As filed with the Securities and Exchange Commission on
August 22, 1995
Registration No. 33-60083
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (x)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. (1)
(Check appropriate box or boxes)
THE MENTOR FUNDS
(Exact Name of Registrant as Specified in Charter)
901 East Byrd Street, Richmond, VA 23219
(Address of Principal Executive Offices)
(804) 782-3648
(Area Code and Telephone Number)
PAUL F. COSTELLO, President
THE MENTOR FUNDS
901 East Byrd Street, Richmond, VA 23219
(Name and address of Agent for Service)
Copy to:
TIMOTHY W. DIGGINS, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
It is proposed that the filing will become effective immediately
upon filing pursuant to Rule 485(b).
An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. In reliance upon such Rule, no filing fee
is being paid at this time. A Rule 24f-2 notice for the Registrant was
filed on November 28, 1994.
<PAGE>
THE MENTOR FUNDS
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
Form N-14 Item No.
Part A Caption in Prospectus/Proxy Statement of
Mentor/Cambridge Growth Portfolio
1. Cross-Reference Sheet; Front Cover
2. Front Cover
3. Synopsis; Risk factors
4. Introduction; Proposal regarding approval or
disapproval of Agreement and Plan of Reorganization;
Background and reasons for the proposed reorganization;
Information about the reorganization
5. Front Cover -- Incorporated by reference to specified
documents
6. Front Cover -- Incorporated by reference to specified
documents
7. Introduction; Proposal regarding approval or
disapproval of Agreement and Plan of Reorganization;
Information about the reorganization; Voting
information
8. Not Applicable
9. Not Applicable
Part B Caption in Statement of Additional Information
10. Cover Page
11. Cover Page
12. Cover Page -- Incorporated by reference to specified
documents
13. Cover Page -- Incorporated by reference to specified
documents
14. Independent Accountants and Financial Statements
<PAGE>
Part C
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
[MENTOR FUNDS LOGO]
A Message from the President
Dear Shareholder:
Enclosed you will find several documents relating to the special meeting of
shareholders of the Mentor/Cambridge Growth Portfolio (the "Growth Portfolio")
to be held September 12, 1995 at 901 East Byrd Street, Richmond, Virginia. I
hope this material will receive your immediate attention and that, if you cannot
attend the meeting in person, you will vote your proxy promptly.
The Trustees of The Mentor Funds are recommending that shareholders approve
a merger of the Growth Portfolio into the Mentor Capital Growth Portfolio (the
"Capital Growth Portfolio"), another series of The Mentor Funds. The merger
would result in your Growth Portfolio shares being exchanged at net asset value
and on a tax-free basis for shares of the Capital Growth Portfolio.
Your Trustees believe that the merger of the Growth Portfolio with the
Capital Growth Portfolio will offer shareholders of the Growth Portfolio an
opportunity to pursue a substantially similar investment program with the
potential for lower Portfolio operating expenses in the future.
YOUR TRUSTEES BELIEVE THAT THE PROPOSED MERGER WITH THE CAPITAL GROWTH
PORTFOLIO IS IN THE BEST INTERESTS OF SHAREHOLDERS AND RECOMMEND THAT YOU VOTE
IN FAVOR OF IT.
A Notice of Special Meeting of Shareholders, Prospectus/Proxy Statement,
and form of proxy are enclosed. Please read them carefully. If you are unable to
attend the meeting in person, we urge you to sign, date and return the proxy
card so that your shares may be voted in accordance with your instructions.
I URGE YOU TO GIVE THE ENCLOSED MATERIAL YOUR PROMPT ATTENTION. IF
POSSIBLE, PLEASE RETURN THE COMPLETED PROXY BY SEPTEMBER 1, 1995, SO THAT YOUR
PORTFOLIO WILL NOT HAVE TO INCUR THE EXPENSE OF ADDITIONAL MAILINGS.
Your vote is important to us. We appreciate the time and consideration I am
sure you will give this important matter. If you have questions about the
proposal, please call 1-800-382-0016.
Sincerely yours,
/s/ PAUL F. COSTELLO
Paul F. Costello,
PRESIDENT
<PAGE>
MENTOR/CAMBRIDGE GROWTH PORTFOLIO,
A SERIES OF THE MENTOR FUNDS
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of the Mentor/Cambridge Growth Portfolio:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the
Mentor/Cambridge Growth Portfolio (the "Growth Portfolio") will be held Tuesday,
September 12, 1995 at 2:00 p.m. at the Riverfront Plaza Conference Suite,
Riverfront Plaza -- West Tower, 20th Floor, 901 East Byrd Street, Richmond,
Virginia, to consider the following:
1. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Growth Portfolio
to the Mentor Capital Growth Portfolio (the "Capital Growth Portfolio")
in exchange for shares of the Capital Growth Portfolio and the
assumption by the Capital Growth Portfolio of all of the liabilities of
the Growth Portfolio, and the distribution of such shares to the
shareholders of the Growth Portfolio in complete liquidation of the
Growth Portfolio.
2. To transact such other business as may properly come before the meeting.
The Trustees have fixed the close of business on July 31, 1995 as the
record date for determination of shareholders entitled to notice of, and to vote
at, the Special Meeting.
By order of the Trustees
/s/ PAUL F. COSTELLO
Paul F. Costello,
PRESIDENT
WE URGE YOU TO MARK, SIGN, DATE, AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-PAID
ENVELOPE PROVIDED SO THAT YOU WILL BE REPRESENTED AT THE SPECIAL MEETING.
August 18, 1995
<PAGE>
PROSPECTUS/PROXY STATEMENT
August 18, 1995
Acquisition of the assets of
Mentor/Cambridge Growth Portfolio
901 East Byrd Street
Richmond, Virginia 23219
1-800-382-0016
By and in exchange for shares of
Mentor Capital Growth Portfolio
901 East Byrd Street
Richmond, Virginia 23219
1-800-382-0016
TABLE OF CONTENTS
<TABLE>
<S> <C>
Synopsis............................................................................................. 3
Risk factors......................................................................................... 6
Proposal regarding approval or disapproval of Agreement and Plan of Reorganization................... 8
Background and reasons for the proposed reorganization............................................... 8
Information about the reorganization................................................................. 9
Other information.................................................................................... 12
Voting information................................................................................... 12
Agreement and Plan of Reorganization................................................................. Exhibit A
Information exerpted from the Annual Report.......................................................... Exhibit B
</TABLE>
This document will give you the information you need to vote on the
proposed merger. Much of the information is required under rules of the
Securities and Exchange Commission ("SEC"); some of it is technical. If there is
anything you don't understand, please contact us at 1-800-382-0016 or call your
financial advisor.
This Prospectus/Proxy Statement relates to the proposed merger of the
Mentor/Cambridge Growth Portfolio (the "Growth Portfolio") into the Mentor
Capital Growth Portfolio (the "Capital Growth Portfolio") through the transfer
of all of the assets of the Growth Portfolio to the Capital Growth Portfolio in
exchange for Class A and Class B shares of beneficial interest of the Capital
Growth Portfolio (the "Merger Shares") and the assumption by the Capital Growth
Portfolio of all of the liabilities of the Growth Portfolio in liquidation of
the Growth Portfolio. As a result of the proposed transaction, each shareholder
of the Growth Portfolio will receive a number of full and fractional Class A or
Class B Merger Shares, equal in value at the date of the exchange to the
aggregate value of the shareholder's Class A or Class B Growth Portfolio shares,
as the case may be.
1
<PAGE>
This Prospectus/Proxy Statement explains concisely what you should know
before investing in the Capital Growth Portfolio. Please read it and keep it for
future reference. This Prospectus/Proxy Statement is accompanied by the
Prospectus, dated May 30, 1995 (the "Prospectus"), of The Mentor Funds (the
"Trust"). The Prospectus and the Trust Statement of Additional Information
referred to below contain information about the Portfolios and are incorporated
into this Prospectus/Proxy Statement by reference.
The following documents have been filed with the Securities and Exchange
Commission and are also incorporated into this Prospectus/Proxy Statement by
reference: (i) the current Statement of Additional Information of the Trust,
dated May 30, 1995, as amended from time to time (the "Trust Statement of
Additional Information"); (ii) the Report of Independent Accountants and
financial statements in respect of the Portfolios included in the Trust's Annual
Report to Shareholders for the fiscal year ended September 30, 1994 (the "Annual
Report"); (iii) the financial statements in respect of the Portfolios included
in the Trust's Semi-Annual Report to Shareholders for the six months ended March
31, 1995 (the "Semi-Annual Report"); and (iv) a Statement of Additional
Information dated August 18, 1995, relating to the transactions described in
this Prospectus/Proxy statement.
For a free copy of any or all of the Prospectus or Statements of Additional
Information, or of the Annual or Semi-Annual Report, please contact us as at
1-800-382-0016.
Proxy materials, information statements and other information filed by the
Trust with respect to the Growth Portfolio and the Capital Growth Portfolio can
be inspected and copied at the Public Reference Facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, Washington, D.C. 20549 at prescribed rates.
THE SECURITIES OFFERED BY THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF SUCH
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE CAPITAL GROWTH PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
2
<PAGE>
SYNOPSIS
PROPOSED TRANSACTION
The Trustees of The Mentor Funds (the "Trust"), an open-end, series
investment company, have approved the merger of the Growth Portfolio into the
Capital Growth Portfolio. Each of the Portfolios is a series of the Trust. The
merger is proposed to be accomplished pursuant to an Agreement and Plan of
Reorganization providing for the transfer of all of the assets of the Growth
Portfolio to the Capital Growth Portfolio in exchange for the assumption by the
Capital Growth Portfolio of all of the liabilities of the Growth Portfolio and
for shares of the Capital Growth Portfolio. The completion of these transactions
will result in the liquidation of the Growth Portfolio.
As a result of the proposed transaction, the Growth Portfolio will receive
a number of Class A and Class B Shares of the Capital Growth Portfolio (the
"Merger Shares") equal in value to the value of the net assets of the Growth
Portfolio being transferred and attributable to the Class A and Class B shares,
respectively, of the Growth Portfolio. Following the transfer, each Class A and
Class B shareholder of the Growth Portfolio will receive, on a tax-free basis, a
number of full and fractional Class A or Class B Merger Shares of the Capital
Growth Portfolio equal in value at the date of the exchange to the aggregate
value of the shareholder's Growth Class A or Class B Portfolio shares, as the
case may be.
The Trustees of the Trust recommend that shareholders of the Growth
Portfolio approve the merger because it offers shareholders the opportunity to
pursue a substantially similar investment program with the potential for lower
Portfolio operating expenses in the future. See "Background and Reasons for the
Proposed Reorganization."
EXPENSE SUMMARY
The following tables summarize, for Class A and Class B shares, expenses
(i) that the Growth Portfolio has incurred in its past fiscal year, (ii) that
the Capital Growth Portfolio has incurred in its past fiscal year, and (iii)
that the Capital Growth Portfolio expects to incur after giving effect to the
proposed merger on a pro forma combined basis as if the merger had occurred as
of March 31, 1995. As shown in the tables below, the Portfolios pay management
fees and 12b-1 fees at the same rates, while the Capital Growth Portfolio
currently incurs slightly lower operating expenses. The Examples show the
estimated cumulative expenses attributable to a hypothetical $1,000 investment
in each of the Portfolios over specified periods.
3
<PAGE>
CLASS A SHARES
<TABLE>
<CAPTION>
CURRENT EXPENSES PRO FORMA
GROWTH CAPITAL GROWTH CAPITAL GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
Shareholder Transaction Expenses
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)(1)(2).............. 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of
the lower of original purchase price or
redemption proceeds, as applicable).............. 1.00%(3) 1.00%(3) 1.00%(3)
Annual Portfolio Operating Expenses (as a
percentage of average net assets)
Management Fees.................................... 0.80% 0.80% 0.80%
12b-1 Fees......................................... None None None
Other Expenses..................................... 1.06% 1.05% 0.98%
Total Portfolio Operating Expenses........... 1.86% 1.85% 1.78%
CLASS B SHARES
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................... None(4) None(4) None(4)
Maximum Deferred Sales Charge(1)(2)................ 4.0% in first 4.0% in first 4.0% in first
year, declining year, declining year, declining
to 1.0% in fifth to 1.0% in fifth to 1.0% in fifth
year, and year, and year, and
eliminated eliminated eliminated
thereafter(5) thereafter(5) thereafter(5)
Annual Portfolio Operating Expenses (as a
percentage of average net assets)
Management Fees.................................... 0.80% 0.80% 0.80%
12b-1 Fees......................................... 0.75% 0.75% 0.75%
Other Expenses..................................... 1.06% 1.05% 0.98%
Total Portfolio Operating Expenses............ 2.61% 2.60% 2.53%
</TABLE>
The tables are provided to help you understand an investor's share of the
operating expenses which each Portfolio incurs.
(1) Not applicable to shares issued in connection with the proposed merger.
(2) Shares of the Growth Portfolio are not currently being offered to the
public. The sales charge shown is the charge the Portfolio would be
expected to impose if the shares were offered to the public.
(3) A contingent deferred sales charge ("CDSC") of 1.00% is assessed on
Class A shares that were purchased without an initial sales charge as
part of an investment of $1 million or more that are redeemed within
one year of purchase.
(4) Class B shares are sold without a front-end sales charge, but their
higher 12b-1 fees may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales charge.
(5) See "Description of the Merger Shares" on page 11 for how the CDSC will
be determined for Class B Merger Shares.
4
<PAGE>
EXAMPLES
An investment of $1,000 would incur the following expenses, assuming (1) 5%
annual return and (2) no redemption at the end of each period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
Class A shares:
Growth Portfolio.................................................................. $75 $ 113 $152 $262
Capital Growth Portfolio.......................................................... $75 $ 112 $152 $262
Capital Growth Portfolio (Pro Forma).............................................. $75 $ 110 $148 $255
Class B shares:
Growth Portfolio.................................................................. $26 $ 80 $139 $294
Capital Growth Portfolio.......................................................... $26 $ 81 $138 $293
Capital Growth Portfolio (Pro Forma).............................................. $26 $ 79 $135 $287
</TABLE>
An investment of $1,000 would incur the following expenses, assuming (1) 5%
annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
Class A shares:
Growth Portfolio................................................................. $75 $ 113 $152 $263
Capital Growth Portfolio......................................................... $75 $ 112 $152 $262
Capital Growth Portfolio (Pro Forma)............................................. $75 $ 110 $148 $255
Class B shares:
Growth Portfolio................................................................. $66 $ 111 $150 $294
Capital Growth Portfolio......................................................... $66 $ 111 $149 $293
Capital Growth Portfolio (Pro Forma)............................................. $66 $ 109 $146 $287
</TABLE>
The Examples do not represent past or future expense levels. Actual expenses may
be greater or less than those shown. Federal regulations require the Examples to
assume a 5% annual return, but actual annual return will vary.
CERTAIN TAX CONSEQUENCES OF THE REORGANIZATION
The closing of the proposed reorganization is subject to the receipt of an
opinion of Ropes & Gray, legal counsel to the Trust, to the effect that for
federal income tax purposes (i) no gain or loss will be recognized by the Growth
Portfolio or the Growth Portfolio's shareholders as a result of the
reorganization, (ii) the tax basis of the Merger Shares received by each Growth
Portfolio shareholder will be the same as the tax basis of the shareholder's
Growth Portfolio shares, and (iii) the tax basis of the assets of the Growth
Portfolio held by the Capital Growth Portfolio as a result of the reorganization
will be the same as the tax basis of such assets in the hands of the Growth
Portfolio prior to the reorganization. See "Information about the
Reorganization -- Federal income tax consequences."
5
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective of the Growth Portfolio is growth of capital
through professional management and diversification of investments in securities
its investment adviser believes to have potential of capital appreciation. The
Growth Portfolio invests primarily in common stocks of companies with above
average growth prospects, but can invest in any securities with potential for
capital growth. The Portfolio's investments may include to a limited degree
other common stocks and convertible securities, such as bonds and preferred
stocks. The Portfolio also may trade securities for short-term profit.
The investment objective of the Capital Growth Portfolio is to provide
long-term appreciation of capital. The Capital Growth Portfolio invests
primarily in common stocks of companies believed by its investment adviser to
have appreciation potential, although it may invest any amount or proportion of
its assets in any class or type of security believed by its adviser to offer the
potential for capital appreciation over both the intermediate and long term.
These may include, for example, preferred stocks, investment grade bonds,
convertible preferred stocks, and convertible debentures.
The Growth Portfolio may invest up to 10% of its assets in foreign
securities; the Capital Growth Portfolio may invest up to 15% of its assets in
such securities.
Both Portfolios may also hold a portion of their assets in cash or money
market instruments, and the Capital Growth Portfolio may invest in investment
grade fixed-income securities, for temporary defensive purposes. Both Portfolios
may engage in foreign currency, stock index futures and options strategies for
hedging purposes. Unlike the Growth Portfolio, the Capital Growth Portfolio may
engage in options transactions to earn additional income or increase its current
return. Both Portfolios may enter into securities loans, repurchase agreements,
and forward commitments on up to one-third of their total assets. The Portfolios
have similar policies with respect to investments in restricted securities.
Both Portfolios are currently managed by the same portfolio manager at
Commonwealth Advisors. A commentary prepared by the portfolio manager of the
Capital Growth Portfolio, and that was included in the Annual Report, is
reprinted in Exhibit B hereto. At the time, Phoenix Investment Counsel, Inc.
served as sub-adviser to the Portfolio. The commentary has not been revised or
updated since its initial publication,
DISTRIBUTIONS, PURCHASE, REDEMPTION, AND EXCHANGE PROCEDURES
The Growth Portfolio declares and pays any net investment income to
shareholders annually, while the Capital Growth Portfolio declares and pays net
investment income to shareholders semi-annually. Each of the Portfolios
distributes any net realized capital gains at least annually.
The procedures for redeeming shares of the Growth Portfolio and shares of
the Capital Growth Portfolio, and for exchanging such shares of each Portfolio
for shares of other Mentor funds, are identical. Reinvestments of distributions
by the Portfolios are made at net asset value for all classes of shares.
Shares of both Portfolios may be redeemed any day the New York Stock
Exchange is open at their net asset value next determined. Shares of the Growth
Portfolio are not currently being offered for sale, except through reinvestment
of distributions paid by the Portfolio.
RISK FACTORS
Because the Portfolios share similar investment objectives and policies,
many of the risks of an investment in the Capital Growth Portfolio are similar
to the risks of an investment in the Growth Portfolio. A more detailed
6
<PAGE>
description of certain of the risks associated with an investment in the Capital
Growth Portfolio is contained in the Prospectus.
INVESTMENTS IN FIXED-INCOME SECURITIES. The Capital Growth Portfolio may
invest a portion of its assets in fixed-income securities. The values of
fixed-income 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 such securities. Conversely, during periods of rising interest rates,
the value of the Portfolio's assets will generally decline. As of March 31,
1995, approximately 9.75% of the Capital Growth Portfolio's assets were invested
in fixed-income securities. The Growth Portfolio does not normally invest in
fixed-income securities.
FOREIGN INVESTMENTS. The Capital Growth Portfolio may invest a higher
portion of its assets in foreign securities than may the Growth Portfolio.
Investments in foreign securities involve certain risks. Some of these risks
include, for example, the negative effect of currency exchange rates, lack of
public information about foreign companies, liquidity risks, and risks of
adverse political and diplomatic developments. A more complete description of
the risks associated with foreign securities is included in the Prospectus.
OPTIONS AND FUTURES TRANSACTIONS. The Capital Growth Portfolio's use of
options and futures transactions involves certain risks, including the risks
that the Capital Growth Portfolio will be unable at times to close out such
positions, that such transactions may not accomplish their purpose because of
imperfect market correlations, or that Commonwealth Advisors may not forecast
market movements correctly.
OTHER INVESTMENT PRACTICES. To the extent that the Capital Growth Portfolio
exercises its ability to engage in certain investment practices, such as
repurchase agreements and securities lending, it may be delayed in recovering or
unable to recover its collateral in the event of default by the other party. In
the case of securities purchased for future delivery, the Portfolio runs the
risk of a decline in the value of such securities before the settlement date and
the risk that the other party should default on its obligation.
INTRODUCTION
This Prospectus/Proxy Statement is furnished in connection with the
proposed merger of the Growth Portfolio by the transfer of all of its assets and
liabilities to the Capital Growth Portfolio and the solicitation of proxies by
and on behalf of the Trustees of the Growth Portfolio for use at the related
Special Meeting of Shareholders (the "Meeting"). The Meeting is to be held on
September 12, 1995 at 2:00 p.m. at the Riverfront Plaza Conference Suite,
Riverfront Plaza -- West Tower, 20th Floor, 901 East Byrd Street, Richmond,
Virginia. This Prospectus/Proxy Statement and the enclosed form of proxy are
being mailed to shareholders on or about August 18, 1995.
Any shareholder giving a proxy has the power to revoke it by mail
(addressed to the Trust's Secretary at the principal office of the Trust, 901
East Byrd Street, Richmond, VA 23219) or in person at the Meeting, by executing
a superseding proxy, or by submitting a notice of revocation to the Secretary of
the Trust. All properly executed proxies received in time for the Meeting will
be voted as specified in the proxy, or, if no specification is made, FOR the
proposal (set forth in Proposal 1 of the Notice of Meeting) to implement the
reorganization of the Growth Portfolio by the transfer of all of its assets to
the Capital Growth Portfolio in exchange for the Merger Shares and the
assumption by the Capital Growth Portfolio of all of the liabilities of the
Growth Portfolio.
At July 31, 1995, there were outstanding 679,733 Class A shares and
1,265,765 Class B shares of beneficial interest of the Growth Portfolio. Only
shareholders of record on July 31, 1995 will be entitled to notice of and to
vote at the Meeting. Each share is entitled to one vote, with fractional shares
voting proportionally.
7
<PAGE>
The Trustees of the Trust know of no matters other than those set forth
herein to be brought before the Meeting. If, however, any other matters properly
come before the Meeting, it is the Trustees' intention that proxies will be
voted on such matters in accordance with the judgment of the persons named in
the enclosed form of proxy.
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION
The shareholders of the Growth Portfolio are being asked to approve or
disapprove a merger between the Capital Growth Portfolio and the Growth
Portfolio pursuant to an Agreement and Plan of Reorganization between the
Portfolios, dated as of July 8, 1995 (the "Agreement"), a copy of which is
attached to this Prospectus/Proxy Statement as Exhibit A.
The Agreement provides, among other things, for the transfer of all of the
assets of the Growth Portfolio to the Capital Growth Portfolio in exchange for
the assumption by the Capital Growth Portfolio of all of the liabilities of the
Growth Portfolio and for the Class A and Class B Merger Shares, the number of
which will be calculated based on the value of the net assets attributable to
the Class A and Class B shares, respectively, of the Growth Portfolio acquired
by the Capital Growth Portfolio and the net asset value per Class A and Class B
share of the Capital Growth Portfolio, all as more fully described below under
"Information About the Reorganization."
After receipt of the Merger Shares, the Growth Portfolio will cause the
Class A Merger Shares to be distributed to its Class A shareholders and the
Class B Merger Shares to be distributed to its Class B shareholders, in complete
liquidation of the Growth Portfolio. Each shareholder of the Growth Portfolio
will receive a number of full and fractional Class A or Class B Merger Shares
equal in value at the date of the exchange to the aggregate value of the
shareholder's Class A or Class B Growth Portfolio shares, as the case may be.
Prior to the date of the transfer (the "Exchange Date"), the Growth
Portfolio will declare a distribution to shareholders which, together with all
previous distributions, will have the effect of distributing to shareholders all
of its investment company taxable income (computed without regard to the
deduction for dividends paid) and net realized capital gains, if any, through
the Exchange Date.
The Trustees have voted unanimously to approve the proposed merger and to
recommend that shareholders also approve the merger. The affirmative vote of
more than fifty percent of the outstanding Class A and of the outstanding Class
B shares of beneficial interest of the Growth Portfolio entitled to vote is
necessary for the consummation of the proposed merger.
A shareholder of the Growth Portfolio objecting to the proposed merger is
not entitled under either Massachusetts law or the Declaration of Trust to
demand payment for and an appraisal of his or her Growth Portfolio shares if the
merger is consummated over his or her objection. If the merger is consummated,
however, shareholders will be free at any time to redeem their Merger Shares,
for cash at net asset value at the time of such redemption, or to exchange their
Merger Shares for shares of certain other Portfolios offered by the Trust, at
net asset value at the time of such exchange.
In the event that this proposal is not approved by the shareholders of the
Growth Portfolio, the Growth Portfolio will continue to be managed as a separate
Portfolio in accordance with its current investment objective and policies, and
the Trustees may consider such alternatives as may be in the best interests of
the shareholders.
8
<PAGE>
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
The Trustees of the Trust, including the Trustees who are not "interested
persons" of the Trust, have determined that the reorganization would be in the
best interests of each Portfolio's shareholders, and that the interests of
existing shareholders of each of the Portfolios would not be diluted as a result
of effecting the reorganization. The Trustees have unanimously approved the
proposed reorganization and have recommended its approval by shareholders.
The principal reasons why the Trustees are recommending the reorganization
are:
(i) LIKELY REDUCTION IN SIZE OF THE GROWTH PORTFOLIO AND INCREASE IN
EXPENSE RATIO. The Growth Portfolio is an open-end investment company, and
shareholders are able to redeem their shares at any time at net asset value.
However, shares of the Growth Portfolio are not currently being offered to the
public. Commonwealth Advisors believes that, as a result of the lack of new
investment and likely redemptions in the future, the amount of the Portfolio's
assets will not increase significantly in coming years and may decline. Any such
decline in the Portfolio's assets could result in an increase in the Portfolio's
expense ratio, as the Portfolio's operating expenses are spread over a smaller
asset base. The Trustees have therefore determined that it is in the best
interests of the Portfolio's shareholders to combine the Portfolio with the
Capital Growth Portfolio, a mutual fund whose shares are being offered to the
public, in order to increase the asset base over which those expenses will be
spread.
(ii) CONTINUED INVESTMENT IN A MUTUAL FUND WITHOUT RECOGNITION OF GAIN OR
LOSS FOR FEDERAL INCOME TAX PURPOSES. The proposed reorganization will permit
Growth Portfolio shareholders to keep their investment in an open-end mutual
fund, without recognition of gain or loss for federal income tax purposes. If
the Growth Portfolio were to liquidate and shareholders were to receive the net
asset value of their shares in liquidating distributions, gain or loss would be
recognized for federal income tax purposes.
(iii) APPROPRIATE INVESTMENT OBJECTIVES, ETC. The investment objective,
policies, and restrictions of the Capital Growth Portfolio are substantially
similar to the Growth Portfolio's, and the Trustees believe that an investment
in shares of the Capital Growth Portfolio will provide shareholders with an
investment opportunity comparable to that currently afforded by the Growth
Portfolio.
(iv) FAVORABLE EXPENSE RATIO. The Trustees believe that the combination of
the Growth Portfolio with the Capital Growth Portfolio has the potential to
provide savings in operating expenses for Growth Portfolio shareholders over
time as such costs are absorbed over a larger asset base (including any assets
attributable to the future sale of shares to the public by the Capital Growth
Portfolio). This potential for increased savings is not available to the Growth
Portfolio, for the reasons discussed above. Of course, there can be no assurance
that the merger will result in savings in operating expenses to shareholders.
Information on the Portfolios' operating expenses is set out above in the
Synopsis under "Expense Summary".
INFORMATION ABOUT THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION. The proposed Agreement and Plan of
Reorganization provides that the Capital Growth Portfolio will acquire all of
the assets of the Growth Portfolio in exchange for the assumption by the Capital
Growth Portfolio of all of the liabilities of the Growth Portfolio and for the
issuance of the Class A and Class B Merger Shares all as of the Exchange Date
(defined in the Agreement to be the next full business day following the
Valuation Time, which is in turn defined in the Agreement as 4:00 p.m. Richmond
time on September 22, 1995 or such other date as may be agreed upon by the
parties). The following discussion of the Agreement is qualified in its entirety
by the full text of the Agreement, which is attached as Exhibit A to this
Prospectus/Proxy Statement.
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The Growth Portfolio will sell all of its assets to the Capital Growth
Portfolio, and, in exchange, the Capital Growth Portfolio will assume all of the
liabilities of the Growth Portfolio and deliver to the Growth Portfolio (i) a
number of full and fractional Class A Merger Shares having an aggregate net
asset value equal to the value of the assets of the Growth Portfolio
attributable to its Class A shares, less the value of the liabilities of the
Growth Portfolio assumed by the Capital Growth Portfolio attributable to the
Class A shares of the Growth Portfolio, and (ii) a number of full and fractional
Class B Merger Shares having a net asset value equal to the value of assets of
the Growth Portfolio attributable to its Class B shares, less the value of the
liabilities of the Growth Portfolio assumed by the Capital Growth Portfolio
attributable to the Class B shares of the Growth Portfolio.
Immediately following the Exchange Date, the Growth Portfolio will
distribute pro rata to its shareholders of record as of the close of business on
the Exchange Date the full and fractional Merger Shares received by the Growth
Portfolio, with Class A Merger Shares being distributed to holders of Class A
shares of the Growth Portfolio and Class B Merger Shares being distributed to
holders of Class B shares of the Growth Portfolio. As a result of the proposed
transaction, each holder of Class A and Class B shares of the Growth Portfolio
will receive a number of Class A and Class B Merger Shares equal in aggregate
value at the Exchange Date to the value of the Class A and Class B shares,
respectively, of the Growth Portfolio held by the shareholder. This distribution
will be accomplished by the establishment of accounts on the share records of
the Capital Growth Portfolio in the names of such Growth Portfolio shareholders,
each account representing the respective number of full and fractional Class A
or Class B Merger Shares due such shareholder. New certificates for Merger
Shares will be issued only upon written request.
The consummation of the merger is subject to the conditions set forth in
the Agreement. The Agreement may be terminated and the merger abandoned at any
time, before or after approval by the shareholders, prior to the Exchange Date
by mutual consent of the Capital Growth Portfolio and the Growth Portfolio or,
if any condition set forth in the Agreement has not been fulfilled and has not
been waived by the party entitled to its benefits, by such party.
THE CAPITAL GROWTH PORTFOLIO WILL NOT PERMIT ANY GROWTH PORTFOLIO
SHAREHOLDER HOLDING CERTIFICATES FOR GROWTH PORTFOLIO SHARES AT THE TIME OF THE
MERGER TO RECEIVE CASH DIVIDENDS OR OTHER DISTRIBUTIONS, RECEIVE CERTIFICATES
FOR MERGER SHARES, EXCHANGE MERGER SHARES FOR SHARES OF OTHER PORTFOLIOS OF THE
TRUST OR OTHER INVESTMENT COMPANIES AFFILIATED WITH THE TRUST, OR PLEDGE OR
REDEEM MERGER SHARES UNTIL THOSE CERTIFICATES FOR GROWTH PORTFOLIO SHARES HAVE
BEEN SURRENDERED, OR, IN THE CASE OF LOST CERTIFICATES, AN ADEQUATE SURETY BOND
HAS BEEN POSTED.
IF A SHAREHOLDER IS NOT FOR THAT REASON PERMITTED TO RECEIVE CASH DIVIDENDS
OR OTHER DISTRIBUTIONS ON MERGER SHARES, THE CAPITAL GROWTH PORTFOLIO WILL PAY
ALL SUCH DIVIDENDS AND DISTRIBUTIONS IN ADDITIONAL SHARES, NOTWITHSTANDING ANY
ELECTION THE SHAREHOLDER MAY HAVE MADE PREVIOUSLY TO RECEIVE DIVIDENDS AND
DISTRIBUTIONS ON GROWTH PORTFOLIO SHARES IN CASH.
All fees and expenses, including legal and accounting expenses, portfolio
transfer taxes (if any) or other similar expenses incurred in connection with
the consummation of the transactions contemplated by the Agreement will be
allocated ratably between the two Portfolios in proportion to their net assets
as of the day of the transfer, except that the costs of proxy materials and
proxy solicitations will be borne by the Growth Portfolio. The estimated fees
and expenses for the transaction are $55,000. However, to the extent that any
payment by the Capital Growth Portfolio of such fees or expenses would result in
the disqualification of the Capital Growth Portfolio or the Growth Portfolio as
a "regulated investment company" within the meaning of Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code"), such fees and expenses
will be paid directly by the party incurring them.
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<PAGE>
DESCRIPTION OF THE MERGER SHARES. Full and fractional Merger Shares will be
issued to the Growth Portfolio's shareholders in accordance with the procedure
under the Agreement as described above. The Merger Shares are Class A and Class
B shares of the Capital Growth Portfolio. Investors purchasing Class A shares
pay a sales charge at the time of purchase, but Growth Portfolio shareholders
receiving Class A Merger Shares in the merger will not pay a sales charge on
such shares. Class A shares of the Capital Growth Portfolio are generally not
subject to redemption fees or Rule 12b-1 fees. Class B shares of the Capital
Growth Portfolio are sold without a sales charge, but are subject to a CDSC of
up to 4.0% if redeemed within five years of original purchase. Class B shares
are also subject to a 12b-1 fee at the annual rate of 0.75% of the Capital
Growth Portfolio's average daily net assets attributable to Class B shares. For
purposes of determining the CDSC payable on redemption of Class B Merger Shares
received by holders of Class B shares of the Growth Portfolio, as well as the
conversion date of such shares, such shares will be treated as having been
acquired as of the dates such shareholders originally acquired their Class B
shares of the Growth Portfolio and the CDSC would be applied at the same rate as
was in effect for the Growth Portfolio at the time the shares of the Growth
Portfolio were originally purchased.
In connection with the sale of Class B shares, Mentor Distributors pays
commissions to broker-dealers from its own assets that it expects to recover
over time through the receipt of distribution fees in connection with its Class
B shares and the receipt of any CDSC on Class B shares. The total amount of such
commissions paid by Mentor Distributors with respect to the Growth Portfolio
before the consummation of the proposed reorganization will likely exceed the
amounts recovered by Mentor Distributors by that time. Such unrecovered amounts
do not represent a liability of the Growth Portfolio and, consequently, the
Capital Growth Portfolio will not assume any such liability in connection with
the consummation of the reorganization. However, to the extent Mentor
Distributors has not fully recovered such commissions before the consummation of
the proposed reorganization, it is anticipated that the Trustees will consider
such unrecovered amounts, among other factors, in determining whether to
continue payments of distribution fees in the future with respect to Class B
shares of the Capital Growth Portfolio.
Each of the Merger Shares will be fully paid and nonassessable when issued,
will be transferable without restriction, and will have no preemptive or
conversion rights, except that Class B Merger Shares will have the conversion
rights specified above. The Declaration of Trust of the Trust permits the Trust
to divide its shares, without shareholder approval, into two or more series of
shares representing separate investment portfolios and to further divide any
such series, without shareholder approval, into two or more classes of shares
having such preferences and special or relative rights and privileges as the
Trustees may determine. Like the Growth Portfolio's shares, the Capital Growth
Portfolio's shares are currently divided into two classes, Class A and Class B.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust and/or the Capital
Growth Portfolio and requires that notice of such disclaimer be given in each
agreement, undertaking, or obligation entered into or executed by the Trust, the
Capital Growth Portfolio or the Trustees. The Declaration of Trust provides for
indemnification out of Portfolio property for all loss and expense of any
shareholder held personally liable for the obligations of the Capital Growth
Portfolio. Thus, the risk of a shareholder's incurring financial loss from
shareholder liability is limited to circumstances in which the Capital Growth
Portfolio would be unable to meet its obligations. The likelihood of such a
circumstance is remote. The shareholders of the Growth Portfolio are currently
subject to this same risk of shareholder liability.
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the Growth Portfolio's
obligation to consummate the reorganization, the Growth Portfolio will receive
an opinion from Ropes & Gray, counsel to the Trust, to the effect that, on the
basis of the existing provisions of the Internal Revenue Code of 1986, as
amended (the
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<PAGE>
"Code"), current administrative rules and court decisions, for federal income
tax purposes: (i) under Section 361 of the Code, no gain or loss will be
recognized by the Growth Portfolio as a result of the reorganization; (ii) under
Section 354 of the Code, no gain or loss will be recognized by shareholders of
the Growth Portfolio on the distribution of Merger Shares to them in exchange
for their shares of the Growth Portfolio; (iii) under Section 358 of the Code,
the tax basis of the Merger Shares that the Growth Portfolio's shareholders
receive in place of their Growth Portfolio shares will be the same as the basis
of the Growth Portfolio shares exchanged; and (iv) under Section 1223(1) of the
Code, a shareholder's holding period for the Merger Shares received pursuant to
the Agreement will be determined by including the holding period for the Growth
Portfolio shares exchanged for the Merger Shares, provided that the shareholder
held the Growth Portfolio shares as a capital asset.
CAPITALIZATION. The following tables show the capitalization of the Capital
Growth Portfolio and the Growth Portfolio as of July 31, 1995 and on a pro forma
basis as of that date, giving effect to the proposed acquisition of assets at
net asset value:
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL GROWTH PRO FORMA
GROWTH PORTFOLIO PORTFOLIO COMBINED*
<S> <C> <C> <C>
Net assets (000's omitted)
Class A................................................................ $18,801 $11,623 $30,424
Class B................................................................ $37,354 $21,207 $58,561
Shares outstanding (000's omitted)
Class A................................................................ 1,110 679 1,797
Class B................................................................ 2,234 1,260 3,502
Net asset value per share
Class A................................................................ $16.93 $17.12 $16.93
Class B................................................................ $16.72 $16.84 $16.72
</TABLE>
* Pro Forma net assets reflect legal and accounting merger-related costs.
Unaudited and pro forma financial statements of the Portfolios as of and
for the six months ended March 31, 1995 are included in the Statement of
Additional Information. Because the Agreement provides that the Capital Growth
Portfolio will be the surviving Portfolio following the reorganization and
because the Capital Growth Portfolio's investment objective and policies will
remain unchanged, the pro forma financial statements reflect the transfer of the
assets and liabilities of the Growth Portfolio to the Capital Growth Portfolio
as contemplated by the Agreement.
OTHER INFORMATION
Other information relating to the Growth Portfolio, including information
in respect of its investment objective and policies and financial history, is
incorporated by reference to the Trust Statement of Additional Information, the
Annual Report, and the Semi-Annual Report.
THE TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMEND APPROVAL OF THE AGREEMENT.
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VOTING INFORMATION
REQUIRED VOTE. Proxies are being solicited from the Growth Portfolio's
shareholders by the Trustees for the Meeting to be held on September 12, 1995 at
2:00 p.m., at Riverfront Plaza Conference Suite, Riverfront Plaza -- West Tower,
20th Floor 901 East Byrd Street, Richmond, Virginia, or at such later time made
necessary by adjournment. Unless revoked, all valid proxies will be voted in
accordance with the specification thereon or, in the absence of specifications,
FOR approval of the Agreement and Plan of Reorganization. The transactions
contemplated by the Agreement and Plan of Reorganization will be consummated
only if approved by the affirmative vote of the holders of more than fifty
percent of the outstanding Class A and of the outstanding Class B shares of the
Growth Fund entitled to vote.
RECORD DATE, QUORUM AND METHOD OF TABULATION. Shareholders of record of the
Growth Portfolio at the close of business on July 31, 1995 (the "Record Date")
will be entitled to vote at the Meeting or any adjournment thereof. The holders
of more than 50% of the Class A shares and of the Class B shares of the Growth
Portfolio outstanding at the close of business on the Record Date present in
person or represented by proxy will constitute a quorum for the Meeting.
Shareholders are entitled to one vote for each share held, with fractional
shares voting proportionally.
Votes cast by proxy or in person at the meeting will be counted by persons
appointed by the Trust as tellers for the Meeting. The tellers will count the
total number of votes cast "for" approval of the proposal for purposes of
determining whether sufficient affirmative votes have been cast. The tellers
will count shares represented by proxies that reflect abstentions and "broker
non-votes" (I.E., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum.
Abstentions and broker non-votes have the effect of negative votes on the
proposal.
As of July 31, 1995, as shown on the books of the Growth Portfolio, there
were issued and outstanding 679,733 Class A and 1,265,765 Class B shares of
beneficial interest of the Growth Portfolio. As of July 31, 1995, the officers
and Trustees of the Trust as a group beneficially owned less than 1% of the
outstanding shares of each class of the Growth Portfolio. At July 31, 1995, to
the best of the knowledge of the Growth Portfolio, no person owned beneficially
5% or more of the outstanding shares of either class of the Growth Portfolio.
The votes of the shareholders of the Capital Growth Portfolio are not being
solicited, since their approval or consent is not necessary for this
transaction. As of July 31, 1995, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the outstanding shares of the Capital
Growth Portfolio. At July 31, 1995, to the best of the knowledge of the Capital
Growth Portfolio, no person beneficially owned 5% or more of the outstanding
shares of the Capital Growth Portfolio.
SOLICITATION OF PROXIES. Solicitation of proxies by personal interview,
mail, and telephone, may be made by officers and Trustees of the Trust and
employees of Wheat First Butcher Singer, Inc. and its affiliates. In addition,
the firm of Management Information Systems has been retained to assist in the
solicitation of proxies, at a cost to the Portfolio which is not expected to
exceed $2,500, plus reimbursement of the firm's out-of-pocket expenses.
REVOCATION OF PROXIES. Any shareholder giving a proxy has the power to
revoke it by mail (addressed to the Trust's Secretary at the principal office of
the Trust, 901 East Byrd Street, Richmond, VA 23219) or in person at the
Meeting, by executing a superseding proxy, or by submitting a notice of
revocation to the Secretary of the Trust.
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ADJOURNMENT. If sufficient votes in favor of the proposal are not received
by the time scheduled for the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. Any adjournment will require the affirmative vote of a plurality of the
votes cast on the question in person or by proxy at the session of the Meeting
to be adjourned. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposal. They will vote against any such adjournment those proxies required to
be voted against the proposal. The Growth Portfolio pays the costs of any
additional solicitation and of any adjourned session.
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
July 8, 1995 in Richmond, Virginia, by and between The Mentor Funds (the
"Trust"), on behalf of the Mentor/Cambridge Growth Portfolio (the "Growth
Portfolio"), and the Trust, on behalf of the Mentor Capital Growth Portfolio
(the "Capital Growth Portfolio"). Each of the Growth Portfolio and the Capital
Growth Portfolio is a series of shares of the Trust.
PLAN OF REORGANIZATION
(a) The Growth Portfolio will sell, assign, convey, transfer and deliver to
the Capital Growth Portfolio on the Exchange Date (as defined in Section 6) all
of its properties and assets existing at the Valuation Time (as defined in
Section 3(c) hereof). In consideration therefor, the Capital Growth Portfolio
shall, on the Exchange Date, assume all of the liabilities of the Growth
Portfolio existing at the Valuation Time and deliver to the Growth Portfolio (i)
a number of full and fractional Class A shares of beneficial interest of the
Capital Growth Portfolio (the "Class A Merger Shares") having an aggregate net
asset value equal to the value of the assets of the Growth Portfolio
attributable to Class A shares of the Growth Portfolio transferred to the
Capital Growth Portfolio on such date less the value of the liabilities of the
Growth Portfolio attributable to Class A shares of the Growth Portfolio assumed
by the Capital Growth Portfolio on that date, and (ii) a number of full and
fractional Class B shares of beneficial interest of the Capital Growth Portfolio
(the "Class B Merger Shares") having an aggregate net asset value equal to the
value of the assets of the Growth Portfolio attributable to Class B shares of
the Growth Portfolio transferred to the Capital Growth Portfolio on such date
less the value of the liabilities of the Growth Portfolio attributable to Class
B shares of the Growth Portfolio assumed by the Capital Growth Portfolio on that
date. (The Class A Merger Shares and the Class B Merger Shares shall be referred
to collectively as the "Merger Shares.") It is intended that the reorganization
described in this Plan shall be a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Upon consummation of the transactions described in paragraph (a) of
this Agreement, the Growth Portfolio shall distribute in complete liquidation to
its Class A and Class B shareholders of record as of the Exchange Date Class A
and Class B Merger Shares, each shareholder being entitled to receive that
proportion of such Class A and Class B Merger Shares which the number of Class A
or Class B shares of beneficial interest of the Growth Portfolio held by such
shareholder bears to the number such Class A and Class B shares of the Growth
Portfolio outstanding on such date. Certificates representing the Merger Shares
will be issued only if the shareholder so requests.
(c) As promptly as practicable after the liquidation of the Growth
Portfolio as aforesaid, the Growth Portfolio shall be dissolved pursuant to the
provisions of the Declaration of Trust of the Trust, as amended, and applicable
law, and its legal existence terminated.
A-1
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AGREEMENT
The Capital Growth Portfolio and the Growth Portfolio agree as follows:
1. Representations and Warranties of the Capital Growth Portfolio. The
Capital Growth Portfolio represents and warrants to and agrees with the Growth
Portfolio that:
(a) The Capital Growth Portfolio is a series of shares of the Trust, a
Massachusetts business trust duly established and validly existing under the
laws of The Commonwealth of Massachusetts, and has power to own all of its
properties and assets and to carry out its obligations under this Agreement. The
Trust is not required to qualify as a foreign association in any jurisdiction.
Each of the Trust and the Capital Growth Portfolio has all necessary federal,
state and local authorizations to carry on its business as now being conducted
and to carry out this Agreement.
(b) The Trust is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company, and such
registration has not been revoked or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statements of operations, and
statements of changes in net assets and schedules of investments (indicating
their market values) of the Capital Growth Portfolio for the six months ended
March 31, 1995 have been furnished to the Growth Portfolio. Such statements of
assets and liabilities and schedules fairly present the financial position of
the Capital Growth Portfolio as of their dates and said statements of operations
and changes in net assets fairly reflect the results of its operations and
changes in net assets for the periods covered thereby in conformity with
generally accepted accounting principles.
(d) The prospectus and statement of additional information dated May 30,
1995 (the "Prospectus"), previously furnished to the Growth Portfolio, did not
as of such date and does not contain, with respect to the Trust or the Capital
Growth Portfolio, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Trust or the Capital Growth Portfolio,
threatened against the Trust or the Capital Growth Portfolio, which assert
liability on the part of the Trust or the Capital Growth Portfolio.
(f) The Capital Growth Portfolio has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of March 31, 1995 and those incurred
in the ordinary course of its business as an investment company since March 31,
1995.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Capital Growth
Portfolio of the transactions contemplated by this Agreement, except such as may
be required under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act,
state securities or blue sky laws (which term as used herein shall include the
laws of the District of Columbia and of Puerto Rico) or the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "H-S-R Act").
(h) The registration statement (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") by the Trust on Form
N-14 on behalf of the Capital Growth Portfolio and relating to the Merger Shares
issuable hereunder, and the proxy statement of the Growth Portfolio included
therein (the "Proxy Statement"), on the effective date of the Registration
Statement (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and (ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated
A-2
<PAGE>
therein or necessary to make the statements therein not misleading; and at the
time of the shareholders' meeting referred to in Section 7(a) and at the
Exchange Date, the prospectus, which is contained in the Registration Statement
of which the Proxy Statement is a part, as amended or supplemented by any
amendments or supplements filed with the Commission by the Trust, insofar as it
does not relate to the Growth Portfolio, will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that none of the representations and warranties in this subsection
shall apply to statements in or omissions from the Registration Statement, the
Prospectus or the Proxy Statement made in reliance upon and in conformity with
information furnished by the Growth Portfolio for use in the Registration
Statement, the Prospectus or the Proxy Statement.
(i) There are no material contracts outstanding to which the Capital Growth
Portfolio is a party, other than as will be disclosed in the Registration
Statement, the Prospectus, or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial interest of the
Capital Growth Portfolio have been offered for sale and sold in conformity with
all applicable federal securities laws.
(k) The Trust is and will at all times through the Exchange Date qualify
for taxation as a "regulated investment company" under Sections 851 and 852 of
the Code.
(l) The issuance of the Merger Shares pursuant to this Agreement will be in
compliance with all applicable federal securities laws.
(m) The Merger Shares to be issued to the Growth Portfolio have been duly
authorized and, when issued and delivered pursuant to this Agreement, will be
legally and validly issued and will be fully paid and nonassessable by the
Capital Growth Portfolio, and no shareholder of the Capital Growth Portfolio
will have any preemptive right of subscription or purchase in respect thereof.
2. Representations and Warranties of the Growth Portfolio. The Growth
Portfolio represents and warrants to and agrees with the Capital Growth
Portfolio that:
(a) The Growth Portfolio is a series of shares of beneficial interest of
the Trust, a Massachusetts business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts, and has power to carry on
its business as it is now being conducted and to carry out this Agreement. The
Trust is not required to qualify as a foreign association in any jurisdiction.
Each of the Trust and the Growth Portfolio has all necessary federal, state and
local authorizations to own all of its properties and assets and to carry on its
business as now being conducted and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act as an open-end management
investment company and such registration has not been revoked or rescinded and
is in full force and effect.
(c) A statement of assets and liabilities, statements of operations, and
statements of changes in net assets and schedules of investments (indicating
their market values) of the Growth Portfolio for the six months ended March 31,
1995 have been furnished to the Capital Growth Portfolio. Such statements of
assets and liabilities and schedules fairly present the financial position of
the Growth Portfolio as of their dates, and said statements of operations and
changes in net assets fairly reflect the results of its operations and changes
in financial position for the periods covered thereby in conformity with
generally accepted accounting principles.
(d) The Prospectus which has been previously furnished to the Growth
Portfolio, did not contain as of its date, with respect to the Trust and the
Growth Portfolio, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
A-3
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(e) There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Trust or the Growth Portfolio, threatened
against the Trust or the Growth Portfolio which assert liability or may, if
successfully prosecuted to their conclusion, result in liability on the part of
the Trust or the Growth Portfolio, other than as have been disclosed in the
Prospectus.
(f) There are no material contracts outstanding to which the Growth
Portfolio is a party, other than as will be disclosed in the Registration
Statement, the Prospectus, or Proxy Statement.
(g) The Growth Portfolio has no known liabilities of a material nature,
contingent or otherwise, other than those shown on the Growth Portfolio's
statement of assets and liabilities as of March 31, 1995 referred to above and
those incurred in the ordinary course of its business as an investment company
since such date. Prior to the Exchange Date, the Growth Portfolio will advise
the Capital Growth Portfolio of all material liabilities, contingent or
otherwise, incurred by it subsequent to March 31, 1995, whether or not incurred
in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean the Growth
Portfolio's investments shown on the schedule of its investments as of March 31,
1995 referred to in Section 2(c) hereof, as supplemented with such changes as
the Growth Portfolio shall make, and changes resulting from stock dividends,
stock split-ups, mergers and similar corporate actions.
(i) The Growth Portfolio has filed or will file all federal and state tax
returns which, to the knowledge of the Trust's officers, are required to be
filed by the Growth Portfolio and has paid or will pay all federal and state
taxes shown to be due on said returns or on any assessments received by the
Growth Portfolio. All tax liabilities of the Growth Portfolio have been
adequately provided for on its books, and no tax deficiency or liability of the
Growth Portfolio has been asserted, and no question with respect thereto has
been raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(j) At both the Valuation Time (as defined in Section 3(c)) and the
Exchange Date, the Trust, on behalf of the Growth Portfolio, will have full
right, power and authority to sell, assign, transfer and deliver the Investments
and any other assets and liabilities of the Growth Portfolio to be transferred
to the Capital Growth Portfolio pursuant to this Agreement. At the Exchange
Date, subject only to the delivery of the Investments and any such other assets
and liabilities as contemplated by this Agreement, the Capital Growth Portfolio
will acquire the Investments and any such other assets and liabilities subject
to no encumbrances, liens or security interests whatsoever and without any
restrictions upon the transfer thereof.
(k) No registration under the 1933 Act of any of the Investments would be
required if they were, as of the time of such transfer, the subject of a public
distribution by either of the Capital Growth Portfolio or the Growth Portfolio,
except as previously disclosed to the Capital Growth Portfolio by the Growth
Portfolio.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Growth Portfolio
of the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, the 1934 Act, the 1940 Act, state securities or
blue sky laws or the H-S-R Act.
(m) The Registration Statement, the Prospectus and the Proxy Statement, on
the Effective Date of the Registration Statement and insofar as they do not
relate to the Capital Growth Portfolio (i) will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules
and regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7(a) below and on the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by the Trust, will not contain any untrue
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statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this subsection
shall apply only to statements of fact relating to the Trust or the Growth
Portfolio contained in the Registration Statement, the Prospectus or the Proxy
Statement, or omissions to state in any thereof a material fact relating to the
Trust or the Growth Portfolio, as such Registration Statement, Prospectus and
Proxy Statement shall be furnished to the Growth Portfolio in definitive form as
soon as practicable following effectiveness of the Registration Statement and
before any public distribution of the Prospectus or Proxy Statement.
(n) The Trust is and will at all times through the Exchange Date qualify
for taxation as a "regulated investment company" under Sections 851 and 852 of
the Code.
(o) At the Exchange Date, the Growth Portfolio will have sold such of its
assets, if any, as are necessary to assure that, after giving effect to the
acquisition of the assets of the Growth Portfolio pursuant to this Agreement,
the Capital Growth Portfolio will remain a "diversified company" within the
meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other
mandatory investment restrictions as are set forth in the prospectus and
statement of additional information of the Trust dated May 30, 1995, as amended
through the Exchange Date.
3. Reorganization. (a) Subject to the requisite approval of the
shareholders of the Growth Portfolio and to the other terms and conditions
contained herein (including the Growth Portfolio's obligation to distribute to
its shareholders all of its investment company taxable income and net capital
gain as described in Section 8(m) hereof), the Growth Portfolio agrees to sell,
assign, convey, transfer and deliver to the Capital Growth Portfolio, and the
Capital Growth Portfolio agrees to acquire from the Growth Portfolio, on the
Exchange Date all of the Investments and all of the cash and other properties
and assets of the Growth Portfolio, whether accrued or contingent (including
cash received by the Growth Portfolio upon the liquidation by the Growth
Portfolio of any investments purchased by the Growth Portfolio after March 31,
1995 and designated by the Capital Growth Portfolio as being unsuitable for it
to acquire), in exchange for that number of shares of beneficial interest of the
Capital Growth Portfolio provided for in Section 4 and the assumption by the
Capital Growth Portfolio of all of the liabilities of the Growth Portfolio,
whether accrued or contingent, existing at the Valuation Time. Pursuant to this
Agreement, the Growth Portfolio will, as soon as practicable after the Exchange
Date, distribute all of the Merger Shares received by it to the shareholders of
the Growth Portfolio in exchange for their Class A and Class B shares of the
Growth Portfolio.
(b) The Growth Portfolio will pay or cause to be paid to the Capital Growth
Portfolio any interest, cash or such dividends, rights and other payments
received by it on or after the Exchange Date with respect to the Investments and
other properties and assets of the Growth Portfolio, whether accrued or
contingent, received by it on or after the Exchange Date. Any such distribution
shall be deemed included in the assets transferred to the Capital Growth
Portfolio at the Exchange Date and shall not be separately valued unless the
securities in respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Time, in which case any such
distribution which remains unpaid at the Exchange Date shall be included in the
determination of the value of the assets of the Growth Portfolio acquired by the
Capital Growth Portfolio.
(c) The Valuation Time shall be 4:00 p.m. Richmond time on September 22,
1995 or such earlier or later day as may be mutually agreed upon in writing by
the parties hereto (the "Valuation Time").
4. Exchange Date; Valuation Time. On the Exchange Date, the Capital Growth
Portfolio will deliver to the Growth Portfolio (i) a number of full and
fractional Class A Merger Shares having an aggregate net asset value equal to
the value of the assets of the Growth Portfolio attributable to Class A shares
of the Growth Portfolio transferred to the Capital Growth Portfolio on such date
less the value of the liabilities of the Growth Portfolio attributable to Class
A shares of the Growth Portfolio assumed by the Capital Growth Portfolio on that
date and
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(ii) a number of full and fractional Class B Merger Shares having an aggregate
net asset value equal to the value of the assets of the Growth Portfolio
attributable to Class B shares of the Growth Portfolio transferred to the
Capital Growth Portfolio on such date less the value of the liabilities of the
Growth Portfolio attributable to Class B shares of the Growth Portfolio assumed
by the Capital Growth Portfolio on that date, determined as hereinafter provided
in this Section 4.
(a) The net asset value of the Merger Shares to be delivered to the Growth
Portfolio, the value of the assets attributable to the Class A and Class B
shares of the Growth Portfolio, and the value of the liabilities attributable to
the Class A and Class B shares of the Growth Portfolio to be assumed by the
Capital Growth Portfolio, shall in each case be determined as of the Valuation
Time.
(b) The net asset value of the Class A and Class B Merger Shares shall be
computed in the manner set forth in the Prospectus. The value of the assets and
liabilities of the Class A and Class B shares of the Growth Portfolio shall be
determined by the Capital Growth Portfolio, in cooperation with the Growth
Portfolio, pursuant to procedures which the Capital Growth Portfolio would use
in determining the fair market value of the Capital Growth Portfolio's assets
and liabilities.
(c) No adjustment shall be made in the net asset value of either the Growth
Portfolio or the Capital Growth Portfolio to take into account differences in
realized and unrealized gains and losses.
(d) The Capital Growth Portfolio shall issue the Merger Shares to the
Growth Portfolio in two certificates registered in the name of the Growth
Portfolio, one representing Class A Merger Shares and one representing Class B
Merger Shares. The Growth Portfolio shall distribute the Class A Merger Shares
to the Class A shareholders of the Growth Portfolio by redelivering such
certificate to the Capital Growth Portfolio's transfer agent which will as soon
as practicable set up open accounts for each Class A Growth Portfolio
shareholder in accordance with written instructions furnished by the Growth
Portfolio. The Growth Portfolio shall distribute the Class B Merger Shares to
the Class B shareholders of the Growth Portfolio by redelivering such
certificate to the Capital Growth Portfolio's transfer agent which will as soon
as practicable set up open accounts for each Class B Growth Portfolio
shareholder in accordance with written instructions furnished by the Growth
Portfolio. With respect to any Growth Portfolio shareholder holding share
certificates as of the Exchange Date, the Capital Growth Portfolio will not
permit such shareholder to receive dividends and other distributions on the
Merger Shares (although such dividends and other distributions shall be credited
to the account of such shareholder), receive certificates representing the
Merger Shares, exchange the Merger Shares credited to such shareholder's account
for shares of other portfolios in the Trust or the Cash Resource U.S. Government
Money Market Fund, or pledge or redeem such Merger Shares until notified by the
Growth Portfolio or the shareholder's agent that such shareholder has
surrendered his or her outstanding Growth Portfolio certificates or, in the
event of lost, stolen, or destroyed certificates, posted adequate bond. In the
event that a shareholder shall not be permitted to receive dividends and other
distributions on the Merger Shares as provided in the preceding sentence, the
Capital Growth Portfolio shall pay any such dividends or distributions in
additional Merger Shares, notwithstanding any election such shareholder shall
have made previously with respect to the payment, in cash or otherwise, of
dividends and distributions on shares of the Growth Portfolio. The Growth
Portfolio will, at its expense, request that the shareholders of the Growth
Portfolio surrender their outstanding Growth Portfolio certificates, or post
adequate bond, as the case may be.
(e) The Capital Growth Portfolio shall assume all liabilities of the Growth
Portfolio, whether accrued or contingent, in connection with the acquisition of
assets and subsequent dissolution of the Growth Portfolio or otherwise.
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5. Expenses, Fees, etc. (a) All fees and expenses, including legal and
accounting expenses, portfolio transfer taxes (if any) or other similar expenses
incurred in connection with the consummation by the Growth Portfolio and the
Capital Growth Portfolio of the transactions contemplated by this Agreement will
be allocated ratably between the Capital Growth Portfolio and the Growth
Portfolio in proportion to their net assets as of the Valuation Time, except
that the costs of proxy materials and proxy solicitation will be borne by the
Growth Portfolio; provided, however, that such expenses will in any event be
paid by the party directly incurring such expenses if and to the extent that the
payment by the other party of such expenses would result in the disqualification
of such party as a "regulated investment company" within the meaning of Section
851 of the Code.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of the Capital Growth Portfolio's being either unwilling
or unable to go forward other than by reason of the nonfulfillment or failure of
any condition to the Capital Growth Portfolio's obligations referred to in
Section 7(a) or Section 8, the Capital Growth Portfolio shall pay directly all
reasonable fees and expenses incurred by the Growth Portfolio in connection with
such transactions, including, without limitation, legal, accounting and filing
fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of the Growth Portfolio's being either unwilling or unable
to go forward other than by reason of the nonfulfillment or failure of any
condition to the Growth Portfolio's obligations referred to in Section 7(a) or
Section 9, the Growth Portfolio shall pay directly all reasonable fees and
expenses incurred by the Capital Growth Portfolio in connection with such
transactions, including, without limitation, legal, accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) the Capital Growth Portfolio's or the
Growth Portfolio's being either unwilling or unable to go forward or (ii) the
nonfulfillment or failure of any condition to the Capital Growth Portfolio's or
the Growth Portfolio's obligations referred to in Section 7(a), Section 8 or
Section 9 of this Agreement, then each of the Capital Growth Portfolio and the
Growth Portfolio shall bear all of its own expenses incurred in connection with
such transactions.
(e) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated, no
party shall be liable to the other party for any damages resulting therefrom,
including, without limitation, consequential damages, except as specifically set
forth above.
6. Exchange Date. Delivery of the assets of the Growth Portfolio to be
transferred, assumption of the liabilities of the Growth Portfolio to be
assumed, and the delivery of the Merger Shares to be issued shall be made at 901
East Byrd Street, Richmond Virginia, at 10:00 A.M. on the next full business day
following the Valuation Time, or at such other time and date agreed to by the
Capital Growth Portfolio and the Growth Portfolio, the date and time upon which
such delivery is to take place being referred to herein as the "Exchange Date."
7. Meeting of Shareholders; Dissolution. (a) The Mentor Funds, on behalf of
the Growth Portfolio, agrees to call a meeting of the Growth Portfolio's
shareholders as soon as is practicable after the effective date of the
Registration Statement for the purpose of considering the sale of all of its
assets to and the assumption of all of its liabilities by the Capital Growth
Portfolio as herein provided, adopting this Agreement, and authorizing the
liquidation and dissolution of the Growth Portfolio.
(b) The Growth Portfolio agrees that the liquidation and dissolution of the
Growth Portfolio will be effected in the manner provided in the Trust's
Declaration of Trust in accordance with applicable law and that on and after the
Exchange Date, the Growth Portfolio shall not conduct any business except in
connection with its liquidation and dissolution.
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(c) The Capital Growth Portfolio has, after the preparation and delivery to
the Capital Growth Portfolio by the Growth Portfolio of a preliminary version of
the Proxy Statement which was satisfactory to the Capital Growth Portfolio and
to Ropes & Gray for inclusion in the Registration Statement, filed the
Registration Statement with the Commission. Each of the Growth Portfolio and the
Capital Growth Portfolio will cooperate with the other, and each will furnish to
the other the information relating to itself required by the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder to be set forth in
the Registration Statement, including the Prospectus and the Proxy Statement.
8. Conditions to the Capital Growth Portfolio's Obligations. The
obligations of the Capital Growth Portfolio hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite vote of the
holders of the outstanding shares of beneficial interest of the Growth Portfolio
entitled to vote.
(b) That the Growth Portfolio shall have furnished to the Capital Growth
Portfolio a statement of the Growth Portfolio's assets and liabilities, with
values determined as provided in Section 4 of this Agreement, together with a
list of Investments with their respective tax costs, all as of the Valuation
Time, certified on the Growth Portfolio's behalf by the Trust's President (or
any Vice President) and Treasurer, and a certificate of both such officers,
dated the Exchange Date, that there has been no material adverse change in the
financial position of the Growth Portfolio since March 31, 1995 other than
changes in the Investments and other assets and properties since that date or
changes in the market value of the Investments and other assets of the Growth
Portfolio, or changes due to dividends paid or losses from operations.
(c) That the Growth Portfolio shall have furnished to the Capital Growth
Portfolio a statement, dated the Exchange Date, signed by the Trust's President
(or any Vice President) and Treasurer certifying that as of the Valuation Time
and as of the Exchange Date all representations and warranties of the Growth
Portfolio made in this Agreement are true and correct in all material respects
as if made at and as of such dates and the Growth Portfolio has complied with
all the agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to such dates.
(d) That the Growth Portfolio shall have delivered to the Capital Growth
Portfolio a letter from KPMG Peat Marwick LLP dated the Exchange Date stating
that such firm has employed certain procedures whereby it has obtained schedules
of the tax provisions and qualifying tests for regulated investment companies as
prepared for the fiscal year ended September 30, 1994 and the period October 1,
1994 to the Exchange Date (the latter period being based on unaudited data) and
that, in the course of such procedures, nothing came to their attention which
caused them to believe that the Growth Portfolio would not qualify as a
regulated investment company for federal, state, or local income tax purposes or
for federal excise tax purposes under Section 4982 of the Code, for the tax year
ended September 30, 1994, and for the period from October 1, 1994 to the
Exchange Date.
(e) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) That the Capital Growth Portfolio shall have received an opinion of
Ropes & Gray, in form satisfactory to the Capital Growth Portfolio and dated the
Exchange Date, to the effect that (i) this Agreement has been duly authorized,
executed, and delivered by the Trust on behalf of the Growth Portfolio and,
assuming that the Registration Statement, the Prospectus and the Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by the Trust on behalf
of the Capital Growth Portfolio, is a valid and binding obligation of the Trust
and the Growth Portfolio, (ii) the Trust, on
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behalf of the Growth Portfolio, has power to sell, assign, convey, transfer and
deliver the assets contemplated hereby and, upon consummation of the
transactions contemplated hereby in accordance with the terms of this Agreement,
the Growth Portfolio will have duly sold, assigned, conveyed, transferred and
delivered such assets to the Capital Growth Portfolio, (iii) the execution and
delivery of this Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate the Trust's Declaration of Trust, as
amended, or any provision of any agreement known to such counsel to which the
Trust or the Growth Portfolio is a party or by which it is bound, and (iv) no
consent, approval, authorization or order of any court or governmental authority
is required for the consummation by the Trust on behalf of the Growth Portfolio
of the transactions contemplated hereby, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required under
state securities or blue sky laws and the H-S-R Act, it being understood that
with respect to investment restrictions as contained in the Trust's Declaration
of Trust, Bylaws or then-current Registration Statement, such counsel may rely
upon a certificate of an officer of the Trust whose responsibility it is to
advise the Trust and the Growth Portfolio with respect to such matters.
(g) That the Capital Growth Portfolio shall have received an opinion of
Ropes & Gray, in form satisfactory to the Capital Growth Portfolio, with respect
to the matters specified in Section 9(g) of this Agreement, and such other
matters as the Capital Growth Portfolio may reasonably deem necessary or
desirable.
(h) That the Capital Growth Portfolio shall have received an opinion of
Ropes & Gray dated the Exchange Date (which opinion would be based upon certain
factual representations and subject to certain qualifications), to the effect
that, on the basis of the existing provisions of the Code, current
administrative rules, and court decisions, for federal income tax purposes (i)
no gain or loss will be recognized by the Capital Growth Portfolio upon receipt
of the Investments transferred to the Capital Growth Portfolio pursuant to this
Agreement in exchange for the Merger Shares, (ii) the basis to the Capital
Growth Portfolio of the Investments will be the same as the basis of the
Investments in the hands of the Growth Portfolio immediately prior to such
exchange, and (iii) the Capital Growth Portfolio's holding periods with respect
to the Investments will include the respective periods for which the Investments
were held by the Growth Portfolio.
(i) That the assets of the Growth Portfolio to be acquired by the Capital
Growth Portfolio will include no assets which the Capital Growth Portfolio, by
reason of charter limitations or of investment restrictions disclosed in the
Prospectus in effect on the Exchange Date, may not properly acquire.
(j) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Trust or the Capital Growth Portfolio,
threatened by the Commission.
(k) That the Trust shall have received from the Commission, any relevant
state securities administrator, the Federal Trade Commission (the "FTC") and the
Department of Justice (the "Department") such order or orders as Ropes & Gray
deems reasonably necessary or desirable under the 1933 Act, the 1934 Act, the
1940 Act, any applicable state securities or blue sky laws and the H-S-R Act in
connection with the transactions contemplated hereby, and that all such orders
shall be in full force and effect.
(l) That all actions taken by the Trust on behalf of the Growth Portfolio
in connection with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and substance to the
Capital Growth Portfolio and Ropes & Gray.
(m) That, prior to the Exchange Date, the Growth Portfolio shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to the shareholders of the
Growth Portfolio all of the Growth Portfolio's investment company taxable income
for its taxable years ending
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on or after September 30, 1994 and on or prior to the Exchange Date (computed
without regard to any deduction for dividends paid), and all of its net capital
gain realized in each of its taxable years ending on or after September 30, 1994
and on or prior to the Exchange Date.
(n) That the Growth Portfolio shall have furnished to the Capital Growth
Portfolio a certificate, signed by the President (or any Vice President) and the
Treasurer of the Trust, as to the tax cost to the Growth Portfolio of the
securities delivered to the Capital Growth Portfolio pursuant to this Agreement,
together with any such other evidence as to such tax cost as the Capital Growth
Portfolio may reasonably request.
(o) That the Growth Portfolio's custodian shall have delivered to the
Capital Growth Portfolio a certificate identifying all of the assets of the
Growth Portfolio held by such custodian as of the Valuation Time.
(p) That the Growth Portfolio's transfer agent shall have provided to the
Capital Growth Portfolio (i) the originals or true copies of all of the records
of the Growth Portfolio in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Growth Portfolio outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any such shares and the number of shares
held of record by each such shareholder.
(q) That all of the issued and outstanding shares of beneficial interest of
the Growth Portfolio shall have been offered for sale and sold in conformity
with all applicable state securities or blue sky laws and, to the extent that
any audit of the records of the Growth Portfolio or its transfer agent by the
Capital Growth Portfolio or its agents shall have revealed otherwise, either (i)
the Growth Portfolio shall have taken all actions that in the opinion of the
Capital Growth Portfolio or its counsel are necessary to remedy any prior
failure on the part of the Growth Portfolio to have offered for sale and sold
such shares in conformity with such laws or (ii) the Growth Portfolio shall have
furnished (or caused to be furnished) surety, or deposited (or caused to be
deposited) assets in escrow, for the benefit of the Capital Growth Portfolio in
amounts sufficient and upon terms satisfactory, in the opinion of the Capital
Growth Portfolio or its counsel, to indemnify the Capital Growth Portfolio
against any expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of the Growth
Portfolio to have offered and sold such shares in conformity with such laws.
(r) That the Capital Growth Portfolio shall have received from KPMG Peat
Marwick LLP a letter addressed to the Capital Growth Portfolio dated as of the
Exchange Date satisfactory in form and substance to the Capital Growth Portfolio
to the effect that, on the basis of limited procedures agreed upon by the
Capital Growth Portfolio and described in such letter (but not an examination in
accordance with generally accepted auditing standards), as of the Valuation Time
the value of the assets of the Growth Portfolio to be exchanged for the Merger
Shares has been determined in accordance with the provisions of the Trust's
Declaration of Trust, pursuant to the procedures customarily utilized by the
Capital Growth Portfolio in valuing its assets and issuing its shares.
9. Conditions to the Growth Portfolio's Obligations. The obligations of the
Growth Portfolio hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite vote of the
holders of the outstanding shares of beneficial interest of the Growth Portfolio
entitled to vote.
(b) That the Capital Growth Portfolio shall have furnished to the Growth
Portfolio a statement of the Capital Growth Portfolio's net assets, together
with a list of portfolio holdings with values determined as provided in Section
4, all as of the Valuation Time, certified on the Capital Growth Portfolio's
behalf by the Trust's President (or any Vice President) and Treasurer (or any
Assistant Treasurer), and a certificate of both such officers, dated the
Exchange Date, to the effect that as of the Valuation Time and as of the
Exchange Date there has been no
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material adverse change in the financial position of the Capital Growth
Portfolio since March 31, 1995, other than changes in its portfolio securities
since that date, changes in the market value of its portfolio securities,
changes due to net redemptions, dividends paid or losses from operations.
(c) That the Trust, on behalf of the Capital Growth Portfolio, shall have
executed and delivered to the Growth Portfolio an Assumption of Liabilities
dated as of the Exchange Date pursuant to which the Capital Growth Portfolio
will assume all of the liabilities of the Growth Portfolio existing at the
Valuation Time in connection with the transactions contemplated by this
Agreement.
(d) That the Capital Growth Portfolio shall have furnished to the Growth
Portfolio a statement, dated the Exchange Date, signed by the Trust's President
(or any Vice President) and Treasurer (or any Assistant Treasurer) certifying
that as of the Valuation Time and as of the Exchange Date all representations
and warranties of the Capital Growth Portfolio made in this Agreement are true
and correct in all material respects as if made at and as of such dates, and
that the Capital Growth Portfolio has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied at or
prior to each of such dates.
(e) That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
(f) That the Growth Portfolio shall have received an opinion of Ropes &
Gray, in form satisfactory to the Growth Portfolio and dated the Exchange Date,
to the effect that (i) the Merger Shares to be delivered to the Growth Portfolio
as provided for by this Agreement are duly authorized and upon such delivery
will be validly issued and will be fully paid and nonassessable by the Trust and
the Capital Growth Portfolio and no shareholder of the Capital Growth Portfolio
has any preemptive right to subscription or purchase in respect thereof, (ii)
this Agreement has been duly authorized, executed and delivered by the Trust on
behalf of the Capital Growth Portfolio and, assuming that the Prospectus, the
Registration Statement and the Proxy Statement comply with the 1933 Act, the
1934 Act and the 1940 Act and assuming due authorization, execution and delivery
of this Agreement by the Trust on behalf of the Growth Portfolio, is a valid and
binding obligation of the Trust and the Capital Growth Portfolio, (iii) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Trust's Declaration of
Trust, as amended, or By-laws, or any provision of any agreement known to such
counsel to which the Trust or the Capital Growth Portfolio is a party or by
which it is bound, it being understood that with respect to investment
restrictions as contained in the Trust's Declaration of Trust, as amended,
By-Laws or then-current prospectus or statement of additional information, such
counsel may rely upon a certificate of an officer of the Trust whose
responsibility it is to advise the Trust and the Capital Growth Portfolio with
respect to such matters, (iv) no consent, approval, authorization or order of
any court or governmental authority is required for the consummation by the
Trust on behalf of the Capital Growth Portfolio of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act and
the 1940 Act and such as may be required under state securities or blue sky
laws, and (v) the Registration Statement has become effective under the 1933
Act, and to the best of the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the 1933 Act.
(g) That the Growth Portfolio shall have received an opinion of Ropes &
Gray dated the Exchange Date (which opinion would be based upon certain factual
representations and subject to certain qualifications), to the effect that, on
the basis of the existing provisions of the Code, current administrative rules,
and court decisions, for federal income tax purposes (i) no gain or loss will be
recognized by the Growth Portfolio upon the transfer of
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the Investments to the Capital Growth Portfolio and the assumption by the
Capital Growth Portfolio of the liabilities of the Growth Portfolio, or upon the
distribution of the Merger Shares by the Growth Portfolio to its shareholders
pursuant to this Agreement in exchange for the Merger Shares, (ii) the basis of
the Merger Shares a Growth Portfolio shareholder receives in connection with the
transaction will be the same as the basis of his or her Growth Portfolio shares
exchanged thereof, and (iii) a Growth Portfolio shareholder's holding period for
his or her Merger Shares will be determined by including the period for which he
or she held the Growth Portfolio shares exchanged therefor.
(h) That all actions taken by the Trust on behalf of the Capital Growth
Portfolio in connection with the transactions contemplated by this Agreement and
all documents incidental thereto shall be satisfactory in form and substance to
the Growth Portfolio and Ropes & Gray.
(i) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of the Trust or the Capital Growth Portfolio,
threatened by the Commission.
(j) That the Trust shall have received from the Commission, any relevant
state securities administrator, the FTC and the Department such order or orders
as Ropes & Gray deems reasonably necessary or desirable under the 1933 Act, the
1934 Act, the 1940 Act, any applicable state securities or blue sky laws and the
H-S-R Act in connection with the transactions contemplated hereby, and that all
such orders shall be in full force and effect.
10. Indemnification. (a) The Growth Portfolio will indemnify and hold
harmless, out of the assets of the Growth Portfolio but no other assets, the
Capital Growth Portfolio and the Trust (and its trustees and its officers) (for
purposes of this subparagraph, the "Indemnified Parties") against any and all
expenses, losses, claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the Indemnified Parties in connection
with, arising out of, or resulting from any claim, action, suit or proceeding in
which any one or more of the Indemnified Parties may be involved or with which
any one or more of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact relating to the
Trust or the Growth Portfolio contained in the Registration Statement, the
Prospectus or the Proxy Statement or any amendment or supplement to any of the
foregoing, or arising out of or based upon the omission or alleged omission to
state in any of the foregoing a material fact relating to the Trust or the
Growth Portfolio required to be stated therein or necessary to make the
statements relating to the Trust or the Growth Portfolio therein not misleading,
including, without limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of any such claim,
action, suit or proceeding, or threatened claim, action, suit or proceeding made
with the consent of the Trust or the Growth Portfolio. The Indemnified Parties
will notify the Trust and the Growth Portfolio in writing within ten days after
the receipt by any one or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against such Indemnified Party
as to any matters covered by this Section 10(a). The Growth Portfolio shall be
entitled to participate at its own expense in the defense of any claim, action,
suit or proceeding covered by this Section 10(a), or, if it so elects, to assume
at its expense by counsel satisfactory to the Indemnified Parties the defense of
any such claim, action, suit or proceeding, and if the Growth Portfolio elects
to assume such defense, the Indemnified Parties shall be entitled to participate
in the defense of any such claim, action, suit or proceeding at their expense.
The Growth Portfolio's obligation under this Section 10(a) to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee of payment so that
the Growth Portfolio will pay in the first instance any expenses, losses,
claims, damages and liabilities required to be paid by it under this Section
10(a) without the necessity of the Indemnified Parties' first paying the same.
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<PAGE>
(b) The Capital Growth Portfolio will indemnify and hold harmless, out of
the assets of the Capital Growth Portfolio but no other assets, the Growth
Portfolio and the Trust (and its trustees and its officers) (for purposes of
this subparagraph, the "Indemnified Parties") against any and all expenses,
losses, claims, damages and liabilities at any time imposed upon or reasonably
incurred by any one or more of the Indemnified Parties in connection with,
arising out of, or resulting from any claim, action, suit or proceeding in which
any one or more of the Indemnified Parties may be involved or with which any one
or more of the Indemnified Parties may be threatened by reason of any untrue
statement or alleged untrue statement of a material fact relating to the Capital
Growth Portfolio contained in the Registration Statement, the Prospectus or the
Proxy Statement, or any amendment or supplement to any thereof, or arising out
of, or based upon, the omission or alleged omission to state in any of the
foregoing a material fact relating to the Trust or the Capital Growth Portfolio
required to be stated therein or necessary to make the statements relating to
the Trust or the Capital Growth Portfolio therein not misleading, including
without limitation any amounts paid by any one or more of the Indemnified
Parties in a reasonable compromise or settlement of any such claim, action, suit
or proceeding, or threatened claim, action, suit or proceeding made with the
consent of the Trust or the Capital Growth Portfolio. The Indemnified Parties
will notify the Trust and the Capital Growth Portfolio in writing within ten
days after the receipt by any one or more of the Indemnified Parties of any
notice of legal process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section 10(b). The Capital
Growth Portfolio shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this Section 10(b),
or, if it so elects, to assume at its expense by counsel satisfactory to the
Indemnified Parties the defense of any such claim, action, suit or proceeding,
and, if the Capital Growth Portfolio elects to assume such defense, the
Indemnified Parties shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their own expense. The Capital Growth
Portfolio's obligation under this Section 10(b) to indemnify and hold harmless
the Indemnified Parties shall constitute a guarantee of payment so that the
Capital Growth Portfolio will pay in the first instance any expenses, losses,
claims, damages and liabilities required to be paid by it under this Section
10(b) without the necessity of the Indemnified Parties' first paying the same.
11. No Broker, etc. Each of the Growth Portfolio and the Capital Growth
Portfolio represents that there is no person who has dealt with it or the Trust
who by reason of such dealings is entitled to any broker's or finder's or other
similar fee or commission arising out of the transactions contemplated by this
Agreement.
12. Termination. The Growth Portfolio and the Capital Growth Portfolio may,
by mutual consent of the trustees on behalf of each Portfolio, terminate this
Agreement, and the Growth Portfolio or the Capital Growth Portfolio, after
consultation with counsel and by consent of their trustees or an officer
authorized by such trustees, may waive any condition to their respective
obligations hereunder. If the transactions contemplated by this Agreement have
not been substantially completed by December 31, 1995, this Agreement shall
automatically terminate on that date unless a later date is agreed to by the
Growth Portfolio and the Capital Growth Portfolio.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the Capital Growth
Portfolio will, in connection with the issuance of any Merger Shares to any
person who at the time of the transaction contemplated hereby is deemed to be an
affiliate of a party to the transaction pursuant to Rule 145(c), cause to be
affixed upon the certificates issued to such person (if any) a legend as
follows:
A-13
<PAGE>
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO THE MENTOR
CAPITAL GROWTH PORTFOLIO OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
MENTOR/CAMBRIDGE GROWTH PORTFOLIO SUCH REGISTRATION IS NOT REQUIRED."
and, further, the Capital Growth Portfolio will issue stop transfer instructions
to the Capital Growth Portfolio's transfer agent with respect to such shares.
The Growth Portfolio will provide the Capital Growth Portfolio on the Exchange
Date with the name of any Growth Portfolio shareholder who is to the knowledge
of the Growth Portfolio an affiliate of the Growth Portfolio on such date.
14. Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any certificates
delivered pursuant to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any investigation made by
them or on their behalf.
15. Sole Agreement; Amendments. This Agreement supersedes all previous
correspondence and oral communications between the parties regarding the subject
matter hereof, constitutes the only understanding with respect to such subject
matter, may not be changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by the laws of
The Commonwealth of Massachusetts.
16. Declaration of Trust. A copy of the 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 on behalf of the Portfolios, as trustees and not
individually and that the obligations of this instrument are not binding upon
any of the trustees, officers or shareholders of the Trust individually but are
binding only upon the assets and property of the Growth Portfolio and the
Capital Growth Portfolio, respectively.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
THE MENTOR FUNDS, on behalf of the
MENTOR CAPITAL GROWTH PORTFOLIO
By: /s/ PAUL F. COSTELLO
President
THE MENTOR FUNDS, on behalf of the
MENTOR/CAMBRIDGE GROWTH PORTFOLIO
By: /s/ PAUL F. COSTELLO
President
A-14
<PAGE>
EXHIBIT B
INFORMATION EXCERPTED FROM THE ANNUAL REPORT
Set out below is a commentary that was prepared by the portfolio manager to
the Mentor Capital Growth Portfolio (formerly, the Cambridge Capital Growth
Portfolio) and that was included in the Annual Report. At the time of the Annual
Report, Pheonix Investment Counsel, Inc. served as subadviser to the Portfolio.
The commentary has not been revised or updated since its initial publication in
November 1994.
CAMBRIDGE CAPITAL GROWTH PORTFOLIO
In reviewing the year [ending September 30, 1994], the largest
factor affecting the capital markets has been the surge in economic
growth and the attendant expectation that eventually inflation would
reemerge as a problem. Although we have not, in fact, seen any
strong signs of inflationary pressures in the data to date, concern
is at a higher level now than when the Federal Reserve first began
to raise rates last February. We have now experienced four quarters
in a row in which GDP rose more than 3%, the unemployment rate has
continued to tick down while the workweek is the longest it has been
in years, the dollar continues to trend lower against major foreign
currencies, and mid-term elections are taking precedence in
Washington over fiscal policy administration. Based on the
aforementioned factors, it would seem that in spite of the bond
market's steep correction to date, there may indeed be more upside
to interest rates and that the equity market's valuation at current
levels continues to appear high in relation to that of fixed income
alternatives.
We are highly encouraged by the recent resurgent strength shown by
quality growth stocks as a group. The earnings reports for the
second and third quarters of 1994 showed excellent growth year over
year and therefore are going to be incredibly high hurdles to
overcome next year especially if the Fed succeeds in slowing the
momentum of the economy. Companies which will show continued
earnings momentum are going to become somewhat of a scarce item as
we head into 1995 and we believe that the companies that have been
most ignored by the market over the past two years, those with the
quality growth that we focus on, will be direct beneficiaries. Some
of the qualities such companies exhibit which set them apart in an
investor's eyes include strong and stable earnings growth regardless
of the point in the economic cycle, good balance sheets and other
financial characteristics, excellent growth prospects looking
forward and competent managements.
Your portfolio benefited from many of the technology,
telecommunications and capital goods sector names which were added
over the past six months. Many of the companies in the technology
sector in particular are achieving good price gains based on
excellent financial performance both in the U.S. and overseas. The
healthcare sector's good relative performance has also helped the
portfolio. Over the course of the year, there were several stocks
which were sold based on disappointing earnings, price performance
or a change in the fundamental story of the company and these stocks
also detracted from the overall performance of the portfolio.
Included in this list would be the railroad stocks, and several
technology holdings.
The cash reserve position at the end of the fiscal year at 14.76%
is substantially lower than at the same time last year as we have
been able to invest in several very attractive quality growth names
at reasonable valuations. We will continue to search for and invest
in those stocks most appropriate for the objectives of the
portfolio.
CATHY DUDLEY
B-1
<PAGE>
ALL INVESTMENTS ARE SUBJECT TO CERTAIN RISKS. FOR EXAMPLE, THOSE
WHICH INCLUDE COMMON STOCK ARE AFFECTED BY FLUCTUATING STOCK PRICES.
INVESTMENTS OUTSIDE THE U.S. ARE SUBJECT TO ADDITIONAL RISKS,
INCLUDING CURRENCY FLUCTUATIONS, POLITICAL AND SOCIAL INSTABILITY,
DIFFERING SECURITIES REGULATIONS AND ACCOUNTING STANDARDS, LIMITED
PUBLIC INFORMATION, POSSIBLE CHANGES IN TAXATION, AND PERIODS OF
ILLIQUIDITY. ACCORDINGLY, INVESTORS SHOULD MAINTAIN A LONG-TERM
PERSPECTIVE.
Set out below is a performance comparison that was included in the Annual
Report. The comparison has not been revised or updated since its initial
publication in November 1994, except that the information has been restated to
give effect to the sales charges and the CDSC now applicable to investments in
the Fund, as if they had been in effect since the organization of the Fund.
CAMBRIDGE CAPITAL GROWTH PORTFOLIO PERFORMANCE COMPARISON
(unaudited)
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 PURCHASE IN CAMBRIDGE
CAPITAL GROWTH PORTFOLIO CLASS A AND CLASS B SHARES AND S&P 500.
[GRAPH]
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
(FOOTNOTES APPEAR ON FOLLOWING PAGE.)
B-2
<PAGE>
* Reflects operations of Cambridge Capital Growth Portfolio Class A and
Class B Shares from the date of initial public investment 4/29/92
through 9/30/94.
** Represents a hypothetical investment of $10,000 in Cambridge Capital
Growth Portfolio Class A Shares, after deducting the maximum sales
charge of 5.75% ($10,000 investment minus $575 sales charge = $9,425).
The Class A Shares' performance assumes the reinvestment of all
dividends and distributions.
*** Represents a hypothetical investment of $10,000 in Cambridge Capital
Growth Portfolio Class B Shares, after deducting the maximum deferred
sales charge of 4% at 9/30/94. The Class B Shares' performance assumes
the reinvestment of all dividends and distributions.
-- The S&P 500 is adjusted to reflect reinvestment of dividends on
securities in the index. The S&P 500 is not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in
the Portfolio's performance.
B-3
<PAGE>
THIS PROXY PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES RECOMMEND A VOTE FOR THE
PROPOSAL BELOW.
1. To approve the Agreement and Plan of Reorganization providing for the
transfer of all of the assets of the Mentor/Cambridge Growth Portfolio (the
"Growth Portfolio") to the Mentor Capital Growth Portfolio (the "Capital
Growth Portfolio") in exchange for shares of the Capital Growth Portfolio and
the assumption by the Capital Growth Portfolio of all of the liabilities of
the Growth Portfolio, and the distribution of such shares to the shareholders
of the Growth Portfolio in complete liquidation of the Growth Portfolio.
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE>
MENTOR/CAMBRIDGE GROWTH PORTFOLIO PROXY SOLICITED BY THE TRUSTEES
A SERIES OF THE MENTOR FUNDS
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- SEPTEMBER 21, 1995
The undersigned hereby appoints Peter J. Quinn, Jr., Daniel J. Ludeman, and Paul
F. Costello, and each of them, proxies, with power of substitution to each, and
hereby authorizes them to represent and to vote, as designated on the reverse
side, at the Special Meeting of Shareholders of the Mentor/Cambridge Growth
Portfolio (the "Portfolio"), a series of The Mentor Funds, on Thursday,
September 21, 1995 at 2:00 p.m. Eastern time, and at any adjournments thereof,
all of the shares of the Portfolio which the undersigned would be entitled to
vote if personally present.
Date_________________________________
NOTE: Please sign exactly as your name
appears on this card. All joint owners
should sign. When signing as executor,
administrator, attorney, trustee or
guardian or as custodian for a minor,
please give full title as such. If a
corporation, please sign in full
corporate name and indicate the
signer's office. If a partner, sign in
the partnership name.
_____________________________________
Signature(s)
<PAGE>
MENTOR/CAMBRIDGE GROWTH PORTFOLIO,
A SERIES OF THE MENTOR
FUNDS
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of the Mentor/Cambridge Growth Portfolio:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the
Mentor/Cambridge Growth Portfolio (the "Growth Portfolio") will be held
Thursday, September 21, 1995 at 2:00 p.m. at the Riverfront Plaza Conference
Suite, Riverfront Plaza -- West Tower, 20th Floor, 901 East Byrd Street,
Richmond, Virginia, to consider the following:
1. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Growth Portfolio
to the Mentor Capital Growth Portfolio (the "Capital Growth Portfolio")
in exchange for shares of the Capital Growth Portfolio and the
assumption by the Capital Growth Portfolio of all of the liabilities of
the Growth Portfolio, and the distribution of such shares to the
shareholders of the Growth Portfolio in complete liquidation of the
Growth Portfolio.
2. To transact such other business as may properly come before the meeting.
The Trustees have fixed the close of business on July 31, 1995 as the
record date for determination of shareholders entitled to notice of, and to vote
at, the Special Meeting.
By order of the Trustees
/s/ PAUL F. COSTELLO
Paul F. Costello,
PRESIDENT
SUPPLEMENT DATED AUGUST 18, 1995
TO PROSPECTUS/PROXY STATEMENT DATED AUGUST 18, 1995
IMPORTANT NOTICE
The Special Meeting of Shareholders of Mentor/Cambridge Growth Portfolio to
which the enclosed Prospectus/Proxy Statement relates will be held on THURSDAY,
SEPTEMBER 21, 1995 AT 2:00 P.M. at the Riverfront Plaza Conference Suite,
Riverfront Plaza -- West Tower, 20th Floor, 901 East Byrd Street, Richmond,
Virginia. Any reference in the Prospectus/Proxy Statement or other enclosed
materials to a meeting date of September 12, 1995 is deleted, and replaced with
a reference to the meeting date of Thursday, September 21, 1995.
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
August 18, 1995
This Statement of Additional Information contains material which may be
of interest to investors but which is not included in the
Prospectus/Proxy Statement (the "Prospectus") of the Mentor Capital
Growth Portfolio (the "Capital Growth Portfolio") dated August 18, 1995
relating to the sale of all or substantially all of the assets of the
Mentor/Cambridge Growth Portfolio (the "Growth Portfolio") to the
Capital Growth Portfolio. The Statement of Additional Information of The
Mentor Funds (the "Trust") dated May 30, 1995, as revised, filed
electronically on July 27, 1995 (File no. 811-6550), is incorporated
herein by reference. This Statement is not a prospectus and is
authorized for distribution only when it accompanies or follows delivery
of a prospectus, and should be read in conjunction with the Prospectus.
Investors may obtain a free copy of the Prospectus or the Statement of
Additional Information by writing the Trust, 901 East Byrd Street,
Richmond, Virginia, or by calling 1-800-382-0016.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
KPMG Peat Marwick LLP are the independent accountants for the
Growth Portfolio and the Capital Growth Portfolio, providing audit
services, tax return preparation and review and other tax consulting
services and assistance and consultation in connection with the review
of various Securities and Exchange Commission filings for the
Portfolios. The (i) Report of Independent Accountants and financial
statements relating to the Growth Portfolio and the Capital Growth
Portfolio included in the Trust's Annual Report for the fiscal year
ended September 30, 1994 (File no. 811-6550) (the "Annual Report"),
filed electronically on December 1, 1994, and the (ii) unaudited
financial statements relating to the Growth Portfolio and the Capital
Growth Portfolio included in the Trust's Semi-Annual Report for the six
months ended March 31, 1995, filed electronically on June 5, 1995 (File
no. 811-6550), are incorporated by reference into this Statement of
Additional Information. The financial statements included in the Annual
Report and incorporated by reference into the Prospectus/Proxy Statement
and this Statement of Additional Information have been so included and
incorporated in reliance upon the reports of KPMG Peat Marwick LLP,
given on their authority as experts in auditing and accounting.
1
<PAGE>
Table of Contents
Unaudited Pro Forma combined Financial Statements
of the Capital Growth Portfolio and the Growth
Portfolio as of September 30, 1994 . . . . . . . . . . . . . . . . . . 4
Unaudited Pro Forma combined Financial Statements
of the Capital Growth Portfolio and the Growth
Portfolio as of March 31, 1995 . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
AND
MENTOR/CAMBRIDGE GROWTH PORTFOLIO
PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited pro forma combining investment portfolio and
statement of assets and liabilities of the Capital Growth and Growth Portfolios
assumes that the exchange described in the next paragraph occurred on September
30, 1994 and on March 31, 1995 and the unaudited pro forma combining statement
of operations of the Mentor Capital Growth Portfolio (the "Capital Growth
Portfolio") as if the combination with the Mentor/Cambridge Growth Portfolio
(the "Growth Portfolio") had been consummated on September 30, 1994 and on March
31, 1995. These financial statements are not indicative of future operations or
actual results that would have occurred had the combination been consummated at
the beginning of the fiscal period presented. These statements have been derived
from the September 30, 1994 audited financial statements and the March 31, 1995
unaudited financial statements of the Capital Growth Portfolio and the Growth
Portfolio, respectively, each of which is incorporated by reference into this
Statement of Additional Information.
The pro forma statements give effect to the proposed transfer of all the
assets of the Growth Portfolio to the Capital Growth Portfolio in exchange for
the assumption by the Capital Growth Portfolio of all of the liabilities of the
Growth Portfolio and for a number of Merger Shares equal in value to the value
of the net assets of the Growth Portfolio transferred to the Capital Growth
Portfolio. Under generally accepted accounting principles, the historical cost
of the investment securities will be carried forward to the surviving entity
(the Capital Growth Portfolio) and the results of operations of the Capital
Growth Portfolio for pre-combined periods will not be restated. The pro forma
statements do not reflect the expenses of either Portfolio in carrying out its
obligations under the Agreement and Plan of Reorganization.
The unaudited pro forma combining statements should be read in conjunction
with the separate financial statements of the Portfolios.
3
<PAGE>
PRO FORMA COMBINING
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MENTOR/ MENTOR
CAMBRIDGE CAPITAL PRO FORMA
GROWTH GROWTH COMBINED
PORTFOLIO PORTFOLIO (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments, at market value (combined cost $100,315,891)........ $41,999,246 $63,102,296 $105,101,542
Cash............................................................. 859,416 - 859,416
Receivables...................................................... -
Investments sold.............................................. 832,966 741,914 1,574,880
Fund shares sold.............................................. 11,126 42,470 53,596
Dividends and interest........................................ 95,051 139,759 234,810
Deferred expenses................................................ 9,039 11,351 20,390
Other assets..................................................... - 5,101 5,101
Total assets................................................ 43,806,844 64,042,891 107,849,735
LIABILITIES
Payables
Investments purchased......................................... 141,000 1,342,854 1,483,854
Fund shares redeemed.......................................... 250,951 218,520 469,471
Accrued administration expenses............................... 5,285 7,531 12,816
Accrued distribution expenses................................. 21,847 53,090 74,937
Accrued expenses and other liabilities........................... 131,075 133,983 265,058
Total liabilities........................................... 550,158 1,755,978 2,306,136
NET ASSETS.................................................. $43,256,686 $62,286,913 $105,543,599
Net Assets represented by:
Additional paid-in capital....................................... $43,860,672 $59,512,213 $103,372,885
Undistributed net investment loss................................ (962,826) - (962,826)
Accumulated distributions in excess of net investment income..... - (28,051) (28,051)
Undistributed realized gain (loss) on investment transactions.... (2,801,823) 1,177,205 (1,624,618)
Net unrealized appreciation of investments....................... 3,160,663 1,625,546 4,786,209
Net Assets.................................................... $43,256,686 $62,286,913 $105,543,599
NET ASSET VALUE PER SHARE
Class A Shares................................................... $ 14.68 $ 14.88 $ 14.88
Class B Shares................................................... $ 14.53 $ 14.80 $ 14.80
OFFERING PRICE PER SHARE
Class A Shares (a)............................................... $ 15.53 $ 15.75 $ 15.75
Class B Shares................................................... $ 14.53 $ 14.80 $ 14.80
REDEMPTION PROCEEDS PER SHARE
Class A Shares................................................... $ 14.68 $ 14.88 $ 14.88
Class B Shares (b)............................................... $ 14.38 $ 14.65 $ 14.65
SHARES OUTSTANDING
Class A Shares................................................... 993,054 1,423,010 2,907,035
Class B Shares................................................... 1,974,036 2,778,026 4,208,575
Total Shares Outstanding.................................... 2,967,090 4,201,036 7,115,610
</TABLE>
(a) Computation of offering price: 100/94.5 of net asset value.
(b) Computation of redemption proceeds: 99/100 of net asset value.
4
<PAGE>
PRO FORMA COMBINING
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MENTOR/ MENTOR
CAMBRIDGE CAPITAL PRO FORMA
GROWTH GROWTH PRO FORMA COMBINED
PORTFOLIO PORTFOLIO ADJUSTMENTS (UNAUDITED)
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest............................................. $ 72,373 $ 498,408 $ 0 $ 570,781
Dividends (Net of withholding taxes)*................ 525,699 1,152,741 0 1,678,440
Total investment income........................... 598,072 1,651,149 0 2,249,221
EXPENSES
Management fee....................................... 410,955 590,693 1,001,648
Distribution fees.................................... 253,834 360,712 614,546
Transfer agent fee................................... 163,583 213,354 376,937
Shareholder services fees............................ 128,423 184,588 313,011
Administration fee................................... 64,195 92,278 156,473
Custodian fee........................................ 71,513 67,014 138,527
Registration expenses................................ 30,000 27,000 (27,000) 30,000
Shareholder reports and postage expenses............. 25,338 36,777 62,115
Organizational expenses.............................. 12,275 12,195 24,470
Professional fees.................................... 11,008 15,782 (11,008) 15,782
Directors' fees and expenses......................... 7,180 7,180 (7,180) 7,180
Miscellaneous........................................ 13,472 13,705 (13,472) 13,705
Total expenses.................................. 1,191,776 1,621,278 (58,660) 2,754,394
Deduct
Waiver of administration fee........................... 6,569 0 6,569
Net Expenses........................................... 1,185,207 1,621,278 (58,660) 2,747,825
Net investment income (loss)........................... (587,135) 29,871 58,660 (498,604)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments.............. (514,259) 1,128,751 0 614,492
Change in unrealized depreciation.................... (5,796,253) (2,465,351) 0 (8,261,604)
Net realized and unrealized loss on
investments.................................. (6,310,512) (1,336,600) 0 (7,647,112)
Net increase (decrease) in net assets resulting from
operations........................................... $(6,897,647) $(1,306,729) $ 58,660 $(8,145,716)
</TABLE>
* Withholding taxes for Capital Growth Portfolio was $1,534.
5
<PAGE>
THE PRO FORMA COMBINING INVESTMENT PORTFOLIO
OF MENTOR/CAMBRIDGE GROWTH PORTFOLIO AND MENTOR CAPITAL GROWTH PORTFOLIO
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS..................87.85% **
BASIC MATERIALS...................... 6.15%
Air Products & Chemicals, Inc...... 8,000 $ 374,000 8,000 $ 374,000
Akzo Nobel......................... 5,000 $ 586,663 5,000 586,663
British Steel ORD.................. 200,000 544,784 200,000 544,784
Du Pont EI De Nemours &
Company.......................... 17,000 986,000 17,000 986,000
Dutch State Mines.................. 7,500 635,958 7,500 635,958
Alco Standard Corporation.......... 8,000 497,000 8,000 497,000
Consolidated Papers, Inc........... 1,000 51,750 1,000 51,750
Kimberly Clark Corporation......... 8,000 470,000 8,000 470,000
Minerals Technologies, Inc......... 10,500 311,063 10,500 311,063
Monsanto Company................... 5,000 401,875 5,000 401,875
Morton International, Inc.......... 7,500 206,250 7,500 206,250
Newell Company..................... 28,000 623,000 28,000 623,000
Nucor Corporation.................. 11,500 805,000 11,500 805,000
3,739,938 2,753,405 6,493,343
CAPITAL GOODS & CONSTRUCTION......... 7.19%
Automotive Industries*............. 14,400 349,200 14,400 349,200
Brown Boveri & Cie................. 800 689,709 800 689,709
Browning Ferris Industries, Inc.... 30,000 952,500 30,000 952,500
Flour Corporation.................. 12,000 597,000 12,000 597,000
PPG Industries, Inc................ 25,000 990,625 25,000 990,625
Raytheon Company................... 17,000 1,090,125 17,000 1,090,125
United Technologies Corporation.... 15,000 939,375 15,000 939,375
Emerson Electric Company*.......... 8,900 530,663 8,900 530,663
General Electric Company........... 14,100 678,562 14,100 678,562
Grainger, Inc...................... 3,500 207,375 3,500 207,375
Magna International, Inc........... 13,600 501,500 13,600 501,500
Trimas Corporation................. 2,500 56,875 2,500 56,875
2,324,175 5,259,334 7,583,509
CONSUMER CYCLICAL.................... 18.09%
Ann Taylor Stores, Inc.*........... 5,700 205,200 5,700 205,200
Capital Cities/ABC................. 11,000 902,000 11,000 902,000
Carnival Corporation............... 25,000 1,096,875 25,000 1,096,875
Dayton-Hudson Corporation.......... 12,500 956,250 12,500 956,250
Harcourt General, Inc.............. 6,000 206,250 22,500 773,438 28,500 979,688
Marriott International, Inc........ 31,500 909,562 31,500 909,562
May Department Stores Company...... 30,000 1,181,250 30,000 1,181,250
Mirage Resorts, Inc................ 48,000 1,032,000 48,000 1,032,000
Price Costco, Inc.*................ 50,000 803,125 50,000 803,125
Toys R Us, Inc.*................... 38,000 1,353,750 38,000 1,353,750
Whirlpool Corporation.............. 15,000 770,625 15,000 770,625
Brinker International, Inc.*....... 21,300 511,200 21,300 511,200
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES VALUE SHARES VALUE SHARES VALUE
CONSUMER CYCLICAL (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C>
CUC International, Inc............. 6,900 $ 227,700 6,900 $ 227,700
Duracell International, Inc........ 3,500 159,688 3,500 159,688
Franklin Quest Company*............ 13,500 506,250 13,500 506,250
General Nutrition
Companies, Inc.*................. 12,900 287,025 12,900 287,025
Heilig-Meyers Company.............. 11,600 304,500 11,600 304,500
Home Depot, Inc.................... 19,300 810,600 30,000 1,260,000 49,300 2,070,600
International Game Technology...... 7,400 152,625 7,400 152,625
Kohl's Corporation*................ 3,000 145,500 3,000 145,500
Lone Star Steakhouse
& Saloon, Inc.*.................. 2,000 50,750 2,000 50,750
Manpower, Inc...................... 26,500 725,438 26,500 725,438
McDonald's Corporation............. 14,000 367,500 14,000 367,500
Office Depot, Inc.*................ 10,800 280,800 10,800 280,800
Promus Companies, Inc.............. 21,000 706,125 21,000 706,125
Shaw Industries, Inc............... 20,900 300,438 20,900 300,438
Starbucks Corporation*............. 9,000 207,562 9,000 207,562
Station Casinos, Inc.*............. 7,900 106,650 7,900 106,650
The Bombay Company, Inc............ 4,900 64,925 4,900 64,925
The Walt Disney Company............ 6,000 233,250 6,000 233,250
Tribune Company.................... 4,400 237,600 4,400 237,600
Viacom, Inc. -- Class A*........... 384 15,696 384 15,696
Viacom, Inc. -- Class B*........... 2,909 115,633 2,909 115,633
Viacom, Inc. -- Rights*............ 4,800 6,300 4,800 6,300
Viking Office Products, Inc.*...... 18,800 568,700 18,800 568,700
Wal-Mart Stores, Inc............... 23,600 551,650 23,600 551,650
8,055,555 11,038,875 19,094,430
CONSUMER STAPLES..................... 11.05%
Abbott Laboratories................ 4,100 128,638 40,000 1,255,000 44,100 1,383,638
Amgen, Inc.*....................... 15,000 798,750 15,000 798,750
Astra AB........................... 37,500 898,590 37,500 898,590
Columbia/HCA Healthcare
Corporation...................... 25,000 1,087,500 25,000 1,087,500
Merck & Company, Inc............... 40,000 1,420,000 40,000 1,420,000
Schering-Plough Corporation........ 15,000 1,065,000 15,000 1,065,000
Campbell Soup Company.............. 10,800 426,600 10,800 426,600
Coca Cola Company.................. 15,000 729,375 15,000 729,375
Conagra, Inc....................... 12,600 396,900 12,600 396,900
CPC International, Inc............. 11,000 556,875 11,000 556,875
Gillette Company................... 7,000 495,250 7,000 495,250
Philip Morris Companies, Inc....... 9,900 605,138 14,000 855,750 23,900 1,460,888
Procter & Gamble Company........... 11,000 655,875 11,000 655,875
UST, Inc........................... 10,000 286,250 10,000 286,250
4,280,901 7,380,590 11,661,491
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
ENERGY............................... 6.41%
Enron Corporation.................. 16,900 $ 511,225 25,000 $ 756,250 41,900 $1,267,475
British Petroleum PLC, ADS......... 13,000 984,750 13,000 984,750
Chevron Corporation................ 25,000 1,040,625 25,000 1,040,625
Dresser Industries, Inc............ 50,000 1,012,500 50,000 1,012,500
Royal Dutch Petroleum Company...... 8,500 912,688 8,500 912,688
Tidewater, Inc..................... 15,000 322,500 15,000 322,500
Mobil Corporation.................. 3,000 237,375 12,000 949,500 15,000 1,186,875
Repsol SA.......................... 1,200 36,579 1,200 36,579
785,179 5,978,813 6,763,992
FINANCIAL............................ 6.57%
Bankers Life Holding Corporation... 7,200 169,200 7,200 169,200
American International Group,
Inc.............................. 15,000 1,333,125 15,000 1,333,125
Boatmen's Bancshares, Inc.......... 14,000 434,875 14,000 434,875
Conseco, Inc....................... 6,500 291,688 6,500 291,688
Equity Residential Properties
Trust............................ 7,500 238,125 7,500 238,125
Federal National Mortgage
Association...................... 4,000 315,000 20,000 1,575,000 24,000 1,890,000
First USA, Inc..................... 12,100 425,012 12,100 425,012
General RE Corporation............. 3,400 359,975 3,400 359,975
MBNA Corporation................... 23,500 543,438 23,500 543,438
MGIC Investment Corporation........ 19,900 599,488 19,900 599,488
Nationsbank Corporation............ 10,000 490,000 10,000 490,000
Western National Corporation....... 12,000 162,000 12,000 162,000
4,028,801 2,908,125 6,936,926
HEALTH............................... 6.90%
American Medical Holdings, Inc.*... 4,000 89,500 4,000 89,500
Columbia HCA Healthcare
Corporation...................... 12,500 543,750 12,500 543,750
Cordis Corporation*................ 7,600 400,900 7,600 400,900
Forest Laboratories, Inc.*......... 8,000 394,000 8,000 394,000
Foundation Health Corporation*..... 1,900 66,975 1,900 66,975
Idexx Laboratories, Inc.*.......... 8,400 247,800 8,400 247,800
Integrated Health
Services, Inc.*.................. 16,000 568,000 16,000 568,000
Johnson & Johnson.................. 6,000 309,750 6,000 309,750
Medtronic, Inc..................... 10,600 560,475 10,600 560,475
Mid Atlantic Medical
Services, Inc.*.................. 9,400 282,000 9,400 282,000
Pfizer, Inc........................ 4,000 276,500 4,000 276,500
Schering Plough Corporation........ 11,800 837,800 11,800 837,800
United Healthcare Corporation...... 7,500 397,500 7,500 397,500
US Healthcare, Inc................. 6,500 302,656 17,500 814,844 24,000 1,117,500
Value Health, Inc.*................ 14,500 696,000 14,500 696,000
Warner Lambert Company............. 6,100 489,525 6,100 489,525
6,463,131 814,844 7,277,975
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
TECHNOLOGY........................... 16.74%
3COM Corporation*.................. 7,200 $ 269,100 7,200 $ 269,100
Cirrus Logic, Inc.*................ 35,000 $ 980,000 35,000 980,000
Computer Associates International,
Inc.............................. 30,000 1,335,000 30,000 1,335,000
Ericsson Telecommunication
Company.......................... 15,000 806,250 15,000 806,250
Hewlett Packard Company............ 15,000 1,310,625 15,000 1,310,625
International Business Machines
Corporation...................... 9,000 625,500 9,000 625,500
Perkin-Elmer Corporation........... 15,000 470,625 15,000 470,625
Philips Electronics Holdings
Company.......................... 35,000 1,063,125 35,000 1,063,125
Xerox Corporation.................. 10,000 1,067,500 10,000 1,067,500
ADC Telecommunications, Inc.*...... 7,400 296,925 7,400 296,925
Applied Materials, Inc.*........... 10,400 486,200 10,400 486,200
AT&T Corporation................... 7,900 426,600 7,900 426,600
Cisco Systems, Inc.*............... 6,000 164,250 6,000 164,250
Compaq Computer Corporation*....... 12,100 394,763 12,100 394,763
Compuware Corporation*............. 8,000 376,500 8,000 376,500
EMC Corporation.................... 20,000 402,500 20,000 402,500
First Data Corporation............. 7,600 381,900 7,600 381,900
General Motors Corporation
-- Class E...................... 10,400 395,200 23,000 874,000 33,400 1,269,200
Intel Corporation.................. 5,000 307,500 5,000 307,500
Linear Technology Corporation...... 8,000 354,500 8,000 354,500
Loral Corporation.................. 3,000 118,125 3,000 118,125
Maxim Integrated
Products, Inc.*.................. 1,300 79,625 1,300 79,625
Microchip Technology, Inc.*........ 1,500 58,875 1,500 58,875
Microsoft Corporation*............. 8,000 449,000 8,000 449,000
Motorola, Inc...................... 10,800 569,700 10,800 569,700
Oracle Systems Corporation*........ 14,100 606,300 14,100 606,300
Parametric Technology
Corporation*..................... 14,000 465,500 28,300 940,975 42,300 1,406,475
Reynolds & Reynolds Company........ 10,000 251,250 10,000 251,250
Scientific Atlanta, Inc............ 5,700 232,988 5,700 232,988
Silicon Graphics, Inc.*............ 23,000 592,250 23,000 592,250
Solectron Corporation*............. 3,500 92,313 3,500 92,313
Tellabs, Inc.*..................... 10,000 425,000 10,000 425,000
8,196,864 9,473,600 17,670,464
TRANSPORTATION & SERVICES............ 3.05%
Conrail, Inc....................... 7,600 376,200 7,600 376,200
CSX Corporation.................... 10,000 685,000 10,000 685,000
Kansas City Southern Industries,
Inc.............................. 5,800 205,175 5,800 205,175
Southwest Airlines Company......... 11,000 247,500 11,000 247,500
Union Pacific Corporation.......... 6,700 359,288 17,500 938,438 24,200 1,297,726
Wisconsin Central Transport*....... 9,900 405,900 9,900 405,900
1,594,063 1,623,438 3,217,501
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
UTILITIES............................ 2.31%
Ameritech Corporation.............. 20,000 $ 805,000 20,000 $ 805,000
Royal PTT Nederland................ 22,500 677,781 22,500 677,781
Sprint Corporation................. 25,000 953,125 25,000 953,125
2,435,906 2,435,906
MISCELLANEOUS........................ 1.16%
Eastman Kodak Company.............. 7,500 388,125 7,500 388,125
ITT Corporation.................... 10,000 833,750 10,000 833,750
1,221,875 1,221,875
FOREIGN SECURITIES................... 2.24%
AAlberts Industries................ 400 18,626 400 18,626
Amway Japan, Ltd................... 2,100 33,338 2,100 33,338
Atlas Copco AB..................... 4,500 56,469 4,500 56,469
BBC Brown Boveri................... 40 34,485 40 34,485
BMW Bayerische Motoren............. 50 24,125 50 24,125
BPB Industries..................... 5,500 26,191 5,500 26,191
British Petroleum Company.......... 3,500 22,048 3,500 22,048
Broken Hill Proprietary............ 1,400 20,347 1,400 20,347
Carter Holt Harvey................. 8,600 19,524 8,600 19,524
Cementos De Mexico ACP............. 1,400 12,575 1,400 12,575
Comercial Del Plata................ 3,000 10,446 3,000 10,446
Creative Technology, Ltd........... 500 8,833 500 8,833
CRH PLC............................ 10,000 54,644 10,000 54,644
DDI Corporation.................... 10 87,229 10 87,229
Ericsson........................... 2,000 106,262 2,000 106,262
Grupo Carso ADR+................... 500 11,500 500 11,500
Hagemeyer NV....................... 200 16,085 200 16,085
Honda Motors Company............... 4,000 66,633 4,000 66,633
Keiyo Company...................... 3,000 58,152 3,000 58,152
Keppel Corporation................. 5,000 40,459 5,000 40,459
Koninklijke Van Ommeren............ 1,300 34,378 1,300 34,378
Kyocera Corporation................ 1,000 71,479 1,000 71,479
Maderas Y Sinteticos Sociedad...... 800 22,800 800 22,800
Malaysian Helicopter............... 2,760 8,558 2,760 8,558
Matsushita Electric................ 4,000 63,806 4,000 63,806
Metsa Serla "B'.................... 400 19,241 400 19,241
Nokia AB........................... 500 58,073 500 58,073
Noranda, Inc....................... 1,100 22,237 1,100 22,237
Philips Electronics................ 1,900 57,999 1,900 57,999
Polygram NV........................ 400 17,315 400 17,315
Road Bulder Holdings............... 3,000 19,541 3,000 19,541
Sanyo Shinpan Finance Company...... 600 63,604 600 63,604
Sharp Corporation.................. 3,000 53,306 3,000 53,306
SIAM City Bank, Ltd................ 20,200 25,710 20,200 25,710
Siebe PLC.......................... 7,000 59,603 7,000 59,603
Siemens AG......................... 100 40,939 100 40,939
Stet Societa Finanz................ 13,600 42,078 13,600 42,078
Technology Resources Industries.... 6,900 28,259 6,900 28,259
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES OR SHARES OR SHARES OR
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
FOREIGN SECURITIES (CONTINUED)
Telecom Argentina................. 3,300 $ 22,121 3,300 $ 22,121
Telefonos De Mexico............... 700 43,750 700 43,750
TNT Limited....................... 10,300 18,217 10,300 18,217
Tokio Marine & Fire Insurance..... 5,000 59,566 5,000 59,566
Tokyo Electron, Ltd............... 2,000 63,806 2,000 63,806
Universal Robina Corporation...... 11,000 10,329 11,000 10,329
Veba AG........................... 200 66,288 200 66,288
Vodagone Group PLC................ 19,800 61,660 19,800 61,660
Wai Kee Holdings.................. 58,000 16,663 58,000 16,663
Wai Kee Holdings-Warrants*........ 10,600 178 10,600 178
Western Mining Corporation........ 3,700 21,548 3,700 21,548
Wilson & Horton, Ltd.............. 4,000 18,307 4,000 18,307
WMX Technologies, Inc............. 18,000 519,750 18,000 519,750
Woolworths, Ltd................... 3,862 8,059 3,862 8,059
2,367,139 2,367,139
TOTAL COMMON STOCKS................. 41,835,746 $50,888,805 92,724,551
PREFERRED STOCKS.................... 0.28%**
Nokia AB.......................... 2,500 290,363 2,500 290,363
LONG-TERM INVESTMENTS............... 2.01%**
CORPORATE BOND...................... 0.15%
Argosy Gaming Corporation, 12.00%,
6/1/01.......................... $150,000 163,500 $ 150,000 163,500
GOVERNMENT BONDS.................... 1.86%
U.S. Treasury Note, 6.00%,
6/30/96......................... 1,975,000 1,958,726 1,975,000 1,958,726
TOTAL LONG-TERM INVESTMENTS......... 163,500 1,958,726 2,122,226
SHORT-TERM INVESTMENTS.............. 9.44%**
COMMERCIAL PAPER.................... 7.89%
General Electric Company, 4.87%,
10/24/94........................ 1,500,000 1,495,333 1,500,000 1,495,333
Johnson & Johnson, 4.90%,
10/24/94........................ 745,000 742,668 745,000 742,668
Proctor & Gamble Corporation,
4.83%, 10/21/94................. 1,350,000 1,346,377 1,350,000 1,346,377
Exxon Imperial U.S., Inc., 4.82%,
10/24/94........................ 1,630,000 1,628,691 1,630,000 1,628,691
Private Export Funding
Corporation, 4.73%, 10/14/94.... 1,245,000 1,242,873 1,245,000 1,242,873
Private Export Funding
Corporation, 4.72%, 10/20/94.... 225,000 224,439 225,000 224,439
Bellsouth Telecommunications,
Inc., 4.79%, 10/20/94........... 1,650,000 1,645,829 1,650,000 1,645,829
TOTAL COMMERCIAL PAPER.............. 8,326,210 8,326,210
</TABLE>
11
<PAGE>
[CAPTION]
<TABLE>
MENTOR/CAMBRIDGE MENTOR CAPITAL GROWTH PRO FORMA COMBINED
GROWTH PORTFOLIO PORTFOLIO (UNAUDITED)
SHARES OR SHARES OR SHARES OR
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES............ 1.55%
Federal Home Loan Mortgage
Corporation, 4.70%, 10/4/94..... $1,240,000 $ 1,239,514 $1,240,000 $1,239,514
Federal National Mortgage
Association, 4.76%, 10/26/94 400,000 398,678 400,000 398,678
TOTAL U.S. GOVERNMENT AGENCIES...... 1,638,192 1,638,192
TOTAL SHORT-TERM INVESTMENTS........ 0 9,964,402 9,964,402
TOTAL COMBINED INVESTMENTS.......... 99.58%
(combined cost $100,315,891)
Growth Portfolio $$38,863,630 and
Capital Growth Portfolio
$61,477,308)...................... $41,999,246 $63,102,296 $105,101,542
</TABLE>
* Non-income producing.
** Percentages are based on Proforma combined net assets of $105,543,599,
which correspond to a proforma combined net asset value per share of
$14.83.
+ American Depository Receipt.
<PAGE>
CAMBRIDGE SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 (UNAUDITED)
NOTE 1: ORGANIZATION
Cambridge Series Trust ("Trust") is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Trust
consists of six separate diversified portfolios.
The assets of each Portfolio of the Trust are segregated and a shareholder's
interest is limited to the Portfolio in which shares are held.
The pro forma combined financial statements included in this report are for the
Capital Growth Portfolio (hereinafter referred to as the "Portfolio")
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio:
(a) Valuation of Securities- Listed equity securities held by the Portfolio are
valued at last sale prices reported on national securities exchanges. Listed
equity securities in which there were no sales are valued at the mean between
the bid and asked prices. Unlisted equity securities are valued at the latest
mean price. Bonds and other fixed-income securities are valued at the last sale
price on a national securities exchange, if available. Otherwise, they are
valued on the basis of prices furnished by an independent pricing service.
Short-term obligations are ordinarily valued at the mean between the bid and
asked prices as furnished by an independent pricing service. However, short-term
obligations with maturities of 60 days or less are valued at amortized cost,
which approximates value.
(b) Repurchase Agreements- It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book entry system, or to have segregated within the custodian bank's
vault all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Trust to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying securities to ensure the existence of a proper level of collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Trust's adviser to be creditworthy pursuant to guidelines established by the
Trustees. Risks may arise from the potential inability of counterparties to
honor the terms of the repurchase agreement. Accordingly, the Trust could
receive less than the repurchase price on the sale of collateral securities.
(c) Borrowings- The Portfolio may, under certain circumstances, borrow money
directly or through reverse repurchase agreements (arrangements in which the
Portfolio sells a security for a percentage of its market value with an
agreement to buy it back on a set date) or pledge securities. The Portfolio may
borrow up to one-third of the value of its net assets and pledge up to 10% of
the value of those assets to secure such borrowings.
(d) Security Transactions and Investment Income- Security transactions for the
Portfolio is accounted for on trade date. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Interest
income includes interest and discount earned (net of premium) on short-term
obligations, and interest earned on all other debt securities including original
issue discount as required by the Internal Revenue Code of 1986, as amended (the
"Code"). Dividends to shareholders and capital gain distributions, if any, are
recorded on the ex-dividend date.
23
<PAGE>
(e) Federal Taxes- No provision for federal income taxes has been made since it
is the Portfolio's intent to comply with the provisions applicable to regulated
investment companies under the Code and to distribute to its shareholders within
allowable time limits substantially all taxable income and realized capital
gains.
At September 30, 1994, the Portfolio for federal tax purposes, had a capital
loss carryforward of approximately $2,690,000. Pursuant to the Code, such
capital loss carryforwards expire as follows: $1,065,000 in 2001 and $1,625,000
in 2002.
Such capital loss carryforwards will reduce the Portfolio's taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise relieve the Portfolio of any liability for
federal tax.
(f) Deferred Expenses- Costs incurred by the Portfolio in connection with its
initial share registration, other than organization expenses, were deferred and
are being amortized on a straight-line basis through April 1997.
(g) Expenses- Expenses of the Portfolio (other than distribution services fees)
and waivers and reimbursements, if any, are allocated to each class of shares
based on their relative daily average net assets for the period. Expenses
incurred by the Portfolio which do not specifically relate to an individual
Portfolio are allocated among all Portfolios based on a Portfolio's relative net
asset value size or as deemed appropriate by the administrator.
(h) Dollar Roll Transactions- The Portfolio enters into dollar roll
transactions, with respect to mortgage securities issued by GNMA, FNMA, FHLMC,
in which the Portfolio sells mortgage securities to financial institutions and
simultaneously agrees to repurchase substantially similar (same type, coupon and
maturity) securities at a later date at an agreed upon price. During the period
between the sale and repurchase, the Portfolio foregoes principal and interest
paid on the mortgage security sold. The Portfolio is compensated by the
interest earned on the cash proceeds of the initial sale and any additional fee
income received on the sale.
(i) Currency Transactions- Foreign currency amounts are converted into U.S.
dollars at the current rate of such currencies against U.S. dollars as follows:
assets and liabilities at the rate of exchange at the end of the respective
period; purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. It is not practicable to
isolate that portion of the results of operations arising from changes in the
exchange rates from the portion arising from changes in the market prices of
investment securities.
(j) Distributions to shareholders are determined in accordance with income tax
regulations. Distributions from taxable net investment income and net capital
gains can exceed book basis net investment income and net capital gains.
Effective October 1, 1993, the Portfolio adopted statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of capital Distributions by Investment Companies. As a
result of this statement, the Portfolio changed the financial statement
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. Accordingly, the Portfolio has made
reclassifications as of September 30, 1993 to reflect the adoption of the
statement. The Portfolio reclassification resulted in an increase in
undistributed net investment income of $416,855, a decrease in additional
paid-in capital of $367,325 and a decrease in undistributed realized gain (loss)
on investment transactions of $49,484.
Differences between book basis investment income available for distribution and
tax basis investment income available for distribution are primarily
attributable to differences in the treatment on net operating losses.
13
<PAGE>
NOTE 3: DIVIDENDS
Dividends are declared and paid semi-annually to all shareholders invested in
the Portfolio on the record date. Dividends will be reinvested in additional
shares of the same class and Portfolio on payment dates at the ex-dividend date
net asset value without a sales charge unless cash payments are requested by
shareholders in writing to the Trust. Capital gains realized by each Portfolio,
if any, will be distributed at least once every 12 months.
NOTE 4: INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Cambridge Investment Advisors, Inc., the Portfolio's investment adviser
("Investment Adviser"), receives for its services an annual investment advisory
fee of 0.80% of the average daily net assets of the Portfolio.
The Investment Adviser pays the sub-adviser an annual fee not to exceed 0.40% of
the Portfolio assets. Under the Sub-Advisory Agreement, the sub-adviser may,
from time to time, voluntarily waive some or all of its sub-advisory fee charged
to the Investment Adviser and may terminate any such voluntary waiver at any
time in its sole discretion.
For the year ended September 30, 1994 the Investment Adviser and sub-adviser
earned fees of $1,001,648 and $500,825 respectively.
Administrative personnel and services are provided by Investment Management
Group, Inc. ("IMG") at an annual rate of .125 of 1% on the first $1.5 billion of
average aggregate dialy net assets of the Trust and .120 of 1% on average
aggregate daily net assets in excess of $1.5 billion. Prior to June 1, 1994,
administrative personnel and services were provided by Cambridge Administration
Services ("CAS" at the same annual rate. IMG amy voluntarily waive some or all
of its fee. aggregate daily net assets in excess of $1.5 billion. IMG may
voluntarily waive some or all of its fee.
During the year ended September 30, 1994, CAS earnd and waived administrative
fees of $110,097 and $6,569 and IMG earned administrative fees of $46,376
respectively.
The Class B shares of the Portfolio has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Each Portfolio
will reimburse Cambridge Distributors, Inc. (the "Distributor"), from the assets
of the Class B Shares of each Portfolio, for fees it paid which relate to the
distribution and administration of each Portfolio's Class B Shares. The Plan
provides that the Portfolio may incur distribution expenses up to 0.75% of 1% of
the average daily net assets of the Class B shares of the Portfolio.
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with
respect to Class A and Class B shares of theh Portfolio. Under the Service
Plan, financial institutions will enter into shareholder service agreements with
the Portfolio to provide administrative support services to their customers who
from time to time may be owners of record or beneficial owners of Class A or
Class B shares of the Portfolios. In return for providing these support
services, a financial institution may receive payments from the Portfolio at a
rate not exceeding .25 of 1% of the average daily net assets of the Class A or
Class B shares of the Portfolio beneficially owned by the financial
institution's customers for whom it is holder of record or with whom it has a
servicing relationship.
NOTE 5: INVESTMENT TRANSACTIONS
Purchases, and sales of investments (excluding short-term investment), for the
year ended September 30, 1994, were $157,096,646 and $173,177,586 respectively.
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
At September 30, 1994, the cost of investments for federal income tax purposes,
exclusive of investments in short-term securities was $100,446,367 and
aggregated net unrealized appreciation amounted to $4,655,175 of which
$7,542,514 related to appreciated securites and $2,887,339 related to
appreciated securities.
NOTE 7: FORWARD CONTRACTS
In connection with portfolio purchases and sales of securities denominated in a
foreign currency, the Portfolio may enter into forward foreign currency exchange
contracts ("contracts"). Additionally, from time to time the Portfolio may
enter into contracts to hedge certain foreign currency assets. Contracts are
recorded at market value. Realized gains and losses arising from such
transactions are included in net gain (loss) on investments and forward foreign
currency exchange contracts. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
12
PRO FORMA COMBINING
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
MENTOR/ MENTOR
CAMBRIDGE CAPITAL
GROWTH GROWTH PRO FORMA
PORTFOLIO PORTFOLIO COMBINED
<S> <C> <C> <C>
ASSETS
Investments, at market value (combined cost $85,543,356).......... $37,342,934 $59,226,871 $96,569,805
Receivables....................................................... -
Investments sold............................................... 1,161,932 520,740 1,682,672
Fund shares sold............................................... 47,646 47,829 95,475
Dividends and interest......................................... 65,262 118,920 184,182
Forward currency contracts held................................ 12,453 159,712 172,165
Total assets................................................. 38,630,227 60,074,072 98,704,299
LIABILITIES
Payables
Investments purchased.......................................... 131,050 905,575 1,036,625
Fund shares redeemed........................................... 302,733 491,102 793,835
Accrued expenses and other liabilities............................ 789,534 137,851 927,385
Total liabilities............................................ 1,223,317 1,534,528 2,757,845
NET ASSETS................................................... $37,406,910 $58,539,544 $95,946,454
Net Assets represented by:
Additional paid-in capital........................................ $34,767,770 $53,051,601 $87,819,371
Undistributed net investment loss................................. (172,160) - (172,160)
Accumulated distributions in excess of net investment income...... - (96,678) (96,678)
Undistributed realized loss on investment transactions............ (2,199,365) (431,421) (2,630,786)
Net unrealized appreciation of investments and foreign currency
related transactions........................................... 5,010,665 6,016,042 11,026,707
Net Assets................................................... $37,406,910 $58,539,544 $95,946,454
NET ASSET VALUE PER SHARE
Class A Shares.................................................... $ 15.64 $ 15.63 $ 15.63
Class B Shares.................................................... $ 15.42 $ 15.47 $ 15.47
OFFERING PRICE PER SHARE
Class A Shares (a)................................................ $ 16.55 $ 16.54 $ 16.54
Class B shares.................................................... $ 15.42 $ 15.47 $ 15.47
REDEMPTION PROCEEDS PER SHARE
Class A Shares.................................................... $ 15.64 $ 15.63 $ 15.63
Class B Shares (b)................................................ $ 15.27 $ 15.32 $ 15.32
SHARES OUTSTANDING
Class A Shares.................................................... 839,258 1,267,361 2,393,878
Class B Shares.................................................... 1,574,382 2,503,373 3,783,239
Shares Outstanding........................................... 2,413,640 3,770,734 6,177,117
</TABLE>
(a) Computation of offering price: 100/94.5 of net asset value.
(b) Computation of redemption proceeds: 99/100 of net asset value.
13
<PAGE>
PRO FORMA COMBINING
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
MENTOR/ MENTOR
CAMBRIDGE CAPITAL
GROWTH GROWTH PRO FORMA PRO FORMA
PORTFOLIO PORTFOLIO ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................................................ $ 16,288 $ 249,731 $ 0 $ 266,019
Dividends (Net of withholding taxes)*................... 283,444 458,103 0 741,547
Total investment income............................ 299,732 707,834 0 1,007,566
EXPENSES
Management fee.......................................... 161,118 240,136 401,254
Distribution fees....................................... 99,537 148,326 247,863
Transfer agent fee...................................... 71,972 113,539 185,511
Shareholder services fees............................... 50,350 75,042 125,392
Administration fee...................................... 25,175 37,521 62,696
Custodian fee........................................... 13,441 15,792 29,233
Registration expenses................................... 24,492 33,746 (24,492) 33,746
Shareholder reports and postage expenses................ 4,651 9,181 13,832
Organizational expenses................................. 7,722 4,835 12,557
Legal and Audit fees.................................... 8,681 14,033 (8,681) 14,033
Directors' fees and expenses............................ 2,002 3,670 (2,002) 3,670
Miscellaneous........................................... 2,751 5,605 (2,751) 5,605
Total expenses..................................... 471,892 701,426 (37,926) 1,135,392
Net Expenses.............................................. 471,892 701,426 (37,926) 1,135,392
Net investment income (loss).............................. (172,160) 6,408 37,926 (127,826)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments................. 620,251 (373,054) 0 247,197
Change in unrealized appreciation of investments........ 1,850,002 4,390,496 0 6,240,498
Net realized and unrealized gain on investments.... 2,470,253 4,017,442 0 6,487,695
Net increase in net assets resulting from operations...... $2,298,093 $4,023,850 $37,926 $6,359,869
</TABLE>
* Withholding taxes were $1,446 and $7,078, for the Mentor/Cambridge Growth
Portfolio and Mentor Capital Growth Portfolio respectively.
14
<PAGE>
THE PRO FORMA COMBINING INVESTMENT PORTFOLIO
OF MENTOR/CAMBRIDGE GROWTH PORTFOLIO AND MENTOR CAPITAL GROWTH PORTFOLIO
MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL
GROWTH PORTFOLIO GROWTH PORTFOLIO PRO FORMA COMBINED
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS.................94.32%**
BASIC MATERIALS....................... 2.66%
Air Products & Chemicals, Inc....... 8,000 $ 417,000 8,000 $ 417,000
Alco Standard Corporation........... 9,000 652,500 9,000 652,500
Monsanto Company.................... 6,500 521,625 6,500 521,625
Newell Company...................... 26,000 663,000 26,000 663,000
Nucor Corporation................... 3,000 166,500 3,000 166,500
Scott Paper Company*................ 1,500 134,063 1,500 134,063
2,554,688 2,554,688
CAPITAL GOODS & CONSTRUCTION.......... 7.70%
Boeing Company*..................... 2,500 134,688 17,000 915,875 19,500 1,050,563
Brown Boveri & Cie.................. 800 760,424 800 760,424
Browning Ferris Industries, Inc..... 30,000 1,020,000 30,000 1,020,000
General Electric Company............ 15,500 838,938 15,500 838,938
Grainger, Inc....................... 4,500 283,500 4,500 283,500
McDonnell Douglas Company*.......... 10,000 557,500 10,000 557,500
PPG Industries, Inc................. 20,000 755,000 20,000 755,000
Raytheon Company.................... 17,000 1,238,875 17,000 1,238,875
United Technologies Corporation..... 10,000 691,250 10,000 691,250
WMX Technologies, Inc............... 7,000 192,500 7,000 192,500
1,449,626 5,938,924 7,388,550
CONSUMER CYCLICAL..................... 16.16%
Ann Taylor Stores, Inc.*............ 7,700 286,825 7,700 286,825
Capital Cities/ABC.................. 11,000 970,750 11,000 970,750
Carnival Corporation................ 50,000 1,168,750 50,000 1,168,750
CUC International, Inc.*............ 6,900 268,238 6,900 268,238
Duracell International, Inc......... 3,500 156,625 3,500 156,625
Franklin Quest Company*............. 11,500 362,250 11,500 362,250
Harcourt General, Inc............... 20,000 780,000 20,000 780,000
Home Depot, Inc..................... 17,300 765,525 25,000 1,106,250 42,300 1,871,775
LVMH Moet Hennessy.................. 4,000 786,816 4,000 786,816
Manpower, Inc....................... 19,500 626,437 19,500 626,437
Marriott International, Inc......... 31,500 1,094,625 31,500 1,094,625
McDonald's Corporation.............. 10,000 341,250 10,000 341,250
Nike Incorporated / B*.............. 11,500 858,187 11,500 858,187
Office Depot, Inc.*................. 10,800 268,650 10,800 268,650
Promus Companies, Inc............... 9,500 356,250 9,500 356,250
Staples, Inc.*...................... 14,000 369,250 14,000 369,250
Starbucks Corporation*.............. 14,000 336,000 20,000 480,000 34,000 816,000
The Walt Disney Company............. 10,000 533,750 20,000 1,067,500 30,000 1,601,250
Viacom, Inc. -- Class B*............ 7,909 353,928 23,000 1,029,250 30,909 1,383,178
Viking Office Products, Inc.*....... 9,000 279,000 9,000 279,000
Wal-Mart Stores, Inc................ 33,600 856,800 33,600 856,800
5,791,528 9,711,378 15,502,906
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL
GROWTH PORTFOLIO GROWTH PORTFOLIO PRO FORMA COMBINED
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
CONSUMER STAPLES...................... 12.34%
Abbott Laboratories................. 22,100 $ 787,312 30,000 $ 1,068,750 52,100 $ 1,856,062
Astra AB............................ 25,000 663,997 25,000 663,997
Campbell Soup Company............... 8,800 425,700 8,800 425,700
Coca Cola Company................... 14,000 791,000 14,000 791,000
Colgate Palmolive Company........... 6,100 402,600 6,100 402,600
Conagra, Inc........................ 11,000 364,375 11,000 364,375
CPC International, Inc.............. 5,000 270,625 15,000 811,875 20,000 1,082,500
Gillette Company.................... 5,000 408,125 10,000 816,250 15,000 1,224,375
Merck & Company, Inc................ 28,000 1,193,500 28,000 1,193,500
Pepsico, Incorporated*.............. 4,000 156,000 4,000 156,000
Philip Morris Companies, Inc........ 9,900 645,975 20,500 1,337,625 30,400 1,983,600
Procter & Gamble Company............ 12,000 795,000 12,000 795,000
Sara Lee Corporation*............... 16,100 420,613 16,100 420,613
Seagram Company, Limited*........... 6,000 190,500 6,000 190,500
UST, Inc............................ 9,000 285,750 9,000 285,750
5,943,575 5,891,997 11,835,572
ENERGY................................ 8.18%
Enron Corporation................... 16,900 557,700 25,000 825,000 41,900 1,382,700
Amoco Corporation*.................. 20,000 1,272,500 20,000 1,272,500
British Petroleum PLC, ADS+......... 9,000 754,875 9,000 754,875
Chevron Corporation................. 12,500 600,000 12,500 600,000
Dresser Industries, Inc............. 50,000 1,062,500 50,000 1,062,500
Royal Dutch Petroleum Company....... 10,000 1,200,000 10,000 1,200,000
Mobil Corporation................... 3,000 277,875 14,000 1,296,750 17,000 1,574,625
835,575 7,011,625 7,847,200
FINANCIAL............................. 5.46%
American International Group,
Inc.*............................. 3,700 385,725 3,700 385,725
Boatmen's Bancshares, Inc........... 13,000 393,250 13,000 393,250
Conseco, Inc........................ 3,300 131,588 3,300 131,588
First Financial Management
Corporation....................... 10,000 722,500 12,000 867,000 22,000 1,589,500
First USA, Inc...................... 12,100 508,200 12,100 508,200
General RE Corporation.............. 3,400 448,800 3,400 448,800
MBNA Corporation.................... 23,500 681,500 23,500 681,500
MGIC Investment Corporation......... 15,900 647,925 15,900 647,925
Nationsbank Corporation............. 9,000 456,750 9,000 456,750
4,376,238 867,000 5,243,238
HEALTH................................ 12.86%
American International*............. 10,000 1,042,500 10,000 1,042,500
CIGNA Corporation*.................. 17,500 1,308,125 17,500 1,308,125
Columbia HCA Healthcare
Corporation....................... 10,000 430,000 29,000 1,247,000 39,000 1,677,000
Coram Healthcare Corporation........ 10,000 253,750 10,000 253,750
Humana Incorporated................. 37,500 960,938 37,500 960,938
Idexx Laboratories, Inc.*........... 5,000 207,500 5,000 207,500
Integrated Health Services, Inc.*... 8,500 321,937 8,500 321,937
Johnson & Johnson................... 15,000 892,500 15,000 892,500
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL
GROWTH PORTFOLIO GROWTH PORTFOLIO PRO FORMA COMBINED
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
HEALTH (CONTINUED)
Lilly (Eli) & Company*.............. 3,000 $ 219,375 3,000 $ 219,375
Medtronic, Inc...................... 9,600 666,000 9,600 666,000
Merck & Company, Inc.*.............. 20,000 852,500 20,000 852,500
Pfizer, Inc......................... 4,000 343,000 4,000 343,000
R.P. Scherer Corporation............ 4,800 241,200 4,800 241,200
Schering Plough Corporation......... 6,600 490,875 6,600 490,875
United Healthcare Corporation*...... 7,500 350,625 15,000 $ 701,250 22,500 1,051,875
US Healthcare, Inc.................. 6,500 287,625 6,500 287,625
Value Health, Inc.*................. 6,500 248,625 25,000 956,250 31,500 1,204,875
Warner Lambert Company.............. 4,100 320,825 4,100 320,825
5,872,587 6,469,813 12,342,400
TECHNOLOGY............................ 20.60%
3COM Corporation*................... 7,200 407,700 10,000 566,250 17,200 973,950
Adobe Systems, Inc.*................ 3,000 148,500 3,000 148,500
AMP Incorporated*................... 11,000 396,000 11,000 396,000
Archer Daniels Company*............. 33,750 628,594 33,750 628,594
AT&T Corporation.................... 10,400 538,200 10,400 538,200
Bay Network, Inc.................... 21,500 792,812 21,500 792,812
Cisco Systems, Inc.*................ 3,000 114,375 22,500 857,813 25,500 972,188
Computer Associates International,
Inc............................... 15,000 890,625 15,000 890,625
Compuware Corporation*.............. 10,000 370,000 17,500 647,500 27,500 1,017,500
Emerson Electric Company*........... 8,900 591,850 15,000 997,500 23,900 1,589,350
Ericsson Telecommunication
Company........................... 10,000 618,125 10,000 618,125
First Data Corporation.............. 7,600 394,250 7,600 394,250
General Motors Corporation --
Class E........................... 10,400 404,300 22,000 1,190,750 32,400 1,595,050
Hewlett Packard Company............. 4,000 481,500 6,500 782,438 10,500 1,263,938
Informix Corporation*............... 10,000 343,750 10,000 343,750
Intel Corporation................... 2,500 212,188 7,500 636,563 10,000 848,751
LDDS Communications, Inc............ 6,000 140,250 6,000 140,250
Linear Technology Corporation....... 7,000 392,000 7,000 392,000
Loral Corporation................... 6,000 255,000 6,000 255,000
Microsoft Corporation*.............. 5,000 355,625 5,000 355,625
Motorola Inc.*...................... 6,000 327,750 14,000 764,750 20,000 1,092,500
Parametric Technology
Corporation*...................... 10,000 400,000 10,000 400,000
Perkin-Elmer Corporation............ 15,000 436,875 15,000 436,875
Philips Electronics Holdings
Company........................... 20,000 682,500 20,000 682,500
Reynolds & Reynolds Company......... 10,000 275,000 10,000 275,000
Silicon Graphics, Inc.*............. 15,000 532,500 15,000 532,500
Sun Microsystems, Inc............... 22,500 781,875 22,500 781,875
Tellabs, Inc.*...................... 8,000 466,000 8,000 466,000
Xerox Corporation................... 8,000 939,000 8,000 939,000
7,146,738 12,613,970 19,760,708
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE MENTOR CAPITAL
GROWTH PORTFOLIO GROWTH PORTFOLIO PRO FORMA COMBINED
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
TRANSPORTATION & SERVICES............. 0.64%
Kansas City Southern
Industries, Inc................... 5,800 $ 235,625 5,800 $ 235,625
Wisconsin Central Transport*........ 7,900 376,238 7,900 376,238
611,863 611,863
UTILITIES............................. 2.01%
Ameritech Corporation............... 27,500 $ 1,134,375 27,500 1,134,375
Royal PTT Nederland................. 22,500 798,246 22,500 798,246
1,932,621 1,932,621
MISCELLANEOUS......................... 3.94%
Corning Incorporated*............... 12,000 432,000 12,000 432,000
Flour Corporation*.................. 5,000 241,250 5,000 241,250
ITT Corporation..................... 10,000 1,026,250 10,000 1,026,250
Nabisco Holdings Corporation........ 25,000 715,625 25,000 715,625
Service Corporation
International*.................... 14,000 392,000 14,000 392,000
Smithkline Beecham -- A*............ 26,000 975,000 26,000 975,000
1,065,250 2,716,875 3,782,125
FOREIGN SECURITIES.................... 1.77%
AAlberts Industries................. 400 21,053 400 21,053
Amada Company, Limited.............. 5,000 53,053 5,000 53,053
Astra AB A-F........................ 1,500 39,840 1,500 39,840
Atlas Copco AB...................... 2,800 33,769 2,800 33,769
British Petroleum Company........... 8,440 58,801 8,440 58,801
Carrefour Supermarch................ 60 30,325 60 30,325
DBS Land............................ 4,000 10,655 4,000 10,655
DDI Corporation..................... 6 51,843 6 51,843
Ericsson............................ 1,295 80,460 1,295 80,460
Gambro AB........................... 1,600 18,646 1,600 18,646
Genting Berhad...................... 2,000 18,029 2,000 18,029
Glaxo PLC........................... 3,000 34,396 3,000 34,396
Greencore Group PLC................. 3,000 20,541 3,000 20,541
Hagemeyer NV........................ 300 25,146 300 25,146
Honda Motors Company................ 3,000 51,152 3,000 51,152
Keiyo Company....................... 2,000 22,926 2,000 22,926
Keppel Corporation.................. 5,000 40,383 5,000 40,383
Koninklijke Van Ommeren............. 600 20,741 600 20,741
Kyocera Corporation................. 1,000 74,424 1,000 74,424
Lloyds Bank PLC..................... 2,400 24,009 2,400 24,009
Manweb PLC.......................... 2,500 26,187 2,500 26,187
Matsushita Electric................. 3,000 48,387 3,000 48,387
Marui Company, Ltd.................. 2,000 31,567 2,000 31,567
Nestle.............................. 30 29,284 30 29,284
Nokia AB............................ 433 63,109 433 63,109
Omron Corporation................... 2,000 39,401 2,000 39,401
Polygram NV......................... 600 33,294 600 33,294
Reed International PLC.............. 3,500 44,051 3,500 44,051
Repsol SA........................... 1,400 39,747 1,400 39,747
Road Builder Holdings............... 2,200 7,089 2,200 7,089
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
MENTOR/CAMBRIDGE GROWTH MENTOR CAPITAL
PORTFOLIO GROWTH PORTFOLIO PRO FORMA COMBINED
SHARES OR SHARES OR SHARES OR
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
FOREIGN SECURITIES (CONTINUED)
Roche Holding AG-GEN............... 10 $ 57,774 10 $ 57,774
Sandvik AB B-F..................... 645 10,226 645 10,226
Sanyo Shinpan Finance Company...... 600 47,143 600 47,143
Sharp Corporation.................. 3,000 48,733 3,000 48,733
Singapore Press Holdings........... 1,000 16,932 1,000 16,932
Sumitomo Bank...................... 2,000 42,627 2,000 42,627
Sumitomo Corporation............... 3,000 27,304 3,000 27,304
Tabcorp Holdings, Ltd.............. 7,900 16,026 7,900 16,026
Technology Resources Industries.... 4,900 14,046 4,900 14,046
Telewest Communications............ 1,000 2,777 1,000 2,777
Tesco PLC.......................... 5,000 21,680 5,000 21,680
TNT Limited........................ 12,300 16,092 12,300 16,092
Tokyo Electron, Ltd................ 3,000 91,244 3,000 91,244
Unilever NV........................ 160 20,980 160 20,980
Veba AG............................ 200 72,555 200 72,555
Vodafone Group PLC................. 16,462 53,068 16,462 53,068
Wai Kee Holdings*.................. 52,000 8,339 52,000 8,339
Waterford Wedgewood................ 21,000 18,058 21,000 18,058
Wolter Kluwer...................... 225 17,354 225 17,354
1,695,266 1,695,266
TOTAL COMMON STOCKS.................. 37,342,934 $53,154,203 90,497,137
PREFERRED STOCKS..............0.38%**
Nokia AB............................. 2,500 364,372 2,500 364,372
SHORT-TERM INVESTMENTS........5.95%**
COMMERCIAL PAPER..................... 4.52%
Abbott Labs, 5.96%, 5/3/95......... 243,000 241,793 243,000 241,793
McDonald's, 6.00%, 4/10/95......... 1,500,000 1,498,250 1,500,000 1,498,250
Wal-Mart Discount Stores, 6.10%,
4/13/95.......................... 1,295,000 1,292,806 1,295,000 1,292,806
Warner Lambert, 5.98%, 4/24/95..... 1,305,000 1,300,447 1,305,000 1,300,447
TOTAL COMMERCIAL PAPER............... 4,333,296 4,333,296
U.S. GOVERNMENT AGENCY............... 1.43%
Federal National Mortgage
Association, 6.00%, 4/3/95......... 1,375,000 1,375,000 1,375,000 1,375,000
TOTAL SHORT-TERM INVESTMENTS......... 5,708,296 5,708,296
TOTAL COMBINED INVESTMENTS........... 100.65%
(combined cost $85,543,356 Growth
Portfolio $32,332,447 and Capital
Growth Portfolio $53,210,909)...... $37,342,934 $59,226,871 $96,569,805
</TABLE>
* Non-income producing.
** Percentages are based on Proforma combined net assets of $95,946,454, which
correspond to a proforma combined net asset value per share of $15.52.
+ American Depository Receipts.
19
<PAGE>
THE MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 (UNAUDITED)
NOTE 1: ORGANIZATION
The Mentor Funds (formerly Cambridge Series Trust ("Trust")), is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. On April 12, 1995 the name of the Trust was changed to The
Mentor Funds ("Mentor"). Mentor consists of six separate diversified
portfolios.
The assets of each Portfolio of Mentor are segregated and a shareholder's
interest is limited to the Portfolio in which shares are held.
The pro forma combined financial statements included in this report are for the
Mentor Capital Growth Portfolio (hereinafter referred to as the "Portfolio")
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio:
(a) Valuation of Securities- Listed equity securities held by the Portfolio are
valued at last sale prices reported on national securities exchanges. Listed
equity securities in which there were no sales are valued at the mean between
the bid and asked prices. Unlisted equity securities are valued at the latest
mean price. Bonds and other fixed-income securities are valued at the last sale
price on a national securities exchange, if available. Otherwise, they are
valued on the basis of prices furnished by an independent pricing service.
Short-term obligations are ordinarily valued at the mean between the bid and
asked prices as furnished by an independent pricing service. However, short-term
obligations with maturities of 60 days or less are valued at amortized cost,
which approximates value.
(b) Repurchase Agreements- It is the policy of Mentor to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
entry system, or to have segregated within the custodian bank's vault all
securities held as collateral in support of repurchase agreement investments.
Additionally, procedures have been established by Mentor to monitor, on a daily
basis, the market value of each repurchase agreement's underlying securities to
ensure the existence of a proper level of collateral.
Mentor will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by
Mentor's adviser to be creditworthy pursuant to guidelines established by the
Mentor Trustees. Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, Mentor could
receive less than the repurchase price on the sale of collateral securities.
(c) Borrowings- The Portfolio may, under certain circumstances, borrow money
directly or through reverse repurchase agreements (arrangements in which the
Portfolio sells a security for a percentage of its market value with an
agreement to buy it back on a set date) or pledge securities. The Portfolio may
borrow up to one-third of the value of its net assets and pledge up to 10% of
the value of those assets used to secure such borrowings.
(d) Security Transactions and Investment Income- Security transactions for the
Portfolio is accounted for on trade date. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Interest
income includes interest and discount earned (net of premium) on short-term
obligations, and interest earned on all other debt securities including original
issue discount as required by the Internal Revenue Code. Dividends to
shareholders and capital gain distributions, if any, are recorded on the
ex-dividend date.
20
<PAGE>
(e) Federal Taxes- No provision for federal income taxes has been made since it
is the Portfolio's intent to comply with the provisions applicable to regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code") and to distribute to its shareholders within allowable time limit
substantially all taxable income and realized capital gains.
At September 30, 1994, the Portfolio for federal tax purposes, had a capital
loss carryforward of approximately $2,690,000. Pursuant to the Code, such
capital loss carryforwards expire as follows: $1,065,000 in 2001 and $1,625,000
in 2002.
Such capital loss carryforwards will reduce the Portfolio's taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise relieve the Portfolio of any liability for
federal tax.
(f) Expenses- Expenses of the Portfolio (other than distribution services fees)
and waivers and reimbursements, if any, are allocated to each class of shares
based on their relative daily average net assets for the period. Expenses
incurred by the Portfolio which do not specifically relate to an individual
Portfolio are allocated among all Portfolios based on a Portfolio's relative net
asset value size or as deemed appropriate by the administrator.
(g) Dollar Roll Transactions- The Portfolio enters into dollar roll
transactions, with respect to mortgage securities issued by GNMA, FNMA, FHLMC,
in which the Portfolio sells mortgage securities to financial institutions and
simultaneously agrees to repurchase substantially similar (same type, coupon and
maturity) securities at a later date at an agreed upon price. During the period
between the sale and repurchase, the Portfolio foregoes principal and interest
paid on the mortgage security sold. The Portfolio is compensated by the
interest earned on the cash proceeds of the initial sale and any additional fee
income received on the sale.
(h) Currency Transactions- Foreign currency amounts are converted into U.S.
dollars at the current rate of such currencies against U.S. dollars as follows:
assets and liabilities at the rate of exchange at the end of the respective
period; purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. It is not practicable to
isolate that portion of the results of operations arising from changes in the
exchange rates from the portion arising from changes in the market prices of
investment securities.
(i) Distributions to shareholders are determined in accordance with income tax
regulations. Distributions from taxable net investment income and net capital
gains can exceed book basis net investment income and net capital gains.
Effective October 1, 1993, the Portfolio adopted statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of capital Distributions by Investment Companies. As a
result of this statement, the Portfolio changed the financial statement
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. Accordingly, the Portfolio has made
reclassifications as of September 30, 1993 to reflect the adoption of the
statement. The Portfolio reclassification resulted in an increase in
undistributed net investment income of $416,855, a decrease in additional
paid-in capital of $367,325 and a decrease in undistributed realized gain (loss)
on investment transactions of $49,507.
Differences between book basis investment income available for distribution and
tax basis investment income available for distribution are primarily
attributable to differences in the treatment on net operating losses.
21
<PAGE>
NOTE 3: DIVIDENDS
Dividends are declared and paid semi-annually to all shareholders invested in
the Portfolio on the record date. Dividends will be reinvested in additional
shares of the same class and Portfolio on payment dates at the ex-dividend date
net asset value without a sales charge unless cash payments are requested by
shareholders in writing to Mentor. Capital gains realized by the Portfolio, if
any, will be distributed at least once every 12 months.
NOTE 4: INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio's investment adviser ("Investment Adviser") receives for its
services an annual investment advisory fee of 0.80% of the average daily net
assets of the Portfolio.
Prior to April 12, 1995, the Investment Adviser paid a sub-adviser an annual fee
not to exceed 0.40% of the Portfolio assets.
For the six months ended March 31, 1995 the Investment Adviser and sub-adviser
earned fees of $401,254 and $200,627 respectively.
Administrative personnel and services are provided by Mentor Investment
Group, Inc. (formerly Investment Management Group, Inc.) at an annual
rate of 0.125 of 1% on the first $1.5 billion of average aggregate daily
net assets of the Portfolio and 0.120 of 1% on average aggregate daily
net assets in excess of $1.5 billion. Mentor Investment Group may
voluntarily waive part or all of its fee.
For the six months ended March 31, 1995, Mentor Investment Group earned
administrative fees of $62,696 for the Portfolio.
Under a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Portfolio will reimburse Mentor
Distributors, Inc. (formerly Cambridge Distributors, Inc.), from the assets of
its Class B Shares for fees it paid which relate to the distribution and
administration of the Portfolio's Class B Shares. The Plan provides that the
Portfolio may incur distribution expenses up to 0.75% of 1% of the average daily
net assets of its Class B shares.
Mentor has adopted a Shareholder Servicing Plan (the "Service Plan") with
respect to Class A and Class B shares of the Portfolio. Under the Service Plan,
financial institutions will enter into shareholder service agreements with the
Portfolio to provide administrative support services to their customers who from
time to time may be owners of record or beneficial owners of Class A or Class B
shares of the Portfolio. In return for providing these support services, a
financial institution may receive payments from the Portfolio at a rate not
exceeding .25 of 1% of the average daily net assets of the Class A or Class B
shares of the Portfolio beneficially owned by the financial institution's
customers for whom it is holder of record or with whom it has a servicing
relationship.
NOTE 5: INVESTMENT TRANSACTIONS
Purchases, and sales of investments (excluding short-term investments), for the
six months ended March 31, 1995, were $40,181,673 and $50,698,103 respectively.
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes, exclusive of
investments in short-term securities was $79,835,059 and aggregated net
unrealized appreciation amounted to $11,026,449 of which $11,835,738 related to
appreciated securities and $809,289 related to depreciated securities.
NOTE 7: FORWARD CONTRACTS
In connection with portfolio purchases and sales of securities denominated in a
foreign currency, the Portfolio may enter into forward foreign currency exchange
contracts ("contracts"). Additionally, from time to time the Portfolio may
enter into contracts to hedge certain foreign currency assets. Contracts are
recorded at market value. Realized gains and losses arising from such
transactions are included in net gain (loss) on investments and forward foreign
currency exchange contracts. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract. For the six
months ended March 31, 1995, the Portfolio had net realized loss of $5,205 on
forward contracts.
22
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
The information required by this item is incorporated herein by reference to the
Registrant's Initial Registration Statement on Form N-1A under the Securities
Act of 1933 (File No. 33-45315) and the Investment Company Act of 1940 (File No.
811-6550).
Item 16. Exhibits
1a. Agreement and Declaration of Trust dated January 20, 1992, with
Amendments No. 1 and 2. -- Incorporated by reference to the
Registrant's Post-Effective Amendment No. 3 on Form N-1A filed
May 14, 1993.
1b. Conformed copy of Amendment dated April 12, 1995 to the
Registrant's Agreement and Declaration of Trust -- Incorporated
by reference to the Registrant's initial registration statement
on Form N-14 (File No. 33-60083) filed on June 8, 1995.
2. By-Laws -- Incorporated by reference to the Registrant's
Pre-Effective Amendment No. 1 on Form N1-A filed April 14, 1992.
3a. Copy of Class A specimen share certificate -- Incorporated by
reference to the Registrant's Post-Effective Amendment No. 9 on
Form N-1A filed March 15, 1995.
3b. Copy of Class B specimen share certificate -- Incorporated by
reference to the Registrant's Post-Effective Amendment No. 9 on
Form N-1A filed March 15, 1995.
4. Agreement and Plan of Reorganization -- constitutes Exhibit A
included in Part A hereof.
5a. Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights -- Incorporated by reference to the
Registrant's Post-Effective Amendment No. 3 on Form N-1A filed
May 14, 1993.
1
<PAGE>
5b. Portions of By-Laws Relating to Shareholders' Rights --
Incorporated by reference to the Registrant's Pre-Effective
Amendment No. 1 on Form N1-A filed April 14, 1992.
6a. Conformed copy of Management Agreement -- Incorporated by
reference to the Registrant's Post-Effective Amendment No. 3 on
Form N-1A filed May 14, 1993.
7a. Copy of Distributor's Contract of the Registrant with
Distributors, Inc., through and including Exhibit I --
Incorporated by reference to the Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed November 26, 1993.
7b. Form of New Exhibit J to the Distributor's Contract in respect
of the Class A and B shares of the Growth Portfolio --
Incorporated by reference to the Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 15, 1995.
8. Not applicable.
9. Copy of Custodian Agreement of the Registrant with Investors
Fiduciary Trust Company -- Incorporated by reference to
Registrant's Post-Effective Amendment No. 3 on Form N-1A.
10a. Conformed copy of Distribution Plan -- Incorporated by reference
to Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A.
10b. Copy of 12b-1 Agreement (Sales Agreement) with Mentor
Distributors, Inc. -- Incorporated by reference to Registrant's
Post-Effective Amendment No. 3 on Form N-1A filed on May 14,
1993.
11. Opinion of Counsel including consent -- Incorporated by
reference to the opinion of counsel filed as an exhibit to
the Registrant's Registration Statement on Form N-1A prior
to the original effective date of such Registration Statement.
12. Opinion of Ropes & Gray as to Tax Matters -- Exhibit 1.
13. Copy of Investor Servicing Agreement with Investors Fiduciary
Trust Company -- Incorporated by reference to Pre- Effective
Amendment No. 1 to the Registrant's Initial Registration
Statement on Form N-1A.
14a. Consent of Independent Accountants -- Exhibit 2.
14b. Consent of Ropes & Gray -- Exhibit 3.
15. Not applicable.
2
<PAGE>
16. Power of Attorney -- Incorporated by reference to the
Registrant's initial Registration Statement on Form N-14
(File no. 33-60083) filed on June 8, 1995.
17. Copy of Registrant's Declaration under Rule 24f-2 --
Incorporated by reference to the Registrant's Initial
Registration Statement on Form N-1A.
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) under the Act, the
reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(b) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (a) above will be filed as a part of an amendment to this
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Act, each
post-effective amendment shall be deemed to be a new Registration Statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Registration Statement has been executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually, and the obligations of or arising out of this Registration
Statement are not binding upon any of the Trustees, officers, or shareholders of
the Registrant individually, but are binding only upon the assets and property
of the Registrant.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933, as amended, and has duly caused this
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 21st day of August, 1995.
MENTOR CAPITAL GROWTH PORTFOLIO
By: Paul F. Costello, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title
Daniel J. Ludeman* Chairman and Trustee
(Chief Executive Officer)
Peter J. Quinn, Jr.* Trustee
Arnold H. Dreyfuss* Trustee
Thomas F. Keller Trustee
Louis W. Moelchert, Jr.* Trustee
Troy A. Peery, Jr.* Trustee
Paul F. Costello* President
Terry L. Perkins* Treasurer
(Principal Financial and
Accounting Officer)
*By: Paul F. Costello, as
Attorney-in-Fact
August 21, 1995
4
<PAGE>
Exhibit Index
12. Opinion of Ropes & Gray as to Tax Matters -- Exhibit 1.
14. Consent of Independent Accountants -- Exhibit 2.
Consent of Ropes & Gray -- Exhibit 3.
5
<PAGE>
Exhibit 1
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
TELECOPIER: (617) 951-7050
As of July 14, 1995
The Mentor Funds
901 East Byrd Street
Richmond, Virginia 23219
Ladies and Gentlemen:
We have acted as counsel in connection with the Agreement and Plan of
Reorganization (the "Agreement") dated as of July 8, 1995 between
Mentor/Cambridge Growth Portfolio (the "Transferor Fund") and Mentor
Capital Growth Portfolio (the "Acquiring Fund"), each of which is a series
of The Mentor Funds, a Massachusetts business trust. The Agreement
describes a proposed transaction (the "Transaction"), to be determined
(the "Exchange Date"), pursuant to which Acquiring Fund will acquire
substantially all of the assets of Transferor Fund in exchange for the
issuance by Acquiring Fund to Transferor Fund of shares of beneficial
interest in Acquiring Fund (the "Acquiring Fund Shares") and the assumption
by Acquiring Fund of all of the liabilities of Transferor Fund, following
which the Acquiring Fund Shares will be distributed by the Transferor Fund
to its shareholders in liquidation and termination of Transferor Fund.
This opinion as to certain federal income tax consequences of the
Transaction is furnished to you pursuant to sections 8(h) and 9(f) of the
Agreement.
Transferor Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment
company. Shares of Transferor Fund are redeemable at net asset value at
each shareholder's option. Transferor Fund has elected to be a regulated
investment company for federal income tax purposes under section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is registered under the 1940 Act as an open-end
management investment company. Shares of Acquiring Fund are redeemable at
net asset value at each shareholder's option. Acquiring Fund has elected
to be a regulated investment company for federal income tax purposes under
section 851 of the Code.
For purposes of this opinion, we have considered the Agreement, the
Proxy Statement/Prospectus to be dated August 8, 1995 which will be
distributed to Transferor Fund shareholders (including the items
<PAGE>
The Mentor Funds -2- As of July 14, 1995
incorporated by reference therein), and such other items as we have deemed
necessary to render this opinion. In addition, you have represented to us
the following facts, occurrences and information upon which you have
indicated we may rely in rendering this opinion (whether or not contained
or reflected in the documents and items referred to above):
1. Transferor Fund will transfer to Acquiring Fund substantially all
of its assets, and Acquiring Fund will assume all of the liabilities of
Transferor Fund (including those to which any transferred assets are
subject), as of the Exchange Date.
2. The fair market value of the Acquiring Fund Shares received by
each Transferor Fund shareholder will be approximately equal to the fair
market value of Transferor Fund shares surrendered in exchange therefor.
The shareholders of Transferor Fund will receive no consideration other
than Acquiring Fund Shares (which may include fractional shares) in
exchange for their shares of beneficial interest in the Transferor Fund
("Transferor Fund Shares").
3. There is no plan or intention by any Transferor Fund shareholder
who owns 5% or more of the outstanding Transferor Fund Shares, and to the
best of the knowledge of the management of Transferor Fund, there is no
plan or intention on the part of the remaining Transferor Fund shareholders
to sell, exchange, or otherwise dispose of a number of Acquiring Fund
Shares received in the Transaction such that the Transferor Fund
shareholders' ownership of Acquiring Fund Shares, in the aggregate, would
be reduced to a number of Acquiring Fund Shares having a value, as of the
date of the Transaction, of less than 50 percent of the value of all of the
formerly outstanding Transferor Fund Shares as of the same date. For
purposes of this representation, Transferor Fund Shares surrendered in
redemption by Transferor Fund shareholders, where such redemptions, if any,
appear to be initiated by Transferor Fund shareholders in connection with
or as a result of the Agreement or the Transaction, will be treated as
outstanding Transferor Fund Shares on the date of the Transaction.
4. Acquiring Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of
the gross assets held by Transferor Fund immediately prior to the
Transaction. For purposes of this representation, (a) amounts paid by
Transferor Fund, out of the assets of Transferor Fund, to Transferor Fund
shareholders in redemption of Transferor Fund Shares, where such
redemptions, if any, appear to be initiated by Transferor Fund shareholders
in connection with or as a result of the Agreement or the Transaction, (b)
amounts used by Transferor Fund to pay expenses of the Transaction, and (c)
amounts used by Transferor Fund to effect any distributions (except for
regular, normal dividends and dividends declared and paid in order to
ensure Transferor Fund's continued qualification as a regulated investment
company and to avoid imposition of fund-level tax) will be included as
assets of Transferor Fund held immediately prior to the Transaction.
<PAGE>
The Mentor Funds -3- As of July 14, 1995
Further, for purposes of this representation, the amounts, if any, that
Acquiring Fund pays after the Transaction to Acquiring Fund shareholders
who are former Transferor Fund shareholders in redemption of Acquiring Fund
Shares received in exchange for Transferor Fund Shares, where such
redemptions, if any, appear to be initiated by such shareholders in
connection with or as a result of the Agreement or the Transaction, will be
considered to be assets of Transferor Fund that were not transferred to
Acquiring Fund.
5. Acquiring Fund has no plan or intention to reacquire any of the
Acquiring Fund Shares issued in the Transaction, except for Acquiring Fund
Shares reacquired in the ordinary course of its business as an open-end
investment company.
6. Transferor Fund will distribute the Acquiring Fund Shares it
receives in the Transaction, as well as any other property.
7. The liabilities of Transferor Fund to be assumed by Acquiring
Fund, and the liabilities, if any, to which the transferred assets will be
subject, will have been incurred by Transferor Fund in the ordinary course
of its business and will be associated with the assets transferred to
Acquiring Fund. For purposes of this paragraph, expenses of the
transaction are not treated as liabilities.
8. Both the fair market value and the total adjusted basis of the
Transferor Fund assets transferred to Acquiring Fund will equal or exceed
the sum of all of the liabilities assumed by Acquiring Fund, plus the
amount of liabilities, if any, to which the transferred assets are subject.
9. Following the Transaction, Acquiring Fund will continue the
historic business of Transferor Fund as an investment company, which is to
pursue the objective of achieving capital appreciation, and will use a
significant portion (at least 50%) of Transferor Fund's historic business
assets in its business. For purposes of this representation, the
Transferor's "historic business assets" include (i) all of the assets it
holds on the Exchange Date that were not acquired in connection with or in
anticipation of the Transaction or Agreement and (ii) all of the assets
sold by Acquiring Fund or Transferor Fund in connection with or in
anticipation of the Transaction or Agreement. Specifically, the Acquiring
Fund will use such significant portion of the Transferor Fund's historic
business assets in its business by continuing to hold the assets
transferred to it by the Transferor Fund, except for dispositions made in
the ordinary course of business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made after the Transaction
on the basis of investment considerations independent of the Transaction).
10. Except as provided in the preceding paragraph, Acquiring Fund has
no plan or intention to sell or otherwise dispose of any of the assets of
Transferor Fund acquired in the Transaction, except for dispositions made
<PAGE>
The Mentor Funds -4- As of July 14, 1995
in the ordinary course of its business as an open-end investment company
(i.e., dispositions resulting from investment decisions made on the basis
of investment considerations arising after, and independent of, the
Transaction).
11. All fees and expenses, including legal and accounting expenses,
portfolio transfer taxes (if any) or other similar expenses incurred in
connection with the Transaction will be allocated ratably between the
Acquiring Fund and Transferor Fund in proportion to their net assets,
except that the costs of proxy materials and proxy solicitation will be
borne by the Transferor Fund; provided, however, that such expenses will in
any event be paid by the party directly incurring such expenses if and to
the extent that the payment by the other party of such expenses would
result in the disqualification of the party as a regulated investment
company within the meaning of section 851 of the Code.
12. As of the Exchange Date, there will be no intercorporate
indebtedness existing between Acquiring Fund and Transferor Fund.
13. For federal income tax purposes, Transferor Fund qualifies as a
regulated investment company, and the provisions of sections 851 through
855 of the Code apply to Transferor Fund for its current taxable year
beginning October 1, 1994 and will continue to apply to it through the
Exchange Date.
In that regard, Transferor Fund will declare to Transferor Fund
shareholders of record on or prior to the Exchange Date a dividend or
dividends which together with all previous such dividends shall have the
effect of distributing (i) all of Transferor Fund's investment company
taxable income (see Code section 852(b)(2)) for the taxable year ended
September 30, 1994 and for the short taxable year of Transferor Fund
beginning on October 1, 1994 and ending on the Exchange Date (computed in
each case without regard to any deduction for dividends paid) and all of
Transferor Fund's net capital gain (see Code section 1222(11)) realized in
its taxable year ended September 30, 1994 and in its short taxable year
beginning on October 1, 1994 ending on the Exchange Date (after reduction
for any capital loss carryover). Such dividends will be made to ensure
continued qualification of Transferor Fund as a regulated investment
company for tax purposes and to eliminate fund-level income and excise tax
liabilities.
In addition, as of the Exchange Date, Transferor Fund will be
diversified in the sense that it will meet the requirements of Section
368(a)(2)(F)(ii) of the Code, i.e., not more than twenty-five percent (25%)
of the value of its total assets (as defined) will be invested in stock and
securities (as defined) of any one issuer and not more than fifty percent
(50%) of such total assets will be invested in stock and securities of five
or fewer issuers.
<PAGE>
The Mentor Funds -5- As of July 14, 1995
14. For federal income tax purposes, Acquiring Fund qualifies as a
regulated investment company, and the provisions of sections 851 through
855 of the Code apply to Acquiring Fund for its current taxable year
beginning October 1, 1994, and will continue to apply to it through the
Exchange Date.
In addition, as of the Exchange Date, Acquiring Fund will be
diversified in the sense that it will meet the requirements of section
368(a)(2)(F)(ii) of the Code, i.e., not more than twenty-five percent (25%)
of the value of its total assets (as defined) will be invested in stock and
securities (as defined) of any one issuer and not more than fifty percent
(50%) of such total assets will be invested in stock and securities of five
or fewer issuers.
15. Acquiring Fund does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any Transferor
Fund shares.
16. Transferor Fund is not, and as of the Exchange Date will not be,
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of section 368(a)(3)(A) of the Code.
17. None of the compensation received by any shareholder-employees of
Transferor Fund, if any, will be separate consideration for, or allocable
to, any of their Transferor Fund shares; none of the Acquiring Fund Shares
received by any Transferor Fund shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any Acquiring Fund or Transferor Fund shareholder-
employees, if any, will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
Based on the foregoing and our review of the documents and items
referred to above, we are of the opinion that for federal income tax
purposes:
(i) No gain or loss will be recognized by Acquiring Fund upon
its receipt of the assets of Transferor Fund in exchange for
Acquiring Fund Shares and the assumption by Acquiring Fund
of the liabilities of Transferor Fund;
(ii) The basis in the hands of Acquiring Fund of the assets of
Transferor Fund transferred to Acquiring Fund will be the
same as the basis of such assets in the hands of Transferor
Fund immediately prior to the transfer;
(iii) The holding periods of the assets of Transferor Fund
transferred to Acquiring Fund will include the periods
<PAGE>
The Mentor Funds -6- As of July 14, 1995
during which such assets were considered held for federal
income tax purposes by Transferor Fund;
(iv) No gain or loss will be recognized by Transferor Fund upon
the transfer of Transferor Fund's assets and liabilities to
Acquiring Fund or upon the distribution of Acquiring Fund
Shares by Transferor Fund to its shareholders in
liquidation;
(v) No gain or loss will be recognized by the Transferor Fund
shareholders on the exchange of their Transferor Fund shares
for Acquiring Fund Shares;
(vi) The basis of the Acquiring Fund Shares received by
Transferor Fund shareholders will be the same as the basis
of the Transferor Fund shares exchanged therefor; and
(vii) The holding periods of the Acquiring Fund Shares received by
Transferor Fund shareholders will include the holding
periods of the Transferor Fund shares exchanged therefor,
provided that at the time of the Transaction the Transferor
Fund shares are held by such shareholders as capital assets.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
-7-
Exhibit 2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees of
The Mentor Funds (formerly Cambridge Series Trust)
We consent to the use of our report dated November 11, 1994 on the financial
statements of the Mentor/Cambridge Growth Portfolio (formerly the Cambridge
Growth Portfolio) and the Mentor Capital Growth Portfolio (formerly the
Cambridge Capital Growth Portfolio), portfolios of The Mentor Funds, which is
incorporated herein by reference, and to the reference to our firm under the
heading "Independent Accountants and Financial Statements" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
August 22, 1995
Exhibit 3
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
August 21, 1995
The Mentor Funds
901 East Byrd Street
Richmond, Virginia 23219
Ladies and Gentlemen:
We consent to the reference to our firm in the prospectus/proxy
statement constituting Part A of Post-Effective Amendment No. 1 to the
Registration Statement of The Mentor Funds on Form N-14 under the
caption "Information about the Reorganization -- Federal Income Tax
Consequences."
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
