-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HPnIWb2qfyqjCQ62G0nTrb/XBLmw/haODSusuKdGBahzrdBEBmZ7SpwWCD9nCCJy KUxdvHE9gnjK9sYWIlwO8g== 0000916641-96-001049.txt : 19961202 0000916641-96-001049.hdr.sgml : 19961202 ACCESSION NUMBER: 0000916641-96-001049 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961127 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR FUNDS CENTRAL INDEX KEY: 0000883428 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 251679376 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06550 FILM NUMBER: 96673941 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER STREET 2: C/O FEDERATED INVESTORS CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 8047823648 MAIL ADDRESS: STREET 1: RIVERFRONT PLAZA STREET 2: WEST TOWER 901 E BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23219 FORMER COMPANY: FORMER CONFORMED NAME: CAMBRIDGE SERIES TRUST DATE OF NAME CHANGE: 19920717 N-30D 1 MENTOR FUNDS N-30D PERFORMANCE COMPARISONS MENTOR BALANCED PORTFOLIO [GRAPH] S&P 500 and Mentor Mentor Lehman Brothers Balanced Balanced Government/Corporate Portfolio Portfolio* Bond Aggregate Index** 06/21/94 10,000 10,000 06/30/94 9,872 9,872 9,844.14 07/31/94 10,064 9,564 10,116.47 08/31/94 10,352 9,852 10,370.19 09/30/94 10,192 9,692 10,157.08 10/31/94 10,232 9,732 10,290.36 11/30/94 10,024 9,524 10,056.44 12/31/94 10,108 9,610 10,173.68 01/31/95 10,352 9,852 10,412.54 02/28/95 10,701 10,201 10,755.13 03/31/95 10,822 10,322 10,971.80 04/30/95 10,969 10,469 11,227.12 05/31/95 11,350 10,850 11,670.16 06/30/95 11,561 11,161 11,866.90 07/31/95 11,732 11,332 12,092.56 08/31/95 11,837 11,437 12,169.30 09/15/95 12,126 11,726 09/30/95 12,085 11,685 12,524.64 10/31/95 12,020 11,620 12,562.94 11/21/95 12,362 11,962 11/30/95 12,378 11,978 12,969.23 12/19/95 12,438 12,038 12/31/95 12,587 12,187 13,191.73 01/31/96 12,911 12,511 13,495.98 02/29/96 13,130 12,730 13,477.12 03/31/96 13,209 12,809 13,517.25 04/30/96 13,463 13,063 13,606.52 05/31/96 13,638 13,238 13,806.18 06/30/96 13,778 13,478 13,911.74 07/31/96 13,480 13,180 13,557.99 08/31/96 13,647 13,347 13,720.34 09/30/96 14,260 13,960 14,279.14 * Includes maximum Contingent Deferred Sales Charge (CDSC) of 5%. ** This Index represents asset allocation of 60% S&P 500 Stocks and 40% Lehman Brothers Government/Corporate Bonds. Average Annual Return as of 9/30/96 Average Annual Return as of 9/30/96 Without Sales Charges Including Sales Charges 1 year Inception*** 1 year Inception*** - ----------------------------------- ----------------------------------- 18.00% 16.84% 13.00% 15.76% *** For the period from June 21, 1994 (commencement of operations) to September 30, 1996. PERFORMANCE INFORMATION FOR THE MENTOR BALANCED PORTFOLIO This graph compares the investment performance of the Portfolio from its inception date to the index that is most representative of the fund's portfolio. The graph reflects the performance of a $10,000 investment from the date the fund started through September 30, 1996. Return does not reflect taxes payable (if any) on distributions. In comparing the performance of a fund to an index, you should keep in mind that market indexes do not take into account brokerage commissions that would be incurred if you purchased the individual securities that make up the index. They also do not include taxes payable on dividends and interest payments, or operating expenses necessary to maintain a portfolio investing in the index. The performance data quoted in this report is historical and does not guarantee future investment results. Your investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance is as of September 30, 1996 and includes change in share price and reinvestment of dividends and capital gains. The maximum contingent deferred sales charge (CDSC) is 5% for the Balanced Portfolio. Mentor Balanced Portfolio Portfolio of Investments September 30, 1996
Percent of Net Assets Shares Market Value - --------------------------------------------------------------------------------------------------------------------------- Common Stocks 60.29% - --------------------------------------------------------------------------------------------------------------------------- Basic Materials 8.54% Bemis Company 2,300 $ 77,913 Morton International, Inc. 2,200 87,450 Nalco Chemical Company 2,400 87,000 Sonoco Products Company 2,700 74,250 - --------------------------------------------------------------------------------------------------------------------------- 326,613 - --------------------------------------------------------------------------------------------------------------------------- Capital Goods & Construction 6.66% Pall Corp 3,200 90,400 W.W. Grainger, Inc. 1,100 77,275 York International Corporation 1,800 87,075 - --------------------------------------------------------------------------------------------------------------------------- 254,750 - --------------------------------------------------------------------------------------------------------------------------- Consumer Cyclical 10.42% Carnival Corporation - Class A 2,600 80,600 Interpublic Group Companies, Inc. 1,600 75,600 Mattel, Inc. 3,200 82,800 Newell Company 2,500 75,000 Olsten Corporation 3,400 84,575 - --------------------------------------------------------------------------------------------------------------------------- 398,575 - --------------------------------------------------------------------------------------------------------------------------- Consumer Staples 8.82% Avon Products Company 1,600 79,400 CPC International, Inc. 1,300 97,338 Sherwin Williams Company 1,800 83,475 Sysco Corporation 2,300 77,338 - --------------------------------------------------------------------------------------------------------------------------- 337,551 - --------------------------------------------------------------------------------------------------------------------------- Energy 1.77% Schlumberger, Ltd. 800 67,600 - --------------------------------------------------------------------------------------------------------------------------- Financial 7.32% American Express Company 1,500 69,375 Banc One Corporation 1,993 81,713 First Union Center 800 53,400 United Asset Management Corporation 3,200 75,600 - --------------------------------------------------------------------------------------------------------------------------- 280,088 - --------------------------------------------------------------------------------------------------------------------------- Common Stocks (continued) - --------------------------------------------------------------------------------------------------------------------------- Health 4.10% Johnson & Johnson 1,500 $ 76,875 Schering-Plough 1,300 79,950 - --------------------------------------------------------------------------------------------------------------------------- 156,825 - --------------------------------------------------------------------------------------------------------------------------- Technology 7.11% Amp, Inc. 1,900 73,625 Electronic Data Systems 1,400 85,925 Intel Corporation 600 57,262 Linear Technology Corporation 1,500 55,313 - --------------------------------------------------------------------------------------------------------------------------- 272,125 - --------------------------------------------------------------------------------------------------------------------------- Transportation & Services 1.88% Werner Enterprises, Inc. 4,500 72,000 - --------------------------------------------------------------------------------------------------------------------------- Utilities 1.87% Ameritech Corporation 700 36,837 GTE Corporation 900 34,650 - --------------------------------------------------------------------------------------------------------------------------- 71,487 - --------------------------------------------------------------------------------------------------------------------------- Miscellaneous 1.80% Tyco International, Ltd. 1,600 69,000 - --------------------------------------------------------------------------------------------------------------------------- Total Common Stocks (cost $1,913,647) 2,306,614 - --------------------------------------------------------------------------------------------------------------------------- Fixed Income Securities 30.69% - --------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities and Agencies 25.92% Federal National Mortgage Association, 7.00%, 7/01/11 (a) $ 55,366 54,552 Government National Mortgage Association, 7.00%, 12/15/08 (a) 57,942 57,521 U.S. Treasury Notes, 6.50% - 7.25%, 2/15/98 - 7/15/06 625,000 628,200 U.S. Treasury Bonds, 6.88% - 7.50%, 2/15/23 - 8/15/25 245,000 251,234 - --------------------------------------------------------------------------------------------------------------------------- Total U.S. Government Securities and Agencies (cost $991,615) 991,507 - --------------------------------------------------------------------------------------------------------------------------- Corporate Bonds (a) 4.77% Merrill Lynch, 6.64%, 9/19/02 45,000 43,974 Nationsbank Corporation, 7.50%, 7/15/06 35,000 35,337 Norwest Corporation, 6.80%, 5/15/02 60,000 59,525 Traveler's, Inc., 8.63%, 2/01/07 40,000 43,515 - --------------------------------------------------------------------------------------------------------------------------- Total Corporate Bonds (cost $185,418) 182,351 - --------------------------------------------------------------------------------------------------------------------------- Total Fixed Income Securities (cost $1,177,033) $1,173,858 - --------------------------------------------------------------------------------------------------------------------------- Short-Term Investment 8.19% - --------------------------------------------------------------------------------------------------------------------------- Repurchase Agreement Goldman Sachs & Company Dated 9/30/96, 5.78%, due 10/01/96, collateralized by $324,355 Federal National Mortgage Association, 7.50%, 4/01/26 (cost $313,258) 313,258 - --------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $3,403,938) 99.17% 3,793,730 - --------------------------------------------------------------------------------------------------------------------------- Other Assets less Liabilities 0.83% 31,671 - --------------------------------------------------------------------------------------------------------------------------- Net Assets 100.00% $3,825,401 - ---------------------------------------------------------------------------------------------------------------------------
(a) All or a portion of these securities are illiquid securities, and are valued using market quotations where readily available. In the absence of market quotations, the securities are valued based upon their fair value determined under procedures approved by the Board of Trustees. See notes to financial statements. Mentor Balanced Portfolio Statement of Assets and Liabilities September 30, 1996 - ------------------------------------------------------------------------- Assets Investments, at market value * (Note 2) $3,793,730 Dividend and interest receivable 17,946 Other assets 37,025 - ------------------------------------------------------------------------- Total assets 3,848,701 - ------------------------------------------------------------------------- Liabilities Payable for investments purchased 21,335 Accrued expenses and other liabilities 1,965 - ------------------------------------------------------------------------- Total liabilities 23,300 - ------------------------------------------------------------------------- Net Assets $3,825,401 - ------------------------------------------------------------------------- Net Assets represented by: Additional paid-in capital $2,937,929 Accumulated net investment income 69,245 Accumulated net realized gain on investment transactions 428,435 Net unrealized appreciation of investments (Note 6) 389,792 - ------------------------------------------------------------------------- Net Assets $3,825,401 Shares Outstanding 235,041 - ------------------------------------------------------------------------- Net Asset Value and Offering Price per Share $ 16.28 - ------------------------------------------------------------------------- *Investments at cost are $3,403,938. See notes to financial statements. Mentor Balanced Portfolio Statement of Operations Year Ended September 30, 1996 - ------------------------------------------------------------------------------ Investment Income Dividends $ 36,842 Interest 77,923 - ------------------------------------------------------------------------------ Total investment income (Note 2) 114,765 - ------------------------------------------------------------------------------ Expenses Management fee (Note 3) 25,766 Distribution fee (Note 4) 25,766 Shareholder servicing fee (Note 4) 8,589 Custodian and accounting fees 3,157 Registration expenses 378 Legal and audit fees 179 Shareholder reports and postage expenses 99 Directors' fees and expenses 46 Miscellaneous expenses 6,715 - ------------------------------------------------------------------------------ Total expenses 70,695 - ------------------------------------------------------------------------------ Deduct Waiver of management fee (Note 3) 18,976 Waiver of distribution fee (Note 4) 25,766 Waiver of shareholder servicing fee (Note 4) 8,589 - ------------------------------------------------------------------------------ Net expenses 17,364 - ------------------------------------------------------------------------------ Net investment income 97,401 - ------------------------------------------------------------------------------ Realized and unrealized gain on investments Net realized gain on investments 453,033 Change in unrealized appreciation (depreciation) of investments 26,238 - ------------------------------------------------------------------------------ Net realized and unrealized gain on investments 479,271 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations $576,672 - ------------------------------------------------------------------------------ See notes to financial statements. Mentor Balanced Portfolio Statements of Changes in Net Assets
Year Period Ended Ended 9/30/96 9/30/95* - ------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Operations Net investment income $ 97,401 $ 77,774 Net realized gain on investments 453,033 112,161 Change in unrealized appreciation (depreciation) of investments 26,238 379,762 - ------------------------------------------------------------------------------------------------------------- Increase in net assets from operations 576,672 569,697 - ------------------------------------------------------------------------------------------------------------- Distributions to Shareholders Net investment income (105,563) (7,781) Net realized gain in investments (129,654) - - ------------------------------------------------------------------------------------------------------------- Net decrease from distributions (235,217) (7,781) - ------------------------------------------------------------------------------------------------------------- Capital Share Transactions (Note 7) Change in net assets from capital share transactions 274,373 (263,442) - ------------------------------------------------------------------------------------------------------------- Increase in net assets 615,828 298,474 Net Assets Beginning of period 3,209,573 2,911,099 - ------------------------------------------------------------------------------------------------------------- End of period $3,825,401 $3,209,573 - ------------------------------------------------------------------------------------------------------------- *For the period from January 1, 1995 to September 30, 1995. See notes to financial statements.
Mentor Balanced Portfolio Financial Highlights
Year Period Period Ended Ended Ended 9/30/96 9/30/95* 12/31/94** - ------------------------------------------------------------------------------------------------- Per Share Operating Performance Net asset value, beginning of period $ 14.85 $ 12.44 $ 12.50 Income from investment operations Net investment income 0.42 0.36 0.22 Net realized and unrealized gain (loss) on investments 2.09 2.08 (0.09) - -------------------------------------------------------------------------------------------- Total from investment operations 2.51 2.44 0.13 Less distributions Dividends from net investment income (0.48) (0.03) (0.19) Distributions from capital gains (0.60) - - - -------------------------------------------------------------------------------------------- Total distributions (1.08) (0.03) (0.19) Net asset value, end of period $ 16.28 $ 14.85 $ 12.44 - -------------------------------------------------------------------------------------------- Total Return 18.00% 19.28% 1.00% - -------------------------------------------------------------------------------------------- Ratios / Supplemental Data - -------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 3,825 $ 3,210 $ 2,911 Ratio of expenses to average net assets 0.50% 0.50%(a) 0.50%(a) Ratio of expenses to average net assets excluding waiver 2.06% 2.12%(a) 2.72%(a) Ratio of net investment income to average net assets 2.83% 3.26%(a) 3.32%(a) Portfolio turnover rate 103% 65% 71% Average commission rate on portfolio transactions $ 0.0694 - -------------------------------------------------------------------------------------------------
(a) Annualized. * For the period from January 1, 1995 to September 30, 1995. **For the period from June 21, 1994 (commencement of operations) to December 31, 1994. See notes to financial statements. Mentor Balanced Portfolio Notes to Financial Statements September 30, 1996 NOTE 1: ORGANIZATION The Mentor Funds (formerly Cambridge Series Trust) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. On April 12, 1995, the name of the Trust was changed to Mentor Funds ("Mentor Funds"). On April 12, 1995, the portfolios of Mentor Series Trust were merged into newly formed portfolios of Mentor Funds. Mentor Funds consists of nine separate Portfolios (hereinafter each individually referred to as a "Portfolio" or collectively as the "Portfolios") at September 30, 1996, as follows: Mentor Growth Portfolio ("Growth Portfolio") Mentor Perpetual Global Portfolio ("Global Portfolio") Mentor Capital Growth Portfolio ("Capital Growth Portfolio") Mentor Strategy Portfolio ("Strategy Portfolio") Mentor Income and Growth Portfolio ("Income and Growth Portfolio") Mentor Municipal Income Portfolio ("Municipal Income Portfolio") Mentor Quality Income Portfolio ("Quality Income Portfolio") Mentor Short-Duration Income Portfolio ("Short-Duration Income Portfolio") Mentor Balanced Portfolio ("Balanced Portfolio") The assets of each Portfolio are segregated and a shareholder's interest is limited to the Portfolio in which shares are held. The financial statements included in this report are for the Balanced Portfolio only (hereinafter referred to as the "Portfolio"). Shares of the Portfolio are sold without an initial sales charges, although a contingent deferred sales charge may be imposed if shares are redeemed within 5 years of purchase. Shares of the Portfolio are not currently being offered to public. NOTE 2: SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Portfolio in the preparation of their financial statements. The policies are in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect amounts reported therein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Portfolio. (a) Valuation of Securities - Listed securities held by the Portfolio and traded on national stock exchanges and over-the-counter securities quoted on the NASDAQ National Market System are valued at the last reported sales price or, lacking any sales, at the last available bid price. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by the Board of Trustees of the Portfolio as the primary market. Securities traded in the over-the-counter market, other than those quoted on the NASDAQ National Market System, are valued at the last available bid price. Short-term investments with remaining maturities of 60 days or less are carried at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the general supervision of the Board of Trustees. U.S. Government obligations held by the Portfolio are valued at the mean between the over-the-counter bid and asked prices as furnished by an independent pricing service. Listed corporate bonds, other fixed income securities, mortgage backed securities, mortgage related, asset-backed and other related securities are valued at the prices provided by an independent pricing service. Security valuations not available from an independent pricing service are provided by dealers approved by the Portfolio's Board of Trustees. In determining value, the dealers use information with respect to transactions in such securities, market transactions in comparable securities, various relationships between securities, and yield to maturity. (b) Repurchase Agreements- It is the policy of Mentor Funds to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book entry system, or to have segregated within the custodian bank's vault all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by Mentor Funds to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. Mentor Funds will only enter into repurchase agreements with banks and other recognized financial institutions such as broker/dealers which are deemed by Mentor Fund's adviser to be creditworthy pursuant to guidelines established by the Mentor Fund's Trustees. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, Mentor Funds could receive less than the repurchase price on the sale of collateral securities. (c) Security Transactions and Investment Income - Security transactions for the Portfolio are accounted for on a trade date basis. Dividend income is recorded on the ex-dividend date and interest is recorded on the accrual basis. Interest income includes interest and discount earned (net of premium) on short term obligations, and interest earned on all other debt securities including original issue discounts as required by the Internal Revenue Code. Realized and unrealized gains and losses on investment security transactions are calculated on an identified cost basis. (d) Federal Income Taxes - No provision for federal income taxes has been made since it is the Portfolio's policy to comply with the provisions applicable to regulated investment companies under the Internal Revenue Code and to distribute to its shareholders within the allowable time limit substantially all taxable income and realized capital gains, if any. (e) Distributions to Shareholders- Distributions from net investment income and net realized capital gains, after offsetting capital loss carryovers are distributed annually for the Portfolio. NOTE 3: INVESTMENT ADVISORY AND MANAGEMENT AND ADMINISTRATION AGREEMENTS The Portfolio has entered into an Investment Advisory Agreement with Commonwealth Investment Counsel, Inc. ("Commonwealth"), a wholly-owned subsidiary of Mentor Investment Group, Inc. ("Mentor"), which is a wholly-owned subsidiary of Wheat First Butcher Singer, Inc. ("Wheat"). Under this agreement, Commonwealth's management fee is accrued daily and paid monthly at an annual rate of 0.75% applied to the average daily net assets of the Portfolio. In order to limit the Portfolio's expenses, during the period ended September 30, 1996 Commonwealth has agreed to reduce its compensation to the extent that expenses of the Portfolio (exclusive of brokerage, interest, taxes, deferred organization expenses, and payments under the Portfolio's Distributions Plan) exceed an annual rate of 0.50% of the Portfolio's average net assets. For the year ended September 30, 1996, Commonwealth earned advisory fees of $25,766 and voluntarily waived $18,976 of the fees. Effective November 1, 1996, Commonwealth Advisors, Inc., Charter Asset Management, Inc. and Wellesley Advisors, Inc., were reorganized into Commonwealth Investment Counsel, Inc., which then became Mentor Investment Advisors, LLC ("Mentor Advisors"). Mentor Advisors is a wholly-owned subsidiary of Mentor Investment Group, LLC (formerly, Mentor Investment Group, Inc.). Mentor Investment Group, LLC is a subsidiary of Wheat First Butcher Singer, Inc. Also effective November 1, 1996, EVEREN Capital Corporation, a previously unrelated broker dealer acquired a 20% ownership interest in Mentor Investment Group, LLC from Wheat First Butcher Singer, Inc. As part of the acquisition agreement, EVEREN may acquire additional ownership based principally on the amount of Mentor Investment Group, LLC's revenues derived from assets attributable to clients of EVEREN Securities, Inc. and its affiliates. Administrative personnel and services are provided by Mentor to the Portfolio, under an Administration Agreement, at an annual rate of 0.10% of 1% of the average daily net assets of the Portfolio. In order to limit the Portfolio's expenses, Mentor agreed to waive its fees during the year ended September 30, 1996. Commonwealth has agreed to reimburse the Portfolio for the operating expenses (exclusive of interest, taxes, brokerage and distributions fees, and extraordinary expenses) in excess of the most restrictive expense limitation imposed by state securities commissions with jurisdiction over the Portfolio. The most stringent state expense limitation applicable to the Portfolio requires reimbursement of expenses in any year that such expenses exceed 2.5% of the first $30,000,000 of average daily net assets, 2% of the next $70,000,000 of average daily net assets, and 1.5% of the average daily net assets over $100,000,000. During the year ended September 30, 1996, no reimbursement from Commonwealth was required as a result of such state expense limitations. NOTE 4: DISTRIBUTION AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under a Distribution Agreement between the Portfolio and Mentor Distributors, Inc. ("Mentor Distributors") a wholly-owned subsidiary of Mentor, Mentor Distributors was appointed distributor of the Portfolio. To compensate Mentor Distributors for the services it provides and for the expenses it incurs under the Distribution Agreement, the Portfolio has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, under which the Portfolio pays a distribution fee, which is accrued daily and paid monthly at the annual rate of 0.75% of the Portfolio's average daily net assets. Effective November 1, 1996, Mentor Distributors became Mentor Distributors, LLC. Mentor Funds has adopted a Shareholder Servicing Plan (the "Service Plan") with respect to each Portfolio. Under the Service Plan, financial institutions will enter into shareholder service agreements with the Portfolio to provide administrative support services at an annual rate of 0.25% of the Portfolio's average daily net assets. The total charges to be borne by the Portfolio, under the Distribution and Shareholder Service Agreements is expected to remain at an annual rate of 1% of the Portfolio's average daily net assets. For the year ended September 30, 1996 distribution and shareholder services fees were as follows:
Shareholder Distribution Fee Shareholder Servicing Fee Distribution Fee Waived Servicing Fee Waived - ------------------------------------------------------------------------------------------------------ Balanced Portfolio $25,766 $(25,766) $8,589 $(8,589)
NOTE 5: INVESTMENT TRANSACTIONS Purchases and sales of investments, exclusive of short-term securities, aggregated $3,327,191 and $3,421,283 respectively, for the year ended September 30, 1996. NOTE 6: UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS At September 30, 1996, the cost of investments for federal income tax purposes amounted to $3,410,033 and net unrealized appreciation aggregated $383,697, of which $396,547 related to appreciated securities and $12,850 related to depreciated securities. NOTE 7: CAPITAL SHARE TRANSACTIONS The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in Portfolio shares were as follows:
Year Period Ended Ended 9/30/96 9/30/95* Shares Dollars Shares Dollars - -------------------------------------------------------------------------------------------------------- Shares sold 48,575 $734,947 6,784 $ 90,000 Shares issued upon reinvestment of distributions 16,321 235,217 3,998 51,058 Shares redeemed (45,946) (695,791) (28,622) (404,500) ------------------------------------------------------- Change in net assets from capital share transactions 18,950 $274,373 (17,840) $(263,442) -------------------------------------------------------
*For the period from January 1, 1995 to September 30, 1995. INDEPENDENT AUDITORS' REPORT THE TRUSTEES AND SHAREHOLDERS MENTOR FUNDS We have audited the accompanying statement of assets and liabilities of Mentor Balanced Portfolio, a portfolio of Mentor Funds, including the portfolio of investments, as of September 30, 1996 and the related statement of operations for the year then ended, the statements of changes in net assets for the year then ended and for the period from January 1, 1995 to September 30, 1995, and the financial highlights for the year then ended, for the period from January 1, 1995 to September 30, 1995 and for the period from June 21, 1994 (commencement of operations) to December 31, 1994. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Mentor Balanced Portfolio, as of September 30, 1996, the results of its operations for the year then ended, the changes in its net assets for the year then ended and for the period from January 1, 1995 to September 30, 1995, and the financial highlights for each of the years or periods specified in the first paragraph above, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Boston, Massachusetts November 8, 1996 -----END PRIVACY-ENHANCED MESSAGE-----