Mentor Perpetual International Portfolio
Semi-Annual Report, April 30, 1998
Message from the Chairman and President
- --------------------------------------------------------------------------------
It is our privilege to send you the Semi-Annual Report for the Mentor Perpetual
International Portfolio for the six months ended April 30, 1998.
The international portfolio is sponsored by Mentor Investment Group, a firm that
provides diversified investment management services to a broad range of
investors including corporations, foundations, endowments, municipalities,
public funds, and individual investors.* Seven different investment styles are
available to investors through Mentor, in both mutual funds and
separately-invested portfolios.
The report that follows provides commentary from the Portfolio's management team
at Perpetual, plc, the award-winning British investment firm.
Mentor Investment Group
Seven Investment Styles*
[GRAPH]
Cash Management
Active Fixed Income
Balanced Management
Tactical Asset Allocation
Large-Capitalization Quality Growth
Global/International Growth Equity
Small/Mid-Capitalization Growth
1
<PAGE>
Mentor Perpetual International Portfolio
Semi-Annual Report, April 30, 1998
Message from the Chairman and President (continued)
- --------------------------------------------------------------------------------
In the commentary the managers present their perspectives on the markets and
their strategies for investing your assets in international securities. Complete
financial statistics for the Portfolio are also included.
Please review the information carefully. Should you have questions, please call
your consultant, or call us directly, (800) 382-0016. On behalf of all of us at
Mentor Investment Group, we thank you for your investment in the Mentor
Perpetual International Portfolio.
Sincerely,
/s/ Daniel J. Ludeman /s/ Paul F. Costello
Daniel J. Ludeman Paul F. Costello
Chairman and CEO President
[MENTOR INVESTMENT GROUP LOGO]
The Mentor Mission
To provide professional investment management services through a firm that is
second to none in the quality of its investment process, the skill and training
of its professionals, and the commitment, shared by all its associates, to
deliver the highest level of service and ethical behavior to clients.
*Mentor Investment Advisors LLC/dba Mentor Investment Group, LLC
For more information and prospectuses please call us, (800) 382-0016, or
contact your consultant. The prospectuses contain complete information
regarding fees, sales charges, and expenses. Please read them carefully
before investing or sending money.
2
<PAGE>
Mentor Perpetual International Portfolio
Managers' Commentary: The Global/International Management Team
April 30, 1998
- --------------------------------------------------------------------------------
LOOKING BACK
Over the six-month period ended April 30, 1998, world markets continued to move
ahead with the Morgan Stanley Capital International (MSCI) Europe Australia and
Far East (EAFE) Index advancing 15.6% in US dollar terms.* This was despite
substantial turmoil in global emerging markets toward the end of the period.
United Kingdom
Despite a quarter-point rise in UK interest rates in November - the fifth such
rise in six months - the equity market began a strong rally in December. The
rally continued into the new year and throughout the first quarter of 1998. The
equity market was supported by strong interest from U.S. institutions,
acquisitive U.S. corporations seeking English-language footholds in the new
unified European market, and strong new money flows.
The Bank of England Monetary Policy Committee (MPC) faced a difficult task in
deciding UK interest-rate policy, given the conflicting demands of strong wage
growth, mixed data on consumer expenditure, and a manufacturing sector driven to
the brink of recession by the relentless strength of British sterling. Rates
were kept unchanged at both the February and March meetings of the MPC.
Europe
Following an autumn correction, European equity markets bounced back strongly in
December 1997, and continued to move ahead during the first quarter of 1998.
Among the peripheral countries of Europe (Ireland, Italy, Spain, etc.), domestic
economies were boosted by European Monetary Unit (EMU)-driven falls in interest
rates. In France the first signs of a broader-based domestic-led recovery began
to appear. In core Europe, with unemployment remaining high and inflation
subdued, interest rates continued at historically low levels. EMU-driven
cross-border mergers and acquisitions, corporate restructuring, low interest
rates, a positive liquidity situation and investors eager to enter into equity
investment all provided support for equity markets that reached record highs
toward the end of the period.
Japan
Concerns over the effect of low-cost Asian competition on Japanese
manufacturers, and of failed Asian corporate borrowers on Japan's already
beleagured banking system, led to dismal equity market performance during the
final quarter of 1997. The equity market rallied during January 1998, on hopes
of successful action by the government to stimulate the domestic economy. This
optimism, however, gave way to gloom as the government once more proved
incapable of revitalizing an economy that was slipping into recession.
3
<PAGE>
Mentor Perpetual International Portfolio
Managers' Commentary: The Global/International Management Team
(continued)
- --------------------------------------------------------------------------------
Asia
At the beginning of the period revelations of South Korea's foreign debt
obligations followed by Indonesia's hostile reaction to proposed International
Monetary Fund (IMF) reforms led to collapse of confidence in Asian equity
markets and currencies. Since mid-January, markets and currencies have bounced
from their oversold lows. Despite unhappiness at the austerity involved in
reform programs, South Korea and Thailand have made valuable initial progress.
Indonesia, however, having balked at IMF demands, remains a concern.
Despite massive currency depreciation, exports remain below their levels of a
year ago, hampered by lack of finance and by the weakness of the region's
principal trading partner, Japan. Asian equity markets are now discounting much
of what is likely to prove a long road back to international credibility.
Further progress in 1998 is likely to be modest.
Latin American
Strong performance by the world's principal equity markets has side-lined Latin
American markets, which appear destined, for the time being, to remain hostage
to the fortunes of Asia's equity markets.
LOOKING AHEAD**
UK
A range of data suggests that economic growth is slowing: wage rises and
consumer expenditures appear to be abating, sterling strength is squeezing
profitability of UK manufacturers, and this year will see the full effects of
last year's increases in taxes and interest rates. The MPC has again kept
interest rates on hold and, although a further rise is possible, we believe UK
interest rates should trend downward during 1998. The UK bond market remains
firm, merger and acquisition activity is still on the agenda, and institutional
cash flow continues strong - all providing support for the UK equity market. We
believe the potential exists for further modest progress from present levels,
although it is unlikely to be at the brisk pace seen during the opening months
of 1998.
Europe
Signs of domestic recovery are appearing in core European economies. With
continued high umemployment, inflation remains low. We do not expect core
interest rates to rise in the near term.
Specifically, there are two underlying economic trends that are likely to
positively affect the European economy and markets going forward. First, current
high unemployment combined with the convergence of interest rates among European
Monetary Union participants is likely to push interest rates lower. This should
particulary be the case among peripheral European economies such as Spain,
Italy, and Ireland. Second, in a Europe which is 18 months to two years behind
the U.S. in its economic cycle,
4
<PAGE>
Mentor Perpetual International Portfolio
Managers' Commentary: The Global/International Management Team
(continued)
- --------------------------------------------------------------------------------
earnings momentum remains strong. This likely combination of lower interest
rates and strengthening earnings causes us to continue to view Europe very
favorably as a region for investment.
Japan
Japan's new fiscal year has begun with a sharp fall in the equity market, dire
warnings from the chairman of Sony and the governor of the Bank of Japan, and a
downgrading of "the environment for the Japanese economy" that precipitated
further weakening of the yen. The latest economic stimulus package, despite the
promise of four trillion yen in tax cuts, has failed to excite investors any
more than massive intervention by the Bank of Japan has succeeded in providing
anything other than a transient strengthening of the yen. Poor corporate results
and gloomy sentiment may carry the market lower in the short term; but the scale
of the economic problems facing Japan suggests that both the government and
corporate Japan will be propelled into effective action to stimulate economic
growth and focus on shareholder value. We will continue to remain patient in
looking for the appropriate buying opportunity.
Asia
Although countries such as Thailand and South Korea have made some progress in
instituting IMF reforms, the hoped-for boom in exports has failed to materialize
because of a lack of trade finance and the weak economy of the region's
principal trading partner, Japan
Despite a new agreement between the IMF and Indonesia, the second $3 billion
tranche of the IMF rescue support package to Indonesia has yet to be released.
The commitment of president Suharto's regime to reform of the country's system
of "crony capitalism" remains in doubt. The stability of Indonesia remains a
concern to the region.
Following their bounce in the early months of 1998, Asian equity markets appear
now to be discounting much of what may well prove to be a long road to recovery.
Latin America
Latin America offers attractive fundamentals, with positive economic statistics
across the region and no evidence of capital flight. It seems almost inevitable
that the region will dance to the tune of Asian developments for the foreseeable
future. Latin American equity markets will find it difficult to attract
significant foreign investment flows when the main equity markets of the world
are performing strongly.
* The MSCI EAFE Index with gross dividends reinvested is an unmanaged index
of approximately 1,119 securities issued by companies listed on the
European, Australian, and Far Eastern stock exchanges. It contains no U.S.
equities and is therefore a broadly diversified proxy for international
performance.
** While the managers will endeavor to invest the Portfolio in accordance
with their proprietary process, there is no guarantee of investment
success.
5
<PAGE>
Mentor Perpetual International Portfolio
Managers' Commentary: The Global/International Management Team
(continued)
- --------------------------------------------------------------------------------
Performance Comparison
Comparison of change in value of a hypothetical $10,000 purchase in Mentor
Perpetual International Portfolio Class A and Class B Shares and the Morgan
Stanley Capital International EAFE Index.*
[GRAPH]
Morgan Stanley Capital
Class A Class B International EAFE Index*
12/27/96 $ 9,525.00 $10,000.00 $10,000.00
1/31/97 9,548.00 10,048.00 9,652.34
2/28/97 9,875.00 10,392.00 9,812.54
3/31/97 9,890.00 10,408.00 9,850.49
4/30/97 10,057.00 10,584.00 9,905.14
5/31/97 10,627.00 11,144.00 10,552.16
6/30/97 11,091.00 11,680.00 11,136.49
7/31/97 11,357.00 11,960.00 11,318.94
8/31/97 10,726.00 11,288.00 10,475.92
9/30/97 11,357.00 11,936.00 11,065.13
10/31/97 10,513.00 11,048.00 10,217.04
4/30/98 12,139.00 12,838.00 11,810.00
Average Annual Returns as of 4/30/98
1-Year Since Inception*
Class A 14.94% 15.60%
Class B 17.30% 17.48%
The performance data quoted in this report are historical and do not predict
future investment results. Investment return and principal value will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost.
Performance is cited as of April 30, 1998, and includes changes in share price
and reinvestment of dividends and capital gains.
* The Morgan Stanley Capital International EAFE Index is an unmanaged index
composed of approximately 1,119 securities issued by foreign companies
listed on Europe, Australia & Far East (EAFE) stock exchanges. This is a
total return index with gross dividends reinvested. The performance of
countries and unmanaged indexes does not reflect expenses and many do not
correspond to the performance of the Portfolio, which is actively managed
and incurs expenses.
+ Represents a hypothetical investment of $10,000 in Mentor Perpetual
International Portfolio Class A Shares, after deducting the maximum sales
charge of 5.75% ($10,000 investment minus $575 sales charges = $9,425). The
Class A Shares' performance assumes the reinvestment of all dividends and
distributions.
++ Represents a hypothetical investment of $10,000 in Mentor Perpetual
International Portfolio Class B Shares. A contingent deferred sales charge
will be imposed, if applicable, on Class B Shares at rates ranging from a
maximum of 4.00% of amounts redeemed during the first year following the
date of purchase to 1.00% of amounts redeemed during the six-year period
following the date of purchase. Class B Shares are charged a redemption
fee of 4.00% on any redemption less than on year from the purchase date.
The Class B Shares' performance assumes the reinvestment of all dividends
and distributions.
** Reflects operations on Mentor Perpetual International Portfolio Class A
and Class B Shares from the date of initial offering on 12/27/96 through
4/30/98.
6
<PAGE>
Mentor Perpetual International Portfolio
Managers' Commentary: The Global/International Management Team
(continued)
- --------------------------------------------------------------------------------
Performance Comparison
Comparison of change in value of a hypothetical $10,000 purchase in Mentor
Perpetual International Portfolio Institutional Class Shares (Class Y) and the
Morgan Stanley Capital International EAFE Index.*
[GRAPH]
Morgan Stanley Capital
Class Y International EAFE Index*
5/96 $10,000.00 $10,000.00
6/96 10,064.00 10,058.73
7/96 9,736.00 9,767.25
8/96 9,816.00 9,791.18
9/96 9,920.00 10,053.76
10/96 9,696.00 9,953.38
11/96 10,104.00 10,351.89
12/96 10,153.00 10,221.21
1/97 10,153.00 9,865.86
2/97 10,506.00 10,029.61
3/97 10,522.00 10,068.40
4/97 10,627.00 10,124.26
5/97 11,253.00 10,785.59
6/97 11,759.00 11,382.84
7/97 12,049.00 11,569.33
8/97 11,382.00 10,707.66
9/97 12,049.00 11,309.91
10/97 11,157.00 10,443.05
4/98 13,036.00 12,071.00
Average Annual Returns as of 4/30/98
1-Year Since Inception**
Class Y 22.67% 14.80%
The performance data quoted in this report are historical and do not predict
future investment results. Investment return and principal value will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Performance is cited as of April 30, 1998, and includes changes in share
price and reinvestment of dividends and capital gains.
+ Represents a hypothetical investment of $10,000 in Mentor Perpetual
International Portfolio Institutional Class Shares (Class Y). The Class Y
Shares' performance assumes the reinvestment of all dividends and
distributions.
* The Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia,
and Far East) World Index is an unmanaged index of approximately 1,119
securities issued by companies listed on European, Australian, and Far
Eastern stock exchanges. It contains no US equities and is therefore a
broadly diversified proxy for international performance. This is a total
return index with gross dividends reinvested. The Index is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Portfolio's performance. Investors cannot invest in the
index. The performance of countries and unmanaged indexes does not reflect
expenses and may not correspond to the performance of Mentor Perpetual
International Portfolio, which is actively managed and incurs expenses.
** Reflects operations of Mentor Perpetual International Portfolio
Institutional Class from the date of commencement of operations on
5/29/96 through 4/30/98.
7
<PAGE>
Mentor Perpetual International Portfolio
Managers' Commentary: The Global/International Management Team
(continued)
- --------------------------------------------------------------------------------
Performance Comparison
Comparison of change in value of a hypothetical $10,000 purchase in Mentor
Perpetual International Portfolio Class E Shares and the Morgan Stanley Capital
International EAFE Index.*
[GRAPH]
Morgan Stanley Capital
Class E International EAFE Index*
1/16/98 $10,000 $10,000
1/31/98 10,313 10,460
2/28/98 11,114 11,133
3/31/98 11,806 11,479
4/30/98 11,763 11,572
Average Annual Returns as of 4/30/98
1-Year Since Inception**
Class E n/a 17.63%
+ Represents a hypothetical investment of $10,000 in Mentor Perpetual
International Portfolio Class E Shares. The Class E Shares' performance
assumes the reinvestment of all dividends and distributions.
* The Morgan Stanley Capital International (MSCI) EAFE (Europe, Australia,
and Far East) World Index is an unmanaged index of approximately 1,119
securities issued by companies listed on European, Australian, and Far
Eastern stock exchanges. It contains no US equities and is therefore a
broadly diversified proxy for international performance. This is a total
return index with gross dividends reinvested. The Index is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires to be
reflected in the Portfolio's performance. Investors cannot invest in the
index. The performance of countries and unmanaged indexes does not reflect
expenses and may not correspond to the performance of Mentor Perpetual
International Portfolio, which is actively managed and incurs expenses.
** Reflects operations of Mentor Perpetual International Portfolio Class E
from the date of commencement of operations on 1/16/98 through 4/30/98.
8
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- -------- -------------
<S> <C> <C> <C>
Preferred Stock 0.11%
- --------------------------------------------------- -----
Brazil
CESP CIA Energ SAO (cost $105,315) 8,400 $ 113,001
- --------------------------------------------------- ----- ----------
Common Stocks 91.09%
- --------------------------------------------------- -----
Argentina 0.42%
Banco Rio de la Plata SA 8,260 113,575
Perez Company SA 8,240 99,716
Siderar- 2,900 114,158
Telefonica de Argentina SA- 2,860 110,289
- --------------------------------------------------- ----- ----------
437,738
----------
Belgium 0.70%
G.I.B. Group SA- 15,000 736,842
- --------------------------------------------------- ------ ----------
Brazil 1.31%
Brazil Fund, Inc.- 4,520 102,830
Cemig Energetic (a)- 270 12,981
Electrobras - Centrais Eletricas Brasileiras SA- 6,040 135,686
Companhia Cervejaria Brahma- 6,600 87,038
Companhia Energetica de Minais Gerais- 2,290 110,094
Companhia Paranaense de Energia-Copel- 7,400 105,450
Pao de Acucar # 4,630 123,842
Petroleo Brasileiro SA- 5,500 139,180
Telecomunicacoes Brasileiras- 2,700 328,894
Unibanco # 2,850 113,288
Vale do Rio Doche- 4,720 113,459
- --------------------------------------------------- ------ ----------
1,372,742
----------
</TABLE>
9
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- -------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- --------------------------------------------------------------------------------------------
-
------ ---------
Chile 0.41%
Chilectra SA- 4,250 $ 115,273
Embotelladora Andina-* 4,830 108,977
Enersis SA- 3,500 103,031
Telecomunicaciones de Chile- 4,130 103,508
- -------------------------------------- ------- -----------
430,789
-----------
China 0.24%
Huaneng Power International, Inc.-* 11,500 253,000
- -------------------------------------- ------- -----------
Croatia 0.11%
Pliva d.d. # 5,000 84,625
Zagrebacka Banka d.d. * 1,100 28,930
- -------------------------------------- ------- -----------
113,555
-----------
Finland 2.96%
Huhtamaki 15,230 880,516
Nokia Oy 33,010 2,217,449
- -------------------------------------- ------- -----------
3,097,965
-----------
France 11.32%
Accor SA 2,400 653,693
Atos SA 2,440 407,511
Axa 10,400 1,220,174
Compagnie Financiere de Paribas- 14,500 1,542,169
Elf Aquitane SA 14,425 1,891,371
Entrelec * 3,000 163,523
Genset SA-* 20,000 602,500
Generale Des Eaux 400 74,317
Groupe SEB SA 1,320 206,199
ISIS * 3,600 432,538
Pinault - Printemps - Redoute SA 2,000 1,488,326
</TABLE>
10
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- ---------------------------------------------------------------------------------
-
------- ----------
France (continued)
Schneider SA 20,000 $ 1,495,638
Serp Recyclage* 3,809 373,462
Total - Class B 11,000 1,307,021
- ------------------------- -------- ------------
11,858,442
------------
Germany 3.26%
Allianz AG 3,400 1,049,722
Allianz AG - Warrants* 100 30,596
Hochtief AG 4,460 186,247
Porsche AG 335 844,961
Viag AG 2,550 1,301,125
- ------------------------- -------- ------------
3,412,651
------------
Great Britain 21.69%
Abbey National PLC 35,000 651,522
Arcadia Group PLC 37,750 297,446
ASDA Group PLC 107,000 359,257
BAA PLC 57,000 584,865
Barclays PLC 15,000 430,752
Bass PLC 26,785 515,176
BAT Industries PLC 57,400 548,169
Billiton PLC 120,000 344,702
British Aerospace PLC 14,000 469,237
British Airways 56,000 588,185
British Biotech* 190,000 189,871
Burmah Castrol 25,000 517,639
Celltech PLC * 24,000 137,479
Centrica * 180,200 311,933
Commercial Union 37,563 697,976
Dalgety 95,000 622,045
</TABLE>
11
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- -------------------------------------------------------------------------------------------
Great Britain (continued)
Debenhams PLC 37,500 $246,171
Diageo PLC 14,560 173,992
Emap PLC 30,000 611,633
Enterprise Oil 45,500 418,543
Glaxo Wellcome 23,800 673,509
Granada Group 31,000 533,511
Great Universal Stores PLC 24,000 366,278
Greenalls Group PLC 50,000 405,581
Hambro Countrywide PLC 100,000 223,279
HSBC Holdings PLC 30,000 883,080
III Group PLC 38,500 379,264
Imperial Chemical Industries PLC 30,000 543,897
Inchcape PLC 70,000 260,492
Lloyds TSB Group 47,000 705,502
Medeva 123,300 366,039
National Westminster 22,600 452,448
Northern Foods PLC 60,000 222,275
PowerGen PLC 26,000 354,185
Prudential Corporation PLC 27,000 382,936
Rank Group PLC 90,000 583,661
Reckitt & Colman PLC 15,000 302,053
Rolls-Royce 135,000 635,027
Safeway 40,882 242,732
Scotia Holdings 30,000 188,909
Smith Group 25,000 233,105
SmithKline Beecham PLC 47,000 563,223
Spirax-Sarco Engineering PLC 30,000 328,646
Stakis PLC 240,000 517,806
Standard Chartered 51,500 790,708
Tate & Lyle PLC 37,400 304,939
Tesco PLC 43,300 406,996
United News & Media PLC 42,000 568,282
United Utilities 46,300 646,597
</TABLE>
12
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- ------------------------------------------------------------------------------------------------------
Great Britain (continued)
UTD Assurance Group CNV 15,000 $ 2,007
Vickers 115,000 453,917
Whitbread PLC 27,500 478,335
- ---------------------------------------------- -------- ------------
22,715,812
------------
Greece 0.26%
Alpha Credit Bank 550 58,028
Ergo Bank SA 900 84,771
Hellenic Telecommunications Organization 2,100 60,141
Titan Cement Company 750 64,198
- ---------------------------------------------- -------- ------------
267,138
------------
Hong Kong 5.56%
Bank of East Asia 275,000 495,096
Cheung Kong Holdings 32,000 212,686
China Foods Holdings * 240,000 84,403
China Light & Power 32,000 153,630
China Overseas Land & Investment 800,000 183,778
China Telecom * 120,000 227,657
Citic Pacific, Limited 120,000 368,587
Elec & Eltek International Company, Limited 340,000 96,535
First Tractor Company 360,000 200,942
GZI Transport, Limited 300,000 96,793
GZI Transport - Warrants 16,000 285
Hang Seng Bank, Limited 36,000 303,155
HKR International, Limited 420,800 252,529
Hong Kong & China Gas 154,000 209,679
Hong Kong & China Gas WT99 7,000 -
Hong Kong Electric 80,000 245,725
Hong Kong Telecom 53,029 99,235
HSBC Holdings PLC 36,685 1,046,323
Hutchison Whampoa, Limited 40,000 247,274
Legend Holdings, Limited * 220,000 94,405
</TABLE>
13
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- ------------------------------------------------------------------------------------------------
Hong Kong (continued)
National Mutual Asia, Limited 240,000 $ 192,037
New World Development 140,675 400,321
New World Infrastructure* 60,000 128,928
Road King Infrastructure, Limited 323,544 300,641
Union Bank of Hong Kong, Limited 160,000 182,745
- ---------------------------------------- -------- -----------
5,823,389
-----------
Hungary 0.29%
Demasz Rt # 2,100 36,645
Magyar Olaj-es Gazipari Rt # 1,500 45,788
Matav Rt - 4,500 132,750
OTP Bank Sp # 900 43,200
Richter Gedeon Rt # 400 44,000
- ---------------------------------------- -------- -----------
302,383
-----------
India 0.34%
Hindalco Industries, Limited * 4,000 78,000
Mahanagar Telephone Nigam, Limited #* 6,000 93,300
Tata Electric # 800 180,000
- ---------------------------------------- -------- -----------
351,300
-----------
Indonesia 0.06%
PT Bat Indonesia 20,000 64,198
- ---------------------------------------- -------- -----------
Ireland 3.66%
Bank of Ireland 71,300 1,451,263
CRH PLC 80,000 1,137,969
Elan Corporation PLC * 20,000 1,242,500
- ---------------------------------------- -------- -----------
3,831,732
-----------
</TABLE>
14
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- -----------------------------------------------------------------------------------------------------
Italy 8.08%
Assicurazioni Generali 43,500 $ 1,308,806
Gruppo Editoriale L'Espresso 75,000 622,354
Instituto Mobiliare Italiano 86,000 1,407,846
Instituto Nazionale delle Assicurazioni 200,000 597,798
Telecom Italia Mobile 253,500 1,334,466
Telecom Italia SPA 480,000 3,192,887
- --------------------------------------------- -------- ------------
8,464,157
------------
Japan 12.24%
Aoyamma Trading Company, Limited 50,000 1,147,350
Daiwa House Industry Company, Limited 150,000 1,207,539
Daiwa Securities * 14,500 1,128,541
Kirin Brewery Company, Limited 130,000 1,129,669
Kyocera Corporation 25,000 1,305,346
Nippon Steel Corporation * 675,000 1,081,706
Nippon Telegraph & Telephone Corporation * 1,300 1,134,560
Sumitomo Marine & Fire 208,000 1,234,714
Sumitomo Warehouse Company, Limited 250,000 1,025,091
Tokyo Electric Power 67,000 1,277,847
Toyoda Automatic Loom Works, Limited 65,000 1,144,340
- --------------------------------------------- -------- ------------
12,816,703
------------
Korea 0.05%
Atlantis Korean Company* 5,000 30,450
Schroder Korea Fund* 7,000 25,375
- --------------------------------------------- -------- ------------
55,825
------------
Luxembourg 0.13%
Elektrim SA 200,000 136,971
- --------------------------------------------- -------- ------------
</TABLE>
15
<PAGE>
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- --------------------------------------------------------------------------------------------
Malaysia 0.69%
Boustead Holdings Berhad 10,000 $ 8,252
IOI Corporation Berhad 300,000 225,050
Magnum Corporation Berhad 360,000 241,125
Nanyang Press Berhad 8,000 7,459
Petronas Dagangan Berhad 80,000 91,306
Powertek Berhad 120,000 150,462
- ------------------------------------ -------- -----------
723,654
-----------
Mexico 1.38%
ALFA SA 17,000 92,314
Cemex SA -* 10,250 121,702
Cifra SA - 7,020 123,208
DESC SA - 3,782 108,969
Empresas La Moderna SA - 4,750 95,297
Fomento Economico Mexicano - (a) 14,440 111,240
Grupo Carso SA - 9,390 119,455
Grupo Fin Bancomer -* (a) 9,950 118,405
Grupo Televisa #* 3,180 125,109
Kimberly-Clark de Mexico SA - 4,260 103,305
Panamerican Beverages - Class A * 2,690 107,264
Telefono de Mexico-Class L - 3,900 220,838
- ------------------------------------ -------- -----------
1,447,106
-----------
Netherlands 2.84%
Baan Company NV * 20,000 875,414
IHC Caland NV 3,000 174,489
Ispat International NV* 21,300 606,796
Royal Dutch Petroleum Company 6,476 357,126
Vendex International NV 15,000 961,472
- ------------------------------------ -------- -----------
2,975,297
-----------
Peru 0.12%
Telefonica del Peru SA - 5,900 130,538
- ------------------------------------ -------- -----------
</TABLE>
16
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Percent of Net Assets Shares Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- ----------------------------------------------------------------------------------------------
Philippines 0.14%
Ayala Corporation 37,500 $ 16,537
Benpres Holdings #* 29,000 94,250
Benpres 11,600 39,730
- -------------------------------------- -------- -----------
150,517
-----------
Poland 0.12%
Big Bank Gdanski SA # 5,400 122,040
- -------------------------------------- -------- -----------
Singapore 0.79%
City Developments, Limited 20,000 86,517
GP Batteries International, Limited 53,000 146,599
Keppel Corporation, Limited 60,000 161,415
Marco Polo Developments, Limited 80,000 101,547
Overseas Chinese Bank* 20,000 105,463
Overseas Union Bank, Limited 60,000 227,344
- -------------------------------------- -------- -----------
828,885
-----------
Spain 4.71%
Baron de Ley* 30,000 917,675
Continente SA 32,605 767,529
Prosegur CIA de Seguridad SA 98,294 1,237,497
Telefonica de Espana SA 18,000 750,664
Viscofan Envolturas Celulosicas SA 31,010 1,260,693
- -------------------------------------- -------- -----------
4,934,058
-----------
Sweden 4.20%
Astra AB - Class A 90,000 1,846,857
BPA AB 115,000 316,134
Celsius AB - Class B 6,500 144,290
</TABLE>
17
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal
Percent of Net Assets Amount Market Value
----------------------- ---------- -------------
<S> <C> <C> <C>
Common Stocks (continued)
- -------------------------------------------------
Sweden (continued)
Securitas AB - Class B 11,940 $ 439,180
Svenska Handelsbanken - Class A 36,580 1,657,083
- ------------------------------------------------- ------ ----------
4,403,544
----------
Switzerland 2.72%
Credit Suisse Group 3,000 659,121
Jelmoli Holding AG 360 412,250
Nestle SA 220 426,230
Schwetz Bankgesellschaft - Class B 595 957,071
Zurich Versicherungs - Gesellschaft 650 395,539
- ------------------------------------------------- ------ ----------
2,850,211
----------
Taiwan 0.06%
Taipei Fund * 4 40,500
Taiwan Semiconductor - 1,000 24,344
- ------------------------------------------------- ------ ----------
64,844
----------
Thailand 0.14%
Bangkok Bank 59,900 150,721
- ------------------------------------------------- ------ ----------
Venezuela 0.08%
Compania Anonima Nacional Telefonos - 2,670 89,445
- ------------------------------------------------- ------ ----------
Total Common Stocks (cost $84,133,986) 95,414,192
- ------------------------------------------------- ----------
Corporate Bond 0.03%
- ------------------------------------------------- ----
Scotia Holdings, 8.50%, 3/26/02 (cost $13,663) $19,000 36,624
- ------------------------------------------------- ------- ----------
Total Long-Term Investments (cost $84,252,964) 95,563,817
- ------------------------------------------------- ----------
</TABLE>
18
<PAGE>
Mentor Perpetual International Portfolio
Portfolio of Investments
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Percent of Net Assets Amount Market Value
----------------------- ------------- ---------------
<S> <C> <C> <C>
Short-Term Investment 7.45%
- -------------------------------------------- ------
Repurchase Agreement
Goldman Sachs & Company
Dated 4/30/98, 5.54%, due 5/01/98,
collateralized by Federal Home Loan
Mortgage Corporation, $7,873,065, 7.00%,
2/01/28, market value $7,966,557,
(cost $7,801,954) $7,801,954 $ 7,801,954
- -------------------------------------------- ---------- ------------
Total Investments (cost $92,054,918) 98.68% 103,365,771
- -------------------------------------------- ------ ------------
Other Assets less Liabilities 1.32% 1,383,317
- -------------------------------------------- ------ ------------
Net Assets 100.00% $104,749,088
- -------------------------------------------- ------ ------------
</TABLE>
* Non-income producing.
- American Depository Receipts.
(a) These are securities that may be resold to "qualified institutional buyers"
under Rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the Board of Trustees.
# Global Depository Receipts.
@ International Depository Receipts.
Investment Transactions
Cost of purchases and proceeds from sales of securities, other than short-term
securities, aggregated $66,108,646 and $43,324,119, respectively.
Income Tax Information
At April 30, 1998, the aggregated cost of investment securities for federal
income tax purposes was $92,054,918. Net unrealized appreciation aggregated
$11,310,853, of which $14,426,117, related to appreciated investment securities
and $3,115,264, related to depreciated investment securities.
See notes to financial statements.
19
<PAGE>
Mentor Perpetual International Portfolio
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market value (Note 2)
Investment securities $ 95,563,817
Repurchase agreements 7,801,954
- ----------------------------------------------------------------------------------- ------------
Total investments (cost $92,054,918) 103,365,771
- ----------------------------------------------------------------------------------- ------------
Cash 13,218
Collateral for securities loaned (Note 2) 15,746,493
Receivables
Fund shares sold 815,479
Dividends and interest 883,074
Unrealized appreciation on forward foreign currency exchange contracts (Note 6) 116
Deferred expenses, net (Note 2) 16,050
Other 50,000
- ----------------------------------------------------------------------------------- ------------
Total assets 120,890,201
- ----------------------------------------------------------------------------------- ------------
Liabilities
Payables
Investments purchased 329,927
Securities loaned (Note 2) 15,746,493
Fund shares redeemed 43,851
Unrealized depreciation on forward foreign currency exchange contracts (Note 6) 14,564
Accrued expenses and other liabilities 6,278
- ----------------------------------------------------------------------------------- ------------
Total liabilities 16,141,113
- ----------------------------------------------------------------------------------- ------------
Net Assets $104,749,088
- ----------------------------------------------------------------------------------- ------------
Net Assets represented by: (Note 2)
Additional paid-in capital $ 92,787,448
Accumulated undistributed net investment income 281,039
Accumulated net realized gain on investment transactions 383,823
Net unrealized appreciation of investments 11,296,778
- ----------------------------------------------------------------------------------- ------------
Net Assets $104,749,088
- ----------------------------------------------------------------------------------- ------------
Net Asset Value per Share
Class A Shares $ 16.08
Class B Shares $ 15.99
Class E Shares $ 16.15
Class Y Shares* $ 16.16
Offering Price per Share
Class A Shares $ 17.06(a)
Class B Shares $ 15.99
Class E Shares $ 16.15
Class Y Shares* $ 16.16
Shares Outstanding
Class A Shares 2,972,450
Class B Shares 2,235,132
Class E Shares 148,023
Class Y Shares* 1,164,664
- ----------------------------------------------------------------------------------- ------------
Total Shares Outstanding 6,520,269
- ----------------------------------------------------------------------------------- ------------
</TABLE>
(a) Computation of offering price: 100/94.25 of net asset value.
* Represents Institutional Class.
See notes to financial statements.
20
<PAGE>
Mentor Perpetual International Portfolio
Statement of Operations
Six Months Ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income
Dividends (b) $ 722,649
Interest 151,537
- ------------------------------------------------------------------------------ -----------
Total investment income (Note 2) 874,186
- ------------------------------------------------------------------------------ -----------
Expenses
Management fee (Note 3) 412,093
Distribution fee (Note 3) 94,317
Shareholder service fee (Note 5) 82,068
Custodian and accounting fees (Note 3) 44,640
Transfer agent fee (Note 3) 30,887
Registration expenses 18,151
Shareholder reports and postage expenses 8,736
Administration fee (Note 4) 6,444
Organizational expenses 1,969
Legal fees 1,038
Audit fees 515
Directors' fees and expenses 456
Miscellaneous 455
- ------------------------------------------------------------------------------ -----------
Total expenses 701,769
- ------------------------------------------------------------------------------ -----------
Deduct
Waiver of management fee (Note 3) 112,129
- ------------------------------------------------------------------------------ -----------
Net investment income 284,546
- ------------------------------------------------------------------------------ -----------
Realized and unrealized gain on investments and foreign currency transactions
Net realized gain on investments and foreign currency related
transactions (Note 2) 436,434
Change in unrealized appreciation (depreciation) on investments and
foreign currency related transactions 12,880,325
- ------------------------------------------------------------------------------ -----------
Net gain on investments 13,316,759
- ------------------------------------------------------------------------------ -----------
Net increase in net assets resulting from operations $13,601,305
- ------------------------------------------------------------------------------ -----------
</TABLE>
(b) Net of withholding taxes of $93,878.
See notes to financial statements.
21
<PAGE>
Mentor Perpetual International Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended 4/30/98 Year Ended
(Unaudited) 10/31/97
--------------- ---------------
<S> <C> <C>
Net Increase in Net Assets
Operations
Net investment income $ 284,546 $ 193,577
Net realized gain on investments and foreign currency
related transactions (Note 2) 436,434 177,630
Change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions 12,880,325 (1,434,574)
- ---------------------------------------------------------- ------------ -----------
Net increase in net assets resulting from operations 13,601,305 (1,063,367)
- ---------------------------------------------------------- ------------ -----------
Distributions to Shareholders
From net investment income
Class Y* (11,600) (36,772)
From net realized gain on investments
Class A (129,155) -
Class B (80,300) -
Class Y* (58,000) -
- ---------------------------------------------------------- ------------ -----------
Total distributions to shareholders (279,055) (36,772)
- ---------------------------------------------------------- ------------ -----------
Capital Share Transactions (Note 7)
Proceeds from sale of shares 27,875,537 62,103,256
Reinvested distributions 273,052 36,772
Shares redeemed (5,415,662) (1,087,432)
- ---------------------------------------------------------- ------------ -----------
Change in net assets resulting from capital share
transactions 22,732,927 61,052,596
- ---------------------------------------------------------- ------------ -----------
Increase in net assets 36,055,177 59,952,457
Net Assets
Beginning of period 68,693,911 8,741,454
- ---------------------------------------------------------- ------------ -----------
End of period (including accumulated undistributed net
investment income of $281,039 and $8,093,
respectively) $104,749,088 $68,693,911
- ---------------------------------------------------------- ------------ -----------
</TABLE>
* Represents Institutional Class.
See notes to financial statements.
22
<PAGE>
Mentor Perpetual International Portfolio
Financial Highlights
Class A Shares
<TABLE>
<CAPTION>
Six Months Period
Ended 4/30/98 Ended
(Unaudited) 10/31/97 (b)
----------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 13.83 $ 12.53
- --------------------------------------------------------- -------- --------
Income from investment operations
Net investment income 0.06 0.01
Net realized and unrealized gain on investments 2.24 1.29
- --------------------------------------------------------- -------- --------
Total from investment operations 2.30 1.30
Less distributions
From net realized capital gain (0.05) -
- --------------------------------------------------------- --------- ---------
Total distributions (0.05) -
- --------------------------------------------------------- --------- ---------
Net asset value, end of period $ 16.08 $ 13.83
- --------------------------------------------------------- --------- ---------
Total Return* 16.69% 10.38%
- --------------------------------------------------------- --------- ---------
Ratios / Supplemental Data
Net assets, end of period (in thousands) $ 47,792 $ 33,213
Ratio of expenses to average net assets 1.35%(a) 1.35%(a)
Ratio of expenses to average net asset excluding waiver 1.92%(a) 1.92%(a)
Ratio of net investment income to average net assets 0.85%(a) 0.71%(a)
Portfolio turnover rate 54% 107%
Average commission rate on portfolio transactions $ 0.0275 $ 0.0150
- --------------------------------------------------------- ------------ ------------
</TABLE>
(a) Annualized.
(b) For the period from December 27, 1996 (initial offering of Class A Shares)
to October 31, 1997.
* Total return does not reflect sales commissions and is not annualized.
See notes to financial statements.
23
<PAGE>
Mentor Perpetual International Portfolio
Financial Highlights
Class B Shares
<TABLE>
<CAPTION>
Six Months Period
Ended 4/30/98 Ended
(Unaudited) 10/31/97 (c)
----------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 13.81 $ 12.53
- --------------------------------------------------------- -------- --------
Income from investment operations
Net investment income 0.02 -
Net realized and unrealized gain on investments 2.21 1.28
- --------------------------------------------------------- -------- ---------
Total from investment operations 2.23 1.28
- --------------------------------------------------------- -------- ---------
Less distributions
From net realized capital gain (0.05) -
- --------------------------------------------------------- --------- ---------
Total distributions (0.05) -
- --------------------------------------------------------- --------- ---------
Net asset value, end of period $ 15.99 $ 13.81
- --------------------------------------------------------- --------- ---------
Total Return* 16.20% 10.22%
- --------------------------------------------------------- --------- ---------
Ratios / Supplemental Data
Net assets, end of period (in thousands) $ 35,749 $ 19,371
Ratio of expenses to average net assets 2.10%(a) 2.10%(a)
Ratio of expenses to average net asset excluding waiver 2.65%(a) 2.65%(a)
Ratio of net investment income to average net assets 0.12%(a) 0.04%(a)
Portfolio turnover rate 54% 107%
Average commission rate on portfolio transactions $ 0.0275 $ 0.0150
- --------------------------------------------------------- ------------ ------------
</TABLE>
(a) Annualized.
(c) For the period from December 27, 1996 (initial offering of Class B Shares)
to October 31, 1997.
* Total return does not reflect sales commissions and is not annualized
See notes to financial statements.
24
<PAGE>
Mentor Perpetual International Portfolio
Financial Highlights
Class E Shares
<TABLE>
<CAPTION>
Period
Ended 4/30/98 (d)
(Unaudited)
------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 13.73
- --------------------------------------------------------- --------
Income from investment operations
Net investment income 0.04
Net realized and unrealized gain on investments 2.38
- --------------------------------------------------------- --------
Total from investment operations 2.42
- --------------------------------------------------------- --------
Net asset value, end of period $ 16.15
- --------------------------------------------------------- --------
Total Return* 17.63%
- --------------------------------------------------------- --------
Ratios / Supplemental Data
Net assets, end of period (in thousands) $ 2,390
Ratio of expenses to average net assets 1.35%(a)
Ratio of expenses to average net asset excluding waiver 1.48%(a)
Ratio of net investment income to average net assets 0.95%(a)
Portfolio turnover rate 54%
Average commission rate on portfolio transactions $ 0.0275
- --------------------------------------------------------- ------------
</TABLE>
(a) Annualized.
(d) For the period from January 16, 1998 (commencement of operations) to April
30, 1998.
* Total return does not reflect sales commissions and is not annualized.
See notes to financial statements.
25
<PAGE>
Mentor Perpetual International Portfolio
Financial Highlights
Class Y Shares*
<TABLE>
<CAPTION>
Six Months Year Period
Ended 4/30/98 Ended Ended
(Unaudited) 10/31/97 10/31/96 (e)
----------------- ------------ -----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 13.89 $ 12.12 $ 12.50
- --------------------------------------------------------- -------- --------- --------
Income from investment operations
Net investment income 0.08 0.15 0.04
Net realized and unrealized gain (loss) on investments 2.25 1.67 (0.42)
- --------------------------------------------------------- -------- --------- ---------
Total from investment operations 2.33 1.82 (0.38)
- --------------------------------------------------------- -------- --------- ---------
Less distributions
From net investment income (0.01) (0.05) -
From net realized capital gain (0.05) - -
- --------------------------------------------------------- --------- ---------- ---------
Total distributions (0.06) (0.05) -
- --------------------------------------------------------- --------- ---------- ---------
Net asset value, end of period $ 16.16 $ 13.89 $ 12.12
- --------------------------------------------------------- --------- ---------- ---------
Total Return** 16.84% 15.07% (3.04%)
- --------------------------------------------------------- --------- ---------- ---------
Ratios / Supplemental Data
Net assets, end of period (in thousands) $ 18,818 $ 16,110 $ 8,741
Ratio of expenses to average net assets 1.10%(a) 1.10% 1.10%(a)
Ratio of expenses to average net asset excluding waiver 1.74%(a) 1.74% 1.75%(a)
Ratio of net investment income to average net assets 1.09%(a) 1.20% 0.89%(a)
Portfolio turnover rate 54% 107% 59%
Average commission rate on portfolio transactions $ 0.0275 $ 0.0150 $ 0.0295
- --------------------------------------------------------- ------------ ---------- ------------
</TABLE>
(a) Annualized.
(e) For the period from May 29, 1996 (commencement of operations) to October 31,
1996.
* Represents Institutional Class.
** Total return does not reflect sales commissions and is not annualized.
See notes to financial statements.
26
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
April 30, 1998 (Unaudited)
Note 1: Organization
Mentor Institutional Trust ("Trust") was organized on February 8, 1994, and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Trust consists of four separate diversified
portfolios (hereinafter each individually referred to as a "Portfolio" or
collectively as the "Portfolios") at April 30, 1998:
Mentor U.S. Government
Cash Management Portfolio ("Cash Management Portfolio")
Mentor Fixed-Income Portfolio
("Fixed-Income Portfolio")
Mentor Perpetual International
Portfolio ("International Portfolio")
SNAP Fund
The assets of each Portfolio of the Trust are segregated and a shareholder's
interest is limited to the Portfolio in which shares are held.
These financial statements include only the International Portfolio.
The Portfolio currently issues four classes of shares. Class A shares are sold
subject to a maximum sales charge of 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption which decreases depending on when shares were purchased and how
long they have been held. Class E shares and the Institutional Class (Class Y)
shares are not subject to any sales charges.
Note 2: Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and 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.
27
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
(a) Valuation of Securities
Listed securities held by the Portfolio traded on national securities exchanges
and over-the-counter securities quoted on the NASDAQ National Market System are
valued at the last reported sales price or, lacking any sales, at the last
available bid price. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated by the Board of
Trustees of the Portfolio as the primary market. Securities traded in the
over-the-counter market, other than those quoted on the NASDAQ National Market
System, are valued at the last available bid price.
Foreign currency amounts are translated into United States dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange, purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net unrealized
foreign exchange gains/losses are a component of unrealized
appreciation/depreciation of investments.
(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, or to have
segregated within the custodian bank's possession 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.
28
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
(c) Portfolio Securities Loaned
The Portfolio is authorized by the Board of Trustees to participate in
securities lending transactions.
The Portfolio may receive fees for participating in lending securities
transactions. During the period that a security is out on loan, Portfolio
continues to receive interest or dividends on the securities loaned. The
Portfolio receives collateral in an amount at least equal to, at all times, the
fair value of the securities loaned plus interest. When cash is received as
collateral, the Portfolio records an asset and obligation for the market value
of that collateral. Cash received as collateral may be reinvested, in which case
that security is recorded as an asset of the Portfolio. Variations in the market
value of the securities loaned occurring during the term of the loan are
reflected in the value of the Portfolio.
At April 30, 1998, the Portfolio had loaned securities to brokers which were
collateralized by cash and letter of credit. Income from securities lending
activities amounted to $25,465 for the six months ended April 30, 1998. The
risks to the Portfolio from securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
At April 30, 1998, the market value of the securities on loan and the related
collateral were as follows:
<TABLE>
<CAPTION>
Securities Cash Securities
On Loan Collateral Collateral
- -------------- -------------- -----------
<S> <C> <C>
$14,222,845 $15,746,493 $225,621
</TABLE>
(d) Security Transactions and Interest Income
Security transactions for the Portfolio 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. Dividends are recorded on ex-dividend date.
Realized and unrealized gains and losses on investment security transactions are
calculated on an identified cost basis.
(e) Expenses
Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Trust expenses are allocated among the Portfolios in proportion to their
relative net assets.
29
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
(f) Federal Taxes
No provision for federal income taxes has been made since it is the 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.
(g) 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.
(h) Distributions
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to the deferral of wash sales.
Note 3: Dividends
Dividends are declared and paid annually by the Portfolio. Capital gains
realized by the Portfolio, if any, will be distributed annually.
Note 4: Investment Management and Administration Agreements The Portfolio has
entered into an Investment Advisory Agreement with Mentor Perpetual Advisors,
LLC ("Mentor Perpetual"). Mentor Perpetual is owned equally by Mentor Investment
Advisors, LLC and Perpetual plc., a diversified financial services holding
company. Under this agreement, Mentor Perpetual's management fee is accrued
daily and paid monthly at an annual rate of 1.00% applied to the average daily
net assets of the Portfolio. For the six months ended April 30, 1998, Mentor
Perpetual earned advisory fees of $412,093 and waived $112,129 of those fees.
Mentor Investment Group, LLC ("Mentor") provides administrative personnel and
services to the Portfolio, pursuant to an Administration Agreement. Mentor
receives no compensation for such services. Mentor is a partially owned subsidy
of Wheat First Union. EVEREN Capital Corporation owns 20% of the outstanding
interest in Mentor.
30
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
Note 5: Distribution Agreement and Other Transactions with Affiliates The
Portfolio has adopted a Distribution Plan ("the Plan") with respect to its Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
a Distribution Agreement between the Portfolio and Mentor Distributors, LLC
("Mentor Distributors") a wholly-owned subsidiary of BISYS Fund Services, Inc.,
Mentor Distributors was appointed distributor of the Portfolio. To compensate
Mentor Distributors for the services it provides and for the expenses it incurs
under the Distribution Agreement, the Portfolio pays a distribution fee, which
is accrued daily and paid monthly at the annual rate of 0.75% of the Portfolio's
average daily net assets.
Mentor Distributors may select financial institutions, such as investment
dealers and banks to provide sales support services as agents for their clients
or customers who beneficially own Class B shares of the Portfolio. Financial
institutions will receive fees from Mentor Distributors based upon Class B
shares owned by their clients or customers.
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with
respect to Class A, Class B shares and Class E shares of the Portfolio. Under
the Service Plan, financial institutions will enter into shareholder service
agreements with the Portfolio to provide administrative support services to
their customers who from time to time may be owners of record or beneficial
owners of Class A, Class B or Class E shares of the Portfolio. In return for
providing these support services, a financial institution may receive payments
from the Portfolio at a rate not exceeding 0.25% of the average daily net assets
of the Class A or Class B shares.
Presently, the Portfolio's class specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan. For
the period ended April 30, 1998, distribution fees and shareholder servicing
fees were as follows:
<TABLE>
<CAPTION>
Distribution Shareholder Servicing Fees
Fees Class A Class B Class E
- -------------- --------- --------- --------
<S> <C> <C> <C>
$94,317 $49,053 $31,439 $1,576
</TABLE>
31
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
Note 6: Forward Foreign Currency Exchange Contracts
In connection with portfolio purchases and sales of securities denominated in a
foreign currency, the Portfolio may enter into forward foreign currency exchange
contracts ("contracts"). Additionally, from time to time International Portfolio
may enter into contracts to hedge certain foreign currency assets. Contracts are
recorded at market value. Realized gains and losses arising from such
transactions are included in net gain (loss) on investments and forward foreign
currency exchange contracts. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract. At April 30,
1998, the Portfolio had outstanding forward contracts as set forth below.
<TABLE>
<CAPTION>
Unrealized
Contracts to In Exchange Appreciation/
Settlement Date Deliver/Receive Value For (Depreciation)
- ------------------------------- ----------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases
3/18/98 British Pound 19,000 $ 31,759 $ 31,778 $ 19
5/1/98 British Pound 23,092 38,634 38,622 (12)
5/19/98 Hong Kong Dollar 15,000,000 1,935,909 1,935,859 (50)
5/04/98 Singapore Dollar 36,574 23,000 23,097 97
Sales
5/19/98 Hong Kong Dollar 15,000,000 1,921,107 1,935,609 (14,502)
- ------- ------------------ ---------- --------- --------- ---------
</TABLE>
32
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
Note 7: 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 Perpetual International Portfolio
Six Months Period Ended
Ended 4/30/98 10/31/97 (a)
Shares Dollar Shares Dollar
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Class A:
Shares sold 782,200 $11,361,460 2,446,508 $35,229,362
Shares issued upon reinvestment of
distributions 9,140 126,953 - -
Shares redeemed (3,266,611) (3,266,611) (44,970) (656,144)
---------- ------------ --------- -----------
Change in net assets from capital share
transactions (2,475,271) $ 8,221,802 2,401,538 $34,573,218
---------- ------------ --------- -----------
Class B:
Shares sold 976,695 $14,509,740 1,423,996 $20,841,823
Shares issued upon reinvestment of
distributions 5,519 76,500 - -
Shares redeemed (149,591) (2,144,100) (21,487) (307,588)
---------- ------------ --------- -----------
Change in net assets from capital share
transactions 832,623 $12,442,140 1,402,509 $20,534,235
---------- ------------ --------- -----------
Class E: (b)
Shares sold 148,023 $ 2,003,286 - -
Shares redeemed - - - -
---------- ------------ --------- -----------
Change in net assets from capital share
transactions 148,023 $ 2,003,286 - -
---------- ------------ --------- -----------
</TABLE>
33
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
Note 7: Capital Share Transactions (continued)
<TABLE>
<CAPTION>
Mentor Perpetual International Portfolio
Six Months Period Ended
Ended 4/30/98 10/31/97
Shares Dollar Shares Dollar
-------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Class Y (Institutional Class):
Shares sold 75 $ 1,050 444,362 $6,032,071
Shares issued upon reinvestment of
distributions 4,993 69,600 3,002 36,772
Shares redeemed (361) (4,951) (8,616) (123,700)
----- -------- ------- ----------
Change in net assets from capital
share transactions 4,707 $ 65,699 438,748 $5,945,143
----- -------- ------- ----------
</TABLE>
(a) For the period from December 27, 1996 (commencement of operations) to
October 31, 1997. (b) For the period from January 16, 1998 (commencement of
operations) to April 30, 1998.
Year 2000
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 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
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.
34
<PAGE>
Mentor Perpetual International Portfolio
Notes to Financial Statements
(continued)
Additional Information (unaudited)
Mentor Perpetual International Portfolio
Shareholders of the Portfolio considered and acted upon the proposals listed
below at a special meeting of shareholders held Monday December 22, 1997. In
addition, below each proposals are the results of that vote.
<TABLE>
<S> <C> <C> <C>
1. To elect the following Trustees:
Affirmative Withheld
Daniel J. Ludeman 3,586,225 13,594
Troy A. Peery, Jr. 3,586,225 13,594
Arnold H. Dreyfuss 3,586,225 13,594
Thomas F. Keller 3,586,225 13,594
Peter J. Quinn, Jr. 3,586,225 13,594
Louis W. Moelchert, Jr. 3,586,225 13,594
Arch T. Allen, III 3,586,225 13,594
Weston E. Edwards 3,586,225 13,594
Jerry R. Barrentine 3,586,225 13,594
J. Garnett Nelson 3,586,225 13,594
</TABLE>
2. To approve a new management contract between the Portfolio and Mentor
Investment Advisors, LLC to take effect upon the merger of Wheat First
Butcher Singer, Inc., with First Union Corporation:
Affirmative 3,542,253
Against 12,231
Abstain 45,335
3. To approve a new management contract between the Portfolio and Mentor
Investment Advisors, LLC in contemplation of the potential acquisition of
an additional interest in Mentor Investment Group, LLC by EVEREN
Securities Holdings, Inc.:
Affirmative 3,539,883
Against 10,994
Abstain 48,942
35
<PAGE>
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
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
Senior Vice President
Mentor Investment Group, LLC
Geoffrey B. Sale, Secretary
Associate Vice President
Mentor Investment Group, LLC
Michael A. Wade, Assistant Treasurer
Vice President
Mentor Investment Group, LLC
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED
MAY LOSE VALUE
Mentor Institutional Trust
Mentor Perpetual
International Portfolio
-------------------------------------
SEMI-ANNUAL REPORT
-------------------------------------
April 30, 1998
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