MENTOR INSTITUTIONAL TRUST, 497, 1999-03-04

MENTOR INSTITUTIONAL TRUST
497, 1999-03-04

Previous: GABELLI GLOBAL MULTIMEDIA TRUST INC, NSAR-B, 1999-03-04

Next: MENTOR INSTITUTIONAL TRUST, N-30D, 1999-03-04

P R O S P E C T U S March 1, 1999
Y (Institutional) Shares

Mentor Institutional Trust
OFFERING INVESTMENT CHOICES TO QUALIFIED INVESTORS

o MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO
a money market fund seeking as high a rate of current income as Mentor
Investment Advisors, LLC believes is consistent with preservation of
capital and maintenance of liquidity
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR FIXED-INCOME PORTFOLIO
seeking a high level of long-term total return by investing in a
diversified portfolio of fixed-income securities and income producing
equity securities
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC

o MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
seeking long-term capital appreciation by investing in a diversified
portfolio of equity securities of issuers located outside the United
States
ADVISOR: MENTOR PERPETUAL ADVISORS, LLC

You can call Mentor Services Company, Inc. at (800) 869-6042 to find out
more about these Portfolios and other mutual funds in the Mentor family.

The prospectus explains what you should know about the Portfolios before
you invest. Please read it carefully.

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

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary Information ................................ 3
Expense Summary .................................... 9
Principal Investment Strategies and Risks .......... 10
Other Investments and Risks ........................ 13
Management ......................................... 16
How the Portfolios Value Their Shares .............. 17
How To Buy Shares .................................. 18
How To Sell Shares ................................. 19
How Distributions Are Made ......................... 20
Taxes .............................................. 21
Financial Highlights ............................... 22
</TABLE>

<PAGE>

SUMMARY INFORMATION

Mentor Institutional Trust (the "Trust") provides investment options
through three separate investment portfolios (the "Portfolios"), with varying
investment objectives and policies.

The following summaries describe each Portfolio's investment objective (or
objectives) and principal investment strategies and identify the principal
risks of investing in each Portfolio.

Below each Portfolio's description is a bar chart which provides some
indication of the risks of investing in the Portfolio by showing how the
investment returns of that Portfolio's Class Y (Institutional) shares have
varied in the years since they were first offered. The table following each bar
chart shows how that Portfolio's average annual returns for the last year and
for the life of the Portfolio compared to returns of a comparable index,
generally a broad-based securities market index (except in the case of the Cash
Management Portfolio). PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
FUTURE PERFORMANCE.

It is possible to lose money on investments in the Portfolios. An
investment in a Portfolio is not a deposit with a bank and is not insured by
the Federal Deposit Insurance Corporation or any other government agency.

MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO

o INVESTMENT OBJECTIVE. To seek as high a rate of current income as Mentor
Investment Advisors, LLC ("Mentor Advisors") believes is consistent with
preservation of capital and maintenance of liquidity. The Portfolio is a money
market fund.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio attempts to maximize
yields, consistent with its investment objective, by portfolio trading and by
buying and selling portfolio investments in anticipation of or in response to
changing economic conditions and conditions and trends in the U.S. Government
securities money markets. The Portfolio may also invest to take advantage of
what Mentor Advisors believes to be temporary yield disparities in the U.S.
Government securities markets. It invests exclusively in U.S. Government
securities and repurchase agreements with respect to U.S. Government
securities.

The Portfolio may take advantage of the full range of U.S. Government
securities, including securities supported by the full faith and credit of the
United States, and other securities supported only by the right of the federal
agency or government-sponsored enterprise that issued them to borrow from the
U.S. Treasury, or by the credit of entity that issued them. Short-term U.S.
Government obligations generally are considered among the safest short-term
investments, but as a result, the yields available from such obligations are
generally lower than the yields available from comparable corporate debt
securities.

o PRINCIPAL RISKS. The Portfolio's investments will be affected by general
changes in interest rates resulting in increases or decreases in the values of
the obligations held by the Portfolio. The values of the Portfolio's
investments can be expected to vary inversely to changes in prevailing interest
rates. Withdrawals by shareholders could require the sale of portfolio
investments at a time when such a sale might not otherwise be desirable. AN
INVESTMENT IN THIS PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THIS
PORTFOLIO SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THIS PORTFOLIO.

<PAGE>

MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO

[GRAPH]

CALENDAR YEAR END ANNUAL RETURN:

1995 6.08%
1996 5.53%
1997 5.60%
1998 5.53%

During the periods shown above, the highest quarterly return was 1.53% for
the quarter ended June 30, 1995 and the lowest was 1.27% for the quarter ended
December 31, 1998.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 12/5/94)
- --------------------------------------------------- ----------- ------------------
<S> <C> <C>
U.S. Government Cash Management Portfolio ......... 5.53% 5.68%
</TABLE>

For the most recent 7-day yield for this Portfolio, please call
1-800-869-6042.

MENTOR FIXED-INCOME PORTFOLIO

o INVESTMENT OBJECTIVES. To seek a high level of long-term total return.
Preservation of capital is a secondary objective to the extent consistent with
the Portfolio's primary objective of seeking a high level of long-term total
return.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to maintain
relatively high average credit quality but may vary its maturity. To this end,
it will seek to maintain a dollar-weighted average credit quality of at least
A. Mentor Advisors will adjust the maturity of the Portfolio in response to
changing market conditions. The Portfolio normally invests at least 90% of its
assets (determined at the time of investment) in securities of investment grade
but may invest up to 10% in lower-rated securities known as junk bonds. A
security will be deemed to be of "investment grade" if, at the time of
investment, the security is rated at least Baa3 by Moody's Investors Service,
Inc. or BBB- by Standard & Poor's Ratings Service, or determined by Mentor
Advisors to be of comparable quality. The Portfolio may invest up to 25% of its
assets in foreign securities. The Portfolio may also engage in strategies
making use of interest rate swaps and other interest rate transactions. The
Portfolio invests mainly in U.S. Government securities, corporate bonds, bonds
of other private issuers, mortgage-backed securities, other asset-backed
securities, and income-producing equity securities, such as preferred stocks,
convertible securities, and dividend-paying common stocks.

o PRINCIPAL RISKS.

<PAGE>

rise, the values of fixed-income securities held by the Portfolio typically
decline. The longer the maturity of a security, the more its value will
tend to decline when interest rates rise. Although the Portfolio will only
purchase securities which meet its credit guidelines at the time of
purchase, it will not necessarily sell securities which are downgraded
after purchase.

o MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them, and the returns on investments
in such securities will depend on, among other things, the rate at which
the mortgages may be prepaid under various market conditions. When interest
rates fall, prepayments of mortgages tend to rise, shortening the average
maturity of the portfolio when it is least desirable. "Residual" interests
in which the Portfolio may invest generally represent the right to any
excess cash flow remaining after payments to all other interest-holders in
a pool of mortgages. The values of residuals are extremely sensitive to
changes in interest rates. In certain circumstances, there may be little or
no excess cash flow payable to residual holders. Other asset-backed
securities are subject to many of the same risks as mortgage-backed
securities.

o LOWER-RATED SECURITIES ("JUNK BONDS"). Securities rated Baa or BBB
lack outstanding investment characteristics and have speculative
characteristics and are subject to greater credit and market risks than
higher-rated securities. The ratings of securities rated below investment
grade ("junk bonds") reflect a greater possibility that adverse changes in
the financial condition of the issuer or in general economic conditions, or
an unanticipated rise in interest rates, may impair the ability of the
issuer to make payments of interest and principal. If this were to occur,
the values of securities held by the Portfolio may become more volatile.

o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks
related to political or economic instability, currency exchange and
taxation.

o INTEREST RATE TRANSACTIONS. The Portfolio may enter into interest rate
swaps and other interest rate transactions, typically to adjust the
interest-rate sensitivity of the Portfolio. Many of these transactions have
the effect of providing investment leverage. They may result in losses to
the Portfolio if Mentor Advisors' judgment as to prevailing interest rates
is wrong or if these transactions affect the sensitivity of the Portfolio
in a manner different from that expected by Mentor Advisors.

<PAGE>

MENTOR FIXED INCOME PORTFOLIO
[GRAPH]

CALENDAR YEAR END ANNUAL RETURN:

1995 19.70%
1996 2.40%
1997 8.06%
1998 7.70%

During the periods shown above, the highest quarterly return was 6.70% for
the quarter ended June 30, 1995, and the lowest was (2.49)% for the quarter
ended December 31, 1996.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 12/6/94)
- ----------------------------------------------- ----------- ------------------
<S> <C> <C>
Fixed-Income Portfolio ........................ 7.70% 9.13%
Lehman Brothers Aggregate Bond Index* ......... 8.69% 9.95%
</TABLE>

- ----------
* The Lehman Brothers Aggregate Bond Index is commonly used to compare
performance of income-oriented portfolios and is made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index, and the
Asset-Backed Securities Index. Investors cannot invest in the Index.

PERPETUAL INTERNATIONAL PORTFOLIO

o INVESTMENT OBJECTIVE. Long-term capital appreciation.

o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to invest in
companies, large or small, where earnings are believed to be in a relatively
strong growth trend, or where significant further growth is not anticipated but
where the shares are thought to be undervalued. The Portfolio will normally
invest a substantial portion of its assets in securities of smaller companies
and may at times invest a substantial portion of its assets in issuers located
in emerging markets. In identifying candidates for investment, Mentor Perpetual
considers a variety of factors, including the likelihood of above average
earnings growth, attractive relative valuation, and whether the company has any
proprietary advantages. Mentor Perpetual may also conduct discussions with
management, visit the premises of issuers and analyze industry and market
trends in order to select its investments. The Portfolio's investments will
normally include a diversified portfolio of equity securities of issuers
located outside the United States, such as common stocks, preferred stocks,
securities convertible into common stocks or preferred stocks, and warrants to
purchase common stocks or preferred stocks. The Portfolio may invest to a
lesser extent in debt securities if Mentor Perpetual believes they would help
achieve the Portfolio's objective. When it chooses to invest in debt, the
Portfolio seeks to maintain relatively high average credit quality. To this
end, it will only invest in debt securities which are of investment grade.
Mentor Perpetual may invest in debt securities of any maturity depending on its
assessment of current market conditions.

<PAGE>

o PRINCIPAL RISKS.

o EQUITY SECURITIES. A risk of investing in the Portfolio is the risk
that the value of the equity securities in the portfolio will fall, or will
not appreciate as anticipated by Mentor Perpetual, due to factors that
adversely affect markets in general or particular companies in the
portfolio. The Portfolio is more sensitive to this risk because it may
invest a substantial portion of its assets in smaller companies.

o EMERGING MARKET SECURITIES. Investments in emerging markets are
subject to the same risks applicable to foreign investments generally but
to a greater extent. For example, the securities markets and legal systems
in emerging markets may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed
countries. Many of the securities in which the Portfolio may invest may
trade in limited volume and may be illiquid. Exchanges, if any, on which
they trade may not provide all of the conveniences or protections provided
by securities exchanges in more developed markets.

o SMALLER COMPANIES. The Portfolio may invest a substantial portion of
its assets in smaller companies, which tend to be more vulnerable to
adverse developments than larger companies. Smaller companies may have
limited product lines, markets, or financial resources, or may depend on a
limited management group. Their securities may trade infrequently and in
limited volumes. As a result, the prices of these securities may fluctuate
more than the prices of securities of larger, more widely traded companies.

o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to
changes in interest rates) and to credit risks (the risk that the issuer
may become unable or unwilling to make timely payments of principal and
interest). Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to
greater credit and market risks than higher-rated securities. When interest
rates rise, the values of fixed-income securities held by the Portfolio
typically decline. The longer the maturity of a security, the more its
value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time
of purchase, it will not necessarily sell securities which are downgraded
after purchase.

<PAGE>

MENTOR PERPETUAL INTERNATIONAL PORTFOLIO -- CLASS Y

[GRAPH]

CALENDAR YEAR END ANNUAL RETURN:

1997 10.60%
1998 13.53%

During the periods shown above, the highest quarterly return was 16.89%
for the quarter ended December 31, 1998, and the lowest was (15.02)% for the
quarter ended September 30, 1998.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 5/29/96)
- ---------------------------------------------------------- ----------- ------------------
<S> <C> <C>
Perpetual International Portfolio ........................ 13.53% 9.82%
Morgan Stanley Capital International EAFE Index* ......... 20.33% 9.20%
</TABLE>

- ----------
* 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 may not
correspond to the performance of the Portfolio, which is actively managed
and incurs expenses.

<PAGE>

EXPENSE SUMMARY

Expenses are one of several factors to consider when investing in a
Portfolio. Expenses shown are based on expenses incurred in respect of Class Y
(Institutional) Shares of the Portfolios for the 1998 fiscal year. The Examples
show the cumulative expenses attributable to a hypothetical $10,000 investment
in each Portfolio over specified periods. THE CLASS Y SHARES OF THE PORTFOLIOS
ARE BEING OFFERED TO INVESTORS PRINCIPALLY THROUGH INVESTMENT ADVISORY ACCOUNTS
WITH MENTOR INVESTMENT ADVISORS, LLC AND ITS AFFILIATES; EXPENSES SHOWN BELOW
DO NOT REFLECT ANY FEES OR EXPENSES ASSOCIATED WITH THOSE ACCOUNTS.

FEES AND EXPENSES OF THE PORTFOLIO

This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT): None

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

<TABLE>
<CAPTION>
MENTOR U.S. GOVT. MENTOR PERPETUAL
CASH MANAGEMENT MENTOR FIXED- INTERNATIONAL
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
------------------- ------------------ -----------------
<S> <C> <C> <C>
Management Fees ................................... 0.00% 0.00% 1.00%
Other Expenses .................................... 0.12% 0.10% 0.43%
----- ---- ----
Total Annual Portfolio Operating Expenses ......... 0.12% 0.10% 1.43%
----- ---- ----
Fee waiver and/or expense limitation .............. (0.06)% N/A N/A
----- ---- ----
Net Expenses* ..................................... 0.06% 0.10% 1.43%
===== ==== ====
</TABLE>

- ----------
*The Net Expenses shown above reflect the effect of contractually imposed
expense limitations and/or fee waivers in effect through October 31, 1999 on
Total Annual Portfolio Operating Expenses.

EXAMPLES

These Examples are intended to help you compare the cost of investing in
each Portfolio with the cost of investing in other mutual funds.

The Examples assume that you invest $10,000 in Y (Institutional) shares of
the Portfolio indicated for the time periods indicated and then redeem all of
your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year and that each Portfolio's operating
expenses remain the same as the Total Annual Portfolio Operating Expenses
(after expiration of the fee waiver and/or expense limitation, assuming it is
not extended) shown above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be*:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mentor U.S. Government Cash Management Portfolio .......... $ 6 $ 33 $ 62 $ 148
Mentor Fixed-Income Portfolio ............................. 10 32 56 128
Mentor Perpetual International Portfolio .................. 146 452 782 1,713
</TABLE>

<PAGE>

PRINCIPAL INVESTMENT STRATEGIES AND RISKS

A Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolios' principal
strategies and risks.

MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES (FIXED-INCOME
PORTFOLIO). The Fixed-Income Portfolio may invest in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Interest and principal
payments on the mortgages underlying mortgage-backed securities are passed
through to the holders of the mortgage-backed securities. Mortgage-backed
securities currently offer yields higher than those available from many other
types of fixed-income securities, but because of their prepayment aspects,
their price volatility and yield characteristics will change based on changes
in prepayment rates. Generally, prepayment rates increase if interest rates
fall and decrease if interest rates rise. For many types of mortgage-backed
securities, this can result in unfavorable changes in price and yield
characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolio's mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-income
securities of comparable maturities, although such obligations may have a
comparable or greater risk of decline in market value during periods of rising
interest rates.

Mortgage-backed securities have yield and maturity characteristics that
are dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on the securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgaged-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of prepayments
may significantly lengthen the effective durations of such securities.

The Fixed-Income Portfolio may also invest in other types of
mortgage-related securities, including any securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans or real property, including collateralized mortgage obligation
"residual" interests. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by the
mortgage assets underlying a series of mortgage securities is applied first to
make required payments of principal of and interest on the mortgage securities
and second to pay the related administrative expenses of the issuer. The
residual generally represents the right to any excess cash flow remaining after
making the foregoing payments. Each payment of such excess cash flow to a
holder of the related residual represents income and/or a return of capital.
The amount of residual cash flow resulting from a series of mortgage securities
will depend on, among other things, the characteristics of the mortgage assets,
the coupon rate of each class of the mortgage securities, prevailing interest
rates, the amount of administrative expenses, and the prepayment experience on
the mortgage assets. The values of residuals are extremely sensitive to changes
in interest rates. The yield to maturity on residual interests may be extremely
sensitive to prepayments on the related underlying mortgage assets in the same
manner as an interest-only class of stripped mortgaged-backed securities. In
addition, if a series of mortgage securities includes a class that bears
interest at an adjustable rate, the yield to maturity on the related residual
interest may also be

<PAGE>

extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. In certain circumstances, there may be little or no
excess cash flow payable to residual holders. The Portfolio may fail to recoup
fully its initial investment in a residual.

Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently
may not have the liquidity of other more established securities trading in
other markets. Residuals also may be subject to certain restrictions on
transferability. As a result, the Portfolio may be unable to dispose of these
interests at prices approximating the values the Portfolio had previously
assigned to them.

The Fixed-Income Portfolio may invest in securities representing interests
in other types of financial assets, such as automobile-finance receivables or
credit-card receivables. Such securities are subject to many of the same risks
as are mortgage-backed securities, including prepayment risks, refinancing
risks, and risks of foreclosure. They may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers.

FOREIGN SECURITIES (FIXED-INCOME PORTFOLIO AND INTERNATIONAL PORTFOLIO).
Investment in foreign securities entails certain risks. Since foreign
securities are normally denominated and traded in foreign currencies, the value
of a Portfolio's assets may be affected favorably or unfavorably by currency
exchange rates and exchange control regulations, foreign withholding taxes and
restrictions or prohibitions on the repatriation of foreign currencies. There
may be less information publicly available about a foreign company than about a
U.S. company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those
in the United States. The securities of some foreign companies are less liquid
and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Portfolio's assets held abroad) and expenses not present in
the settlement of domestic investments.

In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of a Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. In the case of securities issued
by a foreign governmental entity, the issuer may in certain circumstances be
unable to unwilling to meet its obligations on the securities in accordance
with their terms, and a Portfolio may have limited recourse available to it in
the event of default. The laws of some foreign countries may limit a
Portfolio's ability to invest in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign securities. A
Portfolio may buy or sell foreign currencies and options and futures contracts
on foreign currencies for hedging purposes in connection with its foreign
investments.

JUNK BONDS (FIXED-INCOME PORFOLIO). Junk bonds are securities which are
rated below Baa or BBB by Moody's Investors Services or Standard & Poor's (or,
if they are unrated, which a Portfolio's investment adviser believes to be of
comparable quality). See the Statement of Additional Information for further
descriptions of securities ratings assigned by Moody's and Standard & Poor's.
Junk bonds are considered to be of poor standing and predominantly speculative,
but have higher yields than higher-rated bonds. The Fixed-Income Portfolio

<PAGE>

will not invest in any securities rated, at the time of purchase, below B by
Moody's or Standard & Poor's, or in unrated securities determined by Mentor
Advisors to be of comparable quality.

The values of junk bonds will fluctuate in response to changes in interest
rates, just as the value of other bonds does. The values of junk bonds will
also be affected by general economic and business conditions affecting the
specific industries of their issuers. Because the risk of default on a junk
bond is greater than on a higher-rated bond, a worsening of the issuer's
financial condition (whether due to industry or other general conditions or for
reasons specific to the issuer) will tend to lower the value of a junk bond
more than it would lower the value of a higher-rated bond. If a credit agency
downgrades the bond's rating, its value will decrease.

You should carefully consider your ability to assume the risks of owning
shares of a Portfolio that invests in junk bonds. The lower credit ratings of
junk bonds mean a higher risk of default. Even without a default, the presence
of junk bonds in the Portfolio will increase the Portfolio's volatility. At
times, there might not be a liquid market for certain junk bonds. This would
make it hard for the Portfolio to value them correctly and it might not be able
to sell them. Credit agency ratings only attempt to assess the risk of default,
not the volatility or liquidity of a security. Any such determinations would
therefore be made only by the Advisor.

SMALLER COMPANIES (INTERNATIONAL PORTFOLIO). Smaller companies may offer
greater opportunities for capital appreciation than larger companies, but
investments in such companies involve certain special risks. Small companies
often have limited product lines, markets, or financial resources. They may be
dependent on a limited management group. While the markets in small company
securities have grown rapidly in recent years, such securities trade less
frequently and in smaller volume than more widely held securities. These
securities tend to fluctuate more sharply in value than other securities, and
the Portfolio may experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There is usually
less publicly-available information about small companies and less market
interest in small company securities than in large company securities, and
these securities may therefore take longer to reflect the full value of their
issuers' underlying earnings potential or assets.

Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The Portfolio may not be able to sell such
securities when it wishes. The Advisor or its affiliates or clients may hold
securities issued by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at more favorable
prices, than the Portfolio.

INTEREST RATE TRANSACTIONS (FIXED-INCOME PORTFOLIO). The Fixed-Income
Portfolio may enter into interest rate swaps and other interest rate
transactions, such as interest rate caps, floors, and collars, for hedging
purposes or to realize a greater current return. Interest rate swaps involve
the exchange by the Portfolio with another party of different types of
interest-rate streams (e.g., and exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal). The purchase of
an interest rate cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling the floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values. The Portfolio's ability to engage in certain interest rate
transactions may be limited by tax considerations. The use of interest rate
swaps and other

<PAGE>

interest rate transactions is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Advisor is incorrect in its forecasts
of market values, interest rates, or other applicable factors, the investment
performance of the Portfolio would be less favorable than it would have been if
this investment technique were not used.

TEMPORARY DEFENSIVE STRATEGIES. The Advisor (except in the case of the
Cash Management Portfolio) may implement temporary defensive strategies in
order to reduce fluctuations in the value of the Portfolio's assets. At those
times, the Portfolio may invest any portion of its assets in cash or cash
equivalents, money market instruments, or other short-term, high-quality
investments the investment adviser considers consistent with such defensive
strategies. It is impossible to predict when, or for how long, the Portfolio
will use these defensive strategies.

PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of a Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements.
A change in the securities held by a Portfolio is known as "portfolio
turnover." Portfolio turnover generally involves some expense to a Portfolio,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities, and therefore
will affect Portfolio performance. Such sales may increase the amount of
capital gains (and, in particular, short-term gains) realized by the
Portfolios, on which shareholders pay tax.

OTHER INVESTMENTS AND RISKS

The following provides more detail about the Portfolios' investments and
risks and other circumstances which could adversely affect the Portfolios'
shares or their total return or yield.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS (FIXED-INCOME PORTFOLIO).
The Fixed-Income Portfolio may purchase securities on a "when-issued" basis.
The price of such securities is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date (normally within one month of purchase). The Portfolio may also
purchase securities for future delivery. "When-issued" securities and forward
commitments may increase the Portfolio's overall investment exposure and may
result in losses.

LEVERAGE (INTERNATIONAL PORTFOLIO). The International Portfolio may borrow
money to invest in additional portfolio securities. This practice, known as
"leverage," increases the Portfolio's market exposure and its risk and may
result in losses. When the Portfolio has borrowed money for leverage and its
investments increase or decrease in value, the Portfolio's net asset value will
normally increase or decrease more than if it had not borrowed money. The
interest the Portfolio must pay on borrowed money will reduce the amount of any
potential gains or increase any losses. The extent to which the Portfolio will
borrow money, and the amount it may borrow, depend on market conditions and
interest rates. Successful use of leverage depends on the Advisor's ability to
predict market movements correctly.

OPTIONS AND FUTURES. The Fixed-Income and International Portfolios may buy
and sell call and put options to hedge against changes in net asset value or to
realize a greater current return. In addition, through the purchase and sale of
futures contracts and related options, these Portfolios may at times seek to
hedge against fluctuations in net asset value and, to the extent consistent
with applicable law, to increase investment return.

<PAGE>

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

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

INDEX FUTURES AND OPTIONS. The Fixed-Income and International Portfolios
may buy and sell index futures contracts ("index futures") and options on index
futures and on indices for hedging purposes (or may purchase warrants whose
value is based on the value from time to time of one or more foreign securities
indices). An "index future" is a contract to buy or sell units of a particular
bond or stock index at an agreed price on a specified future date. Depending on
the change in value of the index between the time when a Portfolio enters into
and terminates an index future or option transaction, the Portfolio realizes a
gain or loss. These Portfolios may also, to the extent consistent with
applicable law, buy and sell index futures and options to increase its
investment return.

RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
security or index or of the securities held by a Portfolio that are the subject
of a hedge. The successful use by a Portfolio of the strategies described above
further depends on the ability of its Advisor to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close
out futures or options positions. Although a Portfolio will enter into options
or futures transactions only if its Advisor believes that a liquid secondary
market exists for such options or futures contracts, there can be no assurance
that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price.

Each Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. A Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. A Portfolio's
ability to terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Portfolio. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of its Advisor, the
pricing mechanism and liquidity of the over-the-counter markets are
satisfactory and the participants are responsible parties likely to meet their
obligations.

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

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fixed-Income Portfolio and the
International Portfolio may engage in foreign currency exchange transactions to
protect against uncertainty in the level of future currency exchange rates. The
Portfolios may engage in foreign currency exchange transactions in connection
with the

<PAGE>

purchase and sale of portfolio securities ("transaction hedging") and to
protect against changes in the value of specific portfolio positions ("position
hedging").

The Fixed-Income Portfolio and the International Portfolio also may engage
in transaction hedging to protect against a change in foreign currency exchange
rates between the date on which it contracts to purchase or sell and the
settlement date, or to "lock in" the U.S. dollar equivalent of a dividend or
interest payment in a foreign currency. The Portfolios may purchase or sell a
foreign currency on a spot (or cash) basis at the prevailing spot rate in
connection with transaction hedging.

The Fixed-Income Portfolio and the International Portfolio may also enter
into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and may purchase and sell foreign currency futures
contracts, for hedging and not for speculation. A foreign currency forward
contract is a negotiated agreement to exchange currency at a future time at a
rate or rates that may be higher or lower than the spot rate. Foreign currency
futures contracts are standardized exchange-traded contracts and have margin
requirements. For transaction hedging purposes, each of the Portfolios may also
purchase and sell call and put options on foreign currency futures contracts
and on foreign currencies.

The Fixed-Income Portfolio and the International Portfolio may engage in
position hedging to protect against a decline in value relative to the U.S.
dollar of the currencies in which portfolio securities are denominated or
quoted (or an increase in value of a currency in which securities the Portfolio
intends to buy are denominated). For position hedging purposes, the Portfolios
may purchase or sell foreign currency futures contracts and foreign currency
forward contracts, and may purchase and sell put and call options on foreign
currency futures contracts and on foreign currencies. In connection with
position hedging, the Portfolios may also purchase or sell foreign currencies
on a spot basis.

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

REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolios may enter into
repurchase agreements and securities loans. Under a repurchase agreement, a
Portfolio purchases a debt instrument for a relatively short period (usually
not more than one week), which the seller agrees to repurchase at a fixed time
and price, representing the Portfolio's cost plus interest. Under a securities
loan, a Portfolio lends portfolio securities. A Portfolio will enter into
repurchase agreements and (in the case of the International Portfolio)
securities loans only with commercial banks and with registered broker-dealers
who are members of a national securities exchange or market makers in
government securities, and in the case of repurchase agreements, only if the
debt instrument is a U.S. Government security. Although the Advisor will
monitor these transactions to ensure that they will be fully collateralized at
all times, a Portfolio bears a risk of loss if the other party defaults on its
obligation and the Portfolio is delayed or prevented from exercising its rights
to dispose of the collateral. If the other party should become involved in
bankruptcy or insolvency proceedings, it is possible that the Portfolio may be
treated as an unsecured creditor and be required to return the underlying
collateral to the other party's estate.

<PAGE>

functioning of their respective systems and the systems of others to perform
those services. In addition, the Portfolios' software, that of the issuers of
securities held by the Portfolios and the securities markets generally could be
subject to problems caused by the "Year 2000" problem. Each Advisor is taking
steps that it believes are reasonably designed to address each of these
potential "Year 2000" problems and to obtain satisfactory assurances that
comparable steps are being taken by the Portfolios' other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolios from this problem.

MANAGEMENT RISK. Although a Portfolio may have the flexibility to use some
or all of the investment strategies, securities and derivative instruments
described in this prospectus and in the Statement of Additional Information,
the Advisor may choose not to use a particular strategy or type of security for
a variety of reasons. Also, in some market conditions some strategies and
securities may not be available for use. These choices may cause the Portfolio
to miss opportunities, lose money or not achieve its objective.

CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change any Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and
the risks involved in an investment in the Portfolio.)

MANAGEMENT

The Trustees of Mentor Institutional Trust ("the Trust") are responsible
for generally overseeing the conduct of the Trust's business. They have hired
MENTOR INVESTMENT ADVISORS, LLC ("MENTOR ADVISORS"), located at 901 East Byrd
Street, Richmond, Virginia 23219, to act as investment adviser to the U.S.
Government Cash Management and Fixed-Income Portfolios and MENTOR PERPETUAL
ADVISORS ("MENTOR PERPETUAL"), LLC, located at 901 East Byrd Street, Richmond,
Virginia, to act as investment adviser to the International Portfolio.

In 1998, Mentor Advisors received no compensation from the Portfolios for
its advisory services, and Mentor Perpetual received a fee of 1.00% of average
net assets for its advisory services to the International Portfolio.

Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group,
LLC ("Mentor Investment Group"), which is in turn a subsidiary of Wheat First
Butcher Singer, Inc. ("Wheat First Butcher Singer"). Wheat First Butcher Singer
is wholly owned subsidiary of First Union Corp. ("First Union"), a leading
financial services company with approximately $234 billion in assets and $17
billion in total stockholders' equity as of September 30, 1998. Mentor Advisors
and its affiliates serve as investment advisers to over twenty separate
investment portfolios in the Mentor Family of Funds, with total assets under
management of more than $15 billion. All investment decisions for the U.S.
Government Cash Management and Fixed-Income Portfolios are made by investment
teams at Mentor Advisors.

<PAGE>

individuals, charities, pension plans, and life assurance companies. Mentor
Perpetual currently serves as investment adviser to the Mentor Perpetual Global
Portfolio, an open-end mutual fund which is a series of Mentor Funds.
Investment decisions for the International Portfolio are made by a team of
investment professionals.

Subject to the general oversight of the Trustees, Mentor Advisors and
Mentor Perpetual manage their respective Portfolios in accordance with the
stated policies of each Portfolio. Each of Mentor Advisors and Mentor Perpetual
makes investment decisions for its respective Portfolios and places the
purchase and sale orders for each Portfolio's portfolio transactions. In
selecting broker-dealers, Mentor Advisors and Mentor Perpetual may consider
research and brokerage services furnished to them and their affiliates. Subject
to seeking the best overall terms available, Mentor Advisors and Mentor
Perpetual may consider sales of shares of a Portfolio (and, if permitted by
law, of other funds in the Mentor family) as a factor in the selection of
broker-dealers to execute portfolio transactions for that Portfolio. Mentor
Advisors and Mentor Perpetual may at times cause the Portfolios to pay
commissions to broker-dealers which are affiliated with Mentor Advisors or
Mentor Perpetual.

HOW THE PORTFOLIOS VALUE THEIR SHARES

Each of the Portfolios (other than the U.S. Government Cash Management
Portfolio) calculates the net asset value of a share of each class by dividing
the total value of its assets attributable to that class, less liabilities
attributable to that class, by the number of shares of the class outstanding.
Shares are valued as of the close of regular trading on the New York Stock
Exchange each day the Exchange is open. Portfolio securities for which market
quotations are readily available are stated at market value. Short-term
investments that will mature in 60 days or less are stated at amortized cost,
which has been determined to approximate the fair market value of such
investments. All other securities and assets are valued at their fair values.
The net asset value of shares of different classes will generally differ due to
the variance in daily net income realized by and dividends paid on each class,
and any differences in the expenses of different classes.

Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rates or at such other rates as may be used in
accordance with procedures approved by the Trustees. As a result, fluctuations
in the values of such currencies in relation to the U.S. dollar will affect the
net asset value of Portfolio shares even though there has not been any change
in the values of such securities as quoted in such foreign currencies. All
assets and liabilities of a Portfolio denominated in foreign currencies are
valued in U.S. dollars based on the exchange rate last quoted by a major bank
prior to the time when the net asset value of the Portfolio's shares is
calculated. Because certain of the securities in which the Portfolios may
invest may trade on days when the Portfolios do not price their shares, the net
asset value of a Portfolio's shares may change on days when shareholders will
not be able to purchase or redeem their shares.

Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset
value of a particular class of shares are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds, U.S. Government securities, and
tax-exempt securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
Exchange. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of net asset value. If events materially affecting the

<PAGE>

value of such securities occur during such period, then these securities will
be valued at their fair value following procedures approved by the Trustees.

THE U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO values its shares twice each
day, once at 12:00 noon and again at the close of regular trading on the New
York Stock Exchange. The Portfolio's investments are valued at amortized cost
according to Securities and Exchange Commission Rule 2a-7. The Portfolio will
not normally have unrealized gains or losses so long as it values its
investments by the amortized cost method.

HOW TO BUY SHARES

Shares of the FIXED-INCOME and INTERNATIONAL PORTFOLIOS are sold at the
net asset value next determined after a purchase order is received by a
Portfolio. In most cases, in order to receive that day's public offering price,
your order must be received by the Trust or Mentor Distributors, LLC ("Mentor
Distributors") before the close of regular trading on the New York Stock
Exchange.

The U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO offers its shares
continuously at a price of $1.00 per share. Because the Portfolio seeks to be
fully invested at all times, investments must be in Same Day Funds to be
accepted. "Same Day Funds" are funds credited by the applicable regional
Federal Reserve Bank to the account of the Portfolio at its designated bank.

Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, serves as distributor of the Portfolios' shares. Mentor Distributors is
not obligated to sell any specific amount of shares of any of the Portfolios.

An investor may make an initial purchase of shares of any of the
Portfolios by submitting completed application materials along with a purchase
order, and by making payment to the Trust. Investors will be required to make
minimum initial investments of $500,000 in Class Y (Institutional) Shares of
the Portfolios and minimum subsequent investments of $25,000. Investments made
through advisory accounts maintained with investment advisers registered under
the Investment Advisers Act of 1940, as amended (including "wrap" accounts),
are not subject to these minimum investment requirements. The Portfolios
reserve the right at any time to change the initial and subsequent investment
minimums required of investors. If an investor purchases shares of any of the
Portfolios, other than the U.S. Government Cash Management Portfolio, through
EVEREN Securities, Inc. or certain other financial institutions that have made
arrangements with Mentor Distributors with the redemption proceeds received by
the investor within the preceding 90 days from the sale of shares of any
non-Mentor open-end mutual fund, EVEREN Securities, Inc. or such other
financial institutions may compensate the investor's investment consultant in
connection with that purchase.

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

<PAGE>

to federal income taxation, depending upon the investor's basis in the
securities tendered. A shareholder who wishes to purchase shares by exchanging
securities should obtain instructions by calling Mentor Services Company, Inc.
at 1-800-869-6042.

Mentor Distributors, the investment adviser, or affiliates thereof, at
their own expense and out of their own assets (or in conjunction with other
entities), may also periodically sponsor programs that offer additional
compensation in connection with sales of shares of the Portfolios. Compensation
may include, but is not limited to, financial assistance to dealers in
connection with conferences, sales, or training programs for their employees,
seminars for the public, advertising or sales campaigns, or other
dealer-sponsered special events. In some instances, this compensation may be
made available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of shares. Dealers may not use sales of
the Trust's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. Certain dealers may not sell
all classes of shares.

Mentor Advisors, Mentor Perpetual, and Mentor Distributors reserve the
right to reject any investment in any Portfolio.

HOW TO SELL SHARES

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

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

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

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

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

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

Each Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against

<PAGE>

the possibility of fraud. Mentor Distributors usually requires additional
documentation for the sale of shares by a corporation, partnership, agent,
fiduciary, or surviving joint owner. Contact Mentor Services Company, Inc. for
details.

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

OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, a
Portfolio may suspend repurchases, or postpone payment for more than seven
days, as permitted by federal securities laws. In addition, each Portfolio
reserves the right, if conditions exist which make cash payments undesirable,
to honor any request for redemption by making payment in whole or in part by
securities valued in the same way as they would be valued for purposes of
computing the Portfolio's per share net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting those
securities into cash.

HOW DISTRIBUTIONS ARE MADE

The FIXED-INCOME PORTFOLIO distributes net investment income quarterly and
any net realized capital gains at least annually. The INTERNATIONAL PORTFOLIO
distributes net investment income and any net realized capital gains at least
annually. Distributions from capital gains are made after applying any
available capital loss carryovers.

The U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO determines its net income as
of the close of regular trading on the New York Stock Exchange each day the
Exchange is open. Each determination of the Portfolio's net income includes (i)
all accrued interest on the Portfolio's investments, (ii) plus or minus all
realized and unrealized gains and losses on the Portfolio's investments, (iii)
less all accrued expenses of the relevant class of shares of the Portfolio.

The U.S. Government Cash Management Portfolio declares all of its net
income as a distribution on each day it is open for business, as a dividend to
shareholders of record immediately prior to the close of regular trading on the
New York Stock Exchange. Shareholders whose purchase of shares of the Portfolio
is accepted at or before 12:00 noon on any day will receive the dividend
declared by the Portfolio for that day; shareholders who purchase shares after
12:00 noon will begin earning dividends on the next business day after the
Portfolio accepts their order. The Portfolio's net income for Saturdays,
Sundays, and holidays is declared as a dividend on the preceding business day.
Dividends for the immediately preceding calendar month will be paid on the
first day of each calendar month (or, if that day is not a business day, on the
next business day), except that the Portfolio's schedule for payment of
dividends during the month of December may be adjusted to assist in tax
reporting and distribution requirements. A shareholder that withdraws the
entire balance of an account at any time during a month will be paid all
dividends declared through the time of the withdrawal. Since the net income of
the Portfolio is declared as a dividend each time it is determined, the net
asset value per share of the Portfolio normally remains at $1 per share
immediately after each determination and dividend declaration.

All Portfolio distributions will be invested in additional Portfolio
shares of the same class, unless the shareholder instructs a Portfolio
otherwise.

<PAGE>

TAXES

The Portfolios will distribute substantially all of their net investment
income and capital gain net income on a current basis.

Distributions of net investment income and short-term capital gains are
taxable as ordinary income. Distributions of capital gain on assets held more
than 12 months will be taxable as capital gains. Distributions are taxable
whether received in cash or reinvested in additional shares. DISTRIBUTIONS ARE
TAXABLE TO A SHAREHOLDER EVEN IF THEY ARE PAID FROM INCOME OR GAINS EARNED BY A
PORTFOLIO PRIOR TO THE SHAREHOLDER'S INVESTMENT AND THUS WERE INCLUDED IN THE
PRICE PAID BY THE SHAREHOLDER.

Any gain resulting from the sale or exchange of your shares generally also
will be subject to tax. Distributions and transactions in shares may also be
subject to state and local taxes. The nature of each Portfolio's distributions
will be affected by its investment strategies. A Portfolio whose investment
return consists largely of interest, dividends and capital gains from
short-term holdings will distribute largely ordinary income. A Portfolio whose
return comes largely from the sale of long-term holdings will distribute
largely long-term capital gains.

INTERNATIONAL PORTFOLIO ONLY. Shareholders of the Portfolio who are U.S.
citizens or residents may be able to claim a foreign tax credit or deduction on
their U.S. income tax returns with respect to foreign taxes paid by the
Portfolio. If, at the end of the fiscal year of the Portfolio, more than 50% of
the Portfolio's total assets are represented by stock or securities of foreign
corporations, the Portfolio intends to make an election permitted by the
Internal Revenue Code to treat any eligible foreign taxes that were paid by the
Portfolio as paid by its shareholders. In that case, shareholders will be
required to include in U.S. taxable income their pro rata share of such taxes,
but may then be entitled to claim a foreign tax credit or deduction (but not
both) for their share of such taxes. The Portfolio's investments in foreign
securities may be subject to foreign withholding taxes. In that case, the
Portfolio's yield on those securities would be decreased. In addition, the
Portfolio's investments in foreign securities or foreign currencies may
increase or accelerate the Portfolio's recognition of ordinary income and may
affect the timing or amount of the Portfolio's distributions.

The foregoing is a summary of certain federal income tax consequences of
investing in a Portfolio. Dividends and distributions also may be subject to
state, local and foreign taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state, local, or foreign
taxes. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of a Portfolio, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).

<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the period of its operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends
and distributions). This information has been audited by KPMG Peat Marwick LLP,
the Trust's independent auditors. Their report dated December 18, 1998 on the
financial statements of the Trust for the fiscal year ended October 31, 1998 is
included in each Portfolio's Annual Report to shareholders, which is
incorporated into the Statement of Additional Information by reference. A copy
of the Annual Report may be obtained free of charge from the Trust. (Until
November 1, 1996 the U.S. Government Cash Management Portfolio was known as the
Cash Management Portfolio and invested in a broad range of money market
instruments, not limited (as it currently is) to investments in U.S. Government
securities and repurchase agreements with respect to such securities. During
the periods prior to October 31, 1996, the Fixed-Income Portfolio invested only
in investment grade fixed-income securities.)

<TABLE>
<CAPTION>
U.S. GOVERNMENT
CASH MANAGEMENT PORTFOLIO
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/98 10/31/97 10/31/96 10/31/95 (B)
------------ ------------- ------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS ................
Net investment income ........................... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss) on
investments ................................... --* --* --* --
------- -------- ------- --------
Total from investment operations ................ 0.05 0.05 0.05 0.05
------- -------- ------- --------
LESS DISTRIBUTIONS
From net investment income ...................... (0.05) (0.05) (0.05) (0.05)
From capital gains .............................. --* --* --* --
------- -------- ------- --------
Total distributions ............................. (0.05) ( 0.05) (0.05) (0.05)
------- -------- ------- --------
NET ASSET VALUE, END OF PERIOD ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ========
Total Return (d) ................................. 5.63% 5.56% 5.60% 5.06%
======= ======== ======= ========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......... $ 64,827 $259,950 $87,973 $ 69,997
Ratio of expenses to average net assets .......... 0.06% 0.06% 0.04% 0.04% (a)
Ratio of expenses to average net assets
excluding waiver ................................ 0.12% 0.09% 0.12% 0.18% (a)
Ratio of net investment income to average net
assets .......................................... 5.48% 5.45% 5.54% 5.56% (a)
======== ======== ======= ========
</TABLE>

- ----------
(a) Annualized.
(b) For the period from December 5, 1994 (commencement of operations) to
October 31, 1995.
(d) Total return does not reflect sales commission and is not annualized.
* Reflects net realized gain (loss) which was less than $0.005 per share.

See notes to financial statements.

<PAGE>

MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FIXED-INCOME PORTFOLIO
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/98 10/31/97 10/31/96 10/31/95 (C)
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 13.11 $ 12.89 $ 13.71 $ 12.50
INCOME FROM INVESTMENT OPERATIONS ................
Net investment income ........................... 0.79 0.83 0.77 0.81
Net realized and unrealized gain (loss) on
investments ................................... 0.13 0.21 (0.16) 1.14
-------- -------- -------- ----------
Total from investment operations ................ 0.92 1.04 0.61 1.95
-------- -------- -------- ----------
LESS DISTRIBUTIONS
From net investment income ...................... (0.82) (0.82) (0.77) (0.74)
From capital gains .............................. (0.06) -- (0.66) --
-------- -------- -------- ----------
Total distributions ............................. (0.88) (0.82) (1.43) (0.74)
-------- -------- -------- ----------
NET ASSET VALUE, END OF PERIOD ................... $ 13.15 $ 13.11 $ 12.89 $ 13.71
======== ======== ======== ==========
Total Return (d) ................................. 7.21% 8.39% 4.87% 15.90%
======== ======== ======== ==========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......... $ 83,372 $ 61,738 $ 49,962 $ 34,053
Ratio of expenses to average net assets .......... 0.10% 0.10% 0.05% 0.05% (a)
Ratio of expenses to average net assets
excluding waiver ................................ 0.10% 0.15% 0.17% 0.22% (a)
Ratio of net investment income to average net
assets .......................................... 6.08% 6.52% 6.22% 6.75% (a)
Portfolio turnover rate .......................... 137% 194% 226% 302%
======== ======== ======== ==========
</TABLE>

- ----------
(a) Annualized.
(c) For the period from December 6, 1994 (commencement of operations) to
October 31, 1995.
(d) Total return does not reflect sales commission and is not annualized.

See notes to financial statements.

<PAGE>

MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
(CLASS Y SHARES)

<TABLE>
<CAPTION>
PERPETUAL INTERNATIONAL PORTFOLIO
-------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
10/31/98 10/31/97 10/31/96 (F)
------------ ------------ -------------------
<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 ........................................... 0.27 0.15 0.04
Net realized and unrealized gain (loss) on investments .......... 0.79 1.67 (0.42)
-------- -------- ----------
Total from investment operations ................................ 1.06 1.82 (0.38)
-------- -------- ----------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.02) (0.05) --
Capital gains ................................................... (0.05) -- --
Tax return of capital ........................................... (0.14) -- --
-------- -------- ----------
Total distributions ............................................. (0.21) (0.05) --
-------- -------- ----------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.74 $ 13.89 $ 12.12
======== ======== ==========
Total Return* .................................................... 7.69% 15.07% (3.04%)
======== ======== ==========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......................... $ 10,979 $ 16,110 $ 8,741
Ratio of expenses to average net assets .......................... 1.10% 1.10% 1.10% (a)
Ratio of expenses to average net assets excluding waiver ......... 1.43% 1.74% 1.75% (a)
Ratio of net investment income to average net assets ............. 1.21% 1.20% 0.89% (a)
Portfolio turnover rate .......................................... 120% 107% 59%
======== ======== ==========
</TABLE>

- ----------
(a) Annualized.
(f) For the period from May 29, 1996 (commencement of operations) to October
31, 1996.
* Total return does not reflect sales commission and is not annualized.

See notes to financial statements.

<PAGE>

THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION (SAI) AND ANNUAL AND
SEMI-ANNUAL REPORTS TO SHAREHOLDERS INCLUDE ADDITIONAL INFORMATION ABOUT THE
PORTFOLIOS. THE SAI AND THE FINANCIAL STATEMENTS INCLUDED IN EACH PORTFOLIO'S
MOST RECENT ANNUAL REPORT TO SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, WHICH MEANS THEY ARE PART OF THIS PROSPECTUS FOR LEGAL
PURPOSES. EACH PORTFOLIO'S ANNUAL REPORT DISCUSSES THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED THE PORTFOLIO'S PERFORMANCE
DURING ITS LAST FISCAL YEAR. YOU MAY GET FREE COPIES OF THESE MATERIALS,
REQUEST OTHER INFORMATION ABOUT A PORTFOLIO, OR MAKE SHAREHOLDER INQUIRIES BY
CALLING 1-800-869--6042.

YOU MAY REVIEW AND COPY INFORMATION ABOUT THE TRUST, INCLUDING ITS SAI,
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN
WASHINGTON, D.C. YOU MAY CALL THE COMMISSION AT 1-800-SEC-0330 FOR INFORMATION
ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM. YOU MAY ALSO ACCESS REPORTS
AND OTHER INFORMATION ABOUT THE TRUST ON THE COMMISSION'S INTERNET SITE AT
HTTP://WWW.SEC.GOV. YOU MAY GET COPIES OF THIS INFORMATION, UPON PAYMENT OF
COPYING COSTS, BY WRITING THE PUBLIC REFERENCE SECTION OF THE COMMISSION,
WASHINGTON, D.C. 20549-6009. YOU MAY NEED TO REFER TO THE TRUST'S FILE NUMBER
UNDER THE INVESTMENT COMPANY ACT, WHICH IS 811-8484.

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

1999 MENTOR DISTRIBUTORS, LLC

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

MK998W

MENTOR
INSTITUTIONAL
TRUST

-------------------------
PROSPECTUS
CLASS Y SHARES
-------------------------
March 1, 1999

[MENTOR LOGO]

<PAGE>

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

1999 MENTOR DISTRIBUTORS, LLC

MK998E

MENTOR
INSTITUTIONAL
TRUST

-------------------------
PROSPECTUS
CLASS Y SHARES
-------------------------
March 1, 1999

[MENTOR LOGO]

<PAGE>

P R O S P E C T U S March 1, 1999
Class A and B Shares

Mentor Perpetual International Portfolio

o Seeking long-term capital appreciation by investing in a diversified
portfolio of equity securities of issuers outside the United States.

o Advisor: Mentor Perpetual Advisors, LLC ("Mentor Perpetual")

You can call Mentor Services Company, Inc. at (800) 869-6042 to find out
more about the Portfolio and other mutual funds in the Mentor family.

The prospectus explains what you should know about the Portfolio before
you invest. Please read it carefully.

----------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED
ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary Information ............................... 3
Expense Summary ................................... 5
Principal Investment Strategies and Risks ......... 6
Other Investments and Risks ....................... 8
Management ........................................ 10
How the Portfolio Values Its Shares ............... 11
Sales Arrangements ................................ 12
How to Buy Shares ................................. 13
Distribution Plan (Class B Shares) ................ 17
How to Sell Shares ................................ 17
How to Exchange Shares ............................ 18
Other Services .................................... 19
How Distributions Are Made ........................ 20
Taxes ............................................. 20
Financial Highlights .............................. 21
</TABLE>

<PAGE>

SUMMARY INFORMATION

The Portfolio is a diversified investment portfolio of Mentor
Institutional Trust. The following summary describes the Portfolio's investment
objective and principal investment strategies and identifies the principal
risks of investing in the Portfolio.

Below the Portfolio's description is a bar chart which provides some
indication of the risks of investing in the Portfolio by showing how the
investment returns of the Portfolio's Class A shares have varied in the period
since they were first offered. The table following the bar chart shows how the
Portfolio's average annual returns for its Class A Shares for the last year and
for the life of the Portfolio compared to returns of a comparable broad-based
securities market index. PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
FUTURE PERFORMANCE. It is possible to lose money on investments in the
Portfolio.

o INVESTMENT OBJECTIVE. Long-term capital appreciation.

o PRINCIPAL RISKS.

<PAGE>

o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to
changes in interest rates) and to credit risk (the risk that the issuer may
become unable or unwilling to make timely payments of principal and
interest). Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to
greater credit and market risks than higher-rated securities. When interest
rates rise, the values of fixed-income securities held by the Portfolio
typically decline. The longer the maturity of a security, the more its
value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time
of purchase, it will not necessarily sell securities which are downgraded
after purchase.
PERPETUAL INTERNATIONAL PORTFOLIO -- CLASS A SHARES

[GRAPH]

CALENDAR YEAR END ANNUAL RETURN:

1997 10.05%
1998 13.30%

During the periods shown above, the highest quarterly return was 16.84%
for the quarter ended December 31, 1998, and the lowest was (15.04)% for the
quarter ended September 30, 1998. The bar chart does not reflect sales loads.
If sales loads were reflected, the returns would be lower than those shown. The
returns shown are for Class A shares. Because operating expenses attributable
to Class B shares are higher than those attributable to Class A shares,
investment returns for Class B shares are lower than for Class A shares.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIODS ENDING LIFE OF CLASS
DECEMBER 31, 1998) PAST YEAR (SINCE 12/27/96)
- --------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Perpetual International Portfolio -- Class A ............. 13.30% 12.08%
Perpetual International Portfolio -- Class B ............. 12.46% 11.55%
Morgan Stanley Capital International EAFE Index* ......... 20.33% 10.82%
</TABLE>

<PAGE>

EXPENSE SUMMARY

Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown are based on expenses incurred in respect of Class A
and Class B Shares of the Portfolio for the 1998 fiscal year. The Examples show
the cumulative expenses attributable to a hypothetical $10,000 investment in
Class A and Class B Shares of the Portfolio over specified periods.

FEES AND EXPENSES OF THE PORTFOLIO

This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.

<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ------------
<S> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)1 ..... 5.75% None
Maximum Sales Load Imposed on Reinvested Dividends ............................... None None
Maximum Deferred Sales Load (as a percentage of the lower of the original purchase
price or redemption proceeds)3 ................................................. None2 4.00%4
Redemption Fees .................................................................. None None
Exchange Fee ..................................................................... None None
</TABLE>

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

<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ----------
<S> <C> <C>
Management Fees .................................... 1.00% 1.00%
12b-1 Fees ......................................... 0.00% 0.75%
Shareholder Service Fee ............................ 0.25% 0.25%
Other Expenses ..................................... 0.43% 0.43%
---- ----
Total Annual Portfolio Operating Expenses .......... 1.68% 2.43%
</TABLE>

- ----------
1 Long-term Class B shareholders may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.

2 A contingent deferred sales charge ("CDSC") of 1.00% is assessed on Class A
shares that were purchased without an initial sales charge as part of an
investment of over $1,000,000 that are redeemed within one year of purchase.

3 The amount redeemed is computed as the lesser of the current net asset value
of the shares redeemed, and the original purchase price of the shares. See
"How to buy shares -- Class B shares."

4 In the first two years, declining to 1.00% in the fifth year and eliminated
thereafter. Shares purchased as part of asset-allocation plans pursuant to
the BL Purchase Program are subject to a CDSC of 1.00% if the shares are
redeemed within one year of purchase. See "How to buy shares -- the BL
Purchase Program."

<PAGE>

EXAMPLES

These Examples are intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.

The Examples assume that you invest $10,000 in the class of shares of the
Portfolio indicated for the time periods indicated and then either (a) redeem
all of your shares at the end of those periods or (b) do not redeem your
shares. The Examples also assume that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
(a) Assuming Redemption

<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ----------
<S> <C> <C>
1 year .................... $ 746 $ 646
3 years ................... $ 1,105 $ 1,058
5 years ................... $ 1,488 $ 1,396
10 years .................. $ 2,562 $ 2,766
</TABLE>

(b) Assuming No Redemption

<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ----------
<S> <C> <C>
1 year .................... $ 746 $ 246
3 years ................... $ 1,105 $ 758
5 years ................... $ 1,488 $ 1,296
10 years .................. $ 2,562 $ 2,766
</TABLE>

PRINCIPAL INVESTMENT STRATEGIES AND RISKS

The Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolio's principal
strategies and risks.

FOREIGN SECURITIES. Investments in foreign securities entail certain
risks. Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Portfolio's assets may be affected favorably or
unfavorably by currency exchange rates, exchange control regulations, foreign
withholding taxes and restrictions or prohibitions on the repatriation of
foreign currencies. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are
also generally higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Portfolio's assets held
abroad) and expenses not present in the settlement of domestic investments.

<PAGE>

investors in certain foreign countries may be more limited than those available
with respect to investments in the United States or in other foreign countries.
In the case of securities issued by a foreign governmental entity, the issuer
may in certain circumstances be unable to unwilling to meet its obligations on
the securities in accordance with their terms, and the Portfolio may have
limited recourse available to it in the event of default. The laws of some
foreign countries may limit the Portfolio's ability to invest in securities of
certain issuers located in those foreign countries. Special tax considerations
apply to foreign securities. The Portfolio may buy or sell foreign currencies
and options and futures contracts on foreign currencies for hedging purposes in
connection with its foreign investments.

SMALLER COMPANIES. Smaller companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
involve certain special risks. Small companies often have limited product
lines, markets, or financial resources. They may be dependent on a limited
management group. While the markets in small company securities have grown
rapidly in recent years, such securities trade less frequently and in smaller
volume than more widely held securities. These securities tend to fluctuate
more sharply in value than other securities, and the Portfolio may experience
some difficulty in establishing or closing out positions in these securities at
prevailing market prices. There is usually less publicly-available information
about small companies and less market interest in small company securities than
in large company securities, and these securities may therefore take longer to
reflect the full value of their issuers' underlying earnings potential or
assets.

TEMPORARY DEFENSIVE STRATEGIES. Mentor Perpetual may implement temporary
defensive strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion of its
assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Mentor Perpetual considers consistent with
such defensive strategies. It is impossible to predict when, or for how long,
the Portfolio will use these defensive strategies.

PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements.
A change in the securities held by the Portfolio is known as "portfolio
turnover." Portfolio turnover generally involves some expense to the Portfolio,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities, and therefore
will affect Portfolio performance. Such sales may increase the amount of
capital gains (and, in particular, short-term gains) realized by the Portfolio,
on which shareholders pay tax.

<PAGE>

OTHER INVESTMENTS AND RISKS

The following provides more detail about the Portfolio's other investments
and risks and other circumstances which could adversely affect the Portfolio's
shares or its total return.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future currency exchange rates. The Portfolio may engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect against changes in
the value of specific portfolio positions ("position hedging").

The Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which it
contracts to purchase or sell and the settlement date, or to "lock in" the U.S.
dollar equivalent of a dividend or interest payment in a foreign currency. The
Portfolio may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging.

The Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and sell
foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be higher or lower than
the spot rate. Foreign currency futures contracts are standardized exchange-
traded contracts and have margin requirements. For transaction hedging
purposes, the Portfolio may also purchase and sell call and put options on
foreign currency futures contracts and on foreign currencies.

The Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which portfolio
securities are denominated or quoted (or an increase in value of a currency in
which securities the Portfolio intends to buy are denominated). For position
hedging purposes, the Portfolio may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase and sell put
and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, the Portfolios may also
purchase or sell foreign currencies on a spot basis.

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

LEVERAGE. The Portfolio may borrow money to invest in additional portfolio
securities. This practice, known as "leverage," increases the Portfolio's
market exposure and its risk and may result in losses. When the Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
the Portfolio's net asset value will normally increase or decrease more than if
it had not borrowed money. The interest the Portfolio must pay on borrowed
money will reduce the amount of any potential gains or increase any losses. The
extent to which the Portfolio will borrow money, and the amount it may borrow,
depend on market conditions and interest rates. Successful use of leverage
depends on Mentor Perpetual's ability to predict market movements correctly.

OPTIONS AND FUTURES. The Portfolio may buy and sell call and put options
to hedge against changes in net asset value or to realize a greater current
return. In addition, through the purchase and sale of futures contracts and
related options, the Portfolio may at times seek to hedge against fluctuations
in net asset value and, to the extent consistent with applicable law, to
increase investment return.

<PAGE>

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

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

INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index future"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of
the index between the time when the Portfolio enters into and terminates an
index future or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.

RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. OPTIONS AND FUTURES
TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN LOSSES. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
security or index or of the securities held by the Portfolio that are the
subject of a hedge. The successful use by the Portfolio of the strategies
described above further depends on the ability of its investment adviser to
forecast market movements correctly. Other risks arise from the Portfolio's
potential inability to close out futures or options positions. Although the
Portfolio will enter into options or futures transactions only if its
investment adviser believes that a liquid secondary market exists for such
options or futures contracts, there can be no assurance that the Portfolio will
be able to effect closing transactions at any particular time or at an
acceptable price.

The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of Mentor Perpetual, the
pricing mechanism and liquidity of the over-the-counter markets are
satisfactory and the participants are responsible parties likely to meet their
obligations.

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

<PAGE>

broker-dealers who are members of a national securities exchange or market
makers in government securities, and in the case of repurchase agreements, only
if the debt instrument is a U.S. Government security. Although Mentor Perpetual
will monitor these transactions to ensure that they will be fully
collateralized at all times, the Portfolio bears a risk of loss if the other
party defaults on its obligation and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral. If the other party should
become involved in bankruptcy or insolvency proceedings, it is possible that
the Portfolio may be treated as an unsecured creditor and be required to return
the underlying collateral to the other party's estate.

YEAR 2000. It is generally recognized that certain computer systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. 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. In addition, the Portfolio's software, that
of the issuers of securities held by the Portfolio and the securities markets
generally could be subject to problems caused by the "Year 2000" problem.
Mentor Perpetual is taking steps that it believes are reasonably designed to
address each of these potential "Year 2000" problems and to obtain satisfactory
assurances that comparable steps are being taken by the Portfolio's other major
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolio from this problem.

MANAGEMENT RISK. Although the Portfolio may have the flexibility to use
some or all of the investment strategies, securities and derivative instruments
described in this prospectus and in the Statement of Additional Information,
Mentor Perpetual may choose not to use a particular strategy or type of
security for a variety of reasons. Also, in some market conditions some
strategies and securities may not be available for use. These choices may cause
the Portfolio to miss opportunities, lose money or not achieve its objective.

CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change the Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and
the risks involved in an investment in the Portfolio.)

MANAGEMENT

The Trustees of Mentor Institutional Trust ("the Trust") are responsible
for generally overseeing the conduct of the Trust's business. They have hired
MENTOR PERPETUAL ADVISORS ("MENTOR PERPETUAL"), LLC, located at 901 East Byrd
Street, Richmond, Virginia, to act as investment adviser to the Portfolio. In
1998, Mentor Perpetual received a fee of 1.00% of average net assets for its
advisory services to the International Portfolio.

Mentor Investment Advisors, LLC ("Mentor Advisors") is a wholly owned
subsidiary of Mentor Investment Group, LLC ("Mentor Investment Group"), which
is in turn a subsidiary of Wheat First Butcher Singer, Inc. ("Wheat First
Butcher Singer"). Wheat First Butcher Singer is wholly owned subsidiary of
First Union Corp. ("First Union"), a leading financial services company with
approximately $234 billion in assets and $17 billion in total stockholders'
equity as of September 30, 1998. Mentor Advisors and its affiliates serve as
investment

<PAGE>

advisers to over twenty separate investment portfolios in the Mentor Family of
Funds, with total assets under management of more than $15 billion.

Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc and Mentor Advisors. The Perpetual organization
currently serves as investment adviser for assets of more than $14 billion. Its
clients include 28 unit investment trusts and other public investment pools,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the
Mentor Perpetual Global Portfolio, an open-end mutual fund which is a series of
Mentor Funds. Investment decisions for the International Portfolio are made by
a team of investment professionals.

Subject to the general oversight of the Trustees, Mentor Perpetual manages
the Portfolio in accordance with the stated policies of the Portfolio. Mentor
Perpetual makes investment decisions for the Portfolio and places the purchase
and sale orders for the Portfolio's portfolio transactions. In selecting
broker-dealers, Mentor Perpetual may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Mentor Perpetual may consider sales of shares of the Portfolio (and,
if permitted by law, of other funds in the Mentor family) as a factor in the
selection of broker-dealers to execute portfolio transactions for the
Portfolio. Mentor Perpetual may at times cause the Portfolio to pay commissions
to broker-dealers which are affiliated with Mentor Perpetual.

HOW THE PORTFOLIO VALUES ITS SHARES

The Portfolio calculates the net asset value of a share of each class by
dividing the total value of its assets attributable to that class, less
liabilities attributable to that class, by the number of shares of the class
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values. The net asset value of shares of different classes will generally
differ due to the variance in daily net income realized by and dividends paid
on each class, and any differences in the expenses of different classes.

Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rates or at such other rates as may be used in
accordance with procedures approved by the Trustees. As a result, fluctuations
in the values of such currencies in relation to the U.S. dollar will affect the
net asset value of Portfolio shares even though there has not been any change
in the values of such securities as quoted in such foreign currencies. All
assets and liabilities of the Portfolio denominated in foreign currencies are
valued in U.S. dollars based on the exchange rate last quoted by a major bank
prior to the time when the net asset value of the Portfolio's shares is
calculated. Because certain of the securities in which the Portfolio may invest
may trade on days when the Portfolio does not price its shares, the net asset
value of the Portfolio's shares may change on days when shareholders will not
be able to purchase or redeem their shares.

<PAGE>

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

SALES ARRANGEMENTS

This Prospectus offers investors two classes of shares which bear sales
charges in different forms and amounts and which bear different levels of
expenses:

CLASS A SHARES. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject to
any charges when they are redeemed, except that sales at net asset value in
excess of $1 million are subject to a contingent deferred sales charge (a
"CDSC"). Certain purchases of Class A shares qualify for reduced sales charges.
Class A shares currently bear no 12b-1 fees. See "How to buy shares -- Class A
shares."

CLASS B SHARES. Class B shares are sold without an initial sales charge,
but are subject to a CDSC of up to 4% if redeemed within five years. Class B
shares also bear 12b-1 fees. Class B shares provide an investor the benefit of
putting all of the investor's money to work from the time the investment is
made, but have a higher expense ratio and pay lower dividends than Class A
shares due to the 12b-1 fees. If you purchase shares through an
asset-allocation program, you may also be eligible to purchase Class B shares
through the "BL Purchase Program." See "How to buy shares -- Class B shares."

WHICH ARRANGEMENT IS FOR YOU? The decision as to which class of shares
provides a suitable investment for an investor depends on a number of factors,
including the amount and intended length of the investment. Investors making
investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge might consider
Class B shares. Investors purchasing shares through an asset-allocation program
may wish to purchase shares through the BL Purchase Program. For more
information about these sales arrangements, consult your investment dealer or
Mentor Services Company, Inc. Sales personnel may receive different
compensation depending on which class of shares they sell. Investors may be
charged a fee if they effect transactions through a broker or agent. Shares may
only be exchanged for shares of the same class of certain other funds in the
Mentor family and for shares of Cash Resource U.S. Government Money Market
Fund. See "How to exchange shares."

<PAGE>

HOW TO BUY SHARES

You can open a Portfolio account with as little as $1,000 and make
additional investments at any time with as little as $100. Investments under
IRAs and qualified retirement plans are subject to a minimum initial investment
of $250. The minimum initial investment may be waived for current and retired
Trustees, and current and retired employees of the Trust, Mentor Investment
Group, or its affiliates. You can buy Portfolio's shares BY COMPLETING THE
ENCLOSED NEW ACCOUNT FORM and sending it to Boston Financial Data Services
("BFDS") at 2 Heritage Drive, North Quincy, Massachusetts 02171 along with a
check or money order made payable to Mentor Institutional Trust, THROUGH YOUR
FINANCIAL INSTITUTION, which may be an investment dealer, a bank, or another
institution, or THROUGH AUTOMATIC INVESTING. If you do not have a dealer,
Mentor Services Company, Inc. can refer you to one.

AUTOMATIC INVESTMENT PLAN. Once you have made the initial minimum
investment in the Portfolio, you can make regular investments of $50 or more on
a monthly or quarterly basis through automatic deductions from your bank
checking account. Application forms are available from your investment dealer
or through Mentor Services Company, Inc.

Shares are sold at a price based on the Portfolio's net asset value for
each class next determined after Mentor Distributors, LLC, the Portfolio's
distributor ("Mentor Distributors"), receives your purchase order. In most
cases, in order to receive that day's public offering price, Mentor
Distributors must receive your order before the close of regular trading on the
New York Stock Exchange. If you buy shares through your investment dealer, the
dealer must ensure that Mentor Distributors receives your order before the
close of regular trading on the New York Stock Exchange for you to receive that
day's public offering price.

CLASS A SHARES. The public offering price of Class A shares is the net
asset value plus a sales charge. The Portfolio receives the net asset value.
The sales charge varies depending on the size of your purchase and is allocated
between your investment dealer and Mentor Distributors. The current sales
charges for Class A shares of the Portfolio are as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
PUBLIC OFFERING NET AMOUNT DEALER
PRICE INVESTED COMMISSION*
----------------- ---------------- ------------
<S> <C> <C> <C>
Less than $50,000.......................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ............ 4.75% 4.99% 4.00%
$100,000 but less than $250,000 ........... 3.75% 3.90% 3.00%
$250,000 but less than $500,00 ............ 3.00% 3.09% 2.50%
$500,000 but less than $1 million ......... 2.00% 2.04% 1.75%
$1 million or more ........................ 0% 0% (see below)
</TABLE>

- ----------
* At the discretion of Mentor Distributors the entire sales charge may at times
be reallowed to dealers. The Staff of the Securities and Exchange Commission
has indicated that dealers who receive more than 90% of the sales charge may
be considered underwriters.

There is no initial sales charge on purchases of Class A shares of $1
million or more. However, a CDSC of 1.00% is imposed on redemptions of such
shares within the first year after purchase, based on the lower of the shares'
cost and current net asset value. A CDSC is also imposed on any shares
purchased without a sales

<PAGE>

charge as part of a purchase of shares of $1 million or more under a purchase
accumulation plan. Contact Mentor Services Company, Inc. for more information.

You may be eligible to buy Class A shares at reduced sales charges.
Consult your investment dealer or Mentor Services Company for details about
Quantity Discounts and Accumulated Purchases, Letters of Intent, the
Reinvestment Privilege, Concurrent Purchases, and the Automatic Investment
Plan. Descriptions are also included in the New Account Form or are available
from Mentor Services Company. Shares may be sold at net asset value to certain
categories of investors, including to shareholders of other investment
companies who invest in the Portfolio in response to certain promotional
activities, and the CDSC may be waived under certain circumstances. The sales
charges shown above will not apply to shares purchased by you if you purchase
shares through EVEREN Securities, Inc, with the proceeds received by you within
the preceding 90 days from the sale of shares of most non-Mentor investment
companies and, to the extent permitted by applicable law, real estate
investment trusts. No CDSC will apply to these purchases. EVEREN Securities,
Inc. Mentor Distributors, Mentor Services Company or their affiliates may
compensate your investment dealer in connection with any such purchase in an
amount equal to a percentage of the purchase price of the shares. The amount of
such compensation, and the portion paid by Mentor Distributors, Mentor Services
Company, or their affiliates, will vary from time to time. Sales charges may
similarly not apply to shares purchased through financial institutions
affiliated with Mentor Investment Group or other financial institutions that
have made arrangements with Mentor Distributors. Contact your financial
institution or Mentor Services Company for more information. See "How to buy
shares -- General" below.

CLASS B SHARES. Class B shares are sold without an initial sales charge,
although a CDSC will be imposed if you redeem shares within five years of
purchase. The following types of shares may be redeemed without charge: (i)
shares acquired by reinvestment of distributions and (ii) shares otherwise
exempt from the CDSC, as described in the Example below. The amount of CDSC is
determined as a percentage of the lesser of the current market value or the
cost of the shares being redeemed. In determining whether a CDSC is payable in
respect of the shares redeemed, the Portfolio will first redeem the shares held
longest (together with any shares received upon reinvestment of distributions
with respect to those shares). Any of the shares being redeemed which were
acquired by reinvestment of distributions will be redeemed without a CDSC, and
amounts representing capital appreciation will not be subject to a CDSC. The
amount of the CDSC will depend on the number of years since you invested in the
shares being redeemed and the dollar amount being redeemed, according to the
following table:

<TABLE>
<CAPTION>
YEARS SINCE PURCHASE PAYMENT MADE CDSC
- ----------------------------------- ----------
<S> <C>
Up to 2 4.00%
Up to 3 3.00%
Up to 4 2.00%
Up to 5 1.00%
5+ None
</TABLE>

THE BL PURCHASE PROGRAM. If you purchase Class B shares through an
asset-allocation program sponsored by your broker-dealer or other financial
institution, you may elect to participate in the BL Purchase Program. Shares
purchased through this program are not subject to the CDSC shown above. Rather,
a CDSC of 1.00% will be imposed on redemptions of such shares within the first
year after purchase, based on the lower of the

<PAGE>

shares' cost or current net asset value. Your broker-dealer or other financial
institution is responsible for making the election on your behalf to invest
through the Program. Accordingly, if you wish to purchase shares through this
Program, you should instruct your broker-dealer or financial institution to do
so.

GENERAL. Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus,
Ohio 43219, serves as distributor of the Portfolio's shares. Mentor
Distributors is not obligated to sell any specific amount of shares of the
Portfolio.

The Portfolio may sell its Class A shares without a sales charge and may
waive the CDSC on shares redeemed by the Trust's current and retired Trustees
(and their families), current and retired employees (and their families) of
Mentor Distributors, Mentor Perpetual, and their affiliates, registered
representatives and other employees (and their families) of broker-dealers
having sales agreements with Mentor Distributors, employees (and their
families) of financial institutions having sales agreements with Mentor
Distributors (or otherwise having an arrangement with a broker-dealer or
financial institution with respect to sales of Portfolio shares), financial
institution trust departments investing an aggregate of $1 million or more in
one or more funds in the Mentor family, clients of certain administrators of
tax-qualified plans, employer-sponsored retirement plans, tax-qualified plans
when proceeds from repayments of loans to participants are invested (or
reinvested) in funds in the Mentor family, shares redeemed under the
Portfolio's Systematic Withdrawal Plan (limited to 10% of a shareholder's
account in any calendar year), and "wrap accounts" for the benefit of clients
of financial planners adhering to certain standards established by Mentor
Distributors or Mentor Investment Group or its affiliates. The Portfolio may
sell shares without a sales charge or a CDSC in connection with the acquisition
by the Portfolio of assets of an investment company or personal holding
company. In addition, the CDSC may be waived in the case of (i) redemptions of
shares held at the time a shareholder dies or becomes disabled, including the
shares of a shareholder who owns the shares with his or her spouse as joint
tenants with right of survivorship, provided that the redemption is requested
within one year of the death or initial determination of disability; (ii)
redemptions in connection with the following retirement plan distributions: (a)
lump-sum or other distributions from a qualified retirement plan following
retirement, (b) distributions from an IRA, Keogh Plan, or Custodial Account
under Section 403(b)(7) of the Internal Revenue Code following attainment of
age 59 1/2, and (c) a tax-free return on an excess contribution to an IRA;
(iii) redemptions by pension or profit sharing plans sponsored by Mentor
Investment Group or an affiliate; and (iv) redemptions by pension or profit
sharing plans of which Mentor Investment Group or any affiliate serves as a
plan fiduciary. In addition, certain retirement plans with over 100 eligible
participants, or $1 million or more in total Plan assets, may purchase Class A
shares at net asset value without a sales charge. The Portfolio may sell its
Class A shares without a sales charge to shareholders of other mutual funds who
invest in other funds in the Mentor family in response to certain promotional
activities (in which case a CDSC of 1% may apply for a period of years after
purchase). Contact Mentor Services Company, Inc. for more information. If you
invest through a broker-dealer or other financial institution, your
broker-dealer or other financial institution will be responsible for electing
on your behalf to take advantage of any of these reduced sales charges or
waivers described above. Please instruct your broker-dealer or other financial
institution accordingly.

Shareholders of other funds in the Mentor family may be entitled to
exchange their shares for, or reinvest distributions from their funds in,
shares of the Portfolio at net asset value. See "How to exchange shares." In
determining whether a CDSC is payable in respect of the shares redeemed, the
Portfolio will first redeem the shares held longest (together with any shares
received upon reinvestment of distributions with respect to those

<PAGE>

shares). Any of the shares being redeemed which were acquired by reinvestment
of distributions will be redeemed without a CDSC, and amounts representing
capital appreciation will not be subject to a CDSC. See the Example below.

EXAMPLE:

You have purchased 100 Class B shares at $10 per share. The second year
after your purchase, your investment's net asset value per share has increased
by $2 to $12, and you have gained 10 additional shares through dividend
reinvestment. If you redeem 50 of those shares (including share purchased
through reinvestment of distributions on those 100 shares) at this time, your
CDSC will be calculated as follows:

<TABLE>
<S> <C> <C>
-- Proceeds of 50 shares redeemed at $12 per share $ 600
-- Minus proceeds of 10 shares not subject to a CDSC because they were
acquired through dividend reinvestment (10 x $12) -120
-- Minus appreciation on remaining shares, also not subject to CDSC (40 x $2) -80
-----
-- Amount subject to a CDSC $ 400
</TABLE>

Mentor Distributors receives the entire amount of any CDSC you pay.
Consult Mentor Distributors for more information.

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

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

Mentor Distributors, Mentor Perpetual, and affiliates thereof, at their
own expense and out of their own assets, may also provide other compensation to
dealers in connection with sales of shares of the Portfolio. Compensation may
also include, but is not limited to, financial assistance to dealers in
connection with conferences, sales, training programs for their employees,
seminars for the public, advertising or sales campaigns, or other
dealer-sponsored special events. In some instances, this compensation may be
available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of shares. Dealers may not use sales of
the Portfolio's shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc. Certain dealers may not
sell all classes of shares.

In all cases Mentor Perpetual or Mentor Distributors reserves the right to
reject any particular investment.

REINVESTMENT PRIVILEGE. If you redeem Class A or B shares of the
Portfolio, you have a one-time right, within 60 days, to reinvest the
redemption proceeds plus the amount of CDSC you paid, if any, at the next
determined net asset value. Front-end sales charges will not apply to such
reinvestment. Mentor Distributors must be notified in writing by you or by your
financial institution of the reinvestment for you to recover the CDSC, or to
eliminate the front-end sales charge. If you redeem shares in the Portfolio,
there may be tax consequences.

<PAGE>

DISTRIBUTION PLAN (CLASS B SHARES)

Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, is the principal distributor for the Portfolio's shares. Mentor
Distributors is not obligated to sell any specific amount of shares of the
Portfolio.

The Portfolio has adopted a Distribution Plan under Rule 12b-1 with
respect to its Class B shares (the "Plan") providing for payments by the
Portfolio to Mentor Distributors from the assets attributable to the
Portfolio's Class B shares at the annual rate set out under "Expense Summary --
Annual Portfolio Operating Expenses" above. Because these fees are paid out of
the Portfolio's assets on an ongoing basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges. The Trustees may reduce the amount of payments or suspend the
Plan for such periods as they may determine. Mentor Distributors also receives
the proceeds of any CDSC imposed on redemptions of shares.

Payments under the Plan are intended to compensate Mentor Distributors for
services provided and expenses incurred by it as principal underwriter of the
Portfolio's Class B shares. Mentor Distributors may select financial
institutions (such as a broker/dealer or bank) to provide sales support
services as agents for their clients or customers who beneficially own Class B
shares of the Portfolio. Financial institutions will receive fees from Mentor
Distributors based upon Class B shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by Mentor Distributors. Mentor Distributors may
suspend or modify such payments to dealers. Such payments are also subject to
the continuation of the Plan, the terms of any agreements between dealers and
Mentors Distributors, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.

Mentor Services Company, Inc. provides marketing-related services in
respect of the Portfolio. Mentor Services Company, Inc. and its affiliates will
receive from Mentor Distributors substantially all amounts received or retained
by Mentor Distributors in respect of the marketing of the Portfolio's shares,
including any amounts paid to Mentor Distributors under the Distribution Plan.

HOW TO SELL SHARES

You can sell your shares to the Portfolio any day the New York Stock
Exchange is open, either directly to the Portfolio or through your investment
dealer. The Portfolio will only redeem shares for which it has received
payment.

SELLING SHARES DIRECTLY TO THE PORTFOLIO. Send a signed letter of
instruction and stock power form, along with any certificates that represent
shares you want to sell, to Mentor Institutional Trust, c/o Boston Financial
Data Services, Inc., 2 Heritage Drive, North Quincy, Massachusetts 02171. The
price you will receive is the net asset value per share of the relevant class
of shares next calculated after your request is received in proper form less
any applicable CDSC. In order to receive that day's net asset value, your
request must be received before the close of regular trading on the New York
Stock Exchange. If you sell shares having a net asset value of $50,000 or more
or if you want your redemption proceeds payable to you at a different address
or to someone else, the signatures of registered owners or their legal
representatives must be guaranteed by a bank, broker-dealer, or certain other
financial institutions. Contact Mentor Services Company, Inc. for more
information about where to obtain a signature guarantee. Stock power forms are
available from your investment dealer, Mentor Services Company, Inc., and many
commercial banks. Mentor Distributors usually requires additional documentation
for

<PAGE>

the sale of shares by a corporation, partnership, agent, fiduciary, or
surviving joint owner. Contact Mentor Services Company, Inc. for details.

SELLING SHARES BY TELEPHONE. You may use Mentor's Telephone Redemption
Privilege to redeem shares from your account unless you have notified Mentor
Services Company, Inc. of an address change within the preceding 15 days.
Unless an investor indicates otherwise on the New Account Form, Mentor
Distributors will be authorized to act upon redemption and transfer
instructions received by telephone from a shareholder, or any person claiming
to act as his or her representative, who can provide Mentor Distributors with
his or her account registration and address as it appears on Mentor
Distributors' records. Mentor Distributors will employ these and other
reasonable procedures to confirm that instructions communicated by telephone
are genuine; if it fails to employ reasonable procedures, Mentor Distributors
may be liable for any losses due to unauthorized or fraudulent instructions.
For more information, consult Mentor Services Company, Inc. During periods of
unusual market changes and shareholder activity, you may experience delays in
contacting Mentor Services Company, Inc. by telephone in which case you may
wish to submit a written redemption request, as described above, or contact
your investment dealer, as described below. The Telephone Redemption Privilege
may be modified or terminated without notice.

SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer and Mentor
Distributors must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. Your dealer
will be responsible for furnishing all necessary documentation to Mentor
Distributors, and may charge you for its services.

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

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

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

HOW TO EXCHANGE SHARES

Except as otherwise described below, you can exchange your shares in the
Portfolio worth at least $1,000 for shares of the same class of certain
Portfolios of Mentor Funds, a series investment company offering shares of
investment portfolios with different investment objectives and policies, at net
asset value beginning 15 days after purchase. You may also exchange shares of
the Portfolio for shares of Cash Resource U.S. Government Money Market Fund
(the "Cash Fund"). If you exchange shares subject to a CDSC, the transaction
will not be subject to a CDSC. However, when you redeem the shares acquired
through the exchange, the redemption may be subject to the CDSC, depending upon
when you originally purchased the shares, using the schedule of the

<PAGE>

Portfolio from which your first exchange was effected. For purposes of
computing the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by any
exchange.

To exchange your shares, contact your consultant or Mentor Services
Company, Inc. For federal income tax purposes, an exchange is treated as a sale
of shares and generally results in a capital gain or loss. A Telephone Exchange
Privilege is currently available. Mentor Distributors' procedures for
telephonic transactions are described above under "How to sell shares --
Selling shares by telephone." The Telephone Exchange Privilege is not available
if you were issued certificates for shares which remain outstanding. Ask your
investment dealer or Mentor Services Company, Inc. for a prospectus relating to
Mentor Funds or the Cash Fund. Shares of certain of the Portfolios may not be
available to residents of all states.

The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management
and have an adverse effect on all shareholders. In order to limit excessive
exchange activity and in other circumstances where Mentor Distributors or the
Trustees believe doing so would be in the best interests of the Portfolio, the
Portfolio reserves the right to revise or terminate the exchange privilege,
limit the amount or number of exchanges, or reject any exchange. Shareholders
would be notified of any such action to the extent required by law. Consult
Mentor Services Company, Inc. before requesting an exchange by calling
1-800-869-6042. See the Statement of Additional Information to find out more
about the exchange privilege.

OTHER SERVICES

SHAREHOLDER SERVICING PLAN. The Trust has adopted a Shareholder Servicing
Plan (the "Service Plan") with respect to the Class A and Class B shares of the
Portfolio. Under the Service Plan, financial institutions will enter into
shareholder service agreements with Mentor Investment Group or the Trust to
provide administrative support services to their customers who are Portfolio
shareholders. In return for providing these support services, a financial
institution may receive payments at a rate not exceeding 0.25% of the average
daily net assets of the Class A or Class B shares of the Portfolio. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer personnel, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding the Portfolio; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Portfolio reasonably requests.

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

<PAGE>

HOW DISTRIBUTIONS ARE MADE

The Portfolio distributes net investment income and any net realized
capital gains at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers.

All Portfolio distributions will be invested in additional Portfolio
shares of the same class, unless the shareholder instructs a Portfolio
otherwise.

TAXES

The Portfolio will distribute substantially all of its net investment
income and capital gain net income at least annually.

Distributions of net investment income and short-term capital gains are
taxable as ordinary income. Distributions of capital gain on assets held more
than 12 months will be taxable as capital gains. Distributions are taxable
whether received in cash or reinvested in additional shares. DISTRIBUTIONS ARE
TAXABLE TO A SHAREHOLDER EVEN IF THEY ARE PAID FROM INCOME OR GAINS EARNED BY
THE PORTFOLIO PRIOR TO THE SHAREHOLDER'S INVESTMENT AND THUS WERE INCLUDED IN
THE PRICE PAID BY THE SHAREHOLDER.

Any gain resulting from the sale or exchange of your shares generally also
will be subject to tax. Distributions and transactions in shares may also be
subject to state and local taxes. The nature of the Portfolio's distributions
will be affected by its investment strategies. If the Portfolio's investment
return consists largely of interest, dividends and capital gains from
short-term holdings, it will distribute largely ordinary income. If the
Portfolio's return comes largely from the sale of long-term holdings, it will
distribute largely long-term capital gains.

Shareholders of the Portfolio who are U.S. citizens or residents may be
able to claim a foreign tax credit or deduction on their U.S. income tax
returns with respect to foreign taxes paid by the Portfolio. If, at the end of
the fiscal year of the Portfolio, more than 50% of the Portfolio's total assets
are represented by stock or securities of foreign corporations, the Portfolio
intends to make an election permitted by the Internal Revenue Code to treat any
eligible foreign taxes that were paid by the Portfolio as paid by its
shareholders. In that case, shareholders will be required to include in U.S.
taxable income their pro rata share of such taxes, but may then be entitled to
claim a foreign tax credit or deduction (but not both) for their share of such
taxes. The Portfolio's investments in foreign securities may be subject to
foreign withholding taxes. In that case, the Portfolio's yield on those
securities would be decreased. In addition, the Portfolio's investments in
foreign securities or foreign currencies may increase or accelerate the
Portfolio's recognition of ordinary income and may affect the timing or amount
of the Portfolio's distributions.

The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends and distributions also may be subject to
state, local and foreign taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state, local, or foreign
taxes. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of a Portfolio, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).

<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the period of its operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends
and distributions). This information has been audited by KPMG Peat Marwick LLP,
the Trust's independent auditors. Their report dated December 18, 1998 on the
financial statements of the Trust for the fiscal year ended October 31, 1998 is
included in the Portfolio's Annual Report to shareholders, which is
incorporated into the Statement of Additional Information by reference. A copy
of the Annual Report may be obtained free of charge from the Trust.

CLASS A SHARES

<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/98 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 ........................................... 0.11 0.01
Net realized and unrealized gain on investments ................. 0.91 1.29
------- -------
Total from investment operations ................................ 1.02 1.30
------- -------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.03) --
Capital gains ................................................... (0.03) --
Tax return of capital ........................................... (0.14) --
------- -------
Total distributions ............................................. (0.20) --
------- -------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.65 $ 13.83
======= =======
Total Return* .................................................... 7.43% 10.38%
======= =======
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......................... $62,782 $33,213
Ratio of expenses to average net assets .......................... 1.35% 1.35% (a)
Ratio of expenses to average net assets excluding waiver ......... 1.68% 1.92% (a)
Ratio of net investment income to average net assets ............. 0.96% 0.71% (a)
Portfolio turnover rate .......................................... 120% 107%
======= =======
</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 commission and is not annualized.

See notes to financial statements.

<PAGE>

MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B SHARES

<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/98 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 ........................................... 0.03 --
Net realized and unrealized gain on investments ................. 0.88 1.28
------- -------
Total from investment operations ................................ 0.91 1.28
------- -------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.03) --
Capital gains ................................................... (0.03) --
Tax return of capital ........................................... (0.14) --
------- -------
Total distributions ............................................. (0.20) --
------- -------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.52 $ 13.81
======= =======
Total Return* .................................................... 6.64% 10.22%
======= =======
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......................... $42,354 $19,371
Ratio of expenses to average net assets .......................... 2.10% 2.10% (a)
Ratio of expenses to average net assets excluding waiver ......... 2.43% 2.65% (a)
Ratio of net investment income to average net assets ............. 0.21% 0.04% (a)
Portfolio turnover rate .......................................... 120% 107%
======= =======
</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 commission and is not annualized.

See notes to financial statements.

<PAGE>

THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION (SAI) AND ANNUAL AND
SEMI-ANNUAL REPORTS TO SHAREHOLDERS INCLUDE ADDITIONAL INFORMATION ABOUT THE
PORTFOLIO. THE SAI AND THE FINANCIAL STATEMENTS INCLUDED IN THE PORTFOLIO'S
MOST RECENT ANNUAL REPORT TO SHAREHOLDERS IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, WHICH MEANS IT IS PART OF THIS PROSPECTUS FOR LEGAL PURPOSES.
THE PORTFOLIO'S ANNUAL REPORT DISCUSSES THE MARKET CONDITIONS AND INVESTMENT
STRATEGIES THAT SIGNIFICANTLY AFFECTED THE PORTFOLIO'S PERFORMANCE DURING ITS
LAST FISCAL YEAR. YOU MAY GET FREE COPIES OF THESE MATERIALS, REQUEST OTHER
INFORMATION ABOUT A PORTFOLIO, OR MAKE SHAREHOLDER INQUIRIES BY CALLING
1-800-869-6042.

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

1999 MENTOR DISTRIBUTORS, LLC

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

MK953W

MENTOR PERPETUAL
INTERNATIONAL
PORTFOLIO

-------------------------
PROSPECTUS
CLASS A AND B SHARES
-------------------------
March 1, 1999

[MENTOR LOGO]

<PAGE>

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

1999 MENTOR DISTRIBUTORS, LLC

MK953E

MENTOR PERPETUAL
INTERNATIONAL
PORTFOLIO

-------------------------
PROSPECTUS
CLASS A AND B SHARES
-------------------------
March 1, 1999

[MENTOR LOGO]

<PAGE>

P R O S P E C T U S March 1, 1999
Class E Shares

Mentor Perpetual International Portfolio

o Seeking long-term capital appreciation by investing in a diversified
portfolio of equity securities of issuers outside the United States.

o Advisor: Mentor Perpetual Advisors, LLC ("Mentor Perpetual")

An investment in shares of the Portfolio offered by this Prospectus is
designed for institutional and high net-worth individual investors who invest
or maintain their accounts in the Portfolio with the assistance of a
broker-dealer, financial consultant, or similar service provider.

You can call Mentor Services Company, Inc. at (800) 869-6042 to find out
more about the Portfolio and other mutual funds in the Mentor family.

The prospectus explains what you should know about the Portfolio before
you invest. Please read it carefully.

----------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary Information ................................ 3
Expense Summary .................................... 5
Principal Investment Strategies and Risks .......... 6
Other Investments and Risks ........................ 7
Management ......................................... 10
How the Portfolio Values Its Shares ................ 10
Purchase of Shares ................................. 11
Other Services ..................................... 12
Redemption of Shares ............................... 13
How Distributions Are Made ......................... 14
Taxes .............................................. 14
Financial Highlights ............................... 16
</TABLE>

<PAGE>

SUMMARY INFORMATION

Below the Portfolio's description is a bar chart which provides some
indication of the risks of investing in the Portfolio by showing how the
investment returns of the Portfolio's Class Y (Institutional) shares have
varied in the period since they were first offered. (Class Y returns are shown
because Class E shares do not yet have a full calendar year of performance).
The table following the bar chart shows how the Portfolio's average annual
returns for the last year and for the life of the Portfolio compared to returns
of a comparable broad-based securities market index. PAST PERFORMANCE IS NOT
NECESSARILY AN INDICATION OF FUTURE PERFORMANCE. It is possible to lose money
on investments in the Portfolio.

o INVESTMENT OBJECTIVE. Long-term capital appreciation.

o PRINCIPAL RISKS.

<PAGE>

may trade in limited volume and may be illiquid. Exchanges, if any, on
which they trade may not provide all of the conveniences or protections
provided by securities exchanges in more developed markets.

o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to
changes in interest rates) and to credit risk (the risk that the issuer may
become unable or unwilling to make timely payments of principal and
interest). Securities rated Baa or BBB lack outstanding investment
characteristics and have speculative characteristics and are subject to
greater credit and market risks than higher-rated securities. When interest
rates rise, the values of fixed income securities held by the Portfolio
typically decline. The longer the maturity of a security, the more its
value will tend to decline when interest rates rise. Although the Portfolio
will only purchase securities which meet its credit guidelines at the time
of purchase, it will not necessary sell securities which are downgraded
after purchase.

MENTOR PERPETUAL INTERNATIONAL PORTFOLIO -- CLASS Y (INSTITUTIONAL) SHARES

[GRAPH]

CALENDAR YEAR END ANNUAL RETURN:

1997 10.60%
1998 13.53%

The returns shown above are for a class, Class Y (Institutional) shares,
which is not offered in this prospectus (because Class E shares have not been
outstanding for a full calendar year). However, the shares are invested in the
same portfolio of securities and the returns will only differ to the extent
that Classes Y and E do not have the same expenses. Because operating expenses
attributable to Class E shares are expected to be higher than those
attributable to Class Y shares, investment returns are expected to be lower for
Class E shares.

During the periods shown above, the highest quarterly return for Class Y
shares was 16.89% for the quarter ended December 31, 1998, and the lowest was
(15.02)% for the quarter ended September 30, 1998.

<PAGE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 5/29/96)
- ----------------------------------------------------- ----------- -------------------
<S> <C> <C>
Perpetual International Portfolio (Class Y) ......... 13.53% 9.82%
Morgan Stanley Capital
International EAFE Index* .......................... 20.33% 9.20%
</TABLE>

EXPENSE SUMMARY

Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown are based on expenses incurred in respect of Class E
Shares of the Portfolio for the 1998 fiscal year. The Examples show the
cumulative expenses attributable to a hypothetical $10,000 investment in Class
E Shares of the Portfolio over specified periods.

FEES AND EXPENSES OF THE PORTFOLIO

This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT): None

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

<TABLE>
<S> <C>
Management Fees ................................... 1.00%
12b-1 Fees ........................................ 0.00%
Shareholder Service Fee ........................... 0.25%
Other Expenses .................................... 0.51%
----
Total Annual Portfolio Operating Expenses ......... 1.76%
====
</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in Class E shares of the
Portfolio indicated for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Portfolio's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- --------- --------- ---------
<S> <C> <C> <C>
$ 179 $554 $954 $2,073
</TABLE>

<PAGE>

PRINCIPAL INVESTMENT STRATEGIES AND RISKS

The Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolio's principal
strategies and risks.

In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of the Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. In the case of securities issued
by a foreign governmental entity, the issuer may in certain circumstances be
unable or unwilling to meet its obligations on the securities in accordance
with their terms, and the Portfolio may have limited recourse available to it
in the event of default. The laws of some foreign countries may limit the
Portfolio's ability to invest in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign securities. The
Portfolio may buy or sell foreign currencies and options and futures contracts
on foreign currencies for hedging purposes in connection with its foreign
investments.

<PAGE>

of its assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Mentor Perpetual considers consistent with
such defensive strategies. It is impossible to predict when, or for how long,
the Portfolio will use these defensive strategies.

OTHER INVESTMENTS AND RISKS

The following provides more detail about the Portfolio's other investments
and risks and other circumstances which could adversely affect the Portfolio's
shares or its total return.

The Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which portfolio
securities are denominated or quoted (or an increase in value of a currency in
which securities the Portfolio intends to buy are denominated). For position
hedging purposes, the Portfolio may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase and sell put
and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, the Portfolio may also
purchase or sell foreign currencies on a spot basis.

<PAGE>

LEVERAGE. The Portfolio may borrow money to invest in additional portfolio
securities. This practice, known as "leverage", increases the Portfolio's
market exposure and its risk and may result in losses. When the Portfolio has
borrowed money for leverage and its investments increase or decrease in value,
the Portfolio's net asset value will normally increase or decrease more than if
it had not borrowed money. The interest the Portfolio must pay on borrowed
money will reduce the amount of any potential gains or increase any losses. The
extent to which the Portfolio will borrow money, and the amount it may borrow,
depend on market conditions and interest rates. Successful use of leverage
depends on Mentor Perpetual's ability to predict market movements correctly.

RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
security or index or of the securities held by the Portfolio that are the
subject of a hedge. The successful use by the Portfolio of the strategies
described above further depends on the ability of its investment adviser to
forecast market movements correctly. Other risks arise from the Portfolio's
potential inability to close out futures or options positions. Although the
Portfolio will enter into options or futures transactions only if Mentor
Perpetual believes that a liquid secondary market exists for such options or
futures contracts, there can be no assurance that the Portfolio will be able to
effect closing transactions at any particular time or at an acceptable price.

<PAGE>

adviser, the pricing mechanism and liquidity of the over-the-counter markets
are satisfactory and the participants are responsible parties likely to meet
their obligations.

REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolio may enter into
repurchase agreements and securities loans. Under a repurchase agreement, the
Portfolio purchases a debt instrument for a relatively short period (usually
not more than one week), which the seller agrees to repurchase at a fixed time
and price, representing the Portfolio's cost plus interest. Under a securities
loan, the Portfolio lends portfolio securities. The Portfolio will enter into
repurchase agreements and securities loans only with commercial banks and with
registered broker-dealers who are members of a national securities exchange or
market makers in government securities, and in the case of repurchase
agreements, only if the debt instrument is a U.S. Government security. Although
Mentor Perpetual will monitor these transactions to ensure that they will be
fully collateralized at all times, a Portfolio bears a risk of loss if the
other party defaults on its obligation and the Portfolio is delayed or
prevented from exercising its rights to dispose of the collateral. If the other
party should become involved in bankruptcy or insolvency proceedings, it is
possible that the Portfolio may be treated as an unsecured creditor and be
required to return the underlying collateral to the other party's estate.

CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change the Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and
the risks involved in an investment in the Portfolio.)

<PAGE>

MANAGEMENT

Mentor Investment Advisors, LLC ("Mentor Advisors") is a wholly owned
subsidiary of Mentor Investment Group, LLC, which is in turn a subsidiary of
Wheat First Butcher Singer, Inc. ("Wheat First Butcher Singer"). Wheat First
Butcher Singer is wholly owned subsidiary of First Union Corp. ("First Union"),
a leading financial services company with approximately $234 billion in assets
and $17 billion in total stockholders' equity as of September 30, 1998. Mentor
Advisors and its affiliates serve as investment advisors to over twenty
separate investment portfolios in the Mentor Family of Funds, with total assets
under management of more than $15 billion.

HOW THE PORTFOLIO VALUES ITS SHARES

<PAGE>

shares even though there has not been any change in the values of such
securities as quoted in such foreign currencies. All assets and liabilities of
the Portfolio denominated in foreign currencies are valued in U.S. dollars
based on the exchange rate last quoted by a major bank prior to the time when
the net asset value of the Portfolio's shares is calculated. Because certain of
the securities in which the Portfolio may invest may trade on days when the
Portfolio does not price its shares, the net asset value of the Portfolio's
shares may change on days when shareholders will not be able to purchase or
redeem their shares.

Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset
value of a particular class of shares are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value following procedures
approved by the Trustees.

PURCHASE OF SHARES

Class E shares of the Portfolio are available to shareholders who invest
or maintain a Portfolio account with the assistance of a broker-dealer,
financial consultant, or similar service provider (a "financial intermediary").

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

Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, serves as distributor of the Portfolio's shares. Mentor Distributors is
not obligated to sell any specific amount of shares of the Portfolio.

An investor may make an initial purchase of shares in the Portfolio by
submitting completed application materials along with a purchase order, and by
making payment to the Trust, or through a financial intermediary. If you
purchase shares through your financial intermediary, your financial
intermediary will be responsible for forwarding any necessary documentation and
payments to Mentor Distributors.

Investors will be required to make minimum initial investments of $500,000
and minimum subsequent investments of $25,000. Investments made through
advisory accounts maintained with investment advisers registered under the
Investment Advisers Act of 1940, as amended (including "wrap" accounts), are
not subject to these minimum investment requirements. The Portfolio reserves
the right at any time to change the initial and subsequent investment minimums
required of investors.

If you buy shares through a financial intermediary, the financial
intermediary must ensure that Mentor Distributors receives your order before
the close of regular trading on the New York Stock Exchange for you to receive
that day's public offering price.

Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Mentor Perpetual, or (iii) a combination of
such securities and cash. Purchase of shares of the Portfolio in exchange

<PAGE>

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

Mentor Distributors, Mentor Perpetual, and affiliates thereof, at their
own expense and out of their own assets, may provide compensation to dealers in
connection with sales of shares of the Portfolio. Such compensation may
include, but is not limited to, financial assistance to dealers in connection
with conferences, sales, or training programs for their employees, seminars for
the public, advertising or sales campaigns, or other dealer-sponsored special
events. In some instances, this compensation may be made available only to
certain dealers whose representatives have sold or are expected to sell
significant amounts of shares. In addition, if an investor purchases shares of
the portfolio through EVEREN Securities, Inc. or certain other financial
institutions that have made arrangements with Mentor Distributors with the
redemption proceeds received by the investor within the preceding 90 days from
the sale of shares of any non-Mentor open-end mutual fund, EVEREN Securities,
Inc. or such other financial institutions may compensate the investor's
investment consultant in connection with that purchase. Dealers may not use
sales of Portfolio shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc.

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

OTHER SERVICES

SHAREHOLDER SERVICING PLAN; FINANCIAL INTERMEDIARIES. The Portfolio has
adopted a Shareholder Servicing Plan (the "Plan") with respect to its Class E
shares. Under the Plan, financial intermediaries may enter into shareholder
service agreements with Mentor Distributors or Mentor Investment Group to
provide administrative support to their customers who hold Class E shares of
the Portfolio. In return for providing these support services, a financial
intermediary may receive payments from Mentor Investment Group at a rate not
exceeding 0.25% of the average daily net assets of the Portfolio attributable
to the Class E shares held by its customers. These support services may
include, but are not limited to, the following: providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer personnel, as necessary or beneficial to establish
and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding the Portfolio; assisting
clients in changing dividend options, account designations, and addresses; and
providing such other services as Mentor Investment Group reasonably requests.

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

<PAGE>

When you effect transactions with the Portfolio (including, for example,
purchases, sales, or redemptions of shares) through a financial intermediary,
your financial intermediary, and not the Portfolio, will be responsible for
taking all steps, and furnishing all necessary documentation, to effect the
transactions. Your financial intermediary may charge for these services.
Certain financial intermediaries may not effect transactions with the Portfolio
for their clients.

REDEMPTION OF SHARES

You can sell your shares to the Portfolio any day the New York Stock
Exchange is open, either directly to the Portfolio or through your financial
intermediary.

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

SELLING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY. Your financial
intermediary must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. If you
redeem your shares through a financial intermediary, your financial
intermediary will be responsible for delivering your redemption request and all
necessary documentation to the Portfolio and may charge you for its services.

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

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

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

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

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

The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against

<PAGE>

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

OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, the
Portfolio may suspend repurchases, or postpone payment for more than seven
days, as permitted by federal securities laws. In addition, the Portfolio
reserves the right, if conditions exist which make cash payments undesirable,
to honor any request for redemption by making payment in whole or in part by
securities valued in the same way as they would be valued for purposes of
computing the Portfolio's per share net asset value. If payment is made in
securities, a shareholder may incur brokerage expenses in converting those
securities into cash.

HOW DISTRIBUTIONS ARE MADE

The Portfolio distributes net investment income and any net realized
capital gains at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers.

All Portfolio distributions will be invested in additional Portfolio
shares of the same class, unless the shareholder instructs a Portfolio
otherwise.

TAXES

The Portfolio will distribute substantially all of its net investment
income and capital gain net income on a current basis.

Distributions of net investment income and short-term capital gains are
taxable as ordinary income. Distributions of capital gain on assets held more
than 12 months will be taxable as capital gains. Distributions are taxable
whether received in cash or reinvested in additional shares. DISTRIBUTIONS ARE
TAXABLE TO A SHAREHOLDER EVEN IF THEY ARE PAID FROM INCOME OR GAINS EARNED BY
THE PORTFOLIO PRIOR TO THE SHAREHOLDER'S INVESTMENT AND THUS WERE INCLUDED IN
THE PRICE PAID BY THE SHAREHOLDER.

Any gain resulting from the sale or exchange of your shares generally also
will be subject to tax. Distributions and transactions in shares may also be
subject to state and local taxes. The nature of the Portfolio's distributions
will be affected by its investment strategies. If the Portfolio's investment
return consists largely of interest, dividends and capital gains from
short-term holdings, it will distribute largely ordinary income. If the
Portfolio's return comes largely from the sale of long-term holdings, it will
distribute largely long-term capital gains.

<PAGE>

The Portfolio's investments in foreign securities may be subject to
foreign withholding taxes. In that case, the Portfolio's yield on those
securities would be decreased. In addition, the Portfolio's investments in
foreign securities or foreign currencies may increase or accelerate the
Portfolio's recognition of ordinary income and may affect the timing or amount
of the Portfolio's distributions.

<PAGE>

FINANCIAL HIGHLIGHTS

CLASS E SHARES

<TABLE>
<CAPTION>
PERIOD
ENDED
10/31/98 (E)
-------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $13.53
INCOME FROM INVESTMENT OPERATIONS ................................
Net investment income ........................................... 0.19
Net realized and unrealized gain on investments ................. 1.15
------
Total from investment operations ................................ 1.34
------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.02)
Tax return of capital ........................................... (0.13)
------
Total distributions ........................................... (0.15)
------
NET ASSET VALUE, END OF PERIOD ................................... $14.72
======
Total Return* .................................................... 8.33%
======
RATIOS / SUPPLEMENTAL DATA .......................................
Net assets, end of period (in thousands) ......................... $2,207
Ratio of expenses to average net assets .......................... 1.35% (a)
Ratio of expenses to average net assets excluding waiver ......... 1.76% (a)
Ratio of net investment income to average net assets ............. 1.57% (a)
Portfolio turnover rate .......................................... 120%
======
</TABLE>

- ----------
(a) Annualized.
(e) For the period from January 16, 1998 (initial offering of Class E shares)
to October 31, 1998.
* Total return does not reflect sales commission and is not annualized.

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

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

1999 MENTOR DISTRIBUTORS, LLC

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

MK1004W

MENTOR PERPETUAL
INTERNATIONAL
PORTFOLIO

-------------------------
PROSPECTUS
CLASS E SHARES
-------------------------
March 1, 1999

[MENTOR LOGO]

<PAGE>

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

1999 MENTOR DISTRIBUTORS, LLC

MK1004E

MENTOR PERPETUAL
INTERNATIONAL
PORTFOLIO

-------------------------
PROSPECTUS
CLASS E SHARES
-------------------------
March 1, 1999

[MENTOR LOGO]

<PAGE>

MENTOR INSTITUTIONAL TRUST

STATEMENT OF ADDITIONAL INFORMATION

(Mentor U.S. Government Cash Management Portfolio, Mentor Fixed-Income
Portfolio,
and Mentor Perpetual International Portfolio)

March 1, 1999

This Statement of Additional Information relates to the Mentor U.S.
Government Cash Management Portfolio, Mentor Fixed-Income Portfolio, and Mentor
Perpetual International Portfolio (each a "Portfolio" and, collectively, the
"Portfolios") of Mentor Institutional Trust (the "Trust"). Each Portfolio
currently offers one class of shares (Institutional or Class Y Shares), except
for the International Portfolio, which currently offers four classes of shares
(Class A, Class B, Institutional or Class Y Shares, and Class E shares). This
Statement is not a prospectus and should be read in conjunction with the
relevant prospectus dated March 1, 1999. A separate Statement of Additional
Information relates to the SNAP Fund of the Trust (the "SNAP Statement"). A
copy of any prospectus or of the SNAP Statement can be obtained without charge
upon by writing to Mentor Services Company, Inc., at 901 East Byrd Street,
Richmond, Virginia 23219, or by calling Mentor Services Company at
1-800-869-6042.

Certain disclosure has been incorporated by reference from the Trust's
annual report. For a free copy of the annual report call Mentor Services
Company at 1-800-869-6042.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General ..................................................... 2
Investment Restrictions ..................................... 2
Certain Investment Strategies, Risks, and Policies .......... 3
Management of the Trust ..................................... 19
Principal Holders of Securities ............................. 22
Investment Advisory Services ................................ 23
Administrative Services ..................................... 25
Brokerage ................................................... 26
Determination of Net Asset Value ............................ 28
Tax Status .................................................. 31
The Distributor ............................................. 34
Independent Accountants ..................................... 35
Financial Statements ........................................ 35
Custodian ................................................... 35
Shares of the Trust ......................................... 35
Performance Information ..................................... 36
Shareholder Liability ....................................... 40
Members of Investment Management Teams ...................... 40
Appendix .................................................... 43
</TABLE>

<PAGE>

GENERAL

Mentor Institutional Trust (the "Trust") is a Massachusetts business trust
organized on February 8, 1994 as IMG Institutional Trust. The Trust's name was
changed to Mentor Institutional Trust as of June 20, 1995.

INVESTMENT RESTRICTIONS

The Trust has adopted the following restrictions applicable to all of the
Portfolios (except where otherwise noted), which may not be changed without the
affirmative vote of a "majority of the outstanding voting securities" of a
Portfolio, which is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), to mean the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Portfolio and (2) 67% or more of the
shares present at a meeting if more than 50% of the outstanding shares are
present at the meeting in person or by proxy.

A Portfolio may not:

1. Purchase any security (other than U.S. Government securities) if as a
result: (i) as to 75% of such Portfolio's total assets, more than 5% of the
Portfolio's total assets (taken at current value) would then be invested in
securities of a single issuer, or (ii) more than 25% of the Portfolio's
total assets would be invested in a single industry; except that Mentor
U.S. Government Cash Management Portfolio may invest up to 100% of its
assets in securities of issuers in the banking industry.

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

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

4. Issue any class of securities which is senior to the Portfolio's
shares of beneficial interest.

5. Purchase or sell securities on margin (but a Portfolio may obtain
such short-term credits as may be necessary for the clearance of
transactions). (Margin payments in connection with transactions in futures
contracts, options, and other financial instruments are not considered to
constitute the purchase of securities on margin for this purpose.)

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

7. (All Portfolios other than Mentor Perpetual International Portfolio)
Borrow money in excess of 5% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at
the time the borrowing is made, and then only from banks as a temporary
measure to facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. (Mentor Perpetual
International Portfolio) Borrow more than 33% of the value of its total
assets less all liabilities and indebtedness (other than such borrowings)
not represented by senior securities.

<PAGE>

8. (All Portfolios other than Mentor Perpetual International Portfolio)
Pledge, hypothecate, mortgage, or otherwise encumber its assets in excess
of 15% of its total assets (taken at current value) and then only to secure
borrowings permitted by these investment restrictions.

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

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

In addition, it is contrary to the current policy of each of the
Portfolios, which policy may be changed without shareholder approval, to invest
in (a) securities which at the time of such investment are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the Trustees to make
such determinations) to be readily marketable), and (c) repurchase agreements
maturing in more than seven days, if, as a result, more than 15% of the
Portfolio's net assets (10% with respect to Mentor U.S. Government Cash
Management Portfolio) (taken at current value) would then be invested in the
aggregate in securities described in (a), (b), and (c) above.

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

CERTAIN INVESTMENT STRATEGIES, RISKS, AND POLICIES

Set forth below is information concerning certain investment techniques in
which one or more of the Portfolios may engage, and certain of the risks they
may entail. Certain of the investment techniques may not be available to a
Portfolio. See "Investment objective(s) and policies" in the Trust's
Prospectuses for a description of the investment techniques available to a
particular Portfolio.

FORWARD COMMITMENTS

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

<PAGE>

Although a Portfolio will generally enter into forward commitments with
the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, a Portfolio may dispose of a
commitment prior to settlement if its investment adviser deems it appropriate
to do so. A Portfolio may realize short-term profits or losses upon the sale of
forward commitments.

REPURCHASE AGREEMENTS

A Portfolio may enter into repurchase agreements. A repurchase agreement
is a contract under which the Portfolio acquires a security for a relatively
short period (usually not more than one week) subject to the obligation of the
seller to repurchase and the Portfolio to resell such security at a fixed time
and price (representing the Portfolio's cost plus interest). It is the Trust's
present intention to enter into repurchase agreements only with member banks of
the Federal Reserve System and securities dealers meeting certain criteria as
to creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt
obligations. Repurchase agreements may also be viewed as loans made by a
Portfolio which are collateralized by the securities subject to repurchase. The
investment adviser will monitor such transactions to ensure that the value of
the underlying securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, a Portfolio could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, a Portfolio may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if a Portfolio is
treated as an unsecured creditor and required to return the underlying
collateral to the seller's estate.

WHEN-ISSUED SECURITIES

A Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending
the settlement of a purchase of securities, that Portfolio would earn no
income. While a Portfolio may sell its right to acquire when-issued securities
prior to the settlement date, a Portfolio intends actually to acquire such
securities unless a sale prior to settlement appears desirable for investment
reasons. At the time a Portfolio makes the commitment to purchase a security on
a when-issued basis, it will record the transaction and reflect the amount due
and the value of the security in determining the Portfolio's net asset value.
The market value of the when-issued securities may be more or less than the
purchase price payable at the settlement date. A Portfolio will establish a
segregated account in which it will maintain cash and U.S. Government
Securities or other high-grade debt obligations at least equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.

<PAGE>

COLLATERALIZED MORTGAGE OBLIGATIONS; OTHER MORTGAGE-RELATED SECURITIES

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

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

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

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

ZERO-COUPON SECURITIES

Zero-coupon securities in which a Portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to

<PAGE>

greater market value fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a Portfolio investing
in zero-coupon securities may fluctuate over a greater range than shares of
other mutual funds investing in securities making current distributions of
interest and having similar maturities.

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

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

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

Zero-coupon securities allow an issuer to avoid the need to generate cash
to meet current interest payments. Even though zero-coupon securities do not
pay current interest in cash, a Portfolio is nonetheless required to accrue
interest income on them and to distribute the amount of that interest at least
annually to shareholders. Thus, a Portfolio could be required at times to
liquidate other investments in order to satisfy its distribution requirement.

OPTIONS

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

costs will reduce any profit the Portfolio might have realized had it sold the
underlying security instead of buying the put option.

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

A Portfolio may also purchase put and call options to enhance its current
return.

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

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

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

Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Trust's use
of options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or
group of investors acting in concert. It is possible that the Trust and other
clients of the Portfolios' investment advisers may be considered such a group.
These position limits may restrict the Trust's ability to purchase or sell
options on particular securities.

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

Government regulations may also restrict the Trust's use of options.

<PAGE>

FUTURES CONTRACTS

In order to hedge against the effects of adverse market changes a
Portfolio may buy and sell futures contracts. A Portfolio may also, to the
extent permitted by applicable law, buy and sell futures contracts and options
on futures contracts to increase the Portfolio's current return. All such
futures and related options will, as may be required by applicable law, be
traded on exchanges that are licensed and regulated by the Commodity Futures
Trading Commission (the "CFTC").

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

The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180,
one contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the
contract. For example, if a Portfolio enters into a futures contract to buy 100
units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Portfolio will
gain $400 (100 units x gain of $4). If the Portfolio enters into a futures
contract to sell 100 units of the stock index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $182 on that future date,
the Portfolio will lose $200 (100 units x loss of $2).

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

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

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

<PAGE>

expiration date. Purchasers of options who fail to exercise their options prior
to the exercise date suffer a loss of the premium paid.

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

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

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.

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

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

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

SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS

LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only

<PAGE>

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

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

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

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

OTHER RISKS. A Portfolio will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures

<PAGE>

and related options, unanticipated changes in interest rates or stock price
movements may result in a poorer overall performance for the Portfolio than if
it had not entered into any futures contracts or options transactions.
Moreover, in the event of an imperfect correlation between the futures position
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Portfolio may be exposed to risk of
loss, which may be unlimited.

REVERSE REPURCHASE AGREEMENTS

A Portfolio may enter into reverse repurchase agreements in which the
Portfolio sells securities and agrees to repurchase them at a mutually agreed
date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.

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

LOANS OF PORTFOLIO SECURITIES

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

<PAGE>

FOREIGN SECURITIES

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

Investments in foreign securities may involve considerations different
from investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and
possible consequent illiquidity, greater volatility in price, the possible
imposition of withholding or confiscatory taxes, the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest, expropriation of assets, nationalization, or other adverse political
or economic developments. Foreign companies may not be subject to auditing and
financial reporting standards and requirements comparable to those which apply
to U.S. companies. Foreign brokerage commissions and other fees are generally
higher than in the United States. It may be more difficult to obtain and
enforce a judgment against a foreign issuer.

In addition, to the extent that a Portfolio's foreign investments are not
United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates, exchange control
regulations, foreign withholding taxes and restrictions or prohibitions on the
repatriation of foreign currencies and may incur costs in connection with
conversion between currencies.

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

FOREIGN CURRENCY TRANSACTIONS

A Portfolio may engage in currency exchange transactions to protect
against uncertainty in the level of future foreign currency exchange rates and
to increase current return. A Portfolio may engage in both "transaction
hedging" and "position hedging."

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

A Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.

<PAGE>

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

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

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

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

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

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

A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.

<PAGE>

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

Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.

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

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

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

The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot

<PAGE>

market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

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

SETTLEMENT PROCEDURES. Settlement procedures relating to a Portfolio's
investments in foreign securities and to a Portfolio's foreign currency
exchange transactions may be more complex than settlements with respect to
investments in debt or equity securities of U.S. issuers, and may involve
certain risks not present in a Portfolio's domestic investments. For example,
settlement of transactions involving foreign securities or foreign currency may
occur within a foreign country, and a Portfolio may be required to accept or
make delivery of the underlying securities or currency in conformity with any
applicable U.S. or foreign restrictions or regulations, and may be required to
pay any fees, taxes or charges associated with such delivery. Such investments
may also involve the risk that an entity involved in the settlement may not
meet its obligations.

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

CONVERTIBLE SECURITIES

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

A Portfolio will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock when, in its Adviser's
opinion, the investment characteristics of the underlying common stock will
assist the Portfolio in achieving its investment objectives. In selecting
convertible securities for a Portfolio, the Portfolio's Adviser evaluates the
investment characteristics of the convertible security as a fixed-income
instrument and the investment potential of the underlying equity security for
capital appreciation.

SWAPS, CAPS, FLOORS, AND COLLARS

A Portfolio may enter into interest rate, currency, and index swaps and
may buy and sell caps, floors, and collars. A Portfolio would enter into these
transactions primarily to preserve a return or spread on a particular

<PAGE>

investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique, or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. A Portfolio would not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. To the extent that use of such instruments
may result in the creation of investment leverage, a Portfolio expects to
segregate assets with its custodian to the extent required by applicable law.

Interest rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange
of floating rate payments for fixed rate payments with respect to a notional
principal amount. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them; an index swap is an agreement to swap cash flows on a
notional amount based on changes in the values of one or more reference
indices. A cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined level. A floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to the
extent that a specified index falls below a predetermined level. A collar is a
combination of a cap and a floor intended to preserve a return within a
predetermined range of interest rates or values.

A Portfolio will not enter into any swap, cap, floor, or collar
transaction unless, at the time of entering into the transaction, the unsecured
long-term debt of the counterparty, combined with any credit enhancements, is
rated at least A by S&P or Moody's or has an equivalent rating from another
nationally recognized securities rating organization or, if unrated, is
determined to be of comparable credit quality by the Portfolio's Adviser.

Because the payment obligations of parties to swap, cap, floor, and collar
transactions are determined on the basis of notional principal amounts, such
transactions entail investment leverage. As a result, the value of a
Portfolio's positions in such transactions may, depending on the terms of the
transaction, be extremely volatile and may result in losses to the Portfolio.

Swap, cap, floor, and collar transactions are privately negotiated
transactions, and involve the risk that a Portfolio's counterparty will be
unable to meet its obligations to the Portfolio. In addition, a Portfolio may
under certain circumstances be unable to transfer or to terminate its position
in such a transaction; in such circumstances, the Portfolio might have to
maintain the position at a time when it might otherwise previously have
terminated it, or may only be able to terminate or transfer the position on
terms less favorable to its than might otherwise have been anticipated.

LOWER-RATED SECURITIES

A Portfolio may invest in lower-rated fixed-income securities (commonly
known as "junk bonds") to the extent described in the relevant Prospectus. The
lower ratings of certain securities held by a Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by a Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, a Portfolio may be unable at times to establish the fair value of
such securities. The rating assigned to a security by Moody's Investors
Service, Inc. or

<PAGE>

Standard & Poor's (or by any other nationally recognized securities rating
organization) does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the security.

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

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

<PAGE>

MANAGEMENT OF THE TRUST

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

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

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

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

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

Troy A. Peery, Jr. (52) Trustee Trustee, Cash Resource Trust, Mentor Variable Investment
Heilig-Meyers Company Portfolios and Mentor Funds; Director, Mentor Income Fund,
2235 Staples Mill Road Inc. and America's Utility Fund, Inc. Formerly, President,
Richmond, Virginia 23230 Heilig-Meyers Company.
</TABLE>

<PAGE>

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

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

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

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

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

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

<PAGE>

<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------------- -------------- ----------------------------------------------------------
<S> <C> <C>
Terry L. Perkins (52) Treasurer, Senior Vice President and Treasurer, Mentor Investment
c/o Mentor Institutional Trust Secretary Group, LLC; Treasurer, Mentor Funds, Cash Resource Trust,
901 E. Byrd Street Mentor Variable Investment Portfolios, Mentor Income
Richmond, VA 23219 Fund, Inc.,

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

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

<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM ALL
FROM THE TRUST COMPLEX FUNDS (27 FUNDS)
(FISCAL YEAR END 1998) (CALENDAR YEAR 1998)
------------------------ ----------------------------
<S> <C> <C>
Daniel J. Ludeman ............... $ 0 $ 0
Arnold H. Dreyfuss .............. $1,261 $34,000
Thomas F. Keller ................ $1,147 $29,000
Louis W. Moelchert, Jr. ......... $1,261 $33,000
J. Garnett Nelson ............... $1,255 $40,000
Troy A. Peery, Jr. .............. $1,261 $32,000
Peter J. Quinn, Jr. ............. $ 0 $ 0
Jerry R. Barrentine ............. $1,255 $41,000
Weston E. Edwards ............... $1,255 $42,000
Arch T. Allen III ............... $1,255 $35,000
</TABLE>

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

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

<PAGE>

PRINCIPAL HOLDERS OF SECURITIES

As of February 23, 1999, the officers and Trustees of the Trust owned as a
group less than one percent of the outstanding shares of each Portfolio. To the
knowledge of the Trust, no person owned of record or beneficially more than 5%
of the outstanding shares of any Portfolio as of that date, except the
following:

<TABLE>
<CAPTION>
PORTFOLIO HOLDER PERCENTAGE OWNERSHIP
- -------------------------------- ------------------------------------ ---------------------
<S> <C> <C>
U.S. Govt. Cash Management 4 Front Technologies Inc. 11.13%
(Institutional/Class Y Shares) Attn: Craig Kleinman
6300 S. Syracuse Way, Ste. 293
Englewood, CO 80111-6720

County of Augusta 10.64%
PO Box 1997
Richmond, VA 23218-1357

TBA Entertainment Corporation 10.09%
ATTN: Bryan J. Cusworth CFO
16501 Ventura Blvd., Ste 601
Encino, CA 91436-2072

Earthshell Corporation 9.41%
111 S. Calvert St., Ste. 1950
Baltimore, MD 21202-6174

Bassett Furniture Industries, Inc. 5.72%
Attn: Jane Wilson
3525 Fairystone Park Hwy
PO Box 626
Bassett, VA 24055

Framers Telephone Coop Inc. 5.31%
PO Box 1357
Richmond, VA 23218-1357

Fixed Income Seabury & Smith 8.18%
(Institutional/Class Y Shares) KVI & Coda Escrow
PO Box 1357
Richmond, VA 23218-1357

International Arthur Millman 54.07%
(Institutional/Class Y Shares) Madeline Millman JT WROS
PO Box 567
Isle of Palms, SC 29451-0567

Stanley Picheny 27.82%
322 Central Park West
New York, NY 10025-7629

First Clearing Corporation 11.68%
A/C 2254-7301
The Gladys & Franklin Clark
Foundation #1
c/o Gilbert A. Bartlett
809 Richmond Rd.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
PORTFOLIO HOLDER PERCENTAGE OWNERSHIP
- --------------- -------------------------- ---------------------
<S> <C> <C>
International Key Trust Co Ttee 99.69%
(E Shares) RPM Inc U/A DTD 11/26/87
Attn: Martin Currie
PO Box 94871
Cleveland OH 44101-4871
</TABLE>

INVESTMENT ADVISORY SERVICES

Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment
adviser to the Fixed-Income Portfolio and U.S. Government Cash Management
Portfolio; Mentor Perpetual Advisors, LLC serves as investment adviser to the
International Portfolio.

Mentor Advisors has over $15 billion in assets under management and is a
wholly owned subsidiary of Mentor Investment Group, LLC ("Mentor Investment
Group") and its affiliates. Mentor Investment Group is a subsidiary of Wheat
First Butcher Singer, Inc., which is in turn a wholly owned subsidiary of First
Union Corp. ("First Union"). First Union is a leading financial services
company with approximately $234 billion in assets and $17 billion in total
stockholders' equity as of September 30, 1998. EVEREN Capital Corporation has a
20% ownership in Mentor Investment Group and may acquire additional ownership
based principally on the amount of Mentor's revenues derived from assets
attributable to clients of EVEREN Securities, Inc. and its affiliates.

Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc, a diversified financial services holding company, and
Mentor Advisors. The Perpetual organization currently serves as investment
adviser for assets of more than $14 billion. Its clients include 28 unit and
investment trusts and other public investment pools including private
individuals, charities, pension plans, and life assurance companies.

Mentor Advisors and Mentor Perpetual together serve as investment adviser
to 27 separate investment portfolios in the Mentor Family of Funds, including
those offered by this Prospectus. For a prospectus relating to certain of these
other investment portfolios, and for information concerning your eligibility to
purchase shares of those portfolios, contact Mentor Services Company.

On October 31, 1996, Commonwealth Investment Counsel, Inc., the previous
investment adviser to the U.S. Government Cash Management and Fixed-Income
Portfolios, was reorganized as Mentor Investment Advisors, LLC.

Each of Mentor Advisors and Mentor Perpetual acts as investment adviser to
its respective Portfolio(s) pursuant to a Management Contract with the Trust.
Subject to the supervision and direction of the Trustees, each investment
adviser manages a Portfolio's portfolio in accordance with the stated policies
of that Portfolio and of the Trust. The investment advisers make investment
decisions for the Portfolios and place the purchase and sale orders for
portfolio transactions. Each investment adviser bears all of its expenses in
connection with the performance of its services. In addition, the investment
advisers pay the salaries of all officers and employees who are employed by
them and the Trust.

The investment advisers provide the Portfolios with investment officers
who are authorized to execute purchases and sales of securities. Investment
decisions for the Portfolios and for the other investment advisory clients of
an investment adviser and its affiliates are made with a view to achieving
their respective investment

<PAGE>

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

The proceeds received by each Portfolio for each issue or sale of its
shares, and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, will be specifically allocated to such Portfolio,
and constitute the underlying assets of that Portfolio. The underlying assets
of each Portfolio will be segregated on the Trust's books of account, and will
be charged with the liabilities in respect of such Portfolio and with a share
of the general liabilities of the Trust. Expenses with respect to any two or
more Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can otherwise
be fairly made.

Expenses incurred in the operation of a Portfolio or otherwise allocated
to a Portfolio, including but not limited to taxes, interest, brokerage fees
and commissions, fees to Trustees who are not officers, directors,
stockholders, or employees of Wheat First Butcher Singer and subsidiaries, SEC
fees and related expenses, state Blue Sky qualification fees, charges of the
custodian and transfer and dividend disbursing agents, outside auditing,
accounting, and legal services, investor servicing fees and expenses, charges
for the printing of prospectuses and statements of additional information for
regulatory purposes or for distribution to shareholders, certain shareholder
report charges and charges relating to corporate matters are borne by the
Portfolio.

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

Under their Management Contracts, neither of the Fixed-Income or U.S.
Government Cash Management Portfolios pays a management fee. Under its
Management Contract, the International Portfolio pays a monthly fee to Mentor
Perpetual based on the average net assets of that Portfolio, as determined at
the close of each business day during the month at the annual rate of 1.00% of
average net assets.

<PAGE>

For the fiscal periods indicated, the International Portfolio paid
management fees (net of fee waiver) and Mentor Perpetual waived management fees
in respect of the International Portfolio in the following amounts:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Fees paid ............ $664,781 $ 85,485 $12,402
Fees waived .......... $318,510 $137,516 $23,292
</TABLE>

Mentor Advisors bore expenses in respect of the U.S. Government Cash
Management Portfolio and Fixed-Income Portfolio in the following amounts for
the fiscal periods indicated:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
U.S. Government Cash Management Portfolio .......... $116,808 $66,203 $70,426
Fixed-Income Portfolio ............................. $ 70,518 $24,294 $44,556
</TABLE>

ADMINISTRATIVE SERVICES

Mentor Investment Group, LLC ("Mentor Investment Group") serves as
administrator to the Portfolios pursuant to an Administration Agreement with
the Trust. None of the Portfolios pays any fees under the Agreement, except
Mentor Perpetual International Portfolio, which pays administrative service
fees to Mentor Investment Group at the annual rate of 0.10% of its average
daily net assets. Mentor Investment Group has agreed to bear certain expenses
of the Portfolios pursuant to a voluntary expense limitation currently in
effect. This limitation may be terminated at any time.

Pursuant to the Administration Agreement, Mentor Investment Group provides
continuous business management services to the Portfolios and, subject to the
general oversight of the Trustees, manages all of the business and affairs of
the Portfolios subject to the provisions of the Trust's Declaration of Trust,
By-laws and the 1940 Act, and other policies and instructions the Trustees may
from time to time establish. Mentor Investment Group pays the compensation of
all officers and executive employees of the Trust (except those employed by or
serving at the request of an investment adviser) and makes available to the
Trust the services of its directors, officers, and employees as elected by the
Trustees or officers of the Trust. In addition, Mentor Investment Group
provides all clerical services relating to the Portfolios' business. Mentor
Investment Group bears all of its expenses in connection with the performance
of its services, and does not receive a fee from the Portfolios for its
services.

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

For the period April 1, 1998 through October 31, 1998, Mentor Perpetual
International Portfolio paid fees to Mentor Investment Group under the
Administration Agreement in the amount of $63,564. Prior to April 1, 1998,
Mentor Perpetual International Portfolio paid no fees under the Administration
Agreement.

<PAGE>

SHAREHOLDER SERVICING PLAN

The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with Mentor Distributors, LLC ("Mentor Distributors") with respect to the
International Portfolio's Class A shares, Class B shares, and Class E shares.
Pursuant to the Service Plan, financial institutions will enter into
shareholder service agreements with the International Portfolio to provide
administrative support services to their customers who from time to time may be
record or beneficial owners of shares of the International Portfolio. In return
for providing these support services, a financial institution may receive
payments from Mentor Distributors at a rate not exceeding 0.25% of the average
daily net assets of the Class A, Class B shares, and Class E shares, as the
case may be, of the International Portfolio owned by the financial
institution's customers for whom it is the holder of record or with whom it has
a servicing relationship. The Service Plan is designed to stimulate financial
institutions to render administrative support services to the International
Portfolio and its shareholders. These administrative support services include,
but are not limited to, the following functions: providing office space,
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the International Portfolio;
assisting clients in changing dividend options, account designations and
addresses; and providing such other services as the International Portfolio
reasonably requests. The Plan (and any agreement entered into pursuant to the
Plan) may be terminated at any time by (i) a vote of the majority of the
Trustees who are not "interested persons" of the Trust (as defined in the 1940
Act), (ii) a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of a particular class, or (iii) Mentor Distributors on
60 days notice.

The International Portfolio paid shareholder service fees to Mentor
Distributors in the amounts $203,505, $22,421, and $0 during the fiscal years
ended October 31, 1998, October 31, 1997 and October 31, 1996, respectively.

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

BROKERAGE

Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by a Portfolio of
negotiated brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
but the price paid by the Portfolio usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Portfolio includes a disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and sales of
portfolio securities by Portfolios investing primarily in certain fixed-income
securities will

<PAGE>

be with the issuer or with underwriters of or dealers in those securities,
acting as principal. Accordingly, those Portfolios would not ordinarily pay
significant brokerage commissions with respect to securities transactions.

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

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

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

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

<PAGE>

The Trustees have determined that portfolio transactions for the Trust may
be effected through Wheat, First Securities, Inc. ("Wheat"), First Union
Brokerage Services ("FUBS"), and EVEREN Securities, Inc. ("EVEREN"),
broker-dealers affiliated with Mentor Advisors and Mentor Perpetual. The
Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act which requires, among other things,
that the commissions paid to Wheat, FUBS, and EVEREN must be reasonable and
fair compared to the commissions, fees, or other remuneration received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. Wheat, FUBS, and EVEREN will not
participate in brokerage commissions given by a Portfolio to other brokers or
dealers. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. A Portfolio will in no event effect
principal transactions with Wheat, FUBS, and EVEREN in over-the-counter
securities in which Wheat, FUBS, or EVEREN makes a market.

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

BROKERAGE COMMISSIONS

The Portfolios paid brokerage commissions on brokerage transactions in the
following amounts for the periods indicated:

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Fixed-Income Portfolio ............................ -- -- --
U.S. Government Cash Management Portfolio ......... -- -- --
International Portfolio ........................... $733,000 $19,591 $57,678
</TABLE>

None of the Portfolios paid brokerage commissions to Wheat, EVEREN or FUBS
for the periods shown above.

In the fiscal year ended October 31, 1998, Mentor Advisors, on behalf of
the Trust, placed agency and underwritten transactions having an approximate
aggregate dollar value of $10,077,617, (100% of the Trust's aggregate agency
and underwritten transactions on which approximately $733,000 of commissions
were paid) with brokers and dealers whose research, statistical and quotation
services Mentor Advisors considered to be particularly useful to it and its
affiliates. However, many of such transactions were placed with such brokers
and dealers without regard to the furnishing of such services. The increase was
due to the increase in the Portfolio's assets and to increased trading volume.

DETERMINATION OF NET ASSET VALUE

The Trust determines net asset value per share of each class of shares of
the Portfolios each day the New York Stock Exchange (the "Exchange") is open.
Currently, the Exchange is closed Saturdays, Sundays, and

<PAGE>

the following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving, and Christmas.

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

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

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

<PAGE>

MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO ONLY. The valuation of
Mentor U.S. Government Cash Management Portfolio's portfolio securities is
based upon its amortized cost, which does not take into account unrealized
securities gains or losses. This method involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. By using amortized cost
valuation, the Portfolio seeks to maintain a constant net asset value of $1.00
per share, despite minor shifts in the market value of its portfolio
securities. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Portfolio would receive if it sold the instrument. During
periods of declining interest rates, the quoted yield on shares of the
Portfolio may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based on market prices
and estimates of market prices for all of its portfolio instruments. Thus, if
the use of amortized cost by the Portfolio resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Portfolio
would be able to obtain a somewhat higher yield if he purchased shares of the
Portfolio on that day, than would result from investment in a fund utilizing
solely market values, and existing investors in the Portfolio would receive
less investment income. The converse would apply on a day when the use of
amortized cost by the Portfolio resulted in a higher aggregate portfolio value.
However, as a result of certain procedures adopted by the Trust, the Trust
believes any difference will normally be minimal.

The valuation of the Portfolio's portfolio instruments at amortized cost
is permitted in accordance with Securities and Exchange Commission Rule 2a-7
and certain procedures adopted by the Trustees. Under these procedures, a
Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of 397 days or
less, and invest in securities determined by the Trustees to be of high quality
with minimal credit risks. The Trustees have also established procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's price
per share as computed for the purpose of distribution, redemption and
repurchase at $1.00. These procedures include review of the Portfolio's
portfolio holdings by the Trustees, at such intervals as they may deem
appropriate, to determine whether a Portfolio's net asset value calculated by
using readily available market quotations deviates from $1.00 per share, and,
if so, whether such deviation may result in material dilution or is otherwise
unfair to existing shareholders. In the event the Trustees determine that such
a deviation may result in material dilution or is otherwise unfair to existing
shareholders, they will take such corrective action as they regard as necessary
and appropriate, including the sale of portfolio instruments prior to maturity
to realize capital gains or losses or to shorten the average portfolio
maturity; withholding dividends; redemption of shares in kind; or establishing
a net asset value per share by using readily available market quotations.

Since the net income of the Portfolio is declared as a dividend each time
it is determined, the net asset value per share of the Portfolio remains at
$1.00 per share immediately after such determination and dividend declaration.
Any increase in the value of a shareholder's investment in the Portfolio
representing the reinvestment of dividend income is reflected by an increase in
the number of shares of the Portfolio in the shareholder's account on the last
day of each month (or, if that day is not a business day, on the next business
day). It is expected that the Portfolio's net income will be positive each time
it is determined. However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other reason the net
income of the Portfolio determined at any time is a negative amount, the
Portfolio will offset such amount allocable to each then shareholder's account
from dividends accrued during the month with respect to such account. If at the
time of payment of a dividend by the Portfolio (either at the regular monthly
dividend payment date, or, in the case of

<PAGE>

a shareholder who is withdrawing all or substantially all of the shares in an
account, at the time of withdrawal), such negative amount exceeds a
shareholder's accrued dividends, the Portfolio will reduce the number of
outstanding shares by treating the shareholder as having contributed to the
capital of the Portfolio that number of full and fractional shares which
represent the amount of the excess. Each shareholder is deemed to have agreed
to such contribution in these circumstances by its investment in the Portfolio.

Should the Portfolio incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the
Portfolio's income for a particular period, the Trustees would at that time
consider whether to adhere to the dividend policy described above or to revise
it in light of the then prevailing circumstances in order to ameliorate to the
extent possible the disproportionate effect of such expense or loss on then
existing shareholders. Such expenses or losses may nevertheless result in a
shareholder's receiving no dividends for the period during which the shares are
held and receiving upon redemption a price per share lower than that which was
paid.

TAX STATUS

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

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

In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies, and (b) diversify its holdings so that, at the close
of each quarter of its taxable year, (i) at least 50% of the market value of
its total assets consists of cash, cash items, U.S. Government Securities,
securities of other regulated investment companies, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the Portfolio and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than those of the U.S. Government
or other regulated investment companies) of any issuer or of two or more
issuers which the Portfolio controls and which are engaged in the same,
similar, or related trades or businesses. In order to receive the favorable tax
treatment accorded regulated investment companies and their shareholders,
moreover, a Portfolio must in general distribute annually at least 90% of the
sum of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term capital
losses for such year. To satisfy these requirements, a Portfolio may engage in
investment techniques that affect the amount, timing, and character of its
income and distributions.

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

<PAGE>

gains, pay substantial taxes and interest and make substantial distributions
before requalifying as a regulated investment company that is accorded special
tax treatment.

An excise tax at the rate of 4% will be imposed on the excess, if any, of
each Portfolio's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Portfolio's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from the prior year. Each Portfolio intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared and
payable to shareholders of record on a date in October, November, or December
and paid by the Portfolio during the following January will be treated for
federal tax purposes as paid by the Portfolio and received by shareholders on
December 31 of the year in which declared.

Distributions from a Portfolio will be taxable to shareholders as ordinary
income to the extent derived from the Portfolio's investment income and net
short-term gains. Net capital gain (that is, the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) of a Portfolio that is distributed and
designated as a capital gain dividend will be taxable to shareholders as
long-term capital gain (generally taxable to individuals at a 20% rate),
regardless of how long a shareholder has held the shares in the Portfolio.
Distributions from a Portfolio will be taxable to a shareholder whether
received in cash or in additional shares.

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

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

Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which a Portfolio has invested and
their stated redemption price at maturity ("original issue discount") is
considered to be income to the Portfolio each year, even though the Portfolio
will not receive cash interest payments from these securities. This original
issue discount (imputed income) will comprise a part of the net investment
income of the Portfolio which must be distributed to shareholders in order to
maintain the qualification of the Portfolio as a regulated investment company
and to avoid federal income tax at the level of the Portfolio. In order to
generate sufficient cash to make the requisite distributions, a Portfolio may
be required to sell securities that it otherwise would have continued to hold.

A Portfolio's transactions in foreign currencies, foreign
currency-denominated debt securities, and certain foreign currency options,
futures contracts, and forward contracts (and similar instruments), if any, may
give rise

<PAGE>

to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.

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

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

Investment by a Portfolio in certain "passive foreign investment
companies" could subject the Portfolio to a U.S. federal income tax (including
interest charges) distributions received from the company or on the proceeds
from the sale of its investment in such a company; however, in certain
circumstances this tax can be avoided by making an election to mark such
investments to market annually or to treat the passive foreign investment
company as a "qualified electing fund."

The sale, exchange or redemption of Portfolio shares may give rise to a
gain or loss. In general, any gain realized upon a taxable disposition of
shares held for more than one year will be taxed as long-term capital gain.
Such gain is, in the case of an individual, generally taxed at a 20% rate. If a
shareholder sells shares at a loss within six months of purchase, any loss will
be disallowed for federal income tax purposes to the extent of any
exempt-interest dividends received on such shares and (to the extent not so
disallowed) will be treated as long-term, rather than short-term, capital loss
to the extent of any long-term capital gain distributions received by the
shareholder with respect to the shares. All or a portion of any loss realized
upon a taxable disposition of Portfolio shares will be disallowed if other
Portfolio shares are purchased within 30 days before or after the disposition.
In such a case, the basis of the newly purchased shares will be adjusted to
reflect the disallowed loss.

Each Portfolio is required to withhold 31% of a shareholder's taxable
distributions and redemption proceeds if the shareholder does not provide the
Portfolio with a correct taxpayer identification number or fails to certify to
the Portfolio that the shareholder is not subject to such withholding, or if
the Portfolio is notified that it must withhold because the shareholder has
under-reported in the past. Shareholders who fail to furnish their current
taxpayer identification number are subject to a penalty of $50 for each such
failure unless the failure is due to reasonable cause and not willful neglect.
An individual's taxpayer identification number is his or her social security
number. Tax-exempt shareholders are not subject to these back-up withholding
rules so long as they furnish the Portfolio with a proper certification.

<PAGE>

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

THE DISTRIBUTOR

Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, is the principal underwriter for the Portfolios' shares. Mentor
Distributors is not obligated to sell any specific amount of shares of any
Portfolio. Mentor Distributors is a wholly owned subsidiary of BISYS Fund
Services, Inc.

The International Portfolio makes payments to Mentor Distributors in
accordance with its Distribution Plan in respect of its Class B shares adopted
pursuant to Rule 12b-1 under the 1940 Act. During the fiscal year ended October
31, 1998, the International Portfolio paid fees under the Distribution Plan in
the amount of $243,187, all of which represented compensation to the
underwriter.

Continuance of the Plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested persons
of the Portfolio and who have no direct or indirect interest in the Plan or
related arrangements (the "Qualified Trustees"), cast in person at a meeting
called for that purpose. All material amendments to the Plan must be likewise
approved by the Trustees and the Qualified Trustees. The Plan may not be
amended in order to increase materially the costs which the Portfolio may bear
for distribution pursuant to such Plan without also being approved by a
majority of the outstanding Class B shares of the Portfolio. The Plan
terminates automatically in the event of its assignment and may be terminated
without penalty, at any time, by a vote of a majority of the Qualified Trustees
or by a vote of a majority of the outstanding Class B shares of the Portfolio.

If Plan payments are made to reimburse Mentor Distributors for payments to
dealers based on the average net asset value of Portfolio shares attributable
to shareholders for whom the dealers are designated as the dealer of record,
"average net asset value" attributable to a shareholder account means the
product of (i) the Portfolio's average daily share balance of the account and
(ii) the Portfolio's average daily net asset value per share (or the average
daily net asset value per share of the class, if applicable). For
administrative reasons, Mentor Distributors may enter into agreements with
certain dealers providing for the calculation of "average net asset value" on
the basis of assets of the accounts of the dealer's customers on an established
day in each quarter.

Financial institutions receiving payments from Mentor Distributors as
described above may be required to comply with various state and federal
regulatory requirements, including among others those regulating the activities
of securities brokers or dealers.

<PAGE>

Mentor Services Company, a wholly owned subsidiary of Mentor Investment
Group, provides marketing-related services in respect of the Portfolios. Mentor
Services Company and its affiliates will receive from Mentor Distributors
substantially all amounts received or retained by Mentor Distributors in
respect of the distribution of the Portfolios' shares, including any amounts
paid to Mentor Distributors under the Portfolios' Class B Plans. In addition,
Mentor Services Company receives from Mentor Distributors an amount equal to
all CDSC's received by Mentor Distributors.

CONTINGENT DEFERRED SALES CHARGES

During fiscal year 1998, Mentor Distributors received $22,261 in
contingent deferred sales charges in respect of shares of the International
Portfolio.

UNDERWRITING COMMISSIONS

The International Portfolio paid no underwriting commissions retained by
Mentor Distributors in respect of its Class A and Class B shares for the fiscal
years 1998, 1997, and 1996 respectively.

INDEPENDENT ACCOUNTANTS

KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, are the Portfolio's independent auditors, providing audit services, tax
return review, and other tax consulting services.

FINANCIAL STATEMENTS

The financial highlights in the Prospectuses for the periods indicated
which have been audited by the Trust's independent accountants, and the audited
financial statements appearing in the most current Annual Report, which is
incorporated by reference in this Statement of Additional Information, have
been so included in reliance on the report of KPMG Peat Marwick LLP, given on
the authority of said firm as experts in accounting and auditing. Copies of the
Annual Report are available upon request and without charge.

CUSTODIAN

The custodian of the Portfolios, Investors Fiduciary Trust Company, is
located at 127 West 10th Street, Kansas City, Missouri 64105. A custodian's
responsibilities include generally safeguarding and controlling a Portfolio's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on a Portfolio's investments. The custodian
does not determine the investment policies of the Trust or decide which
securities the Trust will buy or sell.

SHARES OF THE TRUST

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

<PAGE>

PERFORMANCE INFORMATION

Mentor Fixed-Income Portfolio and Mentor Perpetual International
Portfolio. With respect to the Fixed Income Portfolio and International
Portfolio, total return for the one-, five-, and ten-year periods for each
class of shares (or for the life of a class, if shorter) is determined by
calculating the actual dollar amount of investment return on a $1,000
investment in a Portfolio at the beginning of the period, and then calculating
the annual compounded rate of return which would produce that amount. Total
return for a period of one year is equal to the actual return of a Portfolio
during that period. Total return calculations assume deduction of a Portfolio's
maximum front-end or contingent deferred sales charge, if any, and reinvestment
of all Portfolio distributions at net asset value per share of the relevant
class on their respective reinvestment dates.

The table below shows the total return through October 31, 1998 for the
Portfolios for the periods indicated:

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
---------- ----------------
<S> <C> <C>
Fixed-Income Portfolio ........................... 7.21% 9.26%
International Portfolio (Institutional) .......... 7.69% 7.86%
International Portfolio (Class A) ................ 7.43% 9.68%
International Portfolio (Class B) ................ 6.64% 9.16%
International Portfolio (Class E) ................ N/A 10.67%
</TABLE>

The yield for each class of shares of a Portfolio is presented for a
specified thirty-day period (the "base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a particular class during the base period less expenses accrued for
that period, and (ii) dividing that amount by the product of (A) the average
daily number of shares of that class outstanding during the base period and
entitled to receive dividends and (B) the per share maximum public offering
price for Class A shares, if applicable, and net asset value per share for all
other classes of shares on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For this calculation,
interest earned on debt obligations held by a Portfolio is generally calculated
using the yield to maturity (or first expected call date) of such obligations
based on their market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities are accrued
daily at their stated dividend rates.

The thirty-day yield for the Portfolio for the period ended October 31,
1998 was as follows:

<TABLE>
<CAPTION>
30-DAY YIELD
-------------
<S> <C>
Fixed-Income Portfolio .......... 5.28%
</TABLE>

Mentor Cash Management Portfolio only. The yield of the U.S. Government
Cash Management Portfolio is computed by determining the percentage net change,
excluding capital changes, in the value of an investment in one share of the
Portfolio over the base period, and multiplying the net change by 365/7 (or
approximately 52 weeks). The Portfolio's effective yield represents a
compounding of the yield by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising that sum to a
power equal to 365/7, and subtracting 1 from the result.

Based on the seven-day period ended October 31, 1998, the U. S. Government
Cash Management Portfolio's yield was 4.90% and its effective yield was 5.02%.

<PAGE>

Total return or yield may be presented for other periods or without giving
effect to any front-end or contingent deferred sales charge. Any quotation of
total return or yield not reflecting such sales charges would be reduced if
such sales charges were reflected.

All data for each of the Portfolios are based on past performance and do
not predict future results.

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

Lipper Analytical Services, Inc. distributes mutual fund rankings monthly.
The rankings are based on total return performance calculated by Lipper,
reflecting generally changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect deduction of any sales
charges. Lipper rankings cover a variety of performance periods, for example
year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual
funds by investment objective and asset category.

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

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

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

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

<PAGE>

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

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

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

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

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

Financial World publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds, global bond
funds, growth and income funds, U.S. government bond funds, etc. To compete,
funds must be over one year old, have over $1 million in assets, require a
maximum of $10,000 initial investment, and should be

<PAGE>

available in at least 10 states in the United States. The funds receive a
composite past performance rating, which weighs the intermediate - and
long-term past performance of each fund versus its category, as well as taking
into account its risk, reward to risk, and fees. An A+ rated fund is one of the
best, while a D- rated fund is one of the worst. The source for Financial World
rating is Schabacker investment management in Rockville, Maryland.

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

Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three- and
five-year total return performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not reflecting deduction of any
sales charges. Portfolios are ranked by tenths: a rank of 1 means that a fund
was among the highest 10% in total return for the period; a rank of 10 denotes
the bottom 10%. Portfolios compete in categories of similar funds -- aggressive
growth funds, growth and income funds, sector funds, corporate bond funds,
global governmental bond funds, mortgage-backed securities funds, etc.

Kiplinger's also provides a risk-adjusted grade in both rising and falling
markets. Portfolios are graded against others with the same objective. The
average weekly total return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk profile of the fund.

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

The 100 Best Mutual Portfolios You Can Buy (1992), authored by Gordon K.
Williamson. The author's list of funds is divided into 12 equity and bond fund
categories, and the 100 funds are determined by applying four criteria. First,
equity funds whose current management teams have been in place for less than
five years are eliminated. (The standard for bond funds is three years.)
Second, the author excludes any fund that ranks in the bottom 20 percent of its
category's risk level. Risk is determined by analyzing how many months over the
past three years the fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for current three-year and
five-year performance. Fourth, the fund must either possess, in Mr.
Williamson's judgment, "excellent" risk-adjusted return or "superior" return
with low levels of risk. Each of the 100 funds is ranked in five categories:
total return, risk/volatility, management, current income and expenses. The
rankings follow a five-point system: zero designates "poor"; one point means
"fair"; two points denote "good"; three points qualify as a "very good"; four
points rank as "superior"; and five points mean "excellent."

<PAGE>

SHAREHOLDER LIABILITY

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

MEMBERS OF INVESTMENT MANAGEMENT TEAMS

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

MENTOR INVESTMENT ADVISORS, LLC

ACTIVE FIXED-INCOME

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

DENNIS F. CLARY, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Clary joined Mentor in 1998 and has over 20 years of investment management
experience. Prior to joining Mentor's Fixed Income Team, he worked for three
years as a Vice President and Senior Portfolio Manager for First America
Investment Corporation. He previously was employed for four years as a Vice
President and Portfolio Manager at CSI Asset Management, Inc. and prior to that
for four years in a similar role by Investment & Capital Management
Corporation. Mr. Clary received his BA and MBA degrees from Ohio State
University.

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

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

<PAGE>

CASH MANAGEMENT

R. PRESTON NUTTALL, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Nuttall has more than 30 years of investment management experience. Prior
to Mentor Advisors, he led short-term fixed-income management for fifteen years
at Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.

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

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

MENTOR PERPETUAL ADVISORS, LLC

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

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

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

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

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

<PAGE>

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

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

<PAGE>

APPENDIX

MOODY'S INVESTORS SERVICE, INC., BOND RATINGS

Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, (I.E., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba -- Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

D -- An obligation rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition, or the taking of a
similar action if payments on an obligtion are jeopardized.

MOODY'S NOTE RATINGS

MIG1/VMIG1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.

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

<PAGE>

STANDARD AND POOR'S NOTE RATINGS

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

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

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

MOODY'S COMMERCIAL PAPER RATINGS

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1 -- This highest category indicateds that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.

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

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