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MENTOR FUNDS
SEMI-ANNUAL REPORT
MARCH 31, 1996
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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's Commentary
Growth Portfolio....................................................................... 3
Perpetual Global Portfolio............................................................. 6
Capital Growth Portfolio............................................................... 10
Strategy Portfolio..................................................................... 12
Income & Growth Portfolio.............................................................. 15
Municipal Income Portfolio............................................................. 17
Quality Income & Short-Duration Income Portfolios...................................... 19
Portfolios of Investments
Growth Portfolio....................................................................... 22
Perpetual Global Portfolio............................................................. 27
Capital Growth Portfolio............................................................... 35
Strategy Portfolio..................................................................... 38
Income & Growth Portfolio.............................................................. 43
Municipal Income Portfolio............................................................. 49
Quality Income Portfolio............................................................... 53
Short-Duration Income Portfolio........................................................ 56
Statements of Assets and Liabilities..................................................... 58
Statements of Operations................................................................. 60
Statements of Changes in Net Assets...................................................... 62
Financial Highlights..................................................................... 65
Notes to Financial Statements............................................................ 76
Shareholder Information.................................................................. Inside back cover
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MENTOR FUNDS
MESSAGE FROM THE CHAIRMAN AND PRESIDENT
TO OUR SHAREHOLDERS:
Thank you for your investment in Mentor Funds. It is our privilege to send you
Mentor Funds Semi-Annual Report for the period ended March 31, 1996.
The Mentor family of funds is part of Mentor Investment Group, a firm that
provides diversified investment services to a broad range of investors through
its money management affiliates. Seven different investment styles are available
to investors through Mentor Funds, an additional series of institutional funds,
and through separately-invested portfolios. The Semi-Annual Report that follows
represents the eight Portfolios of Mentor Funds.
MENTOR FUNDS
[GRAPH GOES HERE]
[in order from lowest to highest risk and reward]
(bullet)SHORT-DURATION INCOME PORTFOLIO
a short-term bond fund
(bullet)QUALITY INCOME PORTFOLIO
an intermediate-term bond fund
(bullet)MUNICIPAL INCOME PORTFOLIO
a tax-free bond fund
(bullet)INCOME & GROWTH PORTFOLIO
a balanced fund
(bullet)STRATEGY PORTFOLIO
a tactical assset allocation high total return fund
(bullet)CAPITAL GROWTH PORTFOLIO
a large-capitalization, high-quality growth fund
(bullet)PERPETUAL GLOBAL PORTFOLIO
a global growth fund
(bullet)GROWTH PORTFOLIO
a small-to-mid-capitalization growth fund
1
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MENTOR FUNDS
MESSAGE FROM THE CHAIRMAN AND PRESIDENT (CONTINUED)
The Portfolios of Mentor Funds are designed to give you flexibility in seeking
to fulfill a broad range of investment objectives.
To help you and your Financial Consultant identify a combination of Mentor
Portfolios that may help you meet your investment objectives, we have an asset
allocation program especially developed for Mentor Funds. It is designed to
assist investors in determining personal risk/reward profiles, and it suggests
where to distribute specific investments among Mentor Portfolios.
In the commentaries that follow, the management teams of Mentor Portfolios
present their perspectives on the markets and their strategies for investing
your assets. Complete performance information for each Portfolio, relative to
the appropriate index, is also included in the reports.
Please review the information carefully. Should you have questions, please call
your Financial Consultant, or call us directly, (800)382-0016. We welcome your
communications.
On behalf of all of us at Mentor Investment Group, we thank you for your
investment in Mentor Funds.
Sincerely,
/s/ DANIEL J. LUDEMAN /s/ PAUL F. COSTELLO
Daniel J. Ludeman Paul F. Costello
CHAIRMAN AND CEO PRESIDENT
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THE MENTOR MISSION
To maintain an investment management firm that is second to none in the quality
of its investment process, the skill and training of its Associates, and the
shared commitment among all to provide the highest level of service and ethical
behavior to clients.
FOR MORE INFORMATION AND A PROSPECTUS FOR MENTOR FUNDS AND MENTOR INSTITUTIONAL
SERIES TRUST, PLEASE CALL US, (800)382-0016, OR CONTACT YOUR FINANCIAL
CONSULTANT. THE PROSPECTUSES CONTAIN COMPLETE INFORMATION REGARDING FEES, SALES
CHARGES, AND EXPENSES. PLEASE READ THEM CAREFULLY BEFORE INVESTING OR SENDING
MONEY.
2
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MANAGER'S COMMENTARY
MENTOR GROWTH PORTFOLIO
During the six months ended March 31, 1996, Mentor Growth Portfolio A shares
gained 15.44%, outperforming the benchmark Russell 2000 Index~ which returned
7.38%. B shares gained 14.93% during the period.* The market capitalization
emphasis of the Growth Portfolio remains in small and mid-size companies,
because we believe that the earnings outlook for this group of stocks is above
average.
In our last report to you we noted that in mid-1995, the market focused again on
the strong, consistent earnings growth of small-capitalization growth companies,
when it became apparent that the extraordinary earnings growth of larger, more
cyclical companies was unsustainable.
WHAT HAS CHANGED SINCE THAT REPORT?
First, the economy. Following a surprisingly weak fourth quarter, the economy --
marked by the worst Christmas-selling season since 1990 -- has begun to gain
strength. Many factors caused a stronger than expected first quarter, including
the end of labor strikes in the transportation sector, and sizable and early tax
refunds. In line with the economic strength, earnings reports for the first
quarter were generally positive, but yielded few surprises.
Second, interest rates rose in the first quarter, reflecting economic strength
and surprising many who expected the general weakness of the fourth quarter to
cause a further rate decline in the first quarter of 1996.
Third, focus on the small- to- mid-capitalization stocks intensified, causing
the S&P Mid-Capitalization Index to outperform the S&P 500 for the first time.**
WHAT HAVE WE DONE DIFFERENTLY OVER THE PAST HALF YEAR, AND WHAT ARE WE DOING TO
ADDRESS THE CHANGING MARKETS?
Our emphasis remains on purchasing and holding companies with price/earnings
ratios that do not adequately reflect the outlook for their earnings growth
rates. At the end of March, 1996, the growth rates of our companies for the past
twelve months and for the one and three years projected, relative to the S&P 500
companies, were as follow:
EARNINGS GROWTH RATES***
past 12 est. next est. next
months 12 months three years
Growth Portfolio 27.4% 48.7% 24.0%
S&P 500 11.7% 11.1% 7.0%
With companies' earnings growing at rates double the S&P 500, one would expect
to see a significant price/earnings multiple premium to the S&P 500; however,
this is simply not the case.
Price/Earnings Ratio
Estimated 12-month earnings***
Growth Portfolio 19.4x
S&P 500 16.9x
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MENTOR GROWTH PORTFOLIO
Despite the sizeable spread between the earnings growth rates of our companies
and those of the S&P 500, the price/earnings premium is only roughly 15%. It is
also worth noting that the overall price/earnings ratio of the Portfolio remains
at a discount to projected and past earnings growth rates. We continue to find
very attractive companies that meet our investment criteria.
We believe that our strategy of buying rapidly growing small and
mid-capitalization companies at discounts from their earnings growth rates will
be rewarded by the market.
Thank you for your support.
Sincerely,
Theodore W. Price, CFA Jeffrey S. Drummond
PORTFOLIO MANAGER PORTFOLIO MANAGER
Linda A. Ziglar, CFA Edward Rick IV
PORTFOLIO MANAGER RESEARCH ANALYST
* Return figures do not include sales charges. See accompanying tables with
average annual total returns.
** The S&P Mid-Capitalization Index is an unmanaged index of mid-size companies
with market values ranging from $85 million to $7.162 billion. The Standard
& Poor's Index (S&P 500) is an unmanaged, market-value-weighted index of 500
widely held domestic common stocks. Both indexes do not reflect expenses and
may not correspond to the performance of a managed portfolio in which
expenses are incurred. Investors cannot invest in an index.
*** Source: Indata, IBES
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Growth Portfolio Class A and the Russell 2000.~
[GRAPH GOES HERE]
6/5/95 6/30/95 9/30/95 3/31/96
Class A 9,425 9,859 11,251 13,086
Russell 2000 10,000 10,518 11,557 12,346
Total Returns as of 3/31/96
Including Sales Charges
1-Year Since Inception++
Class A n/a 30.82%
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.
~ 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 capitalization and represents approximately 98% of the
U.S. market. The indexes are not adjusted for sales charges or other fees.
+ 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.
++ Reflects operations of Mentor Growth Portfolio Class A Shares from the date
of issuance on 6/5/95 through 3/31/96.
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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 B Shares and the Russell 2000.~
[GRAPH GOES HERE]
Class B Russell 2000~
3/31/86 10,000 10,000
12/31/86 9,349 9,707
12/31/87 8,424 8,855
12/31/88 9,846 11,060
12/31/89 11,554 12,856
12/31/90 10,251 10,347
12/31/91 15,402 15,112
12/31/92 17,801 17,895
12/31/93 20,579 21,278
12/31/94 19,657 20,890
9/30/95 25,967 26,263
3/31/96 29,845 28,201
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year 5-Year 10-Year
Class B 37.68% 18.39% 11.55%
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.
~ 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 capitalization and represents approximately 98% of the
U.S. market. The indexes are not adjusted for sales charges or other fees.
+ 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 six-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 one year from the purchase date. The Class B Shares'
performance assumes the reinvestment of all dividends and distributions.
5
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MANAGER'S COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO
Over the six-month period ended March 31, 1996, the Mentor Perpetual Global
Portfolio achieved a total return of 11.90% for A shares, compared to the 9.27%
of the MSCI World Index,* expressed in US dollars. The B shares gained 11.47%.**
The market value of the Portfolio has increased from $18.7 million to $31.2
million over the same period.
Asset allocation weightings on March 31, were as follow:
(Bullet) 31.1% US
(Bullet) 30.0% Europe
(Bullet) 12.3% Japan
(Bullet) 15.3% Asia
(Bullet) 2.3% Latin America
(Bullet) 9.0% Cash
REVIEW OF THE MARKETS
During the period most of the world's markets produced positive returns. US
equities and the dollar-linked Asian markets were leaders, although the Japanese
and European markets produced satisfactory returns, as well, despite some
currency weakness.
UNITED STATES
After a relatively lackluster fourth quarter of 1995, economic growth proved to
be surprisingly strong in the first quarter of 1996, despite harsh winter
weather. Although inflation remained low, optimism faded that the Federal
Reserve would further ease monetary policy, and the view that the Fed Funds rate
might be increased later in the year became commonly expressed. Consequently,
treasuries sold off. Despite this upset in fixed-income markets, stocks
continued to make good gains with the S&P Index rising by 11.72%.*** Corporate
profit growth was satisfactory, while the flow of funds into stock mutual funds
was spectacular.
EUROPE
Most of the major European stock markets rose over the period in dollar terms,
with the exception of Italy, which was held back by political worries ahead of a
general election. Stock market gains were achieved despite a background of
stagnant economies and disappointing corporate profits.
Three factors were at work: First, European central banks continued to bring
down short rates as, with fiscal policy constrained by Maastricht Treaty
requirements, monetary policy remained the principal tool that governments could
use to fight growing unemployment. Second, with the leading members of the
European Union re-affirming their commitment to the European Monetary Union
(EMU), bond market yields began to converge with German rates, which
traditionally are the lowest in Europe. French, Dutch, and Italian bond markets
rallied despite the weakness in US treasuries. Third, the duration of the
downturn in corporate profits at last began forcing European companies to
contemplate dramatic restructuring, potentially resulting in long-lasting
fundamental improvements to profitability.
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MANAGER'S COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO (CONTINUED)
The outsider in these developments was the United Kingdom. The British economy
proved to be surprisingly strong, and the bottom of the interest-rate cycle
appeared to have been passed. Pressures on bond yields were further increased by
the UK's refusal to commit to EMU, and by a burgeoning public sector deficit. As
a result, British shares lagged considerably behind those of Germany, France,
and the Netherlands. The best dollar-adjusted gains of all, however, were
achieved by Switzerland, which, being outside the European Union, is on an
independent cycle.
JAPAN
The equity market recovery, which began last summer, continued, although the
gains were reduced somewhat, to dollar-investors, by weakness in the Japanese
yen. The economy at last showed convincing signs of recovery, giving investors
confidence that corporate profits, excluding the financial sector, would rise
after five years of decline. Further encouragement was provided by the fact that
domestic insurance companies, the largest institutional holders of shares,
turned net buyers in March after many months of consistent selling.
ASIA
The core markets of Hong Kong, Singapore, and Malaysia were all strong.
Singapore and Malaysia continued to enjoy rapid economic growth, while Hong Kong
was boosted by signs that the policy of economic austerity was coming to an end
in China. Political worries created considerable volatility in the peripheral
markets of Korea, Taiwan, and India.
LATIN AMERICA
Positive foreign portfolio fund flows provided evidence that the "tequila
hangover" created by the devaluation of the Mexico peso in December, 1994, had
finally worn off. To dollar investors, however, the overall return of the period
was limited.
MARKET OUTLOOK
The change in direction in bond yields is at least likely to slow down the rise
in stock prices for the next quarter or so. Yields are now rising in the US,
Japan, and the United Kingdom -- the countries with the world's three largest
stock markets. Of these three markets, Japan is least likely to be held back, as
rates are rising from historically low levels while the economy moves out of its
longest post-war recession. Rising rates signal that the Japanese economy is
returning to health and so can be tolerated, if not welcomed, by equity
investors who should witness a spectacular recovery in corporate earnings.
Short-term pressures on European yields are much less. The greater danger to
European stock markets is posed by continued disappointment over poor corporate
results, as continental economies do little more than stagnate. By contrast
Asian economies are suffering from too much growth. Symptoms of over-heating
(rising inflation and swelling
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MANAGER'S COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO (CONTINUED)
current account deficits) are likely to be treated by monetary tightening at a
time when interest rates are already being pushed up as a result of currency
links with the dollar.
Even so, it is difficult to be too bearish about prospects for world equity
markets. Although faster than expected US economic growth and recent spikes
upward in certain commodity prices have increased inflation fears, little
inflationary momentum seems to be rebuilding in the industrialized world. Japan
and Western Europe are awash with surplus manufacturing capacity at a time when
the capabilities of Asian and East European industries are rapidly expanding.
Competitive pressures as world trade becomes ever more integrated should
continue to keep a lid on inflation.
The sell-off in US treasuries has helped to deflate some of the speculative
pressures that had built up in global stock markets. In some markets stocks
still look a little expensive when compared to bonds. Corrections in stock
prices in the months to come should lay the foundation for solid rises later in
the year when inflationary fears should no longer undermine the world's bond
markets.
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, PERPETUAL
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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 International (MSCI)
World Index.*
[GRAPH GOES HERE]
Morgan Stanley A Shares B Shares
3/24/94 10,000 9,996 9,450
9/30/94 10,545 9,982 9,487
3/31/95 10,985 9,764 9,313
9/30/95 12,124 10,655 10,587
3/31/96 13,249 11,815 12,323
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception++
Class A Shares 19.90% 8.66%
Class B Shares 22.21% 9.61%
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.
* The Morgan Stanley Capital International (MSCI) 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. MSCI World Index is
not adjusted to reflect reinvestment of dividends on securities in the
index, and is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Portfolio's performance.
** Return figures do not include sales charges. See accompanying tables with
average annual total returns.
*** The Standard & Poor's Index (S&P 500) is an unmanaged, market-value-weighted
index of 500 widely held domestic common stocks. An unmanaged index does not
reflect expenses and may not correspond to the performance of a managed
portfolio in which expenses are incurred. Investors cannot invest in an
index.
+ 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.
++ 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
3/31/96.
~ 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 six-year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than one year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
9
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MANAGER'S COMMENTARY
MENTOR CAPITAL GROWTH PORTFOLIO
For the three- and six-month periods ended March 31, the Capital Growth
Portfolio A shares returned 8.25% and 13.17%, respectively, outperforming the
S&P 500 benchmark.* B shares returned 8.08% and 12.72% for the same periods. The
S&P 500 returned 5.44% in the first quarter of 1996, marking the first time
since 1959 that this index has returned more than 5% for five consecutive
quarters. In the six-month period ended March 31, the S&P was up 11.72%. During
this period the stock market has continued to advance, despite the fact that
interest rates have reversed course and moved higher this year. Corporate
earnings growth continues to decelerate.
Given the substantial rise in the stock market over the past year, it can
reasonably be asked whether equity prices are substantially overvalued. One
approach to the answer: Compare our current holdings to their historical
valuation and earnings outlook.
Over the past 10 years the average annual earnings-per-share growth for the
stocks in the Capital Growth Portfolio has been 14% -- approximately twice the
average for the S&P 500. During the same period the price appreciation for those
equities has also averaged 14%, indicating that over the long term, earnings
trends are the key determinant of stock prices.
Over the past 10 years, however, price growth has been substantially more
volatile than earnings growth, in part a result of the fact that short-term
fluctuations in equity prices are affected more than long-term price trends, by
changes in investor psychology and interest rates. In fact, the P/E ratio for
our current Portfolio, which has averaged 17.5x, has ranged from a low of 14x to
a high of 22x.
The potential risk to equities from negative shifts in investor psychology and
interest rates is largely a function of valuation levels, with higher valuations
associated with greater risk. Despite the gain in the market over the past year,
the stocks in our Portfolio are in line with their historical average P/E
levels. Specifically, because our Portfolio trades at 17x estimated 1996
earnings, we believe that equity prices, regarded in an historical context, are
not significantly overvalued.
The stable growth equities we own are performing well relative to the market, a
trend we expect to continue if corporate earnings growth continues to slow. They
trade at reasonable valuations relative to their long-term earnings potential.
And we are presently unaware of reasons to prevent these holdings from
continuing to show, on average, future earnings growth consistent with their
historical above-average earnings growth rates.
Sincerely,
John G. Davenport, CFA Richard H. Skeppstrom II
CHIEF EQUITY OFFICER PORTFOLIO MANAGER
P. Barton Peters, CFA Chris W. Rusbuldt, CFA
DIRECTOR OF EQUITY PORTFOLIO MANAGER
RESEARCH
* The Standard & Poor's Index (S&P 500) is an unmanaged, market-value-weighted
index of 500 widely held domestic common stocks. An unmanaged index does not
reflect expenses and may not correspond to the performance of a managed
portfolio in which expenses are incurred. Investors cannot invest in an
index.
** Return figures do not include sales charges. See accompanying tables with
average annual total returns.
10
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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.~
[GRAPH GOES HERE]
S&P 500 B Shares A Shares
4/29/92 10,000 10,000 9,450
9/30/92 10,215 10,061 9,524
9/30/93 11,543 10,818 10,306
9/30/94 11,965 10,601 10,165
9/30/95 15,521 12,443 12,216
3/31/96 17,340 14,252 13,789
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception+++
Class A Shares 19.34% 8.52%
Class B Shares 21.72% 9.06%
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.
~ 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.
+ 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 six-year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than one year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
++ 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.
+++ 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
3/31/96.
11
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MANAGER'S COMMENTARY
MENTOR STRATEGY PORTFOLIO
In the last few days, subsequent to the closing of the March quarter, our asset
allocation model directed us to invest 14% of fund assets into bonds, reducing
the percentage allocated to stocks by that same amount. This recent shift is the
first time since May 15, 1995, that the model has suggested any participation in
the bond market. Our asset allocation model has continued to guide the Strategy
Portfolio into what we believe to be the appropriate asset classes in a timely
manner. While many of the portfolios in our category of mutual funds have
suffered because of their bond concentration, our equity bias has caused our
fund to perform well.
We believe that the stock market may be getting ready for a short-term rest
before embarking, later in the summer, on another spirited rally. In the last
few months several factors have combined to improve investors' economic
perception. Due to special "one-time" conditions, consumers began a flurry of
buying in March and April, which has convinced many that the economy is on the
rebound. We suspect that this perception will change in coming months, and that
recent high bond yields will drop again. We also anticipate that the Federal
Reserve will be forced to cut short-term rates further.
For the last six months, we have gradually shifted the equity assets of your
Portfolio into stocks with smaller capitalizations. This has proven timely, as
the A shares of Mentor Strategy appreciated during the first THREE months of
1996 by 8.04%, compared to only 5.44% for the S&P 500.+ B shares returned 7.82%
during the same period, and for the SIX-month period, A shares returned 10.32%
and B shares returned 9.88%.++ Now that it appears that the performance of
equities may take a short sabbatical, the decision to buy bonds is intended to
enhance our ability to make the most of this lull. Active asset allocation is a
clear advantage in managing the Strategy Portfolio.
Even though we do not expect a significant correction in stocks for at least
nine or 12 more months, if and when our model begins to pick up signs of
increasing risks, we have the flexibility to move into cash reserves as a
protective measure. In most funds investors who can detect signs of impending
market danger typically have the limited options of riding out the vulnerable
periods, or selling their fund shares. Selling fund shares creates the potential
for leaving assets un-invested well into the next bullish phase. We are
fortunate that the guidelines of our fund allow us to implement the
recommendations of our asset allocation model.
We have also been pleased with the results of our sector discipline. Late last
year it directed a portion of the Portfolio's assets into the energy sector,
which, with the rise in the price of oil and the relatively short current
supply, has proven timely. We now find our system beginning to de-emphasize
financial and medical/healthcare issues, which have enjoyed
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MANAGER'S COMMENTARY
MENTOR STRATEGY PORTFOLIO (CONTINUED)
large price appreciation over the last 16 months.
We are targeting new purchases in basic industry and consumer durables. Both
sectors should be major beneficiaries of the continued world-wide capital
expansion and the removal of trade restrictions.
If our economic expectations prove to be accurate and the Federal Reserve again
cuts short-term interest rates, economically sensitive stocks should prosper,
particularly small-capitalization stocks. We expect to see investor optimism
reach full maturity in the next 18 months, to an extent that has not occurred
since the 1960s.
INVESTORS SHOULD KEEP IN MIND THAT WHILE THE PORTFOLIO MANAGERS WILL ENDEAVOR TO
MANAGE THE PORTFOLIO IN ACCORDANCE WITH THE PROCESS DESCRIBED, THERE ARE NO
GUARANTEES THAT IT WILL BE SUCCESSFUL.
Sincerely,
Don R. Hays
PORTFOLIO MANAGER
+ The Standard & Poor's Index (S&P 500) is an unmanaged, market-value-weighted
index of 500 widely held domestic common stocks. An unmanaged index does not
reflect expenses and may not correspond to the performance of a managed
portfolio in which expenses are incurred. Investors cannot invest in an
index.
++ Return figures do not include sales charges. See accompanying tables with
average annual total returns.
13
<PAGE>
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.~
[GRAPH GOES HERE]
Class A S&P 500~
6/5/95 9,425 10,000
6/30/95 9,695 10,235
9/30/95 10,554 10,890
3/31/96 11,781 12,346
TOTAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception**
Class A n/a 17.82%
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.
~ 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.
* 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.
** Reflects operations of Mentor Strategy Portfolio Class A from the date of
issuance on 6/5/95 through 3/31/96.
Comparison of change of value of hypothetical $10,000 investment in Mentor
Strategy Portfolio Class B Shares and the S&P 500.~
[GRAPH GOES HERE]
S&P Class B
1/10/93 10,000 10,000
1/12/93 10,028 10,160
1/6/94 9,683 9,032
1/12/94 10,157 9,893
1/6/95 12,206 11,198
9/30/95 13,178 11,775
3/31/96 14,723 13,337
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception+
Class B 25.25% 11.69%
*** 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 six-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 one year from the purchase date. The
Class B Shares' performance assumes the reinvestment of all dividends and
distributions.
+ Reflects operations of Mentor Strategy Portfolio Class B from the date of
issuance on 10/29/93 through 3/31/96.
14
<PAGE>
MANAGER'S COMMENTARY
MENTOR INCOME & GROWTH PORTFOLIO
REVIEW OF MARKETS
The fourth quarter of 1995 was a startlingly good period for both equity and
fixed-income markets. The equity and fixed-income markets, however, "de-coupled"
during the first quarter of 1996. Bond yields rose sharply, producing negative
total returns for all but securities of the shortest maturities. Equities, on
the other hand, continued their steady climb. The same backdrop remained in
place during the last two quarters -- stable or slowing growth and low inflation
- -- generally, a positive backdrop for both asset classes.
MARKET CONDITIONS
For the six-month period ending March 31, 1996, the Portfolio returned 11.28%
for A shares, and 10.89% for B shares.~ During the last six months the equity
portion of the Portfolio benefited from exposure to the materials and retail
sectors. Conversely, the Portfolio was hurt by an underweighting in healthcare
and information technology. The equity and fixed-income portions of the
Portfolio continue to outperform their respective benchmarks (S&P 500, which
returned 11.72% for the six months, Lehman Brothers Aggregate which returned
2.40% for the six months).+
MARKET OUTLOOK
The United States economy appears to have crossed the low point of the
slow-down, and should grow by 2.0-2.5% in 1996. Inflation continues to remain in
check, excluding the volatile food and energy sectors, which have been a
short-term negative. For the first time in many years, however, wage growth has
outpaced inflation over the last few months.
The inventory correction seems close to an end, as businesses have made
considerable progress in curbing inventory accumulation. The housing sector
continues to provide modest support to the economy, despite the quarter's harsh
weather. Globally, the outlook is positive for the second half of 1996, with all
three major central banks in an accommodative mode, while Japanese housing
starts have made an important turn.
Corporate profits should continue to grow into 1996, but at a slower pace than
1995. High single-digit earnings growth seems likely, given that most of the
productivity gains from restructuring and capital spending are behind us. We
should continue to see share repurchases and, to a lesser extent, dividend
increases.
PORTFOLIO STRATEGY
We continued to add selectively to our significant holdings in commercial
aerospace suppliers, as the sector has begun to be recognized. The domestic
airlines are now in a position to spend on refurbishing and replacing their
aging fleets, which should provide the next leg to the cycle. The strong order
progress to date has been almost exclusively from international carriers.
After many years of underweighting the retail sector we moved toward a market
weighting. Margins of well-run companies should improve as department store
consolidation and the contraction of specialty stores begin to ease the
overcapacity problem. In addition individual companies have restructured
operations to improve profitability.
In the commodity cyclicals area we maintained our large commitment to aluminum
stocks, as producers should continue to benefit from increased demand and
restrained supply. On the other hand we virtually eliminated our position in
paper stocks, as the supply/demand outlook continues to erode with further
announcements of new supply.
15
<PAGE>
MANAGER'S COMMENTARY
MENTOR INCOME & GROWTH PORTFOLIO (CONTINUED)
The stock market rally continued into 1996, leaving few sectors undervalued.
While broad valuations remain high, we are still finding new opportunities in
specific companies.
With the optimism of year-end 1995 now removed from the yield structure, the
question is, "What next?" We typically have a strong view on the fundamental
economic outlook and the direction of interest rates, but at present, we are
content to maintain a neutral duration structure relative to the market. It is
equally possible at present to make the stronger economy/higher interest rate
case, or the moderate growth/lower interest rate case, because the economy could
go either way. In addition the economic data seem to be less precise, making
economic analysis more difficult.
Historically, we do not remain neutral for extended periods, and we expect a
move from neutral to occur sometime during the second quarter.
Sincerely,
Paul D. Kaplan
FIXED-INCOME PORTFOLIO MANAGER
Arnold C. Schneider, CFA
EQUITY PORTFOLIO MANAGER
~ Return figures do not include sales charges. See accompanying tables with
average annual total returns.
+ The Standard & Poor's Index (S&P 500) is an unmanaged, market-value-weighted
index of 500 widely held domestic common stocks. An unmanaged index does not
reflect expenses and may not correspond to the performance of a managed
portfolio in which expenses are incurred. The Lehman Brothers Aggregate Index
is made up of the Government/Corporate Index, the Mortgage-Backed Securities
Index, and the Asset-Backed Securities Index. The Lehman Brothers Aggregate
Bond Index and S&P 500 are adjusted to reflect reinvestment of dividends on
securities in the indexes. The Lehman Brothers 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% Lehman Brothers
Aggregate Bond Index. Investors cannot invest in an index.
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 Lehman
Brothers Aggregate Bond Index.+
[GRAPH GOES HERE]
LAGG/S&P 500 A Shares B Shares
5/24/93 10,000 9,450 10,133
9/30/93 10,353 9,909 10,506
9/30/94 10,446 10,578 11,239
9/30/95 12,879 12,402 12,614
3/31/96 13,998 13,764 14,319
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception++
Class A Shares 18.98% 11.97%
Class B Shares 21.26% 12.69%
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 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 six-year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than one year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
*** 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.
++ 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
3/31/96.
16
<PAGE>
MANAGER'S COMMENTARY
MENTOR MUNICIPAL INCOME PORTFOLIO
GENERAL MARKET CONDITIONS
The fixed-income markets were strong through January of 1996; however, concerns
about the strength of the economy and the possibility of higher inflation led to
weakness through February and March. Municipals increased in value relative to
treasuries, as higher rate levels kept supply of new issues low, and the threat
of tax reform's negative effect on the municipal market diminished.
HOW MARKET CONDITIONS AFFECTED THE PORTFOLIO
The Portfolio had a return of 3.03% for A shares and 2.72% for B shares+ over
the past six months. This compares to 2.87% for the Lehman Municipal Bond
Index++ for the same period. The Portfolio continues to be "barbelled" between
AAA-insured bonds and higher yielding BBB and non-rated securities, which allows
our extensive credit research to add value to the Portfolio. The Portfolio's
largest exposure is to the healthcare industry (17% of assets).
There have been no significant shifts in sector or rating distribution that have
affected performance, and the Portfolio remains well diversified. This, coupled
with low issuance due to virtually no refunding issues at current rates, should
help municipals outperform treasuries during 1996. With the potential strength
of the economy in question and inflation slowly increasing, the Portfolio will
stay very close to its target maturities and structure. Economic weakness, which
would allow the Federal Reserve to lower short rates, would be viewed very
constructively from our viewpoint. We feel it will be difficult for the longer
maturities to rally significantly without lower rates at the short end of the
interest rate curve.
Sincerely,
David C. Johnson
PORTFOLIO MANAGER
+ Return figures do not include sales charges. See accompanying tables with
average annual total returns.
++ 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.
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.~
[GRAPH GOES HERE]
Lehman Municipal Bond Index A Shares B Shares
4/29/92 10,000.00 9,525.00 10,000.00
9/30/92 10,561.21 10,034.00 10,528.00
9/30/93 11,906.12 11,637.00 12,134.00
9/30/94 11,615.75 11,101.00 11,511.11
9/30/95 12,915.57 12,151.00 12,348.00
3/31/96 13,286 12,519 12,690
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception***
Class A 2.39% 5.90%
Class B 2.88% 6.26%
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.
~ 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.
* 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 six-year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than one year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
** 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.
*** 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
3/31/96.
18
<PAGE>
MANAGERS' COMMENTARY
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO
MARKET CONDITIONS
During the six-month period ended March 31, two-year rates decreased 0.10% and
10-year rates increased 0.15%.+ While modest steepening of the yield curve
suggests -- at first glance -- a period of relative tranquillity for the bond
market, this was hardly the case. In fact, the first four months, October
through January, saw a continuation of the strong market rally that began in
early 1995, and was followed by a rapid and sustained sell-off during February
and March. Two-year and 10-year treasuries yielded 5.75% and 6.32%,
respectively, on March 31, up 0.60% and 0.75% from year-end levels. January
optimism regarding timely resolution to the balanced budget impasse and the
prospect of additional rate cuts quickly faded. February and March brought a
surprisingly strong series of economic statistics, culminating in a March
employment number showing the largest monthly job growth in more than 12 years.
PERFORMANCE
After a very strong 1995, Mentor Short-Duration Income and Quality Income
Portfolios generated modest performance results for the January-March period.
Mentor Short-Duration Income Portfolio A shares had a return of 2.98% for the
six-month period ended March 31 and B shares returned 2.75%, which compares to
2.80% for the Merrill Lynch three-year Treasury Index.++ The Quality Income
Portfolio A shares returned 2.30% and the B shares, 2.02% for the six-month
period.+++ The Merrill Lynch seven-year Treasury Index returned 1.96%. Treasury
securities, with their positive convexity characteristics, helped us to
outperform during late 1995 and the first month of 1996, but hurt relative
performance later in the quarter. In addition the decision to maintain Portfolio
durations approximately 10% longer than the three-year and seven-year treasury
benchmarks hampered performance during the market sell-off.
MARKET OUTLOOK
Economic growth clearly firmed in the first quarter and growth expectations for
the second quarter now stand in the 2-3% range. At that level it appears
increasingly likely that the Federal Reserve will remain on the sidelines for
the present time. As a result, we have shortened the duration of our Portfolios
to a market-neutral position, which we anticipate maintaining until a clearer
picture of the economy's direction emerges. We remain optimistic on the market's
longer-term prospects, and are looking for an opportunity to resume a more
aggressive posture.
Sincerely,
P. Michael Jones, CFA Steven C. Henderson
PORTFOLIO MANAGER PORTFOLIO MANAGER
+ Of course, CDs and treasury bills are guaranteed as to principal and
interest, and money-market funds offer an opportunity for stability of
principal, while the Portfolio's shares are not guaranteed and will
fluctuate.
++ The Merrill Lynch 3-Year and 7-Year Treasury Indexes are adjusted to reflect
reinvestment of interest on securities in the index. The Merrill Lynch
3-Year and 7-Year Treasury Indexes are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the
Portfolio's performance. Investors cannot invest in an index.
+++ Return figures do not include sales charges. See accompanying tables with
average annual total returns.
19
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO (CONTINUED)
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.~
[GRAPH GOES HERE]
Merrill Lynch
7-Year Treasury Index A Shares B Shares
4/29/92 10,000 9,525 10,000
9/30/92 11,052 9,846 10,324
9/30/93 12,380 10,378 10,827
9/30/94 11,705 10,036 10,406
9/30/95 13,496 11,222 11,354
3/31/96 13,606 11,480 11,583
AVERAGE ANNUAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception***
Class A Shares 4.80% 3.59%
Class B Shares 5.54% 3.94%
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.
~ 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.
* 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 six-year period following
the date of purchase. Class B Shares are charged a redemption fee of 4.00%
on any redemption less than one year from the purchase date. The Class B
Shares' performance assumes the reinvestment of all dividends and
distributions.
** 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.
*** 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
3/31/96.
20
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
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.~
[GRAPH GOES HERE]
Class A 3-Year Treasury
6/16/96 9,900 10,000
6/30/95 9,946 10,062
9/30/95 9,931 10,139
3/31/96 10,350 10,423
TOTAL RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception**
Class A n/a 3.49%
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.
~ The Merrill Lynch 3-Year Treasury is adjusted to reflect reinvestment of
interest on securities in the index. 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.
* 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.
** Reflects operations of Mentor Short-Duration Income Portfolio Class A from
the date of issuance on 6/16/95 through 3/31/96.
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.
[GRAPH GOES HERE]
Class B 3-Year Treasury
4/28/94 10,000 10,000
6/30/94 10,040 10,019
12/31/94 10,093 10,075
6/30/95 10,516 10,920
9/30/95 10,623 11,051
3/31/96 11,327 11,360
AVERAGE ANNUAL
RETURNS AS OF 3/31/96
INCLUDING SALES CHARGES
1-Year Since Inception++
Class B 4.20% 4.71%
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 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 six-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 one year from the
purchase date. The Class B Shares' performance assumes the reinvestment of
all dividends and distributions.
++ Reflects operations of Mentor Short-Duration Income Portfolio Class B Shares
from the date of initial public investment on 4/28/94 through 3/31/96.
21
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 89.13%
BASIC MATERIALS 0.72%
Blount, Inc.-Class A 77,300 $ 2,376,975
CAPITAL GOODS & CONSTRUCTION 3.01%
Clayton Homes, Inc. 185,425 3,870,747
Continental Waste, Inc.* 161,850 1,760,119
LSI Industries, Inc. 91,650 1,649,700
Southern Energy Homes* 118,500 1,747,875
Superior Services, Inc.* 72,000 954,000
9,982,441
CONSUMER CYCLICAL 14.67%
Apple South, Inc. 198,300 4,858,350
Baby Superstore, Inc.* 15,000 682,500
Casey's General Stores, Inc. 172,950 4,064,325
Consolidated Products Company* 133,725 2,373,619
Corporate Express, Inc.* 125,550 4,143,150
Dollar General Corporation 134,341 3,895,889
Friedman's, Inc.-Class A* 113,700 2,274,000
General Nutrition Companies, Inc.* 150,300 3,757,500
Leggett & Platt, Inc. 59,600 1,363,350
Outback Steakhouse, Inc.* 80,900 3,048,919
Quality Dining, Inc.* 158,200 4,666,900
Regal Cinemas, Inc.* 133,762 4,915,753
Rio Hotels & Casinos, Inc.* 105,150 1,603,538
Scientific Games Holding* 76,200 2,133,600
Sinclair Broadcasting Group, Inc.* 26,050 690,325
StudioPlus Hotels, Inc.* 89,700 2,489,175
Sunglass Hut International, Inc.* 52,050 1,724,156
48,685,049
CONSUMER STAPLES 1.71%
Performance Food Group* 52,650 1,289,925
Richfood Holdings, Inc. 155,700 4,388,794
5,678,719
ENERGY 0.94%
Nuevo Energy Company* 109,250 3,140,938
</TABLE>
22
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL 8.48%
Compdent Corporation* 61,800 $ 2,224,800
Credit Acceptance Company* 64,300 1,189,550
First Commerce Corporation 99,750 3,291,750
First Commonwealth, Inc.* 75,550 1,945,412
First Data Corporation 38,458 2,711,289
First Investors Financial Services Group* 85,100 787,175
Jayhawk Acceptance Corporation* 87,700 1,074,325
Leader Financial Corporation 90,950 4,001,800
Markel Corporation* 66,510 5,852,880
National Commerce Bancorporation 114,996 3,564,876
United Dental Care, Inc.* 38,300 1,484,125
28,127,982
HEALTH 26.93%
American Oncology Research, Inc.* 10,000 425,000
Dentsply International, Inc. 80,450 3,238,113
Emcare Holdings, Inc.* 88,500 2,400,563
Gelman Sciences, Inc.* 99,850 2,596,100
Gulf South Medical Supplies, Inc.* 97,150 3,667,412
Health Management Associates* 137,550 4,814,250
Healthdyne Technologies* 130,550 1,623,716
Healthsource, Inc.* 115,600 4,479,500
Henry Schein, Inc.* 84,200 2,462,850
Idexx Laboratories, Inc.* 57,000 2,394,000
Lunar Corporation* 53,100 2,270,025
Manor Care, Inc. 93,250 3,660,063
Medaphis Corporation* 41,500 2,012,750
Medcath, Inc.* 160,550 4,696,088
Meridian Diagnostics, Inc. 178,550 1,897,093
Multicare Companies, Inc.* 108,700 3,084,362
NCS Healthcare, Inc.-Class A* 3,000 73,500
National Dentex Corporation* 100,600 2,200,625
National Surgery Centers, Inc.* 96,300 3,105,675
Omnicare, Inc. 73,150 3,940,956
Orthodontic Centers of America, Inc.* 56,300 1,689,000
Parexel International Corporation* 39,200 1,695,400
Patterson Dental Company* 99,850 3,020,463
Pediatric Services of America, Inc.* 113,650 2,883,868
Phycor, Inc.* 85,500 3,762,000
</TABLE>
23
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH (CONTINUED)
Physician Sales & Services, Inc.* 138,500 $ 3,427,875
Renal Treatment Centers* 169,700 4,030,375
Res-Care, Inc.* 15,000 313,125
Respironics, Inc.* 134,500 2,824,500
Serologicals Corporation* 82,200 2,260,500
Sofamor/Danek Group, Inc.* 112,450 3,809,243
Vencor, Inc.* 133,125 4,592,813
89,351,803
TECHNOLOGY 22.83%
3Com Corporation* 20,700 825,412
ACC Corporation* 137,850 4,083,806
Altera Corporation* 45,700 2,553,487
Applied Microsystems Corporation* 121,550 1,139,531
Benchmark Electronics, Inc.* 128,300 3,832,963
Casino Data Systems* 115,575 1,964,775
Cheyenne Software, Inc.* 66,750 1,051,313
Cisco Systems, Inc.* 50,000 2,318,750
Coherent Communications Systems Company* 67,850 1,408,947
Computational Systems Inc.* 70,650 1,254,037
Concord Electronics Fleet Services, Inc.* 58,175 1,541,638
Cooper & Chyan Technology, Inc.* 109,300 1,530,200
Danka Business Systems 78,500 3,316,625
Envoy Corporation* 107,650 2,529,775
Flextronics International, Ltd.* 94,950 2,895,975
Frontier Corporation* 172,600 5,436,900
Industrial Group, Inc.* 1,000 19,500
Intercel, Inc.* 80,500 1,811,250
JDA Software Group, Inc.* 110,400 1,311,000
Kent Electronics Corporation* 82,100 2,904,288
Linear Technology Corporation 61,950 2,586,413
Macromedia, Inc.* 47,900 2,047,725
Micros Systems, Inc.* 46,400 1,160,000
Natural Microsystems Corporation* 57,500 1,725,000
Novadigm, Inc.* 66,250 1,002,031
Palmer Wireless, Inc.* 50,900 973,463
Perceptron, Inc.* 85,625 2,215,547
Radisys Corporation* 73,650 1,178,400
SDL, Inc.* 54,050 1,621,500
Saville Systems, Inc.* 102,950 1,943,181
</TABLE>
24
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY (CONTINUED)
TechForce Corporation 133,750 $ 1,404,375
Trident International, Inc.* 104,500 1,985,500
Uniphase Corporation* 73,200 2,836,500
US Long Distance Corporation* 76,600 1,522,425
Watsco, Inc. 81,150 2,109,900
Worldcom, Inc.* 123,762 5,693,052
75,735,184
TRANSPORTATION 2.30%
Atlantic Southeast Airlines, Inc. 129,500 3,318,438
Mesaba Holdings, Inc 117,150 1,317,937
United Transnet, Inc.* 126,200 2,981,475
7,617,850
MISCELLANEOUS 7.54%
ABR Information Services* 69,925 3,251,512
Accustaff, Inc.* 201,600 5,090,400
Alternative Resources Corporation* 16,000 520,000
Career Horizons, Inc.* 239,400 7,122,150
Childtime Learning Centers* 118,700 1,075,718
Clintrials Research, Inc.* 76,150 2,636,694
IntelliQuest Information Group, Inc.* 15,800 434,500
Olsten Corporation 75,450 2,433,263
Romac International* 79,950 2,458,462
25,022,699
TOTAL COMMON STOCKS (COST $198,292,653) 295,719,640
</TABLE>
25
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 11.84%
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/29/96, 5.48%, due 4/01/96
collateralized by $41,190,357
Federal National Mortgage Association 7.00%,
1/01/26, (cost $39,268,803) $39,268,803 $ 39,268,803
TOTAL INVESTMENTS (COST $237,561,456) 100.97% 334,988,443
OTHER ASSETS LESS LIABILITIES (0.97%) (3,204,610)
NET ASSETS 100.00% $331,783,833
</TABLE>
* Securities not currently producing income.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 89.91%
ARGENTINA 0.24%
Telefonica de Argentina 3,000 $ 76,875
BRAZIL 1.06%
Cemig CIA Energetic 3,000 83,710
Telebras-Spons ADR~ 3,400 169,150
Vale Do Rio Doche 2,200 86,313
339,173
DENMARK 1.14%
Danisco A/S 4,100 211,329
Sophus Berendsen 1,300 154,982
366,311
FINLAND 0.78%
Cultor OY 5,500 249,035
FRANCE 3.40%
AXA 3,497 214,938
Axime 3,000 381,293
Cardif SA 800 130,275
Comptoirs Modernes 300 113,494
Roussel-UCLAF 1,150 251,216
1,091,216
GERMANY 2.47%
Deutche Bank AG 2,400 120,634
Merck KGAA 5,600 241,360
SAP AG 1,000 143,147
Veba AG 5,900 286,770
791,911
GREAT BRITAIN 10.56%
Argyll Group, PLC 35,000 163,996
B.A.T. Industries, PLC 20,000 147,588
BASS 3,500 39,957
British Aerospace PLC 11,000 144,215
British Gas PLC 40,500 141,243
British Telecom 30,000 169,185
</TABLE>
27
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
GREAT BRITAIN (CONTINUED)
Cable & Wireless 20,000 $ 162,393
General Electric 20,000 111,874
Glaxo Wellcome 13,000 162,897
Grand Metro 25,000 161,019
Inchcape PLC 35,000 152,778
Land Securities 15,000 143,315
Prudential Corporation PLC 20,000 129,884
Rank Organisation PLC 15,000 111,035
Salvesen 20,000 78,144
Scotia Holdings 10,000 94,322
Scott & Newcastle 15,000 146,520
Smith H.W. Group PLC 15,000 101,877
Standard Chartered 17,500 162,660
Sun Alliance Group PLC 25,000 137,744
Tate & Lyle PLC 20,000 148,809
Tesco PLC 30,000 122,024
Transport Development Group 45,000 142,170
Unigate 20,000 124,847
Unilever PLC 10,000 186,203
3,386,699
HONG KONG 6.86%
Bank of East Asia 9,600 32,891
CDL Hotels 150,000 90,178
Cheung Kong Holdings 24,000 169,108
China O/Seas Land 300,000 68,652
China Resource 30,000 17,260
Chinese Estates 74,000 66,971
Citic Pacific Limited 16,000 62,058
CP Pokphand 100,000 47,513
Dah Sing Financial 20,000 63,092
Goldlion Holdings 90,000 72,142
Henderson China 56 161
Henderson Investment 103,000 94,548
Henderson Land Development 14,000 98,194
Hong Kong Land Holdings 21,000 50,400
Hong Kong Telecom, Ltd.~ 108,200 216,129
HSBC Holdings PLC 19,125 286,824
Hutchison Whampoa, Ltd. 14,000 88,329
Hysan Development 14,000 45,160
</TABLE>
28
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
HONG KONG (CONTINUED)
International Bank of East Asia 100,000 $ 69,169
Jardine Matheson Holding 10,000 78,000
Jardine Strategic Holding 27,125 85,715
Jardine Strategic-Warrants* 3,125 1,172
JCG Holdings 70,000 69,731
Liu Chong Hing Investment 60,000 67,876
Mingly Corporation 117,000 25,715
National Mutual Asia 35,000 31,902
New World Infrastructure 20,000 42,665
Sun Hung Kai Property 3,000 26,860
Swire Pacific Limited-"A 12,000 105,499
Tingyi 100,000 26,342
2,200,256
INDIA 0.35%
Indian Opportunity 11,000 111,760
INDONESIA 0.36%
Citra Marga Local 60,000 77,631
PT Indonesia Satellite A 800 27,300
Sorini (Sorbitol) 2,000 10,051
114,982
JAPAN 12.22%
Bridgestone Corporation 5,000 83,532
Dainippon Ink & Chemical 20,000 99,118
Dainippon Screen 9,000 84,838
Daiwa Kosho Lease Company 8,000 85,118
Futaba 1,000 45,172
Godo Steel 18,000 105,838
Hankyu 23,000 136,955
Heiwa Corporation 4,000 95,198
Hitachi, Ltd. 5,000 48,532
Izumiya 5,000 83,532
Jeol 7,000 53,834
Kamagumi Company, Ltd. 12,000 122,078
Kawasaki Heavy Industries 18,000 91,726
Kenwood Corporation 15,000 87,638
</TABLE>
29
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
Komatsu Seiren 4,000 $ 38,453
Kurimoto 8,000 85,118
Long Term Credit Bank 18,000 150,189
Mineba 8,000 68,319
Mitsubishi Estate 6,000 82,319
Mitsubishi Motors Company 10,000 85,305
Murata Manufacturing 3,000 103,038
Namco 2,000 61,599
NGK Insulators 5,000 53,666
Nichicon 8,000 104,531
Nippon Steel 24,000 82,430
Nippon Telegraph & Telephone 16 116,776
Nisshin Steel 9,000 35,867
Penta Ocean 10,000 71,585
PS Corporation 7,000 114,331
Raito Kogyo 4,000 75,412
Rinnai 5,000 113,864
Shizouka Bank 11,000 138,597
Showa Corporation 7,000 59,452
Skylark Company 3,000 56,559
Sodick Company 5,000 52,732
Sumitomo Heavy 10,000 39,199
Sumitomo Metal Mining 16,000 153,810
Taisei Corporation 12,000 85,118
Taisho Pharmaceutical 7,000 143,730
Tokushu Paper 7,000 79,052
Tokyo Electric Power 5,000 127,864
Tokyu Land 6,000 26,935
Tsubakimoto Chain 12,000 77,950
Yamato Kogyo 12,000 114,238
Yokohama Reito 5,000 64,399
York-Benimaru 1,000 35,933
3,921,479
KOREA 0.31%
CITC Seoul Exel IDR 2 19,900
Korea-Europe Fund 18 78,750
98,650
</TABLE>
30
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
MALAYSIA 2.25%
Bolton Properties 20,000 $ 30,763
Boustead Holdings 12,000 26,030
Cement Manufacturing 15,000 82,232
Commerce Asset Holdings 12,000 68,626
IOI Properties 16,000 46,381
Larut Consolidated 50,000 78,091
Magnum Corporation 60,000 96,076
Malasian Resources 6,000 14,198
MBM Resources 20,000 35,811
Metacorp 20,000 61,132
Sime Daarby Berhad 16,000 44,173
Tenaga Nasional Berhad 25,000 105,502
UMW Holdings Berhad 10,000 33,919
722,934
MEXICO 0.87%
Cemex - ADR~ 7,800 56,082
CIFRA - ADR~ 50,000 64,750
Empresas ICA SA - ADR~ 5,000 65,625
Telefonos de Mexico-Class L 2,800 92,050
278,507
NETHERLANDS 3.72%
ABN-Amro Holdings 1,800 89,548
Aegon NV 5,400 254,917
Fortis Amev NV 3,000 211,523
Polygram NV 2,900 175,513
VNU-Ver Ned Uitgev V 16,000 266,295
Wolter Kluwer 1,780 195,851
1,193,647
NORWAY 0.73%
Hafslund Nycomed 8,400 235,552
PHILIPPINES 0.39%
Filinvest Land 50,000 23,396
Pilipino Telephone 74,300 100,750
124,146
</TABLE>
31
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
SINGAPORE 1.54%
ACMA Limited 30,000 $ 93,258
DBS Land 10,000 38,325
Development Bank Singapore 5,000 61,391
Keppel Bank 32,000 99,929
Keppel Finance 10,000 16,820
Straits Trading Company 20,000 52,520
UTD Overseas 32,000 67,452
Wing Tia Holdings 24,000 63,364
493,059
SPAIN 2.29%
Aumar 15,000 180,017
Banco Popular Espano 1,200 207,225
Gas Natural 1,500 259,273
Tabacalera SA 1,900 88,760
735,275
SWEDEN 1.75%
Asea AB 2,340 241,049
Securitas AB B-F 5,400 321,794
562,843
SWITZERLAND 2.94%
Roche Holding AG 27 223,970
Sandoz AG Basel 150 175,685
Sulzer AG 360 238,781
Swissair 290 304,353
942,789
TAIWAN 0.42%
Formosa Growth Fund 5,000 64,375
Taipei Fund 1 72,000
136,375
</TABLE>
32
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
THAILAND 2.16%
Banpu Coal 4,000 $ 99,485
CMIC Finance 16,000 53,228
Cogeneration PLC 12,000 42,772
First Bangkok City Bank 72,000 67,723
Nation Publishing 40,000 106,139
PTT Exploration 4,000 50,693
Shinawatra Computer 1,000 25,663
Siam City Bank, Ltd. 40,000 49,901
Thai Military Bank, Ltd. 42,000 197,941
693,545
UNITED STATES 31.10%
Aetna Life & Casualty Company 4,000 302,000
Amgen Incorporation 6,000 348,750
AMR Corporation 4,000 358,000
Arethusa Off-Shore, Ltd. 8,000 301,000
Arthrocare Corporation 22,000 484,000
BSES Limited GDR 4,000 66,500
Champion International Corporation 10,000 452,500
Chesapeake Energy 8,000 370,000
Columbia Gas Systems* 10,000 458,750
Columbia HCA Healthcare 6,000 346,500
Delta Air Lines 3,500 269,063
Dillard Department Stores-Class A 10,000 346,250
Enterprise Systems 10,000 276,250
Gilead Sciences, Inc.* 8,000 230,000
GT Interactive 15,000 161,250
HBO & Company 3,000 282,750
Inbrand Corporation 15,000 341,250
LG Electronics 6,400 52,800
Lockheed Martin Corporation 4,000 303,500
Louisiana Land & Exploration 7,000 326,375
Lyondell Petrochemical 10,000 305,000
Medpartners Incorporated 10,000 285,000
Oceaneering International 25,000 340,625
Office Depot, Inc. 15,000 294,375
Oracle Systems Corporation 5,000 235,625
Perez Company 9,718 99,610
Pharmacia & Upjohn 8,000 319,000
Quality Systems 12,000 264,000
</TABLE>
33
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Shares or
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
Reading and Bates Corporation 10,000 $ 197,500
Reynolds & Reynolds Company-Class A 9,000 369,000
Samsung Electronics 402 23,015
Stanley Works 6,000 330,000
Structural Dynamics 10,000 337,500
Teekay Shipping Corporation 12,000 313,500
Wind River Systems 6,000 184,500
9,975,738
TOTAL COMMON STOCKS (COST $26,025,886) 28,842,757
PREFERRED STOCK 0.15%
Wella AG (cost $75,668) 100 48,382
CORPORATE BOND 0.24%
MALAYSIA
Telekom Malaysia Berhad, 4.00%, 10/3/04~
(9/22/94, $70,000) (a) $ 70,000 76,300
SHORT-TERM INVESTMENT 6.83%
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/29/96, 5.48%, due 4/1/96,
collateralized by $2,750,000,
Federal National Mortgage Association,
9.00%, 12/01/24, (cost $2,192,142) 2,192,142 2,192,142
TOTAL INVESTMENTS (COST $28,363,696) 97.13% 31,159,581
OTHER ASSETS LESS LIABILITIES 2.87% 920,488
NET ASSETS 100.00% $32,080,069
</TABLE>
* Non-income producing.
~ American Depository Receipts.
(a) 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.
34
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS 94.86%
BASIC MATERIALS 7.83%
Bemis Company, Inc. 56,000 $ 1,757,000
Nalco Chemical Company 86,000 2,644,500
Sonoco Products Company 101,350 2,761,787
7,163,287
CAPITAL GOODS & CONSTRUCTION 8.41%
General Electric Company 33,000 2,569,875
W.W. Grainger, Inc. 34,700 2,329,237
York International Corporation 57,000 2,793,000
7,692,112
CONSUMER CYCLICAL 21.25%
Carnival Corporation-Class A 97,000 2,667,500
Interpublic Group Company 70,500 3,331,125
Mattel, Inc. 62,500 1,695,313
May Department Stores Company 34,500 1,664,625
Newell Company 105,000 2,808,750
Olsten Corporation 59,250 1,910,813
R.R. Donnelley & Sons 73,600 2,539,200
Sherwin Williams Company 63,700 2,826,688
19,444,014
CONSUMER STAPLES 12.88%
Albertson's, Inc. 58,000 2,153,250
Avon Products 28,900 2,478,175
CPC International, Inc. 38,000 2,636,250
Pepsico Inc. 27,000 1,707,750
Sysco Corporation 85,400 2,807,525
11,782,950
ENERGY 2.79%
Schlumberger, Ltd. 32,300 2,555,737
</TABLE>
35
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL 13.96%
American Express Company 64,000 $ 3,160,000
Banc One Corporation 75,900 2,703,938
Federal National Mortgage Association 57,200 1,823,250
First Union Corporation 37,100 2,244,550
United Asset Management Corporation 61,200 2,838,150
12,769,888
HEALTH 8.31%
Johnson & Johnson 28,900 2,666,025
Merck & Company, Inc. 33,000 2,054,250
Pfizer, Inc. 43,000 2,881,000
7,601,275
TECHNOLOGY 11.21%
AMP, Inc. 59,000 2,441,125
Atmel Corporation 65,000 1,657,500
General Motors Corporation-Class E 46,500 2,650,500
Intel Corporation 37,000 2,104,375
Linear Technology Company 33,600 1,402,800
10,256,300
TRANSPORTATION & SERVICES 2.84%
Werner Enterprises, Inc. 108,300 2,599,200
MISCELLANEOUS 5.38%
S & P 500-Depository Receipt 35,000 2,259,687
Tyco International, Ltd. 74,400 2,659,800
4,919,487
TOTAL COMMON STOCKS (COST $73,429,252) 86,784,250
</TABLE>
36
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT 4.79%
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/29/96, 5.48%, due 4/01/95,
collateralized by $4,596,664
Federal National Mortgage Association,
7.00%, 01/01/26, (cost $4,381,988) $ 4,381,988 $ 4,381,988
TOTAL INVESTMENTS (COST $77,811,240) 99.65% 91,166,238
OTHER ASSETS LESS LIABILITIES 0.35% 319,453
NET ASSETS 100.00% $91,485,691
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C> <C>
COMMON STOCKS 88.45%
BASIC MATERIALS 3.18%
Agnico Eagle Mines Ltd. 77,000 $ 1,376,375
Barrick Gold Corporation 42,800 1,300,050
Montsanto Company 20,000 3,070,000
Union Carbide Corp Holding 58,000 2,878,250
8,624,675
CAPITAL GOODS & CONSTRUCTION 3.87%
AGCO Corporation 97,200 2,344,950
Gentex Corporation 47,000 1,398,250
Hirsch International Corporation-Class A* 31,000 434,000
JLG Industries* 138,000 6,313,500
10,490,700
COMMERCIAL SERVICES 8.13%
Concord Electronic Fleet Services, Inc.* 120,600 3,195,900
Copart, Inc.* 50,000 1,237,500
Corrections Corporation of America* 64,000 3,648,000
Corvel Corporation* 14,700 514,500
Equifax, Inc. 122,200 2,459,275
GRC International, Inc.* 37,400 1,271,600
MBNA Corporation 97,425 2,886,215
Omnicom Group, Inc. 71,500 3,217,500
Paychex, Inc. 61,537 3,599,914
22,030,404
CONSUMER CYCLICAL 7.41%
Cavalier Homes, Inc. 93,700 1,452,350
Chrysler Corporation 42,000 2,614,500
Clear Channel Communications* 72,000 4,068,000
Hospitality Franchise Systems* 54,000 2,625,750
National Media Corporation* 56,000 924,000
Oakwood Homes Corporation 30,900 1,533,413
Redman Industries, Inc.* 74,200 1,502,550
Staples, Inc.* 153,562 3,128,836
TCA Cable TV, Inc.* 76,400 2,225,150
20,074,549
</TABLE>
38
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER STAPLES 8.88%
Coca-Cola Company 32,000 $ 2,644,000
General Nutrition Company* 100,000 2,500,000
Gillette Company 46,000 2,380,500
Heinz Company 75,000 2,484,375
Hershy Foods Corporation 35,000 2,607,500
Longs Drug Stores, Inc. 28,500 1,346,625
Pepsico, Inc. 45,000 2,846,250
Rexall Sundown, Inc.* 76,700 2,310,588
Richfood Holdings, Inc. 95,000 2,677,812
Terra Industries 176,700 2,275,013
24,072,663
ENERGY 4.16%
Panhandle Eastern Company 84,900 2,642,513
Smith International, Inc.* 123,000 3,105,750
Texaco, Inc. 31,000 2,666,000
Tidewater, Inc. 75,300 2,861,400
11,275,663
FINANCIAL 20.85%
Banco Bilbao Vizcaya~ 17,200 638,550
Banco De Galacia Bueno~ 25,800 619,200
Banco Frances Del Rio De La~ 21,700 594,038
Bank of New York Company, Inc. 50,800 2,616,200
Berkley (W.R.) Corporation 13,000 601,250
Cityscape Financial Corporation* 41,500 1,494,000
First USA, Inc. 43,400 2,457,525
Greater New York Savings Bank* 183,000 2,173,125
Lehman Brothers Holdings, Inc. 94,000 2,514,500
Lincoln National Corporation 24,500 1,243,375
Mercury Finance Company 165,000 2,330,625
Meridian Bancorp, Inc.* 57,900 3,025,275
North Fork Bancorporation* 111,000 2,650,125
Old Republic International Corporation* 35,500 1,153,750
Penncorp Financial Group, Inc.* 43,200 1,360,800
Physicians Insurance Company-Class A* 28,000 693,000
</TABLE>
39
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL (CONTINUED)
Reliastar Financial Corporation* 26,600 $ 1,203,650
Safeguard Scientific, Inc. 27,100 1,588,737
Standard Federal Bancorp, Inc.* 60,300 2,562,750
Student Loan Marketing Association 40,600 3,105,900
Summit Bancorp* 66,900 2,475,300
Synovus Financial Corporation 87,200 2,943,000
T. Rowe Price Associates, Inc. 60,500 3,206,500
The Money Store, Inc.* 36,000 1,003,500
Travelers Group, Inc. 48,500 3,201,000
Trenwick Group, Inc. 23,700 1,208,700
U.S. Bancorp* 78,000 2,652,000
United Insurance Companies, Inc.* 57,000 1,261,125
Waterhouse Investor Services* 100,000 3,312,500
Westpac Banking, Ltd.~ 27,300 624,488
56,514,488
HEALTH 13.89%
Amgen, Inc.* 45,000 2,615,625
Bergen Brunswig Corporation-Class A 48,000 1,254,000
Conmed Corporation* 97,500 2,388,750
Gulf South Medical Supply, Inc.* 42,000 1,585,500
Healthsource, Inc.* 98,000 3,797,500
Invacare Corporation* 92,000 2,599,000
Lunar Corporation* 51,300 2,193,075
Nature Sunshine Products Corporation* 63,450 1,633,838
ORNDA Healthcorp* 110,000 3,162,500
Renal Treatment Centers, Inc.* 64,400 1,529,500
Respironics, Inc.* 127,300 2,673,300
Service Corporation International 65,600 3,198,000
Target Theraputics, Inc.* 98,600 5,977,625
U.S. Surgical Corporation 93,000 3,045,750
37,653,963
TECHNOLOGY 12.45%
ACC Corporation* 62,600 1,854,525
Aspen Technology, Inc.* 41,600 1,788,800
Bel Fuse, Inc.* 82,600 1,517,775
Computer Horizons Corporation* 19,950 753,112
Digital Systems International, Inc.* 81,500 1,247,969
</TABLE>
40
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY (CONTINUED)
Intervoice, Inc.* 99,500 $ 2,848,187
Mylex Corporation* 137,100 3,256,125
NU Horizons Electronics* 27,000 367,875
Oracle Systems Corporation* 52,300 2,464,637
Parametric Technologies Corporation* 100,000 3,912,500
SDL, Inc.* 40,000 1,200,000
Thermo Electron Corporation* 59,250 3,525,375
US Robotics Corporation* 35,200 4,558,400
Wind River Systems, Inc.* 63,000 1,937,250
Wyman-Gordon Company 149,000 2,514,375
33,746,905
TRANSPORTATION 2.41%
Air Express International Corporation* 28,000 721,000
Comair Holdings, Inc. 88,500 3,075,375
Wisconsin Central Transportation* 41,000 2,726,500
6,522,875
UTILITIES 0.46%
Frontier Corporation* 39,100 1,231,650
MISCELLANEOUS 2.76%
ALCO Standard Corporation 53,000 2,762,625
Exel Limited 9,500 655,500
Primark Corporation* 109,700 4,058,900
7,477,025
TOTAL COMMON STOCKS (COST $178,486,161) 239,715,560
</TABLE>
41
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 11.36%
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/29/96, 5.48%, due 4/1/96,
collateralized by $32,282,832
Federal National Mortgage Association,
7.00%, 01/01/26 (cost $30,776,523) $30,776,523 $ 30,776,523
TOTAL INVESTMENTS (COST $209,262,684) 99.81% 270,492,083
OTHER ASSETS LESS LIABILITIES 0.19% 517,143
NET ASSETS 100.00% $271,009,226
</TABLE>
* Securities not currently producing income.
~ American Depository Receipts.
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C> <C>
COMMON STOCKS 59.41%
BASIC MATERIALS 7.11%
Aluminum Company of America 37,800 $ 2,367,225
Hexcel Corporation* 66,200 777,850
IMC Global, Inc. 18,000 657,000
Precision Castparts Corporation 12,700 508,000
Rhone Poulenc SA- Class A~* 16,055 417,430
W.R. Grace & Company 10,000 782,500
5,510,005
CAPITAL GOODS & CONSTRUCTION 6.33%
Elsag Baily Process Auto NV* 20,000 457,500
Aviall, Inc.* 60,000 517,500
BE Aerospace, Inc.* 42,700 469,700
Browning-Ferris Industries 15,000 472,500
Curtiss-Wright Corporation 9,700 504,400
Lone Star Technologies, Inc.* 25,100 263,550
Newhall Land & Farming Company 26,100 473,062
Sequa Corporation- Class A* 18,100 617,663
Standard Pacific Corporation 77,200 559,700
WMX Technologies, Inc. 17,800 565,150
4,900,725
CONSUMER CYCLICAL 6.65%
Deluxe Corporation 19,000 596,125
Eastman Kodak Company 10,500 745,500
Goodrich BF 8,700 691,650
Hills Stores Company* 27,549 323,700
Kmart Corporation 60,000 562,500
Penske Motorsports, Inc.* 500 18,625
Poloroid Corporation 15,000 675,000
Sun International Hotels, Ltd.* 8,200 295,200
Valassis Communications* 28,300 470,488
Zale Corporation* 45,000 773,438
5,152,226
CONSUMER STAPLES 4.15%
Chiquita Brands International 33,600 520,800
Chirex Incorporated* 17,100 175,275
Dimon Incorporated 17,000 299,625
</TABLE>
43
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER STAPLES (CONTINUED)
Interstate Bakeries Corporaton 20,200 $ 494,900
Schweitzer-Mauduit International, Inc.* 19,800 544,500
Universal Corporation 47,000 1,180,875
3,215,975
ENERGY 11.51%
Amerada Hess Corporation 18,000 990,000
Anderson Exploration* 18,216 270,963
Ashland Oil, Inc. 13,300 510,387
Burlington Resources, Inc. 19,200 712,800
Gerrity Oil & Gas Corporation* 87,000 271,875
Giant Industries Inc. 42,600 585,750
Gulf Canada Resources, Ltd.* 141,300 671,175
Mitchell Energy- Class A 25,000 431,250
Noble Drilling Corporation* 59,500 751,188
Oryx Energy* 44,700 620,213
Repsol SA- Sponsore* 3,200 119,600
Rowan Companies, Inc.* 60,000 765,000
Tosco Corporation 14,000 656,250
U.S.X. Marathon Group, Inc. 28,300 544,775
Unocal Corporation 21,400 714,225
YPF Associadad 15,000 301,875
8,917,326
FINANCIAL 6.23%
California Federal Bank* 25,556 456,814
California Federal Bank Certificates* 1,555 11,274
Chubb Corporation 4,800 450,600
CIGNA Corporation 15,100 1,725,175
Danielson Holding Company* 66,000 503,250
Horace Mann Educator 6,800 207,400
Lehman Brothers Holding, Inc. 24,840 664,470
Long Island Bancorp 4,700 132,187
Old Republic International Corporation 11,000 357,500
Paul Revere Corporation* 13,000 315,250
4,823,920
</TABLE>
44
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY 3.46%
Alcatel Alsthom* 24,900 $ 460,650
B.C.E., Inc. 25,400 898,525
Compaq Computer Corporation* 10,000 386,250
Compuware Corporation* 20,000 460,000
Harman International* 12,500 468,750
Segue Sotware, Inc.* 200 4,200
2,678,375
TRANSPORTATION & SERVICES 4.68%
AMR Corporation* 6,000 537,000
Bergesen Dyas Spon A* 10,000 174,644
Boeing Company 7,000 606,375
Canadian Pacific, Ltd. 23,500 470,000
Nordic American Tanke-Warrants* 20,000 87,500
OMI Corporation* 55,900 447,200
Overseas Shipholding Group 25,000 456,250
Trans World Airlines* 42,200 844,000
3,622,969
UTILITIES 3.21%
Enserch Corporation 10,600 172,250
Niagara Mohawk Power 120,700 799,638
Petroleum Heat & Power 60,913 418,776
Public Service Company of New Mexico* 27,200 506,600
Seagull Energy Corporation* 26,000 588,250
2,485,514
MISCELLANEOUS 2.62%
Bradley Real Estate* 7,546 108,473
Corning, Inc. 13,800 483,000
Essex Property Trust, Inc. 19,900 412,925
Foamex International* 64,100 608,950
Koger Equity, Inc.* 37,900 412,163
2,025,511
</TABLE>
45
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Shares or
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FOREIGN SECURITIES 3.46%
CAE, Inc. 75,000 $ 647,288
Cameco Corporation* 12,000 634,618
Onex Corporation* 23,400 253,516
Pohjola Insurance Company* 8,000 130,293
Saskatchewan Wheat PLC* 12,700 111,939
St. Lawrence Cement, Inc.* 45,000 247,897
Technip SA* 7,500 655,347
2,680,898
TOTAL COMMON STOCKS (COST $37,965,342) 46,013,444
PREFERRED STOCKS 2.49%
BASIC MATERIALS 0.61%
Cooper Industries 29,000 467,625
CAPITAL GOODS & CONSTRUCTION 0.55%
Elsag Bailey Process Auto NV 9,300 427,800
FINANCIAL 1.33%
Glendale Federal Bank 21,700 1,033,463
TOTAL PREFERRED STOCKS (COST $1,378,600) 1,928,888
CORPORATE BONDS 6.05%
BASIC MATERIALS 0.31%
Aluminum Company of America, 5.75%, 2/01/01 $ 250,000 242,122
CAPITAL GOODS & CONSTRUCTION 0.13%
Lockheed Corporation, 6.75%, 3/15/03 100,000 99,569
CONSUMER CYCLICAL 0.59%
Sears Roebuck Company, 9.25%, 4/15/98 175,000 185,010
Time Warner Entertainment, Inc., 8.88%, 10/01/12 250,000 271,670
456,680
CONSUMER STAPLES 0.30%
Gillette Company, 5.75%, 10/15/05 250,000 232,920
</TABLE>
46
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
FINANCIAL 2.81%
American General Finance Corporation,
5.88%, 7/01/00 $ 250,000 $ 243,918
Associates Corporation of North America,
5.25%, 3/30/00 250,000 239,737
Chase Manhattan Corporation, 7.75%, 11/01/99 250,000 259,883
Comerica Bank, 7.13%, 12/01/13 250,000 237,017
Dean Witter Discover, 6.25%, 3/15/00 100,000 99,387
First National Bank, 8.00%, 9/15/04 250,000 266,233
Ford Motor Credit, 8.88%, 6/15/99 100,000 106,999
Great Western Financial, 6.38%, 7/01/00 250,000 248,457
Home Savings of Americas, 6.00%, 11/01/00 250,000 242,778
Toronto Dominion Bank, 6.13%, 11/01/08 250,000 230,882
2,175,291
TRANSPORTATION 0.37%
AMR Corporation, 6.13%, 11/01/24 250,000 290,423
UTILITIES 1.54%
Duke Power Company, 7.00%, 6/01/00 100,000 102,153
Florida Power & Light Company, 5.38%, 4/01/00 250,000 240,405
Pacific Gas & Electric Company, 5.93%, 10/08/03 250,000 236,715
Philadelphia Electric Company, 7.50%, 1/15/99 100,000 102,916
Southwestern Public Service Company, 6.88%, 12/01/99 250,000 253,798
Union Electric Company, 6.75%, 10/15/99 250,000 253,057
1,189,044
TOTAL CORPORATE BONDS (COST $4,774,490) 4,686,049
U.S. GOVERNMENT SECURITIES AND AGENCIES 26.99%
Government National Mortgage Association, 6.50%,
9/15/23-2/15/26 2,376,973 2,252,158
Government National Mortgage Association, 7.00%,
1/15/24-1/15/26 3,201,763 3,118,677
U. S. Treasury Bond, 7.25%, 5/15/16 1,000,000 1,045,930
U.S. Treasury Note, 5.13%-7.50%,
4/30/97-11/15/16 14,500,000 14,485,910
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $20,913,924) 20,902,675
</TABLE>
47
<PAGE>
MENTOR INCOME & GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 4.41%
REPURCHASE AGREEMENT
Paine Webber, Inc.
Dated 3/29/96, 5.50%, due 4/01/96,
collateralized by $3,500,000,
U.S. Treasury Note,
8.13%, 2/15/98 (cost $3,417,000) $ 3,417,000 $ 3,417,000
TOTAL INVESTMENTS (COST $68,449,356) 99.35% 76,948,056
OTHER ASSETS LESS LIABILITIES 0.65% 500,950
NET ASSETS 100.00% $77,449,006
</TABLE>
* Non-income producing.
~ American Depository Receipts.
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES 98.68%
ARIZONA 3.84%
Pima County Arizona, 7.25%, 7/15/10 $2,000,000 $ 2,189,560
CALIFORNIA 8.34%
California Educational Facilities, College of
Osteopathic Medicine, 7.50%, 6/01/18 965,000 1,059,454
Carson Improvement Board Act 1915, Special
Assessment District 92, 7.38%, 9/02/22 730,000 753,937
Los Angeles Convention, Series A, 5.13%, 8/15/21 1,750,000 1,569,400
Orange County Community Facilities District,
Series A, 7.35%, 8/15/18 300,000 349,986
San Francisco City & County Airport, 6.30%, 5/01/25 1,000,000 1,026,000
4,758,777
COLORADO 6.64%
Colorado Housing Authority, 7.00%, 11/01/24 625,000 646,350
Denver City & County Airport Revenue,
7.75%, 11/15/13 1,000,000 1,172,400
Denver City & County Airport Revenue,
8.50%, 11/15/23 1,700,000 1,972,697
3,791,447
DISTRICT OF COLUMBIA 1.48%
Metropolitan Washington, General Airport Revenue,
Series A, 6.63%, 10/01/19 800,000 843,544
FLORIDA 6.24%
Dade County, 6.50%, 10/01/26 680,000 751,692
Hillsborough County, 6.25%, 12/01/34 1,250,000 1,290,650
Sarasota County, Health Facilities Authority Revenue, 10.00%,
7/01/22 1,190,000 1,517,845
3,560,187
GEORGIA 3.75%
Cobb County Development Authority Revenue Bonds, Series 92A,
8.00%, 6/01/22 1,000,000 1,022,480
Monroe County Development Authority PCR, 6.75%, 1/01/10 1,000,000 1,118,380
2,140,860
ILLINOIS 9.44%
Broadview Tax Increment Revenue, 8.25%, 7/01/13 1,000,000 1,089,770
</TABLE>
49
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
ILLINOIS (CONTINUED)
Chicago Heights Residential Mortgage,
(effective yield - 2.75%) (a), 6/01/09 $3,465,000 $ 1,364,760
Chicago, Capital A, (effective yield - 1.70%) (a),
7/01/16 2,000,000 550,600
Illinois Health Facilities Authority Revenue,
9.50%, 10/01/22 1,250,000 1,580,850
Robins Illinois Residential, 9.25%, 10/15/14 1,000,000 800,000
5,385,980
INDIANA 0.50%
Indiana Transportation Finance Authority,
Series A, (effective yield - 1.65%) (a), 6/01/17 1,000,000 282,470
IOWA 1.16%
Student Loan Liquidity Corporation, Student Loan Revenue, Series
C, 6.95%, 3/01/06 625,000 664,188
KENTUCKY 3.61%
Jefferson County, Hospital Revenue, 8.85%, 10/01/08 500,000 559,375
Kenton County Airport Board Revenue, OID, 7.50%, 2/01/20 1,400,000 1,500,338
2,059,713
MAINE 1.80%
Maine State Housing Authority, Series C, 6.88%,
11/15/23 1,000,000 1,025,930
MASSACHUSETTS 4.78%
Massachusetts State Health and Educational Facilities Authority,
OID Revenue Bonds, Series A, 6.00%, 10/01/23 2,000,000 1,646,820
Massachusetts State Health and Education, 6.88%,
4/01/22 1,000,000 1,079,950
2,726,770
MICHIGAN 0.97%
Romulus Community Schools, Refunding,
(effective yield-1.40%) (a), 5/01/20 2,385,000 555,657
MONTANA 0.83%
Montana State Resource Recovery Revenue Bonds,
7.00%, 12/31/19 500,000 475,830
</TABLE>
50
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
NEBRASKA 0.74%
Nebraska Finance Authority, SFM, 9.48%, 9/15/24 $ 400,000 $ 419,500
NEVADA 0.92%
Henderson Local Improvement District, Special
Assessment, Series A, 8.50%, 11/01/12 500,000 523,205
NEW YORK 12.55%
Clifton Springs Hospital Refunding & Improvement, 8.00%, 1/01/20 855,000 869,868
Herkimer County, IDA, 8.00%, 1/01/09 1,000,000 1,052,700
Metropolitan Transportation Authority, 4.75%, 7/01/16 1,000,000 823,100
New York City, Series H, 7.20%, 2/01/13 1,500,000 1,594,560
New York City, Series I, 5.88%, 3/15/13 1,000,000 959,080
New York State Dorm Authority, 6.75%, 7/01/24 1,000,000 1,088,100
New York State Dorm Authority, 5.38%, 2/15/26 870,000 773,386
7,160,794
NORTH DAKOTA 1.92%
Ward County, Healthcare Facilities, 8.88%, 11/15/24 1,000,000 1,096,690
OKLAHOMA 1.80%
Oklahoma City, Industrial and Cultural
Facilities Trust, 6.75%, 9/15/17 1,000,000 1,027,480
PENNSYLVANIA 4.18%
Pennsylvania Economic Development, 6.40%, 1/01/09 500,000 490,265
Pennsylvania Intergovernmental Cooperative Authority, Special Tax
Revenue, 6.80%, 6/15/12 750,000 836,910
Philadelphia Hospital and Higher Education Facilities, 6.50%,
11/15/08 1,000,000 1,057,830
2,385,005
RHODE ISLAND 0.81%
West Warwick, Series A, GO Bonds, 6.80% - 7.30%, 7/15/98 - 7/15/08 435,000 464,602
TENNESSEE 7.95%
Memphis Shelby County Airport Authority Special
Facilities Revenue Refunding, 7.88%, 9/01/09 1,500,000 1,673,340
Tennessee Housing, 7.38%, 7/01/23 2,750,000 2,861,293
4,534,633
</TABLE>
51
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
TEXAS 4.40%
Brazos Higher Education Authority Student
Loan Revenue, 7.10%, 11/01/04 $ 550,000 $ 599,737
Dallas-Fort Worth International Airport Facility
Revenue Bonds, 7.25%, 11/01/30 1,000,000 1,065,610
Texas State Department of Housing and Community
Affairs Refunding, Series C, 9.92%, 7/02/24 750,000 844,688
2,510,035
UTAH 3.55%
Bountiful Hospital Revenue, 9.50%, 12/15/18 240,000 264,482
Utah State Housing Finance Commission, 7.20%, 1/01/27 1,695,000 1,758,986
2,023,468
WEST VIRGINIA 6.48%
Harrison County, 6.75%, 8/01/24 2,000,000 2,175,920
West Virginia State Hospital Finance
Authority Revenue, 9.44%, 1/01/18 1,500,000 1,519,965
3,695,885
TOTAL LONG-TERM MUNICIPAL SECURITIES (COST $53,536,283) 56,302,210
SHORT-TERM MUNICIPAL SECURITIES (B) 0.35%
LOUISIANA
Louisiana State Recovery, 3.45%,
7/01/97, VRDN (cost $200,000) 200,000 200,000
TOTAL INVESTMENTS (COST $53,736,283) 99.03% 56,502,210
OTHER ASSETS LESS LIABILITIES 0.97% 557,711
NET ASSETS 100.00% $57,059,921
</TABLE>
INVESTMENT ABBREVIATIONS
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 3/3196.
(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.
52
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C> <C>
LONG-TERM INVESTMENTS 95.92%
ASSET-BACKED SECURITIES 11.44%
Advanta Mortgage Loan Trust, Series 1993-3 A5,
5.55%, 1/25/25 $ 1,810,976 $ 1,694,134
Advanta Mortgage Loan Trust, Series 1993-4 A2,
5.55%, 3/25/25 2,126,841 2,014,108
Equifax Credit Corporation, Series 1994-1,B
5.75%, 3/15/09 3,567,326 3,460,931
Old Stone Credit Corporation Home Equity Trust,
Series 1993-1 B1, 6.00%, 3/15/08 1,685,983 1,650,765
World Omni, Series 1993-B, 5.05%, 8/15/99 575,663 567,115
TOTAL ASSET-BACKED SECURITIES (COST $9,379,553) 9,387,053
U.S. GOVERNMENT SECURITIES AND AGENCIES 43.56%
FEDERAL HOME LOAN MORTGAGE CORPORATION 27.30%
6.00%, 2/01/11-3/01/11 15,825,444 15,197,099
6.00%, Series 48 H, 7/15/20 - REMIC 3,500,000 3,157,798
6.50%, Series 1647B, 11/15/08 - REMIC 4,259,188 4,034,499
22,389,396
FEDERAL NATIONAL MORTGAGE ASSOCIATION - REMIC 2.26%
PO, Class G93-28C, 7/25/22 2,500,000 1,856,107
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 11.64%
6.00%, 12/15/08 - 6/15/09 7,155,972 6,896,568
7.00%, 9/20/22 2,616,190 2,655,318
9,551,886
TREASURY SECURITIES 2.36%
U.S. Treasury Note, 5.00%, 1/31/98 1,515,000 1,494,335
U.S. Treasury Note, 5.63%, 2/28/01 450,000 441,103
1,935,438
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $36,224,497) 35,732,827
</TABLE>
53
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C> <C>
CORPORATE BONDS 10.36%
FINANCE 8.78%
Developers Diversified Realty, 7.63%, 5/15/00 $ 2,000,000 $ 2,009,180
Salomon, Inc., 6.00%, 1/12/98 3,000,000 2,971,053
Sunamerica, Inc., 7.34%, 8/30/05 1,200,000 1,220,245
Travelers, Inc., 6.88%, 6/01/25 1,000,000 1,005,217
7,205,695
UTILITIES 1.58%
Mississippi Power & Light, 8.80%, 4/01/05 1,250,000 1,295,902
TOTAL CORPORATE BONDS (COST $8,401,156) 8,501,597
COLLATERALIZED MORTGAGE OBLIGATIONS 22.34%
Chase Mortgage Finance Corporation,
Series 1993-L2 M, 7.00%, 10/25/24 3,070,370 2,890,210
First Boston Mortgage Securities Corporation,
Series 1993-5 M2, 7.30%, 7/25/23 2,430,974 2,364,139
General Electric Capital Mortgage Services, Inc.,
Series 1993-18 B1, 6.00%, 2/25/09 2,250,695 2,080,495
Prudential Home, Series 1995-5 B1, 7.25%, 9/25/25 1,492,159 1,434,929
Prudential Home, Series 1995-5 M, 7.25%, 9/25/25 2,631,173 2,561,553
Securitized Asset Sales, Inc., Series 1994-5 AM,
7.00%, 7/25/24 7,360,928 6,997,556
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $18,314,235) 18,328,882
RESIDUAL INTERESTS 8.22%
General Mortgage Securities, Inc., 1995-1, 6/25/20 18,061 186,944
General Mortgage Securities II, Inc., 1995-3, 6/25/20 18,180 635,956
General Mortgage Securities II, Inc., 1995-4, 6/25/23 19,606 603,757
General Mortgage Securities II, Inc., 1996-1, 11/25/22 19,402 696,504
National Mortgage Funding I, Inc., 1995-1, 4/28/25 33,213 544,274
National Mortgage Funding I, Inc., 1995-4, 3/20/21 16,836 276,365
National Mortgage Funding I, Inc., 1995-5, 3/25/22 12,673 730,248
National Mortgage Funding I, Inc., 1995-7, 9/17/25 43,383 886,956
National Mortgage Funding I, Inc., 1995-8, 8/25/22 45,000 800,357
National Mortgage Funding I, Inc., 1995-9, 11/19/25 44,528 594,855
National Mortgage Funding I, Inc., 1996-3, 2/22/25 27,376 774,646
TOTAL RESIDUAL INTERESTS (COST $6,867,549) 6,730,862
TOTAL LONG-TERM INVESTMENTS (COST $79,186,990) 78,681,221
</TABLE>
54
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENT 3.94%
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/29/96, 5.48%, due 4/01/96,
collateralized by $3,391,925
Federal National Mortgage Association,
7.00%, 1/01/26 (cost $3,233,203) 3,233,203 $ 3,233,203
TOTAL INVESTMENTS (COST $82,420,193) 99.86% 81,914,424
OTHER ASSETS LESS LIABILITIES 0.14% 112,984
NET ASSETS 100.00% $82,027,408
</TABLE>
INVESTMENT ABBREVIATIONS
CMO - Collateralized Mortgage Obligation
PO - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
MENTOR SHORT-DURATION INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES 11.10%
Advanta Mortgage Loan Trust 1993-4, 5.55%, 3/25/10 $ 851,094 $ 805,982
Equifax Credit Corporation 1994-1, 5.75%, 3/15/09 1,134,169 1,100,342
General Motors Acceptance Corporation, 6.30%, 6/15/99 372,330 373,009
Old Stone Credit Corporation, 6.20%, 6/15/08 689,229 679,454
World Omni 1993 B, 5.05%, 8/15/99 233,377 229,911
TOTAL ASSET-BACKED SECURITIES (COST $3,183,763) 3,188,698
U.S. GOVERNMENT SECURITIES AND AGENCIES 76.33%
FEDERAL HOME LOAN MORTGAGE CORPORATION 26.87%
8.19%, 10/06/04 2,000,000 2,091,796
6.50%, 5/15/08 - REMIC 2,473,962 2,373,168
6.00%, 2/11/11 3,389,377 3,254,862
7,719,826
FEDERAL NATIONAL MORTGAGE ASSOCIATION 2.04%
10.00%, 6/01/05 555,154 585,948
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 4.79%
7.00%, 9/20/22 1,356,682 1,376,972
TREASURY SECURITIES 42.63%
U.S. Treasury Note, 5.00%, 1/31/98 1,010,000 996,224
U.S. Treasury Note, 5.88%, 8/15/98 8,650,000 8,651,989
U.S. Treasury Note, 5.63%, 2/28/01 2,650,000 2,597,609
12,245,822
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $22,306,850) 21,928,568
COLLATERALIZED MORTGAGE OBLIGATION 1.69%
Ryland Acceptance Corporation, 9.63%,
9/25/17 (cost $478,017) 485,967 485,701
CORPORATE BONDS 6.26%
Mississippi Power & Light, 8.80%, 4/1/05 750,000 777,542
Salomon, Inc., 8.62%, 2/17/97 1,000,000 1,020,962
TOTAL CORPORATE BONDS (COST $1,790,793) 1,798,504
</TABLE>
56
<PAGE>
MENTOR SHORT-DURATION INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C> <C> <C>
RESIDUAL INTERESTS 1.85%
General Mortgage Securities II, Inc., 1996-3, 3/29/22 $ 16,000 $ 250,627
National Mortgage Funding, Inc., 1996-4, 3/29/25 7,500 279,797
TOTAL RESIDUAL INTERESTS (COST $532,656) 530,424
SHORT-TERM INVESTMENT 2.14%
Federal Home Loan Bank, 5.25%,
4/01/96 (cost $616,000) 616,000 616,000
TOTAL INVESTMENTS (COST $28,908,079) 99.37% 28,547,895
OTHER ASSETS LESS LIABILITIES 0.63% 181,653
NET ASSETS 100.00% $28,729,548
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
MENTOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Mentor Mentor
Mentor Perpetual Capital
Growth Global Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
ASSETS
Investments, at market value * (Note 2)
Investment securities $295,719,640 $28,967,439 $86,784,250
Repurchase agreements 39,268,803 2,192,142 4,381,988
Total Investments 334,988,443 31,159,581 91,166,238
Receivables
Investments sold 121,863 150,925 257,500
Fund shares sold 851,058 1,267,829 106,926
Dividends and interest 110,153 89,830 80,537
Closed forward foreign currency contracts - 3,831 -
Deferred expenses (Note 2) 23,333 33,106 18,000
Other assets - - -
Total assets 336,094,850 32,705,102 91,629,201
LIABILITIES
Payables
Investments purchased 4,093,802 558,692 -
Fund shares redeemed 146,520 30,305 94,350
Dividends - - -
Forward foreign currency exchange contracts held
(Note 8) - 676 -
Forward contract payable - 19,676 -
Accrued expenses and other liabilities 70,695 15,684 49,160
Total liabilities 4,311,017 625,033 143,510
NET ASSETS $331,783,833 $32,080,069 $91,485,691
Net Assets represented by: (Note 2)
Additional paid-in capital $217,163,902 $28,624,212 $72,229,013
Accumulated net investment income (loss) (1,409,287) (164,371) (14,174)
Accumulated distributions in excess of net investment
income - - -
Accumulated net realized gain (loss) on investment
transactions 18,602,231 825,835 5,915,854
Net unrealized appreciation (depreciation) of investments
and foreign currency related transactions 97,426,987 2,794,393 13,354,998
NET ASSETS $331,783,833 $32,080,069 $91,485,691
NET ASSET VALUE PER SHARE
Class A Shares $ 16.51 $ 16.88 $ 17.58
Class B Shares $ 16.40 $ 16.58 $ 17.25
OFFERING PRICE PER SHARE
Class A Shares $ 17.52(a) $ 17.91(a) $ 18.65(a)
Class B shares $ 16.40 $ 16.58 $ 17.25
REDEMPTION PROCEEDS PER SHARE
Class A Shares $ 16.51 $ 16.88 $ 17.58
Class B Shares (d) $ 16.24 $ 16.41 $ 17.08
SHARES OUTSTANDING
Class A Shares 1,720,868 507,721 1,709,034
Class B Shares 18,494,841 1,418,356 3,561,612
Total Shares Outstanding 20,215,709 1,926,077 5,270,646
</TABLE>
58
<PAGE>
MENTOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Mentor Mentor
Mentor Income and Municipal
Strategy Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
ASSETS
Investments, at market value * (Note 2)
Investment securities $239,715,560 $73,531,056 $56,502,210
Repurchase agreements 30,776,523 3,417,000 -
Total Investments 270,492,083 76,948,056 56,502,210
Receivables
Investments sold - 62,237 -
Fund shares sold 522,336 257,589 4,801
Dividends and interest 134,013 511,445 1,021,501
Closed forward foreign currency contracts - - -
Deferred expenses (Note 2) 55,440 - -
Other assets - - -
Total assets 271,203,872 77,779,327 57,528,512
LIABILITIES
Payables
Investments purchased - 73,394 -
Fund shares redeemed 161,375 47,434 179,926
Dividends - - 232,128
Forward foreign currency exchange contracts held
(Note 8) - - -
Forward contract payable - - -
Accrued expenses and other liabilities 33,271 209,493 56,537
Total liabilities 194,646 330,321 468,591
NET ASSETS $271,009,226 $77,449,006 $57,059,921
Net Assets represented by: (Note 2)
Additional paid-in capital $206,039,559 $64,985,879 $57,002,997
Accumulated net investment income (loss) (653,213) 12,823 -
Accumulated distributions in excess of net investment
income - - (54,062)
Accumulated net realized gain (loss) on investment
transactions 4,393,481 3,951,595 (2,654,941)
Net unrealized appreciation (depreciation) of investments
and foreign currency related transactions 61,229,399 8,498,709 2,765,927
NET ASSETS $271,009,226 $77,449,006 $57,059,921
NET ASSET VALUE PER SHARE
Class A Shares $ 16.79 $ 18.07 $ 14.96
Class B Shares $ 16.69 $ 18.08 $ 14.98
OFFERING PRICE PER SHARE
Class A Shares $ 17.81(a) $ 19.17(a) $ 15.71(b)
Class B shares $ 16.69 $ 18.08 $ 14.98
REDEMPTION PROCEEDS PER SHARE
Class A Shares $ 16.79 $ 18.07 $ 14.96
Class B Shares (d) $ 16.52 $ 17.90 $ 14.83
SHARES OUTSTANDING
Class A Shares 821,892 1,232,083 1,333,939
Class B Shares 15,410,446 3,051,166 2,476,532
Total Shares Outstanding 16,232,338 4,283,249 3,810,471
</TABLE>
59
<PAGE>
MENTOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Mentor Mentor
Quality Short-Duration
Income Income
Portfolio Portfolio
<S> <C> <C>
ASSETS
Investments, at market value * (Note 2)
Investment securities $ 78,681,221 $ 27,931,895
Repurchase agreements 3,233,203 616,000
Total Investments 81,914,424 28,547,895
Receivables
Investments sold 1,258,060 533,814
Fund shares sold 110,278 79,322
Dividends and interest 775,852 259,702
Closed forward foreign currency contracts - -
Deferred expenses (Note 2) - 34,948
Other assets 150,692 31,401
Total assets 84,209,306 29,487,082
LIABILITIES
Payables
Investments purchased 1,451,845 532,656
Fund shares redeemed 265,484 80,660
Dividends 419,566 127,801
Forward foreign currency exchange contracts held
(Note 8) - -
Forward contract payable - -
Accrued expenses and other liabilities 45,003 16,417
Total liabilities 2,181,898 757,534
NET ASSETS $ 82,027,408 $ 28,729,548
Net Assets represented by: (Note 2)
Additional paid-in capital $ 96,153,154 $ 28,718,766
Accumulated net investment income (loss) - -
Accumulated distributions in excess of net investment
income (234,102) (113,380)
Accumulated net realized gain (loss) on investment
transactions (12,995,609) 484,346
Net unrealized appreciation (depreciation) of investments
and foreign currency related transactions (896,035) (360,184)
NET ASSETS $ 82,027,408 $ 28,729,548
NET ASSET VALUE PER SHARE
Class A Shares $ 13.15 $ 12.66
Class B Shares $ 13.17 $ 12.64
OFFERING PRICE PER SHARE
Class A Shares $ 13.81(b) $ 12.79(c)
Class B shares $ 13.17 $ 12.64
REDEMPTION PROCEEDS PER SHARE
Class A Shares $ 13.15 $ 12.66
Class B Shares (d) $ 13.04 $ 12.51
SHARES OUTSTANDING
Class A Shares 1,767,396 273,122
Class B Shares 4,463,263 1,998,884
Total Shares Outstanding 6,230,659 2,272,006
</TABLE>
* Investments at cost $237,561,456, $77,811,240, $209,262,684, $68,449,356,
$28,363,696, $82,420,193, $28,908,079 and $53,736,283 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: 99/100 of net asset value.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
MENTOR FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Mentor Mentor
Mentor Perpetual Capital
Growth Global Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 344,122 $ 28,076 $ 106,245
Dividends (Net of withholding taxes)*** 1,089,746 137,383 732,274
Total investment income (Note 2) 1,433,868 165,459 838,519
EXPENSES
Management fee (Note 4) 1,001,608 129,333 351,830
Distribution fees (Note 5) 987,902 60,664 219,956
Shareholder services fees (Note 5) 357,717 29,394 109,947
Transfer agent fee 149,532 16,392 55,197
Administration fee (Note 4) 143,087 11,757 43,979
Shareholder reports and postage expenses 94,766 1,759 19,792
Custodian and accounting fees 44,322 17,586 12,625
Registration expenses 32,911 12,639 12,813
Legal and Audit fees 11,683 3,228 12,160
Directors' fees and expenses 4,924 387 1,366
Organizational expenses 4,275 5,549 1,800
Miscellaneous 10,428 334 11,228
Total expenses 2,843,155 289,022 852,693
Deduct
Waiver of administration fee (Note 4) - - -
Waiver of management fee (Note 4) - - -
NET EXPENSES 2,843,155 289,022 852,693
NET INVESTMENT INCOME (LOSS) (1,409,287) (123,563) (14,174)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS
Net realized gain on investments (Note 2) 23,098,822 895,963 7,862,081
Change in unrealized appreciation (depreciation) 20,706,519 1,831,469 2,802,824
Net realized and unrealized gain (loss) on
investments and futures contracts 43,805,341 2,727,432 10,664,905
Net increase in net assets resulting from
operations $42,396,054 $2,603,869 $10,650,731
</TABLE>
60
<PAGE>
MENTOR FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Mentor Mentor
Mentor Income and Municipal
Strategy Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 814,958 $ 795,220 $ 1,986,850
Dividends (Net of withholding taxes)*** 1,118,500 417,559 -
Total investment income (Note 2) 1,933,458 1,212,779 1,986,850
EXPENSES
Management fee (Note 4) 1,050,443 263,827 178,719
Distribution fees (Note 5) 882,532 186,400 97,450
Shareholder services fees (Note 5) 308,954 87,942 74,466
Transfer agent fee 108,020 33,217 29,274
Administration fee (Note 4) 123,582 35,177 29,786
Shareholder reports and postage expenses 67,191 10,714 6,138
Custodian and accounting fees 37,158 16,045 7,949
Registration expenses 25,332 26,218 26,831
Legal and Audit fees 8,686 3,951 3,962
Directors' fees and expenses 3,581 1,310 1,282
Organizational expenses 10,103 - -
Miscellaneous 8,725 1,302 -
Total expenses 2,634,307 666,103 455,857
Deduct
Waiver of administration fee (Note 4) - - -
Waiver of management fee (Note 4) - - -
NET EXPENSES 2,634,307 666,103 455,857
NET INVESTMENT INCOME (LOSS) (700,849) 546,676 1,530,993
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS
Net realized gain on investments (Note 2) 1,828,970 4,516,900 32,845
Change in unrealized appreciation (depreciation) 23,485,014 2,408,379 145,691
Net realized and unrealized gain (loss) on
investments and futures contracts 25,313,984 6,925,279 178,536
Net increase in net assets resulting from
operations $ 24,613,135 $ 7,471,955 $ 1,709,529
</TABLE>
61
<PAGE>
MENTOR FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
Mentor Mentor
Quality Short-Duration
Income Income
Portfolio Portfolio
<S> <C> <C>
INVESTMENT INCOME
Interest $ 3,302,796 $ 795,231**
Dividends (Net of withholding taxes)*** - 488
Total investment income (Note 2) 3,302,796 795,719
EXPENSES
Management fee (Note 4) 256,275 61,656
Distribution fees (Note 5) 153,257 33,448
Shareholder services fees (Note 5) 106,781 30,828
Transfer agent fee 33,584 1,053
Administration fee (Note 4) 42,713 11,149
Shareholder reports and postage expenses 10,772 1,052
Custodian and accounting fees 15,107 5,333
Registration expenses 30,568 13,347
Legal and Audit fees 2,779 537
Directors' fees and expenses 1,923 143
Organizational expenses - 2,754
Miscellaneous - 47
Total expenses 653,759 161,347
Deduct
Waiver of administration fee (Note 4) - 11,149
Waiver of management fee (Note 4) 42,713 46,729
NET EXPENSES 611,046 103,469
NET INVESTMENT INCOME (LOSS) 2,691,750 692,250
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS
Net realized gain on investments (Note 2) 671,827 519,232
Change in unrealized appreciation (depreciation) (1,525,429) (640,202)
Net realized and unrealized gain (loss) on
investments and futures contracts (853,602) (120,970)
Net increase in net assets resulting from
operations $ 1,838,148 $ 571,280
</TABLE>
** Net of interest expense $35,691 for the Mentor Short-Duration Income
Portfolio.
*** Withholding taxes were $1,069, $12,419 and $12,486 for the Mentor Growth
Portfolio, Mentor Income and Growth Portfolio, and Mentor Perpetual Global
Portfolio, respectively for the period ended March 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Perpetual Global
Mentor Growth Portfolio Portfolio
Six Months Six Months
Ended Period Ended Year
3/31/96 Ended 3/31/96 Ended
(Unaudited) 9/30/95* (Unaudited) 9/30/95
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (1,409,287) $ (1,966,059) $ (123,563) $ (16,767)
Net realized gain (loss) on investments and futures
contracts 23,098,822 24,885,052 895,963 862,461
Change in unrealized appreciation (depreciation) of
investments 20,706,519 38,888,234 1,831,469 942,613
Increase in net assets from operations 42,396,054 61,807,227 2,603,869 1,788,307
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A - - - -
Class B - - - -
Distributions in excess of net investment income
Class A - - - -
Class B - - - -
Net realized gain on investments
Class A (2,238,211) - (338,446) -
Class B (27,048,013) - (688,164) -
Net decrease from distributions (29,286,224) - (1,026,610) -
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from portfolio share transactions 51,979,579 14,761,239 10,981,677 863,287
Increase (decrease) in net assets 65,089,409 76,568,466 12,558,936 2,651,594
NET ASSETS
Beginning of period 266,694,424 190,125,958 19,521,133 16,869,539
End of period $331,783,833 $266,694,424 $32,080,069 $19,521,133
</TABLE>
62
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
Mentor Capital Growth
Portfolio Mentor Strategy Portfolio
Six Months Six Months
Ended Period Ended Year
3/31/96 Ended 3/31/96 Ended
(Unaudited) 9/30/95 (Unaudited) 9/30/95*
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (14,174) $ (107,886) $ (700,849) $ 32,564
Net realized gain (loss) on investments and futures
contracts 7,862,081 5,567,739 1,828,970 13,062,170
Change in unrealized appreciation (depreciation) of
investments 2,802,824 8,926,628 23,485,014 30,325,565
Increase in net assets from operations 10,650,731 14,386,481 24,613,135 43,420,299
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A - - - -
Class B - - - -
Distributions in excess of net investment income
Class A - - - -
Class B - - - -
Net realized gain on investments
Class A (871,658) (2,027,725) (15,039) -
Class B (1,783,036) (4,095,792) (302,757) -
Net decrease from distributions (2,654,694) (6,123,517) (317,796) -
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from portfolio share transactions (3,740,307) 16,680,084 11,572,721 12,447,061
Increase (decrease) in net assets 4,255,730 24,943,048 35,868,060 55,867,360
NET ASSETS
Beginning of period 87,229,961 62,286,913 235,141,166 179,273,806
End of period $ 91,485,691 $ 87,229,961 $271,009,226 $235,141,166
</TABLE>
63
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
Mentor Income and Growth Mentor Municipal Income
Portfolio Portfolio
Six Months Six Months
Ended Year Ended Year
3/31/96 Ended 3/31/96 Ended
(Unaudited) 9/30/95 (Unaudited) 9/30/95
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 546,676 $ 1,236,537 $ 1,530,993 $ 3,337,904
Net realized gain (loss) on investments and futures
contracts 4,516,900 2,495,422 32,845 (2,056,061)
Change in unrealized appreciation (depreciation) of
investments 2,408,379 5,833,996 145,691 4,099,300
Increase in net assets from operations 7,471,955 9,565,955 1,709,529 5,381,143
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (206,168) (464,855) (561,389) (1,233,641)
Class B (327,682) (771,682) (971,123) (2,106,334)
Distributions in excess of net investment income
Class A - (38,935) - -
Class B - (64,635) - -
Net realized gain on investments
Class A (857,221) (298,324) - -
Class B (2,018,268) (712,920) - -
Net decrease from distributions (3,409,339) (2,351,351) (1,532,512) (3,339,975)
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from portfolio share transactions 6,820,579 (1,640,309) (3,070,275) (13,301,743)
Increase (decrease) in net assets 10,883,195 5,574,295 (2,893,258) (11,260,575)
NET ASSETS
Beginning of period 66,565,811 60,991,516 59,953,179 71,213,754
End of period $77,449,006 $66,565,811 $ 57,059,921 $ 59,953,179
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Quality Income Mentor Short-Duration
Portfolio Income Portfolio
Six Months Six Months
Ended Year Ended Period
3/31/96 Ended 3/31/96 Ended
(Unaudited) 9/30/95 (Unaudited) 9/30/95*
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $ 2,691,750 $ 5,884,441 $ 692,250 $ 820,190
Net realized gain (loss) on
investments and futures contracts 671,827 (1,948,938) 519,232 258,876
Change in unrealized appreciation
(depreciation) of investments (1,525,429) 5,945,462 (640,202) 423,995
Increase in net assets from
operations 1,838,148 9,880,965 571,280 1,503,061
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (804,299) (1,780,925) (71,018) (7,777)
Class B (1,878,664) (4,084,639) (649,123) (812,803)
Distributions in excess of net
investment income
Class A - (130,142) - (2,635)
Class B - (298,487) - (39,850)
Net realized gain on investments
Class A - - - -
Class B - - - -
Net decrease from distributions (2,682,963) (6,294,193) (720,141) (863,065)
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from
portfolio share transactions (3,754,668) (24,989,530) 8,005,864 3,088,707
Increase (decrease) in net assets (4,599,483) (21,402,758) 7,857,003 3,728,703
NET ASSETS
Beginning of period 86,626,891 108,029,649 20,872,545 17,143,842
End of period $82,027,408 $86,626,891 $28,729,548 $20,872,545
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
64
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor Growth Portfolio Mentor Perpetual Global Portfolio
Six Months Six Months
Ended Period Ended Year Year
3/31/96 Ended 3/31/96 Ended Ended
(Unaudited) 9/30/95* (Unaudited) 9/30/95 9/30/94(c)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.08 $ 13.37 $ 15.88 $14.23 $14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.02) (0.01) (0.04) 0.05 (0.01)
Net realized and unrealized gain (loss) on
investments 2.19 2.72 1.84 1.60 0.06
Total from investment operations 2.17 2.71 1.80 1.65 0.05
LESS DISTRIBUTIONS
Dividends from net investment income - - - - -
Distributions in excess of net investment
income - - - - -
Distributions from capital gains (1.74) - (0.80) - -
Distributions in excess of capital gains - - - - -
Total distributions (1.74) - (0.80) - -
NET ASSET VALUE, END OF PERIOD $ 16.51 $ 16.08 $ 16.88 $15.88 $14.23
Total Return 15.44% 20.27% 11.90% 11.60% 0.35%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $28,405 $20,368 $ 8,571 $6,854 $8,882
Ratio of expenses to average net assets 1.32%(a) 1.36%(a) 2.00%(a) 2.06 2.09%(a)
Ratio of expenses to average net asset
excluding waiver 1.32%(a) 1.36%(a) 2.00%(a) 2.11% 3.18%(a)
Ratio of net investment income (loss) to
average net assets (0.29%)(a) (0.65%)(a) (0.54%)(a) 0.26% (0.10%)(a)
Portfolio turnover rate 51% 70% 70% 155% 2%
Average commission rate on portfolio
transactions $0.0549 - $0.0306 - -
</TABLE>
* For the period from June 5, 1995 to September 30, 1995.
(a) Annualized.
(c) Reflects operations for the period from March 30, 1994 (commencement of
operations), to September 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Six Months Mentor Capital Growth Portfolio
Ended Year Year Year Year
3/31/96 Ended Ended Ended Ended
(Unaudited) 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 $ 16.02 $ 14.88 $ 15.26 $ 14.21 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.04 0.02 0.09 0.14 0.08
Net realized and unrealized gain (loss) on
investments 2.02 2.91 (0.30 ) 1.02 0.03
Total from investment operations 2.06 2.93 (0.21 ) 1.16 0.11
LESS DISTRIBUTIONS
Dividends from net investment income - - (0.04 ) (0.11 ) (0.08)
Distributions in excess of net investment
income - - - - -
Distributions from capital gains (0.50) (1.79 ) (0.13 ) - -
Distributions in excess of capital gains - - - - -
Total distributions (0.50) (1.79 ) (0.17 ) (0.11 ) (0.08)
NET ASSET VALUE, END OF PERIOD $ 17.58 $ 16.02 $ 14.88 $ 15.26 $ 14.21
Total Return 13.17% 20.18 % (1.37 %) 8.21% 0.78%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $30,044 $29,582 $21,181 $31,360 $ 20,864
Ratio of expenses to average net assets 1.44%(a) 1.87 % 1.70 % 1.49% 1.14%(a)
Ratio of expenses to average net asset
excluding waiver 1.44%(a) 1.87 % 1.70 % 1.59% 1.43%(a)
Ratio of net investment income (loss) to
average net assets 0.46%(a) 0.27 % 0.53 % 0.96% 1.54%(a)
Portfolio turnover rate 45% 157 % 149 % 192% 61%
Average commission rate on portfolio
transactions $0.0694 - - - -
</TABLE>
66
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES (continued)
<TABLE>
<CAPTION> Mentor Strategy Portfolio Mentor Income and Growth Portfolio
Six Months Six Months
Ended Period Ended Year Year Year
3/31/96 Ended 3/31/96 Ended Ended Ended
(Unaudited) 9/30/95* (Unaudited) 9/30/95 9/30/94 9/30/93(b)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.24 $ 13.45 $ 17.13 $ 15.27 $ 14.88 $14.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.01 - 0.18 0.40 0.31 0.09
Net realized and unrealized gain (loss) on
investments 1.56 1.79 1.67 2.14 0.64 0.73
Total from investment operations 1.57 1.79 1.85 2.54 0.95 0.82
LESS DISTRIBUTIONS
Dividends from net investment income - - (0.17) (0.40) (0.30) (0.08)
Distributions in excess of net investment
income - - - (0.03) - -
Distributions from capital gains (0.02) - (0.74) (0.25) (0.26) -
Distributions in excess of capital gains - - - - - -
Total distributions (0.02) - (0.91) (0.68) (0.56) (0.08)
NET ASSET VALUE, END OF PERIOD $ 16.79 $ 15.24 $ 18.07 $ 17.13 $ 15.27 $14.88
Total Return 10.32% 13.31% 11.28% 17.24% 6.54% 5.54%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $13,802 $ 10,503 $22,270 $19,888 $17,773 $9,849
Ratio of expenses to average net assets 1.47%(a) 1.65%(a) 1.37%(a) 1.69% 1.75% 1.56%(a)
Ratio of expenses to average net asset
excluding waiver 1.47%(a) 1.65%(a) 1.37%(a) 1.69% 1.75% 1.94%(a)
Ratio of net investment income (loss) to
average net assets 0.14%(a) (0.06%)(a) 2.07%(a) 2.53% 2.20% 2.35%(a)
Portfolio turnover rate 43% 122% 41% 62% 78% 13%
Average commission rate on portfolio
transactions $0.0686 - $0.0513 - - -
</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 21, 1993 (commencement of
operations), to September 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Six Months Mentor Municipal Income Portfolio
Ended Year Year Year Year
3/31/96 Ended Ended Ended Ended
(Unaudited) 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 $ 14.92 $ 14.42 $ 16.05 $ 14.76 $ 14.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.41 0.81 0.82 0.92 0.32
Net realized and unrealized gain (loss) on
investments 0.04 0.51 (1.54 ) 1.32 0.47
Total from investment operations 0.45 1.32 (0.72 ) 2.24 0.79
LESS DISTRIBUTIONS
Dividends from net investment income (0.41) (0.82 ) (0.81 ) (0.92 ) (0.32)
Distributions in excess of net investment
income - - - (0.03 ) -
Distributions from capital gains - - (0.10 ) - -
Distributions in excess of capital gains - - - - -
Total distributions (0.41) (0.82 ) (0.91 ) (0.95 ) (0.32)
NET ASSET VALUE, END OF PERIOD $ 14.96 $ 14.92 $ 14.42 $ 16.05 $ 14.76
Total Return 3.03% 9.46 % (4.83 %) 16.00% 5.34%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $19,951 $20,460 $25,056 $29,245 $ 18,801
Ratio of expenses to average net assets 1.21%(a) 1.43 % 1.24 % 0.71% 0.00%(a)
Ratio of expenses to average net asset
excluding waiver 1.21%(a) 1.43 % 1.33 % 1.39% 1.26%(a)
Ratio of net investment income to average net
assets 5.48%(a) 5.56 % 5.43 % 5.92% 6.21%(a)
Portfolio turnover rate 8% 43 % 87 % 88% 0%
Average commission rate on portfolio
transactions - - - - -
</TABLE>
68
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES (continued)
<TABLE>
<CAPTION>
Mentor
Short-Duration
Mentor Quality Income Portfolio Income Portfolio
Six Months Six Months
Ended Year Year Year Year Ended Period
3/31/96 Ended Ended Ended Ended 3/31/96 Ended
(Unaudited) 9/30/95 9/30/94 9/30/93 9/30/92** (Unaudited) 9/30/95*
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.29 $ 12.75 $ 14.04 $ 14.39 $ 14.30 $ 12.68 $ 12.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.45 0.84 0.84 1.06 0.44 0.42 0.22
Net realized and unrealized gain (loss)
on investments (0.14) 0.61 (1.30) (0.31 ) 0.09 (0.05) (0.03)
Total from investment operations 0.31 1.45 (0.46) 0.75 0.53 0.37 0.19
LESS DISTRIBUTIONS
Dividends from net investment income (0.45) (0.85 ) (0.83) (1.06 ) (0.44) (0.39) (0.22)
Distributions in excess of net investment
income - (0.06 ) - (0.04 ) - - (0.03)
Distributions from capital gains - - - - - - -
Distributions in excess of capital gains - - - - - - -
Total distributions (0.45) (0.91 ) (0.83) (1.10 ) (0.44) (0.39) (0.25)
NET ASSET VALUE, END OF PERIOD $ 13.15 $ 13.29 $ 12.75 $ 14.04 $ 14.39 $ 12.66 $ 12.68
Total Return 2.30% 11.82 % (3.39)% 5.41% 3.37% 2.98% 1.51%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $ 23,242 $24,472 $30,142 $47,780 $ 36,740 $ 3,457 $ 1,002
Ratio of expenses to average net assets 1.07%(a) 1.32% 1.38% 1.04% 0.36%(a) 0.86%(a) 0.71%(a)
Ratio of expenses to average net asset
excluding waiver 1.15%(a) 1.36% 1.39% 1.22% 1.21%(a) 1.34%(a) 1.00%(a)
Ratio of net investment income to average
net assets 6.67%(a) 6.73% 6.33% 7.31% 8.00%(a) 5.77%(a) 4.10%(a)
Portfolio turnover rate 137% 368% 455% 102% 9% 143% 126%
Average commission rate on portfolio
transactions - - - - - - -
</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.
69
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Growth Portfolio
Six Months
Ended Year Year Year Year Year
3/31/96 Ended Ended Ended Ended Ended
(Unaudited) 9/30/95* 12/31/94 12/31/93 12/31/92 12/31/91
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.05 $ 12.15 $ 13.78 $ 12.81 $ 12.16 $ 8.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.07) (0.13) (0.15) (0.08) (0.06) (0.09)
Net realized and unrealized gain
(loss) on investments 2.16 4.03 (0.47) 2.07 1.94 4.30
Total from investment operations 2.09 3.90 (0.62) 1.99 1.88 4.21
LESS DISTRIBUTIONS
Dividends from net investment income - - - - - -
Distributions in excess of net
investment income - - - - - -
Distributions from capital gains (1.74) - (1.00) (1.02) (1.23) (0.42)
Distributions in excess of capital
gains - - (0.01) - - -
Total distributions (1.74) - (1.01) (1.02) (1.23) (0.42)
NET ASSET VALUE, END OF PERIOD $ 16.40 $ 16.05 $ 12.15 $ 13.78 $ 12.81 $ 12.16
Total Return 14.93% 32.10% (4.48%) 15.60% 15.46% 50.30%
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $ 303,379 $246,326 190,126 $186,978 $136,053 $ 108,719
Ratio of expenses to average net assets 2.05%(a) 2.08%(a) 2.01% 2.02% 2.05% 2.17%
Ratio of expenses to average net asset
excluding waiver 2.05%(a) 2.08%(a) 2.01% 2.02% 2.05% 2.17%
Ratio of net investment income (loss)
to average net assets (1.01%)(a) (1.20%)(a) (1.20%) (1.12%) (0.76%) (0.80%)
Portfolio turnover rate 51% 70% 77% 64% 50% 40%
Average commission rate on portfolio
transactions $ 0.0549 - - - - -
</TABLE>
70
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES (continued)
<TABLE>
<CAPTION>
Mentor Perpetual Global Portfolio
Six Months
Ended Year Year
3/31/96 Ended Ended
(Unaudited) 9/30/95 9/30/94(c)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.67 $ 14.15 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.04) (0.05) (0.04)
Net realized and unrealized gain
(loss) on investments 1.75 1.57 0.01
Total from investment operations 1.71 1.52 (0.03)
LESS DISTRIBUTIONS
Dividends from net investment income - - -
Distributions in excess of net
investment income - - -
Distributions from capital gains (0.80) - -
Distributions in excess of capital
gains - - -
Total distributions (0.80) - -
NET ASSET VALUE, END OF PERIOD $ 16.58 $ 15.67 $ 14.15
Total Return 11.47% 10.74% (0.21%)
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $23,509 $12,667 $ 7,987
Ratio of expenses to average net assets 2.73%(a) 2.72% 2.79%(a)
Ratio of expenses to average net asset
excluding waiver 2.73%(a) 2.79% 3.93%(a)
Ratio of net investment income (loss)
to average net assets (1.24%)(a) (0.40%) (0.82%)(a)
Portfolio turnover rate 70% 155% 2%
Average commission rate on portfolio
transactions $0.0306 - -
</TABLE>
71
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES (continued)
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
Six Months
Ended Year Year Year Year
3/31/96 Ended Ended Ended Ended
(Unaudited) 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 $ 15.79 $ 14.80 $ 15.23 $ 14.22 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.02) 0.25 (0.04) 0.05 0.46
Net realized and unrealized gain
(loss) on investments 1.98 2.53 (0.26) 1.02 0.04
Total from investment operations 1.96 2.78 (0.30) 1.07 0.50
LESS DISTRIBUTIONS
Dividends from net investment income - - - (0.05) (0.46)
Distributions in excess of net
investment income - - - (0.01) -
Distributions from capital gains (0.50) (1.79) (0.13) - -
Distributions in excess of capital
gains - - - - -
Total distributions (0.50) (1.79) (0.13) (0.06) (0.46)
NET ASSET VALUE, END OF PERIOD $ 17.25 $ 15.79 $ 14.80 $ 15.23 $ 14.22
Total Return 12.72% 19.26% (2.00%) 7.52% 0.61%
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $61,442 $57,648 $41,106 $57,030 $ 25,468
Ratio of expenses to average net assets 2.19%(a) 2.56% 2.46% 2.24% 1.86%(a)
Ratio of expenses to average net asset
excluding waiver 2.19%(a) 2.56% 2.46% 2.34% 2.16%(a)
Ratio of net investment income (loss)
to average net assets (0.29%)(a) (0.41%) (0.22%) 0.21% 0.83%(a)
Portfolio turnover rate 45% 157% 149% 192% 61%
Average commission rate on portfolio
transactions $0.0693 - - - -
</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 30, 1994 (commencement of
operations), to September 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Strategy Portfolio
Six Months
Ended Period Year Year
3/31/96 Ended Ended Ended
(Unaudited) 9/30/95* 9/30/94 9/30/93***
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.21 $ 12.24 $ 12.70 $ 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.05) - (0.06) -
Net realized and unrealized gain (loss)
on investments 1.55 2.97 (0.40) 0.20
Total from investment operations 1.50 2.97 (0.46) 0.20
LESS DISTRIBUTIONS
Dividends from net investment income - - - -
Distributions in excess of net
investment income - - - -
Distributions from capital gains (0.02) - - -
Distributions in excess of capital gains - - - -
Total distributions (0.02) - - -
NET ASSET VALUE, END OF PERIOD $ 16.69 $ 15.21 $ 12.24 $ 12.70
Total Return 9.88% 24.26% (3.61%) 1.60%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 257,207 $ 224,643 $ 179,274 $ 122,177
Ratio of expenses to average net assets 2.21%(a) 2.08%(a) 2.19% 2.06%(a)
Ratio of expenses to average net asset
excluding waiver 2.21%(a) 2.08%(a) 2.19% 2.06%(a)
Ratio of net investment income (loss) to
average net assets (0.60%)(a) 0.25%(a) (0.54%) 0.08%(a)
Portfolio turnover rate 43% 122% 143% 0%
Average commission rate on portfolio
transactions $ 0.0686 - - -
</TABLE>
72
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES (continued)
<TABLE>
<CAPTION>
Mentor Income and Growth Portfolio
Six Months
Ended Year Year Year
3/31/96 Ended Ended Ended
(Unaudited) 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 $ 17.14 $ 15.28 $ 14.91 $ 14.14
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.11 0.28 0.21 0.05
Net realized and unrealized gain (loss)
on investments 1.68 2.14 0.61 0.77
Total from investment operations 1.79 2.42 0.82 0.82
LESS DISTRIBUTIONS
Dividends from net investment income (0.11) (0.28) (0.19) (0.05)
Distributions in excess of net
investment income - (0.03) - -
Distributions from capital gains (0.74) (0.25) (0.26) -
Distributions in excess of capital gains - - - -
Total distributions (0.85) (0.56) (0.45) (0.05)
NET ASSET VALUE, END OF PERIOD $ 18.08 $ 17.14 $ 15.28 $ 14.91
Total Return 10.89% 16.32% 5.66% 5.54%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $55,179 $46,678 $43,219 $ 18,127
Ratio of expenses to average net assets 2.10%(a) 2.43% 2.44% 2.31%(a)
Ratio of expenses to average net asset
excluding waiver 2.10%(a) 2.43% 2.44% 2.69%(a)
Ratio of net investment income (loss) to
average net assets 1.33%(a) 1.78% 1.15% 1.60%(a)
Portfolio turnover rate 41% 62% 78% 13%
Average commission rate on portfolio
transactions $0.0513 - - -
</TABLE>
73
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES (continued)
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
Six Months
Ended Year Year Year Year
3/31/96 Ended Ended Ended Ended
(Unaudited) 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 $ 14.95 $ 14.43 $ 16.06 $ 14.78 $ 14.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.38 0.74 0.74 0.82 0.29
Net realized and unrealized gain (loss)
on investments 0.03 0.52 (1.54) 1.32 0.49
Total from investment operations 0.41 1.26 (0.80) 2.14 0.78
LESS DISTRIBUTIONS
Dividends from net investment income (0.38) (0.74) (0.73) (0.82) (0.29)
Distributions in excess of net
investment income - - - (0.04) -
Distributions from capital gains - - (0.10) - -
Distributions in excess of capital gains - - - - -
Total distributions (0.38) (0.74) (0.83) (0.86) (0.29)
NET ASSET VALUE, END OF PERIOD $ 14.98 $ 14.95 $ 14.43 $ 16.06 $ 14.78
Total Return 2.72% 9.01% (5.34%) 15.27% 5.28%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 37,109 $39,493 $46,157 $50,976 $24,265
Ratio of expenses to average net assets 1.71%(a) 1.92% 1.74% 1.21% 0.50%(a)
Ratio of expenses to average net asset
excluding waiver 1.71%(a) 1.92% 1.86% 1.89% 1.76%(a)
Ratio of net investment income (loss) to
average net assets 4.98%(a) 5.07% 4.93% 5.42% 5.80%(a)
Portfolio turnover rate 8% 43% 87% 88% 0%
Average commission rate on portfolio
transactions - - - - -
</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, 1994.
(a) Annualized.
(b) Reflects operations for the period from May 21, 1993 (commencement of
operations), to September 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
73
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Quality Income Portfolio
Six Months
Ended Year Year Year Year
3/31/96 Ended Ended Ended Ended
(Unaudited) 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 $ 13.31 $ 12.76 $ 14.06 $ 14.40 $ 14.30
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.41 0.79 0.82 0.99 0.41
Net realized and unrealized gain (loss)
on investments (0.14) 0.61 (1.37) (0.31) 0.10
Total from investment operations 0.27 1.40 (0.55) 0.68 0.51
LESS DISTRIBUTIONS
Dividends from net investment income (0.41) (0.79) (0.75) (0.99) (0.41)
Distributions in excess of net
investment income - (0.06) - (0.03) -
Distributions from capital gains - - - - -
Distributions in excess of capital gains - - - - -
Total distributions (0.41) (0.85) (0.75) (1.02) (0.41)
NET ASSET VALUE, END OF PERIOD $ 13.17 $ 13.31 $ 12.76 $ 14.06 $ 14.40
Total Return (2.02%) 11.33% (3.97%) 4.86% 3.24%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $58,785 $62,155 $77,888 $127,346 $ 65,661
Ratio of expenses to average net assets 1.58%(a) 1.74% 1.88% 1.54% 0.83%(a)
Ratio of expenses to average net asset
excluding waiver 1.69%(a) 1.79% 1.90% 1.72% 1.67%(a)
Ratio of net investment income to average
net assets 6.18%(a) 6.24% 6.21% 6.81% 7.53%(a)
Portfolio turnover rate 137% 368% 455% 102% 9%
Average commission rate on portfolio
transactions - - - - -
</TABLE>
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
(a) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Short-Duration Income Portfolio
Six Months
Ended Period Year
3/31/96 Ended Ended
(Unaudited) 9/30/95* 9/30/94(d)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.67 $ 12.18 $ 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.36 0.59 0.41
Net realized and unrealized gain (loss) on investments (0.02) 0.52 (0.29)
Total from Investment Operations 0.34 1.11 0.12
LESS DISTRIBUTIONS
Dividends from net investment income (0.37) (0.59 ) (0.41)
Distributions in excess of net investment income - (0.03 ) (0.03)
Distributions from capital gains - - -
Distributions in excess of capital gains - - -
Total distributions (0.37) (0.62 ) (0.44)
NET ASSET VALUE, END OF PERIOD $ 12.64 $ 12.67 $ 12.18
Total Return 2.75% 9.22% 0.95%
Ratios/Supplemental Data
Net assets, end of period (in thousands) $25,273 $19,871 $ 17,144
Ratio of expenses to average net assets 1.16%(a) 1.20%(a) 1.29%(a)
Ratio of expenses to average net asset excluding waiver 1.64%(a) 1.70%(a) 1.29%(a)
Ratio of net investment income to average net assets 5.58%(a) 5.04%(a) 4.90%(a)
Portfolio turnover rate 143% 126% 166%
Average commission rate on portfolio transactions - - -
</TABLE>
* For the period from January 1, 1995 to September 30, 1995.
(a) Annualized.
(d) Reflects operations for the period from April 29, 1994 (commencement of
operations), to December 31, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED)
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. Mentor Funds consists of nine
separate Portfolios (hereinafter each individually referred to as a "Portfolio"
or collectively as the "Portfolios") at March 31, 1996, as follows:
Mentor Growth Portfolio (formerly
Mentor Growth Fund)
("Growth Portfolio")
Mentor Perpetual Global Portfolio
(formerly Cambridge Global Portfolio)
("Global 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 Municipal Income Portfolio
(formerly Cambridge Municipal
Income Portfolio)
("Municipal Income 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 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.
76
<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 in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles which
required 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 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,
77
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 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 Growth Portfolio, Strategy Portfolio and
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.
The average daily balance of reverse repurchase agreements outstanding for
Short-Duration Income Portfolio during the six months ended March 31, 1996, was
approximately $1,321,190 or $0.63 per share based on average shares outstanding
during the period at a
78
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
weighted average rate of 5.54%. The maximum amount of borrowings outstanding for
any day during the period was $8,001,222 (including accrued interest), as of
February 29, 1996, at an interest rate of 5.50% and was 22.32% of total assets.
(d) Security Transactions and Investment Income
Security transactions for the Portfolios are accounted for on trade date.
Dividend income is recorded on the ex-dividend date. Interest income (except for
Municipal Income Portfolio) is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium) on short-term
obligations, and interest earned on all other debt securities including original
issue discount as required by the Internal Revenue Code. Dividends to
shareholders and capital gain distributions, if any, are recorded on the
ex-dividend date.
Interest income for the Municipal Income Portfolio includes interest earned net
of premium, and original issue discount as required by the Internal Revenue
Code.
(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 be 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
79
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
$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 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 portfolios 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 six months ended March 31, 1996, Quality Income
Portfolio and Municipal Income Portfolio had realized losses of $421,502, and
$262,489 respectively on closed futures contracts.
80
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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. At March 31, 1996, the Quality Income Portfolio had open
U.S. Treasury Note futures contracts with an aggregate notional value of
$15,300,000. The Portfolio recorded unrealized losses of $390,266 on such
futures contracts.
(h) Options
In order to produce incremental earnings or protect against changes in the value
of portfolio securities, Quality Income Portfolio and Short-Duration Income
Portfolio may buy and sell put and call options, write covered call options on
portfolio securities and write cash-secured put options.
The Portfolios generally purchase put options or write covered call options to
hedge against adverse movements in the value of portfolio holdings. The
Portfolios may also use options for speculative purposes, although they do not
employ options for this at the present time. The Portfolios will segregate
assets to cover their 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 Portfolios 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 six months ended
March 31, 1996, Quality Income Portfolio and Short-Duration Income Portfolio had
realized losses of $38,603, and $10,016 respectively on closed options
contracts.
The risk in writing a call option is that the Portfolios give 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,
81
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
asset, or market index. Quality Income Portfolio and Short-Duration Income
Portfolio invest in mortgage security residual interests ("residuals") which are
considered derivative securities. The Portfolios' investment in residuals have
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 Portfolios have not incurred any indebtedness in the
course of making these residual investments; nor have the Portfolios' assets
been pledged to secure the indebtedness of the issuing structure or the
Portfolios' investment in the residuals. In consideration of the risk associated
with investment in residual securities, it is the Portfolios' policy to limit
their exposure at the time of purchase to no more than 20% of their total
assets. The Portfolios 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 Portfolios' 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 to Mentor. Capital gains
realized by each Portfolio, if any, are paid annually.
82
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4: INVESTMENT ADVISORY AND MANAGEMENT AND ADMINISTRATION AGREEMENTS
Commonwealth Advisors, Inc., (formerly Cambridge Investment Advisors, Inc.), the
Portfolios' investment adviser ("Investment Adviser"), receives for its services
an annual investment advisory fee not to exceed the following percentages of the
average daily net assets of the particular Portfolio: Capital Growth Portfolio,
0.80%; Quality Income Portfolio, 0.60%; Municipal Income Portfolio, 0.60%; and
Income and Growth Portfolio, 0.75%.
The Investment Adviser pays the sub-adviser to Municipal Income Portfolio an
annual fee of 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, 0.225% on the next $300
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 Global Portfolio has entered into an Investment Advisory Agreement with
Mentor Perpetual Advisors, L.L.C. ("Mentor Perpetual"). Mentor Perpetual is
owned equally by Mentor and Perpetual plc, a diversified financial services
holding company. Under this agreement, Mentor Perpetual's management fee is
accrued daily and paid monthly at an annual rate of 1.10% 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
83
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
and paid monthly at an annual rate of 0.50% applied to the average daily net
assets of the Portfolio.
For the six months ended March 31, 1996 the Investment Adviser and sub-advisers,
Charter, Wellesley and Commonwealth earned and voluntarily waived the following
advisory fees:
Adviser Adviser Fee Sub Adviser
Fee Voluntarily Fee
Portfolio Earned Waived Earned
Growth $1,001,608 - -
Global 129,333 - -
Capital Growth 351,830 - -
Strategy 1,050,443 - -
Income and Growth 263,827 - $ 109,237
Municipal Income 178,719 - 89,360
Quality Income 256,275 $42,713 -
Short-Duration Income 61,656 46,729 -
Administrative personnel and services are provided by Mentor, under an
Administration Agreement, at an annual rate of 0.10% of the average daily net
assets of each Portfolio. For the six months ended March 31, 1996, Mentor earned
the following administrative fees:
Administrative
Administrative Fee
Fee Voluntarily
Portfolio Earned Waived
Growth $143,087 -
Global 11,757 -
Capital Growth 43,979 -
Strategy 123,582 -
Income and Growth 35,177 -
Municipal Income 29,786 -
Quality Income 42,713 -
Short-Duration Income 11,149 $ 11,149
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
84
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 six months ended March 31, 1996, 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 Distributors, Inc.
("Mentor Distributors") (formerly, Cambridge Distributors, Inc.) a wholly-owned
subsidiary of Mentor, 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 six months ended March 31, 1996, distribution fees and shareholder servicing
fees were as follows:
85
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Shareholder-Servicing Fees
Distribution
Portfolio Fees*** Class A Class B
Growth $987,902 $30,624 $327,093
Global 60,664 7,853 21,541
Capital Growth 219,956 36,105 73,842
Strategy 882,532 15,733 293,221
Income and Growth 186,400 25,286 62,656
Municipal Income 97,450 25,987 48,479
Quality Income 153,257 30,207 76,574
Short-Duration Income 33,448 3,709 27,119
NOTE 6: INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), for the
six months ended March 31, 1996, were as follows:
Portfolio Purchases Sales
Growth $143,518,168 $105,353,531
Global 24,216,755 14,828,086
Capital Growth 37,644,773 40,829,847
Strategy 117,610,477 89,343,587
Income and Growth 33,407,301 22,887,335
Municipal Income 4,361,813 6,255,057
Quality Income 113,104,626 113,713,712
Short-Duration Income 45,905,812 37,698,262
NOTE 7: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to
$237,561,456, for the Growth Portfolio, $77,811,240 for the Capital Growth
Portfolio, $209,262,684 for the Strategy Portfolio, $68,449,356 for the Income
and Growth Portfolio, $28,363,696 for the Global Portfolio, $82,420,193 for the
Quality Income Portfolio, $28,908,079 for the Short-Duration Income Portfolio
and $53,736,283 for Municipal Income Portfolio at March 31, 1996. Gross
unrealized appreciation and depreciation of investments at March 31, 1996, based
on such costs were as follows:
86
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Gross Gross Net
Unrealized Unrealized Unrealized
Portfolio Appreciation Depreciation Appreciation
Growth $102,489,437 $(5,062,450) $ 97,426,987
Global 3,434,906 (639,020) 2,795,885
Capital Growth 13,628,991 (273,993) 13,354,998
Strategy 63,276,684 (2,047,285) 61,229,399
Income and Growth 10,175,530 (1,676,830) 8,498,700
Municipal Income 3,512,062 (746,135) 2,765,927
Quality Income 562,603 (1,068,372) (505,769)
Short-Duration Income 45,368 (405,552) (360,184)
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 March
31, 1996 Global Portfolio had outstanding forward contracts as set forth below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Contracts In Exchange Appreciation/
Settlement Date to Deliver/Receive For (Depreciation)
<S> <C> <C> <C> <C>
Purchases
4/2/96 British Pound 86,100 $ 131,410 $ (21)
4/1/96 Japanese Yen 11,306,346 105,524 (923)
Sales
4/1/96 Japanese Yen 5,136,710 47,942 268
Net Unrealized Depreciation
on Forward Contracts $ (676)
</TABLE>
87
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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>
Mentor Growth Portfolio
Six Months Period
Ended 3/31/96 Ended 9/30/95
Shares Dollar Shares Dollar
<S> <C> <C> <C> <C>
CLASS A*:
Shares sold 665,581 $ 10,147,402 1,270,059 $ 19,846,126
Shares issued upon reinvestment of distributions 159,331 2,229,040 - -
Shares redeemed (370,702) (5,641,814) (3,410) (53,044)
Change in net assets from capital share
transactions 454,210 $ 6,734,628 1,266,649 $ 19,793,082
CLASS B**:
Shares sold 1,971,825 $ 29,883,780 2,282,441 $ 32,813,557
Shares issued upon reinvestment of distributions 1,885,567 26,284,995 - -
Shares redeemed (712,949) (10,923,824) (2,585,359) (37,845,400)
Change in net assets from capital share
transactions 3,144,443 $ 45,244,951 (302,918) $ (5,031,843)
</TABLE>
<TABLE>
<CAPTION>
Mentor Perpetual Global Portfolio
Six Months Year
Ended 3/31/96 Ended 9/30/95
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 110,262 $ 1,801,043 142,470 $ 2,073,646
Shares issued upon reinvestment of distributions 21,809 331,048 - -
Shares redeemed (55,813) (899,374) (335,189) (4,810,857)
Change in net assets from capital share
transactions 76,258 $ 1,232,717 (192,719) $(2,737,211)
CLASS B:
Shares sold 641,205 $10,291,399 417,981 $ 6,078,915
Shares issued upon reinvestment of distributions 45,012 672,932 - -
Shares redeemed (76,295) (1,215,371) (174,218) (2,478,417)
Change in net assets from capital share
transactions 609,922 $ 9,748,960 243,763 $ 3,600,498
</TABLE>
88
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
Six Months Year
Ended 3/31/96 Ended 9/30/95
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 82,781 $ 1,373,689 100,226 $ 949,902
Shares issued in connection with acquisition of
Mentor/Cambridge Growth Portfolio~ - - 671,791 10,681,477
Shares issued upon reinvestment of distributions 53,223 849,967 125,218 1,954,221
Shares redeemed (273,374) (4,509,483) (473,840) (7,405,251)
Change in net assets from capital share
transactions (137,370) $(2,285,827) 423,395 $ 6,180,349
CLASS B:
Shares sold 256,003 $ 4,175,801 329,014 $ 1,869,220
Shares issued in connection with acquisition of
Mentor/Cambridge Growth Portfolio~ - - 1,255,213 19,669,182
Shares issued upon reinvestment of distributions 111,275 1,748,137 256,857 3,961,731
Shares redeemed (456,718) (7,378,418) (968,058) (15,000,398)
Change in net assets from capital share
transactions (89,440) $(1,454,480) 873,026 $ 10,499,735
</TABLE>
<TABLE>
<CAPTION>
Mentor Strategy Portfolio
Six Months Period
Ended 3/31/96 Ended 9/30/95
Shares Dollar Shares Dollar
<S> <C> <C> <C> <C>
CLASS A*:
Shares sold 245,827 $ 3,785,238 690,271 $ 10,122,356
Shares issued upon reinvestment of distributions 992 14,915 - -
Shares redeemed (114,135) (1,759,862) (1,062) (15,555)
Change in net assets from capital share
transactions 132,684 $ 2,040,291 689,209 $ 10,106,801
CLASS B**:
Shares sold 1,530,318 $ 23,486,662 2,247,821 $ 31,437,475
Shares issued upon reinvestment of distributions 19,535 292,836 1,708 20,979
Shares redeemed (913,087) (14,247,068) (2,121,049) (29,118,194)
Change in net assets from capital share
transactions 636,766 $ 9,532,430 128,480 $ 2,340,260
</TABLE>
89
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Income and Growth Portfolio
Six Months Year
Ended 3/31/96 Ended 9/30/95
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 69,584 $ 1,210,224 255,128 $ 3,928,730
Shares issued upon reinvestment of distributions 58,804 983,372 49,436 741,971
Shares redeemed (57,553) (988,990) (307,376) (4,818,528)
Change in net assets from capital share
transactions 70,835 $ 1,204,606 (2,812) $ (147,827)
CLASS B:
Shares sold 412,432 $ 7,133,998 602,055 $ 9,529,693
Shares issued upon reinvestment of distributions 134,192 2,241,138 98,685 1,467,195
Shares redeemed (218,737) (3,759,163) (806,196) (12,489,370)
Change in net assets from capital share
transactions 327,887 $ 5,615,973 (105,456) $ (1,492,482)
</TABLE>
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
Six Months Year
Ended 3/31/96 Ended 9/30/95
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A
Shares sold 20,446 $ 311,492 71,110 $ 1,021,048
Shares issued upon reinvestment of distributions 18,257 277,956 45,425 658,265
Shares redeemed (75,914) (1,151,996) (483,463) (6,926,047)
Change in net assets from capital share
transactions (37,211) $ (562,548) (366,928) $ (5,246,734)
CLASS B:
Shares sold 87,255 $ 1,327,618 247,851 $ 3,605,763
Shares issued upon reinvestment of distributions 36,032 549,508 99,198 1,439,916
Shares redeemed (288,126) (4,384,853) (903,907) (13,100,688)
Change in net assets from capital share
transactions (164,839) $(2,507,727) (556,858) $ (8,055,009)
</TABLE>
90
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Mentor Quality Income Portfolio
Six Months Year
Ended 3/31/96 Ended 9/30/95
Shares Dollars Shares Dollars
<S> <C> <C> <C> <C>
CLASS A:
Shares sold 95,332 $ 1,280,815 132,285 $ 1,706,716
Shares issued upon reinvestment of distributions 33,076 447,139 89,969 1,159,149
Shares redeemed (201,932) (2,720,661) (745,107) (9,570,406)
Change in net assets from capital share
transactions (73,524) $ (992,707) (522,853) $ (6,704,541)
CLASS B:
Shares sold 313,692 $ 4,240,173 421,513 $ 5,506,753
Shares issued upon reinvestment of distributions 82,683 1,119,148 223,602 2,883,354
Shares redeemed (602,878) (8,121,282) (2,078,944) (26,675,096)
Change in net assets from capital share
transactions (206,503) $(2,761,961) (1,433,829) $(18,284,989)
</TABLE>
<TABLE>
<CAPTION>
Mentor Short-Duration Income Portfolio
Six Months Period
Ended 3/31/96 Ended 9/30/95
Shares Dollar Shares Dollar
<S> <C> <C> <C> <C>
CLASS A*:
Shares sold 237,635 $ 3,045,519 80,087 $ 1,015,595
Shares issued upon reinvestment of distributions 4,096 52,608 322 4,089
Shares redeemed (47,618) (611,070) (1,399) (17,786)
Change in net assets from capital share
transactions 194,113 $ 2,487,057 79,010 $ 1,001,898
CLASS B**:
Shares sold 726,866 $ 9,306,173 1,116,509 $ 14,138,694
Shares issued upon reinvestment of distributions 42,794 548,044 56,501 708,003
Shares redeemed (339,243) (4,335,410) (1,011,667) (12,759,888)
Change in net assets from capital share
transactions 430,417 $ 5,518,807 161,343 $ 2,086,809
</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.
*** Distribution fees are only applicable to Class B shares.
~ 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.
91
<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
Carpenter Company
TROY A. PEERY, 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
Senior 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.
92
<PAGE>
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1-800-382-0016
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distribution to prospective
investors only when preceded or
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Prospectus, which contains
complete information about
fees, sales charges and
expenses. Please read it
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