MENTOR FUNDS, 485APOS, 1999-03-05

MENTOR FUNDS
485APOS, 1999-03-05

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As filed with the Securities and Exchange Commission on March 5, 1999

Registration No. 33-45315
File No. 811-6550
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
-------------------------------------------------------

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 23 [X]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [X]
ACT OF 1940

Amendment No. 25 [X]
(Check appropriate box or boxes)

MENTOR FUNDS
(Exact name of registrant as specified in charter)

901 East Byrd Street
Richmond, Virginia 23219
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code (804) 782-3648

---------------

PAUL F. COSTELLO, President
901 East Byrd Street
Richmond, Virginia 23219
(Name and address of agent for service)

-----------------

Copy to:
TIMOTHY W. DIGGINS, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110

--------------

It is proposed that this filing will become effective (check appropriate box):

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)

[ ] on (date) pursuant to paragraph (a)(1)

[X] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

PARTS A AND B OF THIS AMENDMENT RELATE ONLY TO THE MENTOR VALUE PORTFOLIO
OF THE REGISTRANT. NO INFORMATION RELATING TO ANY OTHER PORTFOLIOS IS AMENDED,
DELETED, OR SUPERSEDED BY PARTS A AND B OF THIS AMENDMENT.

<PAGE>

P R O S P E C T U S May , 1999
(Class A and B Shares)

Mentor Value Portfolio

Mentor Value Portfolio seeks long-term growth of capital by investing
primarily in equity securities of companies that Mentor Investment Advisors, LLC
believes to be undervalued. The Portfolio is a series of shares of Mentor Funds.

The Portfolio may use "leverage" -- that is, it may borrow money to
purchase additional portfolio securities, which involves special risks. See
"Other Investment Practices and Risk Factors."

This Prospectus sets forth concisely the information about the Portfolio
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 MAY , 1999 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>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Expense Summary ...................................... 3
Investment Objectives and Policies ................... 5
Other Investment Practices and Risk Factors .......... 6
Valuing the Portfolio's Shares ....................... 11
Sales Arrangements ................................... 11
How To Buy Shares .................................... 12
Distribution Plans (Class B Shares) .................. 17
How To Sell Shares ................................... 17
How To Exchange Shares ............................... 19
How Distributions Are Made ........................... 19
Taxes ................................................ 19
Management ........................................... 20
Other Services ....................................... 20
General Information .................................. 21
Performance Information .............................. 22
APPENDIX ............................................. 24
</TABLE>

<PAGE>

EXPENSE SUMMARY

Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown reflect the expenses the Portfolio expects to incur
in respect of its Class A and B shares during its first fiscal year. The
Examples show the cumulative expenses attributable to a hypothetical $1,000
investment in the Class A and Class B shares of the Portfolio over specified
periods.

<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) ......................................... 5.75% 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: ............................................................ None(2)
</TABLE>

<TABLE>
<S> <C>
Class B Shares(3)(4): ......... 4.0% in the first year, declining to 1.0% in the fifth
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."

<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<CAPTION>
HIGH
YIELD
-----------
<S> <C>
CLASS A SHARES
Investment Advisory Fee .................... 0.80%
12b-1 Fees ................................. None
Other Expenses
Shareholder Service Plan Fees ............. 0.25%
Other Expenses ............................ 0.33%
Total Other Expenses ....................... 0.58%
Total Portfolio Operating Expenses ......... 1.38%
CLASS B SHARES
Investment Advisory Fee .................... 0.80%
12b-1 Fees ................................. 0.75%
Other Expenses
Shareholder Service Plan Fees ............. 0.25%
Other Expenses ............................ 0.33%
Total Other Expenses ....................... 0.58%
Total Portfolio Operating Expenses ......... 2.13%
</TABLE>

- ----------
* Other Expenses are estimated based on the expenses the Portfolio expects to
incur during its first full year of operations.

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>
CLASS A CLASS B
--------- --------
<S> <C> <C>
1 year .................. $71 $22
3 years ................. $99 $67
</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>
CLASS A CLASS B
--------- --------
<S> <C> <C>
1 year .................. $71 $62
3 years ................. $99 $97
</TABLE>

THIS INFORMATION IS PROVIDED TO HELP INVESTORS UNDERSTAND THE EXPENSES OF
INVESTING IN THE PORTFOLIO AND AN INVESTOR'S SHARE OF THE ESTIMATED OPERATING
EXPENSES OF THE PORTFOLIO. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY VARY.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Portfolio's investment objective is to seek long-term growth of
capital. The Portfolio normally invests primarily in equity securities Mentor
Advisors believes to be undervalued. In selecting such securities, Mentor
Advisors will focus on industries and issuers it believes offer the possibility
for growth of capital from earnings potential and other factors not fully
reflected in current market prices. Such factors may include a company's
probable future earnings, the ratio of its market value to its book value, and
its dividends, cash flow, financial strength, debt-to-capital ratio, working
assets, and competitive position, as well as other factors Mentor Advisors may
consider significant in a particular industry or under varying market
conditions. In identifying undervalued securities, Mentor Advisors may make
investment judgements contrary to those of most investors. The Portfolio is a
diversified investment company.

The Portfolio may invest in securities of any kind Mentor Advisors
believes consistent with the Portfolio's objective of long-term growth of
capital. Although the Portfolio will normally invest primarily in equity
securities, it may also invest in debt securities if Mentor Advisors believes
such investments would help achieve the Portfolio's objective and may hold a
portion of its assets in cash or money market instruments. Most of the debt
securities in which the Portfolio may invest will be rated, at the time of
investment, at least Baa by Moody's Investors Service, Inc. or BBB by Standard
& Poor's Corporation or, if unrated, determined by Mentor Advisors at the time
of investment 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 will may invest up to 10% of its assets in securities rated
Baa or lower by Moody's or BBB or lower by Standard & Poor's and in unrated
securities determined by Mentor Advisors to be of comparable quality.
Securities rated below Baa by Moody's or BBB by Standard & Poor's are
considered to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligations.
Securities in the lowest rating categories may have extremely poor prospects of
attaining any real investment standing and may be in default. The rating
services' descriptions of securities in the lower rating categories, including
their speculative characteristics, are set forth in the Appendix to this
Prospectus. See "Other Investment Practices and Risk Factors -- lower-rated
securities," below.

Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' investment analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better
or worse than the rating would indicate.

At times, Mentor Advisors may judge that conditions in the securities
markets make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times Mentor Advisors may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio may invest without limitation in money
market instruments and in U.S. Government or agency obligations, or invest in
any other fixed-income

<PAGE>

security Mentor Advisors considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, the Portfolio will use such
alternative strategies.

The Portfolio will not invest more than 15% of its net assets (determined
at the time of investment) in securities determined to be illiquid. Certain
securities that are restricted as to resale may nonetheless be resold by the
Portfolio in accordance with Rule 144A under the Securities Act of 1933, as
amended. Such securities may be determined by Mentor Advisors to be liquid for
purposes of compliance with the limitation on the Portfolio's investment in
illiquid securities. There can, however, be no assurance that the Portfolio
will be able to sell such securities at any time when Mentor Advisors deems it
advisable to do so or at prices prevailing for comparable securities that are
more widely held.

The Portfolio is not intended to be a complete investment program, and there is
no assurance it will achieve its objective.

OTHER INVESTMENT PRACTICES AND RISK FACTORS

The Portfolio 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.

OPTIONS and futures. The Portfolio may buy and sell call and put options
on securities it owns to hedge against changes in net asset value or to realize
a greater current return. In addition, through the purchase and sale of futures
contracts and related options, the Portfolio may at times seek to hedge against
fluctuations in net asset value and, to the extent consistent with applicable
law, to increase its investment return. In addition, the Portfolio may buy and
sell options and futures contracts (including index futures contracts,
described below) to implement changes in its asset allocations among various
market sectors, pending the sale of its existing investments and reinvestment
in new securities.

The Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that
the Portfolio will be able to utilize these instruments effectively for the
purposes stated above. Although the Portfolio will only engage in options and
futures transactions for limited purposes, those transactions involve certain
risks which are described below and in the Statement of Additional Information.

Transactions in options and futures contracts involve brokerage costs and
may require the Portfolio to segregate assets to cover its outstanding
positions. For more information, see the Statement of Additional Information.

INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and 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 the Portfolio enters into
and terminates an index futures or option transaction, the Portfolio realizes a
gain or loss. The Portfolio may also, to the extent consistent with applicable
law, buy and sell index futures and options to increase 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 by the Portfolio that are the
subject of a hedge. The successful use by the Portfolio of the strategies
described

<PAGE>

above further depends on the ability of its investment adviser or sub-adviser
to forecast market movements correctly. Other risks arise from the Portfolio's
potential inability to close out futures or options positions. Although the
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 the Portfolio to segregate assets to cover its
outstanding positions. For more information, see the Statement of Additional
Information. Federal tax considerations may also limit the Portfolio's ability
to engage in options and futures transactions.

The 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. The Portfolio's
ability to terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are not appropriate and when, in the opinion of Mentor Advisors,
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.

The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the
Portfolio's existing futures positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the Portfolio's assets. (For
options that are "in-the-money" at the time of purchase, the amount by which
the option is "in-the-money" is excluded from this calculation.)

LOWER-RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY
TO ASSUME THE RISKS OF OWNING SHARES OF A MUTUAL FUND THAT INVESTS IN
LOWER-RATED SECURITIES (SOMETIMES REFERRED TO AS "JUNK BONDS") BEFORE MAKING AN
INVESTMENT IN THE PORTFOLIO. The lower ratings of lower-rated securities held
by the Portfolio reflect a greater possibility that adverse changes in the
financial condition of the issuer, or in general economic conditions, or both,
or an unanticipated rise in interest rates, may impair the ability of the
issuer to make payments of interest and principal. The inability (or perceived
inability) of issuers to make timely payment of interest and principal would
likely make the values of securities held by the Portfolio more volatile and
could limit the Portfolio's ability to sell its securities at prices
approximating the values the Portfolio had placed on such securities. 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, the Portfolio may
be unable at times to establish the fair market value of such securities. The
rating assigned to a security by Moody's or Standard & Poor's does not reflect
an assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. For more information about the
rating services' descriptions of lower-rated securities, see the Appendix to
this Prospectus.

<PAGE>

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 the
Portfolio's net asset value. The Portfolio will not necessarily dispose of a
security when its rating is reduced below its rating at the time of purchase,
although Mentor Advisors will monitor the investment to determine whether
continued investment in the security will assist in meeting the Portfolio's
investment objectives.

Issuers of lower-rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. In addition,
such issuers may not have more traditional methods of financing available to
them, and may be unable to repay debt at maturity by refinancing. The risk of
loss due to default in payment of interest or principal by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness. Certain of the
lower-rated securities in which the Portfolio 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.

The 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 the Portfolio's assets may at times be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by Mentor Advisors and its affiliates hold a major portion or all of
such securities, which may limit the liquidity of such securities. The
Portfolio could find it difficult or impossible to sell illiquid securities
when Mentor Advisors believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
In many cases, such securities may be purchased in private placements and,
accordingly, will be subject to restrictions on resale as a matter of contract
or under securities laws. Under such circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value. In order to enforce its rights in
the event of a default under securities in cases where the Portfolio holds a
major portion or all of the outstanding issue, the Portfolio may be required to
take possession of and manage assets securing the issuer's obligations on such
securities, which may increase the Portfolio's operating expenses and adversely
affect the Portfolio's net asset value. The Portfolio may also be limited in
its ability to enforce its rights and may incur greater costs in enforcing its
rights in the event an issuer becomes the subject of bankruptcy proceedings.

The Portfolio may at times invest in so-called "payment-in-kind" bonds.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks
than bonds that pay interest currently. Even though such bonds do not pay
current interest in cash, the Portfolio is nonetheless required for Federal
income tax purposes to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Portfolio
could be required at times to liquidate other investments in order to satisfy
this distribution requirement.

Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates, the

<PAGE>

Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.

Mentor Advisors seeks to minimize the risks involved in investing in
lower-rated securities through diversification and careful investment analysis.
When the Portfolio invests in high yield securities in the lower rating
categories, achievement of the Portfolio's goals depends more on its adviser's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.

LEVERAGE. The Portfolio may borrow money to invest in additional
securities. The Portfolio 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
Portfolio had borrowed money.

The use of borrowed money, known as "leverage," increases the Portfolio's
market exposure and risk and may result in losses. When the Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
its net asset value will normally increase or decrease more than if it had not
borrowed money for this purpose. The interest that the Portfolio must pay on
borrowed money will reduce its net investment income, and may also either
offset any potential capital gains or increase any losses. The Portfolio
currently intends to use leverage in order to adjust the dollar-weighted
average duration of their portfolios. The Portfolio will not always borrow
money for investment and the extent to which the Portfolio will borrow money,
and the amount it may borrow, depends on market conditions and interest rates.
Successful use of leverage depends on an investment adviser's ability to
predict market movements correctly. The amount of leverage (including leverage
to the extent employed by the Portfolio through "reverse repurchase
agreements," "dollar-roll" transactions, and "forward commitments," described
below) that can exist at any one time will not exceed one-third of the value of
the Portfolio's total assets (less all liabilities of the Portfolio other than
the leverage).

REVERSE REPURCHASE AGREEMENTS; FORWARD COMMITMENTS. The Portfolio may
enter into "reverse" repurchase agreements with respect to up to one-third of
its assets. "Reverse" repurchase agreements generally involve the sale by the
Portfolio of securities held by it and an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment. The Portfolio
also may enter into forward commitments, in which the Portfolio buys securities
for future delivery. Reverse repurchase agreements and forward commitments
involve leverage, and may increase the Portfolio's overall investment exposure.
Their use by the Portfolio may result in losses.

FOREIGN SECURITIES. The Portfolio may invest in securities principally
traded in foreign markets. Since foreign securities are normally denominated
and traded in foreign currencies, the values of the 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 the
Portfolio's assets held abroad) and expenses not present in the settlement of
domestic investments.

In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which

<PAGE>

could affect the value of the Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign countries
may limit the Portfolio's ability to invest in securities of certain issuers
located in those foreign countries. Special tax considerations apply to foreign
securities. The Portfolio may buy or sell foreign currencies and options and
futures contracts on foreign currencies for hedging purposes in connection with
its foreign investments as described more fully below.

The Portfolio may invest in American Depository Receipts ("ADRs") and
Global Depository Receipts ("GDRs"), which represent interests in foreign
securities held by a bank, trust company, or other organization. Investments in
ADRs and GDRs are subject to many of the same risks of investing in foreign
securities generally.

The risks described above are typically increased to the extent that the
Portfolio invests in securities traded in underdeveloped and developing
nations, which are sometimes referred to as "emerging markets."

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future currency exchange rates. The 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").

The Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which the
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. The Portfolio may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection with transaction
hedging.

The 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, the Portfolio may also purchase and sell call and put options on
foreign currency futures contracts and on foreign currencies.

The 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, the 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, the Portfolio may also
purchase or sell foreign currencies on a spot basis.

Although there is no limit to the amount of the Portfolio's assets that
may be invested in foreign currency exchange and foreign currency forward
contacts, the Portfolio will only enter into such transactions to the extent
necessary to effect the hedging transactions described above.

SECURITIES LOANS AND REPURCHASE AGREEMENTS. The Portfolio may lend
portfolio securities and may enter into repurchase agreements with banks,
broker/dealers, and other recognized financial institutions. The Portfolio may

<PAGE>

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 the Portfolio if the other party should default on its obligations and the
Portfolio is delayed or prevented from recovering the collateral.

PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by the Portfolio is known as "portfolio turnover." As a
result of the 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 the 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 rate for the
High Yield Portfolio is not expected to exceed 200% for its first current
fiscal year.

VALUING THE PORTFOLIO'S SHARES

The 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 the Portfolio's shares even though there has not been any
change in the values of such securities as quoted in such foreign currencies.

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

<PAGE>

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 c/o Mentor Funds
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.

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.

<PAGE>

The current sales charges for the Portfolio 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.

There is no initial sales charge on purchases of Class A shares of $1
million or more. However, a CDSC of 1.00% is imposed on redemptions of such
shares within the first year after purchase, based on the lower of the shares'
cost and current net asset value. A CDSC is also imposed on any shares
purchased without a sales charge 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 investment
companies 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 proceeds received by you within
the preceding 90 days from the sale of shares of most non-Mentor investment
companies and, to the extent permitted by applicable law, real estate
investment trusts. No CDSC will apply to these purchases. EVEREN Securities,
Inc., Mentor Distributors, Mentor Services Company, or their affiliates may
compensate your investment dealer in connection with any such purchase, in an
amount equal to a percentage of the purchase price of the shares. The amount of
such compensation, and the portion paid by Mentor Distributors, Mentor Services
Company, or their affiliates, will vary from time to time. Sales charges may
similarly not apply to shares purchased through financial institutions
affiliated with Mentor Investment Group or 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

<PAGE>

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
CHARGE AS A PERCENTAGE OF
YEARS SINCE PURCHASE PAYMENT APPLICABLE AMOUNT
MADE REDEEMED
- ------------------------------ --------------------------
<S> <C>
1 4.0%
2 4.0%
3 3.0%
4 2.0%
5 1.0%
6 1.0%
7+ 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. 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

The 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
the Portfolio's Systematic Withdrawal Plan (limited to 10% of a shareholder's
account in any calendar year), and "wrap accounts" for the benefit of clients
of financial planners adhering to certain standards established by Mentor
Services Company or its affiliates. The Portfolio may sell shares without a
sales charge or a CDSC in connection with the acquisition by the Portfolio of
assets of an investment company or personal holding company. In addition, the
CDSC may be

<PAGE>

waived in the case of (i) redemptions of shares held at the time a shareholder
dies or becomes disabled, including the shares of a shareholder who owns the
shares with his or her spouse as joint tenants with right of survivorship,
provided that the redemption is requested within one year of the death or
initial determination of disability; (ii) redemptions in connection with the
following retirement plan distributions: (a) lump-sum or other distributions
from a qualified retirement plan following retirement; (b) distributions from
an IRA, Keogh Plan, or Custodial Account under Section 403(b)(7) of the
Internal Revenue Code following attainment of age 59 1/2; and (c) a tax-free
return 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. In addition, the Portfolio may sell its
Class A shares without a sales charge and may waive the CDSC on shares redeemed
by shareholders investing through brokerage or similar accounts sponsored by
financial institutions having agreements with Mentor Distributors or Mentor
Services Company, Inc., where the shareholder pays account fees to its
financial institution based on the asset value of the shareholder's account
with the financial institution from time to time. The 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 redeemed without a CDSC, and amounts representing
capital appreciation will not be subject to a CDSC. See the Example below.

<PAGE>

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 the Portfolio or
transferring shares to another person shortly after purchase, you should pay
for those shares with a certified check to avoid any delay in redemption,
exchange, or transfer. Otherwise the Portfolio may delay payment until the
purchase price of those shares has been collected or, if you redeem by
telephone, until 15 calendar days after the purchase date.

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, the Portfolio
reserves the right to redeem, upon not less than 60 days' notice, any Portfolio
account below $500 as a result of redemptions. A shareholder may, however,
avoid such a redemption by the Portfolio by increasing investment in shares of
the Portfolio to a value of $500 or more during such 60-day period.

Mentor Distributors, Mentor Advisors, 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 Portfolio. 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. Certain dealers may not sell all
classes of shares.

In all cases Mentor Advisors or the Distributor reserve the right to
reject any particular investment.

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

<PAGE>

must be notified in writing by you or by your financial institution of the
reinvestment for you to recover the CDSC, or to eliminate the front-end sales
charge. If you redeem shares in the Portfolio, there may be tax consequences.

DISTRIBUTION 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.

The Portfolio 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 "Expense Summary --
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.
The Portfolio's distributor also receives the proceeds of any CDSC imposed on
redemptions of shares).

Payments under the Plans are intended to compensate the Portfolio's
distributor for services provided and expenses incurred by it as principal
underwriter of the Portfolio's Class B shares. The 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 the 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 the
Portfolio's distributor. The 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 the
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 Portfolio. 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 Portfolio's shares, including any amounts
paid to Mentor Distributors under the Portfolio's Class B 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 the Portfolio to that Portfolio any day the
New York Stock Exchange is open, either directly to the Portfolio or through
your investment dealer. The Portfolio will only redeem shares for which it has
received payment.

SELLING SHARES DIRECTLY TO THE PORTFOLIO. Send a signed letter of
instruction and stock power form, along with any certificates that represent
shares you want to sell, to Mentor Funds, c/o Boston Financial Data Services,
Inc. ("BFDS"), 2 Heritage Drive, North Quincy, Massachusetts 02171. The price
you will receive is the net asset value next calculated after your request is
received in proper form less any applicable CDSC. In order to receive

<PAGE>

that day's net asset value, your request must be received before the close of
regular trading on the New York Stock Exchange. If you sell shares having a net
asset value of $50,000 or more or if you want your redemption proceeds payable
to you at a different address or to someone else, the signatures of registered
owners or their legal representatives must be guaranteed by a bank,
broker-dealer, or certain other financial institutions. Contact Mentor Services
Company for more information about where to obtain a signature guarantee. Stock
power forms are available from your investment dealer, Mentor Services Company,
and many commercial banks. 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.

SYSTEMATIC WITHDRAWAL PROGRAM. You may redeem Class A or B shares of the
Portfolio through periodic withdrawals for a predetermined amount. Only
shareholders with accounts valued at $10,000 or more are eligible to
participate. Class B shares redeemed under the Systematic Withdrawal Program
are not subject to a CDSC, but the aggregate withdrawals of Class B shares in
any year are limited to 10% of the value of the account at the time of
enrollment. Contact Mentor Services Company for more information.

GENERAL. The Portfolio generally sends you payment for your shares the
business day after your request is received. Under unusual circumstances, the
Portfolio may suspend redemptions, or postpone payment for more than seven
days, as permitted by federal securities law.

The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption by making payment in
whole or in part in securities valued in the same way as they would be valued
for purposes of computing the Portfolio's per share net asset value. If payment
is made in securities, a shareholder may incur brokerage expenses in converting
those securities into cash.

<PAGE>

HOW TO EXCHANGE SHARES

Except as otherwise described below, you can exchange your shares in the
Portfolio worth at least $1,000 for shares of certain other portfolios in the
Mentor family at net asset value beginning 15 days after purchase. You may also
exchange shares of the Portfolio for shares of Cash Resource U.S. Government
Money Market Fund (the "Cash Fund"). If you exchange shares subject to a CDSC,
the transaction will not be subject to a CDSC. However, when you redeem the
shares acquired through the exchange, the redemption may be subject to the
CDSC, depending upon when you originally purchased the shares, using the
schedule of the Portfolio from which your first exchange was effected. For
purposes of computing the CDSC, the length of time you have owned your shares
will be measured from the date of original purchase and will not be affected by
any exchange.

For information on how to exchange your shares, contact Mentor Services
Company at 1-800-869-6042. 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.

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 the 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. See the Statement
of Additional Information to find out more about the exchange privilege.

HOW DISTRIBUTIONS ARE MADE

Dividends, if any, are declared and paid annually. The 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 the Portfolio unless a shareholder requests in writing to receive
the dividend or distribution in cash.

TAXES

The Portfolio intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to shareholders. The Portfolio will distribute substantially all of
its net investment income and capital gain net income on a current basis.

<PAGE>

to your investment (and thus were included in the price paid for your shares).
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 to you
by the Portfolio for the preceding year. In buying or selling securities for
the Portfolio, Mentor Advisors will not normally take into account the effect
any purchase or sale of securities will have on the tax positions of the
Portfolio's shareholders.

The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends, distributions, and redemption proceeds
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 the
Portfolio, including the possibility that distributions may be subject to a 30%
United States withholding tax (or a reduced rate of withholding provided by
treaty).

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 the Portfolio. The investment adviser is located at 901 East Byrd
Street, Richmond, Virginia.

All investment decisions made for the Portfolio by Mentor Advisors are
made by investment management teams.

Mentor Advisors has over $14 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 $234 billion in assets and $17 billion in total
stockholders' equity as of December 31, 1998. EVEREN Capital Corporation has a
20% ownership in Mentor Investment Group and may acquire additional ownership
based principally on the amount of Mentor's revenues derived from assets
attributable to clients of EVEREN Securities, Inc. and its affiliates.

Mentor Advisors and Mentor Perpetual together serve as investment adviser
to 33 separate investment portfolios in the Mentor Family of Funds, including
that 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.

The Portfolio pays management fees to Mentor Advisors at the annual rates
described above under "Expense Summary -- Annual Portfolio Operating Expenses".

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 0.15% of the
Portfolio's average daily net assets.

<PAGE>

SHAREHOLDER SERVICING PLAN. Mentor Funds has adopted a Shareholder
Servicing Plan (the "Service Plan") with respect to Class A and Class B shares
of the 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 the Portfolio. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer personnel, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding the Portfolio; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Portfolio reasonably requests.

In addition to receiving payments under the Service Plan, financial
institutions may be compensated by Mentor Advisors or by Mentor Investment
Group, or affiliates thereof, for providing administrative support services to
holders of Class A or Class B shares of the Portfolio. These payments will be
made directly by Mentor Advisors and/or Mentor Investment Group, or their
affiliates, and will not be made from the assets of any of the Portfolio.

GENERAL INFORMATION

Mentor Funds is a Massachusetts business trust organized on January 20,
1992. A copy of the Declaration of Trust, which is governed by Massachusetts
law, is on file with the Secretary of State of The Commonwealth of
Massachusetts.

The Trust is an open-end series management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative rights and privileges as
the Trustees determine. The Trust's shares are currently divided into fourteen
series with varying investment objectives and policies. Certain of the Trust's
portfolios offer more than one class of shares with different sales charges and
expenses.

The Portfolio currently offers three classes of shares: Class A and Class
B shares, which are offered by this Prospectus; and Class Y (Institutional)
shares, which are not subject to any sales loads or shareholder servicing fees.
Contact Mentor Services Company for information concerning Class Y shares and
your eligibility to purchase shares of that class.

Each share has one vote, with fractional shares voting proportionally.
Shares of each class will vote together as a single class except when required
by law or determined by the Trustees. Shares of the Portfolio are freely
transferable, are entitled to dividends as declared by the Trustees, and, if
the Portfolio was liquidated, would receive the net assets of the Portfolio.
The Trust may suspend the sale of shares at any time and may refuse any order
to purchase shares. Although neither the Portfolio nor the Trust is required to
hold annual meetings of shareholders, shareholders have the right to call a
meeting to elect or remove Trustees, or to take other actions as provided in
the Declaration of Trust.

<PAGE>

The Portfolio receives services from a number of providers which rely on
the smooth functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. Mentor Advisors is taking steps that it believes are reasonably
designed to address this potential "Year 2000" problem and to obtain
satisfactory assurances that comparable steps are being taken by the
Portfolio's other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the
Portfolio from this problem.

In the interest of economy and convenience, the Portfolio will not issue
certificates for its shares except at the shareholder's request.

Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as the Portfolio's custodian. State Street Bank and
Trust Company, c/o Boston Financial Data Services, Inc., 2 Heritage Drive,
North Quincy, Massachusetts 02171, serves as the Portfolio's transfer and
dividend agent.

PERFORMANCE INFORMATION

Yield and total return data may from time to time be included in
advertisements about the Portfolio. The 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 the 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 the 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.

<PAGE>

ALL DATA ARE BASED ON THE 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 the
Portfolio's investments, the Portfolio's operating expenses, and which class of
shares you purchase. Investment performance also often reflects the risks
associated with the Portfolio's investment objective and policies. These
factors should be considered when comparing the Portfolio's investment results
to those of other mutual funds and other investment vehicles.

As permitted by applicable law, performance information for the Portfolio
whose investment adviser or sub-adviser has changed may be presented only for
periods after the change was effected.

<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 edged." 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.

STANDARD AND POOR'S RATINGS SERVICE, INC., BOND RATINGS

AAA -- An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

<PAGE>

A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

Obligations rated BB, B, CCC, CC and C are regarded as having significant
speculative characteristics. BB indicates the lowest degree of speculation and
C the highest. While such obligations will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligations. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.

CCC -- An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC -- An obligation rated CC is currently highly vulnerable to nonpayment.

C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments on this
obligation are being continued.

D -- An obligation rated D is 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 Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition, or the taking of a
similar action if payments on an obligation are jeopardized.

MOODY'S 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.

MIG2/VMIG2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

<PAGE>

STANDARD AND POOR'S NOTE RATINGS

SP-1 -- Strong capacity to pay principal and interest. Issues determined
to possess overwhelming safety characteristics are given a plus sign (+)
designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

SP-3 -- Speculative capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by the following characteristics:

-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

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 saety is not as high as for
issues designated "A-1".

A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

<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

1999 MENTOR DISTRIBUTORS, LLC

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED
MAY LOSE VALUE

MK 609

MENTOR FUNDS

MENTOR VALUE PORTFOLIO

-------------------------
PROSPECTUS
-------------------------

May , 1999

[Mentor Logo]

<PAGE>

MENTOR INVESTMENT GROUP
901 East Byrd Street
Richmond, VA 23219
(800) 869-6042

1999 MENTOR DISTRIBUTORS, LLC

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED
MAY LOSE VALUE

MK 609

[Mentor Logo]

MENTOR FUNDS
MENTOR VALUE PORTFOLIO

-------------------------
PROSPECTUS
-------------------------

May , 1999

[EVEREN Securities Logo]

<PAGE>

P R O S P E C T U S May , 1999
Y (Institutional) Shares

Mentor Value Portfolio

Mentor Value Portfolio seeks growth of capital by investing primarily in
equity securities of companies that Mentor Investment Advisors, LLC believes
have sound fundamental characteristics. The Portfolio is a series of shares of
Mentor Funds.

The Portfolio may use "leverage" -- that is, it may borrow money to
purchase additional portfolio securities, which involves special risks. See
"Other Investment Practices and Risk Factors."

----------------
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>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Expense Summary ...................................... 3
Investment Objectives and Policies ................... 4
Other Investment Practices and Risk Factors .......... 5
Valuing the Portfolio's Shares ....................... 10
Purchase of Shares ................................... 10
Redemption of Shares ................................. 11
How To Exchange Shares ............................... 12
How Distributions Are Made ........................... 13
Taxes ................................................ 13
Management ........................................... 13
General Information .................................. 14
Performance Information .............................. 15
APPENDIX ............................................. 17
</TABLE>

<PAGE>

EXPENSE SUMMARY

Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown reflect the expenses the Portfolio expects to incur
in respect of its Class Y shares during its first fiscal year. The Examples
show the cumulative expenses attributable to a hypothetical $1,000 investment
in Class Y shares of the Portfolio over specified periods.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ......................... None
Maximum Sales Charge Imposed on Reinvested Dividends ......... None
Exchange Fee ................................................. None
Contingent Deferred Sales Charge ............................. None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)

<TABLE>
<S> <C>
Investment Advisory Fee .................... 0.80%
12b-1 Fees ................................. None
Other Expenses
Shareholder Service Plan Fees ............. None
Other Expenses ............................ 0.35%
Total Other Expenses ....................... 0.35%
Total Portfolio Operating Expenses ......... 1.15%
</TABLE>

- ----------
* Other Expenses are estimated based on the expenses the Portfolio expects to
incur during its first full year of operations.

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>
<S> <C>
1 year .................... $12
3 years ................... $37
</TABLE>

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Portfolio's investment objective is to seek long-term growth of
capital. The Portfolio invests in common stocks and other securities that
Mentor Advisors believes offer the potential for long-term growth of capital.
The Portfolio is not intended to be a complete investment program, and there is
no assurance it will achieve its objective. The Portfolio is a diversified
investment company.

The Portfolio will under normal circumstances invest primarily in equity
securities Mentor Advisors believes to be undervalued. In selecting such
securities, Mentor Advisors will focus on industries and issuers it believes
offer the possibility for growth of capital from earnings potential and other
factors not fully reflected in current market prices. Such factors may include
a company's probable future earnings, the ratio of its market value to its book
value, and its dividends, cash flow, financial strength, debt-to-capital ratio,
working assets, and competitive position, as well as other factors Mentor
Advisors may consider significant in a particular industry or under varying
market conditions. In identifying undervalued securities, Mentor Advisors may
make investment judgements contrary to those of most investors.

The Portfolio may invest up to 10% of its assets in securities rated Baa
or lower by Moody's or BBB or lower by Standard & Poor's and in unrated
securities determined by Mentor Advisors to be of comparable quality.
Securities rated below Baa by Moody's or BBB by Standard & Poor's are
considered to be predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligations.
Securities in the lowest rating categories may have extremely poor prospects of
attaining any real investment standing and may be in default. The rating
services' descriptions of securities in the lower rating categories, including
their speculative characteristics, are set forth in the Appendix to this
Prospectus. See "Other Investment Practices and Risk Factors -- lower-rated
securities," below.

<PAGE>

security Mentor Advisors considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, the Portfolio will use such
alternative strategies.

OTHER INVESTMENT PRACTICES AND RISK FACTORS

OPTIONS AND FUTURES. The Portfolio may buy and sell call and put options
on securities it owns to hedge against changes in net asset value or to realize
a greater current return. In addition, through the purchase and sale of futures
contracts and related options, the Portfolio may at times seek to hedge against
fluctuations in net asset value and, to the extent consistent with applicable
law, to increase its investment return. In addition, the Portfolio may buy and
sell options and futures contracts (including index futures contracts,
described below) to implement changes in its asset allocations among various
market sectors, pending the sale of its existing investments and reinvestment
in new securities.

<PAGE>

Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed.

<PAGE>

VALUING THE PORTFOLIO'S SHARES

PURCHASE OF SHARES

Mentor Distributors, LLC ("Mentor Distributors"), located at 3435 Stelzer
Road, Columbus, Ohio 43219, serves as distributor of the Portfolios' shares.
Mentor Distributors is not obligated to sell any specific amount of shares of
the Portfolio. Mentor Distributors is a wholly owned subsidiary of BISYS Fund
Services, Inc.

Y Shares of the Portfolio are sold at a price based on their net asset
value next determined after a purchase order is received by the Portfolio. In
most cases, in order to receive that day's public offering price, your order
must be received by the Portfolio or Mentor Distributors before the close of
regular trading on the New York Stock Exchange.

An investor may make an initial purchase of shares in the Portfolio by
submitting completed application materials along with a purchase order, and by
making payment c/o Mentor Funds to Boston Financial Data Services, Inc. at 2
Heritage Drive, North Quincy, MA 02171. Investors will be required to make
minimum initial investments of $500,000 and minimum subsequent investments of
$25,000. Investments made through advisory accounts maintained with investment
advisers registered under the Investment Advisers Act of 1940, as amended

<PAGE>

(including "wrap" accounts), are not subject to these minimum investment
requirements. Contact Mentor Services Company, Inc. ("Mentor Services Company")
for information. The Portfolios reserve the right at any time to change the
initial and subsequent investment minimums required of investors.

Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to the Portfolio's investment adviser, or
(iii) a combination of such securities and cash. Purchase of shares of a
Portfolio in exchange for securities is subject in each case to the
determination by the Portfolio's investment adviser that the securities to be
exchanged are acceptable for purchase by the Portfolio. Securities accepted by
a Portfolio's investment adviser in exchange for Portfolio shares will be
valued in the same manner as the Portfolio's assets as of the time of the next
determination of net asset value after such acceptance. All dividends and
subscription or other rights which are reflected in the market price of
accepted securities at the time of valuation become the property of the
Portfolio and must be delivered to the Portfolio upon receipt by the investor
from the issuer. A gain or loss for federal income tax purposes would be
realized upon the exchange by an investor that is subject to federal income
taxation, depending upon the investor's basis in the securities tendered. A
shareholder who wishes to purchase shares by exchanging securities should
obtain instruction by calling Mentor Services Company at 1-800-869-6042.

Mentor Distributors, the investment adviser, or affiliates thereof, at
their own expenses 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-sponsered 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. Certain dealers may not sell
all classes of shares.

In all cases the investment adviser and Mentor Distributors reserve the
right to reject any particular investment.

REDEMPTION OF SHARES

A shareholder may redeem all or any portion of its shares in the Portfolio
any day the New York Stock Exchange is open by sending a signed letter of
instruction and stock power form, along with any certificates that represent
shares the shareholder wants to sell, to Mentor Funds, c/o Boston Financial
Data Services, Inc., 2 Heritage Drive, North Quincy, MA 02171. Redemptions will
be effected at the net asset value per share next determined after the receipt
by the Portfolio of redemption instructions in "good order" as described below.
In order to receive that day's net asset value, your request must be received
before the close of regular trading on the New York Stock Exchange. The
Portfolio will only redeem shares for which it has received payment. A check
for the proceeds will normally be mailed on the next business day after a
request in good order is received.

A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:

(1) the request is in writing, states the number of shares to be redeemed,
and identifies the shareholder's Portfolio account number;

<PAGE>

(2) the request is signed by each registered owner exactly as the shares
are registered; and

(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed for transfer (or are accompanied by an endorsed
stock power) and accompany the redemption request.

If shares to be redeemed represent an investment made by check, the Trust
reserves the right not to transmit the redemption proceeds to the shareholder
until the check has been collected, which may take up to 15 days after the
purchase date.

The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Mentor Services Company
usually requires additional documentation for the sale of shares by a
corporation, partnership, agent, fiduciary, or surviving joint owner. Contact
Mentor Services Company at 1-800-869-6042 for details.

Mentor Services Company may facilitate any redemption request. There is no
extra charge for this service.

The Portfolios reserve 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 Portfolios' per share net asset value. If payment
is made in securities, a shareholder may incur brokerage expenses in converting
those securities into cash.

HOW TO EXCHANGE SHARES

Except as otherwise described below, you can exchange your Y Shares in the
Portfolio worth at least $500,000 for shares of the same class of any other
Portfolio of the Trust, at net asset value beginning 15 days after purchase.
You may also exchange Y Shares of a Portfolio for shares of Cash Resource U.S.
Government Money Market Fund (the "Cash Fund").

To exchange your shares, simply provide a letter of intent and send it to
the Trust, c/o Boston Financial Data Services, Inc., 2 Heritage Drive, North
Quincy, Massachusetts 02171. For federal income tax purposes, an exchange is
treated as a sale of shares and generally results in a capital gain or loss. A
Telephone Exchange Privilege is currently available. The Telephone Exchange
Privilege is not available if you were issued certificates for shares which
remain outstanding. Ask you investment dealer or Mentor Services Company for a
prospectus relating to the Cash Fund. Shares of certain of the Portfolios may
not be available to residents of all states.

The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where 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

<PAGE>

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.

HOW DISTRIBUTIONS ARE MADE

Dividends, if any, are declared and paid annually. The 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 Class Y shares
of the Portfolio unless a shareholder requests in writing to receive the
dividend or distribution in cash.

TAXES

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). Portfolio
distributions will be taxable to you even if they are paid from income or gains
earned by the Portfolio prior to your investment (and thus were included in the
price paid for your shares). 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 to you by the Portfolio for the preceding
year. In buying or selling securities for the Portfolio, Mentor Advisors will
not normally take into account the effect any purchase or sale of securities
will have on the tax positions of the Portfolio's shareholders.

MANAGEMENT

All investment decisions made for the Portfolio by Mentor Advisors are
made by investment management teams.

<PAGE>

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 $234 billion in assets and $17
billion in total stockholders' equity as of December 31, 1998. EVEREN Capital
Corporation has a 20% ownership in Mentor Investment Group and may acquire
additional ownership based principally on the amount of Mentor's revenues
derived from assets attributable to clients of EVEREN Securities, Inc. and its
affiliates.

The Portfolio pays management fees to Mentor Advisors at the annual rates
described above under "Expense Summary -- Annual Portfolio Operating Expenses".

GENERAL INFORMATION

<PAGE>

In the interest of economy and convenience, the Portfolio will not issue
certificates for its shares except at the shareholder's request.

PERFORMANCE INFORMATION

Yield and total return data may from time to time be included in
advertisements about Class Y shares of the Portfolio. The Portfolio's "yield"
is calculated by dividing the Portfolio's annualized net investment income per
Y share of the class in question during a recent 30-day period by the maximum
public offering price per Y share of that class on the last day of that period.
"Total return" of the Portfolio's Y shares for the one-, five-, and ten-year
periods (or for the life of the Class, if shorter) through the most recent
calendar quarter represents the average annual compounded rate of return on an
investment of $1,000 in the Portfolio's Y shares over the period. Total return
may also be presented for other periods. Investment performance of different
classes of shares of the Portfolio will differ. 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 Mentor
Advisors or any of its personnel.

<PAGE>

As permitted by applicable law, performance information for the Portfolio
whose investment adviser or sub-adviser has changed may be presented only for
periods after the change was effected.

<PAGE>

APPENDIX

MOODY'S INVESTORS SERVICE, INC., BOND RATINGS

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.

STANDARD AND POOR'S RATINGS SERVICE, INC., BOND RATINGS

AAA -- An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

<PAGE>

CC -- An obligation rated CC is currently highly vulnerable to nonpayment.

C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments on this
obligation are being continued.

MOODY'S NOTE RATINGS

MIG2/VMIG2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

<PAGE>

STANDARD AND POOR'S NOTE RATINGS

SP-1 -- Strong capacity to pay principal and interest. Issues determined
to possess overwhelming safety characteristics are given a plus sign (+)
designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

SP-3 -- Speculative capacity to pay principal and interest.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of saety is not as high as for
issues designated "A-1".

<PAGE>

MENTOR INVESTMENT GROUP
901 East Byrd Street
Richmond, VA 23219
(800) 869-6042

1999 MENTOR DISTRIBUTORS, LLC

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED
MAY LOSE VALUE

MK 609

MENTOR FUNDS

MENTOR VALUE PORTFOLIO

-------------------------
PROSPECTUS
-------------------------
Y SHARES

May , 1999

[MENTOR LOGO]

<PAGE>

MENTOR INVESTMENT GROUP
901 East Byrd Street
Richmond, VA 23219
(800) 869-6042

1999 MENTOR DISTRIBUTORS, LLC

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED
MAY LOSE VALUE

MK 609

[MENTOR LOGO]

MENTOR FUNDS
MENTOR VALUE PORTFOLIO

-------------------------
PROSPECTUS
-------------------------
Y SHARES

May , 1999

[EVEREN SECURITIES LOGO]

<PAGE>

MENTOR FUNDS

STATEMENT OF ADDITIONAL INFORMATION

(MENTOR VALUE PORTFOLIO)

May , 1999

Mentor Funds (the "Trust") is an open-end series investment company. This
Statement of Additional Information is not a prospectus and should be read in
conjunction with the relevant prospectus of the Trust. A copy of a prospectus
in respect of the Portfolio can be obtained upon request by writing to Mentor
Services Company, Inc., at 901 East Byrd Street, Richmond, Virginia 23219, or
by calling Mentor Services Company at 1-800-869-6042.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction ................................... ii
Investment Restrictions ........................ 1
Certain Investment Techniques .................. 1
Management of the Trust ........................ 20
Principal Holders of Securities ................ 22
Investment Advisory Services ................... 23
Administrative Services ........................ 24
Shareholder Servicing Plan ..................... 25
Brokerage Transactions ......................... 25
How to Buy Shares .............................. 27
Distribution ................................... 27
Determining Net Asset Value .................... 27
Redemptions in Kind ............................ 29
Taxes .......................................... 29
Independent Accountants ........................ 33
Custodian ...................................... 33
Members of Investment Management Teams ......... 34
Performance Comparisons ........................ 37
Shareholder Liability .......................... 42
</TABLE>

<PAGE>

INTRODUCTION

Mentor Funds is a Massachusetts business trust organized on January 20,
1992 as Cambridge Series Trust. This Statement relates to the Trust's Mentor
Value Portfolio (the "Portfolio"). The Portfolio has three classes of shares of
beneficial interest, Class A shares, Class B shares, and Class Y (Institutional)
shares.

With respect to the investment restrictions described below, all percentage
limitations on investments will apply at the time of investment and shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of such investment. Except for the investment restrictions
listed below as fundamental or to the extent designated as such in the
Prospectus in respect of the Portfolio, the other investment policies described
in this Statement or in the Prospectus are not fundamental and may be changed by
approval of the Trustees. As a matter of policy, the Trustees would not
materially change the Portfolio's investment objective without shareholder
approval.

The Investment Company Act of 1940, as amended (the "1940 Act"), provides
that a "vote of a majority of the outstanding voting securities" of the
Portfolio means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Portfolio, or (2) 67% or more of the shares present at
a meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.

<PAGE>

INVESTMENT RESTRICTIONS

As fundamental investment restrictions, which may not be changed with
respect to the Portfolio without approval by the holders of a majority of
the outstanding shares of the Portfolio, the Portfolio may not:

1. Purchase any security (other than U.S. Government securities) if as a
result: (i) as to 75% of such Portfolio's total assets, more than 5% of the
Portfolio's total assets (taken at current value) would then be invested in
securities of a single issuer, or (ii) more than 25% of the Portfolio's
total assets would be invested in a single industry.

2. Acquire more than 10% of the voting securities of any issuer.

3. Act as underwriter of securities of other issuers except to the
extent that, in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under certain federal securities laws.

4. Issue any class of securities which is senior to the Portfolio's
shares of beneficial interest, except as contemplated by restriction 6
below.

5. Purchase or sell real estate or interests in real estate, including
real estate mortgage loans, although it may purchase and sell securities
which are secured by real estate and securities of companies that invest or
deal in real estate or real estate limited partnership interests. (For
purposes of this restriction, investments by the Portfolio in mortgage-backed
securities and other securities representing interests in mortgage pools
shall not constitute the purchase or sale of real estate or interests in
real estate or real estate mortgage loans.)

6. Borrow more than 33 1/3% of the value of its total assets less all
liabilities and indebtedness (other than such borrowings)

7. Purchase or sell commodities or commodity contracts, except that a
Portfolio may purchase or sell financial futures contracts, options on
futures contracts, and futures contracts, forward contracts, and options
with respect to foreign currencies, and may enter into swap transactions.

8. Make loans, except by purchase of debt obligations in which the
Portfolio may invest consistent with its investment policies, by entering
into repurchase agreements, or by lending its portfolio securities.

In addition, it is contrary to the current policy of the Portfolio, which
policy may be changed without shareholder approval, to invest in (a) securities
which at the time of such investment are not readily marketable, (b) securities
restricted as to resale (excluding securities determined by the Trustees of the
Trust (or the person designated by the Trustees to make such determinations) to
be readily marketable), and (c) repurchase agreements maturing in more then
seven days, if, as a result, more than 15% of the Portfolio's net assets (taken
at current value) would then be invested in securities described in (a), (b),
and (c).

CERTAIN INVESTMENT TECHNIQUES

Set forth below is information concerning certain investment techniques in
which one or more of the Portfolios may engage, and certain of the risks they
may entail. Certain of the investment techniques may not be available to a
Portfolio. See the Prospectus relating to a particular Portfolio for a
description of the investment

<PAGE>

techniques generally applicable to that Portfolio. For purposes of this
section, the Portfolio's investment adviser is referred to as an "Adviser".

OPTIONS

The Portfolio may purchase and sell put and call options on its portfolio
securities to enhance investment performance or to protect against changes in
market prices.

COVERED CALL OPTIONS. The Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may
also be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.

A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.

In return for the premium received when it writes a covered call option, a
Portfolio gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Portfolio retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Portfolio realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Portfolio realizes a gain
or loss equal to the difference between the Portfolio's cost for the underlying
security and the proceeds of sale (exercise price minus commissions) plus the
amount of the premium.

The Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. The Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.

COVERED PUT OPTIONS. The Portfolio may write covered put options in order
to enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.

In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a
potential capital loss unless the security later appreciates in value.

<PAGE>

The Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may
be partially or entirely offset by the premium received on the terminated
option.

PURCHASING PUT AND CALL OPTIONS. The Portfolio may also purchase put
options to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Portfolio, as a
holder of the option, may sell the underlying security at the exercise price
regardless of any decline in its market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction costs
that the Portfolio must pay. These costs will reduce any profit the Portfolio
might have realized had it sold the underlying security instead of buying the
put option.

The Portfolio may purchase call options to hedge against an increase in the
price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs. These costs will reduce any profit the
Portfolio might have realized had it bought the underlying security at the time
it purchased the call option.

The Portfolio may also purchase put and sell options to enhance its current
return.

OPTIONS ON FOREIGN SECURITIES. The Portfolio may purchase and sell options
on foreign securities if in the opinion of its Adviser the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Portfolio's investment objectives. It is
expected that risks related to such options will not differ materially from
risks related to options on U.S. securities. However, position limits and other
rules of foreign exchanges may differ from those in the U.S. In addition,
options markets in some countries, many of which are relatively new, may be
less liquid than comparable markets in the U.S.

RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve certain
risks, including the risks that the Portfolio's Adviser will not forecast
interest rate or market movements correctly, that the Portfolio may be unable at
times to close out such positions, or that hedging transactions may not
accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of the Portfolio's
Adviser to forecast market and interest rate movements correctly.

An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, the Portfolio may be forced to continue to
hold, or to purchase at a fixed price, a security on which it has sold an option
at a time when its Adviser believes it is inadvisable to do so.

Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Portfolio's
use of options. The exchanges have established limitations on the maximum
number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible

<PAGE>

that the Portfolio and other clients of the Portfolio's Adviser may be
considered such a group. These position limits may restrict the Portfolio's
ability to purchase or sell options on particular securities.

Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that
reason, it may be more difficult to close out unlisted options than listed
options. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by The Options Clearing Corporation.

Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the Internal Revenue Code, may also
restrict the Portfolio's use of options.

FUTURES CONTRACTS

In order to hedge against the effects of adverse market changes the
Portfolio that may invest in debt securities may buy and sell futures contracts
on debt securities of the type in which the Portfolio may invest and on indexes
of debt securities. In addition, the Portfolio that may invest in equity
securities may purchase and sell stock index futures to hedge against changes
in stock market prices. The Portfolio may also, to the extent permitted by
applicable law, buy and sell futures contracts and options on futures contracts
to increase its current return. All such futures and related options will, as
may be required by applicable law, be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission (the "CFTC").

FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- the
Portfolio will legally obligate itself to accept the future delivery of the
underlying security and pay the agreed price. By selling futures on debt
securities -- assuming a "short" position -- it will legally obligate itself
to make the future delivery of the security against payment of the agreed
price. Open futures positions on debt securities will be valued at the most
recent settlement price, unless that price does not, in the judgment of persons
acting at the direction of the Trustees as to the valuation of the Portfolio's
assets, reflect the fair value of the contract, in which case the positions
will be valued by the Trustees or such persons.

Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by the Portfolio will usually be
liquidated in this manner, the portfolio may instead make or take delivery of
the underlying securities whenever it appears economically advantageous to do
so. A clearing corporation associated with the exchange on which futures are
traded assumes responsibility for such closing transactions and guarantees that
the Portfolio's sale and purchase obligations under closed-out positions will be
performed at the termination of the contract.

Hedging by use of futures on debt securities seeks to establish with more
certainty than would otherwise be possible the effective rate of return on
securities. The Portfolio may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Portfolio (or securities having characteristics similar to those
held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value of the Portfolio's
securities. When hedging of this character is successful, any depreciation in
the value of securities may substantially be offset by appreciation in the
value of the futures position.

<PAGE>

On other occasions, the Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Portfolio
expects to purchase particular securities when it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Portfolio of
purchasing the securities may be offset, at least to some extent, by the rise
in the value of the futures position taken in anticipation of the subsequent
purchase.

Successful use by the Portfolio of futures contracts on debt securities is
subject to its Adviser's ability to predict correctly movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if the Portfolio has hedged against the possibility of
an increase in interest rates which would adversely affect the market prices of
debt securities held by it and the prices of such securities increase instead
the Portfolio will lose part or all of the benefit of the increased value of
its securities which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily margin
maintenance requirements. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.

The Portfolio may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to
options on securities except that options on futures contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. As with options on securities, the holder or writer of an
option may terminate his position by selling or purchasing an option of the
same series. There is no guarantee that such closing transactions can be
effected. The Portfolio will be required to deposit initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements, and, in addition, net option
premiums received will be included as initial margin deposits. See "Margin
Payments" below. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Portfolio because the maximum amount at risk is the premium paid for
the options plus transactions costs. However, there may be circumstances when
the purchase of call or put options on a futures contract would result in a
loss to the Portfolio when the purchase or sale of the futures contracts would
not, such as when there is no movement in the prices of debt securities. The
writing of a put or call option on a futures contract involves risks similar to
those risks relating to the purchase or sale of futures contracts.

INDEX FUTURES CONTRACTS AND OPTIONS. The Portfolio may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. (Debt index futures in which
the Portfolios are presently expected to invest are not now available, although
such futures contracts are expected to become available in the future.) A stock
index futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.

For example, the Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the

<PAGE>

S&P 100 Index were $180, one contract would be worth $18,000 (100 units x
$180). The stock index futures contract specifies that no delivery of the
actual stocks making up the index will take place. Instead, settlement in cash
must occur upon the termination of the contract, with the settlement being the
difference between the contract price and the actual level of the stock index
at the expiration of the contract. For example, if the Portfolio enters into a
futures contract to buy 100 units of the S&P 100 Index at a specified future
date at a contract price of $180 and the S&P 100 Index is at $184 on that
future date, the Portfolio will gain $400 (100 units x gain of $4). If the
Portfolio enters into a futures contract to sell 100 units of the stock index
at a specified future date at a contract price of $180 and the S&P 100 Index is
at $182 on that future date, the Portfolio will lose $200 (100 units x loss of
$2).

The Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.

In order to hedge the Portfolio's investments successfully using futures
contracts and related options, the Portfolio must invest in futures contracts
with respect to indexes or sub-indexes the movements of which will, in its
judgment, have a significant correlation with movements in the prices of the
Portfolio's securities.

OPTIONS ON STOCK INDEX FUTURES. Options on index futures contracts are
similar to options on securities except that options on index futures contracts
give the purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
holder would assume the underlying futures position and would receive a
variation margin payment of cash or securities approximating the increase in
the value of the holder's option position. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash based on the difference between the exercise
price of the option and the closing level of the index on which the futures
contract is based on the expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date suffer a loss of the premium
paid.

OPTIONS ON INDICES. As an alternative to purchasing and selling call and
put options on index futures contracts, each of the Portfolios which may
purchase and sell index futures contracts may purchase and sell call and put
options on the underlying indexes themselves to the extent that such options
are traded on national securities exchanges. Index options are similar to
options on individual securities in that the purchaser of an index option
acquires the right to buy (in the case of a call) or sell (in the case of a
put), and the writer undertakes the obligation to sell or buy (as the case may
be), units of an index at a stated exercise price during the term of the
option. Instead of giving the right to take or make actual delivery of
securities, the holder of an index option has the right to receive a cash
"exercise settlement amount". This amount is equal to the amount by which the
fixed exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index on the
date of the exercise, multiplied by a fixed "index multiplier".

The Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. The Portfolio may also allow such options to expire unexercised.

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to the Portfolio
because the maximum amount at risk is the premium paid for the

<PAGE>

options plus transactions costs. The writing of a put or call option on an
index involves risks similar to those risks relating to the purchase or sale of
index futures contracts.

MARGIN PAYMENTS. When the Portfolio purchases or sells a futures contract,
it is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Portfolio upon termination of the contract, assuming the Portfolio
satisfies its contractual obligations.

Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract
fluctuates. For example, when the Portfolio sells a futures contract and the
price of the underlying security rises above the delivery price, the
Portfolio's position declines in value. The Portfolio then pays the broker a
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the securities underlying the
futures contract. Conversely, if the price of the underlying security falls
below the delivery price of the contract, the Portfolio's futures position
increases in value. The broker then must make a variation margin payment equal
to the difference between the delivery price of the futures contract and the
market price of the securities underlying the futures contract.

When the Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.

SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS

LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolio intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular
time. If there is not a liquid secondary market at a particular time, it may
not be possible to close a futures position at such time and, in the event of
adverse price movements, the Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event financial
futures are used to hedge portfolio securities, such securities will not
generally be sold until the financial futures can be terminated. In such
circumstances, an increase in the price of the portfolio securities, if any,
may partially or completely offset losses on the financial futures.

In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that such a market will develop. Although the Portfolio generally will purchase
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist
for any particular option or at any particular time. In the event no such
market exists for particular options, it might not be possible to effect
closing transactions in such options with the result that the Portfolio would
have to exercise the options in order to realize any profit.

<PAGE>

HEDGING RISKS. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One
risk arises because of the imperfect correlation between movements in the
prices of the futures contracts and options and movements in the underlying
securities or index or movements in the prices of the Portfolio's securities
which are the subject of a hedge. The Portfolio's Adviser will, however, attempt
to reduce this risk by purchasing and selling, to the extent possible, futures
contracts and related options on securities and indexes the movements of which
will, in its judgment, correlate closely with movements in the prices of the
underlying securities or index and the securities sought to be hedged.

Successful use of futures contracts and options by the Portfolio for
hedging purposes is also subject to its Adviser's ability to predict correctly
movements in the direction of the market. It is possible that, where the
Portfolio has purchased puts on futures contracts to hedge its portfolio against
a decline in the market, the securities or index on which the puts are purchased
may increase in value and the value of securities held in the portfolio may
decline. If this occurred, the Portfolio would lose money on the puts and also
experience a decline in value in its portfolio securities. In addition, the
prices of futures, for a number of reasons, may not correlate perfectly with
movements in the underlying securities or index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit requirements. Such requirements may cause investors to close futures
contracts through offsetting transactions which could distort the normal
relationship between the underlying security or index and futures markets.
Second, the margin requirements in the futures markets are less onerous than
margin requirements in the securities markets in general, and as a result the
futures markets may attract more speculators than the securities markets do.
Increased participation by speculators in the futures markets may also cause
temporary price distortions. Due to the possibility of price distortion, even a
correct forecast of general market trends by the Portfolio's Adviser may still
not result in a successful hedging transaction over a short time period.

OTHER RISKS. Portfolios will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while the Portfolio
may benefit from the use of futures and related options, unanticipated changes
in interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.

FORWARD COMMITMENTS

The Portfolio may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if the Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or if the Portfolio enters into offsetting contracts for
the forward sale of other securities it owns. Forward commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which risk
is in addition to the risk of decline in the value of the Portfolio's other
assets. Where such purchases are made through dealers, the Portfolios rely on
the dealer to consummate the sale. The dealer's failure to do so may result in
the loss to the Portfolio of an advantageous yield or price. Although a
Portfolio will generally enter into forward commitments with the intention of
acquiring securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the Portfolio may

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dispose of a commitment prior to settlement if its Adviser deems it appropriate
to do so. The Portfolio may realize short-term profits or losses upon the sale
of forward commitments.

REPURCHASE AGREEMENTS

The Portfolio may enter into repurchase agreements. A repurchase agreement
is a contract under which the Portfolio acquires a security subject to the
obligation of the seller to repurchase and the Portfolio to resell such security
at a fixed time and price (representing the Portfolio's cost plus interest). It
is the Trust's present intention to enter into repurchase agreements only with
member banks of the Federal Reserve System and securities dealers meeting
certain criteria as to creditworthiness and financial condition established by
the Trustees of the Trust and only with respect to obligations of the U.S.
government or its agencies or instrumentalities or other high quality short term
debt obligations. Repurchase agreements may also be viewed as loans made by the
Portfolio which are collateralized by the securities subject to repurchase. A
Portfolio's Adviser will monitor such transactions to ensure that the value of
the underlying securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the Portfolio could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale including accrued
interest are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Portfolio may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if a
Portfolio is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.

LOANS OF PORTFOLIO SECURITIES

The Portfolio may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Portfolio may at any
time call the loan and regain the securities loaned; (3) the Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities loaned will not at any time exceed
one-third (or such other limit as the Trustee may establish) of the total
assets of the Portfolio. In addition, it is anticipated that the Portfolio may
share with the borrower some of the income received on the collateral for the
loan or that it will be paid a premium for the loan. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. Although voting rights or
rights to consent with respect to the loaned securities pass to the borrower, a
Portfolio retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Portfolio if
the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Portfolio will not lend portfolio
securities to borrowers affiliated with the Portfolio.

COLLATERALIZED MORTGAGE OBLIGATIONS; OTHER MORTGAGE-RELATED SECURITIES

Collateralized mortgage obligations or "CMOs" are debt obligations or
pass-through certificates collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by certificates
issued by the Government National Mortgage Association, ("GNMA"), the Federal
National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"), but they also may be collateralized by whole loans or
private pass-through certificates (such collateral collectively hereinafter
referred to as

<PAGE>

"Mortgage Assets"). CMOs may be issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans.

In a CMO, a series of bonds or certificates is generally issued in
multiple classes. Each class of CMOs is issued at a specific fixed or floating
rate coupon and has a stated maturity or final distribution date. Principal
prepayments on the mortgage assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on most classes of the CMOs on a monthly,
quarterly, or semi-annual basis. The principal of and interest on the mortgage
assets may be allocated among the several classes of a series of a CMO in
innumerable ways. In a CMO, payments of principal, including any principal
prepayments, on the mortgage assets are applied to the classes of the series in
a pre-determined sequence.

RESIDUAL INTERESTS. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by the
mortgage assets underlying a series of mortgage securities is applied first to
make required payments of principal of and interest on the mortgage securities
and second to pay the related administrative expenses of the issuer. The
residual generally represents the right to any excess cash flow remaining after
making the foregoing payments. Each payment of such excess cash flow to a
holder of the related residual represents income and/or a return of capital.
The amount of residual cash flow resulting from a series of mortgage securities
will depend on, among other things, the characteristics of the mortgage assets,
the coupon rate of each class of the mortgage securities, prevailing interest
rates, the amount of administrative expenses, and the prepayment experience on
the mortgage assets. In particular, the yield to maturity on residual interests
may be extremely sensitive to prepayments on the related underlying mortgage
assets in the same manner as an interest-only class of stripped mortgage-backed
securities. In addition, if a series of mortgage securities includes a class
that bears interest at an adjustable rate, the yield to maturity on the related
residual interest may also be extremely sensitive to changes in the level of
the index upon which interest rate adjustments are based. In certain
circumstances, there may be little or no excess cash flow payable to residual
holders. The Portfolio may fail to recoup fully its initial investment in a
residual.

Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently
may not have the liquidity of other more established securities trading in
other markets. Residuals may be subject to certain restrictions on
transferability.

FOREIGN SECURITIES

The Portfolio may invest in foreign securities and in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.

Investments in foreign securities may involve considerations different
from investments in domestic securities. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities can involve other risks different from those affecting U.S.
investments, including local political or economic developments, expropriation
or nationalization of assets and imposition of withholding taxes on dividend or
interest payments. It may be more difficult

<PAGE>

to obtain and enforce a judgment against a foreign issuer. In addition, foreign
investments may be affected favorably or unfavorably by changes in currency
exchange rates, exchange control regulations, foreign withholding taxes and
restrictions or prohibitions on the repatriation of foreign currencies. A
Portfolio may incur costs in connection with conversion between currencies.

In determining whether to invest in securities of foreign issuers, the
Adviser of the Portfolio seeking current income will consider the likely impact
of foreign taxes on the net yield available to the Portfolio and its
shareholders. Income received by the Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of the Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by the Portfolio will reduce its net income
available for distribution to shareholders.

FOREIGN CURRENCY TRANSACTIONS

Except as otherwise described in the relevant Prospectus, the Portfolio may
engage without limit in currency exchange transactions, including foreign
currency forward and futures contracts, to protect against uncertainty in the
level of future foreign currency exchange rates. In addition, the Portfolio may
purchase and sell call and put options on foreign currency futures contracts
and on foreign currencies for hedging purposes.

The Portfolio may engage in both "transaction hedging" and "position
hedging". When the Portfolio engages in transaction hedging, it enters into
foreign currency transactions with respect to specific receivables or payables
of the Portfolio generally arising in connection with the purchase or sale of
its securities. The Portfolio will engage in transaction hedging when it desires
to "lock in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging the Portfolio will attempt to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.

The 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 purchase and sell foreign currency
futures contracts.

For transaction hedging purposes, the Portfolio may purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives the Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. The Portfolio
will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of its
Adviser, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.

<PAGE>

When the Portfolio engages in position hedging, it enters into foreign
currency exchange transactions to protect against a decline in the values of
the foreign currencies in which securities held by the Portfolio are
denominated or are quoted in their principle trading markets or an increase in
the value of currency for securities which the Portfolio expects to purchase. In
connection with position hedging, the Portfolio may purchase put or call options
on foreign currency and foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. The Portfolio may also
purchase or sell foreign currency on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.

It is impossible to forecast with precision the market value of a
Portfolio's securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is
less than the amount of foreign currency the Portfolio is obligated to deliver
and if a decision is made to sell the security or securities and make delivery
of the foreign currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the security or
securities of the Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.

To offset some of the costs to the Portfolio of hedging against
fluctuations in currency exchange rates, the Portfolio may write covered call
options on those currencies.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.

CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.

Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange

<PAGE>

contracts are traded directly between currency traders so that no intermediary
is required. A forward contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, the Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.

Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Portfolio will normally
purchase or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or option or at any particular
time. In such event, it may not be possible to close a futures or related option
position and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin on its
futures positions.

FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's Adviser believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist
for a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence exchange rates and investments
generally.

The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the U.S. options markets.

SETTLEMENT PROCEDURES. Settlement procedures relating to investments in
foreign securities and to foreign currency exchange transactions may be more
complex than settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not present in
domestic investments. For example, settlement of transactions involving foreign
securities or foreign currency may occur within a foreign country,

<PAGE>

and the Portfolio may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or foreign
restrictions or regulations, and may be required to pay any fees, taxes or
charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.

FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a feefor currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.

ZERO-COUPON SECURITIES

Zero-coupon securities in which the Portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of the Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other mutual funds investing in securities making
current distributions of interest and having similar maturities.

Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A number
of securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.

In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under
the STRIPS program, the Portfolio will be able to have its beneficial ownership
of U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.

When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.

<PAGE>

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Portfolios may engage in when-issued and delayed delivery transactions.
These transactions are arrangements in which the Portfolio purchases securities
with payment and delivery scheduled for a future time. The Portfolio engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
securities consistent with its investment objective and policies, not for
investment leverage, but the Portfolio may sell such securities prior to
settlement date if such a sale is considered to be advisable. No income accrues
to the Portfolio on securities in connection with such transactions prior to the
date the Portfolio actually takes delivery of securities. In when-issued and
delayed delivery transactions, the Portfolio relies on the seller to complete
the transaction. The seller's failure to complete the transaction may cause a
Portfolio to miss a price or yield considered to be advantageous.

These transactions are made to secure what is considered to be an
advantageous price or yield for the Portfolio. Settlement dates may be a month
or more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are incurred. However, liquid
assets of the Portfolio sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.

BANK INSTRUMENTS

The Portfolio may invest in the instruments of banks and savings and loans
whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), such as certificates of deposit, demand
and time deposits, savings shares, and bankers' acceptances. However, the
above-mentioned instruments are not necessarily guaranteed by those
organizations. In addition to domestic bank obligations, such as certificates
of deposit, demand and time deposits, savings shares, and bankers' acceptances,
the Portfolio may invest in: Eurodollar Certificates of Deposit ("ECDs") issued
by foreign branches of U.S. or foreign banks; Eurodollar Time Deposits
("ETDs"), which are U.S. dollar-denominated deposits in foreign branches of
U.S. or foreign banks; Canadian Time Deposits, which are U.S.
dollar-denominated deposits issued by branches of major Canadian banks located
in the U.S.; and Yankee Certificates of Deposit ("Yankee CDS"), which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of foreign
banks and held in the U.S.

DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

The Portfolio may enter into dollar rolls, in which the Portfolio sells
securities and simultaneously contracts to repurchase substantially similar
securities on a specified future date. In the case of dollar rolls involving
mortgage-related securities, the mortgage-related securities that are purchased
typically will be of the same type and will have the same or similar interest
rate and maturity as those sold, but will be supported by different pools of
mortgages. The Portfolio forgoes principal and interest paid during the roll
period on the securities sold in a dollar roll, but it is compensated by the
difference between the current sales price and the price for the future
purchase as well as by any interest earned on the proceeds of the securities
sold. The Portfolio could also be compensated through the receipt of fee income.

The Portfolio may also enter into reverse repurchase agreements in which
the Portfolio sells securities and agrees to repurchase them at a mutually
agreed date and price. Generally, the effect of such a transaction is that

<PAGE>

the Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.

Dollar rolls and reverse repurchase agreements may be viewed as a
borrowing by the Portfolio, secured by the security which is the subject of the
agreement. In addition to the general risks involved in leveraging, dollar
rolls and reverse repurchase agreements involve the risk that, in the event of
the bankruptcy or insolvency of the Portfolio's counterparty, the Portfolio
would be unable to recover the security which is the subject of the agreement,
the amount of cash or other property transferred by the counterparty to the
Portfolio under the agreement prior to such insolvency or bankruptcy is less
than the value of the security subject to the agreement, or the Portfolio may
be delayed or prevented, due to such insolvency or bankruptcy, from using such
cash or property or may be required to return it to the counterparty or its
trustee or receiver.

CONVERTIBLE SECURITIES

The Portfolio may invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for a
variety of investment strategies.

The Portfolio will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock when, in its Adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Portfolio in achieving its investment objectives. Otherwise, the
Portfolio may hold or trade convertible securities. In selecting convertible
securities for the Portfolio, the Portfolio's Adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Portfolio's Adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.

WARRANTS

The Portfolio may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the common
stock does not exceed the warrant's exercise price during the life of the
warrant, the warrant will expire as worthless. Warrants have no voting rights,
pay no dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the market
price of the warrant may tend to be greater than the percentage increase or
decrease in the market price of the optioned common stock. Warrants acquired in
units or attached to securities may be deemed to be without value for purposes
of the Portfolio's policy.

<PAGE>

SWAPS, CAPS, FLOORS AND COLLARS

The Portfolio may enter into interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. The Portfolio expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio would use these transactions as hedges and not as
speculative investments and would not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. Interest rate swaps involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such 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 such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. The Portfolio will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from another nationally recognized securities rating
organization or is determined to be of equivalent credit quality by the
Portfolio's Adviser. If there is a default by the counterparty, the Portfolio
may have contractual remedies pursuant to the agreements related to the
transaction. As a result, the swap market has become relatively liquid. Caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.

LOWER-RATED SECURITIES

The Portfolio may invest in lower-rated fixed-income securities (commonly
known as "junk bonds") to the extent described in the relevant Prospectus. The
lower ratings of certain securities held by a the Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by the Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, the Portfolio may be unable at times to establish the fair value of
such securities. The rating assigned to a security by Moody's Investors
Service, Inc. or Standard & Poor's (or by any other nationally recognized
securities rating organization) does not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security.

<PAGE>

Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. The Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although its Adviser will monitor the
investment to determine whether its retention will assist in meeting the
Portfolio's investment objective.

The amount of information about the financial condition of an issuer of
tax exempt securities may not be as extensive as that which is made available
by corporations whose securities are publicly traded. Therefore, to the extent
the Portfolio invests in tax exempt securities in the lower rating categories,
the achievement of the Portfolio's goals is more dependent on its Adviser's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.

INDEXED SECURITIES

The Portfolio may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities
of three years or less.

Indexed securities differ from other types of debt securities in which a
Portfolio may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or
the currency exchange rates between two currencies (neither of which need be
the currency in which the instrument is denominated). The reference instrument
need not be related to the terms of the indexed security. For example, the
principal amount of a U.S. dollar denominated indexed security may vary based
on the exchange rate of two foreign currencies. An indexed security may be
positively or negatively indexed; that is, its value may increase or decrease
if the value of the reference instrument increases. Further, the change in the
principal amount payable or the interest rate of an indexed security may be a
multiple of the percentage change (positive or negative) in the value of the
underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the 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 reference
instruments. Further, in the case of certain indexed securities in which 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. Finally, indexed securities
may be more volatile than the reference instruments underlying indexed
securities.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to

<PAGE>

which the Portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the Portfolio's securities are
or are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the Portfolio's securities denominated
in linked currencies. For example, if the Portfolio's Adviser considers that the
Austrian schilling is linked to the German deutschmark (the "D-mark"), the
Portfolio holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a contract to sell D-marks and buy dollars.

EURODOLLAR INSTRUMENTS

The Portfolio may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. The
Portfolio might use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps and fixed-income
instruments are linked.

SEGREGATION OF ASSETS

The Portfolio may at times segregate assets in respect of certain
transactions in which the Portfolio enters into a commitment to pay money or
deliver securities at some future date (such as futures contracts or reverse
repurchase agreements, to the extent not used for leverage). Any such
segregated account will be maintained by the Trust's custodian and may contain
cash, U.S. government securities, liquid high grade debt obligations, or other
appropriate assets.

<PAGE>

MANAGEMENT OF THE TRUST

The following table provides biographical information with respect to each
Trustee and officer of the Trust. Each Trustee who is an "interested person" of
the Trust, as defined in the 1940 Act, is indicated by an asterisk.

<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------ -------------- --------------------------------------------------------------
<S> <C> <C>
Daniel J. Ludeman (41)* Chairman Chairman and Chief Executive Officer Mentor Investment
c/o Mentor Funds and Trustee Group, Inc.; Chairman and Director Mentor Income Fund,
901 E. Byrd Street Inc., and America's Utility Fund, Inc.; Chairman and
Richmond, VA 23219 Trustee, Cash Resource Trust, Mentor Variable Investment
Portfolios and Mentor Institutional Trust.

Arnold H. Dreyfuss (70) Trustee Chairman, Eskimo Pie Corporation; Trustee, Cash Resource
P.O. Box 18156 Trust, Mentor Variable Investment Portfolios and Mentor
Richmond, Virginia 23226 Institutional Trust; Director, Mentor Income Fund, Inc. and
America's Utility Fund, Inc.; formerly, Chairman and Chief
Executive Officer, Hamilton Beach/Proctor-Silex, Inc.

Thomas F. Keller (67) Trustee R.J. Reynolds Industries Professor of Business Adminis-
Fuqua School of Business tration and Former Dean of Fuqua School of Business, Duke
Duke University University; Director of LADD Furniture, Inc., Wendy's
Durham, NC 27706 International, Inc., American Business Products, Inc., Dimon,
Inc., and Biogen, Inc.; Director of Nations Balanced Target
Maturity Fund, Inc., Nations Government Income Term Trust
2003, Inc., Nations Government Income Term Trust 2004,
Inc., Hatteras Income Securities, Inc., Nations Institutional
Reserves, Nations Fund Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., and Nations LifeGoal Funds, Inc.
Trustee, Cash Resource Trust, Mentor Variable Investment
Portfolios and Mentor Institutional Trust; Director, Mentor
Income Fund, Inc. and America's Utility Fund, Inc.

Louis W. Moelchert, Jr. (57) Trustee Vice President for Investments, University of Richmond;
University of Richmond Trustee, Cash Resource Trust, Mentor Variable Investment
Richmond, VA 23173 Portfolios and Mentor Institutional Trust; Director, Mentor
Income Fund, Inc. and America's Utility Fund, Inc.

Troy A. Peery, Jr. (52) Trustee Trustee, Cash Resource Trust, Mentor Variable Investment
c/o Mentor Funds Portfolios and Mentor Institutional Trust; Director, Mentor
901 E. Byrd Street Income Fund, Inc. and America's Utility Fund, Inc.
Richmond, Virginia 23219 Formerly, President of Heilig-Meyers Company.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------- -------------- --------------------------------------------------------------
<S> <C> <C>
Peter J. Quinn, Jr. (38)* Trustee Managing Director, Mentor Investment Group, LLC, and
c/o Mentor Funds Mentor Services Company, Inc.; Trustee, Cash Resource
901 E. Byrd Street Trust, Mentor Variable Investment Portfolios and Mentor
Richmond, VA 23219 Institutional Trust; Director, Mentor Income Fund, Inc. and
America's Utility Fund, Inc.

Arch T. Allen, III (58) Trustee Attorney at law, Raleigh, North Carolina; Trustee, Cash
c/o Mentor Funds Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Institutional Trust; Director, Mentor Income Fund,
Richmond, VA 23219 Inc. and America's Utility Fund, Inc.; formerly, Vice
Chancellor for Development and University Relations,
University of North Carolina at Chapel Hill.

Weston E. Edwards (64) Trustee President, Weston Edwards & Associates; Trustee Cash
c/o Mentor Funds Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Institutional Trust; Director, Mentor Income Fund,
Richmond, VA 23219 Inc. and America's Utility Fund, Inc.; Founder and
Chairman, The Housing Roundtable; formerly, President,
Smart Mortgage Access, Inc.

Jerry R. Barrentine (64) Trustee President, J.R. Barretine & Associates; Trustee, Cash
c/o Mentor Funds Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Institutional Trust; Director, Mentor Income Fund,
Richmond, VA 23219 Inc. and America's Utility Fund, Inc.; formerly, Executive
Vice President and Chief Financial Officer, Barclays/
American Mortgage Director Corporation; Managing Partner,
Barrentine Lott & Associates.

J. Garnett Nelson (59) Trustee Consultant, Mid-Atlantic Holdings, LLC; Trustee, Cash
c/o Mentor Funds Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Institutional Trust; Director, Mentor Income Fund,
Richmond, VA 23219 Inc., America's Utility Fund, Inc., GE Investment Funds,
Inc., and Lawyers Title Corporation; Member, Investment
Advisory Committee, Virginia Retirement System; formerly,
Senior Vice President, The Life Insurance Company of
Virginia.

Paul F. Costello (38) President Managing Director, Mentor Investment Group, LLC;
c/o Mentor Funds President, Cash Resource Trust, Mentor Income Fund, Inc.,
901 E. Byrd Street Mentor Institutional Trust, Mentor Variable Investment
Richmond, VA 23219 Portfolios and America's Utility Fund, Inc.; Director, Mentor
Perpetual Advisors, LLC.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ----------------------- -------------- ------------------------------------------------------------
<S> <C> <C>
Terry L. Perkins (51) Treasurer, Senior Vice President and Treasurer, Mentor Investment
c/o Mentor Funds Secretary Group, LLC; Treasurer, Mentor Institutional Trust, Cash
901 E. Byrd Street Resource Trust, Mentor Variable Investment Portfolios,
Richmond, VA 23219 Mentor Income Fund, Inc.

Michael Wade (32) Assistant Vice President and Controller, Mentor Investment Group,
c/o Mentor Funds Treasurer LLC Assistant Treasurer, Mentor Income Fund, Inc., Cash
901 E. Byrd Street Resource Trust, Mentor Institutional Trust, Mentor Variable
Richmond, VA 23219 Investment Portfolios and America's Utility Fund.
</TABLE>

The table below shows the fees paid to each Trustee by the Trust for the
1998 fiscal year and the fees paid to each Trustee by all funds in the Mentor
family (including the Trust) during the 1998 calendar year.

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM ALL
FROM THE TRUST COMPLEX FUNDS (29 FUNDS)
(FISCAL YEAR END 1998) (CALENDAR YEAR 1998)
------------------------ ----------------------------
<S> <C> <C>
Daniel J. Ludeman ............... $ 0 $ 0
Arnold H. Dreyfuss .............. $4,994 $32,000
Thomas F. Keller ................ $4,121 $32,000
Louis W. Moelchert, Jr. ......... $4,811 $32,000
J. Garnett Nelson ............... $4,634 $40,000
Troy A. Peery, Jr. .............. $4,634 $32,000
Peter J. Quinn, Jr. ............. $ 0 $ 0
Jerry R. Barrentine ............. $4,811 $40,000
Weston E. Edwards ............... $4,634 $42,000
Arch T. Allen III ............... $4,634 $35,000
</TABLE>

- ----------
The Trustees do not receive pension or retirement benefits from the Trust.

The Declaration of Trust of the Trust provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Trust, except if it is determined in the manner specified in
the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Trust or that such indemnification would relieve any officer or Trustee of any
liability to the Trust or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of his or her duties. The
Trust, at its expense, provides liability insurance for the benefit of its
Trustees and officers.

PRINCIPAL HOLDERS OF SECURITIES

As of February 19, 1999, there were no outstanding shares of the Portfolio.

<PAGE>

INVESTMENT ADVISORY SERVICES

Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment
adviser to the Portfolio.

Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group,
LLC, ("Mentor Investment Group") which is a subsidiary of Wheat First Butcher
Singer, Inc. ("WFBS"). EVEREN Capital Corporation has a 20% ownership in Mentor
Investment Group and may acquire additional ownership based principally on the
amount of Mentor Investment Group's revenues derived from assets attributable to
clients of EVEREN Securities, Inc. and its affiliates.

Subject to the general oversight of the Trustees, Mentor Advisors manages
the Portfolio in accordance with the stated policies of the Portfolio and of the
Trust. Mentor Advisors makes investment decisions for the Portfolio and places
the purchase and sale orders for portfolio transactions. Mentor Advisors bears
all its expenses in connection with the performance of its services (except as
may be approved from time to time by the Trustees) and pays the salaries of all
officers and employees who are employed by them and the Trust.

Mentor Advisors provides the Trust with investment officers who are
authorized to execute purchases and sales of securities. Investment decisions
for the Trust and for the other investment advisory clients of the investment
advisers and their affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more other
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which Mentor Advisor's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of
securities for one or more clients will have an adverse effect on other clients.
In the case of short-term investments, the Treasury area of Mentor Investment
Group handles purchases and sales under guidelines approved by investment
officers of the Trust. Mentor Advisors employs a professional staff of portfolio
managers who draw upon a variety of resources for research information for the
Trust.

Expenses incurred in the operation of the Portfolio or otherwise allocated
to the Portfolio, including but not limited to taxes, interest, brokerage fees
and commissions, compensation paid under the Portfolio's 12b-1 plan and the
Shareholder Service Plan, fees to Trustees who are not officers, directors,
stockholders, or employees of Wheat, First Securities, Inc. and its
subsidiaries, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer and dividend disbursing agents, outside
auditing, accounting, and legal services, charges for the printing of
prospectuses and statements of additional information for regulatory purposes
or for distribution, and certain costs incurred by Mentor Investment Group in
responding to shareholder

<PAGE>

inquiries as approved by the Trustees from time to time, to shareholders,
certain shareholder report charges and charges relating to corporate matters
are borne by the Portfolio.

Under the applicable Management Contract with the Trust in respect of the
Portfolio, subject to such policies as the Trustees may determine, Mentor
Advisors, at its expense, furnishes continuously an investment program for the
Portfolio and makes investment decisions on behalf of the Portfolio. Mentor
Advisors may place portfolio transactions with broker-dealers which furnish
Mentor Advisors, without cost to it, certain research, statistical and quotation
services of value to Mentor Advisors and its affiliates in advising the
Portfolio and other clients. In so doing, Mentor Advisors may cause the
Portfolio to pay greater brokerage commissions than it might otherwise pay.

The Management Contract provides that Mentor Advisors, shall not be subject
to any liability to the Portfolio or to any shareholder of the Portfolio for any
act or omission in the course of or connected with rendering services to the
Portfolio in the absence of its willful misfeasance, bad faith, gross
negligence, or reckless disregard of its duties.

The Management Contract is subject to annual approval (beginning in 2001)
by (i) the Trustees or (ii) vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the Portfolio, provided that in either
event the continuance is also approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or Mentor
Advisors, by vote cast in person at a meeting called for the purpose of voting
on such approval. The Management Contract are terminable without penalty, on not
more than sixty days' notice and not less than thirty days' notice, by the
Trustees, by vote of the holders of a majority of the affected Portfolio's
shares, or by the applicable investment adviser. Each terminates automatically
in the event of its assignment (as defined in the 1940 Act).

MANAGEMENT FEES

Mentor Advisors receives an annual management fee from the Portfolio (which
is described in the relevant Prospectus).

ADMINISTRATIVE SERVICES

Mentor Investment Group, LLC serves as administrator the Portfolio pursuant
to an Administration Agreement.

Pursuant to the Administration Agreement, Mentor Investment Group provides
continuous business management services to the Portfolio and, subject to the
general oversight of the Trustees, manages all of the business and affairs of
the Portfolio subject to the provisions of the Trust's Declaration of Trust,
By-laws and the 1940 Act, and other policies and instructions the Trustees may
from time to time establish. Mentor Investment Group pays the compensation of
all officers and executive employees of the Trust (except those employed by or
serving at the request of an investment adviser) and makes available to the
Trust the services of its directors, officers, and employees as elected by the
Trustees or officers of the Trust. In addition, Mentor Investment Group provides
all clerical services relating to the Portfolio's business. As compensation for
its services, Mentor Investment Group receives a fee from the Portfolio
calculated daily at the annual rate of .15% of the Portfolio's average daily net
assets.

<PAGE>

The Administration Agreement must be approved at least annually with
respect to the Portfolio by a vote of a majority of the Trustees who are not
interested persons of Mentor Investment Group or the Trust. The Agreement may be
terminated at any time without penalty on 30 days notice by Mentor Investment
Group, or immediately in respect of any Portfolio upon notice by the Trustees or
by vote of a majority of the outstanding voting securities of that Portfolio.
The Agreement terminates automatically in the event of any assignment (as
defined in the 1940 Act).

SHAREHOLDER SERVICING PLAN

The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with Mentor Distributors, LLC with respect to the Class A and Class B shares of
the Portfolio. Pursuant to the Service Plan, financial institutions will enter
into shareholder service agreements to provide administrative support services
to their customers who from time to time may be record or beneficial owners of
shares of one or more Portfolios. In return for providing these support
services, a financial institution may receive payments from one or more
Portfolios at a rate not exceeding .25% of the average daily net assets of the
Class A or Class B shares of the particular Portfolio or Portfolios owned by the
financial institution's customers for whom it is the holder of record or with
whom it has a servicing relationship. The Service Plan is designed to stimulate
financial institutions to render administrative support services to the
Portfolios and their shareholders. These administrative support services
include, but are not limited to, the following functions: providing office
space, 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 the investment adviser, a sub-adviser,
and/or 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 the investment adviser
and/or Mentor Investment Group or affiliates, as applicable, and will not be
made from the assets of any of the Portfolios.

BROKERAGE TRANSACTIONS

Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by the Portfolio of
negotiated brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
but the price paid by the Trust usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the Trust
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer. It is anticipated that most purchases and sales of securities by
funds investing primarily in certain fixed-income securities will be with the
issuer or with underwriters of or dealers in those securities, acting as
principal. Accordingly, those funds would not ordinarily pay significant
brokerage commissions with respect to securities transactions.

<PAGE>

It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the investment adviser may receive brokerage and research services and
other similar services from many broker-dealers with which the investment
adviser places the Portfolio's portfolio transactions and from third parties
with which these broker-dealers have arrangements. These services include such
matters as general economic and market reviews, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale of
investments, newspapers, magazines, pricing services, quotation services, news
services and personal computers utilized by the investment adviser's managers
and analysts. Where the services referred to above are not used exclusively by
the investment adviser for research purposes, the investment adviser, based upon
its own allocations of expected use, bears that portion of the cost of these
services which directly relates to its non-research use. Some of these services
are of value to the investment adviser and its affiliates in advising various of
its clients (including the Portfolio), although not all of these services are
necessarily useful and of value in managing the Portfolio. The management fee
paid by the Portfolio is not reduced because its investment adviser or any of
its affiliates receive these services even though the investment adviser might
otherwise be required to purchase some of these services for cash.

The Portfolio's investment adviser places all orders for the purchase and
sale of portfolio investments for the Portfolio and buys and sells investments
for the Portfolio through a substantial number of brokers and dealers. The
investment adviser seeks the best overall terms available for the Portfolio,
except to the extent the investment adviser may be permitted to pay higher
brokerage commissions as described below. In doing so, the investment adviser,
having in mind the Portfolio's best interests, considers all factors it deems
relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other investment, the
amount of the commission, the timing of the transaction taking into account
market prices and trends, the reputation, experience and financial stability of
the broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.

As permitted by Section 28(e) of the 1934 Act, and by the advisory
agreements, the Portfolio's investment adviser may cause the Portfolio to pay a
broker-dealer which provides "brokerage and research services" (as defined in
the 1934 Act) to that adviser an amount of disclosed commission for effecting
securities transactions on stock exchanges and other transactions for the
Portfolio on an agency basis in excess of the commission which another
broker-dealer would have charged for effecting that transaction. The investment
adviser's authority to cause the Portfolio to pay any such greater commissions
is also subject to such policies as the Trustees may adopt from time to time. It
is the position of the staff of the Securities and Exchange Commission that
Section 28(e) does not apply to the payment of such greater commissions in
"principal" transactions. Accordingly, each investment adviser will use its best
efforts to obtain the best overall terms available with respect to such
transactions, as described above.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to such other policies as the Trustees may
determine, an investment adviser may consider sales of shares of the Portfolio
(and, if permitted by law, of the other funds in the Mentor family) as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Portfolio.

<PAGE>

The Trustees have determined that portfolio transactions for the Trust may
be effected through Wheat, First Securities, Inc. ("Wheat"), First Union
Brokerage Services ("FUBS"), and EVEREN Securities, Inc. ("EVEREN"),
broker-dealers affiliated with Mentor Advisors and Mentor Perpetual. The
Trustees have adopted certain policies incorporating the standards of Rule
17e-l issued by the SEC under the 1940 Act which requires, among other things,
that the commissions paid to Wheat, FUBS, and EVEREN must be reasonable and
fair compared to the commissions, fees, or other remuneration received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. Wheat, FUBS, and EVEREN will not
participate in brokerage commissions given by the Portfolio to other brokers or
dealers. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. The Portfolio will in no event effect
principal transactions with Wheat, FUBS, and EVEREN in over-the-counter
securities in which Wheat, FUBS, or EVEREN makes a market.

Under rules adopted by the SEC, Wheat, FUBS, and EVEREN may not execute
transactions for the Portfolio on the floor of any national securities exchange,
but may effect transactions for the Portfolio by transmitting orders for
execution and arranging for the performance of this function by members of the
exchange not associated with them. Wheat, FUBS, and EVEREN will be required to
pay fees charged to those persons performing the floor brokerage elements out of
the brokerage compensation they receive from the Portfolio. The Trust has been
advised by Wheat that on most transactions, the floor brokerage generally
constitutes from 5% and 10% of the total commissions paid.

HOW TO BUY SHARES

Except under certain circumstances described in the Trust's or an
individual Portfolio's prospectus, Class A shares of the Portfolios are sold at
their net asset value plus an applicable sales charge on days the New York
Stock Exchange is open for business. Class B shares of the Portfolios and
Institutional Shares of the Portfolios are sold at their net asset value with
no sales charge on days the New York Stock Exchange is open for business. The
procedure for purchasing Class A, Class B, and Institutional Shares of the
Portfolios is explained in the relevant Prospectus under the section entitled
"How to Buy Shares."

DISTRIBUTION

Each of the Portfolios makes payments to Mentor Distributors, LLC in
accordance with its respective Distribution Plan adopted in respect of Class B
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.

DETERMINING NET ASSET VALUE

The Portfolio determines the net asset value per share of each class once
each day the New York Exchange (the "Exchange") is open as of the close of
regular trading on the Exchange. Currently, the Exchange is closed Saturdays,
Sundays and the following holidays: New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas.

<PAGE>

Securities for which market quotations are readily available are valued at
prices which, in the opinion of the Portfolio's investment adviser, most nearly
represent the market values of such securities. Currently, such prices are
determined using the last reported sale price or, if no sales are reported (as
in the case of some securities traded over-the-counter), the last reported bid
price, except that certain U.S. Government securities are stated at the mean
between the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value following procedures approved by the Trustees. Liabilities are
deducted from the total, and the resulting amount is divided by the number of
shares of the class outstanding.

Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional- size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.

If any securities held by the Portfolio are restricted as to resale, the
Portfolio's investment adviser determines their fair values. The fair value of
such securities is generally determined as the amount which a Portfolio could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Portfolio in connection with such disposition). In addition,
specific factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the same class
(both at the time of purchase and at the time of valuation), the size of the
holding, the prices of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the issuer.

In the case of certain fixed-income securities, including certain less
common mortgage-backed securities, market quotations are not readily available
to the Portfolios on a daily basis, and pricing services may not provide price
quotations. In such cases, the Portfolio's investment adviser is typically able
to obtain dealer quotations for each of the securities on at least a weekly
basis. On any day when it is not practicable for the investment adviser to
obtain an actual dealer quotation for a security, the investment adviser or
sub-adviser may reprice the securities based on changes in the value of a U.S.
Treasury security of comparable duration. When the next dealer quotation is
obtained, the investment adviser compares the dealer quote against the price
obtained by it using its U.S. Treasury-spread calculation, and makes any
necessary adjustments to its calculation methodology. The investment adviser
attempts to obtain dealer quotes for each security at least weekly, and on any
day when there has been an unusual occurrence affecting the securities which,
in the investment adviser's view, makes pricing the securities on the basis of
U.S. Treasuries unlikely to provide a fair value of the securities.

Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset
value of a class of shares are computed as of such times. Also, because of the
amount of time required to collect and process trading information as to large
numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market

<PAGE>

quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value following procedures
approved by the Trustees.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the Exchange is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which net asset value is not calculated. The Portfolio calculates net
asset value per share of each class, and therefore effects sales, redemptions
and repurchases of its shares, as of the close of the Exchange once on each day
on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. If events materially affecting
the value of such securities occur between the time when their price is
determined and the time when a classes' net asset value is calculated, such
securities will be valued at fair value as determined in good faith by
procedures approved as required by the Trustees.

REDEMPTIONS IN KIND

Although the Portfolio intends to redeem Class A, Class B and Class Y
Shares in cash, it reserves the right under certain circumstances to pay the
redemption price in whole or in part by a distribution of securities from its
investment portfolio. Redemptions in kind will be made in conformity with
applicable SEC rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner that the
Trustees determine to be fair and equitable. The Trust has elected to be
governed by Rule 18f-1 of the 1940 Act, under which the Portfolio is obligated
to redeem shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of the respective classes' net asset value during any 90-day
period.

TAXES

The Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").

As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to shareholders. The Portfolio will not under present law
be subject to any excise or income taxes in Massachusetts.

In order to qualify as a "regulated investment company," the Portfolio
must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other dispositions of stock, securities, or foreign currencies, and
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such
stock, securities, or currencies; and (b) diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the market value
of its total assets consists of cash and cash items, U.S. Government

<PAGE>

Securities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to not more than 5%
of the value of its total assets and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its total assets is invested in the securities (other than those of the U.S.
Government or other regulated investment companies) of any issuer or of two or
more issuers which the Portfolio controls and which are engaged in the same,
similar, or related trades or businesses. In order to receive the favorable tax
treatment accorded regulated investment companies and their shareholders,
moreover, the Portfolio must in general distribute at least 90% of the sum of
its taxable net investment income, its net tax-exempt income, and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year.

If the Portfolio failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Portfolio would be
subject to tax on its taxable income at corporate rates, and all distributions
from earnings and profits, including any distributions of net tax-exempt income
and net long-term capital gains, would be taxable to shareholders as ordinary
income. In addition, the Portfolio could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions
before requalifying as a regulated investment company that is accorded special
tax treatment.

If the Portfolio fails to distribute in a calendar year substantially all
of its taxable ordinary income for such year and substantially all of its
capital gain net income for the one-year period ending October 31, plus any
retained amount from the prior year, the Portfolio will be subject to a 4%
excise tax on the undistributed amounts. A dividend paid to shareholders by the
Portfolio in January of a year generally is deemed to have been paid by the
Portfolio on December 31 of the preceding year, if the dividend was declared and
payable to shareholders of record on a date in October, November or December of
that preceding year. The Portfolio intends generally to make distributions
sufficient to avoid imposition of the 4% excise tax.

Distributions from the Portfolio (other than exempt-interest dividends, as
discussed below) will be taxable to shareholders as ordinary income to the
extent derived from the Portfolio's investment income and net short-term gains.
Distributions of net capital gain (that is, the excess of net gains from
capital assets held by the Portfolio for more than one year over net losses
from capital assets held for not more than one year) that are designed as
capital gain dividends will be taxable to shareholders as long-term capital
gain, which is generally taxable to individuals at a 20% rate.

Dividends and distributions on the Portfolio's shares are generally subject
to federal income tax as described herein to the extent they do not exceed the
Portfolio's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the Portfolio's net asset value reflects gains that are
either unrealized, or realized but not distributed. Such realized gains may be
required to be distributed even when the Portfolio's net asset value also
reflects unrealized losses.

EXEMPT-INTEREST DIVIDENDS. The Portfolio will be qualified to pay
exempt-interest dividends to its shareholders only if, at the close of each
quarter of the Portfolio's taxable year, at least 50% of the total value of the
Portfolio's assets consists of obligations the interest on which is exempt from
federal income tax. Distributions that the Portfolio properly designates as
exempt-interest dividends are treated by shareholders as interest excludable
from their gross income for federal income tax purposes but may be taxable for
federal alternative minimum tax purposes and for state and local purposes. If a
Portfolio intends to be qualified to pay exempt-interest dividends,

<PAGE>

the Portfolio may be limited in its ability to enter into taxable transactions
involving forward commitments, or repurchase agreements, financial futures, and
options contracts on financial futures, tax-exempt bond indices, and other
assets.

Part or all of the interest on indebtedness, if any, incurred or continued
by a shareholder to purchase or carry shares of the Portfolio paying
exempt-interest dividends is not deductible. The portion of interest that is not
deductible is equal to the total interest paid or accrued on the indebtedness,
multiplied by the percentage of the Portfolio's total distributions (not
including distributions from net capital gain) paid to the shareholder that are
exempt-interest dividends. Under rules used by the Internal Revenue Service for
determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.

In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or bonds or
who are "related persons" of such substantial users.

The Portfolio which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Portfolio's fiscal year-end of the
percentage of its income distributions designated as tax-exempt. The percentage
is applied uniformly to all distributions made during the year. The percentage
of income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Portfolio's income that was
tax-exempt during the period covered by the distribution.

HEDGING TRANSACTIONS. If the Portfolio engages in hedging transactions,
including hedging transactions in options, futures contracts, and straddles, or
other similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the Portfolio, defer losses
to the Portfolio, cause adjustments in the holding periods of the Portfolio's
securities, or convert short-term capital losses into long-term capital losses.
These rules could therefore affect the amount, timing and character of
distributions to shareholders. The Portfolio will endeavor to make any available
elections pertaining to such transactions in a manner believed to be in the best
interests of the Portfolio.

RETURN OF CAPITAL DISTRIBUTIONS. If the Portfolio makes a distribution to
you in excess of its current and accumulated "earnings and profits" allocable
to such distribution, the excess distribution will be treated as a return of
capital to the extent of your tax basis in your shares, and thereafter as
capital gain. A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on a subsequent
taxable disposition by you or your shares.

SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Portfolio's investment in
securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the Portfolio to
accrue and distribute income not yet received. In order to generate sufficient
cash to make the requisite distributions, the Portfolio may be required to sell
securities in its portfolio that it otherwise would have continued to hold.

<PAGE>

FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS.
The Portfolio's transactions in foreign currencies, foreign currency-denominated
debt securities and certain foreign currency options, futures contracts, and
forward contacts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value
of the foreign currency concerned.

Certain of the Portfolio's transactions, if any, in foreign currencies or
foreign currency-denominated instruments are likely to produce a difference
between its book income and its taxable income. If the Portfolio's book income
exceeds its taxable income, the distribution (if any) of such excess will be
treated as a dividend to the extent of the Portfolio's remaining earnings and
profits (including earnings and profits arising from tax-exempt income), and
thereafter as a return of capital or as gain from the sale or exchange of a
capital asset, as the case may be. If the Portfolio's book income is less than
its taxable income, the Portfolio could be required to make distributions
exceeding book income to qualify as a regulated investment company that is
accorded special tax treatment.

FOREIGN TAX CREDIT. If more than 50% of the Portfolio's assets at year end
consists of the stock or securities of foreign corporations, the Portfolio may
elect to permit shareholders to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Portfolio to
foreign countries in respect of foreign securities the Portfolio has held for
at least the minimum period, if any, specified in the Code. In such a case,
shareholders will include in gross income from foreign sources their pro rata
shares of such taxes. A shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by the Portfolio may be subject to
certain limitations imposed by the Code, as a result of which a shareholder may
not get a full credit or deduction for the amount of such taxes. Shareholders
who do not itemize on their federal income tax returns may claim a credit (but
no deduction) for such foreign taxes.

PASSIVE FOREIGN INVESTMENT COMPANIES. Investment by the Portfolio in
certain "passive foreign investment companies" ("PFICs") could subject the
Portfolio to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Portfolio shareholders. However, the Portfolio in certain
circumstances, may elect to treat a passive foreign investment company as a
"qualified electing fund," in which case the Portfolio will be required to
include its share of the company's income and net capital gain in income
annually, regardless of whether it receives any distribution from the company.
The Portfolio also may make an election to mark the gains (and to a limited
extent losses) in such holdings "to the market" as though it had sold and
repurchased its holdings in those PFICs on the last day of the Portfolio's
taxable year. Such gains and losses are treated as ordinary income and loss, as
are gains on disposition of the stock and losses on disposition of the stock is
to the extent of previous inclusions in income. The qualified electing fund and
mark-to-market elections may have the effect of accelerating the recognition of
income (without the receipt of cash) and increasing the amount required to be
distributed for the Portfolio to avoid taxation. Making either of these
elections therefore may require th Portfolio to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect a
Portfolio's total return.

SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption of
Portfolio shares may give rise to a gain or loss. In general, any gain realized
upon a taxable disposition of shares held for more than one year will be

<PAGE>

taxed as long-term capital gain. Such gain is, in the case of an individual,
generally taxed at a 20% rate. However, if a shareholder sells shares at a loss
within six months of purchase, any loss will be disallowed for federal income
tax purposes to the extent of any exempt-interest dividends received on such
shares. In addition, any loss (not already disallowed as provided in the
preceding sentence) realized upon a taxable disposition of shares held for six
months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to the shares. All or a portion of any loss realized
upon a taxable disposition of Portfolio shares will be disallowed if other
Portfolio shares are purchased within 30 days before or after the disposition.
In such a case, the basis of the newly purchased shares will be adjusted to
reflect the disallowed loss.

SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules apply to
investments through defined contribution plans and other tax-qualified plans.
Shareholders should consult their tax adviser to determine the suitability of
shares of the Portfolio as an investment through such plans and the precise
effect of an investment on their particular tax situation.

BACKUP WITHHOLDING. The Portfolio generally is required to withhold and
remit to the U.S. Treasury 31% of the taxable dividends and other distributions
(including in redemption of Portfolio shares) paid to any individual
shareholder who fails to furnish the Portfolio with a correct taxpayer
identification number (TIN), who has under- reported dividend or interest
income, or who fails to certify to the Portfolio that he or she is not subject
to such withholding. Shareholders who fail to furnish their current TIN are
subject to a penalty of $50 for each such failure unless the failure is due to
reasonable cause and not wilful neglect. An individual's taxpayer
identification number is his or her social security number.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and regulations. The Code and regulations are subject to change by legislative
or administrative actions. Dividends, distributions, and redemption proceeds
also may be subject to state, local, foreign and other taxes. Shareholders are
urged to consult their tax advisers regarding specific questions as to federal,
state, local or foreign taxes. The foregoing discussion relates solely to U.S.
federal income tax law. Non-U.S. investors should consult their tax advisers
concerning the tax consequences of ownership of shares of the Portfolio,
including the possibility that distributions may be subject to a 30% United
States withholding tax (or a reduced rate of withholding provided by treaty).

INDEPENDENT ACCOUNTANTS

[ ] are the Trust's independent accountants, providing audit services,
tax return review and other tax consulting services.

CUSTODIAN

Investors Fiduciary Trust Company, located at 127 West 10th Street, Kansas
City, Missouri, is the custodian of the Portfolio, except that State Street Bank
& Trust Company, P.O. Box 8602, Boston, Massachusetts serves as custodian to the
Perpetual Global Emerging Companies Portfolio and as the foreign custodian to
each of the other Portfolios in respect of foreign assets. A custodian's
responsibilities include generally safeguarding and controlling the Portfolio's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on the Portfolio's investments.

<PAGE>

MEMBERS OF INVESTMENT MANAGEMENT TEAMS

The following persons are investment personnel of the Portfolio's
investment advisers, as indicated.

MENTOR INVESTMENT ADVISORS, LLC
LARGE CAPITALIZATION QUALITY EQUITY GROWTH

JOHN G. DAVENPORT, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Davenport has 12 years of investment management experience. He joined the
firm after leading equity research at the investment management firm of Lowe,
Brockenbrough, & Tattersall, Inc. Mr. Davenport graduated from the University
of Richmond and has an MBA from the University of Virginia.

RICHARD H. SKEPPSTROM II -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Skeppstrom has 7 years of investment management experience. Before joining
the firm he was a global portfolio analyst for Saudi International Bank
Portfolio Advisors. Mr. Skeppstrom began his career as a pension and benefit
analyst at Johnson & Higgins of Virginia. He has earned both an undergraduate
degree and an MBA from the University of Virginia.

CHRISTOPHER W. RUSBULDT, CFA -- VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Rusbuldt joined the firm in 1995 and has 7 years' investment experience.
Previously, he was an equity research analyst for Wheat First Butcher Singer.
He began his career as a banker in the corporate group at NationsBank. Mr.
Rusbuldt is a graduate of the University of Virginia.

RICHARD L. RICE -- VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Rice has 22 years' experience in the securities industry. Before joining
Mentor, he was a partner in Parata Analytics Research. Prior responsibilities
include research for Signet Asset Management, senior research analyst for
Capitoline Investment Services, and positions in research at Atlanta
Corporation and Southwest Banking, Inc. Mr. Rice is a graduate of the
University of Florida and has completed graduate work at Georgia State
University.

STEVEN A. CERTO -- VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Certo joined the firm in 1997, from the equity research department of Wheat
First Butcher Singer where he was a research analyst following the software
industry. Mr. Certo served five years as an intelligence officer in the US
Navy. His professional background also includes a year as an investment
representative for Edward Jones and Co. He is a graduate of Iona College and is
a level III candidate in the CFA program.

ACTIVE FIXED-INCOME

P. MICHAEL JONES, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Jones has 12 years of investment management experience. He is the manager
of Mentor Short-Duration Income Portfolio and Mentor Quality Income Portfolio,
as well as Mentor Income Fund, a $120 million closed-end bond fund. Mr. Jones
is responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He has worked as an investment manager at Ryland
Capital Management, Alliance Capital Management, and Central Fidelity Bank. Mr.
Jones earned an undergraduate degree from the College of William and Mary, and
an MBA from the Wharton School of the University of Pennsylvania.

DENNIS F. CLARY, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Clary joined Mentor in 1998 and has over 20 years of investment management
experience. Prior to joining Mentor's Fixed Income Team, he worked for three
years as a Vice President and Senior Portfolio Manager for

<PAGE>

First America Investment Corporation. He previously was employed for four years
as a Vice President and Portfolio Manager at CSI Asset Management, Inc. and
prior to that for four years in a similar role by Investment & Capital
Management Corporation. Mr. Clary received his BA and MBA degrees from Ohio
State University.

TIMOTHY ANDERSON, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Anderson has 8 years of investment management experience. He joined Mentor
in June, 1998. Prior to joining Mentor's Fixed-Income Team, he worked for two
years as a Senior Fixed Income Analyst at Investment Advisors, Inc. Previous to
that he was employed for five years as a Senior Investment Analyst at St. Paul
Fire & Marine Insurance Company and for two years as an Analyst for Duff &
Phelps Credit Rating Company. He received a BS degree from DePaul University
and an MBA degree from the University of Chicago.

TODD C. KUIMJIAN -- PORTFOLIO MANAGER
Mr. Kuimjian has 4 years of investment management experience. He joined the
Fixed-Income Team in January, 1997, initially as a Research Analyst and later
as the Portfolio Manager. Prior to joining the Fixed-Income Team, Mr. Kuimjian
served Mentor as an investment accountant/systems analyst and later as a senior
investment administrator within Mentor's investment services group. Mr.
Kuimjian is a Certified Public Accountant and received his BS degree from
Virginia Polytechnic Institute.

SMALL CAPITALIZATION EQUITY GROWTH

THEODORE W. PRICE, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Price has 30 years of investment management experience. Prior to
establishing the small/mid cap. management style, Mr. Price served for 10 years
as vice chairman and portfolio manager of the investment management subsidiary
of Wheat First Butcher Singer. In 1985, he established the equity retail mutual
fund, Mentor Growth Portfolio, which today represents nearly $600 million in
assets. He is a member of the Richmond Society of Financial Analysts. Mr. Price
earned both BA and MBA degrees from the University of Virginia.

LINDA A. ZIGLAR, CFA -- MANAGING DIRECTOR, PORTFOLIO MANAGER
Ms. Ziglar has 19 years investment management experience. Ms. Ziglar joined the
firm in 1991 after serving seven years as vice president of Federal Investment
Counseling and Federated Research Corporation in Pittsburgh. While at
Federated, Ms. Ziglar shared responsibility for the management of more than
$300 million in mutual fund and separate account assets. She is a member of the
Richmond Society of Financial Analysts, the Financial Analysts Federation, and
a former officer of the Pittsburgh Society of Financial Analysts. Ms. Ziglar is
a summa cum laude, Phi Beta Kappa graduate of Randolph-Macon Woman's College.
She earned an MBA from the University of Pittsburgh.

JEFFREY S. DRUMMOND, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Drummond joined the firm in 1993 after five years in investment strategy at
Wheat First Butcher Singer. While working with Wheat's chief investment
strategist, he shared responsibility for the management of the Strategic
Sectors Portfolio. He is a member of the Richmond Society of Financial
Analysts. Mr. Drummond graduated cum laude from the University of Richmond.

CASH MANAGEMENT

R. PRESTON NUTTALL, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Nuttall has more than 30 years of investment management experience. Prior
to Mentor Advisors, he led

<PAGE>

short-term fixed-income management for fifteen years at Capitoline Investment
Services, Inc. He has his undergraduate degree in economics from the University
of Richmond and his graduate degree in finance from the Wharton School at the
University of Pennsylvania.

HUBERT R. WHITE III -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. White has 12 years of investment management experience. Prior to joining
Mentor Advisors, he served for five years as portfolio manager with Capitoline
Investment Services. He has his undergraduate degree in business from the
University of Richmond.

GREGORY S. KAPLAN -- ASSOCIATE VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Kaplan brings over 6 years of analytical and investment experience to
Mentor. Prior to joining the firm, Mr. Kaplan served for four years as a credit
specialist analyzing commercial credit for NationsBank. He began his career in
the Investment Services division of Prudential Insurance. Mr. Kaplan is a
graduate of Rutgers University and earned his MBS from the Pamplin College of
Business at Virginia Polytechnic Institute and State University.

MENTOR PERPETUAL ADVISORS, LLC

MARTIN ARBIB -- CHAIRMAN, PERPETUAL PORTFOLIO MANAGEMENT
Mr. Arbib is chairman and founder of Perpetual, a partner in the Mentor
Perpetual Advisors joint venture, where he currently leads investment
management. A chartered Accountant, he has 22 years' investment management
experience.

BOB YERBURY -- CHIEF INVESTMENT OFFICER
Mr. Yerbury has 24 years' investment management experience, with over 21 years'
experience in North American stock markets, and has been part of the Perpetual
team for 13 years. Before joining Perpetual, he was the portfolio manager with
Equity & Law Assurance Company. Mr. Yerbury is a graduate of Cambridge
University.

STEPHEN WHITTAKER -- UK TEAM LEADER
Mr. Whittaker joined Perpetual eight years ago and has 16 years' investment
management experience. Prior to joining Perpetual, he was responsible for UK
equity funds for the Save & Prosper Group. He began his fund management career
with Rowe & Pitman after graduation from Manchester University.

MARGARET RODDAN -- EUROPE TEAM LEADER
Ms. Roddan has 11 years of investment management experience, three years with
Perpetual. She joined Perpetual from Mercury Asset Management, where she shared
responsibility for management of continental European equity holdings. She
began her career with the National Provident Institution. Ms. Roddan is a
graduate of the Investment Management Program at the London Business School.
She studied finance at City University and is a graduate of Bristol University.

SCOTT MCGLASHAN -- FAR EAST TEAM LEADER
Mr. McGlashan has 19 years' management experience, 13 years specializing in the
Far East, and 11 years' tenure at Perpetual. He is a graduate of Yale and
Cambridge University.

<PAGE>

KATHRYN LANGRIDGE -- SOUTHEAST ASIA TEAM LEADER
Ms. Langridge shares responsibility with Mr. McGlashan for Far East equity
investments. Before joining Perpetual in 1990, she spent eight years in Hong
Kong with the investment firm of Jardine Fleming. She specializes in equity
investments in the non-Japanese stock markets of the Far East. Ms. Langridge is
a graduate of Cambridge University.

IAN BRADY -- AMERICAN TEAM LEADER
Mr. Brady is head of the North American team at Perpetual. He has 12 years'
investment management experience. Before joining Perpetual in 1997, he worked
for Britannia Investment Management, Legal & General and Standard Life. He is a
graduate of Aberdeen and Strathclyde Universities.

PERFORMANCE COMPARISONS

The performance of the Portfolio depends upon such variables as: portfolio
quality; average portfolio maturity; type of instruments in which the
particular Portfolio is invested; changes in the expenses of a particular
Portfolio and class of shares; and various other factors.

The performance of the Portfolio fluctuates on a daily basis largely
because net earnings and net asset value per share of each class fluctuate
daily. Both net earnings and net asset value per share are factors in the
computation of yield and total return for each class of the Portfolios.

Independent statistical agencies measure the Portfolio's investment
performance and publish comparative information showing how the Portfolio, and
other investment companies, performed in specified time periods. Agencies whose
reports are commonly used for such comparisons are set forth below. From time to
time, the Portfolio may distribute these comparisons to its shareholders or to
potential investors. The agencies listed below measure performance based on
their own criteria rather than on the standardized performance measures
described in the preceding section.

Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time. From
time to time, the Portfolio will quote its Lipper ranking in advertising and
sales literature.

Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral, below
average, and lowest. They represent the Portfolio's historical risk/reward ratio
relative to other funds with similar objectives. The performance factor is a
weighted-average assessment of the Portfolio's 3-year, 5-year, and 10-year
total return performance (if available) reflecting deduction of expenses and
sales charges. Performance is adjusted using quantitative techniques to reflect
the risk profile of the Portfolio. The ratings are derived from a purely
quantitative system that does not utilize the subjective criteria customarily
employed by rating agencies such as Standard & Poor's Corporation and Moody's
Investor Service, Inc.

Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return calculated
by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and
10-year performance. Mutual funds are ranked in general categories (e.g.,
international bond, international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of sales charges or fees.

<PAGE>

The Portfolio's shares also may be compared to the following indices:

Dow Jones Industrial Average ("DJIA") is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by Dow Jones & Company, it is cited as a
principal indicator of market conditions.

Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's listed on its index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated, in the Standard &
Poor's figures.

Consumer Price Index is generally considered to be a measure of inflation.

CDA Mutual Fund Growth Index is a weighted performance average of other
mutual funds with growth of capital objectives.

Lipper Growth Fund Index is an average of the net asset-valuated total
returns for the top 30 growth funds tracked by Lipper Analytical Services,
Inc., an independent mutual fund rating service.

Lehman Brothers Government/Corporate (total) Index is comprised of
approximately 5,000 issues, which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked
by Shearson Lehman Brothers Inc., the index calculates total returns for one
month, three month, twelve month and ten year periods and year-to-date.

Lehman Brothers Government Index is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.

Russell Growth 1000 (Russell 1000 Index) is a broadly diversified index
consisting of approximately 1,000 common stocks of companies with market values
between $20 million and $300 million that can be used to compare the total
returns of funds whose portfolios are invested primarily in growth common
stocks.

Lehman Brothers Aggregate Bond Index is a total return index measuring
both the capital price changes and income provided by the underlying universe
of securities, weighted by market value outstanding. The Aggregate Bond Index
is comprised of the Shearson Lehman Government Bond Index, Corporate Bond
Index, Mortgage-Backed Securities Index, and Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land
Bank, and the Bank for Cooperatives; foreign obligations; and U.S.
investment-grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum S&P rating of BBB, a
minimum Moody's rating of Baa, or a minimum Fitch rating of BBB.

Salomon Brothers Mortgage-Backed Securities Index-15 Years includes the
average of all 15-year mortgage securities, which include Federal Home Loan
Mortgage Corporation (Freddie Mac), Federal National Mortgage Association
(Fannie Mae), and Government National Mortgage Association (Ginnie Mae).

<PAGE>

Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment-grade tax-exempt bond market. Returns
and attributes for the Index are calculated semi-monthly using approximately
29,000 municipal bonds, which are priced by Muller Data Corporation.

From time to time, certain of the Portfolios that invest in foreign
securities may advertise the performance of their classes of shares compared to
similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following: Morgan Stanley Capital
International World Index, The Morgan Stanley Capital International EAFE
(Europe, Australia, Far East) index, J.P. Morgan Global Traded Bond Index,
Salomon Brothers World Government Bond Index, and the Standard & Poor's 500
Composite Stock Price Index (S&P 500). The Portfolio also may compare its
performance to the performance of unmanaged stock and bond indices, including
the total returns of foreign government bond markets in various countries. All
index returns are translated into U.S. dollars. The total return calculation
for these unmanaged indices may assume the reinvestment of dividends and any
distributions, if applicable, may include withholding taxes, and generally do
not reflect deductions for administrative and management costs.

Investors may use such indices or reporting services in addition to the
Trust or an individual Portfolio's prospectus to obtain a more complete view of
a particular Portfolio's performance before investing. Of course, when
comparing the Portfolio's performance to any index, conditions such as
composition of the index and prevailing market conditions should be considered
in assessing the significance of such comparisons. When comparing portfolios
using reporting services, or total return and yield, investors should take into
consideration any relevant differences in portfolios, such as permitted
portfolio compositions and methods used to value portfolio securities and
compute net asset value.

Advertisements and other sales literature for the Portfolio may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in a
Portfolio based on monthly reinvestment of dividends over a specified period of
time.

From time to time the Portfolios may advertise their performance, using
charts, graphs, and descriptions, compared to federally insured bank products,
including certificates of deposit and time deposits, and to monthly market
funds using the Lipper Analytical Service money market instruments average.

Advertisements may quote performance information which does not reflect
the effect of the sales load.

Independent publications may also evaluate the Portfolio's performance.
Certain of those publications are listed below, at the request of Mentor
Distributors, which bears full responsibility for their use and the
descriptions appearing below. From time to time any or all of the Portfolios
may distribute evaluations by or excerpts from these publications to its
shareholders or to potential investors. The following illustrates the types of
information provided by these publications.

Business Week publishes mutual fund rankings in its Investment Figures of
the Week column. The rankings are based on 4-week and 52-week total return
reflecting changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales charges. Funds are
not categorized; they compete in a large universe of over 2,000 funds. The
source for rankings is data generated by Morningstar, Inc.

<PAGE>

Investor's Business Daily publishes mutual fund rankings on a daily basis.
The rankings are depicted as the top 25 funds in a given category. The
categories are based loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and income funds, corporate
bond funds, etc. Performance periods for sector equity funds can vary from 4
weeks to 39 weeks; performance periods for other fund groups vary from 1 year
to 3 years. Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales charges Performance
grades are conferred from A+ to E. An A+ rating means that the fund has
performed within the top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%, etc.

Barron's periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical Services. The
Lipper total return data reflects changes in net asset value and reinvestment
of distributions, but does not reflect deduction of any sales charges. The
performance periods vary from short-term intervals (current quarter or
year-to-date, for example) to long-term periods (five-year or ten-year
performance, for example). Barron's classifies the funds using the Lipper
mutual fund categories, such as Capital Appreciation Funds, Growth Funds, U.S.
Government Funds, Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the funds in asset classes.
"Large funds" may be those with assets in excess of $25 million; "small funds"
may be those with less than $25 million in assets.

The Wall Street Journal publishes its Mutual Fund Scorecard on a daily
basis. Each Scorecard is a ranking of the top-15 funds in a given Lipper
Analytical Services category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and reinvestment of
distributions and not reflecting any sales charges. The Scorecard portrays
4-week, year-to-date, one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given category appear
approximately once per month.

Fortune magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Funds are placed in stock
or bond fund categories (for example, aggressive growth stock funds, growth
stock funds, small company stock funds, junk bond funds, Treasury bond funds
etc.), with the top-10 stock funds and the top-5 bond funds appearing in the
rankings. The rankings are based on 3-year annualized total return reflecting
changes in net asset value and reinvestment of distributions and not reflecting
sales charges. Performance is adjusted using quantitative techniques to reflect
the risk profile of the fund.

Money magazine periodically publishes mutual fund rankings on a database
of funds tracked for performance by Lipper Analytical Services. The funds are
placed in 23 stock or bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net asset value and
reinvestment of all dividends and capital gains distributions and does not
reflect deduction of any sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B, etc. To be ranked, a
fund must be at least one year old, accept a minimum investment of $25,000 or
less and have had assets of at least $25 million as of a given date.

Financial World publishes its monthly Independent Appraisals of Mutual
Funds, a survey of approximately 1000 mutual funds. Funds are categorized as to
type, e.g., balanced funds, corporate bond funds, global bond funds, growth and
income funds, U.S. government bond funds, etc. To compete, funds must be over
one year old, have over $1 million in assets, require a maximum of $10,000
initial investment, and should be available in at least 10 states in the United
States. The funds receive a composite past performance rating, which weighs

<PAGE>

the intermediate- and long-term past performance of each fund versus its
category, as well as taking into account its risk, reward to risk, and fees. An
A+ rated fund is one of the best, while a D- rated fund is one of the worst.
The source for Financial World rating is Schabacker investment management in
Rockville, Maryland.

Forbes magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds are
categorized by type, including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper Analytical Services and
CDA Investment Technologies. The ratings are based strictly on performance at
net asset value over the given cycles. Funds performing in the top 5% receive
an A+ rating; the top 15% receive an A rating; and so on until the bottom 5%
receive an F rating. Each fund exhibits two ratings, one for performance in
"up" markets and another for performance in "down" markets.

Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three- and
five-year total return performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not reflecting deduction of any
sales charges. Funds are ranked by tenths: a rank of 1 means that a fund was
among the highest 10% in total return for the period; a rank of 10 denotes the
bottom 10%. Funds compete in categories of similar funds -- aggressive growth
funds, growth and income funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds, etc. Kiplinger's
also provides a risk-adjusted grade in both rising and falling markets. Funds
are graded against others with the same objective. The average weekly total
return over two years is calculated. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund.

U.S. News and World Report periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch Carre & Co.,
a Boston research firm. Over 2000 funds are tracked and divided into 10 equity,
taxable bond and tax-free bond categories. Funds compete within the 10 groups
and three broad categories. The OPI is a number from 0-100 that measures the
relative performance of funds at least three years old over the last 1, 3, 5
and 10 years and the last six bear markets. Total return reflects changes in
net asset value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges. Results for
the longer periods receive the most weight.

The 100 Best Mutual Funds You Can Buy authored by Gordon K. Williamson.
The author's list of funds is divided into 12 equity and bond fund categories,
and the 100 funds are determined by applying four criteria. First, equity funds
whose current management teams have been in place for less than five years are
eliminated. (The standard for bond funds is three years.) Second, the author
excludes any fund that ranks in the bottom 20 percent of its category's risk
level. Risk is determined by analyzing how many months over the past three
years the fund has underperformed a bank CD or a U.S. Treasury bill. Third, a
fund must have demonstrated strong results for current three-year and five-year
performance. Fourth, the fund must either possess, in Mr. Williamson's
judgment, "excellent" risk-adjusted return or "superior" return with low levels
of risk. Each of the 100 funds is ranked in five categories: total return,
risk/volatility, management, current income and expenses. The rankings follow a
five-point system: zero designates "poor"; one point means "fair"; two points
denote "good"; three points qualify as a "very good"; four points rank as
"superior"; and five points mean "excellent."

<PAGE>

SHAREHOLDER LIABILITY

Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of the Portfolio's property for all loss and expense of any
shareholder held personally liable for the obligations of the Portfolio. Thus
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations.

[end here]

<PAGE>

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits:

(a) Financial Statements

(1) Audited Financial Statements and Financial Highlights (For all
Portfolios other than Mentor Asset Allocation Portfolio, Mentor Growth
Opportunities Portfolio, and Mentor Tax-Exempt Money Market Portfolio)

Financial Statements:
Portfolios of Investments -- September 30, 1998*
Statements of Assets and Liabilities -- September 30, 1998*
Statements of Operations -- year ended September 30, 1998*
Statements of Changes in Net Assets -- years/periods ended
September 30, 1998 and September 30, 1997*
Financial Highlights (+)*
Notes to Financial Statements*
Independent Auditors' Report*

_____________

* Included in Part B to this Registration Statement.

(+) Included in Part A to this Registration Statement.

(b) Exhibits:

(1)(i) Conformed copy of Declaration of Trust of the
Registrant, with Amendments No. 1 and 2 (2);

(ii) Amendment No. 5 to the Declaration of Trust of the
Registrant (12);

(iii) Form of Amendment to the Declaration of Trust of the
Registrant (13)

(iv) Form of Proposed Amendment to the Declaration of Trust
of the Registrant to be dated as of May 12, 1998 (14)

(v) Amendment No. 6 to the Declaration of Trust of the
Registrant (18)

(vi) Amendment No. 7 to the Declaration of Trust of the
Registrant (18)

(vii) Amendment No. 8 to the Declaration of Trust of the
Registrant (18)

(viii) Amendment No. 9 to the Declaration of Trust of the
Registrant (20)

(2) (i) Copy of By-Laws of the Registrant (1);

(ii) Amendment to By-Laws (18)

(3) Not applicable;

(4) Portions of Registrant's Declaration of Trust and By-Laws
relating to shareholder rights (1)(2)(12)(13);

(5)(i) Form Management Agreement of the Registrant
(Capital Growth, Income and Growth, Quality Income, and
Municipal Income Portfolios) (14);

(ii) Form of Investment Advisory Agreement
(Municipal Income Portfolio) (14);

(iii) Form of Investment Advisory Agreement
(Income and Growth Portfolio) (14);

(iv) Form of Investment Advisory and Management Agreement
(Perpetual Global Portfolio) (19);

(v) Form of Investment Advisory and Management
Agreement (Growth Portfolio) (19);

(vi) Form of Investment Advisory and Management Agreement (New
Opportunities Portfolio) (19);

(vii) Form of Investment Advisory and Management Agreement
(Short-Duration Income Portfolio) (19);

(viii) Form of Investment Advisory and Management
Agreement (Balanced Portfolio) (19);

(ix) Form of Investment Advisory and Management Agreement
(Institutional Money Market Portfolio) (19);

(x) Form of Investment Advisory and Management Agreement
(Institutional U.S. Government Money Market Portfolio)
(19);

(xi) Form of Investment Advisory and Management Agreement
(Growth Opportunities Portfolio) (19);

(xii) Form of Investment Advisory and Management Agreement
(Mentor High Income Portfolio) (19);

(xiii) Sub-Advisory Agreement (Mentor High Income Portfolio)(14);

(xiv) Form of Investment Advisory and Management Agreement
(Mentor Asset Allocation Portfolio) (19);

(xv) Form of Investment Advisory and Management Agreement
(Mentor Institutional Tax-Exempt Money Market Portfolio)
(19);

(xvi) Form of Investment Advisory and Management Agreement Mentor
Perpetual Global Emerging Companies Portfolio); (19)

(xvii) Form of Investment Advisory and Management Agreement
(Mentor High Yield Portfolio). (19)

(xviii) Form of Investment Advisory Agreement (Mentor Value
Portfolio) (20)

(6) Form of Distribution Agreement of the Registrant (14)

(7) Not applicable;

(8)(i) Conformed copy of Custodian Contract of the Registrant
with Investors Fiduciary Trust Company (2);

(ii) Conformed copy of Custodian Contract of the Registrant
with State Street Bank and Trust Company (2);

(iii) Form of Administration Agreement of the
Registrant in respect of certain Portfolios (20);

(iv) Form of Custodian Contract with State Street Bank
and Trust Company in respect of foreign securities(7);

(v) Form of Administration Agreement of the Registrant in
respect of the Money Market Portfolios (17)

(9)(i) Conformed copy of Transfer Agency and Registrar
Agreement of the Registrant (2);

(ii) (a) Conformed copy of the Shareholder Services Plan in
respect of certain Portfolios (3)

(b) Form of Instrument of Transfer of Shareholder Services
Plan (8);

(iii) Form of New Amended and Restated Exhibit to Shareholder
Service Plan in respect of certain Portfolios (20)

(9)(iii) Form of Agency Agreement with Investors Fiduciary Trust
Company (Money Market Portfolios) (17);

(9)(iv) Form of Draft Processing Agreement with Investors Fiduciary
Trust Company (Money Market Portfolios) (17)

(10) Not applicable;

(11)(i) Conformed copy of Consent of Independent Auditors (18);

(ii) Conformed copy of KPMG Peat Marwick LLP opinion on
Methodology and Procedures for Accounting for Multiple
Classes of Shares (5);

(12) Not applicable;

(13) Conformed copy of Initial Capital Understanding (1);

(14) Not applicable;

(15) Plan of Distribution (20)

(16)(i) Schedules for Computation of Performance
(all Portfolios)(8)

(18) Amended and Restated Rule 18f-3(d) Plan (18)

(24) Powers of Attorney (18)

(27)(i) Financial Data Schedules (18)

1. Incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed April 14, 1992.
2. Incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed May 14, 1993.
3. Incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed November 26, 1993.
4. Incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed August 3, 1994.
5. Incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed January 27, 1995.
6. Incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 15, 1995.
7. Incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed January 15, 1996.
8. Incorporated by reference to Registrant's Post-Effective Amendment No. 11
on Form N-1A filed November 29, 1996.
9. Incorporated by reference to Registrant's Post-Effective Amendment No. 12
on Form N-1A filed January 22, 1997.
10. Incorporated by reference to Registrant's Post-Effective Amendment No. 13
on Form N-1A filed March 4, 1997.

11. Incorporated by reference to Registrant's Post-Effective Amendment
No. 14 on Form N-1A filed November 7, 1997.

12. Incorporated by reference to Registrant's Post-Effective Amendment No. 15
on Form N-1A filed December 22, 1997.
13. Incorporated by reference to Registrant's Post-Effective Amendment No. 16
on Form N-1A filed on January 30, 1998.

14. Incorporated by reference to Registrant's Post-Effective Amendment No. 17
on Form N-1A filed on May 7, 1998.
15. Incorporated by reference to Registrant's Post-Effective Amendment No. 18
on Form N-1A filed on May 12, 1998.
16. Incorporated by reference to Registrant's Post-Effective Amendment No. 19
on form N-1A filed on July 10, 1998.
17. Incorporated by reference to Registrant's Post-Effective Amendment No. 20
on form N-1A filed on July 31, 1998.
18. Incorporated by reference to Registrant's Post-Effective Amendment No. 21
on form N-1A filed on November 30, 1998.
19. Incorporated by reference to Registrant's Post-Effective Amendement No. 22
on form N-1A filed on January 29, 1999.
20. Filed herewith

Item 25. Persons Controlled by or Under Common Control with Registrant:

Reference is made to "Principal Holders of Securities" in Part
B of this Registration Statement

Item 26. Number of Holders of Securities as of December 31, 1998

Class A Class B Class Y

Non-Money Market Portfolios

Capital Growth Portfolio 10,969 15,618 --
Global Portfolio 3,873 8,824 --
Growth Portfolio 7,008 30,253 9
Income and Growth Portfolio 4,547 8,908 --
Municipal Income Portfolio 914 1,367 --
Quality Income Portfolio 2,891 4,890 --
Short-Duration Income Portfolio 1,366 2,140 --
Balanced Portfolio 3,117 13,296 6
High Income Portfolio 3,621 3,713 --
Perpetual Global Emerging Companies
Portfolio -- -- --
High Yield Portfolio -- -- --

Retail Institutional
Money Market Portfolios
Money Market Portfolio 4 4
U.S. Government Money Market Portfolio 4 74
Tax Exempt Money Market Portfolio 4 3

Item 27. Indemnification:

1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed January 31, 1992 (File Nos.
33-45315 and 811-6550).

Item 28. Business and Other Connections of Investment Advisers

The business and other connections of each director, officer, or partner
of the entities below in which such director, officer, or partner is or has
been, at any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner, or trustee are set
forth in the following tables.

(a) The following is additional information with respect to the
directors and officers of Mentor Investment Advisors, LLC:

Business, Profession,
Vocation or Employment
Position with during the past
Name Investment Adviser two fiscal years

John G. Davenport Managing Director Managing Director,
Mentor Investment
Group, LLC.

R. Preston Nuttall Managing Director Managing Director,
Mentor Investment
Group, LLC.

Paul F. Costello Managing Director Managing Director,
Mentor Investment Group,
LLC; President, Mentor
Funds, Mentor
Institutional Trust, Cash
Resource Trust, Mentor
Income Fund, Inc.; and
America's Utility Fund,
Inc.; Senior Vice
President, Mentor
Distributors, LLC;
Managing Director, Mentor
Perpetual Advisors, LLC.

P. Michael Jones Managing Director Managing Director,
Mentor Investment
Group, LLC.

Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.

-3-
<PAGE>

Daniel J. Ludeman Chairman Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC.

Karen H. Wimbish Managing Director Managing Director,
Mentor Investment
Group, LLC.

Terry L. Perkins Treasurer Senior Vice President,
Secretary Mentor Investment Group,
L.L.C.

Michael A. Wade Controller Vice President, Mentor
Investment Group, L.L.C.

(b) The following is additional information with respect to the directors and
officers of Mentor Perpetual Advisors, LLC ("Mentor Perpetual"):

<TABLE>
Other Substantial
Position with the Business, Profession,
Name Investment Advisor Vocation or Employment
<S> <C> <C>
Scott A. McGlashan President Director, Perpetual
Portfolio Management
Limited.

Martyn Arbib Managing Director Chairman, Perpetual
Portfolio Management
Limited.

Roger C. Cormick Managing Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited.

Paul F. Costello Managing Director Managing Director, Mentor
Investment Group, LLC
and Mentor Investment
Advisors, LLC; President,
Mentor Funds, Mentor
Institutional
Trust, Cash Resource
Trust, Mentor Income
Fund, Inc., and America's
Utility Fund, Inc.;
Senior Vice President,
Mentor Distributors, LLC.

Daniel J. Ludeman Managing Director Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC; Director,
Wheat First Securities,
Inc.; Managing Director,
Wheat First Butcher
Singer, Inc.

David S. Mossop Managing Director Director, Perpetual
Portfolio Management
Limited

Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.

Roderick A. Smyth Managing Director Managing Director,
Mentor Investment
Group, LLC.

* The address of Mentor Investment Group, LLC, Wheat, First Securities,
Inc., Wheat First Butcher Singer, Inc., Mentor Funds, Mentor Income
Fund, Inc., Mentor Investment Advisors, LLC, and Mentor Perpetual
Advisors, LLC is 901 East Byrd Street, Richmond, VA 23219. The address
of Ryland Capital Management, Inc. and RAC Income Fund, Inc. is 11000
Broken Land Parkway, Columbia, MD 21044. The address of Perpetual
Portfolio Management Limited is 48 Hart Street, Henley-on-Thames, Oxon,
England, RG92AZ.

</TABLE>

(c) Wellington Management Company, LLP ("Wellington Management") is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 28 of officers
and partners of Wellington Management, together with any information as to
any business profession, vocation or employment of a substantial nature
engaged in by such officers and partners during the past two years, is
incorporated herein by reference from Schedules B and D of Form ADV filed
by Wellington Management pursuant to the Advisers Act (SEC File No.
801-15908).

(d) The following is additional information with respect to the directors
and officers of Van Kampen American Capital Management Inc., located
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181-4486:

Other Substantial
Position with Business, Profession,
Name Investment Advisor Vocation or Employment
---- ------------------ ----------------------
Don G. Powell Chairman and Director Chairman and Director,
VK/AC Holding, Inc.,
Van Kampen American
Capital, Inc., Van
Kampen American Capital
Distributors, Inc.,
Van Kampen American
Capital Asset
Management, Inc., Van
Kampen American Capital
Investment Advisory
Corp., and Van
Kampen American Capital
Advisors, Inc.

Philip N. Duff Chief Executive Officer President and Chief
Executive Officer,
VK/AC Holding, Inc.
and Van Kampen American
Capital, Inc.

Dennis J. McDonnell President and Chief Executive Vice
Operating Officer President, VK/AC
Holding, Inc. and Van
Kampen American
Capital, Inc.;
President and Chief
Operating Officer, Van
Kampen American
Capital Advisors, Inc.,
Van Kampen American
Capital Asset
Management, Inc.,
and Van Kampen
American Capital
Investment Advisory
Corp.

Ronald A. Nyberg Executive Vice President Executive Vice
and General Counsel President and General
Counsel, VK/AC Holding,
Inc., Van Kampen
American Capital, Inc.,
Van Kampen American
Capital Distributors,
Inc., Van Kampen
American Asset
Management, Inc., Van
Kampen American
Investment Advisory
Corp., and Van Kampen
American Capital
Advisors, Inc.

William R. Rybak Executive Vice President Executive Vice
and Chief Financial President and Chief
Officer Financial Officer,
VK/AC Holding, Inc.,
Van Kampen American
Capital, Inc., Van
Kampen American Capital
Distributors, Inc.,
Van Kampen American
Capital Asset
Management Inc., Van
Kampen American
Capital Investment
Advisory Corp., and
Van Kampen American
Capital Advisors, Inc.

Peter W. Hegel Executive Vice President Executive Vice
President, Van Kampen
American Capital Asset
Management, Inc.,
Van Kampen American
Capital Investment
Advisory Corp., and
Van Kampen American
Capital Advisors, Inc.

Alan T. Sachtleben Executive Vice President Executive Vice
President, Van Kampen
American Capital
Asset Management, Inc.,
Van Kampen American
Capital Investment
Advisory Corp., and
Van Kampen American
Capital Advisors, Inc.

Item 29. Principal Underwriters:

(a) Mentor Distributors, LLC, the Fund's principal underwriter, acts as
principal underwriter for the following investment companies:

The Mentor Funds
o Mentor Growth Portfolio
o Mentor Short-Duration Income Portfolio
o Mentor Balanced Portfolio
o Mentor Capital Growth Portfolio
o Mentor Perpetual Global Portfolio
o Mentor High Income Portfolio
o Mentor Income and Growth Portfolio
o Mentor Quality Income Portfolio
o Mentor Municipal Income Portfolio
o Mentor U.S. Government Money Market Portfolio
o Mentor Money Market Portfolio
o Mentor Tax-Exempt Money Market Portfolio
o Mentor Perpetual Global Emerging Companies Portfolio
o Mentor High Yield Portfolio
o Mentor Value Portfolio

Cash Resource Trust
o Cash Resource Money Market Fund
o Cash Resource U.S. Government Money Market Fund
o Cash Resource Tax-Exempt Money Market Fund
o Cash Resource California Tax-Exempt Money Market Fund
o Cash Resource New York Tax-Exempt Money Market Fund
o Cash Resource North Carolina Tax-Exempt Money Market Fund
o Cash Resource Pennsylvania Tax-Exempt Money Market Fund
o Cahs Resource Virginia Tax-Exempt Money Market Fund

Mentor Institutional Trust
o Mentor U.S. Government Cash Management Portfolio
o Mentor Fixed-Income Portfolio
o Mentor Perpetual International Portfolio

Mentor Investment Group
o Mentor Income Fund
o America's Utility Fund

Mentor Variable Investment Portfolios
o Mentor VIP Growth Portfolio
o Mentor VIP Strategy Portfolio
o Mentor VIP Balanced Portfolio
o Mentor VIP Capital Growth Portfolio
o Mentor VIP Perpetual International Portfolio
o Mentor VIP High Income Portfolio

(b) Information concerning officers of Mentor Distributors, LLC:

-10-

Name And Principal Positions And Offices Positions And Offices
Business Address* With Underwriter With Registrant
- ----------------- -------------------- ---------------------
Lynn Mangum Chairman Inapplicable
D'Ray Moore President Inapplicable
Dennis Sheehan Executive Vice President Inapplicable
William J. Tomko Senior Vice President Inapplicable
Mark J. Rybarczyk Senior Vice President Inapplicable
Kevin J. Dell Vice President and Inapplicable
Secretary
Michael D. Burns Vice President Inapplicable
David Blackmore Vice President Inapplicable
Robert L. Tuch Assistant Secretary Inapplicable
Steven Ludwig Compliance Officer Inapplicable

*Principal Address for all Officers:
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-8000

Item 30. Location of Accounts and Records

Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by the Fund at 901 East Byrd Street, Richmond, Virginia
23219 or by Boston Financial Data Services, Inc., the Registrant's
transfer agent, at 2 Heritage Drive, North Quincy, Massachusetts
02171. Records relating to the duties of the Registrant's custodian
are maintained by the Registrant's Custodian, Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri 64105.
Records relating to the duties of the Registrant's distributor are
maintained by the Registrant's Distributor, Mentor Distributors, LLC,
3435 Stelzer Road, Columbus, Ohio 43219-8000.

Item 31. Management Services

None.

Item 32. Undertakings:

(a) Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.

(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Richmond, and the Commonwealth of Virginia on this 19th day of February,
1999.

MENTOR FUNDS

By: /s/ Paul F. Costello
----------------------------
Paul F. Costello

Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacity and on the 19th
day of February, 1999:

<TABLE>
<CAPTION>
Name Title
<S> <C>
*
- ----------------------- Chairman and Trustee
Daniel J. Ludeman (Chief Executive
Officer)

*
Trustee
- -----------------------
Peter J. Quinn, Jr.

*
- ---------------------- Trustee
Arnold H. Dreyfuss

* Trustee
- -----------------------
Thomas F. Keller

* Trustee
- -----------------------
Louis W. Moelchert, Jr.

* Trustee
- -----------------------
Troy A. Peery, Jr.

* Trustee
- -----------------------
Arch T. Allen, III

* Trustee
- -----------------------
Weston E. Edwards

* Trustee
- -----------------------
Jerry R. Barrentine

* Trustee
- -----------------------
J. Garnett Nelson

/s/ Paul F. Costello President
- ------------------------
Paul F. Costello

/s/ Terry L. Perkins Treasurer (Principal Financial
- ------------------------ and Accounting Officer)
Terry L. Perkins

/s/ Paul F. Costello Attorney-in-fact
- ------------------------
Paul F. Costello

</TABLE>

<PAGE>

EXHIBIT INDEX

Exhibit 1 (viii) Amendment No. 9 to the Declaration of Trust of the
Registrant

Exhibit 5 (xviii) Form of Investment Advisory Agreement (Mentor Value
Portfolio)

Exhibit 8 (iii) Form of Administration Agreement of the
Registrant in respect of certain Portfolios

Exhibit 9 (iii) Form of New Amended and Restated Exhibit Shareholder
Service Plan in respect of certain Portfolios

Exhibit 15 Plan of Distribution

MENTOR FUNDS

Amendment No. 9
to
DECLARATION OF TRUST
dated January 20, 1992

This Declaration of Trust is amended as follows:

1. Section 5 of Article III is hereby amended by replacing the first
paragraph thereto with the following:

Section 5. Establishment and Designation of Series or Class. The following
Portfolios shall be designated as separate series of shares of beneficial
interest of the Trust, with the relative rights and preferences set forth in
this Declaration of Trust as it may be amended from time to time: Mentor Capital
Growth Portfolio, Mentor Quality Income Portfolio, Mentor Municipal Income
Portfolio, Mentor Income and Growth Portfolio, Mentor Perpetual Global
Portfolio, Mentor Growth Portfolio, Mentor Strategy Portfolio, Mentor
Short-Duration Income Portfolio, Mentor Balanced Portfolio, Mentor Perpetual
Global Emerging Companies Portfolio, Mentor High Yield Portfolio, Mentor Value
Portfolio, Mentor U.S. Government Money Market Portfolio (formerly, Mentor
Institutional U.S. Government Money Market Portfolio), Mentor Money Market
Portfolio (formerly, Mentor Institutional Money Market Portfolio), Mentor
Tax-Exempt Money Market Portfolio (formerly, Mentor Institutional Tax-Exempt
Money Market Portfolio), Mentor Asset Allocation Portfolio, and Mentor High
Income Portfolio.

------------------

This Amendment is to be effective as of February 10, 1999.

<PAGE>

IN WITNESS WHEREOF, the undersigned, being at least a majority of the
Trustees in office, have executed this instrument.

- ------------------------ ------------------------
Arch T. Allen, III Jerry R. Barrentine

- ------------------------ ------------------------
Arnold H. Dreyfuss Weston E. Edwards

- ------------------------ ------------------------
Thomas F. Keller Daniel J. Ludeman

- ------------------------ ------------------------
Louis W. Moelchert, Jr. J. Garnett Nelson

- ------------------------ ------------------------
Troy A. Peery, Jr. Peter J. Quinn, Jr.

MENTOR FUNDS

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

This Investment Advisory and Management Agreement dated as of February 10,
1999 between MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and
MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability company (the
"Manager").

WITNESSETH:

That in consideration of the mutual covenants herein contained, it is
agreed as follows:

1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST.

(a) The Manager, at its expense, will furnish continuously an investment
program for the Mentor Value Portfolio, a series of the Trust (the "Portfolio"),
will determine what investments shall be purchased, held, sold, or exchanged by
the Portfolio and what portion, if any, of the assets of the Portfolio shall be
held uninvested and shall make changes in the Portfolio's investments. In the
performance of its duties, the Manager will comply with the provisions of the
Agreement and Declaration of Trust and Bylaws of the Trust and the Portfolio's
stated investment objectives, policies, and restrictions, and will use its best
efforts to safeguard and promote the welfare of the Portfolio and to comply with
other policies which the Trustees may from time to time determine and shall
exercise the same care and diligence expected of the Trustees.

(b) The Manager, at its expense, except as such expense is paid by the
Portfolio as provided in Section 1(e), will furnish all necessary investment and
related management facilities, including salaries of personnel, required for it
to execute its duties faithfully. The Manager will pay the compensation, if any,
of certain officers of the Trust carrying out the investment management and
related duties provided for by this Agreement.

(c) The Manager, at its expense, shall place all orders for the purchase
and sale of portfolio investments for the Portfolio's account with brokers or
dealers selected by the Manager. In the selection of such brokers or dealers and
the placing of such orders, the Manager shall give primary consideration to
securing for the Portfolio the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage commissions for
brokerage and research services as described below. In doing so, the Manager,
bearing in mind the Portfolio's best interests at all times, shall consider all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker or
dealer involved, and the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the Trustees of the Trust may
determine, the Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of its
having caused the Portfolio to pay a broker or dealer that provides brokerage
and research services to the Manager an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission that
another broker or dealer would have charged for effecting that transaction, if
the Manager determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or the Manager's overall responsibilities with respect to the
Portfolio and to other clients of the Manager as to which the Manager exercises
investment discretion.

<PAGE>

(d) The Trust, on behalf of the Portfolio, hereby authorizes any entity or
person associated with the Manager which is a member of a national securities
exchange to effect any transaction on the exchange for the account of the
Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of
1934, as amended and Rule 11a2-2(T) thereunder, and the Portfolio hereby
consents to the retention of compensation for such transactions in accordance
with Rule 11a2-2(T)(2)(iv).

(e) The Manager shall not be obligated to pay any expenses of or for the
Portfolio not expressly assumed by the Manager pursuant to this Section 1 other
than as provided in Section 3.

2. OTHER AGREEMENTS, ETC.

It is understood that any of the shareholders, Trustees, officers, and
employees of the Trust may be a shareholder, director, officer, or employee of,
or be otherwise interested in, the Manager, and in any person controlled by or
under common control with the Manager, and that the Manager and any person
controlled by or under common control with the Manager may have an interest in
the Portfolio. It is also understood that the Manager and any person controlled
by or under common control with the Manager have and may have advisory,
management, service, or other agreements with other organizations and persons,
and may have other interests and business.

3. COMPENSATION TO BE PAID BY THE PORTFOLIO TO THE MANAGER.

As compensation for the services performed and the facilities furnished
and expenses assumed by the Manager, including the services of any consultants
retained by the Manager, the Portfolio shall pay the Manager, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
annual rate of 0.80% of the Portfolio's average daily net assets. The first
payment of the fee shall be made as promptly as possible at the end of the month
next succeeding the effective date of this Agreement, and shall constitute a
full payment of the fee due the Manager for all services prior to that date. If
this Agreement is terminated as of any date that is not the last day of a month,
such fee shall be paid as promptly as possible after such date of termination,
shall be based on the average daily net assets of the Portfolio in that period
from the beginning of such month to such date of termination, and shall be that
proportion of such average daily net assets as the number of business days in
such period bears to the number of business days in such month. The average
daily net assets of the Portfolio shall in all cases be based only on business
days and be computed as of the time of the regular close of business of the New
York Stock Exchange, or such other time as may be determined by the Trustees.
Each such payment shall be accompanied by a report of the Trust prepared either
by the Trust or by a reputable firm of independent accountants which shall show
the amount properly payable to the Manager under this Agreement and the detailed
computation thereof.

<PAGE>

4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.

This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment; and this Agreement shall not be amended
unless such amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Portfolio, and by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager.

5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.

This Agreement shall become effective upon its execution and shall remain
in full force and effect continuously thereafter until the close of business on
February 9, 2001 (unless terminated automatically as set forth in Section 4),
and shall continue for successive one-year periods thereafter, if approved in
accordance with Section 6, until terminated by either party hereto at any time
by not more than sixty days nor less than thirty days written notice delivered
or mailed by registered mail, postage prepaid, to the other party. Such action
by the Trust with respect to termination may be taken either (i) by vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Portfolio.

Termination of this Agreement pursuant to this Section 5 will be without
the payment of any penalty.

6. ANNUAL APPROVAL.

For additional terms after the initial term of this Agreement, this
Agreement shall be submitted for approval to the Trustees annually and shall
continue in effect only so long as specifically approved annually by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Manager, by vote cast in person at a meeting called for the
purpose of voting on such approval.

<PAGE>

7. CERTAIN DEFINITIONS.

For the purposes of this Agreement, the "affirmative vote of a majority of
the outstanding shares" of the Portfolio means the affirmative vote, at a duly
called and held meeting of such shareholders, (a) of the holders of 67% or more
of the shares of the Portfolio present (in person or by proxy) and entitled to
vote at such meeting, if the holders of more than 50% of the outstanding shares
of the Portfolio entitled to vote at such meeting are present in person or by
proxy, or (b) of the holders of more than 50% of the outstanding shares of the
Portfolio entitled to vote at such meeting, whichever is less.

For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person," and "assignment" shall have their respective
meanings defined in the Investment Company Act of 1940, as amended, and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under said Act; the term
"specifically approve at least annually" shall be construed in a manner
consistent with the Investment Company Act of 1940, as amended, and the Rules
and Regulations thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934, as amended, and
the Rules and Regulations thereunder.

8. NON-LIABILITY OF MANAGER.

In the absence of willful misfeasance, bad faith, or gross negligence on
the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder.

9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.

A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust for the Portfolio as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees,
officers, or shareholders of the Fund but are binding only upon the assets and
property of the Portfolio.

<PAGE>

IN WITNESS WHEREOF, MENTOR FUNDS and MENTOR INVESTMENT ADVISORS, LLC, have
each caused this instrument to be signed in duplicate in its behalf by its
President or Vice President thereunto duly authorized, all as of the day and
year first above written.

MENTOR FUNDS
on behalf of Mentor Value Portfolio

By:_____________________________________

MENTOR INVESTMENT ADVISORS, LLC

By:______________________________________

MENTOR FUNDS
901 East Byrd Street
Richmond, Virginia 23219

February 1, 1998, as amended
February 10, 1999

Mentor Investment Group, LLC
901 East Byrd Street
Richmond, Virginia 23219

Re: Administration Agreement

Dear Gentlemen:

Mentor Funds, a Massachusetts business trust (the "Fund"), is engaged in
the business of an investment company. The Fund currently has twelve series of
shares (each, a "Series"), and the Trustees of the Fund may in their discretion
authorize additional series of shares from time to time. The Fund desires that
you act as administrator of one or more Series specified by the Trustees from
time to time on Exhibit A hereto (each, a "Specified Series") of the Fund, and
you are willing to act as such administrator and to perform such services under
the terms and conditions hereinafter set forth. Accordingly, the Fund agrees
with you as follows:

1. Delivery of Fund Documents. The Fund has furnished you with copies
properly certified or authenticated of each of the following:

(a) Agreement and Declaration of Trust of the Fund.

(b) By-laws of the Fund as in effect on the date hereof.

The Fund will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.

<PAGE>

2. Administrative Services. You will continuously provide business
management services to each of the Specified Series and will generally, subject
to the general oversight of the Trustees and except as provided in the next
following paragraph, manage all of the business and affairs of each of the
Specified Series, subject always to the provisions of the Fund's Declaration of
Trust and By-laws and of the Investment Company Act of 1940, as amended (the
"1940 Act"), and subject, further, to such policies and instructions as the
Trustees may from time to time establish. You shall, except as provided in the
next following paragraph, advise and assist the officers of the Fund in taking
such steps as are necessary or appropriate to carry out the decisions of the
Trustees and the appropriate committees of the Trustees regarding the conduct of
the business of each of the Specified Series.

Notwithstanding any provision of this Agreement, you will not at any time
provide, or be required to provide, to the Fund or to any person with respect to
the Fund investment research, advice, or supervision, or in any way advise the
Fund or any person acting on behalf of the Fund as to the value of securities or
other investments or as to the advisability of investing in, purchasing, or
selling securities or other investments.

3. Allocation of Charges and Expenses. You will pay the compensation and
expenses of all officers and executive employees of the Fund (other than such
persons who serve as such and who are employees of or serve at the request of
any investment adviser to the Fund) and will make available, without expense to
the Fund, the services of such of your directors, officers, and employees as may
duly be elected Trustees or officers of the Fund, subject to their individual
consent to serve and to any limitations imposed by law. You will provide all
clerical services relating to the business of each of the Specified Series. You
will not be required to pay any expenses of the Fund other than those
specifically allocated to you in this paragraph 3. In particular, but without
limiting the generality of the foregoing, you will not be required to pay:
clerical salaries not relating to the services described in paragraph 2 above;
fees and expenses incurred by the Fund in connection with membership in
investment company organizations; brokers' commissions; payment for portfolio
pricing services to a pricing agent, if any; legal, auditing, or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent of the Fund; the cost of preparing share certificates or any other
expenses, including clerical expenses, incurred in connection with the issue,
sale, underwriting, redemption, or repurchase of shares of the Fund; the
expenses of and fees for registering or qualifying securities for sale; the fees
and expenses of Trustees of the Fund who are not affiliated with you; the cost
of preparing and distributing reports and notices to shareholders; public and
investor relations expenses; or the fees or disbursements of custodians of the
Fund's assets, including expenses incurred in the performance of any obligations
enumerated by the Agreement and Declaration of Trust or By-Laws of the Fund
insofar as they govern agreements with any such custodian.

4. Compensation. As compensation for the services performed and the
facilities furnished and expenses assumed by you, including the services of any
consultants retained by you, each Specified Series shall pay you, as promptly as
possible after the last day of each month, a fee, calculated daily, at the
annual rate of .10 of 1%, or .15 of 1%, as indicated on Exhibit A hereto of the
Specified Series average daily net assets.

<PAGE>

The first payment of the fee shall be made as promptly as possible at the end of
the month next succeeding the effective date of this Agreement in respect of
such Specified Series, and shall constitute a full payment of the fee due you
for all services prior to that date. If this Agreement is terminated as of any
date not the last day of a month, such fee shall be paid as promptly as possible
after such date of termination, shall be based on the average daily net assets
of the Specified Series in that period from the beginning of such month to such
date of termination, and shall be that proportion of such average daily net
assets as the number of business days in such period bears to the number of
business days in such month. The average daily net assets of a Specified Series
shall in all cases be based only on business days and be computed as of the time
of the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Trustees. Each such payment shall be
accompanied by a report of the Fund prepared either by the Fund or by a
reputable firm of independent accountants which shall show the amount properly
payable to you under this Agreement and the detailed computation thereof.

5. Limitation of Liability. You shall not be liable for any error of
judgement or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates except a loss resulting from
willful misfeasance, bad faith, or gross negligence on your part in the
performance of your duties, or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Fund shall
be deemed, when acting within the scope of his or her employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee or
agent.

6. Duration and Termination of this Agreement. This Agreement shall remain
in force until January 31, 2000 and continue from year to year thereafter, but
only so long as such continuance is specifically approved at least annually with
respect to each Specified Series by the vote of a majority of the Trustees who
are not interested persons of you or of the Fund, cast in person at a meeting
called for the purpose of voting on such approval and by a vote of the Trustees.
This Agreement may, on 30 days notice, be terminated at any time without the
payment of any penalty by you, and, immediately upon notice, by the Trustees or,
as to a Specified Series, by vote of a majority of the outstanding voting
securities of that Specified Series. This Agreement shall automatically
terminate in the event of its assignment. In interpreting the provisions of this
Agreement, the definitions contained in Section 2(a) of the 1940 Act, as
modified by rule 18f-2 under the Act (particularly the definitions of
"interested person", "assignment", and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
by any rule, regulation, or order.

7. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge, or termination is sought, and no amendment of this Agreement shall be
effective as to a Specified Series until approved by the Trustees, including a
majority of the Trustees who are not interested persons of you or of the Fund,
cast in person at a meeting called for the purpose of voting on such approval.

<PAGE>

8. Miscellaneous. The captions in this Agreement are included for
convenience or reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction of effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

9. Limitation of Liability of the Trustees and Shareholders. A copy of the
Agreement and Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Fund as Trustees and not
individually and that the obligations of this instrument are not binding upon
any of the Trustees, officers, or shareholders individually but are binding only
upon the assets and property of the appropriate Series.

If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract.

Yours very truly,

MENTOR FUNDS

By: ___________________________
Title:

The foregoing Agreement is hereby accepted as of the date thereof.

MENTOR INVESTMENT GROUP, LLC

By: _____________________________
Title:

<PAGE>

EXHIBIT A

Series paying .10 of 1%

Mentor Balanced Portfolio
Mentor Income and Growth Portfolio
Mentor High Income Portfolio
Mentor Quality Income Portfolio
Mentor Municipal Income Portfolio
Mentor Short-Duration Income Portfolio
Mentor High Yield Portfolio

Series paying .15 of 1%

Mentor Growth Portfolio
Mentor Capital Growth Portfolio
Mentor Perpetual Global Portfolio
Mentor Perpetual Global Emerging Companies Portfolio
Mentor Value Portfolio

AMENDED AND RESTATED
EXHIBIT TO THE
SHAREHOLDER SERVICE PLAN

MENTOR FUNDS

Mentor Growth Portfolio
Mentor Capital Growth Portfolio
Mentor Balanced Portfolio
Mentor Income and Growth Portfolio
Mentor Perpetual Global Portfolio
Mentor High Income Portfolio
Mentor Quality Income Portfolio
Mentor Municipal Income Portfolio
Mentor Short-Duration Income Portfolio
Mentor Perpetual Global Emerging Companies Portfolio
Mentor High Yield Portfolio
Mentor Value Portfolio

This Plan is adopted by Mentor Funds (the "Trust") (formerly Cambridge Series
Trust) with respect to the Portfolios of the Trust, and with respect to the
class A and B of shares of such Portfolios, set forth above.

In compensation for services provided pursuant to this Plan, Administrators will
be paid a monthly fee computed at the annual rate not to exceed 0.25 of 1% of
the average aggregate net asset value of the shares of all participating classes
or Portfolios, as the case may be, held during each month.

WITNESS the due execution hereof this 10th day of February 1999.

MENTOR FUNDS

By:__________________
President

PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1

MENTOR FUNDS

This constitutes the PLAN OF DISTRIBUTION of Mentor Funds (the "Trust") on
behalf of the series of shares of beneficial interest of the Trust identified on
Exhibit A attached hereto and made a part hereof (each, a "Portfolio").
1. Each Portfolio shall pay to the principal underwriter of the
Portfolio's shares (the "Distributor") a fee for services performed and expenses
incurred in respect of the distribution of shares of the Portfolio, or, where
applicable, of a class of shares of the Portfolio specified in Exhibit A, at the
annual rate set forth opposite the Portfolio's name on Exhibit A of such
Portfolio's average daily net assets attributable to its shares, or to such
class of shares, such fee to be calculated and accrued daily and paid monthly.

2. The amount set forth in paragraph 1 of this Plan shall be paid for the
Distributor's services as distributor of the shares of the Portfolio (or of the
applicable class of shares of any such Portfolio, as the case may be) in
accordance with the Distribution Agreement between the Distributor and the Trust
and may be spent by the Distributor or its agents on any activities or expenses
related to the sale and repurchase of the shares of the Portfolio (or any such
class of shares, as the case may be), including, but not limited to, commissions
and other compensation to persons who engage in or support distribution and
repurchase of shares; printing of prospectuses and reports for other than
existing shareholders; advertising; preparation and distribution of sales
literature; and overhead, travel, and telephone expenses.

<PAGE>

3. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Trustees and
(b) those Trustees who are not "interested persons" of the Trust (as defined in
the Investment Company Act of 1940, as amended) and have no direct or indirect
financial interest in the operation of this Plan or any agreements related to it
(the "Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.

4. This Plan shall continue in effect for successive periods of one year
from its execution for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 3.

5. Any person authorized to direct the disposition of monies paid or
payable by a Portfolio pursuant to this Plan or any related agreement shall
provide to the Trustees and the Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.

6. This Plan may be terminated at any time in respect of any or all of the
Portfolios by vote of a majority of the Rule 12b-1 Trustees or, in respect of a
Portfolio, by vote of that Portfolio's shares constituting a majority of the
outstanding voting securities of such Portfolio (or the class of shares in
question, as the case may be).

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7. This Plan may not be amended to increase materially the amount of
distribution expenses provided for in paragraph 1 hereof unless such amendment
is approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act of 1940, as amended) of the affected
Portfolio or class of Portfolio, as the case may be, and no material amendment
to the Plan shall be made unless such amendment is approved in the manner
provided for approval of this Plan in paragraph 3 hereof.

8. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Investment Company Act of
1940, as amended) of the Trust shall be committed to the discretion of the
Trustees who are themselves not interested persons

9. The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof for a period of not less
than six years from the date of execution this Plan, or of the agreements or of
such reports, as the case may be, the first two years in an easily accessible
place.

A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or officers of the Trust or
shareholders of any Portfolio of the Trust but are binding only upon the assets
and property of the relevant Portfolio of the Trust.

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EXHIBIT A

Class of Shares 12b-1 Fee
--------------- ----------

Mentor Growth Portfolio B 0.75%
Mentor Capital Growth Portfolio B 0.75%
Mentor Strategy Portfolio B 0.75%
Mentor Income and Growth Portfolio B 0.75%
Mentor Perpetual Global Portfolio B 0.75%
Mentor Quality Income Portfolio B 0.50%
Mentor Municipal Income Portfolio B 0.50%
Mentor Short-Duration Income Portfolio B 0.30%
Mentor Balanced Portfolio B 0.75%
Mentor Growth Opportunities Portfolio B 0.75%
Mentor High Income Portfolio B 0.50%
Mentor Asset Allocation Portfolio B 0.75%
Mentor High Yield Portfolio B 0.50%
Mentor Perpetual Global Emerging B 0.75%
Companies Portfolio
Mentor Value Portfolio B 0.75%
Mentor U.S. Gov. MM Portfolio Retail 0.38%
Mentor MM Portfolio Retail 0.38%
Mentor Tax-Exempt MM Portfolio Retail 0.33%