P R O S P E C T U S January 17, 1998,
as revised April 9, 1998
Mentor Funds
Mentor Funds, an open-end management investment company, is offering
shares of eight different investment portfolios by this Prospectus: Mentor
Growth Portfolio, Mentor Capital Growth Portfolio, Mentor Strategy Portfolio (a
total return fund), Mentor Income and Growth Portfolio, Mentor Perpetual Global
Portfolio (a global growth fund), Mentor Quality Income Portfolio, Mentor
Municipal Income Portfolio, and Mentor Short-Duration Income Portfolio. Certain
of the portfolios may use "leverage" - that is, they may borrow money to
purchase additional portfolio securities, which involves special risks. See
"Other Investment Practices."
Mentor Funds provides investors an opportunity to design their own
investment programs by investing in a variety of Portfolios offering a wide
array of investment strategies. Each Portfolio pursues its investment
objectives through the investment policies described in this Prospectus. This
Prospectus sets forth concisely the information about Mentor Funds that a
prospective investor should know before investing. Please read this Prospectus
carefully and retain it for future reference. You can find more detailed
information in the January 17, 1998 Statement of Additional Information, as
amended from time to time. For a free copy of the Statement or for other
information, please call Mentor Services Company, Inc. at 1-800-869-6042. The
Statement has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference. The address of Mentor Funds 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Expense Summary .............................. 3
Financial Highlights ......................... 6
Investment Objectives and Policies ........... 13
Other Investment Practices ................... 21
Valuing the Portfolios' Shares ............... 28
Sales Arrangements ........................... 28
How To Buy Shares ............................ 29
Distribution Plans (Class B Shares) .......... 33
How To Sell Shares ........................... 34
How To Exchange Shares ....................... 35
Distributions and Taxes ...................... 36
Management ................................... 37
Other Services ............................... 39
General ...................................... 40
Performance Information ...................... 41
APPENDIX ..................................... 42
</TABLE>
2
<PAGE>
<PAGE>
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. The tables on this page and the next are provided to help you
understand the expenses of investing in each of the Portfolios and your share
of the operating expenses of each of the Portfolios. Expenses shown are based
on those incurred for the last fiscal year. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in each of the
Portfolios over specified periods.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares(1)
--------- ----------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)
Mentor Growth Portfolio ..................................................... 5.75% None
Mentor Capital Growth Portfolio ............................................. 5.75% None
Mentor Strategy Portfolio ................................................... 5.75% None
Mentor Income and Growth Portfolio .......................................... 5.75% None
Mentor Perpetual Global Portfolio ........................................... 5.75% None
Mentor Quality Income Portfolio ............................................. 4.75% None
Mentor Municipal Income Portfolio ........................................... 4.75% None
Mentor Short-Duration Income Portfolio ...................................... 1.00% None
Maximum Sales Charge Imposed on Reinvested Dividends ......................... None None
Exchange Fee ................................................................. None None
Contingent Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds of shares redeemed)
Class A Shares (all Portfolios): ........................................... None(2)
Class B Shares(3)(4):
</TABLE>
<TABLE>
<S> <C>
Growth, Capital Growth, Strategy, Income and 4.0% in the first year, declining to 1.0% in the fifth
Growth, and Global Portfolios year, and eliminated thereafter
Quality Income, Municipal Income, and 4.0% in the first year, declining to 1.0% in the sixth
Short-Duration Income Portfolios year, and eliminated thereafter
</TABLE>
- ----------
(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 are purchased without an initial sales charge as part of an
investment of over $1 million 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."
(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."
3
<PAGE>
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Income
Capital And
Growth Growth Strategy Growth
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Shares
Management Fees .................. 0.70% 0.80% 0.85% 0.75%
12b-1 Fees ....................... None None None None
Shareholder Service Fees ......... 0.25% 0.25% 0.25% 0.25%
Other Expenses ................... 0.33% 0.36% 0.35% 0.35%
Total Portfolio Operating
Expenses ...................... 1.28% 1.41% 1.45% 1.35%
<CAPTION>
Short-
Perpetual Quality Municipal Duration
Global Income Income Income
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Class A Shares
Management Fees .................. 1.10% 0.47%* 0.60% 0.34%*
12b-1 Fees ....................... None None None None
Shareholder Service Fees ......... 0.25% 0.25% 0.25% 0.25%
Other Expenses ................... 0.54% 0.33% 0.37% 0.27%*
Total Portfolio Operating
Expenses ...................... 1.89% 1.05%* 1.22% 0.86%*
</TABLE>
<TABLE>
<CAPTION>
Income
Capital And
Growth Growth Strategy Growth
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class B Shares
Management Fees .................. 0.70% 0.80% 0.85% 0.75%
12b-1 Fees ....................... 0.75% 0.75% 0.75% 0.75%
Shareholder Service Fees ......... 0.25% 0.25% 0.25% 0.25%
Other Expenses ................... 0.33% 0.36% 0.35% 0.35%
Total Portfolio Operating
Expenses ...................... 2.03% 2.16% 2.20% 2.10%
<CAPTION>
Short-
Perpetual Quality Municipal Duration
Global Income Income Income
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Class B Shares
Management Fees .................. 1.10% 0.47%* 0.60% 0.34%*
12b-1 Fees ....................... 0.75% 0.50% 0.50% 0.30%
Shareholder Service Fees ......... 0.25% 0.25% 0.25% 0.25%
Other Expenses ................... 0.54% 0.33% 0.37% 0.27%*
Total Portfolio Operating
Expenses ...................... 2.64% 1.55%* 1.72% 1.16%*
</TABLE>
- ----------
* After expense limitation.
Mentor Investment Advisors, LLC has agreed to limit its Management Fees
from each of the Quality Income and Short-Duration Income Portfolios and Mentor
Investment Group has agreed to limit its administrative services fees from the
Short-Duration Income Portfolio until September 30, 1998 to the extent
necessary to limit the Total Portfolio Operating Expenses of those Portfolios
to the levels shown. In the absence of these expense limitations, Management
Fees for the Quality Income Portfolio and the Short-Duration Income Portfolio
would be 0.60% and 0.50%, respectively; Other Expenses for the Short-Duration
Income Portfolio would have been 0.37%; and Total Portfolio Operating Expenses
would have been as follows: Quality Income Portfolio, Class A - 1.18%, Class B
- - 1.68%; Short-Duration Income Portfolio, Class A - 1.12%, Class B - 1.42%.
4
<PAGE>
Examples
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return and no redemption at the end of each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------------------- ------------------- ------------------- ------------------
Class A Class B Class A Class B Class A Class B Class A Class B
--------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio ........................ $70 $21 $ 96 $64 $ 124 $109 $203 $236
Capital Growth Portfolio ................ 71 22 100 68 130 116 217 249
Strategy Portfolio ...................... 71 22 101 69 132 118 221 253
Income and Growth Portfolio ............. 70 21 98 66 127 113 211 243
Perpetual Global Portfolio .............. 76 27 113 82 154 140 266 297
Quality Income Portfolio ................ 58 16 79 49 103 84 170 185
Municipal Income Portfolio .............. 59 17 84 54 111 93 188 203
Short-Duration Income Portfolio ......... 19 12 37 37 57 64 115 141
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return and redemption at the end of each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------------------- ------------------- ------------------- ------------------
Class A Class B Class A Class B Class A Class B Class A Class B
--------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Portfolio ........................ $70 $61 $ 96 $ 94 $124 $119 $203 $236
Capital Growth Portfolio ................ 71 62 100 98 130 126 217 249
Strategy Portfolio ...................... 71 62 101 99 132 128 221 253
Income and Growth Portfolio ............. 70 61 98 96 127 123 211 243
Perputual Global Portfolio .............. 76 67 113 112 154 150 266 297
Quality Income Portfolio ................ 58 56 79 79 103 94 170 185
Municipal Income Portfolio .............. 59 57 84 84 111 103 188 203
Short-Duration Income Portfolio ......... 19 52 37 67 57 74 115 141
</TABLE>
The Examples should not be considered a representation of future
performance; actual expenses may vary.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a shares outstanding throughout each period)
The following tables have been derived from the Financial Highlights
included in Mentor Funds' financial statements, which have been audited by KPMG
Peat Marwick LLP, Mentor Funds' independent auditors. The report of KPMG Peat
Marwick LLP, along with the Portfolios' financial statements and notes thereto,
is incorporated by reference in the Statement of Additional Information, which
may be obtained in the manner described on the cover page of this Prospectus.
See "Financial Statements" in the Statement of Additional Information. The
Growth, Strategy, and Short-Duration Income Portfolios are successors to the
Mentor Growth, Strategy, and Short-Duration Income Funds, each of which was a
series of shares of beneficial interest of Mentor Series Trust, a Massachusetts
business trust. Each of those Funds offered only one class of shares until June
1995. Until April 12, 1995, Mentor Quality Income Portfolio was known as
"Cambridge Government Income Portfolio"; until that time, the Portfolio was
required, among other things, to invest at least 65% of its assets in U.S.
Government securities.
Class A Shares
<TABLE>
<CAPTION>
Mentor Growth Portfolio
---------------------------------------------
Year Year Period
Ended Ended Ended
9/30/97 9/30/96 9/30/95*
------------ ------------- ------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .............. $ 18.47 $ 16.08 $ 13.37
Income from investment operations
Net investment income (loss) .................... ( 0.17) ( 0.10) ( 0.01)
Net realized and unrealized gain (loss)
on investments ................................. 4.19 4.23 2.72
--------- -------- ----------
Total from investment operations ................ 4.02 4.13 2.71
Less distributions
Distributions from net investment
income .......................................... - - -
Distributions in excess of net investment
income .......................................... - - -
Distributions from capital gains ................. ( 2.55) ( 1.74) -
Distributions in excess of capital gains ......... - - -
--------- -------- ----------
Total Distributions ............................ ( 2.55) ( 1.74) -
--------- -------- ----------
Net asset value, end of period .................... $ 19.94 $ 18.47 $ 16.08
========= ======== ==========
Total Return ...................................... 25.81% 29.15% 20.27%
========== ======== ==========
Ratios/Supplemental Data
Net assets, end of period (in thousands) .......... $105,033 $ 40,272 $ 20,368
Ratio of expenses to average net assets ........... 1.28% 1.28% 1.36%(a)
Ratio of expenses to average net assets
excluding waiver ................................. 1.28% 1.28% 1.36%(a)
Ratio of net investment income (loss) to
average net assets ............................... ( 0.67%) ( 0.39%) ( 0.65%)(a)
Portfolio turnover rate ........................... 77% 105% 70%
Average commission rate on portfolio
transactions ..................................... $ 0.0651 $ 0.0602 -
========== ========== ==========
<CAPTION>
Mentor Capital Growth Portfolio
----------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .............. $ 19.36 $ 16.02 $ 14.88 $ 15.26 $ 14.21 $ 14.18
Income from investment operations
Net investment income (loss) .................... ( 0.02) 0.11 0.02 0.09 0.14 0.08
Net realized and unrealized gain (loss)
on investments ................................. 5.87 3.73 2.91 ( 0.30) 1.02 0.03
--------- ------- ------- ------- ------- ---------
Total from investment operations ................ 5.85 3.84 2.93 ( 0.21) 1.16 0.11
Less distributions
Distributions from net investment
income .......................................... - - - ( 0.04) ( 0.11) ( 0.08)
Distributions in excess of net investment
income .......................................... - - - - - -
Distributions from capital gains ................. ( 2.79) ( 0.50) ( 1.79) ( 0.13) - -
Distributions in excess of capital gains ......... - - - - - -
--------- --------- ------- ------- ------- ---------
Total Distributions ............................ ( 2.79) ( 0.50) ( 1.79) ( 0.17) ( 0.11) ( 0.08)
--------- --------- ------- ------- ------- ---------
Net asset value, end of period .................... $ 22.42 $ 19.36 $ 16.02 $ 14.88 $ 15.26 $ 14.21
========= ========= ======= ======= ======= =========
Total Return ...................................... 34.78% 24.63% 20.18% ( 1.37%) 8.21% 0.78%
========== ========== ======= ======= ======= =========
Ratios/Supplemental Data
Net assets, end of period (in thousands) .......... $ 65,703 $ 31,889 $29,582 $21,181 $31,360 $ 20,864
Ratio of expenses to average net assets ........... 1.41% 1.43% 1.87% 1.70% 1.49% 1.14%(a)
Ratio of expenses to average net assets
excluding waiver ................................. 1.41% 1.43% 1.87% 1.70% 1.59% 1.43%(a)
Ratio of net investment income (loss) to
average net assets ............................... 0.53% 0.51% 0.27% 0.53% 0.96% 1.54%(a)
Portfolio turnover rate ........................... 64% 98% 157% 149% 192% 61%
Average commission rate on portfolio
transactions ..................................... $ 0.0697 $ 0.0688 - - - -
========== ========== ======= ======= ======= =========
<CAPTION>
Mentor Strategy Portfolio
------------------------------------------
Year Year Period
Ended Ended Ended
9/30/97 9/30/96 9/30/95*
----------- ----------- ------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .............. $ 17.96 $ 15.24 $ 13.45
Income from investment operations
Net investment income (loss) .................... 0.31 0.08 -
Net realized and unrealized gain (loss)
on investments ................................. 1.68 2.86 1.79
------- ------- ----------
Total from investment operations ................ 1.99 2.94 1.79
Less distributions
Distributions from net investment
income .......................................... - - -
Distributions in excess of net investment
income .......................................... - - -
Distributions from capital gains ................. ( 1.34) ( 0.22) -
Distributions in excess of capital gains ......... - - -
--------- --------- ----------
Total Distributions ............................ ( 1.34) ( 0.22) -
--------- --------- ----------
Net asset value, end of period .................... $ 18.61 $ 17.96 $ 15.24
========= ========= ==========
Total Return ...................................... 11.97% 19.36% 13.31%
========== ========== ==========
Ratios/Supplemental Data
Net assets, end of period (in thousands) .......... $ 40,552 $ 20,372 $ 10,503
Ratio of expenses to average net assets ........... 1.45% 1.42% 1.65%(a)
Ratio of expenses to average net assets
excluding waiver ................................. 1.45% 1.42% 1.65%(a)
Ratio of net investment income (loss) to
average net assets ............................... 2.29% 0.62% ( 0.06%)(a)
Portfolio turnover rate ........................... 192% 125% 122%
Average commission rate on portfolio
transactions ..................................... $ 0.0644 $ 0.0669 -
========== ========== ==========
</TABLE>
- ---------
* For the period from June 5, 1995 (initial offering of Class A shares) to
September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations) to September 30, 1992.
(a) Annualized.
6
<PAGE>
Class A Shares (continued)
<TABLE>
<CAPTION>
Mentor Income And Growth Portfolio
------------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94 9/30/93*
----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period ........ $ 19.16 $ 17.13 $ 15.27 $ 14.88 $ 14.14
Income from investment
operations
Net investment income
(loss) .................... 0.44 0.37 0.40 0.31 0.09
Net realized and
unrealized gain (loss)
on investments ............ 3.39 2.75 2.14 0.64 0.73
-------- -------- ------- ------- ----------
Total from investment
operations ................ 3.83 3.12 2.54 0.95 0.82
Less Distributions
Distributions from net
investment income ......... ( 0.45) ( 0.35) ( 0.40) ( 0.30) ( 0.08)
Distributions in excess
of net investment
income .................... ( 0.02) - ( 0.03) - -
Distributions from
capital gains ............. ( 1.92) ( 0.74) ( 0.25) ( 0.26) -
Distributions in excess
of capital gains .......... - - - - -
--------- --------- ------- ------- ----------
Total distributions ........ ( 2.39) ( 1.09) ( 0.68) ( 0.56) ( 0.08)
--------- --------- ------- ------- ----------
Net asset value, end of
period ..................... $ 20.60 $ 19.16 $ 17.13 $ 15.27 $ 14.88
========= ========= ======= ======= ==========
Total Return ................ 22.11 % 19.13 % 17.24% 6.54% 5.54%
========= ========= ======= ======= ==========
Ratios/Supplemental Data
Net assets, end of period
(in thousands) ............. $ 63,509 $ 24,210 $19,888 $17,773 $ 9,849
Ratio of expenses to
average net assets ......... 1.35% 1.36% 1.69% 1.75% 1.56%(a)
Ratio of expenses to
average net assets
excluding waiver ........... 1.35% 1.36% 1.69% 1.75% 1.94% (a)
Ratio of net investment
income (loss) to average
net assets ................. 2.63% 2.08% 2.53% 2.20% 2.35% (a)
Portfolio turnover rate ..... 75% 72% 62% 78% 13%
Average commission rate
on portfolio
transactions ............... $ 0.0515 $ 0.0492 - - -
========= ========= ======= ======= ==========
<CAPTION>
Mentor Perpetual Global Portfolio
--------------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94**
----------- ------------- ----------- ------------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period ........ $ 17.86 $ 15.88 $ 14.23 $ 14.18
Income from investment
operations
Net investment income
(loss) .................... 0.04 ( 0.04) 0.05 ( 0.01)
Net realized and
unrealized gain (loss)
on investments ............ 3.67 2.82 1.60 0.06
-------- -------- ------- ----------
Total from investment
operations ................ 3.71 2.78 1.65 0.05
Less Distributions
Distributions from net
investment income ......... - - - -
Distributions in excess
of net investment
income .................... - - - -
Distributions from
capital gains ............. ( 0.63) ( 0.80) - -
Distributions in excess
of capital gains .......... - - - -
--------- -------- -------- ----------
Total distributions ........ ( 0.63) ( 0.80) - -
--------- -------- -------- ----------
Net asset value, end of
period ..................... $ 20.94 $ 17.86 $ 15.88 $ 14.23
========= ======== ======== ==========
Total Return ................ 21.59% 18.40% 11.60% 0.35%
========= ======== ======== ==========
Ratios/Supplemental Data
Net assets, end of period
(in thousands) ............. $ 46,556 $ 13,098 $ 6,854 $ 8,882
Ratio of expenses to
average net assets ......... 1.89% 1.95% 2.06% 2.09%(a)
Ratio of expenses to
average net assets
excluding waiver ........... 1.89% 1.95% 2.11% 3.18% (a)
Ratio of net investment
income (loss) to average
net assets ................. 0.07% ( 0.21%) 0.26% ( 0.10%)(a)
Portfolio turnover rate ..... 128% 130% 155% 2%
Average commission rate
on portfolio
transactions ............... $ 0.0319 $ 0.0320 - -
========= ========== ======== ==========
<CAPTION>
Mentor Quality Income Portfolio
----------------------------------------
Year Year Year
Ended Ended Ended
9/30/94 9/30/93 9/30/92***
----------- ----------- ----------------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period ........ $ 14.04 $ 14.39 $ 14.30
Income from investment
operations
Net investment income
(loss) .................... 0.84 1.06 0.44
Net realized and
unrealized gain (loss)
on investments ............ ( 1.30) ( 0.31) 0.09
------- ------- ---------
Total from investment
operations ................ ( 0.46) 0.75 0.53
Less Distributions
Distributions from net
investment income ......... ( 0.83) ( 1.06) ( 0.44)
Distributions in excess
of net investment
income .................... - ( 0.04) -
Distributions from
capital gains ............. - - -
Distributions in excess
of capital gains .......... - - -
------- ------- ---------
Total distributions ........ ( 0.83) ( 1.10) ( 0.44)
------- ------- ---------
Net asset value, end of
period ..................... $ 12.75 $ 14.04 $ 14.39
======= ======= =========
Total Return ................ ( 3.39%) 5.41% 3.37%
======= ======= =========
Ratios/Supplemental Data
Net assets, end of period
(in thousands) ............. $30,142 $47,780 $ 36,740
Ratio of expenses to
average net assets ......... 1.38% 1.04% 0.36%(a)
Ratio of expenses to
average net assets
excluding waiver ........... 1.39% 1.22% 1.21%(a)
Ratio of net investment
income (loss) to average
net assets ................. 6.33% 7.31% 8.00%(a)
Portfolio turnover rate ..... 455% 102% 9%
Average commission rate
on portfolio
transactions ............... - - -
======= ======= =========
</TABLE>
- ---------
* Reflects operations for the period from May 24, 1993 (commencement of
operations) to September 30, 1993.
** Reflects operations for the period from March 29, 1994 (commencement of
operations) to September 30, 1994.
(a) Annualized.
7
<PAGE>
Class A Shares (continued)
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
----------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92**
----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .......... $ 15.04 $ 14.92 $ 14.42 $ 16.05 $ 14.76 $ 14.29
Income from investment operations
Net investment income (loss) ................. 0.81 0.82 0.81 0.82 0.92 0.32
Net realized and unrealized gain (loss) on
investments ................................. 0.49 0.12 0.51 ( 1.54) 1.32 0.47
------- ------- ------- ------- ------- ---------
Total from investment operations ............. 1.30 0.94 1.32 ( 0.72) 2.24 0.79
Less distributions
Distributions from net investment income ..... ( 0.81) ( 0.82) ( 0.82) ( 0.81) ( 0.92) ( 0.32)
Distributions in excess of net investment
income ...................................... - - - - ( 0.03) -
Distributions from capital gains ............. ( 0.03) - - ( 0.10) - -
Distributions in excess of capital gains ..... - - - - - -
------- ------- ------- ------- ------- ---------
Total Distributions .......................... ( 0.84) ( 0.82) ( 0.82) ( 0.91) ( 0.95) ( 0.32)
------- ------- ------- ------- ------- ---------
Net asset value, end of period ................ $ 15.50 $ 15.04 $ 14.92 $ 14.42 $ 16.05 $ 14.76
======= ======= ======= ======= ======= =========
Total Return .................................. 8.89% 6.46% 9.46% ( 4.83%) 16.00% 5.34%
======= ======= ======= ======= ======= =========
Ratios/Supplemental Data
Net assets, end of period (in thousands) ...... $29,394 $17,558 $20,460 $25,056 $29,245 $ 18,801
Ratio of expenses to average net assets ....... 1.22% 1.24% 1.43% 1.24% 0.71% 0.00%(a)
Ratio of expenses to average net assets
excluding waiver ............................. 1.22% 1.24% 1.43% 1.33% 1.39% 1.26%(a)
Ratio of net investment income (loss) to
average net assets ........................... 5.09% 5.47% 5.56% 5.43% 5.92% 6.21%(a)
Portfolio turnover rate ....................... 59% 46% 43% 87% 88% 0%
======= ======= ======= ======= ======= =========
<CAPTION>
Mentor Short Duration
Income Portfolio
-----------------------------------------
Year Year Year
Ended Ended Ended
9/30/97 9/30/96 9/30/95*
----------- ----------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .......... $ 12.50 $ 12.68 $ 12.74
Income from investment operations
Net investment income (loss) ................. 0.77 0.82 0.22
Net realized and unrealized gain (loss) on
investments ................................. 0.12 ( 0.23) ( 0.03)
------- -------- ----------
Total from investment operations ............. 0.89 0.59 0.19
Less distributions
Distributions from net investment income ..... ( 0.76) ( 0.77) ( 0.22)
Distributions in excess of net investment
income ...................................... ( 0.01) - ( 0.03)
Distributions from capital gains ............. - - -
Distributions in excess of capital gains ..... - - -
------- -------- ----------
Total Distributions .......................... ( 0.77) ( 0.77) ( 0.25)
------- -------- ----------
Net asset value, end of period ................ $ 12.62 $ 12.50 $ 12.68
======= ======== ==========
Total Return .................................. 7.33% 4.80% 1.51%
======= ======== ==========
Ratios/Supplemental Data
Net assets, end of period (in thousands) ...... $27,619 $ 7,450 $ 1,002
Ratio of expenses to average net assets ....... 0.86% 0.86% 0.71%(a)
Ratio of expenses to average net assets
excluding waiver ............................. 1.12% 1.26% 1.00%(a)
Ratio of net investment income (loss) to
average net assets ........................... 6.00% 5.90% 4.10%(a)
Portfolio turnover rate ....................... 75% 411% 126%
======= ======== ==========
</TABLE>
- ---------
* For the period from June 16, 1995 (initial offering of Class A shares) to
September 30, 1995.
** Reflects operations for the period from April 29, 1992 (commencement of
operations) to September 30, 1992.
(a) Annualized.
8
<PAGE>
Class B Shares
<TABLE>
<CAPTION>
Mentor Growth Portfolio
----------------------------------------------------------
Year Year Period Year
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95* 12/31/94
------------ ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .......... $ 18.29 $ 16.05 $ 12.15 $ 13.78
Income from investment operations ............
Net investment income (loss) ................. ( 0.22) ( 0.17) ( 0.13) ( 0.15)
Net realized and unrealized gain (loss)
on investments .............................. 4.01 4.15 4.03 ( 0.47)
--------- --------- ---------- -------
Total from investment operations ............. 3.79 3.98 3.90 ( 0.62)
Less distributions ............................
Distributions from net investment income ..... - - - -
Distributions in excess of net investment
income ...................................... - - - -
Distributions from capital gains ............. ( 2.55) ( 1.74) - ( 1.00)
Distributions in excess of capital gains ..... - - - ( 0.01)
--------- --------- ---------- -------
Total Distributions .......................... ( 2.55) ( 1.74) - ( 1.01)
--------- --------- ---------- -------
Net asset value, end of period ................ $ 19.53 $ 18.29 $ 16.05 $ 12.15
========= ========= ========== =======
Total Return .................................. 24.66 % 28.18 % 32.10% ( 4.48%)
========= ========= ========== =======
Ratios/Supplemental Data ......................
Net assets, end of period (in thousands) ...... $ 506,230 $ 371,578 $ 246,326 $190,126
Ratio of expenses to average net assets ....... 2.03% 2.03% 2.08%(a) 2.01%
Ratio of expenses to average net assets
excluding waiver ............................. 2.03% 2.03% 2.08%(a) 2.01%
Ratio of net investment income (loss) to
average net assets ........................... ( 1.42%) ( 1.13%) ( 1.20%)(a) ( 1.20%)
Portfolio turnover rate ....................... 77% 105% 70% 77%
Average commission rate on portfolio
transactions ................................. $ 0.0651 $ 0.0602 - -
========== ========== ========== ========
<CAPTION>
Mentor Growth Portfolio
-----------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period .......... $ 12.81 $ 12.16 $ 8.37 $ 9.63 $ 8.54 $ 7.45
Income from investment operations ............
Net investment income (loss) ................. ( 0.08) ( 0.06) ( 0.09) 0.02 0.13 0.01
Net realized and unrealized gain (loss)
on investments .............................. 2.07 1.94 4.30 ( 1.10) 1.35 1.24
------- ------- ------- --------- ------- ------
Total from investment operations ............. 1.99 1.88 4.21 ( 1.08) 1.48 1.25
Less distributions ............................
Distributions from net investment income ..... - - - ( 0.05) (0.12) (0.01)
Distributions in excess of net investment
income ...................................... - - - - - -
Distributions from capital gains ............. ( 1.02) ( 1.23) ( 0.42) ( 0.13) (0.27) (0.15)
Distributions in excess of capital gains ..... - - - - - -
------- ------- ------- --------- -------- -------
Total Distributions .......................... ( 1.02) ( 1.23) ( 0.42) ( 0.18) (0.39) (0.16)
------- ------- ------- --------- -------- -------
Net asset value, end of period ................ $ 13.78 $ 12.81 $ 12.16 $ 8.37 $ 9.63 $ 8.54
======= ======= ======= ========= ======== =======
Total Return .................................. 15.60% 15.46% 50.30% (11.21%) 17.33% 16.78%
======= ======= ======= ========= ======== =======
Ratios/Supplemental Data ......................
Net assets, end of period (in thousands) ...... $186,978 $136,053 $108,719 $ 83,540 $107,315 $96,425
Ratio of expenses to average net assets ....... 2.02% 2.05% 2.17% 2.25% 2.24% 2.19%
Ratio of expenses to average net assets
excluding waiver ............................. 2.02% 2.05% 2.17% 2.25% - -
Ratio of net investment income (loss) to
average net assets ........................... ( 1.12%) ( 0.76%) ( 0.80%) 0.26% 1.36% 0.16%
Portfolio turnover rate ....................... 64% 50% 40% 50% 26% 31%
Average commission rate on portfolio
transactions ................................. - - - - - -
======== ======== ======== ========= ======== =======
</TABLE>
- ---------
* For the period from January 1, 1995 to September 30, 1995.
(a) Annualized.
9
<PAGE>
Class B Shares (continued)
<TABLE>
<CAPTION>
Mentor Capital Growth Portfolio
----------------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94 9/30/93 9/30/92*
------------ ------------- ----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period ................................ $ 18.92 $ 15.79 $ 14.80 $ 15.23 $ 14.22 $ 14.18
Income from investment operations
Net investment income (loss) .......... - ( 0.04) 0.25 ( 0.04) 0.05 0.46
Net realized and unrealized gain
(loss) on investments ................ 5.55 3.67 2.53 ( 0.26) 1.02 0.04
--------- -------- ------- ------- ------- ----------
Total from investment operations ...... 5.55 3.63 2.78 ( 0.30) 1.07 0.50
Less Distributions
Distributions from net investment
income ............................... - - - - ( 0.05) ( 0.46)
Distributions in excess of net
investment income - - - - ( 0.01) -
Distributions from capital gains ( 2.79) ( 0.50) ( 1.79) ( 0.13) - -
Distributions in excess of capital
gains ................................ - - - - - -
--------- -------- ------- ------- ------- ----------
Total Distributions ................... ( 2.79) ( 0.50) ( 1.79) ( 0.13) ( 0.06) ( 0.46)
--------- -------- ------- ------- ------- ----------
Net asset value, end of period ......... $ 21.68 $ 18.92 $ 15.79 $ 14.80 $ 15.23 $ 14.22
========= ======== ======= ======= ======= ==========
Total Return ........................... 33.88% 23.64% 19.26% ( 2.00%) 7.52% 0.61%
========= ======== ======= ======= ======= ==========
Ratios/Supplemental Data ...............
Net assets, end of period (in
thousands) ............................ $ 113,587 $ 68,213 $57,648 $41,106 $57,030 $ 25,468
Ratio of expenses to average net
assets ................................ 2.16% 2.18% 2.56% 2.46% 2.24% 1.86% (a)
Ratio of expenses to average net
assets excluding waiver ............... 2.16% 2.18% 2.56% 2.46% 2.34% 2.16%(a)
Ratio of net investment income to
average net assets (loss) ............. ( 0.22%) ( 0.24%) ( 0.41%) ( 0.22%) 0.21% 0.83% (a)
Portfolio turnover rate ................ 64% 98% 157% 149% 192% 61%
Average commission rate on portfolio
transactions .......................... $ 0.0697 $ 0.0688 - - - -
========== ========== ======= ======= ======= ==========
<CAPTION>
Mentor Strategy Portfolio
---------------------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95** 12/31/94 12/31/93***
------------ ------------ ------------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period ................................ $ 17.79 $ 15.21 $ 12.24 $ 12.70 $ 12.50
Income from investment operations
Net investment income (loss) .......... 0.26 ( 0.03) - ( 0.06) -
Net realized and unrealized gain
(loss) on investments ................ 1.58 2.83 2.97 ( 0.40) 0.20
-------- --------- ---------- ------- ---------
Total from investment operations ...... 1.84 2.80 2.97 ( 0.46) 0.20
Less Distributions
Distributions from net investment
income ............................... - - - - -
Distributions in excess of net
investment income - - - - -
Distributions from capital gains - ( 1.34) ( 0.22)
Distributions in excess of capital
gains ................................ - - - - -
--------- --------- ---------- ------- ---------
Total Distributions ................... ( 1.34) ( 0.22) - - -
--------- --------- ---------- ------- ---------
Net asset value, end of period ......... $ 18.29 $ 17.79 $ 15.21 $ 12.24 $ 12.70
========= ========= ========== ======= =========
Total Return ........................... 11.19% 18.48% 24.26% ( 3.61%) 1.60%
========= ========= ========== ======= =========
Ratios/Supplemental Data ...............
Net assets, end of period (in
thousands) ............................ $ 301,885 $ 288,494 $ 224,643 $179,274 $ 122,177
Ratio of expenses to average net
assets ................................ 2.20% 2.19% 2.31% (a) 2.19% 2.06%(a)
Ratio of expenses to average net
assets excluding waiver ............... 2.20% 2.19% 2.31%(a) 2.19% 2.06%(a)
Ratio of net investment income to
average net assets (loss) ............. 1.54% ( 0.19%) 0.02% (a) ( 0.54%) 0.08%
Portfolio turnover rate ................ 192% 125% 122% 143% 0%
Average commission rate on portfolio
transactions .......................... $ 0.0644 $ 0.0669 - - -
========= ========== ========== ======== =========
</TABLE>
- ---------
* Reflects operations for the period from April 29, 1992 (commencement of
operations) to September 30, 1992.
** For the period from January 1, 1995 to September 30, 1995.
*** Reflects operations for the period from October 29, 1993 (commencement of
operations) to December 31, 1993.
(a) Annualized.
10
<PAGE>
Class B Shares (continued)
<TABLE>
<CAPTION>
Mentor Income and Growth Portfolio
-----------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94 9/30/93*
------------ ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period ............ $ 19.18 $ 17.14 $ 15.28 $ 14.91 $ 14.14
Income from
investment
operations ....................
Net investment income
(loss) ........................ 0.34 0.23 0.28 0.21 0.05
Net realized and
unrealized gain
(loss) on
investments ................... 3.35 2.76 2.14 0.61 0.77
-------- ------- ------- ------- ---------
Total from investment
operations .................... 3.69 2.99 2.42 0.82 0.82
Less Distributions
Distributions from net
investment income ............. ( 0.34) ( 0.21) ( 0.28) ( 0.19) ( 0.05)
Distributions in excess
of net investment
income ........................ ( 0.02) - ( 0.03) - -
Distributions from
capital gains ................. ( 1.92) ( 0.74) ( 0.25) ( 0.26) -
Distributions in excess
of capital gains .............. - - - - -
--------- --------- ------- ------- ---------
Total Distributions ............ ( 2.28) ( 0.95) ( 0.56) ( 0.45) ( 0.05)
--------- --------- ------- ------- ---------
Net asset value, end of
period ......................... $ 20.59 $ 19.18 $ 17.14 $ 15.28 $ 14.91
========= ========= ======= ======= =========
Total Return .................... 21.24% 18.26% 16.32% 5.66% 5.54%
========== ========== ======= ======= =========
Ratios/Supplemental
Data
Net assets, end of period
(in thousands) ................. $ 107,816 $ 66,548 $46,678 $43,219 $ 18,127
Ratio of expenses to
average net assets ............. 2.10% 2.13% 2.43% 2.44% 2.31%(a)
Ratio of expenses to
average net assets
excluding waiver ............... 2.10% 2.13% 2.43% 2.44% 2.69%(a)
Ratio of net investment
income (loss) to
average net assets ............. 1.87% 1.32% 1.78% 1.51% 1.60%(a)
Portfolio turnover rate ......... 75% 72% 62% 78% 13%
Average commission rate
on portfolio
transactions ................... $ 0.0515 $ 0.0492 - - -
========== ========== ======= ======= =========
<CAPTION>
Mentor Perpetual Global Portfolio
----------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94**
------------- ------------- ----------- ------------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period ............ $ 17.46 $ 15.67 $ 14.15 $ 14.18
Income from
investment
operations ....................
Net investment income
(loss) ........................ ( 0.02) ( 0.05) ( 0.05) ( 0.04)
Net realized and
unrealized gain
(loss) on
investments ................... 3.51 2.64 1.57 0.01
-------- -------- ------- ----------
Total from investment
operations .................... 3.49 2.59 1.52 ( 0.03)
Less Distributions
Distributions from net
investment income ............. - - - -
Distributions in excess
of net investment
income ........................ - - - -
Distributions from
capital gains ................. ( 0.63) ( 0.80) - -
Distributions in excess
of capital gains .............. - - - -
-------- -------- ------- ----------
Total Distributions ............ ( 0.63) ( 0.80) - -
-------- -------- ------- ----------
Net asset value, end of
period ......................... $ 20.32 $ 17.46 $ 15.67 $ 14.15
======== ======== ======= ==========
Total Return .................... 20.74 % 17.39 % 10.74% ( 0.21%)
======== ======== ======= ==========
Ratios/Supplemental
Data
Net assets, end of period
(in thousands) ................. $ 89,030 $ 42,131 $12,667 $ 7,987
Ratio of expenses to
average net assets ............. 2.64% 2.70% 2.72% 2.79%(a)
Ratio of expenses to
average net assets
excluding waiver ............... 2.64% 2.70% 2.79% 3.93%(a)
Ratio of net investment
income (loss) to
average net assets ............. ( 0.68%) ( 0.91%) ( 0.40%) ( 0.82%)(a)
Portfolio turnover rate ......... 128% 130% 155% 2%
Average commission rate
on portfolio
transactions ................... $ 0.0319 $ 0.0320 - -
========== ========== ======= ==========
<CAPTION>
Mentor Quality Income Portfolio
-----------------------------------------
Year Year Year
Ended Ended Ended
9/30/94 9/30/93 9/30/92***
----------- ------------ ----------------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period ............ $ 14.06 $ 14.40 $ 14.30
Income from
investment
operations ....................
Net investment income
(loss) ........................ 0.82 0.99 0.41
Net realized and
unrealized gain
(loss) on
investments ................... ( 1.37) ( 0.31) 0.10
------- -------- ---------
Total from investment
operations .................... ( 0.55) 0.68 0.51
Less Distributions
Distributions from net
investment income ............. ( 0.75) ( 0.99) ( 0.41)
Distributions in excess
of net investment
income ........................ - ( 0.03) -
Distributions from
capital gains ................. - - -
Distributions in excess
of capital gains .............. - -
------- --------
Total Distributions ............ ( 0.75) ( 1.02) ( 0.41)
------- -------- ---------
Net asset value, end of
period ......................... $ 12.76 $ 14.06 $ 14.40
======= ======== =========
Total Return .................... ( 3.97%) 4.86% 3.24%
======= ======== =========
Ratios/Supplemental
Data
Net assets, end of period
(in thousands) ................. $77,888 $127,346 $ 65,661
Ratio of expenses to
average net assets ............. 1.88% 1.54% 0.83%(a)
Ratio of expenses to
average net assets
excluding waiver ............... 1.90% 1.72% 1.67%(a)
Ratio of net investment
income (loss) to
average net assets ............. 6.21% 6.81% 7.53%(a)
Portfolio turnover rate ......... 455% 102% 9%
Average commission rate
on portfolio
transactions ................... - - -
======= ======== =========
</TABLE>
- ---------
* Reflects operations for the period from May 24, 1993 (commencement of
operations) to September 30, 1993.
** Reflects operations for the period from March 29, 1994 (commencement of
operations) to September 30, 1994.
*** Reflects operations for the period from April 29, 1992 (commencement of
operations) to September 30, 1992.
(a) Annualized.
11
<PAGE>
Class B Shares (continued)
<TABLE>
<CAPTION>
Mentor Municipal Income Portfolio
----------------------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
9/30/97 9/30/96 9/30/95 9/30/94 9/30/93
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance ...................
Net asset value, beginnning of period ............. $ 15.05 $ 14.95 $ 14.43 $ 16.06 $ 14.78
Income from investment operations
Net investment income (loss) ..................... 0.71 0.75 0.74 0.74 0.82
Net realized and unrealized gain (loss)
on investments .................................. 0.52 0.11 0.52 ( 1.54) 1.32
-------- -------- -------- -------- --------
Total from investment operations ................. 1.23 0.86 1.26 ( 0.80) 2.14
Less Distributions
Distributions from net investment
income .......................................... ( 0.71) ( 0.76) ( 0.74) ( 0.73) ( 0.82)
Distributions in excess of net
investment income ............................... - - - - ( 0.04)
Distributions from capital gains ................. ( 0.08) - - ( 0.10) -
Distributions in excess of capital gains ......... - - - - -
--------- -------- -------- -------- ---------
Total Distributions .............................. ( 0.79) ( 0.76) ( 0.74) ( 0.83) ( 0.86)
--------- -------- -------- -------- ---------
Net asset value, end of period .................... $ 15.49 $ 15.05 $ 14.95 $ 14.43 $ 16.06
========= ======== ======== ======== =========
Total Return ...................................... 8.33% 5.87% 9.01% ( 5.34%) 15.27%
========= ======== ======== ======== =========
Ratios/Supplemental Data ..........................
Net assets, end of period (in thousands) .......... $ 44,272 $ 37,191 $ 39,493 $ 46,157 $ 50,976
Ratio of expenses to average net assets ........... 1.72% 1.74% 1.92% 1.74% 1.21
Ratio of expenses to average net assets
excluding waiver ................................. 1.72% 1.74% 1.92% 1.86% 1.89%
Ratio of net investment income (loss) to
average net assets ............................... 4.60% 4.95% 5.07% 4.93% 5.42%
Portfolio turnover rate ........................... 59% 46% 43% 87% 88%
========= ======== ======== ======== =========
<CAPTION>
Mentor Municipal
Income Mentor Short-Duration
Portfolio Income Portfolio
----------------- ---------------------------------------------------------
Year Year Year Period Period
Ended Ended Ended Ended Ended
9/30/92*** 9/30/97 9/30/96 9/30/95* 12/31/94**
----------------- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance ...................
Net asset value, beginnning of period ............. $ 14.29 $ 12.50 $ 12.67 $ 12.18 $ 12.50
Income from investment operations
Net investment income (loss) ..................... 0.29 0.73 0.73 0.59 0.41
Net realized and unrealized gain (loss)
on investments .................................. 0.49 0.12 ( 0.17) 0.52 ( 0.29)
---------- ------- ------- --------- ---------
Total from investment operations ................. 0.78 0.85 0.56 1.11 0.12
Less Distributions
Distributions from net investment
income .......................................... ( 0.29) ( 0.72) ( 0.73) ( 0.59) ( 0.41)
Distributions in excess of net
investment income ............................... - ( 0.01) - ( 0.03) ( 0.03)
Distributions from capital gains ................. - - - - -
Distributions in excess of capital gains ......... - - - - -
---------- ------- ------- --------- ---------
Total Distributions .............................. ( 0.29) ( 0.73) ( 0.73) ( 0.62) ( 0.44)
---------- ------- ------- --------- ---------
Net asset value, end of period .................... $ 14.78 $ 12.62 $ 12.50 $ 12.67 $ 12.18
========== ======= ======= ========= =========
Total Return ...................................... 5.28% 6.96% 4.53% 9.22% 0.95%
========== ======= ======= ========= =========
Ratios/Supplemental Data ..........................
Net assets, end of period (in thousands) .......... $ 24,265 $27,089 $24,517 $ 19,871 17,144
Ratio of expenses to average net assets ........... 0.50%(a) 1.16% 1.16% 1.20% 1.29%(a)
Ratio of expenses to average net assets
excluding waiver ................................. 1.76%(a) 1.42% 1.56% 1.70%(a) 1.29%(a)
Ratio of net investment income (loss) to
average net assets ............................... 5.80%(a) 5.70% 5.60% 5.04%(a) 4.90%(a)
Portfolio turnover rate ........................... 0% 75% 411% 126% 166%
========== ======= ======= ========= =========
</TABLE>
- ---------
* For the period from January 1, 1995 to September 30, 1995.
** Reflects operations for the period from April 29, 1994 (commencement of
operations) to December 31, 1994.
*** Reflects operations for the period from April 29, 1992 (commencement of
operations) to September 30, 1992.
(a) Annualized.
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Mentor Funds is offering shares of eight different diversified Portfolios
by this Prospectus with varying investment objectives and policies. There can,
of course, be no assurance that any Portfolio will achieve its investment
objective. The differences in objectives and policies among the Portfolios can
be expected to affect the investment return of each Portfolio and the degree of
market and financial risk of an investment in each Portfolio. For a discussion
of certain investment practices in which the Portfolios may engage, and the
risks they may entail, see "Other Investment Practices" below. The investment
objectives of the Portfolios, other than those of the Strategy Portfolio and
the Short-Duration Income Portfolio, are fundamental policies and may not be
changed without shareholder approval. Except for the investment policies
designated in this Prospectus or the Statement of Additional Information as
fundamental, the investment policies described herein are not fundamental and
may be changed by the Trustees without shareholder approval.
Any percentage limitation on a Portfolio's investments will apply only at
the time of investment; a Portfolio would not be considered to have violated
any such limitation, unless an excess or deficiency occurs or exists
immediately after and as a result of an investment. In addition, a Portfolio
will not necessarily dispose of a security when its rating is reduced below any
applicable minimum rating, although the investment adviser or sub-adviser of
the Portfolio will monitor the investment to determine whether continued
investment in the security will assist in meeting the Portfolio's investment
objective.
Mentor Investment Advisors, LLC ("Mentor Advisors") is the investment
adviser to each of the Portfolios other than the Mentor Perpetual Global
Portfolio. Mentor Perpetual Advisors, LLC ("Mentor Perpetual") is the
investment adviser to the Global Portfolio.
Mentor Growth Portfolio
The Growth Portfolio's investment objective is long-term capital growth.
Although the Portfolio may receive current income from dividends, interest, and
other sources, income is only an incidental consideration.
The Portfolio attempts to achieve long-term capital growth by investing in
a diversified portfolio of securities. Under normal circumstances at least 75%
of the Portfolio's assets will be invested in common stocks of companies
domiciled or located in the United States. Although the Portfolio may invest in
companies of any size, the Portfolio invests principally in common stocks of
small to mid-sized companies. The Portfolio invests in companies that, in the
opinion of Mentor Advisors, have demonstrated earnings, asset values, or growth
potential not yet reflected in their market price. A key indication of such
undervaluation considered by Mentor Advisors is earnings growth which is above
average compared to the S&P 500 Index. Other important factors in selecting
investments include a strong balance sheet and product leadership in niche
markets. Mentor Advisors believes that such investments may offer better than
average potential for long-term capital growth.
Small and mid-size companies may present greater opportunities for capital
growth than do larger companies because of high potential earnings growth, but
may also involve greater risk. They may have limited product lines, markets, or
financial resources, or may depend on a limited management group. Their
securities may trade less frequently and in limited volume, and only in the
over-the-counter market or on a regional securities exchange. As a result,
these securities may change in value more than those of larger, more
established companies.
13
<PAGE>
Mentor Capital Growth Portfolio
The investment objective of the Capital Growth Portfolio is to provide
long-term appreciation of capital. The Portfolio may invest in a wide variety
of securities which Mentor Advisors believes offers the potential for capital
appreciation over both the intermediate and long term. The Portfolio does not
invest for current income.
The Portfolio invests primarily in common stocks of companies believed by
Mentor Advisors to have the potential for capital appreciation. The Portfolio
may invest without limit in preferred stocks, investment-grade bonds,
convertible preferred stocks, convertible debentures, and any other class or
type of security Mentor Advisors believes offers the potential for capital
appreciation. In selecting investments, Mentor Advisors will attempt to
identify securities it believes will provide capital appreciation over the
intermediate or long term due to changes in the financial condition of issuers,
changes in financial conditions generally, or other factors. The Portfolio also
may invest in fixed-income securities, and cash or money market investments,
for temporary defensive purposes.
Mentor Strategy Portfolio
The Strategy Portfolio's investment objective is to seek high total return
on its investments. In seeking to achieve this objective, Mentor Advisors
actively allocates the Portfolio's assets among the major asset categories of
equity securities, fixed-income securities, and money market instruments. The
Portfolio will normally invest some portion of its assets in each asset
category, but may invest without limit in any asset category. Total return
consists of current income (including dividends, interest, and, in the case of
discounted instruments, discount accruals) and capital appreciation (including
realized and unrealized capital gains and losses).
Mentor Advisors believes that the Portfolio has the potential to achieve
above-average investment returns at comparatively lower risk by actively
allocating its resources among the equity, debt, and money market sectors of
the market as opposed to relying solely on just one market sector. For example,
Mentor Advisors may at times believe that the equity market holds a higher
potential for total return than the debt market and that a relatively large
portion of the Portfolio's assets should be allocated to the equity market
sector. The reverse would be true at times when Mentor Advisors believes that
the potential for total return in the bond market is greater than that in the
equity market. Mentor Advisors might also allocate the Portfolio's investments
to short-term bonds and money market instruments in order to earn current
return and to reduce the potential adverse effect of declines in the bond and
equity markets. After determining the portions of the Portfolio's assets to be
invested in the various market sectors, Mentor Advisors attempts to select the
securities of companies within those sectors offering potential for
above-average total return. The achievement of the Portfolio's investment
objective depends upon, among other things, the ability of Mentor Advisors to
assess correctly the effects of economic and market trends on different sectors
of the market. The Portfolio's investments may include both securities of U.S.
issuers and securities traded principally in foreign markets. The Portfolio may
invest without limit in foreign securities. See "Other Investment Practices -
Foreign Securities" for a description of risks associated with investments in
such securities.
Within the equity sector, Mentor Advisors actively allocates the
Portfolio's assets to those industries and issuers it expects to benefit from
major market trends or which it otherwise believes offer the potential for
above-average total return. The Portfolio may purchase equity securities
(including convertible debt obligations and convertible preferred stock) sold
on the New York, American, and other U.S. or foreign stock exchanges and in the
over-the-counter market.
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Within the fixed-income sector, Mentor Advisors seeks to maximize the
return on its investments by adjusting maturities and coupon rates as well as
by exploiting yield differentials among different types of investment-grade
securities. The Portfolio may invest in debt securities of any maturity,
preferred stocks, and other fixed-income instruments, including, for example,
U.S. Government securities and corporate debt securities (including zero-coupon
securities). A substantial portion of the Portfolio's investments in the
fixed-income sector may be in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain other stripped
mortgage-backed securities, which have certain special risks. See "Other
Investment Practices - Mortgage-backed securities; other asset-backed
securities" for a description of these risks. The Portfolio will only invest in
debt securities which are rated at the time of purchase Baa or better by
Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard &
Poor's ("S&P") or, if unrated, are deemed by Mentor Advisors to be of
comparable quality. While bonds rated Baa or BBB are considered to be of
investment grade, they have speculative characteristics as well. A description
of securities ratings is contained in the Appendix to this Prospectus.
The money market portion of the Portfolio will contain short-term
fixed-income securities issued by private and governmental institutions. Such
securities may include, for example, U.S. Government securities; bank
obligations; Eurodollar certificates of deposit issued by foreign branches of
domestic banks; obligations of savings institutions; fully insured certificates
of deposit; and commercial paper rated within the two highest grades by S&P or
the highest grade by Moody's or, if not rated, issued by a company having an
outstanding debt issue rated at least Aa by Moody's or AA by S&P.
Mentor Income and Growth Portfolio
Sub-Adviser: Wellington Management Company, LLP
The investment objective of the Income and Growth Portfolio is to provide
a conservative combination of income and growth of capital consistent with
capital protection. The Portfolio invests in a diversified portfolio of equity
securities of companies Wellington Management Company, LLP ("Wellington
Management") believes exhibit sound fundamental characteristics and in
investment-grade fixed-income securities and U.S. Government securities, as
described below.
Wellington Management will manage the allocation of assets among asset
classes based upon its analysis of economic conditions, relative fundamental
values and the attractiveness of each asset class, and expected future returns
of each asset class. The Portfolio will normally have some portion of its
assets invested in each asset class at all times but may invest without limit
in any asset class.
The Portfolio may invest in a wide variety of equity securities, such as
common stocks and preferred stocks, as well as debt securities convertible into
equity securities or that are accompanied by warrants or other equity
securities. In selecting equity investments, Wellington Management will attempt
to identify securities it believes are conservatively valued. Within the equity
asset class, the Portfolio seeks to achieve long-term appreciation of capital
and a moderate income level by selecting investments in out-of-favor companies
with sound fundamentals. These decisions are based primarily on Wellington
Management's fundamental research and security valuations.
Within the fixed-income asset class, Wellington Management seeks to invest
in a portfolio that provides as high a level of current income as is consistent
with prudent investment risk. The Portfolio may invest in debt
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securities of any maturity, preferred stocks, and other fixed-income
instruments, including, for example, U.S. Government securities, corporate debt
securities (including zero-coupon securities) and debt securities issued by
foreign governments and by companies located outside the United States. The
Portfolio will only invest in debt securities which are rated at the time of
purchase Baa or better by Moody's or BBB or better by S&P or which, if unrated,
are deemed by Wellington Management to be of comparable quality. While
fixed-income securities rated Baa or BBB are considered to be of investment
grade, they have speculative characteristics as well. A description of
securities ratings is contained in the Appendix to this Prospectus.
The Portfolio may invest up to 10% of its assets in securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests in real estate. The Portfolio will limit its investment in
real estate investment trusts to 10% of its total assets. Such investments may
involve many of the risks of direct investment in real estate, such as declines
in the value of real estate, risks related to general and local economic
conditions, and adverse changes in interest rates. Other risks associated with
real estate investment trusts include lack of diversification, borrower
default, and voluntary liquidation.
Mentor Perpetual Global Portfolio
The investment objective of the Global Portfolio is to seek long-term
growth of capital through a diversified portfolio of marketable securities made
up primarily of equity securities, including common stocks, preferred stocks,
securities convertible into common stocks, and warrants. The Portfolio may also
invest in debt securities and other fixed-income securities of private or
governmental issuers (including zero-coupon securities) which Mentor Perpetual
believes to be consistent with the Portfolio's objective.
It is expected that the Portfolio's investments will normally be spread
broadly around the world, although (except as described in the next sentence)
there is no limit on the amount of the Portfolio's assets that may be invested
in any single country. Under normal circumstances, the Portfolio will invest at
least 65% of the value of its total assets in securities of at least three
countries, one of which may be the United States. The Portfolio may invest all
of its assets in securities of issuers outside the United States, and for
temporary defensive purposes may at times invest all of its assets in
securities of U.S. issuers. To the extent that the Portfolio invests a
substantial portion of its assets in securities of issuers located in a single
country, it will be more susceptible to adverse economic, business, political,
or regulatory conditions in or affecting that country than if it were to invest
in a geographically more diverse portfolio. The Portfolio may invest in
closed-end investment companies holding foreign securities. The Portfolio also
may hold a portion of its assets in cash or cash equivalents, including foreign
and domestic money market instruments.
It is likely that, at times, a substantial portion of the Portfolio's
assets will be invested in securities of issuers in emerging markets, including
under-developed and developing nations. Investments in emerging markets are
subject to the same risks applicable to foreign investments generally although
those risks may be increased due to conditions in such markets. For example,
the securities markets and legal systems in emerging markets may only be in a
developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Portfolio may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets.
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The Portfolio may also invest a substantial portion of its assets in securities
traded in the over-the-counter markets and not on any exchange, which may
affect the liquidity of the investment and expose the Portfolio to the credit
risk of its counterparties in trading those investments. See "Other Investment
Practices - Foreign securities."
Mentor Perpetual may seek investment opportunities in securities of large,
widely traded companies as well as securities of small, less well known
companies. Small companies may present greater opportunities for investment
return, but may also involve greater risk. They may have limited product lines,
markets, or financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume. As a result
the prices of these securities may fluctuate more than prices of securities of
larger, more established companies.
Except as described below, debt and fixed-income securities in which the
Portfolio may invest will be investment grade securities or those of equivalent
quality as determined by Mentor Perpetual. The Portfolio may invest up to 5% of
its total assets in debt securities rated Baa or below by Moody's, or BBB or
below by S&P, or deemed by Mentor Perpetual to be of comparable quality, and
may invest in securities rated as low as C by Moody's or D by S&P. Securities
rated Baa or BBB lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market risks
than higher-rated securities. Securities rated below investment grade are
commonly referred to as "junk bonds" and are predominately speculative.
Securities rated D may be in default with respect to payment of principal or
interest. A description of securities ratings is contained in the Appendix to
this Prospectus.
Mentor Quality Income Portfolio
The Quality Income Portfolio's investment objective is to seek high
current income consistent with what Mentor Advisors believes to be prudent
risk. The Portfolio may invest in debt securities, including both U.S.
Government and corporate obligations, and in other income-producing securities,
including preferred stocks and dividend-paying common stocks. The Portfolio may
also hold a portion of its assets in cash or money market instruments.
The Portfolio will normally invest at least 80% of its assets in U.S.
Government securities and in other securities rated at least A by Moody's or
S&P, or at a comparable rating by another nationally recognized rating
organization, or, if unrated, determined by Mentor Advisors to be of comparable
quality. The Portfolio may invest the remaining 20% of its assets in
lower-rated securities, including securities rated below investment grade (or,
if unrated, determined by Mentor Advisors to be of comparable quality).
Securities rated below investment grade are considered to be of poor standing
and predominantly speculative. Assurance of interest and principal payments or
of maintenance of other terms of the securities' contract over any long period
of time may be small. The Portfolio will not invest more than 10% of its assets
in securities rated Ca or below by Moody's or CC or below by Standard & Poor's.
See "Other Investment Practices - Lower-rated securities." A description of
securities ratings is contained in the Appendix to this Prospectus.
Mentor Advisors may take full advantage of the entire range of maturities
of the securities in which the Portfolio may invest and may adjust the average
maturity of the Portfolio's securities from time to time, depending on its
assessment of relative yields on securities of different maturities and
expectations of future changes in interest rates. The Portfolio may invest any
portion of its assets in mortgage-backed certificates and other
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securities representing ownership interests in mortgage pools, including CMOs
and certain stripped mortgage-backed securities (including certain "residual"
interests), and in other asset-backed securities which involve certain risks.
The Portfolio may also invest any portion of its assets in securities
representing secured or unsecured interests in other types of assets, such as
automobile finance or credit card receivables. See "Other Investment Practices
- - Mortgage-backed securities; other asset-backed securities" and " - Other
mortgage-related securities" below.
The Portfolio may borrow money to invest in additional securities; this
practice involves risks. See "Other Investment Practices - Leverage," below.
The Portfolio may also engage in a variety of interest rate transactions,
including swaps, caps, floors, and collars. See "Other Investment Practices -
Interest rate transactions" below for a description of risks associated with
these transactions.
Mentor Municipal Income Portfolio
Sub-Adviser: Van Kampen American Capital Management, Inc.
The investment objective of the Municipal Income Portfolio is to provide
investors with a high level of current income exempt from federal regular
income tax, consistent with preservation of capital. Under normal market
conditions, the Portfolio will invest at least 80% of its total assets in
tax-exempt municipal securities rated investment grade, or deemed by Van Kampen
American Capital Management, Inc. ("Van Kampen") to be of comparable quality.
The Portfolio may invest a substantial portion of its assets in municipal
securities that pay interest that is a tax preference item under the federal
alternative minimum tax. The Portfolio may not be a suitable investment for
investors who are already subject to federal alternative minimum tax or who
would become subject to federal alternative minimum tax as a result of an
investment in the Portfolio.
Tax-exempt municipal securities are debt obligations issued by or on
behalf of the governments of states (including the District of Columbia) and
United States territories or possessions, and their political subdivisions,
agencies, and instrumentalities, and certain interstate agencies, the interest
on which, in the opinion of bond counsel, is exempt from federal income tax.
The Portfolio may also invest up to 10% of its assets in tax-exempt money
market funds, which will be considered tax-exempt municipal securities for this
purpose.
Up to 20% of the Portfolio's total assets may be invested in tax-exempt
municipal securities rated between BB and B- by S&P or between Ba and B3 by
Moody's (or equivalently rated short-term obligations) and unrated tax-exempt
securities that Van Kampen considers to be of comparable quality. These
securities are below investment grade and are considered to be of poor standing
and predominantly speculative. Assurance of interest and principal payments or
of maintenance of other terms of the securities' contract over any long period
of time may be small. The Portfolio will not invest in securities rated below
B- by S&P or below B3 by Moody's at the time of purchase. See "Other Investment
Practices - Lower-rated securities." A description of securities ratings is
contained in the Appendix to this Prospectus. The Portfolio may hold a portion
of its assets in cash or money market instruments.
The two principal classifications of municipal securities are "general
obligation" and "special revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit, and taxing power for the
payment of principal and interest. Special revenue bonds are usually payable
only from the revenues derived from a particular facility or class of
facilities or from the proceeds of a special excise tax or other specific
revenue source and generally are not payable from the unrestricted revenues of
an issuer. Industrial development
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bonds and private activity bonds are usually special revenue bonds, the credit
quality of which is normally directly related to the credit standing of the
private user involved.
There are, in addition, a variety of hybrid and special types of municipal
securities, including variable rate securities, municipal notes, and municipal
leases. Variable rate securities bear rates of interest that are adjusted
periodically according to formulae intended to minimize fluctuation in values
of the instruments. Municipal notes include tax, revenue, and bond anticipation
notes of short maturities, generally less than three years, which are issued to
obtain temporary funds for various public purposes. Municipal leases are
obligations issued by state and local governments or authorities to finance the
acquisition of equipment and facilities and may be considered illiquid. They
may take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation certificate on any of the above. No more
than 5% of the net assets of the Portfolio will be invested in municipal
leases. A more detailed description of the types of municipal securities in
which the Portfolio may invest is included in the Statement of Additional
Information.
Concentration. The Portfolio generally will not invest more than 25% of
its total assets in any one industry. Governmental issuers of municipal
securities are not considered part of any "industry." However, municipal
securities backed only by the assets and revenues of nongovernmental users may
for this purpose be deemed to be issued by such nongovernmental users, and the
25% limitation would apply to such obligations. The Portfolio may invest more
than 25% of its assets in a broader segment of the municipal securities market,
such as revenue obligations of hospitals and other health care facilities,
housing agency revenue obligations, or airport revenue obligations, if Van
Kampen determines that the yields available from obligations in a particular
segment of the market justify the additional risks associated with such
concentration. Although such obligations could be supported by the credit of
governmental users, or by the credit of nongovernmental users engaged in a
number of industries, economic, business, political, and other developments
generally affecting the revenues of such users (for example, proposed
legislation or pending court decisions affecting the financing of such projects
and market factors affecting the demand for their services or products) may
have a general adverse effect on all municipal securities in such a market
segment. The Portfolio reserves the right to invest more than 25% of its assets
in industrial development or private activity bonds or in issuers located in
any individual state, although Van Kampen has no present intention to invest
more than 25% of the Portfolio's assets in issuers located in the same state.
If the Portfolio were to invest more than 25% of its assets in issuers located
in one state, it would be more susceptible to adverse economic, business, or
regulatory conditions in or affecting that state than if it were to invest in a
geographically more diverse portfolio.
Mentor Short-Duration Income Portfolio
The Short-Duration Income Portfolio's investment objective is to seek
current income. As a secondary objective, the Portfolio seeks preservation of
capital, to the extent consistent with its objective of current income. The
Portfolio will normally invest at least 65% of its assets in debt securities
with a "duration" of three years or less. The Portfolio may invest in U.S.
Government securities and debt obligations of private issuers and in preferred
stocks and dividend-paying common stocks, and may hold a portion of its assets
in cash or money market instruments.
The Portfolio may invest any portion of its assets in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including CMOs and certain other stripped mortgage-backed
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securities (including certain "residual" interests). The Portfolio may also
invest any portion of its assets in securities representing secured or
unsecured interests in other types of assets, such as automobile finance or
credit card receivables. See "Other Investment Practice - Mortgage-backed
securities; other asset-backed securities" and " - Other mortgage-related
securities" below for a description of these securities and risks they may
entail.
Traditionally, a debt security's "term to maturity" has been used to
evaluate the sensitivity of the security's price to changes in interest rates
(the security's interest-rate "volatility"). However, a security's term to
maturity measures only the period of time until the last payment of principal
or interest on the security, and does not take into account the timing of the
various payments of principal or interest to be made prior to the instrument's
maturity. By contrast, "duration" is a measure of the full stream of payments
to be received on a debt instrument, including both interest and principal
payments, based on their present values. Duration measures the periods of time
between the present time and the time when the various interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by their present values.
There are some situations where even the standard duration calculation
does not properly reflect the interest-rate volatility of a security. For
example, floating and variable rate securities often have final maturities of
ten years or more; however, their interest-rate volatility is determined based
principally on the period of time until their interest rates are reset and on
the terms on which they may be reset. Another example where a security's
interest-rate volatility is not properly measured by its duration is the case
of mortgage-related securities. The stated final maturity of such securities
may be up to 30 years, but the actual cash flow on the securities will be
determined by the anticipated prepayment rates on the underlying mortgage
loans. Therefore, the duration of such a security can change if anticipated
prepayment rates change. In these and other similar situations, Mentor Advisors
will estimate a security's duration using sophisticated analytical techniques
that take into account such factors as the expected prepayment rate on the
security and how the prepayment rate might change under various market
conditions, although there can be no assurance that any such estimation will
accurately predict actual prepayment rates or their effect on the volatility or
value of a security.
The Portfolio will invest primarily in debt securities and preferred
stocks of investment grade and, under normal market conditions, the Portfolio
will seek to maintain a portfolio of securities with a dollar-weighted average
rating of Baa/BBB or better. A security will be considered to be of "investment
grade" if, at the time of investment by the Portfolio, it is rated at least
Baa3 by Moody's or BBB- by S&P or the equivalent by another nationally
recognized rating organization or, if unrated, determined by Mentor Advisors to
be of comparable quality. Securities rated Baa or BBB lack outstanding
investment characteristics and have speculative characteristics and are subject
to greater credit and market risks than higher-rated securities.
The Portfolio may invest up to 20% of its assets in securities rated below
investment grade (or, if unrated, determined by Mentor Advisors to be of
comparable quality). Securities rated below investment grade are considered to
be of poor standing and predominantly speculative. Assurance of interest and
principal payments or of maintenance of other terms of the securities' contract
over any long period of time may be small. The Portfolio will not invest more
than 10% of its assets in securities rated below Ca by Moody's or CC by
Standard & Poor's. See "Other Investment Practices - Lower-rated securities." A
description of securities ratings is contained in the Appendix to this
Prospectus.
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The Portfolio may borrow money to invest in additional securities; this
practice involves risks. See "Other Investment Practices - Leverage," below.
The Portfolio may also engage in a variety of interest rate transactions,
including swaps, caps, floors, and collars. See "Other Investment Practices -
Interest rate transactions" below for a description of risks associated with
these transactions.
OTHER INVESTMENT PRACTICES
Each of the Portfolios (except as noted below) may engage in the other
investment practices described below. See the Statement of Additional
Information for a more detailed description of these practices and certain
risks they may involve.
Mortgage-backed securities; other asset-backed securities. Each of the
Strategy, Short-Duration Income, Quality Income, and Income and Growth
Portfolios may invest in mortgage-backed certificates and other securities
representing ownership interests in mortgage pools, including CMOs and, in the
case of the Quality Income and Short-Duration Income Portfolios, "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.
Each of the Strategy, Short-Duration Income, and Quality Income Portfolios
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. A 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, a Portfolio may under some circumstances
fail to fully recoup its initial investment in these securities. Conversely,
POs tend to increase
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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 a Portfolio's ability to buy
or sell those securities at any particular time.
Certain mortgage-backed securities held by the Portfolios may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by a 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.
Each of the Quality Income, Short-Duration Income, Income and Growth, and
Strategy Portfolios may 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 Quality Income and Short-Duration Income Portfolios 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
Portfolios may invest in new types of mortgage-related securities that may be
developed and marketed from time to time. If any of the Portfolios 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 Portfolios 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.
A Portfolio's investment adviser or sub-adviser 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, a Portfolio's
investment adviser or sub-adviser 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 a Portfolio may invest may
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be highly illiquid, and a 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, a Portfolio's investment adviser or sub-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 a Portfolio's investment adviser or sub-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 a Portfolio will recover the
entire amount of the principal paid by it to purchase any such securities.
Zero-coupon bonds. Each of the Global, Income and Growth, Municipal
Income, Quality Income, Short-Duration Income, and Strategy Portfolios may at
times invest in so-called "zero-coupon" 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. 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. Zero-coupon 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, a 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, a Portfolio
could be required at times to liquidate other investments in order to satisfy
this distribution requirement.
Premium securities. The Portfolios 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 amount
payable on maturity. Although a Portfolio generally amortizes the amount of any
such premium into income, the Portfolio may recognize a capital loss if such
premium securities are called or sold prior to maturity and the call or sale
price is less than the purchase price. Additionally, a Portfolio may recognize
a capital loss if it holds such securities to maturity.
Lower-rated securities (Quality Income, Municipal Income, and
Short-Duration Income Portfolios). 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 Quality Income, Municipal Income, or Short Duration Income
Portfolio. The lower ratings of lower-rated securities held by a 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 a Portfolio more volatile and could limit a Portfolio's
ability to sell its securities at prices approximating the values the Portfolio
had placed on such securities. It is possible that legislation may be adopted
in the future limiting the ability of certain financial institutions to
purchase lower-rated securities; such legislation may adversely affect the
liquidity of such securities. In the absence of a liquid trading market for
securities held by it, a 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
23
<PAGE>
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 a
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of a 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 values of these investments. Changes in the
values of portfolio securities generally will not affect cash income derived
from such securities, but will affect a Portfolio's net asset value. A
Portfolio will not necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase, although Mentor Advisors or Van
Kampen, as the case may be, will monitor the investment to determine whether
continued investment in the security will assist in meeting a 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 a Portfolio may invest 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.
A Portfolio may invest in lower-rated securities which trade infrequently
or in more limited volume than higher-rated securities (including illiquid
securities), or which are restricted as to resale. In addition, a substantial
portion of a Portfolio's assets may at times be invested in securities as to
which the Portfolio, by itself or together with other accounts managed by
Mentor Advisors and its affiliates (or by Van Kampen and its affiliates, as the
case may be), holds a major portion or all of such securities, which may limit
the liquidity of such securities. A Portfolio could find it difficult or
impossible to sell illiquid securities when Mentor Advisors or Van Kampen, as
the case may be, 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 a Portfolio's net asset value. In order to enforce its rights in the
event of a default under securities in cases where a Portfolio holds a major
portion or all of the outstanding issue, a 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. A 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.
A 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
24
<PAGE>
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,
a 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, a Portfolio could be required at times to
liquidate other investments in order to satisfy this distribution requirement.
Certain securities held by a Portfolio may permit the issuer at its option
to "call," or redeem, its securities. If an issuer were to redeem securities
held by a 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.
A 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. A 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, a Portfolio may recognize a capital loss to the extent the
call or sale price is less than the purchase price. Additionally, a Portfolio
will recognize a capital loss if its holds such securities to maturity.
Mentor Advisors and Van Kampen seek to minimize the risks involved in
investing in lower-rated securities through diversification and careful
investment analysis. When a Portfolio invests in high yield securities in the
lower rating categories, achievement of the Portfolio's goals depends more on
its adviser's investment analysis than would be the case if the Portfolio were
investing in securities in the higher rating categories.
Options and futures. Each of the Portfolios may buy and sell put and call
options on securities it owns or plans to purchase 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, each of the
Portfolios may at times seek to hedge against fluctuations in net asset value.
In addition, to the extent consistent with applicable law, the Portfolios may
buy and sell futures contracts and related options to increase investment
return. The Strategy Portfolio may also buy and sell options and futures
contracts (including index options and futures contracts) to implement changes
in its asset allocations among various market sectors, pending the sale of its
existing investments and reinvestments in new securities.
Index futures and options. Each of the Portfolios may buy and sell index
futures contracts ("index futures") and options on index futures and 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
futures" contract 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 a Portfolio enters into and
terminates an index futures or option transaction, the Portfolio realizes a
gain or loss. The Portfolios may also, to the extent consistent with applicable
law, buy and sell index futures and options to increase investment return.
Risks related to options and future strategies. Options and futures
transactions involve costs and may result in losses. 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 of the securities held
25
<PAGE>
by a Portfolio that are the subject of a hedge. The successful use by a
Portfolio of the strategies described above further depends on the ability of
its investment adviser or sub-adviser to forecast market movements correctly.
Other risks arise from a Portfolio's potential inability to close out futures
or options positions. Although a Portfolio will enter into options or futures
transactions only if its investment adviser or sub-adviser believes that a
liquid secondary market exists for such option or futures contract, there can
be no assurance that a Portfolio will be able to effect closing transactions at
any particular time or at an acceptable price. Transactions in options and
futures contracts involve brokerage costs and may require a Portfolio to
segregate assets to cover its outstanding positions. For more information, see
the Statement of Additional Information. Federal tax considerations may also
limit a Portfolio's ability to engage in options and futures transactions.
Each Portfolio's options and futures contract transactions will generally
be conducted on recognized exchanges. However, a Portfolio may purchase and
sell options in transactions in the over-the-counter markets. A 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. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are not appropriate and when, in the opinion of its investment
adviser or sub-adviser, the pricing mechanism and liquidity of the
over-the-counter markets are satisfactory and the participants are responsible
parties likely to meet their contractual obligations.
Securities loans and repurchase agreements. Each Portfolio, other than the
Municipal Income Portfolio, may lend portfolio securities and may enter into
repurchase agreements with banks, broker/dealers, and other recognized
financial institutions. Each of the Strategy and Short-Duration Income
Portfolios may enter into each type of transaction on up to 25% of its assets,
and each of the Growth, Capital Growth, Global, Income and Growth, and Quality
Income Portfolios may enter into each type of transaction on up to one-third of
its assets. These transactions must be fully collateralized at all times, but
involve some risk to a Portfolio if the other party should default on its
obligations and the Portfolio is delayed or prevented from recovering the
collateral.
Leverage. The Short-Duration Income Portfolio and the Quality Income
Portfolio may borrow money to invest in additional securities. Certain other
Portfolios may engage in reverse repurchase agreements, forward commitments,
and dollar-roll transactions described below and in the Statement of Additional
Information, which may have the same economic effect as if the Portfolios had
borrowed money.
The use of borrowed money, known as "leverage," increases a Portfolio's
market exposure and risk and may result in losses. When a 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 Portfolios
currently intend to use leverage in order to adjust the dollar-weighted average
duration of their portfolios. A Portfolio will not always borrow money for
investment and the extent to which a 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 that can exist at
any one time will not exceed one-third of the value of a Portfolio's total
assets.
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<PAGE>
Reverse repurchase agreements; forward committments. Each Portfolio, other
than the Growth and Strategy Portfolios, may enter into "reverse" repurchase
agreements. Each of the Capital Growth, Quality Income, Short-Duration Income,
Income and Growth, and Global Portfolios may do so with respect to up to
one-third of its assets, and the Municipal Income Portfolio may do so with
respect to up to 5% of its assets. "Reverse" repurchase agreements generally
involve the sale by a Portfolio of securities held by it and an agreement to
repurchase the securities at an agreed-upon price, date, and interest payment.
Each Portfolio also may enter into forward commitments, in which a Portfolio
buys securities for future delivery. Reverse repurchase agreements and forward
commitments involve leverage, and may increase a Portfolio's overall investment
exposure. Their use by a Portfolio may result in losses. The Short-Duration
Income Portfolio and the Quality Income Portfolio may enter into reverse
repurchase agreements to create investment leverage.
Dollar-roll transactions. In order to enhance portfolio returns and manage
prepayment risks, each Portfolio, other than the Growth, Strategy, and
Municipal Income Portfolios may engage in dollar-roll transactions with respect
to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In a
dollar-roll transaction, a Portfolio sells a mortgage-related security to a
financial institution, such as a 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 involve leverage, and may increase a Portfolio's overall
investment exposure. Their use by a Portfolio may result in losses.
Foreign securities. Each Portfolio other than the Growth and Municipal
Income Portfolios may invest in securities principally traded in foreign
markets. The Capital Growth and Income and Growth Portfolios will limit such
investments to 15% of their total assets. (Those percentage limitations do not
apply to American Depository Receipts, Global Depository Receipts, and other
U.S. dollar-denominated securities of issuers located outside the United
States.) Since foreign securities are normally denominated and traded in
foreign currencies, the values of a Portfolio's assets may be affected
favorably or unfavorably by changes in currency exchange rates and by 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 a 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 a 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. The laws of some foreign countries
may limit a Portfolio's ability to invest in securities of certain issuers
located in those foreign countries. Special tax considerations apply to foreign
securities. A Portfolio may buy or sell foreign currencies and options and
futures contracts on foreign currencies for hedging purposes in connection with
its foreign investments as described more fully below.
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<PAGE>
A 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.
The risks described above are typically increased to the extent that a
Portfolio invests in securities traded in underdeveloped and developing
nations, which are sometimes referred to as "emerging markets."
Foreign currency exchange transactions. Each Portfolio that may invest in
foreign securities may engage in foreign currency exchange transactions to
protect against uncertainty in the level of future currency exchange rates. A
Portfolio may engage in foreign currency exchange transactions in connection
with the purchase and sale of portfolio securities ("transaction hedging") and
to protect against changes in the value of specific portfolio positions
("position hedging").
A Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which a Portfolio
contracts to purchase or sell a security and the settlement date, or to "lock
in" the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. A Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with transaction hedging.
A Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and sell
foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be higher or lower than
the spot rate. Foreign currency futures contracts are standardized exchange-
traded contracts and have margin requirements. For transaction hedging
purposes, a Portfolio may also purchase and sell call and put options on
foreign currency futures contracts and on foreign currencies.
A Portfolio may engage in position hedging to protect against a decline in
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in value of a currency in
which securities the Portfolio intends to buy are denominated). For position
hedging purposes, a Portfolio may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase and sell put
and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, a Portfolio may also purchase
or sell foreign currencies on a spot basis.
Although there is no limit to the amount of a Portfolio's assets that may
be invested in foreign currency exchange and foreign currency forward contacts,
a Portfolio will only enter into such transactions to the extent necessary to
effect the hedging transactions described above.
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, each of the Global, Quality Income, and Short-
Duration Income Portfolios 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 a 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
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<PAGE>
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. Each Portfolio intends to use these interest rate
transactions as a hedge and not as a speculative investment. A 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 a Portfolio's investment adviser or sub-adviser is
incorrect in its forecasts of market values, interest rates, or other
applicable factors, the investment performance of a Portfolio would be less
favorable than it would have been if this investment technique were not used.
Indexed securities. The Global Portfolio may invest in indexed securities,
the values of which are linked to currencies, interest rates, commodities,
indices, or other financial indicators. Investment in indexed securities
involves certain risks. In addition to the credit risk of the securities issuer
and normal risks of price changes in response to changes in interest rates, the
principal amount of indexed securities may decrease as a result of changes in
the value of the reference instruments. Also, in the case of certain indexed
securities where the interest rate is linked to a reference instrument, the
interest rate may be reduced to zero and any further declines in the value of
the security may then reduce the principal amount payable on maturity. Further,
indexed securities may be more volatile than the reference instruments
underlying indexed securities.
Portfolio turnover. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Portfolio is known as "portfolio turnover." As a
result of each Portfolio's investment policies, under certain market conditions
its portfolio turnover rate may be higher than that of other mutual funds.
Portfolio turnover generally involves some expense to a Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such transactions may
result in realization of taxable gains. The portfolio turnover rates for the
ten most recent fiscal years (or for the life of a Portfolio if shorter) are
contained in the section "Financial Highlights."
VALUING THE PORTFOLIOS' SHARES
Each Portfolio calculates the net asset value of a share of each class 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 approximates market value. 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.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rates or at such other rates as may be used in
accordance with procedures approved by the Trustees. As a result, fluctuations
in the values of such currencies in relation to the U.S. dollar will affect the
net asset value of a Portfolio's shares even though there has not been any
change in the values of such securities as quoted in such foreign currencies.
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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 or six years,
depending on the Portfolio. 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 will 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 about these sales arrangements, consult your investment dealer or
Mentor Services Company, Inc. ("Mentor Services Company"). 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 another
Mentor fund 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 at $50. Investments under
IRAs and investments under 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 Mentor Funds
or Mentor Services Company 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 a 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.
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Shares are sold at a price based on a Portfolio's net asset value next
determined after Mentor Distributors, LLC ("Mentor Distributors") receives your
purchase order. In most cases, in order to receive that day's public offering
price, Mentor Distributors or your investment dealer 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 Mentor
Distributors 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 Mentor Distributors. The current sales
charges for the Growth, Capital Growth, Strategy, Income and Growth, and Global
Portfolios are:
<TABLE>
<CAPTION>
Sales Charge
as a Sales Charge
Percentage of as a
Public Percentage of
Offering Net Amount Dealer
Price Invested Commission*
--------------- -------------- ------------
<S> <C> <C> <C>
Less than $50,000......................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000............ 4.75% 4.99% 4.00%
$100,000 but less than $250,000........... 3.75% 3.90% 3.00%
$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>
The current sales charges for the Municipal Income and Quality Income
Portfolios are:
<TABLE>
<CAPTION>
Sales Charge
as a Sales Charge
Percentage of as a
Public Percentage of
Offering Net Amount Dealer
Price Invested Commission*
--------------- -------------- ------------
<S> <C> <C> <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 Mentor Distributors, 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.
Shares of the Short-Duration Income Portfolio are sold subject to a sales
charge of 1%.
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
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the shares' cost and current net asset value. A CDSC is also imposed on any
shares purchased without a sales charge 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 Mentor Funds 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 five or six years
of purchase, depending on the Portfolio. 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:
<TABLE>
<CAPTION>
Contingent Deferred Sales Contingent Deferred Sales
Charge as a Percentage of Charge as a Percentage of
Applicable Amount Applicable Amount
Redeemed (Growth, Capital Redeemed (Quality Income,
Growth, Strategy, Income Municipal Income, and
Years Since Purchase Payment and Growth, and Global Short-Duration Income
Made Portfolios) Portfolios)
- ------------------------------ --------------------------- --------------------------
<S> <C> <C>
1 4.0% 4.0%
2 4.0% 4.0%
3 3.0% 3.0%
4 2.0% 2.0%
5 1.0% 1.0%
6 None 1.0%
7+ None None
</TABLE>
For information on how sales charges are calculated if you exchange your
shares, see "How To Exchange Shares."
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.
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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
A Portfolio may sell its Class A shares without a sales charge and may
waive the CDSC on shares redeemed by Mentor Funds' current and retired Trustees
(and their families), current and retired employees (and their families) of
Mentor Services Company, each investment adviser or sub-adviser, and each of
their affiliates, registered representatives and other employees (and their
families) of broker-dealers having sales agreements with Mentor Distributors,
employees (and their families) of financial institutions having sales
agreements with Mentor Distributors (or otherwise having an arrangement with a
broker-dealer or financial institution with respect to sales of Portfolio
shares), financial 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 a
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. A 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|M/2;
and (c) a tax-free return of 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. A Portfolio may sell
its Class A shares without a sales charge to shareholders of other mutual funds
who invest in Mentor Funds in response to certain promotional activities (in
which case a CDSC of 1% may apply for a period of years after the 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 a Portfolio at net asset value.
In determining whether a CDSC is payable in respect of the shares
redeemed, a 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
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<PAGE>
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:
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
Mentor Distributors receives the entire amount of any CDSC you pay.
Consult Mentor Services Company
for more information.
If you are considering redeeming or exchanging shares of a 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.
To eliminate the need for safekeeping, certificates will not be issued for
your shares unless you request them.
Because of the relatively high cost of maintaining accounts, each
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 a Portfolio by increasing investment in
shares of that Portfolio to a value of $500 or more during such 60-day period.
Mentor Distributors, Mentor Advisors, the sub-advisers, or 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 shares of the Portfolios.
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
Mentor Funds' 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.
Reinvestment privilege. If you redeem Class A or B shares of any
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. Mentor Distributors must be notified in writing by you or by your
financial institution of the reinvestment for you to recover the
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<PAGE>
CDSC, or to eliminate the front-end sales charge. If you redeem shares in any
of the Portfolios, there may be tax consequences.
DISTRIBUTION PLANS (CLASS B SHARES)
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, is the principal distributor for the Portfolios' shares. Mentor
Distributors is not obligated to sell any specific amount of shares of any
Portfolio. Mentor Distributors is a wholly owned subsidiary of BISYS Fund
Services, Inc.
Each of the Portfolios has adopted a Distribution Plan under Rule 12b-1
with respect to its Class B shares (each, a "Class B Plan") providing for
payments by the Portfolio to its 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 Class B Plan for such periods
as they may determine. A Portfolio's distributor also receives the proceeds of
any CDSC imposed on redemptions of shares.
Payments under the Plans are intended to compensate a Portfolio's
distributor for services provided and expenses incurred by it as principal
underwriter of a Portfolio's Class B shares. A Portfolio's 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 Portfolios. Financial institutions will
receive fees from a Portfolio's 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 a Portfolio's
distributor. A Portfolio's distributor may suspend or modify such payments to
dealers. Such payments are also subject to the continuation of the relevant
Class B Plan, the terms of any agreements between dealers and a Portfolio's
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 Portfolios. Mentor
Services Company and its affiliates will receive from Mentor Distributors
substantially all amounts received or retained by Mentor Distributors in
respect of the distribution of the Portfolios' shares, including any amounts
paid to Mentor Distributors under the Portfolios' Distribution Plans. In
addition, Mentor Services Company receives from Mentor Distributors an amount
equal to all CDSC's received by Mentor Distributors.
HOW TO SELL SHARES
You can sell your shares in any Portfolio to that Portfolio any day the
New York Stock Exchange is open, either directly to the Portfolio or through
your investment dealer. A Portfolio will only redeem shares for which it has
received payment.
Selling shares directly to a 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
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<PAGE>
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. Mentor Distributor usually requires additional documentation for the
sale of shares by a corporation, partnership, agent, or 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.
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.
Other information concerning redemption. Under unusual circumstances, each
of the Portfolios may suspend redemptions, or postpone payment for more than
seven days, as permitted by federal securities law. In addition, each 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.
Systematic withdrawal program. You may redeem Class A or B shares of a
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 Mentor Services Company for more information.
HOW TO EXCHANGE SHARES
Except as otherwise described below, you can exchange your shares in a
Portfolio worth at least $1,000 for shares of the same class of any other
Portfolio offered by this Prospectus and certain other portfolios in the
36
<PAGE>
Mentor family at net asset value beginning 15 days after purchase. You may also
exchange shares of any 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. Mentor Services Company'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 your investment dealer or Mentor
Services Company for a prospectus relating to the Cash Fund or the other
portfolios into which you may exchange your shares. Shares of certain of the
Portfolios may not 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 Mentor Advisors or the
Trustees believe doing so would be in the best interests of a Portfolio, the
Trust 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 Mentor
Services Company before requesting an exchange by calling 1-800-869-6042. See
the Statement of Additional Information to find out more about the exchange
privilege.
DISTRIBUTIONS AND TAXES
Dividends, if any, are declared daily and paid monthly for the Quality
Income, Short-Duration Income, and Municipal Income Portfolios, quarterly for
the Income and Growth Portfolio, and annually for the Growth, Capital Growth,
Global, and Strategy Portfolios. Each Portfolio will distribute its net capital
gain, if any, at least annually. All dividends and distributions of net capital
gain will be invested in additional shares of the same class of a Portfolio
unless a shareholder requests in writing to receive the dividend or
distribution in cash.
Each 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. Each Portfolio will distribute substantially all
of its net investment income and capital gain net income on a current basis.
All Portfolio distributions, other than exempt-interest dividends, will be
taxable to you as ordinary income, except that any distributions of net capital
gain will be taxed as long-term capital gain, regardless of how long you have
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). Pursuant to the
Taxpayer Relief Act of 1997, long-term capital gains generally will be subject
to a maximum tax rate of 28% or 20% depending upon the holding period of the
portfolio investment generating the gains. Distributions will be taxable as
described above whether received in cash or in shares through the reinvestment
of distributions. Early in each year Mentor Funds will notify you of the amount
and tax status of distributions paid
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<PAGE>
to you by your Portfolio for the preceding year. In buying or selling
securities for each of the Portfolios, Mentor Advisors and Mentor Perpetual, as
applicable, will not normally take into account the effect any purchase or sale
of securities will have on the tax positions of the Portfolios' shareholders.
To permit the Quality Income, Municipal Income, and Short-Duration Income
Portfolios to maintain more stable monthly distributions, each of those
Portfolios may from time to time pay out less than the entire amount of net
investment income earned in any particular period. Any such amount retained by
a Portfolio would be available to stabilize future distributions. As a result,
the distributions paid by any of these Portfolios for any particular period may
be more or less than the amount of net investment income actually earned by the
Portfolio during that period.
Municipal Income Portfolio. Distributions designated by the Portfolio as
"exempt-interest dividends" are not generally subject to federal income tax.
The Portfolio may engage in investment activities that produce taxable income,
the distribution of which will be taxable to shareholders as described above.
If you receive Social Security or railroad retirement benefits, you should
consult your tax adviser to determine what effect, if any, an investment in the
Portfolio may have on the taxation of your benefits. In addition, an investment
in the Portfolio may result in liability for federal alternative maximum tax
and for state and local taxes, both for individual and corporate shareholders.
Global Portfolio only. Shareholders of the Portfolio who are U.S. citizens
or residents may be able to claim a foreign tax credit or deduction on their
U.S. income tax returns with respect to foreign taxes paid by the Portfolio.
If, at the end of the fiscal year of the Portfolio, more than 50% of the
Portfolio's total assets are represented by stock or securities of foreign
corporations, the Portfolio intends to make an election permitted by the
Internal Revenue Code to treat any eligible foreign taxes it paid as paid by
its shareholders. In that case, shareholders who are U.S. citizens, U.S.
corporations, and, in some cases, U.S. residents, will be required to include
in U.S. taxable income their pro rata share of such taxes, but may then be
entitled to claim a foreign tax credit or deduction (but not both) for their
share of such taxes.
The foregoing is a summary of certain federal income tax consequences of
investing in a Portfolio. Dividends and distributions also may be subject to
foreign, state, and local taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, foreign, state, or local
taxes. 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).
MANAGEMENT
The Trustees of Mentor Funds are responsible for generally overseeing the
conduct of its business. Mentor Investment Advisors, LLC is the investment
adviser to each of the Portfolios other than the Global Portfolio. Mentor
Perpetual Advisors, LLC is the investment adviser to the Global Portfolio. Each
of the investment advisers is located at 901 East Byrd Street, Richmond,
Virginia.
All investment decisions made for the Portfolios by Mentor Advisors and
Mentor Perpetual are made by investment management teams.
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<PAGE>
Mentor Advisors has over $12 billion in assets under management and is a
wholly owned subsidiary of Mentor Investment Group, LLC ("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 $157 billion in assets and $12 billion in total
stockholders' equity as of December 31, 1997. EVEREN Capital Corporation has a
20% ownership in Mentor Investment Group and may acquire additional ownership
based principally on the amount of Mentor's revenues derived from assets
attributable to clients of EVEREN Securities, Inc. and its affiliates.
Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc, a diversified financial services holding company, and
Mentor Advisors. The Perpetual organization currently serves as investment
adviser for assets of more than $10 billion. Its clients include 28 unit
investment trusts and other public investment pools including private
individuals, charities, pension plans, and life assurance companies.
Mentor Advisors and Mentor Perpetual together serve as investment adviser
to twenty-two separate investment portfolios in the Mentor Family of Funds,
including those offered by this Prospectus. For a prospectus relating to
certain of these other investment portfolios, and for information concerning
your eligibility to purchase shares of those portfolios, contact Mentor
Services Company.
Each of the Portfolios (other than the Global Portfolio) pays management
fees to Mentor Advisors at the annual rates described above under "Expense
Summary - Annual Portfolio Operating Expenses"; and the Global Portfolio pays
fees to Mentor Perpetual at an annual rate of 1.10% of its average daily net
assets up to and including $75 million and 1.00% of its average daily net
assets in excess of $75 million. The advisory fees paid by the Growth, Capital
Growth, Income and Growth, and Global Portfolios are higher than those paid by
many other mutual funds. An investment adviser may from time to time
voluntarily waive some or all of its investment advisory fees and may terminate
any such voluntary waiver at any time in its sole discretion.
The Sub-Advisers
Van Kampen American Capital Management Inc. serves as sub-adviser to the
Municipal Income 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 wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is an
indirect wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Morgan Stanley, Dean Witter, Discover & Co. 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 September 30, 1997, Van
Kampen, together with its affiliates, advised or supervised approximately $67.5
billion of assets. For its services as sub-adviser, Van Kampen receives a fee
from Mentor Advisors at the following annual rate: 0.25% of the first $60
million of the Portfolio's average net assets and 0.20% of the Portfolio's
average net assets over $60 million.
David C. Johnson, Senior Vice President of Van Kampen, is manager of the
Municipal Income Portfolio. Mr. Johnson joined Van Kampen in 1989 and has
served as portfolio manager of the Municipal Income Portfolio since its
inception. Mr. Johnson has fourteen years of management experience in the
tax-free fixed-income sector. Currently, he is responsible for the management
and supervision of 52 Van Kampen municipal funds, including both open and
closed-end funds, with total assets exceeding $13 billion.
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<PAGE>
Wellington Management Company, LLP serves as sub-adviser to the Income and
Growth Portfolio. Wellington Management, located at 75 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowments, foundations, and other institutions and individuals. As of
September 30, 1997, Wellington Management had discretionary investment
management authority with respect to approximately $168.7 billion in assets.
Wellington Management and its predecessor organizations have provided
investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. For its services as sub-adviser,
Wellington Management receives a fee from Mentor Advisors at the following
annual rate: 0.325% of the first $50 million of the Portfolio's average net
assets, 0.275% of the next $150 million of the Portfolio's average net assets,
0.225% of the next $300 million of the Portfolio's average net assets, and
0.200% of the Portfolio's net assets over $500 million.
Paul D. Kaplan, Senior Vice President of Wellington Management, has served
as portfolio manager of the fixed-income and U.S. Government securities portion
of the Portfolio since its inception in May 1993. Mr. Kaplan has been a
portfolio manager with Wellington Management since 1982. As of November 30,
1996, Wellington Management's Equity Income Team, a group of equity portfolio
managers and senior investment professionals, assumed responsibility for
managing the equity securities portion of the Portfolio.
General. Subject to the general oversight of the Trustees, each
Portfolio's investment adviser or sub-adviser manages the relevant Portfolio's
investments in accordance with the stated policies of the Portfolio. Each makes
investment decisions for the Portfolio and places purchase and sale orders for
the Portfolio's transactions. In addition, each pays the salaries of all
officers and employees who are employed by both it and Mentor Funds. Mentor
Funds pays all expenses not assumed by the investment advisers, sub-advisers,
or Mentor Investment Group, including, among other things, Trustees' fees,
auditing, accounting, legal, custodial, investor servicing, and shareholder
reporting expenses, and payments under the Portfolios' Class B Plans.
In selecting broker-dealers, an investment adviser or sub-adviser may
consider research and brokerage services furnished to it and its affiliates.
Subject to seeking the best overall terms available, a Portfolio's investment
adviser or sub-adviser may consider sales of shares of Mentor Funds (and, if
permitted by law, of the other funds in the Mentor family) as a factor in the
selection of broker-dealers.
OTHER SERVICES
Administrative Services. Mentor Investment Group, LLC, located at 901 East
Byrd Street, Richmond, Virginia 23219, provides each Portfolio with certain
administrative personnel and services necessary to operate each Portfolio, such
as bookkeeping and accounting services. Mentor Investment Group provides these
services to each of the Portfolios at an annual rate of 0.10% of the
Portfolio's average daily net assets.
Shareholder Servicing Plan. Mentor Funds has adopted a Shareholder
Servicing Plan (the "Service Plan") with respect to Class A and Class B shares
of each Portfolio. Under the Service Plan, financial institutions will enter
into shareholder service agreements with Mentor Distributors 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 a Portfolio. These
administrative services may include, but are not limited to, the following
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<PAGE>
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 Portfolios; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Portfolios reasonably request.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by a Portfolio's investment adviser, by a
Portfolio's sub-adviser, or by Mentor Investment Group, or affiliates thereof,
for providing administrative support services to holders of Class A or Class B
shares of the Portfolios. These payments will be made directly by an investment
adviser, sub-adviser, and/or Mentor Investment Group, and will not be made from
the assets of any of the Portfolios.
GENERAL
Mentor Funds is a Massachusetts business trust organized on January 20,
1992. A copy of its Declaration of Trust, which is governed by Massachusetts
law, is on file with the Secretary of State of The Commonwealth of
Massachusetts.
Mentor Funds is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of Mentor
Funds 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. Mentor Funds' shares are currently divided into eleven
series, eight of which are being offered by this Prospectus. Each series
offered by this Prospectus issues three classes of shares, Class A, Class B,
and Class Y Shares. The sales charge and other expenses of a Portfolio's Y
Shares differ from those of its Class A and B shares, which will affect
performance. Contact Mentor Investment Group for information concerning the Y
Shares of any Portfolio at 1-800-869-6042. Each share has one vote, with
fractional shares voting proportionally. Shares of each series will vote
together as a single series except when required by law or determined by the
Trustees. Shares of each 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 that Portfolio. Mentor Funds may suspend the
sale of shares at any time and may refuse any order to purchase shares.
Although neither Mentor Funds nor any Portfolio 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
Declaration of Trust.
The Portfolios receive 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 each of the
Portfolios' other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the
Portfolios from this problem.
41
<PAGE>
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as custodian for each Portfolio. State Street Bank and
Trust Company, through its subsidiary Boston Financial Data Services, Inc.,
serves as transfer agent and dividend disbursing agent for the Portfolios.
Mentor Funds' independent auditors are KPMG Peat Marwick LLP, 99 High Street,
Boston, Massachusetts 02110.
PERFORMANCE INFORMATION
Yield and total return data may from time to time be included in
advertisements about the Portfolios. A Portfolio's "yield" is calculated by
dividing the Portfolio's annualized net investment income per share of the
class in question during a recent 30-day period by the maximum public offering
price per share of that class on the last day of that period. "Total return"
for the one-, five-, and ten-year periods (or for the life of a Portfolio, if
shorter) through the most recent calendar quarter represents the average annual
compounded rate of return on an investment of $1,000 in the 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 a Portfolio will differ. Any quotation of
investment performance not reflecting a CDSC or maximum front-end sales charge
would be reduced if the CDSC or front-end sales charges were reflected.
Quotations of yield or total return for a period when an expense limitation was
in effect will be greater than if the limitation had not been in effect. A
Portfolio's performance may be compared to various indices. See the Statement
of Additional Information for more information. Information may be presented in
advertisements about a Portfolio describing the background and professional
experience of the Portfolio's investment adviser, sub-adviser, or any of their
personnel.
All data are based on a Portfolio's past investment results and do not
predict future performance. Investment performance, which will vary, is based
on many factors, including market conditions, the composition of a Portfolio's
investments, a Portfolio's operating expenses, and which class of shares you
purchase. Investment performance also often reflects the risks associated with
a Portfolio's investment objective and policies. These factors should be
considered when comparing a Portfolio's investment results to those of other
mutual funds and other investment vehicles.
As permitted by applicable law, performance information for a Portfolio
whose investment adviser or sub-adviser has changed may be presented only for
periods after the change was effected.
42
<PAGE>
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.
43
<PAGE>
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.
44
<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.
45
<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.
46
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the
Portfolio's official sales literature in connection with the offer of the
Portfolio's shares, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Portfolio. This Prospectus does not constitute an offer in any State in which,
or to any person to whom, such offering may not lawfully be made. This
Prospectus omits certain information contained in the Registration Statement,
to which reference is made, filed with the Securities and Exchange Commission.
Items which are thus omitted, including contracts and other documents referred
to or summarized herein, may be obtained from the Commission upon payment of
the prescribed fees.
Additional information concerning the securities offered hereby and the
Portfolio is to be found in the Registration Statement, including various
exhibits thereto and financial statements included or incorporated therein,
which may be inspected at the office of the Commission.
Mentor Investment Group
901 East Byrd Street
Richmond, VA 23219
(800) 869-6042
1998 Mentor Distributors, LLC
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED
MAY LOSE VALUE
MK 609
Mentor Funds
Mentor Growth Portfolio
Mentor Perpetual Global Portfolio
Mentor Capital Growth Portfolio
Mentor Strategy Portfolio
Mentor Income and Growth Portfolio
Mentor Municipal Income Portfolio
Mentor Quality Income Portfolio
Mentor Short-Duration Income Portfolio
-------------------------
PROSPECTUS
-------------------------
January 17, 1998,
as revised April 9, 1998
[MENTOR INVESTMENT GROUP LOGO]
<PAGE>
Mentor Funds
New Account Form
and Shareowner Options Form
[GRAPHIC OMITTED]
<PAGE>
Use the attached form
to establish your
account in
Mentor Funds
<PAGE>
[MENTOR INVESTMENT GROUP LOGO]
New Account Form and
Shareowner Options Form
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Type of Account
- --------------------------------------------------------------------------------
Use this one form to open any ONE of the following types of accounts. Please
check the appropriate one below.
[ ] Individual Account, Complete 1. [ ] Joint Account, Complete 1 and 2.
[ ] Custodial Account, (Gift to a Minor), Complete 3.
[ ] Trust Account, Complete 4. [ ] Corporate (or Organization)
Account, Complete 5.
[ ] Revise Existing Account
------------------------------------------------------
Number
- --------------------------------------------------------------------------------
1. - -
-----------------------------------------------------------------------------
Name Social Security Number
2. - -
-----------------------------------------------------------------------------
Name Social Security Number
Shareowner Employment Information
This information is required in accordance with the Rules of Fair Practice of
the National Association of Securities Dealers.
- ----------------------------------------------------------------------------
Occupation of Shareowner or Custodian
- ----------------------------------------------------------------------------
Employer's Name
- ----------------------------------------------------------------------------
Employer's Address
- ----------------------------------------------------------------------------
City State ZIP Code
- ----------------------------------------------------------------------------
Occupation of Co-Shareowner
- ----------------------------------------------------------------------------
Employer's Name
- ----------------------------------------------------------------------------
Employer's Address
- ----------------------------------------------------------------------------
City State ZIP Code
3. as custodian for
---------------------------------------------
Custodian's Name (only one custodian permitted)
----------------------------------------------
Minor's Name (only one minor permitted)
- -
---------------------------------------------
Minor's Social Security Number
Under the Uniform Gifts or Uniform Transfers to Minors
----- ----
State State
Act / /
---------------------------------------------
Minor's Birthdate
4.
---------------------------------------------
Name of Trustee Name of Trust
/ /
- ------------------------------------------------------
Name of Second Trustee (if any) Date of Trust
- ----------------------------------------------------------------------------
Trust's Taxpayer Identification Number
5.
- ------------------------------------------------------
Name of Corporation (or other entity)
- ------------------------------------------------------
Taxpayer Identification Number
Business Type:
Corporation Partnership Organization
--- --- ---
Fiduciary Other
--- --- ---------------------------
Specify other type
(Please attach a certified copy of your corporate resolution)
- --------------------------------------------------------------------------------
Mailing Address of Account
- --------------------------------------------------------------------------------
All the information requested is needed to open your account.
- ------------------------------------------------------
Street Address or Box Number Apartment Number
- ------------------------------------------------------
City State ZIP Code
( ) ( )
- ------------------------------------------------------
Area Code Daytime Phone Area Code Evening Phone
- --------------------------------------------------------------------------------
Fund Selection and Initial Investment
- --------------------------------------------------------------------------------
[ ] Next to the Portfolio name(s), indicate the amount you're investing in the
Portfolio. MINIMUM PER PORTFOLIO: $1,000
[ ] Be sure to check how you want your Dividend and Capital Gains distributions
handled: automatically reinvested to buy more shares or sent to you by
check.
[ ] Indicate the TOTAL amount you're investing at this time.
<TABLE>
<CAPTION>
Class
Fund Choice A B BL Amount Reinvest Cash
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends [ ] [ ]
[ ] Growth Portfolio [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Dividends [ ] [ ]
[ ] Capital Growth [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Portfolio
Dividends [ ] [ ]
[ ] Quality Income [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Portfolio
Dividends [ ] [ ]
[ ] Municipal [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Income Portfolio
Dividends [ ] [ ]
[ ] Income and [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Growth Portfolio
Dividends [ ] [ ]
[ ] Perpetual Global [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Portfolio
Dividends [ ] [ ]
[ ] Short-Duration [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
Income Portfolio
Dividends [ ] [ ]
[ ] Strategy Portfolio [ ] [ ] [ ] $-------- Capital Gains [ ] [ ]
</TABLE>
TOTAL $-----------------
[ ] Check enclosed for total purchase above made payable to Mentor Funds.
[ ] Other payment method
- --------------------------------------------------------------------------------
Telephone Exchange/
Telephone Redemption
- --------------------------------------------------------------------------------
I elect the following privileges as described in the prospectus:
Telephone Exchange: [ ] Yes Telephone Redemptions: [ ] Yes
[ ] No [ ] No
These privileges will automatically apply if neither box is checked.
By establishing these services and signing this form,
I acknowledge that:
I authorize Boston Financial Data Services, Inc. to accept and act upon
telephoned instructions to (1) exchange shares I own in any Portfolio(s) for
shares of any other Portfolio(s) or (2) redeem shares I own in any
Portfolio(s).
I understand that exchanges can be made only between accounts having identical
registrations.
- --------------------------------------------------------------------------------
[ ] Letter of Intent
- --------------------------------------------------------------------------------
I understand that through accumulated investments I can reduce my sales charges
on Class A shares. I plan to invest over a 13-month period in Class A shares of
one or more of the Portfolios in Mentor Funds in an aggregate amount of at
least:
[ ] $50,000 (applies only to equity funds)
[ ] $250,000 [ ] $500,000 [ ] $1,000,000 (and above)
If the amount indicated is not invested within 13 months, reduced sales charge
do not apply.
[ ] I am already investing under an existing statement of intention.
- --------------------------------------------------------------------------------
[ ] Rights of Accumulation
- --------------------------------------------------------------------------------
[ ] I own Class A shares of more than one Portfolio in Mentor Funds, which may
entitle me to a reduced sales charge. My shareholder account numbers are:
- -------------------------- --------------------------
- --------------------------
[ ] The registration of some of my shares differs. Their account numbers are:
- -------------------------- --------------------------
BE SURE TO COMPLETE THE REVERSE SIDE
<PAGE>
- ---------------------------------------
[ ] Systematic Investment Plan
Via ACH
- ---------------------------------------
Check the box above and complete this section; then check the box next to Bank
Account Information and complete that section too.
I authorize State Street Bank & Trust Co. (service agent for Mentor Funds), to
withdraw money from my bank account to buy more shares for my account(s) in the
Portfolio(s) listed below.
Portfolio Amount ($50 minimum)
[ ] $
----------------------- ------------------------
[ ] $
----------------------- ------------------------
Please note: This service takes approximately 15 days to establish and will be
done on or about the 15th of each month.
- ---------------------------------------
[ ] Systematic Withdrawal
Plan Via Check
- ---------------------------------------
You must have a minimum of $10,000 in your mutual fund account to qualify for
this optional service.
(Class B shares withdrawals will not be subject to the applicable CDSC up to
10% of account value at the time of plan inception.)
Check the box above and complete this section.
I authorize State Street Bank & Trust Co. (service agent for Mentor Funds), to
redeem shares from my account(s) in the Portfolio(s) listed below and mail a
check for the amount specified to the name and address on the account. State
Street Bank & Trust Co., is to do this on the 15th of each month. If the 15th
falls on a weekend or holiday, the transaction will take place the next
business day.
Fund Amount ($50 minimum)
[ ] $
----------------------- ------------------------
[ ] $
----------------------- ------------------------
Please send my Systematic Withdrawal Check to
[ ] Mailing Address of Account
[ ] Other*
----------------------------------------------
Please note: This service takes approximately two (2) weeks to establish.
*Signature guarantee required
- ---------------------------------------
[ ] Bank Account Information
- ---------------------------------------
Complete this section only if you are signing-up for
[ ] Telephone Redemption, [ ] Systematic Investment Plan, or
[ ] Systematic Withdrawal Plan.
- ---------------------------------------
Bank Name ABA Number
- ---------------------------------------
Bank Address
- ---------------------------------------
City State ZIP Code
- ---------------------------------------
Name(s) on Bank Account
- ---------------------------------------
Bank Account Number
Checking Savings
Please attach a check (marked "VOID") or a deposit ticket from this bank
account.
- ---------------------------------------
Signatures
- ---------------------------------------
This New Account Form must be signed for an account to be opened. The
signatures required for the various types of accounts are:
[ ] Individual Account, the individual's
[ ] Joint Account, both shareowners'
[ ] Custodial Account (Gift to a Minor), the custodian's
[ ] Corporate (or Organization) Account, an officer's (and the officer's
title must be included)
By signing this New Account Form below, I assure that:
- - I have received and read the prospectus for each of the Portfolios in which I
am investing, and I understand that the prospectus terms are incorporated
into this form by reference.
- - I authorize Mentor Funds, its affiliates and agents, to act on any
instructions believed to be genuine for any service authorized on this
form. I agree they will not be liable for any resulting loss or expense.
- - I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
- - I understand that I may terminate the Telephone Redemption, Systematic
Investment Plan, and/or Systematic Withdrawal Plan at any time by writing
to Boston Financial Data Services.
- - I understand that I will receive 30 days' written notice from Boston
Financial Data Services, Transfer Agent, before any service on this form is
terminated.
- - I certify, under penalties of perjury, that:
1. The Social Security or Taxpayer Identification Number shown on this form
is correct. (If I fail to give the correct number or to sign this form,
Mentor Funds may reject, restrict, or redeem my investment. I may also be
subject to IRS Backup Withholding of a percentage of all distributions and
redemptions.)
2. I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked. (Cross out
"NOT" if you are currently subject to Backup Withholding.)
- ---------------------------------------
I agree that none of Mentor Investment Group, LLC, Mentor Distributors, LLC,
Boston Financial Data Services, Mentor Funds, or any of their affiliates will
be responsible for the authenticity of any instructions given and shall be
fully indemnified and held harmless from any and all direct liabilities,
losses, or cost resulting from acting upon such transactions.
- --------------------------------------------------------
Shareowner (or Custodian) Date
- --------------------------------------------------------
Co-Shareowner Date
- --------------------------------------------------------
Corporate Officer or Trustee Date
- --------------------------------------------------------
Title of Corporate Officer or Trustee Date
- ---------------------------------------
Dealer Information
- ---------------------------------------
To be completed by Customer Account Representative:
- ---------------------------------------
Financial Institution Name
- ---------------------------------------
Address
- ---------------------------------------
City State ZIP Code
- ---------------------------------------
Dealer Number (If applicable)
- ---------------------------------------
Representative's Code Number
- ---------------------------------------
Representative's Full Name
- ---------------------------------------
Representative's Branch Office
- ---------------------------------------
Representative's Phone Number
- ---------------------------------------
Mailing Information
- ---------------------------------------
Send this completed form to:
Mentor Funds
c/o Boston Financial Data Services
P.O. Box 8507
Boston, MA 02266
If you have any questions please call 1-800-382-0016
MENTOR DISTRIBUTORS, LLC, Distributor
- --------------------------------------------------------------------------------
