[Mentor Logo]
MENTOR FUNDS
Annual Report
September 30, 1995
[Mentor Logo in Background]
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MENTOR FUNDS
TABLE OF CONTENTS
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Page
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Message from the Chairman and President.................................................. 1
Manager Commentary
Growth Portfolio....................................................................... 2
Capital Growth Portfolio............................................................... 5
Strategy Portfolio..................................................................... 7
Income & Growth Portfolio.............................................................. 9
Perpetual Global Portfolio............................................................. 11
Quality Income & Short-Duration Income Portfolios...................................... 14
Municipal Income Portfolio............................................................. 17
Portfolios of Investments
Growth Portfolio....................................................................... 19
Capital Growth Portfolio............................................................... 23
Strategy Portfolio..................................................................... 25
Income & Growth Portfolio.............................................................. 29
Perpetual Global Portfolio............................................................. 34
Quality Income Portfolio............................................................... 40
Short-Duration Income Portfolio........................................................ 43
Municipal Income Portfolio............................................................. 44
Statements of Assets and Liabilities..................................................... 48
Statements of Operations................................................................. 50
Statements of Changes in Net Assets...................................................... 52
Financial Highlights..................................................................... 55
Notes to Financial Statements............................................................ 64
Auditors' Report......................................................................... 80
Shareholder Information.................................................................. Inside back cover
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MENTOR FUNDS
MESSAGE FROM THE CHAIRMAN AND PRESIDENT
DEAR SHAREHOLDERS:
It is a pleasure to bring you the Annual Report for the period ended September
30, 1995. The financial markets have experienced an outstanding past six months.
Sustained economic growth and low inflation have led to a surge in corporate
profits and declining interest rates. In the months ahead we are looking for
moderating markets and reasonable growth opportunities.
The Annual Report represents the following portfolios of Mentor Funds:
(bullet) MENTOR GROWTH PORTFOLIO-a small-to-mid-capitalization growth fund
(bullet) MENTOR CAPITAL GROWTH PORTFOLIO-a large-capitalization, high-quality
growth fund
(bullet) MENTOR STRATEGY PORTFOLIO-a tactical asset-allocation high total-
return fund
(bullet) MENTOR INCOME & GROWTH PORTFOLIO-a balanced fund
(bullet) MENTOR PERPETUAL GLOBAL PORTFOLIO-a global growth fund
(bullet) MENTOR QUALITY INCOME PORTFOLIO-a long-term bond fund
(bullet) MENTOR SHORT-DURATION INCOME PORTFOLIO-an intermediate-term bond fund
(bullet) MENTOR MUNICIPAL INCOME PORTFOLIO-a tax-free bond fund.
Each portfolio is managed by experienced teams of professionals who actively
manage the Portfolios according to a disciplined investment process. Active
management offers investors diversified portfolios that are adapted quickly and
economically in response to changing market environments.
Members of each management team present their disciplines and market strategies
in the managers' commentaries that follow. You will also find detailed
performance information, including each manager's returns as compared to the
appropriate index. Please review them carefully.
If you have any questions, please call your financial consultant or Mentor Funds
(800-382-0016). Thank you for your confidence in us. We look forward to a
continuing relationship.
Sincerely,
DANIEL J. LUDEMAN PAUL F. COSTELLO
Daniel J. Ludeman Paul F. Costello
CHAIRMAN PRESIDENT
[MENTOR LOGO]
THE MENTOR MISSION
To maintain a professional money
management organization that is second to
none in the quality of its investment process,
the skill and training of its employees, and the
shared commitment among all its Associates
to provide the highest level of service
and ethical behavior to clients.
1
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MANAGER'S COMMENTARY
MENTOR GROWTH PORTFOLIO
Mentor Growth Portfolio posted strong gains for the six-month period ending
September 30, 1995, producing a total return of 23.3%.* Performance was
particularly strong in the last three months of the period as Mentor Growth
outdistanced all the competitive indexes.
Over the past six months, we have seen a shift in emphasis from
large-capitalization stocks back to the small-to-mid capitalization issues, such
as those held by the Portfolio. Larger company stocks outperformed smaller
company stocks from early 1994 through mid-year 1995. This occurred as large
cyclical companies posted strong earnings gains, and as a declining
trade-weighted-dollar boosted the earnings of large companies selling their
products overseas.
These factors are no longer supporting large capitalization earnings. Beginning
around mid-year, the market again focused on the strong, consistent earnings
growth of small capitalization growth companies as it became apparent that the
extraordinary earnings growth of larger, more cyclical companies was
unsustainable.
We continue to believe that the small-to-mid capitalization sector of the market
is particularly attractive. We believe we are in the midst of a small
capitalization outperformance cycle that started in 1991. If history is any
guide, this cycle has a long way to go, both in terms of time and price. While
there is no guarantee that history will repeat itself, in the past, the biggest
price gains in these small company outperformance cycles have occurred in the
latter phase of the cycle as price-earnings multiples have expanded. Please keep
in mind small- and mid-size companies generally exhibit greater price volatility
than larger companies.
From a valuation perspective, small company stocks, such as those held in Mentor
Growth, are particularly attractive today. For example, the average estimated
earnings growth of companies held in the Portfolio for the coming year is in
excess of 40%. Over the next three years the companies in the Portfolio are
projected to grow their earnings in excess of 23% per annum. The Portfolio
currently trades at a price-to-earnings multiple of only 45% of its projected
one-year earnings growth and 78% of its projected 3-year growth rate. In
contrast, the S&P 500** sells at a significant premium to both its one- and
three-year growth rates.
We believe that our continuing strategy of buying rapidly growing small
companies at multiple discounts to their earnings growth rates will be rewarded
by the market.
Sincerely,
Ted Price
PORTFOLIO MANAGER
Linda Ziglar
PORTFOLIO MANAGER
Jeff Drummond
PORTFOLIO MANAGER
* Six months total return of the Mentor Growth Portfolio Class B Shares, not
including sales charges.
** The Standard & Poor's 500 Index is an unmanaged index of 500 widely-held
companies and is regarded by investors to be representative of the stock
market in general. An unmanaged index does not reflect expenses and may not
correspond to the performance of the Portfolio, which incurs expenses.
2
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MENTOR GROWTH PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Growth Portfolio Class A and the Russell 2000~.
6/5/95 6/30/95 9/30/95
Class A 9,425** 9,859 11,335
Russell 2,000 10,000 10,518 11,558
TOTAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A n/a 13.35%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Growth Portfolio Class A Shares from the date
of issuance on 6/5/95 through 9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Growth Portfolio
Class A Shares, after deducting the maximum sales charge of 5.75% ($10,000
investment minus $575 sales charge = $9,425). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
~ The Russell 2000 is composed of the 2,000 smallest stocks in the Russell 3000
Index and represents approximately 7% of the U.S. equity market
capitalization. The Russell 3000 is composed of the 3000 largest U.S.
companies by market cap. and represents approximately 98% of the U.S. market.
The indices are not adjusted for sales charges or other fees.
3
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MENTOR GROWTH PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Capital Growth Portfolio Class B Shares and the Russell 2000.
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10/1/85 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 9/30/95
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Class B 10,000 11,330 13,079 11,786 13,774 16,163 14,341 21,548 24,903 28,789 27,500 36,327**
Russell 2,000~ 10,000 11,650 12,311 11,231 14,028 16,306 14,124 19,167 22,698 26,988 26,496 33,310
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AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year 5-Year 10-Year
Class B 24.38% 22.93% 13.79%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
** REPRESENTS A HYPOTHETICAL INVESTMENT OF $10,000 IN MENTOR GROWTH PORTFOLIO
CLASS B SHARES. A CONTINGENT DEFERRED SALES CHARGE WILL BE IMPOSED, IF
APPLICABLE, ON CLASS B SHARES AT RATES RANGING FROM A MAXIMUM OF 4.00% OF
AMOUNTS REDEEMED DURING THE FIRST YEAR FOLLOWING THE DATE OF PURCHASE TO
1.00% OF AMOUNTS REDEEMED DURING THE SIXTH YEAR PERIOD FOLLOWING THE DATE OF
PURCHASE. THE ENDING VALUE OF THE CLASS B SHARES REFLECTS A REDEMPTION FEE
OF 4.00% ON ANY REDEMPTION LESS THAN 1 YEAR FROM THE PURCHASE DATE. THE
CLASS B SHARES' PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS.
~ THE RUSSELL 2000 IS COMPOSED OF THE 2,000 SMALLEST STOCKS IN THE RUSSELL 3000
INDEX AND REPRESENTS APPROXIMATELY 7% OF THE U.S. EQUITY MARKET
CAPITALIZATION. THE RUSSELL 3000 IS COMPOSED OF THE 3000 LARGEST U.S.
COMPANIES BY MARKET CAP. AND REPRESENTS APPROXIMATELY 98% OF THE U.S. MARKET.
THE INDEXES ARE NOT ADJUSTED FOR SALES CHARGES OR OTHER FEES.
4
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MANAGER'S COMMENTARY
MENTOR CAPITAL GROWTH PORTFOLIO
The Federal Reserve's interest rate increase that was the bane of investors last
year has emerged as a blessing in disguise. Sustained economic growth and
moderating inflation have led to a surge in corporate profits and a decline in
interest rates. The result has been that most stock indexes have advanced
steadily throughout the year to post solid double-digit returns.
However, the financial markets, by definition, are always in flux. Now is not a
time to be complacent. The markets will likely be more volatile in the months
ahead. Volatility, by stirring emotions and obscuring fundamentals, is the
long-term investor's most serious distraction. The key at this point is to
remain focused on the fundamentals through a disciplined Portfolio approach. We
still believe that reasonable returns can be earned over the next year, but they
won't come as easily as in the past year. We are well-positioned to navigate a
more volatile market and add to the gains achieved so far.
Showing the inevitable effects of a slowing economy, corporate earnings will
likely plateau, and may even decline next year. Once the equity market gets over
the initial shock of the end to the current phenomenal run in profits that has
lasted four years, it is likely to focus more carefully on the fundamentals. The
market will likely reward companies with above-average financial strength that
can continue to grow earnings solidly in a more erratic economy. The companies
presently held within our portfolio have produced a very consistent earnings
progression at a rate twice the S&P 500* over the last ten years. These stocks
have generally outperformed the broader market after a peak in corporate
profitability, which has not been the case for three years because of the strong
cyclical upswing in the economy. As the economy continues to moderate, the
evidence now strongly suggests that our holdings will once again demonstrate
their superior quality-growth characteristics in the year ahead.
Sincerely,
John Davenport
CHIEF EQUITY OFFICER
Barton Peters
DIRECTOR OF EQUITY RESEARCH
Richard Skeppstrom
PORTFOLIO MANAGER
Chris Rusbuldt
PORTFOLIO MANAGER
* The Standard & Poor's 500 Index is an unmanaged index of 500 widely-held
companies and is regarded by investors to be representative of the stock
market in general. An unmanaged index does not reflect expenses and may not
correspond to the performance of the Portfolio, which incurs expenses.
5
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MENTOR CAPITAL GROWTH PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Capital Growth Portfolio Class A and Class B Shares and the S&P 500.~
4/29/92 9/30/92 9/30/93 9/30/94 9/30/95
S&P 500 10,000 10,215 11,543 11,965 15,520
A Shares 9,425** 9,524 10,306 10,165 12,216
B Shares 10,000 10,061 10,818 10,601 12,443***
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A Shares 13.25% 5.93%
Class B Shares 15.26% 6.60%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Capital Growth Portfolio Class A and Class B
Shares from the date of initial public investment on 4/29/92 through
9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Capital Growth
Portfolio Class A Shares, after deducting the maximum sales charge of 5.75%
($10,000 investment minus $575 sales charges = $9,425). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
*** Represents a hypothetical investment of $10,000 in Mentor Capital Growth
Portfolio Class B Shares. A contingent deferred sales charge will be
imposed, if applicable, on Class B Shares of rates ranging from a maximum of
4.00% of amounts redeemed during the first year following the date of
purchase to 1.00% of amounts redeemed during the sixth year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than 1 year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The S&P 500 is adjusted to reflect reinvestment of dividends on securities in
the index. The S&P 500 is not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in the Portfolio's
performance.
6
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MANAGER'S COMMENTARY
MENTOR STRATEGY PORTFOLIO
During the last six months the stock market experienced a distinct sector
rotation. The first three months of the six-month period continued the big-cap.,
blue-chip stock market domination that had been the case since this mighty
bull-market began in November, 1994. This is a common characteristic of
"beginning" phases of bull markets, as the cautious atmosphere from the previous
correction is still encouraging a conservative value-oriented style of
investing. Typically this style lends itself better to buying stocks in the
larger companies, with earnings that are not nearly as economically sensitive.
This is the reason that Standard & Poor 500 companies outperform their smaller,
more flexible counterparts during early phases of bull markets. But that changed
very drastically around the first of June, as small- and mid-capitalization
stocks began to move up dramatically in price. In our opinion this was fueled by
the growing expectation of the Federal Reserve cutting interest rates.
During this small-cap. surge, investors had a glimpse of what may occur for the
next fifteen months. Stocks with dynamic growth prospects, often in the smaller-
and mid-cap. category, enjoyed dynamic price advances. However, because economic
concerns are still very much alive, that teasing rally lasted only about ten
weeks, and has now taken a brief sabbatical, while worries about future Federal
Reserve action grow. The game plan has almost been picture perfect with our
market commentary at the beginning of this year. If that script continues to
play out as we believe, the Federal Reserve will cut interest rates
significantly within the next thirty-to-sixty days, coincident with an historic
seven-to-eight year balanced budget signed into law. We believe the combination
of those two factors will help the brief vision of small-cap. dominance
experienced recently to reignite in all its glory, offering the potential for
the best market returns in this category of stocks since the mid-1960's.
In anticipation of this expected action, we have been gradually shifting the
Portfolio into smaller-capitalization stocks with outstanding growth potential.
Please keep in mind small and mid-size companies generally exhibit greater price
volatility than larger companies. Our asset allocation model is indicating the
growing attractiveness of stocks, and we recently shifted 5% of our cash
position into stocks. If current trends continue, we anticipate that the model
will be recommending a portfolio fully-invested in equities within the next few
weeks.
Sincerely,
Don R. Hays
PORTFOLIO MANAGER
7
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MENTOR STRATEGY PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change of value of hypothetical $10,000 investment in Mentor
Strategy Portfolio Class A Shares and the S&P 500~.
6/5/95 6/30/95 9/30/95
Class A 9,425** 9,695 10,679
S&P 500~ 10,000 10,235 11,050
TOTAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A n/a 6.80%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Strategy Portfolio Class A from the date of
issuance on 6/5/95 through 9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Strategy Portfolio
Class A Shares, after deducting the maximum sales charge of 5.75% ($10,000
investment minus $575 sales charges = $9,425). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
~ The S&P 500 is adjusted to reflect reinvestment of dividends on securities in
the index. The S&P 500 is not adjusted to reflect sales loads, expenses or
other fees that the SEC requires to be reflected in the Portfolio's
performance.
Comparison of change of value of hypothetical $10,000 investment in Mentor
Strategy Portfolio Class B Shares and the S&P 500~.
10/29/93 12/31/93 6/30/94 12/31/94 6/30/95 9/30/95
Class B 10,000 10,160 9,032 9,893 11,198 11,775**
S&P 500~ 10,000 10,028 9,683 10,157 12,206 13,178
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class B 19.73% 8.85%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Strategy Portfolio Class B from the date of
issuance on 10/29/93 through 9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Strategy Portfolio
Class B Shares. A contingent deferred sales charge will be imposed, if
applicable, on Class B shares at rates ranging from a maximum of 4.00% of
amounts redeemed during the first year following the date of purchase to
1.00% of amounts redeemed during the sixth year period following the date of
purchase. The ending value of the Class B Shares reflects a redemption fee
of 4.00% on any redemption less than 1 year from the purchase date. The
Class B Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The S&P 500 is adjusted to reflect reinvestment of dividends on securities in
the index. The S&P 500 is not adjusted to reflect sales loads, expenses or
other fees that the SEC requires to be reflected in the Portfolio's
performance.
8
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MANAGER'S COMMENTARY
MENTOR INCOME & GROWTH PORTFOLIO
REVIEW OF MARKETS
The second and third quarters of 1995 were marked by solid performance by both
the equity and fixed-income markets. For the twelve-month period ending
September 30, 1995, the U.S. equity market returned 29.7%, as measured by the
S&P 500 Index.+ The broad U.S. bond market also performed strongly, returning
14.1%, as measured by the Lehman Brothers Aggregate Index.++ The powerful
performance of the equity markets has been aided by robust corporate earnings,
low inflation, and moderate interest rates. During the third quarter, the benign
inflation outlook allowed fixed-income yields to decline slightly from their
already low levels.
MARKET CONDITIONS
For the trailing twelve-month period ending September 30, 1995, the Portfolio
returned 17.3%+++ (for "A" shares). In general, the Portfolio benefited from the
healthy performance of both the equity and fixed-income markets. In particular,
the performance of the Portfolio was buoyed by equity holdings in the finance
and materials sectors. However, its underweighting in technology and healthcare
was a drag on performance, as these sectors have performed particularly strongly
during the past year.
MARKET OUTLOOK
It appears that the Federal Reserve has successfully engineered a "soft landing"
for the U.S. economy. While a resurgence in inflation has been avoided, modest
upward price pressures remain on the horizon, particularly in agricultural
commodities. There is a danger that inflation in industrial materials could rise
again if the economy reacclerates too quickly. We expect the Federal Reserve to
keep interest rates at their current level until the budget bill is passed. If
the budget bill passes successfully, lower interest rates are possible. We
expect corporate profit growth to continue in 1996, but at a slower, probably
single-digit pace. Companies continue to use the significant increase in cash
flows being generated by improved profits to fund capital investments, stock
repurchase, and, to a lesser extent, dividend increases. Productivity
improvements from capital investments and corporate restructurings will continue
to contribute significantly to profit growth, but we believe that most of the
"low hanging fruit" has been gathered.
PORTFOLIO STRATEGY
In the equity portion of the Portfolio, we continue our commitment to the
commercial aircraft industry, where deliveries are expected to double in
response to heavy demand from airlines. In the energy sector, we have turned our
attention away from the oil companies and toward domestic natural gas companies.
A more normal winter should lead to strong pricing gains. We remain optimistic
about the insurance sector, as many insurers continue to exit loss-making areas,
creating a more favorable backdrop for the industry. As the stock market rally
has left few sectors systematically undervalued, we will be motivated more than
usual by picking the right company and stock, rather than focusing on broader
themes.
9
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MANAGER'S COMMENTARY
MENTOR INCOME & GROWTH PORTFOLIO
In the fixed-income portion of the Portfolio, we feel that because long bond
yields are now below 6.5%, it is time for us to become more defensive. Although
yields may drift slightly lower, the appropriate strategic move is to reduce
duration because gains in fixed-income securities will be more difficult to come
by. Corporate bonds remain overvalued relative to treasury securities and
consequently, we have retained only a modest commitment to the sector.
Sincerely,
Paul D. Kaplan
FIXED-INCOME PORTFOLIO MANAGER
Arnold C. Schneider
EQUITY PORTFOLIO MANAGER
+ S&P 500
The Standard & Poor's 500 Index is an unmanaged index of 500 widely-held
companies and is regarded by investors to be representive of the stock market
in general. An unmanaged index does not reflect expenses and may not
correspond to the performance of the portfolio, which incurs expenses.
Investors can not invest in the S&P 500.
++ The Lehman Brothers Aggregate Index is made up of the Government/Corporate
Index, the Mortgage-Backed Securities Index, and the Asset-Backed Securities
Index.
+++ See the following charts for detailed performance information
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Income & Growth Portfolio Class A and Class B Shares the S&P 500~ and the
Shearson Lehman Aggregate Bond Index~.
5/24/93 9/30/93 9/30/94 9/30/95
SLAGG/S&P 500~ 10,000 10,353 10,446 12,879
A Shares 9,425** 9,909 10,578 12,402
B Shares 10,133 10,506 11,239 12,614***
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A Shares 10.52% 9.62%
Class B Shares 12.32% 10.53%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Income & Growth Portfolio Class A and Class B
Shares from the date of initial public investment on 5/24/93 through
9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Income & Growth
Portfolio Class A Shares, after deducting the maximum sales charge of 5.75%
($10,000 investment minus $575 sales charges = $9,425). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
*** Represents a hypothetical investment of $10,000 in Mentor Income & Growth
Portfolio Class B Shares. A contingent deferred sales charge will be
imposed, if applicable, on Class B shares at rates ranging from a maximum of
4.00% of amounts redeemed during the first year following the date of
purchase to 1.00% of amounts redeemed during the sixth year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than 1 year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The Shearson Lehman Aggregate Bond Index and S&P 500 are adjusted to reflect
reinvestment of dividends on securities in the indices. The Shearson Lehman
Aggregate Bond Index and S&P 500 are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the
Portfolio's performance. This index represents an asset allocation of 60% S&P
500 Stocks and 40% Shearson Lehman Aggregate Bond Index.
10
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MENTOR MANAGER'S COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO
Mentor Perpetual Advisors began managing Mentor Perpetual Global Portfolio on
May 17, 1995. Since then, the Portfolio has had a total return of 7.94% through
September 30, 1995 versus the 6.63% of the MSCI World Index+ expressed in U.S.
dollars. The market value of the Portfolio has increased from $16.2 million to
$18.7 million over the same time period.
Asset allocation weightings on September 30, 1995 stood at 34% U.S., 34% Europe,
13% Asia, 13% Japan, 1% Latin America and 5% cash.
REVIEW OF THE MARKETS
During the six-month period ending September 30, 1995, the U.S. markets
performed very well, the U.K. and continental Europe markets also provided good
returns, and only the Japanese market was disappointing in U.S. dollar terms.
NORTH AMERICA
During the period, inflation remained low, productivity was high, and the
majority of companies continued to announce profits exceeding analysts'
estimates. Economic growth in the U.S. slowed sharply in the first half of 1995
as the effect of higher interest rates began to bite. In early July the Federal
Reserve reduced its key Federal Funds rate by .25%, confirming the view that the
peak in interest rates had already passed. Long-term interest rates also
declined significantly over the period as inflationary pressures declined and
growth slowed. Year-on-year earnings growth continued at a decent rate and
although there were signs of weakness in some areas, the overall environment was
extremely favorable. Stock prices responded accordingly.
UNITED KINGDOM
Earnings expectations for 1995 declined as analysts took a less optimistic view
of the economy. In early summer strong slowdowns in retail sales and
manufacturing output became evident, and the Chancellor of the Exchequer's
reluctance to raise interest rates was vindicated. The possibility that interest
rates were already at their peak was a powerful force in improving investor
sentiment, and the equity market moved higher.
EUROPE
European markets performed well overall, although performance varied
considerably among markets. Markets in Switzerland, Sweden and the Netherlands
had particularly strong performance, and German markets had good performance.
Italian markets, on the other hand, were weak. As with the U.K., a more positive
view on continental Europe developed as subdued consumer demand and weaker raw
material prices caused greater optimism for the future of inflation and interest
rates.
ASIAN MARKETS
Lack of any recovery in the economy, deflation of asset prices, and concern
about the strength of some financial institutions depressed investor sentiment
and left the Japanese equity market one of the weakest in the world.
On a more positive note, after the market had fallen sharply in the first six
months of 1995, a reduction in short-term interest rates and an effort to reduce
the trade surplus improved sentiment and the stock market staged a rally of over
20% from the low. Unfortunately the weakness of the Yen caused much of the gain
to be lost to investors, if taken in U.S. dollars.
11
<PAGE>
MENTOR MANAGER'S COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO (CONTINUED)
The smaller Asian markets saw a sharp recovery over the past six months as the
perception that U.S. interest rates had peaked caused an improvement in investor
sentiment and a return of capital flows into the region.
LATIN AMERICA
The Mexican peso devaluation on December 19, 1994 caused a major crisis of
confidence in these markets, with weak liquidity and poor sentiment keeping the
markets depressed.
MARKET OUTLOOK
The U.S market is likely to consolidate over the short-term while investors
remain concerned about third quarter earnings. Volatility has increased sharply
in recent weeks. With growing risk from lower-than-expected earnings, upward
progress will be difficult in the coming quarter.
It is likely that the majority of the Japanese currency slide is over, and risk
to the U.S. dollar investor should decrease. The Japanese equity market itself
is likely to rally further. Corporate profits are rising, the government
continues to stimulate the economy, and interest rates have fallen to record
lows. In U.S. dollar terms Japan has underperformed most world markets so far in
1995 and will probably recover some of the ground lost over the next quarter.
The next quarter will continue to be difficult for European equities. Following
recent interest rate cuts in Germany and Japan, the U.S. dollar should continue
to strengthen, pushing European share prices somewhat higher. However, it will
not be enough to create a strong bull market as economic growth remains subdued
and new issues continue to swamp the markets.
In the U.K., institutional cash flow remains strong and could well be boosted
further by corporate activity. Earnings reports have been mixed and are likely
to remain so, but the general outlook should be positive, allowing investors to
make reasonable progress for the rest of this year.
While we expect further weakness in the region over the next quarter, the Hong
Kong market appears to be the clearest beneficiary of lower U.S. interest rates
and is showing the first signs of cyclical recovery in the region. The
possibility of monetary relaxation in China in 1996, combined with a modest
upturn in economic growth, could generate stronger relative performance as
markets enter a traditionally buoyant fourth quarter.
Investors must keep in mind that investments outside the United States are
subject to some additional considerations, including currency fluctuations,
political and social instability, differing securities regulations and
accounting standards, possible changes in taxation, and periods of illiquidity.
Sincerely,
Scott McGlashan
PORTFOLIO MANAGER
+ The World Index is an arithmetic average weighted by market value, of the
performance of approximately 1450 securities listed on the stock exchanges of
20 countries including the USA, Europe, Canada, Australia, New Zealand, and
the Far East. The average company in the index has a market capitalization of
about $3.5 billion. This is a total return index with gross dividends
reinvested.
12
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 purchase in Mentor
Perpetual Global Portfolio Class A and Class B Shares and the Morgan Stanley
Capital World~.
3/24/94 9/30/94 3/31/95 9/30/95
Morgan Stanley Capital World~ 10,000 10,545 10,985 12,124
A Shares 9,425** 9,487 9,313 10,587
B Shares 9,996 9,982 9,764 10,655***
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A Shares 5.17% 3.67%
Class B Shares 6.74% 4.30%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Perpetual Global Portfolio Class A and Class B
Shares from the date of initial public investment on 3/24/94 through
9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Perpetual Global
Portfolio Class A Shares, after deducting the maximum sales charge of 5.75%
($10,000 investment minus $575 sales charges = $9,425). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
*** Represents a hypothetical investment of $10,000 in Mentor Perpetual Global
Portfolio Class B Shares. A contingent deferred sales charge will be
imposed, if applicable, on Class B Shares at rates ranging from a maximum of
4.00% of amounts redeemed during the first year following the date of
purchase to 1.00% of amounts redeemed during the sixth year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than 1 year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The Morgan Stanley Capital World is adjusted to reflect reinvestment of
dividends on securities in the index. The Morgan Stanley Capital World is not
adjusted to reflect sales loads, expenses, or other fees that the SEC requires
to be reflected in the Portfolio's performance.
13
<PAGE>
MENTOR MANAGERS' COMMENTARY
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO
MARKET CONDITIONS
The bond market has continued to rally during the last six months. Two-year
rates are down 0.88% and ten-year rates are down 0.98%. The majority of this
rally occurred from March 30 to June 30, as interest rates were virtually
unchanged over the last three months. Overall weaker-than-expected economic
results during April, May, and June were followed, in early July, by the first
easing of monetary policy by the Federal Reserve since late 1992. For the
remainder of the six-month period, the market bounced back and forth trying to
decide if there would be any additional easing or if the Federal Reserve had
achieved the so-called "soft landing." The debate continues as we head into the
fourth quarter.
PERFORMANCE
The Portfolios continued to provide strong year-to-date performance numbers.
Mentor Short-Duration Income Portfolio had a total return of 9.22% (for "A"
Shares), well above the peer group average of 8.09%.+ Mentor Quality Income
Portfolio had a total return of 12.74%, well above its' peer group average of
11.82%.+ For the three-month period ended September 30, 1995, Mentor
Short-Duration Income Portfolio had a total return of 0.77%, compared to the
peer group average of 1.52%.+ Mentor Quality Income Portfolio had a three-month
total return of 1.50% versus a peer group average of 1.78%.+
The strong year-to-date performance numbers were attributable to the Portfolios'
large U.S. Treasury positions held during the rally. Treasury securities perform
better than any other fixed-income instrument during a rally. The advantage that
the Portfolios enjoyed during the rally turned into a disadvantage during the
last three months. The market bounced up and down within a narrow trading range
as market participants tried to determine the next move from the Federal
Reserve. Economic data was mixed as inflation numbers remained very low while
production and employment numbers showed reasonable strength. Just as the
liquidity and positive convexity of treasury securities helped during a rally,
their low yields hurt during a stable rate environment.
As we moved through the third quarter, it became apparent that the Federal
Reserve was reluctant to cut interest rates based on economic data alone. Alan
Greenspan, Chairman of the Federal Reserve, appears to want to see a definitive
deficit reduction plan before he will significantly ease credit conditions. By
swapping some of our treasury holdings into higher yielding products, as the
quarter ended, the Portfolios were positioned to take advantage of a lower
volatility environment.
MARKET OUTLOOK
We continue to have a positive outlook for the balance of the year. Most market
participants are expecting the Federal Reserve to continue easing interest
rates, perhaps as early as
14
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO (CONTINUED)
December 19th. The big question is: What will be the result of the budget
debates currently underway? If a credible budget deficit package is put into
place, we believe that the Federal Reserve will lower short-term interest rates.
Deficit reduction combined with easier monetary policy should be positive for
the bond market. As the quarter drew to a close, consistent with our positive
outlook on the market, the Portfolios' durations were tilted slightly longer
than their respective indices.
Sincerely,
P. Michael Jones
PORTFOLIO MANAGER
Steven Henderson
PORTFOLIO MANAGER
+ Source Lipper Analytical Services, Inc.
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 purchase in Mentor
Quality Income Portfolio Class A and Class B Shares and the Merrill Lynch 7-Year
Treasury Index~.
4/29/92 9/30/92 9/30/93 9/30/94 9/30/95
Merrill Lynch 7-Year
Treasury Index~ 10,000 11,052 12,380 11,705 13,496
A Shares 9,525** 9,846 10,378 10,036 11,222
B Shares 10,000 10,324 10,827 10,406 11,354***
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A Shares 6.47% 3.43%
Class B Shares 7.33% 3.90%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Quality Income Portfolio Class A and Class B
Shares from the date of initial public investment on 4/29/92 through
9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Quality Income
Portfolio Class A Shares, after deducting the maximum sales charge of 4.75%
($10,000 investment minus $475 sales charge = $9,525). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
*** Represents a hypothetical investment of $10,000 in Mentor Quality Income
Portfolio Class B Shares. A contingent deferred sales charge will be
imposed, if applicable, on Class B Shares at rates ranging from a maximum of
4.00% of amounts redeemed during the first year following the date of
purchase to 1.00% of amounts redeemed during the sixth year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than 1 year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The Merrill Lynch 7-Year Treasury Index is adjusted to reflect reinvestment
of interest on securities in the index. The Merrill Lynch 7-Year Treasury
Index is not adjusted to reflect sales loads, expenses, or other fees that
the SEC requires to be reflected in the Portfolio's performance.
15
<PAGE>
MENTOR SHORT-DURATION INCOME PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change in value of hypothetical $10,000 purchase in Mentor
Short-Duration Income Portfolio Class A Shares and the Merrill Lynch 3-Year
Treasury~.
6/16/95 6/30/95 9/30/95
Class A 9,900 9,946 10,050
3-Year Treasury~ 10,000 10,062 10,139
TOTAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A n/a 0.49%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Short-Duration Income Portfolio Class A from
the date of issuance on 6/16/95 through 9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Short-Duration
Income Portfolio Class A Shares, after deducting the maximum sales charge of
1.00% ($10,000 investment minus $100 sales charges = $9,900. The Class A
Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The Merrill Lynch 3-Year Treasury is adjusted to reflect reinvestment of
interest on securities in the indices. The Merrill Lynch 3-Year Treasury
Index is not adjusted to reflect sales loads, expenses, or other fees that
the SEC requires to be reflected in the Portfolio's performance. The
Portfolio invests in securities other than Treasuries.
Comparison of change in value of hypothetical $10,000 purchase in Mentor
Short-Duration Income Portfolio Class B Shares and Merrill Lynch 3-year
Treasury~.
4/28/94 6/30/94 12/31/94 6/30/95 9/30/95
Class B 10,000 10,040 10,093 10,516 10,623**
3-Year Treasury~ 10,000 10,019 10,075 10,920 11,051
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class B 5.29% 4.34%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Short-Duration Income Portfolio Class B Shares
from the date of initial public investment on 4/28/94 through 9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Short-Duration
Income Portfolio Class B Shares. A contingent deferred sales charge will be
imposed, if applicable on Class B Shares at rates ranging from a maximum of
4.00% of amounts redeemed during the first year following the date of
purchase to 1.00% of amounts redeemed during the sixth year period following
the date of purchase. The ending value of the Class B shares reflects a
redemption fee of 4.00% on any redemption less than 1 year from the purchase
date. The Class B Shares' performance assumes the reinvestment of all
dividends and distributions.
~ The Merrill Lynch 3-Year Treasury is adjusted to reflect reinvestment of
interest on securities in the indices. The Merrill Lynch 3-Year Treasury
Index is not adjusted to reflect sales loads, expenses or other fees that
the SEC requires to be reflected in the Portfolio's performance. The
Portfolio invests in Securities other than Treasuries.
16
<PAGE>
MANAGER'S COMMENTARY
MENTOR MUNICIPAL INCOME PORTFOLIO
GENERAL MARKET CONDITIONS
During the past six months the tax-exempt market has been relatively strong, as
municipal yields followed the rally in treasuries. Major factors affecting the
market include diminished supply and demand levels, and concern over the effect
of tax reform on the municipal market.
HOW MARKET CONDITIONS AFFECTED THE PORTFOLIO
Year-to-date, the Portfolio has a total return of 11.38%. Performance suffered
in the second quarter due to a hedge position which was put in place to lessen
market volatility. The Portfolio has an average acquisition yield of 7.33%, well
above current market levels. Consequently, trading has been modest as current
market offerings provide no coupon or yield advantage over existing holdings.
Approximately 40% of assets are invested in AAA-rated assets, given our belief
that the retail market will continue its "flight to quality" because of credit
concerns. The Portfolio's largest sector exposure is to the healthcare industry
at 17% of assets. There have been no significant shifts in sector or rating
distribution that have affected the Portfolio's performance, and the Portfolio
remains well diversified.
OUTLOOK AND EXPECTED STRATEGY
Our outlook for the coming year is positive, and we remain conservatively
bullish on municipals. New volume issuance is expected to increase during the
fourth quarter, although total issuance for the year should be near original
projections of $145 billion. Record levels of both outstanding municipal debt
and pre-refunded bonds continue to mature, accentuating demand. When viewed as a
percentage of taxable rates, municipal yields on the long end of the yield curve
are at levels attractive to individual investors.
While three- to five-year tax-exempt rates yield 70% of U.S. Treasury's rates,
fifteen-year returns are at 86%, and twenty- to thirty-year yields are at 90%.
Whether tax-exempt yields will continue to participate with U.S. Treasury rates
as they did during this past quarter, however, is questionable, and will be
determined by public response to the tax reform debate. With continued strong
interest rate markets, individuals will need to choose to enter the municipal
market at relatively high prices, or to exit near the highs of 1993. That
decision appears to be further complicated by the fact that individual investors
seem to feel confident in making the "municipal bet" at higher yields, while
they seem uncomfortable with yields in the 4-5% range.
Sincerely,
David Johnson
PORTFOLIO MANAGER
17
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 purchase in Mentor
Municipal Income Portfolio Class A and Class B Shares and Lehman Municipal Bond
Index~.
4/29/92 9/30/92 9/30/93 9/30/94 9/30/95
Lehman Municipal Bond Index~ 10,000 10,561 11,906 11,616 12,915
A Shares 9,525** 10,034 11,637 11,101 12,151
B Shares 10,000 10,528 12,134 11,511 12,348***
AVERAGE ANNUAL RETURNS AS OF 9/30/95
INCLUDING SALES CHARGES
1-Year Since Inception*
Class A 4.26% 5.86%
Class B 5.01% 6.36%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of Mentor Municipal Income Portfolio Class A and Class B
Shares from the date of initial public investment on 4/29/92 through
9/30/95.
** Represents a hypothetical investment of $10,000 in Mentor Municipal Income
Portfolio Class A Shares, after deducting the maximum sales charge of 4.75%
($10,000 investment minus $475 sales charge = $9,525). The Class A Shares'
performance assumes the reinvestment of all dividends and distributions.
*** Represents a hypothetical investment of $10,000 in Mentor Municipal Income
Portfolio Class B Shares. A contingent deferred sales charge will be
imposed, if applicable, on Class B Shares at rates ranging from a maximum of
4.00% of amounts redeemed during the first year following the date of
purchase to 1.00% of amounts redeemed during the sixth year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than 1 year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
~ The Lehman Municipal Bond Index is adjusted to reflect reinvestment of
interests on securities in the index. The Lehman Municipal Bond Index is not
adjusted to reflect sales loads, expenses, or other fees that the SEC
requires to be reflected in the Portfolio's performance.
18
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 88.81%
BASIC INDUSTRIES 1.33%
Alco Standard Corporation 25,400 $ 2,152,650
Citation Corporation* 77,250 1,390,500
3,543,150
BUILDING 2.66%
Blount, Inc.-Class A 57,550 2,740,819
Clayton Homes, Inc. 183,200 4,351,000
7,091,819
CAPITAL GOODS & CONSTRUCTION 1.77%
Fastenal Company 48,440 1,768,060
Flextronics International, Ltd.* 108,600 2,796,450
Computational System* 10,000 162,500
4,727,010
CONSUMER CYCLICAL 9.29%
Apple South, Inc. 126,850 2,885,837
Chromcraft Revington, Inc.* 109,000 2,670,500
Consolidated Products Company* 89,150 1,470,975
Landry's Seafood Restaurant* 100,000 1,800,000
Legget & Platt, Inc. 59,600 1,467,650
Outback Steakhouse* 47,000 1,445,250
Quality Dining, Inc.* 163,000 2,974,750
Regal Cinemas, Inc.* 106,325 4,372,615
Rio Hotel & Casino, Inc.* 104,900 1,363,700
Sonic Corporation* 94,200 2,143,050
Wabash National Corporation 61,900 2,189,713
24,784,040
CONSUMER STAPLES 1.93%
Performance Food Group* 52,500 1,220,625
Richfood Holdings, Inc. 155,700 3,921,694
5,142,319
ENERGY 0.89%
Cairn Energy USA, Inc.* 116,850 1,489,838
Nuevo Energy Company* 38,800 873,000
2,362,838
</TABLE>
19
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL 7.72%
Concord Electronic Fleet Services, Inc.* 115,200 $ 3,513,600
Credit Acceptance Company* 45,600 1,231,200
Envoy Corporation* 113,400 1,360,800
First Financial Management Corporation 24,250 2,367,406
Jayhawk Acceptance Corporation* 87,200 1,275,300
Leader Financial Corporation 90,500 3,133,563
Markel Corporation* 66,360 4,877,460
National Commerce Bancorp 114,996 2,817,402
20,576,731
HEALTH 19.97%
Advantage Health Corporation* 51,200 1,740,800
Biomet, Inc.* 168,350 2,904,037
Columbia HCA Healthcare Corporation 64,300 3,126,587
Community Health Systems* 70,600 2,850,475
Compdnet Corporation* 103,200 3,018,600
Gelman Sciences, Inc.* 99,600 2,191,200
Health Management Associates* 67,300 2,162,013
Healthdyne Technologies* 143,200 1,951,100
Healthsource, Inc.* 57,700 2,776,813
Idexx Laboratories, Inc.* 74,200 2,763,950
Manor Care, Inc. 92,900 3,170,213
Omnicare, Inc. 118,300 4,613,700
Phycor, Inc.* 148,650 5,091,262
Physician Sales & Services, Inc.* 70,600 3,388,800
Ren Corporation* 116,400 2,313,450
Renal Treatment Centers* 80,600 2,982,200
Respironics, Inc.* 74,500 1,434,125
Vencor, Inc.* 149,325 4,778,400
53,257,725
RETAIL 8.85%
Barnes and Noble, Inc.* 66,800 2,555,100
Big B, Inc. 181,800 2,704,275
Casey's General Stores, Inc. 172,950 3,912,994
Corporate Express, Inc.* 80,950 1,973,156
Dollar General Corporation 41,041 1,205,579
Heilig-Meyers Company 14,800 344,100
</TABLE>
20
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
Moovies, Inc.* 89,400 $ 1,754,475
Movie Gallery, Inc.* 76,700 3,278,925
Office Depot, Inc.* 89,600 2,699,200
Revco D. S., Inc.* 86,000 2,021,000
S & K Famous Brands, Inc.* 131,000 1,146,250
23,595,054
TECHNOLOGY 26.02%
3Com Corporation* 55,300 2,516,150
ACC Corporation 98,300 1,621,950
Acxiom Corporation* 62,800 1,774,100
Applied Materials, Inc. 19,050 1,947,862
Atmel Corporation* 48,200 1,626,750
Benchmark Electronics, Inc.* 42,800 1,203,750
Cellstar Corporation* 41,400 1,293,750
Cincinnati Microwave, Inc.* 143,700 2,173,463
Cisco Systems, Inc.* 38,800 2,677,200
Computer Management Sciences* 12,500 212,500
Cybex Corporation* 68,900 1,722,500
Danka Business Systems 107,000 3,852,000
Dell Computers Corporation* 18,800 1,598,000
Diamond Multimedia Systems* 84,050 2,710,612
DSC Communications Corporation* 52,300 3,098,775
Emulex Corporation* 80,500 1,066,625
Frontier Corporation 189,300 5,040,113
Gateway 2000, Inc.* 46,300 1,417,937
Informix Corporation* 62,900 2,044,250
Kent Electronics Corporation* 54,250 2,380,218
LAM Research Corporation* 14,700 878,325
Linear Technology Corporation 88,000 3,652,000
LSI Logic Corporation* 47,900 2,766,225
Mysoftware Company* 104,200 1,328,550
Ontrak Systems* 55,700 1,538,713
Palmer Wireless, Inc.* 86,900 1,933,525
Quantum Corporation* 16,000 350,000
SDL, Inc.* 68,900 1,946,425
Silicon Valley Group* 29,700 1,147,163
Symmetricom, Inc.* 142,250 3,200,625
Triquint Semiconductor, Inc.* 64,850 1,483,444
Uniphase Corporation* 46,650 1,644,413
US Long Distance Corporation* 105,700 1,592,106
Worldcom, Inc.* 123,362 3,963,004
69,403,023
</TABLE>
21
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION 2.54%
American Freightways Corporation* 117,350 $ 1,760,250
Atlantic Southeast Airlines, Inc. 92,600 2,164,525
Swift Transportation Company, Inc.* 100,900 1,740,525
USA Truck, Inc.* 84,700 1,101,100
6,766,400
MISCELLANEOUS 5.84%
ABR Information Services* 108,150 2,730,787
Accustaff, Inc.* 81,750 3,004,312
Career Horizons, Inc.* 111,300 3,005,100
Olsten Corporation 50,300 1,955,413
Romac International* 79,750 1,355,750
Scientific Games Holding* 34,900 1,304,388
Xilinx, Inc.* 46,600 2,242,625
15,598,375
TOTAL COMMON STOCKS (COST $160,128,016) 236,848,484
SHORT-TERM INVESTMENT 9.63%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 9/29/95, 6.40%, due 10/02/95,
collateralized by $26,600,000
U.S. Treasury Bill, due 12/28/95,
(cost $25,689,361) $25,689,361 25,689,361
TOTAL INVESTMENTS (COST $185,817,377) 98.44% 262,537,845
OTHER ASSETS LESS LIABILITIES 1.56% 4,156,579
NET ASSETS 100.00% $266,694,424
</TABLE>
* Securities not currently producing income.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 99.93%
BASIC MATERIALS 4.43%
Morton International, Inc. 80,800 $ 2,504,800
Nalco Chemical Company 40,000 1,365,000
3,869,800
CAPITAL GOODS & CONSTRUCTION 11.87%
AMP, Inc. 30,000 1,155,000
Linear Technology Company 66,600 2,763,900
Sherwin Williams Company 68,700 2,404,500
W.W. Grainger, Inc. 34,700 2,095,012
York International Corporation 46,000 1,937,750
10,356,162
CONSUMER CYCLICAL 23.76%
Albertson's, Inc. 58,000 1,979,250
Gannett Company 21,000 1,147,125
May Department Stores Company 64,500 2,821,875
McDonald's Corporation 24,000 918,000
Newell Company 119,900 2,967,525
R.R. Donnelley & Sons 73,600 2,870,400
Sonoco Products Company 101,350 2,812,462
Sunbeam-Oster 17,500 260,313
Sysco Corporation 100,400 2,735,900
Unifi, Inc. 90,200 2,209,900
20,722,750
CONSUMER STAPLES 10.94%
Avon Products 21,900 1,571,325
Johnson & Johnson 39,900 2,957,587
Merck & Company, Inc. 38,000 2,128,000
Pfizer, Inc. 54,000 2,882,250
9,539,162
ENERGY 5.56%
Enron Corporation 41,900 1,403,650
Mobile Corporation 17,000 1,693,625
Schlumberger, Ltd. 26,800 1,748,700
4,845,975
</TABLE>
23
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL 12.10%
American Express Company 67,000 $ 2,973,125
Banc One Corporation 69,000 2,518,500
Federal National Mortgage Association 21,800 2,256,300
United Asset Management Corporation 69,900 2,804,738
10,552,663
HEALTH 0.78%
Columbia HCA Healthcare Corporation 14,000 680,750
TECHNOLOGY 15.99%
General Electric Company 51,700 3,295,875
Hewlett Packard Company 21,000 1,750,875
Intel Corporation 20,000 1,202,500
Loral Corporation 43,700 2,490,900
Motorola, Inc. 37,300 2,848,788
Premier Industrial Corporation 94,300 2,357,500
13,946,438
TRANSPORTATION & SERVICES 2.68%
Werner Enterprises, Inc. 112,800 2,340,600
MISCELLANEOUS 11.82%
Corning, Inc. 64,700 1,852,037
Interpublic Group Company 64,000 2,544,000
General Motors Corporation-Class E 24,000 1,092,000
Olsten Corporation 39,500 1,535,563
Tyco International, Ltd. 52,200 3,288,600
10,312,200
TOTAL COMMON STOCKS (COST $76,614,326) 87,166,500
SHORT-TERM INVESTMENT 0.17%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 9/29/95, 6.40%, due 10/02/95,
collateralized by $100,000
U.S. Treasury Note, 11.75%, due 11/15/14,
(cost $145,965) $ 145,965 145,965
TOTAL INVESTMENTS (COST $76,760,291) 100.10% 87,312,465
OTHER ASSETS LESS LIABILITIES (0.10%) (82,504)
NET ASSETS 100.00% $ 87,229,961
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 79.94%
BASIC MATERIALS 5.66%
Alco Standard Corporation 26,500 $ 2,245,875
American Buildings Company* 43,000 1,015,875
Federal Paper Board Company, Inc. 62,800 2,409,950
J&L Specialty Steel, Inc. 48,000 1,008,000
NL Industries, Inc.* 132,400 2,184,600
The Scotts Company - Class A* 96,200 2,128,425
Union Carbide Corp Holding 58,000 2,305,500
13,298,225
COMMERCIAL SERVICES & PRODUCTS 1.21%
Paychex, Inc. 61,537 2,846,086
CAPITAL GOODS & CONSTRUCTION 4.10%
AGCO Corporation 48,600 2,211,300
Bel Fuse, Inc.* 82,600 1,011,850
Insituform Technologies* 147,400 2,063,600
Microchip Technology, Inc.* 57,800 2,189,175
USA Waste Services, Inc.* 111,200 2,168,400
9,644,325
CONSUMER CYCLICAL 2.88%
Clear Channel Communications* 36,000 2,727,000
First Team Sports* 82,000 1,312,000
Primark Corporation* 109,700 2,728,787
6,767,787
CONSUMER STAPLES 4.51%
Amgen, Inc.* 45,000 2,244,375
Dura Pharmaceuticals* 39,700 1,181,075
Richfood Holdings, Inc. - Class A 95,000 2,392,812
Terra Industries, Inc. 176,700 2,517,975
Watson Pharmaceuticals* 55,400 2,271,400
10,607,637
ENERGY 0.98%
Panhandle Eastern Corporation 84,900 2,313,525
</TABLE>
25
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL 23.05%
Alex. Brown, Inc. 47,300 $ 2,761,137
Bank of New York Company, Inc. 50,800 2,362,200
City National Corporation 162,200 2,149,150
Concord Electronic Fleet Services, Inc.* 80,400 2,452,200
Credit Acceptance Corporation* 93,700 2,529,900
First USA, Inc. 43,400 2,354,450
Green Tree Financial Corporation 44,300 2,702,300
Hibernia Corporation - Class A 220,300 2,230,537
Lehman Brothers Holdings, Inc. 94,000 2,173,750
MBNA Corporation 64,950 2,703,543
Mercury Finance Company 110,000 2,681,250
Meridian Bancorp, Inc. 57,900 2,214,675
Morgan Stanley, Inc. 25,800 2,480,025
North Fork Bancorp, Inc. 111,000 2,303,250
Republic New York Corporation 38,100 2,228,850
Standard Federal Bancorp, Inc. 60,300 2,351,700
Student Loan Marketing Association 40,600 2,192,400
Synovus Financial Corporation 87,200 2,278,100
T. Rowe Price Associates, Inc. 60,500 3,100,625
The Money Store, Inc. 14,400 682,200
Travelers, Inc. 48,500 2,576,563
UJB Financial Corporation 66,900 2,140,799
Waterhouse Investor Service 100,000 2,550,000
54,199,604
HEALTH 6.36%
Loewen Group, Inc. 69,400 2,862,750
ORNDA Healthcorp* 110,000 2,337,500
Research Industries Corporation* 44,100 1,284,412
Respironics, Inc.* 127,300 2,450,525
Service Corporation International 65,600 2,566,600
Target Therapeutics, Inc.* 49,300 3,451,000
14,952,787
INDUSTRIAL PRODUCTS 4.73%
JLG Industries, Inc. 69,000 3,105,000
Owens-Corning Fiberglass Company* 49,700 2,217,863
Thermo Electron Corporation* 59,250 2,747,719
Toll Brothers, Inc.* 161,600 3,050,200
11,120,782
</TABLE>
26
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL 2.21%
Compucom Systems, Inc.* 177,000 $ 1,150,500
Discount Auto Parts* 38,000 1,149,500
Staples, Inc.* 102,375 2,892,094
5,192,094
TECHNOLOGY 19.20%
Analog Devices, Inc.* 60,800 2,105,200
Andrew Corporation* 43,500 2,658,938
Aspen Technology, Inc.* 41,600 1,248,000
BMC Software, Inc.* 49,000 2,254,000
Cognex Corporation* 57,500 2,774,375
Continuum Company, Inc.* 61,100 2,344,713
Cordis Corporation* 27,500 2,330,625
Dell Computer Corporation* 39,300 3,340,500
Indigo N.V.* 18,200 420,875
Intervoice, Inc.* 99,500 2,276,063
KLA Instruments Corporation* 29,700 2,383,425
Maxim Integrated Products, Inc.* 43,200 3,196,800
Mylex Corporation* 137,100 2,330,700
Oracle Systems Corporation* 52,300 2,007,013
Parametric Technologies Corporation* 50,000 3,075,000
Pioneer Standard Electronics, Inc. 118,800 2,079,000
TCA Cable TV, Inc. 76,400 2,196,500
Vicor Corporation* 109,000 2,636,438
Wind River Systems* 63,000 1,480,500
Zebra Technologies* 37,900 2,018,175
45,156,840
TRANSPORTATION 1.16%
Wisconsin Central Transportation Corporation* 41,000 2,736,750
UTILITIES 2.37%
Equifax, Inc. 61,100 2,558,563
US Robotics Corporation* 35,200 3,000,800
5,559,363
</TABLE>
27
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
MISCELLANEOUS 1.52%
Corrections Corporation of America* 27,000 $ 1,299,375
DSC Communications Corporation* 80,300 2,268,475
3,567,850
TOTAL COMMON STOCKS (COST $150,219,271) 187,963,655
SHORT-TERM INVESTMENT 22.87%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 9/29/95, 6.40%, due 10/2/95,
collateralized by $36,400,000
U.S. Treasury Note, 11.75%, 11/15/14
(cost $53,775,569) $53,775,569 53,775,569
TOTAL INVESTMENTS (COST $203,994,840) 102.81% 241,739,224
OTHER ASSETS LESS LIABILITIES (2.81%) (6,598,058)
NET ASSETS 100.00% $235,141,166
</TABLE>
* Securities not currently producing income.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 57.74%
BASIC INDUSTRIES 10.72%
Aluminum Company of America 51,000 $2,696,625
Goodrich BF 8,700 573,112
IMC Global, Inc. 9,000 570,375
International Paper Company 46,400 1,948,800
International Specialty Products, Inc. 32,600 297,475
Precision Castparts 11,700 427,050
Rayonier, Inc. 5,100 199,537
Rhone Poulenc SA~ 16,055 325,114
Wyman-Gordon Company* 7,200 99,450
7,137,538
CAPITAL GOODS & CONSTRUCTION 4.79%
BE Aerospace, Inc.* 42,700 357,612
Boeing Company 7,000 477,750
Centex Construction Products, Inc.* 36,200 475,125
Curtiss-Wright Corporation 9,700 429,225
Giddings & Lewis, Inc. 6,000 104,625
Sequa Corporation* 18,100 484,175
Standard Pacific Corporation 77,200 540,400
York International Corporation 7,500 315,938
3,184,850
CONSUMER STAPLES 3.98%
Chiquita Brands International 13,600 232,900
Dimon Incorporated 17,000 255,000
Hills Stores Company* 27,549 313,370
Interstate Bakeries Corporation 20,200 426,725
Kmart Corporation 25,000 362,500
Universal Corporation 47,000 1,057,500
2,647,995
ENERGY 10.38%
Amerada Hess Corporation 18,000 875,250
Anderson Exploration* 18,216 229,977
Ashland Oil, Inc. 8,300 277,013
Burlington Resources, Inc. 19,200 744,000
Cooper Cameron Corporation* 3,348 86,630
Enserch Corporation 10,600 174,900
Gerrity Oil & Gas Corporation* 87,000 271,875
Gulf Canada Resources, Ltd.* 69,300 294,525
Lone Star Technologies, Inc.* 25,100 238,450
Noble Drilling Corporation* 59,500 461,125
Oryx Energy* 26,500 344,500
Petroleum Heat & Power Company 57,600 489,600
Seagull Energy Corporation* 26,000 526,500
Sonat Offshore Drilling, Inc. 11,500 375,188
</TABLE>
29
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
ENERGY (CONTINUED)
Teekay Shipping Corp.* 3,400 $ 81,600
U.S.X. Marathon Group, Inc. 28,300 558,925
Unocal Corporation 21,400 609,900
YPF Associadad 15,000 270,000
6,909,958
FINANCIAL 11.28%
ACE, Ltd. 32,500 1,117,187
California Federal Bank* 15,556 245,007
California Federal Bank Certificates* 1,555 8,941
Chubb Corporation 7,300 700,800
CIGNA Corporation 20,900 2,176,213
Danielson Holding Company* 56,000 420,000
Horace Mann Educator 6,800 187,000
Koger Equity, Inc. REIT* 37,900 374,263
Lehman Brothers Holding, Inc. 24,840 574,425
Loews Corporation 2,400 349,200
Long Island Bancorp 4,700 115,150
Newhall Land & Farming Company 26,100 349,088
Old Republic International Corporation 16,000 462,000
Patroit American Hospital - REIT* 2,400 61,500
Paul Revere Corporation 10,000 188,750
Tucker Properties Company 11,000 122,375
Zurich Reinsurance Company* 1,900 56,525
7,508,424
TECHNOLOGY 3.20%
Alcatel Alsthom 14,900 253,300
B.C.E., Inc. 25,400 847,725
Cooper Industries, Inc. 3,812 134,373
Portugal Telecom ADS* 1,300 25,025
Raychem Corporation 9,500 427,500
Worldcom, Inc.* 13,781 442,714
2,130,637
TRANSPORTATION & SERVICES 3.40%
AMR Corporation* 6,000 432,750
Bergesen Dyas 5,000 111,095
Canadian Pacific, Ltd. 23,500 376,000
Flightsafety International 7,300 334,887
Midwest Express Holding Company* 700 15,750
Nordic American Tanke - Warrants* 20,000 97,500
OMI Corporation* 25,900 181,300
Overseas Shipholding Group 25,000 496,875
Trans World Airlines* 34,200 220,162
2,266,319
</TABLE>
30
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
UTILITIES 2.08%
Illinova Corporation 10,000 $ 271,250
Niagara Mohawk Power 30,700 402,937
Public Service Company of New Mexico* 27,200 445,400
Unicom Corporation 8,600 260,150
1,379,737
MISCELLANEOUS 4.50%
Brascan, Ltd.-Class A 19,200 314,400
CBI Industries 16,600 394,250
Comsat Corporation 17,500 393,750
Corning, Inc. 17,300 495,213
Eastman Kodak Company 10,500 622,125
Essex Property Trust, Inc. 19,900 350,738
W.M.X. Technologies, Inc. 14,800 421,800
2,992,276
FOREIGN SECURITIES 3.41%
CAE, Inc. 75,000 517,049
Onex Corporation 23,400 259,419
St. Lawrence Cement, Inc. 45,000 276,691
Pichney SA 7,000 447,511
Technip SA 7,500 493,176
Telecom Italia SPA 61,000 100,659
Pohjola Insurance Company* 10,000 177,308
2,271,813
TOTAL COMMON STOCKS (COST $33,483,327) 38,429,547
PREFERRED STOCKS 2.39%
BASIC MATERIALS 0.96%
Boise Cascade Corporation 9,000 302,625
Reynolds Metals Company 6,500 336,375
639,000
FINANCIAL 1.43%
American R E Partners 3,143 18,858
Glendale Federal Bank 21,700 933,100
951,958
TOTAL PREFERRED STOCKS (COST $1,044,653) 1,590,958
</TABLE>
31
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C>
CORPORATE BONDS 7.00%
BASIC MATERIALS 0.36%
Aluminum Company of America, 5.75%, 2/01/01 $ 250,000 $ 241,665
CAPITAL GOODS & CONSTRUCTION 0.15%
Lockheed Corporation, 6.75%, 3/15/03 100,000 100,942
CONSUMER CYCLICAL 0.69%
Sears Roebuck Company, 9.25%, 4/15/98 175,000 186,926
Time Warner Entertainment, Inc., 8.88%, 10/01/12 250,000 271,828
458,754
CONSUMER STAPLES 0.35%
Gillette Company, 5.75%, 10/15/05 250,000 235,022
FINANCIAL 3.27%
American General Finance Corporation,
5.88%, 7/01/00 250,000 243,982
Associates Corporation of North America,
5.25%, 3/30/00 250,000 238,380
Chase Manhattan Corporation, 7.75%, 11/01/99 250,000 261,530
Comerica Bank, 7.13%, 12/01/13 250,000 237,850
Dean Witter Discover, 6.25%, 3/15/00 100,000 99,203
First National Bank, 8.00%, 9/15/04 250,000 267,682
Ford Motor Credit, 8.88%, 6/15/99 100,000 107,942
Great Western Financial, 6.38%, 7/01/00 250,000 247,668
Home Savings of Americas, 6.00%, 11/01/00 250,000 242,723
Toronto Dominion Bank, 6.13%, 11/01/08 250,000 231,607
2,178,567
TRANSPORTATION 0.39%
AMR Corporation, 6.13%, 11/01/24 250,000 255,450
UTILITIES 1.79%
Duke Power Company, 7.00%, 6/01/00 100,000 102,506
Florida Power & Light Company, 5.38%, 4/01/00 250,000 239,575
Pacific Gas & Electric Company, 5.93%, 10/08/03 250,000 238,265
Philadelphia Electric Company, 7.50%, 1/15/99 100,000 103,116
Southwestern Public Service Company, 6.88%, 12/01/99 250,000 254,282
Union Electric Company, 6.75%, 10/15/99 250,000 253,580
1,191,324
TOTAL CORPORATE BONDS (COST $4,774,490) 4,661,724
</TABLE>
32
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C>
GOVERNMENT BONDS 23.92%
Government National Mortgage Association, 6.50%,
9/15/23-4/15/24 $ 1,429,808 $ 1,379,750
Government National Mortgage Association, 7.00%, 1/15/24 2,276,232 2,250,602
U.S. Treasury Bond, 5.13%, 3/31/98 2,500,000 2,457,125
U.S. Treasury Bond, 7.50%, 11/15/16 3,500,000 3,841,950
U.S. Treasury Note, 6.88%, 2/28/97 2,000,000 2,028,300
U.S. Treasury Note, 6.50%, 4/30/97 2,000,000 2,020,260
U.S. Treasury Note, 4.75%, 9/30/98 1,000,000 968,520
U.S. Treasury Note, 5.75%, 8/15/03 1,000,000 973,980
Total Government Bonds (cost $15,209,920) 15,920,487
SHORT-TERM INVESTMENT 9.05%
REPURCHASE AGREEMENT
Swiss Bank
Dated 9/29/95, 6.43%, Due 10/02/95,
collateralized by $5,890,000,
U.S. Treasury Note, 7.13%, 2/29/00
(cost $6,024,000) 6,024,000 6,024,000
TOTAL INVESTMENTS (COST $60,536,390) 100.10% 66,626,716
OTHER ASSETS LESS LIABILITIES (0.10%) (60,905)
NET ASSETS 100.00% $ 66,565,811
</TABLE>
* Securities not currently producing income.
American Depository Receipts.
REIT -- Real Estate Investment Trust
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 90.10%
AUSTRALIA 0.17%
Broken Hill Proprietary Company* 2,434 $ 33,572
CANADA 1.36%
Sherritt, Inc. 20,000 264,580
DENMARK 1.75%
Danisco A/S 4,100 179,001
Sophus Berendsen 1,500 162,367
341,368
FINLAND 1.93%
Nokia AB-A 2,400 168,419
Cultor OY 5,500 208,419
376,838
FRANCE 3.52%
AXA 3,060 161,283
Carrefour Supermarch 320 187,691
LVMH Moet Hennessy 850 160,262
Roussel-UCLAF 1,150 178,314
687,550
GERMANY 2.89%
Allianz AD Holding 96 173,324
Veba AG 5,900 233,894
Wella AG- Preferred Stock 220 157,033
564,251
GREAT BRITAIN 11.92%
Argyll Group, PLC 20,000 106,277
B.A.T. Industries, PLC 15,000 125,492
British Aerospace PLC 11,000 127,342
British Gas PLC 30,500 128,066
British Telecom 20,000 125,255
Glaxo Wellcome 10,000 121,301
Grand Metro 25,000 175,942
H.W. Smith Group PLC 15,000 87,536
Inchcape PLC 20,000 101,849
</TABLE>
34
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
GREAT BRITAIN (CONTINUED)
Land Securities 10,000 $ 97,262
Prudential Corporation PLC 20,000 119,561
Rank Organisation PLC 15,000 100,821
Scott & Newcastle 15,000 143,521
Smithkline Beecham 15,000 151,824
Standard Chartered 20,000 142,651
Sun Alliance Group PLC 20,000 115,291
Tate & Lyle PLC 15,000 106,514
Transport Development Group 45,000 150,163
Unigate 15,000 100,583
2,327,251
HONG KONG 4.99%
Bank of East Asia 15,000 48,597
Cheung Kong Holdings 33,000 179,682
Citic Pacific Limited 20,000 60,398
Dah Sing Financial 12,000 27,005
Henderson Investment 53,000 44,212
Hong Kong Electric 25,000 83,581
Hong Kong Telecom, Ltd.~ 200 363
Hong Kong & China Gas 20,000 32,204
HSBC Holdings PLC 12,000 166,839
Hopewell Holdings 27,000 18,333
Hutchison Whampoa, Ltd. 14,000 75,867
Hysan Developement 28,000 67,175
Liu Chong Hing Investment 30,000 31,428
National Mutual Asia 25,000 19,238
Sun Hung Kai Property 3,000 24,347
Swire Pacific Limited 12,000 95,059
974,328
INDONESIA 0.06%
Sorini (Sorbitol) 2,000 11,344
ITALY 0.61%
Spirti SPA 19,000 119,529
JAPAN 13.02%
Acom Company, Ltd. 5,000 162,312
Chudenko Corporation 3,000 117,588
</TABLE>
35
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
Daiichi Pharmaceutical 7,000 $ 96,382
Dainippon Ink & Chemical 1,000 46,935
Hitachi, Ltd. 15,000 162,814
Kao Corporation 6,000 74,171
Mitsubishi Heavy Industries 7,000 53,467
Mitsubishi Motors Company 10,000 83,719
Mitsui Bank & Trust 1,000 9,296
NEC Corporation 8,000 110,955
Nichiei Company 1,000 63,920
Nippon Meat Packery 12,000 160,402
Nippon Yusen Kabushi 10,000 58,995
NKK Corporation 30,000 79,900
PS Corporation 7,000 137,889
Raito Kogyo 4,000 82,814
Rinnai 5,000 109,548
Shizouka Bank 13,000 177,688
Sumitomo Electric 10,000 121,608
Sumitomo Realty & Development 9,000 62,864
Taisho Pharmaceutical 7,000 130,854
Tokyo Electric Power 4,040 110,034
Tokyo Electron, Ltd. 2,000 86,633
Toshiba Corporation 6,000 43,719
Yokogawa Bridge Corporation 6,000 87,437
Yokohama Reito 10,000 109,548
2,541,492
MALAYSIA 0.37%
Land & General Holdings 3,000 7,876
Petronas Gas Berhad 10,000 34,905
Sriwani Holdings 20,000 29,117
71,898
NETHERLANDS 3.60%
Fortis Amev NV 3,000 174,959
Philips Electronics 3,600 175,522
Polygram NV 2,900 188,524
Wolter Kluwer 1,780 163,446
702,451
</TABLE>
36
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
PHILIPPINES 0.53%
Filinvest Land 100,000 $ 32,239
Pilipino Telephone 74,300 70,579
102,818
SINGAPORE 1.13%
Development Bank Singapore 5,000 56,902
DBS- Land 40,000 118,581
Straits Trading Company 20,000 45,803
221,286
SPAIN 1.93%
Banco Popular Espano 1,200 186,836
Gas Natural 1,500 189,194
376,030
SWEDEN 3.86%
Ericsson LM 15,000 193,441
MO OCH Domsjoe AB-B 2,900 182,009
Securitas AB B-F 5,400 193,554
Volvo AB 7,500 183,535
752,539
SWITZERLAND 0.98%
Roche Holding AG 27 190,671
THAILAND 1.86%
PTT Exploration 5,000 48,615
Shinawatra Computer 1,000 23,192
Siam City Bank, Ltd. 50,000 67,743
Thai Military Bank, Ltd. 37,000 147,440
Tipco Asphalt Company 15,000 76,509
363,499
UNITED STATES 32.50%
Aetna Life & Casualty 4,000 293,500
Arethusa Off-Shore, Ltd. 12,000 247,500
Capital One Financial 10,000 293,750
</TABLE>
37
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Shares or
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
CITC Seoul Exel IDR 2 $ 22,060
Columbia Gas Systems* 8,000 309,000
Columbia HCA Healthcare 4,000 194,500
Compaq Computer Corporation* 4,000 193,500
CWM Mortgage 14,000 189,000
Deere & Company 3,000 244,125
Dovatron International* 6,000 207,750
Equifax 6,000 251,250
Gilead Sciences, Inc.* 8,000 176,000
Gujarat Ambuja 5,000 42,500
HBO & Company 4,000 250,000
Jardine Matheson Holding 18,000 121,500
Jardine Strategic Holding 18,125 52,925
Jardine Strategic-Warrants* 3,125 1,125
Kohl's Corporation* 5,000 259,375
Korea-Europe Fund 18 84,690
LG Electronics 6,400 76,800
Lockheed Martin Corporation 4,000 268,500
Motorola, Inc. 4,000 305,500
Office Depot, Inc. 10,000 301,250
PT Indonesia Satellite A 1,800 63,225
Readers Digest 6,000 282,750
Reynolds & Reynolds Company 7,000 240,625
Schlumberger, Ltd. 3,200 208,800
SCI Systems* 6,000 207,000
Scott Paper Company 4,000 194,000
Taipei Fund 1,000 76,380
Teekay Shipping Corporation 12,000 288,000
The Carbide/Graphite Group 10,000 141,250
Worldcom, Inc.* 8,000 257,000
6,345,130
VENEZUELA 1.12%
Venezolana De Prerredicidos (4/13/94, $260,293)* (a) (b) 35,600 218,050
TOTAL COMMON STOCKS (COST $16,612,885) 17,586,475
CORPORATE BOND 0.81%
MALAYSIA
Telekom Malaysia Berhad, 4.00%, 10/3/04
(9/22/94, cost $170,000) (a) (b) $ 170,000 158,738
</TABLE>
38
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS 6.67%
Repurchase Agreement
Nationsbank Corporation
Dated 9/29/95, 6.40%, due 10/2/95,
collateralized by $1,310,000,
U.S. Treasury Note, 6.75%, 2/28/97
(cost $1,302,557) $1,302,557 $ 1,302,557
TOTAL INVESTMENTS (COST $18,085,442) 97.58% 19,047,770
OTHER ASSETS LESS LIABILITIES 2.42% 473,363
NET ASSETS 100.00% $19,521,133
</TABLE>
* Securities not currently producing income.
~ 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) 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>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
LONG-TERM INVESTMENTS 92.84%
ASSET-BACKED SECURITIES 5.20%
Advanta Mortgage Loan Trust, Series 1993-3 A5, 5.55%,
1/25/25 $ 1,892,821 $ 1,775,561
Old Stone Credit Corporation Home Equity Trust,
Series 1993-1 B1, 6.00%, 3/15/08 1,970,813 1,920,813
World Omni, Series 1993-B, 5.05%, 8/15/99 826,786 810,788
TOTAL ASSET-BACKED SECURITIES 4,507,162
U.S. GOVERNMENT SECURITIES AND AGENCIES 42.10%
FEDERAL HOME LOAN MORTGAGE CORPORATION - REMIC 8.77%
5.50%, 9/15/21 5,000,000 4,410,700
6.00%, 7/15/20 3,500,000 3,182,340
7,593,040
FEDERAL NATIONAL MORTGAGE ASSOCIATION - REMIC 7.01%
PO, Class G92-56B, 7/25/20 1,557,953 1,369,538
PO, Class G93-37B, 11/25/22 5,000,000 4,292,700
PO, 1993 Class 202T, 11/25/23 1,073,529 411,296
6,073,534
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 19.94%
6.00%, 12/15/08 - 6/15/09 7,464,908 7,257,234
6.00%, 10/01/25, TBA (a) 10,000,000 10,012,500
17,269,734
TREASURY SECURITIES 6.38%
U.S. Treasury Bond, 7.50%, 11/15/24* 1,750,000 1,946,420
U.S. Treasury Note, 6.50%, 8/15/05* 3,500,000 3,584,455
5,530,875
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES 36,467,183
NON-CONVERTIBLE CORPORATE BONDS 21.31%
ENERGY 1.81%
Occidental Petroleum, 8.75%, 2/14/03 1,500,000 1,568,385
</TABLE>
40
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS (CONTINUED)
FINANCE 17.99%
Developers Diversified Realty, 7.63%, 5/15/00 $ 2,000,000 $ 2,000,300
Lehman Brothers, Inc., 9.88%, 10/15/00 4,000,000 4,480,560
Nationsbank Corporation, 9.38%, 9/15/09 3,500,000 4,167,380
Salomon, Inc., 6.00%, 1/12/98 3,000,000 2,925,360
Travelers, Inc., 6.88%, 6/01/25 2,000,000 2,007,480
15,581,080
UTILITIES 1.51%
Mississippi Power & Light, 8.80%, 4/01/05 1,250,000 1,308,650
TOTAL NON-CONVERTIBLE CORPORATE BONDS 18,458,115
COLLATERALIZED MORTGAGE OBLIGATIONS 16.78%
Chase Mortgage Finance Corporation,
Series 1993-L2 M, 7.00%, 10/25/24 3,089,857 2,960,948
First Boston Mortgage Securities Corporation,
Series 1993-5 M2, 7.30%, 7/25/23 2,448,703 2,401,345
General Electric Capital Mortgage Services, Inc.,
Series 1993-18 B1, 6.00%, 2/25/09 2,308,576 2,138,411
Securitized Asset Sales, Inc., Series 1994-5 AM, 7.00%,
7/25/24 7,401,233 7,039,165
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 14,539,869
RESIDUAL INTERESTS 7.45%
General Mortgage Securities, Inc., 1995-1, 6/25/20 20,644 190,242
General Mortgage Securities II, Inc., 1995-2, 6/27/25 41,643 569,731
National Mortgage Funding I, Inc., 1995-1, 4/28/25 38,943 584,275
National Mortgage Funding I, Inc., 1995-2, 5/22/25 42,531 519,362
National Mortgage Funding I, Inc., 1995-3, 5/22/25 40,435 943,943
National Mortgage Funding I, Inc., 1995-4, 3/20/21 18,900 290,898
National Mortgage Funding I, Inc., 1995-5, 3/25/22 17,606 915,938
National Mortgage Funding I, Inc., 1995-6, 8/27/25 43,953 785,170
National Mortgage Funding I, Inc., 1995-7, 9/17/25 45,000 831,465
National Mortgage Funding I, Inc., 1995-8, 9/28/25 45,000 822,118
TOTAL RESIDUAL INTERESTS 6,453,142
TOTAL LONG-TERM INVESTMENTS (COST $79,796,076) 80,425,471
</TABLE>
41
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 17.77%
REPURCHASE AGREEMENT
Nationsbank Corporation
Dated 9/29/95, 6.40%, due 10/02/95,
collateralized by $15,950,000
U.S. Treasury Bill, 12/28/95
(cost $15,396,050) $15,396,050 $15,396,050
TOTAL INVESTMENTS (COST $95,192,126) 110.61% 95,821,521
OTHER ASSETS LESS LIABILITIES (10.61%) (9,194,630)
NET ASSETS 100.00% $86,626,891
</TABLE>
INVESTMENT ABBREVIATIONS
PO - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
(a) At September 30, 1995, the cost of securities purchased on a when-issued
basis totaled $10,001,875.
* $5,250,000 principal amount of these securities have been segregated for a
commitment to purchase when-issued securites at September 30, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
MENTOR SHORT-DURATION INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
ASSET-BACKED SECURITIES 7.88%
General Motors Acceptance Corporation, 6.30%, 6/15/99 $ 514,977 $ 515,394
Old Stone Credit Corporation, 6.20%, 6/15/08 816,186 800,596
World Omni 1993 B, 5.05%, 8/15/99 335,184 328,698
Total Asset-Backed Securities (cost $1,628,485) 1,644,688
U.S. GOVERNMENT SECURITIES AND AGENCIES 61.45%
Federal Home Loan Mortgage Corporation
Series 1323 B, PAC 1, 6.47%, 7/15/97 90,253 90,004
Federal National Mortgage Association
11.00%, 7/01/01 271,467 286,507
10.00%, 6/01/05* 627,833 663,199
Government National Mortgage Association II, TBA, 6.00%,
10/01/25 (a) 3,175,000 3,178,969
U.S. Treasury Note, 7.50%, 10/31/99* 8,175,000 8,607,376
Total U.S. Government Securities and Agencies
(cost $12,603,208) 12,826,055
COLLATERALIZED MORTGAGE OBLIGATION 2.56%
Ryland Acceptance Corporation, 9.63%, 9/25/17,
(cost $529,944) 539,618 534,081
CORPORATE BONDS 25.68%
Developers Diversified Realty, 7.63%, 5/15/00 200,000 200,030
Lehman Brothers, Inc., 9.88%, 10/15/00 1,350,000 1,512,189
Mississippi Power & Electric, 8.80%, 4/1/05 750,000 785,190
Occidental Petroleum, 8.75%, 2/14/03 1,000,000 1,045,590
Paine Webber, 9.18%, 3/12/99 750,000 796,335
Salomon Inc., 8.62%, 2/17/97 1,000,000 1,020,390
Total Corporate Bonds (cost $5,322,892) 5,359,724
TOTAL INVESTMENTS (COST $20,084,529) 97.57% 20,364,548
OTHER ASSETS LESS LIABILITIES 2.43% 507,997
NET ASSETS 100.00% $20,872,545
</TABLE>
(a) At September 30, 1995 cost of securities purchased on a when-issued basis
totaled $3,182,383.
* $3,400,000 principal amount of these securities have been segregated for a
commitment to purchase when-issued securities at September 30, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES 97.16%
ARIZONA 3.73%
Pima County Arizona, 7.25%, 7/15/10 $2,000,000 $2,239,040
CALIFORNIA 11.02%
California Educational Facilities, College of
Osteopathic Medicine, 7.50%, 6/01/18 965,000 1,089,958
Carson Improvement Board Act 1915, Special
Assessment District 92, 7.38%, 9/02/22 730,000 748,761
Los Angeles Convention, Series A, 5.13%, 8/15/21 1,750,000 1,558,322
Orange County Community Facilities District,
Series A, 7.35%, 8/15/18 300,000 353,121
San Francisco City & County Airport, 6.30%, 5/01/25 1,000,000 1,010,670
San Francisco City Sewer Revenue Refunding,
5.38%, 10/01/22 2,000,000 1,846,380
6,607,212
COLORADO 8.04%
Arapahoe County, Capital Improvement, 7.00%, 8/31/26 1,000,000 1,034,330
Colorado HFA, SFM, Series A-3, 7.00%, 11/01/24 640,000 663,309
Denver City & County Airport Revenue, 7.75%, 11/15/13 1,000,000 1,194,160
Denver City & County Airport Revenue, 8.50%, 11/15/23 1,700,000 1,929,500
4,821,299
DISTRICT OF COLUMBIA 1.38%
Metropolitan Washington, General Airport Revenue,
Series A, 6.63%, 10/01/19 800,000 829,328
FLORIDA 5.54%
Dade County, 6.50%, 10/01/26 680,000 721,072
Hillsborough County, 6.25%, 12/01/34 1,250,000 1,285,287
Sarasota County, Health Facilities Authority Revenue,
10.00%, 7/01/22 1,190,000 1,314,569
3,320,928
GEORGIA 3.55%
Cobb County Development Authority Revenue Bonds,
Series 92A, 8.00%, 6/01/22 1,000,000 1,020,000
Monroe County Development Authority PCR, 6.75%, 1/01/10 1,000,000 1,105,550
2,125,550
ILLINOIS 11.27%
Broadview Tax Increment Revenue, 8.25%, 7/01/13 1,000,000 1,068,220
Chicago Heights Residential Mortgage,
(effective yield-2.67%) (a), 6/01/09 3,465,000 1,317,324
</TABLE>
44
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
ILLINOIS (CONTINUED)
Chicago O'Hare International Airport Special
Facilities Revenue, 6.75%, 1/01/18 $1,350,000 $1,402,528
Chicago, Capital A, (effective yield-1.62%) (a),
7/01/16 2,000,000 516,540
Illinois Health Facilities Authority Revenue,
9.50%, 10/01/22 1,250,000 1,352,313
Robins, Illinois Residential, 9.25%, 10/15/14 1,000,000 1,100,720
6,757,645
INDIANA 0.45%
Indiana Transportation Finance Authority,
Series A, (effective yield-1.59%) (a), 6/01/17 1,000,000 269,070
IOWA 1.11%
Student Loan Liquidity Corporation, Student Loan
Revenue, Series C, 6.95%, 3/01/06 625,000 667,169
KENTUCKY 3.41%
Jefferson County, Hospital Revenue, 8.29%, 10/01/08 500,000 556,250
Kenton County Airport Board Revenue, OID, 7.50%,
2/01/20 1,400,000 1,486,072
2,042,322
MAINE 1.72%
Maine State Housing Authority, Series C, 6.88%,
11/15/23 1,000,000 1,030,740
MASSACHUSETTS 4.39%
Massachusetts State Health and Educational Facilities
Authority, OID Revenue Bonds, Series A, 6.00%,
10/01/23 2,000,000 1,557,380
Massachusetts State Health and Education, 6.88%,
4/01/22 1,000,000 1,077,560
2,634,940
MICHIGAN 0.89%
Romulus Community Schools, Refunding, (effective
yield-1.34%) (a), 5/01/20 2,385,000 531,426
MONTANA 0.80%
Montana State Resource Recovery Revenue Bonds, 7.00%,
12/31/19 500,000 482,430
NEBRASKA 0.69%
Nebraska Finance Authority, SFM, 9.10%, 9/15/24 400,000 411,500
</TABLE>
45
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
NEVADA 0.89%
Henderson Local Improvement District, Special
Assessment, Series A, 8.50%, 11/01/12 $ 500,000 $ 532,015
NEW YORK 7.82%
Clifton Springs Hospital Refunding & Improvement,
8.00%, 1/01/20 930,000 937,896
Herkimer County, IDA, 8.00%, 1/01/09 1,000,000 1,065,350
New York City, Series H, 7.20%, 2/01/13 1,500,000 1,595,985
New York State Dorm Authority, 6.75%, 7/01/24 1,000,000 1,087,320
4,686,551
NORTH DAKOTA 1.82%
Ward County, Healthcare Facilities, 8.88%, 11/15/24 1,000,000 1,093,270
OKLAHOMA 1.71%
Oklahoma City, Industrial and Cultural Facilities
Trust, 6.75%, 9/15/17 1,000,000 1,027,960
PENNSYLVANIA 3.96%
Pennsylvania Economic Development, 6.40%, 1/01/09 500,000 495,535
Pennsylvania Intergovernmental Cooperative Authority,
Special Tax Revenue, 6.80%, 6/15/12 750,000 843,817
Philadelphia Hospital and Higher Education Facilities,
6.50%, 11/15/08 1,000,000 1,034,770
2,374,122
RHODE ISLAND 0.77%
West Warwick, Series A, G.O. Bonds, 6.80% - 7.30%,
7/15/98 - 7/15/08 435,000 460,431
TENNESSEE 7.66%
Memphis, Shelby County Airport Authority, Special
Facilities Revenue Refunding, 7.88%, 9/01/09 1,500,000 1,682,070
Tennessee Housing, 7.38%, 7/01/23 2,750,000 2,911,508
4,593,578
TEXAS 4.94%
Brazos Higher Education Authority Student Loan Revenue,
7.10%, 11/01/04 1,000,000 1,097,420
Dallas-Fort Worth International Airport Facility
Revenue Bonds, 7.25%, 11/01/30 1,000,000 1,048,680
Texas State Department of Housing and Community Affairs
Refunding, Series C, 9.54%, 7/02/24 750,000 812,812
2,958,912
</TABLE>
46
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
UTAH 3.54%
Bountiful Hospital Revenue, 9.50%, 12/15/18 $ 245,000 $ 262,701
Utah State Housing Finance Commission, 7.20%, 1/01/27 1,750,000 1,857,958
2,120,659
WEST VIRGINIA 6.06%
Harrison County, 6.75%, 8/01/24 2,000,000 2,127,900
West Virginia State Hospital Finance Authority Revenue,
7.50%, 1/01/18 1,500,000 1,503,765
3,631,665
TOTAL LONG-TERM MUNICIPAL SECURITIES (COST $55,629,527) 58,249,762
SHORT-TERM MUNICIPAL SECURITIES (B) 1.33%
OHIO 0.67%
Hamilton County, 4.80%, 3/01/17, VRDN 400,000 400,000
NEW YORK 0.66%
City of New York, A-7, 4.80%, 8/01/21, VRDN 100,000 100,000
New York, New York, Series B, 4.65%, 10/01/21, VRDN 100,000 100,000
New York City Municipal Water, 4.40%, 6/15/24, VRDN 200,000 200,000
400,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES (COST $800,000) 800,000
TOTAL INVESTMENTS (COST $56,429,527) 98.49% 59,049,762
OTHER ASSETS LESS LIABILITIES 1.51% 903,417
NET ASSETS 100.00% $59,953,179
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
GO - General Obligation PCR - Pollution Control Revenue
HFA - Housing Finance Authority PFA - Public Financing Authority
IDA - Industrial Development Authority SFM - Single Family Mortgage
OID - Original Issue Discount VRDN - Variable Rate Demand Note, rate shown represents
current interest rate at 9/30/95.
</TABLE>
(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.
(b) Interest rates represent annualized yield to date of maturity. For each
security, cost (for financial reporting and federal income tax purposes) and
carrying value are the same.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
MENTOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Mentor
Mentor Capital Mentor
Growth Growth Strategy
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
ASSETS
Investments, at market value * (Note 2)
Investments securities $236,848,484 $87,166,500 $187,963,655
Repurchase agreements 25,689,361 145,965 53,775,569
Total investments 262,537,845 87,312,465 241,739,224
Cash - 1,125 -
Receivables
Investments sold 6,719,367 2,354,746 146,250
Fund shares sold 16,217,235 264,849 7,170,445
Dividends and interest 63,296 128,332 105,916
Forward foreign currency exchange contracts held
(Note 8) - - -
Closed forward foreign currency contracts - - -
Due from Management Company - - -
Deferred expenses (Note 2) 27,607 - 65,544
Other assets - - -
Total assets 285,565,350 90,061,517 249,227,379
LIABILITIES
Payables
Investments purchased 3,885,112 2,485,380 9,187,919
Fund shares redeemed 14,876,548 228,102 4,790,689
Dividends - - -
Closed forward foreign currency contracts - - -
Accrued expenses and other liabilities 109,266 118,074 107,605
Total liabilities 18,870,926 2,831,556 14,086,213
NET ASSETS $266,694,424 $87,229,961 $235,141,166
Net Assets represented by: (Note 2)
Additional paid-in capital $165,184,322 $75,969,320 $194,466,839
Undistributed net investment income (loss) - - 47,636
Accumulated distributions in excess of net investment
income - - -
Accumulated net realized gain (loss) on investment
transactions 24,789,634 708,467 2,882,307
Net unrealized appreciation of investments and foreign
currency related transactions 76,720,468 10,552,174 37,744,384
NET ASSETS $266,694,424 $87,229,961 $235,141,166
NET ASSET VALUE PER SHARE
Class A Shares $ 16.08 $ 16.02 $ 15.24
Class B Shares $ 16.05 $ 15.79 $ 15.21
OFFERING PRICE PER SHARE
Class A Shares $ 17.06(a) $ 17.00(a) $ 16.17(a)
Class B shares $ 16.05 $ 15.79 $ 15.21
REDEMPTION PROCEEDS PER SHARE
Class A Shares $ 16.08 $ 16.02 $ 15.24
Class B Shares (d) $ 15.41 $ 15.16 $ 14.60
SHARES OUTSTANDING
Class A Shares 1,266,659 1,846,405 688,803
Class B Shares 15,350,398 3,651,052 14,773,679
Total Shares Outstanding 16,617,057 5,497,457 15,462,482
</TABLE>
* Investments at cost $185,817,377, $76,760,291, $203,994,840, $60,536,390,
$18,085,442, $95,192,126, $20,084,529 and $56,429,527 respectively.
(a) Computation of offering price: 100/94.25 of net asset value.
(b) Computation of offering price: 100/95.25 of net asset value.
(c) Computation of offering price: 100/99 of net asset value.
(d) Computation of redemption proceeds: 96/100 of net asset value.
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
<TABLE>
<CAPTION>
Mentor Mentor Mentor Mentor Mentor
Income and Perpetual Quality Short-Duration Municipal
Growth Global Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
$60,602,716 $17,745,213 $80,425,471 $ 20,364,548 $59,049,762
6,024,000 1,302,557 15,396,050 - -
66,626,716 19,047,770 95,821,521 20,364,548 59,049,762
- 35,318 49,968 3,132,129 -
344,489 1,389,696 1,913,965 - -
193,515 457,457 181,376 428,678 13,529
507,061 54,182 820,591 406,415 1,075,321
- 20 - - -
- 3,831 - - -
- - 41,651 - -
- 33,238 - 37,701 -
- - 6,585 - -
67,671,781 21,021,512 98,835,657 24,369,471 60,138,612
903,812 1,423,528 11,757,662 3,169,405 -
93,176 14,563 191,227 193,977 32,033
- - 242,891 108,828 132,279
- 19,676 - - -
108,982 42,612 16,986 24,716 21,121
1,105,970 1,500,379 12,208,766 3,496,926 185,433
$66,565,811 $19,521,133 $86,626,891 $ 20,872,545 $59,953,179
$58,165,300 $17,642,535 $99,907,822 $ 20,712,902 $60,073,272
- (40,808) - - -
(4) - (242,890) (85,490) (52,543)
2,310,185 956,483 (13,667,436) (34,886) (2,687,785)
6,090,330 962,923 629,395 280,019 2,620,235
$66,565,811 $19,521,133 $86,626,891 $ 20,872,545 $59,953,179
$ 17.13 $ 15.88 $ 13.29 $ 12.68 $ 14.92
$ 17.14 $ 15.67 $ 13.31 $ 12.67 $ 14.95
$ 18.18(a) $ 16.85(a) $ 13.95(b) $ 12.81(c) $ 15.66(b)
$ 17.14 $ 15.67 $ 13.31 $ 12.67 $ 14.95
$ 17.13 $ 15.88 $ 13.29 $ 12.68 $ 14.92
$ 16.45 $ 15.04 $ 12.78 $ 12.16 $ 14.35
1,161,248 431,462 1,840,920 79,010 1,371,150
2,723,279 808,434 4,669,766 1,568,467 2,641,371
3,884,527 1,239,896 6,510,686 1,647,477 4,012,521
</TABLE>
49
<PAGE>
MENTOR FUNDS
STATEMENTS OF OPERATIONS
PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Mentor
Mentor Capital Mentor
Growth Growth Strategy
Portfolio* Portfolio Portfolio*
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 966,811 $ 349,284 $ 2,468,076
Dividends (Net of withholding taxes)*** 486,045 947,404 1,008,606
Total investment income (Note 2) 1,452,856 1,296,688 3,476,682
EXPENSES
Distribution fees (Note 5) 1,222,284 288,262 1,105,495
Management fee (Note 4) 1,143,696 465,031 1,262,809
Shareholder services fees (Note 5) 404,213 145,322 371,429
Transfer agent fee 203,678 282,107 192,068
Administration fee (Note 4) 108,285 66,032 146,572
Custodian and accounting fees 103,778 41,911 75,012
Registration expenses 92,518 32,032 135,544
Shareholder reports and postage expenses 70,207 36,707 75,405
Legal and Audit fees 55,886 32,895 57,572
Organizational expenses 6,377 4,834 15,072
Directors' fees and expenses 6,195 5,254 6,690
Miscellaneous 1,798 4,187 450
Total expenses 3,418,915 1,404,574 3,444,118
Deduct
Waiver of administration fee (Note 4) - - -
Waiver of management fee (Note 4) - - -
NET EXPENSES 3,418,915 1,404,574 3,444,118
NET INVESTMENT INCOME (LOSS) (1,966,059) (107,886) 32,564
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS
Net realized gain (loss) on investments
and futures contracts (Note 2) 24,885,052 5,567,739 13,062,170
Change in unrealized appreciation (depreciation) 38,888,234 8,926,628 30,325,565
Net realized and unrealized gain (loss) on
investments and futures contracts 63,773,286 14,494,367 43,387,735
Net increase in net assets from operations $61,807,227 $14,386,481 $43,420,299
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
** Net of interest expense $125,954 for the Mentor Quality Income Portfolio and
$170,196 for the Mentor Short-Duration Income Portfolio.
*** Withholding taxes were $2,161, $8,690, $27,135, $15,273 and $32,044 for the
Mentor Growth Portfolio, Mentor Capital Growth Portfolio, Mentor Strategy
Portfolio, Mentor Income and Growth Portfolio and Mentor Perpetual Global
Portfolio, respectively for the period ended September 30, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
<TABLE>
<CAPTION>
Mentor Mentor Mentor Mentor Mentor
Income and Perpetual Quality Short-Duration Municipal
Growth Global Income Income Income
Portfolio Portfolio Portfolio Portfolio* Portfolio
<S> <C> <C> <C> <C>
$ 1,641,651 $ 78,660 $ 7,539,556** $ 980,167** $ 4,455,047
954,545 313,054 - - -
2,596,196 391,714 7,539,556 980,167 4,455,047
322,260 68,125 334,771 39,054 207,611
460,486 185,092 563,032 65,901 380,281
153,495 42,065 234,597 32,505 158,450
175,478 40,084 220,401 40,460 133,905
69,316 19,082 106,885 - 72,055
58,810 25,280 68,335 18,070 42,662
44,727 19,139 43,798 17,815 30,923
36,473 7,004 54,672 6,552 38,850
29,828 4,551 51,170 4,869 33,184
1,957 6,640 4,485 - 8,405
4,831 1,946 7,316 652 4,991
1,962 18 7,304 - 5,826
1,359,623 419,026 1,696,766 225,878 1,117,143
- - 41,651 - -
- 10,545 - 65,901 -
1,359,623 408,481 1,655,115 159,977 1,117,143
1,236,573 (16,767) 5,884,441 820,190 3,337,904
2,495,422 862,461 (1,948,938) 258,876 (2,056,061)
5,833,996 942,613 5,945,462 423,995 4,099,300
8,329,418 1,805,074 3,996,524 682,871 2,043,239
$ 9,565,991 $ 1,788,307 $ 9,880,965 $ 1,503,061 $ 5,381,143
</TABLE>
51
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Capital Growth
Mentor Growth Portfolio Portfolio Mentor Strategy Portfolio
Period Year Year Year Period Year
Ended Ended Ended Ended Ended Ended
9/30/95* 12/31/94 9/30/95 9/30/94 9/30/95* 12/31/94
<S> <C> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN NET
ASSETS FROM:
OPERATIONS
Net investment income (loss) $ (1,966,059) $ (2,273,855) $ (107,886) $ 29,871 $ 32,564 $ (879,139)
Net realized gain (loss) on
investments and futures
contracts 24,885,052 13,751,586 5,567,739 1,128,751 13,062,170 (10,179,850)
Change in unrealized
appreciation (depreciation) 38,888,234 (20,155,668) 8,926,628 (2,465,351) 30,325,565 5,285,954
Increase (decrease) in net
assets from operations 61,807,227 (8,677,937) 14,386,481 (1,306,729) 43,420,299 (5,773,035)
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A - - - (87,466) - (14,753)
Class B - - - - - -
In excess of net investment
income - (7,106)
Class A - - - - - -
Class B - (14,441,603) - - -
Net realized gain on
investments
Class A - - (2,027,725) (241,102) - -
Class B - (186,774) (4,095,792) (445,582) - -
Net decrease from
distributions - (14,628,377) (6,123,517) (774,150) - (21,859)
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from
portfolio share
transactions 14,761,239 26,454,231 16,680,084 (24,022,232) 12,447,061 62,891,677
Increase (decrease) in net
assets 76,568,466 3,147,917 24,943,048 (26,103,111) 55,867,360 57,096,783
NET ASSETS
Beginning of period 190,125,958 186,978,041 62,286,913 88,390,024 179,273,806 122,177,023
End of period $266,694,424 $190,125,958 $87,229,961 $62,286,913 $235,141,166 $179,273,806
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
** For the period from March 29, 1994 (commencement of operations) to September
30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
<TABLE>
<CAPTION>
Mentor Income and Growth Mentor Perpetual Global Mentor Quality Income
Portfolio Portfolio Portfolio
Year Year Year Period Year Year
Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94 9/30/95 9/30/94** 9/30/95 9/30/94
<S> <C> <C> <C> <C> <C>
$ 1,236,537 $ 853,291 $ (16,767) $ (25,881) $ 5,884,441 $ 8,732,749
2,495,422 1,523,312 862,461 17,822 (1,948,938) (8,118,106)
5,833,996 (248,910) 942,613 20,310 5,945,462 (5,963,957)
9,565,955 2,127,693 1,788,307 12,251 9,880,965 (5,349,314)
(464,855) (300,723) - - (1,780,925) (2,342,783)
(771,682) (476,423) - - (4,084,639) (5,799,239)
(38,935) - - - (130,142) -
(64,635) - - - (298,487) -
(298,324) (204,420) - - - -
(712,920) (470,138) - - - -
(2,351,351) (1,451,704) - - (6,294,193) (8,142,022)
(1,640,309) 32,339,234 863,287 16,857,288 (24,989,530) (53,605,255)
5,574,295 33,015,223 2,651,594 16,869,539 (21,402,758) (67,096,591)
60,991,516 27,976,293 16,869,539 - 108,029,649 175,126,240
$66,565,811 $60,991,516 $19,521,133 $16,869,539 $ 86,626,891 $108,029,649
</TABLE>
53
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Short-Duration Mentor Municipal Income
Income Portfolio Portfolio
Period Year Year Year
Ended Ended Ended Ended
9/30/95* 12/31/94*** 9/30/95 9/30/94
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS
FROM:
OPERATIONS
Net investment income (loss) $ 820,190 $ 509,400 $ 3,337,904 $ 3,986,208
Net realized gain (loss) on
investments and futures contracts 258,876 (293,762) (2,056,061) (527,018)
Change in unrealized appreciation
(depreciation) 423,995 (143,976) 4,099,300 (7,578,461)
Increase (decrease) in net assets
from operations 1,503,061 71,662 5,381,143 (4,119,271)
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (7,777) (509,400) (1,233,641) (1,463,600)
Class B (812,803) - (2,106,334) (2,444,169)
In excess of net
investment income
Class A (2,635) - - -
Class B (39,850) (41,639) - -
Net realized gain on investments
Class A - - - (189,589)
Class B - - - (340,533)
Net decrease from distributions (863,065) (551,039) (3,339,975) (4,437,891)
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from
portfolio share transactions 3,088,707 17,623,219 (13,301,743) (450,171)
Increase (decrease) in net assets 3,728,703 17,143,842 (11,260,575) (9,007,333)
NET ASSETS
Beginning of period 17,143,842 - 71,213,754 80,221,087
End of period $20,872,545 $17,143,842 $59,953,179 $71,213,754
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
*** For the period from April 29, 1994 (commencement of operations) to December
31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor Growth
Portfolio Mentor Capital Growth Portfolio
Period Year Year Year Year
Ended Ended Ended Ended Ended
9/30/95* 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.37 $ 14.88 $ 15.26 $ 14.21 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.01) 0.02 0.09 0.14 0.08
Net realized and unrealized gain
(loss) on investments 2.72 2.91 (0.30 ) 1.02 0.03
Total from investment operations 2.71 2.93 (0.21 ) 1.16 0.11
LESS DISTRIBUTIONS
Dividends from net investment income - - (0.04 ) (0.11) (0.08)
In excess of net investment income - - - - -
Distributions from capital gains - (1.79) (0.13 ) - -
Distributions in excess of capital - - - - -
Total Distributions - (1.79) (0.17 ) (0.11) (0.08)
NET ASSET VALUE, END OF PERIOD $ 16.08 $ 16.02 $ 14.88 $ 15.26 $ 14.21
Total Return 20.27% 20.18 % (1.37%) 8.21 % 0.78%
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $ 20,368 $29,582 $21,181 $31,360 $ 20,864
Ratio of expenses to average net
assets 1.36%(a) 1.87 % 1.70% 1.49 % 1.14%(a)
Ratio of expenses to average net asset
excluding waiver 1.36%(a) 1.87 % 1.70% 1.59 % 1.43%(a)
Ratio of net investment income
(loss) to average net assets (0.65%)(a) 0.27 % 0.53% 0.96 % 1.54%(a)
Portfolio turnover rate 70% 157 % 149% 192 % 61%
</TABLE>
* For the period from June 5, 1995 to September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
(a) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor Strategy
Portfolio Mentor Income and Growth Portfolio
Period Year Year Year
Ended Ended Ended Ended
9/30/95* 9/30/95 9/30/94 9/30/93(b)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.45 $ 15.27 $ 14.88 $ 14.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income - 0.40 0.31 0.09
Net realized and unrealized gain (loss) on investments 1.79 2.14 0.64 0.73
Total from investment operations 1.79 2.54 0.95 0.82
LESS DISTRIBUTIONS
Dividends from net investment income - (0.40) (0.30) (0.08)
In excess of net investment income - (0.03) - -
Distributions from capital gains - (0.25) (0.26) -
Distributions in excess of capital - - - -
Total distributions - (0.68) (0.56) (0.08)
NET ASSET VALUE, END OF PERIOD $ 15.24 $ 17.13 $ 15.27 $ 14.88
Total Return 13.31% 17.24% 6.54% 5.54%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 10,503 $19,888 $17,773 $ 9,849
Ratio of expenses to average net assets 1.65%(a) 1.69% 1.75% 1.56%(a)
Ratio of expenses to average net asset excluding waiver 1.65%(a) 1.69% 1.75% 1.94%(a)
Ratio of net investment income (loss) to average net assets (0.06%)(a) 2.53% 2.20% 2.35%(a)
Portfolio turnover rate 122% 62% 78% 13%
</TABLE>
* For the period from June 5, 1995 to September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
(a) Annualized.
(b) Reflects operations for the period from May 24, 1993 (commencement of
operations), to September 30, 1993.
(c) Reflects operations for the period from March 29, 1994 (commencement of
operations), to September 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
<TABLE>
<CAPTION>
Mentor Perpetual
Global Portfolio Mentor Quality Income Portfolio
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94 (c) 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C> <C> <C> <C> <C>
$14.23 $ 14.18 $ 12.75 $ 14.04 $ 14.39 $ 14.30
0.05 (0.01) 0.84 0.84 1.06 0.44
1.60 0.06 0.61 (1.30) (0.31) 0.09
1.65 0.05 1.45 (0.46) 0.75 0.53
- - (0.85) (0.83) (1.06) (0.44)
- - (0.06) - (0.04) -
- - - - - -
- - - - - -
- - (0.91) (0.83) (1.10) (0.44)
$15.88 $ 14.23 $ 13.29 $ 12.75 $ 14.04 $ 14.39
11.60% 0.35% 11.82% (3.39%) 5.41% 3.37%
$6,854 $ 8,882 $24,472 $30,142 $47,780 $36,740
2.06% 2.09%(a) 1.32% 1.38% 1.04% 0.36%(a)
2.11% 3.18%(a) 1.36% 1.39% 1.22% 1.21%(a)
0.26% (0.10%)(a) 6.73% 6.33% 7.31% 8.00%(a)
155% 2% 368% 455% 102% 9%
</TABLE>
57
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor
Short-Duration
Income
Portfolio Mentor Municipal Income Portfolio
Period Year Year Year Year
Ended Ended Ended Ended Ended
9/30/95* 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $12.74 $ 14.42 $ 16.05 $ 14.76 $ 14.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.22 0.81 0.82 0.92 0.32
Net realized and unrealized gain (loss)
on investments (0.03) 0.51 (1.54) 1.32 0.47
Total from investment operations 0.19 1.32 (0.72) 2.24 0.79
LESS DISTRIBUTIONS
Dividends from net investment income (0.22) (0.82) (0.81) (0.92) (0.32)
In excess of net investment income (0.03) - - (0.03) -
Distributions from capital gains - - (0.10) - -
Distributions in excess of capital - - - - -
Total Distributions (0.25) (0.82) (0.91) (0.95) (0.32)
NET ASSET VALUE, END OF PERIOD $12.68 $ 14.92 $ 14.42 $ 16.05 $ 14.76
Total Return 1.51% 9.46% (4.83%) 16.00% 5.34%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $1,002 $20,460 $25,056 $29,245 $ 18,801
Ratio of expenses to average net assets 0.71%(a) 1.43% 1.24% 0.71% 0.00%(a)
Ratio of expenses to average net asset
excluding waiver 1.00%(a) 1.43% 1.33% 1.39% 1.26%(a)
Ratio of net investment income to average
net assets 4.10%(a) 5.56% 5.43% 5.92% 6.21%(a)
Portfolio turnover rate 126% 43% 87% 88% 0%
</TABLE>
* For the period from June 16, 1995 to September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
(a) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Growth Portfolio
Period Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/95* 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.15 $ 13.78 $ 12.81 $ 12.16 $ 8.37 $ 9.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.13) (0.15) (0.08) (0.06) (0.09) 0.02
Net realized and unrealized gain (loss)
on investments 4.03 (0.47) 2.07 1.94 4.30 (1.10)
Total from Investment Operations 3.90 (0.62) 1.99 1.88 4.21 (1.08)
LESS DISTRIBUTIONS
Dividends from net investment income - - - - - (0.05)
Distributions in excess of net investment
income - - - - - -
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 $ 16.05 $ 12.15 $ 13.78 $ 12.81 $ 12.16 $ 8.37
Total Return 32.10% (4.48%) 15.60% 15.46% 50.30% (11.21%)
Ratios/Supplemental Data
Net assets, end of period (in thousands) $246,326 $190,126 $186,978 $136,053 $108,719 $83,540
Ratio of expenses to average net assets 2.08%(a) 2.01% 2.02% 2.05% 2.17% 2.25%
Ratio of expenses to average net asset
excluding waiver 2.08%(a) 2.01% 2.02% 2.05% 2.17% 2.25%
Ratio of net investment income (loss) to
average net assets (1.20%)(a) (1.20%) (1.12%) (0.76%) (0.80%) 0.26%
Portfolio Turnover Rate 70% 77% 64% 50% 40% 50%
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
(a) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
Year Year Year Year
Ended Ended Ended Ended
9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.80 $ 15.23 $ 14.22 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.25 (0.04) 0.05 0.46
Net realized and unrealized gain (loss)
on investments 2.53 (0.26) 1.02 0.04
Total from Investment Operations 2.78 (0.30) 1.07 0.50
LESS DISTRIBUTIONS
Dividends from net investment income - - (0.05) (0.46)
In excess of net investment
income - - (0.01) -
Distributions from capital gains (1.79) (0.13) - -
Distributions in excess of capital gains - - - -
Total Distributions (1.79) (0.13) (0.06) (0.46)
NET ASSET VALUE, END OF PERIOD $ 15.79 $ 14.80 $ 15.23 $ 14.22
Total Return 19.26 % (2.00 %) 7.52% 0.61%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $57,648 $41,106 $57,030 $ 25,468
Ratio of expenses to average net assets 2.56% 2.46% 2.24% 1.86%(a)
Ratio of expenses to average net asset
excluding waiver 2.56% 2.46% 2.34% 2.16%(a)
Ratio of net investment income to
average net assets (0.41%) (0.22%) 0.21% 0.83%(a)
Portfolio turnover rate 157% 149% 192% 61%
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
*** Reflects operations for the period of October 29, 1993 (commencement of
operations), to December 31, 1993.
(a) Annualized.
(b) Reflects operations for the period from May 24, 1993 (commencement of
operations), to September 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
<TABLE>
<CAPTION>
Mentor Strategy Portfolio Mentor Income and Growth Portfolio
Period Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/95* 12/31/94 12/31/93*** 9/30/95 9/30/94 9/30/93(b)
<S> <C> <C> <C> <C> <C>
$ 12.24 $ 12.70 $ 12.50 $ 15.28 $ 14.91 $ 14.14
- (0.06) - 0.28 0.21 0.05
2.97 (0.40) 0.20 2.14 0.61 0.77
2.97 (0.46) 0.20 2.42 0.82 0.82
- - - (0.28) (0.19) (0.05)
- - - (0.03) - -
- - - (0.25) (0.26) -
- - - - - -
- - - (0.56) (0.45) (0.05)
$ 15.21 $ 12.24 $ 12.70 $ 17.14 $ 15.28 $ 14.91
24.26% (3.61%) 1.60% 16.32 % 5.66 % 5.54%
$224,638 $179,274 $122,177 $46,678 $43,219 $ 18,127
2.08%(a) 2.19% 2.06% 2.43 % 2.44 % 2.31%(a)
2.08%(a) 2.19% 2.06% 2.43 % 2.44 % 2.69%(a)
0.25%(a) (0.54%) 0.08% 1.78 % 1.51 % 1.60%(a)
122% 143% 0% 62 % 78 % 13%
</TABLE>
61
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Perpetual
Global Portfolio Mentor Quality Income Portfolio
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/95 9/30/94(c) 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.15 $ 14.18 $ 12.76 $ 14.06 $ 14.40 $ 14.30
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.05) (0.04) 0.79 0.82 0.99 0.41
Net realized and unrealized gain
(loss) on investments 1.57 0.01 0.61 (1.37) (0.31) 0.10
Total from Investment Operations 1.52 (0.03) 1.40 (0.55) 0.68 0.51
LESS DISTRIBUTIONS
Dividends from net investment
income - - (0.79) (0.75) (0.99) (0.41)
In excess of net investment
income - - (0.06) - (0.03) -
Distributions from capital gains - - - - - -
Distributions in excess of
capital gains - - - - - -
Total Distributions - - (0.85) (0.75) (1.02) (0.41)
NET ASSET VALUE, END OF PERIOD $ 15.67 $ 14.15 $ 13.31 $ 12.76 $ 14.06 $ 14.40
Total Return 10.74% (0.21%) 11.33% (3.97%) 4.86% 3.24%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $12,667 $ 7,987 $62,155 $77,888 $127,346 $ 65,661
Ratio of expenses to average
net assets 2.72% 2.79%(a) 1.74% 1.88% 1.54% 0.83%(a)
Ratio of expenses to average
net asset excluding waiver 2.79% 3.93%(a) 1.79% 1.90% 1.72% 1.67%(a)
Ratio of net investment income
(loss) to average net assets (0.40%) (0.82%)(a) 6.24% 6.21% 6.81% 7.53%(a)
Portfolio Turnover Rate 155% 2% 368% 455% 102% 9%
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
(a) Annualized.
(c) Reflects operations for the period from March 29, 1994 (commencement of
operations), to September 30, 1994.
(d) Reflects operations for the period from April 29, 1994 (commencement of
operations), to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
<TABLE>
<CAPTION>
Mentor Short-Duration
Income Portfolio Mentor Municipal Income Portfolio
Period Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/95* 12/31/94(d) 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C> <C> <C> <C> <C>
$ 12.18 $ 12.50 $ 14.43 $ 16.06 $ 14.78 $ 14.29
0.59 0.41 0.74 0.74 0.82 0.29
0.52 (0.29) 0.52 (1.54) 1.32 0.49
1.11 0.12 1.26 (0.80) 2.14 0.78
(0.59) (0.41) (0.74) (0.73) (0.82) (0.29)
(0.03) (0.03) - - (0.04) -
- - - (0.10) - -
- - - - - -
(0.62) (0.44) (0.74) (0.83) (0.86) (0.29)
$ 12.67 $ 12.18 $ 14.95 $ 14.43 $ 16.06 $ 14.78
9.22% 0.95% 9.01% (5.34%) 15.27% 5.28%
$19,871 $ 17,144 $39,493 $46,157 $50,976 $24,265
1.20%(a) 1.29%(a) 1.92% 1.74% 1.21% 0.50%(a)
1.70%(a) 1.29%(a) 1.92% 1.86% 1.89% 1.76%(a)
5.04%(a) 4.90%(a) 5.07% 4.93% 5.42% 5.80%(a)
126% 166% 43% 87% 88% 0%
</TABLE>
63
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1: ORGANIZATION
Mentor Funds (formerly Cambridge Series Trust) is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. On April 12, 1995 the name of the Trust was changed to Mentor Funds
("Mentor Funds"). On April 12, 1995 the portfolios of Mentor Series Trust were
merged into newly formed portfolios of Mentor Funds. Mentor Funds consists of
nine separate Portfolios (hereinafter each individually referred to as a
"Portfolio" or collectively as the "Portfolios") at September 30, 1995, as
follows:
Mentor Growth Portfolio (formerly
Mentor Growth Fund)
("Growth Portfolio")
Mentor Capital Growth Portfolio
(formerly Cambridge Capital Growth
Portfolio)
("Capital Growth Portfolio")
Mentor Strategy Portfolio (formerly
Mentor Strategy Fund)
("Strategy Portfolio")
Mentor Income and Growth Portfolio
(formerly Cambridge Income
and Growth Portfolio)
("Income and Growth Portfolio")
Mentor Perpetual Global Portfolio
(formerly Cambridge Global Portfolio)
("Global Portfolio")
Mentor Quality Income Portfolio
(formerly Cambridge Government
Income Portfolio)
("Quality Income Portfolio")
Mentor Short-Duration Income Portfolio
(formerly Mentor Short-Duration
Income Fund)
("Short-Duration Income Portfolio")
Mentor Municipal Income Portfolio
(formerly Cambridge Municipal
Income Portfolio)
("Municipal Income Portfolio")
Mentor Balanced Portfolio
(formerly Mentor Balanced Fund)
("Balanced Portfolio")
The assets of each Portfolio are segregated and a shareholder's interest is
limited to the Portfolio in which shares are held.
The Balanced Portfolio is not currently being offered to new investors. These
financial statements do not include the Balanced Portfolio.
Mentor Funds currently issues two classes of shares. Class A shares are sold
subject to a maximum sales charge of 5.75% (4.75% for Quality Income Portfolio
and Municipal Income Portfolio and 1% for Short-Duration Income Portfolio)
payable at the time of purchase. Class B shares are sold subject to a contingent
deferred sales charge payable upon redemption which decreases depending on when
shares were purchased and how long they have been held.
64
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios:
(a) Valuation of Securities
Listed securities held by the Growth Portfolio, Capital Growth Portfolio,
Strategy Portfolio, Income and Growth Portfolio and Global Portfolio 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 Portfolios 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 under procedures established by and under the general supervision and
responsibility of the Board of Trustees.
U.S. Government obligations held by the Quality Income Portfolio, Short-Duration
Income Portfolio and 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. 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 Portfolio's Board of Trustees. In determining value, the
pricing services use information with respect to transactions in such
securities, market transactions in comparable securities, various relationships
between securities, and yield to maturity.
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. The
pricing service does not rely exclusively on quoted prices. The Board of
Trustees has determined that the fair value of debt securities with remaining
maturities of 60 days or less shall be their amortized cost value unless the
particular circumstances of the security indicate otherwise.
Foreign currency amounts are translated into United States dollars as follows:
market value of investments, assets and liabilities at the daily
65
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
rate of exchange, purchases and sales of investment, income and expenses at the
rate of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gains/losses are a component of unrealized
appreciation/depreciation of investments.
(b) Repurchase Agreements
It is the policy of Mentor Funds to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book entry system,
or to have segregated within the custodian bank's vault all securities held as
collateral in support of repurchase agreement investments. Additionally,
procedures have been established by Mentor Funds to monitor, on a daily basis,
the market value of each repurchase agreement's underlying securities to ensure
the existence of a proper level of collateral.
Mentor Funds will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by
Mentor Funds' adviser to be creditworthy pursuant to guidelines established by
the Mentor Funds' Trustees. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
Mentor Funds could receive less than the repurchase price on the sale of
collateral securities.
(c) Borrowings
Each of the Portfolios (except for Municipal Income Portfolio) may, under
certain circumstances, borrow money directly or through dollar-roll and 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). Each Portfolio may borrow up to one-third of the value of its net assets.
There were no reverse repurchase agreements outstanding at September 30, 1995.
The average daily balance of reverse repurchase agreements outstanding for
Quality Income Portfolio during the period ended September 30, 1995 was
approximately $5,286,560 or $0.77 per share based on average shares outstanding
during the year at a weighted average interest rate of 5.23%. The maximum amount
of borrowings outstanding at any week-end during the year was $10,574,536
(including accrued interest), at a weighted average interest rate of 5.23%, and
was 12.19% of total assets.
The average daily balance of reverse repurchase agreements outstanding for
short-duration income portfolio during the period ended September 30, 1995 was
approximately $4,790,610 or $3.14 per share based on average shares outstanding
during the year at an interest rate ranging between 5.80% -- 6.20%. The maximum
amount of borrowings outstanding at any week-end during the year was $8,201,367
(including accrued interest), as of
66
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
April 18, 1995, at a weighted average interest rate of 6.00% and was 33.19% of
total assets.
(d) Security Transactions and Investment Income
Security transactions for the Portfolios are accounted for on the trade date.
Realized gain and losses are computed on the identified cost basis. 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.
(e) Federal Income Taxes
No provision for federal income taxes has been made since it is each Portfolio'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.
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 by considered a tax preference
item to shareholders.
At September 30, 1995, Quality Income Portfolio for federal tax purposes, had a
capital loss carryforward of approximately $11,750,000. Pursuant to the Code,
such capital loss carryforwards expire as follows: $820,000 in 2001 and
$3,680,000 in 2002 and $7,250,000 in 2003.
At September 30, 1995, Short-Duration Income Portfolio for federal tax purposes,
had a capital loss carryforward of approximately $35,000. Pursuant to the
Internal Revenue Code, such capital loss carryforward will expire in 2003.
At September 30, 1995, Municipal Income Portfolio for federal tax purposes, had
a capital loss carryforward of approximately $895,000. Pursuant to the Internal
Revenue Code, such capital loss carryforward will expire in 2003.
Such capital loss carryforwards will reduce the Portfolios' taxable income
arising from future net realized gains on investments, if any, to the
67
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 investment
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
In order to gain exposure to or protect against declines in security values,
Quality Income Portfolio, Short-Duration Income Portfolio and Municipal Income
Portfolio may buy and sell futures contracts. The Portfolios may also buy or
write put or call options on these futures contracts.
The Portfolios generally sell futures contracts to hedge against declines in the
value of portfolio securities. The Portfolios 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 Portfolios will segregate assets
to cover its commitments under such speculative futures contracts.
Upon entering into a futures contract, the Portfolios are required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolios 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 Portfolios recognize a realized gain or loss when the
contract is closed. For the period ended September 30, 1995, Quality Income
Portfolio had a realized gain of $645,273, Short-Duration Income Portfolio and
Municipal Income Portfolio recorded realized losses of $28,629 and $892,033
respectively on closed futures contracts.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid 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.
68
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(h) Options
In order to produce incremental earnings or protect against changes in the value
of portfolio securities, the Quality Income Portfolio may buy and sell put and
call options, write covered call options on portfolio securities and write
cash-secured put options.
The Portfolio generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. The
Portfolio may also use options for speculative purposes, although it does not
employ options for this at the present time. The Portfolio will segregate assets
to cover its obligations under option contracts.
Options contracts are valued daily based upon the last sales price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Portfolio will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid. For the period ended
September 30, 1995 Quality Income Portfolio had a realized gain of $134,642 on
closed options contracts.
The risk in writing a call option is that the Portfolio gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist. The Portfolio may also write over-the-counter options where the
completion of the obligation is dependent upon the credit standing of the
counterparty.
(i) Residual Interests
A derivative security is any investment that derives its value from an
underlying security, asset, or market index. The Quality Income Portfolio
invests in mortgage security residual interests ("residuals") which are
considered derivative securities. The Portfolio's investment in residuals has
been primarily in securities issued by proprietary mortgage trusts. While these
entities have been highly leveraged, often having indebtedness of up to 95% of
their total value, the Portfolio has not incurred any indebtedness in the course
of making these residual investments; nor have the Portfolio's assets been
pledged to secure the indebtedness of the issuing structure or the Portfolio's
investment in the residuals. In consideration of the risk associated with
investment in residual
69
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
securities, it is the Portfolio's policy to limit its exposure at the time of
purchase to no more than 20% of its total assets. The Portfolio will continue to
invest in residual securities because, in the opinion of the Investment Manager,
these investments can play a key role in fulfilling the Portfolio's objective of
achieving high monthly income through providing a means of economic leverage.
(j) Deferred Expenses
Costs incurred by the Portfolios in connection with their initial share
registration and organization costs were deferred by the Portfolios and are
being amortized on a straight-line basis over a five-year period.
(k) Distributions
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.
NOTE 3: DIVIDENDS
Dividends will be declared daily and paid monthly to all shareholders invested
in Quality Income Portfolio, Short-Duration Income Portfolio and Municipal
Income Portfolio on the record date. Dividends are declared and paid
semi-annually to all shareholders invested in Capital Growth Portfolio on the
record date, dividends are declared and paid annually to all shareholders
invested in the Growth Portfolio, Strategy Portfolio and Global Portfolio on the
record date, and dividends are declared and paid quarterly to all shareholders
invested in 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 cash
payments are requested by shareholders in writing. Capital gains realized by
each Portfolio, if any, are paid annually.
NOTE 4: INVESTMENT ADVISORY AND MANAGEMENT AND ADMINISTRATION AGREEMENTS
Commonwealth Investment Advisors, Inc., (formerly Cambridge Investment Advisors,
Inc.), ("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: Capital Growth Portfolio, 0.80%; Quality
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 the sub-adviser to Municipal Income Portfolio an
annual fee of
70
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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
assets as follows: 0.325% on the first $50 million in Portfolio assets, 0.275%
on the next $150 million in assets, and 0.200% on assets over $500 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.
The Growth Portfolio has entered into an Investment Advisory and Management
Agreement with Charter Asset Management, Inc. ("Charter"), a wholly-owned
subsidiary of Mentor Investment Group, Inc., (formerly Investment Management
Group, Inc.) ("Mentor") 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 Portfolio.
The Strategy Portfolio has entered into an Investment Advisory Agreement with
Wellesley Advisors, Inc. ("Wellesley"), a wholly-owned subsidiary of Mentor.
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 Portfolio.
The Short-Duration Income Portfolio has entered into an Investment Advisory
Agreement with Commonwealth Investment Counsel, Inc. ("Commonwealth"), a
wholly-owned subsidiary of Mentor. 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 Portfolio.
For the period ended September 30, 1995 the Investment Adviser and sub-advisers,
Charter, Wellesley and Commonwealth earned and voluntarily waived the following
advisory fees:
<TABLE>
<CAPTION>
Adviser Adviser Fee Sub Adviser
Fee Voluntarily Fee
Portfolio Earned Waived Earned
<S> <C> <C> <C>
Growth $1,143,696 - -
Capital Growth 465,031 - -
Strategy 1,262,809 - -
Income and Growth 460,486 - $ 193,845
Global 185,092 $10,545 -
Quality Income 563,032 - -
Short-Duration Income 65,901 65,901 -
Municipal Income 380,281 - 190,141
<CAPTION>
</TABLE>
71
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Administrative personnel and services are provided by Mentor, under an
Administration Agreement, at an annual rate 0.10% of the average daily net
assets of each Portfolio. In order to limit the Portfolio's expenses during its
start-up period, Mentor agreed to waive its fee for the first year of each
Portfolios' operations. This waiver period elapsed on April 30,
1995 for the Short-Duration Income Portfolio. In addition, the Growth Portfolio
and Strategy Portfolio provide direct reimbursement to
Mentor for certain accounting and operation related costs not covered under the
Administration Agreement. For the period ended September 30, 1995, the Growth
Portfolio and Strategy Portfolio paid $6,579 and $6,117 respectively to Mentor
for these direct reimbursements.
For the period ended September 30, 1995 Mentor earned the following
administrative fees:
<TABLE>
<CAPTION>
Administrative
Administrative Fee
Fee Voluntarily
Portfolio Earned Waived
<S> <C> <C>
Growth $108,285 -
Capital Growth 66,032 -
Strategy 146,572 -
Income and Growth 69,316 -
Global 19,082 -
Quality Income 106,885 $ 41,651
Short-Duration Income - -
Municipal Income 72,055 -
<CAPTION>
</TABLE>
Charter, Wellesley, and Commonwealth have agreed to reimburse the Portfolios 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 Portfolios. The most stringent state expense limitation
applicable to the Portfolios requires reimbursement of expenses not including
expenses under the Portfolios' Distribution Plan, 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 ended September 30, 1995, no
reimbursement from Charter, Wellesley or Commonwealth was required as a result
of such state expense limitations.
NOTE 5: DISTRIBUTION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
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. Under a
Distribution Agreement between the Portfolios and Mentor
Distribu-
72
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
tors, Inc. ("Mentor Distributors") (formerly, Cambridge Distributors, Inc.) a
wholly-owned subsidiary of Mentor, Mentor Distributors was appointed distributor
of the Portfolios. To compensate Mentor Distributors for the services it
provides and for the expenses it incurs under the Distribution Agreement, the
Portfolios pay a distribution fee, which is accrued daily and paid monthly at
the annual rate of 0.75% of the Portfolios' average daily net assets for the
Growth Portfolio, Capital Growth Portfolio, Strategy Portfolio, Income and
Growth Portfolio and Global Portfolio, 0.50% of the average daily net assets of
the Quality Income Portfolio and Municipal Income Portfolio, and 0.30% of the
average daily net assets for the Short-Duration Income Portfolio.
Mentor Funds 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 .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.
Presently, the Portfolios' class specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan. For
the period ended September 30, 1995, distribution fees and shareholder servicing
fees were as follows:
<TABLE>
<CAPTION>
Shareholder-Servicing
Distribution Fees
Portfolio Fees Class A Class B
<S> <C> <C> <C>
Growth $1,222,284 $ 8,517 $395,696
Capital Growth 288,262 49,218 96,104
Strategy 1,105,495 9,417 362,012
Income and Growth 322,260 45,843 107,652
Global 68,125 14,893 27,172
Quality Income 334,771 66,334 168,263
Short-Duration Income 39,054 1,569 30,936
Municipal Income 207,611 54,057 104,393
<CAPTION>
</TABLE>
Distribution fees are only applicable to Class B shares.
73
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6: INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), for the
period ended September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
<S> <C> <C>
Growth $144,141,344 $137,124,525
Capital Growth 105,485,484 85,952,151
Strategy 196,082,992 199,429,668
Income and Growth 35,406,377 41,334,627
Global 25,080,716 24,953,356
Quality Income 351,397,916 405,788,314
Short-Duration Income 29,355,976 26,775,678
Municipal Income 26,715,099 42,198,478
<CAPTION>
</TABLE>
NOTE 7: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to
$186,115,335, for the Growth Portfolio, $76,760,291 for the Capital Growth
Portfolio, $204,015,264 for the Strategy Portfolio, $60,560,645 for the Income
and Growth Portfolio, $18,087,647 for the Global Portfolio, $95,192,126 for the
Quality Income Portfolio, $20,084,529 for the Short-Duration Income Portfolio
and $56,429,527 for Municipal Income Portfolio at September 30, 1995. Gross
unrealized appreciation and depreciation of investments at September 30, 1995
based on such costs were as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Portfolio Appreciation Depreciation Appreciation
<S> <C> <C> <C>
Growth $ 78,797,576 $(2,375,066) $ 76,422,510
Capital Growth 11,314,295 (762,121) 10,552,174
Strategy 40,434,604 (2,710,644) 37,723,960
Income and Growth 7,103,546 (1,037,475) 6,066,071
Global 1,626,071 (665,948) 960,123
Quality Income 999,511 (370,116) 629,395
Short-Duration Income 303,364 (23,345) 280,019
Municipal Income 3,047,351 (427,116) 2,620,235
<CAPTION>
</TABLE>
74
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8: FORWARD CONTRACTS
In connection with portfolio purchases and sales of securities denominated in a
foreign currency, Global Portfolio may enter into forward foreign currency
exchange contracts ("contracts"). Additionally, from time to time 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 Portfolio is subject to the credit risk
that the other party will not complete the obligations of the contract. At
September 30, 1995 Global Portfolio had outstanding forward contracts as set
forth below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Contracts In Exchange Net Unrealized
Settlement Date to Deliver/Receive For Appreciation
<S> <C> <C> <C>
Sales
10/2/95 Malaysian Ringgit 62,333 $24,814 $20
</TABLE>
NOTE 9: 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 Portfolio
shares were as follows:
<TABLE>
<CAPTION>
Period Mentor Growth Portfolio Year
Ended 9/30/95 Ended 12/31/94
Shares Dollar Shares Dollar
<S> <C> <C> <C> <C>
CLASS A*:
Shares sold 1,270,059 $ 19,846,126
Shares issued upon reinvestment of distributions - -
Shares redeemed (3,410) (53,044)
Change in net assets from capital share
transaction 1,266,649 $ 19,793,082
CLASS B**:
Shares sold 2,282,441 $ 32,813,557 2,621,726 $ 35,199,222
Shares issued upon reinvestment of distributions - - 1,176,364 14,274,538
Shares redeemed (2,585,359) (37,845,400) (1,714,715) (23,019,529)
Change in net assets from capital share
transaction (302,918) $ (5,031,843) 2,083,375 $ 26,454,231
<CAPTION>
</TABLE>
75
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
Year Year
Ended 9/30/95 Ended 9/30/94
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 100,226 $ 949,902 155,406 $ 2,353,285
Shares issued in connection with acquisition of
Mentor/Cambridge Growth Portfolio+ 671,791 10,681,477 - -
Shares issued upon reinvestment of distributions 125,218 1,954,221 21,385 320,355
Shares redeemed (473,840) (7,405,251) (809,281) (12,181,621)
Change in net assets from capital share
transactions 423,395 $ 6,180,349 (632,490) $ (9,507,981)
CLASS B:
Shares sold 329,014 $ 1,869,220 484,356 $ 7,254,585
Shares issued in connection with acquisition of
Mentor/Cambridge Growth Portfolio+ 1,255,213 19,669,182 - -
Shares issued upon reinvestment of distributions 256,857 3,961,731 29,045 435,097
Shares redeemed (968,058) (15,000,398) (1,479,886) (22,203,933)
Change in net assets from capital share
transactions 873,026 $ 10,499,735 (966,485) $(14,514,251)
</TABLE>
<TABLE>
<CAPTION>
PeriodMentor Strategy Portfolio Year
Ended 9/30/95 Ended 12/31/94
Shares Dollar Shares Dollar
<S> <C> <C> <C> <C>
CLASS A*:
Shares sold 690,271 $ 10,122,356
Shares issued upon reinvestment of distributions - -
Shares redeemed (1,062) (15,555)
Change in net assets from capital share
transactions 689,209 $ 10,106,801
CLASS B**:
Shares sold 2,247,821 $ 31,437,475 5,670,538 70,664,481
Shares issued upon reinvestment of distributions 1,708 20,979 - -
Shares redeemed (2,121,049) (29,118,194) (642,107) (7,772,804)
Change in net assets from capital share
transactions 128,480 $ 2,340,260 5,028,431 $62,891,677
</TABLE>
76
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Income and Growth Portfolio
Year Year
Ended 9/30/95 Ended 9/30/94
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 255,128 $ 3,928,730 621,368 $ 9,508,705
Shares issued upon reinvestment of distributions 49,436 741,971 31,362 474,885
Shares redeemed (307,376) (4,818,528) (150,563) (2,281,176)
Change in net assets from capital share
transactions (2,812) $ (147,827) 502,167 $ 7,702,414
CLASS B:
Shares sold 602,055 $ 9,529,693 1,909,839 $29,152,862
Shares issued upon reinvestment of distributions 98,685 1,467,195 59,116 895,345
Shares redeemed (806,196) (12,489,370) (356,385) (5,411,387)
Change in net assets from capital share
transactions (105,456) $ (1,492,482) 1,612,570 $24,636,820
</TABLE>
<TABLE>
<CAPTION>
Mentor Perpetual Global Portfolio
Year Year
Ended 9/30/95 Ended 9/30/94(a)
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 142,470 $ 2,073,646 713,962 $10,133,334
Shares issued upon reinvestment of distributions - - - -
Shares redeemed (335,189) (4,810,857) (89,781) (1,281,155)
Change in net assets from capital share
transactions (192,719) $(2,737,211) 624,181 $ 8,852,179
CLASS B:
Shares sold 417,981 $ 6,078,915 593,033 $ 8,409,160
Shares issued upon reinvestment of distributions - - - -
Shares redeemed (174,218) (2,478,417) (28,362) (404,051)
Change in net assets from capital share
transactions 243,763 $ 3,600,498 564,671 $ 8,005,109
</TABLE>
77
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Quality Income Portfolio
Year Year
Ended 9/30/95 Ended 9/30/94
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 132,285 $ 1,706,716 175,391 $ 2,326,934
Shares issued upon reinvestment of distributions 89,969 1,159,149 104,113 1,395,612
Shares redeemed (745,107) (9,570,406) (1,319,559) (17,795,382)
Change in net assets from capital share
transactions (522,853) $ (6,704,541) (1,040,055) $(14,072,836)
CLASS B:
Shares sold 421,513 $ 5,506,753 895,699 $ 12,254,465
Shares issued upon reinvestment of distributions 223,602 2,883,354 290,900 3,906,462
Shares redeemed (2,078,944) (26,675,096) (4,142,540) (55,693,346)
Change in net assets from capital share
transactions (1,433,829) $(18,284,989) (2,955,941) $(39,532,419)
</TABLE>
<TABLE>
<CAPTION>
Mentor Short-Duration
Period Income Portfolio Period
Ended 9/30/95 Ended 12/31/94***
Shares Dollar Shares Dollar
<S> <C> <C> <C> <C>
CLASS A*:
Shares sold 80,087 $ 1,015,595
Shares issued upon reinvestment of distributions 322 4,089
Shares redeemed (1,399) (17,786)
Change in net assets from capital share
transactions 79,010 $ 1,001,898
CLASS B**:
Shares sold 1,116,509 $ 14,138,694 2,235,823 $ 27,846,704
Shares issued upon reinvestment of distributions 56,501 708,003 29,697 366,811
Shares redeemed (1,011,667) (12,759,888) (858,396) (10,590,296)
Change in net assets from capital share
transactions 161,343 $ 2,086,809 1,407,124 $ 17,623,219
</TABLE>
78
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
Year Year
Ended 9/30/95 Ended 9/30/94
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 71,110 $ 1,021,048 192,548 $ 2,946,139
Shares issued upon reinvestment of distributions 45,425 658,265 51,632 797,051
Shares redeemed (483,463) (6,926,047) (328,132) (4,975,320)
Change in net assets from capital share
transactions (366,928) $ (5,246,734) (83,952) $ (1,232,130)
CLASS B:
Shares sold 247,851 $ 3,605,763 723,926 $ 11,283,387
Shares issued upon reinvestment of distributions 99,198 1,439,916 109,721 1,694,171
Shares redeemed (903,907) (13,100,688) (809,227) (12,195,599)
Change in net assets from capital share
transactions (556,858) $ (8,055,009) 24,420 $ 781,959
</TABLE>
* For the period from June 5, 1995 (issuance of Class A shares) to September
30, 1995.
** For the period from January 1, 1995 to September 30, 1995.
*** For the period from April 29, 1994 (commencement of operations) to December
31, 1994.
+ On September 27, 1995, Capital Growth Portfolio acquired the net assets of
Mentor/Cambridge Growth Portfolio in exchange for Class A and Class B
shares of the Capital Growth Portfolio pursuant to a plan of reorganization
approved by the shareholders of Mentor/Cambridge Growth Portfolio on
September 21, 1995. The acquisition was accomplished by a tax free exchange
of 1,927,004 shares of the Capital Growth Portfolio for the net assets of
Mentor/Cambridge Growth Portfolio. The net assets of Mentor/Cambridge
Growth Portfolio on that date including $3,953,496 of unrealized
appreciation on investments, were combined with Capital Growth Portfolio.
The aggregate net assets of Capital Growth Portfolio and Mentor/Cambridge
Growth Portfolio immediately before the acquisition were $56,351,987 and
$30,350,659, respectively. The net assets of Capital Growth Portfolio
immediately after the acquisition were $86,702,646.
(a) For the period from March 29, 1994 (commencement of operations) to
September 30, 1994.
79
<PAGE>
MENTOR FUNDS
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
MENTOR FUNDS
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Growth Portfolio, Capital Growth
Portfolio, Strategy Portfolio, Income and Growth Portfolio, Perpetual Global
Portfolio, Quality Income Portfolio, Short-Duration Portfolio and Municipal
Income Portfolio, portfolios of Mentor Funds (the Funds) as of September 30,
1995 and the related statements of operations for the year or period then ended
(pages 50 to 51), the statements of changes in net assets for each of the years
or periods in the two year period then ended (pages 52 to 54) and the financial
highlights for Class A and Class B shares for each of the years or periods in
the six year period then ended (pages 55 to 63). These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of securities owned
as of September 30, 1995 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 Portfolio, Capital Growth Portfolio, Strategy Portfolio, Income and
Growth Portfolio, Perpetual Global Portfolio, Quality Income Portfolio,
Short-Duration Portfolio and Municipal Income Portfolio, portfolios of Mentor
Funds as of September 30, 1995, the results of their operations for the year
then ended, 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 55 to 63, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
November 10, 1995
80
<PAGE>
MENTOR FUNDS
SHAREHOLDER INFORMATION
TRUSTEES
DANIEL J. LUDEMAN, TRUSTEE & CHAIRMAN
Chairman and Chief Executive Officer
Mentor Investment Group, Inc.
ARNOLD H. DREYFUSS, TRUSTEE
Former Chairman
and Chief Executive Officer
Hamilton Beach/Proctor-Silex, Inc.
THOMAS F. KELLER, TRUSTEE
Dean, Fuqua School of Business
Duke University
LOUIS W. MOELCHERT, JR., TRUSTEE
Vice President for Business & Finance
University of Richmond
STANLEY F. PAULEY, JR., TRUSTEE
Chairman and Chief Executive Officer
E. R. Carpenter Company, Inc.
TROY A. PERRY, JR., TRUSTEE
President
Heilig-Meyers Company
PETER J. QUINN, JR., TRUSTEE
Managing Director
Mentor Investment Group, Inc.
OFFICERS
PAUL F. COSTELLO, PRESIDENT
Managing Director
Mentor Investment Group, Inc.
TERRY L. PERKINS, TREASURER
Vice President
Mentor Investment Group, Inc.
JOHN M. IVAN, SECRETARY
Managing Director
and Assistant General Counsel
Wheat First Butcher Singer, Inc.
MICHAEL A. WADE, ASSISTANT TREASURER
Associate Vice President
Mentor Investment Group, Inc.
<PAGE>
(MENTOR LOGO GOES HERE)
RIVERFRONT PLAZA
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
1-800-382-0016
This report is authorized for
distribution to prospective
investors only when preceded or
accompanied by the Trust's
propectus, which contains facts
concerning its objective and
policies, management fees,
expenses, and other information.
