PERFORMANCE COMPARISONS
MENTOR BALANCED PORTFOLIO
[GRAPH]
S&P 500 and
Mentor Mentor Lehman Brothers
Balanced Balanced Government/Corporate
Portfolio Portfolio* Bond Aggregate Index**
06/21/94 10,000 10,000
06/30/94 9,872 9,872 9,844.14
07/31/94 10,064 9,564 10,116.47
08/31/94 10,352 9,852 10,370.19
09/30/94 10,192 9,692 10,157.08
10/31/94 10,232 9,732 10,290.36
11/30/94 10,024 9,524 10,056.44
12/31/94 10,108 9,610 10,173.68
01/31/95 10,352 9,852 10,412.54
02/28/95 10,701 10,201 10,755.13
03/31/95 10,822 10,322 10,971.80
04/30/95 10,969 10,469 11,227.12
05/31/95 11,350 10,850 11,670.16
06/30/95 11,561 11,161 11,866.90
07/31/95 11,732 11,332 12,092.56
08/31/95 11,837 11,437 12,169.30
09/15/95 12,126 11,726
09/30/95 12,085 11,685 12,524.64
10/31/95 12,020 11,620 12,562.94
11/21/95 12,362 11,962
11/30/95 12,378 11,978 12,969.23
12/19/95 12,438 12,038
12/31/95 12,587 12,187 13,191.73
01/31/96 12,911 12,511 13,495.98
02/29/96 13,130 12,730 13,477.12
03/31/96 13,209 12,809 13,517.25
04/30/96 13,463 13,063 13,606.52
05/31/96 13,638 13,238 13,806.18
06/30/96 13,778 13,478 13,911.74
07/31/96 13,480 13,180 13,557.99
08/31/96 13,647 13,347 13,720.34
09/30/96 14,260 13,960 14,279.14
* Includes maximum Contingent Deferred Sales Charge (CDSC) of 5%.
** This Index represents asset allocation of 60% S&P 500 Stocks and 40% Lehman
Brothers Government/Corporate Bonds.
Average Annual Return as of 9/30/96 Average Annual Return as of 9/30/96
Without Sales Charges Including Sales Charges
1 year Inception*** 1 year Inception***
- ----------------------------------- -----------------------------------
18.00% 16.84% 13.00% 15.76%
*** For the period from June 21, 1994 (commencement of operations) to
September 30, 1996.
PERFORMANCE INFORMATION FOR THE MENTOR BALANCED PORTFOLIO
This graph compares the investment performance of the Portfolio from its
inception date to the index that is most representative of the fund's portfolio.
The graph reflects the performance of a $10,000 investment from the date the
fund started through September 30, 1996. Return does not reflect taxes payable
(if any) on distributions.
In comparing the performance of a fund to an index, you should keep in
mind that market indexes do not take into account brokerage commissions that
would be incurred if you purchased the individual securities that make up the
index. They also do not include taxes payable on dividends and interest
payments, or operating expenses necessary to maintain a portfolio investing in
the index.
The performance data quoted in this report is historical and does not
guarantee future investment results. Your investment return and principal value
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
Performance is as of September 30, 1996 and includes change in share
price and reinvestment of dividends and capital gains. The maximum contingent
deferred sales charge (CDSC) is 5% for the Balanced Portfolio.
Mentor Balanced Portfolio
Portfolio of Investments
September 30, 1996
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks 60.29%
- ---------------------------------------------------------------------------------------------------------------------------
Basic Materials 8.54%
Bemis Company 2,300 $ 77,913
Morton International, Inc. 2,200 87,450
Nalco Chemical Company 2,400 87,000
Sonoco Products Company 2,700 74,250
- ---------------------------------------------------------------------------------------------------------------------------
326,613
- ---------------------------------------------------------------------------------------------------------------------------
Capital Goods & Construction 6.66%
Pall Corp 3,200 90,400
W.W. Grainger, Inc. 1,100 77,275
York International Corporation 1,800 87,075
- ---------------------------------------------------------------------------------------------------------------------------
254,750
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical 10.42%
Carnival Corporation - Class A 2,600 80,600
Interpublic Group Companies, Inc. 1,600 75,600
Mattel, Inc. 3,200 82,800
Newell Company 2,500 75,000
Olsten Corporation 3,400 84,575
- ---------------------------------------------------------------------------------------------------------------------------
398,575
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Staples 8.82%
Avon Products Company 1,600 79,400
CPC International, Inc. 1,300 97,338
Sherwin Williams Company 1,800 83,475
Sysco Corporation 2,300 77,338
- ---------------------------------------------------------------------------------------------------------------------------
337,551
- ---------------------------------------------------------------------------------------------------------------------------
Energy 1.77%
Schlumberger, Ltd. 800 67,600
- ---------------------------------------------------------------------------------------------------------------------------
Financial 7.32%
American Express Company 1,500 69,375
Banc One Corporation 1,993 81,713
First Union Center 800 53,400
United Asset Management Corporation 3,200 75,600
- ---------------------------------------------------------------------------------------------------------------------------
280,088
- ---------------------------------------------------------------------------------------------------------------------------
Common Stocks (continued)
- ---------------------------------------------------------------------------------------------------------------------------
Health 4.10%
Johnson & Johnson 1,500 $ 76,875
Schering-Plough 1,300 79,950
- ---------------------------------------------------------------------------------------------------------------------------
156,825
- ---------------------------------------------------------------------------------------------------------------------------
Technology 7.11%
Amp, Inc. 1,900 73,625
Electronic Data Systems 1,400 85,925
Intel Corporation 600 57,262
Linear Technology Corporation 1,500 55,313
- ---------------------------------------------------------------------------------------------------------------------------
272,125
- ---------------------------------------------------------------------------------------------------------------------------
Transportation & Services 1.88%
Werner Enterprises, Inc. 4,500 72,000
- ---------------------------------------------------------------------------------------------------------------------------
Utilities 1.87%
Ameritech Corporation 700 36,837
GTE Corporation 900 34,650
- ---------------------------------------------------------------------------------------------------------------------------
71,487
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous 1.80%
Tyco International, Ltd. 1,600 69,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $1,913,647) 2,306,614
- ---------------------------------------------------------------------------------------------------------------------------
Fixed Income Securities 30.69%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities and Agencies 25.92%
Federal National Mortgage Association, 7.00%, 7/01/11 (a) $ 55,366 54,552
Government National Mortgage Association, 7.00%, 12/15/08 (a) 57,942 57,521
U.S. Treasury Notes, 6.50% - 7.25%, 2/15/98 - 7/15/06 625,000 628,200
U.S. Treasury Bonds, 6.88% - 7.50%, 2/15/23 - 8/15/25 245,000 251,234
- ---------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Securities and Agencies (cost $991,615) 991,507
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds (a) 4.77%
Merrill Lynch, 6.64%, 9/19/02 45,000 43,974
Nationsbank Corporation, 7.50%, 7/15/06 35,000 35,337
Norwest Corporation, 6.80%, 5/15/02 60,000 59,525
Traveler's, Inc., 8.63%, 2/01/07 40,000 43,515
- ---------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $185,418) 182,351
- ---------------------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities (cost $1,177,033) $1,173,858
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Investment 8.19%
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement
Goldman Sachs & Company
Dated 9/30/96, 5.78%, due 10/01/96,
collateralized by $324,355 Federal National
Mortgage Association, 7.50%, 4/01/26 (cost $313,258) 313,258
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,403,938) 99.17% 3,793,730
- ---------------------------------------------------------------------------------------------------------------------------
Other Assets less Liabilities 0.83% 31,671
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets 100.00% $3,825,401
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) All or a portion of these securities are illiquid securities, and are
valued using market quotations where readily available. In the absence of market
quotations, the securities are valued based upon their fair value determined
under procedures approved by the Board of Trustees.
See notes to financial statements.
Mentor Balanced Portfolio
Statement of Assets and Liabilities
September 30, 1996
- -------------------------------------------------------------------------
Assets
Investments, at market value * (Note 2) $3,793,730
Dividend and interest receivable 17,946
Other assets 37,025
- -------------------------------------------------------------------------
Total assets 3,848,701
- -------------------------------------------------------------------------
Liabilities
Payable for investments purchased 21,335
Accrued expenses and other liabilities 1,965
- -------------------------------------------------------------------------
Total liabilities 23,300
- -------------------------------------------------------------------------
Net Assets $3,825,401
- -------------------------------------------------------------------------
Net Assets represented by:
Additional paid-in capital $2,937,929
Accumulated net investment income 69,245
Accumulated net realized gain on
investment transactions 428,435
Net unrealized appreciation of investments (Note 6) 389,792
- -------------------------------------------------------------------------
Net Assets $3,825,401
Shares Outstanding 235,041
- -------------------------------------------------------------------------
Net Asset Value and Offering Price per Share $ 16.28
- -------------------------------------------------------------------------
*Investments at cost are $3,403,938.
See notes to financial statements.
Mentor Balanced Portfolio
Statement of Operations
Year Ended September 30, 1996
- ------------------------------------------------------------------------------
Investment Income
Dividends $ 36,842
Interest 77,923
- ------------------------------------------------------------------------------
Total investment income (Note 2) 114,765
- ------------------------------------------------------------------------------
Expenses
Management fee (Note 3) 25,766
Distribution fee (Note 4) 25,766
Shareholder servicing fee (Note 4) 8,589
Custodian and accounting fees 3,157
Registration expenses 378
Legal and audit fees 179
Shareholder reports and postage expenses 99
Directors' fees and expenses 46
Miscellaneous expenses 6,715
- ------------------------------------------------------------------------------
Total expenses 70,695
- ------------------------------------------------------------------------------
Deduct
Waiver of management fee (Note 3) 18,976
Waiver of distribution fee (Note 4) 25,766
Waiver of shareholder servicing fee (Note 4) 8,589
- ------------------------------------------------------------------------------
Net expenses 17,364
- ------------------------------------------------------------------------------
Net investment income 97,401
- ------------------------------------------------------------------------------
Realized and unrealized gain on investments
Net realized gain on investments 453,033
Change in unrealized appreciation
(depreciation) of investments 26,238
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments 479,271
- ------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $576,672
- ------------------------------------------------------------------------------
See notes to financial statements.
Mentor Balanced Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Period
Ended Ended
9/30/96 9/30/95*
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Net Increase in Net Assets
Operations
Net investment income $ 97,401 $ 77,774
Net realized gain on investments 453,033 112,161
Change in unrealized appreciation (depreciation)
of investments 26,238 379,762
- -------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 576,672 569,697
- -------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
Net investment income (105,563) (7,781)
Net realized gain in investments (129,654) -
- -------------------------------------------------------------------------------------------------------------
Net decrease from distributions (235,217) (7,781)
- -------------------------------------------------------------------------------------------------------------
Capital Share Transactions (Note 7)
Change in net assets from capital
share transactions 274,373 (263,442)
- -------------------------------------------------------------------------------------------------------------
Increase in net assets 615,828 298,474
Net Assets
Beginning of period 3,209,573 2,911,099
- -------------------------------------------------------------------------------------------------------------
End of period $3,825,401 $3,209,573
- -------------------------------------------------------------------------------------------------------------
*For the period from January 1, 1995 to September 30, 1995.
See notes to financial statements.
</TABLE>
Mentor Balanced Portfolio
Financial Highlights
<TABLE>
<CAPTION>
Year Period Period
Ended Ended Ended
9/30/96 9/30/95* 12/31/94**
- -------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.85 $ 12.44 $ 12.50
Income from investment operations
Net investment income 0.42 0.36 0.22
Net realized and unrealized
gain (loss) on investments 2.09 2.08 (0.09)
- --------------------------------------------------------------------------------------------
Total from investment operations 2.51 2.44 0.13
Less distributions
Dividends from net investment income (0.48) (0.03) (0.19)
Distributions from capital gains (0.60) - -
- --------------------------------------------------------------------------------------------
Total distributions (1.08) (0.03) (0.19)
Net asset value, end of period $ 16.28 $ 14.85 $ 12.44
- --------------------------------------------------------------------------------------------
Total Return 18.00% 19.28% 1.00%
- --------------------------------------------------------------------------------------------
Ratios / Supplemental Data
- --------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 3,825 $ 3,210 $ 2,911
Ratio of expenses to
average net assets 0.50% 0.50%(a) 0.50%(a)
Ratio of expenses to average
net assets excluding waiver 2.06% 2.12%(a) 2.72%(a)
Ratio of net investment income
to average net assets 2.83% 3.26%(a) 3.32%(a)
Portfolio turnover rate 103% 65% 71%
Average commission rate on
portfolio transactions $ 0.0694
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
* For the period from January 1, 1995 to September 30, 1995.
**For the period from June 21, 1994 (commencement of operations) to December 31,
1994.
See notes to financial statements.
Mentor Balanced Portfolio
Notes to Financial Statements
September 30, 1996
NOTE 1: ORGANIZATION
The 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, 1996, as
follows:
Mentor Growth Portfolio ("Growth Portfolio")
Mentor Perpetual Global Portfolio ("Global Portfolio")
Mentor Capital Growth Portfolio ("Capital Growth Portfolio")
Mentor Strategy Portfolio ("Strategy Portfolio")
Mentor Income and Growth Portfolio ("Income and Growth Portfolio")
Mentor Municipal Income Portfolio ("Municipal Income Portfolio")
Mentor Quality Income Portfolio ("Quality Income Portfolio")
Mentor Short-Duration Income Portfolio ("Short-Duration Income Portfolio")
Mentor Balanced Portfolio ("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 financial statements included in this report are for the Balanced
Portfolio only (hereinafter referred to as the "Portfolio").
Shares of the Portfolio are sold without an initial sales charges, although
a contingent deferred sales charge may be imposed if shares are redeemed within
5 years of purchase. Shares of the Portfolio are not currently being offered to
public.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolio.
(a) Valuation of Securities - Listed securities held by the Portfolio and
traded on national stock exchanges and over-the-counter securities quoted on the
NASDAQ National Market System are valued at the last reported sales price or,
lacking any sales, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by the Board of Trustees of the Portfolio 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 of
the Board of Trustees.
U.S. Government obligations held by the 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
dealers use information with respect to transactions in such securities, market
transactions in comparable securities, various relationships between securities,
and yield to maturity.
(b) Repurchase Agreements- 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 Fund's adviser to be creditworthy pursuant to guidelines established
by the Mentor Fund's 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) Security Transactions and Investment Income - Security transactions for
the Portfolio are accounted for on a trade date basis. Dividend income is
recorded on the ex-dividend date and interest is recorded on the accrual basis.
Interest income includes interest and discount earned (net of premium) on short
term obligations, and interest earned on all other debt securities including
original issue discounts as required by the Internal Revenue Code. Realized and
unrealized gains and losses on investment security transactions are calculated
on an identified cost basis.
(d) Federal Income Taxes - No provision for federal income taxes has been
made since it is the 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, if any.
(e) Distributions to Shareholders- Distributions from net investment income
and net realized capital gains, after offsetting capital loss carryovers are
distributed annually for the Portfolio.
NOTE 3: INVESTMENT ADVISORY AND MANAGEMENT AND ADMINISTRATION AGREEMENTS
The Portfolio has entered into an Investment Advisory Agreement with
Commonwealth Investment Counsel, Inc. ("Commonwealth"), a wholly-owned
subsidiary of Mentor Investment Group, Inc. ("Mentor"), which is a wholly-owned
subsidiary of Wheat First Butcher Singer, Inc. ("Wheat").
Under this agreement, Commonwealth's management fee is accrued daily and
paid monthly at an annual rate of 0.75% applied to the average daily net assets
of the Portfolio. In order to limit the Portfolio's expenses, during the period
ended September 30, 1996 Commonwealth has agreed to reduce its compensation to
the extent that expenses of the Portfolio (exclusive of brokerage, interest,
taxes, deferred organization expenses, and payments under the Portfolio's
Distributions Plan) exceed an annual rate of 0.50% of the Portfolio's average
net assets. For the year ended September 30, 1996, Commonwealth earned advisory
fees of $25,766 and voluntarily waived $18,976 of the fees.
Effective November 1, 1996, Commonwealth Advisors, Inc., Charter Asset
Management, Inc. and Wellesley Advisors, Inc., were reorganized into
Commonwealth Investment Counsel, Inc., which then became Mentor Investment
Advisors, LLC ("Mentor Advisors"). Mentor Advisors is a wholly-owned subsidiary
of Mentor Investment Group, LLC (formerly, Mentor Investment Group, Inc.).
Mentor Investment Group, LLC is a subsidiary of Wheat First Butcher Singer, Inc.
Also effective November 1, 1996, EVEREN Capital Corporation, a previously
unrelated broker dealer acquired a 20% ownership interest in Mentor Investment
Group, LLC from Wheat First Butcher Singer, Inc. As part of the acquisition
agreement, EVEREN may acquire additional ownership based principally on the
amount of Mentor Investment Group, LLC's revenues derived from assets
attributable to clients of EVEREN Securities, Inc. and its affiliates.
Administrative personnel and services are provided by Mentor to the
Portfolio, under an Administration Agreement, at an annual rate of 0.10% of 1%
of the average daily net assets of the Portfolio. In order to limit the
Portfolio's expenses, Mentor agreed to waive its fees during the year ended
September 30, 1996.
Commonwealth has agreed to reimburse the Portfolio 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 Portfolio.
The most stringent state expense limitation applicable to the Portfolio requires
reimbursement of expenses in any year that such expenses exceed 2.5% of the
first $30,000,000 of average daily net assets, 2% of the next $70,000,000 of
average daily net assets, and 1.5% of the average daily net assets over
$100,000,000. During the year ended September 30, 1996, no reimbursement from
Commonwealth was required as a result of such state expense limitations.
NOTE 4: DISTRIBUTION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under a Distribution Agreement between the Portfolio and Mentor
Distributors, Inc. ("Mentor Distributors") a wholly-owned subsidiary of Mentor,
Mentor Distributors was appointed distributor of the Portfolio. To compensate
Mentor Distributors for the services it provides and for the expenses it incurs
under the Distribution Agreement, the Portfolio has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940,
under which the Portfolio pays a distribution fee, which is accrued daily and
paid monthly at the annual rate of 0.75% of the Portfolio's average daily net
assets.
Effective November 1, 1996, Mentor Distributors became Mentor Distributors,
LLC.
Mentor Funds has adopted a Shareholder Servicing Plan (the "Service Plan")
with respect to each Portfolio. Under the Service Plan, financial institutions
will enter into shareholder service agreements with the Portfolio to provide
administrative support services at an annual rate of 0.25% of the Portfolio's
average daily net assets. The total charges to be borne by the Portfolio, under
the Distribution and Shareholder Service Agreements is expected to remain at an
annual rate of 1% of the Portfolio's average daily net assets. For the year
ended September 30, 1996 distribution and shareholder services fees were as
follows:
<TABLE>
<CAPTION>
Shareholder
Distribution Fee Shareholder Servicing Fee
Distribution Fee Waived Servicing Fee Waived
- ------------------------------------------------------------------------------------------------------
<S> <C>
Balanced Portfolio $25,766 $(25,766) $8,589 $(8,589)
</TABLE>
NOTE 5: INVESTMENT TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities,
aggregated $3,327,191 and $3,421,283 respectively, for the year ended September
30, 1996.
NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
At September 30, 1996, the cost of investments for federal income tax
purposes amounted to $3,410,033 and net unrealized appreciation aggregated
$383,697, of which $396,547 related to appreciated securities and $12,850
related to depreciated securities.
NOTE 7: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest. Transactions in Portfolio
shares were as follows:
<TABLE>
<CAPTION>
Year Period
Ended Ended
9/30/96 9/30/95*
Shares Dollars Shares Dollars
- --------------------------------------------------------------------------------------------------------
<S> <C>
Shares sold 48,575 $734,947 6,784 $ 90,000
Shares issued upon reinvestment of distributions 16,321 235,217 3,998 51,058
Shares redeemed (45,946) (695,791) (28,622) (404,500)
-------------------------------------------------------
Change in net assets from capital share
transactions 18,950 $274,373 (17,840) $(263,442)
-------------------------------------------------------
</TABLE>
*For the period from January 1, 1995 to September 30, 1995.
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
MENTOR FUNDS
We have audited the accompanying statement of assets and liabilities of
Mentor Balanced Portfolio, a portfolio of Mentor Funds, including the portfolio
of investments, as of September 30, 1996 and the related statement of operations
for the year then ended, the statements of changes in net assets for the year
then ended and for the period from January 1, 1995 to September 30, 1995, and
the financial highlights for the year then ended, for the period from January 1,
1995 to September 30, 1995 and for the period from June 21, 1994 (commencement
of operations) to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit 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, 1996, 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
Mentor Balanced Portfolio, as of September 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended and for the period from January 1, 1995 to September 30, 1995, and
the financial highlights for each of the years or periods specified in the first
paragraph above, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 8, 1996
