<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1995
REGISTRATION NO. 33-45315
FILE NO. 811-6550
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
PRE-EFFECTIVE AMENDMENT NO. _ ( )
POST-EFFECTIVE AMENDMENT NO. 9 (X)
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 10 (X)
(CHECK APPROPRIATE BOX OR BOXES)
CAMBRIDGE SERIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(804) 782-3648
(REGISTRANT'S TELEPHONE NUMBER)
PAUL F. COSTELLO
PRESIDENT
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
TIMOTHY W. DIGGINS, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
( ) IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
<PAGE>
( ) ON APRIL __, 1995 PURSUANT TO PARAGRAPH (B)
( ) 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
(X) 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
( ) THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF
SECURITIES UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2. A RULE
24F-2 NOTICE FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 WAS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1994.
<PAGE>
CAMBRIDGE SERIES TRUST
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Part A - The Mentor Funds
N-1A Item No. Location
1. Cover Page . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . Cover Page; Summary of
Portfolio Expenses;
Financial
Highlights
3. Condensed Financial Information . . Summary of Portfolio
Expenses; Financial
Highlights
4. General Description of Registrant . Cover Page; Investment
Objectives and Policies;
General
5. Management of the Fund . . . . . . Investment Objectives
and Policies; Other
Investment Practices;
Management of the Trust;
Valuing Shares;
Distribution Plans;
Performance Information;
General
5A. Management's Discussion
of Fund Performance . . . . . . . (Contained in the Annual
Report of the Registrant
and the Annual Report of
Mentor Series Trust)
6. Capital Stock and Other
Securities . . . . . . . . . . . How to Buy Shares;
Distributions and Taxes;
Management of the Trust;
General
7. Purchase of Securities Being
Offered . . . . . . . . . . . . . Sales Arrangements; How
to Buy Shares;
Management of the Trust;
8. Redemption or Repurchase . . . . . How to Buy Shares; How
to Sell Shares;
9. Pending Legal Proceedings . . . . . Not Applicable
<PAGE>
Part A - Commonwealth Balanced Portfolio
N-1A Item No. Location
1. Cover Page . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . Cover Page; Expense
summary
3. Condensed Financial Information . . Expense summary;
Financial Highlights
4. General Description of Registrant . Cover Page; Investment
objective and policies;
Other investment
practices
5. Management of the Fund . . . . . . Investment objective and
policies; Other
investment practices;
Management of the
Portfolio; The Mentor
Funds; Valuing Shares;
Distribution and taxes;
Custodian and transfer
and dividend agent;
Performance information
5A. Management's Discussion
of Fund Performance . . . . . . . (Contained in the Annual
Report of Mentor
Balanced Fund)
6. Capital Stock and Other
Securities . . . . . . . . . . . Management of the
Portfolio; The Mentor
Funds; How to buy
shares; Distributions
and taxes
7. Purchase of Securities Being
Offered . . . . . . . . . . . . . Management of the
Portfolio; How to buy
shares
8. Redemption or Repurchase . . . . . How to buy shares; How
to sell shares;
9. Pending Legal Proceedings . . . . . Not Applicable
<PAGE>
Part B
N-1A Item No. Location
10. Cover Page . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . Table of Contents
12. General Information and History . Introduction
13. Investment Objectives and
Policies . . . . . . . . . . . . Investment Restrictions
(Part I and Part II);
Cambridge Growth
Portfolio; Certain
Investment Techniques
(Part III)
14. Management of the Fund . . . . . . Management of the Trust;
Officers and Trustees;
Principal Holders of
Securities; Investment
Advisory Services;
Management Fees;
Administrative Services;
Shareholder Servicing
Plan; Brokerage
Transactions;
Distribution (Part III)
15. Control Persons and Principal
Holders of Securities . . . . . Principal Holders of
Securities (Part III)
16. Investment Advisory and Other
Services . . . . . . . . . . . . Management of the Trust;
Officers and Trustees;
Principal Holders of
Securities; Investment
Advisory Services;
Management Fees;
Administrative Services;
Shareholder Servicing
Plan; Brokerage
Transactions;
Distribution (Part III)
17. Brokerage Allocation . . . . . . . Brokerage Transactions
(Part III)
18. Capital Stock and Other
Securities . . . . . . . . . . . Distribution; Conversion
to Federal Funds;
Determining Net Asset
Value; Tax Status;
Shareholder Liability
(Part III)
19. Purchase; Redemption and Pricing
of Securities Being Offered . . Brokerage Transactions;
Distribution;
Determining Net Asset
Value; Redemptions in
Kind (Part III)
20. Tax Status . . . . . . . . . . . . Investment Restrictions;
Tax Status (Part III)
21. Underwriters . . . . . . . . . . . Distribution
22. Calculations of Performance Data . Yield and Tax-Equivalent
Yield; Performance
Information (Part III)
23. Financial Statements . . . . . . . Financial Statements
(Part III)
<PAGE>
Part C
Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of the Registration
Statement.
PROSPECTUS MAY __, 1995
THE MENTOR FUNDS
The Mentor Funds, an open-end management investment company, is
offering shares of eight different investment portfolios by this
Prospectus: Charter Growth Portfolio, Commonwealth Capital Growth
Portfolio, Wellesley Strategy Portfolio (a total return fund), WMC Income
and Growth Portfolio, Perpetual Global Portfolio (a global growth fund),
Commonwealth Quality Income Portfolio, VKM Municipal Income Portfolio, and
Commonwealth Short-Duration Income Portfolio. CERTAIN OF THE PORTFOLIOS
MAY USE "LEVERAGE" -- THAT IS, THEY MAY BORROW MONEY TO PURCHASE ADDITIONAL
PORTFOLIO SECURITIES, WHICH INVOLVES SPECIAL RISKS.
The Mentor Funds provides investors an opportunity to design their own
investment programs by investing in a variety of Portfolios offering a wide
array of investment strategies. Each Portfolio pursues its investment
objectives through the investment policies described in this Prospectus.
This Prospectus sets forth concisely the information about the Trust
that a prospective investor should know before investing. Please read this
Prospectus and retain it for future reference. You can find more detailed
information in the May __, 1995 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement or for other
information, please call 1-800-382-0016. The Statement has been filed with
the Securities and Exchange Commission and is incorporated into this
Prospectus by reference. The Trust's address is P.O. Box 1357, Richmond,
Virginia 23286-0109.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF PORTFOLIO EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Class A Class B
Shares Shares
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
Charter Growth Portfolio . . . . . . . . . . . . . . . . 5.75% None
Commonwealth Capital Growth Portfolio . . . . . . . . . . 5.75% None
Wellesley Strategy Portfolio . . . . . . . . . . . . . . 5.75% None
WMC Income and Growth Portfolio . . . . . . . . . . . . . 5.75% None
Perpetual Global Portfolio . . . . . . . . . . . . . . . 5.75% None
Commonwealth Quality Income Portfolio . . . . . . . . . . 4.75% None
VKM Municipal Income Portfolio . . . . . . . . . . . . . 4.75% None
Commonwealth Short-Duration Income Portfolio . . . . . . 1.00% None
Maximum Sales Load Imposed on Reinvested Dividends . . . . None None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . None None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds)
Class A Shares . . . . . . . . . . . . . . . . . . . . . None*
Class B Shares**:
<TABLE>
Contingent Deferred Sales
Charge as a Percentage of Contingent Deferred Sales
Applicable Amount Redeemed Charge as a Percentage of
(Growth, Capital Growth, Applicable Amount Redeemed
Year Since Strategy, Income and Growth, (Quality Income and
Purchase Payment Made and Global Portfolios) *** Municipal Income Portfolios)***
<S> <C> <C>
First 4.0% 4.0%
Second 4.0% 4.0%
Third 3.0% 3.0%
Fourth 2.0% 2.0%
Fifth 1.0% 1.0%
Sixth None 1.0%
Seventh and Thereafter None None
</TABLE>
_______________
* 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 over $1 million that are redeemed within one year of purchase.
** A CDSC of 1.00% is assessed on Class B shares that are purchased pursuant
to certain asset-allocation plans and that are not otherwise subject to the
CDSC shown in the table, if those shares are redeemed within one year of
purchase. Consult Mentor Distributors.
*** The amount redeemed is computed as the lesser of the current net asset
value of the redemption amount, excluding reinvested distributions, and the
original purchase amount.
ANNUAL PORTFOLIO OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
Short-
Capital Income and Quality Municipal Duration
Growth Growth Strategy Growth Global Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares
Management Fees (after waiver)* 0.70% 0.80% 0.85% 0.75% 1.10% 0.50% 0.50% 0.00%
12b-1 Fees . . . . . . . . . . . None None None None None None None None
Shareholder Service Fees . . . . 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses (after waiver)* 0.37% 0.40% 0.37% 0.37% 0.65% 0.30% 0.30% 0.79%
Total Portfolio Operating Expenses 1.32% 1.45% 1.47% 1.37% 2.00% 1.05% 1.05% 1.04%
</TABLE>
<TABLE>
Short-
Capital Income and Quality Municipal Duration
Growth Growth Strategy Growth Global Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B Shares
Management Fees (after waiver)* 0.70% 0.80% 0.85% 0.75% 1.10% 0.50% 0.50% 0.00%
12b-1 Fees . . . . . . . . . . 0.75% 0.75% 0.75% 0.75% 0.75% 0.50% 0.50% 0.30%
Shareholder Service Fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Total Other Expenses
(after waiver)* . . . . . . . . 0.37% 0.40% 0.37% 0.37% 0.65% 0.30% 0.30% 0.79%
Total Portfolio Operating
Expenses . . . . . . . . . . 2.07% 2.20% 2.22% 2.12% 2.75% 1.55% 1.55% 1.34%
</TABLE>
*In order to limit the Portfolios' operating expenses, the investment
advisers of each of the following Portfolios have agreed to limit their
compensation during the current fiscal year as shown in the tables; in the
absence of such limitations, the Portfolios' Management Fees would be as
follows: Commonwealth Quality Income
Portfolio -- 0.60%; VKM Municipal Income Portfolio -- 0.60%; Commonwealth
Short-Duration Income Portfolio -- 0.50%. The amounts shown in the tables
reflect the Total Other Expenses and Total Portfolio Operating Expenses each
of the Portfolios (other than the Perpetual Global Portfolio) expect to
incur during the current fiscal year. If the Total Portfolio Operating
Expenses of any Portfolio materially exceeds the amount shown, Investment
Management Group, Inc. intends to bear the Portfolio's expenses to that
extent. For their last fiscal year, the Portfolios' Total Other Expenses
were as follows: (In cases where those Expenses were reduced by fee waivers,
Total Other Expenses not reflecting fee waivers are shown in parentheses):
Charter Growth Portfolio -- 0.31%; Commonwealth Capital Growth Portfolio --
0.65%; Wellesley Strategy Portfolio -- 0.42% (0.50)%; WMC Income and Growth
Portfolio -- 0.69% (0.78%); Global Portfolio, -- 1.29% (1.83%); Commonwealth
Quality Income Portfolio -- 0.53% (0.55%); VKM Municipal Income Portfolio --
0.49% (0.58%); Commonwealth Short-Duration Income Portfolio -- 0.74%
(0.84%). Total Portfolio Operating Expenses for each of the Portfolios during
its last fiscal year were as follows (in cases where those Expenses were
reduced by fee waivers, Total Portfolio Operating Expenses not reflecting fee
waivers are shown in parentheses): Charter Growth Portfolio: Class A -- NA;
Class B -- 2.01%; Commonwealth Capital Growth Portfolio: Class A -- 1.70%;
Class B -- 2.45%; Wellesley Strategy Portfolio: Class A -- NA; Class B -- 2.19%
(2.27%); WMC Income and Growth Portfolio: Class A -- 1.69% (1.78%); Class B --
2.44% (2.53%); Commonwealth Quality Income Portfolio: Class A -- 1.38% (1.40%);
Class B -- 1.88% (1.90%); VKM Municipal Income Portfolio: Class A -- 1.24%
(1.33%); Class B -- 1.74% (1.83%); Commonwealth Short-Duration Income
Portfolio; Class A -- NA; Class B -- 1.29% (1.89%); Perpetual Global Portfolio:
Class A -- 2.09% (3.18%); Class B -- 2.84% (3.93%).
EXAMPLES
<TABLE>
Short-
Capital Income and Quality Municipal Duration
Growth Growth Strategy Growth Global Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming 5% annual return and
redemption at the end of each
period:
CLASS A SHARES
1 year . . . . . . . . . . $ 13 $ 15 $ 15 $ 14 $ 20 $ 11 $ 11 $ 11
3 years . . . . . . . . . . 42 46 46 43 63 33 33 33
5 years . . . . . . . . . . 72 79 80 75 108 58 58 57
10 years . . . . . . . . . 159 174 176 165 233 128 128 127
Class B Shares
1 YEAR . . . . . . . . . . $ 61 $ 62 $ 63 $ 62 $ 68 $ 56 $ 56 $ 14
3 years . . . . . . . . . . 95 99 99 96 115 79 79 42
5 years . . . . . . . . . . 121 128 129 124 155 94 94 73
10 years . . . . . . . . . 240 253 255 245 308 185 185 161
You would pay the following
expenses on a $1,000 investment
assuming no redemption:
CLASS A SHARES
1 year . . . . . . . . . . $ 13 $ 15 $ 15 $ 14 $ 20 $ 11 $ 11 $ 11
3 years . . . . . . . . . . 42 46 46 43 63 33 33 33
5 years . . . . . . . . . . 72 79 80 75 108 58 58 57
10 years . . . . . . . . . 159 174 176 165 233 128 128 127
CLASS B SHARES
1 year . . . . . . . . . . $ 21 $ 22 $ 23 $ 22 $ 28 $ 16 $ 16 $ 14
3 years . . . . . . . . . . 65 69 69 66 85 49 49 42
5 years . . . . . . . . . . 111 118 119 114 145 84 84 73
10 years . . . . . . . . . 240 253 255 245 308 185 185 161
</TABLE>
The tables are provided to help you understand the expenses of investing in
each of the Portfolios and your share of the operating expenses of each of
the Portfolios. The information concerning each Portfolio is based on its
most recent fiscal year. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY VARY. Long-term
Class B shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the rules of the National Association of
Securities Dealers, Inc.
FINANCIAL HIGHLIGHTS (COMMONWEALTH CAPITAL GROWTH, WMC INCOME AND GROWTH,
PERPETUAL GLOBAL, COMMONWEALTH QUALITY INCOME, AND VKM MUNICIPAL INCOME
PORTFOLIOS)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. Their report dated November 11, 1994 on the
Portfolios' financial statements for the period ended September 30, 1994 is
included in the Combined Annual Report dated September 30, 1994, which is
incorporated by reference. This table should be read in conjunction with each
Portfolio's financial statements and notes thereto, which may be obtained free
of charge from the Trust. Until April , 1995, Commonwealth Quality Income
Portfolio was known as "Cambridge Government Income Portfolio"; until that
time, the Portfolio was required to invest at least 65% of its assets in U.S.
Government securities.
CLASS A SHARES
<TABLE>
<CAPTION>
COMMONWEALTH CAPITAL GROWTH
PORTFOLIO
(FORMERLY CAMBRIDGE
CAMBRIDGE GROWTH PORTFOLIO CAPITAL GROWTH PORTFOLIO)
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1992* 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD $ 16.69 $ 14.14 $ 14.18 $ 15.26 $ 14.21 $ 14.18
Income from investment operations
Net investment income (loss) (0.11) (0.07) 0.03 0.09 0.14 0.08
Net realized and unrealized gain
(loss) on investments (1.90) 2.65 (0.07) (0.30) 1.02 0.03
Total from investment operations (2.01) 2.58 (0.04) (0.21) 1.16 0.11
Less distributions
Dividends from income -- -- -- (0.04) (0.11) (0.08)
Distributions from capital gains -- -- -- (0.13) -- --
Distributions in excess of net
investment income -- (0.03) -- -- -- --
NET ASSET VALUE PER SHARE, END OF
PERIOD $ 14.68 $ 16.69 $ 14.14 $ 14.88 $ 15.26 $ 14.21
Total return (12.04%) 18.23% (0.28%) (1.37%) 8.21% 0.78%
Ratios to Average Net Assets(a)
Expenses 1.81% 1.66% 1.33% 1.70% 1.49% 1.14%
Net investment income (loss) (0.65%) (0.49%) 0.59% 0.53% 0.96% 1.54%
Expense adjustment(b) 0.01% 0.12% 0.39% -- 0.10% 0.29%
Supplemental Data
Net assets, end of period (000
omitted) $14,579 $19,708 $11,464 $21,181 $31,360 $20,864
Portfolio turnover rate 132% 137% 26% 149% 192% 61%
</TABLE>
* Reflects operations for the period from April 29, 1992 (date of initial
public investment) to September 30, 1992.
** Reflects operations for the period from May 24, 1993 (date of initial
public investment) to September 30, 1993.
*** Reflects operations for the period from March 29, 1994 (date of initial
public investment) to September 30, 1994.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses.
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH QUALITY INCOME VKM MUNICIPAL INCOME WMC INCOME AND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO (FORMERLY PERPETUAL GLOBAL
(FORMERLY CAMBRIDGE GOVERNMENT (FORMERLY CAMBRIDGE MUNICIPAL CAMBRIDGE INCOME AND PORTFOLIO (FORMERLY CAMBRIDGE
INCOME PORTFOLIO) INCOME PORTFOLIO) GROWTH PORTFOLIO) GLOBAL PORTFOLIO)
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1992* 1994 1993 1992* 1994 1993** 1994***
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.04 $ 14.39 $ 14.30 $ 16.05 $ 14.76 $ 14.29 $ 14.88 $ 14.14 $ 14.18
0.84 1.06 0.44 0.82 0.92 0.32 0.31 0.09 (0.01)
(1.30) (0.31) 0.09 (1.54) 1.32 0.47 0.64 0.73 0.06
(0.46) 0.75 0.53 (0.72) 2.24 0.79 0.95 0.82 0.05
(0.83) (1.06) (0.44) (0.81) (0.92) (0.32) (0.30) (0.08) --
-- -- -- (0.10) -- -- (0.26) -- --
-- (0.04) -- -- (0.03) -- -- -- --
$ 12.75 $ 14.04 $ 14.39 $ 14.42 $ 16.05 $ 14.76 $ 15.27 $ 14.88 $ 14.23
(3.39%) 5.41% 3.37% (4.83%) 16.00% 5.34% 6.54% 5.54% 0.35%
1.38% 1.04% 0.36% 1.24% 0.71% 0.00% 1.75% 1.56% 2.09%
6.33% 7.31% 8.00% 5.43% 5.92% 6.21% 2.20% 2.35% (0.10%)
0.01% 0.18% 0.85% 0.09% 0.68% 1.26% -- 0.38% 1.09%
$30,142 $47,780 $36,740 $25,056 $29,245 $18,801 $17,773 $ 9,849 $ 8,882
455% 102% 9% 87% 88% 0% 78% 13% 2%
</TABLE>
<TABLE>
CLASS B SHARES COMMONWEALTH (FORMERLY CAMBRIDGE
CAMBRIDGE CAPITAL GROWTH
CAMBRIDGE GROWTH PORTFOLIO PORTFOLIO)
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1992* 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD $ 16.59 $ 14.14 $ 14.18 $ 15.23 $ 14.22 $ 14.18
Income from investment operations
Net investment income (loss) (0.25) (0.14) (0.01) (0.04) 0.05 0.46
Net realized and unrealized gain
(loss) on investments (1.81) 2.59 (0.03) (0.26) 1.02 0.04
Total from investment operations (2.06) 2.45 (0.04) (0.30) 1.07 0.50
Less distributions
Dividends from income -- -- -- -- (0.05) (0.46)
Distributions from capital gains -- -- -- (0.13) -- --
Distributions in excess of net
investment income -- -- -- -- (0.01) --
NET ASSET VALUE PER SHARE, END OF
PERIOD $ 14.53 $ 16.59 $ 14.14 $ 14.80 $ 15.23 $ 14.22
Total return (12.48%) 17.33% (0.28%) (2.00%) 7.52% 0.61%
Ratios to Average Net Assets(a)
Expenses 2.56% 2.41% 2.07% 2.46% 2.24% 1.86%
Net investment income (loss) (1.40%) (1.24%) (0.17%) (0.22%) 0.21% 0.83%
Expense adjustment(b) 0.02% 0.12% 0.40% -- 0.10% 0.30%
Supplemental Data
Net assets, end of period (000
omitted) $28,678 $35,069 $13,828 $41,106 $57,030 $25,468
Portfolio turnover rate 132% 137% 26% 149% 192% 61%
</TABLE>
* Reflects operations for the period from April 29, 1992 (date of initial
public investment) to September 30, 1992.
** Reflects operations for the period from May 24, 1993 (date of initial
public investment) to September 30, 1993.
*** Reflects operations for the period from March 29, 1994 (date of initial
public investment) to September 30, 1994.
(a) Computed on an annualized basis.
(b) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses.
<PAGE>
<TABLE>
<CAPTION>
VKM MUNICIPAL INCOME WMC INCOME PERPETUAL
COMMONWEALTH QUALITY INCOME PORTFOLIO (FORMERLY AND GROWTH PORTFOLIO GLOBAL PORTFOLIO
PORTFOLIO (FORMERLY CAMBRIDGE CAMBRIDGE MUNICIPAL (FORMERLY CAMBRIDGE INCOME (FORMERLY CAMBRIDGE
GOVERNMENT INCOME PORTFOLIO) INCOME PORTFOLIO) AND GROWTH PORTFOLIO) GLOBAL PORTFOLIO)
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1992* 1994 1993 1992* 1994 1993** 1994***
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.06 $ 14.40 $ 14.30 $ 16.06 $ 14.78 $ 14.29 $ 14.91 $14.14 $ 14.18
0.82 0.99 0.41 0.74 0.82 0.29 0.21 0.05 (0.04)
(1.37) (0.31) 0.10 (1.54) 1.32 0.49 0.61 0.77 0.01
(0.55) 0.68 0.51 (0.80) 2.14 0.78 0.82 0.82 (0.03)
(0.75) (0.99) (0.41) (0.73) (0.82) (0.29) (0.19) (0.05 ) --
-- -- -- (0.10) -- -- (0.26) -- --
-- (0.03) -- -- (0.04) -- -- -- --
$ 12.76 $ 14.06 $ 14.40 $ 14.43 $ 16.06 $ 14.78 $ 15.28 $14.91 $ 14.15
(3.97%) 4.86% 3.24% (5.34%) 15.27% 5.28% 5.66% 5.54% (0.21%)
1.88% 1.54% 0.83% 1.74% 1.21% 0.50% 2.44% 2.31% 2.79%
6.21% 6.81% 7.53% 4.93% 5.42% 5.80% 1.51% 1.60% (0.82%)
0.02% 0.18% 0.84% 0.12% 0.68% 1.26% -- 0.38% 1.26%
$77,888 $127,346 $65,661 $46,157 $50,976 $24,265 $43,219 $18,127 $ 7,987
455% 102% 9% 87% 88% 0% 78% 13% 2%
</TABLE>
FINANCIAL HIGHLIGHTS (CHARTER GROWTH, WELLESLEY STRATEGY, AND COMMONWEALTH
SHORT- DURATION INCOME PORTFOLIOS)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. Their report dated February 3, 1995 on the
Portfolios' financial statements for the period ended December 31, 1994 is
included in the Annual Report dated December 31, 1994. This table should be
read in conjunction with each Portfolio's financial statements and notes
thereto, which is included in the Statement of Additional Information and
which may be obtained free of charge from the Trust. The Growth,
Strategy, and Short-Duration Income Portfolios are successors to the Mentor
Growth, Strategy, and Short-Duration Income Funds, each of which was a
series of shares of beneficial interest of Mentor Series Trust, a
Massachusetts business trust. Each of those Funds offered only one class of
shares prior to December 31, 1994.
<TABLE>
CHARTER GROWTH PORTFOLIO
(FORMERLY MENTOR GROWTH FUND)
Year Year Year Year Year Year Year Nine Mos.
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
NET ASSET VALUE,
BEGINNING OF PERIOD.... $13.78 $12.81 $12.16 $8.37 $9.36 $8.54 $7.45 $9.91
Net investment income
(loss)................ (0.15) (0.08) (0.06) (0.09) 0.02 0.13 0.01 (0.01)
Net realized and
unrealized gain (loss)
on investments......... (0.47) 2.07 1.94 4.30 (1.10) 1.35 1.24 (2.32)
Total from investment
operations............. (0.62) 1.99 1.88 4.21 (1.08) 1.48 1.25 (2.33)
Less Distributions
Dividends from net
investment income..... -- -- -- -- (0.05) (0.12) (0.01) --
Distributions from
capital gains......... (1.00) (1.02) (1.23) (0.42) (0.13) (0.27) (0.15) (0.13)
Distributions in
excess of capital
gains.................. (0.01) -- -- -- -- -- -- --
Total distributions..... (1.01) (1.02) (1.23) (0.42) (0.18) (0.39) (0.16) (0.13)
NET ASSET VALUE, END
OF PERIOD..............$ 12.15 $ 13.78 $ 12.81 $ 12.16 $ 8.37 $ 9.63 $ 8.54 $ 7.45
Total return............ (4.48%) 15.60% 15.46% 50.30% (11.21%) 17.33% 16.78% -23.47%
Ratios/Supplemental Data
Net assets, end of
period, (in 000's).....$190,126 $186,978 $136,053 $108,719 $83,540 $107,315 $96,425 $ 92,763
Ratio of expenses to
average net assets..... 2.01% 2.02% 2.05% 2.17% 2.25% 2.24% 2.19% 2.18%(a)
Ratio of net investment
income (loss) to
average net assets..... (1.20%) (1.12%) (0.76%) (0.80%) 0.26% 1.36% 0.16% (0.19%)(a)
Portfolio turnover rate 77% 64% 50% 40% 50% 26% 31% 33%
</TABLE>
* Commencement of operations
CHARTER GROWTH PORTFOLIO
(FORMERLY MENTOR GROWTH FUND)
<TABLE>
COMMONWEALTH
WELLESLEY STRATEGY SHORT-DURATION
PORTFOLIO (FORMERLY INCOME PORTFOLIO
MENTOR (FORMERLY MENTOR SHORT-
PERIOD STRATEGY FUND) DURATION INCOME FUND)
YEAR ENDED 4/16/85* Year Ended 10/29/93* 4/29/94*
MARCH 31, TO December 31, to to
1987 3/31/86 1994 12/31/93 12/31/94
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.34 $ 6.67 $12.70 $12.50 $12.50
Net investment income
(loss)................ (0.01) (0.03) (0.06) -- 0.41
Net realized and
unrealized gain (loss)
on investments......... 0.92 2.70 (0.40) 0.20 (0.29)
Total from investment
operations............. 0.91 2.67 (0.46) 0.20 0.12
Less Distributions
Dividends from net
investment income..... -- -- -- -- (0.41)
Distributions from
capital gains......... (0.34) 0.00 -- -- (0.03)
Distributions in
excess of capital
gains.................. -- --
Total distributions..... (0.34) -- -- -- (0.44)
NET ASSET VALUE, END
OF PERIOD.............. 9.91 $ 9.34 $12.24 $12.70 $12.18
Total return............ 9.74% 41.77% (3.61%) 1.60% 0.95%
Ratios/Supplemental Data
Net assets, end of
period, (in 000's)..... $113,317 $ 63,767 $179,274 $122,177 $17,144
Ratio of expenses to
average net assets..... 2.16% 2.43%(a) 2.19% 2.06%(a) 1.29%(a)
Ratio of net investment
income (loss) to
average net assets..... (0.18%) (0.53%)(a) (0.54%) 0.08%(a) 4.90%(a)
Portfolio turnover rate. 34% 35% 143% 0% 166%
</TABLE>
*Commencement of operations
(a) Determined on an annualized basis
INVESTMENT OBJECTIVES AND POLICIES
The Trust is offering shares of eight Portfolios by this
Prospectus. Each Portfolio has a different investment objective or
objectives which it pursues through the investment policies described below.
The differences in objectives and policies among the Portfolios can be
expected to affect the investment return of each Portfolio and the degree of
market and financial risk of an investment in each Portfolio. Except for the
investment policies designated in this Prospectus or the Statement of
Additional Information as fundamental, the investment policies described herein
are not fundamental and may be changed by approval of the Trustees
without shareholder approval. There can, of course, be no assurance that
any Portfolio will achieve its investment objective. The investment
objectives of the Portfolios, other than those of the Strategy Portfolio and
the Short-Duration Income Portfolio, are fundamental policies and may not
be changed without shareholder approval.
CHARTER GROWTH PORTFOLIO (formerly, Mentor Growth Fund)
INVESTMENT ADVISER: Charter Asset Management, Inc. ("Charter")
The Growth Portfolio's investment objective is long-term capital
growth. Although the Portfolio may receive current income from dividends,
interest, and other sources, income is only an incidental consideration.
The Portfolio attempts to achieve long-term capital growth by
investing in a diversified portfolio of securities. Under normal
circumstances at least 75% of the Portfolio's assets will be invested in
common stocks of companies domiciled in or located throughout the United
States. Although the Portfolio may invest in companies of any size, the
Portfolio invests principally in common stocks of companies with market
capitalizations in excess of $30 million which, in the opinion of Charter,
have demonstrated earnings, asset values, or growth potential not yet
reflected in their market price. A key indication of such undervaluation
considered by Charter is earnings growth which is above average as
compared to the S&P 500 Index. Other important factors in selecting
investments include a strong balance sheet and product leadership in niche
markets. Charter believes that such investments may offer better than
average potential for long-term capital growth.
COMMONWEALTH CAPITAL GROWTH PORTFOLIO (formerly, Cambridge Capital Growth
Portfolio)
INVESTMENT ADVISER: Commonwealth Advisors, Inc. ("Commonwealth Advisors")
The investment objective of the Capital Growth Portfolio is to provide
long-term appreciation of capital. The Portfolio may invest in a wide
variety of securities which Commonwealth Advisors believes offers the
potential for capital appreciation over both the intermediate and long term.
The Portfolio does not invest for current income.
The Portfolio invests primarily in common stocks of companies
believed by Commonwealth Advisors to have potential for capital appreciation.
The Portfolio may invest without limit in preferred stocks, investment-grade
bonds, convertible preferred stocks, and convertible debentures and any other
class or type of security Commonwealth Advisors believes offers potential
for capital appreciation. In selecting investments, Commonwealth
Advisors will attempt to identify securities it believes will provide capital
appreciation over the intermediate or long term due to change in the
financial condition of their issuers, changes in financial condition, or other
factors. The Portfolio also may invest in fixed-income securities, and cash
or money market investments, for temporary defensive purposes.
WELLESLEY STRATEGY PORTFOLIO (formerly, Mentor Strategy Fund)
INVESTMENT ADVISER: Wellesley Advisors, Inc. ("Wellesley")
The Strategy Portfolio's investment objective is to seek high total
return on its investments. In seeking to achieve this objective, Wellesley
actively allocates the Portfolio's assets among the major asset categories of
equity securities, fixed-income securities, and money market instruments.
Total return consists of current income (including dividends, interest, and,
in the case of discounted instruments, discount accruals) and capital
appreciation (including realized and unrealized capital gains and losses).
Wellesley believes that the Portfolio has the potential to achieve
above-average investment returns at comparatively lower risk by actively
allocating its resources among the equity, debt, and money market sectors of
the market as opposed to relying solely on just one market sector. For
example, Wellesley may at times believe that the equity market holds a higher
potential for total return than the debt market and that a relatively large
portion of the Portfolio's assets should be allocated to the equity market
sector. The reverse would be true at times when Wellesley believes that the
potential for total return in the bond market is greater than that in the
equity market. Wellesley might also allocate the Portfolio's investments to
short-term bonds and money market instruments in order to earn current
return and to reduce the potential adverse effect of declines in the bond
and equity markets. After determining the portions of the Portfolio's assets
to be invested in the various market sectors, Wellesley attempts to select
the securities of companies within those sectors offering potential for
above-average total return. The achievement of the Portfolio's
investment objective depends upon, among other things, the ability of
Wellesley to assess correctly the effects of economic and market trends on
different sectors of the market. The Portfolio's investments may include
both securities of U.S. issuers and securities traded principally in foreign
markets.
Within the equity sector, Wellesley actively allocates the Portfolio's
assets to those industries and issuers it expects to benefit from major market
trends or which it otherwise believes offer the potential for above-average
total return. The Portfolio may purchase equity securities (including
convertible debt obligations and convertible preferred stock) sold on the
New York, American, and other U.S. or foreign stock exchanges and in the
over-the-counter market.
Within the fixed-income sector, Wellesley seeks to maximize the return
on its investments by adjusting maturities and coupon rates as well as by
exploiting yield differentials among different types of investment-grade
securities. The Portfolio may invest in debt securities of any maturity,
preferred stocks, and other fixed-income instruments, including, for
example, U.S. Government securities and corporate debt securities (including
zero-coupon securities). The Portfolio will only invest in debt securities
which are rated at the time of purchase Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's ("S&P") or
which, if unrated, are deemed by Wellesley to be of comparable quality. While
bonds rated Baa or BBB are considered to be of investment grade, they have
speculative characteristics as well. A description of securities ratings
is contained in the Appendix to this Prospectus.
The money market portion of the Portfolio will contain short-term
fixed-income securities issued by private and governmental institutions.
Such securities may include, for example, U.S. Government securities;
bank obligations; Eurodollar certificates of deposit issued by foreign
branches of domestic banks; obligations of savings institutions; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by S&P or the highest grade by Moody's or, if not rated, issued by a
company having an outstanding debt issue rated at least Aa by Moody's or AA by
S&P.
WMC INCOME AND GROWTH PORTFOLIO (formerly, Cambridge Income and Growth
Portfolio)
INVESTMENT ADVISER: Commonwealth Advisors, Inc.
SUB-ADVISER: Wellington Management Company ("Wellington")
The investment objective of the Income and Growth Portfolio is to
provide a conservative combination of income and growth of capital,
consistent with capital protection. The Portfolio invests in a diversified
portfolio of equity securities of companies Wellington believes exhibit
sound fundamental characteristics and in investment-grade fixed-income
securities and U.S. Government securities, as described below.
Wellington will manage the allocation of assets among asset classes
based upon its analysis of economic conditions, relative fundamental values
and the attractiveness of each asset class, and expected future returns of
each asset class. The Portfolio will normally have some portion of its assets
invested in each asset class at all times but may invest without limit in any
asset class.
The Portfolio may invest in a wide variety of equity securities, such
as common stocks and preferred stocks, as well as debt securities
convertible into equity securities or that are accompanied by warrants or
other equity securities. In selecting equity investments, Wellington will
attempt to identify securities of out-of- favor companies which Wellington
believes are undervalued. Within the equity asset class, the Portfolio
seeks to achieve long-term appreciation of capital and a moderate income level
by selecting investments in out-of-favor companies with sound fundamentals.
These decisions are based primarily on Wellington's fundamental research
and security valuations.
Within the fixed-income asset class, Wellington seeks to invest in a
portfolio that provides as high a level of current income as is
consistent with prudent investment risk. The Portfolio may invest in
debt securities of any maturity, preferred stocks, and other fixed-income
instruments, including, for example, U.S. Government securities and corporate
debt securities (including zero-coupon securities). The Portfolio will only
invest in debt securities which are rated at the time of purchase Baa or
better by Moody's Investors Service, Inc. or BBB or better by S&P or which,
if unrated, are deemed by Wellesley to be of comparable quality. While
fixed-income securities rated Baa or BBB are considered to be of investment
grade, they have speculative characteristics as well. The Portfolio will not
necessarily dispose of a security when its rating is reduced below its rating
at the time of purchase, although Wellington will monitor the investment to
determine whether continued investment in the security will assist in meeting
the Portfolio's investment objective. A description of securities ratings is
contained in the Appendix to this Prospectus.
The Portfolio may invest up to 10% (determined at the time of
investment) of its assets in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests in real
estate. The Portfolio will limit its investment in real estate investment
trusts to 10% of its total assets (determined at the time of investment).
Such investments may involve many of the risks of direct investment in real
estate, such as declines in the value of real estate, risks related to general
and local economic conditions, and adverse changes in interest rates. Other
risks associated with real estate investment trusts include lack of
diversification, borrower default, and voluntary liquidation.
PERPETUAL GLOBAL PORTFOLIO (formerly, Cambridge Global Portfolio)
INVESTMENT ADVISER: Commonwealth Advisors, Inc.
SUB-ADVISER: Perpetual Portfolio Management Limited ("Perpetual")
The investment objective of the Global Portfolio is to seek long-term
growth of capital through a diversified portfolio of marketable securities,
primarily equity securities, including common stocks, preferred stocks,
securities convertible into common stocks, and warrants. Perpetual may
invest the Portfolio's assets in equity securities of companies located
anywhere in the world. The Portfolio may also invest in debt securities of
U.S. and foreign issuers, although current income will be only an incidental
consideration.
It is expected that investments will be spread broadly around the
world. Under normal circumstances, the Portfolio will invest at least 65% of
the value of its total assets in securities of at least three countries,
one of which may be the United States. The Portfolio may invest all of
its assets in securities of issuers outside the United States, and for
temporary defensive purposes may at times invest all of its assets in
securities of U.S. issuers. The Portfolio may invest in securities of
issuers in emerging markets, as well as more developed markets. Investing in
emerging markets generally involves more risks than investing in developed
markets. See "Investment Practices" below.
The Portfolio will generally invest in common stocks of established
companies listed on U.S. or foreign securities exchanges, but also may invest
in over-the-counter securities. The Portfolio may also invest in preferred
stocks, debt securities and fixed-income securities of private or
governmental issuers (including zero-coupon securities) which Perpetual
believes offers the potential for capital appreciation. The Portfolio may
invest in closed-end investment companies holding foreign securities. These
debt and fixed income securities will be predominantly investment-grade
securities or those of equivalent quality as determined by Perpetual. The
Portfolio may not invest more than 5% of its total assets in debt securities
rated Baa or below by Moody's, or BBB or below by S&P, or deemed by Perpetual
to be of comparable quality. The Portfolio will not necessarily dispose of a
security when its rating is reduced below its rating at the time of
purchase, although Perpetual will monitor the investment to determine
whether continued investment in the security will assist in meeting the
Portfolio's investment objective. Securities rated below investment grade are
commonly referred to as "junk bonds" and are predominately speculative.
Securities rated investment grade (BBB/Baa or above) may have speculative
characteristics. The Portfolio also may invest in cash or cash equivalents,
including foreign money market instruments, for temporary defensive purposes.
COMMONWEALTH QUALITY INCOME PORTFOLIO (formerly, Cambridge Government Income
Portfolio)
INVESTMENT ADVISER: Commonwealth Advisors, Inc.
The Quality Income Portfolio's investment objective is to seek high
current income consistent with what Commonwealth Advisors believes to be
prudent risk. The Portfolio may invest in debt securities, including both
government and corporate obligations, and in other income-producing
securities, including preferred stocks and dividend-paying common stocks. The
Portfolio may also hold a portion of its assets in cash or money market
instruments. There can, of course, be no assurance that the Portfolio will
achieve its investment objective.
The Portfolio will invest in U.S. Government securities and in debt
securities and preferred stocks rated investment grade (or, if unrated,
considered by Commonwealth Advisors to be of comparable quality). A security
will be deemed to be of "investment grade" if, at the time of investment by
the Portfolio, it is rated at least Baa3 by Moody's or BBB- by Standard &
Poor's or at a comparable rating by another nationally recognized rating
organization, or, if unrated, determined by Commonwealth Advisors to be of
comparable quality. Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to
greater credit and market risks than higher-rated securities. The Portfolio
will normally invest at least 80% of its assets in U.S. Government securities
and in other securities rated at least A by Moody's or Standard & Poor's or at
a comparable rating by another nationally recognized rating organization, or,
if unrated, determined by Commonwealth Advisors to be of comparable quality.
Commonwealth Advisors may take full advantage of the entire range of
maturities of the securities in which the Portfolio may invest and may adjust
the average maturity of the Portfolio's portfolio from time to time, depending
on its assessment of relative yields on securities of different maturities
and expectations of future changes in interest rates. The Portfolio may
invest in mortgage-backed certificates and other securities representing
ownership interests in mortgage pools, including collateralized mortgage
obligations and certain stripped mortgage-backed securities (including certain
"residual" interests). See "Other investment practices ", below.
VKM MUNICIPAL INCOME PORTFOLIO (formerly, Cambridge Municipal Income Portfolio)
INVESTMENT ADVISER: Commonwealth Advisors, Inc.
SUB-ADVISER: Van Kampen/American Capital Management, Inc. ("Van Kampen")
The investment objective of the Municipal Income Portfolio is to
provide investors with a high level of current income exempt from federal
regular income tax, consistent with preservation of capital. Van Kampen
serves as the sub-adviser to the Portfolio. Under normal market conditions,
the Portfolio will invest at least 80% of its total assets in tax-exempt
municipal securities rated invested grade, or deemed by Van Kampen to be of
comparable quality, at the time of investment. The Portfolio may invest a
substantial portion of its assets in municipal securities that pay interest
that is subject to federal alternative minimum tax. The Portfolio may
not be a suitable investment for investors who are already subject to
federal alternative minimum tax or who would become subject to federal
alternative minimum tax as a result of an investment in the Portfolio.
Tax-exempt municipal securities are debt obligations issued by or on
behalf of the governments of states (including the District of Columbia)
and United States territories or possessions, and their political
subdivisions, agencies, and instrumentalities, and certain interstate
agencies, the interest on which, in the opinion of bond counsel or other
counsel to the issuer of such securities, is exempt from federal income tax.
The Portfolio may also invest up to 10% of its assets in tax-exempt money
market funds, which will be considered tax-exempt municipal securities for this
purpose.
Up to 20% of the Portfolio's total assets may be invested in tax-exempt
municipal securities rated between BB and B-(inclusive) by S&P or between Ba
and B3 (inclusive) by Moody's (or equivalently rated short-term
obligations) and unrated tax-exempt securities that the Van Kampen considers
to be of comparable quality. These securities are below investment grade and
are considered to be of poor standing and predominantly speculative. Assurance
of interest and principal payments or of maintenance of other terms of the
securities' contract over any long period of time may be small. The
Portfolio will not invest in securities rated below B- by S&P or below B3 by
Moody's at the time of purchase and may retain a security whose rating has
been downgraded below B- by S&P or below B3 by Moody's, or whose rating has
been withdrawn. For more detailed information about the risks
associated with investing in lower-rated securities, see "Risks of
Lower-Grade Securities" below. The Portfolio may hold a portion of its
assets in cash or money market instruments.
The two principal classifications of municipal securities are
"general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue bonds are usually
payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source. Industrial development bonds are usually
revenue bonds, the credit quality of which is normally directly related to the
credit standing of the industrial user involved.
There are, in addition, a variety of hybrid and special types of
municipal securities, including variable rate securities, municipal notes, and
municipal leases. Variable rate securities bear rates of interest that
are adjusted periodically according to formulae intended to minimize
fluctuation in values of the instruments. Municipal notes include tax,
revenue, and bond anticipation notes of short maturity, generally less than
three years, which are issued to obtain temporary funds for various public
purposes. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered not to be liquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation certificate on any of the above. No more than 5% of the net
assets of the Portfolio will be invested in municipal leases. A more detailed
description of the types of municipal securities in which the Portfolio may
invest is included in the Statement of Additional Information.
Risks of Lower-Grade Securities. Investors should carefully consider
the risks of owning shares of a mutual fund which invests in lower-grade
securities, commonly known as "junk bonds", before making an investment in
the Portfolio. The higher yield on certain securities held by the Portfolio
reflects a greater possibility that the financial condition of the issuer, or
adverse changes in general economic conditions, or both, may impair the
ability of the issuer to make payments of income and principal. Lower-grade
securities generally involve greater credit risk than higher-grade
municipal securities and are more sensitive to adverse economic changes,
significant increases in interest rates, and individual issuer developments.
The inability (or perceived inability) of issuers to make timely payments of
interest and principal would likely make the values of securities held by
the Portfolio more volatile and could limit the Portfolio's ability to sell
its securities at prices approximating the values the Portfolio had placed on
such securities. In the absence of a liquid trading market for securities held
by it, the Portfolio may be unable at times to establish the fair value of
such securities may not be able to dispose of such securities in a timely
manner at a price which reflects the value of such securities. The rating
assigned to a security by Moody's or S&P does not reflect an assessment of
the volatility of the security's market value or of the liquidity of an
investment in the security. For more information about the rating
services' descriptions of lower-rated municipal securities, see the
Appendix to this Prospectus.
Van Kampen seeks to minimize the risks involved in investing in
lower-grade securities through diversification and careful investment
analysis. However, the amount of information about the financial
condition of an issuer of lower-grade municipal securities may not be as
extensive as that which is made available by corporations whose securities
are publicly traded. When the Portfolio invests in tax exempt securities in
the lower rating categories, the achievement of the Portfolio's goals is more
dependent on Van Kampen's ability than would be the case if the Portfolio were
investing in securities in he higher rating categories. To the extent that
there is no established retail market for some of the lower-grade securities
in which the Portfolio may invest, trading in such securities may be
relatively inactive. During periods of reduced market liquidity and in the
absence of readily available market quotations for lower-grade municipal
securities held in the Portfolio, the ability to value the Portfolio's
securities becomes more difficult and the use of judgment may play a greater
role in the valuation of the Portfolio's securities due to the reduced
availability of reliable objective data. The effects of adverse publicity and
investor perceptions may be more pronounced for securities for which no
established market exists as compared with the effects on securities for
which such a market does exist. Further, the Portfolio may have more
difficulty selling such securities in a timely manner and at their stated
value than would be the case for securities for which an established market
does exist.
Concentration. The Portfolio generally will not invest more than 25%
of its total assets in any one industry. Governmental issuers of municipal
securities are not considered part of any "industry." However, municipal
securities backed only by the assets and revenues of nongovernmental users
may for this purpose be deemed to be issued by such nongovernmental users,
and the 25% limitation would apply to such obligations. It is nonetheless
possible that the Portfolio may invest more than 25% of its assets in a broader
segment of the municipal securities market, such as revenue obligations of
hospitals and other health care facilities, housing agency revenue
obligations, or airport revenue obligations if Van Kampen determines that
the yields available from obligations in a particular segment of the market
justify the additional risks associated with such concentration. Although such
obligations could be supported by the credit of governmental users, or by the
credit of nongovernmental users engaged in a number of industries, economic,
business, political, and other developments generally affecting the revenues
of such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the
demand for their services or products) may have a general adverse effect on
all municipal securities in such a market segment. The Portfolio reserves the
right to invest more than 25% of its assets in industrial development bonds
or in issuers located in any individual state, although the Sub-Adviser has no
present intention to invest more than 25% of the Portfolio's assets in
issuers located in the same state. If the Portfolio were to invest more than
25% of its assets in issuers located in one individual state, it would be
more susceptible to adverse economic, business, or regulatory conditions in
that state.
COMMONWEALTH SHORT-DURATION INCOME Portfolio (formerly, Mentor Short-Duration
Income Fund)
INVESTMENT ADVISER: Commonwealth Investment Counsel, Inc.
The Short-Duration Income Portfolio's investment objective is to seek
current income. As a secondary objective, the Portfolio seeks preservation of
capital, to the extent consistent with its objective of current income. The
Portfolio will normally invest at least 65% of its assets in debt securities
with a "duration" of three years or less. The Portfolio may invest in U.S.
Government securities and debt obligations of private issuers and in
preferred stocks and dividend-paying common stocks, and may hold a portion of
its assets in cash or money market instruments.
Traditionally, a debt security's "term to maturity" has been used to
evaluate the sensitivity of the security's price to changes in interest
rates (the security's interest-rate "volatility"). However, a security's
term to maturity measures only the period of time until the last payment of
principal or interest on the security, and does not take into account the
timing of the various payments of principal or interest to be made prior to the
instrument's maturity. By contrast, "duration" is a measure of the full
stream of payments to be received on a debt instrument, including both
interest and principal payments, based on their present values. Duration
measures the periods of time between the present time and the time when the
various interest and principal payments are scheduled or, in the case of a
callable bond, expected to be received, and weights them by their present
values.
There are some situations where even the standard duration calculation
does not properly reflect the interest-rate volatility of a security. For
example, floating and variable rate securities often have final maturities of
ten years or more; however, their interest-rate volatility is determined
based principally on the period of time until their interest rates are reset
and on the terms on which they may be reset. Another example where a
security's interest-rate volatility is not properly measured by its duration is
the case of mortgage securities. The stated final maturity of such
securities may be up to 30 years, but the actual cash flow on the securities
will be determined by the prepayment rates on the underlying mortgage loans.
Therefore, the duration of such a security can change if prepayment rates
change. In these and other similar situations, Commonwealth Investment
Counsel will estimate a security's duration using sophisticated analytical
techniques that take into account such factors as the expected prepayment
rate on the security and how the prepayment rate might change under various
market conditions.
The Portfolio will invest in debt securities and preferred stocks of
investment grade, and the Portfolio will seek under normal market
conditions to maintain a portfolio of securities with a dollar-weighted
average rating of A or better. A security will be considered to be of
"investment grade" if, at the time of investment by the Portfolio, it is rated
at least Baa3 by Moody's or BBB- by S&P or the equivalent by another
nationally recognized rating organization or, if unrated, determined by
Commonwealth Investment Counsel to be of comparable quality. Securities
rated Baa or BBB lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market
risks than higher-rated securities. A description of securities ratings is
contained in the Appendix to this Prospectus.
The Portfolio may invest in mortgage-backed certificates and other
securities representing ownership interests in mortgage pools, including
collateralized mortgage obligations and certain stripped mortgage-backed
securities (including certain "residual" interests). See "Other investment
practices", below.
OTHER INVESTMENT PRACTICES
Each of the Portfolios (except as noted below) may engage in the other
investment practices described below. See the Statement of Additional
Information for a more detailed description of these practices and certain
risks they may involve.
Mortgage-backed securities; other asset-backed securities. Each of the
Strategy, Short-Duration Income, Quality Income, and Income and Growth
Portfolios may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including collateralized
mortgage obligations and, in the case of the Quality Income and
Short-Duration Income Portfolios, "residual" interests therein (described
more fully below). Interest and principal payments on the mortgages
underlying mortgage-backed securities are passed through to the holders
of the mortgage-backed securities. Mortgage-backed securities currently
offer yields higher than those available from many other types of
fixed-income securities but because of their prepayment aspects, their price
volatility and yield characteristics will change based on changes in prepayment
rates. As a result, mortgage-backed securities are less effective than other
securities as a means of "locking in" long-term interest rates. Generally,
prepayment rates increase if interest rates fall and decrease if interest
rates rise. For many types of mortgage-backed securities, this can
result in unfavorable changes in price and yield characteristics in
response to changes in interest rates and other market conditions. For
example, as a result of their prepayment aspects, mortgage-backed
securities have less potential for capital appreciation during periods
of declining interest rates than other fixed-income securities of
comparable maturities, although such obligations may have a comparable risk
of decline in market value during periods of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics
that are dependent upon the mortgages underlying them. Thus, unlike
traditional debt securities, which may pay a fixed rate of interest until
maturity when the entire principal amount comes due, payments on these
securities may include both interest and a partial payment of principal. In
addition to scheduled loan amortization, payments of principal may result from
the voluntary prepayment, refinancing, or foreclosure of the underlying
mortgage loans. Such prepayments may significantly shorten the
effective durations of mortgage-backed securities, especially during
periods of declining interest rates. Similarly, during periods of rising
interest rates, a reduction in the rate of prepayments may significantly
lengthen the effective durations of such securities.
Each of the Strategy, Short-Duration, and Quality Income Portfolios may
invest in stripped mortgage-backed securities. Stripped mortgage-backed
securities are usually structured with two classes that receive different
portions of the interest and principal distributions on a pool of mortgage
assets. A Portfolio may invest in both the interest-only -- or "IO" -- class
and the principal-only -- or "PO" -- class. The yield to maturity and price
of an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a
rapid rate of principal payments may have a material adverse effect on
the Portfolio's average duration and net asset value. This would typically be
the case in an environment of falling interest rates. If the underlying
mortgage assets experience greater than anticipated prepayments of
principal, a Portfolio may under some circumstances fail to fully recoup
its initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
Certain mortgage-backed securities held by the Portfolios may permit the
issuer at its option to "call," or redeem, its securities. If an issuer
were to redeem securities held by a Portfolio during a time of declining
interest rates, the Portfolio may not be able to reinvest the proceeds in
securities providing the same investment return as the securities redeemed.
Each of the Strategy, Quality Income, and Short-Duration Income
Portfolios may invest in securities representing interests in other types of
financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities may or may not be secured by the receivables
themselves or may be unsecured obligations of their issuers.
Other mortgage-related securities. The Quality Income and
Short-Duration Income Portfolios may also invest in other types of
mortgage-related securities, including any securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans or real property, including collateralized mortgage obligation
"residual" interests, as well as new types of mortgage-related securities
that may be developed and marketed from time to time. "Residual" interests
represent the right to any excess cash flow remaining after all other payments
are made among the various tranches of interests issued by structured
mortgage-backed vehicles. The values of such interests are extremely
sensitive to changes in interest rates and in prepayment rates on the
underlying mortgages. In the event of a significant change in interest rates
or other market conditions, the value of an investment by the Portfolio in
such interests could be substantially reduced and the Portfolio may be
unable to dispose of the interests at prices approximating the values
the Portfolio had previously assigned to them or to recoup its initial
investment in the interests.
Zero-coupon securities. Each of the Income and Growth, Global, Quality
Income, and Short-Duration Income Portfolios may at times invest in
so-called "zero-coupon" bonds. Zero-coupon bonds are issued at a significant
discount from face value and pay interest only at maturity rather than at
intervals during the life of the security. Because zero-coupon bonds do not
pay current interest, their value is subject to greater fluctuation in
response to changes in market interest rates than bonds that pay interest
currently. Zero-coupon bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, such bonds may involve
greater credit risks than bonds that pay interest currently. Even though such
bonds do not pay current interest in cash, a Portfolio is nonetheless
required for federal income tax purposes to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, a Portfolio could be required at times to liquidate other investments
in order to satisfy this distribution requirement.
Premium securities. Certain of the Portfolios may at times invest in
securities bearing coupon rates higher than prevailing market rates. Such
"premium" securities are typically purchased at prices greater than the
principal amount payable on maturity. Although a Portfolio generally
amortizes the amount of any such premium into income, the Portfolio may
recognize a capital loss if such premium securities are called or sold prior
to maturity and the call or sale price is less than the purchase price.
Additionally, a Portfolio may recognize a capital loss if it holds such
securities to maturity.
Options and futures. Each of the Portfolios other than the Municipal
Income Portfolio and the Income and Growth Portfolio may buy and sell put and
call options on securities it owns or plans to purchase to hedge against
changes in net asset value or, with the exception of the Income and Growth
Portfolio, to realize a greater current return. In addition, through the
purchase and sale of futures contracts and, with the exception of the Income
and Growth Portfolio, related options, each of the Portfolios may at times
seek to hedge against fluctuations in net asset value. In addition, to the
extent consistent with applicable law, the Growth, Strategy, Quality Income,
and Short-Duration Income Portfolios may buy and sell futures contracts and
related options to increase its investment return. The Strategy Portfolio may
buy and sell options and futures contracts (including index options and
futures contracts) to implement changes in its asset allocations among various
market sectors, pending the sale of its existing investment and reinvestments
in new securities. The Global Portfolio also may purchase and write call and
put options on securities indices and other financial indices and on
currencies.
Index futures and options. Each of the Portfolios other than the
Income and Growth Portfolio may buy and sell index futures contracts ("index
futures") and options on index futures and on indices for hedging purposes
(or may purchase warrants whose value is based on the value from time to
time of one or more foreign securities indices). An "index futures" is a
contract to buy or sell units of a particular bond or stock index at an agreed
price on a specified future date. Depending on the change in value of the
index between the time when a Portfolio enters into and terminates an index
futures or option transaction, the Portfolio realizes a gain or loss. The
Growth, Strategy, Quality Income, and Short-Duration Income Portfolios may
also, to the extent consistent with applicable law, buy and sell index
futures and options to increase investment return.
Risks related to options and futures strategies. Options and
futures transactions involve costs and may result in losses. Certain risks
arise because of the possibility of imperfect correlations between movements
in the prices of futures and options and movements in the prices of the
underlying security or index or of the securities held by a Portfolio that are
the subject of a hedge. The successful use by a Portfolio of the strategies
described above further depends on the ability of its Investment Adviser or
Sub-Adviser to forecast market movements correctly. Other risks arise from a
Portfolio's potential inability to close out futures or options positions.
Although a Portfolio will enter into options or futures transactions only
if its investment adviser believes that a liquid secondary market exists for
such option or futures contract, there can be no assurance that a Portfolio
will be able to effect closing transactions at any particular time or at an
acceptable price. Transactions in options and futures contracts involve
brokerage costs and may require a Portfolio to segregate assets to cover its
outstanding positions. For more information, see the Statement of Additional
Information. Federal tax considerations may also limit a Portfolio's ability
to engage in options and futures transactions.
Each Portfolio's futures contract transactions will be conducted on
recognized exchanges. In general, however, a Portfolio will purchase and sell
options in transactions in the over-the-counter markets. A Portfolio's
ability to terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Portfolio. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange- traded
transactions are unavailable and when, in the opinion of its investment
adviser, the pricing mechanism and liquidity of the over-the-counter markets
are satisfactory and the participants are responsible parties likely to
meet their contractual obligations.
A Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the
Portfolio's existing futures positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the Portfolio's assets. (For
options that are "in-the-money" at the time of purchase, the amount by
which the option is "in-the-money" is excluded from this calculation.) In
addition, the Growth Portfolio will not purchase puts, calls, straddles,
spreads, and any combination thereof if, by reason thereof, the value of its
aggregate investment in these securities will exceed 5% of its total assets.
Leverage. Each Portfolio other than the Growth Portfolio, the Quality
Income Portfolio, and the Strategy Portfolio may borrow money to invest
in additional securities to seek current income. This technique, known as
"leverage," increases a Portfolio's market exposure and risk. When a Portfolio
has borrowed money for leverage and its investments increase or decrease in
value, the Portfolio's net asset value will normally increase or decrease more
than if it had not borrowed money for this purpose. The interest that a
Portfolio must pay on borrowed money will reduce its net investment income, and
may also either offset any potential capital gains or increase any losses. The
Short-Duration Income Portfolio currently intends to use leverage in order
to adjust the dollar-weighted average duration of its portfolio. The
Portfolios will not always borrow money for investment and the extent to
which a Portfolio will borrow money, and the amount it may borrow, depends
on market conditions and interest rates. Successful use of leverage depends on
an investment adviser's or sub-adviser's ability to predict market movements
correctly. The Municipal Income Portfolio may borrow directly or through
reverse repurchase agreements (as described below) up to 5% of its total
assets and may pledge up to 10% of the value of those assets to secure
such borrowings. Under certain circumstances, each remaining Portfolio may
borrow directly or through reverse repurchase agreements 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.
Securities loans, repurchase agreements, and forward commitments.
Each Portfolio, other than the Municipal Income Portfolio, may lend portfolio
securities and may enter into repurchase agreements with banks,
broker/dealers, and other recognized financial institutions. With respect
to securities loans, each of the Growth, Strategy, and Short-Duration
Income Portfolios may enter into such transactions on up to 25% of its assets,
and each of the Capital Growth, Global, Income and Growth, and Quality Income
Portfolios may enter into such transactions on up to 33 1/3% of its
assets. With respect to repurchase agreements, each of the Growth,
Strategy, and Short-Duration Income Portfolios may enter into such
transactions on up to 25% of its assets. These transactions must be fully
collateralized at all times, but involve some risk to a Portfolio if the
other party should default on its obligations and the Portfolio is delayed
or prevented from recovering the collateral. Each Portfolio, other than
the Growth and Strategy Portfolios, may enter into "reverse" repurchase
agreements. Each Portfolio, other than the Growth, Strategy, and Municipal
Income Portfolios, may enter into "dollar-roll" transactions. "Reverse"
repurchase agreements and "dollar-roll" transactions generally involve the
sale by a Portfolio of securities held by it and an agreement to repurchase
the securities (or, in the case of dollar rolls, similar securities) at an
agreed-upon price, date, and interest payment. Each Portfolio also may enter
into forward commitments, in which a Portfolio buys securities for future
delivery. Reverse repurchase agreements, dollar-roll transactions, and
forward commitments may increase overall investment exposure and may result in
losses.
Dollar Roll Transactions. In order to enhance portfolio returns and
manage prepayment risks, the Quality Income, Income and Growth, Global, and
Short-Duration Income Portfolios may engage in dollar roll transactions with
respect to mortgage- related securities by GNMA, FNMA, and FHLMC. In a dollar
roll transaction, a Portfolio sells a mortgage-related security to a
financial institution, such as a bank or broker/dealer, and simultaneously
agrees to repurchase a substantially similar (i.e., same type, coupon, and
maturity) security from the institution at a later date at an agreed upon
price. The mortgage-related securities that are repurchased will bear the
same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories. During the
period between the sale and repurchase, the Portfolios will not be entitled
to receive interest and principal payments on the securities sold. Proceeds
of the sale will be invested in short-term instruments, and the income from
these investments, together with any additional fee income received on the
sale, will generate income for the Portfolios exceeding the yield.
Foreign securities. Each Portfolio other than the Growth and Municipal
Income Portfolios may invest in securities principally traded in foreign
markets. The Capital Growth and Income and Growth Portfolios will limit such
investments to 15% and 10%, respectively, of their total assets. Since foreign
securities are normally denominated and traded in foreign currencies, the
values of a Portfolio's assets may be affected favorably or unfavorably by
currency exchange rates and exchange control regulations. There may be less
information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to
those in the United States. The securities of some foreign companies are
less liquid and at times more volatile than securities of comparable U.S.
companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of a Portfolio's assets held abroad)
and expenses not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls,
confiscatory taxation, political or financial instability, and diplomatic
developments which could affect the value of a Portfolio's investments in
certain foreign countries. Legal remedies available to investors in certain
foreign countries may be more limited than those available with respect to
investments in the United States or in other foreign countries. The laws of
some foreign countries may limit a Portfolio's ability to invest in
securities of certain issuers located in those foreign countries. Special tax
considerations apply to foreign securities. A Portfolio may buy or sell
foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments as described
more fully below.
The risks described above are typically increased to the extent that a
Portfolio invests in securities traded in underdeveloped and developing
nations, which are sometimes referred to as "emerging markets."
Foreign currency exchange transactions. Each Portfolio other than the
Growth and Municipal Income Portfolios may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future
currency exchange rates. A Portfolio may engage in foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect against changes in the
value of specific portfolio positions ("position hedging").
A Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which a
Portfolio contracts to purchase or sell a security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or interest payment in
a foreign currency. A Portfolio may purchase or sell a foreign currency on
a spot (or cash) basis at the prevailing spot rate in connection with
transaction hedging.
A Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and
sell foreign currency futures contracts, for hedging and not for
speculation. A foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be higher or
lower than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin requirements. For
transaction hedging purposes, a Portfolio may also purchase and, except for
the Income and Growth Portfolio, sell call and put options on foreign
currency futures contracts and on foreign currencies.
A Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in value of a
currency in which securities the Portfolio intends to buy are denominated).
For position hedging purposes, a Portfolio may purchase or sell foreign
currency futures contracts and foreign currency forward contracts, and may,
except for the Income and Growth Portfolio, purchase and sell put and call
options on foreign currency futures contracts and on foreign currencies. In
connection with position hedging, a Portfolio may also purchase or sell
foreign currency on a spot basis.
Interest rate transactions. In order to attempt to protect the value a
portfolio from interest rate fluctuations and to adjust the interest-rate
sensitivity of the portfolio, the Global, Quality Income, and Short-Duration
Income Portfolios may enter into interest rate swaps and other interest rate
transactions, such as interest rate caps, floors, and collars. Interest
rate swaps involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal). The purchase of an interest rate cap entitles the
purchaser to receive payments on a notional principal amount from the party
selling the cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling the
floor to the extent that a specified index falls below a predetermined
interest rate or amount. A collar is a combination of a cap and a floor that
preserves a certain return within a predetermined range of interest rates or
values. Each Portfolio intends to use these interest rate transactions as a
hedge and not as a speculative investment. A Portfolio's ability to
engage in certain interest rate transactions may be limited by tax
considerations. The use of interest rate swaps and other interest rate
transactions is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If a Portfolio's investment adviser is incorrect
in its forecasts of market values, interest rates, or other applicable
factors, the investment performance of a Portfolio would be less favorable
than what it would have been if this investment technique were not used.
Indexed securities. The Global Portfolio may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators. Investment in indexed
securities involves certain risks. In addition to the credit risk of the
securities issuer and normal risks of price changes in response to changes in
interest rates, the principal amount of indexed securities may decrease as a
result of changes in the value of the reference instruments. Also, in the
case of certain indexed securities in which the interest rate is linked to a
reference instrument, the interest rate may be reduced to zero and any further
declines in the value of the security may then reduce the principal amount
payable on maturity. Further, indexed securities may be more volatile than
the reference instruments underlying indexed securities.
Portfolio turnover. The length of time a Portfolio has held a
particular security is not generally a consideration in investment decisions.
A change in the securities held by a Portfolio is known as "portfolio
turnover." As a result of each Portfolio's investment policies, under certain
market conditions its portfolio turnover rate may be higher than that of
other mutual funds. Portfolio turnover generally involves some expense to a
Portfolio, including brokerage commissions or dealer mark- ups and other
transaction costs on the sale of securities and reinvestment in other
securities. Such transactions may result in realization of taxable
gains. The portfolio turnover rates for the ten most recent fiscal years
(or for the life of a Portfolio if shorter) are contained in the section
"Financial Highlights."
VALUING SHARES
Each Portfolio calculates the net asset value of a share of each
class by dividing the total value of its assets, less liabilities, by the
number of its shares outstanding. Shares are valued as of the close of
regular trading on the New York Stock Exchange each day the exchange is
open. Portfolio securities for which market quotations are readily
available are stated at market value. Short-term investments that will
mature in 60 days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at their fair
values. The net asset value for Class A shares will, from time to time,
differ from that of Class B shares due to the variance in daily net income
realized by and dividends paid on each class of shares.
SALES ARRANGEMENTS
This Prospectus offers investors two classes of shares which bear sales
charges in different forms and amounts and which bear different levels of
expenses:
Class A shares. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject
to any charges when they are redeemed, except for sales at net asset value in
excess of $1 million which are subject to a contingent deferred sales charge
(a "CDSC"). Certain purchases of Class A shares qualify for reduced sales
charges. Class A shares currently bear no 12b-1 fees. See "How to Buy
Shares -- Class A shares."
Class B shares. Class B shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge of up to 4% if redeemed
within five or six years, depending on the Portfolio. Class B Shares also
bear 12b-1 fees. Class B shares provide an investor the benefit of putting
all of the investor's dollars to work from the time the investment is made,
but will have a higher expense ratio and pay lower dividends than Class A
shares due to the 12b-1 fees. See "How to Buy Shares -- Class B shares."
Which arrangement is for you? The decision as to which class of shares
provides a suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment.
Investors making investments that qualify for reduced sales charges might
consider Class A shares. Investors who prefer not to pay an initial sales
charge might consider Class B shares. For more information about these sales
arrangements, consult your investment dealer or Mentor Distributors. Sales
personnel may receive different compensation depending on which class of
shares they sell. Shares may only be exchanged for shares of the same class
of another IMG fund. See "How to Exchange Shares."
HOW TO BUY SHARES
You can open a Portfolio account with as little as $1,000 and make
additional investments at any time with as little at $100. Investments under
IRAs maintained or sponsored by Wheat First Butcher Singer, Inc.
("WFBS"), an affiliate of Mentor Distributors, and whose trustee is State
Street Bank and Trust Company, and investments under qualified retirement
plans are subject to a minimum initial investment of $250. The minimum initial
investment may be waived for current and retired Trustees, and current and
retired employees of the Trust or Mentor Distributors. You can buy
Portfolio shares by completing the enclosed New Account Form and sending it to
Mentor Distributors along with a check or money order, through your
financial institution, which may be an investment dealer, a bank, or another
institution, or through automatic investing. If you do not have a dealer,
Mentor Distributors can refer you to one.
Automatic Investment Plan. Once you have made the initial minimum
investment in a Portfolio, you can make regular investments of $100 or on a
monthly or quarterly basis through automatic deductions from your bank
checking account. Application forms are available from your investment dealer
or through Mentor Distributors.
Shares are sold at a Portfolio's net asset value next determined after
Mentor Distributors receives your purchase order. In most cases, in order
to receive that day's public offering price, Mentor Distributors or your
investment dealer must receive your order before the close of regular trading
on the New York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of regular
trading on the New York Stock Exchange to receive that day's public
offering price.
CLASS A SHARES
The public offering of Class A shares is the net asset value plus a
sales charge. The Portfolio receives the net asset value. The sales charge
varies depending on the size of your purchase and is allocated between
your investment dealer and Mentor Distributors. The current sales charges
for the GROWTH, CAPITAL GROWTH, STRATEGY, INCOME AND GROWTH, AND GLOBAL
PORTFOLIOS are:
Sales Charge
as a Sales Charge
Percentage of as a
Public Percentage of
Offering Net Amount Dealer
Price Invested Commission*
Less than $50,000 . . . . . . . . . 5.75% 5.82% 5.00%
$50,000 but less than $100,000 . . 4.75% 4.99% 4.00%
$100,000 but less than $250,000 . . 3.75% 3.90% 3.00%
$250,000 but less than $500,000 . . 3.00% 3.09% 2.50%
$500,000 but less than $1 million . 2.00% 2.04% 1.75%
$1 million or more . . . . . . . . 0% 0% (see below)
* At the discretion of Mentor Distributors, the entire sales charge may at
times be reallowed to dealers. The Staff of the Securities and Exchange
Commission has indicated that dealers who receive more than 90% of
the sales charge may be considered underwriters.
The current sales charges for the QUALITY INCOME and MUNICIPAL INCOME
PORTFOLIOS are:
Sales Charge
as a Sales Charge
Percentage of as a
Public Percentage of
Offering Net Amount Dealer
Price Invested Commission
Less than $100,000 . . . . . . . . 4.75% 4.99% 4.00%
$100,000 but less than $250,000 . . 4.00% 4.17% 3.25%
$250,000 but less than $500,000 . . 3.00% 3.09% 2.50%
$500,000 but less than $1 million . 2.00% 2.04% 1.75%
$1 million or more . . . . . . . . 0% 0% (see below)
There is no initial sales charge on purchases of Class A shares of $1
million or more. However, a CDSC of 1.00% is imposed on redemptions of such
shares within the first year after purchase, based on the lower of the shares'
cost and current net asset value. Any shares acquired by reinvestment of
distributions will be redeemed without a CDSC. In determining whether a CDSC
is payable, the Portfolio will first redeem shares not subject to any charge.
Mentor Distributors receives the entire amount of any CDSC you pay. (Except
as stated below, Mentor Distributors pays investment dealers of record
commissions on sales of Class A shares of $1 million or more based on an
investor's cumulative purchases during the one-year period beginning with the
date of the initial purchase at net asset value and each subsequent one-year
period beginning with the first net asset value purchase following the end of
the prior period.)
You may be eligible to buy Class A shares at reduced sales charges.
Consult your investment dealer or Mentor Distributors or details about
Quantity Discounts and Accumulated Purchases, Letters of Intent, the
Reinvestment Privilege, Concurrent Purchases, and the Automatic Investment
Plan. Descriptions are also included in the New Account Form and in the
Statement of Additional Information. Shares may be sold at net asset value to
certain categories of investors, and the CDSC may be waived under certain
circumstances. See "How to Buy Shares -- General" below.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although a CDSC
will be imposed if you redeem shares within five or six years of purchase,
depending on the Portfolio. The following types of shares may be redeemed
without charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as described in
"How to Buy Shares -- General" below. For other shares, the amount of the
charge is determined as a percentage of the lesser of the current market
value or the cost of the shares being redeemed. The amount of the CDSC
will depend on the number of years since you invested and the dollar amount
being redeemed, according to the following table:
<TABLE>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF CONTINGENT DEFERRED SALES
APPLICABLE AMOUNT REDEEMED CHARGE AS A PERCENTAGE OF
(GROWTH, CAPITAL GROWTH, APPLICABLE AMOUNT REDEEMED
YEAR SINCE STRATEGY, INCOME AND GROWTH, (QUALITY INCOME AND
PURCHASE PAYMENT MADE AND GLOBAL PORTFOLIOS) MUNICIPAL INCOME PORTFOLIOS)
<S> <C> <C>
First 4.0% 4.0%
Second 4.0% 4.0%
Third 3.0% 3.0%
Fourth 2.0% 2.0%
Fifth 1.0% 1.0%
Sixth None 1.0%
Seventh and Thereafter None None
</TABLE>
No CDSC is imposed upon the redemption of Class B shares purchased pursuant to
certain asset-allocation plans sponsored by Wheat, First Securities or
its affiliates. However, a CDSC of 1.00% is imposed on redemptions of such
shares within the first year after purchase, based on the lower of the
shares' cost and current net asset value. Any shares acquired by
reinvestment of distributions will be redeemed without a CDSC. In determining
whether a CDSC is payable, the Portfolio will first redeem shares not subject
to any charge. Mentor Distributors receives the entire amount of any such
CDSC.
In determining whether a CDSC is payable on any redemption, the
Portfolio will first redeem shares not subject to any charge, and then shares
held longest during the five- or six-year period, as the case may be. For
this purpose, the amount of any increase in a shares's value above its
initial purchase price is not regarded as a share exempt from the CDSC.
Thus, when a share that has appreciated in value is redeemed during the
five- or six-year period, a CDSC is assessed on its initial purchase
price. For information on how sales charges are calculated if you exchange
your shares, see "How to Exchange Shares." Mentor Distributors receives the
entire amount of any CDSC you pay.
Reinvestment Privilege. If you redeem Class B shares of any of the
Portfolios, you have a one-time right, within 60 days, to reinvest the
redemption proceeds plus the amount of the CDSC you paid at the
next-determined net asset value. Mentor Distributors must be notified in
writing by you or by your financial institution of the reinvestment for you to
recover the CDSC. If you redeem shares in any of the Portfolios, there
may be tax consequences.
GENERAL
A Portfolio may sell its Class A shares without a sales charge and may
waive the contingent deferred sales charge on shares redeemed by the Trust's
current and retired Trustees (and their families), current and retired
employees (and their families) of Mentor Distributors, each investment adviser
or sub-adviser, and each their affiliates, registered representatives and
other employees (and their families) of broker-dealers having sales agreements
with Mentor Distributors, employees (and their families) of financial
institutions having sales agreements with Mentor Distributors (or otherwise
having an arrangement with a broker-dealer or financial institution with
respect to sales of Portfolio shares), financial institution trust
departments investing an aggregate of $1 million or more in one or more
funds in the IMG-sponsored funds, clients of certain administrators of
tax-qualified plans, employer-sponsored retirement plans, tax-qualified plans
when proceeds from repayments of loans to participants are invested (or
reinvested) in IMG-sponsored funds, shares redeemed under a Portfolio's
Systematic Withdrawal Plan (limited to 10% of a shareholder's account in any
calendar year), and "wrap accounts" for the benefit of clients of financial
planners adhering to certain standards established by a Portfolio's
distributor. In addition, a Portfolio may sell shares without a CDSC in
connection with the acquisition by the Portfolio of assets of an investment
company or personal holding company. In addition, the CDSC may be waived in
the case of (i) redemptions of shares held at the time a shareholder dies or
becomes disabled, including the shares of a shareholder who owns the shares
with his or her spouse as joint tenants with right of survivorship, provided
that the redemption is requested within one year of the death or initial
determination of disability; (ii) redemptions in connection with the
following retirement plan distributions: (a) lump-sum or other
distributions from a qualified retirement plan following retirement; (b)
distributions from an IRA, Keogh Plan, or Custodial Account under Section
403(b)(7) of the Internal Revenue Code following attainment of age 59 1/2; and
(c) a tax-free return of an excess contribution to an IRA; (iii) redemptions
by pension or profit sharing plans sponsored by WFBS or an affiliate; and
(iv) redemptions by pension or profit sharing plans of which WFBS or any
affiliate serves as a plan fiduciary.
Shareholders of other Portfolios may be entitled to exchange their shares
for, or reinvest distributions from their funds in, shares of a Portfolio at
net asset value.
If you are considering redeeming or exchanging shares of a
Portfolio or transferring shares to another person shortly after purchase,
you should pay for those shares with a certified check to avoid any delay in
redemption, exchange or transfer. Otherwise the Portfolio may delay payment
until the purchase price of those shares has been collected or, if you
redeem by telephone, until 15 calendar days after the purchase date.
To eliminate the need for safekeeping, the Trust will not issue
certificates for your shares unless you request them. Mentor Distributors
may, at its expense, provide additional promotional incentives or payments
to dealers that sell shares of the Portfolios. In some instances, these
incentives or payments may be offered only to certain dealers who have sold
or may sell significant amounts of shares. Certain dealers may not sell
all classes of shares.
Because of the relatively high cost of maintaining accounts, each
Portfolio reserves the right to redeem, upon not less than 60 days' notice, any
Portfolio account below $500 as a result of redemptions. A shareholder
may, however, avoid such a redemption by a Portfolio by increasing his
investment in shares of that Portfolio to a value of $500 or more during such
60-day period.
DISTRIBUTION PLANS (CLASS B SHARES)
Mentor Distributors, Inc. (formerly, Cambridge Distributors, Inc.),
having its principal office at 901 East Byrd Street, Richmond, Virginia
23219, is the principal distributor for the Portfolios' shares.
Each of the Portfolios has adopted a Distribution Plan under Rule
12b-1 with respect to its Class B shares (each, a "Class B Plan") providing
for payments by the Portfolio to Mentor Distributors from the assets
attributable to the Portfolio's Class B Shares at the annual rates set out
under "Summary of Portfolio Expenses -- Annual Portfolio Operating Expenses"
above. The Trustees may reduce the amount of payments or suspend the Class B
Plan for such periods as they may determine. Mentor Distributors also
receives the proceeds of any CDSC imposed on redemptions of shares.
Payments under the Plans are intended to compensate Mentor
Distributors for services provided and expenses incurred by it as
principal underwriter of the Portfolio's Class B shares. Mentor
Distributors may select financial institutions (such as a broker/dealer or
bank) to provide sales support services as agents for their clients or
customers who beneficially own Class B shares of the Portfolios. Financial
institutions will receive fees from Mentor Distributors based upon Class B
shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to
time by Mentor Distributors. Mentor Distributors may suspend or modify such
payments to dealers. Such payments are also subject to the continuation of
the relevant Distribution Plan, the terms of any agreements between dealers
and Mentor Distributors, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares in any Portfolio to the Portfolio any day the
New York Stock Exchange is open, either directly to the Portfolio or through
your investment dealer. The Portfolio will only redeem shares for which it has
received payment.
Selling shares directly to a Portfolio. Send a signed letter of
instruction or stock power form, along with any certificates that represent
shares you want to sell to Mentor Family of Funds, c/o TSSG, One American
Express Plaza, Providence, Rhode Island 02903. The price you will receive is
the next net asset value calculated after your request is received in proper
form less any applicable CDSC. In order to receive that day's net asset
value, your request must be received before the close of regular trading
on the New York Stock Exchange. If you sell shares having a net asset value of
$50,000 or more or if you want your redemption proceeds payable to you at a
different address or to someone else, the signatures of registered
owners or their legal representatives must be guaranteed by a bank,
broker-dealer or certain other financial institutions. See the Statement of
Additional Information for more information about where to obtain a
signature guarantee. Stock power forms are available from your investment
dealer, Mentor Distributors and many commercial banks. Mentor Distributors
usually requires additional documentation for the sale of shares by a
corporation, partnership, agent or fiduciary, or surviving joint owner.
Contact Mentor Distributors for details.
Selling shares by telephone. You may use Mentor Distributors
Telephone Redemption Privilege to redeem shares from your account unless you
have notified Mentor Distributors of an address change within the preceding
15 days. Unless an investor indicates otherwise on the Account Application,
Mentor Distributors will be authorized to act upon redemption and transfer
instructions received by telephone from a shareholder, or any person
claiming to act as his or her representative, who can provide Mentor
Distributors with his or her account registration and address as it appears
on Mentor Distributors' records. Mentor Distributors will employ these and
other reasonable procedures to confirm that instructions communicated by
telephone are genuine; if it fails to employ reasonable procedures, Mentor
Distributors may be liable for any losses due to unauthorized or fraudulent
instructions. For information, consult Mentor Distributors. During periods
of unusual market changes and shareholder activity, you may experience
delays in contacting Mentor Distributors by telephone in which case you may
wish to submit a written redemption request, as described above, or contact
your investment dealer, as described below. The Telephone Redemption Privilege
may be modified or terminated without notice.
Selling share through your investment dealer. Your dealer must
receive your request before the close of regular trading on the New York Stock
Exchange to receive that day's net asset value. Your dealer will be
responsible for furnishing all necessary documentation to Mentor
Distributors, and may charge you for its services.
The Portfolio generally sends you payment for your shares the business
day after your request is received. Under unusual circumstances, the
Portfolio may suspend redemptions, or postpone payment for more than seven
days, as permitted by federal securities law.
Systematic Withdrawal Program. You may redeem Class A or B shares of a
Portfolio through periodic withdrawals for a predetermined amount. Only
shareholders with accounts valued at $10,000 or more are eligible to
participate. Class B shares redeemed under the Systematic Withdrawal
program are not subject to a CDSC, but the aggregate withdrawals of Class B
shares in any year are limited to 10% of the value of the account at the
time of enrollment. Contact Mentor Distributors for more information.
HOW TO EXCHANGE SHARES
You can exchange your shares in a Portfolio worth at least $1,000 for
shares of the same class of any other Portfolio at net asset value
beginning 15 days after purchase. You may also exchange shares of the
Growth Portfolio and the Strategy Portfolio for shares of Cash Resource
U.S. Government Money Market Fund. If you exchange shares subject to a
CDSC, the transaction will not be subject to the CDSC. However, when you
redeem the shares acquired through the exchange, the redemption may be subject
to the CDSC, depending upon when you originally purchased the shares, using
the schedule of any Portfolio into or from which you have exchanged your
shares that would result in your paying the highest CDSC applicable to your
class of shares. For purposes of computing the CDSC, the length of time you
have owned your shares will be measured from the date of original purchase and
will not be affected by any exchange.
To exchange your shares, simply complete an Exchange Authorization Form
and send it to Mentor Family of Funds, c/o The Shareholder Services Group,
Inc., One American Express Plaza, Providence, Rhode Island 02903.
Exchange Authorization Forms are available by calling or writing Mentor
Distributors. For federal income tax purposes, an exchange is treated as a
sale of shares and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available. Mentor Distributors' procedures
for telephonic transactions are described above under "How to Sell Shares."
The Telephone Exchange Privilege is not available if you were issued
certificates for shares which remain outstanding. Ask your investment
dealer or Mentor Distributors for a prospectus relating to Cash Resource U.S.
Government Money Market Fund. Shares of certain of the Portfolios may not
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Mentor Distributors or the
Trustees believe doing so would be in the best interests of the Portfolio,
the Portfolio reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any exchange.
Shareholders would be notified of any such action to the extent required by
law. Consult Mentor Distributors before requesting an exchange by calling
1-800-382-0016. See the Statement of Additional Information to find out more
about the exchange privilege.
DISTRIBUTIONS AND TAXES
Dividends, if any, are declared daily and paid to all shareholders
invested in a Portfolio on a record date as follows: monthly for the Quality
Income, Short-Duration Income, and Municipal Income Portfolios; quarterly for
the Income and Growth Portfolio; semi-annually for the Capital Growth
Portfolio; and annually for the Growth, Strategy, and Global Portfolios. Any
next realized capital gain will be distributed at least annually for all
Portfolios. All dividends and distributions will be invested in additional
shares of the same class of a Portfolio unless a shareholder requests in
writing to receive the dividend or distribution in cash.
Each Portfolio intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders.
All Portfolio distributions will be taxable to you as ordinary
income, except that any distributions of net long-term capital gains will be
taxed as such, regardless of how long you have held the shares (although the
loss on a sale of shares held for less than six months will be treated as
long-term capital loss to the extent of any capital gain distribution
received with respect to those shares). Distributions will be taxable as
described above whether received in cash or in shares through the
reinvestment of distributions. Early in each year the Trust will notify
you of the amount and tax status of distributions paid to you by your Portfolio
for the preceding year.
The foregoing is a summary of certain federal income tax
consequences of investing in a Portfolio. You should consult your tax adviser
to determine the precise effect of an investment in a Portfolio on your
particular tax situation.
To permit the Quality Income and Short-Duration Income Portfolios to
maintain more stable monthly distributions, each of those Portfolios may from
time to time pay out less than the entire amount of net investment income
earned in any particular period. Any such amount retained by a Portfolio
would be available to stabilize future distributions. As a result, the
distributions paid by either Portfolio for any particular period may be
more or less than the amount of net investment income actually earned by the
Portfolio during that period.
Municipal Income Portfolio. Distributions designated by the
Portfolio as "exempt-interest dividends" are not generally subject to federal
income tax. However, if you receive Social Security and railroad retirement
benefits, you should consult your tax adviser to determine what effect, if
any, an investment in the Portfolio may have on the taxation of your benefits.
In addition, an investment in the Portfolio may result in liability for federal
alternative maximum tax and for state and local taxes, both for individual and
corporate shareholders.
All Portfolio distributions other than exempt-interest dividends will be
taxable to you as ordinary income, except that any distributions of net
long-term capital gains will be taxable to you as such, regardless of how
long you have held your shares. Distributions will be taxable as described
above whether received in cash or in shares through the reinvestment of
distributions.
The Portfolio may at times purchase municipal securities at a discount
from the price at which they were initially issued. For federal income tax
purposes, some or all of the market discount will be included in the
Portfolio's ordinary income and will be taxable to shareholders as such when it
is distributed to them.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the
conduct of the trust's business. COMMONWEALTH ADVISORS, INC. (formerly,
Cambridge Investment Advisors, Inc.) acts as investment manger of each of
the Portfolios other than the Growth, Strategy, and Short-Duration Income
Portfolios. WELLESLEY ADVISORS, INC. acts as investment manager to the
Strategy Portfolio; Charter Asset Management, Inc. acts as investment manager
to the Growth Portfolio; and COMMONWEALTH INVESTMENT COUNSEL, INC. acts as
investment adviser to the Short-Duration Income Portfolio. Each of the
investment advisers is a wholly-owned subsidiary of Investment Management
Group, Inc. ("IMG"), which is a wholly-owned subsidiary of Wheat First
Butcher Singer, Inc. ("WFBS"). WFBS, through other subsidiaries, also
engages in securities brokerage, investment banking, and related businesses.
Each of the Trust's investment advisers is located at 901 East Byrd Street,
Richmond, Virginia.
Each of the Portfolios pays management fees to its manager at the
annual rates described above under "Summary of Portfolio Expenses -- Annual
Portfolio Expenses", except that the Global Portfolio pays fees equal to
1.10% of its average daily net assets up to and including $75 million and
1.00% of the average daily net assets of the Portfolio in excess of $75
million. The advisory fees paid by the Growth, Capital Growth, Income and
Growth, and Global Portfolios are higher than those paid by many other
mutual funds. An investment manager may from time to time voluntarily waive
some or all of its investment advisory fee and may terminate any such
voluntary waiver of some or all of its investment advisory fee at any time in
its sole discretion.
Commonwealth Advisors was incorporated under the laws of Virginia in
1991. All of its directors and officers serve as directors or officers
of other investment advisory firms affiliated with WFBS. Commonwealth
Advisors has served as investment adviser to each of the Portfolios
identified above since their inception; however, prior to April , 1995,
all investment decisions for each of the Portfolios were made by sub-advisers
to those Portfolios. Commonwealth Investment Counsel currently has assets
under management in excess of $3.2 billion, and serves as investment adviser
to Cash Resource Trust and IMG Institutional Trust, both open-end investment
companies, and Mentor Income Fund, Inc., a closed-end investment company.
P. Michael Jones, Senior Vice President of Commonwealth, and Charles W.
Grant and William H. West, Jr., Managing Director and Vice President,
respectively, of Commonwealth Investment Counsel, are primarily
responsible for the day-to-day management of Commonwealth Short-Duration
Income Portfolio's portfolio. Messrs. Jones, Grant, and West are also
portfolio managers at Commonwealth Advisors and are primarily responsible for
the day-to-day management of Commonwealth Quality Income Portfolio. John G.
Davenport is a Managing Director of Commonwealth Investment Counsel and a
portfolio manager at Commonwealth Advisors; he is primarily responsible for the
day-to- day management of Commonwealth Capital Growth Portfolio. Mr. Grant
has fourteen years of investment management experience. He served
previously as President and Chief Investment Officer of Ryland Capital
Management, Inc. Mr. Davenport has eleven years of investment management
experience. He served previously as Director of Equity Research at Lowe,
Brockenbrough, Tierney & Tattersall. Mr. Jones, Director of Fixed Income
Research at Commonwealth Investment Counsel, has eight years of investment
management experience. He served previously as Senior Vice President of Ryland
Capital Management, Inc. and as Vice President of Alliance Capital
Management. Mr. West, who is Portfolio Manager at Commonwealth Investment
Counsel, has seven years of investment management experience. He served
previously as Vice President and Portfolio Manager at Ryland Capital
Management, Inc.
Charter is a registered investment adviser with total assets under
management exceeding $254 million. Charter provides investment management and
advisory services to a wide variety of individual and institutional clients.
Mr. Theodore W. Price is primarily responsible for the day-to-day management
of the Growth Portfolio. Mr. Price has been Chief Investment Officer of
Charter since January 1992. Prior to that time, he served as Senior Vice
President of IMG since 1986.
Wellesley is a newly organized investment advisory firm. Each of its
directors and officers serves as director or officer of other
investment advisory firms affiliated with WFBS. Mr. Donald R. Hays,
President of Wellesley, is primarily responsible for the day-to-day
management of the Strategy Portfolio. Mr. Hays has been a Managing Director of
Wheat, First Securities, Inc. since 1984.
THE SUB-ADVISERS
Van Kampen/American Capital Management Inc. ("Van Kampen") serves as
the sub- adviser to the Municipal Income Portfolio. Van Kampen, located at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, was incorporated in 1990
and commenced operations in 1992. Van Kampen currently provides investment
advice to a wide variety of individual, institutional, and investment company
clients. Van Kampen is a wholly-owned subsidiary of Van Kampen/American
Capital, Inc., which, in turn, is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is indirectly controlled by Clayton & Dubilier
Associates IV Limited Partnership, the general partners of which are Joseph
L. Rice, III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel, and Hubbard
C. Howe, each of whom is a principal of Clayton, Dubilier & Rice, Inc.,
a New York-based private investment firm. As of December 31, 1994, Van
Kampen, together with its affiliates, managed or supervised approximately $49.6
billion of assets.
David C. Johnson and William V. Grady are co-managers of the
Municipal Income Portfolio. Mr. Johnson is First Vice President of Van
Kampen/American Capital. Mr. Johnson joined Van Kampen/American Capital in
1989 and has served as portfolio management of the Municipal Income
Portfolio since that time. Mr. Grady is Vice President of Van
Kampen/American Capital, which he joined in 1992. He is portfolio manager
for several national and specialty state portfolios. He was previously
associated with Municipal Bond Investors Assurance Corporation where he
structured insured tax-exempt financings for two years, and was employed by
CIGNA Investments Inc. from 1984-1990 as a portfolio manager and research
analyst. For its services as sub- adviser, Commonwealth Advisors pays Van
Kampen a fee at the annual rate of 0.30% of the Portfolio's average net assets.
Wellington Management Company ("Wellington") serves as sub-adviser to
the Income and Growth Portfolio. Wellington, located at 75 State Street,
Boston, Massachusetts 02109, is a professional investment counseling firm
which provides investment services to investment companies, employee benefit
plans, endowments, foundations, and other institutions and individuals. As
of September 30, 1994, Wellington had discretionary investment management
authority with respect to approximately $82.0 billion in assets. Wellington and
its predecessor organizations have provided investment advisory services to
investment companies since 1933 and to investment counseling clients since
1960. For its services as sub-adviser, Commonwealth Advisors pays Wellington
a fee at the annual rate expressed as a percentage of the Portfolio's assets
as follows: 0.325% on the first $50 million in assets, 0.275% on the next
$150 million in assets, 0.225% on the next $300 million in assets, and 0.200%
on assets over $500 million.
Paul D. Kaplan, Senior Vice President of Wellington, and Arnold C.
Schneider III, Senior Vice President of Wellington, have served as portfolio
managers to the Portfolio since its inception in May 1993. Mr. Kaplan
manages the fixed-income and U.S. Government securities portion of the
Portfolio, and Mr. Schneider manages the equity securities portion of the
Portfolio. Mr. Kaplan has been a portfolio manager with Wellington since
1982 and Mr. Schneider has been a portfolio manager with Wellington since
1987.
Perpetual Portfolio Management Limited ("Perpetual") serves as
sub-adviser to the Global Portfolio. Perpetual manages portfolios of
Perpetual Unit Trust and of private individuals, charities, pension plans,
and life assurance companies. Scott McGlashan, a Director of Perpetual,
is primarily responsible for the day-to-day management of Perpetual Global
Portfolio. He has over twelve years of experience in specialist
international funds management. For its services as sub-adviser to the
Global Portfolio, Perpetual receives an annual fee from Commonwealth
expressed as a percentage of the Portfolio's assets as follows: 0.55% on
the first $75 million in assets, and 0.50% on assets over $75 million.
Subject to the general oversight of the Trustees, each Portfolio's
investment adviser or sub-adviser manages its respective Portfolios in
accordance with the stated policies of the Portfolio. Each makes
investment decisions for the Portfolios and place the purchase and sale
orders for the Portfolios' portfolio transactions. In addition, each pays
the salaries of all officers and employees who are employed by both it and the
Trust. The Trust pays all expenses not assumed by the investment advisers
and sub-advisers, or IMG, including, among other things, Trustees' fees,
auditing, accounting, legal, custodial, investor servicing, and shareholder
reporting expenses, and payments under the Portfolios' Class B Plans.
A Portfolio's investment adviser (or its sub-adviser) places all
orders for purchases and sales of the Portfolio's securities. In selecting
broker-dealers, the adviser may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best
overall terms available, a Portfolio's investment adviser may consider sales
of shares of the Trust (and, if permitted by law, of the other Portfolios in
the IMG family) as a factor in the selection of broker- dealers.
------------------
Until April , 1995, Scudder Stevens and Clark served as
sub-adviser to Perpetual Global Portfolio; and Phoenix Investment Counsel,
Inc. served as sub-adviser to Commonwealth Capital Growth Portfolio; and
Pacific Investment Management Company served as sub-adviser to Cambridge
Government Income Portfolio.
OTHER SERVICES
Administrative Services. Investment Management Group, Inc., located at
901 East Byrd Street, Richmond, Virginia 23219, provides each
Portfolio with certain administrative personnel and services necessary to
operate each Portfolio, such as legal and accounting services. IMG provides
these services to each of the Portfolios at an annual rate of 0.10% of each
Portfolio's average net assets. IMG may voluntarily reimburse a portion of its
administrative fee.
Shareholder Servicing Plan. The Trust has adopted a Shareholder
Servicing Plan (the "Service Plan") with respect to Class A and Class B
shares of each Portfolio. Under the Service Plan, financial institutions
will enter into shareholder service agreements with the Portfolios to
provide administrative support services to their customers who are Portfolio
shareholders. In return for providing these support services, a financial
institution may receive payments from one or more Portfolios at a rate not
exceeding 0.25% of the average daily net assets of the Class A or Class B
shares of the particular Portfolio or Portfolios. These administrative
services may include, but are not limited to, the following functions;
providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding
the Portfolios; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the
Portfolios reasonably request.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by a Portfolio's investment adviser, a
sub-adviser, and/or IMG, or affiliates thereof, for providing administrative
support services to holders of Class A or Class B shares of the Portfolios.
These payments will be made directly by a Portfolio's investment adviser,
sub-adviser, and/or IMG and will not be made from the assets of any of the
Portfolios.
GENERAL
The Trust is a Massachusetts business trust organized on January 20,
1992. A copy of the Agreement and Declaration of Trust of the Trust,
which is governed by Massachusetts law, is on file with the Secretary of
State of the Commonwealth of Massachusetts.
The Trust is an open-end, diversified, series management investment
company with an unlimited number of authorized shares of beneficial interest.
Shares of the Trust may, without shareholder approval, be divided into two
or more series of shares representing separate investment portfolios. Any
such series of shares may be further divided without shareholder approval into
two or more classes of shares having such preferences and special or
relative rights and privileges as the Trustees determine. The Trust's shares
are currently divided into eight series, each representing one Portfolio.
Each series issues shares of two classes, Class A and Class B. Each share has
one vote, with fractional shares voting proportionally. Shares of each series
will vote together as a single series except when required by law or
determined by the Trustees. Shares of each Portfolio are freely transferable,
are entitled to dividends as declared by the Trustees, and, if the Portfolio
were liquidated, would receive the net assets of that Portfolio. The Trust may
suspend the sale of shares at any time and may refuse any order to purchase
shares. Although the Trust is not required to hold annual meetings of its
shareholders, shareholders have the right to call a meeting to elect or remove
Trustees, or to take other actions as provided in the Agreement and
Declaration of Trust.
On May , 1995, Mentor Growth Fund, Mentor Strategy Fund, and Mentor
Short-Duration Income Fund were reorganized as series of shares of beneficial
interest of the Trust. None of those series had conducted any operations prior
to the reorganization.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as custodian for each Portfolio, except that State
Street Bank & Trust Company, P.O. Box 8602, Boston, Massachusetts 02266
serves as custodian for the Perpetual Global Portfolio. The Shareholder
Services Group, Inc., P.O. Box 9653, Providence, Rhode Island 02940-9653, is
transfer agent and dividend disbursing agent for the Portfolios. The Trust's
independent auditors are KPMG Peat Marwick LLP, One Boston Place, Boston,
Massachusetts 02108.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Portfolios. A Portfolio's "yield" is calculated by
dividing the Portfolio's annualized net investment income per share during a
recent 30-day period by the maximum public offering price per share on the last
day of that period. "Total return" for the life of a Portfolio through the
most recent calendar quarter represents the actual rate of return on an
investment of $1,000 in the Portfolio reflecting (in the case of Class B
shares) the deduction of any applicable contingent deferred sales charge.
Total return may also be presented for other periods or based on investment at
reduced sales charge levels or at net asset value. Any quotation of total
return or yield for a Portfolio's shares not reflecting a contingent
deferred sales charge would be reduced if such sales charges were reflected.
Quotations of yield or total return for a period when an expense limitation was
in effect will be greater than if the limitation had not been in effect. A
Portfolio's performance may be compared to various indices. See the Statement
of Additional Information. Information may be presented in advertisements
about a Portfolio describing the background and professional experience
of the Portfolio's investment adviser or any portfolio manager.
All data is based on a Portfolio's past investment results and does not
predict future performance. Investment performance, which will vary, is based
on many factors, including market conditions, the composition of the
Portfolio's portfolio, and the Portfolio's operating expenses. Investment
performance also often reflects the risks associated with a Portfolio's
investment objective and policies. These factors should be considered when
comparing a Portfolio's investment results to those of other mutual Portfolios
and other investment vehicles.
As permitted by applicable law, performance information for a Portfolio
whose investment adviser or sub-adviser has changed may be presented
only for periods in which this change was in effect.
Appendix
Moody's Investors Service, Inc., Long-Term Municipal Debt Ratings
Aaa-bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba-Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Note:
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1 and B1.
51
Standard and Poor's Corporation Long-Term Municipal Debt Ratings
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC-Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposure to adverse conditions.
Plus (+) or Minus (-): The ratings from "A" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc., Short-Term Loan Ratings
MIG1/VMIG1-This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG2/VMIG2-This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Standard and Poor's Corporation Municipal Note Ratings
SP-1-Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
52
Fitch Investors Service, Inc., Short-Term Debt Ratings
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2-Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment.
Moody's Investors Service, Inc., Commercial Paper Ratings
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources
of alternate liquidity.
P-2-Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard and Poor's Corporation Commercial Paper Ratings
A-1-This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2-Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
53
P R O S P E C T U S May __, 1995
COMMONWEALTH BALANCED PORTFOLIO
COMMONWEALTH BALANCED PORTFOLIO SEEKS CAPITAL GROWTH AND CURRENT
INCOME. the portfolio is a series of shares of beneficial interest of the
Mentor Funds, an open-end, diversified management investment company. The
Portfolio invests in a diversified portfolio of debt and equity securities
which Commonwealth Investment Counsel, Inc., the Portfolio's investment
adviser, believes will produce both capital growth and current income. THE
PORTFOLIO MAY USE "LEVERAGE" -- THAT IS, IT MAY BORROW MONEY TO PURCHASE
ADDITIONAL PORTFOLIO SECURITIES, WHICH INVOLVES SPECIAL RISKS. SEE "OTHER
INVESTMENT PRACTICES AND RISK FACTORS -- LEVERAGE" ON PAGE 7.
This Prospectus sets forth concisely the information about the
Portfolio that a prospective investor should know before investing. Please
read this Prospectus and retain it for future reference. You can find more
detailed information in the April __, 1995 Statement of Additional
Information, as amended from time to time. For a free copy of the Statement
or for other information, call 1-800-382-0016. The Statement has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference. The Portfolio's address is P.O. Box 1357,
Richmond, Virginia 23286-0109.
____________________
Mentor Distributors, Inc.
Distributor
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the
Portfolio. The following table summarizes your maximum transaction costs
from investing in the Portfolio and expenses the Portfolio expects to incur
in its first full fiscal year. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Portfolio over
specified periods.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed On Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Contingent Deferred Sales Charge:
Contingent Deferred Sales
Year Since Charge as a Percentage of
Purchase Payment Made Applicable Amount Redeemed(1)
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 1.0%
Sixth and thereafter None
ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees 0.75%(2)
12b-1 Fees 0.75%(2)
Shareholders Service Fee 0.25%(2)
Other Fees and Expenses 0.30%(3)
Total Portfolio Operating Expenses 2.05%(3)
_______________
(1) The applicable amount redeemed is computed as the lesser of the
current net asset value of the redemption amount, excluding reinvested
distributions, and the original purchase amount. The calculation of the
contingent deferred sales charge with respect to Portfolio shares is made only
by reference to shares of the Portfolio held by the shareholder and without
reference to any other shares of The Mentor may be held by the same shareholder.
(2) During the Portfolio's last fiscal year, Commonwealth Investment
Counsel Inc. ("Commonwealth"), the Portfolio's investment adviser, waived
all Management Fees and Wheat, First Securities, Inc. ("Wheat"), the
distributor of the Portfolio until May , 1995, waived all 12b-1 Fees and
Shareholder Service Fees. Commonwealth and/or Wheat may waive all or a
portion of such fees for the current fiscal year. The amounts shown in the
table show expenses in the absence of the waivers.
(3) Reflects the waiver by Investment Management Group, Inc. ("THE MENTOR
FUNDS") of fees pursuant to its Administration Agreement with the
Portfolio. In the absence of the waiver, Other Fees and Expenses would be
0.40%, and Total Portfolio Operating Expenses would be 2.15%.
EXAMPLES
Your investment of $1,000 in the Portfolio would incur the following
expenses, assuming 5% annual return and redemption
at the end of each period:
1 year $72
3 years $97
You would pay the following expenses on the
same investment, assuming no redemption:
1 year $22
3 years $67
This information is provided to help you understand the expenses of
investing in the Portfolio and your share of the estimated operating
expenses of the Portfolio. The information concerning the Portfolio is
based on the expenses the Portfolio expects to incur during its first full
fiscal year. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
FINANCIAL HIGHLIGHTS
The financial highlights presented below for the Portfolio have been audited
by KPMG Peat Marwick LLP, independent auditors. The report of KPMG Peat
Marwick LLP is contained in the Statement of Additional Information, which may
be obtained in the manner described on the cover page of this Prospectus. The
Portfolio began operations on June 21, 1994. See "Financial Statements" and
"Independent Auditor's Report" in the Statement of Additional Information.
Commonwealth
Balanced
Portfolio
(formerly Mentor
Balanced Fund)
6/21/94*
to
12/31/94
Per Share Operating Performance
NET ASSET VALUE, BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . $ 12.50
Net Investment income (loss) . . . . . . 0.22
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . (0.09)
Total from investment operations . . . . . 0.13
Less distributions
Dividends from net investment income . . (0.19)
Distributions in excess of net investment
income . . . . . . . . . . . . . . . . --
Total distributions . . . . . . . . . . . . (0.19)
Net asset value, end of period . . . . . . $ 12.44
Total return . . . . . . . . . . . . . . . 1.00%
Ratios/Supplemental Data
NET ASSETS, END OF PERIOD
(IN 000'S) . . . . . . . . . . . . . . . $ 2,911
Ratio of net expenses to average
net assets . . . . . . . . . . . . . . . 0.50%(a)
Ratio of net investment income (loss)
to average net assets . . . . . . . . . . 3.32%(a)
Portfolio turnover rate . . . . . . . . . . 166%
____________
-4-
*Commencement of operations
(a) Determined on an annualized basis
INVESTMENT OBJECTIVE AND POLICIES
COMMONWEALTH BALANCED PORTFOLIO'S INVESTMENT OBJECTIVE IS TO SEEK
CAPITAL GROWTH AND CURRENT INCOME. The Portfolio invests in a diversified
portfolio of equity and fixed-income securities which Commonwealth believes
will produce both capital growth and current income. There can, of course, be
no assurance that the Portfolio will achieve its investment objective. The
Portfolio is a series of The Mentor Funds (the "Trust"), a diversified, open-
end series investment company. The Trustees would not materially change the
Portfolio's investment objective without shareholder approval.
The Portfolio may invest in almost any type of security. The
Portfolio's securities will include some securities selected primarily to
provide for growth in value, others selected for current income, and other for
stability of principal.
Commonwealth will adjust the proportions of the Portfolio's assets
invested in the different types of securities in order to adjust to changing
market conditions. For example, under certain market conditions, Commonwealth
may judge that most of the Portfolio's assets should be invested in equity
securities, and that only a relatively small portion of the Portfolio's assets
should be invested in fixed-income securities. At other times, Commonwealth
may invest most of the Portfolio's assets in fixed-income securities, with a
corresponding reduction in the portion of the Portfolio's assets invested in
equity securities. Under normal circumstances, the Portfolio will invest at
least 25% of its assets in fixed-income securities and 25% of its assets in
equity securities.
The Portfolio will invest in debt securities and preferred stocks of
investment grade, and the Portfolio will seek under normal market conditions
to maintain a portfolio of securities with a dollar-weighted average rating of
A or better. A security will be considered to be of "investment grade" if, at
the time of investment by the Portfolio, it is rated at least Baa3 by Moody's
Investors Service, Inc. or BBB- by Standard & Poor's Corporation or the
equivalent by another nationally recognized rating organization or, if
unrated, determined by Commonwealth to be of comparable quality. Securities
rated Baa or BBB lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market risks
than higher-rated securities. See the Statement of Additional Information for
descriptions of securities ratings assigned by Moody's and Standard & Poor's.
At times Commonwealth may decide that conditions in the securities
markets make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times, Commonwealth may
temporarily use alternative investment strategies primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio would be permitted to hold all or any
portion of its assets in high quality fixed-income securities, cash, or money
market instruments. It is impossible to predict when, or for how long, the
Portfolio will use these alternative strategies.
MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES. The
Portfolio may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including collateralized
mortgage obligations and certain stripped mortgage-backed securities and
"residual" interests therein. Interest and principal payments on the
mortgages underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed securities. Mortgage-backed securities
currently offer yields higher than those available from many other types of
fixed-income securities but because of their prepayment aspects, their price
volatility and yield characteristics will change based on changes in
prepayment rates. Generally, prepayment rates increase if interest rates fall
and decrease if interest rates rise. For many types of mortgage-backed
securities, this can result in unfavorable changes in price and yield
characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolio's mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-
income securities of comparable maturities, although such obligations may have
a comparable risk of decline in market value during periods of rising interest
rates.
Mortgage-backed securities have yield and maturity characteristics that
are dependent upon the mortgages underlying them. Thus, unlike traditional
debt securities, which may pay a fixed rate of interest until maturity when
the entire principal amount comes due, payments on these securities may
include both interest and a partial payment of principal. In addition to
scheduled loan amortization, payments of principal may result from the
voluntary prepayment, refinancing, or foreclosure of the underlying mortgage
loans. Such prepayments may significantly shorten the effective durations of
mortgage-backed securities, especially during periods of declining interest
rates. Similarly, during periods of rising interest rates, a reduction in the
rate of prepayments may significantly lengthen the effective durations of such
securities.
Stripped mortgage-backed securities are usually structured with two
classes that receive different portions of the interest and principal
distributions on a pool of mortgage assets. The Portfolio may invest in both
the interest-only -- or "IO" -- class and the principal-only -- or "PO" --
class. The yield to maturity and price of an IO class are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying mortgage assets, and a rapid rate of principal payments may have a
material adverse effect on the Portfolio's average duration and net asset
value. This would typically be the case in an environment of falling interest
rates. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Portfolio may under some circumstances fail to
recoup fully its initial investment in these securities. Conversely, POs tend
to increase in value if prepayments are greater than anticipated and decline
if prepayments are slower than anticipated.
The Portfolio may invest in securities representing interests in other
types of financial assets, such as automobile-finance receivables or credit-
card receivables. Such securities may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers.
Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates,
the Portfolio might not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
OTHER MORTGAGE-RELATED SECURITIES AND ZERO-COUPON SECURITIES.
The Portfolio may also invest in other types of mortgage-related
securities, including any securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans or
real property, including collateralized mortgage obligation "residual"
interests, as well as new types of mortgage-related securities that may be
developed and marketed from time to time. "Residual" interests represent the
right to any excess cash flow remaining after all other payments are made
among the various tranches of interests issued by structured mortgage-backed
vehicles. The values of such interests are extremely sensitive to changes in
interest rates and in prepayment rates on the underlying mortgages. In the
event of a significant change in interest rates or other market conditions,
the value of an investment by the Portfolio in such interests could be
substantially reduced and the Portfolio may be unable to dispose of the
interests at prices approximating the values the Portfolio had previously
assigned to them or to recoup its initial investment in the interests.
The Portfolio may at times invest in so-called "zero-coupon" bonds.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Because zero-coupon bonds do not pay current interest, their value
is subject to greater fluctuation in response to changes in market interest
rates than bonds that pay interest currently. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds that pay
interest currently. Even though such bonds do not pay current interest in
cash, the Portfolio is nonetheless required for federal income tax purposes to
accrue interest income on such investments and to distribute such amounts at
least annually to shareholders. Thus, the Portfolio could be required at
times to liquidate other investments in order to satisfy this distribution
requirement.
The Portfolio may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amount payable on maturity.
Although the Portfolio generally amortizes the amount of any such premium into
income, the Portfolio may recognize a capital loss if such premium securities
are called or sold prior to maturity and the call or sale price is less than
the purchase price. Additionally, the Portfolio may elect not to amortize the
premium, in which case it would likely recognize a capital loss if it holds
such securities to maturity and may recognize a larger loss if the security is
sold or called prior to its maturity.
OTHER INVESTMENT PRACTICES AND RISK FACTORS
The Portfolio may engage in the other investment practices described
below. See the Statement of Additional Information for a more detailed
description of these practices and certain risks they may involve.
LEVERAGE. The Portfolio may borrow money to invest in additional
portfolio securities to see current income. This technique, known as
"leverage," increases the Portfolio's market exposure and risk. When the
Portfolio has borrowed money for leverage and its investments increase or
decrease in value, the Portfolio's net asset value will normally increase or
decrease more than if it had not borrowed money for this purpose. The
interest that the Portfolio must pay on borrowed money will reduce its net
investment income, and may also either offset any potential capital gains or
increase any losses. The Portfolio currently intends to use leverage in order
to adjust the dollar-weighted average duration of its portfolio, and the
Portfolio will not always borrow money for investment. The extent to which
the Portfolio will borrow money, and the amount it may borrow, depend on
market conditions and interest rates. Successful use of leverage depends on
Commonwealth's ability to predict market movements correctly. The amount of
leverage that can exist at any one time will not exceed 33-1/3% of the value
of the Portfolio's total assets (less all liabilities of the Portfolio other
than the leverage).
OPTIONS AND FUTURES. The Portfolio may buy and sell call and put
options on securities it owns to hedge against changes in net asset value or
to realize a greater current return. In addition, through the purchase and
sale of futures contracts and related options, the Portfolio may at times seek
to hedge against fluctuations in net asset value and, to the extent consistent
with applicable law, to increase its investment return. In addition, the
Portfolio may buy and sell options and futures contracts (including index
futures contracts, described below) to implement changes in its asset
allocations among various market sectors, pending the sale of its existing
investments and reinvestment in new securities.
The Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that
the Portfolio will be able to utilize these instruments effectively for the
purposes stated above. Although the Portfolio will only engage in options and
futures transactions for limited purposes, those transactions involve certain
risks which are described below and in the Statement of Additional
Information.
Transactions in options and futures contracts involve brokerage costs
and may require the Portfolio to segregate assets to cover its outstanding
positions. For more information, see "Options" and "Futures Contracts" in the
Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index
future" is a contract to buy or sell units of a particular bond or stock index
at an agreed price on a specified future date. Depending on the change in
value of the index between the time when the Portfolio enters into and
terminates an index futures or option transaction, the Portfolio realizes a
gain or loss. The Portfolio may also, to the extent consistent with
applicable law, buy and sell index futures and options to increase its
investment return. Certain provisions of the Internal Revenue Code may limit
the Portfolio's ability to engage in futures and options transactions.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
security or index or of the securities in the Portfolio's portfolio that are
the subject of a hedge. The successful use by the Portfolio of the strategies
described above further depends on Commonwealth's ability to forecast market
movements correctly. Other risks arise from the Portfolio's potential
inability to close out futures or options positions. Although the Portfolio
will enter into options or futures transactions only if Commonwealth believes
that a liquid secondary market exists for such option or futures contract,
there can be no assurance that the Portfolio will be able to effect closing
transactions at any particular time or at an acceptable price.
The Portfolio generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In certain instances,
however, the Portfolio may purchase and sell options in the over-the-counter
markets. The Portfolio's ability to terminate options in the over-the-counter
markets may be more limited than for exchange-traded options and may also
involve the risk that securities dealers participating in such transactions
would be unable to meet their obligations to the Portfolio. The Portfolio
will, however, engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of
Commonwealth, the pricing mechanism and liquidity of the over-the-counter
markets are satisfactory and the participants are responsible parties likely
to meet their contractual obligations.
The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the
Portfolio's existing futures positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the Portfolio's assets. (For
options that are "in-the-money" at the time of purchase, the amount by which
the option is "in-the-money" is excluded from this calculation.)
SECURITIES LOANS, REPURCHASE AGREEMENTS, AND FORWARD COMMITMENTS. The
Portfolio may lend portfolio securities amounting to not more than 25% of its
assets to broker-dealers and may enter into repurchase agreements on up to 25%
of its assets. These transactions must be fully collateralized at all times,
but involve some risk to the Portfolio if the other party should default on
its obligations and the Portfolio is delayed or prevented from recovering the
collateral. The Portfolio may also purchase securities for future delivery.
The Portfolio may also enter into "reverse" repurchase agreements and "dollar-
roll" transactions, which generally involve the sale by the Portfolio of
securities held by it and an agreement to repurchase the securities (or, in
the case of dollar rolls, similar securities), at an agreed-upon price, date
and interest payment. Reverse repurchase agreements, dollar-roll
transactions, and forward commitments may increase the Portfolio's overall
investment exposure and may result in losses.
FOREIGN SECURITIES. The Portfolio may invest in securities principally
traded in foreign markets. Since foreign securities are normally denominated
and traded in foreign currencies, the values of the Portfolio's assets may be
affected favorably or unfavorably by currency exchange rates and exchange
control regulations. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards
and practices comparable to those in the United States. The securities of
some foreign companies are less liquid and at times more volatile than
securities of comparable U.S. companies. Foreign brokerage commissions and
other fees are also generally higher than in the United States. Foreign
settlement procedures and trade regulations may involve certain risks (such as
delay in payment or delivery of securities or in the recovery of the
Portfolio's assets held abroad) and expenses not present in the settlement of
domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls,
confiscatory taxation, political or financial instability, and diplomatic
developments which could affect the value of the Portfolio's investments in
certain foreign countries. Legal remedies available to investors in certain
foreign countries may be more limited than those available with respect to
investments in the United States or in other foreign countries. In the case
of securities issued by a foreign governmental entity, the issuer may in
certain circumstances be unable or unwilling to meet its obligations on the
securities in accordance with their terms, and the Portfolio may have limited
recourse available to it in the event of default. The laws of some foreign
countries may limit the Portfolio's ability to invest in securities of certain
issuers located in those foreign countries. Special tax considerations apply
to foreign securities. The Portfolio may buy or sell foreign currencies and
options and futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments.
INTEREST RATE TRANSACTIONS. In order to attempt to protect the value of
the Portfolio's portfolio from interest rate fluctuations and to adjust the
interest-rate sensitivity of the Portfolio's portfolio, the Portfolio may
enter into interest rate swaps and other interest rate transactions, such as
interest rate caps, floors, and collars. Interest rate swaps involve the
exchange by the Portfolio with another party of their respective commitments
to pay or receive interest (e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal). The
purchase of an interest rate cap entitles the purchaser to receive payments on
a notional principal amount from the party selling the cap to the extent that
a specified index exceeds a predetermined interest rate or amount. The
purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. The Portfolio intends to use
these interest rate transactions as a hedge and not as a speculative
investment. The Portfolio's ability to engage in certain interest rate
transactions may be limited by tax considerations. The use of interest rate
swaps and other interest rate transactions is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If Commonwealth is incorrect
in its forecasts of market values, interest rates, or other applicable
factors, the investment performance of the Portfolio would be less favorable
than what it would have been if this investment technique were not used.
MANAGEMENT OF THE PORTFOLIO
The Trustees of the Trust are responsible for generally overseeing the
conduct of the Trust's and the Portfolio's business. COMMONWEALTH INVESTMENT
COUNSEL, INC., located at 901 East Byrd Street, Richmond, Virginia 23219,
acts as investment adviser to the Portfolio. INVESTMENT MANAGEMENT GROUP,
INC. serves as administrator to the Portfolio. As compensation for its
services as administrator, the Portfolio pays IMG a fee, accrued daily and
paid monthly, at an annual rate of .10% of the average value of the
Portfolio's daily assets. In order to reduce the Portfolio's expenses during
its start-up period, IMG has agreed to waive its fee for the first year of the
Portfolio's operations. Commonwealth is a wholly-owned subsidiary of IMG,
which is a wholly-owned subsidiary of Wheat First Butcher Singer, Inc.
("WFBS"). WFBS, through other subsidiaries, also engages in securities
brokerage, investment banking, and related businesses. Commonwealth currently
has assets under management in excess of $3.2 billion, and serves as
investment adviser to Cash Resource Trust and IMG Institutional Trust, both
open-end investment companies, and Mentor Income Fund, Inc., a closed-end
investment company, and the Commonwealth Capital Growth, Commonwealth Quality
Income, and Commonwealth Short-Duration Income Portfolios of the Trust.
Subject to the general oversight of the Trustees, Commonwealth, as
investment adviser, manages the Portfolio's securities in accordance with the
stated policies of the Portfolio. Commonwealth makes investment decisions for
the Portfolio and places the purchase and sale orders for the Portfolio's
portfolio transactions. In addition, Commonwealth pays the salaries of all
officers and employees who are employed by both it and the Trust. The
Portfolio pays all expenses not assumed by Commonwealth or IMG, including,
among other things, Trustee's fees, auditing, legal, accounting, custodial,
investor servicing, and shareholder reporting expenses, and payments under its
Plans of Distribution. Mr. John G. Davenport, President of Commonwealth, and
Charles W. Grant, Senior Vice President of Commonwealth, are primarily
responsible for the day-to-day management of the Portfolio's portfolio. Mr.
Grant has fifteen years of investment management experience. He served
previously as President and Chief Investment Officer of Ryland Capital
Management, Inc. Mr. Davenport has eleven years of investment management
experience. He served previously as Equity Analyst for Lowe, Brockenbrough
and Tattersall, Inc.
Commonwealth places all orders for purchases and sales of the
Portfolio's securities. In selecting broker-dealers, Commonwealth may
consider research and brokerage services furnished to it and its affiliates.
Subject to seeking the best overall terms available, Commonwealth may consider
sales of shares of the Portfolio (and, if permitted by law, of the other
Portfolios in IMG-sponsored funds) as a factor in the selection of broker-
dealers.
The length of time the Portfolio has held a particular security is not
generally a consideration in investment decisions. A change in the securities
held by the Portfolio is known as "portfolio turnover." As a result of the
Portfolio's investment policies, under certain market conditions the
Portfolio's portfolio turnover rate may be higher than that of other mutual
Portfolios. Portfolio turnover generally involves some expense to the
Portfolio, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities. Such transactions may result in realization of taxable capital
gains. The Portfolio's portfolio turnover rate for its first fiscal year is
shown in the section "Financial Highlights.".
VALUING SHARES
The Portfolio calculates the net asset value of its shares by dividing
the total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which approximates market value. All other securities and
assets are valued at their fair values.
HOW TO BUY SHARES
You can open a Portfolio account with as little as $1,000 and make
additional investments at any time with as little at $100. Investments under
IRAs maintained or sponsored by Wheat First Butcher Singer, Inc. ("WFBS"), an
affiliate of Mentor Distributors, and whose trustee is State Street Bank and
Trust Company, and investments under qualified retirement plans are subject to
a minimum initial investment of $250. The minimum initial investment may be
waived for current and retired Trustees, and current and retired employees of
the Trust or Mentor Distributors. You can buy Portfolio shares from Mentor
Distributors by check or money order, through your financial institution,
which may be an investment dealer, a bank, or another institution, or through
automatic investing. If you do not have a dealer, Mentor Distributors can
refer you to one.
Automatic Investment Plan. Once you have made the initial minimum
investment in a Portfolio, you can make regular investments of $100 or on a
monthly or quarterly basis through automatic deductions from your bank
checking account. Application forms are available from your investment dealer
or through Mentor Distributors.
Shares are sold at a Portfolio's net asset value next determined after
Mentor Distributors receives your purchase order. In most cases, in order to
receive that day's public offering price, Mentor Distributors or your
investment dealer must receive your order before the close of regular trading
on the New York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of regular trading
on the New York Stock Exchange to receive that day's public offering service.
Shares of the Portfolio are sold without an initial sales charge,
although a contingent deferred sales charge ("CDSC") will be imposed if you
redeem shares within five years of purchase. The following types of shares
may be redeemed without charge at any time: (i) shares acquired by
reinvestment of distributions and (ii) shares otherwise exempt from the CDSC,
as described in "How to buy shares" above. The amount of the CDSC will depend
on the number of years since you invested and the dollar amount being
redeemed, according to the following table:
Contingent Deferred Sales
Year Since Charge as a Percentage of
Purchase Payment Made Applicable Amount Redeemed
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 1.0%
Sixth and thereafter None
In determining whether a CDSC is payable on any redemption, the
Portfolio will first redeem shares not subject to any charge, and then shares
held longest during the five- or six-year period, as the case may be. For
this purpose, the amount of any increase in a shares's value above its initial
purchase price is not regarded as a share exempt from the CDSC. Thus, when
a share that has appreciated in value is redeemed during the five- or
six-year period, a CDSC is assessed on its initial purchase price. For
information on how sales charges are calculated if you exchange your shares,
see "How to exchange shares" below. Mentor Distributors receives the entire
amount of any CDSC you pay.
The Portfolio may waive the CDSC on shares redeemed by the
Trust's current and retired Trustees (and their families), current and
retired employees (and their families) of Mentor Distributors, Commonwealth,
each their affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with Mentor
Distributors, employees (and their families) of financial institutions
having sales agreements with Mentor Distributors (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of Portfolio shares), financial institution trust departments investing
an aggregate of $1 million or more in one or more funds in the Trust,
clients of certain administrators of tax-qualified plans, employer-sponsored
retirement plans, tax-qualified plans when proceeds from repayments of loans to
participants are invested (or reinvested) in the Trust, shares redeemed under
the Portfolio's Systematic Withdrawal Plan (limited to 10% of a shareholder's
account in any calendar year), and "wrap accounts" for the benefit of clients
of financial planners adhering to certain standards established by Mentor
Distributors. In addition, the Portfolio may sell shares without a CDSC in
connection with the acquisition by the Portfolio of assets of an investment
company or personal holding company. In addition, the CDSC may be waived in
the case of (i) redemptions of shares held at the time a shareholder
dies or becomes disabled, including the shares of a shareholder who owns the
shares with his or her spouse as joint tenants with right of survivorship,
provided that the redemption is requested within one year of the death or
initial determination of disability; (ii) redemptions in connection with the
following retirement plan distributions: (a) lump-sum or other distributions
from a qualified retirement plan following retirement; (b) distributions
from an IRA, Keogh Plan, or Custodial Account under Section 403(b)(7) of the
Internal Revenue Code following attainment of age 59 1/2; and (c) a tax-free
return of an excess contribution to an IRA; (iii) redemptions by pension or
profit sharing plans sponsored by WFBS or an affiliate; and (iv) redemptions by
pension or profit sharing plans of which WFBS or any affiliate serves as a plan
fiduciary.
If you are considering redeeming or exchanging shares of the Portfolio
or transferring shares to another person shortly after purchase, you should
pay for those shares with a certified check to avoid any delay in redemption,
exchange or transfer. Otherwise the Portfolio may delay payment until the
purchase price of those shares has been collected or, if you redeem by
telephone, until 15 calendar days after the purchase date.
To eliminate the need for safekeeping, the Trust will not issue
certificates for your shares unless you request them. Mentor Distributors
may, at its expense, provide additional promotional incentives or payments to
dealers that sell shares of the Portfolios. In some instances, these
incentives or payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares. Certain dealers may not sell all
classes of shares.
Because of the relatively high cost of maintaining accounts,
the Portfolio reserves the right to redeem, upon not less than 60 days'
notice, any account below $500 as a result of redemptions. A shareholder
may, however, avoid such a redemption by the Portfolio by increasing his
investment in shares to a value of $500 or more during such 60-day period.
HOW TO SELL SHARES
You can sell your shares in the Portfolio to the Portfolio any day the
New York Stock Exchange is open, either directly to the Portfolio or through
your investment dealer. The Portfolio will only redeem shares for which it
has received payment.
Selling shares directly to the Portfolio. Send a signed letter of
instruction or stock power form, along with any certificates that represent
shares you want to sell to The Mentor Funds, c/o The Shareholder Services
Group, Inc., One American Express Plaza, Providence, Rhode Island 02903. The
price you will receive is the next net asset value calculated after your
request is received in proper form less any applicable CDSC. In order to
receive that day's net asset value, your request must be received before the
close of regular trading on the New York Stock Exchange. If you sell shares
having a net asset value of $50,000 or more or if you want your redemption
proceeds payable to you at a different address or to someone else, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions.
See the Statement for more information about where to obtain a signature
guarantee. Stock power forms are available from your investment dealer,
Mentor Distributors and many commercial banks. Mentor Distributors usually
requires additional documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or surviving joint owner. Contact Mentor
Distributors for details.
Selling shares by telephone. You may use Mentor Distributors Telephone
Redemption Privilege to redeem shares from your account unless you have
notified Mentor Distributors of an address change within the preceding 15
days. Unless an investor indicates otherwise on the Account Application,
Mentor Distributors will be authorized to act upon redemption and transfer
instructions received by telephone from a shareholder, or any person claiming
to act as his or her representative, who can provide Mentor Distributors with
his or her account registration and address as it appears on Mentor
Distributors' records. Mentor Distributors will employ these and other
reasonable procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Mentor Distributors
may be liable for any losses due to unauthorized or fraudulent instructions.
For information, consult Mentor Distributors. During periods of unusual
market changes and shareholder activity, you may experience delays in
contacting Mentor Distributors by telephone in which case you may wish to
submit a written redemption request, as described above, or contact your
investment dealer, as described below. The Telephone Redemption Privilege may
be modified or terminated without notice.
Selling share through your investment dealer. Your dealer must receive
your request before the close of regular trading on the New York Stock
Exchange to receive that day's net asset value. Your dealer will be
responsible for furnishing all necessary documentation to Mentor Distributors,
and may charge you for its services.
The Portfolio generally sends you payment for your shares the
business day after your request is received. Under unusual
circumstances, the Portfolio may suspend redemptions, or postpone payment for
more than seven days, as permitted by federal securities law.
Systematic Withdrawal Program. You may redeem shares of a Portfolio
through periodic withdrawals for a predetermined amount. Only shareholders
with accounts valued at $10,000 or more are eligible to participate. Shares
redeemed under the Systematic Withdrawal program are not subject to a CDSC,
but the aggregate withdrawals of shares in any year are limited to 10% of the
value of the account at the time of enrollment. Contact Mentor Distributors
for more information.
HOW TO EXCHANGE SHARES
You can exchange your shares in the Portfolio worth at least $1,000 for
shares of the same class of certain other Portfolios of the Mentor Family of
Funds at net asset value beginning 15 days after purchase. You may also
exchange shares of the Portfolio for shares of Cash Resource U.S. Government
Money Market Fund. If you exchange shares subject to a CDSC, the transaction
will not be subject to the CDSC. However, when you redeem the shares acquired
through the exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares, using the schedule of any
Portfolio into or from which you have exchanged your shares that would result
in your paying the highest CDSC applicable to your class of shares. For
purposes of computing the CDSC, the length of time you have owned your shares
will be measured from the date of original purchase and will not be affected
by any exchange.
To exchange your shares, simply complete an Exchange Authorization Form
and send it to The Mentor Funds, c/o The Shareholder Services Group, Inc., One
American Express Plaza, Providence, Rhode Island 02903. Exchange
Authorization Forms are available by calling or writing Mentor Distributors.
For federal income tax purposes, an exchange is treated as a sale of shares
and generally results in a capital gain or loss. A Telephone Exchange
Privilege is currently available. Mentor Distributors' procedures for
telephonic transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued certificates
for shares which remain outstanding. Ask your investment dealer or Mentor
Distributors for a prospectus of the Mentor Family of Funds which relates to
the other Portfolios or a prospectus relating to Cash Resource U.S. Government
Money Market Fund. Shares of certain of the Portfolios may not available to
residents of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Mentor Distributions or the
Trustees believe doing so would be in the best interests of the Fund, the
Portfolio reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges or reject any exchange. Shareholders
would be notified of any such action to the extent required by law. Consult
Mentor Distributors before requesting an exchange by calling 1-800-382-0016.
See the Statement of Additional Information to find out more about the
exchange privilege.
-15-
DISTRIBUTIONS AND TAXES
Dividends, if any, are declared daily and paid monthly to all
shareholders invested in the Portfolio on a record date. Any next realized
capital gain will be distributed at least annually. All dividends and
distributions will be invested in additional shares unless a shareholder
requests in writing to receive the dividend or distribution in cash.
The Portfolio intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders.
All Portfolio distributions will be taxable to you as ordinary income,
except that any distributions of net long-term capital gains will be taxed as
such, regardless of how long you have held the shares (although the loss on a
sale of shares held for less than six months will be treated as long-term
capital loss to the extent of any capital gain distribution received with
respect to those shares). Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of
distributions. Early in each year the Mentor Family of Funds will notify you
of the amount and tax status of distributions paid to you by the Portfolio for
the preceding year.
The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. You should consult your tax adviser to determine
the precise effect of an investment in the Portfolio on your particular tax
situation.
The Portfolio has agreed to indemnify Mentor Distributors against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
SHAREHOLDER SERVICES
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with respect to 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 are Portfolio
shareholders. In return for providing these support services, a financial
institution may receive payments from the Portfolios at a rate not exceeding
0.25% of the average daily net assets of the Portfolio. These administrative
services may include, but are not limited to, the following functions;
providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Portfolio; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the
Portfolio reasonably requests.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by Commonwealth and/or THE MENTOR FUNDS, or
affiliates thereof, for providing administrative support services to holders
of the Portfolio's shares. These payments will be made directly by
Commonwealth and/or THE MENTOR FUNDS and will not be made from the assets of
the Portfolio.
THE MENTOR FUNDS
The Mentor Funds (formerly Cambridge Series Trust) is a Massachusetts
business trust organized on January 20, 1992. A copy of the Agreement and
Declaration of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
The Trust is an open-end, diversified, series management investment
company with an unlimited number of authorized shares of beneficial interest.
Shares of the Trust may, without shareholder approval, be divided into two or
more series of shares representing separate investment portfolios. Any such
series of shares may be further divided without shareholder approval into two
or more classes of shares having such preferences and special or relative
rights and privileges as the Trustees determine. The Trust's shares are
currently divided into ten series, one representing the Portfolio, the others
representing other Portfolios with varying investment objectives and policies.
Each share has one vote, with fractional shares voting proportionally. Shares
of each class will vote together as a single class except when required by law
or determined by the Trustees. Shares of the Portfolio are freely
transferable, are entitled to dividends as declared by the Trustees, and, if
the Portfolio were liquidated, would receive the net assets of the Portfolio.
The Trust may suspend the sale of shares at any time and may refuse any order
to purchase shares. Although the Trust is not required to hold annual
meetings of its shareholders, shareholders have the right to call a meeting to
elect or remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
In the interest of economy and convenience, the Portfolio will not issue
certificates for its shares except at the shareholder's request.
For additional information concerning the Mentor Family of Funds or any
of its Portfolios being offered for sale, contact Mentor Distributors, by
calling 1-800-382-0016 or writing to Mentor Distributors at 901 East Byrd
Street, Richmond, Virginia 23219.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. The Shareholder Services
Group, Inc., P.O. Box 9653, Providence, Rhode Island 02940-9653, serves as the
Portfolio's transfer and dividend agent.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Portfolio. The Portfolio's "yield" is calculated by
dividing the Portfolio's annualized net investment income per share of the
class during a recent 30-day period by the maximum public offering price per
share on the last day of that period. A "total return" for the one-year
period and for the life of the Portfolio through the most recent calendar
quarter represents the average annual compounded rate of return on an
investment of $1,000 in the Portfolio reflecting the deduction of any
applicable contingent deferred sales charge. Total return may also be
presented for other periods or based on investment at reduced sales charge
levels or at net asset value. Any quotation of total return or yield not
reflecting the contingent deferred sales charge would be reduced if such sales
charges were used. Quotations of yield or total return for any period when an
expense limitation was in effect will be greater than if the limitation had
not been in effect. The Portfolio's performance may be compared to various
indices. See the Statement of Additional Information. Information may be
presented in advertisements about the Portfolio describing the background and
professional experience of the Portfolio's investment adviser or any portfolio
manager.
All data is based on the Portfolio's past investment results and does
not predict future performance. Investment performance, which will vary, is
based on many factors, including market conditions, the composition of the
Portfolio's securities, and the Portfolio's operating expenses. Investment
performance also often reflects the risks associated with the Portfolio's
investment objective and policies. These factors should be considered when
comparing the Portfolio's investment results to those of other mutual funds
and other investment vehicles.
<PAGE>
No person has been authorized COMMONWEALTH
to give any information or to make BALANCED
any representations other than those PORTFOLIO
contained in this Prospectus and in
the Portfolio's official sales
literature in connection with the
offer of the Portfolio's shares,
and, if given or made, such other
information or representations must
not be relied upon as having been
authorized by the Portfolio. This
Prospectus does not constitute an
offer in any State in which, or to __________
any person to whom, such offering
may not lawfully be made. This Pro- PROSPECTUS
spectus omits certain information
contained in the Registration __________
Statement, to which reference is
made, filed with the Securities and
Exchange Commission. Items which
are thus omitted, including
contracts and other documents re-
ferred to or summarized herein, may
be obtained from the Commission upon
payment of the prescribed fees.
Additional information
concerning the securities offered
hereby and the Portfolio is to be
found in the Registration Statement,
including various exhibits thereto
and financial statements included or
incorporated therein, which may be
inspected at the office of the
Commission.
Mentor Distributors, Inc.
STATEMENT OF ADDITIONAL INFORMATION
THE MENTOR FUNDS
DATED MAY __, 1995
The Mentor Funds (the "Trust") is a diversified, open-end series
investment company. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the prospectus of the Trust
dated May __, 1995 and the prospectus of Commonwealth Balanced Portfolio dated
May __, 1995. A copy of either prospectus can be obtained upon request made
to Mentor Distributors, Inc., the Trust's distributor, at P.O. Box 1357,
Richmond, Virginia 23286-0109, (800) 825-5353.
This Statement is in three parts. Part I contains information with
respect to the Cambridge Growth Portfolio, Commonwealth Capital Growth
Portfolio, Commonwealth Quality Income Portfolio, VKM Municipal Income
Portfolio, WMC Income and Growth, and Perpetual Global Portfolio. Shares of
the Cambridge Growth Portfolio currently are not being offered to the public.
Part II contains information with respect to the Charter Growth Portfolio,
Commonwealth Strategy Portfolio, Commonwealth Short-Duration Income
Portfolio, and Commonwealth Balanced Portfolio, which are the successors to
Mentor Growth Fund, Mentor Strategy Fund, Mentor Short-Duration Income Fund,
and Mentor Balanced Fund, respectively, each of which was previously a series
of shares of Mentor Series Trust, a diversified, open-end series investment
company. Part III provides general information with respect to the Trust and
all of the Portfolios.
<PAGE>
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 1
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 6
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . 11
Officers and Trustees . . . . . . . . . . . . . . . . . . . . . . . . 11
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . 12
Certain Investment Techniques . . . . . . . . . . . . . . . . . . . 13
Investment Advisory Services . . . . . . . . . . . . . . . . . . . . 38
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . 40
Shareholder Servicing Plan . . . . . . . . . . . . . . . . . . . . . 41
Brokerage Transactions . . . . . . . . . . . . . . . . . . . . . . . 42
How to Buy Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Conversion to Federal Funds . . . . . . . . . . . . . . . . . . . . . 45
Determining Net Asset Value . . . . . . . . . . . . . . . . . . . . . 46
Redemptions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . 47
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Performance Information . . . . . . . . . . . . . . . . . . . . . . . 51
Yield and Tax-Equivalent Yield . . . . . . . . . . . . . . . . . . . 53
Performance Comparisons . . . . . . . . . . . . . . . . . . . . . . . 55
Shareholder Liability . . . . . . . . . . . . . . . . . . . . . . . . 61
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 61
INTRODUCTION
The Mentor Funds (formerly Cambridge Series Trust) was established as a
Massachusetts business trust on January 20, 1992. As of the date of this
Statement, the Trust consists of the following ten portfolios (collectively,
the "Portfolios" and each individually, the "Portfolio"): Cambridge Growth
Portfolio (the "Cambridge Growth Portfolio"); Commonwealth Capital Growth
Portfolio (the "Capital Growth Portfolio"); Commonwealth Quality Income
Portfolio (the "Quality Income Portfolio"); VKM Municipal Income Portfolio
(the "Municipal Income Portfolio"); WMC Income and Growth Portfolio (the
"Income and Growth Portfolio"); Perpetual Global Portfolio (the "Global
Portfolio"); Charter Growth Portfolio (the "Growth Portfolio"); Wellesley
Strategy Portfolio (the "Strategy Portfolio"); Commonwealth Short-Duration
Income Portfolio (the "Short-Duration Income Portfolio"); and Commonwealth
Balanced Portfolio (the "Balanced Portfolio"). With the exception of the
Balanced Portfolio, which has only one class of shares, each Portfolio has two
classes of shares of beneficial interest, Class A and Class B shares.
PART I
THE FOLLOWING INFORMATION RELATES TO THE CAMBRIDGE GROWTH, CAPITAL GROWTH,
QUALITY INCOME, MUNICIPAL INCOME, INCOME AND GROWTH, AND THE GLOBAL
PORTFOLIOS, EXCEPT WHERE OTHERWISE NOTED.
Investment Restrictions
The following investment restrictions are fundamental and may not be changed
without approval by the holders of a majority of the outstanding shares of a
Portfolio:
1. The Portfolios will not issue senior securities except that a Portfolio
(other than the Municipal Income Portfolio) may borrow money directly or
through reverse repurchase agreements in amounts of up to one-third of
the value of its net assets, including the amount borrowed; and except
to the extent that a Portfolio may enter into futures contracts. The
Municipal Income Portfolio may borrow money from banks for temporary
purposes in amounts of up to 5% of its total assets. The Portfolios
will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the Portfolio by
enabling it to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
The Portfolios will not purchase any securities while any borrowings in
excess of 5% of its total assets are outstanding. During the period any
reverse repurchase agreements are outstanding, the Quality Income
Portfolio will restrict the purchase of portfolio securities to money
market instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent necessary to
assure completion of the reverse repurchase agreements. Notwithstanding
this restriction, the Portfolios may enter into when-issued and delayed
delivery transactions.
2. The Portfolios will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as are
necessary for clearance of purchases and sales of securities. The
deposit or payment by a Portfolio of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.
3. The Portfolios will not mortgage, pledge, or hypothecate any assets,
except to secure permitted borrowings. In these cases the Portfolios
may pledge assets having a value of 10% of assets taken at cost. For
purposes of this restriction, (a) the deposit of assets in escrow in
connection with the writing of covered put or call options and the
purchase of securities on a when-issued basis; and (b) collateral
arrangements with respect to (i) the purchase and sale of stock options
(and options on stock indexes) and (ii) initial or variation margin for
futures contracts, will not be deemed to be pledges of a Portfolio's
assets. Margin deposits for the purchase and sale of futures contracts
and related options are not deemed to be a pledge.
4. The Portfolios will not lend any of their respective assets except
portfolio securities up to one-third of the value of total assets. (The
Municipal Income Portfolio will not lend portfolio securities.) This
shall not prevent a Portfolio from purchasing or holding U.S. government
obligations, money market instruments, variable amount demand master
notes, bonds, debentures, notes, certificates of indebtedness, or other
debt securities, entering into repurchase agreements, or engaging in
other transactions where permitted by a Portfolio's investment
objective, policies and limitations or Declaration of Trust. The
Municipal Income Portfolio will not make loans except to the extent the
obligations the Portfolio may invest in are considered to be loans.
5. The Portfolios (other than the Quality Income Portfolio) will not invest
more than 10% of the value of their net assets in restricted securities;
the Quality Income Portfolio will not invest more than 15% of the value
of its net assets in restricted securities.
6. None of the Portfolios will invest in commodities, except to the extent
that the Portfolios may engage in transactions involving futures
contracts or options on futures contracts, and except to the extent the
securities the Municipal Income Portfolio invests in are considered
interests in commodities or commodities contracts or to the extent the
Portfolio exercises its rights under agreements relating to such
municipal securities.
7. None of the Portfolios will purchase or sell real estate, including
limited partnership interests, except to the extent the securities the
Income and Growth Portfolio and Municipal Income Portfolio may invest in
are considered to be interests in real estate or to the extent the
Municipal Income Portfolio exercises its rights under agreements
relating to such municipal securities (in which case the Portfolio may
liquidate real estate acquired as a result of a default on a mortgage),
although the Portfolios may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
8. With respect to 75% of the value of its respective total assets, a
Portfolio will not purchase securities issued by any one issuer (other
than cash or securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities and repurchase
agreements collateralized by such securities), if as a result more than
5% of the value of its total assets would be invested in the securities
of that issuer. A Portfolio will not acquire more than 10% of the
outstanding voting securities of any one issuer.
9. A Portfolio will not invest 25% or more of the value of its respective
total assets in any one industry (other than securities issued by the
U.S. Government, its agencies or instrumentalities). As described in
the Prospectus, the Municipal Income Portfolio may from time to time
invest more than 25% of its assets in a particular segment of the
municipal bond market; however, that Portfolio will not invest more than
25% of its assets in industrial development bonds in a single industry
except as described in the Prospectus.
10. A Portfolio will not underwrite any issue of securities, except as a
Portfolio may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
In addition, the following practices are contrary to the current policy of
each of the Portfolios (except as otherwise noted), and may be changed without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
1. The Portfolios will not invest more than 15% of the value of their
respective net assets in illiquid securities, including repurchase
agreements providing for settlement more than seven days after notice;
over-the-counter options; certain restricted securities not determined
by the Trustees to be liquid; and non-negotiable fixed income time
deposits with maturities over seven days.
2. The Portfolios will limit their respective investments in other
investment companies to no more than 3% of the total outstanding voting
stock of any investment company, invest no more than 5% of total assets
in any one investment company, or invest more than 10% of total assets
in investment companies in general. The Portfolios will purchase
securities of closed-end investment companies only in open market
transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization, or acquisition of assets. It
should be noted that investment companies incur certain expenses such as
management fees, and therefore any investment by a Portfolio in shares
of another investment company would be subject to duplicative expenses.
3. Except for the Municipal Income Portfolio, no Portfolio will invest more
than 5% of the value of its respective total assets in securities of
issuers which have records of less than three years of continuous
operations, including the operation of any predecessor. The Municipal
Income Portfolio will not invest more than 5% of its total assets in
industrial development bonds where the payment of principal and interest
is the responsibility of companies with less than three years of
operating history.
4. A Portfolio will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust, the Investment Adviser, or Sub-
Adviser own individually more than 1/2 of 1% of the issuer's securities
or together own more than 5% of the issuer's securities.
5. A Portfolio will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase
the securities of issuers which invest in or sponsor such programs and
except pursuant to the exercise by the Municipal Income Portfolio of its
rights under agreements relating to municipal securities
6. A Portfolio will not enter into transactions for the purpose of engaging
in arbitrage.
7. A Portfolio will not purchase securities of a company for the purpose of
exercising control or management, except to the extent that exercise by
the Municipal Income Portfolio of its rights under agreements related to
municipal securities would be deemed to constitute such control or
management.
None of the Portfolios borrowed money (including through use of reverse
repurchase agreements) or loaned portfolio securities in excess of 5% of the
value of its net assets during the last fiscal year, and no Portfolio has the
intention of doing so in the coming fiscal year.
Except with respect to the Portfolios' policy of borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such restriction.
To comply with registration requirements in certain states, the Portfolios (1)
will limit the aggregate value of the assets underlying covered call options
or put options written by a Portfolio to not more than 25% of its net assets,
(2) will limit the premiums paid for options purchased by a Portfolio to 5% of
its net assets, (3) will limit the margin deposits on futures contracts
entered into by a Portfolio to 5% of its net assets, and (4) will limit
investment in warrants to 5% of its net assets. No more than 2% will be
warrants which are not listed on the New York or American Stock Exchange.
Also to comply with certain state restrictions, the Cambridge Growth
Portfolio, Capital Growth Portfolio, and Income and Growth Portfolio will
limit their investment in restricted securities to 5% of total assets. (If
state requirements change, these restrictions may be revised without
shareholder notification.)
Cambridge Growth Portfolio
Below is information concerning the Cambridge Growth Portfolio. Shares of
this Portfolio currently are not being offered by the Trust for sale to the
public. Except for the sections "How to Buy Shares" in this Statement and in
the Trust's Prospectus, the information (other than information relating
to the public offering of shares) contained in the Trust's Prospectus
and in Part I and III of this Statement applies to the Cambridge Growth
Portfolio except where otherwise noted.
The investment objective of the Portfolio is growth of capital through
professional management and diversification of investments in securities it
believes to have potential of capital appreciation. The Portfolio will be
invested primarily in securities which Commonwealth Advisors, Inc., the
Portfolio's investment adviser, believes offer the potential for capital
appreciation. The Portfolio invests primarily in common stocks but can invest
in any securities with potential for capital growth. The investment objective
of the Portfolio is a fundamental policy and may not be changed without
shareholder approval.
In seeking to obtain capital appreciation, the Portfolio may trade to some
degree in securities for the short term. To this extent, the Portfolio will
be engaged in trading operations based on short-term market considerations as
distinct from long-term investment based upon fundamental valuation of
securities. However, the Portfolio will emphasize fundamental research in
attempting to identify under-valued situations which are anticipated will
appreciate over the longer term.
In seeking to achieve its objective, it will be the Portfolio's policy to
invest primarily in securities which it believes will offer the potential for
increasing the Portfolio's total asset value. While it is anticipated that
most investments will be in common stocks of companies with above-average
growth prospects, investments may also be made to a limited degree in other
common stocks and in convertible securities, such as bonds and preferred
stocks. There may be times when a significant portion of the Portfolio's
assets may be held temporarily in cash or defensive-type securities, depending
upon Commonwealth's analysis of business and economic conditions and the
outlook for security prices. For these purposes, defensive-type securities
include high-grade debt securities (rated "A"or above); securities issued by
the U.S. Government, its agencies or instrumentalities; and high-quality money
market instruments, including repurchase agreements. Some of the factors
Commonwealth will consider in making investments for the Portfolio are
patterns of increasing growth in sales and earnings, the development of new or
improved products or services, favorable outlooks for growth in the industry,
the probability of increased operating efficiencies, emphasis on research and
development, cyclical conditions, or other signs that a company is expected to
show greater than average capital appreciation and earnings growth.
PART II
THE FOLLOWING INFORMATION RELATES TO THE GROWTH, STRATEGY, SHORT-DURATION
INCOME, AND BALANCED PORTFOLIOS, EXCEPT WHERE OTHERWISE NOTED. THESE
PORTFOLIOS ARE THE SUCCESSORS TO MENTOR GROWTH FUND, MENTOR STRATEGY FUND,
MENTOR SHORT-DURATION INCOME FUND, AND MENTOR BALANCED FUND, RESPECTIVELY,
EACH OF WHICH WAS PREVIOUSLY A SERIES OF MENTOR SERIES TRUST.
Investment Restrictions
As fundamental investment restrictions, which may not be changed with
respect to a Portfolio without approval by the holders of a majority of the
outstanding shares of that Portfolio, a Portfolio may not:
1. Issue any securities which are senior to the Portfolio's shares as
described herein and in the prospectus, except that each of the
Portfolios other than the Growth Portfolio and the Strategy Portfolio
may borrow money to the extent contemplated by Restriction 4 below.
2. Purchase securities on margin (but a Portfolio may obtain such
short-term credits as may be necessary for the clearance of
transactions). (Margin payments in connection with transactions in
futures contracts, options, and other financial instruments are not
considered to constitute the purchase of securities on margin for this
purpose.)
3. Make short sales of securities or maintain a short position, unless at
all times when a short position is open, it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short ("short sale
against-the-box"), and unless not more than 25% of the Portfolio's net
assets (taken at current value) is held as collateral for such sales at
any one time.
4. (Growth Portfolio and Strategy Portfolio) Borrow money or pledge its
assets except that a Portfolio may borrow from banks for temporary or
emergency purposes (including the meeting of redemption requests which
might otherwise require the untimely disposition of securities) in
amounts not exceeding 10% (taken at the lower of cost or market value)
of its total assets (not including the amount borrowed) and pledge its
assets to secure such borrowings; provided that a Portfolio will not
purchase additional portfolio securities when such borrowings exceed 5%
of its total assets. (Collateral or margin arrangements with respect to
options, futures contracts, or other financial instruments are not
considered to be pledges.)
(all other Portfolios) Borrow more than 33 1/3% of the value of its
total assets less all liabilities and indebtedness (other than such
borrowings) not represented by senior securities.
5. Act as underwriter of securities of other issuers except to the extent
that, in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under certain federal securities laws.
6. Purchase any security if as a result the Portfolio would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old or (in the case of Growth Portfolio) in equity securities for which
market quotations are not readily available.
7. (as to the Growth Portfolio only) Purchase any security if as a result
the Portfolio would then hold more than 10% of any class of securities
of an issuer (taking all common stock issues of an issuer as a single
class, all preferred stock issues as a single class, and all debt issues
as a single class) or more than 10% of the outstanding voting securities
of an issuer.
8. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result: (i) more than 5% of
the Portfolio's total assets (taken at current value) would then be
invested in securities of a single issuer, or (ii) more than 25% of the
Portfolio's total assets (taken at current value) would be invested in a
single industry; provided that the restriction set out in (i) above
shall apply, in the case of each Portfolio other than the Growth
Portfolio, only as to 75% of such Portfolio's total assets.
9. Invest in securities of any issuer if, to the knowledge of the Trust,
any officer or Trustee of the Trust or of Charter, Commonwealth or
Wellesley, as the case may be, owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers and Trustees who own more
than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer.
10. Purchase or sell real estate or interests in real estate, including real
estate mortgage loans, although it may purchase and sell securities
which are secured by real estate and securities of companies that invest
or deal in real estate (or, in the case of any Portfolio other than the
Growth Portfolio, real estate or limited partnership interests). (For
purposes of this restriction, investments by a Portfolio in mortgage-
backed securities and other securities representing interests in
mortgage pools shall not constitute the purchase or sale of real estate
or interests in real estate or real estate mortgage loans.)
11. Make investments for the purpose of exercising control or management.
12. (as to the Growth Portfolio only) Participate on a joint or a joint and
several basis in any trading account in securities.
13. (as to the Growth Portfolio only) Purchase any security restricted as to
disposition under federal securities laws if as a result more than 5% of
the Portfolio's total assets (taken at current value) would be invested
in restricted securities.
14. (as to the Growth Portfolio only) Invest in securities of other
registered investment companies, except by purchases in the open market
involving only customary brokerage commissions and as a result of which
not more than 5% of its total assets (taken at current value) would be
invested in such securities, or except as part of a merger,
consolidation or other acquisition.
15. Invest in interests in oil, gas or other mineral exploration or
development programs or leases, although it may invest in the common
stocks of companies that invest in or sponsor such programs.
16. (as to the Growth Portfolio only) Make loans, except through (i)
repurchase agreements (repurchase agreements with a maturity of longer
than 7 days together with other illiquid assets being limited to 10% of
the Portfolio's assets, and (ii) loans of portfolio securities (limited
to 33% of the Portfolio's total assets).
17. (as to the Growth Portfolio only) Purchase foreign securities or
currencies except foreign securities which are American Depository
Receipts listed on exchanges or otherwise traded in the United States
and certificates of deposit, bankers' acceptances and other obligations
of foreign banks and foreign branches of U.S. banks if, giving effect to
such purchase, such obligations would constitute less than 10% of the
Trust's total assets (at current value).
18. (as to the Growth Portfolio only) Purchase warrants if as a result the
Portfolio would then have more than 5% of its total assets (taken at
current value) invested in warrants.
19. (as to each Portfolio other than the Growth Portfolio) Acquire more than
10% of the voting securities of any issuer.
20. (as to each Portfolio other than the Growth Portfolio) Make loans,
except by purchase of debt obligations in which the Portfolio may invest
consistent with its investment policies, by entering into repurchase
agreements with respect to not more than 25% of its total assets (taken
at current value), or through the lending of its portfolio securities
with respect to not more than 25% of its total assets.
In addition, it is contrary to the current policy of each of the
Portfolios, other than the Growth Portfolio, which policy may be changed
without shareholder approval, to:
1. Invest in warrants (other than warrants acquired by the Portfolio
as a part of a unit or attached to securities at the time of
purchase) if as a result such investment (valued at the lower of
cost or market value) would exceed 5% of the value of the
Portfolio's net assets, provided that not more than 2% of the
Portfolio's net assets may be invested in warrants not listed on
the New York or American Stock Exchanges.
2. Purchase or sell commodities or commodity contracts, except that a
Portfolio may purchase or sell financial futures contracts,
options on financial futures contracts, and futures contracts,
forward contracts, and options with respect to foreign currencies,
and may enter into swap transactions.
3. Purchase securities restricted as to resale if as a result (i)
more than 10% of the Portfolio's total assets would be invested in
such securities or (ii) more than 5% of the Portfolio's total
assets (excluding any securities eligible for resale under Rule
144A under the Securities Act of 1933) would be invested in such
securities.
4. Invest in (a) securities which at the time of such investment are
not readily marketable, (b) securities restricted as to resale,
and (c) repurchase agreements maturing in more than seven days,
if, as a result, more than 15% of the Portfolio's net assets
(taken at current value) would then be invested in the aggregate
in securities described in (a), (b), and (c) above.
5. Invest in securities of other registered investment companies,
except by purchases in the open market involving only customary
brokerage commissions and as a result of which not more than 5% of
its total assets (taken at current value) would be invested in
such securities, or except as part of a merger, consolidation, or
other acquisition.
6. Purchase puts, calls, straddles, spreads, or any combination
thereof (other than futures contracts, options on futures
contracts or indices, and options on foreign currencies), if, by
reason of such purchase, the value of its aggregate investment
therein will exceed 5% of its total assets.
7. Invest in real estate limited partnerships.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for the investment restrictions listed above as fundamental or to the extent
designated as such in a Prospectus, the other investment policies described in
this Statement or in the Prospectus are not fundamental and may be changed by
approval of the Trustees. As a matter of policy, the Trustees would not
materially change a Portfolio's investment objective without shareholder
approval.
The Investment Company Act of 1940 (the "1940 Act") provides that a
"vote of a majority of the outstanding voting securities" of the Portfolio
means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Portfolio, or (2) 67% or more of the shares present
at a meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
Notwithstanding the provisions of clauses 3 and 16 above, the Growth
Portfolio has no intention during the coming year to make short sales of
securities or to maintain a short position in any security. Notwithstanding
the provisions of clause 14 above, the Growth Portfolio has no intention
during the coming year to invest in the securities of other registered
investment companies.
Shares of beneficial interest in Commonwealth Balanced Portfolio have been
registered only in the Commonwealth of Virginia. These shares may not be
offered or sold in any other state without being registered or exempt from
registration.
-10-
PART III
THE FOLLOWING INFORMATION RELATES TO ALL OF THE PORTFOLIOS OF THE TRUST,
EXCEPT WERE OTHERWISE NOTED.
All of the information with respect to the fees, expenses and performance of
the Portfolios is based on a Portfolio's fiscal year end. The Cambridge
Growth, Capital Growth, Quality Income, Municipal Income, Income and Growth,
and Global Portfolios each have a September 30 fiscal year end. The Growth,
Strategy, Short-Duration Income, and Balanced Portfolio each have a December
31 fiscal year end. Certain information with respect to certain Portfolios is
given for a partial fiscal year. Information concerning the commencement of
operations of each of the Portfolios, with the exception of the Cambridge
Growth Portfolio, is contained in the Trust's Prospectus in the Section
"Financial Highlights." For the Cambridge Growth Portfolio, information for
1992 includes information from April 29, 1992 through September 30, 1992.
Management of the Trust
Officers and Trustees
The officers and Trustees are listed below with their addresses, principal
occupations, and present positions, including any positions held with
affiliated persons or Mentor Distributors, Inc.
<TABLE>
POSITIONS WITH
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
Daniel J. Ludeman(1)(2) Chairman and Trustee Chairman and Chief Executive Officer since July 1991,
901 East Byrd Street Investment Management Group, Inc.; Managing Director
Richmond, Virginia 23219 of Wheat, First Securities, Inc. since August 1989;
Managing Director of Wheat First Butcher Singer, Inc.
since June 1991; Director, Mentor Income Fund, Inc.;
Chairman and Trustee, Cash Resource Trust and IMG
Institutional Trust.
Peter J. Quinn, Jr.(1)(2) President and Trustee President, Cambridge Investment Advisors, Inc., and
901 E. Byrd Street Cambridge Distributors, Inc.; Director, Investment
Richmond, Virginia 23219 Management Group, Inc.; Managing Director, Wheat
First Butcher Singer, Inc.; formerly, Senior Vice
President/Director of Mutual Funds, Wheat First
Butcher Singer, Inc..
Stanley F. Pauley Trustee Chairman and Chief Executive Officer, E.R. Carpenter
P. O. Box 27205 Company Incorporated; Trustee, Cash Resource Trust
Richmond, Virginia 23261 and IMG Institutional Trust.
Louis W. Moelchert, Jr. Trustee Vice President of Business and Finance, University of
University of Richmond Richmond; Trustee, Cash Resource Trust and IMG
Richmond, Virginia 23173 Institutional Trust.
Thomas F. Keller Trustee Dean, Fuqua School of Business, Duke University;
Duke University Trustee, Cash Resource Trust and IMG Institutional
Durham, North Carolina Trust.
27706
Arnold H. Dreyfuss Trustee Retired. Formerly, Chairman and Chief Executive
5100 Cary Street Road Officer, Hamilton Beach/Proctor-Silex, Inc. Trustee,
Richmond, Virginia 23225 Cash Resource Trust and IMG Institutional Trust.
Troy A. Peery, Jr. Trustee President, Heilig-Meyers Company. Trustee, Cash
2235 Staples Mill Road Resource Trust and IMG Institutional Trust.
Richmond, Virginia 23230
Paul F. Costello Senior Vice President, Managing Director, Investment Management Group, Inc.;
901 East Byrd Street Treasurer and Secretary Cambridge Distributors, Inc.; President, Cash
Richmond, Virginia 23219 Resource Trust, Mentor Income Fund, Inc., and IMG
Institutional Trust;Senior Vice President, Cambridge
Investment Advisors, Inc. formerly, Director,
President and Chief Executive Officer, First Variable
Life Insurance Company; President and Chief Financial
Officer, Variable Investors Series Trust; President
and Treasurer, Atlantic Capital & Research, Inc.;
Vice President and Treasurer, Variable Stock Fund,
Inc., Monarch Investment Series Trust, and GEICO Tax
Advantage Series Trust; Vice President, Monarch Life
Insurance Company, GEICO Investment Services Company,
Inc., Monarch Investment Services Company, Inc., and
Springfield Life Insurance Company.
</TABLE>
(1) This Trustee is deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(2) Members of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
Principal Holders of Securities
The officers and Trustees of the Trust own as a group less than 1% of the
outstanding Class A and B shares of each Portfolio. To the knowledge of the
Trust, no person owns more than 5% of the outstanding shares of any Portfolio
as of March 10, 1995, except that Bank of New York, as Trustee for the Wheat
First Butcher Singer 401(k) Plan, owned of record 865,425 (5.53 %) of the
shares of the growth portfolios and Wheat First Butcher Singer Foundation owned
beneficially 218,504 (92.04%) of the shares of the balanced portfolio.
The Trust's Agreement Declaration of Trust provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
Certain Investment Techniques
Set forth below is information concerning certain investment techniques in
which one or more of the Portfolios may engage, and certain of the risks they
may entail. Certain of the investment techniques may not be available to a
Portfolio. See "Investment objectives and policies" in the Trust Prospectus
and "Investment objective and policies" in the Portfolio Prospectuses.
Options
A Portfolio may purchase and sell put and call options on its portfolio
securities to enhance investment performance or to protect against changes in
market prices.
Covered call options. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may
also be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the writer
to sell, a security at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated
as a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges), or has the
right to acquire such securities through immediate conversion of securities.
In return for the premium received when it writes a covered call option, a
Portfolio gives up some or all of the opportunity to profit from an increase
in the market price of the securities covering the call option during the life
of the option. The Portfolio retains the risk of loss should the price of
such securities decline. If the option expires unexercised, the Portfolio
realizes a gain equal to the premium, which may be offset by a decline in
price of the underlying security. If the option is exercised, the Portfolio
realizes a gain or loss equal to the difference between the Portfolio's cost
for the underlying security and the proceeds of sale (exercise price minus
commissions) plus the amount of the premium.
A Portfolio may terminate a call option that it has written before it expires
by entering into a closing purchase transaction. A Portfolio may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.
Covered put options. A Portfolio may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that
the Portfolio plans to purchase. A put option gives the holder the right to
sell, and obligates the writer to buy, a security at the exercise price at any
time before the expiration date. A put option is "covered" if the writer
segregates cash and high-grade short-term debt obligations or other
permissible collateral equal to the price to be paid if the option is
exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a
potential capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it expires
by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. A Portfolio may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Portfolio, as a holder of the
option, may sell the underlying security at the exercise price regardless of
any decline in its market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below
the exercise price to cover the premium and transaction costs that the
Portfolio must pay. These costs will reduce any profit the Portfolio might
have realized had it sold the underlying security instead of buying the put
option.
A Portfolio may purchase call options to hedge against an increase in the
price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs. These costs will reduce any profit the
Portfolio might have realized had it bought the underlying security at the
time it purchased the call option.
A Portfolio may also purchase put and call options to enhance its current
return.
Options on foreign securities. The Trust may, on behalf of a Portfolio,
purchase and sell options on foreign securities if in the opinion of its
investment advisor the investment characteristics of such options, including
the risks of investing in such options, are consistent with the Portfolio's
investment objectives. It is expected that risks related to such options will
not differ materially from risks related to options on U.S. securities.
However, position limits and other rules of foreign exchanges may differ from
those in the U.S. In addition, options markets in some countries, many of
which are relatively new, may be less liquid than comparable markets in the
U.S.
Risks involved in the sale of options. Options transactions involve certain
risks, including the risks that a Portfolio's investment adviser will not
forecast interest rate or market movements correctly, that a Portfolio may be
unable at times to close out such positions, or that hedging transactions may
not accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
investment adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which provides
a secondary market for an option of the same series. There is no assurance
that a liquid secondary market on an exchange will exist for any particular
option or at any particular time. If no secondary market were to exist, it
would be impossible to enter into a closing transaction to close out an option
position. As a result, a Portfolio may be forced to continue to hold, or to
purchase at a fixed price, a security on which it has sold an option at a time
when its investment adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Trust's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by
an investor or group of investors acting in concert. It is possible that the
Trust and other clients of the Portfolios' investment advisers may be
considered such a group. These position limits may restrict the Trust's
ability to purchase or sell options on particular securities.
Options which are not traded on national securities exchanges may be closed
out only with the other party to the option transaction. For that reason, it
may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
Futures Contracts
In order to hedge against the effects of adverse market changes each Portfolio
that may invest in debt securities may buy and sell futures contracts on debt
securities of the type in which the Portfolio may invest and on indexes of
debt securities. In addition, each Portfolio that may invest in equity
securities may purchase and sell stock index futures to hedge against changes
in stock market prices. A Portfolio may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures
contracts to increase the Portfolio's current return. All such futures and
related options will, as may be required by applicable law, be traded on
exchanges that are licensed and regulated by the Commodity Futures Trading
Commission (the "CFTC").
Futures on Debt Securities and Related Options. A futures contract on a debt
security is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a
Portfolio will legally obligate itself to accept the future delivery of the
underlying security and pay the agreed price. By selling futures on debt
securities -- assuming a "short" position -- it will legally obligate itself
to make the future delivery of the security against payment of the agreed
price. Open futures positions on debt securities will be valued at the most
recent settlement price, unless that price does not, in the judgment of
persons acting at the direction of the Trustees as to the valuation of the
Trust's assets, reflect the fair value of the contract, in which case the
positions will be valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by a Portfolio will usually
be liquidated in this manner, a Portfolio may instead make or take delivery of
the underlying securities whenever it appears economically advantageous to the
Portfolio to do so. A clearing corporation associated with the exchange on
which futures are traded assumes responsibility for such closing transactions
and guarantees that a Portfolio's sale and purchase obligations under closed-
out positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. A Portfolio may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Portfolio (or securities having characteristics similar to those
held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
portfolio securities. When hedging of this character is successful, any
depreciation in the value of portfolio securities may substantially be offset
by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Trust
expects to purchase for the Portfolio particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in
the futures markets. If the anticipated rise in the price of the securities
should occur (with its concomitant reduction in yield), the increased cost to
the Portfolio of purchasing the securities may be offset, at least to some
extent, by the rise in the value of the futures position taken in anticipation
of the subsequent securities purchase.
Successful use by a Portfolio of futures contracts on debt securities is
subject to its investment adviser's or sub-adviser's ability to predict
correctly movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if a Portfolio has hedged
against the possibility of an increase in interest rates which would adversely
affect the market prices of debt securities held by it and the prices of such
securities increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily maintenance margin requirements. The Portfolio may
have to sell securities at a time when it may be disadvantageous to do so.
A Portfolio may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to
options on securities except that options on futures contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. As with options on securities, the holder or writer of
an option may terminate his position by selling or purchasing an option of the
same series. There is no guarantee that such closing transactions can be
effected. A Portfolio will be required to deposit initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements, and, in addition, net option
premiums received will be included as initial margin deposits. See "Margin
Payments" below. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to a Portfolio because the maximum amount at risk is the premium paid for
the options plus transactions costs. However, there may be circumstances when
the purchase of call or put options on a futures contract would result in a
loss to a Portfolio when the purchase or sale of the futures contracts would
not, such as when there is no movement in the prices of debt securities. The
writing of a put or call option on a futures contract involves risks similar
to those risks relating to the purchase or sale of futures contracts.
Index Futures Contracts and Options. A Portfolio may invest in debt index
futures contracts and stock index futures contracts, and in related options.
A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when
the contract is made. A unit is the current value of the index. Debt index
futures in which the Portfolios are presently expected to invest are not now
available, although such futures contracts are expected to become available in
the future. A stock index futures contract is a contract to buy or sell units
of a stock index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index futures
contracts operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts
are to buy or sell 100 units. Thus, if the value of the S&P 100 Index were
$180, one contract would be worth $18,000 (100 units x $180). The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration
of the contract. For example, if a Portfolio enters into a futures contract
to buy 100 units of the S&P 100 Index at a specified future date at a contract
price of $180 and the S&P 100 Index is at $184 on that future date, the
Portfolio will gain $400 (100 units x gain of $4). If the Portfolio enters
into a futures contract to sell 100 units of the stock index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $182 on
that future date, the Portfolio will lose $200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, a Portfolio must invest in futures contracts
with respect to indexes or sub-indexes the movements of which will, in its
judgment, have a significant correlation with movements in the prices of the
Portfolio's securities.
Options on index futures contracts are similar to options on securities except
that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is
a put) at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the holder would assume the underlying
futures position and would receive a variation margin payment of cash or
securities approximating the increase in the value of the holder's option
position. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
based on the difference between the exercise price of the option and the
closing level of the index on which the futures contract is based on the
expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Portfolios which may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an
index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of
an index option has the right to receive a cash "exercise settlement amount".
This amount is equal to the amount by which the fixed exercise price of the
option exceeds (in the case of a put) or is less than (in the case of a call)
the closing value of the underlying index on the date of the exercise,
multiplied by a fixed "index multiplier".
A Portfolio may purchase or sell options on stock indices in order to close
out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to a Portfolio because
the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
Margin Payments. When a Portfolio purchases or sells a futures contract, it
is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the
amount of the futures contract. This amount is known as "initial margin".
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to a Portfolio upon termination of the
contract, assuming a Portfolio satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market". These payments are called "variation margin"
and are made as the value of the underlying futures contract fluctuates. For
example, when a Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the
futures contract and the market price of the securities underlying the futures
contract. Conversely, if the price of the underlying security falls below the
delivery price of the contract, the Portfolio's futures position increases in
value. The broker then must make a variation margin payment equal to the
difference between the delivery price of the futures contract and the market
price of the securities underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to
the Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity risks. Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
Although the Trust intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are
used to hedge portfolio securities, such securities will not generally be sold
until the financial futures can be terminated. In such circumstances, an
increase in the price of the portfolio securities, if any, may partially or
completely offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that such a market will develop. Although a Portfolio generally will purchase
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular option or at any particular time. In the event no such
market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that a Portfolio would
have to exercise the options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One
risk arises because of the imperfect correlation between movements in the
prices of the futures contracts and options and movements in the underlying
securities or index or movements in the prices of a Portfolio's securities
which are the subject of a hedge. A Portfolio's investment adviser will,
however, attempt to reduce this risk by purchasing and selling, to the extent
possible, futures contracts and related options on securities and indexes the
movements of which will, in its judgment, correlate closely with movements in
the prices of the underlying securities or index and the Portfolio's portfolio
securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for hedging
purposes is also subject to its investment adviser's ability to predict
correctly movements in the direction of the market. It is possible that,
where a Portfolio has purchased puts on futures contracts to hedge its
portfolio against a decline in the market, the securities or index on which
the puts are purchased may increase in value and the value of securities held
in the portfolio may decline. If this occurred, the Portfolio would lose
money on the puts and also experience a decline in value in its portfolio
securities. In addition, the prices of futures, for a number of reasons, may
not correlate perfectly with movements in the underlying securities or index
due to certain market distortions. First, all participants in the futures
market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions
which could distort the normal relationship between the underlying security or
index and futures markets. Second, the margin requirements in the futures
markets are less onerous than margin requirements in the securities markets in
general, and as a result the futures markets may attract more speculators than
the securities markets do. Increased participation by speculators in the
futures markets may also cause temporary price distortions. Due to the
possibility of price distortion, even a correct forecast of general market
trends by a Portfolio's investment adviser may still not result in a
successful hedging transaction over a very short time period.
Other Risks. Portfolios will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio
may benefit from the use of futures and related options, unanticipated changes
in interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.
Forward Commitments
A Portfolio may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if
the Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or if the Portfolio enters into offsetting contracts for
the forward sale of other securities it owns. Forward commitments may be
considered securities in themselves, and involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date, which
risk is in addition to the risk of decline in the value of the Portfolio's
other assets. Where such purchases are made through dealers, the Portfolios
rely on the dealer to consummate the sale. The dealer's failure to do so may
result in the loss to the Portfolio of an advantageous yield or price.
Although a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, a Portfolio may dispose of a
commitment prior to settlement if its investment adviser deems it appropriate
to do so. A Portfolio may realize short-term profits or losses upon the sale
of forward commitments.
Repurchase Agreements
A Portfolio may enter into repurchase agreements. A repurchase agreement is a
contract under which the Portfolio acquires a security for a relatively short
period (usually not more than one week) subject to the obligation of the
seller to repurchase and the Portfolio to resell such security at a fixed time
and price (representing the Portfolio's cost plus interest). It is the
Trust's present intention to enter into repurchase agreements only with member
banks of the Federal Reserve System and securities dealers meeting certain
criteria as to creditworthiness and financial condition established by the
Trustees of the Trust and only with respect to obligations of the U.S.
government or its agencies or instrumentalities or other high quality short
term debt obligations. Repurchase agreements may also be viewed as loans made
by a Portfolio which are collateralized by the securities subject to
repurchase. Each Portfolio's investment adviser will monitor such
transactions to ensure that the value of the underlying securities will be at
least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, a Portfolio could
realize a loss on the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the resale price
provided in the agreement including interest. In addition, if the seller
should be involved in bankruptcy or insolvency proceedings, a Portfolio may
incur delay and costs in selling the underlying security or may suffer a loss
of principal and interest if a Portfolio is treated as an unsecured creditor
and required to return the underlying collateral to the seller's estate.
Loans of Portfolio Securities
A Portfolio may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government Securities,
cash, or cash equivalents adjusted daily to have market value at least equal
to the current market value of the securities loaned; (2) the Portfolio may at
any time call the loan and regain the securities loaned; (3) a Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities of any Portfolio loaned will not at any
time exceed one-third (or such other limit as the Trustee may establish) of
the total assets of the Portfolio. In addition, it is anticipated that a
Portfolio may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan.
Before a Portfolio enters into a loan, its investment adviser considers all
relevant facts and circumstances including the creditworthiness of the
borrower. The risks in lending portfolio securities, as with other extensions
of credit, consist of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially.
Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, a Portfolio retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by a Portfolio if the holders of such securities are
asked to vote upon or consent to matters materially affecting the investment.
A Portfolio will not lend portfolio securities to borrowers affiliated with
the Portfolio.
Collateralized mortgage obligations; other mortgage-related securities
Collateralized mortgage obligations or "CMOs" are debt obligations or pass-
through certificates collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by certificates issued by the
Government National Mortgage Association, ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation
("FHLMC"), but they also may be collateralized by whole loans or private pass-
through certificates (such collateral collectively hereinafter referred to as
"Mortgage Assets"). CMOs may be issued by agencies or instrumentalities of
the U.S. Government, or by private originators of, or investors in, mortgage
loans.
In a CMO, a series of bonds or certificates is generally issued in multiple
classes. Each class of CMOs is issued at a specific fixed or floating rate
coupon and has a stated maturity or final distribution date. Principal
prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on most classes of the CMOs on a monthly,
quarterly, or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a series of a
CMO in innumerable ways. In a CMO, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of
the series in a pre-determined sequence.
Residual interests. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by
the Mortgage Assets underlying a series of mortgage securities is applied
first to make required payments of principal of and interest on the mortgage
securities and second to pay the related administrative expenses of the
issuer. The residual generally represents the right to any excess cash flow
remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a series
of mortgage securities will depend on, among other things, the characteristics
of the Mortgage Assets, the coupon rate of each class of the mortgage
securities, prevailing interest rates, the amount of administrative expenses,
and the prepayment experience on the Mortgage Assets. In particular, the
yield to maturity on residual interests may be extremely sensitive to
prepayments on the related underlying Mortgage Assets in the same manner as an
interest-only class of stripped mortgage-backed securities. In addition, if a
series of mortgage securities includes a class that bears interest at an
adjustable rate, the yield to maturity on the related residual interest may
also be extremely sensitive to changes in the level of the index upon which
interest rate adjustments are based. In certain circumstances, there may be
little or no excess cash flow payable to residual holders. The Portfolio may
fail to recoup fully its initial investment in a residual.
Residuals are generally purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers. The residual
interest market has only recently developed and residuals currently may not
have the liquidity of other more established securities trading in other
markets. Residuals may be subject to certain restrictions on transferability.
Foreign Securities
A Portfolio may invest in foreign securities and in certificates of deposit
issued by United States branches of foreign banks and foreign branches of
United States banks.
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and
possible consequent illiquidity, greater volatility in price, the possible
imposition of withholding or confiscatory taxes, the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest, expropriation of assets, nationalization, or other adverse political
or economic developments. Foreign companies may not be subject to auditing
and financial reporting standards and requirements comparable to those which
apply to U.S. companies. Foreign brokerage commissions and other fees are
generally higher than in the United States. It may be more difficult to
obtain and enforce a judgment against a foreign issuer.
In addition, to the extent that a Portfolio's foreign investments are not
United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment adviser or sub-adviser of a Portfolio seeking current income will
consider the likely impact of foreign taxes on the net yield available to the
Portfolio and its shareholders. Income received by a Portfolio from sources
within foreign countries may be reduced by withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax in advance since the amount of a Portfolio's
assets to be invested in various countries is not known, and tax laws and
their interpretations may change from time to time and may change without
advance notice. Any such taxes paid by a Portfolio will reduce its net income
available for distribution to shareholders.
Foreign Currency Transactions
A Portfolio may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates. A
Portfolio may engage in both "transaction hedging" and "position hedging".
When it engages in transaction hedging, a Portfolio enters into foreign
currency transactions with respect to specific receivables or payables of the
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. A Portfolio will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging a Portfolio will
attempt to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold
or on which the dividend or interest payment is declared, and the date on
which such payments are made or received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes a Portfolio may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies. A put option on a futures contract gives
a Portfolio the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives a Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives a Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives a Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. A
Portfolio will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of its
investment adviser or sub-adviser, the pricing mechanism and liquidity are
satisfactory and the participants are responsible parties likely to meet their
contractual obligations.
When it engages in position hedging, a Portfolio enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Portfolio are denominated
or are quoted in their principle trading markets or an increase in the value
of currency for securities which a Portfolio expects to purchase. In
connection with position hedging, a Portfolio may purchase put or call options
on foreign currency and foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. A Portfolio may
also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Portfolio's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is
less than the amount of foreign currency a Portfolio is obligated to deliver
and if a decision is made to sell the security or securities and make delivery
of the foreign currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the portfolio
security or securities of a Portfolio if the market value of such security or
securities exceeds the amount of foreign currency the Portfolio is obligated
to deliver.
To offset some of the costs to a Portfolio of hedging against fluctuations in
currency exchange rates, the Portfolio may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling
options on foreign currencies and on foreign currency futures contracts, and
by purchasing and selling foreign currency forward contracts.
Currency Forward and Futures Contracts. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Portfolio will normally
purchase or sell foreign currency futures contracts and related options only
on exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board
of trade will exist for any particular contract or option or at any particular
time. In such event, it may not be possible to close a futures or related
option position and, in the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin
on its futures positions.
Foreign Currency Options. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's investment adviser believes that a liquid secondary market exists
for such options. There can be no assurance that a liquid secondary market
will exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence exchange rates
and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the U.S. options markets.
Foreign Currency Conversion. Although foreign exchange dealers do not charge
a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a
Portfolio at one rate, while offering a lesser rate of exchange should a
Portfolio desire to resell that currency to the dealer.
Zero-Coupon Securities
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of shares
of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other mutual Portfolios investing in securities
making current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold
them in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under
the STRIPS program, a Portfolio will be able to have its beneficial ownership
of U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other
evidences of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest coupons
by the holder, the stripped coupons are sold separately. The principal or
corpus is sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic cash interest payments. Once stripped or separated, the corpus
and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Zero-coupon securities allow an issuer to avoid the need to generate cash to
meet current interest payments. Even though zero-coupon securities do not pay
current interest in cash, a Portfolio is nonetheless required to accrue
interest income on them and to distribute the amount of that interest at least
annually to shareholders. Thus, a Portfolio could be required at times to
liquidate other investments in order to satisfy its distribution requirement.
When-Issued and Delayed Delivery Transactions
The Portfolios may engage in when-issued and delayed delivery transactions.
These transactions are arrangements in which a Portfolio purchases securities
with payment and delivery scheduled for a future time. A Portfolio engages in
when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, not for investment leverage, but a Portfolio may sell such
securities prior to settlement date if such a sale is considered to be
advisable. No income accrues to the Portfolios on securities in connection
with such transactions prior to the date the Portfolios actually take delivery
of securities. In when-issued and delayed delivery transactions, a Portfolio
relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause a Portfolio to miss a price or yield
considered to be advantageous.
These transactions are made to secure what is considered to be an advantageous
price or yield for a Portfolio. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of a
Portfolio sufficient to make payment for the securities to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled. As a matter of policy, the
Portfolios, other than the Municipal Income Portfolio, do not intend to engage
in when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of their respective
assets.
Bank Instruments
The Portfolios may invest in the instruments of banks and savings and loans
whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances. However,
the above-mentioned instruments are not necessarily guaranteed by those
organizations. In addition to domestic bank obligations, such as certificates
of deposit, demand and time deposits, savings shares, and bankers'
acceptances, the Portfolios may invest in:
(BULLET) Eurodollar Certificates of Deposit ("ECDs") issued by foreign
branches of U.S. or foreign banks;
(BULLET) Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in foreign branches of U.S. or foreign
banks;
(BULLET) Canadian Time Deposits, which are U.S. dollar-denominated
deposits issued by branches of major Canadian banks located in the
U.S.; and
(BULLET) Yankee Certificates of Deposit ("Yankee CDs"), which are U.S.
dollar- denominated certificates of deposit issued by U.S.
branches of foreign banks and held in the U.S.
Restricted Securities
The Portfolios may invest in restricted securities. Restricted securities are
any securities in which each Portfolio may otherwise invest pursuant to its
investment objective and policies but which are subject to restriction on
resale under federal securities law.
The ability of the Board of Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
-29-
("SEC") Staff position set forth in the adopting release for Rule 144A under
the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-
harbor for certain secondary market transactions involving securities subject
to restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Trust, on behalf of the Portfolios, believes that the Staff of the
SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination of the
Trust's Board of Trustees. The Board of Trustees considers the following
criteria in determining the liquidity of certain restricted securities.
(BULLET) the frequency of trades and quotes for the security;
(BULLET) the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
(BULLET) dealer undertakings to make a market in the security; and
(BULLET) the nature of the security and the nature of the marketplace
trades.
Lower-Grade Municipal Securities
In normal circumstances, at least 80% of the Municipal Income Portfolio's
total assets will be invested in investment-grade tax-exempt municipal
securities and up to 20% of the Municipal Income Portfolio's total assets may
be invested in lower-grade tax-exempt municipal securities. The amount of
available information about the financial condition of municipal securities
issuers is generally less extensive than that for corporate issuers with
publicly traded securities, and the market for tax-exempt municipal securities
is considered to be generally less liquid than the market for corporate debt
obligations. Liquidity relates to the ability of a Portfolio to sell a
security in a timely manner at a price which reflects the value of that
security. As discussed below, the market for lower-grade tax-exempt municipal
securities is considered generally to be less liquid than the market for
investment-grade tax-exempt municipal securities. Further, municipal
securities in which the Municipal Income Portfolio may invest include special
obligation bonds, lease obligations, participation certificates and variable
rate instruments. The market for such securities may be particularly less
liquid. The relative illiquidity of some of the Municipal Income Portfolio's
securities may adversely affect the ability of the Municipal Income Portfolio
to dispose of such securities in a timely manner and at a price which reflects
the value of such security in the Trust's judgment. Although the issuer of
some such municipal securities may be obligated to redeem such securities at
face value, such redemption could result in capital losses to the Municipal
Income Portfolio to the extent that such municipal securities were purchased
by the Municipal Income Portfolio at a premium to face value. The market for
less liquid securities tends to be more volatile than the market for more
liquid securities, and market values of relatively illiquid securities may be
more susceptible to change as a result of adverse publicity and investor
perceptions than are the market values of higher grade, more liquid
securities.
The Municipal Income Portfolio's net asset value will change with changes in
the value of its portfolio securities. Because the Municipal Income Portfolio
will invest primarily in fixed income municipal securities, the Municipal
Income Portfolio's net asset value can be expected to change as general levels
of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in
fixed income securities can be expected to decline. Net asset value and
market value may be volatile due to the Municipal Income Portfolio's
investment in lower-grade and less liquid municipal securities. Volatility
may be greater during periods of general economic uncertainty.
To the extent that there is no established retail market for some of the
securities in which the Municipal Income Portfolio may invest, there may be
relatively inactive trading in such securities and the ability of the Trust to
accurately value such securities may be adversely affected. During periods of
reduced market liquidity and in the absence of readily available market
quotations for securities held in the Municipal Income Portfolio, the
responsibility of the Trust to value the Municipal Income Portfolio's
securities becomes more difficult and the Trust's judgment may play a greater
role in the valuation of the Municipal Income Portfolio's securities due to
the reduced availability of reliable objective data. To the extent that the
Municipal Income Portfolio invests in illiquid securities and securities which
are restricted as to resale, the Municipal Income Portfolio may incur
additional risks and costs. Illiquid and restricted securities are
particularly difficult to dispose of. When determining whether municipal
leases purchased by the Municipal Income Portfolio will be classified as a
liquid or illiquid security, the Board of Trustees has directed the Sub-
Adviser to consider the following factors: the frequency of trades and quotes
for the security; the volatility of quotations and trade prices for the
security; the number of dealers willing to purchase or sell the security and
the number of potential purchases; dealer undertaking to make a market in the
security; the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer); the rating of the security and the
financial condition and prospects of the issuer of the security; whether the
lease can be terminated by the lessee; the potential recovery, if any, from a
sale of the leased property upon termination of the lease; the lessee's
general credit strength (e.g., its debt, administrative, economic and
financial characteristics and prospects); the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
potential property is no longer deemed essential to its operations (e.g., the
potential for an "event of nonappropriation"); any credit enhancement or legal
recourse provided upon an event of nonappropriation or other termination of
the lease; and such other factors as may be relevant to the Portfolio's
ability to dispose of the security.
Lower-grade tax-exempt municipal securities generally involve greater credit
risk than higher-grade municipal securities. A general economic downturn or a
significant increase in interest rates could severely disrupt the market for
lower-grade tax-exempt municipal securities and adversely affect the market
value of such securities. In addition, in such circumstances, the ability of
issuers of lower-grade tax-exempt municipal securities to repay principal and
to pay interest, to meet projected financial goals and to obtain additional
financing may be adversely affected. Such consequences could lead to an
increased incidence of default for such securities and adversely affect the
value of the lower-grade tax-exempt municipal securities in the Municipal
Income Portfolio and, thus, the Portfolio's net asset value. The secondary
market prices of lower-grade tax-exempt municipal securities are less
sensitive to changes in interest rates than are those for higher rated tax-
exempt municipal securities, but are more sensitive to adverse economic
changes or individual issuer developments. Adverse publicity and investors'
perceptions, whether or not based on rational analysis, may also affect the
value and liquidity of lower-grade tax-exempt municipal securities.
Yields on the Municipal Income Portfolio's securities can be expected to
fluctuate over time. In addition, periods of economic uncertainty and changes
in interest rates can be expected to result in increased volatility of the
market prices of the lower-grade tax-exempt municipal securities in the
Municipal Income Portfolio's portfolio and, thus, in the net asset value of
the Portfolio. Net asset value and market value may be volatile due to the
Municipal Income Portfolio's investment in lower-grade and less liquid
municipal securities. Volatility may be greater during periods of general
economic uncertainty. The Municipal Income Portfolio may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of interest or a repayment of principal on its portfolio holdings, and
the Municipal Income Portfolio may be unable to obtain full recovery thereof.
In the event that an issuer of securities held by the Municipal Income
Portfolio experiences difficulties in the timely payment of principal or
interest, and such issuer seeks to restructure the terms of its borrowings,
the Municipal Income Portfolio may incur additional expenses and may determine
to invest additional capital with respect to such issuer or the project or
projects to which the Municipal Income Portfolio's securities relate. Recent
and proposed legislation may have an adverse impact on the market for lower-
grade tax-exempt municipal securities. Recent legislation requires federally-
insured savings and loan associations to divest their investments in lower-
grade bonds. Other legislation has, from time to time, been proposed which,
if enacted, could have an adverse impact on the market for lower-grade tax-
exempt municipal securities.
The Municipal Income Portfolio will rely on the Sub-Adviser's judgment,
analysis, and experience in evaluating the creditworthiness of an issue. In
this evaluation, the Sub-Adviser will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters. The Sub-Adviser also may consider,
although it does not rely primarily on, the credit ratings of Standard &
Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's"), in
evaluating tax-exempt municipal securities. Such ratings evaluate only the
safety of principal and interest payments, not market value risk.
Additionally, because the creditworthiness of an issuer may change more
rapidly than is able to be timely reflected in changes in credit ratings, the
Sub-Adviser continuously monitors the issuers of tax-exempt municipal
securities held in the Municipal Income Portfolio. The Municipal Income
Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security
whose rating has been downgraded below B- by S&P or below B3 by Moody's, or
whose rating has been withdrawn.
Because issuers of lower-grade tax-exempt municipal securities frequently
choose not to seek a rating of their municipal securities, the Sub-Adviser
will be required to determine the relative investment quality of many of the
municipal securities in the Municipal Income Portfolio. Further, because the
Municipal Income Portfolio may invest up to 20% of its total assets in these
lower-grade municipal securities, achievement by the Municipal Income
Portfolio of its investment objective may be more dependent upon the Sub-
Adviser's investment analysis than would be the case if the Municipal Income
Portfolio were investing exclusively in higher-grade municipal securities.
The relative lack of financial information available with respect to issuers
of municipal securities may adversely affect the Sub-Adviser's ability to
successfully conduct the required investment analysis.
No more than 5% of the net assets of the Income and Growth Portfolio will be
invested in CATS, TIGRS or STRIPS.
Dollar Rolls and Reverse Repurchase Agreements
A Portfolio may enter into dollar rolls, in which the Portfolio sells
securities and simultaneously contracts to repurchase substantially similar
securities on a specified future date. In the case of dollar rolls involving
mortgage-related securities, the mortgage-related securities that are
purchased typically will be of the same type and will have the same or similar
interest rate and maturity as those sold, but will be supported by different
pools of mortgages. The Portfolio forgoes principal and interest paid during
the roll period on the securities sold in a dollar roll, but it is compensated
by the difference between the current sales price and the price for the future
purchase as well as by any interest earned on the proceeds of the securities
sold. A Portfolio could also be compensated through the receipt of fee
income.
A Portfolio may also enter into reverse repurchase agreements in which the
Portfolio sells securities and agrees to repurchase them at a mutually agreed
date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
Dollar rolls and reverse repurchase agreements involve the risk that the
market value of the securities that the Portfolio is obligated to repurchase
under the agreement may decline below the repurchase price. In the event a
Portfolio's counterparty under a dollar roll or reverse repurchase agreement
becomes bankrupt or insolvent, the Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
When effecting reverse repurchase agreements, liquid assets of the Portfolio,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
The Quality Income, Income and Growth, and Global Portfolios will not use such
transactions for leveraging purposes and, accordingly, will segregate cash,
U.S. Government securities or other high grade debt obligations in an amount
sufficient to meet its purchase obligations under the transactions. The
Quality Income, Income and Growth, and Global Portfolios will also maintain
asset coverage of at least 300% for all outstanding firm commitments, dollar
rolls and other borrowings.
Since, as noted above, the counterparty is required to deliver a similar, but
not identical, security to a Portfolio, the security which a Portfolio is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the a Portfolio's use of
the cash that it receives from a dollar roll will provide a return that
exceeds borrowing costs.
The Trustees of the Trust on behalf of the Quality Income, Income, and Growth
and Global Portfolios have adopted guidelines to ensure that those securities
received are substantially identical to those sold. To reduce the risk of
default, the Quality Income, Income and Growth and Global Portfolios will
engage in such transactions only with banks and broker-dealers selected
pursuant to such guidelines.
Convertible Securities
A Portfolio may invest in convertible securities. Convertible securities are
fixed income securities which may be exchanged or converted into a
predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the
features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to
be employed for a variety of investment strategies.
A Portfolio will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in its investment
adviser's or sub-adviser's opinion, the investment characteristics of the
underlying common shares will assist the Portfolio in achieving its investment
objectives. Otherwise, the Portfolio may hold or trade convertible
securities. In selecting convertible securities for the Portfolio, the
Portfolio's investment adviser or sub-adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Portfolio's investment adviser or sub-adviser
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability
and practices.
Warrants
A Portfolio may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life of
the warrant, the warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the market
price of the warrant may tend to be greater than the percentage increase or
decrease in the market price of the optioned common stock. A Portfolio will
not invest more than 5% of the value of its total assets in warrants. No more
than 2% of this 5% may be warrants which are not listed on the New York or
American Stock Exchanges. Warrants acquired in units or attached to
securities may be deemed to be without value for purposes of this policy.
Swaps, Caps, Floors and Collars
A Portfolio may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. A Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. A Portfolio would use these transactions as hedges and not as
speculative investments and would not sell interest rate caps or floors where
it does not own securities or other instruments providing the income stream
the Portfolio may be obligated to pay. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal. A currency swap
is an agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index
swap is an agreement to swap cash flows on a notional amount based on changes
in the values of the reference indices. The purchase of a cap entitles the
purchaser to receive payments on a notional principal amount from the party
selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined
interest rate or amount. A collar is a combination of a cap and a floor that
preserves a certain return within a predetermined range of interest rates or
values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. A Portfolio will
not enter into any swap, cap, floor or collar transaction unless, at the time
of entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by
S&P or Moody's or has an equivalent rating from a NRSRO or is determined to be
of equivalent credit quality by the Portfolio's investment adviser or sub-
adviser. If there is a default by the Counterparty, a Portfolio may have
contractual remedies pursuant to the agreements related to the transaction.
As a result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid than
swaps.
High Yield, High Risk Debt Securities
A Portfolio may invest a portion of its assets in securities rated Baa/BBB or
lower and in unrated securities of equivalent quality in the investment
adviser's or sub-adviser's judgment. A Portfolio may invest in debt
securities which are rated as low as C by Moody's or D by S&P. Such
securities may be in default with respect to payment of principal or interest.
Below investment grade securities (rated below Baa by Moody's and below BBB by
S&P) or unrated securities of equivalent quality in the investment adviser's
or sub-adviser's judgment, carry a high degree of risk (including the
possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk of principal and
income, and may be less liquid, than securities in the higher rating
categories and are considered speculative. The lower the ratings of such debt
securities, the greater their risks render them like equity securities. See
the Appendix to this Statement for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
As economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic
downturn or period of rising interest rates, highly leveraged issues may
experience financial stress which could adversely affect their ability to
service their principal and interest payment obligations. Prices and yields
of high yield securities will fluctuate over time and, during periods of
economic uncertainty, volatility of high yield securities may adversely affect
a Portfolio's net asset value. In addition, investments in high yield zero
coupon or pay-in-kind bonds, rather than income-bearing high yield securities,
may be more speculative and may be subject to greater fluctuations in value
due to changes in interest rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may
limit the ability of a Portfolio to accurately value high yield securities in
its portfolio and to dispose of those securities. Adverse publicity and
investor perceptions may decrease the values and liquidity of high yield
securities. These securities may also involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these
reasons, it is the policy of the investment adviser or sub-adviser not to rely
exclusively on ratings issued by established credit rating agencies, but to
supplement such ratings with its own independent and on-going review of credit
quality. The achievement of a Portfolio's investment objective by investment
in such securities may be more dependent on the investment adviser's or sub-
adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the investment adviser or
sub-adviser will determine whether it is in the best interest of a Portfolio
to retain or dispose of such security.
Prices for below investment-grade securities may be affected by legislative
and regulatory developments. For example, new federal rules require savings
and loan institutions to gradually reduce their holdings of this type of
security. Also, recent legislation restricts the issuer's tax deduction for
interest payments on these securities. Such legislation may significantly
depress the prices of outstanding securities of this type.
Indexed Securities
A Portfolio may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). Most indexed securities have maturities of three
years or less.
Indexed securities differ from other types of debt securities in which a
Portfolio may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such /as an interest rate compared with a fixed interest rate or
the currency exchange rates between two currencies (neither of which need be
the currency in which the instrument is denominated). The reference
instrument need not be related to the terms of the indexed security. For
example, the principal amount of a U.S. dollar denominated indexed security
may vary based on the exchange rate of two foreign currencies. An indexed
security may be positively or negatively indexed; that is, its value may
increase or decrease if the value of the reference instrument increases.
Further, the change in the principal amount payable or the interest rate of an
indexed security may be a multiple of the percentage change (positive or
negative) in the value of the underlying reference instrument(s).
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may
then reduce the principal amount payable on maturity. Finally, indexed
securities may be more volatile than the reference instruments underlying
indexed securities.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Global Portfolio may also
engage in proxy hedging. Proxy hedging is often used when the currency to
which the Portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the Global Portfolio's
securities are or are expected to be denominated, and to buy U.S. dollars.
The amount of the contract would not exceed the value of the Global
Portfolio's securities denominated in linked currencies. For example, if the
Sub-Adviser considers that the Austrian schilling is linked to the German
deutschemark (the "D-mark"), the Global Portfolio holds securities denominated
in schillings and the Sub-Adviser believes that the value of schillings will
decline against the U.S. dollar, the Sub-Adviser may enter into a contract to
sell D-marks and buy dollars.
Eurodollar Instruments
A Portfolio may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. A
Portfolio might use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps and fixed income
instruments are linked.
Investment Advisory Services
Commonwealth Advisors, Inc. (formerly Cambridge Investment Advisers,
Inc.) serves as investment adviser to the Cambridge Growth, Capital Growth,
Quality Income, Income and Growth, Global, and Municipal Income Portfolios.
Cambridge has entered into sub-advisory arrangements with respect to certain
of the Portfolios. Van Kampen/American Capital Management, Inc. serves as
sub-adviser to the Municipal Income Portfolio; Wellington Management Company
serves as sub-adviser to the Income and Growth Portfolio; Perpetual Investment
Advisers, Inc. serves as sub-adviser to the Global Portfolio. Each of these
sub-advisers has complete discretion to purchase and sell portfolio securities
for its respective Portfolio within the particular Portfolio's investment
objective, restrictions, and policies. Charter Asset Management, Inc.
("Charter") serves as investment adviser and administrator to the Growth
Portfolio. Wellesley Advisors, Inc. ("Wellesley") serves as investment
adviser to the Strategy Portfolio. Commonwealth Investment Counsel, Inc.
("Commonwealth") serves as investment adviser to the Balanced and Short-
Duration Income Portfolios. Investment Management Group, Inc. ("IMG") serves
as administrator to all of the Portfolios. Each of Cambridge, Charter,
Commonwealth, and Wellesley is a wholly-owned subsidiary of IMG, which is a
wholly-owned subsidiary of Wheat First Butcher Singer, Inc. ("WFBS").
Subject to the supervision and direction of the Trustees, each
investment adviser and sub-adviser manages the applicable Portfolio in
accordance with the stated policies of that Portfolio and of the Trust. Each
makes investment decisions for the Portfolio and places the purchase and sale
orders for portfolio transactions. IMG furnishes each of the Portfolios with
certain statistical and research data, clerical help, and certain accounting,
data processing, and other services required by the Portfolios, assists in
preparation of certain reports to shareholders of the Portfolios, tax returns,
and filings with the SEC and state Blue Sky authorities, and generally assists
in all aspects of the Portfolios' operations. The investment advisers, sub-
advisers, and IMG, as the case may be, bear all their expenses in connection
with the performance of their services and pay the salaries of all officers
and employees who are employed by them and the Trust.
Each Fund's investment adviser or sub-adviser provides the Trust with
investment officers who are authorized to execute purchases and sales of
securities. Investment decisions for the Trust and for the other investment
advisory clients of the investment advisers and sub-advisers and their
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition
to basic suitability for the particular client involved. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in
which event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in
the investment adviser's or sub-adviser's opinion is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients. In the case of
short-term investments, the Treasury area of WFBS handles purchases and sales
under guidelines approved by investment officers of the Trust. Each
investment adviser and sub-adviser employs professional staffs of portfolio
managers who draw upon a variety of resources for research information for the
Trust.
Management Fees
For performing its responsibilities, the investment adviser of each Portfolio
receives an annual management fee from each Portfolio (as described in the
Trust's Prospectus) which may then be paid in whole or in part to a
Portfolio's sub-adviser, if any.
During fiscal 1992, 1993, and 1994, the Portfolios paid the following in
investment advisory fees (reflecting fee waivers):
1992 1993 1994
Cambridge Growth Portfolio . . . . . . . $58,221 $298,293 $410,955
Capital Growth Portfolio . . . . . . . . 92,507 535,270 590,693
Quality Income Portfolio . . . . . . . . -- 658,652 893,139
Municipal Income Portfolio . . . . . . . -- 4,130 387,074
Income and Growth Portfolio . . . . . . . -- 45,081 374,462
Global Portfolio . . . . . . . . . . . . -- -- 69,515
Growth Portfolio . . . . . . . . . . . . 811,189 1,105,694 1,327,384
Strategy Portfolio . . . . . . . . . . . -- 147,585 1,368,325
Short-Duration Income Portfolio . . . . . -- -- --
Balanced Portfolio . . . . . . . . . . . -- -- --
During fiscal 1992, Commonwealth Advisors waived management fees in
the following amounts: Cambridge Growth Portfolio, $3,881; Capital
Growth Portfolio, $6,167; Quality Income Portfolio, $145,774; Municipal
Income Portfolio, $64,430. During fiscal 1993, Commonwealth Advisors
waived management fees in the following amounts: Cambridge Growth Portfolio,
$18,450; Capital Growth Portfolio, $35,435; Quality Income Portfolio,
$230,311; Municipal Income Portfolio, $374,138. During fiscal 1994,
Commonwealth Advisors waived management fees of $81,713 and $69,515 in
respect of the Municipal Income Portfolio and the Global Portfolio,
respectively. Also during fiscal 1994, Commonwealth waived management fees of
$48,884 and $11,536 in respect of the Short-Duration Income Portfolio and the
Balanced Portfolio, respectively.
If in any year the aggregate expenses of a Portfolio (including investment
advisory fees but excluding interest, taxes, brokerage and distribution fees,
and extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over that Portfolio, its investment adviser's or sub-adviser's
compensation may be reduced. The most stringent state expense limitation
applicable to the Trust presently requires reimbursement of expenses in any
year that such expenses exceed the sum of 2.5% of the first $30 million of
average daily net assets, 2.0% of the next $70 million of average daily net
assets, and 1.5% of average daily net assets over $100 million. If a
Portfolio's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount of
the excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount of expenses to be borne by an investment adviser or sub-
adviser will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
Administrative Services
IMG serves as administrator to each of the Portfolios; prior to June 1,
1994, Cambridge Administrative Services ("CAS"), a subsidiary of Federated
Advisers, provided administrative services to the Cambridge Growth, Capital
Growth, Quality Income, Municipal Income, and Income and Growth Portfolios.
During fiscal 1992, 1993, and 1994, the Portfolio's paid the following fees
for administrative services (reflecting fee waivers):
1992 1993 1994
Cambridge Growth Portfolio . . . . . . . $4,662 $35,347 $57,626
Capital Growth Portfolio . . . . . . . . 7,397 68,158 92,278
Quality Income Portfolio . . . . . . . . -- 143,075 151,234
Municipal Income Portfolio . . . . . . . -- 62,849 97,653
Income and Growth Portfolio . . . . . . . -- 4,509 47,282
Global Portfolio . . . . . . . . . . . . -- -- 7,140
Strategy Portfolio . . . . . . . . . . . -- -- 29,422
Short-Duration Income Portfolio . . . . . -- -- --
Balanced Portfolio . . . . . . . . . . . -- -- --
During fiscal 1992, CAS waived administrative fees in the following
amounts: Cambridge Growth Portfolio, $5,051; Capital Growth Portfolio, $8,013;
Quality Income Portfolio, $30,370; Municipal Income Portfolio, $13,423. During
fiscal 1993, CAS waived administrative fees in the following amounts:
Cambridge Growth Portfolio, $20,121; Capital Growth Portfolio, $36,269;
Quality Income Portfolio, $41,518; Municipal Income Portfolio, $34,261;
Income and Growth Portfolio, $3,005. Also during fiscal 1993, IMG
waived $17,363 in administrative fees in respect of the Strategy Portfolio.
During fiscal 1994, CAS waived administrative fees in the following amounts:
Cambridge Growth Portfolio, $6,569; Quality Income Portfolio, $23,563;
Income and Growth Portfolio, $15,033; Global Portfolio, $530. Also during
fiscal 1994, IMG waived administrative fees of $131,557 and $9,776 in respect
of the Strategy Portfolio, $131,557; Short-Duration Income Portfolio. For
fiscal 1994, the Growth and Strategy Portfolios reimbursed amounts of
$24,000 and $21,507, respectively, to IMG for certain accounting and
operation related costs not covered by their respective administration
arrangements.
Shareholder Servicing Plan
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with
Mentor Distributors (formerly Cambridge Distributors, Inc.) with respect to
each Portfolio. Pursuant to the Service Plan, financial institutions will
enter into shareholder service agreements with the Portfolios to provide
administrative support services to their customers who from time to time may
be owners of record or beneficial owners of shares of one or more Portfolios.
In return for providing these support services, a financial institution may
receive payments from one or more Portfolios at a rate not exceeding .25% of
the average daily net assets of the Class A or Class B shares of the
particular Portfolio or Portfolios beneficially owned by the financial
institution's customers for whom it is holder of record or with whom it has a
servicing relationship. The Service Plan is designed to stimulate financial
institutions to render administrative support services to the Portfolios and
their shareholders. These administrative support services include, but are
not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory,
and computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries regarding the Portfolios; assisting clients in changing
dividend options, account designations and addresses; and providing such other
services as the Portfolios reasonably request. Prior to May __, 1995, the
Growth, Strategy, Short-Duration Income, and Balanced Portfolios were parties
to shareholder serving arrangements with Wheat, First Securities, Inc.
("Wheat") pursuant to which each Portfolio made payments to Wheat at the
annual rate of 0.25% of the Portfolio's average net assets.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by the investment adviser, a sub-adviser,
and/or IMG, or affiliates thereof, for providing administrative support
services to holders of Class A or Class B shares of the Portfolios. These
payments will be made directly by the investment adviser, a sub-adviser,
and/or IMG, as applicable, and will not be made from the assets of any of the
Portfolios.
During fiscal 1994, the Portfolios incurred shareholder service fees under
their respective Service Plans as follows:
Cambridge Growth Portfolio . . . . $128,423
Capital Growth Portfolio . . . . . 184,588
Quality Income Portfolio . . . . . 349,642
Municipal Income Portfolio . . . . 195,328
Income and Growth Portfolio . . . . 124,821
Global Portfolio . . . . . . . . . 15,340
Growth Portfolio . . . . . . . . . 474,066
Strategy Portfolio . . . . . . . . 402,448
Short-Duration Income Portfolio . . 24,442
Balanced Portfolio . . . . . . . . --
During 1994, Wheat waived $3,845 in shareholder service fees under its
agreement in respect of the Balanced Portfolio.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, an investment adviser or sub-adviser looks for prompt
execution of the order at the best overall terms available. In working with
dealers, an investment adviser or sub-adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. An investment
adviser or sub-adviser makes decisions on portfolio transactions and selects
brokers and dealers subject to guidelines established by the Board of
Trustees.
An investment adviser or sub-adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished directly to
the Portfolios or to the investment adviser or sub-adviser and may include:
(i) advice as to the advisability of investing in securities; (ii) security
analysis and reports; (iii) economic studies; (iv) receipt of quotations for
portfolio evaluations; and (v) similar services.
An investment adviser or sub-adviser and their affiliates exercise reasonable
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided.
Research services provided by brokers may be used in advising a Portfolio and
other accounts. To the extent that receipt of these services may supplant
services for which an investment adviser or sub-adviser or their affiliates
might otherwise have been paid, it would tend to reduce their expenses, but it
is not expected that such reduction will be material.
During fiscal 1992, 1993, and 1994, the Portfolios paid brokerage commissions
on brokerage transactions as follows:
<TABLE>
1992 1993 1994
<S> <C> <C> <C>
Cambridge Growth Portfolio . . . . . . . $40,377 $173,167 $159,585
Capital Growth Portfolio . . . . . . . . 75,352 334,227 195,086
Quality Income Portfolio . . . . . . . . -- -- --
Municipal Income Portfolio . . . . . . . -- -- --
Income and Growth Portfolio . . . . . . . -- 25,668 116,782
Global Portfolio . . . . . . . . . . . . -- -- 45,449
Growth Portfolio . . . . . . . . . . . . 160,521 275,570 374,267
Strategy Portfolio . . . . . . . . . . . -- 159,275 651,172
Short-Duration Income Portfolio . . . . . -- -- 1,307
Balanced Portfolio . . . . . . . . . . . -- -- 1,641
</TABLE>
For fiscal 1992, 1993, and 1994, Wheat, First Securities, Inc. ("Wheat"),
an affiliate of IMG, Commonwealth Advisors, and Mentor Distributors, received
for fiscal 1993 and 1994 brokerage commissions for services performed on
behalf of certain of the Portfolios, as follows:
<TABLE>
1992 1993 1994
<S> <C> <C> <C>
Cambridge Growth Portfolio . . . . . . . $42,656 $ 3,297 $ 588
Capital Growth Portfolio . . . . . . . . -- 113,126 78,085
Income and Growth Portfolio . . . . . . . -- 4,303 22,606
Global Portfolio . . . . . . . . . . . . -- -- --
Growth Portfolio . . . . . . . . . . . . 35,821 71,806 34,881
Strategy Portfolio . . . . . . . . . . . -- 159,275 651,172
Short-Duration Income Portfolio . . . . . -- -- --
Balanced Portfolio . . . . . . . . . . . -- -- --
</TABLE>
For fiscal 1994, the brokerage commissions paid by the Cambridge
Growth Portfolio to Wheat amounted to 0.37% of the aggregate brokerage
commissions paid by the Portfolio and 0.18% of the aggregate dollar amount of
transactions involving payment of commissions by the Portfolio. For fiscal
1994, the brokerage commissions paid by the Capital Growth Portfolio to Wheat
amounted to 40.03% of the aggregate brokerage commissions paid by the
Portfolio and 35.20% of the aggregate dollar amount of transactions involving
payment of commissions by the Portfolio. For fiscal 1994, the brokerage
commissions paid by the Income and Growth Portfolio to Wheat amounted to
19.36% of the aggregate brokerage commissions paid by the Portfolio and
11.81% of the aggregate dollar amount of transactions involving payment of
commissions by the Portfolio. For fiscal 1994, the brokerage commissions paid
by the Growth Portfolio to Wheat amounted to 9.00% of the aggregate brokerage
commissions paid by the Portfolio and 10.00% of the aggregate dollar
amount of transactions involving payment of commissions by the Portfolio.
For fiscal 1994, the brokerage commissions paid by the Strategy Portfolio
to Wheat amounted to less than 19% of the aggregate brokerage commissions paid
by the Portfolio. For fiscal 1994, the Short-Duration Income Portfolio
and the Balanced Portfolio paid no brokerage commissions to Wheat.
How to Buy Shares
Except under certain circumstances described in the Trust's Prospectus, Class
A shares of the Portfolios are sold at their net asset value plus an
applicable sales charge on days the New York Stock Exchange is open for
business. Class B shares of the Portfolios are sold at their net asset value
with no sales charge on days the New York Stock Exchange is open for business.
The procedure for purchasing Class A and Class B shares of the Portfolios is
explained in the Prospectus under the section entitled "How to Buy Shares."
Dealers will be compensated on purchases of Class A shares in accordance with
the following schedule:
Amount of Purchase Dealer Commission
Less than $2 million 1.00%
$2 million but less than $3 million .80%
$3 million but less than $50 million .50%
$50 million but less than $100 million .25%
$100 million or more .15%
The above commission will be paid by the Distributor and not the Trust or its
shareholders.
Distribution
Each of the Portfolios makes payments to Mentor Distributors in accordance
with its Distribution Plan adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Prior to May __, 1995, each of the Growth, Strategy,
Short-Duration Income, and Balanced Portfolios made payments under its plan to
Wheat. During fiscal 1994, the Portfolios paid fees pursuant to their
respective Plans as follows: Cambridge Growth Portfolio, $253,834; Capital
Growth Portfolio, $360,712; Quality Income Portfolio, $511,073; Municipal
Income Portfolio, $253,801; Income and Growth Portfolio, $252,486; Global
Portfolio, $20,749; Growth Portfolio, $1,422,197; Strategy Portfolio,
$1,207,346; and Short-Duration Income Portfolio, $29,331. During 1994, Wheat
waived 12b-1 fees of $11,536 in respect of the Balanced Portfolio.
During fiscal 1994, Mentor Distributors paid the following in
commissions in connection with distribution:
<TABLE>
Class A Class B
<S> <C> <C>
Cambridge Growth Portfolio . . . . . . . . . . $ 6,113 $191,694
Capital Growth Portfolio . . . . . . . . . . . 3,758 124,947
Quality Income Portfolio . . . . . . . . . . . 4,910 202,265
Municipal Income Portfolio . . . . . . . . . . 6,042 177,446
Income and Growth Portfolio . . . . . . . . . . 13,596 527,081
Global Portfolio . . . . . . . . . . . . . . . 12,357 159,754
</TABLE>
During fiscal 1994, Mentor Distributors incurred the following expenses
for marketing materials and promotional activities:
<TABLE>
Class A Class B
<S> <C> <C>
Cambridge Growth Portfolio . . . . . . . . . . $39,544 $ 77,787
Capital Growth Portfolio . . . . . . . . . . . 53,456 111,497
Quality Income Portfolio . . . . . . . . . . . 81,758 211,265
Municipal Income Portfolio . . . . . . . . . . 67,963 125,197
Income and Growth Portfolio . . . . . . . . . . 48,208 117,228
Global Portfolio . . . . . . . . . . . . . . . 26,715 21,664
</TABLE>
During 1994, Wheat paid the following in commissions in connection with
distribution:
Growth Portfolio . . . . . . . . . . . . . . . . . $1,993,158
Strategy Portfolio . . . . . . . . . . . . . . 2,538,411
Short-Duration Income Portfolio . . . . . . . . 92,123
Balanced Portfolio . . . . . . . . . . . . . . --
During 1994, Wheat paid the following expenses for marketing materials and
other promotional activities:
Growth Portfolio . . . . . . . . . . . . . . . . . $264,166
Strategy Portfolio . . . . . . . . . . . . . . 224,874
Short-Duration Income Portfolio . . . . . . . . 4,017
Balanced Portfolio . . . . . . . . . . . . . . --
During fiscal 1994, Cambridge received contingent deferred sales charges in
the following amounts: Cambridge Growth Portfolio, $17,411: Capital Growth
Portfolio, $31,061; Income and Growth Portfolio, $7,285; Global Portfolio,
$1,008; Quality Income Portfolio, $70,807; Municipal Income Portfolio, $14,873.
During fiscal 1994, Wheat received contingent deferred sales charges of
$321,429 and $108,534, respectively, in respect of the Growth Portfolio and
Strategy Portfolio, which each had only one class of shares outstanding during
such period.
Conversion to Federal Funds
The Shareholder Services Group, Inc., acts as the shareholder's agent in
depositing checks and converting them to federal funds.
Determining Net Asset Value
A Portfolio determines net asset value per share of each series of shares once
each day the New York Exchange (the "Exchange") is open. Currently, the
Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor
Day, Thanksgiving and Christmas. A Portfolio determines net asset value as of
the close of regular trading on the Exchange. However, equity options held by
a Portfolio are priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government securities and index options held by a Fund are
priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are valued at
prices which, in the opinion of the Trustees or a Portfolio's investment
adviser or sub-adviser most nearly represent the market values of such
securities. Currently, such prices are determined using the last reported
sale price or, if no sales are reported (as in the case of some securities
traded over-the-counter), the last reported bid price, except that certain
U.S. Government securities are stated at the mean between the last reported
bid and asked prices. Short-term investments having remaining maturities of
60 days or less are stated at amortized cost, which approximates market value.
All other securities and assets are valued at their fair value following
procedures approved by the Trustees. Liabilities are deducted from the total,
and the resulting amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at
fair value on the basis of valuations furnished by pricing services approved
by the Trustees, which determine valuations for normal, institutional-size
trading units of such securities using methods based on market transactions
for comparable securities and various relationships between securities which
are generally recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale, the
Portfolio's investment adviser or sub-adviser determines their fair values.
The fair value of such securities is generally determined as the amount which
a Portfolio could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation procedures
applied in any specific instance are likely to vary from case to case.
However, consideration is generally given to the financial position of the
issuer and other fundamental analytical data relating to the investment and to
the nature of the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Portfolio in connection with
such disposition). In addition, specific factors are also generally
considered, such as the cost of the investment, the market value of any
unrestricted securities of the same class (both at the time of purchase and at
the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset
value of a Portfolio's shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the day at the
latest practicable time prior to the close of the Exchange. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the Exchange which will not be reflected in the computation of a
Portfolio's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the Exchange
is open). In addition, European or Far Eastern securities trading generally
or in a particular country or countries may not take place on all business
days in New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
business days in New York and on which a Portfolio's net asset value is not
calculated. A Portfolio calculates net asset value per share, and therefore
effects sales, redemptions and repurchases of its shares, as of the close of
the Exchange once on each day on which the Exchange is open. Such calculation
does not take place contemporaneously with the determination of the prices of
the majority of the portfolio securities used in such calculation. If events
materially affecting the value of such securities occur between the time when
their price is determined and the time when a Portfolio's net asset value is
calculated, such securities will be valued at fair value as determined in good
faith by the Board of Trustees.
Redemptions in Kind
Although the Trust intends to redeem Class A and Class B shares in cash, it
reserves the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from the respective
Portfolio's investment portfolio. To the extent available, such securities
will be readily marketable. Redemption in kind will be made in conformity
with applicable SEC rules, taking such securities at the same value employed
in determining net asset value and selecting the securities in a manner that
the Trustees determine to be fair and equitable. The Trust has elected to be
governed by Rule 18f-1 of the Investment Company Act of 1940, under which,
with respect to each Portfolio, the Trust is obligated to redeem Class A or
Class B shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of the respective class's net asset value during any 90-day
period.
Tax Status
Each Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to shareholders. As a series of Massachusetts business
trust, a Portfolio will not under present law be subject to any excise or
income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other dispositions of stock, securities, or foreign currencies, and
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities,
or currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock and securities) held less
than three months; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government Securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the Fund and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any issuer (other than U.S. Government
Securities). In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, a Portfolio
must in general distribute at least 90% of its interest, dividends, net short-
term capital gain, and certain other income each year.
An excise tax at the rate of 4% will be imposed on the excess, if any, of each
Portfolio's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the
Portfolio's ordinary income for the calendar year plus 98% of its capital gain
net income recognized during the one-year period ending on October 31 (or
December 31, if the Portfolio so elects) plus undistributed amounts from prior
years. Each Portfolio intends to make distributions sufficient to avoid
imposition of the excise tax. Distributions declared by a Portfolio during
October, November or December to shareholders of record on a date in any such
month and paid by the Portfolio during the following January will be treated
for federal tax purposes as paid by the Portfolio and received by shareholders
on December 31 of the year in which declared.
With respect to investment income and gains received by a Portfolio from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which a Portfolio will be subject depends on the specific countries
in which its assets will be invested and the extent of the assets invested in
each such country and therefore cannot be determined in advance.
A Portfolio's ability to use options, futures, and forward contracts and other
hedging techniques, and to engage in certain other transactions, may be
limited by tax considerations, in particular, the requirement that less than
30% of the Portfolio's gross income be derived from the sale or disposition of
assets held for less than three months. A Fund's transactions in foreign-
currency-denominated debt instruments and its hedging activities will likely
produce a difference between its book income and its taxable income. This
difference may cause a portion of the Portfolio's distributions of book income
to constitute returns of capital for tax purposes or require the Portfolio to
make distributions exceeding book income in order to permit the Portfolio to
continue to qualify, and be taxed under Subchapter M of the Code, as a
regulated investment company.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a Portfolio has invested and their
face value ("original issue discount") is considered to be income to the
Portfolio each year, even though the Portfolio will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the net investment income of the Portfolio which must
be distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
Each Portfolio is required to withhold 31% of all income dividends and capital
gain distributions, and 31% of the gross proceeds of all redemptions of
Portfolio shares, in the case of any shareholder who does not provide a
correct taxpayer identification number, about whom a Portfolio is notified
that the shareholder has under reported income in the past, or who fails to
certify to a Portfolio that the shareholder is not subject to such
withholding. Tax-exempt shareholders are not subject to these back-up
withholding rules so long as they furnish the Portfolio with a proper
certification.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and regulations. The Code and regulations are subject to change by
legislative or administrative actions. Dividends and distributions also may
be subject to state and federal taxes. Shareholders are urged to consult
their tax advisers regarding specific questions as to federal, state or local
taxes. The foregoing discussion relates solely to U.S. federal income tax
law. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of the Fund, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
The Global Portfolio intends to qualify for and may make the election
permitted under Section 853 of the Internal Revenue Code so that shareholders
may (subject to limitations) be able to claim a credit or deduction on their
federal income tax returns for, and may be required to treat as part of the
amounts distributed to them, their pro rata portion of qualified taxes paid by
the Portfolio to foreign countries (which taxes relate primarily to investment
income). The Global Portfolio may make an election under Section 853 of the
Internal Revenue Code, provided that more than 50% of the value of the total
assets of the Global Portfolio at the close of the taxable year consists of
securities in foreign operations. The foreign tax credit available to
shareholders is subject to certain limitations imposed by the Internal Revenue
Code.
If the Global Portfolio invests in stock of certain foreign investment
companies, the Global Portfolio may be subject to U.S. federal income taxation
on a portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the Global Portfolio's holding
period for the stock. The distribution or gain so allocated to any taxable
year of the Global Portfolio, other than the taxable year of the excess
distribution or disposition, would be taxed to the Global Portfolio at the
highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax
deferral deemed to have resulted from the ownership of the foreign company's
stock. Any amount of distribution or gain allocated to the taxable year of
the distribution or disposition would be included in the Global Portfolio's
investment company taxable income and, accordingly, would not be taxable to
the Global Portfolio to the extent distributed by the Global Portfolio as a
dividend to its shareholders.
Proposed regulations have been issued which may allow the Global Portfolio to
make an election to mark to market its shares of these foreign investment
companies in lieu of being subject to U.S. federal income taxation. At the
end of each taxable year to which the election applies, the Global Portfolio
would report as ordinary income the amount by which the fair market value of
the foreign company's stock exceed the Global Portfolio's adjusted basis in
these shares. No mark to market losses would be recognized. The effect of
the election would be to treat excess distributions and gain on dispositions
as ordinary income which is not subject to a fund level tax when distributed
to shareholders as a dividend. Alternatively, the Global Portfolio may elect
to include as income and gain their share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxes in
the manner described above.
Many futures contracts (including foreign currency futures contracts) entered
into by the Global Portfolio, certain forward foreign currency contracts, and
all listed nonequity options written or purchased by the Global Portfolio
(including options on debt securities, options on futures contracts, options
on securities indices and options on broad-based stock indices) will be
governed by Section 1256 of the Internal Revenue Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing
out of any such position generally will be treated as 60% long-term and 40%
short-term capital gain or loss, and on the last trading day of the Global
Portfolio's fiscal year, all outstanding Section 1256 positions will be marked
to market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized. Under certain
circumstances, entry into a futures contract to sell a security may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or a substantially identical
security in the Global Portfolio. Under Section 988 of the Internal Revenue
Code, discussed below, foreign currency gains or loss from foreign currency
related forward contracts, certain futures and similar financial instruments
entered into or acquired by a Global Portfolio will be treated as ordinary
income or loss.
Under the Internal Revenue Code, gains or losses attributable to fluctuations
in exchange rates which occur between the time the Global Portfolio accrues
receivables or liabilities denominated in a foreign currency and the time the
Global Portfolio actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures and forward contracts, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition are
also treated as ordinary gain or loss. These gains or losses, referred to
under the Internal Revenue Code as "Section 988" gains or losses, may increase
or decrease the amount of the Global Portfolio's investment company taxable
income to be distributed to its shareholders as ordinary income.
Except as described below for the Municipal Income Portfolio, unless otherwise
exempt, shareholders are subject to federal income tax on dividends and
capital gains received as cash or additional shares. With respect to the
other Portfolios, no portion of any income dividend paid by a Portfolio is
expected to be eligible for the dividends received deduction available to
corporations. With respect to the other Portfolios, the dividends received
deduction for corporations will apply to ordinary income distributions to the
extent the distribution represents amounts that would qualify for the
dividends received deduction to a particular Portfolio if that Portfolio were
a regular corporation and to the extent designated by a Portfolio as so
qualifying. These dividends and any short-term capital gains are taxable as
ordinary income.
Shareholders will pay federal tax on long-term capital gains distributed to
them regardless of how long they have held the shares of the particular
Portfolio.
Shareholders of the Municipal Income Portfolio are not required to pay the
federal regular income tax on any dividends received from the Portfolio that
represent net interest on tax-exempt municipal bonds. However, under the Tax
Reform Act of 1985, dividends representing net interest earned on some
municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.
For a more complete discussion of shareholders' tax status, including a
discussion of the individual alternative minimum tax and the corporate
alternative minimum tax, see the section of the prospectus entitled "Tax
Information."
Performance Information
The average annual total return for the one- and five- year periods (where
applicable) and for the life of the Portfolios are as follows:
(Through September 30, 1994)
Since
Class A Shares 1 Year Inception
Cambridge Growth Portfolio . . . . . . . -16.87% -0.84%
Capital Growth Portfolio . . . . . . . . -6.79% 0.68%
Quality Income Portfolio . . . . . . . . -7.97% 0.14%
Municipal Income Portfolio . . . . . . . -9.35% 4.42%
Income and Growth Portfolio . . . . . . 0.68% 4.30%
Global Portfolio . . . . . . . . . . . . -5.17% -5.17%
Since
Class B Shares 1 Year Inception
Cambridge Growth Portfolio . . . . . . . -12.48% 0.99%
Capital Growth Portfolio . . . . . . . . -2.00% 2.44%
Quality Income Portfolio . . . . . . . . -3.97% 1.66%
Municipal Income Portfolio . . . . . . . -5.34% 6.00%
Income and Growth Portfolio . . . . . . 5.66% 8.15%
Global Portfolio . . . . . . . . . . . . -1.21% -1.21%
<TABLE> (Through December 31, 1994)
Single Class Shares 1 Year 5 Year Since Inception
<S> <C> <C> <C>
Growth Portfolio . . . . . . . . . . . . -8.9% 11.1% 12.46%
Strategy Portfolio . . . . . . . . . . . - -8.1% -- -5.1%
Short-Duration Income Portfolio . . . . -- -- 0.95%
Balanced Portfolio . . . . . . . . . . . -- -- -3.96%
</TABLE>
THE ANNUAL TOTAL RETURN INFORMATION SHOWN ABOVE FOR THE GROWTH, STRATEGY,
SHORT-DURATION INCOME, AND BALANCED PORTFOLIOS REFLECTS VARIOUS SALES CHARGES
CURRENTLY NOT APPLICABLE TO THE PORTFOLIO; ANNUAL TOTAL RETURN FOR THESE
PORTFOLIOS MAY VARY. The Growth, Strategy, Short-Duration, and Balanced
Portfolios are the successors to Mentor Growth Fund, Mentor Strategy Fund,
Mentor Short-Duration Income Fund, and Mentor Balanced Fund, respectively,
each of which was previously a series of shares of beneficial interest of
Mentor Series Trust. For fiscal 1994, none of the Mentor funds bore a front-
end sales charge, but Mentor Strategy Fund, Mentor Short-Duration Income Fund,
and Mentor Balanced Fund each was subject to a maximum contingent deferred
sales charge of 5%. Total Fund Operating Expenses for the Mentor funds for
fiscal 1994 were 2.01%, 2.19%, 1.29% (annualized), and 0.50% (annualized) for
Mentor Growth Fund, Mentor Strategy Fund, Mentor Short-Duration Income Fund,
and Mentor Balanced Fund, respectively.
The average annual total return for a Portfolio is the average compounded rate
of return for a given period that would equate a $1,000 initial investment to
the ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of shares owned at the end of the period
by the maximum offering price per share at the end of the period. The number
of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, less any applicable
sales load, adjusted over the period by any additional shares, assuming the
monthly, quarterly, or semi-annual (as applicable) reinvestment of all
dividends and distributions. Any applicable CSCS is deducted from the ending
value of the investment based on the lesser of the original purchase price or
the net asset value of shares redeemed. Cumulative total return reflects a
Portfolio's total performance over a specific period of time. This total
return assumes and is reduced by the payment of the maximum sales load and
CDSC.
At times, a Portfolio's investment adviser or sub-adviser may reduce its
compensation or assume expenses of the Portfolio in order to reduce the
Portfolio's expenses. The per share amount of any such fee reduction or
assumption of expenses during a Portfolio's past ten fiscal years (or for the
life of a Portfolio, if shorter) is reflected in the Trust's Prospectus and
the Portfolio Prospectuses. Any such fee reduction or assumption of expenses
would increase a Portfolio's yield and total return during the period of the
fee reduction or assumption of expenses.
ALL DATA ARE BASED ON PAST PERFORMANCE AND DO NOT PREDICT FUTURE RESULTS.
Yield and Tax-Equivalent Yield
The thirty-day yield for both classes of shares of the Portfolios for the
period ending September 30, 1994, were as follows:
PORTFOLIO CLASS A CLASS B
Quality Income Portfolio 6.08% 5.73%
Municipal Income Portfolio 4.56% 4.11%
Income and Growth Portfolio 1.87% 1.57%
The yield for both classes of each Portfolio is determined by dividing the net
investment income per share (as defined by the SEC) earned by the particular
Portfolio over a thirty-day period by the maximum offering price per share of
the particular Portfolio on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the particular
Portfolio because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distribution paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
Portfolio, the performance will be reduced for those shareholders paying those
fees.
The tax-equivalent yield for Class A shares of the Municipal Income Portfolio
for the thirty-day period ending September 30, 1994, was 7.55%. The tax-
equivalent yield for the Class B shares was 6.81% for the same period.
The tax-equivalent yield for both classes of the Municipal Income Portfolio is
calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Portfolio would have had to earn to equal its actual yield,
assuming a 39.6% tax rate (the maximum effective federal rate for individuals)
and assuming that income is 100% tax-exempt.
The Municipal Income Portfolio may also use a tax-equivalency table in
advertising and sales literature. The interest earned by the municipal bonds
in the Portfolio's investment portfolio generally remains free from federal
regular income tax but may be subject to state and local taxes. (Some portion
of the Portfolio's income may be subject to federal alternative minimum tax
and state and local taxes.) Capital gains, if any, are subject to federal,
state and local tax. As the table below indicates, a "tax-fee" investment is
an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
Taxable Yield Equivalent for 1994
Federal Income Tax Bracket:
15.00% 20.00% 31.00% 36.00% 39.60%
Joint Return $1-36,900 $36,901- $89,151- $140,001- Over
89,150 140,000 250,000 $250,000
Single Return $1-22,100 $22,101- $53,501- $115,001- Over
53,500 115,000 250,000 $250,000
-54-
Tax-Exempt
Yield Taxable Yield Equivalent
0.025 2.94% 3.47% 3.62% 3.91% 4.14%
3.00 3.53 4.17 4.35 4.69 4.97
3.50 4.12 4.86 5.07 5.47 5.79
4.00 4.71 5.56 5.80 6.25 6.62
4.50 5.29 6.25 6.52 7.03 7.45
5.00 5.88 6.94 7.25 7.81 8.28
5.50 6.47 7.64 7.97 8.59 9.11
6.00 7.06 8.33 8.70 9.38 9.93
6.50 7.65 9.03 9.42 10.16 10.76
7.00 8.24 9.72 10.14 10.94 11.59
7.50 8.82 10.42 10.87 11.72 12.42
8.00 9.41 11.11 11.59 12.50 13.25
8.50 10.00 11.81 12.32 13.28 14.07
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent.
The table above is for illustrative purposes only. It is not an indicator of
past or future performance of the Portfolio.
Performance information for Portfolios with changes in investment
management
As of ______, 1995, Pacific Investment Management Company, Phoenix Investment
Counsel, Inc., and Scudder, Stevens & Clark, Inc. ceased serving as sub-advisors
to the Quality Income (known at the time as the Government Income), Capital
Growth, and Global Portfolios, respectively. Since that time, Commonwealth
Advisors has managed the investment portfolios of the Quality Income and Capital
Growth Portfolios, and Perpetual Portfolio Management Limited has managed the
investment portfolio of the Global Portfolio as sub-adviser to that Portfolio.
Prior to that time, neither Commonwealth nor Perpetual managed the purchase or
sale or investments for any of those Portfolios. (As investment adviser to each
of the Portfolios, Commonwealth Advisors, among other things, preformed initial
due diligence on each of the sub-advisers prior to its appointment and
thereafter monitored and evaluated each sub-adviser's performance and reported
to the Trustees.) As permitted by applicable law, performance information for
those Portfolios may be presented in the future only for periods following
________, 1995.
Performance Comparisons
The performance of Class A and Class B shares of each Portfolio depends upon
such variables as: portfolio quality; average portfolio maturity; type of
instruments in which the particular Portfolio is invested; changes in the
expenses of the Trust or Class A or Class B shares of a particular Portfolio;
and various other factors.
The performance of each Portfolio's Class A and Class B shares fluctuates on a
daily basis largely because net earnings and net asset value per share
fluctuate daily. Both net earnings and net asset value per share are factors
in the computation of yield and total return for each class of the Portfolios.
Independent statistical agencies measure a Fund's investment performance and
publish comparative information showing how the Fund, and other investment
companies, performed in specified time periods. Two agencies whose reports
are commonly used for such comparisons are set forth below. From time to
time, a Fund may distribute these comparisons to its shareholders or to
potential investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED ON
THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE MEASURES
DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
From time to time, a Portfolio will quote its Lipper ranking in advertising
and sales literature.
DOW JONES INDUSTRIAL AVERAGE ("DJIA") is an unmanaged index representing share
prices of major industrial corporations, public utilities, and transportation
companies. Produced by Dow Jones & Company, it is cited as a principal
indicator of market conditions.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard
& Poor's listed on its index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated, in the Standard & Poor's
figures.
CONSUMER PRICE INDEX is generally considered to be a measure of inflation.
CDA MUTUAL FUND GROWTH INDEX is a weighted performance average of other mutual
funds with growth of capital objectives.
LIPPER GROWTH FUND INDEX is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.
SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues, which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed by
the U.S. government and quasi-federal corporations; and publicly issued,
fixed-rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates nine
years. Tracked by Shearson Lehman Brothers Inc., the index calculates total
returns for one month, three month, twelve month and ten year periods and
year-to-date.
SHEARSON LEHMAN GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
MORNINGSTAR, INC., an independent rating service, is the publisher of the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
RUSSELL GROWTH 1000 (RUSSELL 1000 INDEX) is a broadly diversified index
consisting of approximately 1,000 common stocks of companies with market
values between $20 million and $300 million that can be used to compare the
total returns of funds whose portfolios are invested primarily in growth
common stocks.
SHEARSON LEHMAN AGGREGATE BOND INDEX is a total return index measuring both
the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Shearson Lehman Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index, and Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land
Bank, and the Bank for Cooperatives; foreign obligations; and U.S. investment-
grade corporate debt and mortgage-backed obligations. All corporate debt
included in the Aggregate Bond Index has a minimum S&P rating of BBB, a
minimum Moody's rating of Baa, or a minimum Fitch rating of BBB.
SALOMON BROTHERS MORTGAGE-BACKED SECURITIES INDEX-15 YEARS includes the
average of all 15-year mortgage securities, which include Federal Home Loan
Mortgage Corporation (Freddie Mac), Federal National Mortgage Association
(Fannie Mae), and Government National Mortgage Association (Ginnie Mae).
SHEARSON LEHMAN MUNICIPAL BOND INDEX is a total return performance benchmark
for the long-term, investment-grade tax-exempt bond market. Returns and
attributes for the Index are calculated semi-monthly using approximately
21,000 municipal bonds, which are priced by Muller Data Corporation.
WEISENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year,
5-year and 10-year performance. Mutual funds are ranked in general categories
(e.g., international bond, international equity, municipal bond, and maximum
capital gain). Weisenberger rankings do not reflect deduction of sales
charges or fees.
From time to time, the Global Portfolio may advertise its performance of both
classes of shares of the Portfolio compared to similar funds or portfolios
using certain indices, reporting services, and financial publications. These
may include the following: Morgan Stanley Capital International World Index,
The Morgan Stanley Capital International EAFE (Europe, Australia, Far East)
index, J.P. Morgan Global Traded Bond Index, Salomon Brothers World Government
Bond Index, and the Standard & Poor's 500 Composite Stock Price Index (S&P
500). The Global Portfolio also may compare its performance to the
performance of unmanaged stock and bond indices, including the total returns
of foreign government bond markets in various countries. All index returns
are translated into U.S. dollars. The total return calculation for these
unmanaged indices may assume the reinvestment of dividends and any
distributions, if applicable, may include withholding taxes, and generally do
not reflect deductions for administrative and management costs.
Investors may use such indices or reporting services in addition to the
Trust's Prospectus to obtain a more complete view of a particular Portfolio's
performance before investing. Of course, when comparing a funds performance
to any index, conditions such as composition of the index and prevailing
market conditions should be considered in assessing the significance of such
comparisons. When comparing funds using reporting services, or total return
and yield, investors should take into consideration any relevant differences
in funds, such as permitted portfolio compositions and methods used to value
portfolio securities and compute net asset value.
Advertisements and other sales literature for the Trust may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Trust based on monthly reinvestment of dividends over a specified period
of time.
From time to time the Portfolios may advertise their performance, using
charts, graphs, and descriptions, compared to federally insured bank products,
including certificates of deposit and time deposits, and to monthly market
funds using the Lipper Analytical Service money market instruments average.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
Independent publications may also evaluate a Portfolio's performance. Certain
of those publications are listed below, at the request of Mentor Distributors,
which bears full responsibility for their use and the descriptions appearing
below. From time to time any or all of the Portfolios may distribute
evaluations by or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of information
provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its Investment Figures of the
Week column. The rankings are based on 4-week and 52-week total return
reflecting changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales charges. Funds are
not categorized; they compete in a large universe of over 2,000 funds. The
source for rankings is data generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings on a daily basis.
The rankings are depicted as the top 25 funds in a given category. The
categories are based loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and income funds, corporate
bond funds, etc. Performance periods for sector equity funds can vary from 4
weeks to 39 weeks; performance periods for other fund groups vary from 1 year
to 3 years. Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based strictly
on total return. They do not reflect deduction of any sales charges
Performance grades are conferred from A+ to E. An A+ rating means that the
fund has performed within the top 5% of a general universe of over 2000 funds;
an A rating denotes the top 10%; an A- is given to the top 15%, etc.
BARRON'S periodically publishes mutual fund rankings. The rankings are based
on total return performance provided by Lipper Analytical Services. The
Lipper total return data reflects changes in net asset value and reinvestment
of distributions, but does not reflect deduction of any sales charges. The
performance periods vary from short-term intervals (current quarter or year-
to-date, for example) to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the Lipper mutual fund
categories, such as Capital Appreciation Funds, Growth Funds, U.S. Government
Funds, Equity Income Funds, Global Funds, etc. Occasionally, Barron's
modifies the Lipper information by ranking the funds in asset classes. "Large
funds" may be those with assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Fund Scorecard on a daily basis.
Each Scorecard is a ranking of the top-15 funds in a given Lipper Analytical
Services category. Lipper provides the rankings based on its total return
data reflecting changes in net asset value and reinvestment of distributions
and not reflecting any sales charges. The Scorecard portrays 4-week, year-to-
date, one-year and 5-year performance; however, the ranking is based on the
one-year results. The rankings for any given category appear approximately
once per month.
FORTUNE magazine periodically publishes mutual fund rankings that have been
compiled for the magazine by Morningstar, Inc. Funds are placed in stock or
bond fund categories (for example, aggressive growth stock funds, growth stock
funds, small company stock funds, junk bond funds, Treasury bond funds etc.),
with the top-10 stock funds and the top-5 bond funds appearing in the
rankings. The rankings are based on 3-year annualized total return reflecting
changes in net asset value and reinvestment of distributions and not
reflecting sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings on a database of
funds tracked for performance by Lipper Analytical Services. The funds are
placed in 23 stock or bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net asset value and
reinvestment of all dividends and capital gains distributions and does not
reflect deduction of any sales charges. Grades are conferred (from A to E):
the top 20% in each category receive an A, the next 20% a B, etc. To be
ranked, a fund must be at least one year old, accept a minimum investment of
$25,000 or less and have had assets of at least $25 million as of a given
date.
FINANCIAL WORLD publishes its monthly Independent Appraisals of Mutual Funds,
a survey of approximately 1000 mutual funds. Funds are categorized as to
type, e.g., balanced funds, corporate bond funds, global bond funds, growth
and income funds, U.S. government bond funds, etc. To compete, funds must be
over one year old, have over $1 million in assets, require a maximum of
$10,000 initial investment, and should be available in at least 10 states in
the United States. The funds receive a composite past performance rating,
which weighs the intermediate - and long-term past performance of each fund
versus its category, as well as taking into account its risk, reward to risk,
and fees. An A+ rated fund is one of the best, while a D- rated fund is one
of the worst. The source for Financial World rating is Schabacker investment
management in Rockville, Maryland.
FORBES magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds are
categorized by type, including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper Analytical Services
and CDA Investment Technologies. The ratings are based strictly on
performance at net asset value over the given cycles. Funds performing in the
top 5% receive an A+ rating; the top 15% receive an A rating; and so on until
the bottom 5% receive an F rating. Each fund exhibits two ratings, one for
performance in "up" markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing Times), periodically
publishes rankings of mutual funds based on one-, three- and five-year total
return performance reflecting changes in net asset value and reinvestment of
dividends and capital gains and not reflecting deduction of any sales charges.
Funds are ranked by tenths: a rank of 1 means that a fund was among the
highest 10% in total return for the period; a rank of 10 denotes the bottom
10%. Funds compete in categories of similar funds -- aggressive growth funds,
growth and income funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds, etc. Kiplinger's
also provides a risk-adjusted grade in both rising and falling markets. Funds
are graded against others with the same objective. The average weekly total
return over two years is calculated. Performance is adjusted using
quantitative techniques to reflect the risk profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual fund rankings based
on an overall performance index (OPI) devised by Kanon Bloch Carre & Co., a
Boston research firm. Over 2000 funds are tracked and divided into 10 equity,
taxable bond and tax-free bond categories. Funds compete within the 10 groups
and three broad categories. The OPI is a number from 0-100 that measures the
relative performance of funds at least three years old over the last 1, 3, 5
and 10 years and the last six bear markets. Total return reflects changes in
net asset value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges. Results
for the longer periods receive the most weight.
THE 100 BEST MUTUAL FUNDS You Can Buy authored by Gordon K. Williamson. The
author's list of funds is divided into 12 equity and bond fund categories, and
the 100 funds are determined by applying four criteria. First, equity funds
whose current management teams have been in place for less than five years are
eliminated. (The standard for bond funds is three years.) Second, the author
excludes any fund that ranks in the bottom 20 percent of its category's risk
level. Risk is determined by analyzing how many months over the past three
years the fund has underperformed a bank CD or a U.S. Treasury bill. Third, a
fund must have demonstrated strong results for current three-year and five-
year performance. Fourth, the fund must either possess, in Mr. Williamson's
judgment, "excellent" risk-adjusted return or "superior" return with low
levels of risk. Each of the 100 funds is ranked in five categories: total
return, risk/volatility, management, current income and expenses. The
rankings follow a five-point system: zero designates "poor"; one point means
"fair"; two points denote "good"; three points qualify as a "very good"; four
points rank as "superior"; and five points mean "excellent."
Shareholder Liability
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given
in each agreement, obligation, or instrument entered into or executed by the
Trust or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Portfolio's property for all loss and expense of any
shareholder held personally liable for the obligations of a Portfolio. Thus
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable
to meet its obligations.
Financial Statements
The Report of Independent Accountants and the financial statements for the
fiscal year ended September 30, 1994 in respect of the Cambridge Growth,
Capital Growth, Income and Growth, Quality Income, Municipal Income, and
Global Portfolios are incorporated herein by reference to the Annual Report of
Cambridge Series Trust, the predecessor to the Trust, dated September 30, 1994
(File Nos. 33-45315 and 811-6550). The Quality Income Portfolio was formerly
the Cambridge Government Portfolio. The Report of Independent Accountants and
the financial statements for the fiscal year ended December 31, 1994 in
respect of the Growth, Strategy, Short-Duration Income, and Balanced
Portfolios are incorporated herein by reference to the Annual Reports of
Mentor Series Trust dated December 31, 1994 (File Nos. 2-95278 and 811-04228).
The Growth, Strategy, Short-Duration Income, and Balanced Portfolios are the
successors to Mentor Growth Fund, Mentor Strategy Fund, Mentor Short-Duration
Income Fund, and Mentor Balanced Fund, respectively, each of which previously
was a series of shares of beneficial interest of Mentor Series Trust. You may
request a copy of any Annual Report free of charge by writing the Trust or by
calling 1-800-382-0016.
CAMBRIDGE GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PERCENT OF MARKET
NET ASSETS SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS 96.72%
BASIC MATERIALS 8.65%
Air Products & Chemicals, Inc. 8,000 $ 374,000
Alco Standard Corporation 8,000 497,000
Consolidated Papers, Inc. 1,000 51,750
Kimberly Clark Corporation 8,000 470,000
Minerals Technologies, Inc. 10,500 311,063
Monsanto Company 5,000 401,875
Morton International, Inc. 7,500 206,250
Newell Company 28,000 623,000
Nucor Corporation 11,500 805,000
3,739,938
CAPITAL GOODS & CONSTRUCTION 5.37%
Automotive Industries* 14,400 349,200
Emerson Electric Company 8,900 530,663
General Electric Company 14,100 678,562
Grainger, Inc. 3,500 207,375
Magna International, Inc. 13,600 501,500
Trimas Corporation 2,500 56,875
2,324,175
CONSUMER CYCLICAL 18.62%
Ann Taylor Stores, Inc.* 5,700 205,200
Brinker International, Inc.* 21,300 511,200
CUC International, Inc.* 6,900 227,700
Duracell International, Inc. 3,500 159,688
Franklin Quest Company* 13,500 506,250
General Nutrition Companies, Inc.* 12,900 287,025
Harcourt General, Inc. 6,000 206,250
Heilig-Meyers Company 11,600 304,500
Home Depot, Inc. 19,300 810,600
International Game Technology 7,400 152,625
Kohl's Corporation* 3,000 145,500
Lone Star Steakhouse & Saloon,
Inc.* 2,000 50,750
Manpower, Inc. 26,500 725,438
McDonald' s Corporation 14,000 367,500
Office Depot, Inc.* 10,800 280,800
Promus Companies, Inc.* 21,000 706,125
Shaw Industries, Inc. 20,900 300,438
Starbucks Corporation* 9,000 207,562
Station Casinos, Inc.* 7,900 106,650
The Bombay Company, Inc.* 4,900 64,925
The Walt Disney Company 6,000 233,250
Tribune Company 4,400 237,600
Viacom, Inc.-Class A* 384 15,696
Viacom, Inc.-Class B* 2,909 115,633
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
CONSUMER CYCLICAL (CONTINUED)
Viacom, Inc.- Rights* 4,800 $ 6,300
Viking Office Products, Inc.* 18,800 568,700
WalMart Stores, Inc. 23,600 551,650
8,055,555
CONSUMER STAPLES 9.90%
Abbott Laboratories 4,100 128,638
Campbell Soup Company 10,800 426,600
Coca Cola Company 15,000 729,375
Conagra, Inc. 12,600 396,900
CPC International, Inc. 11,000 556,875
Gillette Company 7,000 495,250
Philip Morris Companies, Inc. 9,900 605,138
Procter & Gamble Company 11,000 655,875
UST, Inc. 10,000 286,250
4,280,901
ENERGY 1.82%
Enron Corporation 16,900 511,225
Mobile Corporation 3,000 237,375
Repsol SA~ 1,200 36,579
785,179
FINANCIAL 9.31%
Bankers Life Holding Corporation 7,200 169,200
Boatmen's Bancshares, Inc. 14,000 434,875
Conseco, Inc. 6,500 291,688
Equity Residential Properties Trust 7,500 238,125
Federal National Mortgage Association 4,000 315,000
First USA, Inc. 12,100 425,012
General RE Corporation 3,400 359,975
MBNA Corporation 23,500 543,438
MGIC Investment Corporation 19,900 599,488
Nationsbank Corporation 10,000 490,000
Western National Corporation 12,000 162,000
4,028,801
HEALTH 14.94%
American Medical Holdings, Inc.* 4,000 89,500
Columbia HCA Healthcare Corporation 12,500 543,750
Cordis Corporation* 7,600 400,900
Forest Laboratories, Inc.* 8,000 394,000
Foundation Health Corporation* 1,900 66,975
Idexx Laboratories, Inc.* 8,400 247,800
Integrated Health Services, Inc.* 16,000 568,000
</TABLE>
17
<PAGE>
CAMBRIDGE GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
HEALTH(CONTINUED)
Johnson & Johnson 6,000 $ 309,750
Medtronic, Inc. 10,600 560,475
Mid Atlantic Medical Services, Inc.* 9,400 282,000
Pfizer, Inc. 4,000 276,500
Schering Plough Corporation 11,800 837,800
United Healthcare Corporation 7,500 397,500
US Healthcare, Inc. 6,500 302,656
Value Health, Inc.* 14,500 696,000
Warner Lambert Company 6,100 489,525
6,463,131
TECHNOLOGY 18.95%
3COM Corporation* 7,200 269,100
ADC Telecommunications, Inc.* 7,400 296,925
Applied Materials, Inc.* 10,400 486,200
AT&T Corporation 7,900 426,600
Cisco Systems, Inc.* 6,000 164,250
Compaq Computer Corporation* 12,100 394,763
Compuware Corporation* 8,000 376,500
EMC Corporation* 20,000 402,500
First Data Corporation 7,600 381,900
General Motors Corporation - Class E 10,400 395,200
Intel Corporation 5,000 307,500
Linear Technology Corporation 8,000 354,500
Loral Corporation 3,000 118,125
Maxim Integrated Products, Inc.* 1,300 79,625
Microchip Technology , Inc.* 1,500 58,875
Microsoft Corporation* 8,000 449,000
Motorola, Inc. 10,800 569,700
Oracle Systems Corporation* 14,100 606,300
Parametric Technology Corporation* 14,000 465,500
Reynolds & Reynolds Company 10,000 251,250
Scientific Atlanta, Inc. 5,700 232,988
Silicon Graphics, Inc.* 23,000 592,250
Solectron Corporation* 3,500 92,313
Tellabs, Inc.* 10,000 425,000
8,196,864
TRANSPORTATION & SERVICES 3.69%
Conrail, Inc. 7,600 376,200
Kansas City Southern Industries, Inc. 5,800 205,175
Southwest Airlines Company 11,000 247,500
Union Pacific Corporation 6,700 359,288
Wisconsin Central Transport* 9,900 405,900
1,594,063
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
FOREIGN SECURITIES 5.47%
AAlberts Industries 400 $ 18,626
Amway Japan, Ltd.* 2,100 33,338
Atlas Copco AB 4,500 56,469
BBC Brown Boveri 40 34,485
BMW Bayerische Motoren 50 24,125
BPB Industries 5,500 26,191
British Petroleum Company 3,500 22,048
Broken Hill Proprietary* 1,400 20,347
Carter Holt Harvey 8,600 19,524
Cementos De Mexico ACP 1,400 12,575
Comercial Del Plata 3,000 10,446
Creative Technology, Ltd. 500 8,833
CRH PLC 10,000 54,644
DDI Corporation 10 87,229
Ericsson 2,000 106,262
Grupo Carso ADR~ 500 11,500
Hagemeyer NV 200 16,085
Honda Motors Company 4,000 66,633
Keiyo Company 3,000 58,152
Keppel Corporation 5,000 40,459
Koninklijke Van Ommeren 1,300 34,378
Kyocera Corporation 1,000 71,479
Maderas Y Sinteticos Sociedad 800 22,800
Malaysian Helicopter 2,760 8,558
Matsushita Electric 4,000 63,806
Metsa Serla `B' 400 19,241
Nokia AB 500 58,073
Noranda, Inc. 1,100 22,237
Philips Electronics 1,900 57,999
Polygram NV 400 17,315
Road Builder Holdings 3,000 19,541
Sanyo Sihinpan Finance Company 600 63,604
Sharp Corporation 3,000 53,306
SIAM City Bank, Ltd. 20,200 25,710
Siebe PLC 7,000 59,603
Siemens AG 100 40,939
STET Societa Finanz 13,600 42,078
Technology Resources Industries 6,900 28,259
Telecom Argentina 3,300 22,121
Telefonos De Mexico 700 43,750
TNT Limited 10,300 18,217
Tokio Marine & Fire Insurance 5,000 59,566
Tokyo Electron, Ltd. 2,000 63,806
Universal Robina Corporation 11,000 10,329
Veba AG 200 66,288
Vodagone Group PLC 19,800 61,660
</TABLE>
19
<PAGE>
CAMBRIDGE GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SHARES OR
COMMON STOCKS PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
Wai Kee Holdings 58,000 $16,663
Wai Kee Holdings-Warrants* 10,600 178
Western Mining Corporation 3,700 21,548
Wilson & Horton, Ltd. 4,000 18,307
WMX Technologies, Inc. 18,000 519,750
Woolwor ths, Ltd. 3,862 8,059
2,367,139
TOTAL COMMON STOCKS
(COST $38,688,583) 41,835,746
CORPORATE BOND 0.38%
Argosy Gaming Corporation,
12.00%, 6/1/01 (cost $150,000) $ 150,000 163,500
TOTAL INVESTMENTS
(COST $38,838,583) 97.10% 41,999,246
OTHER ASSETS LESS LIABILITIES 2.90% 1,257,440
NET ASSETS 100.00% $43,256,686
</TABLE>
* Non-income producing.
~ American Depository Receipts.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
CAMBRIDGE CAPITAL GROWTH PORTFOLIO
Portfolio of Investments
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS 81.70%
BASIC MATERIALS 4.42%
Akzo Nobel 5,000 $ 586,663
British Steel ORD 200,000 544,784
DuPont EI de Nemours & Company 17,000 986,000
Dutch State Mines 7,500 635,958
2,753,405
CAPITAL GOODS & CONST RUCTION 8.44%
Brown Boveri & Cie 800 689,709
Browning Ferris Indus tries, Inc. 30,000 952,500
Fluor Corporation 12,000 597,000
PPG Industries, Inc. 25,000 990,625
Raytheon Company 17,000 1,090,125
United Technologies Corporation 15,000 939,375
5,259,334
CONSUMER CYCLICAL 17.72%
Capital Cities/ABC 11,000 902,000
Carnival Corporation 25,000 1,096,875
Dayton-Hudson Corporation 12,500 956,250
Harcourt General, Inc. 22,500 773,438
Home Depot, Inc. 30,000 1,260,000
Marriott International, Inc. 31,500 909,562
May Department Stores Company 30,000 1,181,250
Mirage Resorts, Inc.* 48,000 1,032,000
Price Costco, Inc.* 50,000 803,125
Toys R Us, Inc.* 38,000 1,353,750
Whirlpool Corporation 15,000 770,625
11,038,875
CONSUMER STAPLES 11.85%
Abbott Laboratories 40,000 1,255,000
Amgen, Inc.* 15,000 798,750
Astra AB 37,500 898,590
Columbia/HCA Healthcare
Corporation 25,000 1,087,500
Merck & Company, Inc. 40,000 1,420,000
Philip Morris Companies, Inc. 14,000 855,750
Schering-Plough Corporation 15,000 1,065,000
7,380,590
ENERGY 9.60%
British Petroleum PLC , ADS~ 13,000 984,750
Chevron Corporation 25,000 1,040,625
Dresser Industries, Inc. 50,000 1,012,500
</TABLE>
21
<PAGE>
CAMBRIDGE CAPITAL GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
ENERGY (CONTINUED)
Enron Corporation 25,000 $ 756,250
Mobil Corporation 12,000 949,500
Royal Dutch Petroleum Company 8,500 912,688
Tidewater, Inc. 15,000 322,500
5,978,813
FINANCIAL 5.98%
American International Group, Inc. 15,000 1,333,125
Federal National Mortgage Association 20,000 1,575,000
U.S. Healthcare, Inc. 17,500 814,844
3,722,969
TECHNOLOGY 15.21%
Cirrus Logic, Inc.* 35,000 980,000
Computer Associates International,
Inc. 30,000 1,335,000
Ericsson Telecommunication Company 15,000 806,250
General Motors Corporation - Class E 23,000 874,000
Hewlett Packard Company 15,000 1,310,625
International Business Machines
Corporation 9,000 625,500
Parametric Technology Corporation* 28,300 940,975
Perkin-Elmer Corporation 15,000 470,625
Philips Electronics Holdings Company 35,000 1,063,125
Xerox Corporation 10,000 1,067,500
9,473,600
TRANSPORTATION & SERVICES 2.61%
CSX Corporation 10,000 685,000
Union Pacific Corporation 17,500 938,438
1,623,438
UTILITIES 3.91%
Ameritech Corporation 20,000 805,000
Royal PTT Nederland 22,500 677,781
Sprint Corporation 25,000 953,125
2,435,906
MISCELLANEOUS 1.96%
Eastman Kodak Company 7,500 388,125
ITT Corporation 10,000 833,750
1,221,875
TOTAL COMMON STOCKS (COST $49,335,346) 50,888,805
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SHARES OR
PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
PREFERRED STOCKS 0.47%
Nokia AB (cost $202,825) $ 2,500 $ 290,363
GOVERNMENT BOND 3.14%
U.S. Treasury Note, 6.00%, 6/30/96
(cost $1,974,735) $1,975,000 1,958,726
SHORT-TERM INVESTMENTS 16.00%
COMMERCIAL PAPER 13.37%
Bellsouth Telecommunications, Inc.,
4.79%, 10/20/94 1,650,000 1,645,829
Exxon Imperial U.S., Inc.,
4.82%, 10/7/94 1,630,000 1,628,691
General Electric Company,
4.87%, 10/24/94 1,500,000 1,495,333
Johnson & Johnson, 4.90%, 10/24/94 745,000 742,668
Private Export Funding Corporation,
4.73%, 10/14/94 1,245,000 1,242,873
Private Export Funding Corporation,
4.72%, 10/20/94 225,000 224,439
Proctor & Gamble Corporation,
4.83%, 10/21/94 1,350,000 1,346,377
TOTAL COMMERCIAL PAPER 8,326,210
U.S. GOVERNMENT AGENCIES 2.63%
Federal Home Loan Mortgage
Corporation, 4.70%, 10/4/94 1,240,000 1,239,514
Federal National Mortgage Association,
4.76%, 10/26/94 400,000 398,678
TOTAL U.S. GOVERNMENT AGENCIES 1,638,192
TOTAL SHORT-TERM INVESTMENTS
(COST $9,964,402) 9,964,402
(COST $61,477,308) 101.31% 63,102,296
OTHER ASSETS LESS LIABILITIES (1.31%) (815,383)
NET ASSETS 100.00% $62,286,913
</TABLE>
* Non-income producing.
~ American Depository Receipts.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
CAMBRIDGE GOVERNMENT INCOME PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL MARKET
NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
LONG-TERM INVESTMENTS 121.63%
U.S. GOVERNMENT AND
FEDERAL AGENCIES 94.08%
FEDERAL HOME LOAN
MORTGAGE CORPORATION 34.03%
6.00%, 1/15/20 $ 5,236,000 $ 4,707,478
10.00%, 3/1/21 1,548,772 1,651,316
6.75%, 5/15/21 3,000,000 2,669,040
9.50%, 12/1/22 776,622 811,080
6.00%, 11/14/24 (c) 13,000,000 11,208,444
CMO, IO, 9.98% - 11.66%,
7/15/06 - 1/15/16 23,277,819 4,806,943
CMO, REMIC, 8.50%, 6/25/19 1,976,636 2,003,815
IO, REMIC, 4.00% -7.00%,
12/15/08 -3/25/24 92,193,018 8,907,180
36,765,296
FEDERAL HOUSING AGENCY 3.65%
7.38%, 7/1/21 (a) 2,979,428 2,962,669
7.43%, 12/1/21 (a) 998,994 977,890
3,940,559
FEDERAL NATIONAL
MORTGAGE ASSOCIATION 0.46%
11.00%, 12/1/20 449,589 494,547
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - REMIC 15.03%
8.00%, 1991 Class 155ZA, 2/25/17 4,085,083 4,092,722
6.15%, 1993 Class 160AG, 12/25/20 2,000,000 1,805,620
6.00%, 1991 Class 140D, 10/25/21 9,875,000 8,612,778
6.50%, 1993 Class 189PK, 3/25/22 2,000,000 1,730,620
16,241,740
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION 39.15%
12.00%, 12/15/12 - 5/15/15 3,178,281 3,607,349
11.50%, 2/15/13 - 6/20/19 643,805 712,580
10.50%, 5/20/14 - 6/20/19 2,815,070 3,033,890
11.00%, 1/15/16 - 6/15/21 3,130,421 3,459,694
6.50%, 11/15/23 1,487,152 1,298,462
6.00%, 8/20/24 - 9/20/24* 11,430,001 11,088,632
9.50%, 9/15/10 - 1/15/28 5,023,272 5,274,436
9.00%, 1/15/28 2,842,244 2,914,181
8.75%, 1/15/28 - 5/15/28 4,394,051 4,398,137
10.00%, 5/15/24 - 7/15/28 4,017,475 4,301,189
9.75%, 2/15/29 2,061,048 2,201,199
42,289,749
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
TREASURY SECURITIES 1.76%
U.S. Treasury Note, 6.38%, 1/15/009 $1,980,000 $1,898,93
TOTAL U.S. GOVERNMENT
AND FEDERAL AGENCIES 101,630,830
CORPORATE BONDS 10.14%
CONSUMER NON-DURABLES 3.20%
RJR Nabisco, Inc., 8.30%, 4/15/99 3,600,000 3,451,500
FINANCE 0.92%
Banesto Finance, 6.13%, 4/25/03 1,000,000 1,002,900
TRANSPORTATION 4.49%
American Airlines, 9.78%, 11/26/11 5,000,000 4,846,000
MISCELLANEOUS 1.53%
BR W Real Estate
Operating Company, 5.69%, 12/1/98
(3/24/94, $1,664,501) (a) (b) 1,668,672 1,652,508
TOTAL CORPORATE BONDS 10,952,908
COLLATERALIZED MORTGAGE OBLIGATIONS 15.19%
Prudential Home Mortgage
Securities Corporation,
Series 1992-34, 6.50%, 11/25/07 3,000,000 2,839,680
Prudential Home Mortgage
Securities Corporation,
Series 1992-46, 7.00%, 12/1/07 4,000,000 3,985,938
Prudential Home Mortgage
Securities Corporation,
Series 1993-15, 11.50%, 5/25/08 3,549,431 3,752,692
Resolution Trust Corporation,
Series 1992-C5, 6.90%, 5/25/22 (a) 1,679,665 1,633,471
Resolution T rust Corporation,
Series 1992-C1, 8.80%, 8/25/23 (a) 3,275,983 3,343,550
Sears Mortgage Securities Corporation,
Series 1992-9, 5.76%, 6/25/22 (a) 875,806 857,278
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 16,412,609
MORTGAGES 2.22%
Chase Mortgage Finance
Corporation, IO, Series 1994-F , Class A,
2.50%, 3/25/25 10,511,000 817,892
Prudential Home Mortgage
Securities Corporation, IO, CMO,
Series 1993-63, 6.75%, 1/25/24 4,451,111 1,016,105
Residential Funding Mortgage
Securities, IO, 6.50%, 3/25/09 2,912,931 561,877
TOTAL MORTGAGES 2,395,874
</TABLE>
25
<PAGE>
CAMBRIDGE GOVERNMENT INCOME PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
TOTAL LONG-TERM INVESTMENTS
(COST $136,708,288) $131,392,221
SHORT-TERM INVESTMENT 0.90%
United Missouri Bank,
Time Deposit, 3.77%,
10/3/94 $ 974,000 974,000
TOTAL SHORT-TERM INVESTMENTS
(COST $974,000) 974,000
TOTAL INVESTMENTS
(COST $137,682,288) 122.53% 132,366,221
OTHER ASSETS LESS LIABILITIES (22.53%) (24,336,572)
NET ASSETS 100.00% $108,029,649
</TABLE>
INVESTMENT ABBREVIATIONS
CMO - Collateralized Mortgage Obligation
IO - Interest Only Security
REMIC - Real Estate Mortgage Investment Conduit
* Government National Mortgage Association, 6.00%, 9/20/24 with a market
value of $9,390,015 was segregated as collateral for a reverse repurchase
agreement at September 30, 1994.
(a) Securities are valued based upon their fair value determined under
procedures approved by the Board of Trustees. At September 30, 1994, the fair
value of these securities was $11,427,366 (10.6% of net assets).
(b) All or a portion of these securities are restricted (i.e., securities
which may not be publicly sold without registration under the Federal Securities
Act of 1933). Dates of acquisition and costs are set forth in parentheses after
the title of the restricted securities.
(c)At September 30, 1994 cost of securities purchased on a when-issued
basis totalled $11,456,250.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
<TABLE>
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
PERCENT OF PRINCIPAL MARKET
NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
LONG-TERM
MUNICIPAL SECURITIES 98.92%
CALIFORNIA 16.67%
California Educational
Facilities, College of
Osteopathic Medicine,
7.50%, 6/1/18 $ 985,000 $ 1,003,675
California State Revenue
Anticipation Bond, WTS, Series C,
5.75%, 4/25/96 3,000,000 3,041,550
Carson Improvement Board Act 1915,
Special Assessment District 92,
7.38%, 9/2/22 740,000 754,237
Los Angeles Convention,
Series A, 5.13%, 8/15/21 1,750,000 1,427,055
Los Angeles County
Metropolitan, 5.00%, 7/1/21 4,500,000 3,600,630
Orange County
Community Facilities District,
Series A, 7.35%, 8/15/18 300,000 343,602
San Francisco City Sewer
Revenue Refunding, 5.38%, 10/1/22 2,000,000 1,695,740
11,866,489
COLORADO 4.80%
Colorado HFA, SFM,
Series A-3, 7.00%, 11/01/24 655,000 661,857
Denver City & County
Airport Revenue, Series D,
7.75%, 11/15/13 1,000,000 997,880
Denver City & County
Airport Revenue, Series A,
8.50%, 11/15/23 1,700,000 1,750,830
3,410,567
DISTRICT OF COLUMBIA 3.94%
District of Columbia
Certificates of Partnership,
Participation Note,
7.30%, 1/1/13 1,000,000 1,012,130
District of Columbia Hospital
Revenue, Series A, 7.13%, 8/15/19 1,000,000 991,250
Metropolitan Washington,
General Airport Revenue,
Series A, 6.63%, 10/1/19 800,000 800,864
2,804,244
</TABLE>
27
<PAGE>
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
LONG-TERM
MUNICIPAL SECURITIES PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
FLORIDA 4.50%
Dade County, 6.50%, 10/1/26 $1,930,000 $ 1,950,921
Sarasota County, Health Facilities
Authority Revenue, 10.00%, 7/1/22 1,200,000 1,253,400
3,204,321
GEORGIA 2.90%
Cobb County Development
Authority Revenue Bonds,
Series 92A, 8.00%, 6/1/22 1,000,000 1,040,000
Monroe County
Development Authority PCR,
6.75%, 1/1/10 1,000,000 1,024,800
2,064,800
ILLINOIS 6.81%
Broadview T ax Increment Revenue,
Tax Allocation, 8.25%, 07/01/13 1,000,000 985,740
Chicago Heights Residential
Mortgage Revenue,
Series B, (effective yield-2.51%) (a),
6/1/09 3,465,000 1,215,591
Chicago O'Hare International
Airpor t Special Facilities
Revenue, 6.75%, 1/1/18 1,350,000 1,356,251
Illinois Health Facilities
Authority Revenue, 9.50%, 10/1/22 1,250,000 1,293,450
4,851,032
INDIANA 6.88%
Indiana Health Facilities
Hospital Revenue, 7.20%, 10/1/22 1,815,000 1,784,780
Indianapolis Public Improvement Bond,
Series D, 6.75%, 2/1/20 2,400,000 2,405,040
Indiana Transportation
Finance Authority, Series A,
(effective yield-1.50% - 1.70%) (a),
12/1/15 - 6/1/17 3,000,000 706,710
4,896,530
IOWA 0.95%
Student Loan Liquidity Corporation,
Student Loan Revenue,
Series C, 6.95%, 3/1/06 625,000 670,931
KENTUCKY 2.64%
Jefferson County, Hospital
Revenue, 9.05%, 10/1/08 500,000 518,750
</TABLE>
28
<PAGE>
<TABLE>
LONG-TERM
MUNICIPAL SECURITIES PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
KENTUCKY 2.64%
Kenton County Airport
Board Revenue, OID, 7.50%, 2/1/20 $ 1,400,000 $ 1,359,666
1,878,416
LOUISIANA 0.58%
Louisiana Public Facilities
Authority Revenue, 6.80%, 5/15/12 400,000 415,984
MAINE 1.39%
Maine State Housing Authority ,
Series C, 6.88%, 11/5/24 1,000,000 993,040
MASSACHUSETTS 2.54%
Massachusetts State Health
and Educational Facilities Authority ,
OID Revenue Bonds,
Series A, 6.00%, 10/1/23 2,000,000 1,296,000
Plymouth County,
Certificates of Partnership,
Participation Notes,
Series A, 7.00%, 4/1/22 500,000 513,755
1,809,755
MICHIGAN 1.94%
Michigan State Strategic Funding,
7.50%, 1/1/21 1,000,000 953,810
Romulus Community School,
Refunding, (effective yield-3.86%) (a),
5/1/20 2,385,000 429,896
1,383,706
MONTANA 0.66%
Montana State Resource
Recovery Revenue Bonds,
7.00%, 12/31/19 500,000 472,895
NEBRASKA 0.52%
Nebraska Finance Authority,
SFM, 10.02%, 9/15/24 400,000 372,500
NEVADA 0.72%
Henderson Local Improvement
District, Special Assessment,
Series A, 8.50%, 11/1/12 500,000 510,125
NEW JERSEY 2.63%
New Jersey Economic Development
Authority, Electric Energy Facilities
Revenue, 7.88%, 6/1/19 1,000,000 1,035,880
</TABLE>
29
<PAGE>
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
LONG-TERM
MUNICIPAL SECURITIES PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
NEW JERSEY (CONTINUED)
New Jersey Healthcare Facilities
Financing Authority, Refunding,
6.80%, 7/1/11 $ 825,000 $ 839,578
1,875,458
NEW YORK 8.84%
Refunding & Improvement, 8.00%, 1/1/20 1,000,000 977,730
Herkimer County, IDA, 8.00%, 1/1/09 1,000,000 1,041,160
New York City, Series H, 7.00%, 2/1/16 500,000 508,835
New York City, OID,
Series H, 7.10%, 2/1/12 300,000 308,400
New York City, OID,
Series H, 7.00%, 2/1/20 600,000 610,602
New York City, OID Refunding,
Series A, 6.25%, 8/1/21 600,000 559,464
New York, New York, Series A,
7.00%, 8/1/04 1,000,000 1,056,110
Onondaga County Residential
Recovery Agency Revenue Project,
7.00%, 5/1/15 1,225,000 1,234,237
6,296,538
OHIO 1.32%
Cleveland Airport Revenue, Series A,
6.00%, 1/1/24 1,000,000 938,510
OKLAHOMA 4.13%
Oklahoma City, Industrial and
Cultural Facilities Trust, 6.75%, 9/15/17 1,000,000 1,004,150
Tulsa, Municipal Airport Trust Revenue,
7.38%, 12/1/20 2,000,000 1,937,860
2,942,010
PENNSYLVANIA 7.56%
Delaware County Healthcare Authority,
Series A, 5.13%, 11/15/12 2,000,000 1,685,760
Lehigh County General Purpose
Authority Revenue, OID,
Series A, 6.60%, 7/15/22 1,000,000 924,820
Pennsylvania Economic
Development, 6.40%, 1/1/09 500,000 482,540
Pennsylvania HFA, SFM,
Series 4, 7.00%, 4/1/24 500,000 509,360
Pennsylvania Intergovernmental
Cooperative Authority,
Special Tax Revenue, 6.80%, 6/15/12 750,000 813,353
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
MUNICIPAL SECURITIES PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Hospital and
Higher Education Facilities,
6.50%, 11/15/08 $ 1,000,000 $ 965,900
5,381,733
PUERTO RICO 1.22%
Puerto Rico, Commonwealth
Highway Transportation
Authority, Series T, 6.50%, 7/1/22 800,000 869,584
RHODE ISLAND 0.67%
West Warwick, Series A, G.O. Bonds,
6.80% - 7.30%, 7/15/98 - 7/15/08 475,000 480,564
TENNESSEE 2.26%
Memphis, Shelby County Airport
Authority Special Facilities
Revenue Refunding, 7.88%, 9/1/09 1,500,000 1,609,560
TEXAS 6.02%
Brazos Higher Education Authority
Student Loan Revenue, 7.10%,
11/1/04 1,000,000 1,012,820
Dallas-Fort Worth International
Airport Facility Revenue Bonds,
7.63%, 11/1/21 625,000 614,738
Dallas-Fort Worth International
Airport Facility Revenue
Bonds, 7.25%, 11/1/30 1,000,000 947,600
Leander Independent
School District Capital Appreciation
Refunding, (effective yield-3.92%)
(a), 8/15/15 3,995,000 969,227
Texas State Department
of Housing and Community Affairs
Refunding, Series C, 10.13%, 7/2/24 750,000 745,313
4,289,698
UTAH 0.36%
Bountiful Hospital Revenue,
9.50%, 12/15/18 250,000 257,370
WASHINGTON 0.60%
Washington State Housing
Finance Commission, SFM,
7.10%, 7/1/22 425,000 430,640
WEST VIRGINIA 4.73%
Harrison County,
Waste Disposal Revenue,
6.75%, 8/1/24 2,000,000 2,007,820
</TABLE>
31
<PAGE>
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
LONG-TERM
MUNICIPAL SECURITIES PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
WEST VIRGINIA (CONTINUED)
West Virginia State Hospital
Finance Authority Revenue,
9.70%, 1/1/18 $ 1,500,000 $1,359,090
3,366,910
OTHER 0.14%
Virgin Islands Public Finance
Authority Revenue Refunding
Series A, 7.25%, 10/1/18 100,000 101,642
TOTAL LONG-TERM MUNICIPAL SECURITIES
(COST $72,276,934) 70,445,552
SHORT-TERM MUNICIPAL SECURITIES 1.12%
CALIFORNIA
California Pollution Control, 3.60%,
VRDN 800,000 800,000
TOTAL SHORT-TERM
MUNICIPAL SECURITIES (COST $800,000) 800,000
TOTAL INVESTMENTS
(COST $73,076,934) 100.04% 71,245,552
OTHER ASSETS LESS LIABILITIES (0.04%) (31,798)
NET ASSETS 100.00% $ 71,213,754
</TABLE>
INVESTMENT ABBREVIATIONS
HFA - Housing Finance Authority
PFA - Public Financing Authority
IDA - Industrial Development Authority
SFM - Single Family Mortgage
OID - Original Issue Discount
PCR - Pollution Control Revenue
VRDN - Variable Rate Demand Note, rate shown represents current
interest rate at 9/30/94.
(a) Effective yield is the yield as calculated at time of purchase at which
the bond accretes on an annual basis until its maturity date.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
CAMBRIDGE INCOME & GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PERCENT OF MARKET
NET ASSETS SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS 62.17%
BASIC MATERIALS 14.16%
Aluminum Company of America 23,000 $1,949,249
Boise Cascade Corporation 19,700 581,150
Cleveland Cliffs, Inc. 1,700 65,875
Dekalb Genetics Corporation 900 26,100
Gaylord Container Corporation-
Warrants* 10,000 70,000
Georgia Pacific Corporation 3,000 229,500
International Paper Company 23,200 1,821,199
International Specialty Products,
Inc. 12,600 99,225
Kaiser Aluminum Corporation* 14,900 156,450
Norsk Hydro AS~ 19,300 711,688
Pichiney SA 12,000 863,000
Potlatch Corporation 2,700 111,375
Rayonier, Inc. 5,100 164,475
Rhone Poulenc SA~ 15,700 361,100
St. Lawrence Cement, Inc.* 25,000 223,580
Temple-Inland, Inc. 12,900 712,725
Willamette Industries, Inc. 9,500 486,875
8,633,566
CAPITAL GOODS & CONSTRUCTION 6.43%
American R E Partners 1,400 11,025
Ameron, Inc. 2,300 82,800
BE Aerospace, Inc.* 32,700 302,475
Black & Decker Corporation 32,000 700,000
Centex Construction Products,
Inc.* 18,200 227,500
Giant Cement Holding, Inc. 7,300 102,200
Honeywell, Inc. 900 31,050
Kaufman & Broad Home Corporation 20,900 284,762
Lafarge Corporation 2,400 48,300
National Gypsum Company* 8,100 307,800
Ryland Group, Inc. 5,700 90,488
Sequa Corporation* 18,100 486,437
Southdown, Inc.* 7,700 161,700
Standard Pacific Corporation 22,200 160,950
United T echnologies Corporation 400 25,050
USG Corporation* 16,600 342,375
Welbilt Corporation* 9,700 244,925
York International Corporation 7,500 312,188
3,922,025
</TABLE>
33
<PAGE>
<TABLE>
CAMBRIDGE INCOME & GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
CONSUMER CYCLICAL 3.51%
Borg-Warner Automotive, Inc. 4,000 $ 101,500
General Motors Corporation 27,900 1,307,812
Host Marriott Corporation* 17,400 171,825
Navistar International* 30,200 419,025
Servico, Inc.* 4,200 35,700
Valassis Communications, Inc. 6,600 102,300
2,138,162
CONSUMER STAPLES 4.35%
Davids, Ltd. 110,000 122,100
Fleming Companies, Inc. 13,900 324,913
Hills Stores Company* 10,000 213,750
Interstate Bakeries Corporation 19,000 247,000
Monk Austin, Inc. 11,800 172,575
Morningstar Group, Inc.* 15,200 106,400
Seagram Company, Ltd. 2,500 75,625
Standard Commercial Corporation 16,000 242,000
Universal Corporation 47,000 1,151,500
2,655,863
ENERGY 5.64%
Amerada Hess Corporation 2,600 120,900
Arethusa Off-Shore, Ltd.* 5,200 55,250
Atlantic Richfield Company 900 90,787
Burlington Resources, Inc. 200 7,500
Enserch Corporation 9,400 130,425
Gerrity Oil & Gas Corporation* 17,000 119,000
Gulf Canada Resources, Ltd.* 26,300 100,269
Home Oil Company* 13,200 181,500
Indresco, Inc. 2,200 28,875
Lone Star Technologies, Inc. 25,100 156,875
Maxus Energy Corporation* 61,900 278,550
Nabors Industries, Inc.* 15,000 91,875
Noble Drilling Corporation* 39,300 294,750
Nowsco Well Service, Ltd. 1,700 26,350
Petroleum Heat & Power Company 13,400 123,950
Phillips Petroleum Company 2,600 89,050
Ranchmen's Resources, Ltd.* 41,900 226,394
Santa Fe Energy Resources, Inc.* 10,000 92,500
Sonat Offshore Drilling, Inc. 22,400 445,200
U.S.X. Marathon Group, Inc. 18,000 319,500
Unocal Corporation 16,400 463,300
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
FINANCIAL 19.10%
ACE, Ltd. 32,500 $ 780,000
Aetna Life & Casualty Company 5,900 273,613
Alexander & Alexander Services, Inc. 18,600 362,700
American Express Company 9,200 279,450
Astoria Financial Corporation* 5,300 159,662
BankAmerica Corporation 31,338 1,382,756
California Federal Bank* 17,556 237,006
Capital Guaranty Corporation 22,800 350,550
Chase Manhattan Corporation 8,300 287,388
Chubb Corporation 12,300 874,837
CIGNA Corporation 8,900 548,463
Coast Savings Financial, Inc.* 8,800 156,200
Colonial Properties Trust 14,900 324,075
Enhance Financial Services Group, Inc. 10,400 198,900
Exel Limited 8,900 345,988
Federal National Mortgage Association 1,000 78,750
First Union Corporation 2,000 86,500
Firstfed Financial Corporation* 6,400 99,200
Gables Residential Trust 13,800 313,950
GP Financial Corporation 7,400 175,750
Holly Residential Properties 16,900 253,500
ITT Corporation 1,500 125,062
Keycorp 5,100 155,550
Koger Equity, Inc. REIT* 36,800 331,200
Lehman Brothers Holding, Inc. 24,840 366,390
Loews Corporation 1,200 106,050
Mellon Bank Corporation 2,400 135,000
National Bank of Canada 47,800 333,973
Newhall Land & Farming Company 3,100 45,725
Old Republic International Corporation 16,000 334,000
Policy Management Systems Corporation* 6,900 275,138
Reinsurance Group of America 3,600 82,800
Storage Equities, Inc. 21,300 319,500
Twentieth Century Industries* 37,000 471,750
U.S. Bank Corporation 3,200 81,600
Unidanmark A/S*~(b) 5,100 196,085
Union Bank 15,200 467,400
Unitrin, Inc. 5,200 250,900
11,647,361
TECHNOLOGY 3.51%
B.C.E., Inc. 25,400 911,225
Comsat Corporation 5,500 140,938
Cooper Industries, Inc. 7,600 305,900
</TABLE>
35
<PAGE>
CAMBRIDGE INCOME & GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
TECHNOLOGY (CONTINUED)
Digital Equipment Corporation* 2,000 $ 53,000
IDB Communications Group, Inc.* 28,900 260,100
Raychem Corporation 11,500 471,500
2,142,663
TRANSPORTATION & SERVICES 2.09%
Canadian Pacific, Ltd. 23,500 393,625
Canadian Pacific, Ltd.*
(2/14/94, $16,814) (a) 1,000 16,769
Continental Airlines, Inc.* 11,000 189,750
MESA Airlines, Inc.* 1,700 11,262
OMI Corporation* 18,400 117,300
Overseas Shipholding Group 5,000 108,750
Tidewater , Inc. 5,300 113,950
Trinity Industries, Inc. 8,500 269,874
Union Pacific Corporation 1,000 53,625
1,274,905
UTILITIES 0.43%
Central Maine Power Company 6,100 68,625
New York State Electric & Gas
Company 1,500 27,938
Niagra Mohawk Power 3,700 49,025
Telecom Italia Spa 11,000 30,972
Unicom Corporation 3,800 84,550
261,110
MISCELLANEOUS 2.95%
Brascan, Ltd. 19,200 276,000
CRSS, Inc. 2,900 32,988
Essex Property Trust, Inc. 15,500 279,000
Innkeepers U.S.A. T rust 9,000 87,188
Shurgard Storage Centers, Inc. 1,600 36,800
Sun Communities, Inc. 12,600 289,800
T ucker Properties Corporation 13,900 224,138
Unilab Corporation* 5,100 27,413
United Mobile Homes, Inc. 36,000 270,000
W.M.X. Technologies, Inc. 9,600 277,200
1,800,527
TOTAL COMMON STOCKS (COST
$36,159,724) 37,918,982
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SHARES OR
PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
PREFERRED STOCKS 2.25%
BASIC MATERIALS 0.52%
Boise Cascade Corporation 9,000 $ 237,375
Reynolds Metals Company 1,500 80,812
318,187
CONSUMER STAPLES 0.04%
FHP International Corporation 800 21,900
FINANCIAL 1.16%
Glendale Federal Bank 21,700 707,963
TRANSPORTATION & SERVICES 0.53%
AMR Corporation (b) 5,000 205,000
UAL Corporation (b) 1,400 115,850
320,850
TOTAL PREFERRED STOCKS
(COST $1,150,737) 1,368,900
CORPORATE BONDS 7.86%
BASIC MATERIALS 0.36%
Aluminum Company of America,
5.75%, 2/1/01 $250,000 221,600
CAPITAL GOODS & CONSTRUCTION 0.15%
Lockheed Corporation, 6.75%,
3/15/03 100,000 90,219
CONSUMER CYCLICAL 1.04%
Circus Circus Enterprises, Inc.,
7.63%, 7/15/13 250,000 219,865
Sears Roebuck Company,
9.25%, 4/15/98 175,000 183,622
Time Warner Entertainment, Inc.,
8.88%, 10/1/12 250,000 230,187
633,674
CONSUMER STAPLES 0.34%
Gillette Company,
5.75%, 10/15/05 250,000 206,638
ENERGY 0.39%
Coastal Corporation,
8.13%, 9/15/02 250,000 239,820
</TABLE>
37
<PAGE>
CAMBRIDGE INCOME & GROWTH PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
CORPORATE BONDS PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
FINANCIAL 3.62%
American General Finance
Corporation,
5.88%, 7/1/00 $ 250,000 $ 226,650
Associates Corporation
of North America,
5.25%, 3/30/00 250,000 219,713
Bank of Boston,
6.63%, 2/1/04 250,000 222,420
Chase Manhattan Corporation,
7.75%, 11/1/99 250,000 246,210
Chrysler Financial Corporation,
6.63%, 8/15/20 250,000 231,413
Comerica Bank Inc.,
7.13%, 12/1/13 250,000 213,245
Dean W itter Discover,
6.25%, 3/15/00 100,000 91,837
Ford Motor Credit,
8.88%, 6/15/99 100,000 103,633
Great Western Financial,
6.38%, 7/1/00 250,000 226,750
Home Savings of Americas,
6.00%, 11/01/00 250,000 225,140
Toronto-Dominion Bank-NY,
6.13%, 11/1/08 250,000 201,107
2,208,118
UTILITIES 1.96%
Duke Power Company,
7.00%, 6/1/00 100,000 96,534
Florida Power & Light Company,
5.38%, 4/1/00 250,000 223,015
Long Island Lighting Company,
7.05%, 3/15/03 100,000 80,934
Pacific Gas & Electric Company,
5.93%, 10/8/03 250,000 216,515
Philadelphia Electric Company,
7.5%, 1/15/99 100,000 98,841
Southwestern Public Service Company,
6.88%, 12/1/99 250,000 241,443
Union Electric Company,
6.75%, 10/15/99 250,000 238,420
1,195,702
TOTAL CORPORATE BONDS (COST
$5,454,869) 4,795,771
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
GOVERNMENT BONDS 23.15%
Government National Mortgage
Association,
7.00%, 1/15/24 $ 2,474,696 $ 2,243,460
Government National Mortgage
Association,
6.50%, 9/15/23-4/15/24 1,484,365 1,296,489
U.S. Treasury Note,
4.75%, 9/30/98 2,000,000 1,837,060
U.S. Treasury Note,
5.75%, 8/15/03 2,000,000 1,763,680
U.S. Treasury Bond,
7.25%, 5/15/16 5,500,000 5,081,230
U.S. Treasury Bond,
7.50%, 11/15/16 2,000,000 1,895,980
TOTAL GOVERNMENT BONDS (COST
$15,179,888) 14,117,899
SHORT-TERM INVESTMENT 2.95%
REPURCHASE AGREEMENT
Lehman Brothers, Inc.
Dated 9/29/94, 4.85%, Due 10/3/94,
collateralized by $1,620,000,
U.S. Treasury Bond, 9.25%, 2/15/16 1,797,000 1,797,000
TOTAL SHORT-TERM INVESTMENTS
(COST $ 1,797,000) 1,797,000
TOTAL INVESTMENTS
(COST $59,742,218) 98.38% 59,998,552
OTHER ASSETS LESS LIABILITIES 1.62% 992,964
NET ASSETS 100.00% $60,991,516
</TABLE>
* Non-income producing.
~ American Depository Receipts.
REIT - Real Estate Investment Trust
(a) All or a portion of these securities are restricted (i.e., securities
which may not be publicly sold without registration under the Federal
Securities Act of 1933). Dates of acquisition and costs are set forth in
parentheses after the title of the restricted securities.
(b) These are securities that may be resold to "qualified institutional
buyers" under Rule 144A or securities offered pursuant to Section 4 (2) of the
Securities Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
CAMBRIDGE GLOBAL PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PERCENT OF MARKET
NET ASSETS SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS 91.63%
AUSTRALIA 5.07%
Broken Hill Proprietary Company* 24,033 $ 349,286
Western Mining Corporation
Holdings, Ltd. ORD 36,450 212,278
Woodside Petroleum, Ltd. 79,500 294,150
855,714
CANADA 4.70%
Alcan Aluminum, Ltd. 7,300 192,456
Canadian Pacific, Ltd. 16,600 278,357
Rogers Communications, Inc.* 21,200 321,918
792,731
DENMARK 1.55%
FLS Industries A/S `B' 3,750 260,899
FRANCE 1.45%
Alcatel Alsthom (CGE)~ 13,200 244,200
GERMANY 6.14%
Hoechst AG 1,390 295,766
Mannesmann AG 1,100 273,530
Munich Reinsurance 155 271,097
Veba AG 590 195,552
1,035,945
GREAT BRITAIN 10.24%
Carlton Communications ORD 18,600 245,773
Enterprise Oil ORD 45,500 277,651
Lasmo PLC 129,857 313,281
Rio Tinto-Zinc Corporation ORD 19,700 272,888
Saint James Place 130,000 243,931
Waste Management International PLC* 30,600 261,998
Willis Corroon Group PLC 48,000 111,259
1,726,781
HONG KONG 1.66%
Hong Kong Telecom, Ltd. 69,000 137,961
Hutchison Whampoa, Ltd. 30,000 141,707
279,668
</TABLE>
40
<PAGE>
<TABLE>
COMMON STOCKS PERCENT OF MARKET
(CONTINUED) NET ASSETS SHARES VALUE
<S> <C> <C> <C>
ITALY 4.71%
Instituto Mobilaire Italiano 4,000 $ 27,644
Instituto Nazionale ORD 112,000 166,635
Rinascente 39,000 124,410
Rinascente - Warrants* 10,400 0
Telecom Italia SPA 90,600 255,097
STET Societa Finanz 71,300 220,602
794,388
JAPAN 9.27%
Canon, Inc. 16,000 281,070
Hitachi, Ltd. 31,000 299,202
Kyocera Corporation 4,000 285,916
Matsushita Electric 8,000 127,612
NKS, Ltd. 2,000 15,063
Sony Corporation~ 500 29,188
Sony Corporation 4,000 232,610
Toshiba Corporation 39,000 293,337
1,563,998
SOUTH AFRICA 1.47%
Impala Platinum Holdings~ 10,400 248,430
SOUTH KOREA 2.95%
Goldstar (b) 13,400 298,150
Yukong, Ltd.* (b) 8,000 200,000
498,150
SWEDEN 5.93%
Astra AB A-F 7,000 167,737
Autoliv AB 8,900 267,324
SKF AB* 15,200 264,801
Volvo AB 16,500 300,665
1,000,527
SWITZERLAND 9.73%
Brown Boveri & CIE AG 295 254,330
CIBA Geigy AG Basel 480 271,410
Nestle Cham Et Vevey 302 274,204
SCHW Rueckversicherungs 600 291,728
SGS Societe Gen De Surveill 165 256,311
Sulzer AG* (Participation Certificate) 443 294,186
1,642,169
</TABLE>
41
<PAGE>
CAMBRIDGE GLOBAL PORTFOLIO
Portfolio of Investments
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SHARES OR
COMMON STOCKS PERCENT OF PRINCIPAL MARKET
(CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C>
UNITED STATES 25.30%
Allegheny Ludlum Corporation 1,700 $ 36,550
Ambac, Inc. 7,600 281,200
American President Cos., Ltd. 12,200 308,050
Amway Asia Pacific, Ltd. 1,600 48,200
Boeing Company 4,700 202,688
Destec Energy , Inc.* 27,400 311,675
Enron Corporation 8,700 263,175
Exel, Ltd. ORD 7,400 287,675
General RE Corporation 2,220 235,043
Harnischfeger 1,300 34,287
LaFarge Corporation 13,800 277,725
MBIA, Inc. 5,200 310,050
Mid Ocean, Ltd. ORD* 10,800 273,375
Partnerre Holdings, Ltd. 12,600 275,625
Schlumberger, Ltd. 4,600 250,125
Thermo Electron Corporation* 2,700 123,863
United Healthcare Corporation 4,600 243,800
United Technologies Corporation 3,300 206,663
WMX Technologies, Inc. 10,300 297,412
4,267,181
VENEZUELA 1.46%
Venezolana De Prerredicidos*
(4/13/94, $260,293) (a) (b) 35,600 246,975
TOTAL COMMON STOCKS (COST $15,437,475) 15,457,756
CORPORATE BONDS 0.72%
CANADA 0.46%
Teck Corporation, 3.75%, 7/15/06~ $80,000 78,000
ITALY 0.16%
Mediobanca, 4.50%, 1/1/00* 25,852 26,620
MALAYSIA 0.10%
Telekom Malaysia Berhad,
4.00%, 10/3/04~ (a) (b)
(9/22/94, $170,000) 170,000 169,958
TOTAL CORPORATE BONDS (COST $260,604) 274,578
SHORT- TERM INVESTMENTS 8.59%
Federal Home Loan Bank, OID,
4.80%, 10/28/94 800,000 797,120
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
SHARES OR
SHORT-TERM PERCENT OF PRINCIPAL MARKET
INVESTMENTS (CONTINUED) NET ASSETS AMOUNT VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENT
Donaldson, Lufkin, & Jenrette Securities Corporation
Dated 9/30/94, 4.80%, due 10/3/94,
collateralized by $473,000,
U.S. Treasury Bond, 12.75%, 11/15/10 $651,000 $ 651,000
TOTAL SHORT-TERM INVESTMENTS
(COST $1,448,120) 1,448,120
TOTAL INVESTMENTS
(COST $17,146,199) 100.94% 17,180,454
OTHER ASSETS LESS LIABILITIES (0.94%) (310,915)
NET ASSETS 100.00% $16,869,539
</TABLE>
* Non-income producing.
~ American Depository Receipts.
(a) All or a portion of these securities are restricted (i.e., securities
which may not be publicly sold without registration under the Federal Securities
Act of 1933). Dates of acquisition and costs are set forth in parentheses after
the title of the restricted securities.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4 (2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
CAMBRIDGE SERIES TRUST
Statements of Assets and Liabilities
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
CAMBRIDGE CAMBRIDGE CAMBRIDGE CAMBRIDGE
CAMBRIDGE CAPITAL GOVERNMENT MUNICIPAL INCOME AND CAMBRIDGE
GROWTH GROWTH INCOME INCOME GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at market value* (Note 2) $41,999,246 $63,102,296 $132,366,221 $71,245,552 $59,998,552 $17,180,454
Cash 859,416 - - 130,404 - 2,344
Receivables
Investments sold 832,966 741,914 - - 904,135 -
Fund shares sold 11,126 42,470 34,094 23,324 200,362 94,816
Dividends and interest 95,051 139,759 1,170,752 1,348,724 439,641 28,360
Deferred organization expenses (Note 2) 9,039 11,351 33,502 10,468 9,964 45,295
Other assets - 5,101 - 4,496 - -
Total assets 43,806,844 64,042,891 133,604,569 72,762,968 61,552,654 17,351,269
LIABILITIES
Payables
Investments purchased 141,000 1,342,854 14,362,419 1,006,858 124,141 381,081
Reverse repurchase agreement (Note 2) - - 8,956,501 - - -
Fund shares redeemed 250,951 218,520 908,895 207,479 208,711 3,771
Dividends - - 274,254 177,981 - -
Forward contract payable (Note 7) - - - - - 14,160
Variation margin (Note 2) - - - 25,000 - -
Accrued administration expenses
(Note 4) 5,285 7,531 13,372 5,429 4,619 12,809
Accrued distribution expenses 21,847 53,090 43,523 24,552 9,555 9,723
Accrued expenses and other liabilities 131,075 133,983 1,015,956 101,915 214,112 60,186
Total liabilities 550,158 1,755,978 25,574,920 1,549,214 561,138 481,730
NET ASSETS $43,256,686 $62,286,913 $108,029,649 $71,213,754 $60,991,516 $16,869,539
Net Assets represented by: (Note 2)
Additional paid-in capital $42,915,639 $59,500,018 $124,898,930 $73,383,330 $59,544,077 $16,831,407
Undistributed net investment
income - - 165,284 - 75,944 -
Accumulated distributions in
excess of net investment income - (103,086) - (58,877) - -
Undistributed realized gain (loss)
on investment transactions (2,819,616) 1,264,435 (11,718,498) (631,634) 1,115,161 17,822
Net unrealized appreciation
(depreciation) of investments and
foreign currency related
transactions 3,160,663 1,625,546 (5,316,067) (1,479,065) 256,334 20,310
Net Assets $43,256,686 $62,286,913 $108,029,649 $71,213,754 $60,991,516 $16,869,539
NET ASSET VALUE PER SHARE
Class A Shares $14.68 $ 14.88 $ 12.75 $ 14.42 $ 15.27 $ 14.23
Class B Shares $14.53 $ 14.80 $ 12.76 $ 14.43 $ 15.28 $ 14.15
OFFERING PRICE PER SHARE
Class A $15.53 (a) $ 15.75(a) $ 13.39(b) $ 15.14(b) $ 16.16(a) $ 15.06(a)
Class B $14.53 $ 14.80 $ 12.76 $ 14.43 $ 15.28 $ 14.15
REDEMPTION PROCEEDS PER SHARE
Class A $14.68 $ 14.88 $ 12.75 $ 14.42 $ 15.27 $ 14.23
Class B (c) $14.38 $ 14.65 $ 12.63 $ 14.29 $ 15.13 $ 14.01
SHARES OUTSTANDING
Class A Shares 993,054 1,423,010 2,363,773 1,738,078 1,164,060 624,181
Class B Shares 1,974,036 2,778,026 6,103,595 3,198,229 2,828,735 564,671
Total Shares Outstanding 2,967,090 4,201,036 8,467,368 4,936,307 3,992,795 1,188,852
</TABLE>
* Investments at cost $38,838,583, $61,477,308, $137,682,288, $73,076,934,
$59,742,218, and $17,146,199 respectively.
(a) Computation of offering price: 100/94.50 of net asset value.
(b) Computation of offering price: 100/95.25 of
net asset value.
(c) Computation of redemption proceeds: 99/100 of net asset value.
SEE NOTES TO FINANCIAL STATEMENTS.
44 45
<PAGE>
CAMBRIDGE SERIES TRUST
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994 CAMBRIDGE CAMBRIDGE CAMBRIDGE CAMBRIDGE
CAMBRIDGE CAPITAL GOVERNMENT MUNICIPAL INCOME AND CAMBRIDGE
GROWTH GROWTH INCOME INCOME GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO**
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 72,373 $ 498,408 $11,163,429* $5,211,568 $1,100,703 $ 41,716
Dividends (Net of withholding taxes)*** 525,699 1,152,741 - - 869,081 80,443
Total investment income (Note 2) 598,072 1,651,149 11,163,429 5,211,568 1,969,784 122,159
EXPENSES
Management fee (Note 4) 410,955 590,693 839,139 468,787 374,462 69,515
Distribution fees (Note 4) 253,834 360,712 511,023 253,801 252,486 20,749
Transfer agent fee 163,583 213,354 135,467 88,237 107,910 40,323
Shareholder services fees (Note 4) 128,423 184,588 349,642 195,328 124,821 15,340
Administration fee (Note 4) 64,195 92,278 174,797 97,653 62,315 7,670
Custodian fee 71,513 67,014 271,676 72,717 97,592 36,000
Registration fees 30,000 27,000 36,000 23,000 38,000 -
Shareholder reports 25,338 36,777 65,132 41,328 37,476 8,091
Organizational expenses 12,275 12,195 12,114 10,397 2,941 1,904
Professional fees 11,008 15,782 27,500 17,912 14,914 4,014
Directors' fees 7,180 7,180 7,180 7,180 7,180 3,590
Other 13,472 13,705 24,573 30,733 11,429 10,889
Total expenses 1,191,776 1,621,278 2,454,243 1,307,073 1,131,526 218,085
Deduct
Waiver of administration fee (Note 4) 6,569 - 23,563 - 15,033 530
Waiver of management fee (Note 4) - - - 81,713 - 69,515
Net Expenses 1,185,207 1,621,278 2,430,680 1,225,360 1,116,493 148,040
Net investment income (loss) (587,135) 29,871 8,732,749 3,986,208 853,291 (25,881)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss)
on investments (Note 2) (514,259) 1,128,751 (8,118,106) (527,018)(a) 1,523,312 17,822
Change in unrealized
appreciation (depreciation) (5,796,253) (2,465,351) (5,963,957) (7,578,461)(b) (248,910) 20,310(b)
Net realized and unrealized
gain (loss) on investments (6,310,512) (1,336,600) (14,082,063) (8,105,479) 1,274,402 38,132
Net increase (decrease) in net assets
resulting from operations $ (6,897,647) $(1,306,729) $(5,349,314) $(4,119,271) $2,127,693 $12,251
</TABLE>
* Net of interest expense ($7,680).
** For the period from March 29, 1994 (date of initial public investment)
to September 30, 1994.
***Withholding taxes were $1,534, $1,232, and $2,960 for the Capital Growth Port
folio, Income and Growth Portfolio and Global Portfolio respectively for the
year ended September 30, 1994. (a) Includes net realized gain on futures of
$167,132. (b) Includes unrealized appreciation on variation margin receivable
of $352,317 on Cambridge Municipal Income Portfolio and unrealized
depreciation on forward exchange contracts of $14,160 on Cambridge Global
Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS.
46 47
<PAGE>
CAMBRIDGE SERIES TRUST
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
CAMBRIDGE CAMBRIDGE CAMBRIDGE
GROWTH CAPITAL GROWTH GOVERNMENT INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (587,135) $ (370,213) $ 29,871 $ 362,476 $ 8,732,749 $ 10,265,188
Net realized gain (loss) on
investments (514,259) (1,548,366) 1,128,751 1,367,380 (8,118,106) (3,077,078)
Change in unrealized appreciation
(depreciation) of investments (5,796,253) 8,221,415 (2,465,351) 3,040,826 (5,963,957) (60,842)
Increase (decrease) in net assets
from operations (6,897,647) 6,302,836 (1,306,729) 4,770,682 (5,349,314) 7,127,268
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A - - (87,466) (204,040) (2,342,783) (3,306,334)
Class B - - - (94,762) (5,799,239) (6,958,854)
Distributions in excess of
net investment income
Class A - (22,462) - - - (146,203)
Class B - - - (35,370) - (301,354)
Net realized gain on investments
Class A - - (241,102) - -
Class B - - (445,582) - -
Net decrease from distributions - (22,462) (774,150) (334,172) (8,142,022) (10,712,745)
CAPITAL SHARE TRANSACTIONS (NOTE 8)
Net proceeds from sale of shares 15,028,646 30,595,316 9,607,870 47,948,857 14,581,398 103,828,094
Reinvested distributions - 22,029 755,452 324,735 5,302,074 6,788,193
Cost of shares redeemed (19,651,657) (7,411,912) (34,385,554) (10,651,945) (73,488,727) (34,305,532)
Change in net assets from capital
share transactions (4,623,011) 23,205,433 (24,022,232) 37,621,647 (53,605,255) 76,310,755
Increase (decrease) in net assets (1 1,520, 658) 29,485,807 (26,103,111) 42,058,157 (67,096,591) 72,725,278
NET ASSETS
Beginning of period 54,777,344 25,291,537 88,390,024 46,331,867 175,126,240 102,400,962
End of period $ 43,256,686 $ 54,777,344 $ 62,286,913 $ 88,390,024 $108,029,649 $175,126,240
</TABLE>
48 49
<PAGE>
CAMBRIDGE SERIES TRUST
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
CAMBRIDGE CAMBRIDGE CAMBRIDGE
MUNICIPAL INCOME INCOME AND GROWTH GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993 1994 1993** 1994*
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 3,986,208 $ 3,527,864 $ 853,291 $ 114,097 $ (25,881)
Net realized gain (loss) on
investments (527,018) 435,238 1,523,312 258,659 17,822
Net unrealized appreciation
(depreciation) of investments (7,578,461) 5,587,476 (248,910) 505,244 20,310
Increase (decrease) in net assets
from operations (4,119,271) 9,550,578 2,127,693 878,000 12,251
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (1,463,600) (1,450,546) (300,723) (50,722) -
Class B (2,444,169) (2,077,318) (476,423) (55,843) -
Distributions in excess of
net investment income
Class A - (57,691) - - -
Class B - (90,022) - - -
Net realized gain on investments
Class A (189,589) (3,927) (204,420) - -
Class B (340,533) (5,805) (470,138) - -
Net decrease from distributions (4,437,891) (3,685,309) (1,451,704) (106,565) -
CAPITAL SHARE T RANSACTIONS
Net proceeds from sale of shares 14,229,526 39,212,917 38,661,567 27,786,270 18,542,494
Reinvested distributions 2,491,222 1,918,307 1,370,230 98,283 -
Cost of shares redeemed (17,170,919) (9,841,523) (7,692,563) (679,695) (1,685,206)
Change in net assets from capital
share transactions (450,171) 31,289,701 32,339,234 27,204,858 16,857,288
Increase (decrease) in net assets (9,007,333) 37,154,970 33,015,223 27,976,293 16,869,539
NET ASSETS
Beginning of period 80,221,087 43,066,117 27,976,293 - -
End of period $ 71,213,754 $80,221,087 $60,991,516 $27,976,293 $ 16,869,539
</TABLE>
* For the period from March 29, 1994 (date of initial public investment) to
September 30, 1994.
** For the period from May 24, 1993 (date of initial public investment) to
September30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
50 51
<PAGE>
CAMBRIDGE SERIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares CAMBRIDGE CAMBRIDGE
GROWTH PORTFOLIO CAPITAL GROWTH PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993 1992* 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.69 $ 14.14 $ 14.18 $ 15.26 $ 14.21 $ 14.18
Income from investment operations
Net investment income (loss) (0.11) (0.07) 0.03 0.09 0.14 0.08
Net realized and unrealized
gain (loss) on investments (1.90) 2.65 (0.07) (0.30) 1.02 0.03
Total from investment operations (2.01) 2.58 (0.04) (0.21) 1.16 0.11
Less distributions
Dividends from income - - - (0.04) (0.11) (0.08)
Distributions from capital gains - - - (0.13) - -
Distributions in excess of
net investment income - (0.03) - - - -
Total distributions - (0.03) - (0.17) (0.11) (0.08)
NET ASSET VALUE, END OF PERIOD $ 14.68 $ 16.69 $ 14.14 $ 14.88 $ 15.26 $ 14.21
Total Return (12.04%) 18.23% (0.28%) (1.37%) 8.21% 0.78%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 14,579 $ 19,708 $ 11,464 $ 21,181 $ 31,360 $ 20,864
Ratio of expenses to average net assets 1.81% 1.66% 1.33% (a) 1.70% 1.49% 1.14%(a)
Ratio of expenses to average net assets
excluding waiver 1.82% 1.78% 1.72% (a) 1.70% 1.59% 1.43%(a)
Ratio of net investment income (loss)
to average net assets (0.65%) (0.49%) 0.59% (a) 0.53% 0.96% 1.54%(a)
Portfolio turnover rate 132% 137% 26% 149% 192% 61%
</TABLE>
*Reflects operations for the period from April 29, 1992 (date of initial public
investment) to September 30, 1992.
(a) Annualized.
52 53
<PAGE>
CAMBRIDGE SERIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares (continued)
CAMBRIDGE CAMBRIDGE
GOVERNMENT INCOME PORTFOLIO MUNICIPAL INCOME PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993 1992* 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.04 $ 14.39 $ 14.30 $ 16.05 $ 14.76 $ 14.29
Income from investment operations
Net investment income 0.84 1.06 0.44 0.82 0.92 0.32
Net realized and unrealized
gain (loss) on investments (1.30) (0.31) 0.09 (1.54) 1.32 0.47
Total from investment operations (0.46) 0.75 0.53 (0.72) 2.24 0.79
Less distributions
Dividends from income (0.83) (1.06) (0.44) (0.81) (0.92) (0.32)
Distributions from capital gain - - - (0.10) - -
Distributions in excess of
net investment income - (0.04) - - (0.03) -
Total distributions (0.83) (1.10) (0.44) (0.91) (0.95) (0.32)
NET ASSET VALUE, END OF PERIOD $ 12.75 $ 14.04 $ 14.39 $ 14.42 $ 16.05 $ 14.76
Total Return (3.39%) 5.41% 3.37% (4.83%) 16.00% 5.34%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $30,142 $47,780 $ 36,740 $25,056 $29,245 $ 18,801
Ratio of expenses to average net assets 1.38% 1.04% 0.36% (a) 1.24% 0.71% 0.00%(a)
Ratio of expenses to average net assets
excluding waiver 1.39% 1.22% 1.21% (a) 1.33% 1.39% 1.26%(a)
Ratio of net investment income
to average net assets 6.33% 7.31% 8.00% (a) 5.43% 5.92% 6.21%(a)
Portfolio turnover rate 455% 102% 9% 87% 88% 0%
</TABLE>
* Reflects operations for the period from April 29, 1992 (date of initial
public in vestment) to September 30, 1992.
(a) Annualized.
54 55
<PAGE>
CAMBRIDGE SERIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Class A Shares
CAMBRIDGE CAMBRIDGE
(continued) INCOME AND GROWTH PORTFOLIO GLOBAL PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993*** 1994(B)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.88 $ 14.14 $ 14.18
Income from investment operations
Net investment income (loss) 0.31 0.09 (0.01)
Net realized and unrealized
gain on investments 0.64 0.73 0.06
Total from investment operations 0.95 0.82 0.05
Less distributions
Dividends from income (0.30) (0.08) 0.00
Distributions from capital gains (0.26) 0.00 0.00
Distributions in excess of
net investment income - 0.00 0.00
Total distributions (0.56) (0.08) 0.00
NET ASSET VALUE, END OF PERIOD $ 15.27 $ 14.88 $ 14.23
Total Return 6.54% 5.54% 0.35%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $17,773 $ 9,849 $ 8,882
Ratio of expenses to average net assets 1.75% 1.56%(a) 2.09% (a)
Ratio of expenses to average net assets
excluding waiver 1.75% 1.94%(a) 3.18% (a)
Ratio of net investment income (loss)
to average net assets 2.20% 2.35%(a) (0.10%)(a)
Portfolio turnover rate 78% 13% 2%
</TABLE>
*** Reflects operations for the period from May 24, 1993 (date of initial
public investment) to September 30, 1993.
(a) Annualized.
(b) Reflects operations for the period from March 29, 1994 (date of initial
public investment) to September 30, 1994
.
SEE NOTES TO FINANCIAL STATEMENTS.
56 57
<PAGE>
CAMBRIDGE SERIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Class B Shares CAMBRIDGE CAMBRIDGE
GROWTH PORTFOLIO CAPITAL GROWTH PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993 1992* 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.59 $ 14.14 $ 14.18 $ 15.23 $ 14.22 $ 14.18
Income from investment operations
Net investment income (loss) (0.25) (0.14) (0.01) (0.04) 0.05 0.46
Net realized and unrealized
gain (loss) on investments (1.81) 2.59 (0.03) (0.26) 1.02 0.04
Total from investment operations (2.06) 2.45 (0.04) (0.30) 1.07 0.50
Less distributions
Dividends from income - - - - (0.05) (0.46)
Distributions from capital gains - - - (0.13) - -
Distributions in excess of
net investment income - - - - (0.01) -
Total distributions - - - (0.13) (0.06) (0.46)
NET ASSET VALUE, END OF PERIOD $ 14.53 $ 16.59 $ 14.14 $ 14.80 $ 15.23 $ 14.22
Total Return (12.48%) 17.33% (0.28%) (2.00%) 7.52% 0.61%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 28,678 $35,069 $ 13,828 $41,106 $57,030 $ 25,468
Ratio of expenses to average net assets 2.56% 2.41% 2.07% (a) 2.46% 2.24% 1.86% (a)
Ratio of expenses to average net assets
excluding waiver 2.58% 2.53% 2.47% (a) 2.46% 2.34% 2.16%(a)
Ratio of net investment income (loss)
to average net assets (1.40%) (1.24%) (0.17%) (a) (0.22%) 0.21% 0.83%(a)
Portfolio turnover rate 132% 137% 26% 149% 192% 61%
</TABLE>
* Reflects operations for the period from April 29, 1992 (date of initial
public investment) to September 30, 1992.
(a) Annualized.
58 59
<PAGE>
CAMBRIDGE SERIES TRUST
Financial Highlights
<TABLE>
<CAPTION>
Class B Shares CAMBRIDGE CAMBRIDGE
(continued) GOVERNMENT INCOME PORTFOLIO MUNICIPAL INCOME PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993 1992* 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.06 $ 14.40 $ 14.30 $ 16.06 $ 14.78 $ 14.29
Income from investment operations
Net investment income 0.82 0.99 0.41 0.74 0.82 0.29
Net realized and unrealized
gain (loss) on investments (1.37) (0.31) 0.10 (1.54) 1.32 0.49
Total from investment operations (0.55) 0.68 0.51 (0.80) 2.14 0.78
Less distributions
Dividends from income (0.75) (0.99) (0.41) (0.73) (0.82) (0.29)
Distributions from capital gains - - - (0.10) - -
Distributions in excess of
net investment income - (0.03) - - (0.04) -
Total distributions (0.75) (1.02) (0.41) (0.83) (0.86) (0.29)
NET ASSET VALUE, END OF PERIOD $ 12.76 $ 14.06 $ 14.40 $ 14.43 $ 16.06 $ 14.78
Total Return (3.97%) 4.86% 3.24% (5.34%) 15.27% 5.28%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $77,888 $127,346 $ 65,661 $46,157 $50,976 $ 24,265
Ratio of expenses to average net assets 1.88% 1.54% 0.83%(a) 1.74% 1.21% 0.50%(a)
Ratio of expenses to average net assets
excluding waiver 1.90% 1.72% 1.67%(a) 1.86% 1.89% 1.76%(a)
Ratio of net investment income
to average net assets 6.21% 6.81% 7.53%(a) 4.93% 5.42% 5.80%(a)
Portfolio turnover rate 455% 102% 9% 87% 88% 0%
</TABLE>
* Reflects operations for the period from April 29, 1992 (date of initial
public investment) to September 30, 1992.
(a) Annualized.
60 61
<PAGE>
<TABLE>
CAMBRIDGE SERIES TRUST
Financial Highlights
Class B Shares
CAMBRIDGE
(continued) INCOME AND CAMBRIDGE
GROWTH PORTFOLIO GLOBAL PORTFOLIO
YEAR ENDED SEPTEMBER 30, 1994 1993** 1994 (B)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.91 $ 14.14 $ 14.18
Income from investment operations
Net investment income (loss) 0.21 0.05 (0.04)
Net realized and unrealized
gain on investments 0.61 0.77 0.01
Total from investment operations 0.82 0.82 (0.03)
Less distributions
Dividends from income (0.19) (0.05) -
Distributions from capital gains (0.26) - -
Distributions in excess of
net investment income - - -
Total distributions (0.45) (0.05) -
NET ASSET VALUE, END OF PERIOD $ 15.28 $ 14.91 $ 14.15
Total Return 5.66% 5.54% (0.21%)
Ratios/Supplemental Data
Net assets, end of period (in thousands) $43,219 $ 18,127 $ 7,987
Ratio of expenses to average net assets 2.44% 2.31% (a) 2.79% (a)
Ratio of expenses to average net assets
excluding waiver 2.44% 2.69% (a) 3.93% (a)
Ratio of net investment income (loss)
to average net assets 1.51% 1.60% (a) (0.82%) (a)
</TABLE>
** Reflects operations for the period from May 24, 1993 (date of initial
public investment) to September 30, 1993.
(a) Annualized.
(b) Reflects operations for the period from March 29, 1994 (date of initial
public investment) to September 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
62 63
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements
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 (hereinafter each individually referred to as a
"Portfolio" or collectively as the "Portfolios") at September 30, 1994, as
follows:
Cambridge Growth Portfolio
("Growth Portfolio")
Cambridge Capital Growth Portfolio
("Capital Growth Portfolio")
Cambridge Government Income Portfolio
("Government Income Portfolio")
Cambridge Municipal Income Portfolio
("Municipal Income Portfolio")
Cambridge Income and Growth Portfolio
("Income and Growth Portfolio")
Cambridge Global Portfolio
("Global Portfolio")
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.
Each Portfolio provides two classes of shares ("Class A and Class B" ).
Class B shares are identical in all respects to Class A shares except that Class
B shares are sold pursuant to a distribution plan ("Plan") adopted in accordance
with Investment Company Act Rule 12b-1 and are not subject to a sales load.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios:
(a) Valuation of Securities-Listed equity securities held by the Growth
Portfolio, the Capital Growth Portfolio, the Income and Growth Portfolio and the
Global Portfolio are valued at the 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
64
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
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
market value.
U.S. government obligations, held by the Government Income Portfolio and
the Income and Growth Portfolio are valued at the mean between the over-the-
counter bid and asked prices as furnished by an independent pricing service.
U.S. government obligations and other short-term obligations maturing in 60 days
or less are valued at amortized cost, which approximates market value.
Debt securities held by the Government Income Portfolio for which current
market quotations are not readily available are valued at their fair value. An
independent pricing service values such securities taking into consideration
yield, stability, risk, quality, coupon, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and any
other factors or market data it deems relevant in determining valuations for
normal institutional size trading units of debt securities and does not rely
exclusively on quoted prices.
Municipal bonds, held by the Municipal Income Portfolio, are valued at fair
value. An independent pricing service values the Portfolio's municipal bonds
taking into consideration yield, stability, risk, quality, coupon, maturity,
type of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it deems relevant in
determining valuations for normal institutional size trading units of debt
securities and does not rely exclusively on quoted prices.
(b) Repurchase Agreements-Repurchase agreements are purchases of securities
where the seller agrees to repurchase the securities at a specified time and
price. 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. Addi-
65
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
tionally, 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-Each of the Portfolios 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 Municipal
Income Portfolio may borrow up to 5% of its total assets and may pledge up to
10% of the value of those assets to secure such borrowings. Under certain
circumstances, each remaining 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. At September 30, 1994, Government Income Portfolio had an
outstanding reverse repurchase agreement which amounted to $8,956,501 with a
rate of 5.23%, and a maturity date of 12/22/94.
(d) Security Transactions and Investment Income-Security transactions for
the Portfolios are accounted for on the trade date. Dividend income is recorded
on the ex-dividend date. Interest income (except for Municipal Income Portfolio)
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.
Interest income for the Municipal Income Portfolio includes interest earned
net of premium, and original issue discount as required by the Internal Revenue
Code.
66
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
(e) Federal Taxes-No provision for federal income taxes has been made since
it is each Portfolio's intent to comply with the provisions applicable to
regulated investment companies under the Internal Revenue Code and to distribute
to its shareholders within the allowable time limits substantially all taxable
income and realized capital gains.
Dividends paid by the Municipal Income Portfolio representing net interest
received on tax-exempt municipal securities are not includable by shareholders
as gross income for federal income tax purposes because the Portfolio intends to
meet certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Portfolio to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private purpose
municipal bonds issued after August 7, 1986, may be considered a tax preference
item to shareholders.
At September 30, 1994, Growth Portfolio for federal tax purposes, had a
capital loss carryforward of approximately $2,690,000. Pursuant to the Code,
such capital loss carry-forwards expire as follows: $1,065,000 in 2001 and
$1,625,000 in 2002.
At September 30, 1994, Government Income Portfolio for federal tax
purposes, had a capital loss carryforward of approximately $4,500,000. Pursuant
to the Code, such capital loss carryforwards expire as follows: $821,000 in 2001
and $3,679,000 in 2002.
At September 30, 1994, Income and Growth Portfolio for Federal tax
purposes, had a capital loss carryforward of approximately $92,000. Pursuant to
the Code, such capital less carryforward will expire in 2002.
Such capital loss carryforwards will reduce the Portfolios' taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise relieve the Portfolios of
any liability for federal tax.
(f) When-Issued and Delayed Delivery Transactions-The Portfolios may engage
in when-issued or delayed delivery transactions. To the extent the Portfolios
engage in such transactions, they will do so for the purpose of acquiring
portfolio securities consistent with their invest-
67
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
ment objectives and policies and not for the purpose of investment leverage.
The Portfolios will record a when-issued security and the related liability on
the trade date. Until the securities are received and paid for, the Portfolios
will maintain security positions such that sufficient liquid assets will be
available to make payment for the securities purchased. Securities purchased on
a when-issued or delayed delivery basis are marked to market daily and begin
earning interest on the settlement date.
(g) Futures Contracts-Upon entering into a futures contract with a broker,
the Municipal Income Portfolio is required to deposit in a segregated account an
amount ("initial margin") of cash or U.S. government securities equal to a
percentage of the contract value. When entering into the contract the Portfolios
agree to receive from or pay the broker an amount of cash equal to a specific
dollar amount times the difference between the closing value of the stock index
and the price at which the contract was made. On a daily basis, the value of a
futures contract is determined and any difference between such value and the
original futures contract value is reflected in the "variation margin" account.
Daily variation margin adjustments, arising from this "marking to market"
process, are recorded as unrealized gains or losses. At September 30, 1994, the
Municipal Income Portfolio had open U.S. Treasury Bond futures contracts with an
aggregate notional value of $10,000,000. The Portfolio recorded unrealized gains
of $352,317 on such futures contracts.
The Portfolio may decide to close their position on a contract at any time
prior to the contract's expiration. When a contract is closed, a realized gain
or loss is recognized. Risks of entering into futures contracts include the
possibility that there may be an illiquid market and that a change in the value
of the contract may not correlate with changes in the value of the underlying
securities. For the year ended September 30, 1994, the Municipal Income
Portfolio had realized gains of $167,132 on closed futures contracts.
(h) Option Contracts-The Growth Portfolio may write or purchase stock index
option contracts. A written stock index option obligates the Growth Portfolio to
deliver (a call), or to receive (a put), the contract amount of foreign currency
68
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
upon exercise by the holder of the option. The value of the option contract
is recorded as a liability and the unrealized gain or loss is measured by the
difference between the current value and the premium received. The Growth
Portfolio had no options outstanding at September 30, 1994.
(i) Deferred Organization Expenses- Costs incurred by the Portfolios in
connection with their initial share registration, other than organization
expenses, were deferred and are being amortized on a straight-line basis through
April 1997.
(j) Expenses-Expenses of the Portfolios (other than distribution fees) and
waivers and reimbursements, if any, are allocated to each class of shares based
on their relative average daily net assets for the period. Expenses incurred by
the Portfolios 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.
(k) Dollar Roll Transactions-The Government Income Portfolio, Income and
Growth Portfolio and Global Portfolio may enter into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA, and FHLMC, in which
the Portfolios sell mortgage securities to financial institutions and
simultaneously agree 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 Portfolios forgo principal and interest
paid on the mortgage security sold. The Portfolios are compensated by the
interest earned on the cash proceeds of the initial sale and any additional fee
income received on the sale.
(l) 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.
69
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
(m) 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 Portfolios 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 Portfolios 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 following Portfolios
have made reclassifications as of September 30, 1993 to reflect the adoption of
the statement. The Growth Portfolio reclassification resulted in an increase in
undistributed net investment income of $367,348 and a decrease in additional
paid-in capital of $367,348. The Capital Growth Portfolio reclassification
resulted in an increase in undistributed net investment income of $49,507 and a
decrease in undistributed realized gain (loss) on investment transactions and
additional paid-in capital of $49,484 and $23, respectively.
Differences between book basis investment income available for distribution
and tax basisinvestment income available for distribution are primarily
attributable to differences in the treatment on net operation losses.
NOTE 3: DIVIDENDS
Dividends will be declared daily and paid monthly to all shareholders
invested in the Government Income Portfolio and the Municipal Income Portfolio
on the record date. Dividends are declared and paid semi-annually to all
shareholders invested in the Capital Growth Portfolio on the record date,
dividends are declared and paid annually to all shareholders invested in the
Growth Portfolio and the Global Portfolio on the record date, and dividends are
declared and paid quarterly to all shareholders invested in the Income and
Growth 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
70
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
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
Cambridge Investment Advisors, Inc., the Portfolios' investment adviser
("Investment Adviser"), receives for its services an annual investment advisory
fee not to exceed the following percentages of the average daily net assets of
the particular Portfolio: Growth Portfolio, 0.80%; Capital Growth Portfolio,
0.80%; Government Income Portfolio, 0.60%; Municipal Income Portfolio, 0.60%;
Income and Growth Portfolio, 0.75%; and Global Portfolio, 1.10%. The Investment
Adviser may, from time to time, voluntarily waive some or all of its investment
advisory fee and may terminate any such voluntary waiver at any time at its sole
discretion.
The Investment Adviser pays each sub-adviser an annual fee not to exceed
the following percentage of Portfolio average daily net assets: Growth
Portfolio, 0.40%, Capital Growth Portfolio, 0.40%; Government Income Portfolio,
0.30%; and Municipal Income Portfolio, 0.30%. The sub-adviser to the Income and
Growth Portfolio receives from the Investment Adviser an annual fee expressed as
a percentage of that Portfolio's average daily net assets as follows: 0.325% of
the first $50 million in Portfolio average daily net assets, 0.275% of the next
$150 million, 0.225% of the next $300 million and 0.200% of any amounts over
$500 million. The sub-adviser to the Global Portfolio receives from the
Investment Adviser an annual fee expressed as a percentage of that Portfolio's
average daily net assets as follows: 0.55% of the first $75 million in average
daily net assets, and 0.50% of any amounts over $75 million. No performance or
incentive fees are paid to the sub-advisers. Under certain sub-advisory
agreements, the particular 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-advisers earned and
voluntarily waived the following advisory fees:
71
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
<TABLE>
<CAPTION>
Sub-Adviser
Adviser Adviser Fee Sub-Adviser Fee
Fee Voluntarily Fee Voluntarily
Portfolio Earned Waived Earned Waiver
<S> <C> <C> <C> <C>
Growth $410,955 - $205,478 -
Capital Growth 590,693 - 295,347 -
Government Income 839,139 - 419,570 -
Municipal Income 468,787 81,713 234,393 -
Income and Growth 374,462 - 187,231 -
Global 69,515 69,515 34,757 -
</TABLE>
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 daily 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 may voluntarily waive some or all
of its fee.
During the year ended September 30, 1994, CAS and IMG earned and
voluntarily waived the following administrative fees:
<TABLE>
<CAPTION>
Administrative Administrative Administrative Administrative
Fee Earned Fee Waived Fee Earned Fee Waived
Portfolio CAS CAS IMG IMG
<S> <C> <C> <C> <C>
Growth $ 45,092 $ 6,569 $19,103 -
Capital Growth 65,005 - 27,273 -
Government Income 126,300 23,563 48,497 -
Municipal Income 66,804 - 30,849 -
Income and Growth 37,484 15,033 24,831 -
Global 1,326 530 6,344 -
</TABLE>
The Class B shares of the Portfolios have 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 for the
Growth Portfolio, Capital Growth Portfolio, Income and Growth Portfolio and
Global Portfolio and 0.50% of 1% of the average daily net assets of the Class B
shares for the Government Income Portfolio and Municipal Income Portfolio.
72
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with
respect to Class A and Class B shares of each Portfolio.Under the Service Plan,
financial institutions will enter into shareholder service agreements with the
Portfolios 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 one or more Portfolios. In return for providing these support
services, a financial institution may receive payments from one or more
Portfolios at a rate not exceeding 0.25 of 1% of the average daily net assets of
the Class A or Class B shares of the particular Portfolio or Portfolios
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.
Organization expenses of the Growth Portfolio ($55,060), Capital Growth
Portfolio ($51,200), Government Income Portfolio ($51,301), Municipal Income
Portfolio ($49,701), Income and Growth Portfolio ($29,179) and Global Portfolio
($45,771) were borne initially by CAS. Each Portfolio has agreed to reimburse
CAS for the organization expenses initially borne by CAS during the five-year
period following the date the Trust's Portfolios' registration became effective.
The amounts reimbursed to CAS for the year ended September 30, 1994 were as
follows: Growth Portfolio ($11,012), Capital Growth Portfolio ($10,240),
Government Income Portfolio ($10,260), Municipal Income Portfolio ($9,940),
Income and Growth Portfolio ($5,836).
NOTE 5: INVESTMENT TRANSACTIONS
Purchases, and sales of investments (excluding short-term investments), for
the fiscal year ended September 30,
1994, were as follows:
Portfolio Purchases Sales
Growth $ 66,113,202 $ 68,718,113
Capital Growth 90,983,444 104,459,473
Government Income 764,033,260 766,987,854
Municipal Income 67,155,011 66,953,196
Income and Growth 64,498,072 37,345,870
Global 15,956,459 276,203
73
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION
OF INVESTMENTS
At September 30, 1994, the cost of investments for federal income tax
purposes, amounted to $38,969,059 for the Growth Portfolio, $61,477,308 for the
Capital Growth Portfolio, $137,682,288 for the Government Income Portfolio,
$73,076,934 for Municipal Income Portfolio, $59,801,451 for the Income and
Growth Portfolio, and $17,146,199 for the Global Portfolio. Gross unrealized
appreciation and depreciation of investments based on such cost at September 30,
1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Unrealized Unrealized Appreciation/
Portfolio Appreciation Depreciation (Depreciation)
<S> <C> <C> <C>
Growth $4,509,389 $1,479,202 $ 3,030,187
Capital Growth 3,033,125 1,408,137 1,624,988
Government Income 327,206 5,643,273 (5,316,067)
Municipal Income 879,782 2,711,164 (1,831,382)
Income and Growth 3,199,063 3,001,962 197,101
Global 709,272 675,017 34,255
</TABLE>
NOTE 7: FORWARD CONTRACTS
In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the Growth Portfolio, the Capital Growth Portfolio, the
Income and Growth Portfolio and the Global Portfolio may enter into forward
foreign currency exchange contracts ("contracts"). Additionally, from time to
time the Growth Portfolio, Capital Growth Portfolio, the Income and Growth
Portfolio and the Global 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 Portfolios are
subject to the credit risk that the other party will not complete the
obligations of the contract. At September 30, 1994 the Global Portfolio had
outstanding forward contracts as set forth below.
74
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Contracts Net Unrealized
to Deliver/ In Exchange Appreciation
Settlement Date Receive For (Depreciation)
Sales
4/25/96 Japan-Yen 52,596,340 $562,843 $ (15,282)
7/1/96 Japan-Yen 29,851,660 $321,878 $ 1,122
$884,721 $ (14,160)
Net unrealized
depreciation
on Forward Contracts $ (14,160)
NOTE 8: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. Transactions in Portfolio shares were as follows:
CAMBRIDGE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Year Year
Ended 9/30/94 Ended 9/30/93
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares outstanding,
beginning of period 1,180,695 $17,187,308 810,934 $11,500,191
Shares sold 220,548 3,512,282 557,050 8,601,094
Shares issued upon
reinvestment
of distributions - - 1,460 22,029
Shares redeemed (408,189) (6,315,589) (188,749) (2,936,006)
Shares outstanding,
end of period 993,054 $14,384,001 1,180,695 $17,187,308
CLASS B:
Shares outstanding,
beginning of period 2,113,910 $31,296,376 978,243 $13,778,060
Shares sold 733,554 11,516,364 1,426,86 121,994,222
Shares issued
upon reinvestment
of distributions - - - -
Shares redeemed (873,428) (13,336,068) (291,194) (4,475,906)
Shares outstanding,
end of period 1,974,036 $29,476,672 2,113,910 $31,296,376
</TABLE>
75
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
<TABLE>
<CAPTION>
CAMBRIDGE CAPITAL GROWTH PORTFOLIO
Year Year
Ended 9/30/94 Ended 9/30/93
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares outstanding,
beginning of period 2,055,500 $29,379,736 1,467,971 $20,673,912
Shares sold 155,406 2,353,285 866,833 12,868,150
Shares issued
upon reinvestment
of distributions 21,385 320,355 13,495 198,314
Shares redeemed (809,281) (12,181,621) (292,799) (4,360,640)
Shares outstanding,
end of period 1,423,010 $19,871,755 2,055,500 $29,379,736
CLASS B:
Shares outstanding,
beginning of period 3,744,511 $54,154,730 1,790,373 $25,238,907
Shares sold 484,356 7,254,585 2,369,048 35,080,707
Shares issued
upon reinvestment
of distributions 29,045 435,097 8,583 126,421
Shares redeemed (1,479,886) (22,203,933) (423,493) (6,291,305)
Shares outstanding,
end of period 2,778,026 $39,640,479 3,744,511 $54,154,730
</TABLE>
<TABLE>
<CAPTION>
CAMBRIDGE GOVERNMENT INCOME PORTFOLIO
Year Year
Ended 9/30/94 Ended 9/30/93
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares outstanding,
beginning of period 3,403,828 $48,807,954 2,552,475 $36,680,594
Shares sold 175,391 2,326,934 1,223,573 17,167,884
Shares issued
upon reinvestment
of distributions 104,113 1,395,612 141,599 2,252,607
Shares redeemed (1,319,559) (17,795,382) (513,819) (7,293,131)
Shares outstanding,
end of period 2,363,773 $34,735,118 3,403,828 $48,807,954
</TABLE>
76
<PAGE>
<TABLE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
CAMBRIDGE GOVERNMENT INCOME PORTFOLIO
Year Year
Ended 9/30/94 Ended 9/30/93
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS B:
Shares outstanding,
beginning of period 9,059,536 $129,708,345 4,558,855 $65,524,950
Shares sold 895,699 12,254,465 6,067,033 86,660,210
Shares issued
upon reinvestment
of distributions 290,900 3,906,462 336,653 4,535,586
Shares redeemed (4,142,540) (55,693,345) (1,903,005) (27,012,401)
Shares outstanding,
end of period 6,103,595 90,175,927 9,059,536 $129,708,345
</TABLE>
<TABLE>
<CAPTION>
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO
Year Year
Ended 9/30/94 Ended 9/30/93
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares outstanding,
beginning of period 1,822,030 $26,713,229 1,273,427 $18,482,871
Shares sold 192,548 2,946,139 699,910 10,541,396
Shares issued
upon reinvestment
of distributions 51,632 797,051 44,317 672,587
Shares redeemed (328,132) (4,975,320) (195,624) (2,983,625)
Shares outstanding,
end of period 1,738,078 $25,481,099 1,822,030 $26,713,229
CLASS B:
Shares outstanding,
beginning of period 3,173,809 $47,130,669 1,642,240 $24,071,326
Shares sold 723,926 11,283,387 1,890,537 28,671,521
Shares issued
upon reinvestment
of distributions 109,721 1,694,171 81,888 1,245,720
Shares redeemed (809,227) (12,195,599) (440,856) (6,857,898)
Shares outstanding,
end of period 3,198,229 $47,912,628 3,173,809 $47,130,669
</TABLE>
77
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
<TABLE>
<CAPTION>
CAMBRIDGE INCOME AND GROWTH PORTFOLIO
Year Period
Ended 9/30/94 Ended 9/30/93*
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares outstanding,
beginning of period 661,893 $9,518,102 - $ -
Shares sold 621,368 9,508,705 692,725 9,965,467
Shares issued
upon reinvestment
of distributions 31,362 474,885 3,200 47,907
Shares redeemed (150,563) (2,281,176) (34,032) (495,272)
Shares outstanding,
end of period 1,164,060 17,220,516 661,893 $9,518,102
CLASS B:
Shares outstanding,
beginning of period 1,216,165 $17,686,756 - $ -
Shares sold 1,909,839 29,152,862 1,225,260 17,820,803
Shares issued
upon reinvestment
of distributions 59,116 895,345 3,359 50,376
Shares redeemed (356,385) (5,411,387) (12,454) (184,423)
Shares outstanding,
end of period 2,828,735 $42,323,576 1,216,165 $17,686,756
</TABLE>
CAMBRIDGE GLOBAL PORTFOLIO **
Period
Ended 9/30/94
Shares Dollars
CLASS A:
Shares outstanding,
beginning of period - -
Shares sold 713,962 $10,133,334
Shares issued
upon reinvestment
of distributions - -
Shares redeemed (89,781) (1,281,155)
Shares outstanding,
end of period 624,181 $ 8,852,179
78
<PAGE>
CAMBRIDGE SERIES TRUST
Notes to the Financial Statements (continued)
CAMBRIDGE GLOBAL PORTFOLIO **
Period
Ended 9/30/94
Shares Dollars
CLASS B:
Shares outstanding,
beginning of period - -
Shares sold 593,033 $8,409,160
Shares issued
upon reinvestment
of distributions - -
Shares redeemed (28,362) (404,051)
Shares outstanding,
end of period 564,671 $8,005,109
* For the period from May 24, 1993 (date of initial public investment)
to September 30, 1993.
** For the period from March 29, 1994 (date of initial public invest--
ment) to September 30, 1994.
79
<PAGE>
CAMBRIDGE SERIES TRUST
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
CAMBRIDGE SERIES TRUST
We have audited the accompanying statements of assets and liabilities of the
Growth, Capital Growth, Government Income, Municipal Income, Income and Growth
and Global Portfolios, portfolios of Cambridge Series Trust, including the
portfolios of investments, as of September 30, 1994 and related statements of
operations for the year then ended for the Growth, Capital Growth, Government
Income, Municipal Income, and Income and Growth Portfolios and for the period
from March 29, 1994 (date of initial public investment) to September 30, 1994
for the Global Portfolio, the statements of changes in net assets for each of
the years in the two year period ended September 30, 1994 for the Growth,
Capital Growth, Government Income and Municipal Income Portfolios, for the year
ended September 30, 1994 and for the period from May 24, 1993 (date of initial
public investment) to September 30, 1993 for the Income and Growth Portfolio and
for the period from March 29, 1994 to September 30, 1994 for the Global
Portfolio, and the financial highlights for the periods presented on pages 52 to
63. These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
September 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Growth, Capital Growth, Government Income, Municipal Income, Income and Growth
and Global Portfolios, as of September 30, 1994, the results of their operations
for the year then ended for the Growth, Capital Growth, Government Income,
Municipal Income and Income and Growth Portfolios and for the period from March
29, 1994 to September 30, 1994 for the Global Portfolio, the changes in their
net assets for each of the aforementioned years or periods in the two year
period then ended and the financial highlights for each of the years or periods
as indicated on pages 52 to 63, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 11, 1994
<PAGE>
Mentor Growth Fund
Portfolio of Investments
December 31, 1994
SECURITY DESCRIPTION PERCENT OF NET ASSETS SHARES MARKET VALUE
COMMON STOCKS 87.4%
BASIC INDUSTRIES 4.0%
Alco Standard Corporation 18,900 $ 1,185,975
Guilford Mills, Inc. 110,400 2,456,400
Nucor Corporation 30,500 1,677,500
Steel Technologies, Inc. 50,700 659,100
Unifi, Inc. 61,650 1,572,075
Total Basic Industries 7,551,050
BUILDING 2.2%
Blount, Inc., Class A 90,850 4,224,525 *
CAPITAL GOODS 2.0%
Fastenal Company 23,070 942,986
Flextronics International, Ltd. 80,100 1,221,525 *
Kemet Corporation 48,000 1,422,000 *
NCI Building Systems 10,000 172,500 *
Total Capital Goods 3,759,011
CONSUMER DURABLES 7.4%
Callaway Golf Company 63,750 2,111,719
Chromcraft Revington, Inc. 119,700 2,633,400 *
Consolidated Graphics 93,500 1,051,875 *
Dorsey Trailers, Inc. 53,450 808,431 *
Equity Inns, Inc. 143,000 1,573,000
Legget & Platt, Inc. 52,250 1,828,750
Regal Cinemas, Inc. 80,325 2,048,287 *
Wabash National Corporation 36,950 1,441,050
Winsloew Furniture, Inc. 95,025 593,906 *
Total Consumer Durables 14,090,418
CONSUMER NON-DURABLES 6.2%
Consolidated Products Company 89,150 1,136,662 *
Davco Restaurants, Inc. 120,000 1,470,000 *
Mid-Atlantic Medical Services 84,000 1,921,500 *
Quality Dining, Inc. 157,000 1,942,875 *
R.P. Scherer Corporation 43,000 1,951,125 *
Richfood Holdings, Inc. 125,100 2,001,600
Roberts Pharmaceutical 44,400 1,409,700 *
Total Consumer Non-durables 11,833,462
FINANCIAL 6.9%
First Financial Management
Corporation 36,550 $ 2,252,394
Leader Financial Corporation 88,400 1,823,250 *
Markel Corporation 88,360 3,666,940 *
Midland Financial Group, Inc. 120,800 1,781,800
National Commerce Bancorp 114,996 2,616,159
TFC Enterprises, Inc. 121,100 923,388 *
Total Financial 13,063,931
HEALTH 18.2%
American Homepatient 56,000 1,330,000 *
Beverly Enterprises 140,000 2,012,500
Biomet, Inc. 64,050 896,700
Columbia Healthcare Corporation 76,550 2,794,075
Health Management Associates 66,800 1,670,000 *
Idexx Laboratories, Inc. 44,900 1,616,400 *
Integrated Health Services, Inc. 81,550 3,221,225
Isolyzer Company 30,300 545,400 *
Lincare Holdings, Inc. 98,250 2,849,250 *
Manor Care, Inc. 84,100 2,333,775
Medaphis Corporation 70,400 3,273,600 *
Omnicare, Inc. 48,800 2,141,100
Owens & Minor, Inc. 138,975 1,963,022
Phycor, Inc. 84,300 2,255,025 *
Physician Sales & Services, Inc. 73,500 1,166,812 *
Vencor, Inc. 161,925 4,513,659 *
Total Health 34,582,543
RETAIL TRADE 11.3%
Big B, Inc. 159,400 2,191,750
Books A Million, Inc. 85,400 1,441,125 *
Casey' s General Stores, Inc. 193,550 2,903,250
Dollar General Corporation 66,914 2,007,413
Haverty Furniture Companies, Inc. 152,000 1,786,000
Heilig-Meyers Company 95,450 2,362,387
Movie Gallery, Inc. 83,700 2,176,200 *
Office Depot, Inc. 96,600 2,270,100 *
Revco D. S., Inc. 84,000 1,984,500 *
S & K Famous Brands, Inc. 136,700 973,988 *
Sportmart, Inc. 60,825 676,679 *
Sportmart, Inc., Class A 60,825 631,059 *
Total Retail Trade 21,404,451
TECHNOLOGY 19.5%
3Com Corporation 29,300 $ 1,510,781 *
ALC Communications Corporation 102,000 3,174,750 *
Applied Digital Access 44,050 1,117,769 *
Applied Materials, Inc. 25,900 1,094,275
Benchmark Electronics, Inc. 71,300 1,720,112 *
California Microwave 14,600 532,900 *
Casino Data Systems 70,800 1,115,100 *
Cisco Systems, Inc. 52,200 1,833,525 *
Compuware Corporation 37,900 1,364,400 *
Danka Business System 77,600 1,678,100
Dell Computer Corporation 29,800 1,221,800 *
Electronic Fab Technology Corporation 69,700 531,463 *
Informix Corporation 55,400 1,779,725 *
Integrated Device Technology Corporation 57,500 1,696,250 *
Keane, Inc. 106,200 2,522,250 *
Kent Electronics Corporation 62,300 2,468,638 *
Lam Research Corporation 18,700 696,575 *
LDDS Communications, Inc. 58,762 1,142,186 *
Linear Technology Corporation 69,000 3,415,500
LSI Logic Corporation 44,600 1,800,725
Micros Systems, Inc. 37,050 1,398,638 *
Norand Corporation 36,000 1,278,000 *
Symmetricom, Inc. 77,350 1,034,556 *
Verifone, Inc. 40,000 890,000 *
Total Technology 37,018,018
TRANSPORTATION 4.1%
American Freightways Corporation 117,350 2,332,331 *
Swift Transportation Company, Inc. 207,800 4,259,900 *
USATruck, Inc. 84,700 1,270,500 *
Total Transportation 7,862,731
MISCELLANEOUS 5.6%
ABR Information Services 76,000 1,539,000 *
Accustaff, Inc. 49,350 678,562 *
Career Horizons, Inc. 55,700 905,125 *
Manpower, Inc. 97,700 2,747,813 *
Offshore Pipelines, Inc. 45,700 1,033,963 *
Olsten Corporation 57,000 $ 1,809,750
Sodak Gaming, Inc. 84,100 1,282,525 *
Tech Data Corporation 39,500 671,500 *
Total Miscellaneous 10,668,238
TOTAL COMMON STOCKS
(COST $128,226,144) 166,058,378
SHORT-TERM INVESTMENT 14.2%
Repurchase Agreement
Goldman Sachs & Company
Dated 12/30/94, 5.75%, due
1/3/95, collateralized
by $30,374,255 Federal
National Mortgage Association,
6.50%, due 6/15/09,
(cost $27,087,636) $27,087,636 27,087,636
TOTAL INVESTMENTS
(COST $155,313,780) 101.6% 193,146,014
OTHER ASSETS LESS LIABILITIES (1.6%) (3,020,056)
NET ASSETS 100.0% $190,125,958
* SECURITIES NOT CURRENTLY PRODUCING INCOME.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Mentor Strategy Fund
Portfolio of Investments
December 31, 1994
SECURITY DESCRIPTION PERCENT OF NET ASSETS SHARES MARKET VALUE
COMMON STOCKS 67.7%
BASIC MATERIALS 4.5%
Airgas, Inc. 63,000 $1,338,750 *
British Steel PLC, ADR** 34,200 829,350
Federal Paper Board Company, Inc. 62,800 1,821,200
Phelps Dodge Corporation 29,000 1,794,375
Rohm and Haas Company 11,700 668,363
Union Camp Corporation 36,100 1,701,213
Total Basic Materials 8,153,251
COMMERCIAL SERVICES & PRODUCTS 2.4%
Cadmus Communication Corporation 43,000 677,250
Equifax, Inc. 61,100 1,611,512
Paychex, Inc. 49,825 2,017,912
Total Commercial Services & Products 4,306,674
CONSUMER DURABLES 7.2%
Arctco, Inc. 86,250 1,671,094
Bush Industries, Inc., Class A 65,100 1,334,550
Capitol Cities-ABC, Inc. 9,500 809,875
Clear Channel Communications 36,000 1,827,000 *
Meredith Corporation 38,300 1,785,738
National Gaming Corporation 6,120 73,440 *
Polygram NV, ADR** 40,400 1,863,450
Royal Carribbean Cruises, Ltd. 58,500 1,667,250
Sport Supply Group, Inc., Warrants 7,675 13,431 *
Sunbeam-Oster Company, Inc. 74,400 1,915,800
Total Consumer Durables 12,961,628
CONSUMER NON-DURABLES 1.1%
Terra Industries, Inc. 189,800 1,969,175
ENERGY 2.4%
Ashland Oil Company, Inc. 20,100 693,450
Lyondell Petrochemicals Company 69,400 1,795,725
Offshore Pipelines, Inc. 83,500 1,889,187 *
Total Energy 4,378,362
FINANCIAL 2.7%
Aflac, Inc. 51,300 $1,641,600
Morgan Stanley Emerging Markets
Fund, Inc. 61,000 1,311,500
T. Rowe Price Associates, Inc. 60,500 1,815,000
Total Financial 4,768,100
HEALTH 12.0%
Cordis Corporation 15,900 961,950 *
Coventry Corporation 70,650 1,730,925 *
Datascope Corporation 104,000 1,768,000
Genentech, Inc. 36,100 1,638,037 *
Health Management Associates, Inc. 72,550 1,813,750 *
Healthsource, Inc. 46,500 1,900,688 *
Horizon Healthcare Corporation 72,100 2,018,800 *
Loewen Group, Inc. 69,400 1,839,100
Mid-Atlantic Medical Services, Inc. 68,000 1,555,500 *
Oxford Health Plans, Inc. 22,100 1,751,425 *
Pfizer, Inc. 12,000 927,000
Service Corporation International 65,600 1,820,400
Target Therapeutics, Inc. 60,100 1,697,825 *
Total Health 21,423,400
INDUSTRIAL PRODUCTS 3.1%
AGCO Corporation 52,050 1,581,019
Apogee Enterprises, Inc. 100,000 1,725,000
Empresas ICA Sociedad Controlador,
S.A., ADR** 32,900 509,950
Thermo Electron Corporation 39,500 1,772,562 *
Total Industrial Products 5,588,531
RETAIL 7.4%
Best Buy Company, Inc. 41,400 1,293,750
Books A Million, Inc. 112,500 1,898,438
Lowe' s Companies, Inc. 45,100 1,567,225
Office Depot, Inc. 72,450 1,702,575 *
Safeway, Inc. 58,400 1,861,500
Staples, Inc. 96,250 2,382,188
Vikings-Office Products, Inc. 59,100 1,809,937
Williams-Sonoma, Inc. 24,000 721,500
Total Retail 13,237,113
TECHNOLOGY 23.4%
Adaptec, Inc. 79,050 $ 1,867,556 *
Amphenol Corporation 39,700 952,800 *
Analog Devices, Inc. 50,400 1,770,300 *
Andrew Corporation 18,800 982,300
California Microwave, Inc. 30,600 1,116,900 *
Ceridian Corporation 74,700 2,007,563 *
Chipcom Corporation 22,000 1,100,000 *
Cognex Corporation 71,000 1,828,250 *
Computer Sciences Corporation 21,550 1,099,050 *
Continuum Company, Inc. 61,100 1,863,550 *
Dell Computer Corporation 19,800 811,800
EMC Corporation 42,000 908,250 *
Hewlett Packard Company 10,300 1,028,712
Hong Kong Telecommunications,
Ltd., ADR** 90,150 1,724,119
In Focus Systems, Inc. 48,300 1,258,819 *
KLA Instruments Corporation 36,000 1,764,000
LAM Research Corporation 42,300 1,575,675 *
Linear Technology Corporation 39,450 1,952,775
LSI Logic Corporation 21,000 847,875 *
Maxim Integrated Products, Inc. 55,800 1,953,000 *
Medic Computers Systems, Inc. 50,000 1,550,000 *
Nationwide Cellular Services, Inc. 70,800 1,354,050 *
Novellus Systems, Inc. 33,800 1,690,000 *
Silicon Graphics, Inc. 32,000 988,000 *
Stratcom, Inc. 35,400 1,239,000 *
Tech Data Corporation 88,600 1,506,200 *
Teradyne, Inc. 19,500 660,562 *
US Robotics, Inc. 45,500 1,967,875 *
Vanguard Cellular Systems, Inc. 33,400 860,050 *
Vicor Corporation 69,300 1,784,475
Total Technology 42,013,506
TRANSPORTATION 1.0%
American Freightways Corporation 84,900 1,687,388 *
MISCELLANEOUS 0.5%
Alco Standard Corporation 13,000 815,750
TOTAL COMMON STOCKS
(COST $116,154,950) 121,302,878
GOVERNMENT BONDS 14.8%
U.S. TREASURY NOTES-STRIPS ***
8.31%, 2/15/21 $68,032,000 $ 8,880,897
8.29%, 5/15/21 69,125,000 8,871,503
8.09%, 2/15/23 75,621,000 8,867,318
Total U.S. Treasury Notes-Strips 26,619,718
TOTAL GOVERNMENT BONDS
(COST $24,348,827) 26,619,718
SHORT-TERM INVESTMENT 16.0%
Repurchase Agreement
Goldman Sachs & Company
Dated 12/30/94, 5.75%, due 1/3/95,
collateralized by $32,141,470
Federal National Mortgage
Association, 6.50%, 6/15/09
(cost $28,663,290) 28,663,290 28,663,290
TOTAL INVESTMENTS
(COST $169,167,067) 98.5% 176,585,886
OTHER ASSETS LESS LIABILITIES 1.5% 2,687,920
NET ASSETS 100.0% $179,273,806
* SECURITIES NOT CURRENTLY PRODUCING INCOME.
** AMERICAN DEPOSITORY RECEIPTS.
*** INTEREST ONLY SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Mentor Short-Duration Income Fund
Portfolio of Investments
December 31, 1994
<TABLE>
PRINCIPAL
SECURITY DESCRIPTION PERCENT OF NET ASSETS AMOUNT MARKET VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES 23.0%
Advanta CCMT 94-D, 6.30%, 9/1/00 $1,250,000 $ 1,249,608
General Motors Acceptance Corporation, 6.30%, 6/15/99 782,890 762,217
Signet CC Master Trust, 6.80%, 12/15/00 2,000,000 1,924,200
Total Asset-Backed Securities (cost $4,009,335) 3,936,025
GOVERNMENT BONDS AND AGENCIES 54.9%
Federal Home Loan Mortgage Corporation, 8.19%, 12/16/97 5,000,000 4,971,700
U. S. Treasury Note, 7.50%, 10/31/99 4,500,000 4,435,830
Total Government Bonds and Agencies (cost $9,448,860) 9,407,530
COLLATERALIZED MORTGAGE OBLIGATIONS 13.2%
Federal Home Loan Mortgage Corporation, 6.47%, 7/15/97 1,657,560 1,644,084
Ryland Acceptance Corporation, 9.63%, 9/25/17 653,951 627,391
Total Collateralized Mortgage Obligations (cost $2,302,562) 2,271,475
CORPORATE BOND 8.6%
General Motors Acceptance Corporation, 6.90%, 2/19/98
(cost $1,480,437) 1,550,000 1,482,188
SHORT-TERM INVESTMENT 4.5%
Repurchase Agreement
Lehman Brothers, Inc.
Dated 12/30/94, 5.40%, due 1/3/95, collateralized by
$1,000,000 U. S. Treasury Note, 3.88%,
8/31/95 (cost $775,000) 775,000 775,000
TOTAL INVESTMENTS (COST $18,016,194) 104.2% 17,872,218
OTHER ASSETS LESS LIABILITIES (4.2%) (728,376)
NET ASSETS 100.0% $17,143,842
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Mentor Series Trust
Statements of Assets and Liabilities
December 31, 1994
<TABLE>
Mentor Mentor Mentor
Growth Strategy Short-Duration
Fund Fund Income Fund**
<C> <C> <C> <C>
ASSETS
Investments, at market
value * (Note 2) $ 193,146,014 $ 176,585,886 $ 17,872,218
Cash - 7,269 -
Receivables
Investments sold 810,306 9,015,343 -
Fund shares sold 232,214 436,271 100,010
Dividends and interest 109,811 334,562 129,676
Deferred expenses 33,985 80,617 32,214
Other assets 15,809 - -
Total assets 194,348,139 186,459,948 18,134,118
LIABILITIES
Payable for investments purchased 3,959,796 6,739,051 -
Payable for fund shares redeemed 130,076 341,768 869,359
Dividends payable - 21,859 86,346
Accrued administration expenses
(Note 3) 8,177 - -
Accrued expenses 124,132 83,464 34,571
Total liabilities 4,222,181 7,186,142 990,276
NET ASSETS $190,125,958 $179,273,806 $17,143,842
Net Assets represented by:
Capital stock $ 15,653 $ 14,645 $ 1,407
Additional paid-in capital 152,435,771 182,020,192 17,617,300
Accumulated distributions in excess of
net investment income - - (37,127)
Undistributed net realized losses on
investment transactions (157,700) (10,179,850) (293,762)
Net unrealized appreciation
(depreciation)
of investments 37,832,234 7,418,819 (143,976)
Net Assets $ 190,125,958 $ 179,273,806 $17,143,842
Shares Outstanding 15,653,316 14,645,199 1,407,124
NET ASSET VALUE PER SHARE $ 12.15 $ 12.24 $ 12.18
* INVESTMENTS AT COST $155,313,780, $169,167,067 AND $18,016,194 RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Mentor Series Trust
Statements of Operations
Year ended December 31, 1994
<TABLE>
Mentor Mentor Mentor
Growth Strategy Short-Duration
Fund Fund Income Fund **
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of withholding taxes)* $ 833,720 $1,393,401 $ -
Interest 703,805 1,265,356 643,128 (a)
Total investment income (Note 2) 1,537,525 2,658,757 643,128
Expenses
Distribution fee (Note 4) 1,422,197 1,207,346 29,331
Management fee (Note 3) 1,327,384 1,368,325 48,884
Shareholder servicing fee (Note 4) 474,066 402,448 24,442
Custodian and accounting fees (Note 3) 103,545 117,006 5,964
Transfer agent fees 338,231 301,671 48,299
Registration expenses 51,421 - -
Shareholder reports and postage expenses 47,208 52,879 3,058
Auditing fees 10,700 13,035 11,784
Legal fees 5,945 7,241 1,309
Directors' fees and expenses 12,368 15,063 4,982
Administration fee (Note 3) - 160,979 9,776
Organizational expenses (Note 2) 8,634 20,135 4,512
Miscellaneous expenses 9,681 3,325 47
Total expenses 3,811,380 3,669,453 192,388
Deduct
Waiver of administration fee (Note 3) - 131,557 9,776
Waiver of management fee (Note 3) - - 48,884
NET EXPENSES 3,811,380 3,537,896 133,728
NET INVESTMENT INCOME (LOSS) (2,273,855) (879,139) 509,400
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on
investments sold 13,751,586 (10,179,850) (293,762) (b)
Change in unrealized appreciation
(depreciation) (20,155,668) 5,285,954 (143,976)
Net realized and unrealized loss
on investments (6,404,082) (4,893,896) (437,738)
Net increase (decrease) in net assets
resulting from operations $(8,677,937) $(5,773,035) $ 71,662
* WITHHOLDING TAXES WERE $805 AND $12,905 FOR THE GROWTH FUND AND STRATEGY FUND RESPECTIVELY FOR THE YEAR.
** FOR THE PERIOD FROM APRIL 29, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994.
(A) NET OF INTEREST EXPENSE OF $110,072. (NOTE 2)
(B) INCLUDES NET REALIZED GAIN ON CLOSED FUTURES CONTRACTS OF $6,488.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Mentor Series Trust
Statements of Changes in Net Assets
<TABLE>
Mentor Mentor Mentor
Growth Strategy Short-Duration
Fund Fund Income Fund
Year ended December 31, 1994 1993 1994 1993* 1994**
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $(2,273,855) $(1,776,781) $(879,139) $14,753 $ 509,400
Net realized gain (loss) on investments 13,751,586 13,552,855 (10,179,850) - (293,762)
Change in unrealized appreciation
(depreciation) of investments (20,155,668) 12,813,963 5,285,954 2,132,865 (143,976)
Increase (decrease) in net assets
from operations (8,677,937) 24,590,037 (5,773,035) 2,147,618 71,662
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income - - (14,753) - (509,400)
In excess of net investment income - - (7,106) - (41,639)
Net realized gain on investments (14,441,603) (12,862,838) - - -
In excess of realized gain
on investments (186,774) - - - -
Net decrease from distributions (14,628,377) (12,862,838) (21,859) - (551,039)
CAPITAL SHARE TRANSACTIONS (NOTE 7)
Net proceeds from sale of shares 35,199,222 41,824,518 70,664,481 120,228,889 27,846,704
Reinvested distributions 14,274,538 12,518,967 - - 366,811
Cost of shares redeemed (23,019,529) (15,145,165) (7,772,804) (199,484) (10,590,296)
Change in net assets from capital
share transactions 26,454,231 39,198,320 62,891,677 120,029,405 17,623,219
Net increase in net assets 3,147,917 50,925,519 57,096,783 122,177,023 17,143,842
NET ASSETS
Beginning of period 186,978,041 136,052,522 122,177,023 - -
End of period $190,125,958 $186,978,041 $179,273,806 $122,177,023 $17,143,842
* FOR THE PERIOD FROM OCTOBER 29, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1993.
** FOR THE PERIOD FROM APRIL 29, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Mentor Series Trust
Financial Highlights
<TABLE>
Mentor Growth Fund
Year ended December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $13.78 $12.81 $12.16 $8.37 $9.63
Net investment income (loss) (0.15) (0.08) (0.06) (0.09) 0.02
Net realized and unrealized
gain (loss) on investments (0.47) 2.07 1.94 4.30 (1.10)
Total from investment operations (0.62) 1.99 1.88 4.21 (1.08)
Less distributions
Dividends from net investment income - - - - (0.05)
Distributions from capital gains (1.00) (1.02) (1.23) (0.42) (0.13)
Distributions in excess of
capital gains (0.01) - - - -
Total distributions (1.01) (1.02) (1.23) (0.42) (0.18)
NET ASSET VALUE, END OF PERIOD $12.15 $13.78 $12.81 $12.16 $ 8.37
Total Return (4.48%) 15.60% 15.46% 50.30% (11.21%)
Ratios / Supplemental Data
Net assets, end of period (in 000's) $190,126 $186,978 $136,053 $108,719 $83,540
Ratio of expenses to
average net assets 2.01% 2.02% 2.05% 2.17% 2.25%
Ratio of net investment income (loss)
to average net assets (1.20%) (1.12%) (0.76%) (0.80%) 0.26%
Portfolio turnover rate 77% 64% 50% 40% 50%
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Mentor Series Trust
Financial Highlights (continued)
<TABLE>
Mentor Mentor
Strategy Short-Duration
Fund Income Fund
Year ended December 31, 1994 1993* 1994**
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $12.70 $ 12.50 $ 12.50
Net investment income (loss) (0.06) - 0.41
Net realized and unrealized
gain (loss) on investments (0.40) 0.20 (0.29)
Total from investment operations (0.46) 0.20 0.12
Less distributions
Dividends from net investment income - - (0.41)
Distributions in excess of
net investment income - - (0.03)
Total distributions - - (0.44)
NET ASSET VALUE, END OF PERIOD $12.24 $12.70 $12.18
Total Return (3.61%) 1.60% 0.95%
Ratios / Supplemental Data
Net assets, end of period (in 000's) $179,274 $122,177 $17,144
Ratio of expenses to
average net assets 2.19% 2.06% (a) 1.29% (a)
Ratio of net investment income (loss)
to average net assets (0.54%) 0.08% (a) 4.90% (a)
Portfolio turnover rate 143% 0% 166%
* FOR THE PERIOD FROM OCTOBER 29, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1993.
** FOR THE PERIOD FROM APRIL 29, 1994 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1994.
(A) DETERMINED ON AN ANNUALIZED BASIS.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
Mentor Series Trust
Notes to Financial Statements
December 31, 1994
NOTE 1: ORGANIZATION
Mentor Series Trust ("Trust") was organized on August 16, 1993 and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Trust is the successor to the
Mentor Growth Trust, Inc., which was incorporated on January 8, 1985. The
Trust consists of four separate diversified funds (hereinafter each
individually referred to as a Fund or collectively as the "Funds") at December
31, 1994, as follows: Mentor Growth Fund (Growth Fund) (formerly, Mentor Growth
Trust, Inc.)
Mentor Strategy Fund (Strategy Fund)
Mentor Short-Duration Income Fund (Short-Duration Income Fund)
Mentor Balanced Fund (Balanced Fund)
The assets of each Fund of the Trust are segregated and a shareholder' s
interest is limited to the Fund in which shares are held.
The Balanced Fund is not currently being offered to new investors.
These financial statements include the Growth Fund, Strategy Fund
and Short-Duration Income Fund.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds:
(a) Valuation of Securities - Listed securities held by the Growth Fund and
Strategy Fund and traded on national stock exchanges and over-the-counter
securities quoted on the NASDAQ National Market System are valued at the last
reported sales price or, lacking any sales, at the last available bid price. In
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated by the Board of Trustees of the Fund as the
primary market. Securities traded in the over-the-counter market, other than
those quoted on the NASDAQ National Market System, are valued at the last
available bid price. Short-term investments with remaining maturities of 60
days or less are carried at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Trustees.
U.S. Government obligations held by the Short-Duration Income
Fund are valued at the mean between the over-the-counter bid and
asked prices as furnished by an independent pricing service. Listed
corporate bonds, other fixed income securities, mortgage backed
securities, mortgage related, asset-backed and other related securities
are valued at the prices provided by an independent pricing service.
Security valuations not available from an independent pricing service
are provided by dealers approved by the Funds' Board of Trustees.
In determining value, the dealers use information with respect to
transactions in such securities, market transactions in comparable
securities, various relationships between securities, and yield to
maturity.
(b) Repurchase Agreements - All repurchase agreements are fully collateralized
by U.S. Government Agency securities and such collateral is in the possession of
the Trust' s custodian. The Trust monitors on a daily basis, the market value
of the collateral of each repurchase agreement to ensure the existence of a
proper level of collateral.
(c) Borrowings- Short-Duration Income Fund may, under certain
circumstances, borrow money directly or through dollar-roll transactions and
repurchase agreements (arrangements in which the Fund sells a security for a
percentage of its market value with an agreement to buy it back on a set
date). The Short-Duration Income Fund may borrow up to one-third of the value
of its net assets. The Fund had no reverse repurchase agreements or
dollar-rolls outstanding at December 31, 1994.
(d) Security Transactions and Investment Income - Security transac-
tions for the Funds are accounted for on a trade date basis. Dividend
income is recorded on the ex-dividend date, and interest 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 discounts
as required by the Internal Revenue Code. Realized and unrealized
gains and losses on investment security transactions are calculated
on an identified cost basis.
(e) Federal Income Taxes - No provision for federal income taxes has been made
since it is each Fund' s policy to comply with the provisions applicable to
regulated investment companies under the Internal Revenue Code and to distribute
to its shareholders within the allowable time limit substantially all taxable
income and realized capital gains.
(f) In order to gain exposure to or protect against declines in security
values, the Short-Duration Income Fund may buy and sell futures contracts. The
Fund may also buy or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against declines
in the value of portfolio securities. The Fund may also purchase
futures contracts to gain exposure to market changes as it may be
more efficient or cost effective than actually buying securities. The
Fund will segregate assets to cover its commitments under such
speculative futures contracts.
Upon entering into a futures contract, the Fund is required to deposit ither
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (varia- tion margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is
closed. For the year ended December 31, 1994, the Short-Duration Income Fund
had a realized gain of $6,488 on closed futures contracts.
Mentor Series Trust
Notes to Financial Statements (continued)
Risks of entering into future contracts (and related options) include the
possibility that there may be an liquid market and that a change in the value of
the contract or option may not correlate with changes in the value of the
underlying securities. At December 31, 1994, the Short-Duration Income Fund had
no open futures contracts or options thereon.
(g) Deferred Expenses - Costs incurred by the Trust in connection with its
initial share registration and organization costs were deferred by the Funds and
are being amortized on a straight-line basis over a five-year period through
April 1999.
(h) Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses and deferral of wash sales.
During the year ended December 31, 1994, the Growth Fund, Strategy Fund and
Short-Duration Income Fund made the following reclassifications to increase
(decrease) the accounts as shown:
ACCUMULATED UNDISTRIBUTED NET
DISTRIBUTIONS IN REALIZED LOSSES
ADDITIONAL EXCESS OF NET ON INVESTMENT
PAID-IN CAPITAL INVESTMENT INCOME TRANSACTIONS
Growth Fund $(2,302,929) $2,273,855 $29,074
Strategy Fund (886,245) 886,245 -
Short-Duration
Income Fund (4,512) 4,512 -
The above reclassifications had no effect on net investment income,
net realized gains (losses), or net assets of the Funds.
(i) Distributions to Shareholders- Distributions from net investment income and
net realized capital gains, after offsetting capital loss car- ryovers are
distributed annually for the Growth Fund and the Strategy Fund. Distributions
from net investment income are declared daily and paid monthly for the
Short-Duration Income Fund, and distribu- tions from net realized capital gains,
if any, are paid annually.
NOTE 3: INVESTMENT ADVISORY AND MANAGEMENT AND
ADMINISTRATION AGREEMENTS
The Growth Fund has entered into an Investment Advisory and Man- agement
Agreement with Charter Asset Management, Inc. (Charter), a wholly-owned
subsidiary of Investment Management Group, Inc., which is a wholly-owned
subsidiary of Wheat First Butcher Singer, Inc. Under this agreement, Charter s
management fee is accrued daily and paid monthly at an annual rate of 0.70%
applied to the average daily net assets of the Fund.
The Strategy Fund has entered into an Investment Advisory Agreement with
Wellesley Advisors, Inc. (Wellesley), a wholly-owned subsidiary of Investment
Management Group, Inc., which is a wholly-owned subsidiary of Wheat First
Butcher Singer, Inc. Under this agreement, Wellesley' s management fee is
accrued daily and paid monthly at an annual rate of 0.85% applied to the average
daily net assets of the Fund.
The Short-Duration Income Fund has entered into an Investment Advisory Agreement
with Commonwealth Investment Counsel, Inc. (Commonwealth), a wholly-owned
subsidiary of Investment Management Group, Inc. (IMG), which is a wholly-owned
subsidiary of Wheat First Butcher Singer, Inc. Under this agreement,
Commonwealth' s management fee is accrued daily and paid monthly at an annual
rate of 0.50%, applied to the average daily net assets of the Fund. For the year
ended December 31, 1994 Commonwealth earned and voluntarily waived advisory fees
of $48,884 for the Short-Duration Income Fund.
IMG provides administrative personnel and services to the Strategy Fund and
Short-Duration Income Fund, under an Administration Agreement, at an annual rate
of .10 of 1% of the average daily net assets of each Fund. In order to limit
the Funds' expenses during its start-up period, IMG agreed to waive its fee for
the first year of each Funds' operations. This waiver period elapsed on
October 31, 1994 for the Strategy Fund. In addition, the Growth Fund and
Strategy Fund provide direct reimbursement to IMG for certain accounting and
operation related costs not covered under the Administration Agreement. For the
year ended December 31, 1994, the Growth Fund and the Strategy Fund paid $24,000
and $21,507, respectively to IMG for these direct reimbursements.
Charter, Wellesley, and Commonwealth have agreed to reimburse the Funds for the
operating expenses (exclusive of interest, taxes, brokerage and distributions
fees, and extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions with jurisdiction over the
Funds. The most stringent state expense limitation applicable to the Funds
requires reimbursement of expenses in any year that such expenses exceed 2.5% of
the first $30,000,000 of average daily net assets, 2% of the next $70,000,000 of
average daily net assets, and 1.5% of the average daily net assets over
$100,000,000. During the year ended December 31, 1994 for the Growth Fund and
Strategy Fund and the period of April 29, 1994 to December 31, 1994 for the
Short-Duration Income Fund, no reimbursement from Charter, Wellesley or
Commonwealth was required as a result of such state expense limitations.
NOTE 4: DISTRIBUTION AGREEMENT AND OTHERTRANSACTIONS
WITH AFFILIATES
Under a Distribution Agreement between the Funds and Wheat, First
Securities, Inc. (Wheat), a wholly-owned subsidiary of Wheat First
Butcher Singer, Inc., Wheat was appointed Distributor of the Funds.
To compensate Wheat for the services it provides and for the expenses
it incurs under the Distribution Agreement, the Funds have adopted a
Plan of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940, under which they pay a distribution fee, which
is accrued daily and paid monthly at the annual rate of 0.75% of the
Funds' average daily net assets for the Growth Fund and Strategy
Fund, and 0.30% of the Fund' s average daily net assets for the Short-Duration
Income Fund.
Mentor Series Trust
Notes to Financial Statements (continued)
Effective, July 7, 1993 for the Growth Fund, October 29, 1993 for
the Strategy Fund and April 29, 1994 for the Short-Duration Income
Fund, the Funds commenced payment of certain compensation to
Wheat under a Shareholder Service Agreement for administrative
support services at an annual rate of 0.25% of the Funds' average
daily net assets. The total charges to be borne by the Growth Fund
and Strategy Fund, under the Distribution and Shareholder Service
Agreements is expected to remain at an annual rate of 1% of the
Funds' average daily net assets. The total charges to be borne by the
Short-Duration Income Fund under the Distribution and Shareholder
Service Agreements is expected to remain at an annual rate of 0.55%
of the Fund' s average daily net assets.
In addition, Wheat is paid a contingent deferred sales charge on share
redemptions made within five years of original share purchase.
Reinvested distributions and share appreciation are excluded from
the sales charge. During the year ended December 31, 1994, Wheat
was paid contingent deferred sales charges of $321,429 and
$108,534, respectively, by the redeeming shareholders of the Growth
Fund and Strategy Fund.
NOTE 5: INVESTMENT TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities, for the
Growth Fund and the Strategy Fund during the year ended December 31, 1994, the
Short-Duration Income Fund for the period from April 29, 1994 to December 31,
1994 were as follows:
PURCHASES SALES
Growth Fund $132,806,285 $132,443,083
Strategy Fund 241,632,204 204,570,532
Short-Duration Income Fund 45,291,725 27,756,769
At December 31, 1994, Strategy Fund for federal tax purposes, had
a capital loss carryforward of approximately $9,900,000. Pursuant
to the Internal Revenue Code, such capital loss carryforward will
expire in 2002.
At December 31, 1994, Short-Duration Income Fund for federal tax purposes, had a
capital loss carryforward of approximately $67,000. Pursuant to the Internal
Revenue Code, such capital loss carryforward will expire in 2002. In addition,
the Fund realized approxi- mately $227,000 in net realized losses subsequent to
October 31, 1994 which for federal tax purposes may be used to offset realized
gains occurring in the next fiscal year.
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF
INVESTMENTS
The cost of investments for federal income tax purposes amounted to
$155,471,480, for the Growth Fund, $169,431,332 for the Strategy Fund,
$18,016,194 for the Short-Duration Income Fund at December 31, 1994. Gross
unrealized appreciation and depreciation of investments at December 31, 1994
based on such costs were as follows:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
Growth Fund $44,656,702 $(6,982,168) $37,674,534
Strategy Fund 11,169,452 (4,014,898) 7,154,554
Short-Duration
Income Fund 1,751 (145,727) (143,976)
NOTE 7: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions
in Fund shares were as follows:
GROWTH FUND
YEAR YEAR
ENDED ENDED
12/31/94 12/31/93
Shares outstanding,
beginning of period 13,569,941 10,620,907
Shares sold 2,621,726 3,156,077
Shares issued upon reinvestment
of distributions 1,176,364 916,466
Shares redeemed (1,714,715) (1,123,509)
Shares outstanding,
end of period 15,653,316 13,569,941
STRATEGY FUND
YEAR PERIOD
ENDED ENDED
12/31/94 12/31/93 *
Shares outstanding,
beginning of period 9,616,768 -
Shares sold 5,670,538 9,632,745
Shares issued upon reinvestment
of distributions - -
Shares redeemed (642,107) (15,977)
Shares outstanding,
end of period 14,645,199 9,616,768
SHORT-DURATION
INCOME FUND
PERIOD
ENDED
12/31/1994**
Shares outstanding,
beginning of period -
Shares sold 2,235,823
Shares issued upon reinvestment
of distributions 29,697
Shares redeemed (858,396)
Shares outstanding,
end of period 1,407,124
* FOR THE PERIOD FROM OCTOBER 29, 1993 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1993.
** FOR THE PERIOD FROM APRIL 29, 1994 (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1994.
<PAGE>
Mentor Series Trust
Independent Auditors' Report
THE TRUSTEES AND SHAREHOLDERS
MENTOR SERIES TRUST
We have audited the accompanying statements of assets and liabilities of Mentor
Growth Fund, Mentor Strategy Fund and Mentor Short-Duration Income Fund,
portfolios of Mentor Series Trust, including the portfolios of investments, as
of December 31, 1994, and the related statements of operations for the year then
ended for Mentor Growth Fund and Mentor Strategy Fund and for the period from
April 29, 1994 (commencement of operations) to December 31, 1994 for Mentor
Short-Duration Income Fund, the statements of changes in net assets for each of
the years in the two year period then ended for Mentor Growth Fund, for the year
then ended and the period from October 29, 1993 (commencement of operations) to
December 31, 1993 for Mentor Strategy Fund and for the peri- od from April 29,
1994 to December 31, 1994 for Mentor Short-Duration Income Fund, and the
financial high- lights for each of the years in the five-year period then ended
for Mentor Growth Fund, for the year then ended and for the period from October
29, 1993 to December 31, 1993 for Mentor Strategy Fund and for the period from
April 29, 1994 to December 31, 1994 for Mentor Short-Duration Income Fund.
These financial statements and financial highlights are the responsibility of
the Trust' s management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall finan- cial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mentor Growth Fund, Mentor
Strategy Fund and Mentor Short-Duration Income Fund, portfolios of Mentor Series
Trust, as of December 31, 1994, the results of their operations, changes in
their net assets and their financial highlights for each of the years or periods
specified in the first paragraph above in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 3, 1995
<PAGE>
MENTOR BALANCED FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<TABLE>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 59.9%
BASIC INDUSTRIES 3.1%
Mohawk Industries, Inc. 2,300 $ 29,325
Unifi, Inc. 2,355 60,052
Total Basic Industries 89,377
CAPITAL GOODS 2.2%
York International Company 1,760 64,900
CONSUMER DURABLES 4.4%
Circus Circus Enterprises 2,480 57,660
Newell Company 3,420 71,820
Total Consumer Durables 129,480
CONSUMER NON-DURABLES 13.6%
Johnson & Johnson, Inc. 1,025 56,119
McDonald's Corporation 2,370 69,322
Pepsico, Inc. 2,300 83,375
Sonoco Products Company 2,570 56,219
Sysco Corporation 2,900 74,675
UST, Inc. 2,070 57,442
Total Consumer Non-durables 397,152
ENERGY 2.0%
Schlumberger Ltd. 1,140 57,428
FINANCIAL 9.5%
Banc One Corporation 2,612 66,279
Federal National Mortgage Association 550 40,081
Torchmark Corporation 1,890 65,914
United Asset Management Company 2,040 75,225
Wilmington Trust Corporation 1,330 30,257
Total Financial 277,756
RETAIL TRADE 12.8%
Albertson's, Inc. 1,980 57,420
Avon Products Company 1,190 71,103
May Department Store 2,000 67,500
Rubbermaid, Inc. 2,090 60,088
Toys R Us, Inc. 1,340 40,870
Tyco International Ltd. 1,570 74,575
Total Retail Trade 371,556
TECHNOLOGY 7.5%
Automatic Data Processing Corporation 840 49,140
Intel Corporation 860 54,933
</TABLE>
<PAGE>
MENTOR BALANCED FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<TABLE>
Shares or
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY (CONTINUED)
Premier Industrial Corporation 2,770 $ 65,441
Sensormatic Electronics Corporation 1,340 48,240
Total Technology 217,754
MISCELLANEOUS 4.8%
General Electric Company 1,530 78,030
Interpublic Group Company 1,890 60,716
Total Miscellaneous 138,746
TOTAL COMMON STOCKS (COST $1,748,659) 1,744,149
FIXED INCOME SECURITIES 41.5%
ASSET BACKED SECURITIES 2.9%
Advanta Credit Card Master Trust
94-D A, CMO, 6.29%, 9/1/00 $55,000 54,983
Case Equipment Loan Trust,
4.40%, 11/15/98 29,224 28,447
TOTAL ASSET BACKED SECURITIES
(COST $83,710) 83,430
GOVERNMENT BONDS 30.6%
U.S. TREASURY BONDS 4.7%
7.25%, 5/15/16 75,000 69,370
7.13%, 2/15/23 75,000 68,262
Total U.S. Treasury Bonds 137,632
U.S. TREASURY NOTES 24.0%
4.25%, 1/31/95 130,000 129,910
5.88%, 5/15/95 35,000 34,925
6.50%, 8/15/97 115,000 111,376
7.50%, 10/31/99 85,000 83,788
5.50%, 4/15/00 75,000 67,589
7.75%, 2/15/01 70,000 69,711
5.88%, 2/15/04 180,000 157,027
7.90%, 2/15/14 (a) 205,000 45,258
Total U.S. Treasury Notes 699,584
FEDERAL HOME LOAN MORTGAGE CORPORATION 1.9%
6.90%, 10/17/96 55,000 54,067
TOTAL GOVERNMENT BONDS (COST $900,794) 891,283
</TABLE>
<PAGE>
MENTOR BALANCED FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<TABLE>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
NON-CONVERTIBLE CORPORATE BOND 1.6%
First Chicago Corporation, 7.63%,
1/15/03 (cost $49,094) $ 50,000 $ 47,187
SHORT-TERM INVESTMENT 6.4%
Repurchase Agreement
Goldman Sachs & Company
Dated 12/30/94, 5.75%, due
1/3/95, collateralized by
$207,851 Federal National Mortgage
Association, 6.50%, 6/15/09
(cost $185,103) 185,103 185,103
TOTAL FIXED INCOME SECURITIES
(COST $1,218,701) 1,207,003
TOTAL INVESTMENTS (COST $2,967,360) 101.4% 2,951,152
OTHER ASSETS LESS LIABILITIES (1.4%) (40,053)
NET ASSETS 100.0% $2,911,099
</TABLE>
CMO - Collateralized Mortgage Obligation
(a) Represents Interest Only U.S. Treasury Strip.
See notes to financial statements.
<PAGE>
MENTOR SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
MENTOR
BALANCED
FUND
ASSETS
Investments, at market value* (Note 2) $2,951,152
Dividends and interest receivables 22,926
Other assets 6,906
Total assets 2,980,984
LIABILITIES
Payable for investments purchased 20,898
Dividends payable 43,277
Other accrued expenses 5,710
Total liabilities 69,885
NET ASSETS $2,911,099
Net Assets represented by:
Capital stock $ 234
Additional paid-in capital 2,926,764
Undistributed net investment income 7,414
Undistributed net realized losses on
investment transactions (7,105)
Net unrealized depreciation of investments (16,208)
Net Assets $2,911,099
Shares Outstanding 233,931
NET ASSET VALUE PER SHARE $ 12.44
* Investments at cost $2,967,360.
See notes to financial statements.
<PAGE>
MENTOR SERIES TRUST
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1994
MENTOR
BALANCED
FUND*
INTEREST INCOME
Dividends $ 17,245
Interest 41,137
Total investment income (Note 2) 58,382
Expenses
Distribution fee (Note 4) 11,536
Management fee (Note 3) 11,536
Shareholder servicing fee (Note 4) 3,845
Custodian and accounting fees 5,115
Registration expenses 303
Shareholder reports and postage expenses 285
Auditing fees 5,040
Directors' fees and expenses 3,835
Miscellaneous expenses 18
Total expenses 41,513
Deduct
Waiver of distribution fee (Note 3) 11,536
Waiver of management fee (Note 3) 11,536
Waiver of shareholder servicing fee (Note 3) 3,845
Reimbursement of expenses by Administrator 6,905
NET EXPENSES 7,691
NET INVESTMENT INCOME 50,691
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments sold (7,105)
Change in unrealized depreciation (16,208)
Net realized and unrealized loss on investments (23,313)
Net increase in net assets resulting
from operations $ 27,378
* For the period from June 21, 1994 (commencement of operations) to
December 31, 1994.
See notes to financial statements.
<PAGE>
MENTOR SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
MENTOR
BALANCED FUND
PERIOD ENDED DECEMBER 31, 1994*
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $ 50,691
Net realized loss on investments (7,105)
Change in unrealized depreciation of investments (16,208)
Increase in net assets from operations 27,378
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (43,277)
CAPITAL SHARE TRANSACTIONS (NOTE 7)
Net proceeds from sale of shares 2,926,998
Reinvested distributions -
Cost of shares redeemed -
Change in net assets from capital
share transactions 2,926,998
Net increase in net assets 2,911,099
NET ASSETS
Beginning of period -
End of period $2,911,099
* For the period from June 21, 1994 (commencement of operations) to
December 31, 1994.
See notes to financial statements.
<PAGE>
MENTOR SERIES TRUST
FINANCIAL HIGHLIGHTS
MENTOR
BALANCED FUND
PERIOD ENDED DECEMBER 31, 1994*
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
Net investment income 0.22
Net realized and unrealized loss
on investments (0.09)
Total from investment operations 0.13
Less distributions
Dividends from net investment income (0.19)
NET ASSET VALUE, END OF PERIOD $ 12.44
Total Return 1.00%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $ 2,911
Ratio of expenses to average net assets 0.50% (a)
Ratio of net investment income to average net assets 3.32% (a)
Portfolio turnover rate 71%
* For the period from June 21, 1994 (commencement of operations) to
December 31, 1994.
(a) Determined on an annualized basis.
See notes to financial statements.
<PAGE>
MENTOR SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1: ORGANIZATION
Mentor Series Trust ("Trust") was organized on August 16, 1993 and is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust is the successor to the Mentor Growth Trust, Inc.,
which was incorporated on January 8, 1985. The Trust consists of four separate
diversified funds at December 31, 1994, as follows:
Mentor Growth Fund ("Growth Fund") (formerly, Mentor Growth Trust, Inc.)
Mentor Strategy Fund ("Strategy Fund")
Mentor Short-Duration Income Fund ("Short-Duration Income Fund")
Mentor Balanced Fund ("Balance Fund")
The assets of each Fund of the Trust are segregated and a shareholder's interest
is limited to the Fund in which shares are held.
The financial statements included in this report are for the Balanced Fund
(hereinafter referred to as the "Fund").
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund:
(a) Valuation of Securities - Listed securities held by the Fund and traded on
national stock exchanges and over-the-counter securities quoted on the NASDAQ
National Market System are valued at the last reported sales price or, lacking
any sales, at the last available bid price. In cases where securities are traded
on more than one exchange, the securities are valued on the exchange designated
by the Board of Trustees of the Fund as the primary market. Securities traded in
the over-the-counter market, other than those quoted on the NASDAQ National
Market System, are valued at the last available bid price. Short-term
investments with remaining maturities of 60 days or less are carried at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Board of Trustees.
U.S. Government obligations held by the Fund are valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing
service. Listed corporate bonds, other fixed income securities, mortgage backed
securities, mortgage related, asset-backed and other related securities are
valued at the prices provided by an independent pricing service. Security
valuations not available from an independent pricing service are provided by
dealers approved by the Fund's Board of Trustees. In determining value, the
dealers use information with respect to transactions in such securities, market
transactions in comparable securities, various relationships between securities,
and yield to maturity.
(b) Repurchase Agreements- All repurchase agreements are fully collateralized by
U.S. Government Agency securities and such collateral is in the possession of
the Trust's custodian. The Trust monitors on a daily basis, the market value of
the collateral of each repurchase agreement to ensure the existence of a proper
level of collateral.
(c) Security Transactions and Investment Income - Security transactions for the
Fund are accounted for on a trade date basis. Dividend income is recorded on the
ex-dividend date, and interest 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 discounts as required by the Internal Revenue Code. Realized and
unrealized gains and losses on investment security transactions are calculated
on an identified cost basis.
(d) Federal Income Taxes - No provision for federal income taxes has been made
since it is the Fund's policy to comply with the provisions applicable to
regulated investment companies under the Internal Revenue Code and to distribute
to its shareholders within the allowable time limit substantially all taxable
income and realized capital gains.
(e) Deferred Expenses - Costs incurred by the Trust in connection with its
initial share registration and organization costs were deferred by the Fund and
are being amortized on a straight-line basis over a five-year period through
June 1999.
(f) Distributions to Shareholders - Distributions from net investment income and
net realized capital gains, after offsetting capital loss carryovers are
distributed annually for the Fund.
NOTE 3: INVESTMENT ADVISORY AND MANAGEMENT AND ADMINISTRATION AGREEMENTS
The Fund has entered into an Investment Advisory Agreement with Commonwealth
Investment Counsel, Inc. ("Commonwealth"), a wholly-owned subsidiary of
Investment Management Group, Inc., which is a wholly-owned subsidiary of Wheat
First Butcher Singer, Inc. Under this agreement, Commonwealth's management fee
is accrued daily and paid monthly at an annual rate of 0.75% applied to the
average daily net assets of the Fund. In order to limit the Fund's expenses
during its start-up period, Commonwealth has agreed to reduce its compensation
to the extent that expenses of the Fund during the first three months of its
operations (exclusive of brokerage, interest, taxes, deferred organization
expenses, and payments under the Fund's Distributions Plan) exceed an annual
rate of 0.50% of the Fund's average net assets. For the year ended December 31,
1994 Commonwealth earned and voluntarily waived advisory fees of $11,536 for the
Fund.
Investment Management Group, Inc. ("IMG") provides administrative personnel and
services to the Fund, under an Administration Agreement, at an annual rate of
.10 of 1% of the average daily net assets of the Fund. In order to limit the
Fund's expenses during its start-up period, IMG agreed to waive its fee for the
first year of the Fund's operations.
Commonwealth has agreed to reimburse the Fund for the operating expenses
(exclusive of interest, taxes, brokerage and distributions fees, and
extraordinary expenses) in excess of the most restrictive expense limitation
imposed by state securities commissions with jurisdiction over the Fund. The
most stringent state expense limitation applicable to the Fund requires
reimbursement of expenses in any year that such expenses exceed 2.5% of the
first $30,000,000 of average daily net assets, 2% of the next $70,000,000 of
average daily net assets, and 1.5% of the average daily net assets over
$100,000,000. During the period from June 21, 1994 to December 31, 1994, no
reimbursement from Commonwealth was required as a result of such state expense
limitations.
NOTE 4: DISTRIBUTION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under a Distribution Agreement between the Fund and Wheat, First Securities,
Inc. ("Wheat"), a wholly-owned subsidiary of Wheat First Butcher Singer, Inc.,
Wheat was appointed Distributor of the Fund. To compensate Wheat for the
services it provides and for the expenses it incurs under the Distribution
Agreement, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940, under which the Fund pays a
distribution fee, which is accrued daily and paid monthly at the annual rate of
0.75% of the Fund's average daily net assets.
Effective June 21, 1994 the Fund commenced payment of certain compensation to
Wheat under a Shareholder Service Agreement for administrative support services
at an annual rate of 0.25% of the Fund's average daily net assets. The total
charges to be borne by the Fund, under the Distribution and Shareholder Service
Agreements is expected to remain at an annual rate of 1% of the Fund's average
daily net assets. For the year ended December 31, 1994 Wheat earned and
voluntarily waived distribution and shareholder services fees of $15,381.
NOTE 5: INVESTMENT TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities,
aggregated $4,724,246 and $1,749,781 respectively, for the period from June 21,
1994 to December 31, 1994. Purchases include $2,690,820 of trades in-kind.
At December 31, 1994, the Fund for federal tax purposes, had a capital loss
carryforward of approximately $7,000. Pursuant to the Internal Revenue Code,
such capital loss carryforward will expire in 2002.
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
At December 31, 1994 the cost of investments for federal income tax purposes
amounted to $2,967,360 and net unrealized depreciation aggregated $16,208, of
which $79,764 related to appreciated securities and $95,972 related to
depreciated securities.
NOTE 7: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in Fund shares
were as follows:
PERIOD
ENDED
12/31/94*
Shares outstanding, beginning of period -
Shares sold 233,931
Shares issued upon reinvestment of distribution -
Shares redeemed -
Shares outstanding, end of period 233,931
* For the period from June 21, 1994 (commencement of operations) to
December 31, 1994.
<PAGE>
MENTOR SERIES TRUST
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
MENTOR SERIES TRUST
We have audited the accompanying statement of assets and liabilities of Mentor
Balanced Fund, portfolio of Mentor Series Trust, including the portfolio of
investments, as of December 31, 1994, and the related statement of operations,
the statement of changes in net assets, and the financial highlights for the
period from June 21, 1994 (commencement of operations) to December 31, 1994.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mentor Balanced Fund, portfolio
of Mentor Series Trust, as of December 31, 1994, the results of its operations,
changes in its net assets and its financial highlights for the period specified
in the first paragraph above in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 3, 1995
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements
(1) Commonwealth Cambridge Growth Portfolio, Commonwealth
Capital Growth Portfolio, WMC Income and Growth Portfolio,
Commonwealth Government Income Portfolio, VKM Municipal
Income Portfolio, and Perpetual Global Portfolio dated
September 30, 1994.*
(2) Charter Growth Portfolio, Commonwealth Strategy Portfolio,
Commonwealth Short-Duration Income Portfolio, Commonwealth
Balanced Portfolio (the "New Portfolios") dated December
31, 1994.*
_____________
* Included in Part B to this Registration Statement.
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant, with Amendments No. 1 and 2 (2);
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Copy of Specimen Certificates for both Class A and
Class B Shares of Beneficial Interest for each New
Portfolio;
(5)(i) Conformed copy of Management Agreement of the
Registrant with Mentor Advisors, Inc.(2);
(a)Conformed copy of New Exhibit A to Management
Agreement to include the Global Portfolio(4);
(ii) Conformed copy of Investment Advisory Agreement for
the Cambridge Growth Portfolio (2);
(iii) Conformed copy of Investment Advisory Agreement for
the Capital Growth Portfolio (2);
(iv) Conformed copy of Investment Advisory Agreement for
the Government Income Portfolio (4);
(v)Conformed copy of Investment Advisory Agreement for
the Municipal Income Portfolio (2);
(vi) Conformed copy of Investment Advisory Agreement for
the Income and Growth Portfolio (3);
(vii) Conformed copy of Investment Advisory Agreement for
the Global Portfolio (4);
(viii) Form of Investment Advisory and Management Agreement
for the Growth Portfolio;
(ix) Form of Investment Advisory and Management Agreement
for the Strategy Portfolio;
(x) Form of Investment Advisory and Management Agreement
for the Short-Duration Income Portfolio;
(xi) Form of Investment Advisory and Management Agreement
for the Balanced Portfolio;
(6)(i) Conformed copy of Distributor's Contract of the
Registrant with Distributors, Inc., through and
including Exhibit I (3);
(ii) Form of New Exhibit J to the Distributor's Contract in
respect of the Class A and B shares of the Growth,
Strategy, Short-Duration Income Portfolios and the
Balanced Portfolio;
(7) Not applicable;
(8)(i) Conformed copy of Custodian Contract of the Registrant
with Investors Fiduciary Trust Company (2);
(ii) Conformed copy of Custodian Contract of the Registrant
with State Street Bank and Trust Company (2);
(iii) Form of Administrative Services Agreement of the
Registrant in respect of each Portfolio;
(9)(i) Conformed copy of Transfer Agency and Registrar
Agreement of the Registrant (2);
(ii) Conformed copy of Shareholder Services Plan of the
Registrant through and including Exhibit B in respect
of the Cambridge Growth, Capital Growth, Government
Income, Municipal Income, Income and Growth, and
Global Portfolios (3);
(iii) Form of New Exhibit C to the Shareholder Services Plan
in respect of the Class A and B shares of the Growth,
Strategy, Short-Duration Income Portfolios and the
Balanced Portfolio;
(10) Not applicable;
(11)(i) Conformed copy of Independent Auditors Consent;
(ii) Conformed copy of KPMG Peat Marwick LLP opinion on
Methodology and Procedures for Accounting for Multiple
Classes of Shares (5);
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding (1);
(14) Not applicable;
(15)(i) Conformed copy of Distribution Plan for each Portfolio
of the Trust (other than the New Portfolios);
(ii) Copy of 12b-1 Agreement (Sales Agreement) with Mentor
Distributors, Inc. (3);
(iii) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Growth Portfolio;
(iv) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Strategy Portfolio;
(v) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Short-Duration Portfolio;
(vi) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Balanced Portfolio;
(16)(i) Copy of Schedules for Computation of Fund Performance
Data for all Portfolios (3);
(17)(i) Financial Data Schedules of Class A Shares in respect
of the Cambridge Growth, Capital Growth, Quality
Income, Municipal Income, Income and Growth, and
Global Portfolios;
(ii) Financial Data Schedules of Class B Shares in respect
of the Cambridge Growth, Capital Growth, Quality
Income, Municipal Income, Income and Growth, and
Global Portfolios;
(iii) Financial Data Schedules in respect of the Growth,
Strategy, Short-Duration Income, and Balanced
Portfolios.
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed April 14, 1992 (File Nos. 33-45315
and 811-6550).
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed May 14, 1993 (File Nos. 33-45315
and 811-6550).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed November 26, 1993 (File Nos. 33-
45315 and 811-6550).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed August 3, 1994 (File Nos. 33-45315
and 811-6550).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed January 27, 1995 (File Nos. 33-
45315 and 811-6550).
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 31, 1994
Shares of beneficial interest
no par value
Cambridge Growth Portfolio:
Class A Shares 1,258
Class B Shares 2,982
Capital Growth Portfolio:
Class A Shares 1,588
Class B Shares 3,975
Quality Income Portfolio:
Class A Shares 1,214
Class B Shares 995
Municipal Income Portfolio:
Class A Shares 592
Class B Shares 1,521
Income and Growth Portfolio:
Class A Shares 995
Class B Shares 3,241
Global Portfolio:
Class A Shares 662
Class B Shares 1,120
Growth Portfolio:* 16,047
Strategy Portfolio:* 14,332
Short-Duration Income Portfolio:* 799
Balanced Portfolio:* 5
____________
*As of December 31, 1994, only one class of shares was outstanding.
Item 27. Indemnification:
1. Response is incorporated by reference to Registrant's Initial
Registration on Form N-1A filed January 31, 1992 (File Nos. 33-45315
and 811-6550).
Item 28. Business and Other Connections of Investment Advisers
(a) The following is additional information with respect to the officers
and directors of Commonwealth Advisors, Inc. (formerly Cambridge
Investment Advisors, Inc.):
<TABLE>
OTHER SUBSTANTIAL
POSITION WITH THE BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
<S> <C> <C>
Peter J. Quinn, Jr. President and Director Managing Director, Wheat,
First Butcher Singer,
Inc.; President, Mentor
Distributors, Inc.;
Director, Investment
Management Group, Inc.
Paul F. Costello Senior Vice President Managing Director, Wheat,
First Butcher Singer,
Inc.; Senior Vice
President, Mentor
Distributors, Inc.;
President and Chief
Financial Officer,
Variable Investors Series
Trust; Director,
Investment Management
Group, Inc.; President,
Mentor Income Fund, Inc.,
IMG Series Trust and Cash
Resource Trust; President
and Treasurer, Atlantic
Capital & Research, Inc.;
Vice President and
Treasurer, Variable Stock
Fund, Inc., Monarch
Investment Series Trust,
and GEICO Tax Advantage
Series Trust; Vice
President, Monarch Life
Insurance Company, GEICO
Investment Services
Company, Inc., Monarch
Investment Services
Company, Inc., and
Springfield Life
Insurance Company;
formerly, Director,
President, and Chief
Executive Officer, First
Variable Life Insurance
Company.
John Michael Ivan Secretary Managing Director and
Senior Vice President,
Wheat First Butcher
Singer, Inc.; Secretary,
IMG Series Trust and Cash
Resource Trust.
Thomas Lee Souders Treasurer Managing Director and
Chief Financial Officer,
Wheat First Butcher
Singer, Inc.
</TABLE>
(b) The following is additional information with respect to the directors and
officers of Charter Asset Management, Inc.:
<TABLE>
OTHER SUBSTANTIAL
POSITION WITH THE BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
<S> <C> <C>
Theodore W. Price Director and President None
Linda A. Ziglar Senior Vice President None
Jeffrey S. Drummond Vice President None
John M. Ivan Secretary Managing Director,
Director of
Compliance, and
Assistant General
Counsel of Wheat First
Butcher Singer, Inc.
and Wheat, First
Securities, Inc.;
Secretary, Wellesley
Advisors, Inc.
Jonathan M. Harris* Assistant Secretary Managing Director,
Secretary and General
Counsel, Wheat, First
Securities, Inc.,
Senior Vice President,
Secretary and General
Counsel, Wheat First
Butcher Singer, Inc.;
Assistant Secretary,
Wellesley Advisors,
Inc.
Thomas L. Souders Treasurer Director, Managing
Director and Chief
Financial Officer of
Wheat First Butcher
Singer, Inc. and
Wheat, First
Securities, Inc.;
Treasurer, Wellesley
Advisors, Inc.
Robert P. Wilson Assistant Treasurer Managing Director and
Treasurer of Wheat
First Butcher Singer,
Inc. and Wheat, First
Securities, Inc.;
Assistant Treasurer,
Wellesley Advisors,
Inc.
(c) The following is additional information with respect to the directors and
officers of Wellesley Advisors, Inc.:
Other Substantial
Position with the Business, Profession,
Name Investment Adviser Vocation or Employment
<S> <C> <C>
Donald R. Hays President Managing Director,
Wheat, First
Securities, Inc.
Asa Wesley Graves VII Vice President None
John M. Ivan Secretary Managing Director,
Director of
Compliance, and
Assistant General
Counsel of Wheat First
Butcher Singer, Inc.
and Wheat, First
Securities, Inc.;
Secretary, Charter
Asset Management, Inc.
Jonathan M. Harris* Assistant Secretary Managing Director,
Secretary and General
Counsel, Wheat, First
Securities, Inc.,
Senior Vice President,
Secretary and General
Counsel, Wheat First
Butcher Singer, Inc.;
Assistant Secretary,
Charter Asset
Management, Inc.
Thomas L. Souders Treasurer Director, Managing
Director and Chief
Financial Officer of
Wheat First Butcher
Singer, Inc. and
Wheat, First
Securities, Inc.;
Treasurer, Charter
Asset Management, Inc.
Robert P. Wilson Assistant Treasurer Managing Director and
Treasurer of Wheat
First Butcher Singer,
Inc. and Wheat, First
Securities, Inc.;
Assistant Treasurer,
Charter Asset
Management, Inc.
</TABLE>
(d) The following is additional information with respect to the directors and
officers of Commonwealth Investment Counsel, Inc.:
<TABLE>
OTHER SUBSTANTIAL
BUSINESS, PROFESSION,
POSITION WITH THE VOCATION OR
NAME INVESTMENT ADVISER EMPLOYMENT
<S> <C> <C>
John G. Davenport President; Managing None
Director
Charles W. Grant Senior Vice President President, Mentor
Income Fund, Inc.;
formerly, Chief
Investment Officer,
Ryland Capital
Management, Inc.,
11000 Broken Land
Parkway, Columbia, MD
21044; formerly,
President and
Director, RAC Income
Fund, Inc., 11000
Broken Land Parkway,
Columbia, MD 21044;
formerly, Vice
President, Capitoline
Investment Services,
919 East Main Street,
Richmond, VA 23219
William F. Johnston, Senior Vice President None
III
-8-
R. Preston Nuttall Senior Vice President Formerly, Senior Vice
President, Capitoline
Investment Services,
919 East Main Street,
Richmond, VA 23219
Mary A. Beeghly Vice President None
John J. Kelly Vice President None
William H. West, Jr. Vice President Vice President, Mentor
Income Fund, Inc., 901
East Byrd Street,
Richmond, VA 23219;
formerly, Vice
President of Ryland
Capital Management,
Inc., 11000 Broken
Land Parkway,
Columbia, MD 21044;
formerly, Vice
President, RAC Income
Fund, Inc., 11000
Broken Land Parkway,
Columbia, MD 21044
Steven C. Henderson Vice President None
Stephen R. McClelland Associate Vice Formerly, Associate
President Vice President,
Investment Management
Group, Inc., 901 East
Byrd Street, Richmond,
VA 23219
Thomas Lee Souders Treasurer Managing Director and
Chief Financial
Officer, Wheat, First
Securities, Inc., 901
East Byrd Street,
Richmond, VA 23219;
Trustee, Mentor Series
Trust, 901 East Byrd
Street, Richmond, VA
23219; formerly,
Manager of Internal
Audit, Heilig-Myers;
formerly, Manager,
Peat Marwick &
Mitchell & Company
-9-
John Michael Ivan Secretary Managing Director,
Senior Vice President
and General Counsel,
Wheat, First
Securities, Inc., 901
East Byrd Street,
Richmond, VA 23219;
Managing Director and
Assistant Secretary,
Wheat First Butcher
Singer, Inc., 901 East
Byrd Street, Richmond,
VA 23219; Secretary,
Cash Resource Trust,
901 East Byrd Street,
Richmond, VA 23219;
Clerk, Mentor Series
Trust, 901 East Byrd
Street, Richmond, VA
23219
</TABLE>
(e) The following is additional information with respect to the directors and
officers of Perpetual Portfolio Management Limited:
<TABLE>
OTHER SUBSTANTIAL
POSITION WITH THE BUSINESS, PROFESSION,
NAME INVESTMENT ADVISOR VOCATION OR EMPLOYMENT
<S> <C> <C>
Martyn Arbib Chairman None
Roger C. Cornick Director None
Alastair B. Mcintosh Director None
Scott S. McGlashan Director None
David S. Mossop Managing Director None
Robert J. Yerbury Director None
John R. McKean Director None
</TABLE>
(f) The information required by this Item 28 with respect to Wellington
Management Company is set forth in the Form ADV, as amended, of Wellington
Management Company (File No. 801-15908), which is incorporated herein by
reference.
(g) The information required by this Item 28 with respect to Van
Kampen/American Capital Management Inc. is set forth in the Form ADV, as
amended, of Van Kampen/American Capital Management Inc. (File No. 801-
40808), which is incorporated herein by reference.
Item 29. Principal Underwriters:
(a) Mentor Distributors, Inc. (formerly Cambridge Distributors, Inc.) is
the principal distributor for Class A and Class B shares of the
Registrant and acts as the principal underwriter for the Registrant.
-10-
Mentor Distributors, Inc. is a Virginia corporation and is an
affiliate of Commonwealth Advisors, Inc. (formerly Cambridge
Investment Advisors, Inc.) Charter, Wellesley, and Commonwealth.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITERS WITH REGISTRANT
Peter J. Quinn, Jr. President and President and Trustee
901 East Byrd Street Director, Mentor
Richmond, VA 23219 Distributors, Inc.
Paul F. Costello Senior Vice President, Senior Vice President,
901 East Byrd Street Mentor Distributors, Treasurer & Secretary
Richmond, VA 23219 Inc.
Thomas Lee Souders Treasurer, Mentor --
901 East Byrd Street Distributors, Inc.
Richmond, VA 23219
John Mark Harris Secretary, Mentor --
901 East Byrd Street Distributors, Inc.
Richmond, VA 23219
John Michael Ivan Assistant Secretary, --
901 East Byrd Street Mentor Distributors,
Richmond, VA 23219 Inc.
Item 30. Location of Accounts and Records:
1. Response is incorporated by reference to Registrant's Initial
Registration on Form N-1A filed January 31, 1992 (File Nos. 33-45315
and 811-6550).
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, CAMBRIDGE SERIES TRUST, has
duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, all in the City
of Richmond and Commonwealth of Virginia, on the 13th day of March, 1995.
CAMBRIDGE SERIES TRUST
By: /s/ Peter J. Quinn, Jr.
Peter J. Quinn, Jr.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
Name Title Date
By: /s/ Peter J. Quinn, Jr. Attorney-in Fact for March 13, 1995
Peter J. Quinn, Jr. the Persons Listed
Below
Daniel J. Ludeman* Chairman and Trustee
(Chief Executive
Officer)
Peter J. Quinn, Jr.* President and Trustee
Paul F. Costello* Senior Vice President,
Treasurer, and
Secretary (Principal
Financial and
Accounting Officer)
Arnold H. Dreyfuss* Trustee
Thomas F. Keller* Trustee
Louis W. Moelchert, Jr.* Trustee
Troy A. Peery, Jr.* Trustee
*By Power of Attorney
EXHIBIT INDEX
Exhibit Page
(6) (ii) Form of New Exhibit J to the Distributor's
Contract in respect of the Class A and B
shares of the Growth, Strategy, Short-
Duration Income Portfolios and the Balanced
Portfolio;
(8) (iii) Form of Administrative Services Agreement of
the Registrant in respect of each Portfolio;
(9) (iii) Form of New Exhibit C to the Shareholder
Services Plan in respect of the Class A and B
shares of the Growth, Strategy, Short-
Duration Income Portfolios and the Balanced
Portfolio;
(11)(i) Conformed copy of Independent Auditors
Consents;
(15)(iii) Form of Plan of Distribution pursuant to Rule
12b-1 in respect of the Growth Portfolio;
(iv) Form of Plan of Distribution pursuant to Rule
12b-1 in respect of the Strategy Portfolio;
(v) Form of Plan of Distribution pursuant to Rule
12b-1 in respect of the Short-Duration
Portfolio;
(vi) Form of Plan of Distribution pursuant to Rule
12b-1 in respect of the Balanced Portfolio;
(17)(i) Financial Data Schedules of Class A Shares in
respect of the Cambridge Growth, Capital
Growth, Quality Income, Municipal Income,
Income and Growth, and Global Portfolios;
(ii) Financial Data Schedules of Class B Shares in
respect of the Cambridge Growth, Capital
Growth, Quality Income, Municipal Income,
Income and Growth, and Global Portfolios;
(iii) Financial Data Schedules in respect of the
Growth, Strategy, Short-Duration Income, and
Balanced Portfolios.
-13-
<PAGE>
Exhibit 4
Number Shares
____
CUSIP
THE MENTOR FAMILY OF FUNDS
See reverse side for
[NAME OF FUND] certain definitions
Class A Shares
This certifies that [ ] is the owner of Class A shares of
beneficial interest in the above named Fund, a series of shares of beneficial
interest of THE MENTOR FAMILY OF FUNDS, fully paid and non-assessable, the said
Shares being issued, received, and held under and subject to the terms and
provisions of the Agreement and Declaration of Trust dated __________ __, 199__,
establishing THE MENTOR FAMILY OF FUNDS and all amendments thereto, copies of
which are on file with the Secretary of State of The Commonwealth of
Massachusetts and the Trust's Bylaws, and all amendments thereto. The said
owner by accepting this certificate agrees to and is bound by all of the said
terms and provisions. The shares represented hereby are transferable in writing
by the owner thereof in person or by attorney upon surrender of this certificate
to the Trust properly endorsed for transfer. This certificate is executed on
behalf of the Trustees of the Trust as Trustees and not individually and the
obligations hereof 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 Trust. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Trustees of THE MENTOR FAMILY OF FUNDS have caused
this certificate to be signed by its duly authorized officers and the seal of
the Trust to be affixed hereto.
Countersigned and Registered, Dated:
Transfer Agent and Registrar
__________________________ _________________________ ____________________
Authorized Signature President Treasurer
<PAGE>
The following abbreviations, when used in the form of ownership on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
Custodian
(Cust) (Minors)
TEN IN COM As tenants in common UNIF GIFT MIN ACT-Under
Uniform Gifts to Minors
TEN ENT As tenants by the entireties Act
JT TEN As joint tenants, with
rights of (State)
survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
Assignment
For value received, I/We hereby sell, assign and transfer unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________
/___________________/__________________________________________________________
(Please Print or Typewrite Name and Address, including Zip Code, of Assignee)
_______________________________________________________________________________
_______________________________________________________________________________
(____________________) Shares, represented by the within Certificate, and do
hereby irrevocably constitute and appoint (_______________________) attorney to
transfer the said Shares on the books of the within-named Trust with full power
of substitution in the premises.
Dated _________________, 19__ Signature(s)
Signature Guaranteed By (THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR
_____________________________ ENLARGEMENT OR ANY CHANGE WHATSOEVER.)
<PAGE>
Number Shares
____
CUSIP
THE MENTOR FAMILY OF FUNDS
See reverse side for
[NAME OF FUND] certain definitions
Class B Shares
This certifies that [ ] is the owner of Class B shares of
beneficial interest in the above named Fund, a series of shares of beneficial
interest of THE MENTOR FAMILY OF FUNDS, fully paid and non-assessable, the said
Shares being issued, received, and held under and subject to the terms and
provisions of the Agreement and Declaration of Trust dated __________ __, 199__,
establishing , THE MENTOR FAMILY OF FUNDS, and all amendments thereto, copies of
which are on file with the Secretary of State of The Commonwealth of
Massachusetts and the Trust's Bylaws, and all amendments thereto. The said
owner by accepting this certificate agrees to and is bound by all of the said
terms and provisions. The shares represented hereby are transferable in writing
by the owner thereof in person or by attorney upon surrender of this certificate
to the Trust properly endorsed for transfer. This certificate is executed on
behalf of the Trustees of the Trust as Trustees and not individually and the
obligations hereof 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 Trust. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Trustees of THE MENTOR FAMILY OF FUNDS have caused
this certificate to be signed by its duly authorized officers and the seal of
the Trust to be affixed hereto.
Countersigned and Registered, Dated:
Transfer Agent and Registrar
_____________________________ _________________________ ___________________
Authorized Signature President Treasurer
<PAGE>
The following abbreviations, when used in the form of ownership on the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations.
Custodian
(Cust) ( Minors)
TEN IN COM As tenants in common UNIF GIFT MIN ACT -
Under Uniform Gifts
to Minors
TEN ENT As tenants by the entireties Act
JT TEN As joint tenants, with rights of (State)
survivorship and not as tenants in common
Additional abbreviations may also be used though not in the above list.
Assignment
For value received, I/We hereby sell, assign and transfer unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________
/___________________/ ________________________________________________________
(Please Print or Typewrite Name and Address, including Zip Code, of Assignee)
______________________________________________________________________________
______________________________________________________________________________
(____________________) Shares, represented by the within Certificate, and do
hereby irrevocably constitute and appoint (_______________________) attorney to
transfer the said Shares on the books of the within-named Trust with full power
of substitution in the premises.
Dated _________________, 19__ Signature(s)
Signature Guaranteed By (THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
_______________________ OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.)
Exhibit 5(viii)
CHARTER GROWTH PORTFOLIO
of
THE MENTOR FAMILY OF FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of ________, 1995 between THE MENTOR
FAMILY OF FUNDS, a Massachusetts business trust (the "Trust"), and CHARTER ASSET
MANAGEMENT, INC., a Virginia corporation (the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.
(a) The Manager, at its expense, will furnish continuously an investment
program for the series of shares of beneficial interest of the Trust designated
for such purpose by the Trustees (the "Fund"), will determine what investments
shall be purchased, held, sold, or exchanged by each of the Funds and what
portion, if any, of the assets of a Fund shall be held uninvested and shall, on
behalf of each Fund, make changes in the Fund's investments. In the performance
of its duties, the Manager will comply with the provisions of the Agreement and
Declaration of Trust and Bylaws of the Trust and each Fund's stated investment
objectives, policies, and restrictions, and will use its best efforts to
safeguard and promote the welfare of the Trust and to comply with other policies
which the Trustees may from time to time determine and shall exercise the same
care and diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense is paid by the
Trust as provided in Section 1(d), will furnish all necessary investment and
related management facilities, including, salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if
any, of certain officers of the Trust carrying out the investment management and
related duties provided for by this Contract.
(c) The Manager, at its expense, shall place all orders for the purchase
and sale of portfolio investments for each Fund's account with brokers or
dealers selected by the Manager. In the selection of such brokers or dealers
and the placing of such orders, the Manager shall give primary consideration to
securing for each Fund the most favorable price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In doing so, the Manager,
bearing in mind the Trust's best interests at all times, shall consider all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker or
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Trust may
determine, the Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Contract or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides brokerage and
research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission that
another broker or dealer would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to other clients of the Manager as to which the Manager exercises investment
discretion.
(d) The Trust, on behalf of the Fund, hereby authorizes any entity or
person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of each Fund
which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and
Rule 11a2-2(T) thereunder, and each Fund hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any expenses of or for the
Trust not expressly assumed by the Manager pursuant to this Section 1 other than
as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Trust. It is also understood that the Manager and any person controlled by
or under common control with the Manager have and may have advisory, management,
service, or other contracts with other organizations and persons, and may have
other interests and business.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
As compensation for the services performed and the facilities furnished and
expenses assumed by the Manager, including the services of any consultants
retained by the Manager, each Fund shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, of ____ of
1% annually of the Fund's average daily net assets. The first payment of the
fee shall be made as promptly as possible at the end of the month next
succeeding the effective date of this Agreement in respect of the Fund, and
shall constitute a full payment of the fee due the Manager for all services
prior to that date. If this Agreement is terminated as of any date not the last
day of a month, such fee shall be paid as promptly as possible after such date
of termination, shall be based on the average daily net assets of the Fund in
that period from the beginning of such month to such date of termination, and
shall be that proportion of such average daily net assets as the number of
business days in such period bears to the number of business days in such month.
The average daily net assets of the Fund shall in all cases be based only on
business days and be computed as of the time of the regular close of business of
the New York Stock Exchange, or such other time as may be determined by the
Trustees. Each such payment shall be accompanied by a report of the Trust
prepared either by the Trust or by a reputable firm of independent accountants
which shall show the amount properly payable to the Manager under this Agreement
and the detailed computation thereof.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution and shall remain in
full force and effect continuously thereafter (unless terminated automatically
as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract as to one
or more Funds or as to the Trust as a whole by not more than sixty days nor less
than thirty days written notice delivered or mailed by registered mail, postage
prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of any Fund, and (ii) a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate (as to the Trust as a whole or as to the affected Fund,
as the case may be) at the close of business on ___________, 1997 or the
expiration of one year from the effective date of the last such continuance,
whichever is later.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the affected Fund.
Termination of this Contract pursuant to this Section 5 will be without the
payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority of
the outstanding shares" of a Fund means the affirmative vote, at a duly called
and held meeting of such shareholders, (a) of the holders of 67% or more of the
shares of the Fund present (in person or by proxy) and entitled to vote at such
meeting, if the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers, or shareholders
of the Trust but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, THE MENTOR FAMILY OF FUNDS and CHARTER ASSET
MANAGEMENT, INC., have each caused this instrument to be signed in duplicate in
its behalf by its President or Vice President thereunto duly authorized, all as
of the day and year first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of CHARTER GROWTH PORTFOLIO
By:____________________________
CHARTER ASSET MANAGEMENT, INC.
By:____________________________
Exhibit 5(ix)
WELLESLEY STRATEGY PORTFOLIO
of
THE MENTOR FAMILY OF FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of ________, 1995 between THE MENTOR
FAMILY OF FUNDS, a Massachusetts business trust (the "Trust"), and WELLESLEY
ADVISORS, INC., a Virginia corporation (the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.
(a) The Manager, at its expense, will furnish continuously an investment
program for the series of shares of beneficial interest of the Trust designated
for such purpose by the Trustees (the "Fund"), will determine what investments
shall be purchased, held, sold, or exchanged by each of the Funds and what
portion, if any, of the assets of a Fund shall be held uninvested and shall, on
behalf of each Fund, make changes in the Fund's investments. In the performance
of its duties, the Manager will comply with the provisions of the Agreement and
Declaration of Trust and Bylaws of the Trust and each Fund's stated investment
objectives, policies, and restrictions, and will use its best efforts to
safeguard and promote the welfare of the Trust and to comply with other policies
which the Trustees may from time to time determine and shall exercise the same
care and diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense is paid by the
Trust as provided in Section 1(d), will furnish all necessary investment and
related management facilities, including, salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if
any, of certain officers of the Trust carrying out the investment management and
related duties provided for by this Contract.
(c) The Manager, at its expense, shall place all orders for the purchase
and sale of portfolio investments for each Fund's account with brokers or
dealers selected by the Manager. In the selection of such brokers or dealers
and the placing of such orders, the Manager shall give primary consideration to
securing for each Fund the most favorable price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In doing so, the Manager,
bearing in mind the Trust's best interests at all times, shall consider all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker or
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Trust may
determine, the Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Contract or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides brokerage and
research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission that
another broker or dealer would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to other clients of the Manager as to which the Manager exercises investment
discretion.
(d) The Trust, on behalf of the Fund, hereby authorizes any entity or
person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of each Fund
which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and
Rule 11a2-2(T) thereunder, and each Fund hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any expenses of or for the
Trust not expressly assumed by the Manager pursuant to this Section 1 other than
as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Trust. It is also understood that the Manager and any person controlled by
or under common control with the Manager have and may have advisory, management,
service, or other contracts with other organizations and persons, and may have
other interests and business.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
As compensation for the services performed and the facilities furnished and
expenses assumed by the Manager, including the services of any consultants
retained by the Manager, each Fund shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, of ____ of
1% annually of the Fund's average daily net assets. The first payment of the
fee shall be made as promptly as possible at the end of the month next
succeeding the effective date of this Agreement in respect of the Fund, and
shall constitute a full payment of the fee due the Manager for all services
prior to that date. If this Agreement is terminated as of any date not the last
day of a month, such fee shall be paid as promptly as possible after such date
of termination, shall be based on the average daily net assets of the Fund in
that period from the beginning of such month to such date of termination, and
shall be that proportion of such average daily net assets as the number of
business days in such period bears to the number of business days in such month.
The average daily net assets of the Fund shall in all cases be based only on
business days and be computed as of the time of the regular close of business of
the New York Stock Exchange, or such other time as may be determined by the
Trustees. Each such payment shall be accompanied by a report of the Trust
prepared either by the Trust or by a reputable firm of independent accountants
which shall show the amount properly payable to the Manager under this Agreement
and the detailed computation thereof.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution and shall remain in
full force and effect continuously thereafter (unless terminated automatically
as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract as to one
or more Funds or as to the Trust as a whole by not more than sixty days nor less
than thirty days written notice delivered or mailed by registered mail, postage
prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of any Fund, and (ii) a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate (as to the Trust as a whole or as to the affected Fund,
as the case may be) at the close of business on ________, 1997 or the expiration
of one year from the effective date of the last such continuance, whichever is
later.
Action by the Trust under (a) above may be taken either (i) by vote of
a majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the affected Fund.
Termination of this Contract pursuant to this Section 5 will be without the
payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority of
the outstanding shares" of a Fund means the affirmative vote, at a duly called
and held meeting of such shareholders, (a) of the holders of 67% or more of the
shares of the Fund present (in person or by proxy) and entitled to vote at such
meeting, if the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers, or shareholders
of the Trust but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, THE MENTOR FAMILY OF FUNDS and WELLESLEY ADVISORS,
INC., have each caused this instrument to be signed in duplicate in its behalf
by its President or Vice President thereunto duly authorized, all as of the day
and year first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of WELLESLEY STRATEGY
PORTFOLIO
By:____________________________
WELLESLEY ADVISORS, INC.
By:____________________________
Exhibit 5(x)
COMMONWEALTH SHORT-DURATION INCOME PORTFOLIO
of
THE MENTOR FAMILY OF FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of ________, 1995 between THE MENTOR
FAMILY OF FUNDS, a Massachusetts business trust (the "Trust"), and COMMONWEALTH
INVESTMENT COUNSEL, INC., a Virginia corporation (the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.
(a) The Manager, at its expense, will furnish continuously an investment
program for the series of shares of beneficial interest of the Trust designated
for such purpose by the Trustees (the "Fund"), will determine what investments
shall be purchased, held, sold, or exchanged by each of the Funds and what
portion, if any, of the assets of a Fund shall be held uninvested and shall, on
behalf of each Fund, make changes in the Fund's investments. In the performance
of its duties, the Manager will comply with the provisions of the Agreement and
Declaration of Trust and Bylaws of the Trust and each Fund's stated investment
objectives, policies, and restrictions, and will use its best efforts to
safeguard and promote the welfare of the Trust and to comply with other policies
which the Trustees may from time to time determine and shall exercise the same
care and diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense is paid by the
Trust as provided in Section 1(d), will furnish all necessary investment and
related management facilities, including, salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if
any, of certain officers of the Trust carrying out the investment management and
related duties provided for by this Contract.
(c) The Manager, at its expense, shall place all orders for the purchase
and sale of portfolio investments for each Fund's account with brokers or
dealers selected by the Manager. In the selection of such brokers or dealers
and the placing of such orders, the Manager shall give primary consideration to
securing for each Fund the most favorable price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In doing so, the Manager,
bearing in mind the Trust's best interests at all times, shall consider all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker or
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Trust may
determine, the Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Contract or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides brokerage and
research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission that
another broker or dealer would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Manager's overall responsibilities with respect to the Fund
and to other clients of the Manager as to which the Manager exercises investment
discretion.
(d) The Trust, on behalf of the Fund, hereby authorizes any entity or
person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of each Fund
which is permitted by Section 11(a) of the Securities Exchange Act of 1934
and Rule 11a2-2(T) thereunder, and each Fund hereby consents to the retention of
compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any expenses of or for the
Trust not expressly assumed by the Manager pursuant to this Section 1 other than
as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Trust. It is also understood that the Manager and any person controlled by
or under common control with the Manager have and may have advisory, management,
service, or other contracts with other organizations and persons, and may have
other interests and business.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
As compensation for the services performed and the facilities furnished and
expenses assumed by the Manager, including the services of any consultants
retained by the Manager, each Fund shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, of ____ of
1% annually of the Fund's average daily net assets. The first payment of the fee
shall be made as promptly as possible at the end of the month next succeeding
the effective date of this Agreement in respect of the Fund, and shall
constitute a full payment of the fee due the Manager for all services prior to
that date. If this Agreement is terminated as of any date not the last day of a
month, such fee shall be paid as promptly as possible after such date of
termination, shall be based on the average daily net assets of the Fund in that
period from the beginning of such month to such date of termination, and shall
be that proportion of such average daily net assets as the number of business
days in such period bears to the number of business days in such month. The
average daily net assets of the Fund shall in all cases be based only on
business days and be computed as of the time of the regular close of business of
the New York Stock Exchange, or such other time as may be determined by the
Trustees. Each such payment shall be accompanied by a report of the Trust
prepared either by the Trust or by a reputable firm of independent accountants
which shall show the amount properly payable to the Manager under this Agreement
and the detailed computation thereof.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Fund, and by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a majority of
the Trustees of the Trust who are not interested persons of the Trust or of the
Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution and shall remain in
full force and effect continuously thereafter (unless terminated automatically
as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract as to one
or more Funds or as to the Trust as a whole by not more than sixty days nor less
than thirty days written notice delivered or mailed by registered mail, postage
prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of any Fund, and (ii) a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate (as to the Trust as a whole or as to the affected Fund,
as the case may be) at the close of business on _______, 1997 or the expiration
of one year from the effective date of the last such continuance, whichever is
later.
Action by the Trust under (a) above may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the affected Fund.
Termination of this Contract pursuant to this Section 5 will be without the
payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority of
the outstanding shares" of a Fund means the affirmative vote, at a duly called
and held meeting of such shareholders, (a) of the holders of 67% or more of the
shares of the Fund present (in person or by proxy) and entitled to vote at such
meeting, if the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or gross negligence on the
part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers, or shareholders
of the Trust but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, THE MENTOR FAMILY OF FUNDS and COMMONWEALTH INVESTMENT
COUNSEL, INC., have each caused this instrument to be signed in duplicate in its
behalf by its President or Vice President thereunto duly authorized, all as of
the day and year first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of COMMONWEALTH SHORT-DURATION
INCOME PORTFOLIO
By:____________________________
COMMONWEALTH INVESTMENT COUNSEL, INC.
By:____________________________
Exhibit 5(xi)
COMMONWEALTH BALANCED PORTFOLIO
of
THE MENTOR FAMILY OF FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of ________, 1995
between THE MENTOR FAMILY OF FUNDS, a Massachusetts business
trust (the "Trust"), and COMMONWEALTH INVESTMENT COUNSEL,
INC., a Virginia corporation (the "Manager")
WITNESSETH:
That in consideration of the mutual covenants herein
contained, it is agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.
(a) The Manager, at its expense, will furnish
continuously an investment program for the series of shares
of beneficial interest of the Trust designated for such
purpose by the Trustees (the "Fund"), will determine what
investments shall be purchased, held, sold, or exchanged by
each of the Funds and what portion, if any, of the assets of
a Fund shall be held uninvested and shall, on behalf of each
Fund, make changes in the Fund's investments. In the
performance of its duties, the Manager will comply with the
provisions of the Agreement and Declaration of Trust and
Bylaws of the Trust and each Fund's stated investment
objectives, policies, and restrictions, and will use its best
efforts to safeguard and promote the welfare of the Trust and
to comply with other policies which the Trustees may from
time to time determine and shall exercise the same care and
diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense
is paid by the Trust as provided in Section 1(d), will
furnish all necessary investment and related management
facilities, including, salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the
compensation, if any, of certain officers of the Trust
carrying out the investment management and related duties
provided for by this Contract.
(c) The Manager, at its expense, shall place all orders
for the purchase and sale of portfolio investments for each
Fund's account with brokers or dealers selected by the
Manager. In the selection of such brokers or dealers and the
placing of such orders, the Manager shall give primary
consideration to securing for each Fund the most favorable
price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage
and research services as described below. In doing so, the
Manager, bearing in mind the Trust's best interests at all
times, shall consider all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the
amount of the commission, the timing of the transaction
taking into account market prices and trends, the reputation,
experience, and financial stability of the broker or dealer
involved, and the quality of service rendered by the broker
or dealer in other transactions. Subject to such policies as
the Trustees of the Trust may determine, the Manager shall
not be deemed to have acted unlawfully or to have breached
any duty created by this Contract or otherwise solely by
reason of its having caused the Fund to pay a broker or
dealer that provides brokerage and research services to the
Manager an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission
that another broker or dealer would have charged for
effecting that transaction, if the Manager determines in good
faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either
that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other
clients of the Manager as to which the Manager exercises
investment discretion.
(d) The Trust, on behalf of the Fund, hereby authorizes
any entity or person associated with the Manager which is a
member of a national securities exchange to effect any
transaction on the exchange for the account of each Fund
which is permitted by Section 11(a) of the Securities
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and each
Fund hereby consents to the retention of compensation for
such transactions in accordance with Rule 11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any
expenses of or for the Trust not expressly assumed by the
Manager pursuant to this Section 1 other than as provided in
Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees,
officers, and employees of the Trust may be a shareholder,
director, officer, or employee of, or be otherwise interested
in, the Manager, and in any person controlled by or under
common control with the Manager, and that the Manager and any
person controlled by or under common control with the Manager
may have an interest in the Trust. It is also understood
that the Manager and any person controlled by or under common
control with the Manager have and may have advisory,
management, service, or other contracts with other
organizations and persons, and may have other interests and
business.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE MANAGER.
As compensation for the services performed and the
facilities furnished and expenses assumed by the Manager,
including the services of any consultants retained by the
Manager, each Fund shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated
daily, of of 1% annually of the Fund's average daily net
assets. The first payment of the fee shall be made as
promptly as possible at the end of the month next succeeding
the effective date of this Agreement in respect of the Fund,
and shall constitute a full payment of the fee due the
Manager for all services prior to that date. If this
Agreement is terminated as of any date not the last day of a
month, such fee shall be paid as promptly as possible after
such date of termination, shall be based on the average daily
net assets of the Fund in that period from the beginning of
such month to such date of termination, and shall be that
proportion of such average daily net assets as the number of
business days in such period bears to the number of business
days in such month. The average daily net assets of the Fund
shall in all cases be based only on business days and be
computed as of the time of the regular close of business of
the New York Stock Exchange, or such other time as may be
determined by the Trustees. Each such payment shall be
accompanied by a report of the Trust prepared either by the
Trust or by a reputable firm of independent accountants which
shall show the amount properly payable to the Manager under
this Agreement and the detailed computation thereof.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the
payment of any penalty, in the event of its assignment; and
this Contract shall not be amended unless such amendment be
approved at a meeting by the affirmative vote of a majority
of the outstanding shares of the Fund, and by the vote, cast
in person at a meeting called for the purpose of voting on
such approval, of a majority of the Trustees of the Trust who
are not interested persons of the Trust or of the Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution
and shall remain in full force and effect continuously
thereafter (unless terminated automatically as set forth in
Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this
Contract as to one or more Funds or as to the Trust as a
whole by not more than sixty days nor less than thirty days
written notice delivered or mailed by registered mail,
postage prepaid, to the other party, or
(b) If (i) the Trustees of the Trust or the
shareholders by the affirmative vote of a majority of the
outstanding shares of any Fund, and (ii) a majority of the
Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting
called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of
this Contract, then this Contract shall automatically
terminate (as to the Trust as a whole or as to the affected
Fund, as the case may be) at the close of business on
_______, 1997 or the expiration of one year from the
effective date of the last such continuance, whichever is
later.
Action by the Trust under (a) above may be taken either
(i) by vote of a majority of its Trustees, or (ii) by the
affirmative vote of a majority of the outstanding shares of
the affected Fund.
Termination of this Contract pursuant to this Section 5
will be without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote
of a majority of the outstanding shares" of a Fund means the
affirmative vote, at a duly called and held meeting of such
shareholders, (a) of the holders of 67% or more of the shares
of the Fund present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Fund entitled to vote at such
meeting are present in person or by proxy, or (b) of the
holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated
person", "control", "interested person," and "assignment"
shall have their respective meanings defined in the
Investment Company Act of 1940, as amended, and the Rules and
Regulations thereunder, subject, however, to such exemptions
as may be granted by the Securities and Exchange Commission
under said Act; the term "specifically approve at least
annually" shall be construed in a manner consistent with the
Investment Company Act of 1940, as amended, and the Rules and
Regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the Securities
Exchange Act of 1934, as amended, and the Rules and
Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or
gross negligence on the part of the Manager, or reckless
disregard of its obligations and duties hereunder, the
Manager shall not be subject to any liability to the Trust or
to any shareholder of the Trust for any act or omission in
the course of, or connected with, rendering services
hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the
Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of
the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of
the Trustees, officers, or shareholders of the Trust but are
binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, THE MENTOR FAMILY OF FUNDS and
COMMONWEALTH INVESTMENT COUNSEL, INC., have each caused this
instrument to be signed in duplicate in its behalf by its
President or Vice President thereunto duly authorized, all as
of the day and year first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of COMMONWEALTH
BALANCED PORTFOLIO
By:____________________________
COMMONWEALTH INVESTMENT COUNSEL, INC.
By:____________________________
Exhibit 6(ii)
EXHIBIT J
TO THE
DISTRIBUTOR'S CONTRACT
THE MENTOR FAMILY OF FUNDS
Charter Growth Portfolio - Class A
Wellesley Strategy Portfolio - Class A
Commonwealth Short-Duration Income Portfolio - Class A
Commonwealth Balanced Portfolio
In consideration of the mutual covenants set forth in the
Distributor's Contract dated May 19, 1992 between the Mentor Family Funds
(formerly Cambridge Series Trust) and Mentor Distributors, Inc. (formerly
Cambridge Distributors, Inc.), the Mentor Family of Funds executes and
delivers this Exhibit on behalf of the Portfolios, and with respect to the
separate classes of shares, if any, thereof, first set forth in this
Exhibit.
WITNESS the due execution hereof this _____ day of May, 1995.
ATTEST: THE MENTOR FAMILY OF FUNDS
_____________________________ By________________________________
(SEAL) Assistant Secretary President
ATTEST: MENTOR DISTRIBUTORS, INC.
_____________________________ By:________________________________
(SEAL) President
Exhibit 8(iii)
THE MENTOR FAMILY OF FUNDS
901 East Byrd Street
Richmond, Virginia 23219
_____________, 1995
Investment Management Group, Inc.
901 East Byrd Street
Richmond, Virginia 23219
Re: Administration Agreement
Dear Gentlemen:
The Mentor Family of Funds, a Massachusetts business trust (the
"Fund"), is engaged in the business of an investment company. The Fund
currently has ten series of shares (each, a "Series"), and the Trustees of
the Fund may in their discretion authorize additional series of shares from
time to time. The Fund desires that you act as administrator of one or
more Series specified by the Trustees from time to time (each, a "Specified
Series") of the Fund, and you are willing to act as such administrator and
to perform such services under the terms and conditions hereinafter set
forth. Accordingly, the Fund agrees with you as follows:
1. Delivery of Fund Documents. The Fund has furnished you with
copies properly certified or authenticated of each of the following:
(a) Agreement and Declaration of Trust of the Fund.
(b) By-laws of the Fund as in effect on the date hereof.
(c) Resolutions of the Trustees of the Fund selecting you as
administrator and approving the form of this Agreement.
The Fund will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
2. Administrative Services. You will continuously provide business
management services to each of the Specified Series and will generally,
subject to the general oversight of the Trustees and except as provided in
the next following paragraph, manage all of the business and affairs of
each of the Specified Series, subject always to the provisions of the
Fund's Declaration of Trust and By-laws and of the Investment Company Act
of 1940, as amended (the "1940 Act"), and subject, further, to such
policies and instructions as the Trustees may from time to time establish.
You shall, except as provided in the next following paragraph, advise and
assist the officers of the Fund in taking such steps as are necessary or
appropriate to carry out the decisions of the Trustees and the appropriate
committees of the Trustees regarding the conduct of the business of each of
the Specified Series.
Notwithstanding any provision of this Agreement, you will not at any
time provide, or be required to provide, to the Fund or to any person with
respect to the Fund investment research, advice, or supervision, or in any
way advise the Fund or any person acting on behalf of the Fund as to the
value of securities or other investments or as to the advisability of
investing in, purchasing, or selling securities or other investments.
3. Allocation of Charges and Expenses. You will pay the
compensation and expenses of all officers and executive employees of the
Fund (other than such persons who serve as such and who are employees of or
serve at the request of any investment adviser to the Fund) and will make
available, without expense to the Fund, the services of such of your
directors, officers, and employees as may duly be elected Trustees or
officers of the Fund, subject to their individual consent to serve and to
any limitations imposed by law. You will provide all clerical services
relating to the business of each of the Specified Series. You will not be
required to pay any expenses of the Fund other than those specifically
allocated to you in this paragraph 3. In particular, but without limiting
the generality of the foregoing, you will not be required to pay: clerical
salaries not relating to the services described in paragraph 2 above; fees
and expenses incurred by the Fund in connection with membership in
investment company organizations; brokers' commissions; payment for
portfolio pricing services to a pricing agent, if any; legal, auditing, or
accounting expenses; taxes or governmental fees; the fees and expenses of
the transfer agent of the Fund; the cost of preparing share certificates or
any other expenses, including clerical expenses, incurred in connection
with the issue, sale, underwriting, redemption, or repurchase of shares of
the Fund; the expenses of and fees for registering or qualifying securities
for sale; the fees and expenses of Trustees of the Fund who are not
affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; public and investor relations expenses; or the
fees or disbursements of custodians of the Fund's assets, including
expenses incurred in the performance of any obligations enumerated by the
Agreement and Declaration of Trust or By-Laws of the Fund insofar as they
govern agreements with any such custodian.
4. Compensation. As compensation for the services performed and the
facilities furnished and expenses assumed by you, including the services of
any consultants retained by you, each Specified Series shall pay you, as
promptly as possible after the last day of each month, a fee, calculated
daily, at the annual rate of .10 of 1% of the Specified Series average
daily net assets.
The first payment of the fee shall be made as promptly as possible at the
end of the month next succeeding the effective date of this Agreement in
respect of such Specified Series, and shall constitute a full payment of
the fee due you for all services prior to that date. If this Agreement is
terminated as of any date not the last day of a month, such fee shall be
paid as promptly as possible after such date of termination, shall be based
on the average daily net assets of the Specified Series in that period from
the beginning of such month to such date of termination, and shall be that
proportion of such average daily net assets as the number of business days
in such period bears to the number of business days in such month. The
average daily net assets of a Specified Series shall in all cases be based
only on business days and be computed as of the time of the regular close
of business of the New York Stock Exchange, or such other time as may be
determined by the Trustees. Each such payment shall be accompanied by a
report of the Fund prepared either by the Fund or by a reputable firm of
independent accountants which shall show the amount properly payable to you
under this Agreement and the detailed computation thereof.
5. Limitation of Liability. You shall not be liable for any error
of judgement or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates except a loss
resulting from willful misfeasance, bad faith, or gross negligence on your
part in the performance of your duties, or from reckless disregard by you
of your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of and paid
by the Fund shall be deemed, when acting within the scope of his or her
employment by the Fund, to be acting in such employment solely for the Fund
and not as your employee or agent.
6. Duration and Termination of this Agreement. This Agreement shall
remain in force until ________, 1997 and continue from year to year
thereafter, but only so long as such continuance is specifically approved
at least annually with respect to each Specified Series by the vote of a
majority of the Trustees who are not interested persons of you or of the
Fund, cast in person at a meeting called for the purpose of voting on such
approval and by a vote of the Trustees. This Agreement may, on 30 days
notice, be terminated at any time without the payment of any penalty by
you, and, immediately upon notice, by the Trustees or, as to a Specified
Series, by vote of a majority of the outstanding voting securities of that
Specified Series. This Agreement shall automatically terminate in the
event of its assignment. In interpreting the provisions of this Agreement,
the definitions contained in Section 2(a) of the 1940 Act, as modified by
rule 18f-2 under the Act (particularly the definitions of "interested
person", "assignment", and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject,
however, to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation, or order.
7. Amendment of this Agreement. No provisions of this Agreement may
be changed, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge, or termination is sought, and no amendment of
this Agreement shall be effective as to a Specified Series until approved
by the Trustees, including a majority of the Trustees who are not
interested persons of you or of the Fund, cast in person at a meeting
called for the purpose of voting on such approval.
8. Miscellaneous. The captions in this Agreement are included for
convenience or reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction of effect. This
Agreement may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9. Limitation of Liability of the Trustees and Shareholders. A copy
of the Agreement and Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees, officers, or shareholders
individually but are binding only upon the assets and property of the
appropriate Series.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding
contract.
Yours very truly,
THE MENTOR FAMILY OF FUNDS
By: ___________________________
The foregoing Agreement is hereby
accepted as of the date thereof.
INVESTMENT MANAGEMENT GROUP, INC.
By: _____________________________
Exhibit 9(iii)
EXHIBIT C
TO THE
SHAREHOLDER SERVICE PLAN
THE MENTOR FAMILY OF FUNDS
Charter Growth Portfolio - Class A
Charter Growth Portfolio - Class B
Wellesley Strategy Portfolio - Class A
Wellesley Strategy Portfolio - Class B
Commonwealth Short-Duration Income Portfolio - Class A
Commonwealth Short-Duration Income Portfolio - Class B
Commonwealth Balanced Portfolio
This Plan is adopted by the Mentor Family of Funds (the "Trust")
(formerly Cambridge Series Trust) with respect to the Portfolios of the
Trust, and with respect to the classes of shares of such Portfolios, if
any, set forth above.
In compensation for services provided pursuant to this Plan,
Administrators will be paid a monthly fee computed at the annual rate not
to exceed .25 of 1% of the average aggregate net asset value of the shares
of all participating classes or Portfolios, as the case may be, held during
each month.
WITNESS the due execution hereof this ____ day of May, 1995.
THE MENTOR FAMILY OF FUNDS
By:__________________________
President
Exhibit 11(i)
The Trustees and Shareholders
The Mentor Funds
We consent to:
1. the use of our report dated November 11, 1994, for Cambridge Series Trust,
including the Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio
(referred to herein as Commonwealth Capital Growth Portfolio), Cambridge
Income and Growth Portfolio (referred to herein as WMC Income and Growth
Portfolio), Cambridge Government Income Portfolio (referred to herein as
Commonwealth Quality Income Portfolio), Cambridge Municipal Income Portfolio
(referred to herein as VKM Municipal Income Portfolio) and Cambridge Global
Portfolio (referred to herein as Perpetual Global Portfolio),
2. the use of our report dated February 3, 1995, for the Mentor Growth
Fund (referred to herein as Charter Growth Portfolio), Mentor Strategy
Fund (referred to herein as Commonwealth Strategy Portfolio) and Mentor
Short-Duration Income Fund (referred to herein as Commonwealth Short-
Duration Income Portfolio), portfolios of Mentor Series Trust,
3. the use of our report dated February 3, 1995, for Mentor Balanced
Fund (referred to herein as Commonwealth Balanced Portfolio), a portfolio
of Mentor Series Trust, and
4. to the reference to our firm under the captions "Financial Highlights
(Commonwealth Capital Growth, Commonwealth Government Income, VKM Municipal
Income, WMC Income and Growth, and Perpetual Global Portfolios)", "Financial
Highlights (Charter Growth, Commonwealth Strategy, and Commonwealth
Short-Duration Income Portfolios)" and "GENERAL" in the Prospectus of the
Mentor Funds and the reference to our firm under the captions "Financial
Highlights" and "GENERAL" in the prospectus of The Mentor Funds and the
reference to our firm under the caption "Financial Highlights" in the
prospectus of Commonwealth Balanced Portfolio.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 13, 1995
Exhibit 15(iii)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
CHARTER GROWTH PORTFOLIO
This PLAN OF DISTRIBUTION approved this _____ day of ___________,
1995, by the Mentor Family of Funds (the "Trust") on behalf of Charter
Growth Portfolio, a series of shares of beneficial interest of the Trust
(the "Fund").
RECITALS
A. The Trust intends to engage in business as an open-end,
diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Act"); and
B. The Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act in respect of its Class B shares, and the Trustees
of the Trust have determined that there is a reasonable likelihood that
adoption of this Plan of Distribution will benefit the Fund and its
shareholders; and
C. The Fund intends to employ Mentor Distributors, Inc. (the
"Distributor") as distributor and underwriter of the securities of which it
is the issuer;
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts this
Plan of Distribution (the "Plan") in respect of the Fund's Class B shares,
in accordance with Rule 12b-1 under the 1940 Act on the following terms and
conditions:
1. The Fund shall pay to the Distributor a distribution fee for
expense related to distribution of its Class B shares at the annual rate of
0.75 of one percent (0.75%) of the Fund's average daily net assets
attributable to its Class B shares, such fee to be calculated and accrued
daily and paid monthly. In addition, the Distributor will receive a
contingent deferred sales charge, as described in the Trust's prospectus,
upon Class B shares of the Fund redeemed by a shareholder who has held such
shares for a period of five years or less. The contingent deferred sales
charge will not offset amounts to be paid to the Distributor under the Plan
of Distribution.
2. The amount set forth in paragraph 1 of this Plan shall be paid
for the Distributor's services as distributor of the Class B shares of the
Fund in accordance with the Distribution Agreement between the Distributor
and the Trust and may be spent by the Distributor or its agents on any
activities or expenses related to the sale and repurchase of the Fund's
Class B shares, including, but not limited to, commissions and other
compensation to persons who engage in or support distribution and
repurchase of shares; printing of prospectuses and reports for other than
existing shareholders; advertising; preparation and distribution of sales
literature; and overhead, travel and telephone expenses.
3. This Plan shall not take effect until it has been approved by a
vote of Class B shares constituting at least a majority of the outstanding
voting securities, as defined in the 1940 Act, of such class.
4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Trustees and (b) those Trustees who are not "interested persons" of the
Trust (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.
5. This Plan shall continue in effect for successive periods of one
year from its execution for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan
in paragraph 4.
6. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustees and the Trustees shall review, at least quarterly,
a written report of the amounts so expended and the purposes for which such
expenditures were made.
7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of Class B shares constituting a
majority of the outstanding voting securities of such class.
8. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 1 hereof unless such
amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made
unless such amendment is approved in the manner provided for initial
approval in paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust shall be committed to the discretion of the Trustees who are
themselves not interested persons.
10. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof for a period
of not less than six years from the date of execution this Plan, or of the
agreements or of such reports, as the case may be, the first two years in
an easily accessible place.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees,
officers, or shareholders of the Trust but are binding only upon
the assets and property of the Trust.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
as of the date first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of Charter Growth
Portfolio
Date: __________ __, 1995 By: __________________________
Its:__________________________
Exhibit 15(iv)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
WELLESLEY STRATEGY PORTFOLIO
This PLAN OF DISTRIBUTION approved this _____ day of ___________,
1995, by the Mentor Family of Funds (the "Trust") on behalf of Wellesley
Strategy Portfolio, a series of shares of beneficial interest of the Trust
(the "Fund").
RECITALS
A. The Trust intends to engage in business as an open-end,
diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Act"); and
B. The Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act in respect of its Class B shares, and the Trustees
of the Trust have determined that there is a reasonable likelihood that
adoption of this Plan of Distribution will benefit the Fund and its
shareholders; and
C. The Fund intends to employ Mentor Distributors, Inc. (the
"Distributor") as distributor and underwriter of the securities of which it
is the issuer;
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts this
Plan of Distribution (the "Plan") in respect of the Fund's Class B shares,
in accordance with Rule 12b-1 under the 1940 Act on the following terms and
conditions:
1. The Fund shall pay to the Distributor a distribution fee for
expense related to distribution of its Class B shares at the annual rate of
0.75 of one percent (0.75%) of the Fund's average daily net assets
attributable to its Class B shares, such fee to be calculated and accrued
daily and paid monthly. In addition, the Distributor will receive a
contingent deferred sales charge, as described in the Trust's prospectus,
upon Class B shares of the Fund redeemed by a shareholder who has held such
shares for a period of five years or less. The contingent deferred sales
charge will not offset amounts to be paid to the Distributor under the Plan
of Distribution.
2. The amount set forth in paragraph 1 of this Plan shall be paid
for the Distributor's services as distributor of the Class B shares of the
Fund in accordance with the Distribution Agreement between the Distributor
and the Trust and may be spent by the Distributor or its agents on any
activities or expenses related to the sale and repurchase of the Fund's
Class B shares, including, but not limited to, commissions and other
compensation to persons who engage in or support distribution and
repurchase of shares; printing of prospectuses and reports for other than
existing shareholders; advertising; preparation and distribution of sales
literature; and overhead, travel and telephone expenses.
3. This Plan shall not take effect until it has been approved by a
vote of Class B shares constituting at least a majority of the outstanding
voting securities, as defined in the 1940 Act, of such class.
4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Trustees and (b) those Trustees who are not "interested persons" of the
Trust (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.
5. This Plan shall continue in effect for successive periods of one
year from its execution for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan
in paragraph 4.
6. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustees and the Trustees shall review, at least quarterly,
a written report of the amounts so expended and the purposes for which such
expenditures were made.
7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of Class B shares constituting a
majority of the outstanding voting securities of such class.
8. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 1 hereof unless such
amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made
unless such amendment is approved in the manner provided for initial
approval in paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust shall be committed to the discretion of the Trustees who are
themselves not interested persons.
10. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof for a period
of not less than six years from the date of execution this Plan, or of the
agreements or of such reports, as the case may be, the first two years in
an easily accessible place.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees,
officers, or shareholders of the Trust but are binding only upon
the assets and property of the Trust.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
as of the date first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of Wellesley
Strategy Portfolio
Date: __________ __, 1995 By: __________________________
Its:__________________________
Exhibit 15(v)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
COMMONWEALTH SHORT-DURATION INCOME PORTFOLIO
This PLAN OF DISTRIBUTION approved this _____ day of ___________,
1995, by the Mentor Family of Funds (the "Trust") on behalf of Commonwealth
Short-Duration Income Portfolio, a series of shares of beneficial interest
of the Trust (the "Fund").
RECITALS
A. The Trust intends to engage in business as an open-end,
diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Act"); and
B. The Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act in respect of its Class B shares, and the Trustees
of the Trust have determined that there is a reasonable likelihood that
adoption of this Plan of Distribution will benefit the Fund and its
shareholders; and
C. The Fund intends to employ Mentor Distributors, Inc. (the
"Distributor") as distributor and underwriter of the securities of which it
is the issuer;
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts this
Plan of Distribution (the "Plan") in respect of the Fund's Class B shares,
in accordance with Rule 12b-1 under the 1940 Act on the following terms and
conditions:
1. The Fund shall pay to the Distributor a distribution fee for
expense related to distribution of its Class B shares at the annual rate of
0.30 of one percent (0.30%) of the Fund's average daily net assets
attributable to its Class B shares, such fee to be calculated and accrued
daily and paid monthly. In addition, the Distributor will receive a
contingent deferred sales charge, as described in the Trust's prospectus,
upon Class B shares of the Fund redeemed by a shareholder who has held such
shares for a period of six years or less. The contingent deferred sales
charge will not offset amounts to be paid to the Distributor under the Plan
of Distribution.
2. The amount set forth in paragraph 1 of this Plan shall be paid
for the Distributor's services as distributor of the Class B shares of the
Fund in accordance with the Distribution Agreement between the Distributor
and the Trust and may be spent by the Distributor or its agents on any
activities or expenses related to the sale and repurchase of the Fund's
Class B shares, including, but not limited to, commissions and other
compensation to persons who engage in or support distribution and
repurchase of shares; printing of prospectuses and reports for other than
existing shareholders; advertising; preparation and distribution of sales
literature, and overhead, travel and telephone expenses.
3. This Plan shall not take effect until it has been approved by a
vote of Class B shares constituting at least a majority of the outstanding
voting securities, as defined in the 1940 Act, of such class.
4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Trustees and (b) those Trustees who are not "interested persons" of the
Trust (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.
5. This Plan shall continue in effect for successive periods of one
year from its execution for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan
in paragraph 4.
6. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustees and the Trustees shall review, at least quarterly,
a written report of the amounts so expended and the purposes for which such
expenditures were made.
7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of Class B shares constituting a
majority of the outstanding voting securities of such class.
8. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 1 hereof unless such
amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made
unless such amendment is approved in the manner provided for initial
approval in paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust shall be committed to the discretion of the Trustees who are
themselves not interested persons.
10. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof for a period
of not less than six years from the date of execution this Plan, or of the
agreements or of such reports, as the case may be, the first two years in
an easily accessible place.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees,
officers, or shareholders of the Trust but are binding only
upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
as of the date first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of Commonwealth
Short-Duration Income Portfolio
Date: __________ __, 1995 By: __________________________
Its:__________________________
Exhibit 15(vi)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
COMMONWEALTH BALANCED PORTFOLIO
This PLAN OF DISTRIBUTION approved this _____ day of ___________,
1995, by the Mentor Family of Funds (the "Trust") on behalf of Commonwealth
Balanced Portfolio, a series of shares of beneficial interest of the Trust
(the "Fund").
RECITALS
A. The Trust intends to engage in business as an open-end,
diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Act"); and
B. The Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the 1940 Act in respect of its Class B shares, and the Trustees
of the Trust have determined that there is a reasonable likelihood that
adoption of this Plan of Distribution will benefit the Fund and its
shareholders; and
C. The Fund intends to employ Mentor Distributors, Inc. (the
"Distributor") as distributor and underwriter of the securities of which it
is the issuer;
NOW, THEREFORE, the Trust, on behalf of the Fund, hereby adopts this
Plan of Distribution (the "Plan") in respect of the Fund's Class B shares,
in accordance with Rule 12b-1 under the 1940 Act on the following terms and
conditions:
1. The Fund shall pay to the Distributor a distribution fee for
expense related to distribution of its Class B shares at the annual rate of
0.75 of one percent (0.75%) of the Fund's average daily net assets
attributable to its Class B shares, such fee to be calculated and accrued
daily and paid monthly. In addition, the Distributor will receive a
contingent deferred sales charge, as described in the Trust's prospectus,
upon Class B shares of the Fund redeemed by a shareholder who has held such
shares for a period of five years or less. The contingent deferred sales
charge will not offset amounts to be paid to the Distributor under the Plan
of Distribution.
2. The amount set forth in paragraph 1 of this Plan shall be paid
for the Distributor's services as distributor of the Class B shares of the
Fund in accordance with the Distribution Agreement between the Distributor
and the Trust and may be spent by the Distributor or its agents on any
activities or expenses related to the sale and repurchase of the Fund's
Class B shares, including, but not limited to, commissions and other
compensation to persons who engage in or support distribution and
repurchase of shares; printing of prospectuses and reports for other than
existing shareholders; advertising; preparation and distribution of sales
literature, and overhead, travel and telephone expenses.
3. This Plan shall not take effect until it has been approved by a
vote of Class B shares constituting at least a majority of the outstanding
voting securities, as defined in the 1940 Act, of such class.
4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Trustees and (b) those Trustees who are not "interested persons" of the
Trust (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.
5. This Plan shall continue in effect for successive periods of one
year from its execution for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan
in paragraph 4.
6. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trustees and the Trustees shall review, at least quarterly,
a written report of the amounts so expended and the purposes for which such
expenditures were made.
7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of Class B shares constituting a
majority of the outstanding voting securities of such class.
8. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 1 hereof unless such
amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made
unless such amendment is approved in the manner provided for initial
approval in paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust shall be committed to the discretion of the Trustees who are
themselves not interested persons.
10. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof for a period
of not less than six years from the date of execution this Plan, or of the
agreements or of such reports, as the case may be, the first two years in
an easily accessible place.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees,
officers, or shareholders of the Trust but are binding only
upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
as of the date first above written.
THE MENTOR FAMILY OF FUNDS
on behalf of Commonwealth
Balanced Portfolio
Date: __________ __, 1995 By: __________________________
Its:__________________________
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - GROWTH PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 12,998,868
<INVESTMENTS-AT-VALUE> 14,056,709
<RECEIVABLES> 314,321
<ASSETS-OTHER> 290,633
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,661,693
<PAYABLE-FOR-SECURITIES> 47,191
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 136,941
<TOTAL-LIABILITIES> 184,132
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,363,416
<SHARES-COMMON-STOCK> 993,054
<SHARES-COMMON-PRIOR> 1,180,695
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (943,696)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,057,841
<NET-ASSETS> 14,477,561
<DIVIDEND-INCOME> 175,946
<INTEREST-INCOME> 24,222
<OTHER-INCOME> 0
<EXPENSES-NET> 396,676
<NET-INVESTMENT-INCOME> (196,508)
<REALIZED-GAINS-CURRENT> (172,117)
<APPREC-INCREASE-CURRENT> (1,939,945)
<NET-CHANGE-FROM-OPS> (2,308,570)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 220,548
<NUMBER-OF-SHARES-REDEEMED> (408,189)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,855,844)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (765,624)
<OVERDISTRIB-NII-PRIOR> 22,462
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 135,215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 396,272
<AVERAGE-NET-ASSETS> 17,265,630
<PER-SHARE-NAV-BEGIN> 16.69
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> (1.90)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.68
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - GROWTH PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 25,839,715
<INVESTMENTS-AT-VALUE> 27,942,537
<RECEIVABLES> 624,822
<ASSETS-OTHER> 577,792
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,145,151
<PAYABLE-FOR-SECURITIES> 93,809
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 272,217
<TOTAL-LIABILITIES> 366,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,522,223
<SHARES-COMMON-STOCK> 1,974,036
<SHARES-COMMON-PRIOR> 2,113,910
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,875,920)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,102,822
<NET-ASSETS> 28,779,125
<DIVIDEND-INCOME> 349,753
<INTEREST-INCOME> 48,151
<OTHER-INCOME> 0
<EXPENSES-NET> 788,531
<NET-INVESTMENT-INCOME> (390,627)
<REALIZED-GAINS-CURRENT> (342,142)
<APPREC-INCREASE-CURRENT> (3,856,308)
<NET-CHANGE-FROM-OPS> (4,589,077)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 733,554
<NUMBER-OF-SHARES-REDEEMED> (873,428)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,664,814)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,521,941)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 268,785
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 787,728
<AVERAGE-NET-ASSETS> 34,321,370
<PER-SHARE-NAV-BEGIN> 16.59
<PER-SHARE-NII> (0.25)
<PER-SHARE-GAIN-APPREC> (1.81)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.53
<EXPENSE-RATIO> 2.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - CAPITAL GROWTH PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 20,824,107
<INVESTMENTS-AT-VALUE> 21,374,537
<RECEIVABLES> 313,033
<ASSETS-OTHER> 5,573
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,693,143
<PAYABLE-FOR-SECURITIES> 454,863
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 139,937
<TOTAL-LIABILITIES> 594,800
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,154,343
<SHARES-COMMON-STOCK> 1,423,010
<SHARES-COMMON-PRIOR> 2,055,500
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (34,918)
<ACCUMULATED-NET-GAINS> 428,300
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 550,619
<NET-ASSETS> 21,098,343
<DIVIDEND-INCOME> 390,466
<INTEREST-INCOME> 168,825
<OTHER-INCOME> 0
<EXPENSES-NET> 549,173
<NET-INVESTMENT-INCOME> 10,118
<REALIZED-GAINS-CURRENT> 382,340
<APPREC-INCREASE-CURRENT> (835,084)
<NET-CHANGE-FROM-OPS> (442,626)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (87,466)
<DISTRIBUTIONS-OF-GAINS> (241,102)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 155,406
<NUMBER-OF-SHARES-REDEEMED> (809,281)
<SHARES-REINVESTED> 21,385
<NET-CHANGE-IN-ASSETS> (8,841,864)
<ACCUMULATED-NII-PRIOR> 9,587
<ACCUMULATED-GAINS-PRIOR> 249,425
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 200,188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 549,079
<AVERAGE-NET-ASSETS> 25,356,527
<PER-SHARE-NAV-BEGIN> 15.26
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> (0.13)
<PER-SHARE-NAV-END> 14.88
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - CAPITAL GROWTH PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 40,653,201
<INVESTMENTS-AT-VALUE> 41,727,759
<RECEIVABLES> 611,110
<ASSETS-OTHER> 10,879
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,349,748
<PAYABLE-FOR-SECURITIES> 887,991
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 273,187
<TOTAL-LIABILITIES> 1,161,178
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,345,675
<SHARES-COMMON-STOCK> 2,778,026
<SHARES-COMMON-PRIOR> 3,744,511
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (68,168)
<ACCUMULATED-NET-GAINS> 836,135
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,074,927
<NET-ASSETS> 41,188,570
<DIVIDEND-INCOME> 762,275
<INTEREST-INCOME> 329,583
<OTHER-INCOME> 0
<EXPENSES-NET> 1,072,105
<NET-INVESTMENT-INCOME> 19,753
<REALIZED-GAINS-CURRENT> 746,411
<APPREC-INCREASE-CURRENT> (1,630,267)
<NET-CHANGE-FROM-OPS> (864,103)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (445,582)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 484,356
<NUMBER-OF-SHARES-REDEEMED> (1,479,886)
<SHARES-REINVESTED> 29,045
<NET-CHANGE-IN-ASSETS> (17,261,247)
<ACCUMULATED-NII-PRIOR> 18,717
<ACCUMULATED-GAINS-PRIOR> 486,932
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 390,812
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,071,921
<AVERAGE-NET-ASSETS> 49,501,473
<PER-SHARE-NAV-BEGIN> 15.23
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> (0.26)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.80
<EXPENSE-RATIO> 2.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - GOVERNMENT INCOME PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 38,435,754
<INVESTMENTS-AT-VALUE> 36,951,707
<RECEIVABLES> 336,348
<ASSETS-OTHER> 9,353
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<TOTAL-ASSETS> 37,297,407
<PAYABLE-FOR-SECURITIES> 4,009,451
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 7,139,563
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<PAID-IN-CAPITAL-COMMON> 34,867,118
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<SHARES-COMMON-PRIOR> 3,403,828
<ACCUMULATED-NII-CURRENT> 46,141
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,271,367)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,484,047)
<NET-ASSETS> 30,157,845
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,116,413
<OTHER-INCOME> 0
<EXPENSES-NET> 678,555
<NET-INVESTMENT-INCOME> 2,437,857
<REALIZED-GAINS-CURRENT> (2,266,272)
<APPREC-INCREASE-CURRENT> (1,664,914)
<NET-CHANGE-FROM-OPS> (1,493,329)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,342,783)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 175,391
<NUMBER-OF-SHARES-REDEEMED> (1,319,559)
<SHARES-REINVESTED> 104,113
<NET-CHANGE-IN-ASSETS> (18,730,863)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,005,095)
<OVERDISTRIB-NII-PRIOR> 146,203
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 234,217
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 678,365
<AVERAGE-NET-ASSETS> 39,671,248
<PER-SHARE-NAV-BEGIN> 14.04
<PER-SHARE-NII> 0.84
<PER-SHARE-GAIN-APPREC> (1.30)
<PER-SHARE-DIVIDEND> (0.83)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.75
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 3,435,926
<AVG-DEBT-PER-SHARE> 0.41
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - GOVERNMENT INCOME PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 99,246,534
<INVESTMENTS-AT-VALUE> 95,414,514
<RECEIVABLES> 868,498
<ASSETS-OTHER> 24,149
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 96,307,162
<PAYABLE-FOR-SECURITIES> 10,352,968
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,082,389
<TOTAL-LIABILITIES> 18,435,357
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 90,031,812
<SHARES-COMMON-STOCK> 6,103,595
<SHARES-COMMON-PRIOR> 9,059,536
<ACCUMULATED-NII-CURRENT> 119,143
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,477,131)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,832,020)
<NET-ASSETS> 77,871,804
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,047,016
<OTHER-INCOME> 0
<EXPENSES-NET> 1,752,125
<NET-INVESTMENT-INCOME> 6,294,892
<REALIZED-GAINS-CURRENT> (5,851,834)
<APPREC-INCREASE-CURRENT> (4,299,043)
<NET-CHANGE-FROM-OPS> (3,855,985)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,799,239)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 895,699
<NUMBER-OF-SHARES-REDEEMED> (4,142,540)
<SHARES-REINVESTED> 290,900
<NET-CHANGE-IN-ASSETS> (48,365,728)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,595,297)
<OVERDISTRIB-NII-PRIOR> 301,354
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 604,783
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,751,635
<AVERAGE-NET-ASSETS> 102,436,752
<PER-SHARE-NAV-BEGIN> 14.06
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> (1.37)
<PER-SHARE-DIVIDEND> (0.75)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.76
<EXPENSE-RATIO> 1.88
<AVG-DEBT-OUTSTANDING> 8,872,045
<AVG-DEBT-PER-SHARE> 1.05
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - MUNICIPAL INCOME PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 25,730,452
<INVESTMENTS-AT-VALUE> 25,085,621
<RECEIVABLES> 483,099
<ASSETS-OTHER> 51,184
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,619,904
<PAYABLE-FOR-SECURITIES> 354,516
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190,964
<TOTAL-LIABILITIES> 545,480
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,838,334
<SHARES-COMMON-STOCK> 1,738,078
<SHARES-COMMON-PRIOR> 1,822,030
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (20,731)
<ACCUMULATED-NET-GAINS> (222,399)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (520,780)
<NET-ASSETS> 25,074,425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,834,998
<OTHER-INCOME> 0
<EXPENSES-NET> 431,450
<NET-INVESTMENT-INCOME> 1,403,547
<REALIZED-GAINS-CURRENT> (185,563)
<APPREC-INCREASE-CURRENT> (2,668,383)
<NET-CHANGE-FROM-OPS> (1,450,399)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,463,600)
<DISTRIBUTIONS-OF-GAINS> (189,589)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 192,548
<NUMBER-OF-SHARES-REDEEMED> (328,132)
<SHARES-REINVESTED> 51,632
<NET-CHANGE-IN-ASSETS> (3,171,490)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 149,821
<OVERDISTRIB-NII-PRIOR> 57,691
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 136,615
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 431,676
<AVERAGE-NET-ASSETS> 27,553,302
<PER-SHARE-NAV-BEGIN> 16.05
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> (1.54)
<PER-SHARE-DIVIDEND> (0.81)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.42
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - MUNICIPAL INCOME PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 47,346,482
<INVESTMENTS-AT-VALUE> 46,159,931
<RECEIVABLES> 888,949
<ASSETS-OTHER> 94,184
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,143,064
<PAYABLE-FOR-SECURITIES> 652,342
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351,392
<TOTAL-LIABILITIES> 1,003,734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,544,996
<SHARES-COMMON-STOCK> 3,198,229
<SHARES-COMMON-PRIOR> 3,173,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,146)
<ACCUMULATED-NET-GAINS> (409,235)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (958,285)
<NET-ASSETS> 46,139,329
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,376,570
<OTHER-INCOME> 0
<EXPENSES-NET> 793,910
<NET-INVESTMENT-INCOME> 2,582,661
<REALIZED-GAINS-CURRENT> (341,455)
<APPREC-INCREASE-CURRENT> (4,910,078)
<NET-CHANGE-FROM-OPS> (2,668,872)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,444,169)
<DISTRIBUTIONS-OF-GAINS> (340,533)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 723,926
<NUMBER-OF-SHARES-REDEEMED> (809,227)
<SHARES-REINVESTED> 109,721
<NET-CHANGE-IN-ASSETS> (5,835,843)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 275,685
<OVERDISTRIB-NII-PRIOR> 90,022
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,385
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 794,324
<AVERAGE-NET-ASSETS> 50,700,698
<PER-SHARE-NAV-BEGIN> 16.06
<PER-SHARE-NII> 0.74
<PER-SHARE-GAIN-APPREC> (1.54)
<PER-SHARE-DIVIDEND> (0.73)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.43
<EXPENSE-RATIO> 0.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - INCOME AND GROWTH PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 17,417,254
<INVESTMENTS-AT-VALUE> 17,491,986
<RECEIVABLES> 450,178
<ASSETS-OTHER> 2,905
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,945,069
<PAYABLE-FOR-SECURITIES> 36,192
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127,402
<TOTAL-LIABILITIES> 163,594
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,359,488
<SHARES-COMMON-STOCK> 1,164,060
<SHARES-COMMON-PRIOR> 661,893
<ACCUMULATED-NII-CURRENT> 22,141
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 325,114
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,732
<NET-ASSETS> 17,781,475
<DIVIDEND-INCOME> 253,372
<INTEREST-INCOME> 320,899
<OTHER-INCOME> 0
<EXPENSES-NET> 325,503
<NET-INVESTMENT-INCOME> 248,769
<REALIZED-GAINS-CURRENT> 444,107
<APPREC-INCREASE-CURRENT> (72,567)
<NET-CHANGE-FROM-OPS> 620,308
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 300,723
<DISTRIBUTIONS-OF-GAINS> 204,420
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 621,368
<NUMBER-OF-SHARES-REDEEMED> (150,563)
<SHARES-REINVESTED> 31,362
<NET-CHANGE-IN-ASSETS> 9,625,263
<ACCUMULATED-NII-PRIOR> 2,196
<ACCUMULATED-GAINS-PRIOR> 75,409
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109,328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 325,359
<AVERAGE-NET-ASSETS> 14,193,923
<PER-SHARE-NAV-BEGIN> 14.88
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.64
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> (0.26)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.27
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - INCOME AND GROWTH PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 42,324,964
<INVESTMENTS-AT-VALUE> 42,506,566
<RECEIVABLES> 1,093,960
<ASSETS-OTHER> 7,059
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,607,585
<PAYABLE-FOR-SECURITIES> 87,949
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309,595
<TOTAL-LIABILITIES> 397,544
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,184,589
<SHARES-COMMON-STOCK> 2,828,735
<SHARES-COMMON-PRIOR> 1,216,165
<ACCUMULATED-NII-CURRENT> 53,803
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 790,047
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 181,602
<NET-ASSETS> 43,210,041
<DIVIDEND-INCOME> 615,709
<INTEREST-INCOME> 779,804
<OTHER-INCOME> 0
<EXPENSES-NET> 790,990
<NET-INVESTMENT-INCOME> 604,522
<REALIZED-GAINS-CURRENT> 1,079,205
<APPREC-INCREASE-CURRENT> (176,343)
<NET-CHANGE-FROM-OPS> 1,507,385
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 476,423
<DISTRIBUTIONS-OF-GAINS> 470,138
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,909,839
<NUMBER-OF-SHARES-REDEEMED> (356,385)
<SHARES-REINVESTED> 59,116
<NET-CHANGE-IN-ASSETS> 23,389,960
<ACCUMULATED-NII-PRIOR> 5,336
<ACCUMULATED-GAINS-PRIOR> 183,250
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 265,672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 790,641
<AVERAGE-NET-ASSETS> 34,492,077
<PER-SHARE-NAV-BEGIN> 14.91
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.61
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.26)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.28
<EXPENSE-RATIO> 2.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - GLOBAL PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 9,002,241
<INVESTMENTS-AT-VALUE> 9,020,225
<RECEIVABLES> 65,902
<ASSETS-OTHER> 23,781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,109,908
<PAYABLE-FOR-SECURITIES> 200,078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,844
<TOTAL-LIABILITIES> 252,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,836,966
<SHARES-COMMON-STOCK> 624,181
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,357
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,663
<NET-ASSETS> 8,856,986
<DIVIDEND-INCOME> 42,235
<INTEREST-INCOME> 21,902
<OTHER-INCOME> 0
<EXPENSES-NET> 77,725
<NET-INVESTMENT-INCOME> (13,588)
<REALIZED-GAINS-CURRENT> 9,357
<APPREC-INCREASE-CURRENT> 10,663
<NET-CHANGE-FROM-OPS> 6,432
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 713,962
<NUMBER-OF-SHARES-REDEEMED> (89,781)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8,856,986
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 77,704
<AVERAGE-NET-ASSETS> 5,820,464
<PER-SHARE-NAV-BEGIN> 14.18
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.23
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
CAMBRIDGE SERIES TRUST - GLOBAL PORTFOLIO
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 8,143,958
<INVESTMENTS-AT-VALUE> 8,160,229
<RECEIVABLES> 59,618
<ASSETS-OTHER> 21,514
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,241,361
<PAYABLE-FOR-SECURITIES> 181,003
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,805
<TOTAL-LIABILITIES> 228,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,994,441
<SHARES-COMMON-STOCK> 564,671
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,465
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,647
<NET-ASSETS> 8,012,553
<DIVIDEND-INCOME> 38,208
<INTEREST-INCOME> 19,814
<OTHER-INCOME> 0
<EXPENSES-NET> 70,315
<NET-INVESTMENT-INCOME> (12,293)
<REALIZED-GAINS-CURRENT> 8,465
<APPREC-INCREASE-CURRENT> 9,647
<NET-CHANGE-FROM-OPS> 5,819
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 593,033
<NUMBER-OF-SHARES-REDEEMED> (28,362)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8,012,553
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70,296
<AVERAGE-NET-ASSETS> 5,265,536
<PER-SHARE-NAV-BEGIN> 14.18
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.15
<EXPENSE-RATIO> 2.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
MENTOR SERIES TRUST - GROWTH FUND
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 155,313,780
<INVESTMENTS-AT-VALUE> 193,146,014
<RECEIVABLES> 1,152,331
<ASSETS-OTHER> 49,794
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194,348,139
<PAYABLE-FOR-SECURITIES> 3,959,796
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262,385
<TOTAL-LIABILITIES> 4,222,181
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 152,451,424
<SHARES-COMMON-STOCK> 15,653,316
<SHARES-COMMON-PRIOR> 13,569,941
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (157,700)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,832,234
<NET-ASSETS> 190,125,958
<DIVIDEND-INCOME> 833,720
<INTEREST-INCOME> 703,805
<OTHER-INCOME> 0
<EXPENSES-NET> 3,811,380
<NET-INVESTMENT-INCOME> (2,273,855)
<REALIZED-GAINS-CURRENT> 13,751,586
<APPREC-INCREASE-CURRENT> (20,155,668)
<NET-CHANGE-FROM-OPS> (8,677,937)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (14,628,377)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,621,726
<NUMBER-OF-SHARES-REDEEMED> (1,714,715)
<SHARES-REINVESTED> 1,176,364
<NET-CHANGE-IN-ASSETS> 3,147,917
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 690,017
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,327,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,811,000
<AVERAGE-NET-ASSETS> 189,900,000
<PER-SHARE-NAV-BEGIN> 13.78
<PER-SHARE-NII> (0.15)
<PER-SHARE-GAIN-APPREC> (0.47)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.15
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
MENTOR SERIES TRUST - STRATEGY FUND
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 169,167,067
<INVESTMENTS-AT-VALUE> 176,585,886
<RECEIVABLES> 9,786,176
<ASSETS-OTHER> 87,886
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 186,459,948
<PAYABLE-FOR-SECURITIES> 6,739,051
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 447,091
<TOTAL-LIABILITIES> 7,186,142
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 182,034,837
<SHARES-COMMON-STOCK> 14,645,199
<SHARES-COMMON-PRIOR> 9,616,768
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,179,850)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,418,819
<NET-ASSETS> 179,273,806
<DIVIDEND-INCOME> 1,393,401
<INTEREST-INCOME> 1,265,356
<OTHER-INCOME> 0
<EXPENSES-NET> 3,537,896
<NET-INVESTMENT-INCOME> (879,139)
<REALIZED-GAINS-CURRENT> (10,179,850)
<APPREC-INCREASE-CURRENT> 5,285,954
<NET-CHANGE-FROM-OPS> (5,773,035)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,859)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,670,538
<NUMBER-OF-SHARES-REDEEMED> (642,107)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 57,096,783
<ACCUMULATED-NII-PRIOR> 14,753
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,368,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,537,000
<AVERAGE-NET-ASSETS> 161,654,000
<PER-SHARE-NAV-BEGIN> 12.70
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> (0.40)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.24
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
MENTOR SERIES TRUST - SHORT-DURATION INCOME FUND
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 18,016,194
<INVESTMENTS-AT-VALUE> 17,872,218
<RECEIVABLES> 229,686
<ASSETS-OTHER> 32,214
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,134,118
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 990,276
<TOTAL-LIABILITIES> 990,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,618,707
<SHARES-COMMON-STOCK> 1,407,124
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (37,127)
<ACCUMULATED-NET-GAINS> (293,762)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (143,976)
<NET-ASSETS> 17,143,842
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 643,128
<OTHER-INCOME> 0
<EXPENSES-NET> 133,728
<NET-INVESTMENT-INCOME> 509,400
<REALIZED-GAINS-CURRENT> (293,762)
<APPREC-INCREASE-CURRENT> (143,976)
<NET-CHANGE-FROM-OPS> 71,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (551,039)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,235,823
<NUMBER-OF-SHARES-REDEEMED> (858,396)
<SHARES-REINVESTED> 29,697
<NET-CHANGE-IN-ASSETS> 17,143,842
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,000
<AVERAGE-NET-ASSETS> 15,593,000
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> (0.29)
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.18
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
MENTOR SERIES TRUST - BALANCED FUND
</LEGEND>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 2,967,360
<INVESTMENTS-AT-VALUE> 2,951,152
<RECEIVABLES> 22,926
<ASSETS-OTHER> 6,906
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,980,984
<PAYABLE-FOR-SECURITIES> 20,898
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,987
<TOTAL-LIABILITIES> 69,885
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,926,998
<SHARES-COMMON-STOCK> 233,931
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,414
<OVERDISTRIBUTION-NII> (37,127)
<ACCUMULATED-NET-GAINS> (7,105)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (16,208)
<NET-ASSETS> 2,911,099
<DIVIDEND-INCOME> 17,245
<INTEREST-INCOME> 41,137
<OTHER-INCOME> 0
<EXPENSES-NET> 7,691
<NET-INVESTMENT-INCOME> 50,691
<REALIZED-GAINS-CURRENT> (7,105)
<APPREC-INCREASE-CURRENT> (16,208)
<NET-CHANGE-FROM-OPS> 27,378
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (43,277)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 233,931
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,911,099
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,000
<AVERAGE-NET-ASSETS> 2,888,000
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> (0.09)
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.44
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
