed money increases the Portfolio's market exposure and risk and may
result in losses. The interest that the Portfolio must pay on borrowed
money will reduce its net investment income, and may also either offset any
potential capital gains or increase any losses.

MENTOR VIP CAPITAL GROWTH PORTFOLIO

o INVESTMENT OBJECTIVE. To provide long-term appreciation of capital.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio invests in a wide variety
of securities which Mentor Advisors believes offer the potential for capital
appreciation over both the intermediate and long terms. In selecting
investments, Mentor Advisors attempts to identify securities it believes will
provide capital appreciation over the intermediate or long term due to changes
in the financial condition of issuers, changes in financial conditions
generally, or other factors.

o PRINCIPAL RISKS.

<PAGE>

value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time
of purchase, it will not necessarily sell securities which are down-graded
after purchase.

MENTOR VIP PERPETUAL INTERNATIONAL PORTFOLIO

o INVESTMENT OBJECTIVE. Long-term capital appreciation.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to invest in
companies, large or small, where earnings are believed to be in a relatively
strong growth trend, or where significant further growth is not anticipated but
where the shares are thought to be undervalued. The Portfolio may invest a
substantial portion of its assets in securities of smaller companies and will
likely at times invest a substantial portion of its assets in issuers located
in emerging markets. In identifying candidates for investment, Mentor Perpetual
Advisors, LLC ("Mentor Perpetual") considers a variety of factors, including
the likelihood of above average earnings growth, attractive relative valuation,
and whether the company has any proprietary advantages. Mentor Perpetual may
also conduct discussions with management, visit the premises of issuers, and
analyze industry and market trends in order to select its investments.

The Portfolio's investments will normally include a diversified portfolio
of equity securities of issuers located outside the United States, such as
common stocks, preferred stocks, securities convertible into common stocks or
preferred stocks, and warrants to purchase common stocks or preferred stocks.
The Portfolio will only invest in debt securities which are of investment grade
(I.E., rated at the time of purchase at least Baa by Moody's Investors Service,
Inc. or BBB- by Standard & Poor's Ratings Service, Inc. or deemed by Mentor
Perpetual to be of comparable quality). The Portfolio may invest in debt
securities of any maturity depending on Mentor Perpetual's assessment of
current market conditions.

o PRINCIPAL RISKS.

o EQUITY SECURITIES. A risk of investing in the Portfolio is the risk
that the value of the equity securities in the Portfolio will fall, or will
not appreciate as anticipated by Mentor Perpetual, due to factors that
adversely affect markets in general or particular companies in the
portfolio. The Portfolio is especially sensitive to this risk because it
may invest a substantial portion of its assets in smaller companies.

o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks
related to political or economic instability, changes in currency exchange
rates, and taxation.

o EMERGING MARKET SECURITIES. Investments in emerging markets are
subject to the same risks applicable to foreign investments generally, but
to a greater extent. For example, the securities markets and legal systems
in emerging markets may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed
countries. Many of the securities in which the Portfolio may invest may
trade in limited volume and may be illiquid. Exchanges, if any, on which
they trade may not provide all of the conveniences or protections provided
by securities exchanges in more developed markets.

o SMALLER COMPANIES. The Portfolio may invest a substantial portion of
its assets in smaller companies, which tend to be more vulnerable than
larger companies to adverse developments affecting the companies
specifically or markets generally. Smaller companies may have limited
product lines, markets, or financial

<PAGE>

resources, or may depend on a limited management group. Their securities
may trade infrequently and in limited volumes. As a result, the prices of
these securities may fluctuate more than the prices of securities of
larger, more widely traded companies.

MENTOR VIP GROWTH PORTFOLIO

o INVESTMENT OBJECTIVE. Long-term capital growth.

o PRINCIPAL RISKS.

MENTOR VIP HIGH INCOME PORTFOLIO

o INVESTMENT OBJECTIVE. To seek high current income. Capital growth is a
secondary objective when consistent with the objective of seeking high
current income.

<PAGE>

o PRINCIPAL RISKS.

o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to changes
in interest rates) and to credit risk (the risk that the issuer may become
unable or unwilling to make timely payments of principal and interest). When
interest rates rise, the values of fixed-income securities held by the
Portfolio typically decline. The longer the maturity of a security, the more
its value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time of
purchase, it will not necessarily sell securities which are downgraded after
purchase.

<PAGE>

PRINCIPAL INVESTMENT STRATEGIES AND RISKS

A Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolios' principal
strategies and risks.

MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES (VIP HIGH
INCOME AND VIP BALANCED PORTFOLIOS). The VIP High Income and VIP Balanced
Portfolios may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including collateralized
mortgage obligations. Interest and principal payments on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities currently offer yields
higher than those available from many other types of fixed-income securities,
but because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. Generally,
prepayment rates increase if interest rates fall, and decrease if interest
rates rise. For many types of mortgage-backed securities, this can result in
unfavorable changes in price and yield characteristics in response to changes
in interest rates and other market conditions. For example, as a result of
their prepayment aspects, a Portfolio's mortgage-backed securities have less
potential for capital appreciation during periods of declining interest rates
than other fixed-income securities of comparable maturities, although such
obligations may have a comparable or greater risk of decline in market value
during periods of rising interest rates.

A Portfolio may invest in stripped mortgage-backed securities. Stripped
mortgage-backed securities are usually structured with two classes that receive
different portions of the interest and principal distributions on a pool of
mortgage assets. A Portfolio may invest in both the interest-only -- or "IO" --
class and the principal-only -- or "PO" -- class. The yield to maturity and
price of an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Portfolio's
net asset value. This would typically be the case in an environment of falling
interest rates. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Portfolio may under some circumstances
fail to fully recoup its initial investment in these securities. Conversely,
POs tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated. The secondary market for
stripped mortgage-backed securities may be more volatile and less liquid than
that for other mortgage-backed securities, potentially limiting a Portfolio's
ability to buy or sell those securities at any particular time.

Certain mortgage-backed securities held by a Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by a Portfolio during a time of declining interest
rates, a Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.

<PAGE>

The VIP High Income and VIP Balanced Portfolios may also invest in other
types of mortgage-related securities, including any securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans or real property, including collateralized mortgage obligation
"residual" interests. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by the
mortgage assets underlying a series of mortgage securities is applied first to
make required payments of principal of and interest on the mortgage securities
and second to pay the related administrative expenses of the issuer. The
residual generally represents the right to any excess cash flow remaining after
the foregoing payments are made. Each payment of such excess cash flow to a
holder of the related residual represents income and/or a return of capital.
The amount of residual cash flow resulting from a series of mortgage securities
will depend on, among other things, the characteristics of the mortgage assets,
the coupon rate of each class of the mortgage securities, prevailing interest
rates, the amount of administrative expenses, and the prepayment experience on
the mortgage assets. The values of residuals are extremely sensitive to changes
in interest rates. The yield to maturity on residual interests may be extremely
sensitive to prepayments on the related underlying mortgage assets in the same
manner as an interest-only class of stripped mortgaged-backed securities. In
addition, if a series of mortgage securities includes a class that bears
interest at an adjustable rate, the yield to maturity on the related residual
interest may also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. In certain circumstances, there
may be little or no excess cash flow payable to residual holders. A Portfolio
may fail to recoup fully its initial investment in a residual.

Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently
may not have the liquidity of other more established securities trading in
other markets. Residuals also may be subject to certain restrictions on
transferability. As a result, a Portfolio may be unable to dispose of these
interests at prices approximating the values the Portfolio had previously
assigned to them.

The VIP High Income and VIP Balanced Portfolios may invest in securities
representing interests in other types of financial assets, such as
automobile-finance receivables or credit-card receivables. Such securities are
subject to many of the same risks as are mortgage-backed securities, including
prepayment risks, refinancing risks, and risks of foreclosure. They may or may
not be secured by the receivables themselves or may be unsecured obligations of
their issuers.

FOREIGN SECURITIES (VIP BALANCED, VIP CAPITAL GROWTH, VIP PERPETUAL
INTERNATIONAL, AND VIP HIGH INCOME PORTFOLIOS). Investment in foreign
securities entails certain risks. Since foreign securities are normally
denominated and traded in foreign currencies, the value of a Portfolio's assets
may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations, foreign withholding taxes, and restrictions or
prohibitions on the repatriation of foreign currencies. There may be less
information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those
in the United States. The securities of some foreign companies are less liquid
and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Portfolio's assets held abroad) and expenses not present in
the settlement of domestic investments.

<PAGE>

The VIP Capital Growth and VIP Balanced Portfolios will limit investments
in foreign securities to 15% of their total assets. (Those percentage
limitations do not apply to American Depository Receipts, Global Depository
Receipts, and other U.S. dollar-denominated securities of issuers located
outside of the United States.)

<PAGE>

The Portfolio may invest in lower-rated securities which trade
infrequently or in more limited volume than higher-rated securities, or which
are restricted as to resale. In addition, a substantial portion of the
Portfolio's assets may at times be invested in securities as to which the
Portfolio, by itself or together with other accounts managed by Mentor Advisors
and its affiliates, holds a major portion or all of such securities, which may
limit the liquidity of such securities. The Portfolio could find it difficult
or impossible to sell illiquid securities when Mentor Advisors believes it
advisable to do so or may be able to sell such securities only at prices lower
than if such securities were more widely held. In many cases, such securities
may be purchased in private placements and, accordingly, will be subject to
restrictions on resale as a matter of contract or under securities laws. Under
such circumstances, it may also be more difficult to determine the fair value
of such securities for purposes of computing the Portfolio's net asset value.
In order to enforce its rights in the event of a default under securities in
cases where the Portfolio holds a major portion or all of the outstanding
issue, the Portfolio may be required to take possession of and manage assets
securing the issuer's obligations on such securities, which may increase the
Portfolio's operating expenses and adversely affect the Portfolio's net asset
value. The Portfolio may also be limited in its ability to enforce its rights
and may incur greater costs in enforcing its rights in the event an issuer
becomes the subject of bankruptcy proceedings.

<PAGE>

SMALLER COMPANIES (VIP GROWTH, VIP PERPETUAL INTERNATIONAL, AND VIP
BALANCED PORTFOLIOS). Smaller companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
involve certain special risks. Small companies often have limited product
lines, markets, or financial resources. They may be dependent on a limited
management group. While the markets in small company securities have grown
rapidly in recent years, such securities trade less frequently and in smaller
volume than more widely held securities. These securities tend to fluctuate
more sharply in value than other securities, and the Portfolios may experience
some difficulty in establishing or closing out positions in these securities at
prevailing market prices. There is usually less publicly-available information
about small companies and less market interest in small company securities than
in large company securities, and these securities may therefore take longer to
reflect the full value of their issuers' underlying earnings potential or
assets.

Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. A Portfolio may not be able to sell such
securities when it wishes. The Advisor or its affiliates or clients may hold
securities issued by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at more favorable
prices, than the Portfolios.

INTEREST RATE TRANSACTIONS (VIP BALANCED, VIP PERPETUAL INTERNATIONAL, AND
VIP HIGH INCOME PORTFOLIOS). The VIP Balanced, VIP Perpetual International, and
VIP High Income Portfolios may enter into interest rate swaps and other
interest rate transactions, such as interest rate caps, floors, and collars,
for hedging purposes or to adjust the interest rate sensitivity of its
Portfolio. Interest rate swaps involve the exchange by the Portfolio with
another party of different types of interest-rate streams (E.G., and exchange
of floating rate payments for fixed rate payments with respect to a notional
amount of principal). The purchase of an interest rate cap entitles the
purchaser to receive payments on a notional principal amount from the party
selling the cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling the
floor to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values. The
Portfolios' ability to engage in certain interest rate transactions may be
limited by tax considerations. The use of interest rate swaps and other
interest rate transactions is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Advisor is incorrect in its forecasts
of market values, interest rates, or other applicable factors, the investment
performance of the Portfolio would be less favorable than it would have been if
this investment technique were not used.

<PAGE>

TEMPORARY DEFENSIVE STRATEGIES. An Advisor may implement temporary
defensive strategies in order to reduce fluctuations in the value of a
Portfolio's assets. At those times, a Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments the Advisor considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, a
Portfolio will use these defensive strategies. Implementation of temporary
defensive strategies may restrict a Portfolio's ability to achieve its
investment objective.

OTHER INVESTMENTS AND RISKS

The following provides more detail about the Portfolios' investments and
risks and other circumstances which could adversely affect the Portfolios'
shares or their total return or yield.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS (VIP BALANCED, VIP CAPITAL
GROWTH, VIP PERPETUAL INTERNATIONAL, AND VIP HIGH INCOME PORTFOLIOS). The VIP
Balanced, VIP Capital Growth, VIP Perpetual International, and VIP High Income
Portfolios may purchase securities on a "when-issued" basis. The price of such
securities is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date
(normally within one month of purchase). A Portfolio may also purchase
securities for future delivery. "When-issued" securities and forward
commitments may increase a Portfolio's overall investment exposure and may
result in losses.

LEVERAGE (VIP BALANCED, VIP CAPITAL GROWTH, VIP PERPETUAL
INTERNATIONAL,AND VIP HIGH INCOME PORTFOLIOS). The VIP Balanced, VIP Perpetual
International, and VIP High Income Portfolios may borrow money to invest in
additional portfolio securities. This practice, known as "leverage," increases
a Portfolio's market exposure and its risk and may result in losses. When a
Portfolio has borrowed money for leverage and its investments increase or
decrease in value, a Portfolio's net asset value will normally increase or
decrease more than if it had not borrowed money. The interest a Portfolio must
pay on borrowed money will reduce the amount of any potential gains or increase
any losses. The extent to which a Portfolio will borrow money, and the amount
it may borrow, depend on market conditions and interest rates. Successful use
of leverage depends on an Advisor's ability to predict market movements
correctly.

<PAGE>

types of options or futures contracts. Therefore, there is no assurance that a
Portfolio will be able to utilize these instruments effectively for the
purposes stated above. Transactions in options and futures involve certain
risks which are described below and in the Statement of Additional Information.

RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
security or index or of the securities held by a Portfolio that are the subject
of a hedge. The successful use by a Portfolio of the strategies described above
further depends on the ability of its Advisor to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close
out futures or options positions. Although a Portfolio will enter into options
or futures transactions only if its Advisor believes that a liquid secondary
market exists for such options or futures contracts, there can be no assurance
that a Portfolio will be able to effect closing transactions at any particular
time or at an acceptable price.

Each Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. A Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. A Portfolio's
ability to terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to a Portfolio. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of its Advisor, the
pricing mechanism and liquidity of the over-the-counter markets are
satisfactory and the participants are responsible parties likely to meet their
obligations.

<PAGE>

Each of the Portfolios may also enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts") and may purchase and
sell foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be higher or lower than
the spot rate. Foreign currency futures contracts are standardized
exchange-traded contracts and have margin requirements. For transaction hedging
purposes, each of the Portfolios may also purchase and sell call and put
options on foreign currency futures contracts and on foreign currencies.

REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolios may enter into
repurchase agreements and securities loans. Under a repurchase agreement, a
Portfolio purchases a debt instrument for a relatively short period (usually
not more than one week), which the seller agrees to repurchase at a fixed time
and price, representing the Portfolio's cost plus interest. Under a securities
loan, a Portfolio lends portfolio securities. The VIP Balanced Portfolio may
enter into each type of transaction on up to 25% of its its assets, and each of
the other Portfolios may enter into each type of transaction on up to one-third
of its assets. A Portfolio will enter into repurchase agreements and securities
loans only with commercial banks and with registered broker-dealers who are
members of a national securities exchange or market makers in government
securities, and in the case of repurchase agreements, only if the debt
instrument is a U.S. Government security. Although the Advisors will monitor
these transactions to ensure that they will be fully collateralized at all
times, a Portfolio bears a risk of loss if the other party defaults on its
obligation and a Portfolio is delayed or prevented from exercising its rights
to dispose of the collateral. If the other party should become involved in
bankruptcy or insolvency proceedings, it is possible that a Portfolio may be
treated as an unsecured creditor and be required to return the underlying
collateral to the other party's estate.

<PAGE>

YEAR 2000. It is generally recognized that certain computer systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. The Portfolios receive services from a number of providers which
rely on the smooth functioning of their respective systems and the systems of
others to perform those services. In addition, the Portfolios' software, that
of the issuers of securities held by the Portfolios, and the securities markets
generally could be subject to problems caused by the "Year 2000" problem. Each
Advisor is taking steps that it believes are reasonably designed to address
each of these potential "Year 2000" problems and to obtain satisfactory
assurances that comparable steps are being taken by the Portfolios' other major
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolios from this problem.

MANAGEMENT RISK. Although a Portfolio may have the flexibility to use some
or all of the investment strategies, securities, and derivative instruments
described in this Prospectus and in the Statement of Additional Information,
the Advisor may choose not to use a particular strategy or type of security for
a variety of reasons. Also, in some market conditions some strategies and
securities may not be available for use. These choices may cause the Portfolio
to miss opportunities, lose money, or not achieve its objective.

MANAGEMENT

The Trustees of Mentor Variable Investment Portfolios (the "Trust") are
responsible for generally overseeing the conduct of the Trust's business. They
have hired MENTOR INVESTMENT ADVISORS, LLC ("MENTOR ADVISORS"), located at 901
East Byrd Street, Richmond, Virginia 23219, to act as investment advisor to the
VIP Balanced, the VIP High Income, the VIP Capital Growth, and the VIP Growth
Portfolios, and MENTOR PERPETUAL ADVISORS, LLC ("MENTOR PERPETUAL"), located at
901 East Byrd Street, Richmond, Virginia 23219, to act as investment advisor to
the VIP Perpetual International Portfolio. All investment decisions for the
Portfolios for which Mentor Advisors serves as investment advisor are made by
investment teams at Mentor Advisors. Investment decisions for the VIP Perpetual
International Portfolio are made by a team of investment professionals at
Mentor Perpetual. The Portfolios pay a management fee to Mentor Advisors or
Mentor Perpetual, as the case may be, at the following rates expressed as a
percentage of average daily net assets of the applicable Portfolio: VIP
Balanced Portfolio 0.75%, VIP Capital Growth Portfolio 0.80%, VIP Perpetual
International Portfolio 1.00%, VIP Growth Portfolio 0.70%, and VIP High Income
Portfolio 0.70%. Mentor Advisors or Mentor Perpetual may from time to time
voluntarily waive some or all of its investment advisory fees.

<PAGE>

Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc and Mentor Advisors. The Perpetual organization
currently serves as investment adviser for assets of more than $14 billion. Its
clients include 28 unit investment trusts and other public investment pools,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the
Mentor Perpetual Global Portfolio, an open-end mutual fund which is a series of
Mentor Funds. Investment decisions for the VIP Perpetual International
Portfolio are made by a team of investment professionals at Mentor Perpetual.

Subject to the general oversight of the Trustees, Mentor Advisors and
Mentor Perpetual manage their respective Portfolios in accordance with the
stated policies of each Portfolio. Each of Mentor Advisors and Mentor Perpetual
makes investment decisions for its respective Portfolios and places the
purchase and sale orders for each Portfolio's portfolio transactions. In
selecting broker-dealers, Mentor Advisors and Mentor Perpetual may consider
research and brokerage services furnished to them and their affiliates. Subject
to seeking the best overall terms available, Mentor Advisors and Mentor
Perpetual may consider sales of shares of a Portfolio (and, if permitted by
law, of other funds in the Mentor family) as a factor in the selection of
broker-dealers to execute portfolio transactions for that Portfolio. Mentor
Advisors and Mentor Perpetual may at times cause the Portfolios to pay
commissions to broker-dealers which are affiliated with Mentor Advisors or
Mentor Perpetual.

HOW THE PORTFOLIOS VALUE THEIR SHARES

Each of the Portfolios calculates the net asset value of its shares by
dividing the total value of its assets, less its liabilities, by the number of
shares of the Portfolio outstanding. Shares are valued as of the close of
regular trading on the New York Stock Exchange each day the Exchange is open.
Portfolio securities for which market quotations are readily available are
stated at market value. Short-term investments that will mature in 60 days or
less are stated at amortized cost, which has been determined to approximate the
fair market value of such investments. All other securities and assets are
valued at their fair values.

<PAGE>

SALES AND REDEMPTIONS

The Trust has an underwriting agreement relating to the Portfolios with
Mentor Distributors, LLC, ("Mentor Distributors") located at 3435 Stelzer Road,
Columbus, Ohio 43219. Mentor Distributors offers shares of the Portfolio
continuously to separate accounts of various participating insurance companies.
Mentor Distributors is not obligated to sell any specific amount of shares.

DISTRIBUTION PLAN

Each Portfolio has adopted a Distribution Plan under Rule 12b-1 providing
for payments by a Portfolio to Mentor Distributors at an annual rate of 0.25%
of the Portfolio's average daily net assets. The Trustees may reduce the amount
of payments or suspend the Distribution Plan for such periods as they may
determine. (Of course, any payment by a Portfolio pursuant to the Distribution
Plan would have the effect of increasing the cost to shareholders of an
investment in the Portfolio over time.) None of the Portfolios currently makes
payments under the Plan.

<PAGE>

between dealers and Mentor Distributors, and any applicable limits imposed by
the National Association of Securities Dealers, Inc. Mentor Distributors may,
at its expense, provide promotional incentives to dealers that sell variable
insurance products.

EXCHANGE PRIVILEGE

HOW DISTRIBUTIONS ARE MADE

The Portfolios distribute net investment income and any net realized
capital gains at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers.

All Portfolio distributions will be invested in additional Portfolio
shares of the same class, unless the shareholder instructs a Portfolio
otherwise.

TAXES

Internal Revenue Service regulations applicable to variable annuity and
variable life insurance separate accounts generally require that, in order for
such accounts to receive favorable tax treatment, portfolios that serve as the
funding vehicles solely for such separate accounts meet certain diversification
requirements. The Portfolios intend to comply with these requirements. For more
information, see the Statement of Additional Information.

VIP INTERNATIONAL PORTFOLIO ONLY. The Portfolio's investments in foreign
securities may be subject to foreign withholding taxes. In that case, the
Portfolio's yield on those securities would be decreased. In addition, the
Portfolio's investments in foreign securities or foreign currencies may
increase or accelerate the Portfolio's recognition of income. This could
require the Portfolio to liquidate investments that it otherwise would not have
liquidated in order to meet distribution requirements.

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
MENTOR VIP MENTOR VIP PERPETUAL MENTOR VIP CAPITAL
GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO GROWTH PORTFOLIO
------------------ ------------------------- -------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD .......................... $ 12.50 $ 12.50 $ 12.50
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................................ 0.02 0.02 0.03
Net realized and unrealized gain (loss) on
investments ................................................ (1.06) 1.49 1.05
-------- -------- --------
Total from investment operations ............................. (1.04) 1.51 1.08
-------- -------- --------
NET ASSET VALUE, END OF PERIOD ................................ $ 11.46 $ 14.01 $ 13.58
======== ======== ========
Total Return*(b) ............................................. (8.32)% 12.08% 8.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..................... $ 11,064 $ 11,821 $ 20,142
Ratio of expenses to average net assets ...................... 0.97%(a) 1.60%(a) 1.05%(a)
Ratio of expenses to average net assets excluding
waiver ..................................................... 1.77%(a) 2.79%(a) 1.36%(a)
Ratio of net investment income to average net assets ......... 0.44%(a) 0.34%(a) 0.50%(a)
Portfolio turnover rate ...................................... 62% 95% 54%
</TABLE>

- ----------
(a) Annualized.
(b) Total return does not reflect charges of the separate accounts.
* Total return does not include sales commissions and is not annualized.

<PAGE>

APPENDIX

MOODY'S INVESTORS SERVICE, INC., BOND RATINGS

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

STANDARD AND POOR'S RATINGS SERVICE, INC., BOND RATINGS

AAA -- An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

<PAGE>

CC -- An obligation rated CC is currently highly vulnerable to nonpayment.

C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments on this
obligation are being continued.

MOODY'S NOTE RATINGS

MIG2/VMIG2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

<PAGE>

STANDARD AND POOR'S NOTE RATINGS

SP-1 -- Strong capacity to pay principal and interest. Issues determined
to possess overwhelming safety characteristics are given a plus sign (+)
designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

SP-3 -- Speculative capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of saety is not as high as for
issues designated "A-1".

<PAGE>

MENTOR INVESTMENT GROUP

901 East Byrd Street
Richmond, VA 23219
(800) 869-6042

1999 MENTOR DISTRIBUTORS, LLC

MK VIP99

MENTOR
VARIABLE
INVESTMENT
PORTFOLIOS

-------------------------
PROSPECTUS
-------------------------

May 3, 1999

[MENTOR LOGO]

<PAGE>

MENTOR VARIABLE INVESTMENT PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999

This Statement of Additional Information relates to the Mentor VIP
Balanced Portfolio, Mentor VIP Capital Growth Portfolio, Mentor VIP Perpetual
International Portfolio, Mentor VIP Growth Portfolio, and Mentor VIP High
Income Portfolio (each a "Portfolio" and, collectively, the "Portfolios") of
Mentor Variable Investment Portfolios (the "Trust"). Each Portfolio currently
offers one class of shares for purchase by separate accounts of insurance
companies. This Statement is not a Prospectus and should be read in conjunction
with the relevant Prospectus dated May 3, 1999. A copy of the applicable
Prospectus can be obtained upon request from Mentor Services Company, Inc. at
901 East Byrd Street, Richmond Virginia 23219, or by calling Mentor Services
Company, Inc. at 1-800-869-6042.

Certain disclosure has been incorporated by reference from the Trust's
annual report. For a free copy of the annual report call Mentor Services
Company, Inc. at 1-800-869-6042.

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction ................................................ 3
Investment Restrictions ..................................... 3
Certain Investment Strategies, Risks and Policies ........... 4
Management of the Trust ..................................... 18
Control Persons and Principal Holders of Securities ......... 20
Investment Advisory Services ................................ 20
Administrative Services ..................................... 22
Brokerage Transactions ...................................... 22
Shares of the Trust ......................................... 25
How to Buy Shares ........................................... 25
Distribution ................................................ 25
Determining Net Asset Value ................................. 25
Redemptions in Kind ......................................... 26
Taxes ....................................................... 27
Independent Accountants ..................................... 28
Custodian ................................................... 28
Transfer Agent .............................................. 28
Performance Information ..................................... 29
Performance Comparisons ..................................... 29
Members of Investment Management Teams ...................... 34
Shareholder Liability ....................................... 36
Financial Statements ........................................ 37
</TABLE>

2
<PAGE>

INTRODUCTION

Mentor Variable Investment Portfolios (the "Trust") is an open-end series
investment company. The Trust is a Massachusetts business trust organized on
March 20, 1997.

INVESTMENT RESTRICTIONS

The Trust has adopted the following restrictions applicable to all of the
Portfolios (except where otherwise noted), which may not be changed without the
affirmative vote of a "majority of the outstanding voting securities" of a
Portfolio, 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 Portfolio and (2) 67% or more of the
shares present at a meeting if more than 50% of the outstanding shares are
present at the meeting in person or by proxy.

A Portfolio may not:

(1) Borrow more than 33 1/3% of the value of its total assets less all
liabilities and indebtedness (other than such borrowings) not represented
by senior securities.

(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 certain 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 which represent 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, except that it
may purchase and sell financial futures contracts and options and may enter
into foreign exchange contracts and other financial transactions not
involving the direct purchase or sale of physical commodities.

(5) Make loans, except by purchase of debt obligations in which the
Portfolio may invest consistent with its investment policies, by entering
into repurchase agreements, or by lending its portfolio securities.

(6) With respect to 75% of its total assets, invest in the securities of
any issuer if, immediately after such investment, more than 5% of the total
assets of the Portfolio (taken at current value) would be invested in the
securities of such issuer; provided that this limitation does not apply to
obligations issued or guaranteed as to interest or principal by the U.S.
government or its agencies or instrumentalities.

(7) With respect to 75% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer.

(8) Purchase securities (other than securities of the U.S. government,
its agencies or instrumentalities) if, as a result of such purchase, more
than 25% of the Portfolio's total assets would be invested in any one
industry.

(9) Issue any class of securities which is senior to the Portfolio's
shares of beneficial interest, to the extent prohibited by the Investment
Company Act of 1940, as amended.

In addition, it is contrary to each Portfolio's present policy, which may
be changed without shareholder approval, to invest in (a) securities which are
not readily marketable, (b) securities restricted as to resale (excluding
securities determined by the Trustees of the Trust (or the person designated by
the Trustees of the Trust to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven days,
if, as a result, more than 15% of the Portfolio's net assets (taken at current
value) would be invested in securities described in (a), (b) and (c) above.

All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess
or deficiency occurs or exists immediately after and as a result of such
investment. Except for the investment restrictions listed above as fundamental
or to the extent designated as such in the Prospectus with respect to a
Portfolio, the other investment policies described in this Statement or in the
Prospectus are not fundamental and may be changed by approval of the Trustees.

3
<PAGE>

CERTAIN INVESTMENT STRATEGIES, RISKS, AND POLICIES

Set forth below is information concerning certain investment practices in
which one or more of the Portfolios may engage, and certain of the risks they
may entail. Certain of the investment practices may not be available to a
Portfolio. See the Prospectus relating to a particular Portfolio for a
description of the investment practices generally applicable to that Portfolio.
For purposes of this section, a Portfolio's investment advisor is referred to
as an "Advisor".

OPTIONS

A Portfolio may purchase and sell put and call options on its portfolio
securities to enhance investment performance or to protect against changes in
market prices.

COVERED CALL OPTIONS. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may
also be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.

A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.

In return for the premium received when it writes a covered call option, a
Portfolio gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Portfolio retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Portfolio realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Portfolio realizes a gain
or loss equal to the difference between the Portfolio's cost for the underlying
security and the proceeds of sale (exercise price minus commissions) plus the
amount of the premium.

A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.

COVERED PUT OPTIONS. A Portfolio may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.

In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a
potential capital loss unless the security later appreciates in value.

A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may
be partially or entirely offset by the premium received on the terminated
option.

PURCHASING PUT AND CALL OPTIONS. A Portfolio may also purchase put options
to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Portfolio, as a
holder of the option, may sell the underlying security at the exercise price
regardless of any decline in its market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs that the Portfolio must pay. These costs will reduce any profit the
Portfolio might have realized had it sold the underlying security instead of
buying the put option.

A Portfolio may purchase call options to hedge against an increase in the
price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the

4
<PAGE>

call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Portfolio might have
realized had it bought the underlying security at the time it purchased the
call option.

OPTIONS ON FOREIGN SECURITIES. A Portfolio may purchase and sell options
on foreign securities if in the opinion of its Adviser the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Portfolio's investment objectives. It is
expected that risks related to such options will not differ materially from
risks related to options on U.S. securities. However, position limits and other
rules of foreign exchanges may differ from those in the U.S. In addition,
options markets in some countries, many of which are relatively new, may be
less liquid than comparable markets in the U.S.

RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve
certain risks, including the risks that a Portfolio's Adviser will not forecast
interest rate or market movements correctly, that a Portfolio may be unable at
times to close out such positions, or that hedging transactions may not
accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
Advisor to forecast market and interest rate movements correctly.

An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when its Advisor believes it is inadvisable to do so.

Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Portfolio's
use of options. The exchanges have established limitations on the maximum
number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the
Portfolio and other clients of the Portfolio's Advisor may be considered such a
group. These position limits may restrict the Portfolio's ability to purchase
or sell options on particular securities.

Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that
reason, it may be more difficult to close out unlisted options than listed
options. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by The Options Clearing Corporation.

Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the Internal Revenue Code, may also
restrict the Portfolio's use of options.

FUTURES CONTRACTS

In order to hedge against the effects of adverse market changes a
Portfolio that may invest in debt securities may buy and sell futures contracts
on debt securities of the type in which the Portfolio may invest and on indexes
of debt securities. In addition, a Portfolio that may invest in equity
securities may purchase and sell stock index futures to hedge against changes
in stock market prices. A Portfolio may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase its current return. All such futures and related options will, as
may be required by applicable law, be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission (the "CFTC").

Futures on Debt Securities and Related Options. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a
Portfolio will legally obligate itself to accept the future delivery of the
underlying security and pay the agreed price. By selling futures on debt
securities -- assuming a "short" position -- it will legally obligate itself to
make the future delivery of the security against payment of the agreed price.
Open futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons acting
at the direction of the Trustees as to the valuation of a Portfolio's assets,
reflect the fair value of the contract, in which case the positions will be
valued by the Trustees or such persons.

Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by a Portfolio will usually be
liquidated in

5
<PAGE>

this manner, a Portfolio may instead make or take delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures are traded assumes
responsibility for such closing transactions and guarantees that a Portfolio's
sale and purchase obligations under closed-out positions will be performed at
the termination of the contract.

Hedging by use of futures on debt securities seeks to establish with more
certainty than would otherwise be possible the effective rate of return on
securities. A Portfolio may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Portfolio (or securities having characteristics similar to those
held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
securities. When hedging of this character is successful, any depreciation in
the value of securities may substantially be offset by appreciation in the
value of the futures position.

On other occasions, the Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Portfolio
expects to purchase particular securities when it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Portfolio of
purchasing the securities may be offset, at least to some extent, by the rise
in the value of the futures position taken in anticipation of the subsequent
purchase.

Successful use by a Portfolio of futures contracts on debt securities is
subject to its Advisor's ability to predict correctly movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if a Portfolio has hedged against the possibility of
an increase in interest rates which would adversely affect the market prices of
debt securities held by it and the prices of such securities increase instead
the Portfolio will lose part or all of the benefit of the increased value of
its securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily margin
maintenance requirements. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.

A Portfolio may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to
options on securities except that options on futures contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. As with options on securities, the holder or writer of an
option may terminate his position by selling or purchasing an option of the
same series. There is no guarantee that such closing transactions can be
effected. A Portfolio will be required to deposit initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements, and, in addition, net option
premiums received will be included as initial margin deposits. See "Margin
Payments" below. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to a Portfolio because the maximum amount at risk is the premium paid for
the options plus transactions costs. However, there may be circumstances when
the purchase of call or put options on a futures contract would result in a
loss to a Portfolio when the purchase or sale of the futures contracts would
not, such as when there is no movement in the prices of debt securities. The
writing of a put or call option on a futures contract involves risks similar to
those risks relating to the purchase or sale of futures contracts.

INDEX FUTURES CONTRACTS AND OPTIONS. A Portfolio may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. (Debt index futures in which
the Portfolios are presently expected to invest are not now available, although
such futures contracts are expected to become available in the future.) A stock
index futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.

For example, the Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180,
one contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the
contract. For example, if a Portfolio enters into a futures contract to buy 100
units of the S&P 100 Index at a specified future date at a

6
<PAGE>

contract price of $180 and the S&P 100 Index is at $184 on that future date,
the Portfolio will gain $400 (100 units x gain of $4). If the Portfolio enters
into a futures contract to sell 100 units of the stock index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $182 on
that future date, the Portfolio will lose $200 (100 units x loss of $2).

A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.

In order to hedge a Portfolio's investments successfully using futures
contracts and related options, a Portfolio must invest in futures contracts
with respect to indexes or sub-indexes the movements of which will, in its
judgment, have a significant correlation with movements in the prices of the
Portfolio's securities.

OPTIONS ON STOCK INDEX FUTURES. Options on index futures contracts are
similar to options on securities except that options on index futures contracts
give the purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
holder would assume the underlying futures position and would receive a
variation margin payment of cash or securities approximating the increase in
the value of the holder's option position. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash based on the difference between the exercise
price of the option and the closing level of the index on which the futures
contract is based on the expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date suffer a loss of the premium
paid.

OPTIONS ON INDICES. As an alternative to purchasing and selling call and
put options on index futures contracts, each of the Portfolios which may
purchase and sell index futures contracts may purchase and sell call and put
options on the underlying indexes themselves to the extent that such options
are traded on national securities exchanges. Index options are similar to
options on individual securities in that the purchaser of an index option
acquires the right to buy (in the case of a call) or sell (in the case of a
put), and the writer undertakes the obligation to sell or buy (as the case may
be), units of an index at a stated exercise price during the term of the
option. Instead of giving the right to take or make actual delivery of
securities, the holder of an index option has the right to receive a cash
"exercise settlement amount". This amount is equal to the amount by which the
fixed exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index on the
date of the exercise, multiplied by a fixed "index multiplier".

A Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.

MARGIN PAYMENTS. When a Portfolio purchases or sells a futures contract,
it is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the
amount of the futures contract. This amount is known as "initial margin". The
nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to a Portfolio upon termination of the contract,
assuming a Portfolio satisfies its contractual obligations.

Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract
fluctuates. For example, when a Portfolio sells a futures contract and the
price of the underlying security rises above the delivery price, the
Portfolio's position declines in value. The Portfolio then pays the broker a
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the securities underlying the
futures contract. Conversely, if the price of the underlying security falls
below the delivery price of the contract, the Portfolio's futures position
increases in value. The broker then must make a variation margin payment equal
to the difference between the delivery price of the futures contract and the
market price of the securities underlying the futures contract.

When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.

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SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS

LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolio intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time. If there is not a liquid secondary market at a particular time, it may
not be possible to close a futures position at such time and, in the event of
adverse price movements, a Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event financial
futures are used to hedge portfolio securities, such securities will not
generally be sold until the financial futures can be terminated. In such
circumstances, an increase in the price of the portfolio securities, if any,
may partially or completely offset losses on the financial futures.

In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that such a market will develop. Although a Portfolio generally will purchase
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular option or at any particular time. In the event no such
market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that a Portfolio would
have to exercise the options in order to realize any profit.

HEDGING RISKS. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One
risk arises because of the imperfect correlation between movements in the
prices of the futures contracts and options and movements in the underlying
securities or index or movements in the prices of a Portfolio's securities
which are the subject of a hedge. A Portfolio's Advisor will, however, attempt
to reduce this risk by purchasing and selling, to the extent possible, futures
contracts and related options on securities and indexes the movements of which
will, in its judgment, correlate closely with movements in the prices of the
underlying securities or index and the securities sought to be hedged.

Successful use of futures contracts and options by a Portfolio for hedging
purposes is also subject to its Adviser's ability to predict correctly
movements in the direction of the market. It is possible that, where a
Portfolio has purchased puts on futures contracts to hedge its portfolio
against a decline in the market, the securities or index on which the puts are
purchased may increase in value and the value of securities held in the
portfolio may decline. If this occurred, the Portfolio would lose money on the
puts and also experience a decline in value in its portfolio securities. In
addition, the prices of futures, for a number of reasons, may not correlate
perfectly with movements in the underlying securities or index due to certain
market distortions. First, all participants in the futures market are subject
to margin deposit requirements. Such requirements may cause investors to close
futures contracts through offsetting transactions which could distort the
normal relationship between the underlying security or index and futures
markets. Second, the margin requirements in the futures markets are less
onerous than margin requirements in the securities markets in general, and as a
result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by a Portfolio's
Advisor may still not result in a successful hedging transaction over a short
time period.

OTHER RISKS. Portfolios will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.

REPURCHASE AGREEMENTS

A Portfolio may enter into repurchase agreements. A repurchase agreement
is a contract under which the Portfolio acquires a security subject to the
obligation of the seller to repurchase and the Portfolio to resell such
security at a fixed time and price (representing the Portfolio's cost plus
interest). It is the Trust'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 the Trust and only with respect to obligations
of the

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<PAGE>

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 Portfolio which are collateralized by the securities subject to
repurchase. A Portfolio's Advisor 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 Portfolio could realize a loss on the sale of the
underlying security to the extent that the proceeds of 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 Portfolio may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if a
Portfolio is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.

LOANS OF PORTFOLIO SECURITIES

A Portfolio 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 Portfolio may at any
time call the loan and regain the securities loaned; (3) a Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities loaned will not at any time exceed
one-third (or such other limit as the Trustee may establish) of the total
assets of the Portfolio. In addition, it is anticipated that a Portfolio 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. 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
Portfolio 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 a Portfolio if
the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. A Portfolio will not lend portfolio
securities to borrowers affiliated with the Portfolio.

COLLATERALIZED MORTGAGE OBLIGATIONS; OTHER MORTGAGE-RELATED SECURITIES

Mortgage-backed securities and other asset-backed securities are
"derivative" securities and present certain special risks. The Portfolios may
invest in a wide variety of such securities, including mortgage-backed and
other asset-backed securities that will pay principal or interest only under
certain circumstances, or in amounts that may increase or decrease
substantially depending on changes in interest rates or other market factors.
Such securities may experience extreme price volatility in response to changes
in interest rates or other market factors; this may be especially true in the
case of securities where the amounts of principal or interest paid, or the
timing of such payments, varies widely depending on prevailing interest rates.

A Portfolio's investment adviser may not be able to obtain current market
quotations for certain mortgage-backed or asset-backed securities at all times,
or to obtain market quotations believed by it to reflect the values of such
securities accurately. In such cases, it may be necessary to estimate the value
of such a security using quotations provided by pricing services or securities
dealers making a market in such securities, or based on other comparable
securities or other bench-mark securities or interest rates. Mortgage-backed
and other asset-backed securities in which a Portfolio may invest may be highly
illiquid, and a Portfolio may not be able to sell such securities at a
particular time or at the value it has placed on such securities.

In calculating the value and duration of mortgage-backed or other
asset-backed securities, a Portfolio's investment adviser will be required to
estimate the extent to which the values of the securities are likely to change
in response to changes in interest rates or other market conditions, and the
rate at which prepayments on the underlying mortgages or other assets are
likely to occur under different scenarios. There can be no assurance that a
Portfolio's investment adviser will be able to predict the amount of principal
or interest to be paid on any security under different rate or market
conditions or that its predictions will be accurate, nor can there be any
assurance that a Portfolio will recover the entire amount of the principal paid
by it to purchase any such securities.

Collateralized mortgage obligations or "CMOs" are debt obligations or
pass-through certificates collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by certificates
issued by the Government National Mortgage Association, ("GNMA"), the Federal
National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"), but they also may be collateralized by whole loans or
private pass-through certificates (such collateral collectively hereinafter
referred to as "Mortgage Assets"). CMOs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans.

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<PAGE>

In a CMO, a series of bonds or certificates is generally issued in
multiple classes. Each class of CMOs is issued at a specific fixed or floating
rate coupon and has a stated maturity or final distribution date. Principal
prepayments on the mortgage assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on most classes of the CMOs on a monthly,
quarterly, or semi-annual basis. The principal of and interest on the mortgage
assets may be allocated among the several classes of a series of a CMO in
innumerable ways. In a CMO, payments of principal, including any principal
prepayments, on the mortgage assets are applied to the classes of the series in
a pre-determined sequence.

FOREIGN SECURITIES

A Portfolio may invest in foreign securities and in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.

Investments in foreign securities may involve considerations different
from investments in domestic securities. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities can involve other risks different from those affecting U.S.
investments, including local political or economic developments, expropriation
or nationalization of assets and imposition of withholding taxes on dividend or
interest payments. It may be more difficult to obtain and enforce a judgment
against a foreign issuer. In addition, foreign investments may be affected
favorably or unfavorably by changes in currency exchange rates, exchange
control regulations, foreign withholding taxes and restrictions or prohibitions
on the repatriation of foreign currencies. A Portfolio may incur costs in
connection with conversion between currencies.

A Portfolio may invest in American Depository Receipts ("ADRs") and Global
Depository Receipts ("GDRs"), which represent interests in foreign securities
held by a bank, trust company, or other organization. Investments in ADRs and
GDRs are subject to many of the same risks of investing in foreign securities
generally.

In determining whether to invest in securities of foreign issuers, the
Advisor of a Portfolio seeking current income will consider the likely impact
of foreign taxes on the net yield available to the Portfolio and its
shareholders. Income received by a Portfolio 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 a Portfolio'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 a Portfolio will reduce its net income available
for distribution to shareholders.

FOREIGN CURRENCY TRANSACTIONS

Except as otherwise described in the relevant Prospectus, a Portfolio may
engage without limit in currency exchange transactions, including foreign
currency forward and futures contracts, to protect against uncertainty in the
level of future foreign currency exchange rates. In addition, a Portfolio may
purchase and sell call and put options on foreign currency futures contracts
and on foreign currencies for hedging purposes.

A Portfolio may engage in both "transaction hedging" and "position
hedging". When a Portfolio engages in transaction hedging, it enters into
foreign currency transactions with respect to specific receivables or payables
of the Portfolio generally arising in connection with the purchase or sale of
its securities. A Portfolio will engage in transaction hedging when it desires
to "lock in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging a Portfolio will attempt to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.

A Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.

For transaction hedging purposes, a Portfolio may purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. A put option on a futures contract gives a Portfolio
the right

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<PAGE>

to assume a short position in the futures contract until expiration of the
option. A put option on currency gives a Portfolio the right to sell a currency
at an exercise price until the expiration of the option. A call option on a
futures contract gives a Portfolio the right to assume a long position in the
futures contract until the expiration of the option. A call option on currency
gives a Portfolio the right to purchase a currency at the exercise price until
the expiration of the option. A Portfolio will engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of its Adviser, the pricing mechanism and liquidity
are satisfactory and the participants are responsible parties likely to meet
their contractual obligations.

When a Portfolio engages in position hedging, it enters into foreign
currency exchange transactions to protect against a decline in the values of
the foreign currencies in which securities held by the Portfolio are
denominated or are quoted in their principle trading markets or an increase in
the value of currency for securities which a Portfolio expects to purchase. In
connection with position hedging, a Portfolio may purchase put or call options
on foreign currency and foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. A Portfolio may also
purchase or sell foreign currency on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.

It is impossible to forecast with precision the market value of a
Portfolio's securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is
less than the amount of foreign currency a Portfolio is obligated to deliver
and if a decision is made to sell the security or securities and make delivery
of the foreign currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the security or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.

To offset some of the costs to a Portfolio of hedging against fluctuations
in currency exchange rates, the Portfolio may write covered call options on
those currencies.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.

CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.

Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, a Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.

Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Portfolio will normally
purchase or sell

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<PAGE>

foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position
and, in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.

FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's Adviser believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist
for a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence exchange rates and investments
generally.

The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the U.S. options markets.

SETTLEMENT PROCEDURES. Settlement procedures relating to investments in
foreign securities and to foreign currency exchange transactions may be more
complex than settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not present in
domestic investments. For example, settlement of transactions involving foreign
securities or foreign currency may occur within a foreign country, and the
Portfolio may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or foreign
restrictions or regulations, and may be required to pay any fees, taxes or
charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.

FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should a Portfolio desire
to resell that currency to the dealer.

ZERO-COUPON SECURITIES

Zero-coupon securities in which a Portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other mutual funds investing in securities making
current distributions of interest and having similar maturities.

Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A number
of securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.

In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal

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<PAGE>

Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, a Portfolio will be able to have its beneficial ownership of U.S.
Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.

When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Portfolios may engage in when-issued and delayed delivery
transactions. These transactions are arrangements in which a Portfolio
purchases securities with payment and delivery scheduled for a future time. A
Portfolio engages in when-issued and delayed delivery transactions only for the
purpose of acquiring securities consistent with its investment objective and
policies, not for investment leverage, but a Portfolio may sell such securities
prior to settlement date if such a sale is considered to be advisable. No
income accrues to a Portfolio on securities in connection with such
transactions prior to the date the Portfolio actually takes delivery of
securities. In when-issued and delayed delivery transactions, a Portfolio
relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause a Portfolio to miss a price or yield
considered to be advantageous.

These transactions are made to secure what is considered to be an
advantageous price or yield for a Portfolio. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are incurred. However, liquid
assets of a Portfolio sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.

BANK INSTRUMENTS

A Portfolio may invest in the instruments of banks and savings and loans
whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), such as certificates of deposit, demand
and time deposits, savings shares, and bankers' acceptances. However, the
above-mentioned instruments are not necessarily guaranteed by those
organizations. In addition to domestic bank obligations, such as certificates
of deposit, demand and time deposits, savings shares, and bankers' acceptances,
a Portfolio may invest in: Eurodollar Certificates of Deposit ("ECDs") issued
by foreign branches of U.S. or foreign banks; Eurodollar Time Deposits
("ETDs"), which are U.S. dollar-denominated deposits in foreign branches of
U.S. or foreign banks; Canadian Time Deposits, which are U.S.
dollar-denominated deposits issued by branches of major Canadian banks located
in the U.S.; and Yankee Certificates of Deposit ("Yankee CDS"), which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of foreign
banks and held in the U.S.

CONVERTIBLE SECURITIES

A Portfolio may invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for a
variety of investment strategies.

A Portfolio will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock when, in its Advisor's
opinion, the investment characteristics of the underlying common shares will
assist the Portfolio in achieving its investment objectives. Otherwise, the
Portfolio may hold or trade convertible securities. In selecting convertible
securities for the Portfolio, the Portfolio's Advisor evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation.

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<PAGE>

In evaluating these matters with respect to a particular convertible security,
the Portfolio's Advisor considers numerous factors, including the economic and
political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.

WARRANTS

A Portfolio may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the common
stock does not exceed the warrant's exercise price during the life of the
warrant, the warrant will expire as worthless. Warrants have no voting rights,
pay no dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the market
price of the warrant may tend to be greater than the percentage increase or
decrease in the market price of the optioned common stock. Warrants acquired in
units or attached to securities may be deemed to be without value for purposes
of a Portfolio's policy.

SWAPS, CAPS, FLOORS AND COLLARS

A Portfolio may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. A Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. A Portfolio would use these transactions as hedges and not as
speculative investments and would not sell interest rate caps or floors where
it does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. Interest rate swaps involve the exchange by
a Portfolio with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the
values of the reference indices. The purchase of a cap entitles the purchaser
to receive payments on a notional principal amount from the party selling such
cap to the extent that a specified index exceeds a predetermined interest rate
or amount. The purchase of a floor entitles the purchaser to receive payments
on a notional principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or amount. A
collar is a combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates or values.

A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. A Portfolio will not
enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or has an equivalent rating from another nationally recognized
securities rating organization or is determined to be of equivalent credit
quality by the Portfolio's Advisor. If there is a default by the counterparty,
a Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.

LOWER-RATED SECURITIES

A Portfolio may invest in lower-rated fixed-income securities (commonly
known as "junk bonds") to the extent described in the relevant Prospectus. The
lower ratings of certain securities held by a Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by a Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, a Portfolio may be unable at times to establish the fair value of
such securities. The rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally recognized
securities rating organization) does not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security.

14
<PAGE>

Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. A Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although its Advisor will monitor the
investment to determine whether its retention will assist in meeting the
Portfolio's investment objective.

The amount of information about the financial condition of an issuer of
tax exempt securities may not be as extensive as that which is made available
by corporations whose securities are publicly traded. Therefore, to the extent
a Portfolio invests in tax exempt securities in the lower rating categories,
the achievement of the Portfolio's goals is more dependent on its Advisor's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.

INDEXED SECURITIES

A Portfolio may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities
of three years or less.

Indexed securities differ from other types of debt securities in which a
Portfolio may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or
the currency exchange rates between two currencies (neither of which need be
the currency in which the instrument is denominated). The reference instrument
need not be related to the terms of the indexed security. For example, the
principal amount of a U.S. dollar denominated indexed security may vary based
on the exchange rate of two foreign currencies. An indexed security may be
positively or negatively indexed; that is, its value may increase or decrease
if the value of the reference instrument increases. Further, the change in the
principal amount payable or the interest rate of an indexed security may be a
multiple of the percentage change (positive or negative) in the value of the
underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities
may be more volatile than the reference instruments underlying indexed
securities.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, a Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio is exposed is difficult to hedge or to hedge against the dollar.
Proxy hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Portfolio's securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Portfolio's securities denominated in linked
currencies. For example, if a Portfolio's Adviser considers that the Austrian
schilling is linked to the German deutschmark (the "Dmark"), the Portfolio
holds securities denominated in schillings and the Advisor believes that the
value of schillings will decline against the U.S. dollar, the Advisor may enter
into a contract to sell D-marks and buy dollars.

EURODOLLAR INSTRUMENTS

A Portfolio may make investments in Eurodollar instruments.Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings.A Portfolio
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed-income
instruments are linked.

15
<PAGE>

SEGREGATION OF ASSETS

A Portfolio may at times segregate assets in respect of certain
transactions in which the Portfolio enters into a commitment to pay money or
deliver securities at some future date (such as futures contracts or reverse
repurchase agreements, to the extent not used for leverage). Any such
segregated account will be maintained by the Trust's custodian and may contain
cash, U.S. government securities, liquid high grade debt obligations, or other
appropriate assets.

LEVERAGE

A Portfolio may borrow money to invest in additional portfolio securities
to seek current income. A Portfolio may engage in reverse repurchase
agreements, forward commitments and dollar-roll transactions described below,
which may have the same economic effect as if the Portfolio had borrowed money.

The use of borrowed money, known as "leverage," increases a Portfolio's
market exposure and risk and may result in losses. When a Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that a Portfolio must pay on
borrowed money will reduce its net investment income, and may also either
offset any potential capital gains or increase any losses. A Portfolio may use
leverage in order to adjust its dollar-weighted average duration. A Portfolio
will not always borrow money for investment and the extent to which a Portfolio
will borrow money, and the amount it may borrow, depends on market conditions
and interest rates. Successful use of leverage depends on an investment
advisor's ability to predict market movements correctly. The amount of leverage
(including leverage to the extent employed by a Portfolio through "reverse
repurchase agreements," "dollar-roll" transactions, and "forward commitments,"
described below) that can exist at any one time will not exceed one-third of
the value of a Portfolio's total assets (less all liabilities of the Portfolio
other than the leverage).

DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

A Portfolio may enter into dollar rolls, in which the Portfolio sells
securities and simultaneously contracts to repurchase substantially similar
securities on a specified future date. In the case of dollar rolls involving
mortgage-related securities, such as securities issued by GNMA, FNMA, and
FHLMC, the mortgage-related securities that are purchased typically will be of
the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The
Portfolio forgoes principal and interest paid during the roll period on the
securities sold in a dollar roll, but it is compensated by the difference
between the current sales price and the price for the future purchase as well
as by any interest earned on the proceeds of the securities sold. A Portfolio
could also be compensated through the receipt of fee income.

A Portfolio may also enter into reverse repurchase agreements on up to
one-third of its assets in which the Portfolio sells securities and agrees to
repurchase them at a mutually agreed date and price. Generally, the effect of
such a transaction is that the Portfolio can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
if the interest cost to the Portfolio of the reverse repurchase transaction is
less than the cost of otherwise obtaining the cash.

Dollar rolls and reverse repurchase agreements may be viewed as a
borrowing, or leverage, by the Portfolio, secured by the security which is the
subject of the agreement.In addition to the general risks involved in
leveraging, dollar rolls and reverse repurchase agreements involve the risk
that, in the event of the bankruptcy or insolvency of the Portfolio's
counterparty, the Portfolio would be unable to recover the security which is
the subject of the agreement, the amount of cash or other property transferred
by the counterparty to the Portfolio under the agreement prior to such
insolvency or bankruptcy is less than the value of the security subject to the
agreement, or the Portfolio may be delayed or prevented, due to such insolvency
or bankruptcy, from using such cash or property or may be required to return it
to the counterparty or its trustee or receiver. The use of dollar rolls and
reverse repurchase agreements by a Portfolio may result in losses.

FORWARD COMMITMENTS

A Portfolio may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if the Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or if the Portfolio enters into offsetting contracts for
the forward sale of other securities it owns. Forward commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which risk

16
<PAGE>

is in addition to the risk of decline in the value of the Portfolio's other
assets. Where such purchases are made through dealers, the Portfolios rely on
the dealer to consummate the sale. The dealer's failure to do so may result in
the loss to the Portfolio of an advantageous yield or price. Although a
Portfolio will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to options
contracts it has entered into, a Portfolio may dispose of a commitment prior to
settlement if its Adviser deems it appropriate to do so. A Portfolio may
realize short-term profits or losses upon the sale of forward commitments.

17
<PAGE>

MANAGEMENT OF THE TRUST

The Trustees are responsible for generally overseeing the Trust's
business. The following table provides biographical information with respect to
each Trustee and officer of the Trust. Each Trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk.

<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------- -------------- --------------------------------------------------------------
<S> <C> <C>
Daniel J. Ludeman* (42) Chairman Chairman and Chief Executive Officer Mentor Investment
c/o Mentor Variable Investment Portfolios and Trustee Group, LLC; Chairman and Director Mentor Income Fund,
901 E. Byrd Street Inc., and America's Utility Fund, Inc.; Chairman and
Richmond, VA 23219 Trustee, Cash Resource Trust, Mentor Institutional Trust and
Mentor Funds.

Arnold H. Dreyfuss (70) Trustee Chairman, Eskimo Pie Corporation; Trustee, Cash Resource
P.O. Box 18156 Trust, Mentor Institutional Trust and Mentor Funds; Director,
Richmond, Virginia 23226 Mentor Income Fund, Inc. and America's Utility Fund, Inc.;
formerly, Chairman and Chief Executive Officer, Hamilton
Beach/Proctor-Silex, Inc.

Thomas F. Keller (67) Trustee R.J. Reynolds Industries Professor of Business Adminis-
Fuqua School of Business tration and Former Dean of Fuqua School of Business, Duke
Duke University University; Director of LADD Furniture, Inc., Wendy's
Durham, NC 27706 International, Inc., American Business Products, Inc., Dimon,
Inc., and Biogen, Inc.; Director of Nations Balanced Target
Maturity Fund, Inc., Nations Government Income Term Trust
2003, Inc., Nations Government Income Term Trust 2004,
Inc., Hatteras Income Securities, Inc., Nations Institutional
Reserves, Nations Fund Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., and Nations LifeGoal Funds, Inc.
Trustee, Cash Resource Trust, Mentor Institutional Trust and
Mentor Funds; Director, Mentor Income Fund, Inc. and
America's Utility Fund, Inc.

Louis W. Moelchert, Jr. (57) Trustee Vice President for Investments, University of Richmond;
University of Richmond Trustee, Cash Resource Trust, Mentor Institutional Trust and
Richmond, VA 23173 Mentor Funds; Director, Mentor Income Fund, Inc. and
America's Utility Fund, Inc.

Troy A. Peery, Jr. (52) Trustee Trustee, Cash Resource Trust, Mentor Institutional Trust and
c/o Mentor Variable Investment Portfolios Mentor Funds; Director, Mentor Income Fund, Inc. and
901 E. Byrd Street America's Utility Fund, Inc. Formerly, President of
Richmond, Virginia 23230 Heilig-Meyers Company.

Peter J. Quinn, Jr.* (38) Trustee Managing Director, Mentor Investment Group, LLC, and
c/o Mentor Variable Investment Portfolios Mentor Services Inc.; Trustee, Cash Resource Trust, Mentor
901 E. Byrd Street Institutional Trust and Mentor Funds; Director, Mentor
Richmond, VA 23219 Income Fund, Inc. and America's Utility Fund, Inc.

Arch T. Allen, III (58) Trustee Attorney at law, Raleigh, North Carolina; Trustee, Cash
c/o Mentor Variable Investment Portfolios Resource Trust, Mentor Institutional Trust and Mentor
901 E. Byrd Street Funds; Director, Mentor Income Fund, Inc. and America's
Richmond, VA 23219 Utility Fund, Inc.; formerly, Vice Chancellor for
Development and University Relations, University of North
Carolina at Chapel Hill.
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------- -------------- ----------------------------------------------------------------
<S> <C> <C>
Weston E. Edwards (64) Trustee President, Weston Edwards & Associates; Trustee Cash
c/o Mentor Variable Investment Portfolios Resource Trust, Mentor Institutional Trust and Mentor
901 E. Byrd Street Funds; Director, Mentor Income Fund, Inc. and America's
Richmond, VA 23219 Utility Fund, Inc.; Founder and Chairman, The Housing
Roundtable; formerly, President, Smart Mortgage Access,
Inc.

Jerry R. Barrentine (64) Trustee President, J.R. Barretine & Associates; Trustee, Cash
c/o Mentor Variable Investment Portfolios Resource Trust, Mentor Institutional Trust and Mentor
901 E. Byrd Street Funds; Director, Mentor Income Fund, Inc. and America's
Richmond, VA 23219 Utility Fund, Inc.; formerly, Executive Vice President and
Chief Financial Officer, Barclays/American Mortgage
Director Corporation; Managing Partner, Barrentine Lott &
Associates.

J. Garnett Nelson (59) Trustee Consultant, Mid-Atlantic Holdings, LLC; Trustee, Cash
c/o Mentor Variable Investment Portfolios Resource Trust, Mentor Institutional Trust and Mentor
901 E. Byrd Street Funds; Director, Mentor Income Fund, Inc., America's
Richmond, VA 23219 Utility Fund, Inc., GE Investment Funds, Inc., and Lawyers
Title Corporation; Member, Investment Advisory Committee,
Virginia Retirement System; formerly, Senior Vice President,
The Life Insurance Company of Virginia.

Paul F. Costello (38) President Managing Director, Wheat First Butcher Singer, Inc. and
c/o Mentor Variable Investment Portfolios Mentor Investment Group, LLC; President, Cash Resource
901 E. Byrd Street Trust, Mentor Income Fund, Inc., Mentor Funds, Mentor
Richmond, VA 23219 Institutional Trust and America's Utility Fund, Inc.; Director,
Mentor Perpetual Advisors, LLC.

Terry L. Perkins (52) Treasurer/ Senior Vice President and Treasurer, Mentor Investment
c/o Mentor Variable Investment Portfolios Secretary Group, LLC; Treasurer, Mentor Funds, Cash Resource Trust,
901 E. Byrd Street Mentor Institutional Trust, Mentor Income Fund, Inc.
Richmond, VA 23219

Michael Wade (32) Assistant Vice President and Controller, Mentor Investment Group,
c/o Mentor Variable Investment Portfolios Treasurer LLC Assistant Treasurer, Mentor Income Fund, Inc., Cash
901 E. Byrd Street Resource Trust, Mentor Funds, Mentor Institutional Trust
Richmond, VA 23219 and America's Utility Fund.
</TABLE>

The table below shows the fees paid to each Trustee by the Trust for the
1998 fiscal year and the fees paid to each Trustee by all funds in the Mentor
family (including the Trust) during the 1998 calendar year.

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM ALL
FROM THE TRUST COMPLEX FUNDS (27 FUNDS)
(FISCAL YEAR END 1998)* (CALENDAR YEAR 1998)
------------------------- ----------------------------
<S> <C> <C>
Daniel J. Ludeman ............... $ 0 $ 0
Arnold H. Dreyfuss .............. $ 5.31 $32,000
Thomas F. Keller ................ $ 5.31 $32,000
Louis W. Moelchert, Jr. ......... $ 5.31 $32,000
J. Garnett Nelson ............... $ 5.31 $40,000
Troy A. Peery, Jr. .............. $ 5.31 $32,000
Peter J. Quinn, Jr. ............. $ 0 $ 0
Jerry R. Barrentine ............. $ 5.31 $40,000
Weston E. Edwards ............... $ 5.31 $42,000
Arch T. Allen III ............... $ 5.31 $35,000
</TABLE>

The Trustees do not receive pension or retirement benefits from the Trust.

* Information given is for the period from March 3, 1998 to December 31,
1998.

19
<PAGE>

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
or her duties. The Trust, at its expense, provides liability insurance for the
benefit of its Trustees and officers.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of April 15, 1999, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of each Portfolio. To the
knowledge of the Trust, no person owned of record or beneficially more than 5%
of the outstanding shares of any Portfolio as of that date, except Hartford
Life Insurance Company, which owned of record substantially all of the shares
of each Portfolio at that date.

INVESTMENT ADVISORY SERVICES

Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment
adviser to each Portfolio other than the VIP International Portfolio. Mentor
Perpetual Advisors, LLC ("Mentor Perpetual") serves as investment adviser to
the VIP International Portfolio.

Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group,
LLC ("Mentor") and its affiliates. Mentor is a subsidiary of Wheat First
Butcher Singer, Inc., which in turn is a wholly owned subsidiary of First Union
Corp. ("First Union"). First Union is a leading financial services company;
First Union has announced plans to acquire EVEREN Capital Corporation, which
currently has a minority ownership interest in Mentor.

Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc, a diversified financial services holding company, and
Mentor Advisors. Its clients include 28 unit investment trusts and other public
investment pools including private individuals, charities, pension plans, and
life assurance companies.

Subject to the general oversight of the Trustees, each investment advisor
manages the applicable Portfolio in accordance with the stated policies of that
Portfolio and of the Trust. Each makes investment decisions for the Portfolio
and places the purchase and sale orders for portfolio transactions. The
investment advisors bear all their expenses in connection with the performance
of their services (except as may be approved from time to time by the Trustees)
and pay the salaries of all officers and employees who are employed by them and
the Trust.

Each Portfolio's investment advisor provides the Trust with investment
officers who are authorized to execute purchases and sales of securities.
Investment decisions for the Trust and for the other investment advisory
clients of the investment advisors and their affiliates are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the investment advisor's opinion is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of securities for one or more clients
will have an adverse effect on other clients. Each investment advisor employs
professional staffs of portfolio managers who draw upon a variety of resources
for research information for the Trust.

Expenses incurred in the operation of a Portfolio or otherwise allocated
to a Portfolio, including but not limited to taxes, interest, brokerage fees
and commissions, compensation paid under a Portfolio's 12b-1 plan, fees to
Trustees who are not officers, directors, stockholders, or employees of Wheat,
First Securities, Inc. and its subsidiaries, SEC fees and related expenses,
state Blue Sky qualification fees, charges of the custodian and transfer and
dividend disbursing agents, outside auditing, accounting, and legal services,
charges for the printing of prospectuses and statements of additional
information for regulatory purposes or for distribution, and certain costs
incurred by Mentor Investment Group in responding to shareholder inquiries as
approved by the Trustees from time to time, to shareholders, certain
shareholder report charges and charges relating to corporate matters are borne
by the Portfolio.

20
<PAGE>

Under the applicable Management Contract with the Trust in respect of each
Portfolio, subject to such policies as the Trustees may determine, Mentor
Advisors or Mentor Perpetual, as the case may be, at its expense, furnishes
continuously an investment program for the Portfolio and makes investment
decisions on behalf of the Portfolio. Subject to the control of the Trustees,
Mentor Advisors or Mentor Perpetual, as the case may be, also manages,
supervises and conducts the other affairs and business of the Portfolio,
furnishes office space and equipment, provides bookkeeping and clerical
services (including determination of the Portfolio's net asset value, but
excluding shareholder accounting services) and places all orders for the
purchase and sale of the Portfolio's portfolio securities. Mentor Advisors or
Mentor Perpetual, as the case may be, may place portfolio transactions with
broker-dealers which furnish Mentor Advisors or Mentor Perpetual, without cost
to it, certain research, statistical and quotation services of value to Mentor
Advisors or Mentor Perpetual and their affiliates in advising the Portfolio and
other clients. In so doing, Mentor Advisors or Mentor Perpetual may cause a
Portfolio to pay greater brokerage commissions than it might otherwise pay.

Each Management Contract provides that Mentor Advisors or Mentor
Perpetual, as the case may be, shall not be subject to any liability to a
Portfolio or to any shareholder of a Portfolio for any act or omission in the
course of or connected with rendering services to a Portfolio in the absence of
its willful misfeasance, bad faith, gross negligence, or reckless disregard of
its duties.

Each of the Management Contracts is subject to annual approval by (i) the
Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the affected Portfolio, provided that in
either event the continuance is also approved by a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust or the
investment adviser in question, by vote cast in person at a meeting called for
the purpose of voting on such approval. The Management Contracts are terminable
without penalty, on not more than sixty days' notice and not less than thirty
days' notice, by the Trustees, by vote of the holders of a majority of the
affected Portfolio's shares, or by the applicable investment adviser. Each
terminates automatically in the event of its assignment (as defined in the 1940
Act).

MANAGEMENT FEES

The Portfolios pay a management fee to Mentor Advisors or Mentor
Perpetual, as the case may be, at the following annual rates expressed as a
percentage of average daily net assets of the applicable Portfolio: VIP
Balanced Portfolio 0.75%, VIP Capital Growth Portfolio 0.80%, VIP Perpetual
International Portfolio 1.00%, VIP Growth Portfolio 0.70%, and VIP High Income
Portfolio 0.70%.

The Portfolios in operation during the last fiscal year paid investment
advisory fees in the amounts indicated below for the period of March 3, 1998
(commencement of investment operations) through December 31, 1998 (the end of
the Trust's fiscal year). Amounts shown reflect fee waivers were applicable:

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio $56,416
VIP Perpetual International Portfolio $43,460
VIP Growth Portfolio $25,960
</TABLE>

The investment advisors of certain of the Portfolios waived investment
advisory fees in the following amounts for the period of March 3, 1998
(commencement of investment operations) through December 31, 1998 (the end of
the Trust's fiscal year):

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
<S> <C>
VIP Capital Growth Portfolio $ 4,692
VIP Perpetual International Portfolio $42,172
VIP Growth Portfolio $21,300
</TABLE>

Mentor Advisors, out of its own assets, pays a fee to Hartford Life
Insurance Company (the "Hartford") at an annual rate equal to 0.25% of the
average daily value of shares of the Trust held by Hartford in separate
accounts of the Hartford, for services provided by the Hartford to current and
prospective owners of variable annuity or variable life insurance contracts
offered by the Company and offering shares of the Portfolios as investment
options. Those services may include, among other things, teleservicing support
in connection with the Portfolios; delivery of current prospectuses, reports,
and notices; and maintenance of variable contract records reflecting shares
purchased and redeemed and share balances.

21
<PAGE>

ADMINISTRATIVE SERVICES

Mentor Investment Group, LLC serves as administrator to each of the
Portfolios pursuant to an Administration Agreement.

Pursuant to the Administration Agreement, Mentor Investment Group provides
continuous business management services to the Portfolios and, subject to the
general oversight of the Trustees, manages all of the business and affairs of
the Portfolios subject to the provisions of the Trust's Agreement and
Declaration of Trust, By-laws and the 1940 Act, and other policies and
instructions the Trustees may from time to time establish. Mentor Investment
Group pays the compensation of all officers and executive employees of the
Trust (except those employed by or serving at the request of an investment
adviser or sub-adviser) and makes available to the Trust the services of its
directors, officers, and employees as elected by the Trustees or officers of
the Trust. In addition, Mentor Investment Group provides all clerical services
relating to the Portfolios' business. As compensation for its services, Mentor
Investment Group receives a fee from each Portfolio calculated daily at the
annual rate of .10% of a Portfolio's average daily net assets.

The Administration Agreement must be approved at least annually with
respect to each Portfolio by a vote of a majority of the Trustees who are not
interested persons of Mentor Investment Group or the Trust. The Agreement may
be terminated at any time without penalty on 30 days notice by Mentor
Investment Group, or immediately in respect of any Portfolio upon notice by the
Trustees or by vote of a majority of the outstanding voting securities of that
Portfolio. The Agreement terminates automatically in the event of any
assignment (as defined in the 1940 Act).

ADMINISTRATIVE FEES

Certain of the Portfolios paid the following fees for administrative
services for the period of March 3, 1998 (commencement of investment
operations) through December 31, 1998 (the end of the Trust's fiscal year):

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio $7,018
VIP Perpetual International Portfolio $4,323
VIP Growth Portfolio $3,691
</TABLE>

BROKERAGE TRANSACTIONS

Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by a Portfolio of
negotiated brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
but the price paid by the Trust usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the Trust
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer. It is anticipated that most purchases and sales of securities by
funds investing primarily in certain fixed-income securities will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, those funds would not ordinarily pay significant
brokerage commissions with respect to securities transactions.

It has for many years been a common practice in the investment advisory
business for advisors of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisors and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, each investment advisor may receive brokerage and research services
and other similar services from many broker-dealers with which such investment
advisor places a Portfolio's portfolio transactions and from third parties with
which these broker-dealers have arrangements. These services include such
matters as general economic and market reviews, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale of
investments, newspapers, magazines, pricing services, quotation services, news
services and personal computers utilized by the investment advisor's managers
and analysts. Where the services referred to above are not used exclusively by
the investment advisor for research purposes, the investment advisor, based
upon its own allocations of expected use, bears that portion of the cost of
these services which directly relates to its non-research use. Some of these
services are of value to the investment advisor and its affiliates in advising
various of its clients (including the Portfolios), although not all of these
services are necessarily useful and of value in managing all or any of the
Portfolios. The management fee paid by a Portfolio is not reduced because its
investment

22
<PAGE>

advisor or any of its affiliates receive these services even though the
investment advisor might otherwise be required to purchase some of these
services for cash.

A Portfolio's investment advisor places all orders for the purchase and
sale of portfolio investments for the Portfolio and buys and sells investments
for the Portfolio through a substantial number of brokers and dealers. The
investment advisor seeks the best overall terms available for the Portfolio,
except to the extent the investment advisor may be permitted to pay higher
brokerage commissions as described below. In doing so, the investment advisor,
having in mind the Portfolio's best interests, considers all factors it deems
relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other investment, the
amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.

As permitted by Section 28(e) of the 1934 Act, and by the relevant
advisory agreement, a Portfolio's investment advisor may cause the Portfolio to
pay a broker-dealer which provides "brokerage and research services" (as
defined in the 1934 Act) to that advisor an amount of disclosed commission for
effecting securities transactions on stock exchanges and other transactions for
the Portfolio on an agency basis in excess of the commission which another
broker-dealer would have charged for effecting that transaction. An investment
advisor's authority to cause a Portfolio to pay any such greater commissions is
also subject to such policies as the Trustees may adopt from time to time. It
is the position of the staff of the Securities and Exchange Commission that
Section 28(e) does not apply to the payment of such greater commissions in
"principal" transactions. Accordingly, each investment advisor will use its
best efforts to obtain the best overall terms available with respect to such
transactions, as described above.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to such other policies as the Trustees may
determine, an investment advisor may consider sales of shares of a Portfolio
(and, if permitted by law, of the other funds in the Mentor family) as a factor
in the selection of broker-dealers to execute portfolio transactions for a
Portfolio.

The Trustees have determined that portfolio transactions for the Trust may
be effected through Wheat, First Securities, Inc. ("Wheat"), First Union
Brokerage Services ("FUBS"), and EVEREN Securities, Inc. ("EVEREN"),
broker-dealers affiliated with Mentor Advisors and Mentor Perpetual. The
Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act which requires, among other things,
that the commissions paid to Wheat, FUBS, and EVEREN must be reasonable and
fair compared to the commissions, fees, or other remuneration received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. Wheat, FUBS, and EVEREN will not
participate in brokerage commissions given by a Portfolio to other brokers or
dealers. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. A Portfolio will in no event effect
principal transactions with Wheat, FUBS, and EVEREN in over-the-counter
securities in which Wheat, FUBS, or EVEREN makes a market.

Under rules adopted by the SEC, Wheat, FUBS, and EVEREN may not execute
transactions for a Portfolio on the floor of any national securities exchange,
but may effect transactions for a Portfolio by transmitting orders for
execution and arranging for the performance of this function by members of the
exchange not associated with them. Wheat, FUBS, and EVEREN will be required to
pay fees charged to those persons performing the floor brokerage elements out
of the brokerage compensation they receive from a Portfolio. The Trust has been
advised by Wheat that on most transactions, the floor brokerage generally
constitutes from 5% and 10% of the total commissions paid.

BROKERAGE COMMISSIONS

The Portfolios in operation during the last fiscal year paid brokerage
commissions in the following amounts for the period of March 3, 1998
(commencement of investment operations) through December 31, 1998 (the end of
the Trust's fiscal year):

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio $41,077
VIP Perpetual International Portfolio $45,017
VIP Growth Portfolio $38,938
</TABLE>

<PAGE>

The following table shows brokerage commissions paid by those Portfolios
to Wheat First Securities, Inc. for the period of March 3, 1998 (commencement
of investment operations) through December 31, 1998 (the end of the Trust's
fiscal year):

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio $1,995
VIP Perpetual International Portfolio $ 0
VIP Growth Portfolio $ 627
</TABLE>

The following table shows the brokerage commissions paid by those
Portfolios to EVEREN Securities, Inc. for the period of March 3, 1998
(commencement of investment operations) through December 31, 1998 (the end of
the Trust's fiscal year):

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio $2289
VIP Perpetual International Portfolio $ 0
VIP Growth Portfolio $ 140
</TABLE>

The following table shows the brokerage commissions paid by those
Portfolios to FUBS for the period of March 3, 1998 (commencement of investment
operations) through December 31, 1998 (the end of the Trust's fiscal year):

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio $0
VIP Perpetual International Portfolio $0
VIP Growth Portfolio $0
</TABLE>

The brokerage commissions paid to Wheat First Securities, Inc. for the
period of March 3, 1998 (commencement of investment operations) through
December 31, 1998 (the end of the Trust's fiscal year) amounted to the
following percentages of the aggregate brokerage commissions and brokerage
transactions paid by those Portfolios:

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio 4.8%
VIP Perpetual International Portfolio 0.0%
VIP Growth Portfolio 1.6%
</TABLE>

The brokerage commissions paid to EVEREN Securities, Inc. for the period
of March 3, 1998 (commencement of investment operations) through December 31,
1998 (the end of the Trust's fiscal year) amounted to the following percentages
of the aggregate brokerage commissions and brokerage transactions paid by those
Portfolios:

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio 5.6%
VIP Perpetual International Portfolio 0.0%
VIP Growth Portfolio 0.4%
</TABLE>

The brokerage commissions paid to FUBS for the period of March 3, 1998
(commencement of investment operations) through December 31, 1998 (the end of
the Trust's fiscal year) amounted to the following percentages of the aggregate
brokerage commissions and brokerage transactions paid by certain Portfolio as
follows:

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio 0.0%
VIP Perpetual International Portfolio 0.0%
VIP Growth Portfolio 0.0%
</TABLE>

<PAGE>

SHARES OF THE TRUST

Each share of the Trust has one vote, with fractional shares voting
proportionally. Shares of the Portfolio are freely transferable, are entitled
to dividends as declared by the Trustees, and, if the Portfolios each were
liquidated, would receive the net assets of the respective Portfolio. The Trust
may suspend the sale of shares at any time and may refuse any order to purchase
shares. Although neither the Portfolios nor the Trust is required to hold
annual meetings of 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.

HOW TO BUY SHARES

Except under certain circumstances described in the Trust's or an
individual Portfolio's prospectus, shares of the Portfolios are sold at their
net asset value on days the New York Stock Exchange is open for business. The
procedure for purchasing shares of the Portfolios is explained in the relevant
Prospectus under the section entitled "Sales and Redemptions".

DISTRIBUTION

Mentor Distributors, LLC ("Mentor Distributors"), located at 3435 Stelzer
Road, Columbus, Ohio 43219-8000, is the principal underwriter of shares of the
Trust, which are continuously offered, and shares of the other continuously
offered funds in the Mentor family. Mentor Distributors is not obligated to
sell any specific amount of shares of the Trust and will purchase shares for
resale only against orders for shares.

The Trust, on behalf of each Portfolio, 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 each Portfolio to compensate Mentor
Distributors and participating insurance companies for services provided and
expenses incurred by it in promoting the sale of shares of the Portfolio,
reducing redemptions, or maintaining or improving services provided to
shareholders and separate account holders. Each Plan provides for payments by
each Portfolio to Mentor Distributors at the annual rate of up to 0.25% of a
Portfolio's average daily net assets, subject to the authority of the Trustees
to reduce the amount of payments or to suspend a Plan as to any Portfolio or
such periods as they may determine. Mentor Distributors may remit some or all
of such payments to participating insurance companies which offer shares of the
relevant Portfolio. Subject to these limitations, the amount of such payments
and the specific purposes for which they are made shall be determined by the
Trustees. None of the Portfolios currently makes payments under the
Distribution Plan.

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 a 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 Portfolio may bear for distribution pursuant to the Plan without also being
approved by a majority of the outstanding voting securities of that Portfolio.
Each Plan terminates automatically in the event of its assignment and may be
terminated as to any Portfolio without penalty, at any time, by a vote of a
majority of the outstanding voting securities of the affected Portfolio or by a
vote of a majority of the Qualified Trustees.

DETERMINING NET ASSET VALUE

The Trust determines the net asset value per share of each Portfolio once
each day the New York Exchange (the "Exchange") is open as of the close of
regular trading on the Exchange. Currently, the Exchange is closed Saturdays,
Sundays and the following holidays: New Year's Day, Martin L. King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving, and Christmas.

Securities for which market quotations are readily available are valued at
prices which, in the opinion of a Portfolio's investment advisor, most nearly
represent the market values of such securities. Currently, such prices are
determined using the last reported sale price or, if no sales are reported (as
in the case of some securities traded over-the-counter), the last reported bid
price, except that certain U.S. Government securities are stated at the mean
between the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which

25
<PAGE>

approximates market value. All other securities and assets are valued at their
fair value following procedures approved by the Trustees. Liabilities are
deducted from the total, and the resulting amount is divided by the number of
shares of the class outstanding.

Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.

If any securities held by a Portfolio are restricted as to resale, the
Portfolio's investment advisor determines their fair values. The fair value of
such securities is generally determined as the amount which a Portfolio could
reasonably expect to realize from an orderly disposition of such securities
over a reasonable period of time. The valuation procedures applied in any
specific instance are likely to vary from case to case. However, consideration
is generally given to the financial position of the issuer and other
fundamental analytical data relating to the investment and to the nature of the
restrictions on disposition of the securities (including any registration
expenses that might be borne by the Portfolio in connection with such
disposition). In addition, specific factors are also generally considered, such
as the cost of the investment, the market value of any unrestricted securities
of the same class (both at the time of purchase and at the time of valuation),
the size of the holding, the prices of any recent transactions or offers with
respect to such securities and any available analysts' reports regarding the
issuer.

In the case of certain fixed-income securities, including certain less
common mortgage-backed securities, market quotations are not readily available
to the Portfolios on a daily basis, and pricing services may not provide price
quotations. In such cases, the Portfolio's investment advisor is typically able
to obtain dealer quotations for each of the securities on at least a weekly
basis. On any day when it is not practicable for the investment advisor to
obtain an actual dealer quotation for a security, the investment advisor may
reprice the securities based on changes in the value of a U.S. Treasury
security of comparable duration. When the next dealer quotation is obtained,
the investment advisor compares the dealer quote against the price obtained by
it using its U.S. Treasury-spread calculation, and makes any necessary
adjustments to its calculation methodology. The investment advisor attempts to
obtain dealer quotes for each security at least weekly, and on any day when
there has been an unusual occurrence affecting the securities which, in the
investment advisor's view, makes pricing the securities on the basis of U.S.
Treasuries unlikely to provide a fair value of the securities.

Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset
value of a Portfolio's shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the day at the
latest practicable time prior to the close of the Exchange. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the Exchange which will not be reflected in the computation of a
Portfolio's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Trustees.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the Exchange is
open). In addition, European or Far Eastern securities trading generally or in
a particular country or countries may not take place on all business days in
New York. Furthermore, trading takes place in Japanese markets on certain
Saturdays and in various foreign markets on days which are not business days in
New York and on which a Portfolio's net asset value is not calculated. A
Portfolio calculates net asset value per share, and therefore effects sales,
redemptions and repurchases of its shares, as of the close of the Exchange once
on each day on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when a Portfolio's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by
procedures approved as required by the Trustees.

REDEMPTIONS IN KIND

Although each Portfolio intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole or in
part by a distribution of securities from its investment portfolio. Redemptions
in kind will

26
<PAGE>

be made in conformity with applicable SEC rules, taking such securities at the
same value employed in determining net asset value and selecting the securities
in a manner that the Trustees determine to be fair and equitable. The Trust has
elected to be governed by Rule 18f-1 of the Investment Company Act of 1940,
under which a Portfolio is obligated to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the respective class's net
asset value during any 90-day period.

TAXES

Each Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").

As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to shareholders. A Portfolio will not under present law be
subject to any excise or income taxes in Massachusetts.

In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies; and (b) diversify its holdings so that, at the close
of each quarter of its taxable year, (i) at least 50% of the market value of
its total assets consists of cash and cash items, U.S. Government Securities,
securities of other regulated investment companies, and other securities
limited generally with respect to any one issuer to not more than 5% of the
value of the total assets of the Portfolio 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 (other than those of
the U.S. Government or other regulated investment companies) of any issuer or
of two or more issuers which the Portfolio controls and which are engaged in
the same, similar, or related trades or businesses. These requirements may
limit the range of the Portfolio's investments. In order to receive the
favorable tax treatment accorded regulated investment companies and their
shareholders, moreover, a Portfolio must in general distribute annually 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.

If a Portfolio failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Portfolio would be
subject to tax on its taxable income at corporate rates, and all distributions
from earnings and profits, including any distributions of net tax-exempt income
and net long-term capital gains, would be taxable to shareholders as ordinary
income. In addition, a Portfolio could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions
before requalifying as a regulated investment company that is accorded special
tax treatment.

If a Portfolio fails to distribute in a calendar year substantially all of
its ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31, plus any undistributed amount
from the prior year, the Portfolio will be subject to a 4% excise tax on the
undistributed amounts. A Portfolio is exempt from this excise tax if at all
times during the calendar year each shareholder in the Portfolio was a
segregated asset account of a life insurance company held in connection with
variable contracts.

TAX TREATMENT OF VARIABLE LIFE AND VARIABLE ANNUITY CONTRACTS. In order
for variable annuity and variable life insurance contracts to receive favorable
tax treatment, certain diversification requirements must be met. Treasury
regulations provide that investment portfolios underlying variable contracts
will be deemed adequately diversified if no more than 55% of the value of the
total assets of the portfolio is represented by any one investment, no more
than 70% of such value is represented by any two investments, no more than 80%
of such value is represented by any three investments, and no more than 90% of
such value is represented by any four investments. Alternatively, a portfolio
underlying a variable contract will be adequately diversified if, as of the
close of each quarter, the diversification requirements applicable to regulated
investment companies are met and no more than 55% of the value of the total
assets consists of cash and cash items (including receivables), U.S. government
securities and securities of other regulated investment companies.

Variable annuity and variable life insurance contracts may look through a
regulated investment company to the assets held by the regulated investment
company, and thus be treated as owning a proportionate share of such regulated
investment company's assets for purposes of meeting the diversification test,
provided that the regulated investment company meets

27
<PAGE>

certain requirements (including limitations on the nature of the regulated
investment company's shareholders). Each Portfolio intends to comply with these
requirements and to comply with the diversification requirements applicable to
variable annuity and variable life insurance contracts.

For a discussion of the tax consequences to owners of variable annuity and
variable life insurance contracts, please refer to the prospectuses of the
separate accounts that offer variable life and variable annuity contracts.
Generally, owners of variable life and variable annuity contracts are not taxed
currently on income or gains realized with respect to such contracts. Depending
on the contract, distributions from the contract may be subject to ordinary
income tax and, in addition, some distributions made to an owner who is younger
than 59 1/2 may be subject to a 10% penalty tax. Investors should consult with
their own tax advisers regarding possible tax consequences in their particular
situations.

HEDGING TRANSACTIONS. If a Portfolio engages in transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the Portfolio or defer
losses to the Portfolio. These rules could therefore affect the amount and
timing of distributions to shareholders, and could require the Portfolio to
liquidate securities it otherwise would have continued to hold in order to meet
its distribution requirement. A Portfolio will endeavor to make any available
elections pertaining to such transactions in a manner believed to be in the
best interests of the Portfolio.

SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. A Portfolio's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the Portfolio to
accrue and distribute income not yet received. In order to generate sufficient
cash to make the requisite distributions, a Portfolio may be required to sell
securities in its portfolio that it otherwise would have continued to hold.

FOREIGN SECURITIES. Investments in foreign securities may be subject to
foreign withholding taxes, which would decrease a Portfolio's yield on those
securities. In addition, investments in certain foreign securities may have the
effect of accelerating the recognition of income (without the receipt of cash)
and therefore increasing the amount required to be distributed for the
Portfolio to avoid taxation. Making either of these elections therefore may
require a Portfolio to liquidate other investments (including when it is not
advantageous to do so) to meet its distribution requirement, which also may
accelerate the recognition of gain and affect a Portfolio's total return.

This discussion of federal income tax treatment of the Portfolios and
their shareholders is based on the law as of the date of this Statement of
Additional Information.

INDEPENDENT ACCOUNTANTS

KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110 are the Trust's independent accountants, providing audit services, tax
return review and other tax consulting services and assistance and consultation
in connection with the review of various Securities and Exchange Commission
filings.

CUSTODIAN

Investors Fiduciary Trust Company, located at 127 West 10th Street, Kansas
City, Missouri, is the custodian of each Portfolio, except that State Street
Bank & Trust Company, P.O. Box 8602, Boston, Massachusetts serves as custodian
to the Global Portfolio and as the foreign custodian to each of the other
Portfolios in respect of foreign assets. A custodian's responsibilities include
generally safeguarding and controlling a Portfolio's cash and securities,
handling the receipt and delivery of securities, and collecting interest and
dividends on a Portfolio's investments.

TRANSFER AGENT

State Street Bank & Trust Company, P.O. Box 8602, Boston, Massachusetts
serves as the Trust's transfer agent.

28
<PAGE>

PERFORMANCE INFORMATION

The table below shows the average annual total return of shares of certain
of the Portfolios for the one-, five- and ten-year periods (or for the life of
the Portfolios if shorter) through December 31, 1998:

<TABLE>
<CAPTION>
MARCH 3, 1998 - DECEMBER 31, 1998
----------------------------------
<S> <C>
VIP Capital Growth Portfolio 10.50%
VIP Perpetual International Portfolio 15.61%
VIP Growth Portfolio (9.94)%
</TABLE>

Total return for the one-, five-, and ten-year periods for each Portfolio
(or for the life of a Portfolio, if shorter) is determined by calculating the
actual dollar amount of investment return on a $1,000 investment in a Portfolio
at the beginning of the period, and then calculating the annual compounded rate
of return which would produce that amount. Total return for a period of one
year or less is equal to the actual return of the Portfolio during that period.
Total return calculations assume reinvestment of all Portfolio distributions at
net asset value on their respective reinvestment dates. Total return also may
be presented for other periods.

The yield for certain of the Portfolios for the thirty-day period ended
December 31, 1998 was as follows:

<TABLE>
<S> <C>
VIP Capital Growth Portfolio 4.62%
VIP Perpetual International Portfolio 2.11%
VIP Growth Portfolio 10.09%
</TABLE>

A Portfolio's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by the Portfolio during the
base period less expenses accrued for that period, and (ii) dividing that
amount by the product of (A) the average daily number of shares of the
Portfolio outstanding during the base period and entitled to receive dividends
and (B) the net asset value per share on the last day of the base period. The
result is annualized on a compounding basis to determine the yield. For this
calculation, interest earned on debt obligations held by a Portfolio is
generally calculated using the yield to maturity (or first expected call date)
of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMA's, based on costs). Dividends on
equity securities are accrued daily at their stated dividend rates.

All data are based on past performance and do not predict future results.

At times, a Portfolio's investment adviser may reduce its compensation or
assume expenses of the Portfolio in order to reduce the Portfolio's expenses.
Any such fee reduction or assumption of expenses would increase a Portfolio's
yield and total return during the period of the fee reduction or assumption of
expenses.

The performance of shares of each Portfolio depends upon such variables
as: portfolio quality; average portfolio maturity; type of instruments in which
the particular Portfolio is invested; changes in the expenses of a particular
Portfolio; and various other factors.

The performance of each Portfolio's shares fluctuates on a daily basis
largely because net earnings and net asset value per share fluctuate daily.
Both net earnings and net asset value per share are factors in the computation
of yield and total return for each class of shares of the Portfolios.

Performance information presented for the Portfolios should not be
compared directly with performance information of other insurance products
without taking into account insurance-related charges and expenses payable
under their variable annuity contracts. These charges and expenses are not
reflected in the Portfolio's performance and would reduce an investor's return
under the annuity contract.

PERFORMANCE COMPARISONS

Independent statistical agencies measure a Portfolio's investment
performance and publish comparative information showing how a Portfolio, and
other investment companies, performed in specified time periods. Agencies whose
reports are commonly used for such comparisons are set forth below. From time
to time, a Portfolio 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.

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<PAGE>

Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
From time to time, a Portfolio will quote its Lipper ranking in advertising and
sales literature.

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 Portfolio's historical risk/reward ratio
relative to other funds with similar objectives. The performance factor is a
weighted-average assessment of the Portfolio'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 Portfolio. 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.

A Portfolio's shares also may be compared to the following indices:

Dow Jones Industrial Average ("DJIA") is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by Dow Jones & Company, it is cited as a
principal indicator of market conditions.

Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's listed on its index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated, in the Standard &
Poor's figures.

Consumer Price Index is generally considered to be a measure of inflation.

CDA Mutual Fund Growth Index is a weighted performance average of other
mutual funds with growth of capital objectives.

Lipper Growth Fund Index is an average of the net asset-valuated total
returns for the top 30 growth funds tracked by Lipper Analytical Services,
Inc., an independent mutual fund rating service.

Lehman Brothers Government/Corporate (total) Index is comprised of
approximately 5,000 issues, which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked
by Shearson Lehman Brothers Inc., the index calculates total returns for one
month, three month, twelve month and ten year periods and year-to-date.

Lehman Brothers Government Index is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government.Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.

Russell Growth 1000 (Russell 1000 Index) is a broadly diversified index
consisting of approximately 1,000 common stocks of companies with market values
between $20 million and $300 million that can be used to compare the total
returns of funds whose portfolios are invested primarily in growth common
stocks.

Lehman Brothers Aggregate Bond Index is a total return index measuring
both the capital price changes and income provided by the underlying universe
of securities, weighted by market value outstanding. The Aggregate Bond Index
is comprised of the Shearson Lehman Government Bond Index, Corporate Bond
Index, Mortgage-Backed Securities Index, and Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land
Bank, and the Bank for Cooperatives; foreign obligations; and U.S.
investment-grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum S&P rating of BBB, a
minimum Moody's rating of Baa, or a minimum Fitch rating of BBB.

30
<PAGE>

Salomon Brothers Mortgage-Backed Securities Index-15 Years includes the
average of all 15-year mortgage securities, which include Federal Home Loan
Mortgage Corporation (Freddie Mac), Federal National Mortgage Association
(Fannie Mae), and Government National Mortgage Association (Ginnie Mae).

Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment-grade tax-exempt bond market. Returns
and attributes for the Index are calculated semi-monthly using approximately
29,000 municipal bonds, which are priced by Muller Data Corporation.

From time to time, certain of the Portfolios that invest in foreign
securities may advertise the performance of their classes of shares compared to
similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following: Morgan Stanley Capital
International World Index, The Morgan Stanley Capital International EAFE
(Europe, Australia, Far East) index, J.P. Morgan Global Traded Bond Index,
Salomon Brothers World Government Bond Index, and the Standard & Poor's 500
Composite Stock Price Index (S&P 500). A Portfolio also may compare its
performance to the performance of unmanaged stock and bond indices, including
the total returns of foreign government bond markets in various countries. All
index returns are translated into U.S. dollars. The total return calculation
for these unmanaged indices may assume the reinvestment of dividends and any
distributions, if applicable, may include withholding taxes, and generally do
not reflect deductions for administrative and management costs.

Investors may use such indices or reporting services in addition to the
Trust or an individual Portfolio's prospectus to obtain a more complete view of
a particular Portfolio's performance before investing. Of course, when
comparing a Portfolio's performance to any index, conditions such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing portfolios
using reporting services, or total return and yield, investors should take into
consideration any relevant differences in portfolios, such as permitted
portfolio compositions and methods used to value portfolio securities and
compute net asset value.

Advertisements and other sales literature for a Portfolio may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in a
Portfolio based on monthly reinvestment of dividends over a specified period of
time.

From time to time the Portfolios may advertise their performance, using
charts, graphs, and descriptions, compared to federally insured bank products,
including certificates of deposit and time deposits, and to monthly market
funds using the Lipper Analytical Service money market instruments average.

Advertisements may quote performance information which does not reflect
the effect of the sales load.

Independent publications may also evaluate a Portfolio'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 Portfolios
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.

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

31
<PAGE>

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.

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.

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 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

32
<PAGE>

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."

33
<PAGE>

MEMBERS OF INVESTMENT MANAGEMENT TEAMS

The following persons are investment personnel of the Portfolios'
investment advisers, as indicated.
Mentor Investment Advisors, LLC

LARGE CAPITALIZATION QUALITY EQUITY GROWTH

John G. Davenport, CFA -- Managing Director, Chief Investment Officer
Mr. Davenport has twelve years of investment management experience.He joined
the firm after leading equity research at the investment management firm of
Lowe, Brockenbrough, & Tattersall, Inc. Mr. Davenport graduated from the
University of Richmond and has an MBA from the University of Virginia.

Richard H. Skeppstrom II -- Vice President, Portfolio Manager
Mr. Skeppstrom has six years of investment management experience.Before joining
the firm he was a global portfolio analyst for Saudi International Bank
Portfolio Advisors. Mr. Skeppstrom began his career as a pension and benefit
analyst at Johnson & Higgins of Virginia. He has earned both an undergraduate
degree and an MBA from the University of Virginia.

Richard L. Rice -- Vice President, Portfolio Manager
Mr. Rice has twenty-five years' experience in the securities industry. Before
joining Mentor, he was a partner in Parata Analytics Research. Prior
responsibilities include research for Signet Asset Management, senior research
analyst for Capitoline Investment Services, and positions in research at
Atlanta Corporation and Southwest Banking, Inc. Mr. Rice is a graduate of the
University of Florida and has completed graduate work at Georgia State
University.

ACTIVE FIXED-INCOME

P. Michael Jones, CFA -- Managing Director, Chief Fixed-Income Officer
Mr. Jones has eleven years of investment management experience. He is the
manager of Mentor Short-Duration Income Portfolio and Mentor Quality Income
Portfolio, as well as Mentor Income Fund, a $120 million closed-end bond fund.
Mr. Jones is responsible for the design and implementation of the fixed-income
group's proprietary analytical system. He has worked as an investment manager
at Ryland Capital Management, Alliance Capital Management, and Central Fidelity
Bank. Mr. Jones earned an undergraduate degree from the College of William and
Mary, and is enrolled in the Wharton School of the University of Pennsylvania.

Dennis F. Clary, CFA -- Senior Vice President, Portfolio Manager
Mr. Clary joined Mentor in 1998 and has over 20 years of investment management
experience. Prior to joining Mentor's Fixed Income Team, he worked for three
years as a Vice President and Senior Portfolio Manager for First America
Investment Corporation. He previously was employed for four years as a Vice
President and Portfolio Manager as CSI Asset Management, Inc. and prior to that
for four years in a similar role by Investment & Capital Management
Corporation. Mr. Clary received his BA and MBA degrees from Ohio State
University.

Timothy Anderson, CFA -- Senior Vice President, Portfolio Manager
Mr. Anderson has 8 years of investment management experience. He joined Mentor
in June, 1998. Prior to joining Mentor's Fixed-Income Team, he worked for two
years as a Senior Fixed Income Analyst at Investment Advisors, Inc. Previous to
that he was employed for five years as a Senior Investment Analyst at St. Paul
Fire & Marine Insurance Company and for two years as an Analyst for Duff &
Phelps Credit Rating Company. He received a BS degree from DePaul University
and an MBA degree from the University of Chicago.

Todd C. Kuimjian -- Credit/Research Analyst
Mr. Kuimjian has three years of investment experience. He is responsible for
maintaining credit information on corporate issuers and assisting Mr.
McClelland in evaluating the risk/return characteristics of corporate
securities. Prior to assuming his current duties, Mr. Kuimjian served as an
investment accountant/systems analyst and later as a senior investment
administrator within Mentor's investment services group. He holds an
undergraduate degree from Virginia Polytechnic Institute and is also a CPA.

B. Keith Wantling -- Associate Vice President, Sector Specialist
Mr. Wantling has four years of investment experience. He is responsible for
monitoring and evaluating opportunities in the mortgage-backed securities
market. He designs and maintains spread tracking systems, prepayment data bases
and other tools necessary to determine relative value in the mortgage sector.
Prior to assuming his current duties, Mr. Wantling was instrumental in the
construction of the fixed-income department's proprietary analytical system.

34
<PAGE>

SMALL-TO-MEDIUM CAPITALIZATION EQUITY GROWTH

Theodore W. Price, CFA -- Managing Director, Chief Investment Officer
Prior to establishing the small/mid cap. management style, Mr. Price served for
10 years as vice chairman and portfolio manager of the investment management
subsidiary of Wheat First Butcher Singer. In 1985, he established the equity
retail mutual fund, Mentor Growth Portfolio, which today represents nearly $600
million in assets. He is a member of the Richmond Society of Financial
Analysts. Mr. Price earned both BA and MBA degrees from the University of
Virginia.

Linda A. Ziglar, CFA -- Managing Director, Portfolio Manager
Ms. Ziglar joined the firm in 1991 after serving seven years as vice president
of Federal Investment Counseling and Federated Research Corporation in
Pittsburgh. While at Federated, Ms. Ziglar shared responsibility fro the
management of more than $300 million in mutual fund and separate account
assets. She is a member of the Richmond Society of Financial Analysts, the
Financial Analysts Federation, and a former officer of the Pittsburgh Society
of Financial Analysts. Ms. Ziglar is a summa cum laude, Phi Beta Kappa graduate
of Randolph-Macon Woman's College.She earned an MBA from the University of
Pittsburgh.

Jeffrey S. Drummond, CFA -- Vice President, Portfolio Manager
Mr. Drummond joined the firm in 1993 after five years in investment strategy at
Wheat First Butcher Singer. While working with Wheat's chief investment
strategist, he shared responsibility for the management of the Strategic
Sectors Portfolio. He is a member of the Richmond Society of Financial
Analysts. Mr. Drummond graduated cum laude from the University of Richmond.

Edward Rick IV -- Research Analyst
Mr. Rick joined the firm in 1994 after his experience with Davenport & Co. of
Virginia, where he focused on research of insider ownership and past earnings
performance of their universe of companies. He also organized research data for
the firm's leading retail analysts. Mr. Rick is a magna cum laude graduate of
the University of Richmond where he served as a business analyst for the
University's investment club, and later as leading manager. He is a candidate
in the Chartered Financial Analyst program.

MENTOR PERPETUAL ADVISORS, LLC

Rod Smyth -- Managing Director, Mentor Perpetual Advisors
Mr. Smyth is headquartered in Richmond, Virginia and has 13 years of investment
experience. His previous employers include Baring Securities, Ulster Bank
Investment Managers, Citicorp Scrimgeour Vickers, and Nomura International. He
is a graduate of Dundee University.

Martin Arbib -- Chairman, Perpetual Portfolio Management
Mr. Arbib is chairman and founder of Perpetual, a partner in the Mentor
Perpetual Advisors joint venture, where he currently leads investment
management. A Charter Accountant, he has 22 years' investment management
experience.

Scott McGlashan -- Far East Team Leader
Mr. McGlashan is lead manager of Mentor Perpetual Global Portfolio. He has 19
years' management experience, 13 years specializing in the Far East, and 11
years' tenure at Perpetual. He is a graduate of Yale and Cambridge University.

Kathryn Langridge -- Southeast Asia Team Leader
Ms. Langridge shares responsibility with Mr. McGlashan for Far East equity
investments. Before joining Perpetual in 1990, she spent eight years in Hong
Kong with the investment firm of Jardine Fleming. She specializes in equity
investments in the non-Japanese stock markets of the Far East. Ms. Langridge is
a graduate of Cambridge University.

Bob Yerbury -- American Team Leader
Mr. Yerbury has 24 years' investment management experience, with over 21 years'
experience in North American stock markets, and has been part of the Perpetual
team for 13 years. Before joining Perpetual, he was a portfolio manager with
Equity & Law Assurance Company. Mr. Yerbury is a graduate of Cambridge
University.

Stephen Whittaker -- UK Team Leader
Mr. Whittaker joined Perpetual eight years ago and has 16 years' investment
management experience. Prior to joining Perpetual, he was responsible for UK
equity funds for the Save & Prosper Group. He began his fund management career
with Rowe & Pitman after graduation from Manchester University.

35
<PAGE>

Margaret Roddan -- Europe Team Leader
Ms. Roddan has 11 years of investment management experience, three years with
Perpetual. She joined Perpetual from Mercury Asset Management, where she shared
responsibility for management of continental European equity holdings. She
began her career with the National Provident Institution. Ms. Roddan is a
graduate of the Investment Management Program at the London Business School.
She studied finance at City University and is a graduate of Bristol University.

SHAREHOLDER LIABILITY

Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given
in each agreement, obligation, or instrument entered into or executed by the
Trust or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Portfolio's property for all loss and expense of any
shareholder held personally liable for the obligations of a Portfolio. Thus the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations.

36
<PAGE>

FINANCIAL STATEMENTS

The Independent Auditors' Report, financial highlights, and financial
statements in respect of the Trust for the fiscal year ended December 31, 1998,
filed electronically on March 10, 1999 as part of Hartford Life Insurance
Company's 1998 annual report (File No. 811-07329; Accession No.
00001047469-99-009163), are incorporated by reference into this Statement of
Additional Information.

PART C

OTHER INFORMATION

Item 23. Exhibits

<S> <C>
(a) Agreement and Declaration of Trust(1)
(b) Bylaws(1)
(c) (1) Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights(1)
(2) Portions of Bylaws Relating to Shareholders' Rights(1)
(d) (1) Form of Management Contract with Mentor Perpetual(2)
(2) Form of Management Contract with Mentor Advisors(2)
(3) Conformed copy of Management Contract for High Income Portfolio(4)
(e) Form of Distribution Agreement(2)
(f) Not applicable
(g) (1) Form of Custody Agreement(2)
(2) Form of Transfer Agency Agreement(2)
(h) Conformed copy of Administration Agreement(4)
(i) Opinion and Consent of Ropes & Gray(2)
(j) Conformed Copy of Consent of Independent Auditors(4)
(k) Not applicable
(l) Not applicable
(m) Plan of Distribution pursuant to Rule 12b-1 (4)
(n) Financial Data Schedules (4)
(n)(1) Financial Data Schedule (4)
(n)(2) Financial Data Schedule (4)
(n)(3) Financial Data Schedule (4)
(o) Not applicable
(p) Powers of Attorney
</TABLE>

- -----------------

(1) Incorporated by reference from the Registrant's initial Registration
Statement under the Securities Act of 1933 and the Investment
Company Act of 1940, filed with the Commission on March 25, 1997.

(2) Incorporated by reference from the Registrant's Pre-Effective Amendment
No. 1 on Form N-1A filed January 12, 1998.

(3) Incorporated by reference from the Registrant's Post-Effective
Amendment No. 2 on form N-1A filed March 4, 1999.

(4) Filed herewith.

-1-

<PAGE>

Item 24. Persons Controlled by or Under Common Control with Registrant

None.

Item 25. Indemnification

Article VIII of the Registrant's Agreement and Declaration of Trust
provides as follows:

Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil, criminal, administrative or investigative, and any
appeal therefrom, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have been threatened,
while in office or thereafter, by reason of being or having been such a Covered
Person except with respect to any matter as to which such Covered Person shall
have been finally adjudicated in any such action, suit or other proceeding (a)
not to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interest of the Trust or (b) to be liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.

Expenses, including counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that (a) such Covered
Person shall have provided appropriate security for such undertaking, (b) the
Trust shall be insured against losses arising from any such advance payments, or
(c) either a majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in office act on
the matter), or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry) that there is reason to believe that such Covered Person
ultimately will be entitled to indemnification.

-2-

<PAGE>

Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication by a
court, or by any other body before which the proceeding was brought, that such
Covered Person either (a) did not act in good faith in the reasonable belief
that his or her action was in the best interest of the Trust or (b) is liable to
the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, indemnification shall be provided if (a) approved as in the best
interest of the Trust, after notice that it involves such indemnification, by at
least a majority of the disinterested Trustees acting on the matter (provided
that a majority of the disinterested Trustees then in office act on the matter)
upon a determination, based upon a review of readily available facts (as opposed
to a full trial-type inquiry) that such Covered Person acted in good faith in
the reasonable belief that his or her action was in the best interest of the
Trust and is not liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) to the effect that
such Covered Person appears to have acted in good faith in the reasonable belief
that his or her action was in the best interest of the Trust and that such
indemnification would not protect such Covered Person against any liability to
the Trust to which he or she would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.

Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to any Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its Shareholders
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.

Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the 1940 Act (or who has been exempted from being an
"interested person" by any rule, regulation or order of the Securities and
Exchange Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.

-3-

<PAGE>

Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.

---------------------------

Reference is made to the Distribution Agreement, filed as an exhibit to
this Registration Statement, which contains provisions for the indemnification
by Mentor Distributors, LLC of the Registrant and Trustees and officers and
controlling persons of the Registrant under certain circumstances. Insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to Trustees, officers, and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
Trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 26. Business and Other Connections of Investment Adviser

The business and other connections of each director, officer, or partner
of the entities below 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 tables.

(a) The following is additional information with respect to the
directors and officers of Mentor Investment Advisors, LLC:

Business, Profession,
Vocation or Employment
Position with during the past
Name Investment Adviser two fiscal years

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; President, Mentor
Funds, Mentor
Institutional Trust, Cash
Resource Trust, Mentor
Income Fund, Inc.; and
America's Utility Fund,
Inc.; Senior Vice
President, Mentor
Distributors, LLC;
Managing Director, Mentor
Perpetual Advisors, LLC.

Theodore W. Price Managing Director Managing Director,
Mentor Investment
Group, LLC.

P. Michael Jones Managing Director Managing Director,
Mentor Investment
Group, LLC.

Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.

-4-

<PAGE>

Daniel J. Ludeman Chairman Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC.

Karen H. Wimbish Managing Director Managing Director,
Mentor Investment
Group, LLC.

Terry L. Perkins Treasurer Senior Vice President,
Secretary Mentor Investment Group,
L.L.C.

Michael A. Wade Controller Vice President, Mentor
Investment Group, L.L.C.

(b) The following is additional information with respect to the directors and
officers of Mentor Perpetual Advisors, LLC ("Mentor Perpetual"):

<TABLE>

Other Substantial
Position with the Business, Profession,
Name Investment Advisor Vocation or Employment
<S> <C> <C>
Scott A. McGlashan President Director, Perpetual
Portfolio Management
Limited.

Martyn Arbib Managing Director Chairman, Perpetual
Portfolio Management
Limited.

Roger C. Cormick Managing Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited.

Paul F. Costello Managing Director Managing Director, Mentor
Investment Group, LLC
and Mentor Investment
Advisors, LLC; President,
Mentor Funds, Mentor
Institutional
Trust, Cash Resource
Trust, Mentor Income
Fund, Inc., and America's
Utility Fund, Inc.;

Daniel J. Ludeman Managing Director Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC;

David S. Mossop Managing Director Director, Perpetual
Portfolio Management
Limited

Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.

Roderick A. Smyth Managing Director Managing Director,
Mentor Investment
Group, LLC.

* The address of Mentor Investment Group, LLC, Wheat, First Securities,
Inc., Wheat First Butcher Singer, Inc., Mentor Funds, Mentor Income
Fund, Inc., Mentor Investment Advisors, LLC, and Mentor Perpetual
Advisors, LLC is 901 East Byrd Street, Richmond, VA 23219. The address
of Ryland Capital Management, Inc. and RAC Income Fund, Inc. is 11000
Broken Land Parkway, Columbia, MD 21044. The address of Perpetual
Portfolio Management Limited is 48 Hart Street, Henley-on-Thames, Oxon,
England, RG92AZ.

</TABLE>

<PAGE>

Item 27. Principal Underwriters:

(a) Mentor Distributors, LLC, the Fund's principal underwriter, acts as
principal underwriter for the following investment companies:

The Mentor Funds
o Mentor Growth Portfolio
o Mentor Short-Duration Income Portfolio
o Mentor Balanced Portfolio
o Mentor Capital Growth Portfolio
o Mentor Perpetual Global Portfolio
o Mentor High Income Portfolio
o Mentor Income and Growth Portfolio
o Mentor Quality Income Portfolio
o Mentor Municipal Income Portfolio
o Mentor U.S. Government Money Market Portfolio
o Mentor Money Market Portfolio
o Mentor Tax-Exempt Money Market Portfolio

Cash Resource Trust
o Cash Resource Money Market Fund
o Cash Resource U.S. Government Money Market Fund
o Cash Resource Tax-Exempt Money Market Fund
o Cash Resource California Tax-Exempt Money Market Fund

Mentor Institutional Trust
o Mentor U.S. Government Cash Management Portfolio
o Mentor Fixed-Income Portfolio
o Mentor Perpetual International Portfolio

Mentor Investment Group
o Mentor Income Fund
o America's Utility Fund

Mentor Variable Investment Portfolios
o Mentor VIP Growth Portfolio
o Mentor VIP Balanced Portfolio
o Mentor VIP Capital Growth Portfolio
o Mentor VIP Perpetual International Portfolio
o Mentor VIP High Income Portfolio

(b) Information concerning officers of Mentor Distributors, LLC:

-5-
<PAGE>

Name And Principal Positions And Offices Positions And Offices
Business Address* With Underwriter With Registrant
- ----------------- -------------------- ---------------------
Lynn Mangum Chairman Inapplicable
D'Ray Moore President Inapplicable
Dennis Sheehan Executive Vice President Inapplicable
William J. Tomko Senior Vice President Inapplicable
Mark J. Rybarczyk Senior Vice President Inapplicable
Kevin J. Dell Vice President and Inapplicable
Secretary
Michael D. Burns Vice President Inapplicable
David Blackmore Vice President Inapplicable
Robert L. Tuch Assistant Secretary Inapplicable
Steven Ludwig Compliance Officer Inapplicable

*Principal Address for all Officers:
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-8000

-6-

<PAGE>

Item 28. 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, Terry
L. Perkins; Registrant's investment adviser, Mentor Investment Advisors LLC, 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.

Item 29. Management Services

None.

Item 30. 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.

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-

<PAGE>

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 the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Richmond, and the
Commonwealth of Virginia, on the third day of May, 1999.

MENTOR VARIABLE
INVESTMENT PORTFOLIOS

By:/s/ Paul F. Costello
-------------------------
Title: President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities indicated on the third day of May, 1999.

Signature Title
--------- --------
<S> <C>
* Chairman; Trustee
- -----------------------
Daniel J. Ludeman

* Trustee
- -----------------------
Arnold H. Dreyfuss

* Trustee
- -----------------------
Thomas F. Keller

* Trustee
- -----------------------
Louis W. Moelchert, Jr.

* Trustee
- -----------------------
Troy A. Peery, Jr.

* Trustee
- -----------------------
Peter J. Quinn, Jr.

* Trustee
- -----------------------
Arch T. Allen, III

* Trustee
- -----------------------
Weston E. Edwards

* Trustee
- -----------------------
Jerry R. Barrentine

* Trustee
- -----------------------
J. Garnett Nelson

/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

</TABLE>

<PAGE>

EXHIBIT INDEX

Exhibit No. Description

(d)(3) Conformed Copy of Management Contract
(h) Conformed Copy of Administration Agreement
(j) Conformed Copy of Consent of Independent Auditors
(m) Plan of Distribution pursuant to Rule 12b-1
(n)(1) Financial Data Schedule
(n)(2) Financial Data Schedule
(n)(3) Financial Data Schedule
(p) Powers of Attorney

Exhibit 5 (c)

MENTOR VARIABLE INVESTMENT PORTFOLIOS

MANAGEMENT CONTRACT

This Management Contract dated as of February 10, 1999 between MENTOR
VARIABLE INVESTMENT PORTFOLIOS, a Massachusetts business trust (the "Trust"),
and MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability company (the
"Manager").

WITNESSETH:

That in consideration of the mutual covenants herein contained, it is
agreed as follows:

1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.

(a) The Manager, at its expense, will furnish continuously an
investment program for a certain series of the Trust, Mentor VIP High Income
Portfolio (referred to herein as the "Portfolio"), will determine what
investments shall be purchased, held, sold, or exchanged by the Portfolio and
what portion, if any, of the assets of the Portfolio shall be held uninvested
and shall make changes in the Portfolio's investments. In the performance of its
duties, the Manager will comply with the provisions of the Agreement and
Declaration of Trust and Bylaws of the Portfolio and the Portfolio's stated
investment objectives, policies, and restrictions, and will use its best efforts
to safeguard and promote the welfare of the Portfolio and to comply with other
policies which the Trustees may from time to time determine and shall exercise
the same care and diligence expected of the Trustees.

(b) The Manager, at its expense, except as such expense is paid by the
Portfolio as provided in Section 1(e), will furnish all necessary investment and
related management facilities, including salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if any,
of certain officers of the Trust carrying out the investment management and
related duties provided for by this Agreement.

(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Portfolio's account with
brokers or dealers selected by the Manager. In the selection of such brokers or
dealers and the placing of such orders, the Manager shall give primary
consideration to securing for the Portfolio the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
doing so, the Manager, bearing in mind the Portfolio's best interests at all
times, shall consider 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

<PAGE>

of the broker or dealer involved, and the quality of service rendered by the
broker or dealer in other transactions. Subject to such policies as the Trustees
of the Trust may determine, the Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Portfolio to pay a broker or dealer
that provides brokerage and research services to the Manager an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission that another broker or dealer would have charged for
effecting that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall responsibilities
with respect to the Portfolio and to other clients of the Manager as to which
the Manager exercises investment discretion.

(d) The Trust, on behalf of the Portfolio, hereby authorizes any entity
or person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of the
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Portfolio hereby consents to the
retention of compensation for such transactions in accordance with Rule
11a2-2(T)(2)(iv).

(e) The Manager shall not be obligated to pay any expenses of or for
the Portfolio not expressly assumed by the Manager pursuant to this Section 1
other than as provided in Section 3.

2. OTHER AGREEMENTS, ETC.

It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Portfolio. It is also understood that the Manager and any person controlled
by or under common control with the Manager have and may have advisory,
management, service, or other agreements with other organizations and persons,
and may have other interests and business.

3. COMPENSATION TO BE PAID TO THE MANAGER.

As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
annual rate of 0.70% of the Portfolio's average daily net assets. The first
payment of the fee shall be made as promptly as possible at the end of the month
next succeeding the effective date of this Agreement, and shall constitute a
full payment of the fee due the Manager for all services prior to that date. If
this Agreement is terminated as of any date that is not the last day of a month,
such fee shall be paid as promptly as possible after

<PAGE>

such date of termination, shall be based on the average daily net assets of the
Portfolio in that period from the beginning of such month to such date of
termination, and shall be that proportion of such average daily net assets as
the number of business days in such period bears to the number of business days
in such month. The average daily net assets of the Portfolio shall in all cases
be based only on business days and be computed as of the time of the regular
close of business of the New York Stock Exchange, or such other time as may be
determined by the Trustees. Each such payment shall be accompanied by a report
of the Trust prepared either by the Trust or by a reputable firm of independent
accountants which shall show the amount properly payable to the Manager under
this Agreement and the detailed computation thereof.

4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.

This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and this Agreement shall not be
amended unless such amendment be approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Portfolio, and by the vote, cast
in person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager.

5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.

This Contract shall become effective upon its execution and shall
remain in full force and effect continuously thereafter for a period of two
years from the date hereof (unless terminated automatically as set forth in
Section 4), and shall continue for successive one-year periods thereafter, if
approved in accordance with Section 6, until terminated by either party hereto
at any time by not more than sixty days nor less than thirty days written notice
delivered or mailed by registered mail, postage prepaid, to the other party.
Such action by the Trust with respect to termination may be taken either (i) by
vote of a majority of its Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the affected Portfolio.

Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.

6. ANNUAL APPROVAL.

For additional terms after the initial term of this Contract, this
Contract shall be submitted for approval to the Trustees annually and shall
continue in effect only so long as specifically approved annually by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval.

<PAGE>

7. CERTAIN DEFINITIONS.

For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Portfolio means the affirmative vote, at a
duly called and held meeting of such shareholders, (a) of the holders of 67% or
more of the shares of the Portfolio present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the outstanding
shares of the Portfolio entitled to vote at such meeting are present in person
or by proxy, or (b) of the holders of more than 50% of the outstanding shares of
the Portfolio entitled to vote at such meeting, whichever is less.

For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.

<PAGE>

8. NON-LIABILITY OF MANAGER.

In the absence of willful misfeasance, bad faith, or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.

9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.

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 this instrument are not binding upon any of the Trustees or officers of the
Trust or shareholders of any Portfolio of the Trust but are binding only upon
the assets and property of the relevant Portfolio of the Trust.

IN WITNESS WHEREOF, MENTOR VARIABLE INVESTMENT PORTFOLIOS and MENTOR
INVESTMENT ADVISORS, LLC, have each caused this instrument to be signed on its
behalf by its President or Vice President thereunto duly authorized, all as of
the day and year first above written.

MENTOR VARIABLE INVESTMENT PORTFOLIOS
On Behalf of Mentor VIP High Income Portfolio

By:/s/ Paul F. Costello
--------------------------------------
Title: President

MENTOR INVESTMENT ADVISORS, LLC

By:/s/ Paul F. Costello
--------------------------------------
Title: President

Exhibit 8 (b)

MENTOR VARIABLE INVESTMENT PORTFOLIOS
901 East Byrd Street
Richmond, Virginia 23219

February 1, 1998, as amended
February 10, 1999

Mentor Investment Group, LLC
901 East Byrd Street
Richmond, Virginia 23219

Re: Administration Agreement

Dear Gentlemen:

Mentor Variable Investment Portfolios, a Massachusetts business trust
(the "Trust"), is engaged in the business of an investment company. The Trust
desires that you act as administrator of one or more series specified by the
Trustees from time to time on Exhibit A hereto (each, a "Specified Series") of
the Trust, and you are willing to act as such administrator and to perform such
services under the terms and conditions hereinafter set forth. Accordingly, the
Trust agrees with you as follows:

1. Delivery of Trust Documents. The Trust has furnished you with
copies properly certified or authenticated of each of the following:

(a) Agreement and Declaration of Trust of the Trust.

(b) By-laws of the Trust as in effect on the date hereof.

The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.

2. Administrative Services. You will continuously provide business
management services to each of the Specified Series and will generally, subject
to the general oversight of the Trustees and except as provided in the next
following paragraph, manage all of the business and affairs of each of the
Specified Series, subject always to the provisions of the

-1-

<PAGE>

Trust's Declaration of Trust and By-laws and of the Investment Company Act of
1940, as amended (the "1940 Act"), and subject, further, to such policies and
instructions as the Trustees may from time to time establish. You shall, except
as provided in the next following paragraph, advise and assist the officers of
the Trust in taking such steps as are necessary or appropriate to carry out the
decisions of the Trustees and the appropriate committees of the Trustees
regarding the conduct of the business of each of the Specified Series.

Notwithstanding any provision of this Agreement, you will not at any
time provide, or be required to provide, to the Trust or to any person with
respect to the Trust investment research, advice, or supervision, or in any way
advise the Trust or any person acting on behalf of the Trust as to the value of
securities or other investments or as to the advisability of investing in,
purchasing, or selling securities or other investments.

3. Allocation of Charges and Expenses. You will pay the compensation
and expenses of all officers and executive employees of the Trust (other than
such persons who serve as such and who are employees of or serve at the request
of any investment adviser to the Trust) and will make available, without expense
to the Trust, the services of such of your directors, officers, and employees as
may duly be elected Trustees or officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You will
provide all clerical services relating to the business of each of the Specified
Series. You will not be required to pay any expenses of the Trust other than
those specifically allocated to you in this paragraph 3. In particular, but
without limiting the generality of the foregoing, you will not be required to
pay: clerical salaries not relating to the services described in paragraph 2
above; fees and expenses incurred by the Trust in connection with membership in
investment company organizations; brokers' commissions; payment for portfolio
pricing services to a pricing agent, if any; legal, auditing, or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent 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 of the Trust; the
expenses of and fees for registering or qualifying securities for sale; the fees
and expenses of Trustees of the Trust who are not affiliated with you; the cost
of preparing and distributing reports and notices to shareholders; public and
investor relations expenses; or the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Agreement and Declaration of Trust or By-Laws of
the Trust insofar as they govern agreements with any such custodian.

4. Compensation. As compensation for the services performed and the
facilities furnished and expenses assumed by you, including the services of any
consultants retained by you, each Specified Series shall pay you, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
annual rate of .10 of 1% of the Specified Series average daily net assets.

The first payment of the fee shall be made as promptly as possible at
the end of the month next succeeding the effective date of this Agreement in
respect of such Specified

-2-

<PAGE>

Series, and shall constitute a full payment of the fee due you for all services
prior to that date. If this Agreement is terminated as of any date not the last
day of a month, such fee shall be paid as promptly as possible after such date
of termination, shall be based on the average daily net assets of the Specified
Series in that period from the beginning of such month to such date of
termination, and shall be that proportion of such average daily net assets as
the number of business days in such period bears to the number of business days
in such month. The average daily net assets of a Specified Series shall in all
cases be based only on business days and be computed as of the time of the
regular close of business of the New York Stock Exchange, or such other time as
may be determined by the Trustees. Each such payment shall be accompanied by a
report of the Trust prepared either by the Trust or by a reputable firm of
independent accountants which shall show the amount properly payable to you
under this Agreement and the detailed computation thereof.

5. Limitation of Liability. You shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates except a loss resulting from
willful misfeasance, bad faith, or gross negligence on your part in the
performance of your duties, or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Trust shall
be deemed, when acting within the scope of his or her employment by the Trust,
to be acting in such employment solely for the Trust and not as your employee or
agent.

6. Duration and Termination of this Agreement. This Agreement shall
remain in force for two years from the date first above written and continue
from year to year thereafter, but only so long as such continuance is
specifically approved at least annually with respect to each Specified Series by
the vote of a majority of the Trustees who are not interested persons of you or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval and by a vote of the Trustees. This Agreement may, on 30 days
notice, be terminated at any time without the payment of any penalty by you,
and, immediately upon notice, by the Trustees or, as to a Specified Series, by
vote of a majority of the outstanding voting securities of that Specified
Series. This Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act, as modified by rule 18f-2 under the
Act (particularly the definitions of "interested person", "assignment", and
"majority of the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation, or order.

7. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought, and no amendment of this Agreement shall be
effective as to a Specified Series until approved by the Trustees, including a
majority of the Trustees who are

-3-

<PAGE>

not interested persons of you or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval.

8. Miscellaneous. The captions in this Agreement are included for
convenience or reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction of effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

9. Limitation of Liability of the Trustees and Shareholders. A copy of
the Agreement and Declaration of Trust of the Trust is on file with the
Secretary 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 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 appropriate Series.

If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.

Yours very truly,

MENTOR VARIABLE
INVESTMENT PORTFOLIOS

By: /s/ Paul F. Costello
--------------------------
Title: President

The foregoing Agreement is hereby accepted as of the date thereof.

MENTOR INVESTMENT GROUP, LLC

By: /s/ Paul F. Costello
------------------------------
Title: President

-4-

<PAGE>

EXHIBIT A

Mentor VIP Balanced Portfolio
Mentor VIP Capital Growth Portfolio
Mentor VIP Growth Portfolio
Mentor VIP International Portfolio
Mentor VIP Strategy Portfolio
Mentor VIP High Income Portfolio

Exhibit 11

CONSENT OF INDEPENDENT AUDITORS

The Trustees and Shareholders
Mentor Variable Investment Portfolios

We consent to the use of our report dated February 12, 1999 for Mentor Variable
Investment Portfolios incorporated herein by reference and to the references to
our firm under the captions "FINANCIAL HIGHLIGHTS" in the prospectuses and
"INDEPENDENT ACCOUNTANTS" in the State of Additional Information.

/s/ KPMG Peat Marwick, LLP

Boston, Massachusetts
April 30, 1999

Exhibit 15

PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1

MENTOR VARIABLE INVESTMENT PORTFOLIOS

This constitutes the PLAN OF DISTRIBUTION of Mentor Variable Investment
Portfolios (the "Trust") on behalf of the series of shares of beneficial
interest of the Trust identified on Exhibit A attached hereto and made a part
hereof (each, a "Portfolio").
1. Each Portfolio shall pay to the principal underwriter of the
Portfolio's shares (the "Distributor") a fee for services performed and expenses
incurred in respect of the distribution of shares of the Portfolio, or, where
applicable, of a class of shares of the Portfolio specified in Exhibit A, at the
annual rate set forth opposite the Portfolio's name on Exhibit A of such
Portfolio's average daily net assets attributable to its shares, or to such
class of shares, such fee to be calculated and accrued daily and paid monthly.
2. The amount set forth in paragraph 1 of this Plan shall be paid for
the Distributor's services as distributor of the shares of each Portfolio (or of
the applicable class of shares of any such Portfolio, as the case may be) in
accordance with the Distribution Agreement between the Distributor and the Trust
and may be spent by the Distributor or its agents on any activities or expenses
related to the sale and repurchase of the shares of the Portfolio (or any such
class of shares, as the case may be), including, but not limited to, commissions
and other compensation to persons who engage in or support distribution and
repurchase of shares; printing of prospectuses and reports for other than
existing

-1-

<PAGE>

shareholders; advertising; preparation and distribution of sales literature; and
overhead, travel, and telephone expenses.
3. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Trustees and
(b) those Trustees who are not "interested persons" of the Trust (as defined in
the Investment Company Act of 1940, as amended) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.
5. This Plan shall continue in effect for successive periods of one
year from its execution for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
4.
6. Any person authorized to direct the disposition of monies paid or
payable by a Portfolio pursuant to this Plan or any related agreement shall
provide to the Trustees 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.
7. This Plan may be terminated at any time in respect of any or all of
the Portfolios by vote of a majority of the Rule 12b-1 Trustees or, in respect
of a Portfolio, by vote of that Portfolio's shares constituting a majority of
the outstanding voting securities of such Portfolio (or the class of shares in
question, as the case may be).
8. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 1 hereof unless such amendment
is approved in the manner provided for initial approval in paragraph 3 hereof,
and no material

-2-

<PAGE>

amendment to the Plan shall be made unless such amendment is approved in the
manner provided for initial approval in paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Investment Company
Act of 1940, as amended) of the Trust shall be committed to the discretion of
the Trustees who are themselves not interested persons.
10. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof for a period of
not less than six years from the date of execution this Plan, or of the
agreements or of such reports, as the case may be, the first two years in an
easily accessible place.
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 this instrument are not binding upon any of the Trustees or officers of the
Trust or shareholders of any Portfolio of the Trust but are binding only upon
the assets and property of the relevant Portfolio of the Trust.

-3-

<PAGE>

EXHIBIT A

12b-1 Fee
---------
Mentor VIP Balanced Portfolio 0.25%
Mentor VIP Capital Growth Portfolio 0.25%
Mentor VIP Perpetual International Portfolio 0.25%
Mentor VIP Growth Portfolio 0.25%
Mentor VIP Strategy Portfolio 0.25%
Mentor VIP High Income Portfolio 0.25%

-4-

Exhibit 24

POWER OF ATTORNEY

We, the undersigned Officers and Trustees of Mentor Variable Investment
Portfolios (the "Trust"), hereby severally constitute and appoint Daniel J.
Ludeman, Paul F. Costello, and Terry L. Perkins, and each of them singly, our
true and lawful attorneys, with full power to them and each of them, to sign for
us, and in our names and in the capacities indicated below, the Registration
Statement on Form N-1A of the Trust and any and all amendments (including
post-effective amendments) to said Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto our said attorneys, and each
of them acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratify and
confirm all that said attorneys or any of them may lawfully do or cause to be
done by virtue thereof.

WITNESS our hands and common seal on the date set forth below.

Signature Title Date
- --------- ----- -----

/s/ Arch T. Allen, III
- ----------------------- Trustee November 10, 1998
Arch T. Allen, III

/s/ Jerry R. Barrentine
- ----------------------- Trustee November 10, 1998
Jerry R. Barrentine

/s/ Arnold H. Dreyfuss
- ----------------------- Trustee November 10, 1998
Arnold H. Dreyfuss

/s/ Weston E. Edwards
- ----------------------- Trustee November 10, 1998
Weston E. Edwards

/s/ Thomas F. Keller
- ----------------------- Trustee November 10, 1998
Thomas F. Keller

-1-

<PAGE>

/s/ Daniel J. Ludeman
- ----------------------- Chairman;Trustee November 10, 1998
Daniel J. Ludeman

/s/ Louis w. Moelchert, Jr.
- -------------------------- Trustee November 10, 1998
Louis W. Moelchert, Jr.

/s/ J. Garnett Nelson
- ----------------------- Trustee November 10, 1998
J. Garnett Nelson

/s/ Troy A. Peery, Jr.
- ----------------------- Trustee November 10, 1998
Troy A. Peery, Jr.

/s/ Peter J. Quinn, Jr.
- ----------------------- Trustee November 10, 1998
Peter J. Quinn, Jr.

/s/ Paul F. Costello
- ----------------------- President November 10, 1998
Paul F. Costello (Principal Executive
Officer)

/s/ Terry L. Perkins
- ----------------------- Treasurer November 10, 1998
Terry L. Perkins (Principal Financial
and Accounting Officer)

-2-

<ARTICLE> 6
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<NAME> MENTOR VIP GROWTH PORTFOLIO
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<AVG-DEBT-OUTSTANDING> 0
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</TABLE>

<ARTICLE> 6
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<NAME> MENTOR VIP PERPETUAL INTERNATIONAL PORTFOLIO
<MULTIPLIER> 1,000

<S> <C>
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<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MENTOR VIP CAPITAL GROWTH PORTFOLIO
<MULTIPLIER> 1,000

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</TABLE>