AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1997
REGISTRATION NO. 33-45315
FILE NO. 811-6550
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
PRE-EFFECTIVE AMENDMENT NO. _ ( )
POST-EFFECTIVE AMENDMENT NO. 12 (X)
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 14 (X)
(CHECK APPROPRIATE BOX OR BOXES)
THE MENTOR FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(804) 782-3648
(REGISTRANT'S TELEPHONE NUMBER)
PAUL F. COSTELLO
PRESIDENT
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
TIMOTHY W. DIGGINS, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
( ) IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
<PAGE>
( ) ON (date) PURSUANT TO PARAGRAPH (B)
( ) 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
(x) 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
( ) THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2. A FORM 24F-2 NOTICE
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 WAS FILED WITH THE COMMISSION ON
NOVEMBER 25, 1996.
THIS POST-EFFECTIVE AMENDMENT RELATES SOLELY TO THE MENTOR INSTITUTIONAL
MONEY MARKET PORTFOLIO AND THE MENTOR INSTITUTIONAL U.S. GOVERNMENT MONEY
MARKET PORTFOLIO OF THE MENTOR FUNDS. NO INFORMATION RELATING TO ANY
OTHER SERIES OF THE MENTOR FUNDS IS AMENDED OR SUPERSEDED HEREBY.
<PAGE>
THE MENTOR FUNDS
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Part A:
Mentor Institutional U.S. Government Money Market Portfolio
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C> <C>
1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary
4. General Description of Registrant.............................. Cover Page; Investment objective
and policies; General
5. Management of the Fund......................................... Investment objective and policies;
Management; General; How the
Portfolio values its shares;
Custodian and transfer and dividend
agent; Performance information
5A. Management's Discussion
of Fund Performance.......................................... Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6. Capital Stock and Other
Securities................................................... Management; General; Purchase
of shares; How distributions
are made; tax information;
Performance information
7. Purchase of Securities Being
Offered...................................................... Management; Purchase
of shares
8. Redemption or Repurchase....................................... Purchase of shares; Redemption of
shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
<PAGE>
Mentor Institutional Money Market Portfolio
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C> <C>
1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page; Expense summary
3. Condensed Financial Information................................ Expense summary
4. General Description of Registrant.............................. Cover Page; Investment objective
and policies; General
5. Management of the Fund......................................... Investment objective and policies;
Management; General; How the Portfolio
values its shares; Custodian and transfer
and dividend agent; Performance information
5A. Management's Discussion
of Fund Performance.......................................... Not applicable
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6. Capital Stock and Other
Securities................................................... Management; General; Purchase of
shares; How distributions are made;
tax information; Performance
information
7. Purchase of Securities Being
Offered...................................................... Management; Purchase
of shares
8. Redemption or Repurchase....................................... Purchase of shares; Redemption of
shares
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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<PAGE>
Part B - Mentor Institutional Money Market Portfolio and Mentor
Institutional U.S. Government Money Market Portfolio
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C> <C>
10. Cover Page.................................................... Cover Page
11. Table of Contents............................................. Cover Page
12. General Information and History............................... General
13. Investment Objectives and
Policies.................................................... Investment Restrictions; Certain
Investment Techniques
14. Management of the Fund........................................ Management of the Trust;
Investment Advisory and Other
Services; The Distributor
15. Control Persons and Principal
Holders of Securities....................................... Principal Holders of Securities
16. Investment Advisory and Other
Services.................................................... Investment Advisory and Other
Services; Management of the Trust;
Independent Accountants; Experts;
Custodian; Members of Investment
Management Teams
17. Brokerage Allocation.......................................... Brokerage
18. Capital Stock and Other
Securities.................................................. Determination of Net Asset Value;
Tax Status; The Distributor;
Shareholder Liability
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Brokerage; Determination of Net
Asset Value; The Distributor
20. Tax Status.................................................... Investment Restrictions; Tax Status
21. Underwriters.................................................. The Distributor
22. Calculations of Performance Data.............................. Performance Information
</TABLE>
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<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
-8-
<PAGE>
Prospectus
April __, 1997
MENTOR INSTITUTIONAL U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Mentor Institutional U.S. Government Money Market Portfolio is a "money
market" fund, seeking as high a rate of current income as Mentor Investment
Advisors, LLC, the Portfolio's investment adviser, believes is consistent with
preservation of capital and maintenance of liquidity, through investments
exclusively in U.S. Government securities and repurchase agreements with respect
to U.S. Government securities. The Portfolio is a diversified investment
portfolio of Mentor Funds. An investment in shares of the Portfolio is designed
for institutional and high net-worth individual investors.
An investment in the Portfolio is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
This Prospectus sets forth concisely the information about the
Portfolio that a prospective investor should know before investing. Please read
this Prospectus and retain it for future reference. Investors can find more
detailed information in the April __, 1997 Statement of Additional Information,
as amended from time to time. For a free copy of the Statement, call Mentor
Distributors, Inc. at 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Portfolio's address is P.O. Box 1357, Richmond, Virginia
23218-1357.
-------------------------
MENTOR DISTRIBUTORS, LLC
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Expense summary
Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown reflect the expenses the Portfolio expects to incur.
The Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in the Portfolio over specified periods.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Portfolio Operating Expenses:
(as a percentage of average net assets)
Management Fees 0.22%
12b-1 Fees 0.00%
Other Expenses 0.11%
-----
Total Portfolio Operating Expenses 0.33%
Example
An investment of $1,000 in the Portfolio would incur the following
expenses, assuming 5% annual return and redemption at the end of each period:
1 year $3
3 years $11
This information is provided to help investors understand the expenses
of investing in the Portfolio and an investor's share of the estimated operating
expenses of the Portfolio. The Example should not be considered a representation
of future performance; actual expenses may be more or less than those shown.
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<PAGE>
Investment objective and policies
The Mentor Institutional U.S. Government Money Market Portfolio's
investment objective is to seek as high a rate of current income as Mentor
Investment Advisors, LLC ("Mentor Advisors") believes is consistent with
preservation of capital and maintenance of liquidity. The Portfolio invests
exclusively in U.S. Treasury bills, notes, and bonds, and other obligations
issued or guaranteed as to principal or interest by the U.S. Government, its
agencies, or instrumentalities, and in repurchase agreements with respect to
such obligations. There can, of course, be no assurance that the Portfolio will
achieve its investment objective.
Certain of the foregoing obligations, including U.S. Treasury bills,
notes, and bonds, mortgage participation certificates issued or guaranteed by
the Government National Mortgage Association, and Federal Housing Administration
debentures, are supported by the full faith and credit of the United States.
Other U.S. Government securities issued by federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States. These securities include obligations supported by the
right of the issuer to borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations supported only by the credit of an
instrumentality, such as Federal National Mortgage Association bonds.
Short-term U.S. Government obligations generally are considered among
the safest short-term investments. Because of their added safety, the yields
available from U.S. Government obligations are generally lower than the yields
available from comparable corporate debt securities. The U.S. Government
guarantee of securities owned by the Portfolio does not guarantee the net asset
value of the Portfolio's shares, which the Portfolio seeks to maintain at $1.00
per share.
Considerations of liquidity and preservation of capital mean that the
Portfolio may not necessarily invest in money market instruments paying the
highest available yield at a particular time. Consistent with its investment
objective, the Portfolio will attempt to maximize yields by portfolio trading
and by buying and selling portfolio investments in anticipation of or in
response to changing economic and money market conditions and trends. The
Portfolio may also invest to take advantage of what Mentor Advisors believes to
be temporary disparities in yields of different segments of the high-quality
money market or among particular instruments within the same segment of the
market. These policies, as well as the relatively short maturity of obligations
purchased by the Portfolio, may result in frequent changes in the securities
held by the Portfolio. The Portfolio will not usually pay brokerage commissions
in connection with the purchase or sale of portfolio securities.
The Portfolio's securities will be affected by general changes in
interest rates resulting in increases or decreases in the values of the
obligations held by the Portfolio. The value of the Portfolio's securities can
be expected to vary inversely to changes in prevailing interest rates.
Withdrawals by shareholders could require the sale of portfolio investments at a
time when such a sale might not otherwise be desirable.
Repurchase agreements; securities loans. The Portfolio may enter into
repurchase agreements and securities loans. Under a repurchase agreement, the
Portfolio purchases a debt instrument for a relatively short period (usually not
more than one week), which the seller agrees to repurchase at a fixed time and
price, representing the Portfolio's cost plus interest. Under a securities loan,
the Portfolio lends portfolio securities. The Portfolio will enter into
repurchase agreements and securities loans only with commercial banks and with
registered broker-dealers who are members of a national securities exchange or
market makers in government securities, and in the case of repurchase
agreements, only if the debt instrument subject to the repurchase agreement is a
U.S. Government security. These transactions must be fully collateralized at all
times, but involve some risk to the Portfolio if the other party should default
on its obligations and the Portfolio is delayed or prevented from recovering the
collateral. If the other party should become involved in bankruptcy or
insolvency proceedings, it is possible that the Portfolio may be treated as an
unsecured creditor and be required to return the underlying collateral to the
other party's estate.
_________________________
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<PAGE>
Except for investment policies designated in this Prospectus or the
Statement of Additional Information as fundamental, the investment objective and
policies described herein are not fundamental and may be changed by the Trustees
without shareholder approval.
Management
The Trustees of Mentor Funds (the "Trust") are responsible for
generally overseeing the conduct of the Portfolio's business. Mentor Investment
Advisors, LLC, located at 901 East Byrd Street, Richmond, Virginia 23219, acts
as investment adviser to the Portfolio. The Portfolio pays management fees to
Mentor Advisors monthly at the following annual rates (based on net assets of
the Portfolio): 0.22% of the first $500 million of the Portfolio's average net
assets; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of
the next $1 billion; and 0.15% of any amounts over $3 billion.
Mentor Advisors is a wholly owned subsidiary of Mentor Investment
Group, LLC ("Mentor Investment Group") which is in turn a subsidiary of Wheat
First Butcher Singer, Inc. ("Wheat First Butcher Singer"), a diversified
financial services holding company. Wheat First Butcher Singer, through other
subsidiaries, also engages in securities brokerage, investment banking, and
related businesses. EVEREN Capital Corporation has a 20% ownership in Mentor
Investment Group and may acquire additional ownership based principally on the
amount of Mentor Investment Group's revenues derived from assets attributable to
clients of EVEREN Securities, Inc. and its affiliates. Mentor Advisors and its
affiliates serve as investment adviser to twenty-three separate investment
portfolios in the Mentor Family of Funds with total assets under management of
more than $9 billion. All investment decisions for the Portfolio are made by
investment teams at Mentor Advisors.
Subject to the general oversight of the Trustees of the Trust, Mentor
Advisors manages the Portfolio in accordance with the stated policies of the
Portfolio. Mentor Advisors makes investment decisions for the Portfolio and
places the purchase and sale orders for the Portfolio's portfolio transactions.
In selecting broker-dealers, Mentor Advisors may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking the best overall
terms available, Mentor Advisors may consider sales of shares of the Portfolio
(and, if permitted by law, of other funds in the Mentor family) as a factor in
the selection of broker-dealers to execute portfolio transactions for the
Portfolio. Mentor Advisors may at times cause the Portfolio to pay commissions
to broker-dealers affiliated with Mentor Advisors.
Expenses incurred in the operation of the Portfolio or otherwise
allocated to the Portfolio, including but not limited to taxes, interest,
brokerage fees and commissions, fees to Trustees who are not officers,
directors, stockholders, or employees of Wheat First Butcher Singer and its
subsidiaries, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer and dividend disbursing agents, outside
auditing, accounting, and legal services, certain investor servicing fees and
expenses, charges for the printing of prospectuses and statements of additional
information for regulatory purposes or for distribution to shareholders, certain
shareholder report charges and charges relating to corporate matters, are borne
by the Portfolio.
How the Portfolio values its shares
The Portfolio values its shares twice each day, once at 12:00 noon and
again at the close of regular trading on the Exchange. The Portfolio's
investments are valued at amortized cost according to Securities and Exchange
Commission Rue 2a-7. The Portfolio will not normally have unrealized gains or
losses so long as it values its investments by the amortized cost method.
-4-
<PAGE>
Purchase of shares
The Portfolio offers its shares continuously at a price of $1.00 per
share. Because the Portfolio seeks to be fully invested at all times,
investments must be in Same Day Funds to be accepted. "Same Day Funds" are funds
credited by the applicable regional Federal Reserve Bank to the account of the
Portfolio at its designated bank.
Mentor Distributors, LLC, located at 901 East Byrd Street, Richmond,
Virginia 23219, serves as distributor of the Portfolio's shares. Mentor
Distributors is not obligated to sell any specific amount of shares of the
Portfolio.
An investor may make an initial purchase of shares in the Portfolio by
submitting completed application materials along with a purchase order, and by
making payment to Mentor Distributors or the Trust. Investors will be required
to make minimum initial investments of $500,000 and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolio reserves the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Mentor Advisors, or (iii) a combination of
such securities and cash. Purchase of shares of the Portfolio in exchange for
securities is subject in each case to the determination by Mentor Advisors that
the securities to be exchanged are acceptable for purchase by the Portfolio.
Securities accepted by Mentor Advisors in exchange for Portfolio shares will be
valued in the same manner as the Portfolio's assets as of the time of the
Portfolio's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Portfolio and must be delivered to the Portfolio upon receipt by the investor
from the issuer. A gain or loss for federal income tax purposes would be
realized upon the exchange by an investor that is subject to federal income
taxation, depending upon the investor's basis in the securities tendered. A
shareholder who wishes to purchase shares by exchanging securities should obtain
instructions by calling Mentor Distributors at 1-800-869-6042.
Mentor Distributors, Mentor Advisors, and affiliates thereof, at their
own expense and out of their own assets, may provide compensation to dealers in
connection with sales of shares of the Portfolio. Such compensation may include,
but is not limited to, financial assistance to dealers in connection with
conferences, sales, or training programs for their employees, seminars for the
public, advertising or sales campaigns, or other dealer-sponsored special
events. In some instances, this compensation may be made available only to
certain dealers whose representatives have sold or are expected to sell
significant amounts of shares. Dealers may not use sales of Portfolio shares to
qualify for this compensation to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc.
In all cases Mentor Advisors or Mentor Distributors reserves the right
to reject any particular investment.
Redemption of shares
A shareholder may redeem all or any portion of its shares in the
Portfolio any day the New York Stock Exchange is open by sending a signed letter
of instruction and stock power form, along with any certificates that represent
shares the shareholder wants to sell, to the Portfolio c/o: Mentor Funds, P.O.
Box 1357, Richmond, Virginia 23218-1357 or to Mentor Distributors. Redemptions
will be effected at the net asset value per share of the Portfolio next
determined after the receipt by the Portfolio of redemption instructions in
"good order" as described below. In order to receive that day's net asset value,
your request must be received before the close of regular trading on the New
York Stock Exchange. The Portfolio will only redeem shares for which it has
received payment. A check for the proceeds will normally be mailed on the next
business day after a request in good order is received.
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<PAGE>
A redemption request will be considered to have been made in "good
order" if the following conditions are satisfied:
(1) the request is in writing, states the number of shares
to be redeemed, and identifies the shareholder's
Portfolio account number;
(2) the request is signed by each registered owner exactly
as the shares are registered; and
(3) if the shares to be redeemed were issued in certificate
form, the certificates are endorsed for transfer (or are
accompanied by an endorsed stock power) and accompany
the redemption request.
If shares to be redeemed represent an investment made by check, the
Trust reserves the right not to transmit the redemption proceeds to the
shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Mentor Distributors
usually requires additional documentation for the sale of shares by a
corporation, partnership, agent, fiduciary, or surviving joint owner. Contact
Mentor Distributors for details.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
Other information concerning redemption. Under unusual circumstances,
the Portfolio may suspend redemptions, or postpone payment for more than seven
days, as permitted by federal securities law. In addition, the Portfolio
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption by making payment in whole or in part in
securities valued in the same way as they would be valued for purposes of
computing the Portfolio's per share net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting those
securities into cash.
How distributions are made
The Portfolio determines its net income as of the close of regular
trading on the New York Stock Exchange each day the Exchange is open. Each
determination of the Portfolio's net income includes (i) all accrued interest on
the Portfolio's investments, (ii) plus or minus all realized and unrealized
gains and losses on the Portfolio's investments, (iii) less all accrued expenses
of the Portfolio.
The Portfolio declares all of its net income as a distribution on each
day it is open for business, as a dividend to shareholders of record immediately
prior to the close of regular trading on the Exchange. Shareholders whose
purchase of shares of the Portfolio are accepted at or before 12:00 noon on any
day will receive the dividend declared by the Portfolio for that day;
shareholders who purchase shares after 12:00 noon will begin earning dividends
on the next business day after the Portfolio accepts their order. The
Portfolio's net income for Saturdays, Sundays, and holidays is declared as a
dividend on the preceding business day. Dividends for the immediately preceding
calendar month will be paid on the fifteenth day of each calendar month (or, if
that day is not a business day, on the next business day), except that the
Portfolio's schedule for payment of dividends during the month of December may
be adjusted to assist in tax reporting and distribution requirements. A
shareholder that withdraws the entire balance of an account at any time during a
month will be paid all dividends declared through the time of withdrawal. Since
the net income of the Portfolio is declared as a dividend each time it is
determined, the net asset value per share of the Portfolio normally remains at
$1 per share immediately after each determination and dividend declaration.
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<PAGE>
All Portfolio distributions will be invested in additional Portfolio
shares, unless the shareholder instructs the Portfolio otherwise.
Taxes
The Portfolio intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolio will distribute substantially all of
its net investment income and capital gain net income on a current basis.
All Portfolio distributions will be taxable to shareholders as ordinary
income, except that any distributions of net capital gain will be taxed as
long-term capital gain, regardless of how long a shareholder has held the shares
(although the loss on a sale of shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain distribution
received with respect to those shares). Distributions will be taxable as
described above whether received in cash or in shares through the reinvestment
of distributions. Early in each year the Trust will notify shareholders of the
amount and tax status of distributions paid by the Portfolio for the preceding
year. In buying or selling securities for the Portfolio, Mentor Advisors will
not normally take into account the effect any purchase or sale of securities
will have on the tax positions of the Portfolio's shareholders.
The foregoing is a summary of certain federal income tax consequences
of investing in the Portfolio. Dividends and distributions also may be subject
to state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the Portfolio, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
General
Mentor Funds (the "Trust") is a Massachusetts business trust organized
on January 20, 1992. A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts.
The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into eleven
series, one representing the Portfolio, the others representing other Portfolios
with varying investment objectives and policies. Certain of the Trust's
Portfolios offer more than one class of shares with different sales charges and
expenses. The Portfolio currently offers only one class of shares
Each share has one vote, with fractional shares voting proportionally.
Shares of each class will vote together as a single class except when required
by law or determined by the Trustees. Shares of the Portfolio are freely
transferable, are entitled to dividends as declared by the Trustees, and, if the
Portfolio were liquidated, would receive the net assets of the Portfolio. The
Trust may suspend the sale of shares at any time and may refuse any order to
purchase shares. Although neither the Portfolio nor the Trust is required to
hold annual meetings of shareholders, shareholders have the right to call a
meeting to elect or remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
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<PAGE>
In the interest of economy and convenience, the Portfolio will not
issue certificates for its shares except at the shareholder's request.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. State Street Bank and Trust
Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Portfolio's transfer and dividend
agent.
Performance Information
The Portfolio's yield may from time to time be included in
advertisements about the Portfolio. The Portfolio's "yield" is calculated by
determining the percentage net change, excluding capital changes, in the value
of an investment in one share of the Portfolio over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The Portfolio's
"effective yield" represents a compounding of the yield by adding 1 to the
number representing the percentage change in the value of the investment during
the base period, raising that sum to a power equal to 365/7, and subtracting 1
from the result.
All data is based on the Portfolio's past investment results and does
not predict future performance. Investment performance, which will vary, is
based on many factors, including market conditions, the composition of the
Portfolio's investments, the Portfolio's operating expenses and the class of
shares purchased. Investment performance also often reflects the risks
associated with the Portfolio's investment objective and policies. These factors
should be considered when comparing the Portfolio's investment results to those
of other mutual funds and other investment vehicles.
Quotations of yield for a period when an expense limitation was in
effect will be greater than if the limitation had not been in effect. The
Portfolio's performance may be compared to various indices. See the Statement of
Additional Information. Information may be presented in advertisements about the
Portfolio describing the background and professional experience of the
Portfolio's investment adviser or its investment personnel.
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Portfolio. This Prospectus does not constitute an
offer in any State in which, or to any person to whom, such offering may not
lawfully be made. This Prospectus omits certain information contained in the
Registration Statement, to which reference is made, filed with the Securities
and Exchange Commission. Items which are thus omitted, including contracts and
other documents referred to or summarized herein, may be obtained from the
Commission upon payment of the prescribed fees.
Additional information concerning the securities offered hereby and the
Portfolio is to be found in the Registration Statement, including various
exhibits thereto and financial statements included or incorporated therein,
which may be inspected at the
office of the Commission.
MENTOR FUNDS
Mentor
Institutional
U.S. Government
Money Market
Portfolio
----------
PROSPECTUS
----------
April __, 1997
<PAGE>
Prospectus
April __, 1997
MENTOR INSTITUTIONAL MONEY MARKET PORTFOLIO
Mentor Institutional Money Market Portfolio is a "money market" fund,
seeking as high a rate of current income as Mentor Investment Advisors, LLC, the
Portfolio's investment adviser, believes is consistent with preservation of
capital and maintenance of liquidity. The Portfolio is a diversified investment
portfolio of Mentor Funds. An investment in shares of the Portfolio is designed
for institutional and high net-worth individual investors.
An investment in the Portfolio is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
This Prospectus sets forth concisely the information about the
Portfolio that a prospective investor should know before investing. Please read
this Prospectus and retain it for future reference. Investors can find more
detailed information in the April __, 1997 Statement of Additional Information,
as amended from time to time. For a free copy of the Statement, call Mentor
Distributors, Inc. at 1-800-869-6042. The Statement has been filed with the
Securities and Exchange Commission and is incorporated into this Prospectus by
reference. The Portfolio's address is P.O. Box 1357, Richmond, Virginia
23218-1357.
-------------------------
MENTOR DISTRIBUTORS, LLC
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Expense summary
Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown reflect the expenses the Portfolio expects to incur.
The Example shows the cumulative expenses attributable to a hypothetical $1,000
investment in the Portfolio over specified periods.
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Portfolio Operating Expenses:
(as a percentage of average net assets)
Management Fees 0.22%
12b-1 Fees 0.00%
Other Expenses 0.11%
----
Total Portfolio Operating Expenses 0.33%
Example
An investment of $1,000 in the Portfolio would incur the following
expenses, assuming 5% annual return and redemption at the end of each period:
1 year $3
3 years $11
This information is provided to help investors understand the expenses
of investing in the Portfolio and an investor's share of the estimated operating
expenses of the Portfolio. The Example should not be considered a representation
of future performance; actual expenses may be more or less than those shown.
-2-
<PAGE>
Investment objective and policies
The Mentor Institutional Money Market Portfolio's investment objective
is to seek as high a rate of current income as Mentor Investment Advisors, LLC
("Mentor Advisors") believes is consistent with preservation of capital and
maintenance of liquidity. The Portfolio will invest in high-quality short-term
instruments including U.S. Government securities, banker's acceptances, prime
commercial paper, fixed-income securities of corporations and other private
issuers, and money market instruments. There can, of course, be no assurance
that the Portfolio will achieve its investment objective.
The Portfolio will invest in a portfolio of high-quality short-term
instruments consisting of any or all of the following:
o U.S. Government securities: securities issued or guaranteed
as to principal or interest by the U.S. Government or by any
of its agencies or instrumentalities.
o Banker's acceptances: negotiable drafts or bills of exchange,
which have been "accepted" by a domestic bank (or a foreign
bank with an agency domiciled in the United States), meaning,
in effect, that the bank has unconditionally agreed to pay the
face value of the instrument on maturity.
o Prime commercial paper: high-quality, short-term obligations
issued by banks, corporations, and other issuers organized
under the laws of a jurisdiction within the United States.
o Other short-term obligations: high-quality, short-term
obligations of corporate issuers.
o Repurchase agreements: with respect to U.S. Government or
agency securities.
The Portfolio will invest only in U.S. dollar-denominated high-quality
securities and other U.S. dollar-denominated money market instruments meeting
credit criteria which the Trustees of the Trust believe present minimal credit
risk. "High-quality securities" are (i) commercial paper or other short-term
obligations rated A-1 by Standard & Poor's and P-1 by Moody's Investors Service,
Inc., and (ii) obligations rated AAA or AA by Standard & Poor's and Aaa or Aa by
Moody's at the time of investment. The Portfolio will not invest in securities
rated below A-1 or P-1 (or securities not so rated whose issuer does not have
outstanding short-term debt obligations, of comparable priority and security,
rated A-1 or P-1). The Portfolio will maintain a dollar-weighted average
maturity of 90 days or less and will not invest in securities with remaining
maturities of more than thirteen months. The Portfolio may invest in variable or
floating-rate securities which bear interest at rates subject to periodic
adjustment or which provide recovery of principal on demand. Under certain
conditions, these securities may be deemed to have remaining maturities equal to
the time remaining until the next interest adjustment date or the date on which
principal can be recovered on demand. The Portfolio will not purchase securities
of any issuer if, immediately thereafter, more than 5% of its total assets would
be invested in securities of that issuer. The Portfolio follows investment and
valuation policies designed to maintain a stable net asset value of $1.00 per
share, although there is no assurance that these policies will be successful.
Considerations of liquidity and preservation of capital mean that the
Portfolio may not necessarily invest in money market instruments paying the
highest available yield at a particular time. Consistent with its investment
objective, the Portfolio will attempt to maximize yields by portfolio trading
and by buying and selling portfolio investments in anticipation of or in
response to changing economic and money market conditions and trends. The
Portfolio may also invest to take advantage of what Mentor Advisors believes to
be temporary disparities in yields of different segments of the high-quality
money market or among particular instruments within the same segment of the
market. These policies, as well as the relatively short maturity of obligations
purchased by the Portfolio, may result in frequent changes in the securities
held by the Portfolio. The Portfolio will not usually pay brokerage commissions
in connection with the purchase or sale of portfolio securities.
-3-
<PAGE>
The Portfolio's securities will be affected by general changes in
interest rates resulting in increases or decreases in the values of the
obligations held by the Portfolio. The value of the Portfolio's securities can
be expected to vary inversely to changes in prevailing interest rates.
Withdrawals by shareholders could require the sale of portfolio investments at a
time when such a sale might not otherwise be desirable.
Concentration. The Portfolio may invest without limit in obligations
of domestic branches of U.S. banks and U.S. branches of foreign banks (if it can
be demonstrated that they are subject to the same regulations as U.S. banks). At
times when the Portfolio has concentrated its investments in bank obligations,
the value of its portfolio securities may be especially affected by factors
pertaining to the issuers of such obligations.
Repurchase agreements; securities loans. The Portfolio may enter into
repurchase agreements and securities loans. Under a repurchase agreement, the
Portfolio purchases a debt instrument for a relatively short period (usually not
more than one week), which the seller agrees to repurchase at a fixed time and
price, representing the Portfolio's cost plus interest. Under a securities loan,
the Portfolio lends portfolio securities. The Portfolio will enter into
repurchase agreements and securities loans only with commercial banks and with
registered broker-dealers who are members of a national securities exchange or
market makers in government securities, and in the case of repurchase
agreements, only if the debt instrument subject to the repurchase agreement is a
U.S. Government security. These transactions must be fully collateralized at all
times, but involve some risk to the Portfolio if the other party should default
on its obligations and the Portfolio is delayed or prevented from recovering the
collateral. If the other party should become involved in bankruptcy or
insolvency proceedings, it is possible that the Portfolio may be treated as an
unsecured creditor and be required to return the underlying collateral to the
other party's estate.
___________________________
Except for investment policies designated in this Prospectus or the
Statement of Additional Information as fundamental, the investment objective and
policies described herein are not fundamental and may be changed by the Trustees
without shareholder approval.
Management
The Trustees of Mentor Funds (the "Trust") are responsible for
generally overseeing the conduct of the Portfolio's business. Mentor Investment
Advisors, LLC, located at 901 East Byrd Street, Richmond, Virginia 23219, acts
as investment adviser to the Portfolio. The Portfolio pays management fees to
Mentor Advisors monthly at the following annual rates (based on net assets of
the Portfolio): 0.22% of the first $500 million of the Portfolio's average net
assets; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of
the next $1 billion; and 0.15% of any amounts over $3 billion.
Mentor Advisors is a wholly owned subsidiary of Mentor Investment
Group, LLC ("Mentor Investment Group") which is in turn a subsidiary of Wheat
First Butcher Singer, Inc. ("Wheat First Butcher Singer"), a diversified
financial services holding company. Wheat First Butcher Singer, through other
subsidiaries, also engages in securities brokerage, investment banking, and
related businesses. EVEREN Capital Corporation has a 20% ownership in Mentor
Investment Group and may acquire additional ownership based principally on the
amount of Mentor Investment Group's revenues derived from assets attributable to
clients of EVEREN Securities, Inc. and its affiliates. Mentor Advisors and its
affiliates serve as investment adviser to twenty-three separate investment
portfolios in the Mentor Family of Funds with total assets under management of
more than $9 billion. All investment decisions for the Portfolio are made by
investment teams at Mentor Advisors.
Subject to the general oversight of the Trustees of the Trust, Mentor
Advisors manages the Portfolio in accordance with the stated policies of the
Portfolio. Mentor Advisors makes investment decisions for the Portfolio and
places the purchase and sale orders for the Portfolio's portfolio transactions.
In selecting broker-dealers, Mentor Advisors may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking the best overall
terms available, Mentor Advisors may consider sales of shares of the Portfolio
(and, if permitted by law, of
-4-
<PAGE>
other funds in the Mentor family) as a factor in the selection of broker-dealers
to execute portfolio transactions for the Portfolio. Mentor Advisors may at
times cause the Portfolio to pay commissions to broker-dealers affiliated with
Mentor Advisors.
Expenses incurred in the operation of the Portfolio or otherwise
allocated to the Portfolio, including but not limited to taxes, interest,
brokerage fees and commissions, fees to Trustees who are not officers,
directors, stockholders, or employees of Wheat First Butcher Singer and its
subsidiaries, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer and dividend disbursing agents, outside
auditing, accounting, and legal services, certain investor servicing fees and
expenses, charges for the printing of prospectuses and statements of additional
information for regulatory purposes or for distribution to shareholders, certain
shareholder report charges and charges relating to corporate matters, are borne
by the Portfolio.
How the Portfolio values its shares
The Portfolio values its shares twice each day, once at 12:00 noon and
again at the close of regular trading on the Exchange. The Portfolio's
investments are valued at amortized cost according to Securities and Exchange
Commission Rue 2a-7. The Portfolio will not normally have unrealized gains or
losses so long as it values its investments by the amortized cost method.
Purchase of shares
The Portfolio offers its shares continuously at a price of $1.00 per
share. Because the Portfolio seeks to be fully invested at all times,
investments must be in Same Day Funds to be accepted. "Same Day Funds" are funds
credited by the applicable regional Federal Reserve Bank to the account of the
Portfolio at its designated bank.
Mentor Distributors, LLC, located at 901 East Byrd Street, Richmond,
Virginia 23219, serves as distributor of the Portfolio's shares. Mentor
Distributors is not obligated to sell any specific amount of shares of the
Portfolio.
An investor may make an initial purchase of shares in the Portfolio by
submitting completed application materials along with a purchase order, and by
making payment to Mentor Distributors or the Trust. Investors will be required
to make minimum initial investments of $500,000 and minimum subsequent
investments of $25,000. Investments made through advisory accounts maintained
with investment advisers registered under the Investment Advisers Act of 1940
(including "wrap" accounts) are not subject to these minimum investment
requirements. The Portfolio reserves the right at any time to change the initial
and subsequent investment minimums required of investors.
Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Mentor Advisors, or (iii) a combination of
such securities and cash. Purchase of shares of the Portfolio in exchange for
securities is subject in each case to the determination by Mentor Advisors that
the securities to be exchanged are acceptable for purchase by the Portfolio.
Securities accepted by Mentor Advisors in exchange for Portfolio shares will be
valued in the same manner as the Portfolio's assets as of the time of the
Portfolio's next determination of net asset value after such acceptance. All
dividends and subscription or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of the
Portfolio and must be delivered to the Portfolio upon receipt by the investor
from the issuer. A gain or loss for federal income tax purposes would be
realized upon the exchange by an investor that is subject to federal income
taxation, depending upon the investor's basis in the securities tendered. A
shareholder who wishes to purchase shares by exchanging securities should obtain
instructions by calling Mentor Distributors at 1-800-869-6042.
Mentor Distributors, Mentor Advisors, and affiliates thereof, at their
own expense and out of their own assets, may provide compensation to dealers in
connection with sales of shares of the Portfolio. Such compensation may include,
but is not limited to, financial assistance to dealers in connection with
conferences, sales, or training
-5-
<PAGE>
programs for their employees, seminars for the public, advertising or sales
campaigns, or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell significant amounts of shares. Dealers may not
use sales of Portfolio shares to qualify for this compensation to the extent
such may be prohibited by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc.
In all cases Mentor Advisors or Mentor Distributors reserves the right
to reject any particular investment.
Redemption of shares
A shareholder may redeem all or any portion of its shares in the
Portfolio any day the New York Stock Exchange is open by sending a signed letter
of instruction and stock power form, along with any certificates that represent
shares the shareholder wants to sell, to the Portfolio c/o: Mentor Funds, P.O.
Box 1357, Richmond, Virginia 23218-1357 or to Mentor Distributors. Redemptions
will be effected at the net asset value per share of the Portfolio next
determined after the receipt by the Portfolio of redemption instructions in
"good order" as described below. In order to receive that day's net asset value,
your request must be received before the close of regular trading on the New
York Stock Exchange. The Portfolio will only redeem shares for which it has
received payment. A check for the proceeds will normally be mailed on the next
business day after a request in good order is received.
A redemption request will be considered to have been made in "good
order" if the following conditions are satisfied:
(1) the request is in writing, states the number of shares
to be redeemed, and identifies the shareholder's
Portfolio account number;
(2) the request is signed by each registered owner exactly
as the shares are registered; and
(3) if the shares to be redeemed were issued in certificate
form, the certificates are endorsed for transfer (or are
accompanied by an endorsed stock power) and accompany
the redemption request.
If shares to be redeemed represent an investment made by check, the
Trust reserves the right not to transmit the redemption proceeds to the
shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Mentor Distributors
usually requires additional documentation for the sale of shares by a
corporation, partnership, agent, fiduciary, or surviving joint owner. Contact
Mentor Distributors for details.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
Other information concerning redemption. Under unusual circumstances,
the Portfolio may suspend redemptions, or postpone payment for more than seven
days, as permitted by federal securities law. In addition, the Portfolio
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption by making payment in whole or in part in
securities valued in the same way as they would be valued for purposes of
computing the Portfolio's per share net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting those
securities into cash.
-6-
<PAGE>
How distributions are made
The Portfolio determines its net income as of the close of regular
trading on the New York Stock Exchange each day the Exchange is open. Each
determination of the Portfolio's net income includes (i) all accrued interest on
the Portfolio's investments, (ii) plus or minus all realized and unrealized
gains and losses on the Portfolio's investments, (iii) less all accrued expenses
of the Portfolio.
The Portfolio declares all of its net income as a distribution on each
day it is open for business, as a dividend to shareholders of record immediately
prior to the close of regular trading on the Exchange. Shareholders whose
purchase of shares of the Portfolio are accepted at or before 12:00 noon on any
day will receive the dividend declared by the Portfolio for that day;
shareholders who purchase shares after 12:00 noon will begin earning dividends
on the next business day after the Portfolio accepts their order. The
Portfolio's net income for Saturdays, Sundays, and holidays is declared as a
dividend on the preceding business day. Dividends for the immediately preceding
calendar month will be paid on the fifteenth day of each calendar month (or, if
that day is not a business day, on the next business day), except that the
Portfolio's schedule for payment of dividends during the month of December may
be adjusted to assist in tax reporting and distribution requirements. A
shareholder that withdraws the entire balance of an account at any time during a
month will be paid all dividends declared through the time of withdrawal. Since
the net income of the Portfolio is declared as a dividend each time it is
determined, the net asset value per share of the Portfolio normally remains at
$1 per share immediately after each determination and dividend declaration.
All Portfolio distributions will be invested in additional Portfolio
shares, unless the shareholder instructs the Portfolio otherwise.
Taxes
The Portfolio intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolio will distribute substantially all of
its net investment income and capital gain net income on a current basis.
All Portfolio distributions will be taxable to shareholders as ordinary
income, except that any distributions of net capital gain will be taxed as
long-term capital gain, regardless of how long a shareholder has held the shares
(although the loss on a sale of shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain distribution
received with respect to those shares). Distributions will be taxable as
described above whether received in cash or in shares through the reinvestment
of distributions. Early in each year the Trust will notify shareholders of the
amount and tax status of distributions paid by the Portfolio for the preceding
year. In buying or selling securities for the Portfolio, Mentor Advisors will
not normally take into account the effect any purchase or sale of securities
will have on the tax positions of the Portfolio's shareholders.
The foregoing is a summary of certain federal income tax consequences
of investing in the Portfolio. Dividends and distributions also may be subject
to state and local taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state, or local taxes. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of the Portfolio, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
General
Mentor Funds (the "Trust") is a Massachusetts business trust organized
on January 20, 1992 A copy of the Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts.
-7-
<PAGE>
The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into eleven
series, one representing the Portfolio, the others representing other Portfolios
with varying investment objectives and policies. Certain of the Trust's
Portfolios offer more than one class of shares with different sales charges and
expenses. The Portfolio currently offers only one class of shares.
Each share has one vote, with fractional shares voting proportionally.
Shares of each class will vote together as a single class except when required
by law or determined by the Trustees. Shares of the Portfolio are freely
transferable, are entitled to dividends as declared by the Trustees, and, if the
Portfolio were liquidated, would receive the net assets of the Portfolio. The
Trust may suspend the sale of shares at any time and may refuse any order to
purchase shares. Although neither the Portfolio nor the Trust is required to
hold annual meetings of shareholders, shareholders have the right to call a
meeting to elect or remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
In the interest of economy and convenience, the Portfolio will not
issue certificates for its shares except at the shareholder's request.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. State Street Bank and Trust
Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive, North
Quincy, Massachusetts 02171, serves as the Portfolio's transfer and dividend
agent.
Performance Information
The Portfolio's yield may from time to time be included in
advertisements about the Portfolio. The Portfolio's "yield" is calculated by
determining the percentage net change, excluding capital changes, in the value
of an investment in one share of the Portfolio over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The Portfolio's
"effective yield" represents a compounding of the yield by adding 1 to the
number representing the percentage change in the value of the investment during
the base period, raising that sum to a power equal to 365/7, and subtracting 1
from the result.
All data is based on the Portfolio's past investment results and does
not predict future performance. Investment performance, which will vary, is
based on many factors, including market conditions, the composition of the
Portfolio's investments, the Portfolio's operating expenses and the class of
shares purchased. Investment performance also often reflects the risks
associated with the Portfolio's investment objective and policies. These factors
should be considered when comparing the Portfolio's investment results to those
of other mutual funds and other investment vehicles.
Quotations of yield for a period when an expense limitation was in
effect will be greater than if the limitation had not been in effect. The
Portfolio's performance may be compared to various indices. See the Statement of
Additional Information. Information may be presented in advertisements about the
Portfolio describing the background and professional experience of the
Portfolio's investment adviser or its investment personnel.
-8-
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Portfolio. This Prospectus does not constitute an
offer in any State in which, or to any person to whom, such offering may not
lawfully be made. This Prospectus omits certain information contained in the
Registration Statement, to which reference is made, filed with the Securities
and Exchange Commission. Items which are thus omitted, including contracts and
other documents referred to or summarized herein, may be obtained from the
Commission upon payment of the prescribed fees.
Additional information concerning the securities offered hereby and the
Portfolio is to be found in the Registration Statement, including various
exhibits thereto and financial statements included or incorporated therein,
which may be inspected at the
office of the Commission.
MENTOR FUNDS
Mentor
Institutional
Money Market
Portfolio
----------
PROSPECTUS
----------
April __, 1997
<PAGE>
MENTOR FUNDS
STATEMENT OF ADDITIONAL INFORMATION
(Mentor Institutional U.S. Government Money Market Portfolio
and Mentor Institutional Money Market Portfolio)
April __, 1997
This Statement of Additional Information relates to the Mentor
Institutional U.S. Government Money Market Portfolio and Mentor Institutional
Money Market Portfolio (each a "Portfolio" and collectively the "Portfolios").
Each of the Portfolios is a series of shares of beneficial interest of Mentor
Funds (the "Trust"). This Statement is not a prospectus and should be read in
conjunction with the relevant prospectus. Separate statements of additional
information relate to the other Portfolios comprising the Trust. A copy of any
prospectus or statement of additional information can be obtained upon request
made to Mentor Distributors, LLC, the Trust's distributor, at P.O. Box 1357,
Richmond, Virginia 23218-1357, or calling Mentor Distributors at 1-(800)
869-6042.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
<S> <C>
GENERAL ..................................................2
INVESTMENT RESTRICTIONS....................................2
CERTAIN INVESTMENT TECHNIQUES..............................3
MANAGEMENT OF THE TRUST....................................5
PRINCIPAL HOLDERS OF SECURITIES............................8
INVESTMENT ADVISORY AND OTHER SERVICES.....................8
BROKERAGE..................................................9
DETERMINATION OF NET ASSET VALUE..........................11
TAX STATUS................................................13
THE DISTRIBUTOR...........................................15
INDEPENDENT ACCOUNTANTS...................................15
CUSTODIAN.................................................15
PERFORMANCE INFORMATION...................................15
SHAREHOLDER LIABILITY.....................................19
MEMBERS OF INVESTMENT MANAGEMENT TEAMS....................19
RATINGS .................................................21
<PAGE>
GENERAL
Mentor Funds (the "Trust") is a Massachusetts business trust organized
on January 20, 1992 as Cambridge Series Trust.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed with
respect to a Portfolio without approval by the holders of a majority of the
outstanding shares of that Portfolio, a Portfolio may not:
1. Purchase any security (other than U.S. Government securities)
if as a result: (i) as to 75% of such Portfolio's total
assets, more than 5% of the Portfolio's total assets (taken at
current value) would then be invested in securities of a
single issuer, or (ii) more than 25% of the Portfolio's total
assets would be invested in a single industry; except that the
Institutional Money Market Portfolio may invest up to 100% of
its assets in securities of issuers in the banking industry.
2. Acquire more than 10% of the voting securities of any issuer.
3. Act as underwriter of securities of other issuers except to
the extent that, in connection with the disposition of
portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws.
4. Issue any class of securities which is senior to the
Portfolio's shares of beneficial interest.
5. Purchase or sell real estate or interests in real estate,
including real estate mortgage loans, although it may purchase
and sell securities which are secured by real estate and
securities of companies that invest or deal in real estate or
real estate limited partnership interests. (For purposes of
this restriction, investments by a Portfolio in
mortgage-backed securities and other securities representing
interests in mortgage pools shall not constitute the purchase
or sale of real estate or interests in real estate or real
estate mortgage loans.)
6. Borrow money in excess of 5% of the value (taken at the lower
of cost or current value) of its total assets (not including
the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes.
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<PAGE>
7. Purchase or sell commodities or commodity contracts, except
that a Portfolio may purchase or sell financial futures
contracts, options on futures contracts, and futures
contracts, forward contracts, and options with respect to
foreign currencies, and may enter into swap transactions.
8. Make loans, except by purchase of debt obligations in which
the Portfolio may invest consistent with its investment
policies, by entering into repurchase agreements, or by
lending its portfolio securities.
In addition, it is contrary to the current policy of each Portfolio,
which policy may be changed without shareholder approval, to 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 of the Trust (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 10% of the
Portfolio's net assets (taken at current value) would then be invested in
securities described in (a), (b), and (c).
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for the investment restrictions listed above as fundamental or to the extent
designated as such in a Prospectus with respect to a Portfolio, the other
investment policies described in this Statement or in a Prospectus are not
fundamental and may be changed by approval of the Trustees.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities" of a
Portfolio means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Portfolio, and (2) 67% or more of the shares present
at a meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
CERTAIN INVESTMENT TECHNIQUES
Set forth below is information concerning certain investment techniques
in which each Portfolio may engage, and certain of the risks they may entail.
Repurchase Agreements
A Portfolio may enter into repurchase agreements. A repurchase
agreement is a contract under which the Portfolio acquires a security for a
relatively short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the Portfolio to resell such security
at a fixed time and price (representing the Portfolio's cost plus interest). It
is the Trust's present intention to enter into repurchase agreements only with
member banks of the Federal
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<PAGE>
Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by a Portfolio which are
collateralized by the securities subject to repurchase. The investment adviser
will monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults, a
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, a Portfolio
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if a Portfolio is treated as an unsecured
creditor and required to return the underlying collateral to the seller's
estate.
Loans of Portfolio Securities
A Portfolio may lend its portfolio securities, provided: (1) the loan
is secured continuously by collateral consisting of U.S. Government Securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Portfolio may at any
time call the loan and regain the securities loaned; (3) a Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities of any Portfolio loaned will not at any
time exceed one-third (or such other limit as the Trustee may establish) of the
total assets of the Portfolio. Cash collateral received by a Portfolio may be
invested in any securities in which the Portfolio may invest consistent with its
investment policies. In addition, it is anticipated that a Portfolio may share
with the borrower some of the income received on the collateral for the loan or
that it will be paid a premium for the loan. Before a Portfolio enters into a
loan, its investment adviser considers all relevant facts and circumstances
including the creditworthiness of the borrower. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, a Portfolio retains the
right to call the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by a Portfolio if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment. A Portfolio will not lend portfolio securities to borrowers
affiliated with the Portfolio.
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<PAGE>
MANAGEMENT OF THE TRUST
The following table provides biographical information with respect to
each Trustee and officer of the Trust. Each Trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk.
zz
</TABLE>
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name and Address with Portfolio During Past 5 Years
<S> <C>
Stanley F. Pauley Trustee Chairman and Chief Executive Officer, E.R.
Carpenter Company Incorporated; Trustee,
Mentor Institutional Trust; Trustee, Cash
Resource Trust.
Louis W. Moelchert, Jr. Trustee Vice President of Business and Finance,
University of Richmond; Trustee, Mentor
Institutional Trust; Trustee, Cash Resource
Trust; Director, America's Utility Fund,
Inc.
Thomas F. Keller Trustee Former Dean, Fuqua School of Business, Duke
University; Trustee, Mentor Institutional
Trust; Trustee, Cash Resource Trust.
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<PAGE>
Arnold H. Dreyfuss Trustee Retired. Formerly, Chairman and Chief
Executive Officer, Hamilton Beach/Proctor-
Silex, Inc.; Trustee, Mentor Institutional
Trust; Trustee, Cash Resource Trust.
*Daniel J. Ludeman Chairman; Chairman and Chief Executive Officer,
Trustee Mentor Investment Group, LLC; Managing
Director of Wheat, First Securities, Inc.;
Managing Director of Wheat First Butcher
Singer; Director, Wheat First Securities,
Inc. and Mentor Income Fund, Inc.; Chairman
and Trustee, Mentor Institutional Trust;
Chairman and Trustee, Cash Resource Trust;
Director, America's Utility Fund, Inc.
Troy A. Peery, Jr. Trustee President, Heilig-Meyers Company. Trustee,
The Mentor Funds; Trustee, Cash Resource
Trust.
Peter J. Quinn, Jr.* Trustee President, Mentor Distributors, LLC;
Managing Director, Mentor Investment Group,
LLC; Managing Director, Wheat First Butcher
Singer, Inc.; formerly, Senior Vice
President/Director of Mutual Funds, Wheat
First Butcher Singer, Inc.
Paul F. Costello President Managing Director, Mentor Investment Group,
LLC, Wheat First Butcher Singer, and Mentor
Investment Advisors, LLC; President, Mentor
Income Fund, The Mentor Funds, and Cash
Resource Trust; Executive Vice President
and Chief Administrative Officer, America's
Utility Fund, Inc.; Director, Mentor
Perpetual Advisors, LLC and Mentor Trust
Company.
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<PAGE>
Terry L. Perkins Treasurer Senior Vice President, Mentor Investment
Group, LLC; Treasurer, Cash Resource Trust,
Mentor Income Fund Inc., The Mentor Funds,
and America's Utility Fund, Inc.; formerly,
Treasurer and Comptroller, Ryland Capital
Management, Inc.
Michael Wade Assistant Vice President, Mentor Investment Group,
Treasurer LLC; Assistant Treasurer, Cash Resource
Trust, Mentor Income Fund, Inc., The Mentor
Funds, and America's Utility Fund, Inc.;
formerly, Senior Accountant, Wheat First
Butcher Singer, Inc.,; Audit Senior, BDO
Seidman.
John M. Ivan Clerk Managing Director, Director of Compliance,
Senior Vice President, and Assistant General
Counsel, Wheat, First Securities, Inc.;
Managing Director, Mentor Investment
Advisors, LLC; Clerk, Cash Resource Trust;
Secretary, The Mentor Funds.
</TABLE>
The table below shows the fees paid to each Trustee by the Trust for
the 1996 fiscal year and the fees paid to each Trustee by all funds in the
Mentor family (including the Trust) during the 1996 calendar year.
<TABLE>
<CAPTION>
Total compensation
Aggregate compensation from all
Trustees from the Trust complex funds
<S> <C>
Daniel J. Ludeman 0 0
Arnold H. Dreyfuss $200 $12,200
Thomas F. Keller $175 $11,175
Louis W. Moelchert, Jr. $200 $12,200
Stanley F. Pauley $200 $12,200
Troy A. Peery, Jr. $175 $11,175
Peter J. Quinn, Jr. $ 0 $ 0
</TABLE>
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<PAGE>
- -------------
The Trustees do not receive pension or retirement benefits from the
Trust.
The Agreement and Declaration of Trust of the Trust provides that the
Trust will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Trust, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Trust or that such indemnification would relieve any officer or Trustee of any
liability to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of his or her duties. The Trust,
at its expense, provides liability insurance for the benefit of its Trustees and
officers.
PRINCIPAL HOLDERS OF SECURITIES
As of January 15, 1997, neither Portfolio had any shares outstanding.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Services
Mentor Investment Advisors, LLC ("Mentor Advisors") serves as
investment adviser to each Portfolio pursuant to a Management Contract with the
Trust. Subject to the supervision and direction of the Trustees, Mentor Advisors
manages a Portfolio's portfolio in accordance with the stated policies of that
Portfolio and of the Trust. Mentor Advisors makes investment decisions for the
Portfolios and places the purchase and sale orders for portfolio transactions.
Mentor Advisors bears all of its expenses in connection with the performance of
its services. In addition, Mentor Advisors pays the salaries of all officers and
employees who are employed by it and the Trust.
Mentor Advisors provides the Portfolios with investment officers who
are authorized to execute purchases and sales of securities. Investment
decisions for the Portfolios and for the other investment advisory clients of
Mentor Advisors and its affiliates are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a
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<PAGE>
manner which in an investment adviser's opinion is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients. In the case of short-term
investments, the Treasury area of Wheat First Butcher Singer handles purchases
and sales under guidelines approved by investment officers of the Trust. Mentor
Advisors employs a professional staff of portfolio managers who draw upon a
variety of resources, including Wheat, First Securities, Inc., an affiliate of
Mentor Advisors, for research information for the Portfolios.
The proceeds received by each Portfolio for each issue or sale of its
shares, and all income, earnings, profits, and proceeds thereof, subject only to
the rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to a Portfolio may
be allocated in proportion to the net asset values of that Portfolio except
where allocations of direct expenses can otherwise be fairly made.
Expenses incurred in the operation of a Portfolio or otherwise
allocated to a Portfolio, including but not limited to taxes, interest,
brokerage fees and commissions, fees to Trustees who are not officers,
directors, stockholders, or employees of Wheat First Butcher Singer and
subsidiaries, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer and dividend disbursing agents, outside
auditing, accounting, and legal services, investor servicing fees and expenses,
charges for the printing of prospectuses and statements of additional
information for regulatory purposes or for distribution to shareholders, certain
shareholder report charges and charges relating to corporate matters are borne
by the Portfolio.
Each Management Contract is subject to annual approval by (i) the
Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the affected Portfolio, provided that in either
event the continuance is also approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or Mentor
Advisors, by vote cast in person at a meeting called for the purpose of voting
on such approval. Each Management Contract is terminable without penalty, on not
more than sixty days' notice and not less than thirty days' notice, by the
Trustees, by vote of the holders of a majority of the affected Portfolio's
shares, or by Mentor Advisors. Each Management Contract terminates automatically
in the event of its assignment (as defined in the 1940 Act).
Under each Management Contract, each Portfolio pays management fees to
Mentor Advisors monthly at the following annual rates (based on average net
assets of a Portfolio): 0.22% of the first $500 million; 0.20% of the next $500
million; 0.175% of the next $1 billion; 0.16% of the next $1 billion; and 0.15%
of any amounts over $3 billion.
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<PAGE>
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by a Portfolio of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Portfolio usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Portfolio includes a disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and sales of
portfolio securities by a Portfolio will be with the issuer or with underwriters
of or dealers in those securities, acting as principal. Accordingly, the
Portfolios would not ordinarily pay significant brokerage commissions with
respect to securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, Mentor Advisors receives brokerage and research services and other
similar services from many broker-dealers with which it places the Portfolios'
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by the investment advisers' managers and analysts. Where the
services referred to above are not used exclusively by Mentor Advisors for
research purposes, Mentor Advisors, based upon its own allocations of expected
use, bears that portion of the cost of these services which directly relates to
its non-research use. Some of these services are of value to Mentor Advisors and
its affiliates in advising various of its clients (including the Portfolios),
although not all of these services are necessarily useful and of value in
managing the Portfolios.
Mentor Advisors places all orders for the purchase and sale of
portfolio investments for the Portfolios and buys and sells investments for the
Portfolios through a substantial number of brokers and dealers. Mentor Advisors
seeks the best overall terms available for the Portfolios, except to the extent
it may be permitted to pay higher brokerage commissions as described below. In
doing so, Mentor Advisors, having in mind a Portfolio's best interests,
considers all factors it deems relevant, including, by way of illustration,
price, the size of the transaction, the nature of the market for the security or
other investment, the amount of the commission, the timing of the transaction
taking into account market prices and trends, the reputation, experience
-10-
<PAGE>
and financial stability of the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contract, Mentor Advisors may cause a Portfolio to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to it an
amount of disclosed commission for effecting securities transactions on stock
exchanges and other transactions for a Portfolio on an agency basis in excess of
the commission which another broker-dealer would have charged for effecting that
transaction. Mentor Advisors' authority to cause a Portfolio to pay any such
greater commissions is also subject to such policies as the Trustees may adopt
from time to time. Mentor Advisors does not currently intend to cause a
Portfolio to make such payments. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly,
Mentor Advisors will use its best efforts to obtain the best overall terms
available with respect to such transactions, as described above.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to such other policies as the Trustees
may determine, Mentor Advisors may consider sales of shares of a Portfolio (and,
if permitted by law, of the other Mentor funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for a Portfolio.
The Trustees have determined that portfolio transactions for the Trust
may be effected through Wheat, First Securities, Inc. ("Wheat") or EVEREN
Securities, Inc. ("EVEREN"), broker-dealers affiliated with Mentor Advisors. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-l
issued by the SEC under the 1940 Act which requires, among other things, that
the commissions paid to Wheat and EVEREN must be reasonable and fair compared to
the commissions, fees, or other remuneration received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time. Wheat and EVEREN will not participate in brokerage
commissions paid by a Portfolio to other brokers or dealers. Over-the-counter
purchases and sales are transacted directly with principal market makers except
in those cases in which better prices and executions may be obtained elsewhere.
A Portfolio will in no event effect principal transactions with Wheat or EVEREN
in over-the-counter securities in which Wheat or EVEREN makes a market, as the
case may be.
Under rules adopted by the SEC, neither Wheat nor EVEREN may execute
transactions for a Portfolio on the floor of any national securities exchange,
but either may effect transactions for a Portfolio by transmitting orders for
execution and arranging for the performance of this function by members of the
exchange not associated with them. Wheat and EVEREN will be required to pay fees
charged to those persons performing the floor brokerage elements out of the
brokerage compensation it receives from a Portfolio. The Trust has been
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<PAGE>
advised by Wheat that, on most transactions, the floor brokerage generally
constitutes from 5% and 10% of the total commissions paid.
DETERMINATION OF NET ASSET VALUE
The Trust determines net asset value per share of the Portfolios each
day the New York Stock Exchange (the "Exchange") is open. Currently, the
Exchange is closed Saturdays, Sundays, and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving, and Christmas.
The valuation of each Portfolio's portfolio securities is based upon
its amortized cost, which does not take into account unrealized securities gains
or losses. This method involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. By using amortized cost valuation, each Portfolio seeks
to maintain a constant net asset value of $1.00 per share, despite minor shifts
in the market value of its portfolio securities. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price a Portfolio
would receive if it sold the instrument. During periods of declining interest
rates, the quoted yield on shares of a Portfolio may tend to be higher than a
like computation made by a fund with identical investments utilizing a method of
valuation based on market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by a Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Portfolio would be able to obtain a somewhat higher yield if he
purchased shares of the Portfolio on that day, than would result from investment
in a fund utilizing solely market values, and existing investors in the
Portfolio would receive less investment income. The converse would apply on a
day when the use of amortized cost by a Portfolio resulted in a higher aggregate
portfolio value. However, as a result of certain procedures adopted by the
Trust, the Trust believes any difference will normally be minimal.
The valuation of a Portfolio's portfolio instruments at amortized cost
is permitted in accordance with Securities and Exchange Commission Rule 2a-7 and
certain procedures adopted by the Trustees. Under these procedures, a Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less, and
invest in securities determined by the Trustees to be of high quality with
minimal credit risks. The Trustees have also established procedures designed to
stabilize, to the extent reasonably possible, a Portfolio's price per share as
computed for the purpose of distribution, redemption and repurchase at $1.00.
These procedures include review of a Portfolio's portfolio holdings by the
Trustees, at such intervals as they may deem appropriate, to determine whether a
Portfolio's net asset value calculated by using readily available market
quotations deviates from $1.00 per share, and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing shareholders. In
the event the Trustees
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<PAGE>
determine that such a deviation may result in material dilution or is otherwise
unfair to existing shareholders, they will take such corrective action as they
regard as necessary and appropriate, including the sale of portfolio instruments
prior to maturity to realize capital gains or losses or to shorten the average
portfolio maturity; withholding dividends; redemption of shares in kind; or
establishing a net asset value per share by using readily available market
quotations.
Since the net income of a Portfolio is declared as a dividend each time
it is determined, the net asset value per share of a Portfolio remains at $1.00
per share immediately after such determination and dividend declaration. Any
increase in the value of a shareholder's investment in a Portfolio representing
the reinvestment of dividend income is reflected by an increase in the number of
shares of a Portfolio in the shareholder's account on the last day of each month
(or, if that day is not a business day, on the next business day). It is
expected that a Portfolio's net income will be positive each time it is
determined. However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other reason the net
income of a Portfolio determined at any time is a negative amount, that
Portfolio will offset such amount allocable to each then shareholder's account
from dividends accrued during the month with respect to such account. If at the
time of payment of a dividend by a Portfolio (either at the regular monthly
dividend payment date, or, in the case of a shareholder who is withdrawing all
or substantially all of the shares in an account, at the time of withdrawal),
such negative amount exceeds a shareholder's accrued dividends, that Portfolio
will reduce the number of outstanding shares by treating the shareholder as
having contributed to the capital of the Portfolio that number of full and
fractional shares which represent the amount of the excess. Each shareholder is
deemed to have agreed to such contribution in these circumstances by its
investment in a Portfolio.
Should a Portfolio incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the
Portfolio's income for a particular period, the Trustees would at that time
consider whether to adhere to the dividend policy described above or to revise
it in light of the then prevailing circumstances in order to ameliorate to the
extent possible the disproportionate effect of such expense or loss on then
existing shareholders. Such expenses or losses may nevertheless result in a
shareholder's receiving no dividends for the period during which the shares are
held and receiving upon redemption a price per share lower than that which was
paid.
TAX STATUS
Each Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal income
tax on any of its net investment
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<PAGE>
income or net realized capital gains that are distributed to shareholders. As a
series of Massachusetts business trust, a Portfolio will not under present law
be subject to any excise or income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio
must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other dispositions of stock, securities, or foreign currencies, and
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets (including stock and securities) held less than
three months; (c) diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the value of its total assets consists
of cash, cash items, U.S. Government Securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Portfolio and not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any issuer (other than U.S. Government Securities). In
order to receive the favorable tax treatment accorded regulated investment
companies and their shareholders, moreover, a Portfolio must in general
distribute at least 90% of its interest, dividends, net short-term capital gain,
and certain other income each year.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Portfolio's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Portfolio's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 (or December 31, if
the Portfolio so elects) plus undistributed amounts from prior years. Each
Portfolio intends to make distributions sufficient to avoid imposition of the
excise tax. Distributions declared by a Portfolio during October, November, or
December to shareholders of record on a date in any such month and paid by the
Portfolio during the following January will be treated for federal tax purposes
as paid by the Portfolio and received by shareholders on December 31 of the year
in which declared.
Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which a Portfolio has invested and
their face value ("original issue discount") is considered to be income to the
Portfolio each year, even though the Portfolio will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the net investment income of the Portfolio which must be
distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
Each Portfolio is required to withhold 31% of all income dividends and
capital gain distributions, and 31% of the gross proceeds of all redemptions of
Portfolio shares, in the case of any shareholder who does not provide a correct
taxpayer identification number, about whom a
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<PAGE>
Portfolio is notified that the shareholder has under reported income in the
past, or who fails to certify to a Portfolio that the shareholder is not subject
to such withholding. Tax-exempt shareholders are not subject to these back-up
withholding rules so long as they furnish the Portfolio with a proper
certification.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions. Dividends and distributions also may be subject to state
and federal taxes. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state or local taxes. The foregoing
discussion relates solely to U.S. federal income tax law. Non-U.S. investors
should consult their tax advisers concerning the tax consequences of ownership
of shares of a Portfolio, including the possibility that distributions may be
subject to a 30% United States withholding tax (or a reduced rate of withholding
provided by treaty).
THE DISTRIBUTOR
Mentor Distributors, LLC, the Trust's distributor, is a wholly-owned
subsidiary of Wheat First Butcher Singer. Mentor Distributors is acting on a
best efforts basis in the continuous offering of the Trust's shares. Mentor
Distributors, LLC is the successor to Mentor Distributors, Inc.
INDEPENDENT ACCOUNTANTS
[ ] are the
Portfolios' independent auditors, providing audit services, tax return review,
and other tax consulting services.
CUSTODIAN
The custodian of the Portfolios, Investors Fiduciary Trust Company, is
located at 127 West 10th Street, Richmond, Virginia 64105. A custodian's
responsibilities include generally safeguarding and controlling a Portfolio's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on a Portfolio's investments.
PERFORMANCE INFORMATION
The yield of each Portfolio is computed by determining the percentage
net change, excluding capital changes, in the value of an investment in one
share of the Portfolio over the base period, and multiplying the net change by
365/7 (or approximately 52 weeks). A Portfolio's effective yield represents a
compounding of the yield by adding 1 to the number representing the
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<PAGE>
percentage change in value of the investment during the base period, raising
that sum to a power equal to 365/7, and subtracting 1 from the result.
All data for each of the Portfolios are based on past performance and
do not predict future results.
Independent statistical agencies measure a Portfolio's investment
performance and publish comparative information showing how the Portfolio, and
other investment companies, performed in specified time periods. Agencies whose
reports are commonly used for such comparisons are set forth below. From time to
time, a Portfolio may distribute these comparisons to its shareholders or to
potential investors. The agencies listed below measure performance based on the
basis of their own criteria rather than on the basis of the standardized
performance measures described above.
Lipper Analytical Services, Inc. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated
by Lipper, reflecting generally changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, for example year-to-date, 1-year, 5-year, and
10-year performance. Lipper classifies mutual funds by investment
objective and asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. the
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent a fund's historical
risk/reward ratio relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the Portfolio's
3- year, 5-year, and 10-year total return performance (if available)
reflecting deduction of expenses and sales charges. Performance is
adjusted using quantitative techniques to reflect the risk profile of
the fund. The ratings are derived from a purely quantitative system
that does not utilize the subjective criteria customarily employed by
rating agencies such as Standard & Poor's Corporation and Moody's
Investor Service, Inc.
Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year performance. Mutual funds are ranked in
general categories (e.g., international bond, international equity,
municipal bond, and maximum capital gain). Weisenberger rankings do not
reflect deduction of sales charges or fees.
Independent publications may also evaluate a Portfolio's performance.
Certain of those publications are listed below, at the request of Mentor
Distributors, which bears full responsibility for their use and the descriptions
appearing below. From time to time any or all of the Portfolios may distribute
evaluations by or excerpts from these publications to its
-16-
<PAGE>
shareholders or to potential investors. The following illustrates the types of
information provided by these publications.
Business Week publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week total
return reflecting changes in net asset value and the reinvestment of
all distributions. They do not reflect deduction of any sales charges.
Portfolios are not categorized; they compete in a large universe of
over 2,000 funds. The source for rankings is data generated by
Morningstar, Inc.
Investor's Business Daily publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given
category. The categories are based loosely on the type of fund, e.g.,
growth funds, balanced funds, U.S. government funds, GNMA funds, growth
and income funds, corporate bond funds, etc. Performance periods for
sector equity funds can vary from 4 weeks to 39 weeks; performance
periods for other fund groups vary from 1 year to 3 years. Total return
performance reflects changes in net asset value and reinvestment of
dividends and capital gains. The rankings are based strictly on total
return. They do not reflect deduction of any sales charges Performance
grades are conferred from A+ to E. An A+ rating means that the fund has
performed within the top 5% of a general universe of over 2000 funds;
an A rating denotes the top 10%; an A- is given to the top 15%, etc.
Barron's periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical
Services. The Lipper total return data reflects changes in net asset
value and reinvestment of distributions, but does not reflect deduction
of any sales charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example) to long-term
periods (five-year or ten-year performance, for example). Barron's
classifies the funds using the Lipper mutual fund categories, such as
Capital Appreciation Portfolios, Growth Portfolios, U.S. Government
Portfolios, Equity Income Portfolios, Global Portfolios, etc.
Occasionally, Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with assets in
excess of $25 million; "small funds" may be those with less than $25
million in assets.
The Wall Street Journal publishes its Mutual Portfolio Scorecard on a
daily basis. Each Scorecard is a ranking of the top-15 funds in a given
Lipper Analytical Services category. Lipper provides the rankings based
on its total return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales charges. The
Scorecard portrays 4-week, year-to-date, one-year and 5-year
performance; however, the ranking is based on the one-year results. The
rankings for any given category appear approximately once per month.
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<PAGE>
Fortune magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Portfolios are
placed in stock or bond fund categories (for example, aggressive growth
stock funds, growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds etc.), with the top-10 stock funds and the
top-5 bond funds appearing in the rankings. The rankings are based on
3- year annualized total return reflecting changes in net asset value
and reinvestment of distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund.
Money magazine periodically publishes mutual fund rankings on a
database of funds tracked for performance by Lipper Analytical
Services. The funds are placed in 23 stock or bond fund categories and
analyzed for five-year risk adjusted return. Total return reflects
changes in net asset value and reinvestment of all dividends and
capital gains distributions and does not reflect deduction of any sales
charges. Grades are conferred (from A to E): the top 20% in each
category receive an A, the next 20% a B, etc. To be ranked, a fund must
be at least one year old, accept a minimum investment of $25,000 or
less and have had assets of at least $25 million as of a given date.
Financial World publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds,
global bond funds, growth and income funds, U.S. government bond funds,
etc. To compete, funds must be over one year old, have over $1 million
in assets, require a maximum of $10,000 initial investment, and should
be available in at least 10 states in the United States. The funds
receive a composite past performance rating, which weighs the
intermediate - and long-term past performance of each fund versus its
category, as well as taking into account its risk, reward to risk, and
fees. An A+ rated fund is one of the best, while a D- rated fund is one
of the worst. The source for Financial World rating is Schabacker
investment management in Rockville, Maryland.
Forbes magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds
are categorized by type, including stock and balanced funds, taxable
bond funds, municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The ratings are
based strictly on performance at net asset value over the given cycles.
Portfolios performing in the top 5% receive an A+ rating; the top 15%
receive an A rating; and so on until the bottom 5% receive an F rating.
Each fund exhibits two ratings, one for performance in "up" markets and
another for performance in "down" markets.
Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three-
and five-year total return performance reflecting changes in net asset
value and reinvestment of dividends and
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<PAGE>
capital gains and not reflecting deduction of any sales charges.
Portfolios are ranked by tenths: a rank of 1 means that a fund was
among the highest 10% in total return for the period; a rank of 10
denotes the bottom 10%. Portfolios compete in categories of similar
funds -- aggressive growth funds, growth and income funds, sector
funds, corporate bond funds, global governmental bond funds,
mortgage-backed securities funds, etc. Kiplinger's also provides a
risk-adjusted grade in both rising and falling markets. Portfolios are
graded against others with the same objective. The average weekly total
return over two years is calculated. Performance is adjusted using
quantitative techniques to reflect the risk profile of the fund.
U.S. News and World Report periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch
Carre & Co., a Boston research firm. Over 2000 funds are tracked and
divided into 10 equity, taxable bond and tax-free bond categories.
Portfolios compete within the 10 groups and three broad categories. The
OPI is a number from 0-100 that measures the relative performance of
funds at least three years old over the last 1, 3, 5 and 10 years and
the last six bear markets. Total return reflects changes in net asset
value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges.
Results for the longer periods receive the most weight.
The 100 Best Mutual Portfolios You Can Buy (1992), authored by Gordon
K. Williamson. The author's list of funds is divided into 12 equity and
bond fund categories, and the 100 funds are determined by applying four
criteria. First, equity funds whose current management teams have been
in place for less than five years are eliminated. (The standard for
bond funds is three years.) Second, the author excludes any fund that
ranks in the bottom 20 percent of its category's risk level. Risk is
determined by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill. Third, a
fund must have demonstrated strong results for current three-year and
five-year performance. Fourth, the fund must either possess, in Mr.
Williamson's judgment, "excellent" risk-adjusted return or "superior"
return with low levels of risk. Each of the 100 funds is ranked in five
categories: total return, risk/volatility, management, current income
and expenses. The rankings follow a fivepoint system: zero designates
"poor"; one point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior"; and five
points mean "excellent."
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into or executed
by
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<PAGE>
the Trust or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Portfolio's property for all loss and expense of any
shareholder held personally liable for the obligations of a Portfolio. Thus the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations.
MEMBERS OF INVESTMENT MANAGEMENT TEAMS
The following persons are investment personnel of Mentor Advisors:
Mentor Investment Advisors, LLC
Cash Management
R. Preston Nuttall, CFA -- Managing Director, Chief Investment Officer
Mr. Nuttall has more than thirty years of investment management experience.
Prior to Mentor Advisors, he led short-term fixed-income management for fifteen
years at Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.
Hubert R. White III -- Vice President, Portfolio Manager
Mr. White has eleven years of investment management experience. Prior to joining
Mentor Advisors, he served for five years as portfolio manager with Capitoline
Investment Services. He has his undergraduate degree in business from the
University of Richmond.
Kathryn T. Allen -- Vice President, Portfolio Manager
Ms. Allen has fourteen years of investment management experience and specializes
in tax-free trades. Prior to joining Mentor Advisors, Ms. Allen was portfolio
group manager at PNC Institutional Management Corporation. She has her
undergraduate degree in commerce and business administration from the University
of Alabama.
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<PAGE>
RATINGS
The rating services' descriptions of corporate bonds are:
Moody's Investors Service, Inc.:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
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<PAGE>
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
A-1 and Prime-1 Commercial Paper Ratings
The rating A-1 (including A-1+) is the highest commercial paper rating assigned
by S&P. Commercial paper rated A-1 by S&P has the following characteristics:
o liquidity ratios are adequate to meet cash requirements;
o long-term senior debt is rated "A" or better;
o the issuer has access to at least two additional channels of
borrowing;
o basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances;
o typically, the issuer's industry is well established and the issuer
has a strong position within the industry; and
o the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are
determined by S&P to have overwhelming safety characteristics are designated
A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
o evaluation of the management of the issuer;
o economic evaluation of the issuer's industry or industries and an
appraisal of speculative- type risks which may be inherent in certain
areas;
o evaluation of the issuer's products in relation to competition and
customer acceptance;
o liquidity;
o amount and quality of long-term debt;
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<PAGE>
o trend of earnings over a period of ten years;
o financial strength of parent company and the relationships which
exist with the issuer; and
o recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
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<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements and Supporting Schedules
(1) Financial Statements:
Not applicable
(2) Supporting Schedules:
Not applicable
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant, with Amendments No. 1 and 2 (2);
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Copy of Specimen Certificates for both Class A and
Class B Shares of Beneficial Interest for each New
Portfolio (6);
(5)(i) (a)Conformed copy of Management Agreement of the Registrant
(Capital Growth, Income and Growth, Quality Income, and
Municipal Income Portfolios) (2);
(b)Conformed copy of New Exhibit A to Management
Agreement(4);
(c)Form of Instrument of Transfer of Management Agreement
(8);
(ii) Form of Investment Advisory Agreement for the
Municipal Income Portfolio (8);
(iii) (a)Conformed copy of Investment Advisory Agreement
for the Income and Growth Portfolio (3);
(b)Form of Instrument of Transfer of Investment Advisory
Agreement (Income and Growth Portfolio) (8);
(iv) Form of Investment Advisory and Management Agreement
for the Global Portfolio (8);
(v) (a)Form of Investment Advisory and Management
Agreement for the Growth Portfolio (6);
(b)Form of Instrument of Transfer of Investment Advisory
and Management Agreement (Growth Portfolio) (8);
(vi) (a)Form of Investment Advisory and Management
Agreement for the Strategy Portfolio (6);
(b)Form of Instrument of Transfer of Investment Advisory
and Management Agreement (Strategy Portfolio) (8);
(vii) (a)Form of Investment Advisory and Management Agreement for
the Short-Duration Income Portfolio (6);
(b)Form of Instrument of Transfer of Investment Advisory
and Management Agreement (Short-Duration Income
Portfolio) (8);
(viii) (a)Form of Investment Advisory and Management
Agreement for the Balanced Portfolio (6);
(b)Form of Instrument of Transfer of Investment Advisory
and Management Agreement (Balanced Portfolio) (8);
(ix) Form of Investment Advisory and Management Agreement
(Institutional Money Market Portfolio) (9)
(x) Form of Investment Advisory and Management Agreement
(Institutional U.S. Government Money Market Portfolio) (9)
(6)(i) (a)Conformed copy of Distributor's Contract of the
Registrant, through and including
Exhibit I (3);
(b) Form of Instrument of Transfer of Distributor's
Contract (8);
(ii) Form of New Exhibit J to the Distributor's Contract in
respect of the Class A and B shares of the Growth,
Strategy, Short-Duration Income Portfolios and the
Balanced Portfolio (6);
(7) Not applicable;
(8)(i) Conformed copy of Custodian Contract of the Registrant
with Investors Fiduciary Trust Company (2);
(ii) Conformed copy of Custodian Contract of the Registrant
with State Street Bank and Trust Company (2);
(iii) (a)Form of Administration Agreement of the
Registrant in respect of each Portfolio (6);
(b) Form of Instrument of Transfer of Administration
Agreement (8);
(iv) Form of Custodian Contract with State Street Bank
and Trust Company in respect of foreign securities(7);
(9)(i) Conformed copy of Transfer Agency and Registrar
Agreement of the Registrant (2);
(ii) (a)Conformed copy of Shareholder Services Plan of the
Registrant through and including Exhibit B in respect of
the Capital Growth, Quality Income, Municipal Income,
Income and Growth, and Global Portfolios (3);
(b)Form of Instrument of Transfer of Shareholder Services
Plan (8);
(c) Form of New Exhibit C to the Shareholder Services Plan
in respect of the Class A and B shares of the Growth,
Strategy, Short-Duration Income Portfolios and the
Balanced Portfolio (6);
(10) Not applicable;
(11)(i) Conformed copy of Independent Auditors Consent (8);
(ii) Conformed copy of KPMG Peat Marwick LLP opinion on
Methodology and Procedures for Accounting for Multiple
Classes of Shares (5);
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding (1);
(14) Not applicable;
(15)(i) Conformed copy of Distribution Plan (Capital Growth, Income
and Growth, Municipal Income, Quality Income, and Global
Portfolios);
(ii) (a)Copy of 12b-1 Agreement (Sales Agreement) with
Mentor Distributors, Inc. (3);
(b)Form of Instrument of Transfer of 12b-1 Agreement
(Sales Agreement) (8);
(iii) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Growth Portfolio (6);
(iv) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Strategy Portfolio (6);
(v) Form of Plan of Distribution pursuant to Rule
12b-1 in respect of the Short-Duration Income
Portfolio (6);
(vi) Form of Plan of Distribution pursuant to Rule 12b-1 in
respect of the Balanced Portfolio (6);
(16)(i) Schedules for Computation of Performance
(all Portfolios)(8)
(18) Rule 18f-3(d) Plan (7)
(27)(i) Financial Data Schedules of Class A Shares (8)
(ii) Financial Data Schedules of Class B Shares (8)
(iii) Financial Data Schedule in respect of the Balanced
Portfolio. (8)
1. Incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed April 14, 1992.
2. Incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed May 14, 1993.
3. Incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed November 26, 1993.
4. Incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed August 3, 1994.
5. Incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed January 27, 1995.
6. Incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 15, 1995.
7. Incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed January 15, 1996.
8. Incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed November 29, 1996.
9. Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant:
Reference is made to "Principal Holders of Securities" in Part
B of this Registration Statement
Item 26. Number of Holders of Securities.
As of January 15, 1997, neither the Mentor Institutional Money Market
Portfolio nor the Mentor Institutional U.S. Government Money Market
Portfolio had any shares outstanding.
Item 27. Indemnification:
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed January 31, 1992 (File Nos.
33-45315 and 811-6550).
Item 28. Business and Other Connections of Investment Advisers
The business and other connections of each director, officer, or partner
of the entities below in which such director, officer, or partner is or has
been, at any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner, or trustee are set
forth in the following tables.
(a) The following is additional information with respect to the
directors and officers of Mentor Investment Advisors, LLC:
Business, Profession,
Vocation or Employment
Position with during the past
Name Investment Adviser two fiscal years
John G. Davenport Managing Director None
R. Preston Nuttall Managing Director Formerly, Senior Vice
President, Capitoline
Investment Services,
919 East Main Street,
Richmond, VA 23219
Paul F. Costello Managing Director Managing Director,
Wheat First
Butcher Singer, Inc.
and Mentor Investment
Group, LLC; President,
Mentor Funds,
Mentor Income Fund,
Inc., and Cash Resource
Trust; Executive Vice
President and Chief
Administrative Officer,
America's Utility Fund,
Inc.; Director, Mentor
Perpetual Advisors, LLC
and Mentor Trust
Company;
Theodore W. Price Managing Director Formerly, President,
Charter Asset
Management, Inc.
P. Michael Jones Managing Director Formerly, Managing
Director, Commonwealth
Investment Counsel,
Inc.
-3-
<PAGE>
Thomas L. Souders Treasurer Managing Director and
Chief Financial
Officer, Wheat, First
Securities, Inc.;
formerly, Manager of
Internal Audit,
Heilig-Myers; formerly,
Manager, Peat Marwick &
Mitchell & Company
Robert P. Wilson Assistant Treasurer Assistant Treasurer,
Mentor Distributors,
Inc. and Commonwealth
Advisors
John M. Ivan Secretary Managing Director,
Senior Vice President
and Assistant General
Counsel, Wheat, First
Securities, Inc.;
Managing Director and
Assistant Secretary,
Wheat First Butcher
Singer, Inc.; Clerk,
Cash Resource Trust;
Secretary, Mentor
Funds
Howard T. Macrae, Jr. Assistant Secretary Assistant Secretary,
Mentor Investment
Advisors, LLC and
Mentor Distributors,
LLC
(b) The following is additional information with respect to the directors and
officers of Mentor Perpetual Advisors, LLC ("Mentor Perpetual"):
<TABLE>
OTHER SUBSTANTIAL
POSITION WITH THE BUSINESS, PROFESSION,
NAME INVESTMENT ADVISOR VOCATION OR EMPLOYMENT
<S> <C> <C>
Scott A. McGlashan President Director, Perpetual
Portfolio Management
Limited
Martyn Arbib Director Chairman, Perpetual
Portfolio Management
Limited
Roger C. Cormick Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited
Paul F. Costello Director Managing Director, Wheat
First Butcher Singer, Inc.,;
Mentor Investment Group,
Inc.,; President, Cash Resource
Trust, Mentor Income Fund,
Inc., and Mentor Institutional
Trust.
Daniel J. Ludeman Director Chairman and Chief
Executive Officer,
Mentor Investment
Group; Managing Director,
Wheat First Securities,
Inc.; Managing Director,
Wheat First Butcher
Singer, Inc.
David S. Mossop Director Director, Perpetual
Portfolio Management
Limited
Richard J. Rossi Director Managing Director,
Mentor Investment
Group, Inc.
</TABLE>
(c) The following is additional information with respect to Wellington
Management Company, Inc., located at 75 State Street, Boston Massachusetts
02109:
Catherine A. Smith General Partner --
Stephen A. Soderberg General Partner --
Ralph E. Stuart, Jr. General Partner --
Perry M. Traquina General Partner --
Gene R. Tremblay General Partner --
Mary Ann Tynan General Partner --
Ernst H. Von Metzsch General Partner --
James L. Walters General Partner --
Kim Williams General Partner --
Dena G. Willmore General Partner --
Francil V. Wisneski General Partner --
(d) The following is additional information with respect to the directors
and officers of Van Kampen American Capital Management Inc., located
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181-4486:
Don G. Powell Chairman, Chief Executive --
Officer, Director
Dennis J. McDonnell President, Chief Operating --
Officer, Director
William R. Rybak Executive Vice President,
Chief Financial Officer, Director --
David R. Kowalski Vice President --
Ronald A. Nyberg Executive Vice President, Director --
Edward A. Treichel Senior Vice President --
* The address of Mentor Investment Group, LLC, Wheat, First Securities,
Inc., Wheat First Butcher Singer, Inc., Mentor Funds, Mentor Income
Fund, Inc., Mentor Investment Advisors, LLC, and Mentor Perpetual
Advisors, LLC is 901 East Byrd Street, Richmond, VA 23219. The address
of Ryland Capital Management, Inc. and RAC Income Fund, Inc. is 11000
Broken Land Parkway, Columbia, MD 21044. The address of Perpetual
Portfolio Management Limited is 48 Hart Street, Henley-on-Thames, Oxon,
England, RG92AZ.
Item 29. Principal Underwriters:
(a) Mentor Distributors, LLC is the principal distributor for the
Registrant's shares and acts as the principal underwriter for the
Registrant.
-10-
Mentor Distributors, LLC is a Virginia corporation and is an
affiliate of Mentor Investment Advisors, LLC.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITERS WITH REGISTRANT
Peter J. Quinn, Jr. President and Director Trustee
901 East Byrd Street
Richmond, VA 23219
Paul F. Costello Senior Vice President President
901 East Byrd Street
Richmond, VA 23219
Thomas L. Souders Treasurer None
901 East Byrd Street
Richmond, VA 23219
John M. Harris Secretary None
901 East Byrd Street
Richmond, VA 23219
John M. Ivan Assistant Secretary Secretary
901 East Byrd Street
Richmond, VA 23219
Item 30. Location of Accounts and Records:
Response is incorporated by reference to Registrant's Initial
Registration on Form N-1A filed January 31, 1992 (File Nos. 33-45315
and 811-6550).
Item 31. Management Services
None.
Item 32. Undertakings:
(a) Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE MENTOR FUNDS, has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Richmond and the Commonwealth of Virginia, on
the 21st day of January, 1997.
THE MENTOR FUNDS
By: /s/ Paul F. Costello
Paul F. Costello
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacity and on the date
indicated:
Name Title Date
* January 21, 1997
- -----------------------
Daniel J. Ludeman Chairman and Trustee
(Chief Executive
Officer)
/s/ Peter J. Quinn, Jr. Trustee January 21, 1996
- -----------------------
Peter J. Quinn, Jr.
* January 21, 1997
- -----------------------
Arnold H. Dreyfuss Trustee
* January 21, 1997
- -----------------------
Thomas F. Keller Trustee
* January 21, 1997
- -----------------------
Louis W. Moelchert, Jr. Trustee
* January 21, 1997
- -----------------------
Stanley F. Pauley Trustee
* January 21, 1997
- -----------------------
Troy A. Peery, Jr. Trustee
/s/ Paul F. Costello January 21, 1997
- ------------------------
Paul F. Costello President
/s/ Terry L. Perkins January 21, 1997
- ------------------------
Terry L. Perkins Treasurer (Principal Financial
and Accounting Officer)
*/s/ Peter J. Quinn, Jr. Attorney-in-fact January 21, 1997
- ------------------------
Peter J. Quinn, Jr.
EXHIBIT INDEX
Exhibit Page
(5)(ix) Form of Investment Advisory and Management Agreement
(Institutional Money Market Portfolio);
(5)(x) Form of Investment Advisory and Management Agreement
(Institutional U.S. Government Money Market Portfolio)
THE MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement dated as of April ,
1997 between THE MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and
MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability corporation (the
"Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.
(a) The Manager, at its expense, will furnish continuously an
investment program for the Mentor Institutional Money Market Portfolio, a series
of the Trust (the "Portfolio"), will determine what investments shall be
purchased, held, sold, or exchanged by the Portfolio and what portion, if any,
of the assets of the Portfolio shall be held uninvested and shall make changes
in the Portfolio's investments. In the performance of its duties, the Manager
will comply with the provisions of the Agreement and Declaration of Trust and
Bylaws of the Portfolio and the Portfolio's stated investment objectives,
policies, and restrictions, and will use its best efforts to safeguard and
promote the welfare of the Portfolio and to comply with other policies which the
Trustees may from time to time determine and shall exercise the same care and
diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense is paid by the
Portfolio as provided in Section 1(e), will furnish all necessary investment and
related management facilities, including salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if any,
of certain officers of the Trust carrying out the investment management and
related duties provided for by this Agreement.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Portfolio's account with
brokers or dealers selected by the Manager. In the selection of such brokers or
dealers and the placing of such orders, the Manager shall give primary
consideration to securing for the Portfolio the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
doing so, the Manager, bearing in mind the Portfolio's best interests at all
times, shall consider all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience, and financial
stability
<PAGE>
of the broker or dealer involved, and the quality of service rendered by the
broker or dealer in other transactions. Subject to such policies as the Trustees
of the Trust may determine, the Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Portfolio to pay a broker or dealer
that provides brokerage and research services to the Manager an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission that another broker or dealer would have charged for
effecting that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall responsibilities
with respect to the Portfolio and to other clients of the Manager as to which
the Manager exercises investment discretion.
(d) The Trust, on behalf of the Portfolio, hereby authorizes any entity
or person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of the
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Portfolio hereby consents to the
retention of compensation for such transactions in accordance with Rule
11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any expenses of or for
the Portfolio not expressly assumed by the Manager pursuant to this Section 1
other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Portfolio. It is also understood that the Manager and any person controlled
by or under common control with the Manager have and may have advisory,
management, service, or other agreements with other organizations and persons,
and may have other interests and business.
3. COMPENSATION TO BE PAID BY THE PORTFOLIO TO THE MANAGER.
As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
following annual rates (as a percentage of the Portfolio's average daily net
assets): 0.22% of the first $500 million; 0.20% of the next $500 million; 0.175%
of the next $1 billion; 0.16% of the next $1 billion; 0.15% of any amounts over
$3 billion. The first payment of the fee shall be made as promptly as possible
at the end of the month next succeeding the effective date of this Agreement,
and shall constitute a full payment of the fee
-2-
<PAGE>
due the Manager for all services prior to that date. If this Agreement is
terminated as of any date that is not the last day of a month, such fee shall be
paid as promptly as possible after such date of termination, shall be based on
the average daily net assets of the Portfolio in that period from the beginning
of such month to such date of termination, and shall be that proportion of such
average daily net assets as the number of business days in such period bears to
the number of business days in such month. The average daily net assets of the
Portfolio shall in all cases be based only on business days and be computed as
of the time of the regular close of business of the New York Stock Exchange, or
such other time as may be determined by the Trustees. Each such payment shall be
accompanied by a report of the Trust prepared either by the Trust or by a
reputable firm of independent accountants which shall show the amount properly
payable to the Manager under this Agreement and the detailed computation
thereof.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS
AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and this Agreement shall not be
amended unless such amendment be approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Portfolio, and by the vote, cast
in person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution and shall
remain in full force and effect continuously thereafter until the close of
business on April , 1999 (unless terminated automatically as set forth in
Section 4), and shall continue for successive one-year periods thereafter, if
approved in accordance with Section 6, until terminated by either party hereto
at any time by not more than sixty days nor less than thirty days written notice
delivered or mailed by registered mail, postage prepaid, to the other party.
Such action by the Trust with respect to termination may be taken either (i) by
vote of a majority of its Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
6. ANNUAL APPROVAL.
For additional terms after the initial term of this Contract, this
Contract shall be submitted for approval to the Trustees annually and shall
continue in effect only so long as specifically approved annually by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval.
-3-
<PAGE>
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Portfolio means the affirmative vote, at a
duly called and held meeting of such shareholders, (a) of the holders of 67% or
more of the shares of the Portfolio present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the outstanding
shares of the Portfolio entitled to vote at such meeting are present in person
or by proxy, or (b) of the holders of more than 50% of the outstanding shares of
the Portfolio entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.
8. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers, or
shareholders of the Trust but are binding only upon the assets and property of
the Trust.
-4-
<PAGE>
IN WITNESS WHEREOF, THE MENTOR FUNDS and MENTOR INVESTMENT
ADVISORS, LLC, have each caused this instrument to be signed in duplicate in its
behalf by its President or Vice President thereunto duly authorized, all as of
the day and year first above written.
THE MENTOR FUNDS
on behalf of Mentor Institutional Money
Market Portfolio
By:_____________________________________
MENTOR INVESTMENT ADVISORS, LLC
By:______________________________________
-5-
THE MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement dated as of April ,
1997 between THE MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and
MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability corporation (the
"Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.
(a) The Manager, at its expense, will furnish continuously an
investment program for the Mentor Institutional U.S. Government Money Market
Portfolio, a series of the Trust (the "Portfolio"), will determine what
investments shall be purchased, held, sold, or exchanged by the Portfolio and
what portion, if any, of the assets of the Portfolio shall be held uninvested
and shall make changes in the Portfolio's investments. In the performance of its
duties, the Manager will comply with the provisions of the Agreement and
Declaration of Trust and Bylaws of the Portfolio and the Portfolio's stated
investment objectives, policies, and restrictions, and will use its best efforts
to safeguard and promote the welfare of the Portfolio and to comply with other
policies which the Trustees may from time to time determine and shall exercise
the same care and diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense is paid by the
Portfolio as provided in Section 1(e), will furnish all necessary investment and
related management facilities, including salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if any,
of certain officers of the Trust carrying out the investment management and
related duties provided for by this Agreement.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Portfolio's account with
brokers or dealers selected by the Manager. In the selection of such brokers or
dealers and the placing of such orders, the Manager shall give primary
consideration to securing for the Portfolio the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
doing so, the Manager, bearing in mind the Portfolio's best interests at all
times, shall consider all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction
<PAGE>
taking into account market prices and trends, the reputation, experience, and
financial stability of the broker or dealer involved, and the quality of service
rendered by the broker or dealer in other transactions. Subject to such policies
as the Trustees of the Trust may determine, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Portfolio to pay a broker or
dealer that provides brokerage and research services to the Manager an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission that another broker or dealer would have charged for
effecting that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall responsibilities
with respect to the Portfolio and to other clients of the Manager as to which
the Manager exercises investment discretion.
(d) The Trust, on behalf of the Portfolio, hereby authorizes any entity
or person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of the
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Portfolio hereby consents to the
retention of compensation for such transactions in accordance with Rule
11a2-2(T)(2)(iv).
(e) The Manager shall not be obligated to pay any expenses of or for
the Portfolio not expressly assumed by the Manager pursuant to this Section 1
other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Portfolio. It is also understood that the Manager and any person controlled
by or under common control with the Manager have and may have advisory,
management, service, or other agreements with other organizations and persons,
and may have other interests and business.
3. COMPENSATION TO BE PAID BY THE PORTFOLIO TO THE MANAGER.
As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
following annual rates (as a percentage of the Portfolio's average daily net
assets): 0.22% of the first $500 million; 0.20% of the next $500 million; 0.175%
of the next $1 billion; 0.16% of the next $1 billion; 0.15% of any amounts over
$3 billion. The first payment of the fee shall be made as promptly as possible
at the end of the month next
-2-
<PAGE>
succeeding the effective date of this Agreement, and shall constitute a full
payment of the fee due the Manager for all services prior to that date. If this
Agreement is terminated as of any date that is not the last day of a month, such
fee shall be paid as promptly as possible after such date of termination, shall
be based on the average daily net assets of the Portfolio in that period from
the beginning of such month to such date of termination, and shall be that
proportion of such average daily net assets as the number of business days in
such period bears to the number of business days in such month. The average
daily net assets of the Portfolio shall in all cases be based only on business
days and be computed as of the time of the regular close of business of the New
York Stock Exchange, or such other time as may be determined by the Trustees.
Each such payment shall be accompanied by a report of the Trust prepared either
by the Trust or by a reputable firm of independent accountants which shall show
the amount properly payable to the Manager under this Agreement and the detailed
computation thereof.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS
AGREEMENT.
This Agreement shall automatically terminate, without the payment of
any penalty, in the event of its assignment; and this Agreement shall not be
amended unless such amendment be approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Portfolio, and by the vote, cast
in person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution and shall
remain in full force and effect continuously thereafter until the close of
business on April , 1999 (unless terminated automatically as set forth in
Section 4), and shall continue for successive one-year periods thereafter, if
approved in accordance with Section 6, until terminated by either party hereto
at any time by not more than sixty days nor less than thirty days written notice
delivered or mailed by registered mail, postage prepaid, to the other party.
Such action by the Trust with respect to termination may be taken either (i) by
vote of a majority of its Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the Fund.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
6. ANNUAL APPROVAL.
For additional terms after the initial term of this Contract, this
Contract shall be submitted for approval to the Trustees annually and shall
continue in effect only so long as specifically approved annually by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval.
-3-
<PAGE>
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" of the Portfolio means the affirmative vote, at a
duly called and held meeting of such shareholders, (a) of the holders of 67% or
more of the shares of the Portfolio present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the outstanding
shares of the Portfolio entitled to vote at such meeting are present in person
or by proxy, or (b) of the holders of more than 50% of the outstanding shares of
the Portfolio entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.
8. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith, or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers, or
shareholders of the Trust but are binding only upon the assets and property of
the Trust.
-4-
<PAGE>
IN WITNESS WHEREOF, THE MENTOR FUNDS and MENTOR INVESTMENT
ADVISORS, LLC, have each caused this instrument to be signed in duplicate in its
behalf by its President or Vice President thereunto duly authorized, all as of
the day and year first above written.
THE MENTOR FUNDS
on behalf of Mentor Institutional U.S.
Government Money Market Portfolio
By:_____________________________________
MENTOR INVESTMENT ADVISORS, LLC
By:______________________________________
-5-