MENTOR FUNDS
-------------------------------------
SEMI-ANNUAL REPORT
-------------------------------------
March 31, 1997
[LOGO]
MENTOR INVESTMENT GROUP
<PAGE>
MENTOR FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
------------------
<S> <C>
Message from the Chairman and President.................................................. 1
Managers' Commentaries
Growth Portfolio....................................................................... 3
Global Portfolio....................................................................... 7
Capital Growth Portfolio............................................................... 11
Strategy Portfolio..................................................................... 14
Income and Growth Portfolio............................................................ 17
Municipal Income Portfolio............................................................. 20
Quality Income & Short-Duration Income Portfolios...................................... 23
Portfolios of Investments
Growth Portfolio....................................................................... 26
Global Portfolio....................................................................... 31
Capital Growth Portfolio............................................................... 40
Strategy Portfolio..................................................................... 42
Income and Growth Portfolio............................................................ 46
Municipal Income Portfolio............................................................. 50
Quality Income Portfolio............................................................... 55
Short-Duration Income Portfolio........................................................ 58
Statements of Assets and Liabilities..................................................... 60
Statements of Operations................................................................. 62
Statements of Changes in Net Assets...................................................... 64
Financial Highlights..................................................................... 67
Notes to Financial Statements............................................................ 78
Changes to Non-Fundamental Investment Restrictions....................................... 95
Shareholder Information.................................................................. Inside back cover
</TABLE>
<PAGE>
MENTOR FUNDS
MESSAGE FROM THE CHAIRMAN AND PRESIDENT
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
It is our privilege to send you Mentor Funds' Semi-Annual Report for the
six-month period ended March 31, 1997. Mentor Funds is part of Mentor Investment
Group,* an investment management firm with more than $10 billion in assets under
management. Mentor provides a choice of seven different investment styles to a
broad range of investors that include corporations, foundations, endowments,
municipalities, public funds, and individual investors.
We are happy to report that we are introducing an international growth fund to
investors. The Mentor Perpetual International Portfolio seeks the opportunity
for long-term growth of capital through international equities. The fund is
managed
MENTOR INVESTMENT GROUP
[GRAPH]
SHORT-DURATION INCOME PORTFOLIO
a short-term bond fund
QUALITY INCOME PORTFOLIO
an intermediate-term bond fund
MUNICIPAL INCOME PORTFOLIO
a tax-free bond fund
INCOME & GROWTH PORTFOLIO
a balanced fund
STRATEGY PORTFOLIO
a tactical asset allocation high total return fund
CAPITAL GROWTH PORTFOLIO
a large-capitalization, high-quality growth fund
GLOBAL PORTFOLIO
a global growth fund
INTERNATIONAL PORTFOLIO
an international growth fund
GROWTH PORTFOLIO
a small-to-mid-capitalization growth fund
* Mentor Investment Advisors, LLC/dba Mentor Investment Group, LLC
1
<PAGE>
MENTOR FUNDS
MESSAGE FROM THE CHAIRMAN AND PRESIDENT (CONTINUED)
- --------------------------------------------------------------------------------
by the same outstanding firm responsible for our Global
Portfolio -- Perpetual -- the award-winning British investment advisor,
established in 1973, and today, responsible for more than $10 billion in assets.
As you may recall, Perpetual's long experience in global and international
investing was made available for the first time to American investors through a
joint venture between our two firms, which led to the creation of Mentor
Perpetual Advisors. We welcome Perpetual once again as we introduce the
international fund.
In the pages that follow, you will find financial statements for the Portfolios
of Mentor Funds, in addition to commentaries from each of the management teams
regarding their investment strategies and outlooks.
Thank you for your continuing investment in Mentor Funds.
Sincerely,
/s/ DANIEL J. LUDEMAN /s/ PAUL F. COSTELLO
Daniel J. Ludeman Paul F. Costello
CHAIRMAN PRESIDENT
[LOGO]
MENTOR INVESTMENT GROUP
THE MENTOR MISSION
OUR MISSION IS TO PROVIDE PROFESSIONAL INVESTMENT MANAGEMENT SERVICES THROUGH A
FIRM THAT IS SECOND TO NONE IN THE QUALITY OF ITS INVESTMENT PROCESS, THE SKILL
AND TRAINING OF ITS PROFESSIONALS, AND THE COMMITMENT, SHARED BY ALL ITS
ASSOCIATES, TO DELIVER THE HIGHEST LEVEL OF SERVICE AND ETHICAL BEHAVIOR TO
CLIENTS.
FOR MORE INFORMATION AND A PROSPECTUS FOR MENTOR FUNDS, PLEASE CALL US,
(800)382-0016, OR CONTACT YOUR FINANCIAL CONSULTANT. THE PROSPECTUS CONTAINS
COMPLETE INFORMATION ABOUT FEES, SALES CHARGES, AND EXPENSES. PLEASE READ IT
CAREFULLY BEFORE INVESTING OR SENDING MONEY.
2
<PAGE>
MANAGERS' COMMENTARY
MENTOR GROWTH PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
Since reaching their peak in late summer, rapidly growing small-capitalization
companies have generally fallen out of favor. Investors have focused instead on
better-known large-capitalization companies. As a result, the last six months
have been an extremely difficult period for small-capitalization growth funds,
and the Mentor Growth Portfolio is no exception.
The recent performance of the Portfolio belies the general economic well-being
of the companies held and, in reality, appears to have had little to do with
fundamentals. Over the past year the strong returns that have been achieved by
the major market indexes have been heavily concentrated in the largest
companies. In part this situation has arisen as a result of the significant fund
inflows to index funds. The impact is extraordinarily clear when the performance
of the capitalization-weighted OTC composite (NASDAQ) is compared to the same
period of performance, excluding the 100 largest companies.*
CHART I: RELATIVE PERFORMANCE
<TABLE>
<CAPTION>
Ex. top 100
NASDAQ cap.-weighted
Period as reported companies
<S> <C>
1996 22.7% 5.5%
1996 (first half) 12.6% 7.6%
1996 (second half) 10.0% -1.9%
</TABLE>
Source: Smith Barney & Co.**
Excluding the 100 largest companies in NASDAQ demonstrates how narrow
performance in the small-capitalization market was. As Chart I indicates, the
performance of the remaining 1,700 companies in the NASDAQ composite
significantly underperformed the broader markets. It appears that a similar
concentration in performance took place in the first quarter of 1997.
Often during periods of uncertainty in the financial markets, it is helpful to
return to basics. Generally speaking, stocks are influenced by three factors:
(Bullet) (1) Earnings growth
(Bullet) (2) Valuations (especially price/earning ratios relative to earnings
growth)
(Bullet) (3) Sentiment
The Growth Portfolio may be attractively positioned in each of these areas.
CHART II: EARNINGS GROWTH
<TABLE>
<CAPTION>
Mentor Growth Portfolio S&P 500
<S> <C>
43.4% (act. 1996) 9.0% (act. 1996)
37.5% (est. 1997) 7.6% (est. 1997)
37.5% (est. 1998) 6.0% (est. 1998)
</TABLE>
Source: I/B/E/S***
As Chart II demonstrates, actual earnings growth during 1996 for the stocks held
in the Mentor Growth Portfolio averaged 43.4%, relative to actual earnings
growth for the S&P 500 of 9.0%.@ Similar differentials in growth
3
<PAGE>
MANAGERS' COMMENTARY
MENTOR GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
rates for the holdings of Mentor Growth Portfolio and for the S&P 500 are also
expected for both 1997 and 1998. Although it is not unusual for companies like
those in our Portfolio to have higher growth rates than the larger companies in
the S&P 500, it is surprising that investors would not have to pay a significant
market premium to purchase them.
(2) VALUATION
Comparing price/earnings ratios to earnings growth rates is a common way of
judging the relative attractiveness of securities. When judged on a relative
price/earnings ratio basis, the Mentor Growth Portfolio displays attractive
characteristics relative to the S&P 500. In June, 1996, the Growth Portfolio was
trading at 27.5x estimated 1996 earnings, compared to 17.5x for the S&P. By the
end of the first quarter of 1997 the respective P/E multiples for the Growth
Portfolio and the S&P 500 were more closely aligned at 23.6x and 18.0x 1997
earnings. Comparing current P/Es to 1998 estimated earnings, the Growth
Portfolio trades at a multiple of 17.0x, below the 17.2x for the S&P. From an
historical perspective, these price/earnings multiples appear to represent
unusually attractive relative valuations.
(3) SENTIMENT
In terms of sentiment, the characteristics are somewhat harder to measure but
still favor small-capitalization stocks. Negative press reviews about them
usually occur at valuation extremes and generally mark a good point of entry for
stock purchases. Such seems to be the case now with speculation almost
non-existent in the small-capitalization sector. This lack of speculation is
confirmed by the fact that after six months of small-capitalization stock
underperformance, the pricing of initial public offerings (IPOs) remains
depressed, a different situation from the summer of 1996 when
small-capitalization stocks appeared more fully valued.
Given the historical relationship between large-and small-company
earnings-growth rates and price-earnings ratios, the current period may be an
aberration.
Thank you for your continuing support.
Sincerely,
The Small/Mid-Capitalization
Growth Management Team
* The NASDAQ Composite Index is a measure of all NASDAQ National Market System
(NASDAQ/NMS) issues, exclusive of warrants, and all domestic common stocks
traded in the regular NASDAQ market that are not part of the NASDAQ/NMS. The
NASDAQ Composite Index is market-value-weighted. The representation of each
security in the Index is proportional to its last sale price (NASDAQ/NMS) or
bid price (regular NASDAQ) times the total number of shares outstanding,
relative to the total market value of the Index.
4
<PAGE>
MANAGERS' COMMENTARY
MENTOR GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
** Smith Barney & Co. is a nationally-recognized financial services provider.
*** I/B/E/S is the Institutional Brokers Estimate System, a tabulator and
provider of institutional earnings estimates and economic forecasts to the
investment community.
@ 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 the S&P
500 Index.
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Growth Portfolio Class A and the Russell 2000.
[CHART]
Class A Russell 2,000
6/5/95 $ 9,425 $10,000
6/30/95 9,859 10,519
9/30/95 11,251 11,558
9/30/96 14,640 13,076
3/31/97 13,042+ 13,044~
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception++
Class A (6.08%) 15.68%
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 THESE 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 3,000 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 3/31/97.
5
<PAGE>
MANAGERS' COMMENTARY
MENTOR GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
Comparison of change in value of a hypothetical $10,000 investment in Mentor
Growth Portfolio Class B shares and the Russell 2000.
[CHART]
Class B Russell 2000~
3/31/87 $10,000 $10,000
12/31/87 7,416 7,339
12/31/88 8,923 9,166
12/31/89 10,470 10,654
12/31/90 9,289 8,576
12/31/91 13,958 12,525
12/31/92 16,132 14,831
12/31/93 18,649 17,636
12/31/94 17,814 17,314
12/31/95 24,836 21,767
9/31/96 30,163 24,626
3/31/97 26,742+ 24,567~
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year 5-Year 10-Year
Class B (4.51%) 12.67% 10.34%
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR 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 3,000 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.
6
<PAGE>
MANAGERS' COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
In general, world markets were strong during the six months ended March 31,
1997, although the returns achieved in some overseas markets were reduced by the
strength of the dollar. The Morgan Stanley Capital International (MSCI) World
Index rose by 5.1%, while the MSCI EAFE (Europe, Australia, the Far East) Index
was held back by poor Japanese performance and rose by 0.1%.
UNITED STATES
With interest-rate fears receding as inflation rates remained low and corporate
profit growth continued satisfactory, stocks powered ahead on Wall Street. The
market initially shrugged off Fed Chairman Greenspan's December warnings about
"irrational exuberance" and the inevitability of the business cycle reasserting
itself. A 25-basis point increase in the Fed Funds rate late in March, however,
triggered a correction in stock prices. Even so, the S&P 500 Index managed a
11.3% rise over the six months.
EUROPE
Most European markets were strong, as well. Several factors were at work.
Central banks kept monetary policy loose as economies were sluggish and
unemployment high. Bond markets received a further boost as investors became
more convinced that EMU -- European Monetary Union -- was a likelihood.
Throughout the region bond yields converged on German rates, traditionally the
lowest on the continent, save Switzerland's, because of the Bundesbank's success
in holding inflation down. While interest rates fell, corporate earnings rose.
The strength of the dollar improved export profitability. Moreover, many
European companies began to enjoy the benefits of restructuring as management,
at last, tried to come to grips with inflated payrolls. Over the period the MSCI
Europe ex. United Kingdom Index was up 14.7% in dollar terms.
UNITED KINGDOM
British equities did not have the benefit of falling interest rates and strong
bond markets. Investors also had to come to terms with the almost certain advent
of a Labor government later in 1997 after 18 years of pro-free market Tory rule.
A strong sterling damaged manufacturing sector profits as well. Even so, British
shares moved ahead as the economy enjoyed the highest rate of growth, the lowest
unemployment and the strongest currency of any major European economy -- an
experience unique in post-war history. Consequently, in dollar terms, the MSCI
UK Index rose 15.9%.
JAPAN
Unlike the stock markets of the industrialized West, the Tokyo Stock Exchange
slumped. Economic growth appeared to have peaked in the first half of 1996, and
investors began to fear the economy would slide back into
7
<PAGE>
MANAGERS' COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
recession in 1997 after the government introduced a fiscally-contractionary
budget. The pace of corporate profit recovery was very disappointing,
particularly given the major boost exporters received from the weak yen --
evidence that companies had abandoned any pretense at restructuring as soon as
the economy showed any signs of life. Furthermore, the weakness of the financial
sector, a significant factor for the past five years, continued to drain
investor confidence. With property prices falling back to 1986 levels, a huge
number of real estate and construction companies were pushed to the brink of
collapse, jeopardizing the survival of much of the banking system, which is
heavily-exposed to property. Two of Japan's leading 20 banks -- the group which
the Bank of Japan has identified as "too big to fail" -- had to seek
restructuring. Against this gloomy background, it is hardly surprising that the
MSCI Japan Index fell by 21.9% in dollar-adjusted terms.
ASIA (EXCLUDING JAPAN)
Asian stock markets were mixed. The largest, Hong Kong, was strong, with the
Hang Seng index up by 5.1% in dollar terms. The market was boosted by the
revival of the Chinese economy and by the easing of Chinese monetary policy,
especially as an increasing amount of Chinese money found its way into Hong Kong
stocks and property. The China-related Taiwanese market was also strong. In
contrast, Singapore and Korea were listless, both afflicted by an
over-commitment to the electronics industry. Thailand was in a virtual state of
collapse, as efforts to maintain a stable currency brought bust conditions to
the property market after years of boom. Much of Thailand's finance and banking
sectors was brought to its knees as a result. Malaysia and the Philippines
enjoyed bullish stock markets for most of the period, although more recently
investors began to fear that property bubbles might burst there as well. Overall
the MSCI Pacific ex. Japan Free Index rose by 3.4%.
LATIN AMERICA
Latin American markets were virtually all strong. They were buoyed up by an
influx of foreign capital as in 1993, but unlike 1993 fundamentals looked much
better balanced. Corporate profits growth was strong, and P/Es were among the
lowest internationally. Governments were successful in getting public sector
expenditure under control, and in reducing inflation rates to less than 10% per
annum in contrast to the 10% per month more typically experienced in the past.
Currencies, with the possible exception of the Mexican peso, looked
well-supported, as exports grew healthily. All this good news was reflected in a
rise of 18.7% in the MSCI EMF Latin America Index.
8
<PAGE>
MANAGERS' COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
OUTLOOK
Given the tremendous gains in Wall Street between last July's low point and this
February's high, a period of correction to American stock prices is hardly
unexpected, particularly given the rich valuation of many stocks and the near
certainty that the Fed will tighten again. The question for investors must be
whether or not weakness in Wall Street must inevitably bring down markets in
London or Frankfurt, Kuala Lumpur or Santiago. We are optimistic that markets
can de-couple from Wall Street to a large extent.
The industrialized economy, and stock market, nearest in cyclical terms to
America's is the UK's. In contrast to the US where stocks look expensive
relative to bond yields, UK stocks look cheap relative to UK bond yields and UK
bonds themselves are among the most attractively valued bonds available
globally. Elsewhere in Europe the cycle of economic and corporate recovery has
only just begun. In particular, corporate re-structuring, which has done so much
to fuel the American bull market of the '90s, has only started to affect profits
and stock values on continental Europe.
Japan, if anything, has been negatively correlated with Wall Street in recent
years. While serious structural problems remain and will put a relatively low
ceiling on stock prices, a sell-off in American securities prices might actually
be to Tokyo's benefit. Japanese institutions might be inclined to bring home
some of the billions invested abroad over the past year or so.
The emerging markets in the short term will necessarily be affected by movements
in US interest rates and stock prices. Most of these countries link their
currencies to a greater or lesser extent to the dollar, and portfolio flows from
the states are one of the principal sources of buying demand in their stock
markets. However, most Asian and Latin American markets have seen their P/E
multiples decline considerably since 1993, making them less vulnerable to a
sell-off by disenchanted foreign investors as happened in 1994 when the Fed
tightened. In general, stock valuations are well below those prevailing in the
industrialized nations. Today emerging markets offer superior rates of growth at
discount valuations -- a compelling opportunity for long-term investors.
Sincerely,
The Mentor Perpetual Global/
International Growth Management Team
9
<PAGE>
MANAGERS' COMMENTARY
MENTOR PERPETUAL GLOBAL PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
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.~
[CHART]
Morgan Stanley Capital World~ Class A Class B
3/24/94 $10,000 $ 9,425 $10,000
9/30/94 10,545 9,982 9,487
9/30/95 12,124 10,655 10,587
9/30/96 13,846 12,501 12,677
3/31/97 14,553 12,958 13,409
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception++
Class A 3.37% 9.09%
Class B 4.81% 9.69%
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 THEIR 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 1,450
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 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 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 3/29/94 through
3/31/97.
+++ 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.
10
<PAGE>
MANAGERS' COMMENTARY
MENTOR CAPITAL GROWTH PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
The S&P 500 gained 11.2% and 19.8% in the past six months and full year,
respectively.* This index has now posted nine consecutive quarters of positive
returns. Despite this apparently attractive performance, the past quarter's 2.7%
gain left investors feeling less than elated. For starters, the S&P 500
continues to outpace the vast majority of investors. In fact, the average
domestic equity mutual fund suffered a loss in the first quarter of 1997. This
index's superior return is attributable to the continued strength in the largest
"blue chip" stocks. Recently, however, even these stocks were experiencing the
selling pressure that had been hitting other sectors of the market. After being
up more than 10% earlier in the year, the S&P 500 began rapidly losing steam
after the Federal Reserve increased interest rates in late March.
The positive influences supporting the phenomenal stock market rise of the past
two years are suddenly being questioned. Stock valuations are now above
historical average levels. The economy has hit full stride and is leading the
Federal Reserve to increase interest rates to avoid higher inflation. Corporate
earnings growth has moderated and is likely to recede further in the year ahead.
Both Alan Greenspan and Warren Buffett, two very knowledgeable and respected
points-of-view, suggest that the stock market has become over-valued. Is it time
to pull out of the stock market and put our money in a safer place?
Fortunately, we don't own the "stock market." We own a portfolio of stocks
chosen for their attractive business outlooks and reasonable current valuations.
A close examination of these stocks reveals that they are currently no less
attractive today than on average over the past 10 years. During the past 10
years these stocks have traded at an average price-to-earnings (P/E) ratio of
18. They are currently trading at 17.3 times their estimated 1997 earnings.
During the past five and 10 years these companies have grown their earnings at
an average 14% annual rate. We believe they will produce similar earnings growth
again this year. By producing consistently attractive earnings growth, these
stocks have delivered attractive returns over the past five- and 10-year
periods. They are not currently over-valued according to historical levels and
their earnings are continuing to grow at solid double-digit rates. These data
indicate that the stocks we currently own can provide attractive returns from
this level. After the strong gains of the past 27 months it is reasonable to
expect some near-term retrenchment. The key is to look through the current
volatility in the market at the attractive fundamentals supporting our holdings.
Our strategy remains very focused and rewarding. We strive to own strong
businesses with above-average earnings growth potential at reasonable
valuations. We have stressed repeatedly that our performance relative to other
managers will be best when S&P 500
11
<PAGE>
MANAGERS' COMMENTARY
MENTOR CAPITAL GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
earnings growth is moderate or worse. This was the case as S&P 500 earnings
growth slipped to 9% in 1996. We believe that earnings growth for the broad
stock market is likely to be very disappointing at some point in the next year
or two. Our confidence in this outlook has been strengthened by the recent
increases in interest rates and the value of the dollar, two negative influences
on corporate profitability. Our solid relative performance so far in 1997
reflects the strength of our companies in this more difficult environment.
Sincerely,
The Large-Capitalization Quality
Growth Management Team
* 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 the S&P
500 Index.
12
<PAGE>
MANAGERS' COMMENTARY
MENTOR CAPITAL GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
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.
[CHART]
Class A Class B S&P 500
4/29/92 $ 9,450 $10,000 $10,000
9/30/92 9,524 10,061 10,215
9/30/93 10,306 10,818 11,543
9/30/94 10,165 10,601 11,965
9/30/95 12,216 12,443 15,521
9/30/96 15,185 15,532 18,680
3/31/97 16,706++ 17,134+ 20,779~
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception+++
Class A 14.20% 11.04%
Class B 16.23% 11.43%
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 THEIR 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
3/31/97.
13
<PAGE>
MANAGERS' COMMENTARY
MENTOR STRATEGY PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
In the last week of March, 1997, our asset allocation model suggested its second
change of the quarter, the fourth such change in the last 12 months.
Until May, 1996, our model indicated an extremely bullish posture on stocks and
no exposure to bonds, which we implemented in the Portfolio with an allocation
of 90% stocks and 10% cash. The transition from this bullish tenor began on May
6th, 1996. The model was further changed three weeks later on May 28th, to a
more balanced allocation of 67% stocks, 23% bonds, and 10% cash. In hindsight,
we can see that this period also marked the beginning date for a total change in
personality for the stock market. In the ensuing eight weeks, the overall market
suffered an expected decline, with the smaller-cap., faster-growing stocks
getting hit especially hard. In July, however, an effective bottom was reached,
with most stocks turning around and moving up. Large-cap. issues clearly began a
period of out-performance at this point, which became increasingly obvious in
the last two months of the year.
On February 3rd, 1997, our asset allocation model started showing clearly that
the earnings for the S&P 500 stock index had not moved up nearly as fast as had
S&P 500 stock prices. At the same time, bond yields had increased. In other
words, stocks were becoming less attractive, while bonds were becoming more
attractive. These relative valuations reached levels that indicated that bonds
were now as attractive as stocks, especially when viewed in an historical
context. Hence our model recommended that we decrease stock positions and
increase bond positions. It did not indicate that the stock market was at a risk
juncture, but simply that bond performance was likely be as good in the upcoming
period as that of the S&P 500.
On March 21st, 1997, we reached another critical juncture, as our valuation
gauge moved into slightly overvalued territory. As interest rates moved higher,
our monetary composite dropped into negative territory, indicating for the first
time in several years that potential serious trouble lay ahead for stocks. This
precipitated a change in our model, and consequently in the Mentor Strategy
Portfolio, to an extremely defensive allocation of 30% cash, 35% stocks, and 35%
bonds. Shortly thereafter, the Federal Reserve announced the first increase in
the short-term fed funds interest rate in over two years, and the stock market
subsequently weakened significantly.
Even though our asset allocation adjustments have been perceptive, the nature of
the advance since June of last year has been very difficult for growth
momentum-based investors like ourselves. It is well documented that the advance
in the stock market -- especially since October of 1996 -- has been extremely
narrow, led by the largest, most liquid issues in the market. As an example, if
the largest 50
14
<PAGE>
MANAGERS' COMMENTARY
MENTOR STRATEGY PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
stocks are removed from the S&P 500, the remaining companies would have only
been up 9.4% for the year versus a gain of over 20% for the index as a whole.*
Over the past 30 years, there have been many changing fads in investing. With
our top-down methodology, we sometimes have had to painfully endure a few
quarters when our style of stock selection was not in vogue. Even though it
always is unsettling, we have avoided trying to flip-flop our disciplines to
account for the current market fad. So far, at least, these periods have tended
to serve as a prelude to major market turning points. We believe today's
environment is one of those times.
We fully expect this current season of instability/correction in the markets to
continue for another three-to-six months. It is, however, very comforting to
know that not only has our asset allocation model kept us on track over the many
years of the sustained bull-market, but it has also transitioned us during these
last 10 months to today's very defensive position.
We thank you very much for your continued confidence in our asset allocation
model, as expressed by your investment in the Mentor Strategy Portfolio.
Sincerely,
The Tactical Asset Allocation
Management Team
* 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 the S&P
500 Index.
15
<PAGE>
MANAGERS' COMMENTARY
MENTOR STRATEGY PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
Comparison of change of value of hypothetical $10,000 investment in Mentor
Strategy Portfolio Class A shares and the S&P 500.
[CHART]
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
9/30/96 12,747 13,291
3/31/97 12,003+ 14,785~
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception++
Class A (3.95%) 10.54%
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE COMPARABLE RESULTS. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE FIGURES
REPRESENT CHANGE IN INVESTMENT VALUE AFTER REINVESTING ALL DISTRIBUTIONS.
~ The S&P 500 is adjusted to reflect reinvestment of dividends on securities
in the index. The S&P 500 is not adjusted to reflect sales loads, expenses
or other fees that the SEC requires to be reflected in the Portfolio's
performance.
+ 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 3/31/97.
Comparison of change of value of hypothetical $10,000 investment in Mentor
Strategy Portfolio Class B shares and the S&P 500.
[CHART]
Class B S&P 500
10/29/93 $10,000 $10,000
12/31/93 10,160 10,024
12/31/94 9,798 10,157
9/30/95 12,175 13,180
9/30/96 14,018 15,860
3/31/97 13,530 17,643
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception~~
Class B (2.56%) 8.75%
+++ 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 3/31/97.
16
<PAGE>
MANAGERS' COMMENTARY
MENTOR INCOME AND GROWTH PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
REVIEW OF MARKETS
The equity market posted strong returns through most of the six-month period
ending March 31, 1997. After posting an 8.3% return for the fourth quarter of
1996, the equity market subsequently rose 10% from year-end to late February.
However, a combination of stronger than expected economic reports and rising
interest rates brought stock prices back down 7%, negating most of the returns
provided during the quarter. The bond market continues to suffer from a bad case
of inflation paranoia complicated by tighter monetary policy implemented by the
Federal Reserve. This combination pushed long-term interest rates upward from
6.6% at the end of 1996 to 7.1% at the end of the first quarter.
PORTFOLIO PERFORMANCE
For the six-month period ending March 31, 1997, the Mentor Income & Growth Fund
returned 6.1% for the A shares, and 5.7% for the B shares, outperforming the
Lipper Balanced Fund Average which returned 5.5%.* During the last six months,
the equity portion of the Portfolio benefited from overweighting the strong
performing finance and energy sectors, while underweighting the weaker
performing consumer staples and technology sectors. While the bond market did
provide modest gains during the fourth quarter of 1996, prices fell back during
the first quarter of 1997. At current levels, bond yields look very attractive
relative to projected 1997 inflation of 2.5%.
MARKET OUTLOOK
Despite investor fears reflected in recent market volatility, our outlook for
the economy remains favorable for a number of reasons. A high level of consumer
confidence, persistent job growth, and some upward pressure on wages should
continue to fuel consumer demand. Inflation is expected to remain low this year.
Oil prices have been declining for the past several months, last year's run-up
in agricultural commodity prices has reversed, and many industrial material
prices are well below last year's level. The strength of the dollar over the
past several months should keep corporate pricing flexibility at very low
levels.
Equities will continue to be challenged by the prospect of an additional rate
hike at the next Federal Open Market Committee Meeting in late May and valuation
levels that are not "cheap." Beyond that, the fundamentals still look
supportive -- moderate growth, low inflation, and rising corporate earnings.
While investors appear concerned about the potential for future increases in
interest rates, given our view of the economy, and the recent preemptive rate
hike by the Federal Reserve, we believe it is unlikely that the Fed will repeat
their actions of 1994 when a series of increases were instituted. The present
conditions are very different from that period when capacity utilization rates
were rising and industrial material prices were increasing sharply.
17
<PAGE>
MANAGERS' COMMENTARY
MENTOR INCOME AND GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO STRATEGY
As of March 31, 1997, the asset allocation of the Portfolio was 51% stocks, 44%
bonds and 5% cash. While we will be raising the Portfolio's equity weighting
modestly in the coming months, it remains at the low end of our historic and
expected range, and reflects our view that the market's favorable outlook is
largely discounted in current stock prices. It also reflects our belief that
bonds are attractive relative to stocks and cash.
EQUITY STRATEGY
While we maintain a slight overweight position, we have recently reduced the
Portfolio's exposure to the energy sector. We took profits in some of the
Portfolio's energy positions because they had appreciated significantly and we
had concerns about the sustainability of those gains in an environment of
falling oil prices.
In the financial sector we have reduced positions in large banks and allocated
the proceeds into some smaller regional banks. The premium given to smaller
banks, due largely to takeover speculation, has been reduced. While these
smaller banks remain targets for consolidation, for the first time in a few
years they are trading at a discount to their larger counterparts.
Overall, the potential for a sloppy market remains. Given the very near-term
orientation of the market, we believe that some interesting opportunities may
develop in companies with strong long-term outlooks, but which suffer near-term
earnings shortfalls. In this environment, our focus on individual stock
selection should benefit shareholders.
FIXED INCOME STRATEGY
Although buying bonds into weakness, particularly while the Fed is raising
short-term rates, is a painful process, that is precisely what we are doing. In
our view, the valuation of bonds relative to either current or prospective
inflation is now sufficiently attractive and we feel compelled to increase the
Portfolio's duration.
The Portfolio has had a modest weighting in corporate bonds for some time due to
our belief that corporates were expensive. However, as yields become more
generous relative to those of treasuries, we are becoming more interested in
adding to the Portfolio's corporate holdings. Mortgages have performed well and
are reasonably priced but we do not expect to be adding to the Portfolio's
positions at these yield levels.
Thank you for your continued support.
Sincerely,
The Balanced Management Team
* Lipper Analytical Services, an independent rating company, groups funds by
investment objectives and calculates performance figures for each group.
Performance does not include sales charges and does include reinvestment of
all distributions.
18
<PAGE>
MANAGERS' COMMENTARY
MENTOR INCOME AND GROWTH PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
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.++
[CHART]
Class A Class B LAGG/S&P 500
5/24/93 $ 9,425 $10,133 $10,000
9/30/93 9,909 10,506 10,353
9/30/94 10,578 11,239 10,446
9/30/95 12,402 12,614 12,879
9/30/96 14,802 15,140 14,686
3/31/97 15,698+ 16,208~ 15,815++
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception+++
Class A 7.02% 12.45%
Class B 8.68% 12.94%
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 THEIR 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 and 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 and 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.
++ 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
interest and 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.
+++ Reflects operations of Mentor Income and Growth Portfolio Class A and Class
B shares from the date of initial public investment on 5/24/93 through
3/31/97.
19
<PAGE>
MANAGERS' COMMENTARY
MENTOR MUNICIPAL INCOME PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
WHAT ECONOMIC FACTORS INFLUENCED THE FUND'S PERFORMANCE?
After the Fed ultimately decided not to tighten interest rates in the first half
of 1996, the municipal market began to rally in May. Prices continued to rise
through year end, gaining back most of the loss markets had experienced earlier
in the year. By 12/31/96, the Bond Buyer 25 Revenue Index (with a weighted
maturity of 30 years), yielded 5.92%, compared to a 30-year treasury which
yielded 6.64%.* With tax-exempt yields at an 89% ratio to treasuries, municipals
remained an attractive investment.
The moderate growth environment experienced during the fourth quarter, plus
growing concern about a spurt in inflation, led us to believe the economy would
continue to expand through the first quarter of 1997 and that it was more likely
that interest rates would rise than decline. This proved correct, with generic
30-year triple-A municipals increasing 25 basis points from year end. Long-term
tax-exempt yields, nearly paralleling the path of treasuries, have hit their
highest rate levels since last summer.
WHAT OTHER FACTORS INFLUENCED THE FUND?
Election year politics further strengthened the municipal market. The results of
the presidential election were positive, as major tax reform is unlikely under
the Clinton administration. Additionally, the status quo of a split government
(a Democratic president and a Republican Congress) should help restrain
potential spending increasing and tax cuts, therefore keeping the budget deficit
under control.
The trend which has probably had the most impact on the tax-exempt mutual fund
industry is the rising number of insured issues coming to market. AAA-rated
insured issuance has grown from 1989's level of 25% to nearly 50% in 1996.
Year-to-date 1997, insured issuance has risen to 52%. In large part, this is due
to an increasing appetite for safety from investors concerned about
municipalities with financial difficulties such as Miami and Los Angeles County.
Also, the cost of insurance has drastically decreased over the past three years.
This trend has caused a scarcity of high-yield issues as well as a narrowing in
yield spreads between insured and uninsured bonds.
HOW DID WE MANAGE THE PORTFOLIO GIVEN THE ABOVE CONDITIONS?
We managed the portfolio conservatively during the period, employing the
following strategies:
(Bullet) We maintained a barbell structure in rating distribution. At the end of
the period 43% of assets were AAA-rated, the highest credit rating
assigned to bonds by the Standard and Poor's Rating Group.** Another
36% of assets were BBB-rated or non-rated. This structure helps balance
the portfolio's volatility to interest rate movements. While the
AAA-rated securities provide safety of principal and total return
opportunities, lower rated and non-rated securities provide income
potential and tend to exhibit lower price volatility as interest rates
change.
20
<PAGE>
MANAGERS' COMMENTARY
MENTOR MUNICIPAL INCOME PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
(Bullet) We identify securities that we believe will outperform within a sector
and which can be purchased at an attractive price, rather than focusing
on market timing. We also use our research expertise to identify sector
trends and take advantage of spread relationships between industries.
This "bottom up" approach to security selection helps us capture
maximum price appreciation potential, while minimizing credit risk.
(Bullet) We adjust the fund's duration to manage volatility. Duration, which is
expressed in years, is a measurement of the portfolio's volatility to
interest rate movements. Portfolios with shorter durations tend to
perform better when interest rates are rising. At the end of the
period, the fund had a duration of 7.52 years, compared to the Lehman
Municipal Bond Index duration of 8.18 years.*** While maintaining a
shorter duration prevented the fund from taking full advantage of the
decline in interest rates in the fourth quarter, it benefited the fund
in the first three months of 1997.
WHAT IS OUR OUTLOOK?
Going into the second quarter, our outlook continues to be slightly bearish,
although the municipal market has strong underlying fundamentals. Higher
interest rates have kept new issuance down, leaving municipal prices firm.
Longer term yields are reaching attractive levels for investors (6.00% and
higher). While the ratio of municipals to governments has declined from
year-end, municipal security yields continue to outshine competing domestic
fixed-income investments. Municipal credit quality looks strong on a number of
fronts. State reserves continue to improve, and key revenue sectors have been
showing strengthening coverage. We look for health care and airport special
facilities to perform well.
Given the anticipation that the Fed will probably tighten again, we are likely
to see long-term municipal interest rates continue to rise over the next few
months. At the current time, however, our longer-term interest-rate outlook is
more positive. We believe the fund is positioned to perform well in the coming
months and do not anticipate major changes in the Portfolio's characteristics.
We will continue to balance the Portfolio's total return and dividend income
and, at the same time, manage volatility by adjusting duration when necessary.
Sincerely,
The Tax-Free Management Team
* The Bond Buyer 25 Revenue Index represents the arithmetic average of the
yields-to-maturity of 25 municipal revenue bonds. The bonds comprising the
index have a 30-year maturity and are rated A1 by Moodys Investor Services.
** Standard and Poor's Corporation corporate or municipal debt rating is a
current assessment of the credit worthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers, or lessees.
*** The Lehman Municipal Bond Index is adjusted to reflect reinvestment of
interest on securities in the index. It is not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in the
Portfolio's performance.
21
<PAGE>
MANAGERS' COMMENTARY
MENTOR MUNICIPAL INCOME PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
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.
[CHART]
Class A Class B Lehman Municipal Bond Index~
4/29/92 $ 9,525 $10,000 $10,000
9/30/92 10,034 10,528 10,561
9/30/93 11,637 12,134 11,906
9/30/94 11,101 11,511 11,616
9/30/95 12,151 12,348 12,916
9/30/96 12,935 13,184 13,818
3/31/97 13,263 13,499 14,137
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception+++
Class A 0.88% 5.91%
Class B 1.51% 6.28%
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 THEIR 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
3/31/97.
22
<PAGE>
MANAGERS' COMMENTARY
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO
SIX-MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET CONDITIONS
During the six-month period ended March 31, 1997 fixed-income interest rates
increased modestly across the yield curve. Two-year and 10-year treasuries
yielded 6.41% and 6.91% respectively on March 31, up 0.32% and 0.21% from six
month ago levels. The fourth quarter of 1996 and the early part of 1997 saw
interest rates fall modestly. However, with economic statistics showing
continued strength during February and March, market participants began to
assume that the Federal Reserve would intervene to slow economic growth and
inflation prospects. The markets reacted accordingly, with rates trending upward
throughout the latter part of the quarter. The Fed's decision to raise the Fed
Funds rate by 0.25% to 5.50% at its late March Open Market Committee meeting
confirmed the market's assumption of tighter monetary policy. We suspect that
this will be only the first of several moderate rate increases by Mr. Greenspan
and his colleagues in the coming months.
PERFORMANCE
The Portfolios generated competitive investment performance results for the six-
month period ended March 31, 1997. The Mentor Short-Duration Income Portfolio
had a return of 2.70% (for A shares) for the period, comfortably exceeding its
Merrill Lynch 3-Year Treasury benchmark, which returned 2.37%.* It also exceeded
its Lipper peer group average of 2.29%.** This result placed the Portfolio in
the top quartile of its Lipper category. The Quality Income Portfolio returned
2.51% (for A shares) for the six months versus its Merrill Lynch 7-Year Treasury
benchmark, which returned 1.89%.* This compared to 2.62% for its Lipper peer
group, placing the fund in the third quartile of its Lipper category.**
During the full six-month period we chose to make only very limited duration
bets, deviating only occasionally and then very modestly from our Merrill Lynch
Treasury benchmarks. We continued to seek to add value through security
selection, sector allocation, and yield curve weighting strategies. As the
quarter came to a close and the fixed-income markets weakened in the face of
strong economic statistics and the likelihood of Fed intervention, we chose to
move our portfolios to a higher weighting of government securities. To
accomplish this, we sold part of our position in complex securities, like teaser
ARMs (adjustable rate mortgages), which offer incremental yield but are
vulnerable to Fed tightenings.
MARKET OUTLOOK
As noted previously, we believe that the recent Fed tightening is likely to be
the first of several moderate interest rate increases in the coming months. This
is likely to lead to choppy markets during the early part of the upcoming
quarter and perhaps to continued weakness in the short-term. However, we
strongly feel that the Fed's current inflation vigilance is laying the
groundwork for extremely bullish long-
23
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
term prospects for the fixed-income markets. When compared to other asset
classes, and when compared to current levels of inflation, we believe that a
30-year bond yielding in excess of 7% represents compelling value. However, we
plan to remain patient as we look for opportunities to extend duration,
realizing through experience that markets often overreact in the short-term
before establishing trends in keeping with long-term market fundamentals.
Sincerely,
The Fixed-Income Management Team
* THE MERRILL LYNCH 3-YEAR AND 7-YEAR TREASURY INDEXES ARE ADJUSTED TO REFLECT
REINVESTMENT OF INTEREST ON SECURITIES IN THE INDEX. THEY ARE NOT ADJUSTED TO
REFLECT SALES LOADS, EXPENSES, OR OTHER FEES THAT THE SEC REQUIRES TO BE
REFLECTED IN THE PORTFOLIO'S PERFORMANCE. OF COURSE, TREASURIES ARE
GUARANTEED AS TO PRINCIPAL AND INTEREST, WHILE THE FUND'S SHARES ARE NOT
GUARANTEED AND WILL FLUCTUATE.
** LIPPER ANALYTICAL SERVICES, AN INDEPENDENT RATING COMPANY, GROUPS FUNDS BY
INVESTMENT OBJECTIVES AND CALCULATES PERFORMANCE FIGURES FOR EACH GROUP.
PERFORMANCE DOES NOT INCLUDE SALES CHARGES AND DOES INCLUDE REINVESTMENT OF
ALL DISTRIBUTIONS.
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.
[CHART]
Class A Class B Merrill Lynch 7-Year Treasury Index
4/29/92 $ 9,525 $10,000 $10,000
9/30/92 9,846 10,324 11,052
9/30/93 10,378 10,827 12,380
9/30/94 10,036 10,406 11,705
9/30/95 11,222 11,354 13,496
9/30/96 11,681 11,879 14,020
3/31/97 11,976++ 12,270+ 14,164~
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception+++
Class A (0.66%) 3.74%
Class B (0.07%) 4.09%
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 THEIR 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
3/31/97.
24
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
MENTOR SHORT-DURATION INCOME PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
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.
[CHART]
Class A 3-Year Treasury
6/16/95 $ 9,900 $10,000
6/30/95 9,946 10,061
9/30/95 9,931 10,214
9/30/96 10,532 10,753
3/31/97 10,817+ 11,008~
AVERAGE ANNUAL RETURNS AS OF 3/31/97
INCLUDING SALES CHARGES
1-Year Since Inception++
Class A 3.46% 4.48%
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.
[CHART]
Class B 3-Year Treasury
4/29/94 $10,000 $10,000
12/31/94 10,093 10,075
9/30/95 10,623 11,051
9/30/96 11,225 11,709
3/31/97 11,458 11,986
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 THEIR 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 3/31/97.
+++ 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 4/29/94 through 3/31/97.
25
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 89.83%
- -------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS 1.31%
Blount International, Inc.-Class A 69,050 $ 2,848,313
Tetra Tech, Inc. * 116,500 2,563,000
- -------------------------------------------------------------------------------------------------------------------------
5,411,313
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION 0.76%
Superior Services, Inc.* 141,000 3,137,250
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL 17.89%
Applebees International, Inc 73,400 1,770,775
Applied Graphics Technologies* 123,200 4,358,200
Cadmus Financial Communications 95,150 1,343,994
Casa Ole Restaurants, Inc.* 159,100 1,421,956
Clayton Homes, Inc. 268,384 3,421,896
Clear Channel Communications* 43,900 1,882,213
Consolidated Products Company* 191,012 2,650,292
Corporate Express, Inc.* 117,250 1,201,813
Dollar General Corporation 219,816 6,869,250
Evergreen Media Corporation* 129,300 3,773,944
Fairfield Communities, Inc.* 194,900 4,872,500
Friedman's, Inc.-Class A* 146,050 2,318,544
GTECH Holdings Corporation* 88,850 2,676,606
Heftel Broadcasting Corporation-Class A* 44,350 2,062,275
Keystone Automotive Industries, Inc.* 197,800 3,065,900
Paxar Corporation* 235,399 4,560,856
Regal Cinemas, Inc.* 171,562 4,632,174
Rental Service Corporation* 120,950 2,298,050
Scientific Games Holding* 175,470 3,728,738
Southern Energy Homes, Inc.* 363,175 3,767,941
Speedway Motorsports, Inc.* 118,350 2,810,813
Stage Stores, Inc.* 92,100 2,026,200
Suburban Lodges of America* 127,900 2,302,200
Watsco, Inc. 162,575 4,145,663
- -------------------------------------------------------------------------------------------------------------------------
73,962,793
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 2.17%
JP Food Services, Inc.* 89,400 2,469,675
Rexall Sundown, Inc.* 84,400 2,162,750
Richfood Holdings, Inc. 231,325 4,337,344
- -------------------------------------------------------------------------------------------------------------------------
8,969,769
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
ENERGY 7.77%
American Oilfield Divers, Inc.* 194,900 $ 2,192,625
Coach USA, Inc.* 121,250 3,516,250
Core Laboratories, Inc.* 209,500 3,718,625
Mary Land and Exploration* 107,300 2,762,975
Maverick Tube Corporation* 204,550 3,630,763
Nuevo Energy Company* 151,000 5,794,625
Pride Petroleum Services, Inc.* 224,300 4,654,225
Trico Marine Services, Inc.* 74,600 3,543,500
Tuboscope Vetco International Corporation* 168,950 2,301,944
- -------------------------------------------------------------------------------------------------------------------------
32,115,532
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL 3.20%
Markel Corporation* 72,060 7,962,630
National Commerce Bancorporation 137,096 5,278,196
- -------------------------------------------------------------------------------------------------------------------------
13,240,826
- -------------------------------------------------------------------------------------------------------------------------
HEALTH 25.12%
American Medserve Corporation* 137,150 1,611,513
Atria Communities, Inc.* 190,800 2,003,400
Biosite Diagnostics* 101,450 989,137
Capstone Pharmacy Services* 244,400 2,688,400
Clintrials Research, Inc.* 144,350 1,226,975
CompDent Corporation* 36,520 1,022,560
Dentsply International, Inc. 77,950 3,897,500
Dura Pharmaceuticals* 80,150 2,865,362
Emcare Holdings, Inc.* 180,900 4,861,688
Express Scripts, Inc.-Class A* 77,300 2,763,475
First Commonwealth, Inc.* 92,800 1,368,800
FPA Medical Management, Inc.* 121,200 2,333,100
Genesis Health Ventures, Inc.* 91,900 2,871,875
Gulf South Medical Supply* 116,300 2,253,313
Health Management Associates, Inc.* 211,594 5,025,357
Healthdyne Information Enterprises* 122,150 458,062
Henry Schein, Inc.* 43,950 1,274,550
Home Health Corporation of America* 168,250 1,661,469
Manor Care, Inc. 100,310 2,445,056
Meridian Diagnostics, Inc. 256,400 2,820,400
Molecular Devices Corporation* 160,100 2,221,387
</TABLE>
27
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
HEALTH (CONTINUED)
Multicare Companies, Inc.* 261,225 $ 4,930,622
National Surgery Centers, Inc.* 149,550 4,336,950
Omnicare, Inc. 174,060 4,090,410
Parexel International Corporation* 83,500 1,920,500
Pediatric Services of America, Inc.* 174,250 3,288,969
Pediatrix Medical Group, Inc.* 85,000 2,794,375
Phycor, Inc.* 137,935 3,758,729
Physician Sales and Services, Inc.* 133,300 1,682,912
Quorum Health Group* 85,900 2,652,162
Raytel Medical Corporation* 248,350 2,607,675
Renal Treatment Center, Inc.* 235,730 5,303,925
Rural/Metro Corporation* 99,750 3,042,375
Serologicals Corporation* 128,550 1,928,250
Sofamor Danek Group, Inc.* 118,670 4,286,954
Suburban Ostomy Supply Company* 91,600 870,200
United Dental Care, Inc. 100,350 2,709,450
Vencor, Inc.* 132,655 5,024,308
- -------------------------------------------------------------------------------------------------------------------------
103,892,145
- -------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY 24.64%
ACC Corporation* 104,625 2,327,906
Advanced Technology* 118,650 2,046,712
Applied Materials, Inc.* 52,500 2,434,687
Applied Microsystems Corporation* 219,250 1,342,906
Aspect Development, Inc.* 205,400 4,724,200
Benchmark Electronics, Inc.* 149,570 4,374,922
Benchmarq Microelectronics* 230,650 2,883,125
Billing Information Concepts* 92,800 2,227,200
CFM Technologies, Inc.* 66,400 1,967,100
Cognos, Inc.* 99,550 2,588,300
Concord EFS, Inc.* 60,361 1,131,769
Dataworks Corporation* 252,150 3,656,175
Envoy Corporation* 89,400 2,089,725
Harbinger Corporation* 142,750 3,140,500
HPR, Inc.* 153,950 1,731,937
Indus Group* 200,600 2,908,700
Industri-Matematic International Corporation* 279,600 2,236,800
Intelligroup, Inc.* 170,650 1,727,831
Linear Technology Corporation 94,100 4,163,925
</TABLE>
28
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
Maxim Integrated Products, Inc.* 99,100 $ 4,793,962
LSI Logic Corporation* 130,000 4,517,500
Micros Systems, Inc.* 128,250 4,472,719
National Education Corporation* 38,250 482,906
Pairgain Technologies* 77,500 2,295,937
Precision Response Corporation* 159,550 3,769,369
Radiant Systems, Inc.* 105,050 945,450
Rational Software Corporation* 122,250 2,521,406
SDL, Inc.* 122,660 2,100,552
Sipex Corporation* 129,650 3,792,262
Symmetricom, Inc.* 176,400 2,513,700
Techforce Corporation* 94,700 562,281
Triquint Semiconductor, Inc.* 140,400 3,352,050
Uniphase Corporation* 121,050 4,478,850
U.S. Long Distance Corporation* 198,100 2,302,912
Versant Object Technology* 113,850 1,010,419
Viasoft, Inc.* 87,700 2,850,250
Viisage Technology* 149,650 1,402,969
Worldcom, Inc.* 182,559 4,016,298
- -------------------------------------------------------------------------------------------------------------------------
101,886,212
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 1.99%
American Freightways* 80,700 1,124,756
Heartland Express, Inc.* 136,500 2,593,500
Mesaba Holdings, Inc.* 236,750 2,752,219
Swift Transportation* 69,550 1,773,525
- -------------------------------------------------------------------------------------------------------------------------
8,244,000
- -------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS 4.98%
Accustaff* 201,885 3,381,574
AHL Services, Inc.* 122,100 1,221,000
Barrett Business Services, Inc.* 89,600 1,299,200
Medquist, Inc.* 141,750 3,118,500
Outdoor Systems, Inc.* 138,025 4,123,497
Source Services Corporation* 147,400 2,616,350
Ultrak, Inc.* 115,150 2,072,700
Universal Outdoor Holdings* 96,200 2,789,800
- -------------------------------------------------------------------------------------------------------------------------
20,622,621
- -------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $334,519,709) 371,482,461
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
MENTOR GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 10.20%
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/31/97, 6.53%, due 4/1/97
collateralized by $44,912,587
Federal Home Loan Mortgage Corporation 7.00%,
8/01/26, market value $43,073,978,
(cost $42,170,678) $42,170,678 $ 42,170,678
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $376,690,387) 100.03% 413,653,139
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES (0.03%) (111,834)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $413,541,305
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Securities not currently producing income.
~ American Depository Receipts.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 87.82%
- --------------------------------------------------------------------------------------------------------------------------
ARGENTINA 0.52%
Banco Galacia~ 6,600 $ 160,875
Perez Company~ 9,718 156,703
Telecom Argentina~ 3,300 151,800
- --------------------------------------------------------------------------------------------------------------------------
469,378
- --------------------------------------------------------------------------------------------------------------------------
BRAZIL 2.05%
Brazil Fund, Inc. 6,100 150,212
CIA Cervejaria Brahma~ 9,100 121,713
CIA Energ~* 11,900 181,475
Cemig CIA Energetic~* 2,250 93,052
Centrais Eletrobras~* 12,000 258,000
Klabin Fabic Papel~* 16,600 156,704
PAO De Acucar#* 5,620 119,425
Perdigao~ 10,500 113,715
Petrol Brasileiros~* 6,900 137,310
Telebras~* 2,550 261,056
Usinas Sider~* 13,700 159,263
Vale Do Rio Doche~ 4,400 100,010
- --------------------------------------------------------------------------------------------------------------------------
1,851,935
- --------------------------------------------------------------------------------------------------------------------------
CHILE 0.41%
Banco BHIF~ 5,300 113,287
Chile Fund, Inc. 4,100 92,763
Chilectra~ 2,500 165,000
- --------------------------------------------------------------------------------------------------------------------------
371,050
- --------------------------------------------------------------------------------------------------------------------------
CHINA 0.10%
Huaneng Power International, Inc.-Class A~* 4,000 89,500
- --------------------------------------------------------------------------------------------------------------------------
FINLAND 1.20%
Huhtamaki OY 9,100 443,520
Nokia OY-Class A 10,700 640,609
- --------------------------------------------------------------------------------------------------------------------------
1,084,129
- --------------------------------------------------------------------------------------------------------------------------
FRANCE 4.60%
Axime (Ex Segin)* 5,000 591,789
Banque National Paris* 12,600 560,025
Carbone Lorraine* 1,070 262,794
</TABLE>
31
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
FRANCE (CONTINUED)
Cardif SA* 2,090 $ 293,425
Cetelem 3,000 355,607
Credit Local France 3,900 420,704
Generale Des Eeux 3,290 447,281
Metropole TV* 5,750 583,481
Total-Class B* 4,400 380,728
Union Financiere De France* 2,300 255,056
- --------------------------------------------------------------------------------------------------------------------------
4,150,890
- --------------------------------------------------------------------------------------------------------------------------
GERMANY 4.03%
Daimler Benz AG* 6,940 558,269
Degussa 1,169 497,432
Krupp Fried AG* 2,110 412,353
SGL Carbon* 915 124,406
VIAG AG* 2,000 945,466
Volkswagen AG* 2,000 1,099,656
- --------------------------------------------------------------------------------------------------------------------------
3,637,582
- --------------------------------------------------------------------------------------------------------------------------
GREAT BRITAIN 17.10%
BAA PLC* 55,000 464,052
B.A.T. Industries, PLC 60,000 510,671
BG* 70,500 188,054
Bank of Ireland* 49,465 493,271
Barclays, PLC 30,000 502,791
British Aerospace PLC 21,000 470,364
British Biotech* 100,000 409,554
British Telecom 75,000 548,466
Burmah Castrol* 25,000 417,557
Centrica* 270,500 281,956
Coats Viyella* 100,000 221,602
Elan Corporation PLC~* 10,000 341,250
General Electric* 60,000 367,860
Glaxo Wellcome 31,000 568,148
Granada Group* 25,000 376,519
Grand Metropolitan 50,000 402,988
Great Universal Stores 30,000 328,710
Guinness 50,000 422,276
Inchcape PLC 105,000 451,577
Lucas Varity* 75,000 241,301
Medeva 80,000 403,809
National Westminister 30,000 338,067
Pearson 30,000 358,996
Prudential Corporation PLC 60,000 558,438
Rank Organisation PLC 65,000 451,330
</TABLE>
32
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
GREAT BRITAIN (CONTINUED)
Reckitt & Colman* 30,000 $ 401,593
Rolls Royce 90,000 336,836
Safeway 70,000 409,636
Scotia Holdings* 30,000 225,296
Standard Chartered 37,500 519,227
Sun Alliance Group PLC 50,000 366,875
Tate & Lyle PLC 40,000 284,964
Tesco PLC 60,000 344,223
Thorn PLC* 100,000 274,951
Transport Development Group 95,000 300,969
Unigate 20,000 148,392
Unilever PLC 45,000 1,192,960
United Utilities 50,000 515,432
- --------------------------------------------------------------------------------------------------------------------------
15,440,961
- --------------------------------------------------------------------------------------------------------------------------
HONG KONG 5.30%
CDL Hotels International 411,202 202,982
Cheung Kong Holdings 48,000 422,781
China Areospace* 200,000 69,689
China O/Seas Land 230,000 124,666
China Pharmaceutical 545,000 94,248
Chinese Estates 100,168 98,892
Citic Pacific Limited* 24,000 118,937
Dah Sing Financial 14,800 57,682
Elec & Eltek International 500,000 118,730
GZI Transport-Warrants* 60,000 10,685
GZI Transport* 200,000 118,085
Henderson China 45,056 80,823
Henderson Land Development 16,000 132,667
Hon Kwok Land 360,000 118,472
Hong Kong Electric 80,000 282,370
Hong Kong Telecom, Ltd. 123,327 210,884
HSBC Holdings PLC 28,679 666,205
Hutchison Whampoa, Ltd. 72,000 541,252
Hysan Development-Warrants* 700 361
International Bank of East Asia 160,000 98,081
LAI Sun Development 200,000 232,297
LAI Sun Hotels- Warrants* 40,160 0
National Mutual Asia 120,000 125,441
New World Development 56,057 302,396
Sino Land Company 100,000 103,243
Sun Hung Kai Properties 12,000 126,990
Swire Pacific Limited-Class A 20,000 157,445
Television Broadcast, Ltd. 16,000 65,043
USI Holdings Ltd.* 313,000 108,054
- --------------------------------------------------------------------------------------------------------------------------
4,789,401
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
INDIA 0.30%
BSES Limited#* 4,000 $ 83,000
India Cement#* 20,000 52,500
Indian Opportunity* 11,000 99,660
Tata Electric Cies#* 100 33,750
- --------------------------------------------------------------------------------------------------------------------------
268,910
- --------------------------------------------------------------------------------------------------------------------------
INDONESIA 0.56%
Bank Dagang NA* 100,000 99,958
Bank Dagang NI* 75,000 74,969
Bank Dagang-Warrants* 25,000 8,850
Citra Marga Local* 120,000 107,455
PT Daya Gune Samudera* 42,000 61,224
Telekomunikasi Thoser B* 103,000 157,653
- --------------------------------------------------------------------------------------------------------------------------
510,110
- --------------------------------------------------------------------------------------------------------------------------
ITALY 0.85%
Seat SPA* 52,000 18,038
STET-Societa* 26,000 113,361
Telecom Italia Mobile* 220,000 631,579
- --------------------------------------------------------------------------------------------------------------------------
762,978
- --------------------------------------------------------------------------------------------------------------------------
JAPAN 7.83%
Canon, Inc. 28,000 600,081
Fuji Photo Film 17,000 559,563
Fujitsu 56,000 570,643
Hitachi Construction 58,000 515,973
Honda Motor Company 20,000 596,846
Nichiei Company 7,200 558,997
Nichiha Corporation 13,000 188,192
Nippon Telegraph & Telephone 87 612,835
Orix Corporation 10,000 440,760
ROHM Company 8,000 590,053
Sagami Chain Company 12,600 152,851
Taisho Pharmaceutical 24,000 560,938
Tokyo Denpa Company 5,000 95,026
Toyoda Automatic 30,000 497,372
UNI-Charm Corporation 20,000 525,677
- --------------------------------------------------------------------------------------------------------------------------
7,065,807
- --------------------------------------------------------------------------------------------------------------------------
KOREA 0.11%
CITC Seoul Exel@* 2 15,500
Korea-Europe Fund@* 18 41,670
LG Electronics#* 6,400 20,960
Samsung Electronics# (b)* 397 18,480
- --------------------------------------------------------------------------------------------------------------------------
96,610
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
MALAYSIA 2.06%
ACP Industries 16,000 $ 132,351
Affin Holdings BHD* 65,000 184,909
Boustead Holdings 36,000 90,790
Cahya Mata Sarawak BHD 15,000 170,988
DCB Holdings 48,000 181,096
Diversified RES 40,000 130,737
Genting Berhad 20,000 135,580
Magnum Corporation 110,000 208,615
MBM Resources* 20,000 54,877
Malaysian Assurance 10,000 57,702
Public Finance* 80,000 132,351
Renong Berhad 80,000 135,580
Suremax Group 28,000 187,552
UMW Holdings Berhad 10,000 55,281
- --------------------------------------------------------------------------------------------------------------------------
1,858,408
- --------------------------------------------------------------------------------------------------------------------------
MEXICO 1.44%
Bufete Industrial* 7,720 160,190
CIFRA~ 100,000 137,500
Cont Com Mexicana#* 7,150 105,463
DESC~* 6,200 162,750
Empresas ICA~* 7,700 123,681
Empress La Modern~* 8,360 167,200
Fomento Economic~* 38,400 169,943
Grupo Financiero Bancomer~*(b) 4,800 121,200
Panamerica Beverages-Class A 2,900 155,513
- --------------------------------------------------------------------------------------------------------------------------
1,303,439
- --------------------------------------------------------------------------------------------------------------------------
NETHERLANDS 3.38%
ABN-Amro Holdings NV 6,100 418,809
ING Groep NV* 19,771 777,624
Oce-Van Der Grinten 3,200 413,519
Royal Dutch Petroleum* 3,187 577,728
Vendex International* 5,325 251,669
VNU-Ver Ned Uitgevers 30,000 616,318
- --------------------------------------------------------------------------------------------------------------------------
3,055,665
- --------------------------------------------------------------------------------------------------------------------------
NORWAY 0.51%
Orkla AS-Class A* 5,770 463,149
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
PERU 0.17%
CPT Telefonica Del Peru~ 6,700 $ 149,075
- --------------------------------------------------------------------------------------------------------------------------
PHILIPPINES 0.25%
Bank Of The Philippines 15,000 101,840
Benpres Holdings#* 16,000 120,800
- --------------------------------------------------------------------------------------------------------------------------
222,640
- --------------------------------------------------------------------------------------------------------------------------
SINGAPORE 0.74%
ACMA Limited-Warrants 7,500 4,387
City Developments* 16,000 141,779
Development Bank Singapore* 20,000 232,606
Jardine Strategic 20,000 69,201
Jardine Strategic-Warrants 3,125 1,016
Overseas Union* 10,000 68,882
Singapore Press Holdings 5,000 91,035
Sing Tech Shipbuilding* 38,000 56,296
UTD Overseas-Warrants* 2,000 1,263
- --------------------------------------------------------------------------------------------------------------------------
666,466
- --------------------------------------------------------------------------------------------------------------------------
SPAIN 1.07%
Continente Cent* 12,500 222,724
Corporacion Financiera 3,700 366,199
Viscofan Envolturas Celulos 21,500 379,277
- --------------------------------------------------------------------------------------------------------------------------
968,200
- --------------------------------------------------------------------------------------------------------------------------
SWEDEN 3.88%
Celsisu-Class B* 30,000 573,318
Electrolux AB* 1,950 123,789
NCC-Class B* 33,700 450,150
Securitas-Class B* 12,540 358,226
Skandia Forsak* 3,750 117,788
Skandinaviska-Class A* 26,960 297,723
SKF AB-Class B* 5,280 138,263
Svenska Handel-Class A* 30,000 912,548
Volvo-Class B* 20,000 534,303
- --------------------------------------------------------------------------------------------------------------------------
3,506,109
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
SWITZERLAND 2.04%
Credit Suisse Group* 6,000 $ 717,301
Roche Holding AG 117 1,007,657
Sulzer AG 180 117,716
- --------------------------------------------------------------------------------------------------------------------------
1,842,675
- --------------------------------------------------------------------------------------------------------------------------
TAIWAN 0.34%
Formosa Growth Fund* 5,000 90,625
Taipei Fund@* 20 214,000
- --------------------------------------------------------------------------------------------------------------------------
304,625
- --------------------------------------------------------------------------------------------------------------------------
THAILAND 0.30%
Bangkok Bank 16,000 155,345
Banpu Coal 8,000 120,209
- --------------------------------------------------------------------------------------------------------------------------
275,554
- --------------------------------------------------------------------------------------------------------------------------
UNITED STATES 26.68%
ACC Corporation* 17,500 389,375
AGCO Corporation 15,000 414,375
APAC Teleservices* 15,000 390,000
Abbott Laboratories 12,500 701,563
American Express Company 10,000 598,750
Amresco, Inc.* 25,000 418,750
Automatic Data Processing 15,000 628,125
Avnet, Inc. 12,000 676,500
BMC Industries 17,000 480,250
Borders Group, Inc. 30,000 566,250
Cardinal Health, Inc. 10,000 543,750
Carnival Corporation-Class A 15,000 555,000
Chase Manhattan Corporation 8,000 749,000
Chesapeake Energy 20,000 417,500
Cooper Cameron Corporation* 10,000 685,000
Diamond Offshore* 6,040 413,740
El Paso Natural Gas 14,000 792,750
Evergreen Media Corporation-Class A* 18,000 525,375
Federal National Mortage Association 17,500 632,188
Fisher Scientific 15,000 661,875
Fort Howard Corporation* 20,000 622,500
Furniture Brands International* 40,000 600,000
Halliburton Company 7,500 508,125
Healthsouth Corporation 25,000 478,125
Health Management Associates-Class A* 25,000 593,750
Household International 7,000 602,875
JP Food Services, Inc.* 20,000 552,500
Lilly (ELI) & Company 8,000 658,000
Lockheed Martin Corporation 6,000 504,000
Microsoft Corporation 2,000 183,375
</TABLE>
37
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
UNITED STATES (CONTINUED)
Mirage Resorts, Inc.* 25,000 $ 531,250
Motorola, Inc. 10,000 603,750
Omnicare 20,000 470,000
Oryx Energy* 20,000 385,000
Pepsico, Inc. 15,000 489,375
Reynolds & Reynolds Company-Class A 18,000 429,750
Safeway* 12,500 579,687
ST Jude Medical, Inc.* 17,500 584,062
Sonat, Inc.* 10,000 545,000
Staples, Inc.* 25,000 503,125
Sun Microsystems, Inc.* 17,000 490,875
Sybron International Corporation* 14,000 388,500
USF & G Corporation 25,000 537,500
Wendy's International 20,000 412,500
Whirlpool Corporation 12,500 595,312
- --------------------------------------------------------------------------------------------------------------------------
24,089,052
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $73,592,733) 79,294,298
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 1.27%
- --------------------------------------------------------------------------------------------------------------------------
JAPAN
Nippon Densan Corporation, 1.00%, 9/30/03 $ 7,000,000 69,632
Ricoh Company Corporation, 0.35%, 3/31/00 50,000,000 471,088
Sony Corporation Bond, 0.15%, 3/30/01 26,000,000 237,606
Sony Corporation Bond, 1.40%, 3/31/05 28,000,000 299,135
- --------------------------------------------------------------------------------------------------------------------------
1,077,461
- --------------------------------------------------------------------------------------------------------------------------
MALAYSIA
Telekom Malaysia Berhad, 4.00%, 10/3/04~
(9/22/94, $70,000) (a) (b) 70,000 66,413
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $1,072,005) 1,143,874
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
MENTOR PERPETUAL GLOBAL PORTFOLIOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 9.88%
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/31/97, 6.53%, due 4/01/97,
collateralized by Federal Home Loan Mortgage Corporation,
$9,500,096
7.00%, 8/01/97, market value $9,111,186,
(cost $8,920,137) $ 8,920,137 $ 8,920,137
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $83,584,875) 98.97% 89,358,309
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 1.03% 930,659
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $90,288,968
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing.
# Global Depoistory Receipts
~ American Depository Receipts.
@ International Depository Receipts
(a) All or a portion of these securities are restricted (i.e., securities which
may not be publicly sold without registration under the Federal Securities
Act of 1933). Dates of acquisition and costs are set forth in parentheses
after the title of the restricted securities.
(b) These are securities that may be resold to "qualified institutional buyers"
under Rule 144A or securities offered pursuant to Section 4 (2) of the
Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 87.85%
- -------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS 13.07%
Bemis Company, Inc. 107,700 $ 4,308,000
Morton International, Inc. 83,900 3,544,775
Nalco Chemical Company 119,100 4,451,362
Sonoco Products Company 155,550 4,199,850
- -------------------------------------------------------------------------------------------------------------------------
16,503,987
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION 6.21%
Pall Corporation 168,400 3,894,250
W.W. Grainger, Inc. 53,300 3,944,200
- -------------------------------------------------------------------------------------------------------------------------
7,838,450
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL 16.06%
Carnival Corporation 110,500 4,088,500
Interpublic Group Company 90,000 4,747,500
Mirage Resorts, Inc.* 187,970 3,994,362
Mattel, Inc. 153,600 3,686,400
Newell Company 112,200 3,758,700
- -------------------------------------------------------------------------------------------------------------------------
20,275,462
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 17.87%
Avon Products 74,900 3,932,250
CPC International, Inc. 55,650 4,563,300
McDonald's Corporation 110,700 5,230,575
Sherwin Williams Company 160,600 4,336,410
Sysco Corporation 132,000 4,504,500
- -------------------------------------------------------------------------------------------------------------------------
22,567,035
- -------------------------------------------------------------------------------------------------------------------------
ENERGY 3.21%
Schlumberger, Ltd. 37,800 4,054,050
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL 10.83%
American Express Company 62,600 3,748,175
Banc One Corporation 75,900 3,017,025
Federal National Mortgage Association 84,000 3,034,500
General RE Corporation* 24,500 3,871,000
- -------------------------------------------------------------------------------------------------------------------------
13,670,700
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
MENTOR CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
HEALTH 7.08%
Pfizer, Inc. 50,600 $ 4,252,305
Schering-Plough 64,200 4,680,000
- -------------------------------------------------------------------------------------------------------------------------
8,932,305
- -------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY 3.84%
Electronic Data Systems 39,100 1,578,663
Intel Corporation 23,500 3,269,437
- -------------------------------------------------------------------------------------------------------------------------
4,848,100
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION & SERVICES 3.20%
Werner Enterprises, Inc. 215,650 4,043,439
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES 3.52%
Ameritech Corporation 37,300 2,293,950
GTE Corporation 46,000 2,144,750
- -------------------------------------------------------------------------------------------------------------------------
4,438,700
- -------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS 2.96%
S & P 500 - Depository Receipt 49,500 3,735,703
- -------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $95,433,267) 110,907,931
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 16.84%
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/31/97, 6.53%, due 4/01/97,
collateralized by $22,645,292 Federal Home
Loan Mortgage Corporation, 7.00%, 08/01/26,
market value $21,718,250, (cost $21,262,602) $21,262,602 21,262,602
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $116,695,869) 104.69% 132,170,533
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES (4.69%) (5,915,830)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $126,254,703
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 29.61%
- -------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS 1.43%
American Home Products Corporation* 41,800 $ 2,508,000
Synetic, Inc.* 29,500 1,393,875
Unifi, Inc. 20,800 634,400
- -------------------------------------------------------------------------------------------------------------------------
4,536,275
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION 4.09%
Bay Apartment Communities 46,500 1,668,187
Chicago Miniature Lamp, Inc.* 43,000 843,875
Fairfield Communities, Inc.* 43,000 1,075,000
Fuller (H. B.) Company 32,000 1,560,000
Hirsch International Corporation-Class A * 68,750 1,332,031
Interface, Inc. 49,100 1,230,569
Laidlaw, Inc.-Class B* 46,100 633,875
Medusa Corporation 40,000 1,500,000
Miller Industries, Inc. * 89,400 1,072,800
Sinter Metals, Inc.-Class A * 49,500 1,361,250
Southdown, Inc. 19,950 683,288
- -------------------------------------------------------------------------------------------------------------------------
12,960,875
- -------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES 0.59%
Cintas Corporation 10,000 527,500
United Waste Systems, Inc.* 35,900 1,337,275
- -------------------------------------------------------------------------------------------------------------------------
1,864,775
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL 2.01%
Bowne & Company, Inc. 9,000 244,125
Costco Companies, Inc.* 18,000 497,250
Honda Motor Company~ 2,360 138,060
Kimball International-Class B 12,800 486,400
Morningstar Group, Inc.* 20,050 385,962
Reebok International* 6,200 278,225
Smithfield Foods, Inc.* 20,300 857,675
Stride Rite Corporation* 24,700 370,500
Walgreen Company* 26,900 1,126,438
Watsco, Inc. 23,550 600,525
Zeigler Coal Holding 58,000 1,377,500
- -------------------------------------------------------------------------------------------------------------------------
6,362,660
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 3.64%
Cadbury Schweppes, Plc~ 29,200 $ 1,047,550
Coca Cola Femsa*~ 28,600 1,029,600
Ecolab, Inc. 33,800 1,284,400
Gillette Company 7,100 515,638
Health Management Association* 36,900 876,375
Interstate Bakeries 13,200 623,700
Panamerica Beverages 22,300 1,195,837
Sangstat Medical Corporation* 51,600 1,399,650
USA Detergents, Inc.* 41,800 961,400
Warner-Lambert, Company* 30,000 2,595,000
- -------------------------------------------------------------------------------------------------------------------------
11,529,150
- -------------------------------------------------------------------------------------------------------------------------
ENERGY 2.97%
CalEnergy, Inc. * 17,600 598,400
Chevron Corporation 16,600 1,155,775
Honeywell, Inc. 47,500 3,224,063
Mobile Corporation* 8,600 1,123,375
Panenergy Corporation 20,000 862,500
Ranger Oil, Limited 126,500 1,201,750
Smith International, Inc.* 11,000 501,875
Swift Energy Company * 31,100 734,737
- -------------------------------------------------------------------------------------------------------------------------
9,402,475
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL 6.51%
Alex Brown, Inc. 22,000 935,000
Bankamerica Corporation 20,000 2,015,000
Bankers Trust New York* 15,400 1,262,800
Cali Realty Corporation 23,400 748,800
Catellus Development Corporation* 77,000 1,174,250
Cityscape Financial Corporation* 26,600 472,150
Conseco, Inc. 26,000 926,250
Federal Home Loan Mortgage Corporation 18,400 501,400
First Chicago NBD Corporation* 20,300 1,098,737
Loews Corporation* 12,700 1,128,713
Merrill Lynch & Company 14,000 1,202,250
North Fork Bancorporation 25,000 903,125
Northern Trust Corporation 30,000 1,125,000
Old Republic International Corporation* 43,400 1,112,125
Synovus Financial Corporation 66,600 1,964,700
</TABLE>
43
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
T. Rowe Price Associates 35,000 $ 1,299,375
Toronto-Dominion Bank 30,000 753,750
Travelers, Inc. 20,000 957,500
U.S. Bancorp 20,000 1,070,000
- -------------------------------------------------------------------------------------------------------------------------
20,650,925
- -------------------------------------------------------------------------------------------------------------------------
RETAIL 0.44%
Safeway, Inc. * 30,000 1,391,250
- -------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY 5.65%
Act Manufacturing, Inc.* 54,200 1,124,650
Aspen Technology, Inc. * 15,000 408,750
Bell Microproducts, Inc.* 21,500 263,375
Computer Task Group* 38,000 1,349,000
Dell Computers* 15,300 1,034,663
EMC Corporation* 61,200 2,172,600
Level One Communications* 46,500 1,243,875
Parametric Technology Corporation * 30,000 1,353,750
Quickturn Design Systems* 75,000 1,200,000
Radisys Corporation * 27,000 789,750
Reynolds & Reynolds-Class A 13,100 312,762
Sanmina Corporation* 30,700 1,373,825
SBS Technologies, Inc.* 52,500 800,625
Smart Modular Technology* 100,000 2,375,000
Triquint Semiconductor* 43,000 1,026,625
Visio Corporation* 28,000 1,092,000
- -------------------------------------------------------------------------------------------------------------------------
17,921,250
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION 1.18%
Greyhound Lines, Inc.* 27,500 116,875
Illinois Central Corporation 21,300 670,950
Paccar, Inc. 22,500 1,501,875
Wisconsin Central Transportation Corporation * 41,200 1,452,300
- -------------------------------------------------------------------------------------------------------------------------
3,742,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
MENTOR STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS 1.10%
AG Services of America* 110,000 $ 1,787,500
Periphonics Corporation* 31,000 457,250
U.S. Industries, Inc.* 35,500 1,251,375
- -------------------------------------------------------------------------------------------------------------------------
3,496,125
- -------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $93,376,851) 93,857,760
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 35.30%
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond, 6.50%, 11/15/26 $81,943,000 75,455,573
U.S. Treasury Note-Strip, 8/15/20 72,000,000 13,204,800
U.S. Treasury Note-Strip, 8/15/21 136,000,000 23,249,200
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $115,610,969) 111,909,573
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 22.90%
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/31/97, 6.53%, due 4/01/97,
collateralized by $77,305,050 Federal Home Loan
Mortgage Corporation, 7.00%, 08/01/26,
market value $74,302,214, (cost $72,586,394) 72,586,394 72,586,394
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $281,574,214) 87.81% 278,353,727
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 12.19% 38,636,905
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $316,990,632
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Securities not currently producing income.
~ American Depository Receipts
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
MENTOR INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 50.24%
- -------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS 7.62%
Aluminum Company of America 17,800 $ 1,210,400
British Steel PLC*~ 22,000 585,750
Dow Chemical 14,400 1,152,000
Du Pont (E.I.) De Nemours 9,100 964,600
Lubirzol Corporation 20,000 650,000
Norsk Hydro AS~ 13,000 635,375
Phelps Dodge Corporation 16,700 1,221,187
Rhone Poulenc SA-Class A*~ 36,000 1,197,000
Westvaco Corporation 34,000 855,020
Willamette Industries, Inc. 15,900 993,750
- -------------------------------------------------------------------------------------------------------------------------
9,465,082
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION 5.66%
Caterpillar, Inc.* 12,800 1,027,200
Cooper Industries, Inc. 20,000 867,500
Foster Wheeler Corporation 48,000 1,698,000
General Electric Company 11,000 1,091,750
Kimberly-Clark Corporation 15,000 1,490,625
Northrop Grumman Corporation 11,200 847,000
- -------------------------------------------------------------------------------------------------------------------------
7,022,075
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL 2.73%
Ford Motor Company 53,500 1,678,562
May Department Stores Company 18,100 823,550
Sears Roebuck & Company 17,600 884,400
- -------------------------------------------------------------------------------------------------------------------------
3,386,512
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 5.75%
Abbot Laboratories 23,100 1,296,487
Baxter International 28,000 1,207,500
Dimon Incorporated 45,300 1,041,900
Pharmacia & Upjohn, Inc. 36,000 1,319,020
Phillip Morris Companies, Inc. 8,700 992,888
Supervalue, Inc. 43,000 1,279,250
- -------------------------------------------------------------------------------------------------------------------------
7,137,045
- -------------------------------------------------------------------------------------------------------------------------
ENERGY 5.66%
Amoco Corporation 12,900 1,117,463
</TABLE>
46
<PAGE>
MENTOR INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net
Assets Shares Market Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
ENERGY (CONTINUED)
Exxon Corporation 11,300 $ 1,217,575
Honeywell Inc. 11,300 766,988
Phillips Petroleum Company 17,200 703,050
Repsol SA~ 21,200 863,900
Royal Dutch Pete Corporation* 3,600 630,000
Total SA*~ 20,000 847,500
Unocal Corporation 23,000 876,875
- -------------------------------------------------------------------------------------------------------------------------
7,023,351
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL 10.09%
Allstate Corporation 37,000 2,196,875
Banc One Corporation 14,300 568,425
Citicorp 21,000 2,273,250
Corestates Financial 28,400 1,349,000
First Bank System, Inc. 30,000 2,190,000
First Union Corporation 21,600 1,752,300
Jefferson-Pilot Corporation 18,500 1,005,938
Mercantile Bankshares Corporation 18,000 607,500
Wilmington Trust Corporation 13,600 579,527
- -------------------------------------------------------------------------------------------------------------------------
12,522,815
- -------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY 2.49%
International Business Machines Corporation 10,280 1,412,215
Xerox Corporation 29,600 1,683,500
- -------------------------------------------------------------------------------------------------------------------------
3,095,715
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION & SERVICES 3.63%
Canadian Pacific, Ltd. 60,100 1,442,400
KLM Royal Dutch Air* 35,500 1,016,187
Union Pacific Corporation 36,000 2,043,000
- -------------------------------------------------------------------------------------------------------------------------
4,501,587
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES 3.09%
DQE, Inc. 29,000 805,935
DPL, Inc. 34,000 820,685
Pinnacle West Capital 38,300 1,153,788
SBC Communications, Inc. 20,000 1,051,520
- -------------------------------------------------------------------------------------------------------------------------
3,831,928
- -------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS 3.52%
Brtistol Myers Squibb 16,800 991,200
Johnson & Johnson 13,300 703,237
</TABLE>
47
<PAGE>
MENTOR INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares or
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (CONTINUED)
Textron, Inc. 7,100 $ 745,500
Wallace Computer Services, Inc. 58,000 1,921,850
- -------------------------------------------------------------------------------------------------------------------------
4,361,787
- -------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $60,983,935) 62,347,897
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 4.08%
- -------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS 0.19%
Aluminum Company of America, 5.75%, 2/01/01 $ 250,000 238,775
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION 0.08%
Lockheed Corporation, 6.75%, 3/15/03 100,000 97,374
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL 0.15%
Sears Roebuck Company, 9.25%, 4/15/98 175,000 179,988
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 0.18%
Gillette Company, 5.75%, 10/15/05 250,000 226,513
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL 2.13%
American General Finance Corporation, 5.88%, 7/01/00 250,000 242,290
Associates Corporation of North America, 5.25%, 3/30/00 250,000 239,062
Chase Manhattan Corporation, 7.75%, 11/01/99 250,000 255,172
Comerica Bank, 7.13%, 12/01/13 250,000 231,790
Dean Witter Discover, 6.25%, 3/15/00 100,000 98,237
First National Bank of Boston, 8.00%, 9/15/04 250,000 257,378
Ford Motor Credit, 8.88%, 6/15/99 100,000 104,287
Great Western Financial, 6.38%, 7/01/00 250,000 245,380
Home Savings of Americas, 6.00%, 11/01/00 250,000 241,942
Security Benefits Life Company, 8.75%, 5/15/16 (a) 500,000 507,500
Toronto Dominion Bank, 6.13%, 11/01/08 250,000 223,165
- -------------------------------------------------------------------------------------------------------------------------
2,646,203
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES 1.35%
Duke Power Company, 7.00%, 6/01/00 100,000 100,236
Florida Power & Light Company, 5.38%, 4/01/00 250,000 240,210
Pacific Gas & Electric Company, 5.93%, 10/08/03 250,000 230,607
Philadelphia Electric Company, 7.50%, 1/15/99 100,000 101,279
Southwestern Public Service Company, 6.88%, 12/01/99 250,000 250,645
System Energy Resources, 7.71%, 8/01/01 500,000 503,140
</TABLE>
48
<PAGE>
MENTOR INCOME AND GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES (CONTINUED)
Union Electric Company, 6.75%, 10/15/99 $ 250,000 $ 249,655
- -------------------------------------------------------------------------------------------------------------------------
1,675,772
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $5,275,855) 5,064,625
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 39.77%
- -------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
6.50%-7.00%, 7/15/23-2/15/26 7,163,352 6,810,442
U.S. Treasury Bonds, 5.75%-7.25%,
8/15/03-8/15/23 16,500,000 15,972,145
U.S. Treasury Notes, 5.00%-6.50%,
4/30/98-10/15/06 27,250,000 26,581,355
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $50,730,641) 49,363,942
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 4.51%
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Swiss Bank Capital Markets
Dated 3/31/97, 6.35%, Due 4/01/97,
collateralized by $4,021,000,
U.S. Treasury Note, 11.25%, 2/15/15
market value $5,660,814 (cost $5,597,000) 5,597,000 5,597,000
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $122,587,431) 98.60% 122,373,464
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 1.40% 1,738,887
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $124,112,351
- -------------------------------------------------------------------------------------------------------------------------
</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 securites have been determined to
be liquid under guidelines established by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL SECURITIES 92.48%
- ------------------------------------------------------------------------------------------------------------------------
ARIZONA 2.97%
Pima County Arizona IDA, 7.25%, 7/15/10 $1,660,000 $ 1,824,622
- ------------------------------------------------------------------------------------------------------------------------
CALIFORNIA 11.62%
Carson Improvement Board Act 1915,
Special Assessment District 92, 7.38%, 9/02/22 720,000 753,422
East Bay Municipal Utility District, 4.75%, 6/01/21 1,915,000 1,623,365
Fresno Sewer Revenue, Series A, 4.75, 9/01/26 2,000,000 1,672,040
Orange County Community Facilities District, Series A, 7.35%,
8/15/18 300,000 342,702
San Francisco City & County Airport, 6.30%, 5/01/25 1,000,000 1,026,330
University of California Revenues, 4.75%, 9/01/16 2,000,000 1,718,520
- ------------------------------------------------------------------------------------------------------------------------
7,136,379
- ------------------------------------------------------------------------------------------------------------------------
COLORADO 6.05%
Colorado Housing Authority, 7.00%, 11/01/24 590,000 612,585
Denver City & County Airport Revenue, 7.75% - 8.50%, 11/15/13 -
11/15/23 2,700,000 3,101,661
- ------------------------------------------------------------------------------------------------------------------------
3,714,246
- ------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA 1.36%
Metropolitan Washington, General Airport Revenue,
Series A, 6.63%, 10/01/19 800,000 842,912
- ------------------------------------------------------------------------------------------------------------------------
FLORIDA 4.50%
Hillsborough County, 6.25%, 12/01/34 1,250,000 1,299,963
Sarasota County, Health Facilities Authority Revenue, 10.00%,
7/01/22 1,180,000 1,465,666
- ------------------------------------------------------------------------------------------------------------------------
2,765,629
- ------------------------------------------------------------------------------------------------------------------------
GEORGIA 3.45%
Cobb County Development Authority Revenue Bonds, Series 92A,
8.00%, 6/01/22 1,000,000 1,015,000
Monroe County Development Authority PCRB, 6.75%, 1/01/10 1,000,000 1,103,690
- ------------------------------------------------------------------------------------------------------------------------
2,118,690
- ------------------------------------------------------------------------------------------------------------------------
ILLINOIS 9.15%
Broadview Tax Increment Revenue, 8.25%, 7/01/13 1,000,000 1,080,810
Chicago Heights Residential Mortgage,
(effective yield-3.00%) (a), 6/01/09 3,465,000 1,460,220
Chicago, Capital Appreciation, (effective yield - 1.74%) (a),
7/01/16 2,000,000 598,160
llinois Health Facilities Authority Revenue, 9.50%, 10/01/22 1,250,000 1,534,600
</TABLE>
50
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
llinois Educational Facilities Authority Revenue, 6.00%,10/1/24 $1,000,000 $ 950,410
- ------------------------------------------------------------------------------------------------------------------------
5,624,200
- ------------------------------------------------------------------------------------------------------------------------
INDIANA 0.49%
Indiana Transportation Finance Authority, Series A, (effective
yield - 1.76%) (a), 6/01/17 1,000,000 301,770
- ------------------------------------------------------------------------------------------------------------------------
IOWA 1.08%
Student Loan Liquidity Corporation, Student Loan Revenue, Series
C, 6.95%, 3/01/06 625,000 664,900
- ------------------------------------------------------------------------------------------------------------------------
KENTUCKY 3.37%
Jefferson County, Hospital Revenue, 8.90%, 10/01/08 500,000 565,625
Kenton County Airport Board Revenue, OID, 7.50%, 2/01/20 1,400,000 1,506,022
- ------------------------------------------------------------------------------------------------------------------------
2,071,647
- ------------------------------------------------------------------------------------------------------------------------
MAINE 1.69%
Maine State Housing Authority, Series C, 6.88%, 11/15/23 1,000,000 1,039,210
- ------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS 3.19%
Massachusetts State Health and Educational Facilities Authority,
OID Revenue Bonds, Series A, 6.88%, 4/01/22 1,000,000 1,089,550
Massachusetts State Health and Education, 6.00%, 10/01/23 1,000,000 872,340
- ------------------------------------------------------------------------------------------------------------------------
1,961,890
- ------------------------------------------------------------------------------------------------------------------------
MICHIGAN 0.99%
Romulus Community Schools, Refunding,
(effective yield - 1.49%) (a), 5/01/20 2,385,000 606,577
- ------------------------------------------------------------------------------------------------------------------------
NEBRASKA 0.59%
Nebraska Investment Finance Authority, SFM, 9.31%, 9/15/24 350,000 363,563
- ------------------------------------------------------------------------------------------------------------------------
NEVADA 0.83%
Henderson Local Improvement District, Special Assessment, Series
A, 8.50%, 11/01/12 490,000 512,393
- ------------------------------------------------------------------------------------------------------------------------
NEW YORK 9.73%
Clifton Springs Hospital Refunding & Improvement, 8.00%, 1/01/20 775,000 793,065
Herkimer County, IDA, 8.00%, 1/01/09 1,000,000 978,580
</TABLE>
51
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
Metropolitan Transportation Authority, 4.75%, 7/01/19 $1,000,000 $ 815,250
New York City, Series H, 7.20%, 2/01/13 1,500,000 1,613,175
Port Authority New York & New Jersey, 5.38%, 1/15/32 1,915,000 1,773,577
- ------------------------------------------------------------------------------------------------------------------------
5,973,647
- ------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA 1.62%
North Carolina Eastern Municipal Power Agency
Systems Revenue, 5.70%, 1/01/13 1,000,000 992,520
- ------------------------------------------------------------------------------------------------------------------------
OHIO 3.10%
Ohio State Turnpike Common Turnpike Revenue, 5.50%, 2/15/26 2,000,000 1,906,840
- ------------------------------------------------------------------------------------------------------------------------
OKLAHOMA 1.67%
Oklahoma City, Industrial and Cultural Facilities Trust, 6.75%,
9/15/17 1,000,000 1,023,950
- ------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA 2.50%
Pennsylvania Economic Development, 6.40%, 1/01/09 500,000 493,735
Philadelphia Hospital and Higher Education Facilities, 6.50%,
11/15/08 1,000,000 1,039,970
- ------------------------------------------------------------------------------------------------------------------------
1,533,705
- ------------------------------------------------------------------------------------------------------------------------
RHODE ISLAND 0.68%
West Warwick, Series A, GO Bonds, 6.80% - 7.30%, 7/15/98 - 7/15/08 395,000 416,596
- ------------------------------------------------------------------------------------------------------------------------
TENNESSEE 7.37%
Memphis Shelby County Airport Authority Special Facilities Revenue
Refunding, 7.88%, 9/01/09 1,500,000 1,662,675
Tennessee Housing Development Agency, 7.38%, 7/01/23 2,750,000 2,862,998
- ------------------------------------------------------------------------------------------------------------------------
4,525,673
- ------------------------------------------------------------------------------------------------------------------------
TEXAS 5.49%
Brazos Higher Education Authority Student Loan Revenue, 7.10%,
11/01/04 445,000 481,762
Dallas-Fort Worth International Airport Facility Revenue Bonds,
7.25%, 11/01/30 1,000,000 1,070,750
Houston Texas Airport Systems Revenue, 6.13%, 7/15/27 1,000,000 968,880
Texas State Department of Housing and Community Affairs Refunding,
Series C, 9.99%, 7/02/24 750,000 853,125
- ------------------------------------------------------------------------------------------------------------------------
3,374,517
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Percent of Net Principal
Assets Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG-TERM MUNICIPAL SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
UTAH 2.99%
Bountiful Hospital Revenue, 9.50%, 12/15/18 $ 240,000 $ 264,482
Utah State Housing Finance Commission, 7.20%, 1/01/27 1,505,000 1,572,259
- ------------------------------------------------------------------------------------------------------------------------
1,836,741
- ------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA 6.00%
Harrison County, 6.75%, 8/01/24 2,000,000 2,156,360
West Virginia State Hospital Finance Authority Revenue, 9.70%,
1/01/18 1,500,000 1,527,165
- ------------------------------------------------------------------------------------------------------------------------
3,683,525
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL SECURITIES (COST $54,458,418) 56,816,342
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES 5.95%
- ------------------------------------------------------------------------------------------------------------------------
ALABAMA 0.16%
North Alabama Environ Impt, 3.80%, 12/01/00 100,000 100,000
- ------------------------------------------------------------------------------------------------------------------------
ARIZONA 1.63%
Pinal County Arizona Industrial Development, 3.85%, 12/01/09 1,000,000 1,000,000
- ------------------------------------------------------------------------------------------------------------------------
DELAWARE 1.14%
Delaware State Economic Development, 3.95%, 10/01/29 100,000 100,000
Wilmington Delaware Hospital Development, 3.80%, 7/01/11 600,000 600,000
- ------------------------------------------------------------------------------------------------------------------------
700,000
- ------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI 1.46%
Jackson County PCRB, 3.80%, 6/01/23 900,000 900,000
- ------------------------------------------------------------------------------------------------------------------------
NEW YORK 1.56%
New York City Subseries B-4, 3.70%, 8/15/21 200,000 200,000
Sanwa Bank LOC, 3.70%, 8/15/18 200,000 200,000
New York State Job Development Authority, 3.95%, 3/01/07 560,000 560,000
- ------------------------------------------------------------------------------------------------------------------------
960,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (COST $3,660,000) 3,660,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $58,118,418) 98.43% 60,476,342
- ------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 1.57% 963,293
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $61,439,635
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
MENTOR MUNICIPAL INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
GO -- General Obligation OID -- Original Issue Discount
IDA -- Industrial Development Authority PCRB -- Pollution Control Revenue Bond
LOC -- Line of Credit SFM -- Single Family Mortgage
</TABLE>
(a) Effective yield is the yield as calculated at time of purchase at which the
bond accretes on an annual basis until its maturity date.
(b) Interest rates represent annualized yield to date of maturity. For each
security, cost (for financial reporting and federal income tax purposes) and
carrying value are the same.
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Asset Amount Market Value
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 87.58%
- ------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 9.16%
Advanta Mortgage Loan Trust, Series 1993-4,
5.55%, 3/25/10 - 1/25/25 $ 2,905,562 $ 2,707,670
Equifax Credit Corporation, Series 1994-1,B
5.75%, 3/15/09 2,623,718 2,516,143
Fifth Third Auto Grantor Trust 6.20%, 9/15/01 2,059,456 2,050,207
Old Stone Credit Corporation Home Equity Trust, Series 1993-1 B1,
6.00%, 3/15/08 1,114,258 1,078,370
World Omni, Series 1993-B, 5.05%, 8/15/99 (b) 230,741 228,687
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES ($8,652,375) 8,581,077
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 37.12%
Federal Home Loan Mortgage Corporation
6.50%, Series 1422, 2/15/07, REMIC 4,408,039 4,135,107
6.50%, Series 1647B, 11/15/08, REMIC 4,241,194 3,962,297
7.50%, 11/01/11* 3,314,905 3,319,943
Government National Mortgage Association
7.00%, 12/15/08 4,027,323 3,992,181
6.88%, 12/20/22 3,530,706 3,587,483
5.00%, 1/20/27 3,533,240 3,418,805
6.00%, 4/01/27, TBA (a) 1,625,000 1,612,770
U.S. Treasury Notes, 6.25% - 6.63%, 3/31/02 - 2/15/27 10,831,000 10,732,291
- ------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $35,079,710) 34,760,877
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 18.44%
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL 14.50%
Capital One Bank, 7.15% - 7.20%, 7/19/99 - 9/15/06* 4,750,000 4,779,112
Lehman Brothers, Inc., 7.50%, 8/01/26 3,500,000 3,529,432
Nationsbank Corporation, 7.50%, 9/15/06 1,500,000 1,493,142
Salomon, Inc., 7.65%, 6/27/05 1,000,000 991,183
Sunamerica, Inc., 7.34%, 8/30/05* 1,200,000 1,174,406
United Dominion Realty, 7.07%, 11/15/06 1,700,000 1,632,510
- ------------------------------------------------------------------------------------------------------------------------
13,599,785
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Asset Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY 2.59%
Phillips Electronics, 7.20%, 6/01/26 $ 2,500,000 $ 2,428,543
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES 1.35%
Mississippi Power & Light, 8.80%, 4/01/05 1,250,000 1,263,655
- ------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $17,459,905) 17,291,983
- ------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 11.79%
Chase Mortgage Finance Corporation,
Series 1993 - L2 M, 7.00%, 10/25/24 3,028,459 2,827,024
CS First Boston, Series 1996-2, A6 7.18%, 2/25/18 2,500,000 2,395,757
General Electric Capital Mortgage Services, Inc.,
Series 1993-18 B1, 6.00%, 2/25/09 2,124,025 1,953,440
Prudential Home, Series 1995-5, 7.25%, 9/25/25* 4,083,293 3,874,510
- ------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations
(cost $11,337,232) 11,050,731
- ------------------------------------------------------------------------------------------------------------------------
INTEREST ONLY SECURITIES 4.45%
Home Ownership, Series 144A, 12/30/26
(cost $4,409,731) 4,350,000 4,173,138
- ------------------------------------------------------------------------------------------------------------------------
RESIDUAL INTERESTS 6.62%
Capital Mortgage Funding I, Inc., 1996-1, 1/27/27 29,959 963,752
Capital Mortgage Funding I, Inc., 1997-1, 12/10/26 35,876 644,038
General Mortgage Securities II, Inc., 1995-1, 6/25/20 27,379 645,156
General Mortgage Securities II, Inc., 1995-4, 6/25/23 15,285 541,865
General Mortgage Securities II, Inc., 1996-1, 11/25/22 14,837 593,451
National Mortgage Funding I, Inc., 1995-4, 3/20/21 13,146 215,484
National Mortgage Funding I, Inc., 1995-5, 3/25/22 5,421 415,994
National Mortgage Funding I, Inc., 1995-7, 9/17/25 33,920 813,273
National Mortgage Funding I, Inc., 1995-8, 8/25/22 45,000 776,065
National Mortgage Funding I, Inc., 1995-9, 11/19/25 39,219 602,628
- ------------------------------------------------------------------------------------------------------------------------
Total Residual Interests (cost $6,323,848) 6,211,706
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS (COST $83,262,801) 82,069,512
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
MENTOR QUALITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Asset Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENT 18.15%
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/31/97, 6.53%, due 4/01/97,
collateralized by $18,121,155 Federal Home Loan Mortgage
Coprporation, 7.00%, 8/01/26,
market value $17,379,320 (cost $17,014,325) $17,014,325 $17,014,325
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $100,277,126) 105.73% 99,083,837
- ------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES (5.73%) (5,319,695 )
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $93,764,142
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ABBREVIATIONS
CMO - Collateralized Mortgage Obligation
REMIC - Real Estate Mortgage Investment Conduit
TBA - To Be Announced
(a) At March 31, 1997 the cost of securities purchased on a when-issued basis
totaled $1,617,383.
(b) These are securities that may be resold to "qualified institutional buyers"
under Rule 144A or securities offered pursuant to Section 4 (2) of the
Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the Board of Trustees.
* At March 31, 1997, $13,348,198 principal amount of these securities has been
segregated for a commitment to purchase when-issued securities.
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
MENTOR SHORT-DURATION INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
ASSET-BAKED SECURITIES 34.67%
Advanta Mortgage Loan Trust 1993-4, 4.75% - 6.15%, 10/25/09 -
3/25/10* $2,768,100 $ 2,647,341
AFC Home Equity Loan, 6.60%, 2/25/27 1,499,955 1,457,570
AFG Receivables Trust, 6.45% - 7.05%,
9/15/00 - 4/15/01* 1,918,180 1,902,650
Equifax Credit Corporation 1994-1B, 5.75%, 3/15/09 834,165 799,964
Fifth Third Auto Grantor Trust, 6.20%, 9/15/01 1,030,783 1,026,154
General Motors Acceptance Corporation, 6.30%, 6/15/99 168,051 167,906
Old Stone Credit Corporation, 6.20%, 6/15/08 470,926 457,642
Olympic Automobiles Receivables Trust,
6.85% - 7.35%, 6/15/01 - 10/15/01* 2,776,241 2,793,386
Union Acceptance Corporation, 6.45%, 7/08/03* 1,112,090 1,106,654
World Omni 1993 B, 5.05%, 8/15/99 (b) 93,544 92,711
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (COST $12,523,415) 12,451,978
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES AND AGENCIES 37.83%
Federal National Mortgage Association
10.00%, 6/01/05, MBS 386,856 404,099
Government National Mortgage Association
7.00%, 12/15/08, MBS 1,521,438 1,508,162
5.50%, 11/20/26 - 12/20/26 5,676,389 5,594,206
5.00%, 1/20/27 3,614,470 3,497,405
6.00%, 4/01/27, ARM, TBA (a) 2,600,000 2,580,432
- ------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES AND AGENCIES
(COST $13,672,348) 13,584,304
- ------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION 1.04%
Ryland Acceptance Corporation,
9.63%, 9/25/17 (cost $371,177) 376,487 374,335
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 9.81%
Capital One Bank, 7.15% - 7.20%, 7/19/99 - 9/15/06* 2,500,000 2,512,404
Mississippi Power & Light, 8.80%, 4/01/05 1,000,000 1,010,924
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $3,513,087) 3,523,328
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
MENTOR SHORT-DURATION INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
RESIDUAL INTERESTS 1.50%
Capital Mortgage Funding I, Inc., 1996-1, 1/27/27 $ 11,651 $ 374,792
National Mortgage Funding, Inc., 1996-4, 10/25/21 3,993 162,754
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RESIDUAL INTERESTS (COST $596,801) 537,546
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 11.78%
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Goldman Sachs & Company
Dated 3/31/97, 6.53%, due 4/01/97,
collateralized by $4,504,449 Federal Home Loan Mortgage
Corporation, 7.00%, 8/01/26,
market value $4,320,048 (cost $4,228,787) 4,228,787 4,228,787
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $34,905,615) 96.63% 34,700,278
- ------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES 3.37% 1,211,169
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.00% $35,911,447
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ABBREVIATIONS
ARM -- Adjustable Rate Mortgage
CMO -- Collateralized Mortgage Obligations
MBS -- Mortgage Backed Securities
TBA -- To Be Announced
(a) At March 31, 1997 the cost of securities purchased on a when-issued basis
totaled $2,587,813.
(b) These are securities that may be resold to "qualified institutional buyers"
under Rule 144A or securities offered pursuant to Section 4 (2) of the
Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the Board of Trustees.
* At March 31, 1997, $9,806,466 principal amount of these securities has been
segregated for a commitment to purchase when-issued securities.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
MENTOR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Mentor Mentor
Mentor Perpetual Capital
Growth Global Growth
Portfolio Portfolio Portfolio
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value* (Note 2)
Investment securities $371,482,461 $80,438,172 $ 110,907,931
Repurchase agreements 42,170,678 8,920,137 21,262,602
- ----------------------------------------------------------------------------------------------------------------------
Total Investments 413,653,139 89,358,309 132,170,533
- ----------------------------------------------------------------------------------------------------------------------
Cash - - -
Receivables
Investments sold 2,527,836 270,736 -
Fund shares sold 1,520,995 1,234,433 785,156
Dividends and interest 58,771 244,879 103,824
Forward foreign currency exchange contracts held (Note
8) - 220,294 -
Variation margin (Note 2) - - -
Deferred expenses (Note 2) 14,807 22,039 18,000
Other assets - - -
- ----------------------------------------------------------------------------------------------------------------------
Total assets 417,775,548 91,350,690 133,077,513
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables
Investments purchased 3,242,077 872,723 6,368,985
Fund shares redeemed 705,411 69,711 369,562
Dividends - - -
Unrealized depreciation on interest-rate swap - - -
Accrued expenses and other liabilities 286,755 119,288 84,263
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 4,234,243 1,061,722 6,822,810
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $413,541,305 $90,288,968 $ 126,254,703
- ----------------------------------------------------------------------------------------------------------------------
Net Assets represented by: (Note 2)
Additional paid-in capital $370,276,453 $85,009,728 $ 103,341,944
Accumulated net investment income (2,801,490) (461,303) 34,265
Accumulated distributions in excess of net investment
income - - -
Accumulated net realized gain (loss) on investment
transactions 9,103,590 (244,791) 7,403,830
Net unrealized appreciation of investments and foreign
currency related transactions 36,962,752 5,985,334 15,474,664
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $413,541,305 $90,288,968 $ 126,254,703
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A Shares $14.12 $17.86 $18.30
Class B Shares $13.89 $17.39 $17.75
OFFERING PRICE PER SHARE
Class A Shares $14.98(a) $18.95(a) $19.42(a)
Class B shares $13.89 $17.39 $17.75
SHARES OUTSTANDING
Class A Shares 4,142,707 1,568,222 2,385,455
Class B Shares 25,568,747 3,580,360 4,654,251
- ----------------------------------------------------------------------------------------------------------------------
Total Shares Outstanding 29,711,454 5,148,582 7,039,706
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Investments at cost $376,690,387, $83,584,875, $116,695,869, $281,574,214,
$122,587,431, $58,118,418, $100,277,126 and $34,905,615 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.
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
<TABLE>
<CAPTION>
Mentor Mentor Mentor Mentor
Mentor Income and Municipal Quality Short-Duration
Strategy Growth Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C>
- ---------------------------------------------------------------------------------------
$205,767,333 $116,776,464 $60,476,342 $ 82,069,512 $ 30,471,491
72,586,394 5,597,000 - 17,014,325 4,228,787
- ---------------------------------------------------------------------------------------
278,353,727 122,373,464 60,476,342 99,083,837 34,700,278
- ---------------------------------------------------------------------------------------
- - 136,656 - 17,510
35,012,440 959,986 - 3,662,594 3,574,165
2,123,978 1,055,433 1,156,661 2,219,575 549,942
2,171,532 991,052 935,957 737,168 223,651
- - - - -
- 7,812 - -
35,289 - - 5,415 28,101
- - - 54,627 13,076
- ---------------------------------------------------------------------------------------
317,696,966 125,379,935 62,713,428 105,763,216 39,106,723
- ---------------------------------------------------------------------------------------
- 943,581 977,826 10,966,066 2,597,346
520,807 83,600 10,990 133,493 353,187
- - 258,970 516,049 160,388
- - - 256,227 60,045
185,527 240,403 26,007 127,239 24,310
- ---------------------------------------------------------------------------------------
706,334 1,267,584 1,273,793 11,999,074 3,195,276
- ---------------------------------------------------------------------------------------
$316,990,632 $124,112,351 $61,439,635 $ 93,764,142 $ 35,911,447
- ---------------------------------------------------------------------------------------
$278,149,733 $112,381,306 $61,319,429 $110,476,181 $ 36,369,140
1,927,482 48,037 - - -
- - (215,346) (359,979) (49,435)
40,133,904 11,897,094 (2,170,405) (14,902,544) (142,876)
(3,220,487) (214,086) 2,505,957 (1,449,516) (265,382)
- ---------------------------------------------------------------------------------------
$316,990,632 $124,112,351 $61,439,635 $ 93,764,142 $ 35,911,447
- ---------------------------------------------------------------------------------------
$15.65 $18.13 $15.00 $12.76 $12.46
$15.43 $18.13 $15.01 $12.77 $12.46
$16.60(A) $19.24(A) $15.75(B) $13.40(B) $12.59(C)
$15.43 $18.13 $15.01 $12.77 $12.46
2,265,859 2,269,721 1,469,256 2,548,525 950,634
18,241,882 4,576,082 2,625,041 4,796,615 1,931,952
- ---------------------------------------------------------------------------------------
20,507,741 6,845,803 4,094,297 7,345,140 2,882,586
- ---------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
MENTOR FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Mentor Mentor
Mentor Perpetual Capital
Growth Global Growth
Portfolio Portfolio Portfolio
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 1,190,238 $ 153,016 $ 235,555
Dividends (Net of withholding taxes)*** 236,054 407,108 880,797
- -------------------------------------------------------------------------------------------------------------------------
Total investment income (Note 2) 1,426,292 560,124 1,116,352
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fee (Note 4) 1,502,702 383,362 454,208
Distribution fees (Note 5) 1,418,801 193,859 287,850
Shareholder services fees (Note 5) 536,679 87,476 141,940
Transfer agent fee 312,148 67,273 87,696
Administration fee (Note 4) 214,672 34,991 56,776
Shareholder reports and postage expenses 77,807 19,107 23,105
Registration expenses 64,106 13,342 12,676
Custodian and accounting fees 45,496 111,660 13,743
Legal and audit fees 18,898 3,243 4,832
Organizational expenses 8,171 5,518 3,862
Directors' fees and expenses 5,660 971 1,447
Miscellaneous 22,641 3,885 5,788
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 4,227,781 924,687 1,093,923
- -------------------------------------------------------------------------------------------------------------------------
Deduct
Waiver of administration fee (Note 4) - - -
Waiver of management fee (Note 4) - - -
- -------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 4,227,781 924,687 1,093,923
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (2,801,489) (364,563) 22,429
- -------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on
investments (Note 2) 13,761,286 (214,739) 8,117,672
Change in unrealized appreciation
(depreciation) (62,700,166) 2,468,561 1,614,985
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
futures contracts (48,938,880) 2,253,822 9,732,657
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(51,740,369) $1,889,259 $9,755,086
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Net of interest expense $24,143 for the Mentor Quality Income Portfolio and
$65,311 for the Mentor Short-Duration Income Portfolio.
*** Withholding taxes were $1,632, $41,002, $8,221 and $7,559 for the Mentor
Growth Portfolio, Mentor Perpetual Global Portfolio, Mentor Strategy
Portfolio, and Mentor Income and Growth Portfolio, respectively for the six
months ended March 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
<TABLE>
<CAPTION>
Mentor Mentor Mentor Mentor
Mentor Income and Municipal Quality Short-Duration
Strategy Growth Income Income Income
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C>
- --------------------------------------------------------------------------------------------------
$ 4,826,917 $ 1,412,459 $ 1,829,150 $ 3,316,453** $ 1,168,430**
590,110 565,485 - - -
- --------------------------------------------------------------------------------------------------
5,417,027 1,977,944 1,829,150 3,316,453 1,168,430
- --------------------------------------------------------------------------------------------------
1,383,034 395,474 171,109 252,776 82,496
1,114,145 284,183 93,771 150,040 36,349
406,775 131,825 71,296 105,323 41,248
239,392 79,630 37,300 57,724 20,325
162,710 52,730 28,518 42,129 16,488
58,765 18,268 5,817 12,386 3,805
43,715 14,115 5,316 7,235 4,159
34,827 21,269 10,685 13,118 4,848
14,468 4,629 2,403 3,271 1,208
10,048 1,280 3,348 - 3,658
4,333 1,386 720 980 362
17,333 5,545 2,879 3,919 1,447
- --------------------------------------------------------------------------------------------------
3,489,545 1,010,334 433,162 648,901 216,393
- --------------------------------------------------------------------------------------------------
- - - - 16,488
- - - 65,665 21,662
- --------------------------------------------------------------------------------------------------
3,489,545 1,010,334 433,162 583,236 178,243
- --------------------------------------------------------------------------------------------------
1,927,482 967,610 1,395,988 2,733,217 990,187
- --------------------------------------------------------------------------------------------------
40,394,212 13,394,771 341,001 179,956 5,905
(63,523,942) (9,632,252) (435,142) (1,141,290) (180,892)
- --------------------------------------------------------------------------------------------------
(23,129,730) 3,762,519 (94,141) (961,334) (174,987)
- --------------------------------------------------------------------------------------------------
(21,202,248)
$ $ 4,730,129 $ 1,301,847 $ 1,771,883 $ 815,200
- --------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
MENTOR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Mentor Perpetual Global
Mentor Growth Portfolio Portfolio
------------------------------ ----------------------------
Six Months Six Months
Ended Year Ended Period
3/31/97 Ended 3/31/97 Ended
(Unaudited) 9/30/96 (Unaudited) 9/30/96
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (2,801,489) $ (3,564,174) $ (364,563) $ (246,968)
Net realized gain (loss) on investments and
futures contracts 13,761,286 63,686,744 (214,739) 2,247,124
Change in unrealized appreciation
(depreciation) of investments (62,700,166) 22,942,450 2,468,561 2,553,849
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations (51,740,369) 83,065,020 1,889,259 4,554,005
- --------------------------------------------------------------------------------------------------------------------
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 (5,768,516) (2,238,213) (476,593) (338,447)
Class B (52,596,202) (27,048,016) (1,578,405) (688,165)
- --------------------------------------------------------------------------------------------------------------------
Net decrease from distributions (58,364,718) (29,286,229) (2,054,998) (1,026,612)
- --------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from portfolio share
transactions 111,796,232 91,376,945 35,225,743 32,180,438
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 1,691,145 145,155,736 35,060,004 35,707,831
NET ASSETS
Beginning of period 411,850,160 266,694,424 55,228,964 19,521,133
- --------------------------------------------------------------------------------------------------------------------
End of period $413,541,305 $411,850,160 $90,288,968 $55,228,964
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
<TABLE>
<CAPTION>
Mentor Capital Growth Mentor Income and Growth Mentor Municipal Income
Portfolio Mentor Strategy Portfolio Portfolio Portfolio
- ----------------------------- ----------------------------- ---------------------------- ---------------------------
Six Months Six Months Six Months Six Months
Ended Period Ended Year Ended Year Ended Year
3/31/97 Ended 3/31/97 Ended 3/31/97 Ended 3/31/97 Ended
(Unaudited) 9/30/96 (Unaudited) 9/30/96 (Unaudited) 9/30/96 (Unaudited) 9/30/96
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------------
$ 22,429 $ 7,974 $ 1,927,482 $ (396,451) $ 967,610 $ 1,183,705 $ 1,395,988 $ 2,945,818
8,117,672 16,294,346 40,394,212 24,144,971 13,394,771 8,390,313 341,001 149,379
1,614,985 3,307,505 (63,523,942) 22,559,071 (9,632,252) 3,327,836 (435,142) 320,865
- --------------------------------------------------------------------------------------------------------------------------------
9,755,086 19,609,825 (21,202,248) 46,307,591 4,730,129 12,901,854 1,301,847 3,416,062
- --------------------------------------------------------------------------------------------------------------------------------
- - - - (367,935) (431,692) (539,297) (1,063,836)
- - - - (650,200) (655,745) (982,434) (919,043)
- - - - - - - -
- - - - - - - -
(4,657,749) (871,361) (1,531,137) (224,749) (2,474,556) (857,221) - -
(10,198,949) (1,783,019) (21,767,353) (3,506,588) (6,846,186) (2,018,269) - -
- --------------------------------------------------------------------------------------------------------------------------------
(14,856,698) (2,654,380) (23,298,490) (3,731,337) (10,338,877) (3,962,927) (1,521,731) (2,982,879)
- --------------------------------------------------------------------------------------------------------------------------------
31,254,622 (4,083,713) 52,625,164 31,148,786 38,963,518 15,252,843 6,910,481 (5,637,324)
- --------------------------------------------------------------------------------------------------------------------------------
26,153,010 12,871,732 8,124,426 73,725,040 33,354,770 24,191,770 6,690,597 (5,204,141)
100,101,693 87,229,961 308,866,206 235,141,166 90,757,581 66,565,811 54,749,038 59,953,179
- --------------------------------------------------------------------------------------------------------------------------------
$126,254,703 $100,101,693 $316,990,632 $308,866,206 $124,112,351 $90,757,581 $61,439,635 $54,749,038
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<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 Period Ended Year
3/31/97 Ended 3/31/97 Ended
(Unaudited) 9/30/96 (Unaudited) 9/30/96
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net realized gain (loss) $ 2,733,217 $ 5,381,252 $ 990,187 $ 1,563,529
Net realized gain (loss) on
investments and futures contracts 179,956 (1,415,843) 5,905 (113,895)
Change in unrealized appreciation
(depreciation) of investments (1,141,290) (937,621) (180,892) (364,509)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 1,771,883 3,027,788 815,200 1,085,125
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income
Class A (887,356) (1,587,199) (262,313) (243,822)
Class B (2,094,564) (3,816,798) (681,577) (1,354,465)
Distributions in excess of net
investment income
Class A - - - -
Class B - - - -
Net realized gain on investments
Class A - - - -
Class B - - - -
- -------------------------------------------------------------------------------------------------------------------
Net decrease from distributions (2,981,920) (5,403,997) (943,890) (1,598,287)
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 9)
Change in net assets from
portfolio share transactions 15,642,950 (4,919,453) 4,073,547 11,607,207
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 14,432,913 (7,295,662) 3,944,857 11,094,045
NET ASSETS
Beginning of period 79,331,229 86,626,891 31,966,590 20,872,545
- -------------------------------------------------------------------------------------------------------------------
End of period $93,764,142 $79,331,229 $35,911,447 $31,966,590
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor Growth Portfolio Mentor Perpetual Global Portfolio
-------------------------------- -------------------------------------------------
Six Months Six Months
Ended Year Period Ended Year Year Year
3/31/97 Ended Ended 3/31/97 Ended Ended Ended
(Unaudited) 9/30/96 9/30/95* (Unaudited) 9/30/96 9/30/95 9/30/94(c)
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF
PERIOD $ 18.47 $ 16.08 $ 13.37 $ 17.86 $ 15.88 $14.23 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.04 (0.10) (0.01) 0.01 (0.04) 0.05 (0.01)
Net realized and unrealized gain
(loss) on investments (1.84) 4.23 2.72 0.62 2.82 1.60 0.06
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.80) 4.13 2.71 0.63 2.78 1.65 0.05
LESS DISTRIBUTIONS
Dividends from net investment
income - - - - - - -
Distributions in excess of net
investment income - - - - - - -
Distributions from capital gains (2.55) (1.74) - (0.63) (0.80) - -
Distributions in excess of
capital gains - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (2.55) (1.74) - (0.63) (0.80) - -
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.12 $ 18.47 16.08 $ 17.86 $ 17.86 $15.88 $ 14.23
- ------------------------------------------------------------------------------------------------------------------------
Total Return (10.91%) 29.15% 20.27% 3.66% 18.40% 11.60% 0.35%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $58,513 $40,272 20,368 $28,013 $13,098 $6,854 $ 8,882
Ratio of expenses to average net
assets 1.27%(a) 1.28% 1.36%(a) 2.01%(a) 1.95% 2.06% 2.09%(a)
Ratio of expenses to average net
assets excluding waiver 1.27%(a) 1.28% 1.36%(a) 2.01%(a) 1.95% 2.11% 3.18%(a)
Ratio of net investment income
(loss) to average net assets (0.65%)(a) (0.39%) (0.65%)(a) (0.50%)(a) (0.21%) 0.26% (0.10%)(a)
Portfolio turnover rate 38% 105% 70% 70% 130% 155% 2%
Average commission rate on
portfolio transactions $0.0661 $0.0602 - $0.0353 $0.0320 - -
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from June 5, 1995 (initial offering of Class A Shares) to
September 30, 1995.
(a) Annualized.
(c) Reflects operations for the period from March 29, 1994 (commencement of
operations), to September 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
----------------------------------------------------------------------------
Six Months
Ended Year Year Year Year Year
3/31/97 Ended Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.36 $ 16.02 $ 14.88 $ 15.26 $ 14.21 $ 14.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.03) 0.11 0.02 0.09 0.14 0.08
Net realized and unrealized gain (loss)
on investments 1.77 3.73 2.91 (0.30) 1.02 0.03
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.74 3.84 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 (2.80) (0.50) (1.79) (0.13) - -
Distributions in excess of capital
gains - - - - - -
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (2.80) (0.50) (1.79) (0.17) (0.11) (0.08)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.30 $ 19.36 $ 16.02 $ 14.88 $ 15.26 $ 14.21
- ------------------------------------------------------------------------------------------------------------------------
Total Return 10.01% 24.63% 20.18% (1.37%) 8.21% 0.78%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $43,646 $31,889 $29,582 $21,181 $31,360 $ 20,864
Ratio of expenses to average net assets 1.41%(a) 1.43% 1.87% 1.70% 1.49% 1.14%(a)
Ratio of expenses to average net assets
excluding waiver 1.41%(a) 1.43% 1.87% 1.70% 1.59% 1.43%(a)
Ratio of net investment income (loss) to
average net assets 0.55%(a) 0.51% 0.27% 0.53% 0.96% 1.54%(a)
Portfolio turnover rate 39% 98% 157% 149% 192% 61%
Average commission rate on portfolio
transactions $0.0695 $0.0688 - - - -
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from June 5, 1995 (initial offering of Class A Shares) to
September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations), to September 30, 1992.
(a) Annualized.
(b) Reflects operations for the period from May 24, 1993 (commencement of
operations), to September 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
<TABLE>
<CAPTION>
Mentor Strategy Portfolio Mentor Income and Growth Portfolio
- ------------------------------------ ------------------------------------------------------------------
Six Months Six Months
Ended Year Period Ended Year Year Year Year
3/31/97 Ended Ended 3/31/97 Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95* (Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93(b)
<S> <C>
- -----------------------------------------------------------------------------------------------------------
$ 17.96 $ 15.24 $ 13.45 $ 19.16 $ 17.13 $ 15.27 $ 14.88 $14.14
0.17 0.08 - 0.19 0.37 0.40 0.31 0.09
)
(1.14 2.86 1.79 0.90 2.75 2.14 0.64 0.73
- -----------------------------------------------------------------------------------------------------------
(0.97) 2.94 1.79 1.09 3.12 2.54 0.95 0.82
- - - (0.20) (0.35) (0.40) (0.30) (0.08)
- - - - - (0.03) - -
(1.34) (0.22) - (1.92) (0.74) (0.25) (0.26) -
- - - - - - - -
- -----------------------------------------------------------------------------------------------------------
(1.34) (0.22) - (2.12) (1.09) (0.68) (0.56) (0.08)
- -----------------------------------------------------------------------------------------------------------
$ 15.65 $ 17.96 $ 15.24 $ 18.13 $ 19.16 $ 17.13 $ 15.27 $14.88
- -----------------------------------------------------------------------------------------------------------
(5.84%) 19.36% 13.31 % 6.05% 19.13% 17.24% 6.54% 5.54%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
$35,465 $20,372 $10,503 $41,155 $24,210 $19,888 $17,773 $9,849
1.40%(a) 1.42% 1.65%(a) 1.36%(a) 1.36% 1.69% 1.75% 1.56%(a)
1.40%(a) 1.42% 1.65%(a) 1.36%(a) 1.36% 1.69% 1.75% 1.94%(a)
1.88%(a) 0.62% (0.06%)(a) 2.41%(a) 2.08% 2.53% 2.20% 2.35%(a)
81% 125% 122% 76% 72% 62% 78% 13%
$0.0647 $0.0669 - $0.0510 $0.0492 - - -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
----------------------------------------------------------------------------
Six Months
Ended Year Year Year Year Year
3/31/97 Ended Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.04 $ 14.92 $ 14.42 $ 16.05 $ 14.76 $ 14.29
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.41 0.82 0.81 0.82 0.92 0.32
Net realized and unrealized gain (loss)
on investments (0.03) 0.12 0.51 (1.54) 1.32 0.47
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.38 0.94 1.32 (0.72) 2.24 0.79
LESS DISTRIBUTIONS
Dividends from net investment income (0.41) (0.82) (0.82) (0.81) (0.92) (0.32)
Distributions in excess of net
investment income (0.01) - - - (0.03) -
Distributions from capital gains - - - (0.10) - -
Distributions in excess of
capital gains - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (0.42) (0.82) (0.82) (0.91) (0.95) (0.32)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.00 $ 15.04 $ 14.92 $ 14.42 $ 16.05 $ 14.76
- -------------------------------------------------------------------------------------------------------------------------
Total Return 2.53% 6.46 % 9.46 % (4.83%) 16.00% 5.34%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $22,045 $17,558 $20,460 $25,056 $29,245 $ 18,801
Ratio of expenses to average
net assets 1.17%(a) 1.24 % 1.43 % 1.24% 0.71% 0.00%(a)
Ratio of expenses to average
net assets excluding waiver 1.17%(a) 1.24 % 1.43 % 1.33% 1.39% 1.26%(a)
Ratio of net investment income
to average net assets 5.23%(a) 5.47 % 5.56 % 5.43% 5.92% 6.21%(a)
Portfolio turnover rate 32% 46 % 43 % 87% 88% 0%
Average commission rate on portfolio
transactions - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from June 5, 1995 (initial offering of Class A Shares) 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.
70
<PAGE>
<TABLE>
<CAPTION>
Mentor
Short-Duration
Mentor Quality Income Portfolio Income Portfolio
- -------------------------------------------------------------------------------- ------------------------------------------
Six Months Six Months
Ended Year Year Year Year Year Ended Year Period
3/31/97 Ended Ended Ended Ended Ended 3/31/97 Ended Ended
(Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92** (Unaudited) 9/30/96 9/30/95*
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
$ 12.91 $ 13.29 $ 12.75 $ 14.04 $ 14.39 $ 14.30 $ 12.50 $ 12.68 $12.74
0.50 0.89 0.84 0.84 1.06 0.44 0.36 0.80 0.22
(0.17) (0.37) 0.61 (1.30) (0.31) 0.09 (0.02) (0.21) (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
0.33 0.52 1.45 (0.46 ) 0.75 0.53 0.34 0.59 0.19
(0.48) (0.89) (0.85) (0.83) (1.06) (0.44) (0.36) (0.77) (0.22)
- (0.01) (0.06) - (0.04) - (0.02) - (0.03)
- - - - - - - - -
- - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
(0.48) (0.90) (0.91) (0.83) (1.10) (0.44) (0.38) (0.77) (0.25)
- -------------------------------------------------------------------------------------------------------------------------------
$ 12.76 $ 12.91 $ 13.29 $ 12.75 $ 14.04 $ 14.39 $ 12.46 $ 12.50 $12.68
- -------------------------------------------------------------------------------------------------------------------------------
2.53% 4.09% 11.82% (3.39%) 5.41% 3.37% 2.71% 4.80% 1.51%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
$32,509 $21,092 $ 24,472 $30,142 $ 47,780 $ 36,740 $11,844 $ 7,450 $1,002
1.05%(a) 1.06% 1.32% 1.38% 1.04% 0.36%(a) 0.84%(a) 0.86% 0.71%(a)
1.17%(a) 1.32% 1.36% 1.39% 1.22% 1.21%(a) 1.06%(a) 1.26% 1.00%(a)
6.87%(a) 6.91% 6.73% 6.33% 7.31% 8.00%(a) 6.23%(a) 5.65% 4.10%(a)
76% 254% 368% 455% 102% 9% 68% 411% 126%
- - - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Growth Portfolio
-------------------------------------------------------------------------------
Six Months
Ended Year Period Year Year Year
3/31/97 Ended Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95* 12/31/94 12/31/93 12/31/92
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.29 $ 16.05 $ 12.15 $ 13.78 $ 12.81 $ 12.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.06 (0.17) (0.13) (0.15) (0.08) (0.06)
Net realized and unrealized gain
(loss) on investments (1.91) 4.15 4.03 (0.47) 2.07 1.94
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.85) 3.98 3.90 (0.62) 1.99 1.88
LESS DISTRIBUTIONS
Dividends from net investment income - - - - - -
Distributions in excess of net
investment income - - - - - -
Distributions from capital gains (2.55) (1.74) - (1.00) (1.02) (1.23)
Distributions in excess of
capital gains - - - (0.01) - -
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (2.55) (1.74) - (1.01) (1.02) (1.23)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.89 $ 18.29 $ 16.05 $ 12.15 $ 13.78 $ 12.81
- --------------------------------------------------------------------------------------------------------------------------
Total Return (11.34%) 28.18% 32.10% (4.48%) 15.60% 15.46%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $ 355,028 $371,578 $246,326 $190,126 $186,978 $136,053
Ratio of expenses to average net assets 2.06%(a) 2.03% 2.08%(a) 2.01% 2.02% 2.05%
Ratio of expenses to average net assets
excluding waiver 2.06%(a) 2.03% 2.08%(a) 2.01% 2.02% 2.05%
Ratio of net investment income (loss)
to average net assets (1.40%)(a) (1.13%) (1.20%)(a) (1.20%) (1.12%) (0.76%)
Portfolio turnover rate 38% 105% 70% 77% 64% 50%
Average commission rate on portfolio
transactions $ 0.0661 $ 0.0602 - - - -
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(c) Reflects operations for the period from March 29, 1994 (commencement of
operations), to September 30, 1994.
* 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.
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
<TABLE>
<CAPTION>
Mentor Perpetual Global Portfolio Mentor Capital Growth Portfolio
- ----------------------------------------------- ---------------------------------------------------------------------------
Six Months Six Months
Ended Year Year Year Ended Year Year Year Year Year
3/31/97 Ended Ended Ended 3/31/97 Ended Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95 9/30/94(c) (Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
$ 17.46 $ 15.67 $ 14.15 $ 14.18 $ 18.92 $ 15.79 $ 14.80 $ 15.23 $ 14.22 $ 14.18
(0.01) (0.05) (0.05) (0.04) 0.01 (0.04) 0.25 (0.04) 0.05 0.46
0.57 2.64 1.57 0.01 1.62 3.67 2.53 (0.26) 1.02 0.04
- ---------------------------------------------------------------------------------------------------------------------------------
0.56 2.59 1.52 (0.03) 1.63 3.63 2.78 (0.30) 1.07 0.50
- - - - - - - - (0.05) (0.46)
- - - - - - - - (0.01) -
(0.63) (0.80) - - (2.80) (0.50) (1.79) (0.13) - -
- - - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
(0.63) (0.80) - - (2.80) (0.50) (1.79) (0.13) (0.06) (0.46)
- ---------------------------------------------------------------------------------------------------------------------------------
$ 17.39 $ 17.46 $ 15.67 $ 14.15 $ 17.75 $ 18.92 $ 15.79 $ 14.80 $ 15.23 $ 14.22
- ---------------------------------------------------------------------------------------------------------------------------------
3.33% 17.39% 10.74% (0.21%) 9.61% 23.64% 19.26% (2.00%) 7.52% 0.61%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
$62,276 $42,131 $12,667 $ 7,987 $82,609 $68,213 $57,648 $41,106 $57,030 $25,468
2.76%(a) 2.70% 2.72% 2.79%(a) 2.16%(a) 2.18% 2.56% 2.46% 2.24% 1.86%(a)
2.76%(a) 2.70% 2.79% 3.93%(a) 2.16%(a) 2.18% 2.56% 2.46% 2.34% 2.16%(a)
(1.26%)(a) (0.91%) (0.40%) (0.82%)(a) (0.21%)(a) (0.24%) (0.41%) (0.22%) 0.21% 0.83%(a)
70% 130% 155% 2% 39% 98% 157% 149% 192% 61%
$0.0353 $0.0320 - - $0.0695 $0.0688 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Strategy Portfolio
---------------------------------------------------------------------
Six Months
Ended Year Period Year Year
3/31/97 Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95* 9/30/94 9/30/93***
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.79 $ 15.21 $ 12.24 $ 12.70 $ 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.11 (0.03) - (0.06) -
Net realized and unrealized gain (loss)
on investments (1.13) 2.83 2.97 (0.40) 0.20
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.02) 2.80 2.97 (0.46) 0.20
LESS DISTRIBUTIONS
Dividends from net investment income - - - - -
Distributions in excess of net
investment income - - - - -
Distributions from capital gains (1.34) (0.22) - - -
Distributions in excess of
capital gains - - - - -
- -------------------------------------------------------------------------------------------------------------------
Total distributions (1.34) (0.22) - - -
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.43 $ 17.79 $ 15.21 $ 12.24 $ 12.70
- -------------------------------------------------------------------------------------------------------------------
Total Return (6.20%) 18.48% 24.26% (3.61%) 1.60%
- -------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 281,527 $288,494 $224,643 $179,274 $122,177
Ratio of expenses to average net assets 2.21%(a) 2.19%(a) 2.31%(a) 2.19% 2.06%(a)
Ratio of expenses to average net assets
excluding waiver 2.21%(a) 2.19% 2.31%(a) 2.19% 2.06%(a)
Ratio of net investment income (loss) to
average net assets 1.13%(a) (0.19%) 0.02%(a) (0.54%) 0.08%(a)
Portfolio turnover rate 81% 125% 122% 143% 0%
Average commission rate on portfolio
transactions $ 0.0647 $ 0.0669 - - -
- -------------------------------------------------------------------------------------------------------------------
</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 from the period of October 29, 1993 (commencement of
operations), to December 31, 1994.
(a) Annualized.
(b) Reflects operations for the period from May 24, 1993 (commencement of
operations), to September 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
<TABLE>
<CAPTION>
Mentor Income and Growth Portfolio Mentor Municipal Income Portfolio
- ------------------------------------------------------ --------------------------------------------------------------------
Six Months Six Months
Ended Year Year Year Year Ended Year Year Year Year Year
3/31/97 Ended Ended Ended Ended 3/31/97 Ended Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93(b) (Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------------
$ 19.18 $ 17.14 $ 15.28 $ 14.91 $ 14.14 $ 15.05 $ 14.95 $ 14.43 $ 16.06 $ 14.78 $ 14.29
0.14 0.23 0.28 0.21 0.05 0.36 0.75 0.74 0.74 0.82 0.29
0.88 2.76 2.14 0.61 0.77 (0.01) 0.11 0.52 (1.54) 1.32 0.49
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1.02 2.99 2.42 0.82 0.82 0.35 0.86 1.26 (0.80) 2.14 0.78
(0.15) (0.21) (0.28) (0.19) (0.05) (0.36) (0.76) (0.74) (0.73) (0.82) (0.29)
- - (0.03) - - (0.03) - - - (0.04) -
(1.92) (0.74) (0.25) (0.26) - - - - (0.10) - -
- - - - - - - - - - -
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
(2.07) (0.95) (0.56) (0.45) (0.05) (0.39) (0.76) (0.74) (0.83) (0.86) (0.29)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$ 18.13 $ 19.18 $ 17.14 $ 15.28 $ 14.91 $ 15.01 $ 15.05 $ 14.95 $ 14.43 $ 16.06 $ 14.78
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
5.65% 18.26% 16.32% 5.66% 5.54% 2.37% 5.87% 9.01% (5.34%) 15.27% 5.28%
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$82,957 $66,548 $46,678 $43,219 $ 18,127 $39,395 $37,191 $39,493 $46,157 $50,976 $ 24,265
2.12%(a) 2.13% 2.43% 2.44% 2.13%(a) 1.69%(a) 1.74% 1.92% 1.74% 1.21% 0.50%(a)
2.12%(a) 2.13% 2.43% 2.44% 2.69%(a) 1.69%(a) 1.74% 1.92% 1.86% 1.89% 1.76%(a)
1.65%(a) 1.32% 1.78% 1.51% 1.60%(a) 4.73%(a) 4.95% 5.07% 4.93% 5.42% 5.80%(a)
76% 72% 62% 78% 13% 32% 46% 43% 87% 88% 0%
$0.0510 $0.0492 - - - - - - - - -
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Quality Income Portfolio
----------------------------------------------------------------------
Six Months
Ended Year Year Year Year Year
3/31/97 Ended Ended Ended Ended Ended
(Unaudited) 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.93 $ 13.31 $ 12.76 $ 14.06 $ 14.40 $ 14.30
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.44 0.84 0.79 0.82 0.99 0.41
Net realized and unrealized gain (loss)
on investments (0.15) (0.38) 0.61 (1.37) (0.31) 0.10
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.29 0.46 1.40 (0.55) 0.68 0.51
LESS DISTRIBUTIONS
Dividends from net investment income (0.44) (0.84) (0.79) (0.75) (0.99) (0.41)
Distributions in excess of net
investment income (0.01) - (0.06) - (0.03) -
Distributions from capital gains - - - - - -
Distributions in excess of capital gains - - - - - -
- ------------------------------------------------------------------------------------------------------------------
Total distributions (0.45) (0.84) (0.85) (0.75) (1.02) (0.41)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.77 $ 12.93 $ 13.31 $ 12.76 $ 14.06 $ 14.40
- ------------------------------------------------------------------------------------------------------------------
Total Return 2.26% 3.57% 11.33% (3.97%) 4.86% 3.24%
- ------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $61,255 $58,239 $62,155 $ 77,888 $127,346 $ 65,661
Ratio of expenses to average net assets 1.55%(a) 1.55% 1.74% 1.88% 1.54% 0.83%(a)
Ratio of expenses to average net assets
excluding waiver 1.68%(a) 1.82% 1.79% 1.90% 1.72% 1.67%(a)
Ratio of net investment income (loss)
to average net assets 6.37%(a) 6.39% 6.24% 6.21% 6.81% 7.53%(a)
Portfolio turnover rate 76% 254% 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.
76
<PAGE>
MENTOR FUNDS
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
Mentor Short-Duration Income Portfolio
-------------------------------------------------------------
Six Months
Ended Period Period Year
3/31/97 Ended Ended Ended
(Unaudited) 9/30/96 9/30/95* 9/30/94(d)
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50 $ 12.67 $ 12.18 $ 12.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.40 0.73 0.59 0.41
Net realized and unrealized gain (loss) on
investments (0.09) (0.17 ) 0.52 (0.29)
- -------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.31 0.56 1.11 0.12
LESS DISTRIBUTIONS
Dividends from net investment income (0.35) (0.73 ) (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 (0.35) (0.73 ) (0.62 ) (0.44)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.46 $ 12.50 $ 12.67 $ 12.18
- -------------------------------------------------------------------------------------------------------------------------
Total Return 2.52% 4.53% 9.22% 0.95%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $24,067 $24,517 $19,871 $ 17,144
Ratio of expenses to average net assets 1.16%(a) 1.16% 1.20%(a) 1.29%(a)
Ratio of expenses to average net assets excluding
waiver 1.39%(a) 1.56% 1.70%(a) 1.29%(a)
Ratio of net investment income (loss)
to average net assets 5.93%(a) 5.64% 5.04%(a) 4.90%(a)
Portfolio turnover rate 68% 411% 126% 166%
Average commission rate on portfolio transactions - - - -
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
* For the period from January 1, 1995 to September 30, 1995.
(d) Reflects operations for the period from April 29, 1994 (commencement of
operations), to December 31, 1994.
77
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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. Mentor Funds consists of nine separate Portfolios (hereinafter each
individually referred to as a "Portfolio" or collectively as the "Portfolios")
at March 31, 1997, as follows:
Mentor Growth Portfolio
("Growth Portfolio")
Mentor Capital Growth Portfolio
("Capital Growth Portfolio")
Mentor Strategy Portfolio
("Strategy Portfolio")
Mentor Income and Growth Portfolio
("Income and Growth Portfolio")
Mentor Perpetual Global Portfolio
("Global Portfolio")
Mentor Quality Income Portfolio
("Quality Income Portfolio")
Mentor Short-Duration Income Portfolio
("Short-Duration Income Portfolio")
Mentor Municipal Income Portfolio
("Municipal Income Portfolio")
Mentor Balanced Portfolio
("Balanced Portfolio")
The assets of each Portfolio are segregated and a shareholder's interest is
limited to the Portfolio in which shares are held.
The 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 the 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.
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
require management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolio.
(a) Valuation of Securities
Listed securities held by the Growth Portfolio, Capital Growth Portfolio,
Strategy Portfolio, Income and Growth Portfolio and Global
78
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Portfolio traded on national stock exchanges and over-the-counter securities
quoted on the NASDAQ National Market System are valued at the last reported
sales price or, lacking any sales, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are valued
on the exchange designated by the Board of Trustees of the Portfolios as the
primary market. Securities traded in the over-the-counter market, other than
those quoted on the NASDAQ National Market System, are valued at the last
available bid price. Short-term investments with remaining maturities of 60 days
or less are carried at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith under procedures established by and under
the general supervision and responsibility of the Board of Trustees.
U.S. Government obligations held by the Quality Income Portfolio, Short-Duration
Income Portfolio and Income and Growth Portfolio are valued at the mean between
the over-the-counter bid and asked prices as furnished by an independent pricing
service. Listed corporate bonds, other fixed income securities, mortgage backed
securities, mortgage related, asset-backed and other related securities are
valued at the prices provided by an independent pricing service. Security
valuations not available from an independent pricing service are provided by
dealers approved by the Portfolio's Board of Trustees. In determining value, the
pricing services use information with respect to transactions in such
securities, market transactions in comparable securities, various relationships
between securities, and yield to maturity.
Municipal bonds, held by the Municipal Income Portfolio, are valued at fair
value. An independent pricing service values the Portfolio's municipal bonds
taking into consideration yield, stability, risk, quality, coupon, maturity,
type of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it deems relevant in
determining valuations for normal institutional size trading units of debt
securities. The pricing service does not rely exclusively on quoted prices. The
Board of Trustees has determined that the fair value of debt securities with
remaining maturities of 60 days or less shall be their amortized cost value
unless the particular circumstances of the security indicate otherwise.
Foreign currency amounts are translated into United States dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange, purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates
79
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 the 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, 1997, was
approximately $1,279,186 or $0.48 per share based on average shares outstanding
during the period at a weighted average interest rate of 5.47%. The maximum
amount of borrowings outstanding for any day during the period was $7,007,350
(including accrued interest), as of January 28, 1997, at an interest rate of
5.40% and was 17.56% of total assets.
(d) Dollar Roll Transactions
Each of the Portfolios (except for the Growth, Strategy and Municipal Income
Portfolios) may engage in dollar roll transactions with respect to
mortgage-related securities issued by GNMA, FNMA, and FHLMC. In a dollar-roll
transaction, a Portfolio sells a mortgage-related security to a financial
institution, such as a
80
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
bank or broker/dealer, and simultaneously agrees to repurchase a substantially
similar (i.e., same type, coupon, and maturity) security from the institution at
later date at an agreed upon price. The mortgage-related securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories.
(e) 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 is recorded
on the accrual basis. Interest income (except for Municipal Income Portfolio)
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.
(f) Federal Income Taxes
No provision for federal income taxes has been made since it is each Portfolio's
policy to comply with the provisions applicable to regulated investment
companies under the Internal Revenue Code and to distribute to its shareholders
within the allowable time limit substantially all taxable income and realized
capital gains.
Dividends paid by the Municipal Income Portfolio representing net interest
received on tax-exempt municipal securities are not includable by shareholders
as gross income for federal income tax purposes because the Portfolio intends to
meet certain requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Portfolio to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private purpose
municipal bonds issued after August 7, 1986, may by considered a tax preference
item to shareholders.
At September 30, 1996, Quality income Portfolio for federal tax purposes, had a
capital loss carryforward of approximately $13,500,000. Pursuant to the Code,
such capital loss carryforwards expire as follows: $820,000 in 2001, $3,680,000
in 2002, $7,320,000 in 2003 and $1,680,000 in 2004.
At September 30, 1996, Municipal Income Portfolio for federal tax purposes, had
a capital loss carryforward of approximately $2,510,000. Pursuant to the
Internal revenue Code, such capital loss carryforwards expire as
81
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
follows: $895,000 in 2003 and $1,615,000 in 2004.
Capital loss carryforwards 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 reduce the amount of the distributions to
shareholders which would otherwise relieve the Portfolios of any liability for
federal tax.
(g) 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.
(h) 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.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a
82
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities. At March 31, 1997, the Municipal Income
Portfolio had a position in the following futures contracts:
<TABLE>
<CAPTION>
Net
Number of Contract Unrealized
Contracts Contracts Expiration Value Appreciation
<S> <C>
- ----------------------------------------------------------------
50 U.S. Long Bond 6/97 $5,509,375 $148,034
- ----------------------------------------------------------------
</TABLE>
(i) 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.
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.
(j) Residual Interests
A derivative security is any investment that derives its value from an
underlying security, 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
83
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
(k) Interest-Rate Swap
An interest-rate swap is a contract between two parties on a specified principal
amount (referred to as the notional principal) for a specified period. In the
most common instance, a swap involves the exchange of streams of variable and
fixed-rate interest payments. During the term of the swap, changes in the value
of the swap are recognized as unrealized gains or losses by marking-to-market to
reflect the market value of the swap. When the swap is terminated, the Fund will
record a realized gain or loss. As of March 31, 1997, Quality Income Portfolio
and Short-Duration Income Portfolio had entered into the following interest rate
swap agreements. In each agreement, the Portfolios have exchanged fixed rates
for floating rates. The terms vary among the contracts but provide for the
interest rate differential to be settled on a semi annual basis. During the
period ended March 31, 1997, no cash payments were received in connection with
the interest rate swap agreement, however, the net interest receivable accrued
at the end of the period for Quality Income Portfolio and Short-Duration Income
Portfolio were $25,869 and $6,574, respectively.
<TABLE>
<CAPTION>
Rate Paid Rate
by the Received by Net
Swap Notional Portfolio the Portfolio Floating Termination Unrealized
Portfolio Counter-Party Principal at 3/31/97 at 3/31/97 Rate Index Date Loss
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
Quality Lehman Brothers $6,500,000 3.11% 6.39% 3-Month Canadian 2/28/07 $(163,739)
Bankers Acceptance
Lehman Brothers 6,500,000 3.15% 6.60% 3-Month Canadian 3/7/07 (92,488)
Bankers Acceptance
---------
$(256,227)
---------
---------
Short Duration Lehman Brothers 5,000,000 3.15% 6.60% 3-Month Canadian 3/7/02 $ (60,045)
---------
---------
Bankers Acceptance
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
(l) 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.
(m) 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 the Mentor. Capital gains
realized by each Portfolio, if any, are paid annually.
NOTE 4: INVESTMENT ADVISORY AND MANAGEMENT AND ADMINISTRATION AGREEMENTS
Mentor Investment Advisors, LLC ("Mentor Advisors"), the Portfolios' investment
adviser, receives for its services an annual investment advisory fee not to
exceed the following percentages of the average daily net assets of the
particular Portfolio: Growth Portfolio, 0.70%; Capital Growth Portfolio, 0.80%;
Strategy Portfolio, 0.85%; Income and Growth Portfolio, 0.75%; Municipal Income
Portfolio, 0.60%; Quality Income Portfolio, 0.60%; and Short-Duration Income
Portfolio, 0.50%.
Mentor Advisors pays the sub-adviser to Municipal Income Portfolio an annual fee
expressed as a percentage of the Portfolio's average net assets as follows:
0.25% of the first $60 million of the Portfolio's average net assets and 0.20%
of the Portfolio's average net assets over $60 million. The sub-adviser to the
Income and Growth Portfolio receives from Mentor Advisors an annual fee
expressed as a percentage of that Portfolio's assets as follows: 0.325% on the
first $50 million of the Portfolio's average net assets, 0.275% on the next $150
million of the Portfolio's average net assets, 0.225% of the next $300 million
of the
85
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Portfolio's average net assets, and 0.200% of the Portfolio's net 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 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.
For the six months ended March 31, 1997, Mentor Advisors and sub-advisers,
earned and voluntarily waived the following advisory fees:
<TABLE>
<CAPTION>
Adviser
Adviser Fees
Fees Voluntarily Sub-Adviser
Portfolio Earned Waived Fees
<S> <C>
- --------------------------------------------------------------------
Growth $1,502,702 - -
Global 383,362 - -
Capital Growth 454,208 - -
Strategy 1,383,034 - -
Income and Growth 395,474 - $ 155,467
Municipal Income 171,109 - 71,181
Quality Income 252,776 $ 65,665 -
Short-Duration Income 82,496 21,662 -
<CAPTION>
- --------------------------------------------------------------------
</TABLE>
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, 1997, Mentor earned
the following administrative fees:
86
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Administrative
Administrative Fee
Fee Voluntarily
Portfolio Earned Waived
<S> <C>
- -----------------------------------------------------------
Growth $214,672 -
Global 34,991 -
Capital Growth 56,776 -
Strategy 162,710 -
Income and Growth 52,730 -
Municipal Income 28,518 -
Quality Income 42,129 -
Short-Duration Income 16,488 $16,488
<CAPTION>
- -----------------------------------------------------------
</TABLE>
The Portfolios also provide direct reimbursement to Mentor for certain legal and
compliance administration, investor relation and operation related costs not
covered under the Investment Management Agreement. For the six months ended
March 31, 1997, these direct reimbursements were as follows:
<TABLE>
<CAPTION>
Direct
Portfolio Reimbursements
<S> <C>
- ------------------------------------------------------
Growth $7,839
Global 1,473
Capital Growth 2,189
Strategy 5,944
Income and Growth 2,101
Municipal Income 1,089
Quality Income 1,625
Short-Duration Income 632
- ------------------------------------------------------
</TABLE>
Mentor Advisors has agreed to reimburse the Portfolios for the operating
expenses (exclusive of interest, taxes, brokerage and distributions fees, and
extraordinary expenses) in excess of the most restrictive expense limitation
imposed by state securities commissions with jurisdiction over the Portfolios.
The most stringent state expense limitation applicable to the Portfolios
requires reimbursement of expenses not including expenses under the Portfolios'
Distribution Plan, in any year that such expenses exceed 2.5% of the first
$30,000,000 of average daily net assets, 2% of the next $70,000,000 of average
daily net assets, and 1.5% of the average daily net assets over $100,000,000.
During the six months ended March 31, 1997, no reimbursement from Mentor
Advisors 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, LLC
("Mentor Distributors") a wholly-owned subsidiary of Mentor, Mentor Distributors
was appointed distributor of the Portfolios. To compensate Mentor Distributors
for the services it provides and for the expenses
87
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 Distributors may select financial institutions, such as investment
dealers and banks to provide sales support services as agents for their clients
or customers who beneficially own Class B shares of the Portfolios. Financial
institutions will receive fees from Mentor Distributors based upon Class B
shares owned by their clients or customers.
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 0.25% of the average daily net assets of the
Class A or Class B shares of the particular Portfolio or Portfolios beneficially
owned by the financial institution's customers for whom it is holder of record
or with whom it has a servicing relationship.
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, 1997, distribution fees and shareholder servicing
fees were as follows:
<TABLE>
<CAPTION>
Shareholder
Distribution Servicing Fees
Portfolio Fees Class A Class B
<S> <C>
- ---------------------------------------------------------------
Growth $1,418,801 $75,934 $460,745
Global 193,859 26,644 60,832
Capital Growth 287,850 49,068 92,872
Strategy 1,114,145 45,503 361,272
Income and Growth 284,183 43,712 88,113
Municipal Income 93,771 25,807 45,489
Quality Income 150,040 35,352 69,971
Short-Duration Income 36,349 13,337 27,911
<CAPTION>
- ---------------------------------------------------------------
</TABLE>
88
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6: INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments), for the
six months ended March 31, 1997, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
<S> <C>
- -------------------------------------------------------
Growth $201,272,247 $144,540,837
Global 67,835,897 41,148,870
Capital Growth 48,315,223 41,111,559
Strategy 206,765,440 222,316,625
Income and Growth 106,195,933 73,390,665
Municipal Income 19,587,679 16,819,700
Quality Income 76,366,561 69,539,168
Short-Duration Income 29,231,233 22,608,633
<CAPTION>
- -------------------------------------------------------
</TABLE>
NOTE 7: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
The cost of investments for federal income tax purposes amounted to
$376,690,387, for Growth Portfolio, $83,584,875 for Global Portfolio,
$116,695,869 for Capital Growth Portfolio, $281,574,214 for Strategy Portfolio,
$122,587,431 for Income and Growth Portfolio, $58,118,418 for Municipal Income
Portfolio, $100,277,126 for Quality Income Portfolio and $34,905,615 for
Short-Duration Income Portfolio at March 31, 1997. Gross unrealized appreciation
and depreciation of investments at March 31, 1997, based on such costs were as
follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation
Portfolio Appreciation Depreciation (Depreciation)
<S> <C>
- --------------------------------------------------------------------------
Growth $ 62,416,271 $(25,453,519) $ 36,962,752
Global 8,250,861 (2,477,426) 5,773,435
Capital Growth 16,476,986 (1,002,322) 15,474,664
Strategy 9,177,213 12,397,700 (3,220,487)
Income and Growth 2,740,077 (2,954,044) (213,967)
Municipal Income 2,650,241 (292,317) 2,357,924
Quality Income 324,695 (1,517,986) (1,193,291)
Short-Duration Income 26,101 (231,438) (205,337)
- --------------------------------------------------------------------------
</TABLE>
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
89
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8: FORWARD CONTRACTS (CONTINUED)
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, 1997, Global Portfolio had outstanding
forward contracts as set forth below.
<TABLE>
<CAPTION>
Net Unrealized
Contracts to In Exchange Appreciation/
Settlement Date Deliver/Receive For (Depreciation)
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Purchases
4/02/97 British Pound 249,233 $ 404,007 $ 409,116 $ 5,109
4/02/97 British Pound 93,400 151,402 153,317 1,915
4/02/97 French Frank 1,205,200 214,068 214,182 114
5/21/97 French Frank 1,952,911 346,000 347,061 1,061
5/21/97 German Mark 5,183,882 3,100,000 3,098,092 (1,908)
4/02/97 Hong Kong Dollar 645,044 83,285 83,245 (40)
4/02/97 Malaysian Ringgit 150,714 60,882 60,814 (68)
4/03/97 Singapore Dollar 104,336 72,255 72,230 (25)
5/21/97 Swiss Frank 1,852,296 1,294,000 1,281,866 (12,134)
Sales
4/02/97 Finnish Markka 714,024 142,833 143,211 (378)
4/02/97 French Frank 1,861,999 346,000 330,904 15,096
4/01/97 German Mark 211,649 126,139 126,490 (351)
5/21/97 German Mark 4,942,640 3,100,000 2,953,916 146,084
5/21/97 Swiss Frank 1,774,721 1,294,000 1,228,181 65,819
- ---------------------------------------------------------------------------------------------------------
Net Unrealized Appreciation
on Forward Contracts $220,294
- ---------------------------------------------------------------------------------------------------------
</TABLE>
90
<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>
Six MonthsMentor Growth Portfolio Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
-----------------------------------------------------------
CLASS A:
Shares sold 2,394,289 $ 37,314,378 1,900,420 $ 31,071,851
Shares issued upon reinvestment of distributions 369,088 5,744,163 159,334 2,229,091
Shares redeemed (801,231) (12,247,823) (1,145,852) (19,021,763)
-----------------------------------------------------------
Change in net assets from capital share
transactions 1,962,146 $ 30,810,718 913,902 $ 14,279,179
-----------------------------------------------------------
CLASS B:
Shares sold 3,154,310 $ 48,928,273 4,577,893 $ 75,279,336
Shares issued upon reinvestment of distributions 3,348,283 51,489,284 1,885,731 26,287,441
Shares redeemed (1,253,996) (19,432,043) (1,493,872) (24,469,011)
-----------------------------------------------------------
Change in net assets from capital share
transactions 5,248,597 $ 80,985,514 4,969,752 $ 77,097,766
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mentor Perpetual Global Portfolio
Six Months Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
--------------------------------------------------------
CLASS A:
Shares sold 931,984 $16,695,368 412,686 $ 7,129,198
Shares issued upon reinvestment of distributions 26,897 463,738 21,809 331,049
Shares redeemed (124,289) (2,217,140) (132,328) (2,244,328)
--------------------------------------------------------
Change in net assets from capital share
transactions 834,592 $14,941,966 302,167 $ 5,215,919
--------------------------------------------------------
CLASS B:
Shares sold 1,201,618 $20,938,047 1,723,938 $29,034,247
Shares issued upon reinvestment of distributions 91,682 1,543,952 45,012 672,932
Shares redeemed (125,580) (2,198,222) (164,743) (2,742,660)
--------------------------------------------------------
Change in net assets from capital share
transactions 1,167,720 $20,283,777 1,604,207 $26,964,519
--------------------------------------------------------
</TABLE>
91
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9: CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
Six Months Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
----------------------------------------------------------
CLASS A:
Shares sold 648,323 $ 11,961,517 148,975 $ 2,580,775
Shares issued upon reinvestment of distributions 264,769 4,552,490 53,208 849,718
Shares redeemed (174,767) (3,214,027) (401,455) (6,845,340)
----------------------------------------------------------
Change in net assets from capital share
transactions 738,325 $ 13,299,980 (199,272) $ (3,414,847)
----------------------------------------------------------
CLASS B:
Shares sold 788,140 $ 13,911,704 635,818 $ 10,950,459
Shares issued in connection with acquisition of
Mentor/Cambridge Growth Portfolio - - - -
Shares issued upon reinvestment of distributions 596,606 9,983,395 111,273 1,748,109
Shares redeemed (335,157) (5,940,457) (793,484) (13,367,434)
----------------------------------------------------------
Change in net assets from capital share
transactions 1,049,589 $ 17,954,642 (46,393) $ (668,866)
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mentor Strategy Portfolio
Six Months Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
-----------------------------------------------------------
CLASS A:
Shares sold 1,297,791 $ 21,713,680 625,652 $ 10,425,353
Shares issued upon reinvestment of distributions 91,017 1,513,610 12,905 221,980
Shares redeemed (257,333) (4,250,438) (192,977) (3,147,176)
-----------------------------------------------------------
Change in net assets from capital share
transactions 1,131,475 $ 18,976,852 445,580 $ 7,500,157
-----------------------------------------------------------
CLASS B:
Shares sold 1,999,590 $ 33,258,327 2,946,568 $ 48,230,745
Shares issued upon reinvestment of distributions 1,291,000 21,237,045 201,006 3,417,749
Shares redeemed (1,263,593) (20,847,060) (1,706,367) (27,999,865)
-----------------------------------------------------------
Change in net assets from capital share
transactions 2,026,997 $ 33,648,312 1,441,207 $ 23,648,629
-----------------------------------------------------------
</TABLE>
92
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9: CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Mentor Income and Growth Portfolio
Six Months Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
-----------------------------------------------------------
CLASS A:
Shares sold 963,207 $ 17,995,466 193,095 $ 3,508,748
Shares issued upon reinvestment of distributions 147,891 2,654,798 69,612 1,186,199
Shares redeemed (104,816) (1,959,734) (160,516) (2,896,387)
-----------------------------------------------------------
Change in net assets from capital share
transactions 1,006,282 $ 18,690,530 102,191 $ 1,798,560
-----------------------------------------------------------
CLASS B:
Shares sold 912,933 $ 16,960,792 1,025,114 $ 18,562,371
Shares issued upon reinvestment of distributions 403,014 7,228,125 150,385 2,545,180
Shares redeemed (209,797) (3,915,929) (428,846) (7,653,268)
-----------------------------------------------------------
Change in net assets from capital share
transactions 1,106,150 $ 20,272,988 746,653 $ 13,454,283
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
Six Months Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
------------------------------------------------------
CLASS A:
Shares sold 385,652 $ 5,843,356 53,174 $ 797,588
Shares issued upon reinvestment of distributions 18,564 281,220 36,380 547,438
Shares redeemed (102,682) (1,555,229) (291,238) (4,349,702)
------------------------------------------------------
Change in net assets from capital share
transactions 301,534 $ 4,569,347 (201,684) $ (3,004,676)
------------------------------------------------------
CLASS B:
Shares sold 320,520 $ 4,854,981 240,061 $ 3,594,252
Shares issued upon reinvestment of distributions 40,527 614,368 75,360 1,135,186
Shares redeemed (206,475) (3,128,215) (488,067) (7,362,086)
------------------------------------------------------
Change in net assets from capital share
transactions 154,572 $ 2,341,134 (172,646) $ (2,632,648)
------------------------------------------------------
</TABLE>
93
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9: CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Mentor Quality Income Portfolio
Six Months Year
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
-----------------------------------------------------------
CLASS A:
Shares sold 1,051,830 $ 13,662,498 261,361 $ 3,431,466
Shares issued upon reinvestment of distributions 34,130 446,549 65,422 864,412
Shares redeemed (171,374) (2,236,572) (533,765) (6,992,390)
-----------------------------------------------------------
Change in net assets from capital share
transactions 914,586 $ 11,872,475 (206,982) $ (2,696,512)
-----------------------------------------------------------
CLASS B:
Shares sold 695,245 $ 9,073,934 765,460 $ 10,058,721
Shares issued upon reinvestment of distributions 103,637 1,357,824 177,855 2,348,000
Shares redeemed (507,228) (6,661,283) (1,108,119) (14,629,662)
-----------------------------------------------------------
Change in net assets from capital share
transactions 291,654 $ 3,770,475 (164,804) $ (2,222,941)
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mentor Short-Duration Income Portfolio
Six Months Period
Ended 3/31/97 Ended 9/30/96
Shares Dollars Shares Dollars
<S> <C>
--------------------------------------------------------
CLASS A:
Shares sold 452,742 $ 5,692,794 626,588 $ 7,923,068
Shares issued upon reinvestment of distributions 18,489 232,967 15339 193,207
Shares redeemed (116,588) (1,468,765) (124,945) (1,577,491)
--------------------------------------------------------
Change in net assets from capital share
transactions 354,643 $ 4,456,996 516,982 $ 6,538,784
--------------------------------------------------------
CLASS B:
Shares sold 462,277 $ 5,820,462 1,146,855 $14,558,230
Shares issued upon reinvestment of distributions 44,013 554,487 88,449 1,119,155
Shares redeemed (536,361) (6,758,398) (841,749) (10,608,962)
--------------------------------------------------------
Change in net assets from capital share
transactions (30,071) $ (383,449) 393,555 $ 5,068,423
--------------------------------------------------------
</TABLE>
94
<PAGE>
At a meeting held on March 25, 1997, the Trustees of Mentor Funds approved the
REMOVAL of certain non-fundamental investment restrictions of the Portfolios.
THE FOLLOWING INVESTMENT RESTRICTIONS OF THE CAPITAL GROWTH, INCOME AND
GROWTH, MUNICIPAL INCOME, QUALITY INCOME, AND GLOBAL PORTFOLIOS WERE ELIMINATED:
1. The Portfolios will not invest more than 15% of the value of their respective
net assets in illiquid securities, including repurchase agreements providing
for settlement more than seven days after notice; over-the-counter options;
certain restricted securities not determined by the Trustees to be liquid;
and non-negotiable fixed income time deposits with maturities over seven
days.
2. The Portfolios will limit their respective investments in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of total assets in any one
investment company, or invest more than 10% of total assets in investment
companies in general. The Portfolios will purchase securities of closed-end
investment companies only in open market transactions involving only
customary broker's commissions. However, these limitations are not applicable
if the securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees, and therefore any investment by a
Portfolio in shares of another investment company would be subject to
duplicative expenses.
3. Except for the Municipal Income Portfolio, no Portfolio will invest more than
5% of the value of its respective total assets in securities of issuers which
have records of less than three years of continuous operations, including the
operation of any predecessor. The Municipal Income Portfolio will not invest
more than 5% of its total assets in industrial development bonds where the
payment of principal and interest is the responsibility of companies with
less than three years of operating history.
4. A Portfolio will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust, the investment adviser, or sub-adviser
own individually more than 1/2 of 1% of the issuer's securities or together
own more than 5% of the issuer's securities.
5. A Portfolio will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs and except
pursuant to the exercise by the Municipal Income Portfolio of its rights
under agreements relating to municipal securities.
6. A Portfolio will not enter into transactions for the purpose of engaging in
arbitrage.
7. A Portfolio will not purchase securities of a company for the purpose of
exercising control or management, except to the extent that exercise by the
Municipal Income Portfolio of its rights under agreements related to
municipal securities would be deemed to constitute such control or
management.
8. A Portfolio (1) will limit the aggregate value of the assets underlying
covered call options or put options written by a Portfolio to not more than
25% of its net assets, (2) will limit the premiums paid for options purchased
to 5% of its net assets, (3) will limit the margin deposits on futures
contracts entered into to 5% of its net assets, and (4) will limit investment
in warrants to 5% of its net assets to meet certain state registration
requirements. No more than 2% will be warrants which are not listed on the
New York or American Stock Exchange. Also, the Capital Growth Portfolio and
the Income and Growth Portfolio will limit their investment in restricted
securities to 5% of total assets.
THE FOLLOWING INVESTMENT RESTRICTIONS OF THE BALANCED, GROWTH, SHORT-DURATION
INCOME, AND STRATEGY PORTFOLIOS WERE ELIMINATED:
1. Invest in warrants (other than warrants acquired by the Portfolio as a part
of a unit or attached to securities at the time of purchase) if as a result
such investment (valued at the lower of cost or market value) would exceed 5%
of the value of the Portfolio's net assets, provided that not more than 2% of
the Portfolio's net assets may be invested in warrants not listed on the New
York or American Stock Exchanges.
2. Purchase securities restricted as to resale if as a result (i) more than 10%
of the Portfolio's total assets would be invested in such securities or (ii)
more than 5% of the Portfolio's total assets (excluding any securities
eligible for resale under Rule 144A under the Securities Act of 1933) would
be invested in such securities.
95
<PAGE>
3. Invest in (a) securities which at the time of such investment are not readily
marketable, (b) securities restricted as to resale, and (c) repurchase
agreements maturing in more than seven days, if, as a result, more than 15%
of the Portfolio's net assets (taken at current value) would then be invested
in the aggregate in securities described in (a), (b), and (c) above.
4. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions
and as a result of which not more than 5% of its total assets (taken at
current value) would be invested in such securities, or except as part of a
merger, consolidation, or other acquisition.
5. Purchase puts, calls, straddles, spreads, or any combination thereof (other
than futures contracts, options on futures contracts or indices, and options
on foreign currencies), if, by reason of such purchase, the value of its
aggregate investment therein will exceed 5% of its total assets.
6. Invest in real estate limited partnerships.
*********
IN ADDITION, THE TRUSTEES ADOPTED THE FOLLOWING NON-FUNDAMENTAL RESTRICTION
FOR ALL OF THE PORTFOLIOS OF MENTOR FUNDS:
[A Portfolio may not] invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted as to
resale (excluding securities determined by the Trustees (or the person
designated by the Trustees to make such determinations) to be readily
marketable), and (c) repurchase agreements maturing in more than seven days,
if, as a result, more than 15% of the Portfolio's net assets (taken at
current value) would then be invested in the aggregate in securities
described in (a), (b), and (c) above.
96
<PAGE>
MENTOR FUNDS
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
TRUSTEES
DANIEL J. LUDEMAN, TRUSTEE & CHAIRMAN
Chairman and Chief Executive Officer
Mentor Investment Group, LLC
ARNOLD H. DREYFUSS, TRUSTEE
Former Chairman
and Chief Executive Officer
Hamilton Beach/Proctor-Silex, Inc.
THOMAS F. KELLER, TRUSTEE
Former 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, LLC
OFFICERS
PAUL F. COSTELLO, PRESIDENT
Managing Director
Mentor Investment Group, LLC
TERRY L. PERKINS, TREASURER
Senior Vice President
Mentor Investment Group, LLC
JOHN M. IVAN, SECRETARY
Managing Director
and Assistant General Counsel
Wheat First Butcher Singer, Inc.
MICHAEL A. WADE, ASSISTANT TREASURER
Vice President
Mentor Investment Group, LLC
This report is authorized for distribution to prospective investors only when
preceded or accompanied by a Mentor Fund Prospectus, which contains complete
information about fees, sales charges and expenses. Please read it carefully
before you invest or send money.
<PAGE>
[logo]
RIVERFRONT PLAZA
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
1-800-382-0016
---------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT #1193
RICHMOND, VA
---------------
<PAGE>
Mentor Balanced Portfolio
Portfolio of Investments
March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stocks 62.29%
- ---------------------------------------------------------------------------------------------------------------------------
Basic Materials 9.54%
Bemis Company 2,100 $ 84,000
Morton International, Inc. 2,100 88,725
Nalco Chemical Company 2,400 89,700
Sonoco Products Company 3,200 86,400
- ---------------------------------------------------------------------------------------------------------------------------
348,825
- ---------------------------------------------------------------------------------------------------------------------------
Capital Goods & Construction 4.45%
Pall Corporation 3,600 83,250
W.W. Grainger, Inc. 1,075 79,550
- ---------------------------------------------------------------------------------------------------------------------------
162,800
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical 12.07%
Carnival Corporation - Class A 2,500 92,500
Interpublic Group Companies, Inc. 1,750 92,312
Mattel, Inc. 3,700 88,800
Mirage Resorts, Inc.* 3,800 80,750
Newell Company 2,600 87,100
- ---------------------------------------------------------------------------------------------------------------------------
441,462
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Staples 13.57%
Avon Products Company 1,400 73,500
CPC International, Inc. 1,050 86,100
McDonald's Corporation 2,000 94,500
Pfizer, Inc. 900 75,712
Sherwin Williams Company 3,000 81,000
Sysco Corporation 2,500 85,313
- ---------------------------------------------------------------------------------------------------------------------------
496,125
- ---------------------------------------------------------------------------------------------------------------------------
Energy 2.35%
Schlumberger, Ltd. 800 85,800
- ---------------------------------------------------------------------------------------------------------------------------
Financial
8.31% American Express Company 1,350 80,831 Banc One Corporation
1,900 75,525 Federal National Mortgage Association* 1,900 68,638
General RE Corporation*
500 79,000
---------------------------------------------------------------------------------------------------------------------------
303,994
---------------------------------------------------------------------------------------------------------------------------
Common Stocks (continued)
---------------------------------------------------------------------------------------------------------------------------
Health 2.39%
Schering-Plough 1,200 $ 87,300
- ---------------------------------------------------------------------------------------------------------------------------
Technology 4.16%
<PAGE>
Electronic Data Systems 1,700 68,638
Intel Corporation 600 83,475
- ---------------------------------------------------------------------------------------------------------------------------
152,113
- ---------------------------------------------------------------------------------------------------------------------------
Transportation & Services 2.41%
Werner Enterprises, Inc. 4,700 88,125
- ---------------------------------------------------------------------------------------------------------------------------
Utilities 3.04%
Ameritech Corporation 900 55,350
GTE Corporation 1,200 55,950
- ---------------------------------------------------------------------------------------------------------------------------
111,300
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $1,900,648) 2,277,844
- ---------------------------------------------------------------------------------------------------------------------------
Fixed Income Securities 34.06%
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities and Agencies 27.26%
Government National Mortgage Association, 5.50%, 2/20/27 $ 64,279 63,105
U.S. Treasury Notes, 5.50% - 7.50%, 9/30/98 - 7/15/06 700,000 696,253
U.S. Treasury Bonds, 6.88% - 7.88%, 11/15/04 - 8/15/25 235,000 237,319
- ---------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Securities and Agencies
(cost $1,009,023) 996,677
- ---------------------------------------------------------------------------------------------------------------------------
Corporate Bonds (a) 6.80%
CS First Boston, 7.18%, 2/25/18, CMO 25,000 23,958
Merrill Lynch, 6.64%, 9/19/02 45,000 43,763
Nationsbank Corporation, 7.50%, 9/15/06 35,000 34,840
Norwest Corporation, 6.80%, 5/15/02 60,000 59,047
Travelers, Inc., 8.63%, 2/01/07 40,000 42,925
Union Acceptance Corporation, 6.48%, 5/10/04, CMO 45,000 44,158
- ---------------------------------------------------------------------------------------------------------------------------
<PAGE>
Total Corporate Bonds (cost $254,748) 248,691
- ---------------------------------------------------------------------------------------------------------------------------
Total Fixed Income Securities (cost $1,263,771) $1,245,368
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Investment 5.37%
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement
Goldman Sachs & Company Dated 3/31/97, 6.53%, due 4/01/97,
collateralized by $209,670 Federal Home Loan
Mortgage Corporation, 7.00%, 4/01/26,
market value $201,087 (cost $196,372) $196,372 196,372
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,360,791) 101.72% 3,719,584
- ---------------------------------------------------------------------------------------------------------------------------
Other Assets less Liabilities (1.72%) (63,466)
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets 100.00% $3,656,118
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing.
CMO- Collateralized Mortgage Obligations
(a) All or a portion of these securities are illiquid securities, and are valued
using market quatations where readily available. In the absence of market
quotations, the securities are valued based upon their fair value determined
under procedures approved by the board of Trustees.
See notes to financial statements.
<PAGE>
Mentor Balanced Portfolio
Statement of Assets and Liabilities
March 31, 1997 (Unaudited)
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at market value * (Note 2) $3,719,584
Receivables
Investments sold 98,609
Dividend and interest 21,134
Other assets 1,237
- ---------------------------------------------------------------------------------------------------
Total assets 3,840,564
- ---------------------------------------------------------------------------------------------------
Liabilities
Payable for investments purchased 182,151
Accrued expenses and other liabilities 2,295
- ---------------------------------------------------------------------------------------------------
Total liabilities 184,446
- ---------------------------------------------------------------------------------------------------
Net Assets $3,656,118
- ---------------------------------------------------------------------------------------------------
Net Assets represented by:
Additional paid-in capital $3,069,867
Accumulated net investment income 14,179
Accumulated net realized gain on
investment transactions 213,279
Net unrealized appreciation of investments (Note 6) 358,793
- ---------------------------------------------------------------------------------------------------
Net Assets $3,656,118
Shares Outstanding 245,594
- ---------------------------------------------------------------------------------------------------
Net Asset Value and Offering Price per Share $ 14.89
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Investments at cost are $3,360,791.
See notes to financial statements.
<PAGE>
Mentor Balanced Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six-Month
Ended Year
3/31/97 Ended
(Unaudited) 9/30/96
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Net Increase in Net Assets
Operations
Net investment income $ 53,639 $ 97,401
Net realized gain on investments 234,214 453,033
Change in unrealized appreciation (depreciation)
of investments (30,999) 26,238
- -------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 256,854 576,672
- -------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
Net investment income (108,705) (105,563)
Net realized gain in investments (449,370) (129,654)
- -------------------------------------------------------------------------------------------------------------
Net decrease from distributions (558,075) (235,217)
- -------------------------------------------------------------------------------------------------------------
Capital Share Transactions (Note 7)
Change in net assets from capital
share transactions 131,938 274,373
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (169,283) 615,828
Net Assets
Beginning of period 3,825,401 3,209,573
- -------------------------------------------------------------------------------------------------------------
End of period $3,656,118 $3,825,401
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
Mentor Balanced Portfolio
Statement of Operations
Six Months Ended March 31, 1997 (Unaudited)
<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
Investment Income
Dividends $ 19,686
Interest 43,386
- ------------------------------------------------------------------------------
Total investment income (Note 2) 63,072
- ------------------------------------------------------------------------------
Expenses
Management fee (Note 3) 14,150
Distribution fee (Note 4) 14,150
Shareholder servicing fee (Note 4) 4,716
Custodian and accounting fees 3,881
Registration expenses 415
Legal and audit fees 193
Shareholder reports and postage expenses 117
Directors' fees and expenses 52
Miscellaneous expenses 156
- ------------------------------------------------------------------------------
Total expenses 37,830
- ------------------------------------------------------------------------------
Deduct
Waiver of management fee (Note 3) 9,531
Waiver of distribution fee (Note 4) 14,150
Waiver of shareholder servicing fee (Note 4) 4,716
- ------------------------------------------------------------------------------
Net expenses 9,433
- ------------------------------------------------------------------------------
Net investment income 53,639
- ------------------------------------------------------------------------------
Realized and unrealized gain on investments
Net realized gain on investments 234,214
Change in unrealized appreciation
(depreciation) of investments (30,999)
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments 203,215
- ------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $256,854
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
Mentor Balanced Portfolio
Financial Highlights
<TABLE>
<CAPTION>
Six Months
Ended Year Period Period
3/31/97 Ended Ended Ended
(Unaudited) 9/30/96 9/30/95* 12/31/94**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 16.28 $ 14.85 $ 12.44 $ 12.50
Income from investment operations
Net investment income 0.19 0.42 0.36 0.22
Net realized and unrealized
gain (loss) on investments 0.19 2.09 2.08 (0.09)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.38 2.51 2.44 0.13
Less distributions
Dividends from net investment income (0.43) (0.48) (0.03) (0.19)
Distributions from capital gains (1.34) (0.60) - -
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (1.08) (0.03) (0.19)
Net asset value, end of period $ 14.89 $ 16.28 $ 14.85 $ 12.44
- ---------------------------------------------------------------------------------------------------------------------
Total Return 6.62% 18.00% 19.28% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
Ratios / Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 3,656 $ 3,825 $ 3,210 $ 2,911
Ratio of expenses to
average net assets 0.50%(a) 0.50% 0.50(a) 0.50%(a)
Ratio of expenses to average
net assets excluding waiver 2.00%(a) 2.06% 2.12(a) 2.72%(a)
Ratio of net investment income
to average net assets 2.83% 2.83% 3.26(a) 3.32%(a)
Portfolio turnover rate 46% 103% 65% 71%
Average commission rate on
portfolio transactions $ 0.069 $ 0.0694
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
* For the period from January 1, 1995 to September 30, 1995.
**For the period from June 21, 1994 (commencement of operations) to December 31,
1994.
See notes to financial statements.
<PAGE>
Mentor Balanced Portfolio
Notes to Financial Statements
March 31, 1997
(Unaudited)
Note 1: Organization
The Mentor Funds (formerly Cambridge Series Trust) is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. Mentor Funds consists of nine separate Portfolios (hereinafter each
individually referred to as a "Portfolio" or collectively as the "Portfolios")
at March 31, 1997 as follows:
Mentor Growth Portfolio ("Growth Portfolio")
Mentor Perpetual Global Portfolio ("Global Portfolio")
Mentor Capital Growth Portfolio ("Capital Growth Portfolio")
Mentor Strategy Portfolio ("Strategy Portfolio")
Mentor Income and Growth Portfolio ("Income and Growth Portfolio")
Mentor Municipal Income Portfolio ("Municipal Income Portfolio")
Mentor Quality Income Portfolio ("Quality Income Portfolio")
Mentor Short-Duration Income Portfolio ("Short-Duration Income Portfolio")
Mentor Balanced Portfolio ("Balanced Portfolio")
The assets of each Portfolio are segregated and a shareholder's interest is
limited to the Portfolio in which shares are held.
The financial statements included in this report are for the Balanced Portfolio
only (hereinafter referred to as the "Portfolio").
Shares of the Portfolio are sold without an initial sales charges, although a
contingent deferred sales charge may be imposed if shares are redeemed within 5
years of purchase. Shares of the Portfolio are not currently being offered to
public.
Note 2: Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolio.
(a) Valuation of Securities - Listed securities held by the Portfolio and traded
on national stock exchanges and over-the-counter securities quoted on the NASDAQ
National Market System are valued at the last reported sales price or, lacking
any sales, at the last available bid price. In cases where securities are traded
on more than one exchange, the securities are valued on the exchange designated
by the Board of Trustees of the Portfolio as the primary market. Securities
traded in the over-the-counter market, other than those quoted on the NASDAQ
National Market System, are valued at the last available bid price. Short-term
investments with remaining maturities of 60 days or less are carried at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervision of
the Board of Trustees.
Notes to Financial Statements (continued)
U.S. Government obligations held by the Portfolio are valued at the mean between
the over-the-counter bid and asked prices as furnished by an independent pricing
service. Listed corporate bonds, other fixed income securities, mortgage backed
securities, mortgage related, asset-backed and other related securities are
valued at the prices provided by an independent pricing service. Security
valuations not available from an independent pricing service are provided by
dealers approved by the Portfolio's Board of Trustees. In determining value, the
dealers use information with respect to transactions in such securities, market
transactions in comparable securities, various relationships between securities,
and yield to maturity.
(b) Repurchase Agreements- It is the policy of Mentor Funds to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book entry system, or to have segregated within the custodian bank's
vault all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by Mentor Funds to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying securities to ensure the existence of a proper level of collateral.
Mentor Funds will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by
Mentor Fund's adviser to be creditworthy pursuant to guidelines established by
the Mentor Fund's Trustees. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
Mentor Funds could receive less than the repurchase price on the sale of
collateral securities.
(c) Security Transactions and Investment Income - Security transactions for the
Portfolio are accounted for on a trade date basis. Dividend income is recorded
on the ex-dividend date and interest is recorded on the accrual basis. Interest
income includes interest and discount earned (net of premium) on short term
obligations, and interest earned on all other debt securities including original
issue discounts as required by the Internal Revenue Code. Realized and
unrealized gains and losses on investment security transactions are calculated
on an identified cost basis.
(d) Federal Income Taxes - No provision for federal income taxes has been made
since it is the Portfolio's policy to comply with the provisions applicable to
regulated investment companies under the Internal Revenue Code and to distribute
to its shareholders within the allowable time limit substantially all taxable
income and realized capital gains, if any.
(e) Distributions to Shareholders- Distributions from net investment income and
net realized capital gains, after offsetting capital loss carryovers are
distributed annually for the Portfolio.
Note 3: Investment Advisory and Management and Administration Agreements
The Portfolio has entered into an Investment Advisory Agreement with Mentor
Investment Advisors, LLC ("Mentor Advisors"). Under this agreement, Mentor
Advisors' management fee is accrued daily and paid monthly at an annual rate of
0.75% applied to the daily average net assets of the Portfolio. In order to
limit the Portfolio's expenses, during the six months ended March 31, 1997,
Mentor Advisors has agreed to reduce its compensation to the extent expenses of
the Portfolio (exclusive of brokerage, interest, taxes, deferred organization
expenses, and payments under the Portfolio's Distributions Plan) exceed an
annual rate of 0.50% of the Portfolio's average net assets. For the six months
ended March 31, 1997, Mentor Advisors earned advisory fees of $14,150 and
voluntarily waived $9,531 of such fees.
Notes to Financial Statements (continued)
Effective November 1, 1996, Commonwealth Advisors, Inc., Charter Asset
Management, Inc. and Wellesley Advisors, Inc., were reorganized into
Commonwealth Investment Counsel, Inc., which then became Mentor Investment
Advisors, LLC. Mentor Advisors is a wholly-owned subsidiary of Mentor Investment
Group, LLC ("Mentor") (formerly, Mentor Investment Group, Inc.). Mentor
Investment Group, LLC is a subsidiary of Wheat First Butcher Singer, Inc.
Also effective November 1, 1996, EVEREN Capital Corporation, a previously
unrelated broker dealer acquired a 20% ownership interest in Mentor Investment
Group, LLC from Wheat First Butcher Singer, Inc. As part of the acquisition
agreement, EVEREN may acquire additional ownership based principally on the
amount of Mentor Investment Group, LLC's revenues derived from clients of EVEREN
Securities, Inc. and assets attributable to its affiliates.
Administrative personnel and services are provided by Mentor to the Portfolio,
under an Administration Agreement, at an annual rate of 0.10% of 1% of the
average daily net assets of the Portfolio. In order to limit the Portfolio's
expenses, Mentor agreed to waive its fees during the six months ended March 31,
1997.
Mentor Advisors has agreed to reimburse the Portfolio for the operating expenses
(exclusive of interest, taxes, brokerage and distributions fees, and
extraordinary expenses) in excess of the most restrictive expense limitation
imposed by state securities commissions with jurisdiction over the Portfolio.
The most stringent state expense limitation applicable to the Portfolio requires
reimbursement of expenses in any year that such expenses exceed 2.5% of the
first $30,000,000 of average daily net assets, 2% of the next $70,000,000 of
average daily net assets, and 1.5% of the average daily net assets over
$100,000,000. During the six months ended March 31, 1997, no reimbursement from
Mentor Advisors was required as a result of such state expense limitations.
Note 4: Distribution Agreement and Other Transactions with Affiliates
Under a Distribution Agreement between the Portfolio and Mentor Distributors,
Inc. ("Mentor Distributors") a wholly-owned subsidiary of Mentor, Mentor
Distributors was appointed distributor of the Portfolio. To compensate Mentor
Distributors for the services it provides and for the expenses it incurs under
the Distribution Agreement, the Portfolio has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940, under which the
Portfolio pays a distribution fee, which is accrued daily and paid monthly at
the annual rate of 0.75% of the Portfolio's average daily net assets.
Effective November 1, 1996, Mentor Distributors became Mentor Distributors, LLC.
Mentor Funds has adopted a Shareholder Servicing Plan (the "Service Plan") with
respect to each Portfolio. Under the Service Plan, financial institutions will
enter into shareholder service agreements with the Portfolio to provide
administrative support services at an annual rate of 0.25% of the Portfolio's
average daily net assets. The total charges to be borne by the Portfolio, under
the Distribution and Shareholder Service Agreements is expected to remain at an
annual rate of 1% of the Portfolio's average daily net assets. For the six
months ended March 31, 1997 distribution and shareholder services fees were as
follows:
<TABLE>
<CAPTION>
Shareholder
Distribution Fee Shareholder Servicing Fee
Distribution Fee Waived Servicing Fee Waived
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Balanced Portfolio $14,150 $(14,150) $4,716 $(4,716)
</TABLE>
Notes to Financial Statements (continued)
Note 5: Investment Transactions
Purchases and sales of investments, exclusive of short-term securities,
aggregated $1,664,723 and $1,808,676 respectively, for the six months ended
March 31, 1997.
Note 6: Unrealized Appreciation and Depreciation of Investments
At March 31, 1997, the cost of investments for federal income tax purposes
amounted to $3,360,791 and net unrealized appreciation aggregated $358,793, of
which $415,396 related to appreciated securities and $56,603 related to
depreciated securities.
Note 7: Capital Share Transactions
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in Portfolio
shares were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
3/31/97 9/30/96
Shares Dollars Shares Dollars
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Shares sold 0 $ 0 48,575 $ 734,947
Shares issued upon reinvestment of distributions 37,772 558,075 16,321 235,217
Shares redeemed (27,219) (426,137) (45,946) (695,791)
----------------------------------------------------
Change in net assets from capital share
transactions 10,553 $131,938 18,950 $274,373
----------------------------------------------------
</TABLE>
Performance Comparisons
Mentor Balanced Portfolio
[GRAPH]
[INSERT PLOT POINTS]
* Includes maximum Contingent Deferred Sales Charge (CDSC) of 5%.
** This Index represents asset allocation of 60% S&P 500 Stocks and 40% Lehman
Brothers Government/Corporate Bonds.
Average Annual Return as of 3/31/97 Average Annual Return as of 3/31/97
Without Sales Charges Including Sales Charges
1 Year Inception*** 1 year Inception***
15.10% 16.28% 10.16% 15.44%
*** For the period from June 21, 1994 (commencement of operations) to March 31,
1997.
Performance Information for the Mentor Balanced Portfolio
This graph compares the investment performance of the Portfolio from its
inception date to the index that is most representative of the fund's portfolio.
The graph reflects the performance of a $10,000 investment from the date the
fund started through March 31, 1997. Return does not reflect taxes payable (if
any) on distributions.
In comparing the performance of a fund to an index, you should keep in mind that
market indexes do not take into account brokerage commissions that would be
incurred if you purchased the individual securities that make up the index. They
also do not include taxes payable on dividends and interest payments, or
operating expenses necessary to maintain a portfolio investing in the index.
The performance data quoted in this report is historical and does not guarantee
future investment results. Your investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Performance is as of March 31, 1997 and includes change in share price and
reinvestment of dividends and capital gains. The maximum contingent deferred
sales charge (CDSC) is 5% for the Balanced Portfolio.
