Mentor Money Market Portfolio
Mentor U.S. Government Money Market Portfolio
Mentor Tax-Exempt Money Market Portfolio
---------------------
Semi-Annual Report
---------------------
March 31, 1999
[MENTOR INVESTMENT GROUP LOGO]
<PAGE>
MENTOR MONEY MARKET PORTFOLIO
MENTOR U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MENTOR TAX-EXEMPT MONEY MARKET PORTFOLIO
MESSAGE FROM THE CHAIRMAN AND PRESIDENT
MARCH 31, 1999
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
On behalf of all the associates at Mentor Investment Group, we would like to
take this opportunity to thank you for your investment in the Mentor U.S.
Government Money Market Portfolio, the Mentor Money Market Portfolio and the
Mentor Tax-Exempt Money Market Portfolio. This Semi-Annual Report reaffirms our
commitment to our shareholders and details the financial performance of these
investments for the period ended March 31, 1999.
Founded in 1970, Mentor Investment Group is an investment advisory firm with
more than $16 billion under management. We pride ourselves on a strong heritage
of providing quality service and a variety of investment choices that help meet
our shareholders' financial objectives by offering mutual funds and
separately-invested portfolios.
In the commentary that follows, Mentor's investment team presents an insightful
perspective on the markets and strategies that shaped their investment decisions
for the past fiscal year. Our investment teams operate with these priorities:
FOCUS -- In most money management companies, each investment manager has
multiple responsibilities. At Mentor, our investment managers are singularly
focused on enhancing the value of the portfolios. This means that you can be
assured of a consistent, proven approach to developing a winning financial
strategy.
OPPORTUNITIES -- By offering multiple management styles, portfolio
diversification is simplified. Mentor gives investors the tools for long-term
investment success through diversification and accommodation of changing
investment needs.
SERVICE -- To help serve our shareholders, Mentor has a fully dedicated Investor
Relations Center. Our Relationship Coordinators are professionally trained and
licensed to serve clients' needs.
TECHNOLOGY -- Abreast of the most advanced technology and using the latest
analytical tools, our investment managers have the ability to survey the
financial markets and make informed decisions about where the best place is to
invest.
We at Mentor are honored to be a partner in the management of your financial
assets. Mentor Investment Group provides diversified investment styles and
services to over one million shareholders. We serve individuals, corporations,
endowments, foundations, public funds, and municipalities. To learn more about
Mentor, please contact your consultant or us at (800) 382-0016.
We look forward to making the Mentor formula work for you, and to a mutually
beneficial relationship.
Sincerely,
/s/ Daniel J. Ludeman /s/ Paul F. Costello
- --------------------- --------------------
Daniel J. Ludeman Paul F. Costello
CHAIRMAN PRESIDENT
[MENTOR INVESTMENT GROUP LOGO]
1
<PAGE>
MENTOR MONEY MARKET PORTFOLIO
MENTOR U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MENTOR TAX-EXEMPT MONEY MARKET PORTFOLIO
MANAGERS' COMMENTARY: THE CASH MANAGEMENT TEAM
MARCH 31, 1999
- --------------------------------------------------------------------------------
MARKET OVERVIEW
Over the past year, an unusually large number of negative influences have come
to bear on the U.S. economy and financial markets. Foremost was the emergence of
substantial economic problems in the Far East. Rather than being contained
locally they quickly spread like the "Asian flu" to other areas of the world
such as Russia and Brazil. We also experienced a major political scandal in this
country that culminated in the impeachment of our President. Finally, we have
witnessed major military confrontations, first between the U.S. and Iraq, and
now between U.S.-led NATO forces and the former Yugoslavia.
Despite these negative factors and a sustained expansion that was already
setting longevity records, our economy has remained on a remarkably even keel
throughout the six-month period ending March 31, 1999. Activity continues to
forge ahead at a pace adequate to keep employment and capacity utilization at
very high levels, yet not so rapid as to give rise to inflation.
With the threat from weak overseas economies growing as 1998 progressed, the
Federal Reserve shifted from a neutral position to one of ease. During the fall
months the Fed lowered rates three times by 0.25% for a total of 0.75%. The
medicine seemed to work perfectly, for the economy pulled out of a mini-slump
and posted solid fourth quarter GDP growth of 6.0%. In fact, early in the first
quarter, concerns began to surface that this unexpected strength could cause the
Fed to reverse course and raise rates again. However, the latest data indicates
that the economy may be once again losing some steam. While sectors tied to the
consumer continue strong, others are mixed, notably manufacturing where imports
seem to be sapping demand. Given these mixed indicators, the Fed remains in a
neutral posture, as it has since November.
The net result of all these shifts was that the money markets registered modest
rate increases during the six-month period, with 3-month rates up 0.11% and
6-month rates up 0.05%.
MANAGEMENT STRATEGY
It is our normal policy to manage our money market funds to an average maturity
range of between 30 and 60 days. For most of 1998, we adopted a strategy of
managing the funds to an average maturity of 55-60 days, the outer end of our
normal range. This was in recognition that the Fed was unlikely to raise rates
given what was then occurring around the world. This strategy proved
advantageous when the Fed reduced rates late in the year. In the fourth quarter
and early first quarter, with the economy showing unexpected strength, we began
to shorten maturities to a range of 45-50 days and remain in that range at the
present time.
PERFORMANCE REVIEW
Our correct call on the direction of rates in late 1998 aided overall
performance for our products for the semi-annual period ending March 31. For the
period the Mentor U.S. Government Money Market Portfolio returned 2.36% and the
Mentor Money Market Portfolio returned 2.44%. The Mentor Tax-Exempt Money Market
Portfolio has returned 1.12% since its inception on October 15, 1998. Our
performance objective remains to provide a competitive return while maintaining
well above-average quality and safety standards. Having accomplished that goal
for the period just ended, we remain focused on maintaining that standard in the
months ahead.
MARKET OUTLOOK
Entering 1999, we felt that the economy was at a crossroads. While all seemed
well on the surface,
2
<PAGE>
MENTOR MONEY MARKET PORTFOLIO
MENTOR U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MENTOR TAX-EXEMPT MONEY MARKET PORTFOLIO
MANAGERS' COMMENTARY: THE CASH MANAGEMENT TEAM
MARCH 31, 1999 (CONTINUED)
- --------------------------------------------------------------------------------
the question remained whether the general weakness worldwide would eventually
have an impact domestically. It was as if the U.S. were the last engine running
on a four-engine plane. How long could we withstand the strain without losing
some altitude? While we are still at a crossroads, we think the odds have
shifted slightly in favor of stable to perhaps lower rates between now and
year-end 1999. It is therefore our intention to maintain average maturities at
current levels.
3
<PAGE>
MENTOR MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BANK NOTES--10.78%
Bank of New York, 5.66%,
6/17/99 $ 1,000,000 $ 999,852
FCC National Bank,
5.74%, 5/07/99 1,000,000 999,943
First National Bank
Chicago, 4.90%, 6/01/99 5,000,000 5,000,000
First Tennessee Bank, NA,
5.65%, 7/09/99 1,000,000 999,870
First Tennessee Bank, NA,
5.70%, 4/15/99 1,000,000 999,982
Harris Trust, 5.00%,
1/27/00 2,000,000 2,000,000
LaSalle National Bank,
4.93%, 6/02/99 5,000,000 5,000,085
Mellon Bank, 4.95%,
7/12/99 1,000,000 1,000,000
NationsBank, 4.94%,
7/06/99 1,000,000 1,000,000
NationsBank, 4.92%,
3/16/00 (a) 3,000,000 2,999,152
----------
TOTAL BANK NOTES 20,998,884
----------
BANKERS ACCEPTANCES--0.50%
NationsBank, 5.45%,
7/19/99 1,000,000 983,499
----------
CERTIFICATES OF DEPOSIT--16.43%
Bank of Montreal, 4.92%,
4/12/99 2,000,000 2,000,000
Bankers Trust Company,
5.69%, 7/27/99 1,000,000 999,816
Canadian Imperial Bank,
4.84%, 5/11/99 5,000,000 5,000,000
Commerzbank, 5.08%,
2/11/00 3,000,000 2,997,843
Deutsche Bank Financial,
4.92%, 4/12/99 2,000,000 2,000,000
First Tennessee Bank, NA,
4.85%, 5/10/99 3,000,000 2,999,897
Harris Trust, 4.85%,
4/15/99 3,000,000 3,000,000
Mellon Bank, 4.87%,
4/12/99 3,000,000 3,000,000
Rabobank Nederland NV,
5.70%, 4/20/99 1,000,000 1,000,065
Societe Generale, Inc.,
4.90%, 7/12/99 4,000,000 4,000,000
UBS AG Stamford, 5.11%,
5/07/99 5,000,000 5,000,598
----------
TOTAL CERTIFICATES OF DEPOSIT 31,998,219
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER--35.28%
Bear Stearns & Company,
Inc., 4.87%, 4/07/99 $ 5,000,000 $4,995,942
Corporate Receivables
Corporation, 4.82%,
4/27/99 2,000,000 1,993,038
Delaware Funding
Corporation, 4.87%,
4/06/99 3,000,000 2,997,973
Falcon Asset Securitization,
4.88%, 4/16/99 5,080,000 5,069,671
Ford Motor Credit, 4.80%,
4/09/99 3,000,000 2,996,800
Ford Motor Credit, 4.84%,
4/19/99 2,000,000 1,995,160
General Electric Company,
4.84%, 5/28/99 3,000,000 2,977,010
General Motors
Acceptance Corporation,
4.83%, 5/24/99 5,000,000 4,964,446
Goldman Sachs Group,
5.41%, 2/25/00 3,000,000 3,000,000
International Securitization
Corporation, 4.88%,
4/15/99 5,000,000 4,990,511
JP Morgan, 4.85%,
4/08/99 2,000,000 1,998,114
Mont Blanc Capital
Corporation, 4.90%,
4/06/99 3,000,000 2,997,958
Mont Blanc Capital
Corporation, 4.87%,
5/24/99 2,000,000 1,985,660
Monte Rosa Capital
Corporation, 4.87%,
5/07/99 5,000,000 4,975,650
Morgan Stanley Dean
Witter, 4.87%, 4/26/99 3,000,000 2,989,854
Repeat Offering
Securitization Entity,
4.82%, 4/28/99 3,000,000 2,989,155
Rincon Securities, Inc.,
4.82%, 4/27/99 1,000,000 996,519
Salomon Smith Barney,
4.87%, 4/26/99 2,000,000 1,993,236
Special Purpose Accounts
Receivable, 4.89%,
4/21/99 5,000,000 4,986,417
Trident Capital Finance,
4.87%, 4/06/99 2,000,000 1,998,647
Windmill Funding
Corporation, 4.88%,
4/09/99 1,000,000 998,917
</TABLE>
4
<PAGE>
MENTOR MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER--(CONTINUED)
Windmill Funding
Corporation, 4.91%,
4/30/99 $ 3,831,000 $ 3,815,845
------------
TOTAL COMMERCIAL PAPER 68,706,523
------------
U.S. GOVERNMENT AGENCIES--12.86%
Federal Home Loan Bank,
4.98% - 5.10%,
3/03/00 - 3/29/00 5,000,000 4,993,539
Federal Home Loan
Mortgage Corporation
4.78%, 4/15/99 15,090,000 15,061,949
Federal Home Loan
Mortgage Corporation
4.74%, 3/20/00 (a) 5,000,000 4,996,142
------------
TOTAL U.S. GOVERNMENT AGENCIES 25,051,630
------------
VARIABLE RATE DEMAND NOTES--3.95%
1800 Harrison Foundation
Series A, 4.95%, 1/01/29 3,000,000 3,000,000
Catholic Health Initiatives,
5.00%, 12/01/27 1,000,000 1,000,000
C.C.M. Properties LLC,
4.95%, 2/01/11 1,200,000 1,200,000
Hilander Finance LLC,
4.95%, 12/01/25 1,500,000 1,500,000
Mississippi Business
Finance Corporation,
5.05%, 1/01/23 1,000,000 1,000,000
------------
TOTAL VARIABLE RATE
DEMAND NOTES 7,700,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT--20.16%
Goldman Sachs &
Company
Dated 3/31/99, 4.96%,
due 4/01/99,
collateralized by
$53,077,445 (original
face value) Federal Home
Loan Mortgage
Corporation,
7.00% - 8.00%,
11/01/12 - 11/01/28,
market value
$40,036,644 $39,251,612 $ 39,251,612
------------
TOTAL INVESTMENTS (COST
$194,690,367)--99.96% 194,690,367
OTHER ASSETS LESS LIABILITIES--0.04% 70,951
------------
NET ASSETS--100.00% $194,761,318
============
</TABLE>
Interest rates disclosed represent annualized yield to date of maturity, except
for floating rate securities described in (a).
(a) Floating Rate Securities -- The rates shown are the effective rates at
March 31, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
MENTOR U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCIES--85.40%
Federal Home Loan Bank
4.65% - 5.63%,
4/09/99 - 3/29/00 $ 41,865,000 $ 41,759,960
Federal Home Loan Bank
4.77%, 10/28/99 -
11/16/99 (a) 7,000,000 6,997,898
Federal Home Loan
Mortgage Corporation
4.74% - 4.81%,
4/15/99 - 7/16/99 46,105,000 45,708,069
Federal Home Loan
Mortgage Corporation
4.74% - 4.78%,
8/17/99 - 3/20/00 (a) 8,000,000 7,995,361
Federal National
Mortgage Association
4.72% - 5.64%,
4/05/99 - 9/09/99 58,000,000 57,590,445
Federal National
Mortgage Association,
4.71%, 5/28/99 (a) 3,000,000 2,999,634
------------
TOTAL U.S. GOVERNMENT AGENCIES 163,051,367
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT--14.78%
Goldman Sachs & Company
Dated 3/31/99, 4.96%,
due 4/01/99,
collateralized by
$31,868,361 (original
face value) Federal
Home Loan Mortgage
Corporation,
6.50% - 8.00%,
3/01/19 - 11/01/28,
market value $28,778,941 $ 28,214,648 $ 28,214,648
------------
TOTAL INVESTMENTS (COST
$191,266,015)--100.18% 191,266,015
OTHER ASSETS LESS LIABILITIES--(0.18%) (348,037)
------------
NET ASSETS--100.00% $190,917,978
============
</TABLE>
(a) Floating Rate Securities -- The rates shown are the effective rates at
March 31, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
MENTOR TAX-EXEMPT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE DEMAND NOTES
(a)--54.00%
ALASKA-- 3.60%
Alaska IDA Sheldon Jackson
College, 3.00%, 11/01/13 $ 1,100,000 $ 1,100,000
-----------
FLORIDA--10.48%
Alachua County Health
Facilities Series 1996,
3.05%, 12/01/26 900,000 900,000
City of Tampa Occupational
License Tax Series 1998 A,
3.02%, 10/01/18 1,300,000 1,300,000
Dade County Florida Water
and Sewer Revenue Bond
Series 1994, 2.90%,
10/05/22 1,000,000 1,000,000
-----------
3,200,000
-----------
LOUISANA--9.16%
Desoto Parish PCRB (Central
Louisiana Electric)
Series B, 2.95%, 7/01/18 1,200,000 1,200,000
Louisana PFA Sister of
Charity Series 1997 E,
3.08%, 7/01/23 1,000,000 1,000,000
Louisana PFA Willis Knighton
Medical Center, 3.10%,
9/01/25 600,000 600,000
-----------
2,800,000
-----------
MARYLAND--7.20%
Community Development
Administration (Avalon
Ridge) Series 1997, 2.90%,
6/15/26 1,200,000 1,200,000
Maryland Health and Higher
Education Series 1997 B,
3.00%, 12/01/15 1,000,000 1,000,000
-----------
2,200,000
-----------
MICHIGAN--3.60%
County of Wayne Charter
Michigan Airport Revenue
Bond Series 1996 B, 3.00%,
12/01/16 1,100,000 1,100,000
-----------
NEW MEXICO--2.95%
City of Albuquerque Airport
Series 1995, 2.90%, 7/01/14 900,000 900,000
-----------
NORTH CAROLINA--4.91%
City of Charlotte Airport
Revenue Bonds Series 1993
A, 2.90%, 7/01/16 600,000 600,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
VARIABLE RATE DEMAND NOTES
(a) (CONTINUED)
North Carolina (continued)
North Carolina Educational
Facilities Finance Agency
(Bowman Grey School),
3.05%, 9/01/20 $ 900,000 $ 900,000
-----------
1,500,000
-----------
SOUTH CAROLINA--2.29%
Piedmont Municipal Power
Agency Revenue Bond
Series 1997 B, 2.95%,
1/01/19 700,000 700,000
-----------
TENNESSEE--1.96%
Clarksville Tennessee Public
Building Pooled Financing
Authority, 3.00%, 11/01/27 600,000 600,000
-----------
UTAH--1.96%
Emory County Utah PCRB
Pacificorp Project Series
1991, 2.95%, 7/01/15 600,000 600,000
-----------
VIRGINIA--5.89%
Hampton Roads Regional Jail
Authority Series 1996 B,
3.05%, 7/01/16 1,200,000 1,200,000
Lynchburg Virginia IDA
Hospital Facilities Series
1985 D, 3.15%, 12/01/25 600,000 600,000
-----------
1,800,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES 16,500,000
-----------
OTHER-- 45.70%
PNC MuniCash,
3.00%, 4/01/99 13,964,781 13,964,781
-----------
TOTAL INVESTMENTS (COST
$30,464,781)--99.70% 30,464,781
OTHER ASSETS LESS
LIABILITIES--0.30% 91,429
-----------
NET ASSETS--100.00% $30,556,210
===========
</TABLE>
(a) Interest rates shown are the effective rates at March 31, 1999.
INVESTMENT ABBREVIATIONS
IDA - Industrial Development Authority
PCRB - Pollution Control Revenue Bond
PFA - Public Finance Authority
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
MENTOR FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT TAX-EXEMPT
MONEY MONEY MONEY
MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
ASSETS
Investments, at
amortized cost
(Note 2)
Investment securities $ 155,438,755 $ 163,051,367 $ 30,464,781
Repurchase agreements 39,251,612 28,214,648 --
-------------- -------------- -------------
Total investments 194,690,367 191,266,015 30,464,781
Dividends and interest
receivables 703,679 380,306 104,756
Prepaid Expense -- -- 45,000
Deferred expenses
(Note 2) 21,210 16,826 --
-------------- -------------- -------------
TOTAL ASSETS 195,415,256 191,663,147 30,614,537
-------------- -------------- -------------
LIABILITIES
Dividends payable 638,820 717,334 53,583
Accrued expenses and
other liabilities 15,118 27,835 4,744
-------------- -------------- -------------
TOTAL LIABILITIES 653,938 745,169 58,327
-------------- -------------- -------------
NET ASSETS $ 194,761,318 $ 190,917,978 $ 30,556,210
============== ============== =============
SHARES OUTSTANDING 194,761,318 190,917,978 30,556,210
Net Asset Value per
Share 1.00 1.00 1.00
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT TAX-EXEMPT
MONEY MONEY MONEY
MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO (a)
<S> <C> <C> <C>
INVESTMENT INCOME
Interest (Note 2) $ 2,090,085 $ 3,675,883 $ 172,837
----------- ----------- ---------
EXPENSES
Distribution fee (Note 5) 74,445 36,427 19,863
Management fee (Note 4) 55,317 124,015 2,677
Transfer agent fee 46,054 76,750 1,054
Shareholder reports and
postage expenses 17,251 15,889 3,720
Registration expenses 16,476 20,745 3,906
Administration fee (Note 4) 7,753 13,535 1,204
Custodian and accounting
fees 4,313 6,088 736
Organizational expenses 1,945 2,020 --
Legal fees 1,666 2,377 285
Audit fees 1,171 1,671 200
Directors' fees and expenses 865 1,235 148
Miscellaneous 799 1,138 136
----------- ----------- ---------
Total expenses 228,055 301,890 33,929
----------- ----------- ---------
NET INVESTMENT INCOME $ 1,862,030 $ 3,373,993 $ 138,908
=========== =========== =========
</TABLE>
(a) For the period from October 15, 1998 (commencement of operations) to March
31, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
MENTOR FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
SIX MONTHS
ENDED 3/31/99 PERIOD ENDED
(UNAUDITED) 9/30/98 (a)
<S> <C> <C>
NET INCREASE IN NET ASSETS
Operations
Net investment income $ 1,862,030 $ 1,711,253
------------- -------------
Increase in net assets resulting from
operations 1,862,030 1,711,253
------------- -------------
Distributions to Shareholders
From net investment income (1,862,030) (1,711,253)
------------- -------------
Total distributions to shareholders (1,862,030) (1,711,253)
------------- -------------
Capital Share Transactions (Note 5)
Proceeds from sale of shares 181,771,588 69,738,706
Reinvested distributions 1,388,131 1,450,841
Shares redeemed (29,368,690) (30,219,258)
------------- -------------
Change in net assets resulting from capital
share transactions 153,791,029 40,970,289
------------- -------------
Increase in net assets 153,791,029 40,970,289
Net Assets
Beginning of period 40,970,289 --
------------- -------------
End of period $ 194,761,318 $ 40,970,289
============= =============
<CAPTION>
TAX-EXEMPT
U.S. GOVERNMENT MONEY MARKET
MONEY MARKET PORTFOLIO PORTFOLIO
SIX MONTHS PERIOD ENDED
ENDED 3/31/99 YEAR ENDED 3/31/99
(UNAUDITED) 9/30/98 (UNAUDITED)(b)
<S> <C> <C> <C>
NET INCREASE IN NET ASSETS
Operations
Net investment income $ 3,373,993 $ 4,861,060 $ 138,908
-------------- --------------- -------------
Increase in net assets resulting from
operations 3,373,993 4,861,060 138,908
-------------- --------------- -------------
Distributions to Shareholders
From net investment income (3,373,993) (4,861,060) (138,908)
-------------- --------------- -------------
Total distributions to shareholders (3,373,993) (4,861,060) (138,908)
-------------- --------------- -------------
Capital Share Transactions (Note 5)
Proceeds from sale of shares 197,472,391 170,787,913 46,230,182
Reinvested distributions 3,063,215 4,466,073 85,325
Shares redeemed (115,890,666) (130,785,595) (15,759,297)
-------------- --------------- -------------
Change in net assets resulting from capital
share transactions 84,644,940 44,468,391 30,556,210
-------------- --------------- -------------
Increase in net assets 84,644,940 44,468,391 30,556,210
Net Assets
Beginning of period 106,273,038 61,804,647 --
-------------- --------------- -------------
End of period $ 190,917,978 $ 106,273,038 $ 30,556,210
============== =============== =============
</TABLE>
(a) For the period from November 19, 1997 (commencement of operations) to
September 30, 1998.
(b) For the period from October 15, 1998 (commencement of operations) to March
31, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
MENTOR FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
----------------------------------------------------------
RETAIL SHARES INSTITUTIONAL SHARES
PERIOD ENDED SIX MONTHS
ENDED
3/31/99 3/31/99 PERIOD ENDED
(UNAUDITED) (c) (UNAUDITED) 9/30/98 (b)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations
Net investment income 0.02 0.02 0.05
-------- -------- --------
Total from investment operations 0.02 0.02 0.05
-------- -------- --------
Less distributions
From net investment income (0.02) (0.02) (0.05)
--------- --------- ---------
Total distributions (0.02) (0.02) (0.05)
--------- --------- ---------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
========= ========= =========
TOTAL RETURN (d) 2.22% 2.44% 4.74%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $150,148 $ 44,613 $ 40,970
Ratio of expenses to average net assets 0.85% (a) 0.35% (a) 0.33% (a)
Ratio of net investment income to average net assets 4.01% (a) 4.70% (a) 5.35% (a)
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT
MONEY MARKET PORTFOLIO
--------------------------------------------------------
RETAIL SHARES INSTITUTIONAL SHARES
PERIOD ENDED SIX MONTHS
3/31/99 ENDED 3/31/99 YEAR ENDED
(UNAUDITED)(c) (UNAUDITED) 9/30/98
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Income from investment operations
Net investment income 0.02 0.02 0.01
--------- --------- ---------
Total from investment operations 0.02 0.02 0.01
--------- --------- ---------
Less distributions
From net investment income (0.02) (0.02) (0.01)
---------- ---------- ----------
Total distributions (0.02) (0.02) (0.01)
---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
TOTAL RETURN (d) 2.14% 2.36% 1.39%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 54,094 $ 136,824 $ 61,805
Ratio of expenses to average net assets 0.82% (a) 0.36% (a) 0.33% (a)
Ratio of net investment income to average net assets 4.22% (a) 4.62% (a) 5.26% (a)
<CAPTION>
TAX-EXEMPT
PORTFOLIO
------------------
RETAIL SHARES
PERIOD ENDED
3/31/99
(UNAUDITED) (c)
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 1.00
---------
Income from investment operations
Net investment income 0.01
---------
Total from investment operations 0.01
---------
Less distributions
From net investment income (0.01)
----------
Total distributions (0.01)
----------
Net asset value, end of period $ 1.00
==========
TOTAL RETURN (d) 1.23%
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 30,556
Ratio of expenses to average net assets 0.73% (a)
Ratio of net investment income to average net assets 2.28% (a)
</TABLE>
(a) Annualized.
(b) For the period from November 19, 1997 (commencement of operations) to
September 30, 1998.
(c) For the period from October 15, 1998 (commencement of operations) to March
31, 1999.
(d) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
- --------------------------------------------------------------------------------
NOTE 1: ORGANIZATION
Mentor Funds is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company. Mentor Funds consists of twelve
separate Portfolios (hereinafter each individually referred to as a "Portfolio"
or collectively as the "Portfolios") at March 31, 1999, as follows:
Mentor Growth Portfolio ("Growth Portfolio")
Mentor Perpetual Global Portfolio
("Global Portfolio")
Mentor Capital Growth Portfolio
("Capital Growth Portfolio")
Mentor Income and Growth Portfolio
("Income and Growth Portfolio")
Mentor Balanced Portfolio
("Balanced Portfolio")
Mentor Municipal Income Portfolio
("Municipal Income Portfolio")
Mentor Quality Income Portfolio
("Quality Income Portfolio")
Mentor Short-Duration Income Portfolio
("Short-Duration Income Portfolio")
Mentor High Income Portfolio
("High Income Portfolio")
Mentor Money Market Portfolio
("Money Market Portfolio")
Mentor U.S. Government Money Market Portfolio
("Government Portfolio")
Mentor Tax-Exempt Money Market Portfolio
("Tax-Exempt Portfolio")
The assets of each Portfolio are segregated and a shareholder's interest is
limited to the Portfolio in which shares are held.
These financial statements include only the Money Market Portfolio, the
Government Portfolio and the Tax-Exempt Portfolio.
The investment objective of the Money Market Portfolio is to seek a high rate of
current income consistent with preservation of capital and maintenance of
liquidity. The Portfolio will invest in high-quality short-term instruments
including U.S. Government securities, banker's acceptances, prime commercial
paper, fixed-income securities of corporations and other private issuers, and
money market instruments.
The Government Money Market Portfolio's investment objective is to seek a high
rate of current income consistent with preservation of capital and maintenance
of liquidity. The Portfolio invests exclusively in U.S. Treasury bills, notes
and bonds, and other obligations issued or guaranteed as to principal or
interest by the U.S. Government, its agencies, or instrumentalities, and in
repurchase agreements with respect to such obligations.
The Tax-Exempt Portfolio's investment objective is to seek a high rate of income
exempt from federal income tax consistent with preservation of capital and
maintenance of liquidity. The Portfolio will invest primarily in municipal
notes, bonds, municipal securities backed by the U.S. Government and tax-exempt
commercial paper.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and
11
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
assumptions that affect amounts reported therein. Although actual results could
differ from these estimates, any such differences are expected to be immaterial
to the net assets of the Portfolio.
(a) Valuation of Securities - Securities held by the Portfolios are stated at
amortized cost, which approximates market value as permitted by Rule 2a-7 of the
Investment Company Act of 1940. In the event that a deviation of 1/2 of 1% or
more exists between the Portfolios' $1.00 per share net asset value calculated
at amortized cost, and the net asset value calculated by reference to
market-based values, or if there is any other deviation that the Board of
Trustees believes would result in a material dilution to shareholders or
purchasers, the Board of Trustees will promptly consider what action should be
initiated. Net asset value per share is determined each business day for the
Fund and is calculated by dividing net asset value by the number of shares
outstanding at the end of each business day.
(b) Repurchase Agreements - It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book entry system all securities held as collateral in support of
repurchase agreement investments.
Additionally, procedures have been established by the Trust to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
securities to ensure the existence of a proper level of collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by the
Trust's adviser to be creditworthy pursuant to guidelines established by the
Trustees. Risks may arise from the potential inability of counterparties to
honor the terms of the repurchase agreement. Accordingly, the Trust could
receive less than the repurchase price on the sale of collateral securities.
(c) Security Transactions and Interest Income - Security transactions for the
Portfolios are accounted for on a trade date basis. Interest income is recorded
on the accrual basis and includes amortization of premium and discount on
investments.
(d) Federal Taxes - No provision for federal income taxes has been made since it
is each Portfolio's intent to comply with the provisions applicable to regulated
investment companies under the Internal Revenue Code and to distribute to its
shareholders within the allowable time limit substantially all taxable income
and realized capital gains.
(e) Deferred Expenses - Costs incurred by the Portfolios in connection with
their initial share registration and organization costs were deferred by the
Portfolios and are being amortized on a straight-line basis over a five-year
period.
(f) Distributions - Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
NOTE 3: DIVIDENDS
Each Portfolio declares a daily dividend, equal to its net investment income for
that day. Dividends for the immediately preceding month will be paid on the
fifteenth day of each calendar month. Distributions from net realized capital
gains, if any, will be distributed annually.
12
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
NOTE 4: INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENTS
Mentor Investment Advisors, LLC ("Mentor Advisors") is a wholly owned subsidiary
of Mentor Investment Group, LLC ("Mentor") and its affiliates. Mentor is a
subsidiary of Wheat First Butcher Singer, Inc., which in turn is a wholly owned
subsidiary of First Union Corporation ("First Union"). First Union is a leading
financial services company; First Union has announced plans to acquire EVEREN
Capital Corporation, which currently has a minority ownership interest in
Mentor.
Mentor Advisors, the Portfolios' investment adviser, receives for its services
an annual investment advisory fee not to exceed the following percentages of the
average daily net assets of the Portfolios: 0.22% of the first $500 million of
the Portfolio's average net assets; 0.20% of the next $500 million; 0.175% of
the next $1 billion; 0.16% of the next $1 billion; and 0.15% of any amounts over
$3 billion. For the six months ended March 31, 1999, Mentor Advisors earned
advisory fees of $55,317, $124,015 and $2,677 from Money Market Portfolio,
Government Portfolio and Tax-Exempt Portfolio, respectively.
13
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5: CAPITAL SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in capital
shares were as follows:
<TABLE>
<CAPTION>
MENTOR MONEY MARKET PORTFOLIO
------------------------------------------------------
RETAIL SHARES INSTITUTIONAL SHARES
--------------- ------------------------------------
PERIOD SIX MONTHS PERIOD
ENDED 3/31/99 (b) ENDED 3/31/99 ENDED 9/30/98 (a)
--------------- --------------- ------------------
<S> <C> <C> <C>
Shares sold 152,569,461 29,202,127 69,738,706
Shares issued upon reinvestment of distributions 393,293 994,838 1,450,841
Shares redeemed (2,814,327) (26,554,363) (30,219,258)
----------- ----------- -----------
Change in net assets from capital share transactions 150,148,427 3,642,602 40,970,289
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MENTOR U.S. GOVERNMENT MONEY MARKET PORTFOLIO
-------------------------------------------------------
RETAIL SHARES INSTITUTIONAL SHARES
--------------- --------------------
PERIOD SIX MONTHS YEAR
ENDED 3/31/99 (b) ENDED 3/31/99 ENDED 9/30/98
--------------- ----------------- -----------------
<S> <C> <C> <C>
Shares sold 62,053,483 135,418,908 170,787,913
Shares issued upon reinvestment of distributions 231,388 2,831,827 4,466,073
Shares redeemed (8,191,213) (107,699,453) (130,785,595)
---------- ------------ ------------
Change in net assets from capital share transactions 54,093,658 30,551,282 44,468,391
========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
MENTOR TAX-EXEMPT
MONEY MARKET PORTFOLIO
-----------------------
RETAIL SHARES
-----------------------
PERIOD ENDED
3/31/99 (b)
-----------------------
<S> <C>
Shares sold 46,230,182
Shares issued upon reinvestment of distributions 85,325
Shares redeemed (15,759,297)
-----------
Change in net assets from capital share transactions 30,556,210
===========
</TABLE>
(a) For the period from November 19, 1997 (commencement of operations) to
September 30, 1998.
(b) For the period from October 15, 1998 (commencement of operations) to March
31, 1999.
14
<PAGE>
MENTOR FUNDS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
YEAR 2000 (UNAUDITED)
The Portfolio receives services from a number of providers which rely on the
effective 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 be able to perform their intended functions adequately after 1999
because of the inability of computer software to distinguish the year 2000 from
the year 1900. Mentor Advisors is taking steps that it believes are reasonably
designed to address this potential "Year 2000" problem and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Portfolios' other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the Portfolio
from this problem.
15
<PAGE>
MENTOR MONEY MARKET PORTFOLIO
MENTOR U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MENTOR TAX-EXEMPT MONEY MARKET PORTFOLIO
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
TRUSTEES
DANIEL J. LUDEMAN, TRUSTEE & CHAIRMAN
Chairman and Chief Executive Officer
Mentor Investment Group, LLC
ARCH T. ALLEN III, TRUSTEE
Attorney at Law
Allen & Moore, LLP
JERRY R. BARRENTINE, TRUSTEE
President
J.R. Barrentine & Associates
ARNOLD H. DREYFUSS, TRUSTEE
Former Chairman & Chief Executive
Officer Hamilton Beach/Proctor-Silex, Inc.
WESTON E. EDWARDS, TRUSTEE
President
Weston Edwards & Associates
THOMAS F. KELLER, TRUSTEE
Former Dean, Fuqua School of Business
Duke University
LOUIS W. MOELCHERT, JR., TRUSTEE
Vice President for Business & Finance
University of Richmond
J. GARNETT NELSON, TRUSTEE
Consultant
Mid-Atlantic Holdings, LLC
TROY A. PEERY, JR., TRUSTEE
Former President
Heilig-Meyers Company
PETER J. QUINN, JR., TRUSTEE
Managing Director
Mentor Investment Group, LLC
OFFICERS
PAUL F. COSTELLO, PRESIDENT
Managing Director
Mentor Investment Group, LLC
TERRY L. PERKINS, TREASURER AND SECRETARY
Senior Vice President
Mentor Investment Group, LLC
MICHAEL A. WADE, ASSISTANT TREASURER
Vice President
Mentor Investment Group, LLC
This report is authorized for distribution to prospective investors only when
preceded or accompanied by prospectuses for the Mentor Money Market Portfolio,
Mentor U.S. Government Money Market Portfolio and the Mentor Tax-Exempt Money
Market Portfolio, which contain complete information about fees, sales charges
and expenses. Please read this information carefully before you invest or send
money.
<PAGE>
[MENTOR INVESTMENT GROUP LOGO]
RIVERFRONT PLAZA
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(800) 382-0016
1999 MENTOR DISTRIBUTORS, LLC
MK 1295
