AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
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. 17 (X)
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 19 (X)
(CHECK APPROPRIATE BOX OR BOXES)
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)
(X) 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)
( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(1)
( ) 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
<PAGE>
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
( ) THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT
THIS POST-EFFECTIVE AMENDMENT RELATES ONLY TO THE MENTOR HIGH INCOME PORTFOLIO.
NO INFORMATION RELATING TO ANY OTHER SERIES OF THE REGISTRANT IS AMENDED,
DELETED, OR SUPERSEDED HEREBY.
MENTOR FUNDS
CROSS REFERENCE SHEET
(as required by Rule 404(a))
Part A - Mentor Funds - Mentor High Income Portfolio -- Class A and Class B
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C>
1. Cover Page......................................... Cover Page
2. Synopsis........................................... Cover Page; Expense Summary
3. Condensed Financial Information.................... Not Applicable
4. General Description of Registrant.................. Cover Page; Investment Objective
and Policies; General Information
5. Management of the Fund............................. Investment Objective and Policies;
Other Investment Practices and
Risks; How the Portfolio Values its
Shares; General Information;
Management; Performance
Information
5A. Management's Discussion of
Fund Performance................................ Not Applicable
6. Capital Stock and Other Securities................. Sales Arrangements; How to Buy
Shares; How to Sell Shares; How to
Exchange Shares; How
Distributions are Made; Taxes;
Management; General Information
7. Purchase of Securities Being Offered............... How to Buy Shares; How to
Exchange Shares; Management;
Distribution Plan
8. Redemption or Repurchase........................... How to Buy Shares; How to Sell
Shares; How to Exchange Shares
9. Pending Legal Proceedings.......................... Not Applicable
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<PAGE>
<CAPTION>
Part A - Mentor Funds - Mentor High Income Portfolio -- Class Y (Institutional)
N-1A Item No. Location
<S> <C>
1. Cover Page......................................... Cover Page
2. Synopsis........................................... Cover Page; Expense Summary
3. Condensed Financial Information.................... Not Applicable
4. General Description of Registrant.................. Cover Page; Investment Objective
and Policies; General Information
5. Management of the Fund............................. Investment Objective and Policies;
Other Investment Practices and
Risks; How the Portfolio Values its
Shares; General Information;
Management; Performance
Information
5A. Management's Discussion of
Fund Performance................................ Not Applicable
6. Capital Stock and Other Securities................. Purchase of Shares; Redemption of
Shares; How Distributions are
Made; Taxes; Management; General
Information
7. Purchase of Securities Being Offered............... Purchase of Shares; Redemption of
Shares; Management
8. Redemption or Repurchase........................... Purchase of Shares; Redemption of
Shares
9. Pending Legal Proceedings.......................... Not Applicable
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<PAGE>
<CAPTION>
Part A - Mentor Funds - Mentor High Income Portfolio -- Class E
N-1A Item No. Location
<S> <C>
1. Cover Page......................................... Cover Page
2. Synopsis........................................... Cover Page; Expense Summary
3. Condensed Financial Information.................... Not Applicable
4. General Description of Registrant.................. Cover Page; Investment Objective
and Policies; General Information
5. Management of the Fund............................. Investment Objective and Policies;
Other Investment Practices and
Risks; How the Portfolio Values its
Shares; General Information;
Management; Performance
Information
5A. Management's Discussion of
Fund Performance................................ Not Applicable
6. Capital Stock and Other Securities................. Purchase of Shares; Redemption of
Shares; How Distributions are
Made; Taxes; Management; General
Information
7. Purchase of Securities Being Offered............... Purchase of Shares; Redemption of
Shares; Management
8. Redemption or Repurchase........................... Purchase of Shares; Redemption of
Shares
9. Pending Legal Proceedings.......................... Not Applicable
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Part B
N-1A Item No. Location
10. Cover Page......................................... Cover Page
11. Table of Contents.................................. Table of Contents
12. General Information and History.................... General Information; Ratings
13. Investment Objectives and Policies................. Investment Restrictions;
Certain Investment Techniques
14. Management of the Fund............................. Management
15. Control Persons and Principal
Holders of Securities......................... Management; Control Persons
and Principal Holders
of Securities
16. Investment Advisory and Other Services............. Investment Advisory and
Other Services; Brokage;
Custodian; Independent
Auditors; Members of
Investment Teams
17. Brokage Allocation................................. Brokerage
18. Capital Stock and Other Securities................. General Information
19. Purchase, Redemption and Pricing
of Securities Being Offered................... The Distributor Determination
of Net Asset Value;
20. Tax Status......................................... Tax Status
21. Underwriters....................................... The Distributor
22. Calculation fo Yield Quotations of
Money Market Funds............................ Performance Information
23. Financial Statements............................... Financial Statements
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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 7, 1998
PROSPECTUS June ___, 1998
Class A and B shares
MENTOR HIGH INCOME PORTFOLIO
Mentor High Income Portfolio seeks high current income. Capital growth is
a secondary objective when consistent with the objective of seeking high current
income. Mentor Investment Advisors, LLC is the Portfolio's investment adviser.
Van Kampen American Capital Management, Inc. serves as the sub-adviser to the
Portfolio. The Portfolio is a series of shares of Mentor Funds.
The Portfolio invests primarily in lower-rated bonds, commonly known
as "junk bonds." Investments of this type are subject to a greater risk of loss
of principal and non-payment of interest. Investors should carefully assess the
risks associated with an investment in the Portfolio. The Portfolio may also
trade securities for short-term profits. For a description of these strategies
and the related risks, see "Investment objectives and policies" in this
Prospectus.
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 June ___, 1998 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement, call Mentor
Investment Group, LLC 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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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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 in its first fiscal year with respect to its Class A and Class B shares.
The Examples show the cumulative expenses attributable to a hypothetical $1,000
investment in the Class A and Class B shares of the Portfolio over specified
periods.
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Shareholder Transaction Expenses: Class A Class B
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Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)1 4.75% None
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None2 4.0% in the first year,
(as a percentage of the lower of the original declining to 1.0% in the
purchase price or redemption proceeds)3 sixth year, and
eliminated thereafter4
Redemption Fees None None
Exchange Fee None None
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1 Long-term Class B shareholders may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
2 A contingent deferred sales charge ("CDSC") of 1.00% is assessed on Class A
shares that were purchased without an initial sales charge as part of an
investment of over $1,000,000 that are redeemed within one year of purchase.
3 The amount redeemed is computed as the lesser of the current net asset value
of the shares redeemed, and the original purchase price of the shares. See "How
to buy shares - Class B shares."
4 Shares purchased as part of asset-allocation plans pursuant to the BL Purchase
Program are subject to a CDSC of 1.00%, if the shares are redeemed within one
year of purchase. See "How to Buy Shares -- the BL Purchase Program."
<TABLE>
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Annual Portfolio Operating Expenses:
(as a percentage of average net assets) Class A Class B
------- -------
<S> <C>
Management Fees 0.70% 0.70%
12b-1 Fees 0.00% 0.50%
Other Expenses*
Shareholder Service Fee 0.25% 0.25%
Other 0.35% 0.35%
Total Other Expenses 0.60% 0.60%
---- ----
Total Portfolio Operating Expenses* 1.30% 1.80%
</TABLE>
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* Other Expenses are estimated based on the expenses the Portfolio expects to
incur during its first full year of operations.
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Examples
An investment of $1,000 in the Portfolio would incur the following
expenses assuming 5% annual return and no redemption at the end of each period:
Class A Class B
------- -------
1 year $60 $18
3 years $87 $57
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:
Class A Class B
------- -------
1 year $ 60 $ 58
3 years $ 87 $ 87
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 Examples should not be considered a
representation of future performance; actual expenses may be more or less than
those shown.
Investment objectives and policies
The Portfolio's investment objective is to seek high current income.
Capital growth is a secondary objective when consistent with the objective of
seeking high current income. The Portfolio is not intended to be a complete
investment program, and there is no assurance it will achieve its objectives.
Mentor Investment Advisors, LLC is the Portfolio's investment adviser.
Van Kampen American Capital Management, Inc. serves as the sub-adviser to the
Portfolio. Van Kampen purchases and sells securities for the Portfolio, and
otherwise manages the investments of the Portfolio, subject to the overall
supervision of Mentor Advisors.
The Portfolio may invest in both lower-rated and higher-rated
fixed-income securities (including preferred stocks), including debt securities,
convertible securities, and preferred stocks that are consistent with its
primary investment objective of high current income. The Portfolio's remaining
assets may be held in cash or money market instruments, or invested in common
stocks and other equity securities. The Portfolio may at times hold a
substantial portion of its assets in mortgage-backed and other asset-backed
securities.
The Portfolio may invest in securities of any maturity. Van Kampen will
adjust the expected average life of the investments held in the Portfolio from
time to time, depending on its assessment of relative yields and risks of
securities of different maturities and its expectations of future changes in
interest rates. At times when the expected average life of the investments held
by the Portfolio is longer, the values of the securities held by the Portfolio
will generally change more in response to changes in interest rates than at
times when the expected average life is shorter.
Differing yields on fixed-income securities of the same maturity are a
function of several factors, including the relative financial strength of their
issuers. Higher yields are generally available from securities in
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the lower categories of recognized rating agencies: Baa or lower by Moody's
Investors Service, Inc. or BBB or lower by Standard & Poor's. The Portfolio may
invest any portion of its assets (and normally will invest at least 65% of its
assets) in such securities. Securities rated below Baa by Moody's or BBB by
Standard & Poor's are considered to be predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligations. Securities in the lowest rating categories may have extremely poor
prospects of attaining any real investment standing and may be in default. The
rating services' descriptions of securities in the lower rating categories,
including their speculative characteristics, are set forth in the Appendix to
this Prospectus. See "Investments in lower-rated securities," below.
The Portfolio may at times invest up to 10% of its assets in securities
rated in the lowest grades (Ca or C in the case of Moody's and CC, C, or D in
the case of Standard & Poor's) or in unrated securities determined by Van Kampen
to be of comparable quality, if Van Kampen believes that there are prospects for
an upgrade in a security's rating or a favorable conversion of a security into
other securities. The Portfolio might also invest in such securities if Van
Kampen were to believe that, upon completion of any contemplated exchange offer
or reorganization involving a security or its issuer, the Portfolio would
receive securities or other assets offering significant opportunities for
capital appreciation or future high rates of current income.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment analysis at the time of
rating. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate.
The Portfolio seeks its secondary objective of capital growth, when
consistent with its primary objective of seeking high current income, by
investing in securities which may be expected to appreciate in value as a result
of declines in long-term interest rates or of favorable developments affecting
the business or prospects of the issuer which may improve the issuer's financial
condition and credit rating.
At times, Van Kampen may judge that conditions in the securities
markets make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times Van Kampen may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest without limitation in money
market instruments and in U.S. Government or agency obligations, or invest in
any other fixed-income security Van Kampen considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, the
Portfolio will use such alternative strategies.
Investments in lower-rated securities. Investors should carefully
consider their ability to assume the risks of owning shares of a mutual fund
that invests in lower-rated securities (sometimes referred to as "junk bonds")
before making an investment in the Portfolio. The lower ratings of certain
securities held by the Portfolio reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Portfolio more
volatile and could limit the Portfolio's ability to sell its securities at
prices approximating the values the Portfolio had placed on such securities. In
the absence of a liquid trading market for securities held by it, the Portfolio
may be unable at times to establish the fair market value of such securities.
The rating assigned to a security by Moody's or Standard & Poor's does not
reflect an assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. For more information about the
rating services' descriptions of lower-rated securities, see the Appendix to
this Prospectus.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
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Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. The Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although Van Kampen will monitor the investment
to determine whether continued investment in the security will assist in meeting
the Portfolio's investment objectives.
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. In addition,
such issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The risk of
loss due to default in payment of interest or principal by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness. Certain of the
lower-rated securities in which the Portfolio invests are issued to raise funds
in connection with the acquisition of a company, in so-called "leveraged
buy-out" transactions. The highly leveraged capital structure of such issuers
may make them especially vulnerable to adverse changes in economic conditions.
The Portfolio may invest in securities which trade infrequently or in
more limited volume than higher- rated securities (including illiquid
securities), or in securities which are restricted as to resale. In addition, a
substantial portion of the Portfolio's assets may at times be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by Van Kampen and its affiliates, holds a major portion or all of such
securities, which may limit the liquidity of such securities. The Portfolio
could find it difficult or impossible to sell illiquid securities when Van
Kampen believes it advisable to do so or may be able to sell such securities
only at prices lower than if such securities were more widely held. In many
cases, such securities may be purchased in private placements and, accordingly,
will be subject to restrictions on resale as a matter of contract or under
securities laws. Under such circumstances, it may also be more difficult to
determine the fair value of such securities for purposes of computing the
Portfolio's net asset value. In order to enforce its rights in the event of a
default under securities in cases where the Portfolio holds a major portion or
all of the outstanding issue, the Portfolio may be required to take possession
of and manage assets securing the issuer's obligations on such securities, which
may increase the Portfolio's operating expenses and adversely affect the
Portfolio's net asset value. The Portfolio may also be limited in its ability to
enforce its rights and may incur greater costs in enforcing its rights in the
event an issuer becomes the subject of bankruptcy proceedings.
The Portfolio will not invest more than 15% of its net assets
(determined at the time of investment) in securities determined to be illiquid.
Certain securities that are restricted as to resale may nonetheless be resold by
the Portfolio in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Van Kampen to be liquid for
purposes of compliance with the limitation on the Portfolio's investment in
illiquid securities. There can, however, be no assurance that the Portfolio will
be able to sell such securities at any time when Van Kampen deems it advisable
to do so or at prices prevailing for comparable securities that are more widely
held.
The Portfolio may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero- coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon bonds do not pay current interest, their
value is subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve greater credit
risks than
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bonds that pay interest currently. Even though such bonds do not pay current
interest in cash, the Portfolio is nonetheless required for Federal income tax
purposes to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Portfolio could be required
at times to liquidate other investments in order to satisfy this distribution
requirement.
Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates, the
Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.
The Portfolio may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on maturity. The
Portfolio does not amortize the premium paid for such securities in calculating
its net investment income. Consequently, if such premium securities are called
or sold prior to maturity, the Portfolio may recognize a capital loss to the
extent the call or sale price is less than the purchase price. Additionally, the
Portfolio will recognize a capital loss if its holds such securities to
maturity.
Van Kampen seeks to minimize the risks involved in investing in
lower-rated securities through diversification and careful investment analysis.
When the Portfolio invests in high yield securities in the lower rating
categories, achievement of the Portfolio's goals depends more on Van Kampen's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.
Other investment practices and risks
The Portfolio may engage in the other investment practices described
below. See the Statement of Additional Information for a more detailed
description of certain of these practices and risks they may involve.
Mortgage-backed securities; other asset-backed securities. The
Portfolio may invest a substantial portion of its assets in mortgage-backed
certificates and may invest in other securities representing ownership interests
in mortgage pools, including CMOs and "residual" interests therein (described
more fully below). Interest and principal payments on the mortgages underlying
mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities currently offer yields
higher than those available from many other types of fixed-income securities but
because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. As a result,
mortgage-backed securities are less effective than other securities as a means
of "locking in" long-term interest rates. Generally, prepayment rates increase
if interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects,
mortgage-backed securities have less potential for capital appreciation during
periods of declining interest rates than other fixed-income securities of
comparable maturities, although such obligations may have a comparable risk of
decline in market value during periods of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that
are dependent upon the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities may include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
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The Portfolio may invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities are usually structured with two classes that
receive different portions of the interest and principal distributions on a pool
of mortgage assets. The Portfolio may invest in both the interest-only -- or
"IO" -- class and the principal- only -- or "PO" -- class. The yield to maturity
and price of an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
Portfolio's net asset value. This would typically be the case in an environment
of falling interest rates. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, the Portfolio may under some
circumstances fail to fully recoup its initial investment in these securities.
Conversely, POs tend to increase in value if prepayments are greater than
anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolio's ability to buy or sell those securities at any
particular time.
Certain mortgage-backed securities held by the Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining interest
rates, the Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The Portfolio may also invest in securities representing interests in
other types of financial assets, such as automobile-finance receivables or
credit-card receivables. Such securities may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers. The
ability of an issuer of asset-backed securities to enforce its security interest
in the underlying assets may be limited. For example, the laws of certain states
may prevent or restrict repossession of collateral from a debtor.
The Portfolio may also invest in other types of mortgage-related
securities, including any securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans or real
property, including collateralized mortgage obligation "residual" interests.
"Residual" interests represent the right to any excess cash flow remaining after
all other payments are made among the various tranches of interests issued by
structured mortgage-backed vehicles. The values of such interests are extremely
sensitive to changes in interest rates and in prepayment rates on the underlying
mortgages. In the event of a significant change in interest rates or other
market conditions, the value of an investment by the Portfolio in such interests
could be substantially reduced and the Portfolio may be unable to dispose of the
interests at prices approximating the values the Portfolio had previously
assigned to them or to recoup its initial investment in the interests. The
Portfolio may invest in new types of mortgage-related securities that may be
developed and marketed from time to time. If the Portfolio were to invest in
such newly developed securities, shareholders would, where appropriate, be
notified and this Prospectus would be revised accordingly.
Mortgage-backed securities and other asset-backed securities are
"derivative" securities and present certain special risks. The Portfolio may
invest in a wide variety of such securities, including mortgage-backed and other
asset-backed securities that will pay principal or interest only under certain
circumstances, or in amounts that may increase or decrease substantially
depending on changes in interest rates or other market factors. Such securities
may experience extreme price volatility in response to changes in interest rates
or other market factors; this may be especially true in the case of securities
where the amounts of principal or interest paid, or the timing of such payments,
varies widely depending on prevailing interest rates.
Van Kampen may not be able to obtain current market quotations for
certain mortgage-backed or asset-backed securities at all times, or to obtain
market quotations believed by it to reflect the values of such securities
accurately. In such cases, Van Kampen may be required to estimate the value of
such a security using quotations provided by pricing services or securities
dealers making a market in such securities, or based on other comparable
securities or other bench-mark securities or interest rates. Mortgage-backed and
other asset-backed securities in which the Portfolio may invest may be highly
illiquid,
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and the Portfolio may not be able to sell such a security at a particular time
or at the value it has placed on that security.
In calculating the value and duration of mortgage-backed or other
asset-backed securities, Van Kampen will be required to estimate the extent to
which the values of the securities are likely to change in response to changes
in interest rates or other market conditions, and the rate at which prepayments
on the underlying mortgages or other assets are likely to occur under different
scenarios. There can be no assurance that the Portfolio's investment adviser
will be able to predict the amount of principal or interest to be paid on any
security under different interest rate or market conditions or that its
predictions will be accurate, nor can there be any assurance that the Portfolio
will recover the entire amount of the principal paid by it to purchase any such
securities.
Foreign securities. The Portfolio may invest in securities issued by
foreign governments and other foreign issuers. Investments in foreign securities
involve a number of special risks. Since foreign securities are often
denominated and traded in foreign currencies, the values of the Portfolio's
assets may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations. There may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Portfolio's assets held abroad)
and expenses not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of the Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. In the case of securities issued by
a foreign governmental entity, the issuer may in certain circumstances be unable
or unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
-8-
<PAGE>
The Portfolio may invest in American Depository Receipts ("ADRs") and
Global Depository Receipts ("GDRs"), which represent interests in foreign
securities held by a bank, trust company, or other organization. Investments in
ADRs and GDRs are subject to many of the same risks of investing in foreign
securities generally.
Leverage. The Portfolio may borrow money to invest in additional
securities to seek current income. This technique, known as "leverage,"
increases the Portfolio's market exposure and risk. When the Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that the Portfolio must pay on
borrowed money will reduce its net investment income, and may also either offset
any potential capital gains or increase any losses. The Portfolio will not
always borrow money for investment and the extent to which the Portfolio will
borrow money, and the amount it may borrow, depends on market conditions and
interest rates. Successful use of leverage depends on an investment adviser's
ability to predict market movements correctly. The amount of leverage (including
leverage to the extent employed by the Portfolio through "reverse" repurchase
agreements, "dollar-roll" transactions, and forward commitments, described
above) that can exist at any one time will not exceed one-third of the value of
the Portfolio's total assets.
Reverse repurchase agreements; forward commitments. The Portfolio may
enter into "reverse" repurchase agreements with respect to up to one-third of
its assets. "Reverse" repurchase agreement generally involve the sale by the
Portfolio of securities held by it and an agreement to repurchase the securities
at an agreed-upon price, date, and interest payment. The Portfolio may also
enter into forward commitments, in which the Portfolio buys securities for
future delivery. Reverse repurchase agreements and forward commitments involve
leverage, and may increase the Portfolio's overall investment exposure. Their
use by the Portfolio may result in losses.
Dollar roll transactions. In order to enhance portfolio returns and
manage prepayment risks, the Portfolio may engage in dollar roll transactions
with respect to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In
a dollar roll transaction, the Portfolio sells a mortgage-related security to a
financial institution, such as a bank or broker/dealer, and simultaneously
agrees to repurchase a substantially similar (i.e., same type, coupon, and
maturity) security from the institution at a later date at an agreed upon price.
The mortgage-related securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. Dollar-roll transactions may
increase overall investment exposure and may result in losses.
Interest rate transactions. In order to attempt to protect the value of
its portfolio from interest rate fluctuations and to adjust the interest-rate
sensitivity of its portfolio, the Portfolio may enter into interest rate swaps
and other interest rate transactions, such as interest rate caps, floors, and
collars. Interest rate swaps involve the exchange by the Portfolio with another
party of different types of interest-rate streams (e.g. an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). The purchase of an interest rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. The Portfolio intends to use
these interest rate transactions as a hedge and not as a speculative investment.
The Portfolio's ability to engage in certain interest rate transactions may be
limited by tax considerations. The use of interest rate swaps and other interest
rate transactions is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If Van Kampen is incorrect in its forecasts of market
values, interest rates, or other applicable factors, the investment performance
of the Portfolio would be less favorable than it would have been if this
investment technique were not used.
Options and futures. The Portfolio may buy and sell call and put
options to hedge against changes in net asset value or to realize a greater
current return. In addition, through the purchase and sale of futures contracts
and related options, the Portfolio may at times seek to hedge against
fluctuations in net asset value and, to the extent consistent with applicable
law, to increase its investment return.
-9-
<PAGE>
The Portfolio's ability to engage in options and futures strategies
will depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Index futures and options. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index future"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
futures or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.
Risks related to options and futures strategies. Options and futures
transactions involve costs and may result in losses (which are, potentially,
unlimited). Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of futures and options and
movements in the prices of the underlying security or index or the securities
held by the Portfolio that are the subject of a hedge. The successful use by the
Portfolio of the strategies described above further depends on the ability of
Van Kampen to forecast market movements correctly. Other risks arise from the
Portfolio's potential inability to close out futures and options positions.
Although the Portfolio will enter into options and futures transactions only if
Van Kampen believes that a liquid secondary market exists for such options or
futures contract, there can be no assurance that the Portfolio will be able to
effect closing transactions at any particular time or at an acceptable price.
Certain provisions of the Internal Revenue Code may limit the Portfolio's
ability to engage in options and futures transactions.
The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of Van Kampen, the pricing mechanism
and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations. The
Portfolio will consider over-the-counter options written by it, and any of the
Portfolio's assets serving as "cover" for such options, to be illiquid, to the
extent required by applicable law.
The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
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
-10-
<PAGE>
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. All percentage limitations on investments will
apply at the time of investment and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of the
investment.
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. Mentor Investment Group, LLC ("Mentor
Investment Group") serves as administrator to the Portfolio. As compensation for
its services as administrator, the Portfolio pays Mentor Investment Group a fee,
accrued daily and paid monthly, at an annual rate of 0.10% of the average value
of the Portfolio's daily assets.
Van Kampen American Capital Management Inc. serves as sub-adviser to
the Portfolio. Van Kampen, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, was incorporated in 1990 and commenced operations in 1992. Van
Kampen currently provides investment advice to a wide variety of individual,
institutional, and investment company clients. Van Kampen is a wholly owned
subsidiary of Van Kampen American Capital, Inc., which, in turn, is a
wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is an
indirect wholly owned subsidiary of Morgan Stanley Group Inc. Morgan Stanley
Group Inc. and various of its subsidiaries, including Morgan Stanley & Co.
Incorporated, a registered broker-dealer, are engaged in a wide range of
financial services. As of April 30, 1998, Van Kampen, together with its
affiliates, advised or supervised approximately $64 billion of assets. For its
services as sub-adviser, Van Kampen receives a monthly fee from Mentor Advisors
at the annual rate of .20% of the Portfolio's average daily net assets.
Mentor Advisors has over $13 billion in assets under management and is
a wholly owned subsidiary of Mentor Investment Group and its affiliates. Mentor
Investment Group is a subsidiary of Wheat First Butcher Singer, Inc., which is
in turn a wholly owned subsidiary of First Union Corp. ("First Union"). First
Union is a leading financial services company with approximately $172 billion in
assets and $12 billion in total stockholders' equity as of March 31, 1998.
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. All investment decisions made for
the Portfolio by Van Kampen are made by an investment team at Van Kampen.
Subject to the general oversight of the Trustees, Van Kampen manages
the Portfolio in accordance with the stated policies of the Portfolio. Van
Kampen makes investment decisions for the Portfolio and places the purchase and
sale orders for the Portfolio's portfolio transactions. In selecting
broker-dealers, Van Kampen may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Van Kampen may consider sales of shares of the Portfolio (and, if
permitted by law, of other funds in the Mentor family or advised by Van Kampen
or its affiliates) as a factor in the selection of broker-dealers to execute
portfolio transactions for the Portfolio. Van Kampen may at times cause the
Portfolio to pay commissions to broker-dealers affiliated with Van Kampen or
Mentor Advisors.
-11-
<PAGE>
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, Securities and Exchange Commission 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.
Portfolio turnover. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions.
The investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by the Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains. The Portfolio's annual portfolio turnover
rate is not expected to exceed 200% for its first fiscal year.
How the Portfolio values its shares
The Portfolio calculates the net asset value of its shares by dividing
the total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values. The net asset value for Class A shares will generally differ from that
of Class B shares due to the variance in daily net income realized by and
dividends paid on each class of shares, and any differences in the expenses of
the different classes.
Sales arrangements
This Prospectus offers investors two classes of shares which bear sales
charges in different forms and amounts and which bear different levels of
expenses:
Class A shares. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject to
any charges when they are redeemed, except that sales at net asset value in
excess of $1 million are subject to a contingent deferred sales charge (a
"CDSC"). Certain purchases of Class A shares qualify for reduced sales charges.
Class A shares currently bear no 12b-1 fees. See "How to buy shares --- Class A
shares."
Class B shares. Class B shares are sold without an initial sales
charge, but are subject to a CDSC of up to 4% if redeemed within five years.
Class B shares also bear 12b-1 fees. Class B shares provide an investor the
benefit of putting all of the investor's money to work from the time the
investment is made, but have a higher expense ratio and pay lower dividends than
Class A shares due to the 12b-1 fees. If you purchase shares through an
asset-allocation program, you may also be eligible to purchase Class B shares
through the "BL Purchase Program." See "How to buy shares --- Class B shares."
Which arrangement is for you? The decision as to which class of shares
provides a suitable investment for an investor depends on a number of factors,
including the amount and intended length of the investment. Investors making
investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge might consider
Class B shares. Investors purchasing shares through an asset-allocation program
may wish to purchase shares through the BL Purchase Program. For more
information
-12-
<PAGE>
about these sales arrangements, consult your investment dealer or Mentor
Services Company, Inc. Sales personnel may receive different compensation
depending on which class of shares they sell. Investors may be charged a fee if
they effect transactions through a broker or agent. Shares may only be exchanged
for shares of the same class of certain other funds in the Mentor family and for
shares of Cash Resource U.S. Government Money Market Fund. See "How to exchange
shares."
How to buy shares
You can open a Portfolio account with as little as $1,000 and make
additional investments at any time with as little as $100. Investments under
IRAs and qualified retirement plans are subject to a minimum initial investment
of $250. The minimum initial investment may be waived for current and retired
Trustees, and current and retired employees of the Trust, Mentor Investment
Group or its affiliates. You can buy Portfolio shares by completing the enclosed
New Account Form and sending it to Boston Financial Data Services at 2 Heritage
Drive, North Quincy, MA 02171, along with a check or money order made payable to
Mentor Funds, through your financial institution, which may be an investment
dealer, a bank, or another institution, or through automatic investing. If you
do not have a dealer, Mentor Services Company can refer you to one.
Automatic investment plan. Once you have made the initial minimum
investment in the Portfolio, you can make regular investments of $50 or more on
a monthly or quarterly basis through automatic deductions from your bank
checking account. Application forms are available from your investment dealer or
through Mentor Services Company.
Shares are sold at a price based on the Portfolio's net asset value
next determined after the Distributor receives your purchase order. In most
cases, in order to receive that day's public offering price, the Distributor
must receive your order before the close of regular trading on the New York
Stock Exchange. If you buy shares through your investment dealer, the dealer
must ensure that the Distributor receives your order before the close of regular
trading on the New York Stock Exchange for you to receive that day's public
offering price.
Class A Shares. The public offering price of Class A shares is the net
asset value plus a sales charge. The Portfolio receives the net asset value. The
sales charge varies depending on the size of your purchase and is allocated
between your investment dealer and the Distributor. The current sales charges
for Class A shares of the Portfolio are as follows:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge as
a Percentage of a Percentage of
Public Offering Net Amount Dealer
Price Invested Commission*
--------------- --------------- -----------
<S> <C>
Less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 4.00% 4.17% 3.25%
$250,000 but less than $500,000................ 3.00% 3.09% 2.50%
$500,000 but less than $1 million 2.00% 2.04% 1.75%
$1 million or more............................. 0% 0% (see below)
</TABLE>
- ----------------------
* At the discretion of the Distributor, the entire sales charge may at times be
reallowed to dealers. The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the sales charge may be
considered underwriters.
There is no initial sales charge on purchases of Class A shares of $1 million or
more. However, a CDSC of 1.00% is imposed on redemptions of such shares within
the first year after purchase, based on the lower of the shares' cost and
current net asset value. A CDSC is also imposed on any shares purchased without
a sales charge
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<PAGE>
as part of a purchase of shares of $1 million or more under a purchase
accumulation plan. Contact Mentor Services Company for more information.
You may be eligible to buy Class A shares at reduced sales charges. Consult
your investment dealer or Mentor Services Company for details about Quantity
Discounts and Accumulated Purchases, Letters of Intent, the Reinvestment
Privilege, Concurrent Purchases, and the Automatic Investment Plan. Descriptions
are also included in the New Account Form or are available from Mentor Services
Company. Shares may be sold at net asset value to certain categories of
investors, including to shareholders of other mutual funds who invest in the
Portfolio in response to certain promotional activities, and the CDSC may be
waived under certain circumstances. The sales charges shown above will not apply
to shares purchased by you if you purchase shares through EVEREN Securities,
Inc. with the redemption proceeds received by you within the preceding 90 days
from the sale of shares of any non-Mentor open-end mutual fund. No CDSC will
apply to these purchases. EVEREN Securities, Inc. may compensate your investment
dealer in connection with any such purchase. Sales charges may similarly not
apply to shares purchased through other financial institutions that have made
arrangements with Mentor Distributors. Contact your financial institution or
Mentor Services Company for more information. See "How to buy shares ---
General" below.
Class B Shares. Class B shares are sold without an initial sales
charge, although a CDSC will be imposed if you redeem shares within six years
of purchase. The following types of shares may be redeemed without charge: (i)
shares acquired by reinvestment of distributions and (ii) shares otherwise
exempt from the CDSC, as described in the Example below. The amount of CDSC is
determined as a percentage of the lesser of the current market value or the cost
of the shares being redeemed. The amount of the CDSC will depend on the number
of years since you invested in the shares being redeemed and the dollar amount
being redeemed, according to the following table:
Years Since Purchase Payment Made CDSC
--------------------------------- -----------
1 4.0%
2 4.0%
3 3.0%
4 2.0%
5 1.0%
6 1.0%
7+ None
The BL Purchase Program. If you purchase Class B shares through an
asset-allocation program sponsored by your broker-dealer or other financial
institution, you may elect to participate in the BL Purchase Program. Shares
purchased through this program are not subject to the CDSC shown above. Rather,
a CDSC of 1.00% will be imposed on redemptions of such shares within the first
year after purchase, based on the lower of the shares' cost and current net
asset value. Your broker-dealer or other financial institution is responsible
for making the election on your behalf to invest through the Program.
Accordingly, if you wish to purchase shares through this Program, you should
instruct your broker-dealer or financial institution to do so.
General. Mentor Distributors, LLC, located at 3435 Stelzer Road,
Columbus, Ohio 43219 serves as distributor of the Portfolio's shares. The
Distributor is not obligated to sell any specific amount of shares of the
Portfolio.
A Portfolio may sell its Class A shares without a sales charge and
may waive the CDSC on shares redeemed by the Trust's current and retired
Trustees (and their families), current and retired employees (and their
families) of Mentor Investment Group, Mentor Advisors, and their affiliates,
registered representatives and other employees (and their families) of
broker-dealers having sales agreements with the Distributor, employees (and
their families) of financial institutions having sales agreements with the
Distributor (or otherwise having an arrangement with a broker-dealer or
financial institution with respect to sales of Portfolio shares), financial
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<PAGE>
institution trust departments investing an aggregate of $1 million or more in
one or more funds in the Mentor family, clients of certain administrators of
tax-qualified plans, employer-sponsored retirement plans, tax-qualified plans
when proceeds from repayments of loans to participants are invested (or
reinvested) in funds in the Mentor family, shares redeemed under the Portfolio's
Systematic Withdrawal Plan (limited to 10% of a shareholder's account in any
calendar year), and "wrap accounts" for the benefit of clients of financial
planners adhering to certain standards established by Mentor Services Company or
its affiliates. The Portfolio may sell shares without a sales charge or a CDSC
in connection with the acquisition by the Portfolio of assets of an investment
company or personal holding company. In addition, the CDSC may be waived in the
case of (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, including the shares of a shareholder who owns the shares with his or
her spouse as joint tenants with right of survivorship, provided that the
redemption is requested within one year of the death or initial determination of
disability; (ii) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified retirement
plan following retirement, (b) distributions from an IRA, Keogh Plan, or
Custodial Account under Section 403(b)(7) of the Internal Revenue Code following
attainment of age 59 1/2, and (c) a tax-free return on an excess contribution to
an IRA; (iii) redemptions by pension or profit sharing plans sponsored by Mentor
Investment Group or an affiliate; and (iv) redemptions by pension or profit
sharing plans of which Mentor Investment Group or any affiliate serves as a plan
fiduciary. In addition, certain retirement plans with over 200 employees may
purchase Class A shares at net asset value without a sales charge. The Portfolio
may sell its Class A shares without a sales charge to shareholders of other
mutual funds who invest in other funds in the Mentor family in response to
certain promotional activities (in which case a CDSC of 1% may apply for a
period of years after purchase). Contact Mentor Services Company. If you invest
through a broker-dealer or other financial institution, your broker-dealer or
other financial institution will be responsible for electing on your behalf to
take advantage of any of these reduced sales charges or waivers described above.
Please instruct your broker-dealer or other financial institution accordingly.
Shareholders of other funds in the Mentor family may be entitled
to exchange their shares for, or reinvest distributions from their funds in,
shares of the Portfolio at net asset value.
In determining whether a CDSC is payable in respect of the shares
redeemed, the Portfolio will first redeem the shares held longest (together with
any shares received upon reinvestment of distributions with respect to those
shares). Any of the shares being redeemed which were acquired by reinvestment of
distributions will be redeemed without a CDSC, and amounts representing capital
appreciation will not be subject to a CDSC. See the Example below.
Example:
You have purchased 100 shares at $10 per share. The second year
after your purchase, your investment's net asset value per share has increased
by $2 to $12, and you have gained 10 additional shares through dividend
reinvestment. If you redeem 50 of those shares (including shares purchased
through reinvestment of distributions on those 100 shares) at this time, your
CDSC will be calculated as follows:
<TABLE>
<S> <C>
o Proceeds of 50 shares redeemed at $12 per share $600
o Minus proceeds of 10 shares not subject to a CDSC
because they were acquired through dividend reinvestment
(10 x $12) -120
o Minus appreciation on remaining shares, also not subject
to CDSC (40 x $2) -80
o Amount subject to a CDSC $400
</TABLE>
The Distributor receives the entire amount of any CDSC you pay.
Consult the Distributor for more information.
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<PAGE>
If you are considering redeeming or exchanging shares of the
Portfolio or transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any delay in
redemption, exchange, or transfer. Otherwise the Portfolio may delay payment
until the purchase price of those shares has been collected or, if you redeem by
telephone, until 15 calendar days after the purchase date.
Because of the relatively high cost of maintaining accounts, the
Portfolio reserves the right to redeem, upon not less than 60 days' notice, any
Portfolio account below $500 as a result of redemptions. A shareholder may,
however, avoid such a redemption by the Portfolio by increasing his investment
in shares of the Portfolio to a value of $500 or more during such 60-day period.
The Distributor, Mentor Advisors, and affiliates thereof, at their
own expense and out of their own assets (or in conjunction with other entities),
may also periodically sponsor programs that offer additional compensation in
connection with sales of the Portfolio. Such compensation may also 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 the Portfolio's
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. Certain dealers may not sell all classes
of shares.
In all cases Mentor Advisors or the Distributor reserves the right
to reject any particular investment.
Reinvestment Privilege. If you redeem Class A or B shares of the
Portfolio, you have a one-time right, within 60 days, to reinvest the redemption
proceeds plus the amount of CDSC you paid, if any, at the next- determined net
asset value. Front-end sales charges will not apply to such reinvestment. The
Distributor must be notified in writing by you or by your financial institution
of the reinvestment for you to recover the CDSC, or to eliminate the front-end
sales charge. If you redeem shares in the Portfolio, there may be tax
consequences.
Distribution Plan (Class B Shares)
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus,
Ohio 43219, is the principal distributor for the Portfolios' shares. The
Distributor is not obligated to sell any specific amount of shares of the
Portfolio. The Distributor is a wholly owned subsidiary of BISYS Fund Services,
Inc.
The Portfolio has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 with respect to its Class B shares (the "Plan") providing for
payments by the Portfolio to the Distributor from the assets attributable to the
Portfolio's Class B shares at the annual rate set out under "Summary of
Portfolio Expenses - Annual Portfolio Operating Expenses" above. The Trustees
may reduce the amount of payments or suspend the Plan for such periods as they
may determine. The Distributor also receives the proceeds of any CDSC imposed on
redemptions of shares.
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<PAGE>
Payments under the Plan are intended to compensate the Distributor
for services provided and expenses incurred by it as principal underwriter of
the Portfolio's Class B shares. The Distributor may select financial
institutions (such as a broker/dealer or bank) to provide sales support services
as agents for their clients or customers who beneficially own Class B shares of
the Portfolio. Financial institutions will receive fees from the Distributor
based upon Class B shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be determined
from time to time by the Distributor. The Distributor may suspend or modify such
payments to dealers. Such payments are also subject to the continuation of the
Plan, the terms of any agreements between dealers and the Distributor, and any
applicable limits imposed by the National Association of Securities Dealers,
Inc.
Mentor Services Company, a wholly owned subsidiary of Mentor
Investment Group, provides marketing-related services in respect of the
Portfolio. Mentor Services Company and its affiliates will receive from the
Distributor substantially all amounts received or retained by the Distributor
under the Portfolio's Distribution Plans. Mentor Services Company receives from
the Distributor an amount equal to all CDSCs received by the Distributor.
How to sell shares
You can sell your shares to the Portfolio any day the New York
Stock Exchange is open, either directly to the Portfolio or through your
investment dealer. The Portfolio will only redeem shares for which it has
received payment.
Selling shares directly to the Portfolio. Send a signed letter of
instruction and stock power form, along with any certificates that represent
shares you want to sell, to Mentor Funds, c/o Boston Financial Data Services,
Inc. ("BFDS"), 2 Heritage Drive, North Quincy, Massachusetts 02171. The price
you will receive is the net asset value next calculated after your request is
received in proper form less any applicable CDSC. 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. If you sell shares having a net asset
value of $50,000 or more or if you want your redemption proceeds payable to you
at a different address or to someone else, the signatures of registered owners
or their legal representatives must be guaranteed by a bank, broker-dealer, or
certain other financial institutions. Contact Mentor Services Company for more
information about where to obtain a signature guarantee. Stock power forms are
available from your investment dealer, Mentor Services Company, and many
commercial banks. The Distributor usually requires additional documentation for
the sale of shares by a corporation, partnership, agent, fiduciary, or surviving
joint owner. Contact Mentor Services Company for details.
Selling shares by telephone. You may use the Telephone Redemption
Privilege to redeem shares from your account unless you have notified Mentor
Services Company of an address change within the preceding 15 days. Unless an
investor indicates otherwise on the New Account Form, Mentor Services Company
will be authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide Mentor Services Company with his or her account
registration and address as it appears on Mentor Services Company's records.
Mentor Services Company will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails to
employ reasonable procedures, Mentor Services Company may be liable for any
losses due to unauthorized or fraudulent instructions. For more information,
consult Mentor Services Company. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting Mentor Services
Company by telephone in which case you may wish to submit a written redemption
request, as described above, or contact your investment dealer, as described
below. The Telephone Redemption Privilege may be modified or terminated without
notice.
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Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the New York Stock
Exchange to receive that day's net asset value. Your dealer will be responsible
for furnishing all necessary documentation to Mentor Services Company, and may
charge you for its services.
Systematic Withdrawal Program. You may redeem Class A or B shares
of the Portfolio through periodic withdrawals for a predetermined amount. Only
shareholders with accounts valued at $10,000 or more are eligible to
participate. Class B shares redeemed under the Systematic Withdrawal Program are
not subject to a CDSC, but the aggregate withdrawals of Class B shares in any
year are limited to 10% of the value of the account at the time of enrollment.
Contact the Distributor for more information.
General. The Portfolio generally sends you payment for your shares
the business day after your request is received. Under unusual circumstances,
the Portfolio may suspend redemptions, or postpone payment for more than seven
days, as permitted by federal securities law.
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 to exchange shares
Except as otherwise described below, you can exchange your shares
in the Portfolio worth at least $1,000 for shares of the same class of certain
other Portfolios of Mentor Funds, with different investment objectives and
policies, at net asset value beginning 15 days after purchase. You may also
exchange shares of the Portfolio for shares of Cash Resource U.S. Government
Money Market Fund (the "Cash Fund"). If you exchange shares subject to a CDSC,
the transaction will not be subject to a CDSC. However, when you redeem the
shares acquired through the exchange, the redemption may be subject to the CDSC,
depending upon when you originally purchased the shares, using the schedule of
the Portfolio from which your first exchange was effected. For purposes of
computing the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by any
exchange.
For information on how to exchange your shares, contact Mentor
Funds at 1-800-382-0016. For federal income tax purposes, an exchange is treated
as a sale of shares and generally results in a capital gain or loss. A Telephone
Exchange Privilege is currently available. The Distributor's procedures for
telephonic transactions are described above under "How to sell shares." The
Telephone Exchange Privilege is not available if you were issued certificates
for shares which remain outstanding. Ask you investment dealer or the
Distributor for a prospectus relating to other Portfolios of Mentor Funds or the
Cash Fund. Shares of certain of the Portfolios may not be available to residents
of all states.
The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where the Distributor or the Trustees
believe doing so would be in the best interests of the Portfolio, the Portfolio
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges, or reject any exchange. Shareholders would be
notified of any such action to the extent required by law. Consult the
Distributor before requesting an exchange by calling 1-800-869-6042. See the
Statement of Additional Information to find out more about the exchange
privilege.
How distributions are made
Divends, if any, are declared daily and paid monthly. The
Portfolio distributes net investment income and any net realized capital gains
at least annually. Distributions from capital gains are made after applying any
available capital loss carryovers. All Portfolio distributions will be invested
in additional Portfolio shares, unless the shareholder instructs the Portfolio
otherwise.
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<PAGE>
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.
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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).
Other services
Shareholder Servicing Plan. The Trust has adopted a Shareholder
Servicing Plan (the "Service Plan") with respect to the Class A and Class B
shares of the Portfolio. Under the Service Plan, financial institutions will
enter into shareholder service agreements with the Distributor to provide
administrative support services to their customers who are Portfolio
shareholders. In return for providing these support services, a financial
institution may receive payments at a rate not exceeding 0.25% of the average
daily net assets of the Class A or Class B shares of the Portfolio. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer personnel, as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Portfolio; assisting clients in changing dividend options, account designations,
and addresses; and providing such other services as the Portfolio reasonably
requests.
In addition to receiving payments under the Service Plan,
financial institutions may be compensated by Mentor Advisors and/or Mentor
Investment Group, or affiliates thereof, for providing administrative support
services to holders of Class A or Class B shares of the Portfolio. These
payments will be made directly by Mentor Advisors and/or Mentor Investment Group
and will not be made from the assets of the Portfolio.
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<PAGE>
General Information
Mentor Funds 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 shares in four classes: Class A and
Class B shares of the Portfolio, which are offered by this Prospectus; Class E
shares, which are not subject to any sales loads (but which are subject to a
shareholder servicing fee); and Class Y (Institutional) shares, which are not
subject to any sales loads of shareholder servicing fees. Contact Mentor
Services Company for information concerning Class E or Class Y shares and your
eligibility to purchase shares of those classes.
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.
The Portfolio receives services from a number of providers which
rely on the smooth functioning of their respective systems and the systems of
others to perform those services. It is generally recognized that certain
systems in use today may not perform their intended functions adequately after
the Year 1999 because of the inability of the software to distinguish the Year
2000 from the Year 1900. Mentor Advisors is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory assurances that comparable steps are being taken by the Portfolio's
other major service providers. There can be no assurance, however, that these
steps will be sufficient to avoid any adverse impact on the Portfolio from this
problem.
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
Yield and total return data may from time to time be included in
advertisements about Class A and Class B shares of the Portfolio. The
Portfolio's "yield" for each class of shares is calculated by dividing the
Portfolio's annualized net investment income per share during a recent 30-day
period by the maximum public offering price per share on the last day of that
period. "Total return" for the one-, five- and ten-year periods (or for the life
of a class, if shorter) through the most recent calendar quarter represents the
average annual compounded rate of return on an investment of $1,000 in the
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Portfolio at the maximum public offering price (in the case of Class A shares)
and reflecting (in the case of Class B shares) the deduction of any applicable
CDSC. Total return may also be presented for other periods or based on
investment at reduced sales charge levels or at net asset value. Investment
performance of different classes of shares of the Portfolio will differ. Any
quotation of investment performance not reflecting the maximum initial sales
charge or CDSC would be reduced if such sales charges were reflected. Quotations
of yield and total return 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.
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.
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APPENDIX A
Moody's Investors Service, Inc., Bond Ratings
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.
Ba - Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
Standard and Poor's Bond Ratings
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
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AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
BB - Debt rated `BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments. The
`BB' rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BBB - ' rating.
B - Debt rated `B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The `B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied `BB' or `BB - ' rating.
CCC - Debt rated `CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The `CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `B' or `B - 'rating.
CC - The rating `CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied `CCC' rating.
C - The rating `C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied `CCC - ' debt rating. The `C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
D - Bonds rated `D' are in payment default. The `D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The `D' rating also will
be used on the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "A" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc., Note Ratings
MIG1/VMIG1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
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<PAGE>
MIG2/VMIG2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Standard and Poor's Note Ratings
SP-1 - Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus sign (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
Moody's Investors Service, Inc., Commercial Paper Ratings
P-1 - Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 - Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
22
<PAGE>
Standard and Poor's Commercial Paper Ratings
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
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<PAGE>
Appendix B
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen serves as investment adviser to Van Kampen American Capital
High Income Corporate Bond Fund (the "Van Kampen Fund"), an open-end investment
company with investment objectives and policies that are substantially similar
to those of Mentor High Income Portfolio. As of March 31, 1998, the size of the
Van Kampen Fund was approximately $540 million.
Set forth below are total return data provided by Van Kampen for Class
A and Class B shares of the Van Kampen Fund, for periods through March 31, 1998.
During the period shown, the Van Kampen Fund generally incurred total fund
operating expenses at a rate lower than the rate at which Mentor High Income
Portfolio expects to incur total portfolio operating expenses during its first
year of operation. Total return data for the Van Kampen Fund have been restated
to give effect to the sales charges (including deferred sales charges)
applicable to an investment in Class A or Class B shares of Mentor High Income
Portfolio. Performance data for periods greater than one year reflect average
annual total return.
Van Kampen American Capital High Income Corporate Bond Fund
Periods ended
March 31, 1998 Class A shares Class B shares
- -------------- -------------- --------------
One year ___% ___%
Three years ___% ___%
Five years ___% ___%
Ten years ___% ___%
The performance information set forth above relates solely to the past
performance of the Van Kampen Fund and not of Mentor High Income Portfolio and
should not be considered a prediction of future investment performance of Mentor
High Income Portfolio. Investment performance is based on many factors,
including, for example, market conditions, the composition of the fund's
portfolio, and the fund's operating expenses. Mentor High Income Portfolio's
investment performance may be better or worse than the past or future
performance of the Van Kampen Fund.
24
<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.
Table of Contents
Expense summary...................................2
Investment objective and policies.................3
Other investment practices and risks..............5
Management........................................6
How the Portfolio values its shares...............7
Sales arrangements................................8
How to buy shares.................................8
Distribution Plan (Class B Shares)...............12
How to sell shares...............................12
How to exchange shares...........................13
How distributions are made.......................14
Taxes............................................14
Other services...................................14
General information..............................15
Performance information..........................15
MENTOR
HIGH INCOME
PORTFOLIO
----------
PROSPECTUS
----------
June ___, 1998
Mentor Distributors, LLC
Distributor
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 7, 1998
PROSPECTUS June ___, 1998
Class Y shares
MENTOR HIGH INCOME PORTFOLIO
Mentor High Income Portfolio seeks high current income. Capital growth is
a secondary objective when consistent with the objective of seeking high current
income. Mentor Investment Advisors, LLC is the Portfolio's investment adviser.
Van Kampen American Capital Management, Inc. serves as the sub-adviser to the
Portfolio. The Portfolio is a series of shares of Mentor Funds.
The Portfolio invests primarily in lower-rated bonds, commonly known
as "junk bonds." Investments of this type are subject to a greater risk of loss
of principal and non-payment of interest. Investors should carefully assess the
risks associated with an investment in the Portfolio. The Portfolio may also
trade securities for short-term profits. For a description of these strategies
and the related risks, see "Investment objectives and policies" in this
Prospectus.
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 June ___, 1998 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement, call Mentor
Investment Group, LLC 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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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<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 in
its first full fiscal year. 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 Fee None
Exchange Fee None
Annual Portfolio Operating Expenses:
(as a percentage of average net assets)
Management Fees 0.70%
12b-1 Fees 0.00%
Other Expenses* 0.35%
----
Total Portfolio Operating Expenses 1.05%
- -------------------
* Other Expenses are estimated based on the expenses the Portfolio expects to
incur during its first full year of operations.
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 $11
3 years $33
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 objectives and policies
The Portfolio's investment objective is to seek high current income.
Capital growth is a secondary objective when consistent with the objective of
seeking high current income. The Portfolio is not intended to be a complete
investment program, and there is no assurance it will achieve its objectives.
Mentor Investment Advisors, LLC is the Portfolio's investment adviser.
Van Kampen American Capital Management, Inc. serves as the sub-adviser to the
Portfolio. Van Kampen purchases and sells securities for the Portfolio, and
otherwise manages the investments of the Portfolio, subject to the overall
supervision of Mentor Advisors.
The Portfolio may invest in both lower-rated and higher-rated
fixed-income securities (including preferred stocks), including debt securities,
convertible securities, and preferred stocks that are consistent with its
primary investment objective of high current income. The Portfolio's remaining
assets may be held in cash or money market instruments, or invested in common
stocks and other equity securities. The Portfolio may at times hold a
substantial portion of its assets in mortgage-backed and other asset-backed
securities.
The Portfolio may invest in securities of any maturity. Van Kampen will
adjust the expected average life of the investments held in the Portfolio from
time to time, depending on its assessment of relative yields and risks of
securities of different maturities and its expectations of future changes in
interest rates. At times when the expected average life of the investments held
by the Portfolio is longer, the values of the securities held by the Portfolio
will generally change more in response to changes in interest rates than at
times when the expected average life is shorter.
Differing yields on fixed-income securities of the same maturity are a
function of several factors, including the relative financial strength of their
issuers. Higher yields are generally available from securities in the lower
categories of recognized rating agencies: Baa or lower by Moody's Investors
Service, Inc. or BBB or lower by Standard & Poor's. The Portfolio may invest any
portion of its assets (and normally will invest at least 65% of its assets) in
such securities. Securities rated below Baa by Moody's or BBB by Standard &
Poor's are considered to be predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligations. Securities in the lowest rating categories may have extremely poor
prospects of attaining any real investment standing and may be in default. The
rating services' descriptions of securities in the lower rating categories,
including their speculative characteristics, are set forth in the Appendix to
this Prospectus. See "Investments in lower-rated securities," below.
The Portfolio may at times invest up to 10% of its assets in securities
rated in the lowest grades (Ca or C in the case of Moody's and CC, C, or D in
the case of Standard & Poor's) or
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<PAGE>
in unrated securities determined by Van Kampen to be of comparable quality, if
Van Kampen believes that there are prospects for an upgrade in a security's
rating or a favorable conversion of a security into other securities. The
Portfolio might also invest in such securities if Van Kampen were to believe
that, upon completion of any contemplated exchange offer or reorganization
involving a security or its issuer, the Portfolio would receive securities or
other assets offering significant opportunities for capital appreciation or
future high rates of current income.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment analysis at the time of
rating. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate.
The Portfolio seeks its secondary objective of capital growth, when
consistent with its primary objective of seeking high current income, by
investing in securities which may be expected to appreciate in value as a result
of declines in long-term interest rates or of favorable developments affecting
the business or prospects of the issuer which may improve the issuer's financial
condition and credit rating.
At times, Van Kampen may judge that conditions in the securities
markets make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times Van Kampen may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest without limitation in money
market instruments and in U.S. Government or agency obligations, or invest in
any other fixed-income security Van Kampen considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, the
Portfolio will use such alternative strategies.
Investments in lower-rated securities. Investors should carefully
consider their ability to assume the risks of owning shares of a mutual fund
that invests in lower-rated securities (sometimes referred to as "junk bonds")
before making an investment in the Portfolio. The lower ratings of certain
securities held by the Portfolio reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Portfolio more
volatile and could limit the Portfolio's ability to sell its securities at
prices approximating the values the Portfolio had placed on such securities. In
the absence of a liquid trading market for securities held by it, the Portfolio
may be unable at times to establish the fair market value of such securities.
The rating assigned to a security by Moody's or Standard & Poor's does not
reflect an assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. For more information about the
rating services' descriptions of lower-rated securities, see the Appendix to
this Prospectus.
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<PAGE>
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. The Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although Van Kampen will monitor the investment
to determine whether continued investment in the security will assist in meeting
the Portfolio's investment objectives.
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. In addition,
such issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The risk of
loss due to default in payment of interest or principal by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness. Certain of the
lower-rated securities in which the Portfolio invests are issued to raise funds
in connection with the acquisition of a company, in so-called "leveraged
buy-out" transactions. The highly leveraged capital structure of such issuers
may make them especially vulnerable to adverse changes in economic conditions.
The Portfolio may invest in securities which trade infrequently or in
more limited volume than higher-rated securities (including illiquid
securities), or in securities which are restricted as to resale. In addition, a
substantial portion of the Portfolio's assets may at times be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by Van Kampen and its affiliates, holds a major portion or all of such
securities, which may limit the liquidity of such securities. The Portfolio
could find it difficult or impossible to sell illiquid securities when Van
Kampen believes it advisable to do so or may be able to sell such securities
only at prices lower than if such securities were more widely held. In many
cases, such securities may be purchased in private placements and, accordingly,
will be subject to restrictions on resale as a matter of contract or under
securities laws. Under such circumstances, it may also be more difficult to
determine the fair value of such securities for purposes of computing the
Portfolio's net asset value. In order to enforce its rights in the event of a
default under securities in cases where the Portfolio holds a major portion or
all of the outstanding issue, the Portfolio may be required to take possession
of and manage assets securing the issuer's obligations on such securities, which
may increase the Portfolio's operating expenses and adversely affect the
Portfolio's net asset value. The Portfolio may also be limited in its ability to
enforce its rights and may incur greater costs in enforcing its rights in the
event an issuer becomes the subject of bankruptcy proceedings.
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<PAGE>
The Portfolio will not invest more than 15% of its net assets
(determined at the time of investment) in securities determined to be illiquid.
Certain securities that are restricted as to resale may nonetheless be resold by
the Portfolio in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Van Kampen to be liquid for
purposes of compliance with the limitation on the Portfolio's investment in
illiquid securities. There can, however, be no assurance that the Portfolio will
be able to sell such securities at any time when Van Kampen deems it advisable
to do so or at prices prevailing for comparable securities that are more widely
held.
The Portfolio may at times invest in so-called "zero-coupon" bonds and
"payment-in- kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon bonds do not pay current interest, their
value is subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve greater credit
risks than bonds that pay interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required for Federal
income tax purposes to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Portfolio
could be required at times to liquidate other investments in order to satisfy
this distribution requirement.
Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates, the
Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.
The Portfolio may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on maturity. The
Portfolio does not amortize the premium paid for such securities in calculating
its net investment income. Consequently, if such premium securities are called
or sold prior to maturity, the Portfolio may recognize a capital loss to the
extent the call or sale price is less than the purchase price. Additionally, the
Portfolio will recognize a capital loss if its holds such securities to
maturity.
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<PAGE>
Van Kampen seeks to minimize the risks involved in investing in
lower-rated securities through diversification and careful investment analysis.
When the Portfolio invests in high yield securities in the lower rating
categories, achievement of the Portfolio's goals depends more on Van Kampen's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.
Other investment practices and risks
The Portfolio may engage in the other investment practices described
below. See the Statement of Additional Information for a more detailed
description of certain of these practices and risks they may involve.
Mortgage-backed securities; other asset-backed securities. The
Portfolio may invest a substantial portion of its assets in mortgage-backed
certificates and may invest in other securities representing ownership interests
in mortgage pools, including CMOs and "residual" interests therein (described
more fully below). Interest and principal payments on the mortgages underlying
mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities currently offer yields
higher than those available from many other types of fixed-income securities but
because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. As a result,
mortgage-backed securities are less effective than other securities as a means
of "locking in" long-term interest rates. Generally, prepayment rates increase
if interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects,
mortgage-backed securities have less potential for capital appreciation during
periods of declining interest rates than other fixed-income securities of
comparable maturities, although such obligations may have a comparable risk of
decline in market value during periods of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that
are dependent upon the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities may include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
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<PAGE>
The Portfolio may invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities are usually structured with two classes that
receive different portions of the interest and principal distributions on a pool
of mortgage assets. The Portfolio may invest in both the interest-only -- or
"IO" -- class and the principal-only -- or "PO" -- class. The yield to maturity
and price of an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
Portfolio's net asset value. This would typically be the case in an environment
of falling interest rates. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, the Portfolio may under some
circumstances fail to fully recoup its initial investment in these securities.
Conversely, POs tend to increase in value if prepayments are greater than
anticipated and decline if prepayments are slower than anticipated. The
secondary market for stripped mortgage-backed securities may be more volatile
and less liquid than that for other mortgage-backed securities, potentially
limiting the Portfolio's ability to buy or sell those securities at any
particular time.
Certain mortgage-backed securities held by the Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining interest
rates, the Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The Portfolio may also invest in securities representing interests in
other types of financial assets, such as automobile-finance receivables or
credit-card receivables. Such securities may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers. The
ability of an issuer of asset-backed securities to enforce its security interest
in the underlying assets may be limited. For example, the laws of certain states
may prevent or restrict repossession of collateral from a debtor.
The Portfolio may also invest in other types of mortgage-related
securities, including any securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans or real
property, including collateralized mortgage obligation "residual" interests.
"Residual" interests represent the right to any excess cash flow remaining after
all other payments are made among the various tranches of interests issued by
structured mortgage-backed vehicles. The values of such interests are extremely
sensitive to changes in interest rates and in prepayment rates on the underlying
mortgages. In the event of a significant change in interest rates or other
market conditions, the value of an investment by the Portfolio in such interests
could be substantially reduced and the Portfolio may be unable to dispose of the
interests at prices approximating the values the Portfolio had previously
assigned to them or to recoup its initial investment in the interests. The
Portfolio may invest in new types of mortgage-related securities that may be
developed and marketed from time to time. If the Portfolio were to invest in
such newly developed securities, shareholders would, where appropriate, be
notified and this Prospectus would be revised accordingly.
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<PAGE>
Mortgage-backed securities and other asset-backed securities are
"derivative" securities and present certain special risks. The Portfolio may
invest in a wide variety of such securities, including mortgage-backed and other
asset-backed securities that will pay principal or interest only under certain
circumstances, or in amounts that may increase or decrease substantially
depending on changes in interest rates or other market factors. Such securities
may experience extreme price volatility in response to changes in interest rates
or other market factors; this may be especially true in the case of securities
where the amounts of principal or interest paid, or the timing of such payments,
varies widely depending on prevailing interest rates.
Van Kampen may not be able to obtain current market quotations for
certain mortgage-backed or asset-backed securities at all times, or to obtain
market quotations believed by it to reflect the values of such securities
accurately. In such cases, Van Kampen may be required to estimate the value of
such a security using quotations provided by pricing services or securities
dealers making a market in such securities, or based on other comparable
securities or other bench-mark securities or interest rates. Mortgage-backed and
other asset-backed securities in which the Portfolio may invest may be highly
illiquid, and the Portfolio may not be able to sell such a security at a
particular time or at the value it has placed on that security.
In calculating the value and duration of mortgage-backed or other
asset-backed securities, Van Kampen will be required to estimate the extent to
which the values of the securities are likely to change in response to changes
in interest rates or other market conditions, and the rate at which prepayments
on the underlying mortgages or other assets are likely to occur under different
scenarios. There can be no assurance that the Portfolio's investment adviser
will be able to predict the amount of principal or interest to be paid on any
security under different interest rate or market conditions or that its
predictions will be accurate, nor can there be any assurance that the Portfolio
will recover the entire amount of the principal paid by it to purchase any such
securities.
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<PAGE>
Foreign securities. The Portfolio may invest in securities issued by
foreign governments and other foreign issuers. Investments in foreign securities
involve a number of special risks. Since foreign securities are often
denominated and traded in foreign currencies, the values of the Portfolio's
assets may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations. There may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Portfolio's assets held abroad)
and expenses not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of the Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. In the case of securities issued by
a foreign governmental entity, the issuer may in certain circumstances be unable
or unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
The Portfolio may invest in American Depository Receipts ("ADRs") and
Global Depository Receipts ("GDRs"), which represent interests in foreign
securities held by a bank, trust company, or other organization. Investments in
ADRs and GDRs are subject to many of the same risks of investing in foreign
securities generally.
Leverage. The Portfolio may borrow money to invest in additional
securities to seek current income. This technique, known as "leverage,"
increases the Portfolio's market exposure and risk. When the Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that the Portfolio must pay on
borrowed money will reduce its net investment income, and may also either offset
any potential capital gains or increase any losses. The Portfolio will not
always borrow money for investment and the extent to which the Portfolio will
borrow money, and the amount it may borrow, depends on market conditions and
interest rates. Successful use of leverage depends on an investment adviser's
ability to predict market movements correctly. The amount of leverage (including
leverage to the extent employed by the Portfolio through "reverse" repurchase
agreements, "dollar-roll" transactions, and forward commitments, described
above) that can exist at any one time will not exceed one-third of the value of
the Portfolio's total assets.
Reverse repurchase agreements; forward commitments. The Portfolio may
enter into "reverse" repurchase agreements with respect to up to one-third of
its assets. "Reverse" repurchase agreement generally involve the sale by the
Portfolio of securities held by it and an agreement to repurchase the securities
at an agreed-upon price, date, and interest payment. The Portfolio may also
enter into forward commitments, in which the Portfolio buys securities for
future delivery. Reverse repurchase agreements and forward commitments involve
leverage, and may increase the Portfolio's overall investment exposure. Their
use by the Portfolio may result in losses.
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<PAGE>
Dollar roll transactions. In order to enhance portfolio returns and
manage prepayment risks, the Portfolio may engage in dollar roll transactions
with respect to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In
a dollar roll transaction, the Portfolio sells a mortgage-related security to a
financial institution, such as a bank or broker/dealer, and simultaneously
agrees to repurchase a substantially similar (i.e., same type, coupon, and
maturity) security from the institution at a later date at an agreed upon price.
The mortgage-related securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. Dollar-roll transactions may
increase overall investment exposure and may result in losses.
Interest rate transactions. In order to attempt to protect the value of
its portfolio from interest rate fluctuations and to adjust the interest-rate
sensitivity of its portfolio, the Portfolio may enter into interest rate swaps
and other interest rate transactions, such as interest rate caps, floors, and
collars. Interest rate swaps involve the exchange by the Portfolio with another
party of different types of interest-rate streams (e.g. an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). The purchase of an interest rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. The Portfolio intends to use
these interest rate transactions as a hedge and not as a speculative investment.
The Portfolio's ability to engage in certain interest rate transactions may be
limited by tax considerations. The use of interest rate swaps and other interest
rate transactions is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If Van Kampen is incorrect in its forecasts of market
values, interest rates, or other applicable factors, the investment performance
of the Portfolio would be less favorable than it would have been if this
investment technique were not used.
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Options and futures. The Portfolio may buy and sell call and put
options to hedge against changes in net asset value or to realize a greater
current return. In addition, through the purchase and sale of futures contracts
and related options, the Portfolio may at times seek to hedge against
fluctuations in net asset value and, to the extent consistent with applicable
law, to increase its investment return.
The Portfolio's ability to engage in options and futures strategies
will depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Index futures and options. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index future"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
futures or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.
Risks related to options and futures strategies. Options and futures
transactions involve costs and may result in losses (which are, potentially,
unlimited). Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of futures and options and
movements in the prices of the underlying security or index or the securities
held by the Portfolio that are the subject of a hedge. The successful use by the
Portfolio of the strategies described above further depends on the ability of
Van Kampen to forecast market movements correctly. Other risks arise from the
Portfolio's potential inability to close out futures and options positions.
Although the Portfolio will enter into options and futures transactions only if
Van Kampen believes that a liquid secondary market exists for such options or
futures contract, there can be no assurance that the Portfolio will be able to
effect closing transactions at any particular time or at an acceptable price.
Certain provisions of the Internal Revenue Code may limit the Portfolio's
ability to engage in options and futures transactions.
The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of Van Kampen, the pricing mechanism
and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations. The
Portfolio will consider over-the-counter options written by it, and any of the
Portfolio's assets serving as "cover" for such options, to be illiquid, to the
extent required by applicable law.
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The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
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. All percentage limitations on investments will
apply at the time of investment and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of the
investment.
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. Mentor Investment Group, LLC ("Mentor
Investment Group") serves as administrator to the Portfolio. As compensation for
its services as administrator, the Portfolio pays Mentor Investment Group a fee,
accrued daily and paid monthly, at an annual rate of 0.10% of the average value
of the Portfolio's daily assets.
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Van Kampen American Capital Management Inc. serves as sub-adviser to
the Portfolio. Van Kampen, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, was incorporated in 1990 and commenced operations in 1992. Van
Kampen currently provides investment advice to a wide variety of individual,
institutional, and investment company clients. Van Kampen is a wholly owned
subsidiary of Van Kampen American Capital, Inc., which, in turn, is a
wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is an
indirect wholly owned subsidiary of Morgan Stanley Group Inc. Morgan Stanley
Group Inc. and various of its subsidiaries, including Morgan Stanley & Co.
Incorporated, a registered broker-dealer, are engaged in a wide range of
financial services. As of April 30, 1998, Van Kampen, together with its
affiliates, advised or supervised approximately $64 billion of assets. For its
services as sub-adviser, Van Kampen receives a monthly fee from Mentor Advisors
at the annual rate of .20% of the Portfolio's average daily net assets.
Mentor Advisors has over $13 billion in assets under management and is
a wholly owned subsidiary of Mentor Investment Group and its affiliates. Mentor
Investment Group is a subsidiary of Wheat First Butcher Singer, Inc., which is
in turn a wholly owned subsidiary of First Union Corp. ("First Union"). First
Union is a leading financial services company with approximately $172 billion in
assets and $12 billion in total stockholders' equity as of March 31, 1998.
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. All investment decisions made for
the Portfolio by Van Kampen are made by an investment team at Van Kampen.
Subject to the general oversight of the Trustees, Van Kampen manages
the Portfolio in accordance with the stated policies of the Portfolio. Van
Kampen makes investment decisions for the Portfolio and places the purchase and
sale orders for the Portfolio's portfolio transactions. In selecting
broker-dealers, Van Kampen may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Van Kampen may consider sales of shares of the Portfolio (and, if
permitted by law, of other funds in the Mentor family or advised by Van Kampen
or its affiliates) as a factor in the selection of broker-dealers to execute
portfolio transactions for the Portfolio. Van Kampen may at times cause the
Portfolio to pay commissions to broker-dealers affiliated with Van Kampen or
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, Securities and Exchange Commission 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.
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<PAGE>
Portfolio turnover. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions.
The investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by the Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains. The Portfolio's annual portfolio turnover
rate is not expected to exceed 200% for its first fiscal year.
How the Portfolio values its shares
The Portfolio calculates the net asset value of its shares by dividing
the total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values. The net asset value for Class Y shares will generally differ from that
of other classes of shares of the portfolio due to the variance in daily net
income realized by and dividends paid on each class of shares, and any
differences in the expenses of the different classes.
Purchase of shares
Shares are sold at a price based on the Portfolio's net asset value
next determined after a purchase order is received by the Portfolio. Mentor
Distributors, LLC (the "Distributor"), located at 3435 Stelzer Road, Columbus,
Ohio 43219, is the principal distributor for the Portfolios' shares. The
Distributor is not obligated to sell any specific amount of shares of the
Portfolio. The Distributor is a wholly owned subsidiary of BISYS Fund Services,
Inc.
In most cases, in order to receive that day's public offering price,
your order must be received by the Trust or Mentor Distributors, LLC (the
"Distributor"), before the close of regular trading on the New York Stock
Exchange. The Distributor is not obligated to sell any specific amount of shares
of the Portfolio.
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<PAGE>
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 the Distributor 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, as
amended (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. If an investor
purchases shares of the Portfolio through EVEREN Securities, Inc. with the
redemption proceeds received by the investor within the preceding 90 days from
the sale of shares of any non- Mentor open-end mutual fund, EVEREN Securities,
Inc. may compensate the investor's investment consultant in connection with that
purchase.
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 Services Company, Inc.
at 1-800-869-6042.
The Distributor, Mentor Advisors, Mentor Services Company, Inc., 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.
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In all cases Mentor Advisors or the Distributor 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 23286-0109 or to Mentor Services Company, Inc.
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. The Distributor usually
requires additional documentation for the sale of shares by a corporation,
partnership, agent, fiduciary, or surviving joint owner. Contact Mentor Services
Company, Inc. for details.
Mentor Services Company, Inc. may facilitate any redemption request. There
is no extra charge for this service.
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<PAGE>
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
Dividends, if any, are declared daily and paid monthly. The
Portfolio distributes net investment income and any net realized capital gains
at least annually. Distributions from capital gains are made after applying any
available capital loss carryovers. 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).
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<PAGE>
General Information
Mentor Funds 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. The Portfolio's shares are
currently divided into four classes. Only Class Y (Institutional) shares are
being offered by this Prospectus. The Portfolio also offers other classes of
shares with different sales charges and expenses. Because of these different
sales charges and expenses, the investment performance of the classes will vary.
The Portfolio currently offers shares in four classes: Class Y, which are
offered by this Prospectus; Class A and Class B shares, which are subject to
sales loads and shareholder servicing fees and, in the case of Class B shares,
distribution fees; and Class E shares, which are not subject to any sales loads
(but which are subject to a shareholder servicing fee). Contact Mentor Services
Company for information concerning these other classes of shares and your
eligibility to purchase shares of those classes.
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.
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Performance Information
Yield and total return data may from time to time be included in
advertisements about the Class E shares of the Portfolio. The Portfolio's
"yield" for each class of shares is calculated by dividing the Portfolio's
annualized net investment income per share during a recent 30-day period by its
net asset value on the last day of that period. "Total return" for the life of
the Class E shares of the Portfolio through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the shares over the period. Total return may also be presented for
other periods or based on investment at reduced sales charge levels or at net
asset value. Investment performance for different classes of shares of the
Portfolio will differ. Quotations of yield and total return 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.
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.
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APPENDIX
Moody's Investors Service, Inc., Bond Ratings
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.
Ba - Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
Standard and Poor's Bond Ratings
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
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AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
BB - Debt rated `BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments. The
`BB' rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BBB - ' rating.
B - Debt rated `B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The `B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied `BB' or `BB - ' rating.
CCC - Debt rated `CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The `CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `B' or `B - 'rating.
CC - The rating `CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied `CCC' rating.
C - The rating `C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied `CCC - ' debt rating. The `C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
D - Bonds rated `D' are in payment default. The `D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The `D' rating also will
be used on the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "A" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc., Note Ratings
MIG1/VMIG1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
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MIG2/VMIG2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Standard and Poor's Note Ratings
SP-1 - Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus sign (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
Moody's Investors Service, Inc., Commercial Paper Ratings
P-1 - Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 - Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
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Standard and Poor's Commercial Paper Ratings
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
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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 Pro spectus 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 re ferred 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.
Table of Contents
Expense summary..............................................2
Investment objective and policies............................3
Other investment practices and risks.........................5
Management...................................................6
How the Portfolio values its shares..........................7
Sales arrangements...........................................8
How to buy shares............................................8
How to sell shares..........................................12
How to exchange shares......................................13
How distributions are made..................................14
Taxes.......................................................14
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Other services..............................................14
General information.........................................15
Performance information.....................................15
MENTOR
HIGH INCOME
PORTFOLIO
----------
PROSPECTUS
----------
June ___, 1998
Mentor Distributors, LLC
Distributor
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 7, 1998
PROSPECTUS June ___, 1998
Class E shares
MENTOR HIGH INCOME PORTFOLIO
Mentor High Income Portfolio seeks high current income. Capital growth is
a secondary objective when consistent with the objective of seeking high current
income. Mentor Investment Advisors, LLC is the Portfolio's investment adviser.
Van Kampen American Capital Management, Inc. serves as the sub-adviser to the
Portfolio. The Portfolio is a series of shares of Mentor Funds.
The Portfolio invests primarily in lower-rated bonds, commonly known
as "junk bonds." Investments of this type are subject to a greater risk of loss
of principal and non-payment of interest. Investors should carefully assess the
risks associated with an investment in the Portfolio. The Portfolio may also
trade securities for short-term profits. For a description of these strategies
and the related risks, see "Investment objectives and policies" in this
Prospectus.
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 June ___, 1998 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement, call Mentor
Investment Group, LLC 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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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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 in its first full fiscal year. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Portfolio over specified
periods.
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
Exchange Fee None
Annual Portfolio Operating Expenses:
(as a percentage of average net assets)
Management Fees 0.70%
12b-1 Fees 0.00%
Other Expenses*
Shareholder Service Fee 0.25%
Other 0.35%
----
Total Other Expenses 0.60%
Total Portfolio Operating Expenses 1.30%
</TABLE>
* Other Expenses are estimated based on the expense the Portfolio expects to
incur during its first full year of operations.
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 $13
3 years $41
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 objectives and policies
The Portfolio's investment objective is to seek high current income.
Capital growth is a secondary objective when consistent with the objective of
seeking high current income. The Portfolio is not intended to be a complete
investment program, and there is no assurance it will achieve its objectives.
Mentor Investment Advisors, LLC is the Portfolio's investment adviser.
Van Kampen American Capital Management, Inc. serves as the sub-adviser to the
Portfolio. Van Kampen purchases and sells securities for the Portfolio, and
otherwise manages the investments of the Portfolio, subject to the overall
supervision of Mentor Advisors.
The Portfolio may invest in both lower-rated and higher-rated
fixed-income securities (including preferred stocks), including debt securities,
convertible securities, and preferred stocks that are consistent with its
primary investment objective of high current income. The Portfolio's remaining
assets may be held in cash or money market instruments, or invested in common
stocks and other equity securities. The Portfolio may at times hold a
substantial portion of its assets in mortgage-backed and other asset-backed
securities.
The Portfolio may invest in securities of any maturity. Van Kampen will
adjust the expected average life of the investments held in the Portfolio from
time to time, depending on its assessment of relative yields and risks of
securities of different maturities and its expectations of future changes in
interest rates. At times when the expected average life of the investments held
by the Portfolio is longer, the values of the securities held by the Portfolio
will generally change more in response to changes in interest rates than at
times when the expected average life is shorter.
Differing yields on fixed-income securities of the same maturity are a
function of several factors, including the relative financial strength of their
issuers. Higher yields are generally available from securities in the lower
categories of recognized rating agencies: Baa or lower by Moody's Investors
Service, Inc. or BBB or lower by Standard & Poor's. The Portfolio may invest any
portion of its assets (and normally will invest at least 65% of its assets) in
such securities. Securities rated below Baa by Moody's or BBB by Standard &
Poor's are considered to be predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligations. Securities in the lowest rating categories may have extremely poor
prospects of attaining any real investment standing and may be in default. The
rating services' descriptions of securities in the lower rating categories,
including their speculative characteristics, are set forth in the Appendix to
this Prospectus. See "Investments in lower-rated securities," below.
The Portfolio may at times invest up to 10% of its assets in securities
rated in the lowest grades (Ca or C in the case of Moody's and CC, C, or D in
the case of Standard & Poor's) or
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in unrated securities determined by Van Kampen to be of comparable quality, if
Van Kampen believes that there are prospects for an upgrade in a security's
rating or a favorable conversion of a security into other securities. The
Portfolio might also invest in such securities if Van Kampen were to believe
that, upon completion of any contemplated exchange offer or reorganization
involving a security or its issuer, the Portfolio would receive securities or
other assets offering significant opportunities for capital appreciation or
future high rates of current income.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment analysis at the time of
rating. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate.
The Portfolio seeks its secondary objective of capital growth, when
consistent with its primary objective of seeking high current income, by
investing in securities which may be expected to appreciate in value as a result
of declines in long-term interest rates or of favorable developments affecting
the business or prospects of the issuer which may improve the issuer's financial
condition and credit rating.
At times, Van Kampen may judge that conditions in the securities
markets make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times Van Kampen may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest without limitation in money
market instruments and in U.S. Government or agency obligations, or invest in
any other fixed-income security Van Kampen considers consistent with such
defensive strategies. It is impossible to predict when, or for how long, the
Portfolio will use such alternative strategies.
Investments in lower-rated securities. Investors should carefully
consider their ability to assume the risks of owning shares of a mutual fund
that invests in lower-rated securities (sometimes referred to as "junk bonds")
before making an investment in the Portfolio. The lower ratings of certain
securities held by the Portfolio reflect a greater possibility that adverse
changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Portfolio more
volatile and could limit the Portfolio's ability to sell its securities at
prices approximating the values the Portfolio had placed on such securities. In
the absence of a liquid trading market for securities held by it, the Portfolio
may be unable at times to establish the fair market value of such securities.
The rating assigned to a security by Moody's or Standard & Poor's does not
reflect an assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. For more information about the
rating services' descriptions of lower-rated securities, see the Appendix to
this Prospectus.
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Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. The Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although Van Kampen will monitor the investment
to determine whether continued investment in the security will assist in meeting
the Portfolio's investment objectives.
Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. In addition,
such issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The risk of
loss due to default in payment of interest or principal by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness. Certain of the
lower-rated securities in which the Portfolio invests are issued to raise funds
in connection with the acquisition of a company, in so-called "leveraged
buy-out" transactions. The highly leveraged capital structure of such issuers
may make them especially vulnerable to adverse changes in economic conditions.
The Portfolio may invest in securities which trade infrequently or in
more limited volume than higher-rated securities (including illiquid
securities), or in securities which are restricted as to resale. In addition, a
substantial portion of the Portfolio's assets may at times be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by Van Kampen and its affiliates, holds a major portion or all of such
securities, which may limit the liquidity of such securities. The Portfolio
could find it difficult or impossible to sell illiquid securities when Van
Kampen believes it advisable to do so or may be able to sell such securities
only at prices lower than if such securities were more widely held. In many
cases, such securities may be purchased in private placements and, accordingly,
will be subject to restrictions on resale as a matter of contract or under
securities laws. Under such circumstances, it may also be more difficult to
determine the fair value of such securities for purposes of computing the
Portfolio's net asset value. In order to enforce its rights in the event of a
default under securities in cases where the Portfolio holds a major portion or
all of the outstanding issue, the Portfolio may be required to take possession
of and manage assets securing the issuer's obligations on such securities, which
may increase the Portfolio's operating expenses and adversely affect the
Portfolio's net asset value. The Portfolio may also be limited in its ability to
enforce its rights and may incur greater costs in enforcing its rights in the
event an issuer becomes the subject of bankruptcy proceedings.
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The Portfolio will not invest more than 15% of its net assets
(determined at the time of investment) in securities determined to be illiquid.
Certain securities that are restricted as to resale may nonetheless be resold by
the Portfolio in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Van Kampen to be liquid for
purposes of compliance with the limitation on the Portfolio's investment in
illiquid securities. There can, however, be no assurance that the Portfolio will
be able to sell such securities at any time when Van Kampen deems it advisable
to do so or at prices prevailing for comparable securities that are more widely
held.
The Portfolio may at times invest in so-called "zero-coupon" bonds and
"payment-in- kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon bonds do not pay current interest, their
value is subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet
current interest payments. Accordingly, such bonds may involve greater credit
risks than bonds that pay interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required for Federal
income tax purposes to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Portfolio
could be required at times to liquidate other investments in order to satisfy
this distribution requirement.
Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates, the
Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.
The Portfolio may at times invest in securities bearing coupon rates
higher than prevailing market rates. Such "premium" securities are typically
purchased at prices greater than the principal amounts payable on maturity. The
Portfolio does not amortize the premium paid for such securities in calculating
its net investment income. Consequently, if such premium securities are called
or sold prior to maturity, the Portfolio may recognize a capital loss to the
extent the call or sale price is less than the purchase price. Additionally, the
Portfolio will recognize a capital loss if its holds such securities to
maturity.
Van Kampen seeks to minimize the risks involved in investing in
lower-rated securities through diversification and careful investment analysis.
When the Portfolio invests in high yield securities in the lower rating
categories, achievement of the Portfolio's goals depends more on Van Kampen's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.
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Other investment practices and risks
The Portfolio may engage in the other investment practices described
below. See the Statement of Additional Information for a more detailed
description of certain of these practices and risks they may involve.
Mortgage-backed securities; other asset-backed securities. The
Portfolio may invest a substantial portion of its assets in mortgage-backed
certificates and may invest in other securities representing ownership interests
in mortgage pools, including CMOs and "residual" interests therein (described
more fully below). Interest and principal payments on the mortgages underlying
mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities currently offer yields
higher than those available from many other types of fixed-income securities but
because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. As a result,
mortgage-backed securities are less effective than other securities as a means
of "locking in" long-term interest rates. Generally, prepayment rates increase
if interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects,
mortgage-backed securities have less potential for capital appreciation during
periods of declining interest rates than other fixed-income securities of
comparable maturities, although such obligations may have a comparable risk of
decline in market value during periods of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that
are dependent upon the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities may include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
The Portfolio may invest in stripped mortgage-backed securities.
Stripped mortgage-backed securities are usually structured with two classes that
receive different portions of the interest and principal distributions on a pool
of mortgage assets. The Portfolio may invest in both the interest-only -- or
"IO" -- class and the principal-only -- or "PO" -- class. The yield to maturity
and price of an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on the
Portfolio's net asset value. This would typically be the case in an environment
of falling interest rates. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, the Portfolio may under some
circumstances fail to fully recoup its initial investment in these securities.
Conversely, POs tend to increase in value if prepayments are greater than
anticipated and decline if
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prepayments are slower than anticipated. The secondary market for stripped
mortgage-backed securities may be more volatile and less liquid than that for
other mortgage-backed securities, potentially limiting the Portfolio's ability
to buy or sell those securities at any particular time.
Certain mortgage-backed securities held by the Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining interest
rates, the Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The Portfolio may also invest in securities representing interests in
other types of financial assets, such as automobile-finance receivables or
credit-card receivables. Such securities may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers. The
ability of an issuer of asset-backed securities to enforce its security interest
in the underlying assets may be limited. For example, the laws of certain states
may prevent or restrict repossession of collateral from a debtor.
The Portfolio may also invest in other types of mortgage-related
securities, including any securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans or real
property, including collateralized mortgage obligation "residual" interests.
"Residual" interests represent the right to any excess cash flow remaining after
all other payments are made among the various tranches of interests issued by
structured mortgage-backed vehicles. The values of such interests are extremely
sensitive to changes in interest rates and in prepayment rates on the underlying
mortgages. In the event of a significant change in interest rates or other
market conditions, the value of an investment by the Portfolio in such interests
could be substantially reduced and the Portfolio may be unable to dispose of the
interests at prices approximating the values the Portfolio had previously
assigned to them or to recoup its initial investment in the interests. The
Portfolio may invest in new types of mortgage-related securities that may be
developed and marketed from time to time. If the Portfolio were to invest in
such newly developed securities, shareholders would, where appropriate, be
notified and this Prospectus would be revised accordingly.
Mortgage-backed securities and other asset-backed securities are
"derivative" securities and present certain special risks. The Portfolio may
invest in a wide variety of such securities, including mortgage-backed and other
asset-backed securities that will pay principal or interest only under certain
circumstances, or in amounts that may increase or decrease substantially
depending on changes in interest rates or other market factors. Such securities
may experience extreme price volatility in response to changes in interest rates
or other market factors; this may be especially true in the case of securities
where the amounts of principal or interest paid, or the timing of such payments,
varies widely depending on prevailing interest rates.
Van Kampen may not be able to obtain current market quotations for
certain mortgage-backed or asset-backed securities at all times, or to obtain
market quotations believed by it to reflect the values of such securities
accurately. In such cases,
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Van Kampen may be required to estimate the value of such a security using
quotations provided by pricing services or securities dealers making a market in
such securities, or based on other comparable securities or other bench-mark
securities or interest rates. Mortgage-backed and other asset-backed securities
in which the Portfolio may invest may be highly illiquid, and the Portfolio may
not be able to sell such a security at a particular time or at the value it has
placed on that security.
In calculating the value and duration of mortgage-backed or other
asset-backed securities, the Portfolio's investment adviser will be required to
estimate the extent to which the values of the securities are likely to change
in response to changes in interest rates or other market conditions, and the
rate at which prepayments on the underlying mortgages or other assets are likely
to occur under different scenarios. There can be no assurance that the
Portfolio's investment adviser will be able to predict the amount of principal
or interest to be paid on any security under different interest rate or market
conditions or that its predictions will be accurate, nor can there be any
assurance that the Portfolio will recover the entire amount of the principal
paid by it to purchase any such securities.
Foreign securities. The Portfolio may invest in securities issued by
foreign governments and other foreign issuers. Investments in foreign securities
involve a number of special risks. Since foreign securities are often
denominated and traded in foreign currencies, the values of the Portfolio's
assets may be affected favorably or unfavorably by currency exchange rates and
exchange control regulations. There may be less information publicly available
about a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the
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United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of the Portfolio's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of the Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. In the case of securities issued by
a foreign governmental entity, the issuer may in certain circumstances be unable
or unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
The Portfolio may invest in American Depository Receipts ("ADRs") and
Global Depository Receipts ("GDRs"), which represent interests in foreign
securities held by a bank, trust company, or other organization. Investments in
ADRs and GDRs are subject to many of the same risks of investing in foreign
securities generally.
Leverage. The Portfolio may borrow money to invest in additional
securities to seek current income. This technique, known as "leverage,"
increases the Portfolio's market exposure and risk. When the Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that the Portfolio must pay on
borrowed money will reduce its net investment income, and may also either offset
any potential capital gains or increase any losses. The Portfolio will not
always borrow money for investment and the extent to which the Portfolio will
borrow money, and the amount it may borrow, depends on market conditions and
interest rates. Successful use of leverage depends on an investment adviser's
ability to predict market movements correctly. The amount of leverage (including
leverage to the extent employed by the Portfolio through "reverse" repurchase
agreements, "dollar-roll" transactions, and forward commitments, described
above) that can exist at any one time will not exceed one-third of the value of
the Portfolio's total assets.
Reverse repurchase agreements; forward commitments. The Portfolio may
enter into "reverse" repurchase agreements with respect to up to one-third of
its assets. "Reverse" repurchase agreement generally involve the sale by the
Portfolio of securities held by it and an agreement to repurchase the securities
at an agreed-upon price, date, and interest payment. The Portfolio may also
enter into forward commitments, in which the Portfolio buys securities for
future delivery. Reverse repurchase agreements and forward commitments involve
leverage, and may increase the Portfolio's overall investment exposure. Their
use by the Portfolio may result in losses.
Dollar roll transactions. In order to enhance portfolio returns and
manage prepayment risks, the Portfolio may engage in dollar roll transactions
with respect to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In
a dollar roll transaction, the Portfolio sells a mortgage-related security to a
financial institution, such as a bank or broker/dealer, and simultaneously
agrees to repurchase a substantially similar (i.e., same type, coupon, and
maturity) security from the institution at a later date at an agreed upon price.
The mortgage-related securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. Dollar-roll transactions may
increase overall investment exposure and may result in losses.
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Interest rate transactions. In order to attempt to protect the value of
its portfolio from interest rate fluctuations and to adjust the interest-rate
sensitivity of its portfolio, the Portfolio may enter into interest rate swaps
and other interest rate transactions, such as interest rate caps, floors, and
collars. Interest rate swaps involve the exchange by the Portfolio with another
party of different types of interest-rate streams (e.g. an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). The purchase of an interest rate cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. The Portfolio intends to use
these interest rate transactions as a hedge and not as a speculative investment.
The Portfolio's ability to engage in certain interest rate transactions may be
limited by tax considerations. The use of interest rate swaps and other interest
rate transactions is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Portfolio's investment adviser is incorrect in
its forecasts of market values, interest rates, or other applicable factors, the
investment performance of the Portfolio would be less favorable than it would
have been if this investment technique were not used.
Options and futures. The Portfolio may buy and sell call and put
options to hedge against changes in net asset value or to realize a greater
current return. In addition, through the purchase and sale of futures contracts
and related options, the Portfolio may at times seek to hedge against
fluctuations in net asset value and, to the extent consistent with applicable
law, to increase its investment return.
The Portfolio's ability to engage in options and futures strategies
will depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
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Index futures and options. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index future"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
futures or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.
Risks related to options and futures strategies. Options and futures
transactions involve costs and may result in losses (which are, potentially,
unlimited). Certain risks arise because of the possibility of imperfect
correlations between movements in the prices of futures and options and
movements in the prices of the underlying security or index or the securities
held by the Portfolio that are the subject of a hedge. The successful use by the
Portfolio of the strategies described above further depends on the ability of
Van Kampen to forecast market movements correctly. Other risks arise from the
Portfolio's potential inability to close out futures and options positions.
Although the Portfolio will enter into options and futures transactions only if
Van Kampen believes that a liquid secondary market exists for such options or
futures contract, there can be no assurance that the Portfolio will be able to
effect closing transactions at any particular time or at an acceptable price.
Certain provisions of the Internal Revenue Code may limit the Portfolio's
ability to engage in options and futures transactions.
The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of Van Kampen, the pricing mechanism
and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations. The
Portfolio will consider over-the-counter options written by it, and any of the
Portfolio's assets serving as "cover" for such options, to be illiquid, to the
extent required by applicable law.
The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
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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. All percentage limitations on investments will
apply at the time of investment and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of the
investment.
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. Mentor Investment Group, LLC ("Mentor
Investment Group") serves as administrator to the Portfolio. As compensation for
its services as administrator, the Portfolio pays Mentor Investment Group a fee,
accrued daily and paid monthly, at an annual rate of 0.10% of the average value
of the Portfolio's daily assets.
Van Kampen American Capital Management Inc. serves as sub-adviser to
the Portfolio. Van Kampen, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, was incorporated in 1990 and commenced operations in 1992. Van
Kampen currently provides investment advice to a wide variety of individual,
institutional, and investment company clients. Van Kampen is a wholly owned
subsidiary of Van Kampen American Capital, Inc., which, in turn, is a
wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is an
indirect wholly owned subsidiary of Morgan Stanley Group Inc. Morgan Stanley
Group Inc. and various of its subsidiaries, including Morgan Stanley & Co.
Incorporated, a registered broker-dealer, are engaged in a wide range of
financial services. As of April 30, 1998, Van
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Kampen, together with its affiliates, advised or supervised approximately $64
billion of assets. For its services as sub-adviser, Van Kampen receives a
monthly fee from Mentor Advisors at the annual rate of .20% of the Portfolio's
average daily net assets.
Mentor Advisors has over $13 billion in assets under management and is
a wholly owned subsidiary of Mentor Investment Group and its affiliates. Mentor
Investment Group is a subsidiary of Wheat First Butcher Singer, Inc., which is
in turn a wholly owned subsidiary of First Union Corp. ("First Union"). First
Union is a leading financial services company with approximately $172 billion in
assets and $12 billion in total stockholders' equity as of March 31, 1998.
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. All investment decisions made for
the Portfolio by Van Kampen are made by an investment team at Van Kampen.
Subject to the general oversight of the Trustees, Van Kampen manages
the Portfolio in accordance with the stated policies of the Portfolio. Van
Kampen makes investment decisions for the Portfolio and places the purchase and
sale orders for the Portfolio's portfolio transactions. In selecting
broker-dealers, Van Kampen may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Van Kampen may consider sales of shares of the Portfolio (and, if
permitted by law, of other funds in the Mentor family or advised by Van Kampen
or its affiliates) as a factor in the selection of broker-dealers to execute
portfolio transactions for the Portfolio. Van Kampen may at times cause the
Portfolio to pay commissions to broker-dealers affiliated with Van Kampen or
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, Securities and Exchange Commission 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.
Portfolio turnover. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions.
The investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by the Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may result in
realization of taxable capital
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gains. The Portfolio's annual portfolio turnover rate is not expected to exceed
200% for its first fiscal year.
How the Portfolio values its shares
The Portfolio calculates the net asset value of its shares by dividing
the total value of its assets, less liabilities, by the number of its shares
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values. The net asset value for Class E shares will generally differ from that
of other classes of shares of the portfolio due to the variance in daily net
income realized by and dividends paid on each class of shares, and any
differences in the expenses of the different classes.
Purchase of shares
Class E shares of the Portfolio are available to shareholders who
invest or maintain a Portfolio account with the assistance of a broker-dealer,
financial consultant, or similar service provider (a "financial intermediary").
Shares are sold at a price based on the Portfolio's net asset
value next determined after a purchase order is received by the Portfolio.
Mentor Distributors, LLC (the "Distributor"), located at 3435 Stelzer Road,
Columbus, Ohio 43219, is the principal distributor for the Portfolios' shares.
The Distributor is not obligated to sell any specific amount of shares of the
Portfolio. The Distributor is a wholly owned subsidiary of BISYS Fund Services,
Inc.
In most cases, in order to receive that day's public offering price,
your order must be received by the Trust or Mentor Distributors, LLC (the
"Distributor"), before the close of regular trading on the New York Stock
Exchange. The Distributor 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 the Distributor or the Trust, or through a financial
intermediary. If you purchase shares through your financial intermediary, your
financial intermediary will be responsible for forwarding any necessary
documentation and payments to the Distributor.
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, as
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amended (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. If an investor
purchases shares of the Portfolio through EVEREN Securities, Inc. with the
redemption proceeds received by the investor within the preceding 90 days from
the sale of shares of any non-Mentor open-end mutual fund, EVEREN Securities,
Inc. may compensate the investor's investment consultant in connection with that
purchase.
If you buy shares through a financial intermediary, the financial
intermediary must ensure that the Distributor receives your order before the
close of regular trading on the New York Stock Exchange for you to receive that
day's public offering price.
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 Services Company, Inc.
at 1-800-869-6042.
The Distributor, Mentor Advisors, Mentor Services Company, Inc., 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 the Distributor reserves the right to
reject any particular investment.
Shareholder Servicing Plan; financial intermediaries. The Portfolio
has adopted a Shareholder Servicing Plan (the "Plan") with respect to its Class
E shares. Under the Service
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Plan, financial institutions will enter into shareholder service agreements with
the Distributor to provide administrative support services to their customers
who own Class E shares of the Portfolio. In return for providing these support
services, a financial intermediary may receive payments at a rate not exceeding
0.25% of the average daily net assets of the Portfolio attributable to the Class
E shares held by its customers. These support services may include, but are not
limited to, the following: providing office space, equipment, telephone
facilities, and various personnel, including clerical, supervisory, and computer
personnel, as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Portfolio; assisting clients in changing dividend
options, account designations, and addresses; and providing such other services
as the Portfolio reasonably requests.
In addition to receiving payments under the Plan, financial
intermediaries may be compensated by Mentor Advisors and/or Mentor Investment
Group, or affiliates thereof, for providing administrative support services to
holders of Class E shares of the Portfolio. These payments will be made directly
by Mentor Advisors and/or Mentor Investment Group and will not be made from the
assets of the Portfolio.
When you effect transactions with the Portfolio (including, for
example, purchases, sales, or redemptions of shares) through a financial
intermediary, your financial intermediary, and not the Portfolio, will be
responsible for taking all steps, and furnishing all necessary documentation, to
effect the transactions. Your financial intermediary may charge for these
services. Certain financial intermediaries may not effect transactions with the
Portfolio for their clients.
Redemption of shares
You can sell your shares to the Portfolio any day the New York Stock
Exchange is open, either directly to the Portfolio or through your financial
intermediary.
Selling shares directly to the Portfolio. 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 23286-0109
or to Mentor Services Company, Inc. 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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Selling shares through your financial intermediary. Your financial
intermediary must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. If you redeem
your shares through a financial intermediary, your financial intermediary will
be responsible for delivering your redemption request and all necessary
documentation to the Portfolio and may charge you for its services.
General. 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. The Distributor usually
requires additional documentation for the sale of shares by a corporation,
partnership, agent, fiduciary, or surviving joint owner. Contact Mentor Services
Company, Inc. for details.
Mentor Services Company, Inc. 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
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Dividends, if any, are declared daily and paid monthly. The
Portfolio distributes net investment income and any net realized capital gains
at least annually. Distributions from capital gains are made after applying any
available capital loss carryovers. 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 Information
Mentor Funds 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
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eleven series, one representing the Portfolio, the others representing other
Portfolios with varying investment objectives and policies. The Portfolio's
shares are currently divided into four classes. Only shares of the Portfolio's
Class E shares are being offered by this Prospectus. The Portfolio also offers
other classes of shares with different sales charges and expenses. Because of
these different sales charges and expenses, the investment performance of the
classes will vary. The Portfolio currently offers shares in four classes: Class
E shares, which are offered by this Prospectus; Class A and Class B shares,
which are subject to sales loads and shareholder servicing fees and, in the case
of Class B shares, distribution fees; and Class Y (Institutional) shares, which
are not subject to any sales loads of shareholder servicing fees. Contact Mentor
Services Company for information concerning these other classes of shares and
your eligibility to purchase shares of those classes.
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.
Mentor Services Company, Inc.'s address is 901 East Byrd Street,
Richmond, Virginia 23219; its telephone number is 1-800-869-6042
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Performance Information
Yield and total return data may from time to time be included in
advertisements about the Class E shares of the Portfolio. The Portfolio's
"yield" for each class of shares is calculated by dividing the Portfolio's
annualized net investment income per share during a recent 30-day period by its
net asset value on the last day of that period. "Total return" for the life of
the Class E shares of the Portfolio through the most recent calendar quarter
represents the average annual compounded rate of return on an investment of
$1,000 in the shares over the period. Total return may also be presented for
other periods or based on investment at reduced sales charge levels or at net
asset value. Investment performance for different classes of shares of the
Portfolio will differ. Quotations of yield and total return 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.
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.
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APPENDIX
Moody's Investors Service, Inc., Bond Ratings
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.
Ba - Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
Standard and Poor's Bond Ratings
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
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AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
BB - Debt rated `BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments. The
`BB' rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BBB - ' rating.
B - Debt rated `B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The `B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied `BB' or `BB - ' rating.
CCC - Debt rated `CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The `CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `B' or `B - 'rating.
CC - The rating `CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied `CCC' rating.
C - The rating `C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied `CCC - ' debt rating. The `C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
D - Bonds rated `D' are in payment default. The `D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The `D' rating also will
be used on the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from "A" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc., Note Ratings
MIG1/VMIG1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
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MIG2/VMIG2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Standard and Poor's Note Ratings
SP-1 - Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus sign (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
Moody's Investors Service, Inc., Commercial Paper Ratings
P-1 - Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 - Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
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<PAGE>
Standard and Poor's Commercial Paper Ratings
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
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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 Pro spectus 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 re ferred 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.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Expense summary........................................................................................................2
Investment objective and policies......................................................................................3
Other investment practices and risks...................................................................................5
Management.............................................................................................................6
How the Portfolio values its shares....................................................................................7
Sales arrangements.....................................................................................................8
How to buy shares......................................................................................................8
How to sell shares....................................................................................................12
How to exchange shares................................................................................................13
How distributions are made............................................................................................14
Taxes.................................................................................................................14
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Other services........................................................................................................14
General information...................................................................................................15
Performance information...............................................................................................15
</TABLE>
MENTOR
HIGH INCOME
PORTFOLIO
----------
PROSPECTUS
----------
June ___, 1998
Mentor Distributors, LLC
Distributor
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SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 7, 1998
MENTOR FUNDS
STATEMENT OF ADDITIONAL INFORMATION
(Mentor High Income Portfolio and Mentor Asset Allocation Portfolio)
June ___, 1998
This Statement of Additional Information relates to the Mentor High
Income Portfolio and the Mentor Asset Allocation Portfolio (each a "Portfolio"
and, collectively, the "Portfolios"). Each Portfolio is a series of shares of
beneficial interest of Mentor Funds (the "Trust"). Each Portfolio currently
offers four classes of shares (Class A, Class B, Class Y, and Class E shares).
This Statement is not a prospectus and should be read in conjunction with the
relevant prospectus of the Trust. A copy of any prospectus can be obtained upon
request made to Mentor Services Company, Inc., at P.O. Box 1357, Richmond,
Virginia 23286-0109, or calling Mentor Investment Group, LLC at (800) 869-6042.
TABLE OF CONTENTS
CAPTION PAGE
GENERAL .........................................................
INVESTMENT RESTRICTIONS...........................................
CERTAIN INVESTMENT TECHNIQUES.....................................
MANAGEMENT OF THE TRUST...........................................
PRINCIPAL HOLDERS OF SECURITIES...................................
INVESTMENT ADVISORY AND OTHER SERVICES............................
BROKERAGE.........................................................
DETERMINATION OF NET ASSET VALUE..................................
TAX STATUS........................................................
THE DISTRIBUTOR...................................................
INDEPENDENT ACCOUNTANTS...........................................
CUSTODIAN.........................................................
PERFORMANCE INFORMATION...........................................
SHAREHOLDER LIABILITY.............................................
MEMBERS OF INVESTMENT MANAGEMENT TEAMS............................
RATINGS .........................................................
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<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.
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, except as
contemplated by restriction 6 below.
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 more than 33 1/3% of the value of its
total assets less all liabilities and indebtedness (other than
such borrowings)
<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 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 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 then seven days, if, as a result, more than 15% 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. As a matter of
policy, the Trustees would not materially change the Portfolio's investment
objectives without shareholder approval.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides that a "vote of a majority of the outstanding voting securities" of the
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 the Portfolios may engage, and certain of the risks they may entail.
<PAGE>
Repurchase Agreements
Each of the Portfolios 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 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
Each of the Portfolios 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)
the 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
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or consent to matters materially affecting the investment. A Portfolio will not
lend portfolio securities to borrowers affiliated with the Portfolio.
When-Issued Securities
A Portfolio may from time to time purchase securities on a
"when-issued" basis. Debt securities are often issued on this basis. The price
of such securities, which may be expressed in yield terms, is fixed at the time
a commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by the Portfolio and no interest accrues to the
Portfolio. To the extent that assets of the Portfolio are held in cash pending
the settlement of a purchase of securities, that Portfolio would earn no income.
While the Portfolio may sell its right to acquire when-issued securities prior
to the settlement date, the Portfolio intends actually to acquire such
securities unless a sale prior to settlement appears desirable for investment
reasons. At the time the Portfolio makes the commitment to purchase a security
on a when-issued basis, it will record the transaction and reflect the amount
due and the value of the security in determining the Portfolio's net asset
value. The market value of the when-issued securities may be more or less than
the purchase price payable at the settlement date. The Portfolio will establish
a segregated account in which it will maintain cash and U.S. Government
Securities or other high-grade debt obligations at least equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.
Options
Each of the Portfolios may purchase and sell put and call options on
its portfolio securities to enhance investment performance and to protect
against changes in market prices.
Covered call options. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
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In return for the premium received when it writes a covered call
option, a Portfolio gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Portfolio retains the risk of loss should the price
of such securities decline. If the option expires unexercised, the Portfolio
realizes a gain equal to the premium, which may be offset by a decline in price
of the underlying security. If the option is exercised, the Portfolio realizes a
gain or loss equal to the difference between the Portfolio's cost for the
underlying security and the proceeds of sale (exercise price minus commissions)
plus the amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. The Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.
Covered put options. A Portfolio may write covered put options in order
to enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. A Portfolio may also purchase put
options to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Portfolio, as a
holder of the option, may sell the
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underlying security at the exercise price regardless of any decline in its
market price. In order for a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs that the Portfolio must pay. These costs
will reduce any profit the Portfolio might have realized had it sold the
underlying security instead of buying the put option.
A Portfolio may purchase call options to hedge against an increase in
the price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
A Portfolio may also purchase put and call options to enhance its
current return.
Risks involved in the sale of options. Options transactions involve
certain risks, including the risks that a Portfolio's investment adviser will
not forecast interest rate or market movements correctly, that the Portfolio may
be unable at times to close out such positions, or that hedging transactions may
not accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of the Portfolio's
investment adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when its investment adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Trust's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the Trust
and other clients of the Portfolios' investment advisers may be considered such
a group. These position limits may restrict the Trust's ability to purchase or
sell options on particular securities.
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Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
Futures Contracts
In order to hedge against the effects of adverse market changes, each
of the Portfolios may buy and sell futures contracts. A Portfolio may also, to
the extent permitted by applicable law, buy and sell futures contracts and
options on futures contracts to increase the Portfolio's current return. All
such futures and related options will, as may be required by applicable law, be
traded on exchanges that are licensed and regulated by the Commodity Futures
Trading Commission (the "CFTC").
Index Futures Contracts and Options. A Portfolio may invest in debt
index futures contracts and stock index futures contracts, and in related
options. A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. Debt index futures
in which the Portfolios are presently expected to invest are not now available,
although such futures contracts are expected to become available in the future.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Portfolio enters into a futures contract to buy 100 units of
the S&P 100 Index at a specified future date at a contract price of $180 and the
S&P 100 Index is at $184 on that future date, the Portfolio
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will gain $400 (100 units x gain of $4). If the Portfolio enters into a futures
contract to sell 100 units of the stock index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $182 on that future date, the
Portfolio will lose $200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, the Portfolio must invest in futures contracts
with respect to indexes or sub-indexes the movements of which will, in its
judgment, have a significant correlation with movements in the prices of the
Portfolio's securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on
index futures contracts, a Portfolio which may purchase and sell index futures
contracts may purchase and sell call and put options on the underlying indexes
themselves to the extent that such options are traded on national securities
exchanges. Index options are similar to options on individual securities in that
the purchaser of an index option acquires the right to buy (in the case of a
call) or sell (in the case of a put), and the writer undertakes the obligation
to sell or buy (as the case may be), units of an index at a stated exercise
price during the term of the option. Instead of giving the right to take or make
actual delivery of securities, the holder of an index option has the right to
receive a cash "exercise settlement amount". This amount is equal to the amount
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of the exercise, multiplied by a fixed "index multiplier".
<PAGE>
A Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. The Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
Margin Payments. When a Portfolio purchases or sells a futures
contract, it is required to deposit with its custodian an amount of cash, U.S.
Treasury bills, or other permissible collateral equal to a small percentage of
the amount of the futures contract. This amount is known as "initial margin".
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to the Portfolio upon termination of the
contract, assuming the Portfolio satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Portfolio sells a futures contract and the value of the
underlying index rises above the delivery price, the Portfolio's position
declines in value. The Portfolio then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the value of the index underlying the futures contract. Conversely, if the price
of the underlying index falls below the delivery price of the contract, the
Portfolio's futures position increases in value. The broker then must make a
variation margin payment equal to the difference between the delivery price of
the futures contract and the value of the index underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity risks. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract
<PAGE>
or at any particular time. If there is not a liquid secondary market at a
particular time, it may not be possible to close a futures position at such time
and, in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin. However, in the event
financial futures are used to hedge portfolio securities, such securities will
not generally be sold until the financial futures can be terminated. In such
circumstances, an increase in the price of the portfolio securities, if any, may
partially or completely offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Portfolio would have to exercise the
options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying index or
movements in the prices of the Portfolio's securities which are the subject of a
hedge. The Portfolio's investment adviser will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the value of the underlying index
and the Portfolio's portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for
hedging purposes is also subject to its investment adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where
the Portfolio has purchased puts on futures contracts to hedge its portfolio
against a decline in the market, the index on which the puts are purchased may
increase in value and the value of securities held in the portfolio may decline.
If this occurred, the Portfolio would lose money on the puts and also experience
a decline in value in its portfolio securities. In addition, the prices of
futures, for a number of reasons, may not correlate perfectly with movements in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
index and futures markets. Second, the margin requirements in the futures
markets are less onerous than margin requirements in the
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securities markets in general, and as a result the futures markets may attract
more speculators than the securities markets do. Increased participation by
speculators in the futures markets may also cause temporary price distortions.
Due to the possibility of price distortion, even a correct forecast of general
market trends by the Portfolio's investment adviser may still not result in a
successful hedging transaction over a very short time period.
Other Risks. A Portfolio will incur brokerage fees in connection with
its futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while the Portfolio
may benefit from the use of futures and related options, unanticipated changes
in interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss, which may be unlimited.
Dollar Rolls and Reverse Repurchase Agreements
The High Yield Portfolio may enter into dollar rolls, in which the
Portfolio sells securities and simultaneously contracts to repurchase
substantially similar securities on a specified future date. In the case of
dollar rolls involving mortgage-related securities, the mortgage-related
securities that are purchased typically will be of the same type and will have
the same or similar interest rate and maturity as those sold, but will be
supported by different pools of mortgages. The Portfolio forgoes principal and
interest paid during the roll period on the securities sold in a dollar roll,
but it is compensated by the difference between the current sales price and the
price for the future purchase as well as by any interest earned on the proceeds
of the securities sold. A Portfolio could also be compensated through the
receipt of fee income.
A Portfolio may also enter into reverse repurchase agreements in which
the Portfolio sells securities and agrees to repurchase them at a mutually
agreed date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
Dollar rolls and reverse repurchase agreements may be viewed as a
borrowing by the Portfolio, secured by the security which is the subject of the
agreement. In addition
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to the general risks involved in leveraging, dollar rolls and reverse repurchase
agreements involve the risk that, in the event of the bankruptcy or insolvency
of the Portfolio's counterparty, the Portfolio would be unable to recover the
security which is the subject of the agreement, the amount of cash or other
property transferred by the counterparty to the Portfolio under the agreement
prior to such insolvency or bankruptcy is less than the value of the security
subject to the agreement, or the Portfolio may be delayed or prevented, due to
such insolvency or bankruptcy, from using such cash or property or may be
required to return it to the counterparty or its trustee or receiver.
Forward Commitments
The High Yield Portfolio may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Portfolio holds, and maintains until the
settlement date in a segregated account, cash or high-grade debt obligations in
an amount sufficient to meet the purchase price, or if the Portfolio enters into
offsetting contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Portfolio's other assets. Where such purchases are made through dealers,
the Portfolios rely on the dealer to consummate the sale. The dealer's failure
to do so may result in the loss to the Portfolio of an advantageous yield or
price. Although a Portfolio will generally enter into forward commitments with
the intention of acquiring securities for its portfolio or for delivery pursuant
to options contracts it has entered into, a Portfolio may dispose of a
commitment prior to settlement if its Adviser deems it appropriate to do so. A
Portfolio may realize short-term profits or losses upon the sale of forward
commitments.
Repurchase Agreements
The High Yield Portfolio may enter into repurchase agreements. A
repurchase agreement is a contract under which the Portfolio acquires a security
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 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. A Portfolio's 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
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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.
Collateralized mortgage obligations; other mortgage-related securities
Each of the Portfolios may invest in collateralized mortgage
obligations ("CMOs"). CMOs are debt obligations or pass-through certificates
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by certificates issued by the Government National
Mortgage Association, ("GNMA"), the Federal National Mortgage Association
("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"), but they also
may be collateralized by whole loans or private pass-through certificates (such
collateral collectively hereinafter referred to as "Mortgage Assets"). CMOs may
be issued by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans.
In a CMO, a series of bonds or certificates is generally issued in
multiple classes. Each class of CMOs is issued at a specific fixed or floating
rate coupon and has a stated maturity or final distribution date. Principal
prepayments on the mortgage assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on most classes of the CMOs on a monthly, quarterly,
or semi-annual basis. The principal of and interest on the mortgage assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In a CMO, payments of principal, including any principal prepayments, on the
mortgage assets are applied to the classes of the series in a pre-determined
sequence.
Residual interests. Residual interests are derivative mortgage
securities issued by agencies or instrumentalities of the U.S. Government or by
private originators of, or investors in, mortgage loans. The cash flow generated
by the mortgage assets underlying a series of mortgage securities is applied
first to make required payments of principal of and interest on the mortgage
securities and second to pay the related administrative expenses of the issuer.
The residual generally represents the right to any excess cash flow remaining
after making the foregoing payments. Each payment of such excess cash flow to a
holder of the related residual represents income and/or a return of capital. The
amount of residual cash flow resulting from a series of mortgage securities will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of the mortgage securities, prevailing interest rates,
the amount of administrative expenses, and the prepayment experience on the
mortgage assets. In particular, the yield to maturity on residual interests may
be extremely sensitive to prepayments on the related
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underlying mortgage assets in the same manner as an interest-only class of
stripped mortgage-backed securities. In addition, if a series of mortgage
securities includes a class that bears interest at an adjustable rate, the yield
to maturity on the related residual interest may also be extremely sensitive to
changes in the level of the index upon which interest rate adjustments are
based. In certain circumstances, there may be little or no excess cash flow
payable to residual holders. The Portfolio may fail to recoup fully its initial
investment in a residual.
Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently may
not have the liquidity of other more established securities trading in other
markets. Residuals may be subject to certain restrictions on transferability.
Zero-Coupon Securities
Zero-coupon securities in which the High Yield Portfolio may invest are
debt obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other mutual funds investing in securities making
current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury
<PAGE>
Department is known as "STRIPS" or "Separate Trading of Registered Interest and
Principal of Securities." Under the STRIPS program, a Portfolio will be able to
have its beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
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.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name and Address with Portfolio During Past 5 Years
- ---------------- -------------- -------------------
<S> <C>
*Daniel J. Ludeman Chairman; Trustee Chairman and Chief Executive
Officer, Mentor Investment
Group, LLC; Managing Director,
Wheat, First Securities, Inc.;
Director, Wheat First Butcher
Singer, Inc.; Chairman and
Director, Mentor Income Fund,
Inc. and America's Utility Fund,
Inc.; Chairman and Trustee,
Mentor Institutional Trust and
Cash Resource Trust.
Louis W. Moelchert, Jr. Trustee Vice President for Investments,
University of Richmond; Trustee,
Mentor Institutional Trust and Cash
Resource Trust; Director, America's
Utility Fund, Inc. and Mentor Income
Fund, Inc.
<PAGE>
Thomas F. Keller Trustee Professor of Business Administration
and former Dean, Fuqua School of
Business, Duke University; Trustee,
Mentor Institutional Trust and Cash
Resource Trust; Director, America's
Utility Fund, Inc. and Mentor Income
Fund, Inc.
Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corp.; formerly,
Chairman and Chief Executive Officer,
Hamilton Beach/Proctor-Silex, Inc.;
Trustee, Mentor Institutional Trust and
Cash Resource Trust; Director,
America's Utility Fund, Inc. and Mentor
Income Fund, Inc.
Troy A. Peery, Jr. Trustee President, Heilig-Meyers Company;
Trustee, Mentor Institutional Trust and
Cash Resource Trust; Director,
America's Utility Fund, Inc. and Mentor
Income Fund, Inc.
*Peter J. Quinn, Jr. Trustee President, Mentor Distributors, LLC; Managing Director, Mentor Investment
Group, LLC and Wheat First Butcher Singer, Inc.; formerly, Senior Vice
President/Director of Mutual Funds, Wheat First Butcher Singer, Inc.;
Trustee, Mentor Institutional Trust and Cash Resource Trust; Director,
America's Utility Fund, Inc. and Mentor Income Fund, Inc.
Arch T. Allen, III Trustee Attorney at law, Raleigh, North Carolina; Trustee, Mentor
Institutional Trust and Case Resource Trust; Director, Mentor Income Fund,
Inc. and America's Utility Fund, Inc.; formerly, Vice Chancellor for
Development and University Relations, University of North Carolina at
Chapel Hill.
<PAGE>
Weston E. Edwards Trustee President, Weston Edwards &
Associates; Trustee, Mentor
Institutional Trust and Cash Resource
Trust; Director, Mentor Income Fund,
Inc. and America's Utility Fund, Inc.;
Founder and Chairman, The Housing
Roundtable; formerly, President, Smart
Mortgage Access, Inc.
Jerry R. Barrentine Trustee President, J.R. Barrentine &
Associates; Trustee, Mentor
Institutional Trust and Cash Resource
Trust; Director, Mentor Income Fund,
Inc. and America's Utility Fund, Inc.;
formerly, Executive Vice President and
Chief Financial Officer, Barclays/American Mortgage Director Corporation;
Managing Partner, Barrentine Lott & Associates.
J. Garnett Nelson Trustee Consultant, Mid-Atlantic Holdings, LLC; Trustee, Mentor Institutional Trust
and Cash Resource Trust; Director, Mentor Income Fund, Inc., America's
Utility Fund, Inc., GE Investment Funds, Inc., and Lawyers Title Corporation;
Member, Investment Advisory Committee, Virginia Retirement System; formerly,
Senior Vice President, The Life Insurance Company of Virginia.
Paul F. Costello President Managing Director, Mentor Investment Group, LLC, Wheat First Butcher Singer,
Inc., and Mentor Investment Advisors, LLC; President, Mentor Income Fund, Inc.,
America's Utility Fund, Inc., Mentor Institutional Trust, and Cash Resource
Trust; Director, Mentor Perpetual Advisors, LLC and Mentor Trust Company.
<PAGE>
Terry L. Perkins Treasurer Senior Vice President, Mentor Investment Group, LLC; Treasurer, Cash Resource
Trust, Mentor Income Fund, Inc., and Mentor Institutional Trust; Treasurer and
Senior Vice President, America's Utility Fund, Inc.; formerly, Treasurer and
Comptroller, Ryland Capital Management, Inc.
Michael Wade Assistant Vice President, Mentor Investment Group, LLC; Assistant Treasurer, Cash
Treasurer Resource Trust, Mentor Income Fund, Inc., Mentor Institutional Trust, and
America's Utility Fund, Inc.; formerly, Senior Accountant, Wheat First Butcher
Singer, Inc.; Audit Senior, BDO Seidman.
Geoffrey B. Sale Secretary Associate Vice President Mentor Investment Group, LLC; Clerk Mentor
Institutional Trust; Secretary Cash Resource Trust, Mentor Income Fund,
Inc., Mentor Funds and Mentor Variable Investment Portfolios.
</TABLE>
The table below shows the fees paid to each Trustee by the Trust
for the 1997 fiscal year and the fees paid to each Trustee by all funds in the
Mentor family (including the Trust) during the 1997 calendar year.
<PAGE>
Total compensation
Aggregate compensation from all
Trustees from the Trust complex funds (23 Funds)
- -------- ---------------------- -------------------------
Daniel J. Ludeman 0 0
Arnold H. Dreyfuss $6,000 $12,200
Thomas F. Keller $6,000 $12,200
Louis W. Moelchert, Jr. $6,000 $12,200
Stanley F. Pauley* $6,000 $12,200
Troy A. Peery, Jr. $5,500 $11,175
Peter J. Quinn, Jr. $ 0 $ 0
Arch T. Allen, III+ $ 0 $ 0
Weston E. Edwards+ $ 0 $ 0
Jerry R. Barrentine+ $ 0 $ 0
J. Barnett Nelson+ $ 0 $ 0
- -------------
* Resigned as Trustee effective December 22, 1997
+ Elected Trustee December 22, 1997
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 June ___, 1998, the Portfolios had no shares outstanding.
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Mentor Investment Advisors, LLC ("Mentor Advisors") serves as
investment adviser to each Portfolio. Van Kampen American Capital Management,
Inc. ("Van Kampen") serves as sub-adviser to the High Income Portfolio. Mentor
Advisors has complete discretion to purchase and sell portfolio securities for
the Asset Allocation Portfolio; Van Kampen has complete discretion to purchase
and sell portfolio securities for the High Income Portfolio; in each case
consistent with the investment objective, restrictions, and policies of the
Portfolio in question. Mentor Investment Group, LLC ("Mentor") acts as
administrator to the Portfolios pursuant to Administration Agreements with the
Trust.
Subject to the supervision and direction of the Trustees, Mentor
Advisors and Van Kampen manage the Portfolios' portfolios in accordance with the
stated policies of the Portfolios and of the Trust. Each makes investment
decisions for the Portfolios and places the purchase and sale orders for
portfolio transactions. Mentor furnishes the Portfolios with certain statistical
and research data, clerical help, and certain accounting, data processing, and
other services required by the Portfolios, assists in preparation of certain
reports to shareholders of the Portfolios, tax returns, and filings with the SEC
and state Blue Sky authorities, and generally assists in all aspects of the
Portfolios' operations. Mentor Advisors, Mentor, and Van Kampen bear all their
expenses in connection with the performance of their services. In addition,
Mentor Advisors and Mentor pay the salaries of all officers and employees who
are employed by them and the Trust.
Investment decisions for the Portfolios and for the other investment
advisory clients of Mentor Advisors and its affiliates (or of Van Kampen and its
affiliates, as the case may be) 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 manner which in
Mentor Advisors' 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. Mentor Advisors employs professional staffs of
portfolio managers who draw upon a variety of resources, including Wheat First
Butcher Singer, for research information for the Portfolio.
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, are specifically allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books
<PAGE>
of account, and will be charged with the liabilities in respect of that
Portfolio and with a share of the general liabilities of the Trust. Expenses
with respect to any two or more Portfolios of the Trust may be allocated in
proportion to the net asset values of the respective Portfolios 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.
The Investment Advisory and Management Agreements and the
Administration Agreements, and the High Income Portfolio's sub-advisory
agreement with Van Kampen, are subject to annual approval (commencing in 2000)
by (i) the Trustees or (ii) vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of each 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, Mentor Advisors,
(or Van Kampen, as the case may be) or Mentor, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Management
Agreements and the sub-advisory agreement are 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 each Portfolio's shares, or by
Mentor Advisors or Van Kampen, as the case may be. The Administration Agreements
are terminable without penalty, immediately upon notice, by the Trustees or by
vote of the holders of a majority of each Portfolio's shares, and on not less
than thirty days' notice by Mentor. Each of the agreements will terminate
automatically in the event of its assignment.
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with respect to the Portfolios' Class A, Class B shares, and Class E shares.
Pursuant to the Service Plan, financial institutions will enter into shareholder
service agreements with the Portfolios to provide administrative support
services to their customers who from time to time may be record or beneficial
owners of shares of the Portfolios. In return for providing these support
services, a financial institution may receive payments from Mentor Distributors
at a rate not exceeding 0.25% of the average daily net assets of the relevant
class of shares of the Portfolios owned by the financial institution's customers
for whom it is the holder of record or with whom it has a servicing
relationship. The Service Plan is designed to stimulate financial institutions
to render administrative support services to the Portfolios and their
shareholders. These administrative support services include, but are not limited
to, the following functions: providing office space,
<PAGE>
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Portfolio; assisting clients in
changing dividend options, account designations and addresses; and providing
such other services as the Portfolios reasonably request. A Service Plan may be
terminated with respect to a particular class at any time by (i) a vote of the
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) or (ii) a vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of a particular class.
In addition to receiving payments under the Service Plans, financial
institutions may be compensated by Mentor Advisors and/or Mentor, or affiliates
thereof, for providing administrative support services to holders of Class A,
Class B, or Class E shares of the Portfolio. These payments will be made
directly by Mentor Advisors and/or Mentor, as applicable, and will not be made
from the assets of the Portfolios.
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 a Portfolio usually includes an undisclosed dealer commission
or mark-up. In underwritten offerings, the price paid by a 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, each of Mentor Advisors and Van Kampen receives brokerage and research
services and other similar services from many broker-dealers with which it
places a Portfolio's 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
or Van Kampen, as the case may be, for research purposes, Mentor Advisors or Van
Kampen, 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 (or Van
Kampen and its affiliates) in advising various of their clients (including the
Portfolios), although not all of these services are necessarily useful and of
value in managing the Portfolios.
Mentor Advisors and Van Kampen place all orders for the purchase and
sale of portfolio investments for the Portfolios and buy and sell investments
for the Portfolios through a substantial number of brokers and dealers. Mentor
Advisors or Van Kampen, as the case may be, 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, each having in
mind the Portfolios' 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, 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 Investment
Advisory and Management Agreements, Mentor Advisors and, in the case of the High
Yield Portfolio, Van Kampen may cause the Portfolios to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934 Act) to
them an amount of disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Portfolios on an agency basis in
excess of the commission which another broker-dealer would have charged for
effecting that transaction. Mentor Advisors' and Van Kampen's authority to cause
the Portfolios to pay any such greater commissions is also subject to such
policies as the Trustees may adopt from time to time. Neither Mentor Advisors
nor Van Kampen currently intends to cause the Portfolios to make such payments.
It is the position of the staff of the Securities and Exchange Commission
("SEC") that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly, Mentor Advisors and Van
Kampen 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 and Van Kampen may consider sales of shares of
the Portfolios (and, if permitted by law,
<PAGE>
of the other Mentor funds) as a factor in the selection of broker-dealers to
execute portfolio transactions for the Portfolios.
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 the Portfolios 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.
The Portfolios 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 the Portfolios on the floor of any national securities
exchange, but either may effect transactions for the Portfolios 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 the Portfolios. The
Trust has been 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
A Portfolio determines net asset value per share of each class of
shares 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, the Fourth of July, Labor Day, Thanksgiving, and Christmas.
<PAGE>
Securities for which market quotations are readily available are valued
at prices which, in the opinion of the Trustees or Mentor Advisors (or, in the
case of the High Income Portfolio, Van Kampen), most nearly represent the market
values of such securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case of some
securities traded over-the-counter), the last reported bid price, except that
certain U.S. Government securities are stated at the mean between the last
reported bid and asked prices. Short- term investments having remaining
maturities of 60 days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at their fair value
following procedures approved by the Trustees. Liabilities are deducted from the
total, and the resulting amount is divided by the number of shares of the
particular class outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale,
Mentor Advisors determines their fair values. The fair value of such securities
is generally determined as the amount which a Portfolio could reasonably expect
to realize from an orderly disposition of such securities over a reasonable
period of time. The valuation procedures applied in any specific instance are
likely to vary from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental analytical data
relating to the investment and to the nature of the restrictions on disposition
of the securities (including any registration expenses that might be borne by a
Portfolio in connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the investment, the market
value of any unrestricted securities of the same class (both at the time of
purchase and at the time of valuation), the size of the holding, the prices of
any recent transactions or offers with respect to such securities, and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of these securities used in determining the
net asset value of the Portfolios' shares are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds, U.S. Government securities, and
tax-exempt securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
Exchange. Occasionally, events
<PAGE>
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of the
Portfolios' net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Trustees.
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 income or net realized capital gains that are
distributed to shareholders. 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 its total assets
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.
If a Portfolio failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Portfolio would be
subject to tax on its taxable income at corporate rates, and all distributions
from earnings and profits, including any distributions of net tax-exempt
income and net long-term capital gains, would be taxable to shareholders
as ordinary income. In addition, a Portfolio could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment company that
is accorded special tax treatment.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of a Portfolio's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a 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. The
Portfolio intends to make distributions sufficient to avoid imposition of the
excise tax. Distributions declared by the Portfolio
<PAGE>
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.
Distributions from a Portfolio (other than exempt-interest dividends, as
discussed below) will be taxable to shareholders as ordinary income to the
extent derived from the Portfolio's investment income and net short-term gains.
Pursuant to the Taxpayer Relief Act of 1997 (the "1997 Act"), two different tax
rates apply to net capital gains (that is, the excess of net gains from capital
assets held for more than one year over net losses from capital assets held for
not more than one year). One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18 months (28% rate
gains) ("adjusted net capital gains"). Distributions of net capital gains will
be treated in the hands of shareholders as 28% rate gains to the extent
designated by the Portfolio as deriving from net assets held for more than one
year but not more than 18 months, and the balance will be treated as adjusted
net capital gains. Distributions of 28% rate gains and adjusted net capital
gains will be taxable to shareholders as such, regardless of how long a
shareholder has held the shares in the Portfolio.
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.
A 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 the Portfolio is notified that the
shareholder has under reported income in the past, or who fails to certify to
the 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 "Distributor") is the Trust's
distributor. The Portfolios make payments to the Distributor in accordance with
their Distribution Plans in respect of their Class B shares adopted pursuant to
Rule 12b-1 under the 1940 Act (each, a "Plan").
Continuance of a Plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested persons of
the relevant
<PAGE>
Portfolio and who have no direct or indirect interest in the Plan or related
arrangements (the "Qualified Trustees"), cast in person at a meeting called for
that purpose. All material amendments to a Plan must be likewise approved by the
Trustees and the Qualified Trustees. A Plan may not be amended in order to
increase materially the costs which a Portfolio may bear for distribution
pursuant to such Plan without also being approved by a majority of the
outstanding Class B shares of the Portfolio. Each Plan terminates automatically
in the event of its assignment and may be terminated without penalty, at any
time, by a vote of a majority of the Qualified Trustees or by a vote of a
majority of the outstanding Class B shares of the relevant Portfolio.
Financial institutions receiving payments from the Distributor may be
required to comply with various state and federal regulatory requirements,
including among others those regulating the activities of securities brokers or
dealers.
INDEPENDENT ACCOUNTANTS
_______________ are the Portfolios' independent auditors, providing
audit services, tax return review, and other tax consulting services.
CUSTODIAN
Investors Fiduciary Trust Company, located at 127 West 10th Street,
Kansas City, Missouri, is the custodian of a Portfolios. 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
Total return is determined by calculating the actual investment return
on a $1,000 (or a larger amount depending on the minimum investment for a
particular class) investment in a Portfolio at the beginning of the applicable
period, and at the maximum public offering price for Class A shares, and net
asset value for all other classes of shares. Total return may also be presented
for other periods. Total return calculations assume deduction of a Portfolio's
maximum front-end or contingent deferred sales charge, if applicable, and
reinvestment of all Portfolio distributions at net asset value on their
respective investment dates.
Total return may be presented for other periods or without giving
effect to any front-end or contingent deferred sales charge. Any quotation of
total return not reflecting such sales charges would be reduced if such sales
charges were reflected.
<PAGE>
All data for the Portfolio 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, LLC, an affiliate of Mentor Advisors, which bears full
responsibility for their use and the descriptions appearing below. From time to
time the Portfolios may distribute evaluations by or excerpts from these
publications to its shareholders or to potential
<PAGE>
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
<PAGE>
results. The rankings for any given category appear approximately
once per month.
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
<PAGE>
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 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) is 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 five-point
<PAGE>
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."
From time to time, the "Efficient Frontier" chart may be presented in
promotional materials for the Portfolios.
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 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 that Portfolio.
Thus the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which a Portfolio would be
unable to meet its obligations.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements and Supporting Schedules (For all Portfolios
other than Mentor Asset Allocation Portfolio, Mentor High Yield
Portfolio, Mentor Institutional Money Market, Institutional Shares,
and Mentor Growth Opportunities)
(1) Financial Statements:
Portfolios of Investments -- September 30, 1997*
Statements of Assets and Liabilities -- September 30, 1997*
Statements of Operations -- year ended September 30, 1997*
Statements of Changes in Net Assets -- years/periods ended
September 30, 1997 and September 30, 1996*
Financial Highlights *(+)
Notes to Financial Statements*
Independent Auditors Report
_____________
* Incorporated by reference to Part B to this Registration Statement.
(+) Incorporated by reference to Part A to this Registration Statement.
(b) Exhibits:
(1)(i) Conformed copy of Declaration of Trust of the
Registrant, with Amendments No. 1 and 2 (2);
(ii) Amendment No. 5 to the Declaration of Trust of the
Registrant (12);
(iii) Form of Amendment to the Declaration of Trust of the
Registrant (13)
(iv) Form of Proposed Amendment to the Declaration of Trust
of the Registrant to be dated as of May 12, 1998 (14)
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Portions of Registrant's Declaration of Trust and By-Laws
relating to shareholder rights (1)(2)(12)(13);
(5)(i) Form Management Agreement of the Registrant
(Capital Growth, Income and Growth, Quality Income, and
Municipal Income Portfolios) (14);
(ii) Form of Investment Advisory Agreement
(Municipal Income Portfolio) (14);
(iii) Form of Investment Advisory Agreement
(Income and Growth Portfolio) (14);
(iv) Form of Investment Advisory and Management Agreement
(Perpetual Global Portfolio) (8);
(v) Form of Investment Advisory and Management
Agreement (Growth Portfolio) (14);
(vi) Form of Investment Advisory and Management
Agreement (Strategy Portfolio) (14);
(vii) Form of Investment Advisory and Management Agreement
(Short-Duration Income Portfolio) (14);
(viii) Form of Investment Advisory and Management
Agreement (Balanced Portfolio) (14);
(ix) Form of Investment Advisory and Management Agreement
(Institutional Money Market Portfolio) (14);
(x) Form of Investment Advisory and Management Agreement
(Institutional U.S. Government Money Market Portfolio)
(14);
(xi) Form of Investment Advisory and Management Agreement
(Growth Opportunities Portfolio) (11);
(xii) Form of Investment Advisory and Management Agreement
(Mentor High Income Portfolio) (14)
(xiii) Sub-Advisory Agreement (Mentor High Income Portfolio)(14)
(xiv) Form of Investment Advisory and Management Agreement
(Mentor Asset Allocation Portfolio) (13)
(6) Form of Distribution Agreement of the Registrant (14)
(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) Form of Administration Agreement of the
Registrant in respect of each Portfolio (14);
(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);
(d) Form of New Exhibit D to Shareholder Services Plan in
respect of Class A and B shares of the Growth Opportunities
Portfolio (11);
(e) Form of New Exhibit E to Shareholder Services Plan in
respect of Class A and B shares of the High Yield and Asset
Allocation Portfolios (13);
(10) Not applicable;
(11)(i) Conformed copy of Consent of Independent Auditors (12);
(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) Plan of Distribution (Class B Shares) (12)
(ii) Revised Exhibit A to Plan of Distribution (13)
(16)(i) Schedules for Computation of Performance
(all Portfolios)(8)
(18) Amended and Restated Rule 18f-3(d) Plan (10)
(27)(i) Financial Data Schedules of Class A Shares (12)
(ii) Financial Data Schedules of Class B Shares (12)
(iii) Financial Data Schedule in respect of the Balanced
Portfolio. (12)
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. Incorporated by reference to Registrant's Post-Effective Amendment No. 12
on Form N-1A filed January 22, 1997.
10. Incorporated by reference to Registrant's Post-Effective Amendment No. 13
on Form N-1A filed March 4, 1997.
11. Incorporated by reference to Registrant's Post-Effective Amendment
No. 14 on Form N-1A filed November 7, 1997.
12. Incorporated by reference to Registrant's Post-Effective Amendment No. 15
on Form N-1A filed December 22, 1997.
13. Incorporated by reference to Registrant's Post-Effective Amendment No. 16
on Form N-1A filed on January 30, 1998.
14. 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 March 31, 1998
Multiclass Portfolios Class A Class B
Capital Growth Portfolio 5,369 10,748
Global Portfolio 2,993 7,776
Growth Portfolio 5,273 29,346
Income and Growth Portfolio 3,579 7,897
Municipal Income Portfolio 743 1,021
Quality Income Portfolio 2,342 4,454
Short-Duration Income Portfolio 892 2,002
Strategy Portfolio 1,611 14,724
Single Class Portfolios
Balanced Portfolio 4
Mentor Institutional U.S. Government Money Market Portfolio 91
Mentor Institutional Money Market Portfolio 40
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 Managing Director,
Mentor Investment
Group, LLC.
R. Preston Nuttall Managing Director Managing Director,
Mentor Investment
Group, LLC.
Paul F. Costello Managing Director Managing Director,
Mentor Investment Group,
LLC; President, Mentor
Funds, Mentor
Institutional Trust, Cash
Resource Trust, Mentor
Income Fund, Inc.; and
America's Utility Fund,
Inc.; Senior Vice
President, Mentor
Distributors, LLC;
Managing Director, Mentor
Perpetual Advisors, LLC.
Theodore W. Price Managing Director Managing Director,
Mentor Investment
Group, LLC.
P. Michael Jones Managing Director Managing Director,
Mentor Investment
Group, LLC.
Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.
-3-
<PAGE>
Daniel J. Ludeman Chairman Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC.
Karen H. Wimbish Managing Director Managing Director,
Mentor Investment
Group, LLC.
Thomas L. Souders Treasurer Managing Director and
Chief Financial
Officer, Wheat, First
Securities, Inc.;
Treasurer, Mentor
Distributors, LLC.
Robert P. Wilson Assistant Treasurer Managing Director and
Treasurer, Wheat,
First Securities,
Inc.; Assistant
Treasurer, Mentor
Distributors, Inc.
Geoffrey B. Sale Secretary Associate Vice President
Mentor Investment Group,
LLC; Clerk Mentor
Institutional Trust;
Secretary Cash Resource
Trust, Mentor Income Fund,
Inc., Mentor Funds and
Mentor Variable Investment
Portfolios.
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 Managing Director Chairman, Perpetual
Portfolio Management
Limited.
Roger C. Cormick Managing Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited.
Paul F. Costello Managing Director Managing Director, Mentor
Investment Group, LLC
and Mentor Investment
Advisors, LLC; President,
Mentor Funds, Mentor Institutional
Trust, Cash Resource
Trust, Mentor Income Fund, Inc.,
and America's Utility Fund, Inc.;
Senior Vice President, Mentor
Distributors, LLC.
Daniel J. Ludeman Managing Director Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC; Director,
Wheat First Securities,
Inc.; Managing Director,
Wheat First Butcher
Singer, Inc.
David S. Mossop Managing Director Director, Perpetual
Portfolio Management
Limited
Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.
Roderick A. Smyth Managing Director Managing Director,
Mentor Investment
Group, LLC.
* 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.
</TABLE>
(c) The following is a list of the general partners and Senior Vice Presidents
of Wellington Management Company, LLP, located at 75 State Street, Boston
Massachusetts 02109:
Kenneth L. Abrams Paul D. Kaplan Richard S. Press
Nicholas C. Adams John C. Keogh Robert D. Rands
Rand L. Alexander Mark T. Lynch Eugene E. Record, Jr.
Deborah L. Allinson Nanch T. Lukitsh John R. Ryan
Nancy T. August Christine S. Manfredi Joseph H. Schwartz
James H. Averill Patrick J. McCloskey David W. Scudder
Marie-Claude Bernal Earl E. McEvoy Binkley C. Shorts
William N. Booth Duncan M. McFarland Trond Skramstad
Paul Braverman Paul M. Mecray, III Catherine A. Smith
William D. Dilanni Matthew E. Megargel Stephen A. Soderberg
Pamela Dippel James N. Mordy Harriett Tee Taggart
Robert W. Doran Diane C. Nordin Perry M. Traquina
Charles T. Freeman Edward P. Owens Gene R. Tremblay
Laurie A. Gabriel Saul J. Pannell Mary Ann Tynan
Frank J. Gilday, III Thomas L. Pappas Ernst H. von Metzsch
John H. Gooch David M. Parker Clare Villari
Nicholas P. Greville Robert D. Payne James L. Walters
William C.S. Hicks Jonathan M. Payson Kim Williams
Stephen M. Pazuk Frank V. Wisneski
(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:
Other Substantial
Position with Business, Profession,
Name Investment Advisor Vocation or Employment
---- ------------------ ----------------------
Don G. Powell Chairman and Director Chairman and Director,
VK/AC Holding, Inc.,
Van Kampen American
Capital, Inc., Van
Kampen American Capital
Distributors, Inc.,
Van Kampen American
Capital Asset
Management, Inc., Van
Kampen American Capital
Investment Advisory
Corp., and Van
Kampen American Capital
Advisors, Inc.
Philip N. Duff Chief Executive Officer President and Chief
Executive Officer,
VK/AC Holding, Inc.
and Van Kampen American
Capital, Inc.
Dennis J. McDonnell President and Chief Executive Vice
Operating Officer President, VK/AC
Holding, Inc. and Van
Kampen American
Capital, Inc.;
President and Chief
Operating Officer, Van
Kampen American
Capital Advisors, Inc.,
Van Kampen American
Capital Asset
Management, Inc.,
and Van Kampen
American Capital
Investment Advisory
Corp.
Ronald A. Nyberg Executive Vice President Executive Vice
and General Counsel President and General
Counsel, VK/AC Holding,
Inc., Van Kampen
American Capital, Inc.,
Van Kampen American
Capital Distributors,
Inc., Van Kampen
American Asset
Management, Inc., Van
Kampen American
Investment Advisory
Corp., and Van Kampen
American Capital
Advisors, Inc.
William R. Rybak Executive Vice President Executive Vice
and Chief Financial President and Chief
Officer Financial Officer,
VK/AC Holding, Inc.,
Van Kampen American
Capital, Inc., Van
Kampen American Capital
Distributors, Inc.,
Van Kampen American
Capital Asset
Management Inc., Van
Kampen American
Capital Investment
Advisory Corp., and
Van Kampen American
Capital Advisors, Inc.
Peter W. Hegel Executive Vice President Executive Vice
President, Van Kampen
American Capital Asset
Management, Inc.,
Van Kampen American
Capital Investment
Advisory Corp., and
Van Kampen American
Capital Advisors, Inc.
Alan T. Sachtleben Executive Vice President Executive Vice
President, Van Kampen
American Capital
Asset Management, Inc.,
Van Kampen American
Capital Investment
Advisory Corp., and
Van Kampen American
Capital Advisors, Inc.
Item 29. Principal Underwriters:
(a) Mentor Distributors, LLC, the Fund's principal underwriter, acts as
principal underwriter for the following investment companies:
The Mentor Funds
o Mentor Growth Portfolio
o Mentor Strategy Portolio
o Mentor Short-Duration Income Portfolio
o Mentor Balanced Portfolio
o Mentor Capital Growth Portfolio
o Mentor Perpetual Global Portfolio
o Mentor Income and Growth Portfolio
o Mentor Quality Income Portfolio
o Mentor Municipal Income Portfolio
o Mentor Institutional U.S. Government Money Market Portfolio
o Mentor Institutional Money Market Portfolio
Cash Resource Trust
o Cash Resource Money Market Fund
o Cash Resource U.S. Government Money Market Fund
o Cash Resource Tax-Exempt Money Market Fund
o Cash Resource California Tax-Exempt Money Market Fund
o Cash Resource New York Tax-Exempt Money Market Fund
Mentor Institutional Trust
o Mentor U.S. Government Cash Management Portfolio
o Mentor Fixed-Income Portfolio
o Mentor Perpetual International Portfolio
Mentor Investment Group
o Mentor Income Fund
o America's Utility Fund
Mentor Variable Investment Portfolios
o Mentor VIP Growth Portfolio
o Mentor VIP Strategy Portfolio
o Mentor VIP Balanced Portfolio
o Mentor VIP Capital Growth Portfolio
o Mentor VIP Perpetual International Portfolio
(b) Information concerning officers of Mentor Distributors, LLC:
-10-
Name And Principal Positions And Offices Positions And Offices
Business Address* With Underwriter With Registrant
- ----------------- -------------------- ---------------------
Lynn Mangum Chairman Inapplicable
D'Ray Moore President Inapplicable
Dennis Sheehan Executive Vice President Inapplicable
William J. Tomko Senior Vice President Inapplicable
Mark J. Rybarczyk Senior Vice President Inapplicable
Kevin J. Dell Vice President and Inapplicable
Secretary
Michael D. Burns Vice President Inapplicable
David Blackmore Vice President Inapplicable
Robert L. Tuch Assistant Secretary Inapplicable
Steven Ludwig Compliance Officer Inapplicable
*Principal Address for all Officers:
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-8000
(c) Inapplicable.
Item 30. Location of Accounts and Records
Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by the Fund at 901 East Byrd Street, Richmond, Virginia
23219 or by Boston Financial Data Services, Inc., the Registrant's
transfer agent, at 2 Heritage Drive, North Quincy, Massachusetts
02171. Records relating to the duties of the Registrant's custodian
are maintained by the Registrant's Custodian, Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri 64105.
Records relating to the duties of the Registrant's distributor are
maintained by the Registrant's Distributor, Mentor Distributors, LLC,
3435 Stelzer Road, Columbus, Ohio 43219-8000.
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.
(c) The Registrant undertakes to file a post-effective amendment to this
Registration Statement containing financial statements for the High
Income and Asset Allocation Portfolios, which financial statements
need not be certified, within four to six months from the effective
date of this amendment.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
be signed on behalf of the undersigned, thereunto duly authorized, in the City
of Richmond and the Commonwealth of Virginia, on the 7th day of May, 1998.
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:
<TABLE>
<CAPTION>
Name Title Date
<S> <C>
* May 7, 1998
- -----------------------
Daniel J. Ludeman Chairman and Trustee
(Chief Executive
Officer)
/s/ Peter J. Quinn, Jr. Trustee May 7, 1998
- -----------------------
Peter J. Quinn, Jr.
* May 7, 1998
- -----------------------
Arnold H. Dreyfuss Trustee
* May 7, 1998
- -----------------------
Thomas F. Keller Trustee
* May 7, 1998
- -----------------------
Louis W. Moelchert, Jr. Trustee
* May 7, 1998
- -----------------------
Troy A. Peery, Jr. Trustee
- -----------------------
Arch T. Allen, III Trustee
- -----------------------
Weston E. Edwards Trustee
- -----------------------
Jerry R. Barrentine Trustee
- -----------------------
J. Garnett Nelson Trustee
/s/ Paul F. Costello May 7, 1998
- ------------------------
Paul F. Costello President
/s/ Terry L. Perkins May 7, 1998
- ------------------------
Terry L. Perkins Treasurer (Principal Financial
and Accounting Officer)
*/s/ Peter J. Quinn, Jr. Attorney-in-fact May 7, 1998
- ------------------------
Peter J. Quinn, Jr.
</TABLE>
EXHIBIT INDEX
Exhibit Page
(1)(iv) Form of Amendment dated May 12, 1998 to the Declaration of
Trust of the Registrants
(5)(i) Form of Management Agreement of the Registrant (Capital Growth,
Income and Growth, Quality Income, and Municipal Income
Portfolios)
(ii) Form of Investment Advisory Agreement (Municipal Income
Portfolio)
(iii) Form of Investment Advisory Agreement (Income and Growth
Portfolio)
(iv) Form of Investment Advisory Agreement (Perpetual Global
Portfolio)
(v) Form of Investment Advisory and Management Agreement (Growth
Portfolio)
(vi) Form of Investment Advisory and Management Agreement (Strategy
Portfolio)
(vii) Form of Investment Advisory and Management Agreement
(Short-Duration Income Portfolio)
(viii) Form of Investment Advisory and Management Agreement (Balanced
Portfolio)
(ix) Form of Investment Advisory and Management Agreement
(Institutional Money Market Portfolio)
(x) Form of Investment Advisory and Management Agreement
(Institutional U.S. Government Money Market Portfolio)
(xii) Form of Investment Advisory and Management Agreement (Mentor High
Income Portfolio)
(xiii) Form of Sub-Advisory Agreement (Mentor High Income Portfolio)
6(i) Form of Distribution Agreement of the Registrant
8(iii) Form of Administration Agreement of the Registrant in respect of
each Portfolio
THE MENTOR FUNDS
Amendment No. 7
to
DECLARATION OF TRUST
dated January 20, 1992
This Declaration of Trust is amended as follows:
1. Section 5 of Article III is hereby amended by replacing the reference
therein to "Mentor Income Portfolio" with a reference to "Mentor High
Income Portfolio".
------------------
This Amendment is to be effective as of May 12, 1998.
IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees in office, have executed this instrument as of May 12, 1998.
- ------------------------ ------------------------
Arch T. Allen, III Jerry R. Barrentine
- ------------------------ ------------------------
Arnold H. Dreyfuss Weston E. Edwards
- ------------------------ ------------------------
Thomas F. Keller Daniel J. Ludeman
- ------------------------ ------------------------
Louis W. Moelchert, Jr. J. Garnett Nelson
- ------------------------ ------------------------
Troy A. Peery, Jr. Peter J. Quinn, Jr.
1
Exhibit 5(i)
MENTOR FUNDS
MANAGEMENT AGREEMENT
February 1, 1998
Mentor Investment Advisors, LLC
901 East Byrd Street
Richmond, Virginia 23219
Dear Sirs:
Mentor Funds (the "Trust"), a Massachusetts business trust, confirms
its agreement with Mentor Investment Advisors, LLC (the "Adviser") with respect
to the Adviser's serving as investment adviser of the Trust as set forth below.
Section 1. Investment Description; Appointment
The Trust desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the investment objectives,
policies and limitations specified in the prospectus (the "Prospectus") and in
the statement of additional information (the "Statement of Additional
Information") filed with the Securities and Exchange Commission (the "SEC") as
part of the Trust's Registration Statement on Form N-1A, as amended from time to
time (the "Registration Statement"). Copies of the Trust's Prospectus and the
Statement of Additional Information have been or will be submitted to the
Adviser. The Trust desires to employ and hereby appoints the Adviser to act as
its investment manager. The Adviser accepts the appointment and agrees to
furnish the services described in Section 2 of this Agreement for the
compensation set forth in Section 6 of, and Appendix I to, this Agreement.
Section 2. Services as Adviser; Appointment of Sub-Advisers
(a) Subject to the supervision and direction of the Trust's Board of
Trustees, the Adviser shall provide such services reasonably requested by the
Trust, including but not limited to the following:
(i) monitoring and supervising the services provided to the
Trust by its administrator (the "Administrator") pursuant to a separate
agreement between the Trust and the
-1-
<PAGE>
Administrator, a copy of which has been or will be submitted to the Adviser; and
(ii) providing to the Trust investment management evaluation
services principally by performing initial due diligence on prospective
investment advisers ("Sub-Advisers") for each existing series of its capital
stock and any series or class which the Trust may offer from time to time in the
future (each, a "Portfolio"), thereafter monitoring and supervising Sub-Adviser
performance through quantitative and qualitative analysis as well as periodic
in-person, telephonic and written consultations with Sub-Advisers and
considering and approving investments and use of certain investment strategies
when the Trust requests review and consideration of such matters by the Adviser.
The Adviser will be responsible for communicating performance expectations and
evaluations to Sub-Advisers and ultimately recommending to the Board of Trustees
of the Trust whether Sub-Advisers' contracts should be renewed, modified or
terminated. The Adviser will provide written reports to the Board of Trustees
regarding the results of its evaluation and monitoring functions; and
(iii) conducting all operations of the Trust except those
operations contracted to the Sub-Advisers, custodian, transfer agent and
administrator.
(b) The Adviser will, at its own expense, maintain sufficient staff,
employ or retain sufficient personnel, and consult with any other persons that
it determines may be necessary or useful to the performance of its obligations
under this Agreement.
Section 3. Brokerage
The Adviser is authorized to permit the Sub-Advisers to execute
portfolio transactions for the Trust. In executing transactions and selecting
brokers or dealers, each Sub-Adviser will seek the best overall terms available.
In assessing the best overall terms available for any portfolio transaction, the
Sub-Adviser will consider all factors it deems relevant including, but not
limited to, the breadth of the market in the security or commodity interest, the
price of the security or commodity interest, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute a particular transaction and in evaluating the
best overall terms available, the Adviser shall have the right to request of the
Sub-Advisers in writing that transactions giving rise to brokerage commissions
shall be executed by brokers and dealers that provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) to the Trust and/or other accounts over which the Sub-Adviser or an
affiliate exercises investment discretion. In addition, subject to the above and
the applicable Rules of Fair Practice of the National Association of Securities
Dealers, Inc., the Trust shall have the right to request that such transactions
be executed by brokers and dealers by or through whom sales of shares of the
Trust are made.
Section 4. Information Provided to the Trust
The Adviser will keep the Trust informed of developments materially
-2-
<PAGE>
affecting the Sub-Advisers and the Portfolios and, in addition to providing the
Trust with whatever statistical or other information the Trust may reasonably
request with respect to its investments, the Adviser will, on its own
initiative, furnish the Trust from time to time with whatever information the
Adviser believes is appropriate for this purpose.
Section 5. Standard of Care
The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Trust in connection with the matters to
which this Agreement relates, provided that nothing in this Agreement shall be
deemed to protect or purport to protect the Adviser against any liability to the
Trust or to holders of the Trust's shares of beneficial interest to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement.
Section 6. Compensation
(a) In consideration of services rendered pursuant to this Agreement,
each of the Trust's Portfolios will accrue daily and pay monthly a fee at the
annual rate applied to the value of that Portfolio's average daily net assets as
set forth in the schedule attached hereto as Appendix I. From time to time the
Adviser may agree to reimburse the Trust additional expenses or waive a portion
or all of its fee, in the sole discretion of the Adviser.
(b) The fee for the period from the commencement of investment
operations to the end of the month during which investment operations commence
will be prorated according to the proportion that such period bears to the full
monthly period, and will be payable that month. Upon any termination of this
Agreement before the end of a month, the fee for such part of that month shall
be prorated according to the proportion that such period bears to the full
monthly period and will be payable upon the date of termination of this
Agreement.
(c) For the purpose of determining fees payable to the Adviser under
this Agreement, the value of the Trust's net assets will be computed in the
manner described in the Trust's current Prospectus and/or Statement of
Additional Information.
Section 7. Costs and Expenses
The Adviser will bear all expenses in connection with the performance
of its services under this Agreement, including the payment of salaries of all
officers and employees who are employed by it and the Trust as well as the
payment of the fees of the Sub-Advisers.
-3-
<PAGE>
Section 8. Reimbursement to the Trust
From time to time the Adviser may agree to reimburse the Trust
additional expenses or waive a portion or all of its fee payable pursuant to
Section 6, in the sole discretion of the Adviser. If, in any fiscal year of the
Trust, the aggregate expenses of the Trust (including fees pursuant to this
agreement and the Trust's Administration Agreement with the Administrator, but
excluding interest, taxes, brokerage fees, and, if permitted by state securities
commissions, extraordinary expenses) exceed the expense limitation imposed by
any state having jurisdiction over the Trust, the Adviser will reimburse the
Trust to the extent required by state law in the same proportion as its fees
bear to the combined fees paid by the Trust for investment management and
administration. The Adviser's expense reimbursement obligation will be limited
to the amount of its fees received pursuant to this Agreement. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis.
Section 9. Service to Other Companies or Accounts
The Trust understands that the Adviser and the Sub-Advisers may act as
investment managers or advisers to fiduciary and other managed accounts,
including other investment companies, and the Trust has no objection to the
Adviser's and Sub-Advisers' so acting, provided that whenever the Trust and one
or more other accounts advised by any Sub-Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each account or company.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the position obtainable for the Trust. In addition, the Trust
understands and acknowledges that the persons employed by the Adviser to assist
in the performance of the Adviser's duties under this Agreement will not devote
their full time to such service and nothing contained in this Agreement shall be
deemed to limit or restrict the right of the Adviser or any affiliate of the
Adviser to engage in and devote time and attention to other businesses or to
render services of any kind or nature.
Section 10. Term of Agreement
(a) This Agreement shall become effective upon its execution and shall
continue for an initial period of two years and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (i) the Trust's Board of Trustees or
(ii) a vote of a "majority" of the Trust's outstanding voting securities (as
defined in the Investment Company Act of 1940, as amended (the "Act")), provided
that in either event the continuance is also approved by a majority of Trustees
who are not "interested persons" (as defined in the Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval.
(b) This Agreement is terminable, without penalty, on 60 days' written
notice, by the Trust's Trustees or by vote of holders of a majority of the
Trust's outstanding voting securities, or upon 60 days' written notice, by the
Adviser.
-4-
<PAGE>
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Act or in rules adopted under the Act).
Section 11. Amendments
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved in
accordance with applicable law.
Section 12. Limitations of Liability of Trustees, Officers,
Employees, Agents and Shareholders of the Trust
The Adviser is expressly put on notice of the limitation of liability
as set forth in the Declaration of Trust and agrees that the obligations assumed
by the Trust pursuant to this Agreement shall be limited in any case to the
Trust and its assets and that the Adviser shall not seek satisfaction of any
such obligations from the shareholders of the Trust, the Trustees, officers,
employees or agents of the Trust, or any of them.
Section 13. Miscellaneous
(a) This Agreement shall be governed by the laws of the Commonwealth of
Virginia, provided that nothing herein shall be construed in a manner
inconsistent with the Act, the Investment Advisers Act of 1940, as amended, or
rules or orders of the Securities and Exchange Commission thereunder.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
-5-
<PAGE>
(d) Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the enclosed
copy of this Agreement.
Very truly yours,
MENTOR FUNDS
By:_____________________________
Name:
Title:
Accepted:
MENTOR INVESTMENT ADVISORS, LLC
By:_____________________________________
Name:
Title:
-6-
<PAGE>
APPENDIX I
ADVISER'S RATE OF
FEE IN ACCORDANCE
WITH SECTION 6 OF
MENTOR FUNDS THE AGREEMENT
- ------------ -----------------
Mentor Capital Growth Portfolio .80%
Mentor Quality Income Portfolio .60%
Mentor Municipal Income Portfolio .60%
Mentor Income & Growth Portfolio .75%
MENTOR FUNDS
By:__________________________
Name:
Title:
Accepted:
MENTOR INVESTMENT ADVISORS
By:______________________________________
Name:
Title:
-7-
Exhibit 5(ii)
MENTOR FUNDS
INVESTMENT ADVISORY AGREEMENT
February 1, 1998
Van Kampen American Capital Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Under an agreement (the "Management Agreement") between Mentor Funds, a
Massachusetts business trust (the "Trust"), and Mentor Investment Advisors, LLC,
a Virginia limited liability company, (the "Adviser"), the Adviser serves as the
Trust's investment adviser and has the responsibility of evaluating,
recommending, supervising and compensating investment advisors to each series of
the Trust.
The Adviser hereby confirms its agreement with Van Kampen American
Capital Management, Inc. (the "Sub-Adviser") and the Trust with respect to the
Sub-Adviser's serving as the sub-adviser of the Mentor Municipal Income
Portfolio (the "Portfolio"), a series of the Trust, as follows:
Section 1. Investment Description; Appointment
(a) The Trust desires to employ the Portfolio's capital by investing
and reinvesting in investments of the kind and in accordance with the investment
objectives, policies and limitations specified in the prospectus (the
"Prospectus") and in the statement of additional information (the "Statement of
Additional Information") filed with the Securities and Exchange Commission (the
"SEC") as part of the Trust's Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement"). The Adviser has herewith
furnished the Sub-Adviser copies of the Trust's Prospectus, Statement of
Additional Information, Declaration of Trust and By-Laws as currently in effect
and agrees during the continuance of the Agreement to furnish the Sub-Adviser
copies of any amendments or supplements thereto before or at the time the
amendments or supplements become effective. The Sub-Adviser will be entitled to
rely on all such documents furnished to it by the Adviser
-1-
<PAGE>
or the Trust.
(b) The Adviser, with the approval of the Trust, hereby appoints the
Sub-Adviser to act as investment adviser to the Portfolio for the periods and on
the terms set forth in this Agreement. The Sub-Adviser accepts such appointment
and agrees to furnish the services herein set forth for the compensation herein
provided.
Section 2. Portfolio Management Duties
(a) Subject to the supervision of the Adviser and the Trust's Board of
Trustees, the Sub-Adviser will (i) manage the Portfolio's assets in accordance
with the Portfolio's investment objectives, policies and limitations as stated
in the Trust's Prospectus and Statement of Additional Information; (ii) make
investment decisions for the Portfolio; and (iii) place orders to purchase and
sell securities (and where appropriate) commodity futures contracts for the
Portfolio.
(b) The Sub-Adviser will keep the Trust and the Adviser informed of
developments materially affecting the Portfolio and shall, on the Sub-Adviser's
own initiative and as reasonably requested by the Adviser or the Trust, furnish
to the Trust and the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
(c) The Sub-Adviser agrees that, in the performance of the duties
required of it by this Agreement, it will comply with the Investment Company Act
of 1940, as amended (the "Act"), and all rules and regulations thereunder, all
applicable federal and state laws and regulations and with any applicable
procedures adopted by the Trust's Board of Trustees and identified in writing to
the Sub-Adviser. The Adviser will provide to the Sub-Adviser any specific
procedures that must be followed in the performance of Sub-Adviser's duties
hereunder by reason of the affiliation of other sub-advisers or service
providers with the Trust.
Section 3. Brokerage
(a) The Sub-Adviser agrees that it will place orders pursuant to its
investment determinations for the Portfolio either directly with the issuer or
with brokers or dealers selected by the Sub-Adviser in accordance with the
standards specified in paragraphs (b) and (c) of this Section 3. Until notified
to the contrary by the Adviser, the Sub-Adviser may place orders for the
Portfolio with affiliates of the Adviser in accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, Section 17(e) of
the Act and Rule 17e-1 thereunder and other applicable laws and regulations. The
Sub-Adviser will identify to the Adviser in writing any brokers or dealers which
are affiliates of the Sub-Adviser. The Adviser will identify to the Sub-Adviser
in writing any brokers and dealers
-2-
<PAGE>
which are affiliates of the Adviser and will forward to each Sub-Adviser
information provided by the other Sub-Advisers with respect to affiliated
broker-dealers of such Sub-Advisers.
(b) In placing orders with brokers and dealers, the Sub-Adviser will
seek the best overall terms available. In assessing the best overall terms
available for any portfolio transaction, the Sub-Adviser will consider all
factors it deems relevant including, but not limited to, the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of any
commission for the specific transaction and on a continuing basis.
(c) Subject to the requirements of subsections (a) and (b) above, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser shall have the right to
request in writing that transactions giving rise to brokerage commissions shall
be executed by brokers and dealers that provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Trust or will be of value to the Trust in the management of its
assets or the Adviser's performance of its management services provided to the
Trust. In addition, subject to the requirements of subsections (a) and (b) above
and the applicable Rules of Fair Practice of the National Association of
Securities Dealers, Inc., the Trust shall have the right to request that such
transactions be executed by brokers and dealers by or through whom sales of
shares of the Trust are made.
Section 4. Information Provided to the Adviser and the Trust
(a) The Sub-Adviser agrees that it will make available to the Adviser
and the Trust promptly upon their request copies of all of its records with
respect to the Portfolio to assist the Adviser and the Trust in monitoring
compliance with the Act and the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), as well as other applicable laws. The Sub-Adviser will furnish
the Trust's Board of Trustees with respect to the Portfolio such periodic and
special reports as the Adviser and the Board of Trustees may reasonably request.
(b) The Sub-Adviser agrees that it will immediately notify the Adviser
and the Trust in the event that the Sub-Adviser or any of its affiliates: (i)
becomes subject to a statutory disqualification that prevents the Sub-Adviser
from serving as investment advisor pursuant to this Agreement; or (ii) if it is
or expects to become the subject of an administrative proceeding or enforcement
action by the SEC or other regulatory authority. The Sub-Adviser has provided
the information about itself set forth in the Registration Statement and
acknowledges that, as of the date hereof, it is true and correct and contains no
material misstatement or omission, and the Sub-Adviser further agrees to notify
the Adviser immediately of, (i) any material fact known to the Sub-Adviser
respecting or relating to the Sub-Adviser that is not contained in the
Prospectus or Statement of Additional Information of the Trust, or any amendment
or supplement thereto, if the omission of such would make such document
misleading, (ii) any statement contained therein relating to the Sub-Adviser
that becomes
-3-
<PAGE>
untrue in any material respect, or (iii) any material change in the investment
objective and policies of the mutual fund advised by the Sub-Adviser and
identified in the Prospectus as being a model for the Portfolio.
(c) The Sub-Adviser represents that it is an investment adviser
registered under the Advisers Act and other applicable laws and that the
statements contained in the Sub-Adviser's registration under the Advisers Act on
Form ADV, as of the date hereof, are true and correct and do not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Sub-Adviser agrees to maintain the
completeness and accuracy of its registration on Form ADV in accordance with all
legal requirements relating to that Form. The Sub-Adviser acknowledges that it
is an "investment advisor" to the Portfolio within the meaning of the Act and
the Advisers Act.
Section 5. Books and Records
In compliance with the requirements of Rule 31a-3 under the Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to the Trust
copies of any such records upon the Trust's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the Act the
records with respect to the Sub-Adviser's duties hereunder required to be
maintained by Rule 31a-1 under the Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period specified in that Rule.
Section 6. Compensation
(a) In consideration of services rendered pursuant to this Agreement,
the Adviser will pay the Sub-Adviser a fee that is computed daily and paid
monthly at the annual rate set forth in Appendix I to this Agreement (the
"Portfolio Advisory Fee"). From time to time the Sub-Adviser may agree to
reimburse the Trust additional expenses or waive a portion or all of its fee, in
the sole discretion of the Sub-Adviser.
(b) The Portfolio Advisory Fee for the period from the date that the
Portfolio commences investment operations to the end of the month during which
the Portfolio commences investment operations shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(c) For the purposes of determining fees payable to the Sub-Adviser,
the value of the Trust's net assets shall be computed at the times and in the
manner specified in the Trust's Prospectus and/or the Statement of Additional
Information.
-4-
<PAGE>
Section 7. Costs and Expenses
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it and its staff in connection with the performance of its
services under this Agreement, including the payment of salaries of all officers
and employees who are employed by it, but not including expenses to be paid by
the Trust or the Adviser such as brokerage fees and commissions and custodian
charges. The Trust shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Trust's securities or other property, for
keeping its books of account, for any other charges of the custodian, and for
calculating the net asset value of the Trust as provided in the prospectus of
the Trust. The Sub-Adviser shall not be required to pay and the Trust (or the
Adviser) shall assume and pay the charges and expenses of the Trust's
operations, including compensation of the trustees, charges and expenses of
independent auditors, of legal counsel, of any transfer or dividend disbursing
agent, and of any registrar of the Trust, costs of acquiring and disposing of
portfolio securities, interest, if any, on obligations incurred by the Trust,
costs of share certificates and of reports, membership dues in the Investment
Company Institute or any similar organization, costs of reports and notices to
shareholders, other like miscellaneous expenses and all taxes and fees payable
to federal, state or other governmental agencies on account of the registration
of securities issued by the Trust, filing of trust documents or otherwise.
Section 8. Standard of Care
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Adviser or the Trust in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Sub-Adviser against any liability to the Adviser or the Trust to which the
Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Sub-Adviser's reckless disregard of its obligations and duties
under this Agreement.
Section 9. Services to Other Companies or Accounts
(a) Except as otherwise agreed between the Adviser and the Sub-Adviser,
it is understood that the services of the Sub-Adviser are not exclusive, and
nothing in this Agreement shall prevent the Sub-Adviser from providing similar
services to other investment companies (whether or not their investment
objectives and policies are similar to those of the Trust) or from engaging in
other activities.
(b) When the Sub-Adviser recommends the purchase or sale of a security
for other investment companies and other clients, and at the same time the
Sub-Adviser recommends the purchase or sale of the same security for the Trust,
it is understood that in light of its fiduciary
-5-
<PAGE>
duty to the Trust, such transactions will be executed on a basis that it is fair
and equitable to the Trust.
(c) The Trust and the Adviser understand and acknowledge that the
persons employed by the Sub-Adviser to assist in the performance of its duties
under this Agreement will not devote their full time to that service; nothing
contained in this Agreement will be deemed to limit or restrict the right of the
Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature,
except as otherwise agreed between the Adviser and the Sub-Adviser.
Section 10. Duration and Termination
(a) The Trust represents that this Agreement has been approved by the
Trust's Board of Trustees and shareholders pursuant to Section 15 of the Act.
This Agreement shall become effective on the date hereof and shall continue for
two years from that date, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually by (i) the Trust's Board of Trustees or (ii) a vote of a majority
of the Portfolio's outstanding voting securities (as defined in the Act),
provided that the continuance is also approved by a majority of the Trustees who
are not "interested persons" (as defined in the Act) of the Trust, by vote cast
in person at a meeting called for the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated (i)
by the Adviser at any time without penalty, upon 60 days' written notice to the
Sub-Adviser and the Trust, (ii) at any time without penalty by the Trust, upon
the vote of a majority of the Trust's Trustees or by vote of the majority of the
Trust's outstanding voting securities, upon 60 days' written notice to the
Sub-Adviser and the Adviser, or (iii) by the Sub-Adviser at any time without
penalty, upon 60 days' written notice to the Adviser and the Trust.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Act and in rules adopted under the Act).
Section 11. Amendments
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved in
accordance with applicable law.
-6-
<PAGE>
Section 12. Limitations of Liability of Trustees, Officers, Employees, Agents
and Shareholders of the Trust
The Sub-Adviser is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be limited in
any case to the Trust and its assets and that the Sub-Adviser shall not seek
satisfaction of any such obligations from the shareholders of the Trust, the
Trustees, officers, employees or agents of the Trust, or any of them.
Section 13. Miscellaneous
(a) This Agreement shall be governed by the laws of the Commonwealth of
Virginia, provided that nothing herein shall be construed in a manner
inconsistent with the Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Sub-Adviser
as an agent of the Trust or the Adviser.
-7-
<PAGE>
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
MENTOR INVESTMENT ADVISORS, LLC
By:_________________________
Name:
Title:
MENTOR FUNDS
By:__________________________
Name:
Title:
Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
By:_________________________
Name:
Title:
-8-
<PAGE>
APPENDIX I
The Adviser pays the Sub-Adviser an annual fee not to exceed the following
percentage of Portfolio assets as follows:
SUB-ADVISER'S RATE
OF FEE IN
ACCORDANCE WITH
SECTION 6 OF THE
THE MENTOR FUNDS AGREEMENT
- ---------------- ------------------
Mentor Municipal Income Portfolio .25% of average net assets
of the Portfolio
from $0 to $60
million; .20% of
average net assets
of the Portfolio
over $60 million
-9-
Exhibit 5(iii)
MENTOR FUNDS
INVESTMENT ADVISORY AGREEMENT
February 1, 1998
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Dear Sirs:
Under an agreement (the "Management Agreement") between Mentor Funds, a
Massachusetts business trust (the "Trust"), and Mentor Investment Advisors, LLC,
a Virginia limited liability company (the "Adviser"), the Adviser serves as the
Trust's investment adviser and has the responsibility of evaluating,
recommending, supervising and compensating investment sub-advisers to each
series of the Trust.
The Adviser hereby confirms its agreement with Wellington Management
Company, LLP (the "Sub-Adviser") and the Trust with respect to the Sub-Adviser's
serving as the investment sub-adviser of the Mentor Income & Growth Portfolio
(the "Portfolio"), as series of the Trust, as follows:
Section 1. Investment Description; Appointment
(a) The Trust desires to employ the Portfolio's capital by investing
and reinvesting in investments of the kind and in accordance with the investment
objectives, policies and limitations specified in the prospectus (the
"Prospectus") and in the statement of additional information (the "Statement of
Additional Information") filed with the Securities and Exchange Commission (the
"SEC") as part of the Trust's Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement"). The Adviser has herewith
furnished the Sub-adviser copies of the Trust's Prospectus, Statement of
Additional Information, Declaration of Trust and By-Laws as currently in effect
and agrees during the continuance of the Agreement to furnish the Sub-Adviser
copies of any amendments or supplements thereto before or at the time the
amendments or supplements become effective. The Sub-Adviser will be entitled to
rely on all such documents furnished to it by the Adviser or the Trust.
<PAGE>
(b) The Adviser, with the approval of the Trust, hereby appoints the
Sub-Adviser to act as investment sub-adviser to the Portfolio for the periods
and on the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
Section 2. Portfolio Management Duties
(a) Subject to the supervision of the Adviser and the Trust's Board of
Trustees, the Sub-Adviser will (i) manage the Portfolio's assets in accordance
with the Portfolio's investment objectives, policies and limitations as stated
in the Trust's Prospectus and Statement of Additional Information; (ii) make
investment decisions for the Portfolio; and (iii) place orders to purchase and
sell securities (and where appropriate) commodity futures contracts for the
Portfolio.
(b) The Sub-Adviser will keep the Trust and the Adviser informed of
developments materially affecting the Portfolio and shall, on the Sub-Adviser's
own initiative and as reasonably requested by the Adviser or the Trust, furnish
to the Trust and the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
(c) The Sub-Adviser agrees that, in the performance of the duties
required of it by this Agreement, it will comply with the Investment Company Act
of 1940, as amended (the "Act"), and all rules and regulations thereunder, all
applicable federal and state laws and regulations and with any applicable
procedures adopted by the Trust's Board of Trustees and identified in writing to
the Sub-Adviser. The Adviser will provide to the Sub-Adviser any specific
procedures that must be followed in the performance of the Sub-Adviser's duties
hereunder by reason of the affiliation of other sub-advisers or service
providers with the Trust.
Section 3. Brokerage
(a) The Sub-Adviser agrees that it will place orders pursuant to its
investment determinations for the Portfolio either directly with the issuer or
with brokers or dealers selected by the Sub-Adviser in accordance with the
standards specified in paragraphs (b) and (c) of this Section 3. Until notified
to the contrary by the Adviser, the Sub-Adviser may place orders for the
Portfolio with affiliates of the Adviser in accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, Section 17(e) of
the Act of 1934 and Rule 17e-1 thereunder and other applicable laws and
regulations. The Sub-Adviser will identify to the Adviser in writing any brokers
and dealers which are affiliates of the Sub-Adviser. The Adviser will identify
to the Sub-Adviser in writing any brokers and dealers which are affiliates of
the Adviser and will forward to each Sub-Adviser information provided by the
other Sub-Advisers with respect to affiliated broker-dealers of such
Sub-Advisers.
<PAGE>
(b) In placing orders with brokers and dealers, the Sub-Adviser will
give primary consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Sub-Adviser may consider the
financial responsibility, research and investment information and other services
provided by brokers and dealers who may effect or be a party to any such
transaction or other transactions to which the Sub-Adviser's other clients may
be a party.
(c) It is understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market research and
security and economic analysis provided by brokers who may execute brokerage
transactions at a higher cost to the portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Sub-Adviser is authorized to place orders
for the purchase and sale of securities for the Portfolio with such brokers,
subject to review by the Trust's Board of Trustees from time to time with
respect to the extent and continuation of this practice. It is understood that
the services provided by such brokers may be useful to the Sub-Adviser in
connection with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Sub-Adviser, the Sub-Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it considers to be
most equitable and consistent with its fiduciary obligations to the Portfolio
and to such other clients.
(d) Subject to the requirements of subsections (a), (b) and (c) above,
in selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser shall have the right to
request in writing that transactions giving rise to brokerage commissions shall
be executed by brokers and dealers that provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Trust or will be of value to the Trust in the management of its
assets or the Adviser's performance of its management services provided to the
Trust. In addition, subject to the requirements of subsections (a), (b) and (c)
above and the applicable Rules of Fair Practice of the National Association of
Securities Dealers, Inc., the Trust shall have the right to request that such
transactions be executed by brokers and dealers by or through whom sales of
shares of the Trust are made.
Section 4. Information Provided to the Adviser and the Trust
(a) The Sub-Adviser agrees that it will make available to the Adviser
and the Trust promptly upon their request copies of all of its investment
records and ledgers with respect to the Portfolio to assist the Adviser and the
Trust in monitoring compliance with the Act and the
<PAGE>
Investment Advisers Act of 1940, as amended (the "Advisers Act"), as well as
other applicable laws. The Sub-Adviser will furnish the Trust's Board of
Trustees with respect to the Portfolio such periodic and special reports as the
Adviser and the Board of Trustees may reasonably request.
(b) The Sub-Adviser agrees that it will immediately notify the Adviser
and the Trust in the event that the Sub-Adviser or any of its affiliates: (i)
becomes subject to a statutory disqualification that prevents the Sub-Adviser
from serving as investment sub-adviser pursuant to this Agreement, or (ii) is or
expects to become the subject of an administrative proceeding or enforcement
action by the SEC or other regulatory authority. The Sub-Adviser has provided
the information about itself set forth in the Registration Statement and
acknowledges that, as of the date hereof, it is true and correct and contains no
material misstatement or omission, and the Sub-Adviser further agrees to notify
the Adviser immediately of: (i) any material fact known to the Sub-Adviser
respecting or relating to the Sub-Adviser that is not contained in the
Prospectus or Statement of Additional Information of the Trust, or any amendment
or supplement thereto, if the omission of such would make such document
misleading; or (ii) any statement contained therein that becomes untrue in any
material respect.
(c) The Sub-Adviser represents that it is an investment adviser
registered under the Advisers Act and other applicable laws and that the
statements contained in the Sub-Adviser's registration under the Advisers Act on
Form ADV, as of the date hereof, are true and correct and do not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Sub-Adviser agrees to maintain the
completeness and accuracy of its registration on Form ADV in accordance with all
legal requirements relating to that Form. The Sub-Adviser acknowledges that it
is an "investment adviser" to the Portfolio within the meaning of the Act and
the Advisers Act.
Section 5. Books and Records
In compliance with the requirements of Rule 31a-3 under the Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to the Trust
copies of any such records upon the Trust's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the Act the
records with respect to the Sub-Adviser's duties hereunder required to be
maintained by Rule 31a-1 under the Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period specified in that Rule.
Section 6. Compensation
(a) In consideration of services rendered pursuant to this Agreement,
the Adviser will pay the Sub-Adviser a fee that is computed daily and paid
monthly at the annual rate set forth in Appendix I to this Agreement (the
"Portfolio Sub-Advisory Fee"). From time to time
<PAGE>
the Sub-Adviser may agree to reimburse the Trust additional expenses or waive a
portion or all of its fee, in the sole discretion of the Sub-Adviser.
(b) The Portfolio Sub-Advisory Fee for the period from the date that
the Portfolio commences investment operations to the end of the month during
which the Portfolio commences investment operations shall be prorated according
to the portion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(c) For the purposes of determining fees payable to the Sub-Adviser,
the value of the Trust's net assets shall be computed at the times and in the
manner specified in the Trust's Prospectus and/or the Statement of Additional
Information.
Section 7. Costs and Expenses
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it and its staff in connection with the performance of its
services under this Agreement, including the payment of salaries of all officers
and employees who are employed by it, but not including expenses to be paid by
the Trust or the Adviser such as brokerage fees and commissions and custodian
charges. The Trust shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Trust's securities or other property, for
keeping its books of account, for any other charges of the custodian, and for
calculating the net asset value of the Trust as provided in the Trust's
Prospectus. The Sub-Adviser shall not be required to pay and the Trust (or the
Adviser) shall assume and pay the charges and expenses of the Trust's
operations, including compensation of the trustees, charges and expenses of
independent auditors, of legal counsel, of any transfer or dividend disbursing
agent, and of any registrar of the Trust, costs of acquiring and disposing of
portfolio securities, interest, if any, on obligations incurred by the Trust,
costs of share certificates and of reports, membership dues in the Investment
Company Institute or any similar organization, costs of reports and notices to
shareholders, other like miscellaneous expenses and all taxes and fees payable
to federal, state or other governmental agencies on account of the registration
of securities issued by the Trust, filing of trust documents or otherwise.
Section 8. Standard of Care
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Adviser or the Trust in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Sub-Adviser against any liability to the Adviser or the Trust to which the
Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross
<PAGE>
negligence on its part in the performance of its duties or by reason of the
Sub-Adviser's reckless disregard of its obligations and duties under this
Agreement.
Section 9. Services to Other Companies or Accounts
(a) Except as otherwise agreed between the Adviser and the Sub-Adviser,
it is understood that the services of the Sub-Adviser are not exclusive, and
nothing in this Agreement shall prevent the Sub-Adviser from providing similar
services to other investment companies (whether or not their investment
objectives and policies are similar to those of the Trust) or from engaging in
other activities.
(b) When the Sub-Adviser recommends the purchase or sale of a security
for other investment companies and other clients, and at the same time the
Sub-Adviser recommends the purchase or sale of the same security for the Trust,
it is understood that in light of its fiduciary duty to the Trust, such
transactions will be executed on a basis that it is fair and equitable to the
Trust.
(c) The Trust and the Adviser understand and acknowledge that the
persons employed by the Sub-Adviser to assist in the performance of its duties
under this Agreement will not devote their full time to that service; nothing
contained in this Agreement will be deemed to limit or restrict the right of the
Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature,
except as otherwise agreed between the adviser and the Sub-Adviser.
Section 10. Duration and Termination
(a) The Trust represents that this Agreement has been approved by the
Trust's Board of Trustees and shareholders pursuant to Section 15 of the Act.
This Agreement shall become effective on the date hereof and shall continue for
two years from that date, such continuance, to the extent required by the Act,
being subject to approval of this Agreement by the Trust's shareholders at the
first meeting of such shareholders following such date, and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (i) the Trust's Board of Trustees
or (ii) a vote of a majority of the Portfolio's outstanding voting securities
(as defined in the Act), provided that the continuance is also approved by a
majority of the Trustees who are not "interested persons" (as defined in the
Act) of the Trust, by vote cast in person at a meeting called for the purpose of
voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated (i)
by the Adviser at any time without penalty, upon 60 days' written notice to the
Sub-Adviser and the Trust, (ii) at any time without penalty by the Trust, upon
the vote of a majority of the Trust's outstanding voting securities, or by vote
of the majority of the Trust's outstanding voting
<PAGE>
securities, upon 60 days' written notice to the Sub-Adviser and the Adviser,
(iii) by the Sub-Adviser at any time without penalty, upon 60 days' written
notice to the Adviser and the Trust.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Act and in rules adopted under the Act).
Section 11. Amendments
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved in
accordance with applicable law.
Section 12. Limitations of Liability of Trustees, Officers, Employees,
Agents and Shareholders of the Trust
The Sub-Adviser is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be limited in
any case to the Trust and its assets and that the Sub-Adviser shall not seek
satisfaction of any such obligations from the shareholders of the Trust, the
Trustees, officers, employees or agents of the Trust, or any of them.
Section 13. Reference to the Sub-Adviser
During the terms of this Agreement, the Trust and the Adviser agree to
furnish the Sub-Adviser at its principal office, prior to the use thereof, all
prospectuses, proxy statements, reports to stockholders, sales literature or
other materials prepared for distribution to stockholders of the Portfolio, the
Trust or the public that refer to the Sub-Adviser or its clients in any way and
not to use material if the Sub-Adviser reasonably objects in writing within five
business days (or such other period as may be mutually agreed) after receipt
thereof. The Sub-Adviser's right to object to such materials is limited to the
portions of such materials that expressly relate to the Sub-Adviser, its
services and its clients. The Trust and the Adviser agree to use their
reasonably best efforts to ensure that materials prepared by their employees or
agents or their affiliates that refer to the Sub-Adviser or its clients in any
way are consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature may be
furnished to the Sub-Adviser by first-class or overnight mail, facsimile
transmission equipment or hand delivery.
Section 14. Miscellaneous
(a) This Agreement shall be governed by the laws of the Commonwealth of
Virginia, provided that nothing herein shall be construed in a manner
inconsistent with the Act, the Advisers Act, or rules or orders of the SEC
thereunder.
<PAGE>
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors.
(d) Nothing herein shall be construed as constituting the Sub-Adviser
as an agent of the Trust or the Adviser.
(e) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
(f) Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed.
To the Adviser at:
Mentor Investment Advisors, LLC
901 East Byrd Street
Richmond, Virginia 23219
To the Sub-Adviser at:
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
To the Trust or the Portfolio at:
Mentor Funds
901 East Byrd Street
Richmond, Virginia 23219
(g) Where the effect of a requirement of the 1940 Act reflected in any
provision of his Agreement is altered by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
<PAGE>
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
MENTOR INVESTMENT ADVISORS, LLC
By: ________________________________
Name:
Title:
MENTOR FUNDS
By: ________________________________
Name:
Title:
Accepted:
WELLINGTON MANAGEMENT COMPANY, LLP
By: ___________________________________
Name:
Title:
<PAGE>
APPENDIX I
The Adviser pays the Sub-Adviser an annual fee not to exceed the
following percentage of Portfolio assets as follows:
<TABLE>
<CAPTION>
Sub-Adviser's Rate of Fee in
Level of Portfolio Assets Accordance with Section 6 of the Agreement
------------------------- ------------------------------------------
<S> <C>
Up to and including $50 million 0.325%
In excess of $50 million up to 0.275%
and including $200 million
In excess of $200 million up to 0.225%
and including $500 million
In excess of $500 million 0.200%
</TABLE>
Exhibit 5(iv)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement dated as of February
1, 1997 between MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and
MENTOR PERPETUAL ADVISORS, LLC, a Virginia limited liability company (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 Mentor Perpetual Global Portfolio (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
A4-1
<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, of 1.10%
annually of the Portfolio's average daily net assets up to $75 million, and
1.00% annually of the Portfolio's average daily net assets over $75 million. 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
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<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 AGREEMENT.
This Agreement shall become effective upon its execution and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Agreement 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, or
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Portfolio, and
(ii) 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, do not specifically approve at least
annually the continuance of this Agreement, then this Agreement shall
automatically terminate at the close of business on , 1999 or the expiration of
one year from the effective date of the last such continuance, whichever is
later.
Action by the Trust under (a) above 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 Portfolio.
Termination of this Agreement pursuant to this Section 5 will be
without the payment
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<PAGE>
of any penalty.
6. 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.
7. 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.
8. 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.
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<PAGE>
IN WITNESS WHEREOF, MENTOR FUNDS and MENTOR PERPETUAL 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.
MENTOR FUNDS
on behalf of Mentor Perpetual Global Portfolio
By:_____________________________________
MENTOR PERPETUAL ADVISORS, LLC
By:______________________________________
A4-5
Exhibit 5(v)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT, made this 1st day of
February, 1998 by and between MENTOR FUNDS, a Massachusetts business trust (the
"Trust"), and MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability
company (the "Adviser").
RECITALS OF THE PARTIES
A. The Trust is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940 (the "1940 Act") and
has registered the shares of beneficial interest of Mentor Growth Portfolio, a
series of shares of beneficial interest of the Trust (the "Portfolio"), for sale
to the public under the Securities Act of 1933 and various state securities
laws; and
B. The Trust, on behalf of the Portfolio, wishes to retain the Adviser
to provide investment advisory and management services to the Portfolio; and
C. The Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and mutual covenants
herein contained, it is agreed as follows:
1. Information Furnished. The Trust, on behalf of the Portfolio, shall
at all times keep the Adviser fully informed with regard to the securities owned
by the Portfolio, its funds available, or to become available, for investment,
and generally as to its investments and investment program. It shall furnish the
Adviser with such other documents and information with regard to its investments
and investment program as the Trustees may from time to time reasonably request.
2. Research, Purchase, Sale, etc. of Securities.
(a) Subject to the direction and control of the Trustees of
the Trust, the Adviser shall regularly provide the Portfolio with investment
research, investment advice, and investment management and supervision and shall
furnish a continuous investment program for the Portfolio's portfolio of
securities consistent with the Portfolio's investment goals and policies. The
Adviser shall determine from time to time what securities will be purchased,
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<PAGE>
retained or sold by the Portfolio, and shall implement those decisions, all
subject to the supervision and direction of the Trustees, the provisions of the
Agreement and Declaration of Trust and Bylaws of the Trust, the 1940 Act, the
applicable rules and regulations of the Securities and Exchange Commission, and
other applicable federal and state law, as well as the investment goals and
policies of the Portfolio.
(b) The Trust, on behalf of the Portfolio, hereby authorizes
any entity or person associated with the Adviser 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).
3. Management Policies. In providing investment management services to
the Portfolio, the Adviser shall give primary consideration to securing the most
favorable price and efficient execution. In so doing, the Adviser may consider
the financial responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of the Adviser may be a
party. The Portfolio recognizes that it is desirable that the Adviser have
access to supplemental investment and market research and security and economic
analyses provided by brokers and that such brokers may execute brokerage
transactions at a higher cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Adviser is authorized to pay higher
brokerage commissions for the purchase and sale of securities for the Portfolio
to brokers who provide such research and analyses, subject to review by the
Trustees from time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers may be
useful to the Adviser in connection with its services to other clients.
4. Aggregation of Orders. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of the Portfolio as
well as other clients, the Adviser, to the extent permitted by applicable laws
and regulations, may aggregate the securities to be so sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Portfolio and to such other clients.
5. Nonexclusive Agreement.
(a) The Trust understands that the Adviser now acts and will
continue to act as investment adviser to various fiduciary or other managed
accounts, and the Portfolio has no objection to the Adviser's so acting. In
addition, it is understood that the persons employed by the Adviser to assist in
the performance of its duties hereunder will not devote their full
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<PAGE>
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Adviser or any affiliate of the Adviser to engage in
and devote time and attention to other businesses or to render services of
whatever kind or nature.
(b) The Trust understands that from time to time hereafter the
Adviser may act as investment adviser to one or more other investment companies,
and the Trust has no objection to the Adviser's so acting, provided that when
two or more companies managed by the Adviser have available funds for investment
in money market instruments, available money market investments will be
allocated in accordance with a formula believed to be equitable to each company.
It is recognized that in some cases this procedure may adversely affect the size
of the position obtainable for the Portfolio.
6. Expenses.
(a) The Adviser shall maintain all books and records with
respect to the Portfolio's securities transactions and keep the Portfolio's
books of account in accordance with all applicable federal and state laws and
regulations. The Adviser shall authorize and permit any of its directors,
officers and employees, who may be elected as Trustees or officers of the Trust,
to serve in the capacities in which they are elected.
(b) The Adviser shall bear the cost of rendering the
investment management services to be performed by it under this Agreement, and
shall, at its own expense, pay the compensation of the officers and employees,
if any, of the Trust who are employees of the Adviser.
(c) Other than as herein specifically indicated, the Adviser
shall not be responsible for the Portfolio's expenses. Specifically, the Adviser
will not be responsible, except to the extent of the reasonable compensation of
employees of the Trust whose services may be used by the Adviser hereunder, for
any of the following expenses of the Portfolio, which expenses shall be borne by
the Portfolio: interest, taxes, governmental fees or membership dues; brokerage
commissions or charges, if any; fees of custodians, transfer agents, registrars
or other agents; expense of preparing share certificates; expenses relating to
the redemption or repurchase of the Portfolio's shares; expenses of registering
and qualifying Portfolio shares for sale under applicable federal and state law;
expenses of preparing, setting in print, printing and distributing prospectuses,
reports, notices and dividends to Portfolio shareholders; cost of stationery;
costs of shareholders' and other meetings of the Portfolio; traveling expenses
of officers, Trustees and employees of the Trust, if any; fees of the Trust's
independent Trustees and salaries of any officers or employees who are not
affiliated with the Adviser; and the Portfolio's pro rata portion of premiums on
any fidelity bond and other insurance covering the Trust and its officers and
Trustees.
(d) If, in any fiscal year, the Portfolio's total operating
expenses, exclusive of taxes, interest, brokerage fees, distribution fees and
extraordinary expenses (to the extent permitted by applicable state securities
laws and regulations), exceed the lowest applicable
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<PAGE>
annual expense limitation established pursuant to statute or regulation of any
jurisdiction in which shares of the Portfolio are offered for sale, the Adviser
will reimburse (or assume expenses of) the Portfolio for the amount of such
excess. Such expense reimbursement (or assumption), will be estimated,
reconciled and paid (or assumed) on a monthly basis.
7. Salaries. No Trustee, officer or employee of the Trust shall receive
from the Trust any salary or other compensation as such Trustee, officer or
employee while he is at the same time a Trustee, officer or employee of the
Adviser or any affiliated company of the Adviser. This paragraph shall not apply
to Trustees, executive committee members, consultants and other persons who are
not regular members of the Adviser's or any affiliated company's staff.
8. Compensation of Adviser. As compensation for the services performed
and the facilities furnished and expenses assumed by the Adviser, including the
services of any consultants retained by the Adviser, the Portfolio shall pay the
Adviser, as promptly as possible after the last day of each month, a fee,
calculated daily, of .70 of 1% annually of the Portfolio's average daily net
assets. 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 due the Adviser for all services
prior to that date. If this Agreement is terminated as of any date 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 Adviser under this Agreement
and the detailed computation thereof.
9. Responsibility of Adviser. The Adviser assumes no responsibility
under this Agreement other than to render the services called for hereunder, in
good faith, and shall not be responsible for any action of the Trustees in
following or declining to follow any advice or recommendation of the Adviser;
provided, however, that nothing in this Agreement shall protect the Adviser
against any liability to the Portfolio or its shareholders to which it would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
10. Limitation of Employment. Nothing in this Agreement shall limit or
restrict the right of any director, officer, or employee of the Adviser who may
also be a Trustee, officer, or employee of the Trust, to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business whether of a similar nature or a dissimilar
nature, nor to limit or restrict the right of the Adviser to engage in any other
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<PAGE>
business or to render services of any kind, including investment advisory and
management services, to any other corporation, firm, individual or association.
11. Definitions. As used in this Agreement, the terms "securities," and
"net assets," shall have the meanings ascribed or attributed to them in the
Registration Statement of the Trust on Form N-1A; and the terms "assignment,"
"interested person," and "majority of the outstanding voting securities" shall
have the meanings given to them by Section 2(a) of the 1940 Act, subject to such
exemptions as may be granted by the Securities and Exchange Commission by any
rule, regulation or order.
12. Term. Subject to the provisions of paragraphs 13 and 14 below, this
Agreement will remain in effect for two years from the date of its execution and
from year to year thereafter, provided that the Adviser does not notify the
Trust in writing at least sixty (60) days prior to the expiration date in any
year that it does not wish continuance of the Agreement for an additional year.
13. Termination. This Agreement shall terminate automatically in the
event of its assignment by the Adviser and shall not be assignable by the
Portfolio without the consent of the Adviser. This Agreement may also be
terminated at any time, without the payment of any penalty, by the Trustees or
by vote of a majority of the outstanding voting securities of the Portfolio by
sixty (60) days' written notice addressed to the Adviser at its principal place
of business.
14. Approval of Trustees. This Agreement 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 who are not
parties to this Agreement or interested persons of such parties, cast in person
at a meeting called for that purpose, and either by vote of the holders of a
majority of the outstanding voting securities of the Portfolio or by majority
vote of the Trustees.
15. Agreement and Declaration of Trust. A copy of the Agreement and
Declaration of Trust of the Trust is on file with the Secretary of Sate 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized.
MENTOR FUNDS
on behalf of Mentor Growth
Portfolio
By:____________________________
Title:
MENTOR INVESTMENT ADVISORS, LLC
By:____________________________
Title:
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Exhibit 5(vi)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of February 1, 1998 between MENTOR
FUNDS, a Massachusetts business trust (the "Trust"), on behalf of the MENTOR
STRATEGY PORTFOLIO, and MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited
liability company (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 series of shares of beneficial interest of the Trust
designated for such purpose by the Trustees (the "Portfolio"), will determine
what investments shall be purchased, held, sold, or exchanged by each of the
Funds and what portion, if any, of the assets of a Portfolio shall be held
uninvested and shall, on behalf of each Portfolio, 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 Trust and each Portfolio's stated investment objectives, policies, and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Trust 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
Trust as provided in Section 1(d), 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 Contract.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for each Portfolio's account with
brokers or dealers selected by
<PAGE>
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 each
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 Trust'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 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 Contract 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 each
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and each 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 Trust 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 Trust. 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 contracts with other organizations and persons, and may have
other interests and business.
<PAGE>
3. COMPENSATION TO BE PAID BY THE TRUST 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, each Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, of 0.85 of
1% annually of the Portfolio's average daily net assets. 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 in respect of the Portfolio, 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 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 CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract 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 (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract as to
one or more Funds or as to the Trust as a whole 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, or
<PAGE>
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of any Portfolio, and
(ii) 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, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate at the close of business on February 1, 2000 or the
expiration of one year from the effective date of the last such continuance,
whichever is later.
Action by the Trust under (a) above 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 affected Portfolio.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of a 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 Contract, 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.
7. 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.
<PAGE>
8. 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.
IN WITNESS WHEREOF, 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.
MENTOR FUNDS
on behalf of the Mentor Strategy Portfolio
By:____________________________
Title:
MENTOR INVESTMENT ADVISORS, LLC
By:____________________________
Title:
Exhibit 5(vii)
Mentor Short-Duration Income Portfolio
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of February 1, 1998 between MENTOR
FUNDS, a Massachusetts business trust (the "Trust"), on behalf of the MENTOR
SHORT-DURATION INCOME PORTFOLIO, and MENTOR INVESTMENT ADVISORS, LLC, a Virginia
limited liability company (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 series of shares of beneficial interest of the Trust
designated for such purpose by the Trustees (the "Portfolio"), will determine
what investments shall be purchased, held, sold, or exchanged by each of the
Funds and what portion, if any, of the assets of a Portfolio shall be held
uninvested and shall, on behalf of each Portfolio, 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 Trust and each Portfolio's stated investment objectives, policies, and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Trust 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
Trust as provided in Section 1(d), 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 Contract.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for each Portfolio's account with
brokers or dealers selected by
<PAGE>
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 each
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 Trust'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 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 Contract 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 each
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and each 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 Trust 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 Trust. 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 contracts with other organizations and persons, and may have
other interests and business.
<PAGE>
3. COMPENSATION TO BE PAID BY THE TRUST 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, each Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, of 0.50 of
1% annually of the Portfolio's average daily net assets. 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 in respect of the Portfolio, 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 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 CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract 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 (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract as to
one or more Funds or as to the Trust as a whole 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, or
<PAGE>
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of any Portfolio, and
(ii) 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, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate at the close of business on February 1, 2000 or the
expiration of one year from the effective date of the last such continuance,
whichever is later.
Action by the Trust under (a) above 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 affected Portfolio.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of a 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 Contract, 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.
7. 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.
<PAGE>
8. 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.
IN WITNESS WHEREOF, 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.
MENTOR FUNDS
on behalf of the Mentor Short-Duration Income
Portfolio
By:____________________________
Title:
MENTOR INVESTMENT ADVISORS, LLC
By:____________________________
Title:
Exhibit 5(viii)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Management Contract dated as of February 1, 1998 between MENTOR
FUNDS, a Massachusetts business trust (the "Trust"), on behalf of the MENTOR
BALANCED PORTFOLIO, and MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited
liability company (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 series of shares of beneficial interest of the Trust
designated for such purpose by the Trustees (the "Portfolio"), will determine
what investments shall be purchased, held, sold, or exchanged by each of the
Funds and what portion, if any, of the assets of a Portfolio shall be held
uninvested and shall, on behalf of each Portfolio, 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 Trust and each Portfolio's stated investment objectives, policies, and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Trust 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
Trust as provided in Section 1(d), 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 Contract.
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for each Portfolio's account with
brokers or dealers selected by
<PAGE>
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 each
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 Trust'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 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 Contract 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 each
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and each 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 Trust 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 Trust. 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 contracts with other organizations and persons, and may have
other interests and business.
<PAGE>
3. COMPENSATION TO BE PAID BY THE TRUST 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, each Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, of 0.75 of
1% annually of the Portfolio's average daily net assets. 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 in respect of the Portfolio, 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 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 CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Contract 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 (unless terminated
automatically as set forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract as to
one or more Funds or as to the Trust as a whole 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, or
<PAGE>
(b) If (i) the Trustees of the Trust or the shareholders by the
affirmative vote of a majority of the outstanding shares of any Portfolio, and
(ii) 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, do not specifically approve at least
annually the continuance of this Contract, then this Contract shall
automatically terminate at the close of business on February 1, 2000 or the
expiration of one year from the effective date of the last such continuance,
whichever is later.
Action by the Trust under (a) above 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 affected Portfolio.
Termination of this Contract pursuant to this Section 5 will be without
the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a majority
of the outstanding shares" of a 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 Contract, 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.
7. 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.
<PAGE>
8. 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.
IN WITNESS WHEREOF, 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.
MENTOR FUNDS
on behalf of the Mentor Balanced Portfolio
By:____________________________
Title:
MENTOR INVESTMENT ADVISORS, LLC
By:____________________________
Title:
Exhibit 5(ix)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement dated as of February
1, 1998 between MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and
MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability company (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
-1-
<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 February 1, 2000 (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, 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.
MENTOR FUNDS
on behalf of Mentor Institutional Money
Market Portfolio
By:_____________________________________
MENTOR INVESTMENT ADVISORS, LLC
By:______________________________________
-5-
Exhibit 5(x)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement dated as of February
1, 1998 between MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and
MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability company (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 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
<PAGE>
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 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
<PAGE>
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 February 1, 1998 (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.
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
<PAGE>
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 Mentor
Institutional Trust (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 for the Fund 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 Fund but are binding
only upon the assets and property of the Fund.
<PAGE>
IN WITNESS WHEREOF, 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.
MENTOR FUNDS
on behalf of Mentor Institutional U.S.
Government Money Market Portfolio
By:_____________________________________
MENTOR INVESTMENT ADVISORS, LLC
By:______________________________________
Exhibit 5(xii)
MENTOR FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement dated as of
, 1998 between MENTOR FUNDS, a Massachusetts business trust (the
"Trust"), and MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability
company (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 High Income 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 Trust 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 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
-1-
<PAGE>
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, as amended 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
annual rate of 0.70% of the Portfolio's average daily net assets. 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 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
-2-
<PAGE>
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 Agreement shall become effective upon its execution and shall
remain in full force and effect continuously thereafter until the close of
business on , 2000 (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 Portfolio.
Termination of this Agreement 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 Agreement, this
Agreement 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 Mentor
Institutional Trust (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 for the Portfolio 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 Fund but are binding
only upon the assets and property of the Portfolio.
-4-
<PAGE>
IN WITNESS WHEREOF, 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.
MENTOR FUNDS
on behalf of Mentor High Income Portfolio
By:_____________________________________
MENTOR INVESTMENT ADVISORS, LLC
By:______________________________________
-5-
Exhibit 5(xiii)
MENTOR FUNDS
SUB-ADVISORY AGREEMENT
, 1998
Van Kampen American Capital Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Dear Sirs:
Under an agreement (the "Management Agreement") between Mentor Funds, a
Massachusetts business trust (the "Trust"), and Mentor Investment Advisors, LLC,
a Virginia limited liability company (the "Adviser"), the Adviser serves as the
Trust's investment adviser to Mentor High Income Portfolio, a series of shares
of the Trust (the "Portfolio").
The Adviser hereby confirms its agreement with Van Kampen American
Capital Management, Inc. (the "Sub-Adviser") and the Trust with respect to the
Sub-Adviser's serving as the sub-adviser of the Portfolio as follows:
Section 1. Investment Description; Appointment
(a) The Trust desires to employ the Portfolio's capital by investing
and reinvesting in investments of the kind and in accordance with the investment
objectives, policies and limitations specified in the prospectus (the
"Prospectus") and in the statement of additional information (the "Statement of
Additional Information") filed with the Securities and Exchange Commission (the
"SEC") as part of the Trust's Registration Statement on Form N-1A, as amended
from time to time (the "Registration Statement"). The Adviser has herewith
furnished the Sub-Adviser copies of the Trust's Prospectus, Statement of
Additional Information, Declaration of Trust and By-Laws as currently in effect
and agrees during the continuance of the Agreement to furnish the Sub-Adviser
copies of any amendments or supplements thereto before or at the time the
amendments or supplements become effective. The Sub-Adviser will be entitled to
rely on all such documents furnished to it by the Adviser or the Trust.
(b) The Adviser, with the approval of the Trust, hereby appoints the
Sub-Adviser to act as investment adviser to the Portfolio for the periods and on
the terms set forth in this Agreement, and with respect to the assets of the
Portfolio designated by the Adviser to the
-1-
<PAGE>
Sub-Adviser from time to time (the "Designated Assets"). The Sub-Adviser accepts
such appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
Section 2. Portfolio Management Duties
(a) Subject to the supervision of the Adviser and the Trust's Board of
Trustees, the Sub-Adviser will (i) manage the Designated Assets in accordance
with the Portfolio's investment objectives, policies and limitations as stated
in the Trust's Prospectus and Statement of Additional Information; (ii) make
investment decisions for the Portfolio in respect of the Designated Assets; and
(iii) place orders to purchase and sell securities and (where appropriate)
commodity futures contracts for the Portfolio in respect of the Designated
Assets.
(b) The Sub-Adviser will keep the Trust and the Adviser informed of
developments materially affecting the Portfolio and shall, on the Sub-Adviser's
own initiative and as reasonably requested by the Adviser or the Trust, furnish
to the Trust and the Adviser from time to time whatever information the Adviser
reasonably believes appropriate for this purpose.
(c) The Sub-Adviser agrees that, in the performance of the duties
required of it by this Agreement, it will comply with the Investment Company Act
of 1940, as amended (the "Act"), and all rules and regulations thereunder, all
applicable federal and state laws and regulations and with any applicable
procedures adopted by the Trust's Board of Trustees and identified in writing to
the Sub-Adviser. The Adviser will provide to the Sub-Adviser any specific
procedures that must be followed in the performance of Sub-Adviser's duties
hereunder by reason of the affiliation of other sub-advisers or service
providers with the Trust.
Section 3. Brokerage
(a) The Sub-Adviser agrees that it will place orders pursuant to its
investment determinations for the Portfolio either directly with the issuer or
with brokers or dealers selected by the Sub-Adviser in accordance with the
standards specified in paragraphs (b) and (c) of this Section 3. Until notified
to the contrary by the Adviser, the Sub-Adviser may place orders for the
Portfolio with affiliates of the Adviser in accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, Section 17(e) of
the Act and Rule 17e-1 thereunder and other applicable laws and regulations. The
Sub-Adviser will identify to the Adviser in writing any brokers or dealers which
are affiliates of the Sub-Adviser. The Adviser will identify to the Sub-Adviser
in writing any brokers and dealers which are affiliates of the Adviser and will
forward to each Sub-Adviser information provided by the other Sub-Advisers with
respect to affiliated broker-dealers of such Sub-Advisers.
(b) In placing orders with brokers and dealers, the Sub-Adviser will
seek the best overall terms available. In assessing the best overall terms
available for any portfolio transaction, the Sub-Adviser will consider all
factors it deems relevant including, but not
-2-
<PAGE>
limited to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
on a continuing basis.
(c) Subject to the requirements of subsections (a) and (b) above, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser shall have the right to
request in writing that transactions giving rise to brokerage commissions shall
be executed by brokers and dealers that provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Trust or will be of value to the Trust in the management of its
assets or the Adviser's performance of its management services provided to the
Trust. In addition, subject to the requirements of subsections (a) and (b) above
and the applicable Rules of Fair Practice of the National Association of
Securities Dealers, Inc., the Trust shall have the right to request that such
transactions be executed by brokers and dealers by or through whom sales of
shares of the Trust are made.
Section 4. Information Provided to the Adviser and the Trust
(a) The Sub-Adviser agrees that it will make available to the Adviser
and the Trust promptly upon their request copies of all of its records with
respect to the Portfolio to assist the Adviser and the Trust in monitoring
compliance with the Act and the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), as well as other applicable laws. The Sub-Adviser will furnish
the Trust's Board of Trustees with respect to the Portfolio such periodic and
special reports as the Adviser and the Board of Trustees may reasonably request.
(b) The Sub-Adviser agrees that it will immediately notify the Adviser
and the Trust in the event that the Sub-Adviser or any of its affiliates: (i)
becomes subject to a statutory disqualification that prevents the Sub-Adviser
from serving as investment advisor pursuant to this Agreement; or (ii) if it is
or expects to become the subject of an administrative proceeding or enforcement
action by the SEC or other regulatory authority. The Sub-Adviser has provided
the information about itself set forth in the Registration Statement and
acknowledges that, as of the date hereof, it is true and correct and contains no
material misstatement or omission, and the Sub-Adviser further agrees to notify
the Adviser immediately of, (i) any material fact known to the Sub-Adviser
respecting or relating to the Sub-Adviser that is not contained in the
Prospectus or Statement of Additional Information of the Trust, or any amendment
or supplement thereto, if the omission of such would make such document
misleading, (ii) any statement contained therein relating to the Sub-Adviser
that becomes untrue in any material respect, or (iii) any material change in the
investment objective and policies of the mutual fund advised by the Sub-Adviser
and identified in the Prospectus as being a model for the Portfolio.
-3-
<PAGE>
(c) The Sub-Adviser represents that it is an investment adviser
registered under the Advisers Act and other applicable laws and that the
statements contained in the Sub-Adviser's registration under the Advisers Act on
Form ADV, as of the date hereof, are true and correct and do not omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The Sub-Adviser agrees to maintain the
completeness and accuracy of its registration on Form ADV in accordance with all
legal requirements relating to that Form. The Sub-Adviser acknowledges that it
is an "investment advisor" to the Portfolio within the meaning of the Act and
the Advisers Act.
Section 5. Books and Records
In compliance with the requirements of Rule 31a-3 under the Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to the Trust
copies of any such records upon the Trust's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the Act the
records with respect to the Sub-Adviser's duties hereunder required to be
maintained by Rule 31a-1 under the Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period specified in that Rule.
Section 6. Compensation
(a) In consideration of services rendered pursuant to this Agreement,
the Adviser will pay the Sub-Adviser a fee that is computed daily and paid
monthly at the annual rate set forth in Appendix I to this Agreement (the
"Portfolio Advisory Fee"). From time to time the Sub-Adviser may agree to
reimburse the Trust additional expenses or waive a portion or all of its fee, in
the sole discretion of the Sub-Adviser.
(b) The Portfolio Advisory Fee for the period from the date that the
Portfolio commences investment operations to the end of the month during which
the Portfolio commences investment operations shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(c) For the purposes of determining fees payable to the Sub-Adviser,
the value of the Trust's net assets shall be computed at the times and in the
manner specified in the Trust's Prospectus and/or the Statement of Additional
Information.
Section 7. Costs and Expenses
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it and its staff in connection with the performance of its
services under this Agreement, including
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the payment of salaries of all officers and employees who are employed by it,
but not including expenses to be paid by the Trust or the Adviser such as
brokerage fees and commissions and custodian charges. The Trust shall assume and
pay any expenses for services rendered by a custodian for the safekeeping of the
Trust's securities or other property, for keeping its books of account, for any
other charges of the custodian, and for calculating the net asset value of the
Trust as provided in the prospectus of the Trust. The Sub-Adviser shall not be
required to pay and the Trust (or the Adviser) shall assume and pay the charges
and expenses of the Trust's operations, including compensation of the trustees,
charges and expenses of independent auditors, of legal counsel, of any transfer
or dividend disbursing agent, and of any registrar of the Trust, costs of
acquiring and disposing of portfolio securities, interest, if any, on
obligations incurred by the Trust, costs of share certificates and of reports,
membership dues in the Investment Company Institute or any similar organization,
costs of reports and notices to shareholders, other like miscellaneous expenses
and all taxes and fees payable to federal, state or other governmental agencies
on account of the registration of securities issued by the Trust, filing of
trust documents or otherwise.
Section 8. Standard of Care
The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Adviser or the Trust in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Sub-Adviser against any liability to the Adviser or the Trust to which the
Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Sub-Adviser's reckless disregard of its obligations and duties
under this Agreement.
Section 9. Services to Other Companies or Accounts
(a) Except as otherwise agreed between the Adviser and the Sub-Adviser,
it is understood that the services of the Sub-Adviser are not exclusive, and
nothing in this Agreement shall prevent the Sub-Adviser from providing similar
services to other investment companies (whether or not their investment
objectives and policies are similar to those of the Trust) or from engaging in
other activities.
(b) When the Sub-Adviser recommends the purchase or sale of a security
for other investment companies and other clients, and at the same time the
Sub-Adviser recommends the purchase or sale of the same security for the Trust,
it is understood that in light of its fiduciary duty to the Trust, such
transactions will be executed on a basis that it is fair and equitable to the
Trust.
(c) The Trust and the Adviser understand and acknowledge that the
persons employed by the Sub-Adviser to assist in the performance of its duties
under this Agreement will not devote their full time to that service; nothing
contained in this Agreement will be
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deemed to limit or restrict the right of the Sub-Adviser or any affiliate of the
Sub-Adviser to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature, except as otherwise agreed between
the Adviser and the Sub-Adviser.
Section 10. Duration and Termination
(a) The Trust represents that this Agreement has been approved by the
Trust's Board of Trustees and shareholders pursuant to Section 15 of the Act.
This Agreement shall become effective on the date hereof and shall continue for
two years from that date, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually by (i) the Trust's Board of Trustees or (ii) a vote of a majority
of the Portfolio's outstanding voting securities (as defined in the Act),
provided that the continuance is also approved by a majority of the Trustees who
are not "interested persons" (as defined in the Act) of the Trust, by vote cast
in person at a meeting called for the purpose of voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated (i)
by the Adviser at any time without penalty, upon 60 days' written notice to the
Sub-Adviser and the Trust, (ii) at any time without penalty by the Trust, upon
the vote of a majority of the Trust's Trustees or by vote of the majority of the
Trust's outstanding voting securities, upon 60 days' written notice to the
Sub-Adviser and the Adviser, or (iii) by the Sub-Adviser at any time without
penalty, upon 60 days' written notice to the Adviser and the Trust.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Act and in rules adopted under the Act).
Section 11. Amendments
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved in
accordance with applicable law.
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Section 12. Limitations of Liability of Trustees, Officers, Employees, Agents
and Shareholders of the Trust
The Sub-Adviser is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this Agreement shall be limited in
any case to the Trust and its assets and that the Sub-Adviser shall not seek
satisfaction of any such obligations from the shareholders of the Trust, the
Trustees, officers, employees or agents of the Trust, or any of them.
Section 13. Miscellaneous
(a) This Agreement shall be governed by the laws of the Commonwealth of
Virginia, provided that nothing herein shall be construed in a manner
inconsistent with the Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Sub-Adviser
as an agent of the Trust or the Adviser.
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
MENTOR INVESTMENT ADVISORS, LLC
By:_________________________
Name:
Title:
MENTOR FUNDS
By:__________________________
Name:
Title:
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Accepted:
VAN KAMPEN AMERICAN CAPITAL MANAGEMENT, INC.
By:_________________________
Name:
Title:
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APPENDIX I
The Adviser pays the Sub-Adviser an annual fee not to exceed the following
percentage of Portfolio assets as follows:
SUB-ADVISER'S RATE
OF FEE IN
ACCORDANCE WITH
SECTION 6 OF THE
THE MENTOR FUNDS AGREEMENT
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Mentor High Income Portfolio .20% of average net assets
of the Portfolio
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Exhibit 6(i)
MENTOR FUNDS
DISTRIBUTION AGREEMENT
This Distribution Agreement is entered into as of March 31, 1998 by and
between MENTOR FUNDS (the "Trust") and BISYS FUND SERVICES LIMITED PARTNERSHIP
("BISYS").
WHEREAS, the Trust and BISYS are desirous of entering into an agreement
providing for the distribution by BISYS of shares of beneficial interest
("shares") of each of the series of the Trust (each, a "Portfolio");
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Trust hereby appoints BISYS as a distributor of shares of each of
the Portfolios, and BISYS hereby accepts such appointment, all as set forth
below:
1. Reservation of Right Not to Sell. The Trust reserves the right to
refuse at any time or times to sell any of its shares hereunder for any reason.
2. Payments to BISYS. In connection with the distribution of shares of
a Portfolio, BISYS will be entitled to receive: (a) payments pursuant to any
Distribution Plan from time to time in effect in respect of such Portfolio or
any particular class of shares of such Portfolio, as determined by the Board of
Trustees of the Trust, (b) any contingent deferred sales charges applicable to
the redemption of shares of such Portfolio or of any particular class of shares
of such Portfolio, determined in the manner set forth in the then current
Prospectus and Statement of Additional Information of such Portfolio, and (c)
subject to the provisions of Section 3 below, any front-end sales charges
applicable to the sale of shares of such Portfolio or of any particular class of
shares of such Portfolio, less any applicable dealer discount.
3. Services to be provided by BISYS; Sales of Shares to BISYS and Sales
by BISYS. BISYS will provide general sales and distribution services in respect
of the shares of the Portfolios, including without limitation reviewing
advertising and sales literature and filing such advertising and sales
literature with appropriate regulatory authorities, monitoring the Trust's
continuing compliance with all applicable state securities and Blue Sky laws,
preparing reports to the officers and Trustees of the Trust in respect of the
distribution of the Portfolios' shares, performing internal audit examinations
related to the distribution function (the scope and timing of such examinations
to be as determined from time to time by the officers of the Trust and BISYS),
and providing such other services as are customarily provided by the principal
underwriter and distributor for an open-end investment company, subject in each
case
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to such instructions or guidelines as may be specified by the Trustees or
officers of the Trust from time to time.
BISYS will have the right, as principal, to purchase shares from a
Portfolio at their net asset value and to sell such shares to investment dealers
or the public against orders therefor (a) at the public offering price
(calculated as described below) less a discount determined by BISYS, which
discount shall not exceed the amount of the maximum sales charge permitted under
applicable law, or (b) at net asset value, in each case as provided in the
current Prospectus and Statement of Additional Information relating to such
shares. Upon receipt of an order in proper form (in accordance with the then
current prospectus) to purchase shares from an investment dealer with whom BISYS
has a sales contract, BISYS will promptly fill such order. The public offering
price of a class of shares of a Portfolio shall be the net asset value of such
shares then in effect, plus any applicable front-end sales charge determined in
the manner set forth in the then current Prospectus and Statement of Additional
Information relating to such shares or as permitted by the Investment Company
Act of 1940, as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder. The net asset value of the shares
shall be determined in the manner provided in the Agreement and Declaration of
Trust of the Trust as then amended and when determined shall be applicable to
transactions as provided for in the then current Prospectus and Statement of
Additional Information relating to such shares.
BISYS will also have the right, as principal, to sell shares otherwise
subject to a front-end sales charge or a contingent deferred sales charge not
subject to such a sales charge to such persons as may be approved by the Board
of Trustees of the Trust, all such sales to comply with the provisions of the
Investment Company Act of 1940, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Upon receipt of registration instructions in proper form and payment
for shares, BISYS will transmit such instructions to the Trust or its agent for
registration of the shares purchased.
On every sale the Trust shall receive the applicable net asset value of
the shares. The net asset value of the shares of any class shall be determined
in the manner provided in the Agreement and Declaration of Trust of the Trust as
then amended and when determined shall be applicable to transactions as provided
for in the then current Prospectus and Statement of Additional Information
relating to such shares.
4. Sales of Shares by the Trust. The Trust reserves the right to issue
shares at any time directly to its shareholders as a stock dividend or stock
split and to sell shares to its shareholders or to other persons at not less
than net asset value.
5. Repurchase of Shares. BISYS will act as agent for the Trust in
connection with the repurchase of shares of the various Portfolios by the Trust
upon the terms and conditions
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set forth in a then current Prospectus and Statement of Additional Information
relating to such shares.
6. Basis of Purchases and Sales of Shares. BISYS will use its best
efforts to place shares sold by it on an investment basis. BISYS does not agree
to sell any specific number of shares. Shares will be sold by BISYS only against
orders therefor. BISYS will not purchase shares from anyone other than the Trust
except in accordance with Section 5, and will not take "long" or "short"
positions in shares contrary to the Agreement and Declaration of Trust of the
Trust.
7. Rules of NASD, etc. BISYS will conform to the Rules of the National
Association of Securities Dealers, Inc. and applicable securities laws of any
jurisdiction in which it sells, directly or indirectly, any shares. BISYS also
agrees to furnish to the Trust sufficient copies of any agreements or plans it
intends to use in connection with any sales of shares in adequate time for the
Trust to file and clear them with the proper authorities before they are put in
use, and not to use them until so filed and cleared.
8. BISYS Independent Contractor. BISYS shall be an independent
contractor, and neither BISYS nor any of its officers or employees, as such, is
or shall be an employee of the Trust. BISYS is responsible for its own conduct
and the employment, control, and conduct of its agents and employees and for
injury to such agents or employees or to others through its agents or employees.
BISYS assumes full responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder.
BISYS will maintain at its own expense insurance against public
liability in such an amount as the Board of Trustees of the Trust may from time
to time reasonably request.
9. Expenses. BISYS will pay all of its own expenses in performing its
obligations hereunder.
10. Indemnification. (a) The Trust agrees to indemnify, defend, and
hold harmless BISYS, its several partners and employees, and any person who
controls BISYS within the meaning of Section 15 of the Securities Act of 1933,
as amended (the "Securities Act"), from and against any and all losses, claims,
demands, liabilities, and reasonable expenses (including the costs of
investigating or defending such losses, claims, demands, or liabilities and
reasonable counsel fees incurred in connection therewith) which BISYS, its
partners and employees, or any such controlling person may incur or to which
they or any of them may become subject under the Securities Act or under common
law or otherwise, arising out of or based upon any untrue statement, or alleged
untrue statement, of a material fact contained in any registration statement or
any prospectus of the Trust for the sale of shares of the Trust or arising out
of or based upon any omission or alleged omission to state a material fact
required to be stated in any such registration statement or prospectus or
necessary to make the statements in either thereof not misleading; provided,
however, that (i) the Trust shall be under
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no obligation to indemnify, defend, or hold harmless BISYS, its partners or
employees, or any such controlling person from or against any such losses,
claims, demands, liabilities, or expenses directly or indirectly arising out of
or based on any such untrue statement or alleged untrue statement or any such
omission or alleged omission made in reliance upon and in conformity with
information furnished to the Trust or its agents by BISYS or persons acting for
it or on its behalf, (ii) the Trust shall not be liable to BISYS under this
paragraph if any such losses, claims, demands, liabilities, or expenses result
from the fact that BISYS sold securities of the Trust to any person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the then current prospectus of the Trust relating to such
securities; and (iii) the Trust shall not be liable to BISYS under this
paragraph in respect of any liability of BISYS or any other person to the Trust
or its shareholders by reason of the willful misconduct, bad faith, or gross
negligence of BISYS or any such other person or the reckless disregard of BISYS
of its obligations under this Agreement.
(b) BISYS agrees to indemnify, defend, and hold harmless the Trust, its
several Trustees and employees, and any person who controls the Trust within the
meaning of Section 15 of the Securities Act, from and against any and all
losses, claims, demands, liabilities, and reasonable expenses (including the
costs of investigating or defending such losses, claims, demands, or liabilities
and reasonable counsel fees incurred in connection therewith) which the Trust,
its Trustees and employees, or any such controlling person may incur or to which
they or any of them may become subject under the Securities Act or under common
law or otherwise, (i) arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus for the sale of shares of the Trust or arising out
of or based upon any omission or alleged omission to state a material fact
required to be stated in any such registration statement or prospectus or
necessary to make the statements in either thereof not misleading if any such
untrue statement or alleged untrue statement or any such omission or alleged
omission is made by the Trust in reliance upon and in conformity with
information furnished to the Trust or its agents by BISYS or persons acting for
it or on its behalf or (ii) arising out of or based upon any breach or alleged
breach by BISYS of any provision of this Agreement or the gross negligence of
BISYS or the reckless disregard by BISYS of its duties.
11. 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. This Agreement may be amended only if
such amendment be approved either by action of the Board of Trustees of the
Trust or at a meeting of the shareholders of the affected Portfolio or
Portfolios by the affirmative vote of a majority of the outstanding shares of
such Portfolio or Portfolios, and by a majority of the Trustees of the Trust who
are not interested persons of the Trust or of BISYS by vote cast in person at a
meeting called for the purpose of voting on such approval.
12. Effective Period and Termination of this Agreement. This Agreement
shall take effect upon the date first above written and shall remain in full
force and effect continuously
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(unless terminated automatically as set forth in Section 11) until terminated in
respect of any Portfolio or Portfolios:
(a) Either by the Trust or BISYS by not more than sixty (60)
days nor less than ten (10) days written notice delivered or mailed by
registered mail, postage prepaid, to the other party; or
(b) If the continuance of this Agreement after the date two
years from the date of this Agreement is not specifically approved at
least annually by the Board of Trustees of the Trust or the
shareholders of the affected Portfolio or Portfolios by the affirmative
vote of a majority of the outstanding shares of the affected Portfolio
or Portfolios, and by a majority of the Trustees of the Trust who are
not interested persons of the Trust or of BISYS by vote cast in person
at a meeting called for the purpose of voting on such approval.
Action by the Trust or any Portfolio under (a) above may be taken
either (i) by vote of the Board of Trustees or (ii) by the affirmative vote of a
majority of the outstanding shares of the Trust or the affected Portfolio or
Portfolios. The requirement under (b) above that continuance of this Agreement
be "specifically approved 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.
Termination of this Agreement pursuant to this Section 12 shall be
without the payment of any penalty.
13. Certain Definitions. For purposes of this Agreement, the
"affirmative vote of a majority of the outstanding shares" of the Trust or a
Portfolio means the affirmative vote, at a duly called and held meeting of
shareholders of the Trust or the Portfolio, as the case may be, (a) of the
holders of 67% or more of the shares of the Trust or 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 Trust or 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 Trust or the Portfolio entitled
to vote at such meeting, whichever is less.
For the purposes of the Agreement, the terms "interested person" and
"assignment" shall have the meanings defined in the Investment Company Act of
1940, as amended, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
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 or arising out of this instrument are not binding upon any of the
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Trustees, officers, or shareholders individually but are binding only upon the
assets and property of the Trust.
IN WITNESS WHEREOF, each of MENTOR FUNDS and BISYS FUND SERVICES
LIMITED PARTNERSHIP has caused this Distribution Agreement to be signed in
duplicate in its behalf, as of the day and year first above written.
MENTOR FUNDS
By________________________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By________________________________
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Exhibit 8(iii)
MENTOR FUNDS
901 East Byrd Street
Richmond, Virginia 23219
February 1, 1998
Mentor Investment Group, LLC
901 East Byrd Street
Richmond, Virginia 23219
Re: Administration Agreement
Dear Gentlemen:
Mentor Funds, a Massachusetts business trust (the "Fund"), is engaged
in the business of an investment company. The Fund currently has ten series of
shares (each, a "Series"), and the Trustees of the Fund may in their discretion
authorize additional series of shares from time to time. The Fund desires that
you act as administrator of one or more Series specified by the Trustees from
time to time on Exhibit A hereto (each, a "Specified Series") of the Fund, and
you are willing to act as such administrator and to perform such services under
the terms and conditions hereinafter set forth.
Accordingly, the Fund agrees with you as follows:
1. Delivery of Fund Documents. The Fund has furnished you with
copies properly certified or authenticated of each of the following:
(a) Agreement and Declaration of Trust of the Fund.
(b) By-laws of the Fund as in effect on the date hereof.
(c) Resolutions of the Trustees of the Fund selecting you as
administrator and approving the form of this Agreement.
The Fund will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
2. Administrative Services. You will continuously provide business
management services to each of the Specified Series and will generally, subject
to the general oversight of the Trustees and except as provided in the next
following paragraph, manage all of the
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business and affairs of each of the Specified Series, subject always to the
provisions of the Fund's Declaration of Trust and By-laws and of the Investment
Company Act of 1940, as amended (the "1940 Act"), and subject, further, to such
policies and instructions as the Trustees may from time to time establish. You
shall, except as provided in the next following paragraph, advise and assist the
officers of the Fund in taking such steps as are necessary or appropriate to
carry out the decisions of the Trustees and the appropriate committees of the
Trustees regarding the conduct of the business of each of the Specified Series.
Notwithstanding any provision of this Agreement, you will not at any
time provide, or be required to provide, to the Fund or to any person with
respect to the Fund investment research, advice, or supervision, or in any way
advise the Fund or any person acting on behalf of the Fund as to the value of
securities or other investments or as to the advisability of investing in,
purchasing, or selling securities or other investments.
3. Allocation of Charges and Expenses. You will pay the compensation
and expenses of all officers and executive employees of the Fund (other than
such persons who serve as such and who are employees of or serve at the request
of any investment adviser to the Fund) and will make available, without expense
to the Fund, the services of such of your directors, officers, and employees as
may duly be elected Trustees or officers of the Fund, subject to their
individual consent to serve and to any limitations imposed by law. You will
provide all clerical services relating to the business of each of the Specified
Series. You will not be required to pay any expenses of the Fund other than
those specifically allocated to you in this paragraph 3. In particular, but
without limiting the generality of the foregoing, you will not be required to
pay: clerical salaries not relating to the services described in paragraph 2
above; fees and expenses incurred by the Fund in connection with membership in
investment company organizations; brokers' commissions; payment for portfolio
pricing services to a pricing agent, if any; legal, auditing, or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent of the Fund; the cost of preparing share certificates or any other
expenses, including clerical expenses, incurred in connection with the issue,
sale, underwriting, redemption, or repurchase of shares of the Fund; the
expenses of and fees for registering or qualifying securities for sale; the fees
and expenses of Trustees of the Fund who are not affiliated with you; the cost
of preparing and distributing reports and notices to shareholders; public and
investor relations expenses; or the fees or disbursements of custodians of the
Fund's assets, including expenses incurred in the performance of any obligations
enumerated by the Agreement and Declaration of Trust or By-Laws of the Fund
insofar as they govern agreements with any such custodian.
4. Compensation. As compensation for the services performed and the
facilities furnished and expenses assumed by you, including the services of any
consultants retained by you, each Specified Series shall pay you, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
annual rate of .10 of 1% of the Specified Series average daily net assets.
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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 in respect of
such Specified Series, and shall constitute a full payment of the fee due you
for all services prior to that date. If this Agreement is terminated as of any
date 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 Specified Series 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 a Specified Series
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 Fund prepared either by the Fund or by a
reputable firm of independent accountants which shall show the amount properly
payable to you under this Agreement and the detailed computation thereof.
5. Limitation of Liability. You shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates except a loss resulting from
willful misfeasance, bad faith, or gross negligence on your part in the
performance of your duties, or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Fund shall
be deemed, when acting within the scope of his or her employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee or
agent.
6. Duration and Termination of this Agreement. This Agreement shall
remain in force until February 1, 2000 and continue from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually with respect to each Specified Series by the vote of a majority
of the Trustees who are not interested persons of you or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval and by a
vote of the Trustees. This Agreement may, on 30 days notice, be terminated at
any time without the payment of any penalty by you, and, immediately upon
notice, by the Trustees or, as to a Specified Series, by vote of a majority of
the outstanding voting securities of that Specified Series. This Agreement shall
automatically terminate in the event of its assignment. In interpreting the
provisions of this Agreement, the definitions contained in Section 2(a) of the
1940 Act, as modified by rule 18f-2 under the Act (particularly the definitions
of "interested person", "assignment", and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
by any rule, regulation, or order.
7. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought, and no amendment of this Agreement shall be
effective as to a
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Specified Series until approved by the Trustees, including a majority of the
Trustees who are not interested persons of you or of the Fund, cast in person at
a meeting called for the purpose of voting on such approval.
8. Miscellaneous. The captions in this Agreement are included for
convenience or reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction of effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9. Limitation of Liability of the Trustees and Shareholders. A copy of
the Agreement and Declaration of Trust of the Fund is on file with the Secretary
of The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Fund as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees, officers, or shareholders individually but are binding only
upon the assets and property of the appropriate Series.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract.
Yours very truly,
MENTOR FUNDS
By: ___________________________
Title:
The foregoing Agreement is hereby accepted as of the date thereof.
MENTOR INVESTMENT GROUP, LLC
By: _____________________________
Title:
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<PAGE>
EXHIBIT A
Mentor Growth Portfolio
Mentor Capital Growth Portfolio
Mentor Balanced Portfolio
Mentor Strategy Portfolio
Mentor Income and Growth Portfolio
Mentor Perpetual Global Portfolio
Mentor Quality Income Portfolio
Mentor Municipal Income Portfolio
Mentor Short-Duration Income Portfolio
Mentor High Income Portfolio
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