-----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, Pph0URQiG/9nf4RUwNLT5Z5uiBS7/cRFj0U8q0XquiU2TTpoyAMPOm2ShmSRjND3 XvEhYxHaHtydcizQZzRozg== 0000916641-98-000851.txt : 19980803 0000916641-98-000851.hdr.sgml : 19980803 ACCESSION NUMBER: 0000916641-98-000851 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980731 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: 485APOS SEC ACT: SEC FILE NUMBER: 033-45315 FILM NUMBER: 98675668 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-06550 FILM NUMBER: 98675669 BUSINESS ADDRESS: STREET 1: RIVERFRONT PLAZA STREET 2: WEST TOWER 901 E BYRD STREET CITY: RICHMOND STATE: VA ZIP: 23219 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 485APOS 1 MENTOR FUNDS 485APOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998 REGISTRATION NO. 33-45315 FILE NO. 811-6550 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X) PRE-EFFECTIVE AMENDMENT NO. ( ) POST-EFFECTIVE AMENDMENT NO. 20 (X) AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X) AMENDMENT NO. 22 (X) (CHECK APPROPRIATE BOX OR BOXES) MENTOR FUNDS (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) 901 EAST BYRD STREET RICHMOND, VIRGINIA 23219 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (804) 782-3648 (REGISTRANT'S TELEPHONE NUMBER) PAUL F. COSTELLO PRESIDENT 901 EAST BYRD STREET RICHMOND, VIRGINIA 23219 (NAME AND ADDRESS OF AGENT FOR SERVICE) COPY TO: TIMOTHY W. DIGGINS, ESQ. ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON, MA 02110 IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX) ( ) IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) ( ) ON (date) PURSUANT TO PARAGRAPH (B) ( ) 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1) ( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(1) (X) 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2) ( ) ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485 IF APPROPRIATE, CHECK THE FOLLOWING BOX: ( ) THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT THIS POST-EFFECTIVE AMENDMENT RELATES ONLY TO SHARES OF THE MENTOR INSTITUTIONAL TAX-EXEMPT MONEY MARKET PORTFOLIO. NO INFORMATION RELATING TO ANY OTHER CLASS OR SERIES OF SHARES OF THE REGISTRANT IS AMENDED, DELETED, OR SUPERSEDED HEREBY. MENTOR FUNDS CROSS REFERENCE SHEET (as required by Rule 404(a)) Part A - Mentor Funds - Mentor Institutional Tax-Exempt Money Market Portfolio - -- Retail Shares
N-1A Item No. Location 1. Cover Page......................................... Cover Page 2. Synopsis........................................... Cover Page; Expense Summary 3. Condensed Financial Information.................... Not Applicable 4. General Description of Registrant.................. Cover Page; Investment Objective and Policies; General 5. Management of the Fund............................. Investment Objective and Policies; Management; General; How the Portfolio Values its Shares; Custodian and Transfer and Dividend Agent; Performance Information 5A. Management's Discussion of Fund Performance................................ Not Applicable 6. Capital Stock and Other Securities................. Management; General; Purchase of Shares; How Distributions are Made; Tax Information; Performance Information; Management; Purchase of Shares 7. Purchase of Securities Being Offered............... Management; Purchase of Shares 8. Redemption or Repurchase........................... Purchase of Shares; Redemption of Shares 9. Pending Legal Proceedings.......................... Not Applicable -1- Part A - Mentor Funds - Mentor Institutional Tax-Exempt Money Market Portfolio - -- Institutional Shares N-1A Item No. Location 1. Cover Page......................................... Cover Page 2. Synopsis........................................... Cover Page; Expense Summary 3. Condensed Financial Information.................... Not Applicable 4. General Description of Registrant.................. Cover Page; Investment Objective and Policies; General 5. Management of the Fund............................. Investment Objective and Policies; Management; General; How the Portfolio Values its Shares; Custodian and Dividend Agent; Performance Information 5A. Management's Discussion of Fund Performance................................ Not Applicable 6. Capital Stock and Other Securities................. Management; General; Purchase of Shares; How Distributions are Made; Performance Information 7. Purchase of Securities Being Offered............... Management; Purchase of Shares 8. Redemption or Repurchase........................... Purchase of Shares; Redemption of Shares 9. Pending Legal Proceedings.......................... Not Applicable -3- Part B - Mentor Funds - Mentor Institutional Tax-Exempt Money Market Portfolio N-1A Item No Location 10. Cover Page......................................... Cover Page 11. Table of Contents.................................. Cover Page 12. General Information and History.................... General 13. Investment Objectives and Policies................. Investment Restrictions; Investment Techniques 14. Management of the Fund............................. Management of the Trust; Investment Advisory and Other Services; The Distributor 15. Control Persons and Principal Holders of Securities......................... Principal Holders of Securities 16. Investment Advisory and Other Services............. Investment Advisory and Other Services; Management of the Trust; Independent Accountants; Experts; Custodian; Members of Investment Management Teams 17. Brokage Allocation................................. Brokerage 18. Capital Stock and Other Securities................. Determination of Net Asset Value; Tax Status; The Distributor; Shareholder Liability 19. Purchase, Redemption and Pricing of Securities Being Offered................... Brokerage; Determination of Net Asset Value; The Distributor 20. Tax Status......................................... Investment Restrictions; Tax Status 21. Underwriters....................................... The Distributor 22. Calculation fo Yield Quotations of Money Market Funds............................ Performance
P R O S P E C T U S October , 1998, Retail Shares Mentor Funds Mentor Institutional Tax-Exempt Money Market Portfolio Mentor Institutional Tax-Exempt Money Market Portfolio is designed for investors who seek current income exempt from federal income tax, consistent with preservation of capital and maintenance of liquidity. The Portfolio is a diversified investment portfolio of Mentor Funds (the "Trust"). An investment in the Portfolio is neither insured nor guaranteed by the U.S. Government. There can be no assurance that the Portfolio will be able to maintain a stable net asset value of $1.00 per share. This Prospectus explains concisely what you should know before investing in the Portfolio. Please read it carefully and keep it for future reference. You can find more detailed information about the Portfolio in the October , 1998 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Mentor Services Company, Inc. at 1-800-869-6042. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. EXPENSE SUMMARY Expenses are one of several factors to consider when investing in the Portfolio. The following table summarizes your maximum transaction costs from an investment in Retail Shares of the Portfolio and expenses the Portfolio expects to incur in respect of its Retail Shares during the current fiscal year. The Examples show the cumulative expenses attributable to a hypothetical $1,000 investment in each Portfolio over specified periods. The information presented below does not reflect any fees or charges imposed by Financial Institutions through which you may invest in the Portfolio.
Mentor Institutional Tax-Exempt Money Market Portfolio --------------- Shareholder Transaction Expenses None Annual Portfolio Operating Expenses (as a percentage of average net assets) Management Fees .22% 12b-1 Fees .33% Other Expenses .16% =============== Total Fund Operating Expenses .71%
Examples Your investment of $1,000 in a Portfolio would incur the following expenses, assuming 5% annual return and redemption at the end of each period:
1 year 3 years -------- --------- Mentor Institutional Tax-Exempt Money Market Portfolio $7.00 $23.00
The table is provided to help you understand the expenses of investing in the Portfolio and your share of the operating expenses which the Portfolio expects to incur. The Examples do not represent past or future expense levels. Actual returns and expenses may be greater or less than those shown. Federal regulations require the Examples to assume a 5% annual return, but actual annual return will vary. Because of the 12b-1 fees payable by the Portfolio, long-term shareholders may pay more in aggregate sales charges than the maximum initial sales charge permitted by the National Association of Securities Dealers, Inc. INVESTMENT OBJECTIVE AND POLICIES The investment objective of Mentor Institutional Tax-Exempt Money Market Portfolio is to seek as high a rate of current income exempt from federal income tax as Mentor Investment Advisors, LLC, the Portfolio's investment advisor, believes is consistent with preservation of capital and maintenance of liquidity. The Portfolio seeks its objective through the investment policies described below. Because the 2 Portfolio is a money market fund, it will only invest in the types of investments described below under "Selection of Investments". The investment objective and policies of the Portfolio may, unless otherwise specifically stated, be changed by the Trustees without shareholder approval. The Portfolio is not intended to be a complete investment program, and there is no assurance the Portfolio will achieve its objective. The Portfolio invests, as a fundamental policy, at least 80% of its net assets in Tax-Exempt Securitites (as described below). The Portfolio may invest the remainder of its assets in investments of any kind in which any of the other Portfolios may invest. The Portfolio will invest in the following types of Tax-Exempt Securities: (i)municipal notes; (ii) municipal bonds; (iii) municipal securities backed by the U.S. government or any of its agencies or instrumentalities; (iv) tax-exempt commercial paper; (v) participation interests in any of the foregoing; and (vi) unrated securities or new types of tax-exempt instruments which become available in the future if Mentor Advisors determines they meet the quality standards discussed below (collectively, "Tax-Exempt securities"). (In the case of any such new types of tax-exempt instruments, this Prospectus would be revised as may be appropriate to describe such instruments.) In connection with the purchase of Tax-Exempt Securities, the Portfolio may acquire stand-by commitments, which give the Portfolio the right to resell the security to the dealer at a specified price. Stand-by commitments may provide additional liquidity for the fund but are subject to the risk that the dealer may fail to meet its obligations. The Portfolio does not generally expect to pay additional consideration for stand-by commitments or to assign any value to them. Tax-Exempt Securities are debt obligations issued by a state (including the District of Columbia), a U.S. territory or possession, or any of their political subdivisions, the interest from which is, in the opinion of bond counsel, exempt from federal income tax. These securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses, or the refunding of outstanding debts. They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational, or medical facilitites and may also include certain types of private activity and industrial development bonds issued by public authorities to finance privately owned or operated facilities. Short-term Tax-Exempt Securities are generally issued as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance various public puposes. The two principal classifications of Tax-Exempt Securities are general obligation and special obligation (or revenue) securities. General obligation securitites involve the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer. Special obligation securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source and generally are not payable from the unrestricted revenues of the issuer. Industrial development and private activity bonds are in most cases special obligation securities, the credit quality of which is directly related to the private user of a facility. For purposes of the Portfolio's policy to invest at least 80% of its net assets in Tax-Exempt Securities, the Portfolio will not treat obligations as Tax-Exempt Securitites for purposes of measuring compliance with such policy if they would give rise to interest income subject to federal alternative minimum tax for individuals. To the extent that the Portfolio invests in these securities, individual shareholders of the Portfolio, depending on their own tax status, may be subject to federal alternative minimum tax on the part of the Portfolio's distributions derived from these securities. In addition an investment in the Portfolio may cause corporate shareholders to be subject to (or result in an increased liability under) the alternative minimum tax because tax-exempt income is generally included in the alternative minimum taxable income of corporations. The ability of governmental issuers to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on thier fiscal conditions generally. The amounts of tax and other revenues available to governmental issuers may be affected from time to time by economic, political, and demographic conditions affecting a particular state. In addition, constitutional or statutory restrictions may limit a government's power to raise revenues or increase taxes. The avalability of federal, state, and local aid to issuers of such securities may also affect their ability to meet their obligations. Payments of principal and interest on special obligation securities will depend on the economic condition of the facility or specific revenue source from whose revenues the payments will be made, which in turn could be affected by economic, political, and demographic conditions affecting a particular state. Any reduction in the actual or perceived ability of an issuer of Tax-Exempt Securities in a particular state to meet its obligations (including a reduction in the rating of its outstanding securities) would likely affect adversely the market value and marketability of its obligations and could adversely affect the values of Tax-Exempt Securities issued by others in that state as well. The Portfolio may invest without limit in high quality taxable money market instruments of any type at any time when Mentor Advisors believes that market conditions make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of shareholders. It is impossible to predict when, or for how long, the Portfolio will use these alternative defensive strategies. 3 Selection of Investments The Portfolio will invest only in U.S. dollar-denominated high-quality securities and other U.S. dollar- denominated money market instruments meeting credit criteria which the Trustees believe present minimal credit risk. "High-quality securities" are (i) commercial paper or other short-term obligations rated in one of the two highest short-term rating categories by at least two nationally recognized rating services (or, if only one rating service has rated the security, by that service), (ii) obligations rated at least AA by Standard & Poor's or Aa by Moody's Investors Service, Inc. at the time of investment, and (iii) unrated securities determined by Mentor Advisors to be of comparable quality. The Portfolio will maintain a dollar-weighted average maturity of 90 days or less and will not invest in securities with remaining maturities of more than 397 days. The Portfolio may invest in variable or floating-rate securities which bear interest at rates subject to periodic adjustment or which provide for periodic recovery of principal on demand. Under certain conditions, these securities may be deemed to have remaining maturities equal to the time remaining until the next interest adjustment date or the date on which principal can be recovered on demand. The Portfolio follows investment and valuation policies designed to maintain a stable net asset value of $1.00 per share, although there is no assurance that these policies will be successful. Considerations of liquidity and preservation of capital mean that the Portfolio may not necessarily invest in money market instruments paying the highest available yield at a particular time. Consistent with its investment objective, the Portfolio will attempt to maximize yields by portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic and money market conditions and trends. The Portfolio may also invest to take advantage of what Mentor Advisors believes to be temporary disparities in the yields of different segments of the high-quality money market or among particular instruments within the same segment of the market. These policies, as well as the relatively short maturity of obligations purchased by the Portfolio, may result in frequent changes in the investments held by the Portfolio. The Portfolio will not usually pay brokerage commissions in connection with the purchase or sale of portfolio securities. 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 securities 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. Diversification and concentration policies The Portfolio is a "diversified" investment company under the Investment Company Act of 1940. This means that the Portfolio may invest up to 25% of its total assets in the securities of one or more issuers, and is limited with respect to the remaining portion of its assets to investing 5% or less of its total assets in the securities of any one issuer (other than the U.S. government). However, under the current rules governing money market funds, the Portfolio generally may not invest more than 5% of its assets in any one issuer (other than the U.S. government). The Portfolio will not invest more than 25% of its total assets in any one industry. Governmental issuers of Tax-Exempt Securities are not considered part of any "industry." However, Securities backed only by the assets and revenues of nongovernmental users may for this purpose be deemed to be issued by such nongovernmental users, and the 25% limitation would apply to such obligations. It is nonetheless possible that the Portfolio may invest more than 25% of its assets in a broader segment of the Tax-Exempt Securities market, such as revenue obligations of hospitals and other health care facilities, housing agency revenue obligations, or airport revenue obligations. This would be the case only if Mentor Advisors determined that the yields available from obligations in a particular segment of the market justified the additional risks associated with such concentration. Although such obligations could be supported by the credit of governmental users or by the credit of nongovernmental users engaged in a number of industries, economic, business, political, and other developments generally affecting the revenues of such users (for example, proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products) may have a general adverse effect on all Tax-Exempt Securities in such a market segment. The Portfolio reserves the right to invest more than 25% of its assets in industrial development bonds and private activity bonds or notes. The Portfolio also reserves the right to invest more than 25% of its assets in securities relating to any one or more states (including the District of Columbia), U.S. territories or possessions, or any of their political subdivisions. As a result of such an investment, the performance of the Portfolio may be especially affected by factors pertaining to the economy of the relevant state and other factors specifically affecting the ability of issuers of such securities to meet their obligations. As a result, the value of the Portfolio's shares may fluctuate more widely than the value of shares of a fund investing in securities relating to a greater number of different states. 4 Other Investment Practices The Portfolio may also engage to a limited extent in the following investment practices, each of which involves certain special risks. The Statement of Additional Information contains more detailed information about these practices. Repurchase agreements. 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. The Portfolio will enter into repurchase agreements only with commercial banks and with registered broker-dealers who are members of a national securities exchange or market makers in government securities, and only if the debt instrument subject to the repurchase agreement is a U.S. Government security. Although Mentor Advisors will monitor repurchase agreement 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 required to return the collateral to the other party's estate. Securities lending. The Portfolio may lend portfolio securities to broker-dealers. These transactions must be fully collateralized at all times with cash or short-term debt obligations, but involve some risk to the Portfolio if the other party should default on its obligation and the Portfolio is delayed or prevented from exercising its rights in respect of the collateral. Any investment of collateral by the Portfolio would be made in accordance with the Portfolio's investment objective and policies described above. Dividends The Trust determines the net income of the Portfolio as of the close of regular trading on the New York Stock Exchange (the "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 Portfolio. 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. 5 Daily dividends. The 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 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 any calendar month will be paid on the last day of that month (or, if that day is not a business day, on the next preceding 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 who 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. You can choose from two distribution options: (1) automatically reinvest all distributions from the Portfolio in additional shares of it; or (2) receive all distributions in cash. If you wish to change your distribution option, you should contact your Financial Institution (as defined below), who will be responsible for forwarding the necessary instructions to the Trust's transfer agent, Investors Fiduciary Trust Company ("IFTC"). If you do not select an option when you open your account, all distributions will be reinvested. You will receive a statement confirming reinvestment of distributions in additional shares of the Portfolio promptly following the month in which the reinvestment occurs. Tax information Federal taxes. The Portfolio intends to qualify as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income (and gains, if any) it distributes to shareholders. The Portfolio will distribute substantially all of its ordinary income (and net capital gains, if any) on a current basis. Dividends paid by the Portfolio that are derived from exempt-interest income (known as "exempt-interest dividends") and that are designated as such may be treated by the Portfolio's shareholders as items of interest excludable from their federal gross income. (Shareholders should consult their own tax adviser with respect to whether exempt-interest dividends would be excludable from gross income if the shareholder were treated as a "substantial user" of facilities financed by an obligation held by the Portfolio or a "related person" to such a user under the Internal Revenue Code.) If a shareholder receives an exempt-interest dividend with respect to any share held for six months or less, any loss on the sale or exchange of that share will be disallowed to the extent of the amount of the exempt-interest dividend. To the extent dividends paid to shareholders are derived from taxable income (for example, from interest on certificates of deposit) or from gains, such dividends will be subject to federal income tax, whether they are paid in the form of cash or additional shares. If the Portfolio holds certain "private activity bonds" ("industrial development bonds" under prior law), dividends derived from interest on such obligations will be classified as an item of tax preference which could subject certain shareholders to alternative minimum tax liability. Corporate shareholders must also take all exempt-interest dividends into account in determining "adjusted current earnings" for purposes of calculating their alternative minimum tax liability. Shareholders receiving Social Security benefits or Railroad Retirement Act benefits should note that all exempt-interest dividends will be taken into account in determining the taxability of such benefits. Early in each year the Portfolio will notify you of the amount and tax status of distributions paid to you by the Portfolio for the preceding year. General. The foregoing is a summary of certain federal income tax consequences of investing in the Portfolio. You should consult your tax adviser to determine the precise effect of an investment in the Portfolio on your particular tax situation. Buying and Selling Shares of the Portfolio How to buy shares. The Trust offers shares of the Portfolio continuously at a price of $1.00 per share. The Trust determines the net asset value of the Portfolio twice each day, as of 12:00 noon and as of the close of regular trading on the Exchange. The shares of the Portfolio are sold at net asset value through a number of selected financial institutions, such as investment dealers and banks (each, a "Financial Institution"). Your Financial Institution is responsible for forwarding any necessary documentation to IFTC. There is no sales charge on sales of shares, nor is any minimum investment required for the Portfolio. Because the Portfolio seeks to be fully invested at all times, investments must be in Same Day Funds to be accepted. Investments which are accepted at or before 12:00 noon will be invested at the net asset value determined at that time; investments accepted after 12:00 noon will receive the net asset value determined at the 6 close of regular trading on the Exchange. "Same Day Funds" are funds credited by the applicable regional Federal Reserve Bank to the account of the Trust at its designated bank. When payment in Same Day Funds is available to the Trust, the Trust will accept the order to purchase shares at the net asset value next determined. If you are considering redeeming shares or transferring shares to another person shortly after purchase, you should pay for those shares with wired Same Day Funds or a certified check to avoid any delay in redemption or transfer. Otherwise, the Trust may delay payment for shares until the purchase price of those shares has been collected which may be up to 15 calendar days after the purchase date. For more information on how to purchase shares of the Portfolio, contact your Financial Institution or Mentor Services Company, Inc. ("Mentor Services Company"), 901 East Byrd Street, Richmond, Virginia 23219. Mentor Services Company's telephone number is 1-800-869-6042. How to sell shares. You can redeem your Portfolio shares through your Financial Institution any day the Exchange is open, or you may redeem your shares by check or by mail. Redemption will be effected at the net asset value per share of the Portfolio next determined after receipt of the redemption request in good order. The Fund must receive your properly completed purchase documentation before you may sell shares. Selling shares through your Financial Institution. You may redeem your shares through your Financial Institution. Your Financial Institution is responsible for delivering your redemption request and all necessary documentation to the Trust, and may charge you for its services (including, for example, charges relating to the wiring of funds). Your Financial Institution may accept your redemption instructions by telephone. Consult your Financial Institution. Selling shares by check. If you would like the ability to write checks against your investment in the Portfolio, you should provide the necessary documentation to your Financial Institution and complete the signature card which you may obtain by calling your Financial Institution or Mentor Services Company. When the Portfolio receives your properly completed documentation and card, you will receive checks drawn on your Portfolio account and payable through the Portfolio's designated bank. These checks may be made payable to the order of any person. You will continue to earn dividends until the check clears. When a check is presented for payment, a sufficient number of full and fractional shares of the Portfolio in your account will be redeemed to cover the amount of the check. Your Financial Institution may limit the availability of the check-writing privilege or assess certain fees in connection with the checkwriting privilege. Shareholders using Trust checks are subject to the Trust's designated bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks, although one may be imposed in the future. Shareholders would be notified in advance of the imposition of any such charge. (In addition, if you deplete your original check supply, there may be a charge to order additional checks.) You should make sure that there are sufficient shares in your account to cover the amount of the check drawn. If there is an insufficient number of shares in the account, the check will be dishonored and returned, and no shares will be redeemed. Because dividends declared on shares held in your account and prior withdrawals may cause the value of your account to change, it is impossible to determine in advance your account's total value. Accordingly, you should not write a check for the entire value of your account or close your account by writing a check. A shareholder may revoke check-writing authorization by written notice to IFTC. 7 Selling shares by mail. You may also sell shares of the Portfolio by sending a written withdrawal request to your Financial Institution. You must sign the withdrawal request and include a stock power with signature(s) guaranteed by a bank, broker/dealer, or certain other financial institutions. The Portfolio generally sends you payment for your shares the business day after your request is received in good order. Under unusual circumstances, the Portfolio may suspend repurchases, or postpone payment for more than seven days, as permitted by federal securities law. How to Exchange Shares You can exchange your shares in the Portfolio for shares of any other Portfolio in the Fund at net asset value, except as described below. If you request an exchange through your Financial Institution, your Financial Institution will be responsible for forwarding the necessary documentation to IFTC. Exchange Authorization Forms are available from your Financial Institution or Mentor Services Company. For federal income tax purposes, an exchange is treated as a sale of shares and may result in a capital gain or loss. The Trust reserves the right to change or suspend the exchange privilege at any time. Shareholders would be notified of any change or suspension. Consult your Financial Institution or Mentor Services Company before requesting an exchange. Financial Institutions Financial Institutions provide varying arrangements for their clients with respect to the purchase and redemption of Portfolio shares and the confirmation thereof and may arrange with their clients for other investment or administrative services. When you effect transactions with the Portfolio (including among other things the purchase, redemption, or exchange of Portfolio shares) through a Financial Institution, the Financial Institution, and not the Portfolio, will be responsible for taking all steps, and furnishing all necessary documentation, to effect such transactions. Financial Institutions have the responsibility to deliver purchase and redemption requests to the Portfolio promptly. Some Financial Institutions may establish minimum investment requirements with respect to the Portfolio. They may also establish and charge fees and other amounts to their client for their services. Certain privileges, such as the check writing privilege or reinvestment options, may not be available through certain Financial Institutions or they may be available only under certain conditions. If your Financial Institution holds your investment in the Portfolio in its own name, then your Financial Institution will be the shareholder of record in respect of that investment; your ability to take advantage of any investment options or services of the Portfolio will depend on whether, and to what extent, your Financial Institution is willing to take advantage of them on your behalf. Financial Institutions may charge fees to or impose restrictions on your shareholder account. Consult your Financial Institution for information about any fees or restrictions or for further information concerning its services. Management The Trustees are responsible for generally overseeing the conduct of the Trust's business. Mentor Investment Advisors, LLC, located at 901 East Byrd Street, Richmond, Virginia 23219, serves as investment adviser to the Portfolio, providing investment advisory services and advising and assisting the officers of the Trust in taking such steps as are necessary or appropriate to carry out the decisions of the Trustees. Subject to such policies as the Trustees may determine, Mentor Advisors furnishes a continuing investment program for the Portfolio and makes investment decisions on its behalf. 8 Mentor Advisors has over $13 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 $172 billion in assets and $12 billion in total stockholders' equity as of March 31, 1998. EVEREN Capital Corporation has a 20% ownership in Mentor Investment Group and may acquire additional ownership based principally on the amount of Mentor Investment Group's revenues derived from assets attributable to clients of EVEREN Securities, Inc. and its affiliates. The Portfolio pays management fees to Mentor Advisors monthly at the following annual rates (based on the average daily net assets of the Portfolio): 0.22% of the first $500 million of the Portfolio's average net assets; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of the next $1 billion; and 0.15% of any amounts over $3 billion. The Portfolio pays all expenses not assumed by Mentor Advisors, including Trustees' fees, auditing, legal, custodial, investor servicing, and shareholder reporting expenses, and payments under their Distribution Plans. General expenses of the Trust will be charged to the assets of the Portfolio on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of the Portfolio (and other series of shares of the Trust) or the nature of the services performed and relative applicability to the Portfolio. Expenses directly charged or attributable to the Portfolio will be paid from the assets of the Portfolio. Mentor Advisors places all orders for purchases and sales of the investments of the Portfolio. In selecting broker-dealers, Mentor Advisors may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Mentor Advisors may consider sales of shares of the Portfolio (and, if permitted by law, of the other funds in the Mentor family) as a factor in the selection of broker-dealers. Distribution Services Mentor Distributors, LLC ("Mentor Distributors"), 3435 Stelzer Road, Columbus, Ohio 43219, is the distributor of the Portfolio's shares. Mentor Distributors is a wholly owned subsidiary of BISYS Fund Services, Inc. The Portfolio has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to permit the Portfolio to compensate Mentor Distributors for services provided and expenses incurred by it in promoting the sale of shares of the Portfolio, reducing redemptions, or maintaining or improving services provided to shareholders. The Plan provides for monthly payments by the Portfolio to Mentor Distributors, subject to the authority of the Trustees to reduce the amount of payments or to suspend the Plan for such periods as they may determine. Any material increase in amounts payable under the Plan would require shareholder approval. In order to compensate Financial Institutions for services provided in connection with sales of Portfolio shares and the maintenance of shareholder accounts (or, in the case of certain Financial Institutions which are 9 banking institutions, for certain administrative and shareholder services), Mentor Distributors may make periodic payments (from any amounts received by it under the Plan or from its other resources) to any qualifying Financial Institution based on the average net asset value of shares for which the Financial Institution is designated as the financial institution of record. Mentor Distributors makes such payments at the annual rate of between 0.15% and 0.33%. Mentor Distributors may suspend or modify these payments at any time, and payments are subject to the continuation of the Portfolio's Plan and of applicable agreements between Mentor Distributors and the applicable Financial Institution. How the Portfolio's Performance is Calculated Yield and effective yield data of the Portfolio's Retail Shares may from time to time be included in advertisements about the Portfolio. "Yield" is calculated by dividing the Portfolio's annualized net investment income per Retail Share during a recent seven-day period by the net asset value per share on the last day of that period. "Effective yield" compounds that yield for a year and is, for that reason, greater than the Portfolio's yield. Quotations of yield for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. The Portfolio's performance may be compared to various indices. See the Statement of Additional Information. All data is based on the Portfolio's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of the Portfolio's investments, the Portfolio's operating expenses, and the class of shares purchased. Investment performance also often reflects the risks associated with the Portfolio's investment objective and policies. These factors should be considered when comparing the Portfolio's investment results to those of other mutual funds and other investment vehicles. General Information Mentor Funds is a Massachusetts business trust organized on January 20, 1992. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into twelve series of shares. Under the Agreement and Declaration of Trust, the Portfolio's shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights and privileges as the Trustees may determine. The Portfolio's shares are currently divided into two classes, Retail Shares, which are offered by this Prospectus, and Institutional Shares. Institutional shares are not subject to 12b-1 fees, and may be subject to different expenses. Differences in expenses between the classes will affect performance. Contact Mentor Services Company at 1-800-869-6042 for information concerning Institutional Shares of a Portfolio and your eligibility to purchase those shares. Each share has one vote, with fractional shares voting proportionally. Shares of the Portfolio are freely transferable, are entitled to dividends as declared by the Trustees, and, if the Portfolio were liquidated, would receive the net assets of the Portfolio. The Trust may suspend the sale of shares of any Portfolio at any time and may refuse any order to purchase shares. 10 Although the Trust is not required to hold annual meetings of its shareholders, shareholders have the right to call a meeting to elect or remove Trustees, or to take other actions as provided in the Agreement and Declaration of Trust. Investors Fiduciary Trust Company, located at 127 West 10th Street, Kansas City, Missouri 64105, is the transfer agent and dividend-paying agent for the Trust. IFTC engages at its own expense certain Financial Institutions to perform bookkeeping, data processing, and administrative services pertaining to the maintenance of shareholder accounts. If you own fewer shares of the Portfolio than a minimum amount set by the Trustees (presently 500 shares), the Trust may choose to redeem your shares and pay you for them. You will receive at least 30 days written notice before the Trust redeems your shares, and you may purchase additional shares at any time to avoid a redemption. The Trust may also redeem shares if you own shares of the Portfolio or of the Trust above any maximum amount set by the Trustees. There is presently no maximum, but the Trustees may establish one at any time, which could apply to both present and future shareholders. The Trust may send a single copy of shareholder reports and communications to an address where there is more than one registered shareholder with the same last name, unless a shareholder at that address requests, by calling or writing his Financial Institution or Mentor Services Company, that the Trust do otherwise. 11 No person has been authorized to give any information or to make any representations other than those contained in this Prospectus and in the Portfolio's official sales literature in connection with the offer of the Portfolio's shares, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Portfolio. This Prospectus does not constitute an offer in any State in which, or to any person to whom, such offering may not lawfully be made. This Prospectus omits certain information contained in the Registration Statement, to which reference is made, filed with the Securities and Exchange Commission. Items which are thus omitted, including contracts and other documents referred to or summarized herein, may be obtained from the Commission upon payment of the prescribed fees. Additional information concerning the securities offered hereby and the Portfolio is to be found in the Registration Statement, including various exhibits thereto and financial statements included or incorporated therein, which may be inspected at the office of the Commission. Mentor Funds 901 East Byrd Street Richmond, VA 23219 (800) 869-6042 1998 Mentor Distributors, LLC SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED MAY LOSE VALUE MK 1341 Mentor Funds Mentor Institutional Tax-Exempt Money Market Portfolio Retail Shares ------------------------- PROSPECTUS ------------------------- October , 1998 [logo] MENTOR INVESTMENT GROUP P R O S P E C T U S October , 1998, Institutional Shares Mentor Funds Mentor Institutional Tax-Exempt Money Market Portfolio Mentor Institutional Tax-Exempt Money Market Portfolio is designed for investors who seek current income exempt from federal income tax consistent with preservation of capital and maintenance of liquidity. The Portfolio is a diversified investment portfolio of Mentor Funds (the "Trust"). An investment in the Portfolio is neither insured nor guaranteed by the U.S. Government. There can be no assurance that the Portfolio will be able to maintain a stable net asset value of $1.00 per share. This Prospectus explains concisely what you should know before investing in the Portfolio. Please read it carefully and keep it for future reference. You can find more detailed information about the Portfolio in the October , 1998 Statement of Additional Information, as amended from time to time. For a free copy of the Statement, call Mentor Services Company, Inc. at 1-800-869-6042. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. EXPENSE SUMMARY Expenses are one of several factors to consider when investing in the Portfolio. The following table summarizes your maximum transaction costs from an investment in Institutional Shares of the Portfolio and expenses the Portfolio expects to incur in respect of its Retail Shares during the current fiscal year. The Examples show the cumulative expenses attributable to a hypothetical $1,000 investment in each Portfolio over specified periods. The information presented below does not reflect any fees or charges imposed by Financial Institutions through which you may invest in the Portfolio.
Mentor Institutional Tax-Exempt Money Market Portfolio --------------- Shareholder Transaction Expenses None Annual Portfolio Operating Expenses (as a percentage of average net assets) Management Fees .22% 12b-1 Fees None Other Expenses .11% ============== Total Fund Operating Expenses .33%
Examples Your investment of $1,000 in a Portfolio would incur the following expenses, assuming 5% annual return and redemption at the end of each period:
1 year 3 years -------- --------- Mentor Institutional Tax-Exempt Money Market Portfolio $3.00 %11.00
The table is provided to help you understand the expenses of investing in the Portfolio and your share of the operating expenses which the Portfolio expects to incur. The Examples do not represent past or future expense levels. Actual returns and expenses may be greater or less than those shown. Federal regulations require the Examples to assume a 5% annual return, but actual annual return will vary. Because of the 12b-1 fees payable by the Portfolio, long-term shareholders may pay more in aggregate sales charges than the maximum initial sales charge permitted by the National Association of Securities Dealers, Inc. INVESTMENT OBJECTIVE AND POLICIES The investment objective of Mentor Institutional Tax-Exempt Money Market Portfolio is to seek as high a rate of current income exempt from federal income tax as Mentor Investment Advisors, LLC, the Portfolio's investment advisor, believes is consistent with preservation of capital and maintenance of liquidity. The Portfolio seeks its objective through the investment policies described below. Because the 2 Portfolio is a money market fund, it will only invest in the types of investments described below under "Selection of Investments". The investment objective and policies of the Portfolio may, unless otherwise specifically stated, be changed by the Trustees without shareholder approval. The Portfolio is not intended to be a complete investment program, and there is no assurance the Portfolio will achieve its objective. The Portfolio invests, as a fundamental policy, at least 80% of its net assets in Tax-Exempt Securitites (as described below). The Portfolio may invest the remainder of its assets in investments of any kind in which any of the other Portfolios may invest. The Portfolio will invest in only the following types of Tax-Exempt Securities: (i)municipal notes; (ii) municipal bonds; (iii) municipal securities backed by the U.S. government or any of its agencies or instrumentalities; (iv) tax-exempt commercial paper; (v) participation interests in any of the foregoing; and (vi) unrated securities or new types of tax-exempt instruments which become available in the future if Mentor Advisors determines they meet the quality standards discussed below (collectively, "Tax-Exempt securities"). (In the case of any such new types of tax-exempt instruments, this Prospectus would be revised as may be appropriate to describe such instruments.) In connection with the purchase of Tax-Exempt Securities, the Portfolio may acquire stand-by commitments, which give the Portfolio the right to resell the security to the dealer at a specified price. Stand-by commitments may provide additional liquidity for the fund but are subject to the risk that the dealer may fail to meet its obligations. The Portfolio does not generally expect to pay additional consideration for stand-by commitments or to assign any value to them. Tax-Exempt Securities are debt obligations issued by a state (including the District of Columbia), a U.S. territory or possession, or any of their political subdivisions, the interest from which is, in the opinion of bond counsel, exempt from federal income tax. These securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses, or the refunding of outstanding debts. They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational, or medical facilitites and may also include certain types of private activity and industrial development bonds issued by public authorities to finance privately owned or operated facilities. Short-term Tax-Exempt Securities are generally issued as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance various public puposes. The two principal classifications of Tax-Exempt Securities are general obligation and special obligation (or revenue) securities. General obligation securitites involve the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer. Special obligation securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source and generally are not payable from the unrestricted revenues of the issuer. Industrial development and private activity bonds are in most cases special obligation securities, the credit quality of which is directly related to the private user of a facility. For purposes of the Portfolio's policy to invest at least 80% of its net assets in Tax-Exempt Securities, the Portfolio will not treat obligations as Tax-Exempt Securities for purposes of measuring compliance with such policy if they would give rise to interest income subject to federal alternative minimum tax for individuals. To the extent that the Portfolio invests in these securities, individual shareholders of the Portfolio, depending on their own tax status, may be subject to federal alternative minimum tax on the part of the Portfolio's distributions derived from these securities. In addition an investment in the Portfolio may cause corporate shareholders to be subject to (or result in an increased liability under) the alternative minimum tax because tax-exempt income is generally included in the alternative minimum taxable income of corporations. The ability of governmental issuers to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on thier fiscal conditions generally. The amounts of tax and other revenues available to governmental issuers may be affected from time to time by economic, political, and demographic conditions affecting a particular state. In addition, constitutional or statutory restrictions may limit a government's power to raise revenues or increase taxes. The avalability of federal, state, and local aid to issuers of such securities may also affect their ability to meet their obligations. Payments of principal and interest on special obligation securities will depend on the economic condition of the facility or specific revenue source from whose revenues the payments will be made, which in turn could be affected by economic, political, and demographic conditions affecting a particular state. Any reduction in the actual or perceived ability of an issuer of Tax-Exempt Securities in a particular state to meet its obligations (including a reduction in the rating of its outstanding securities) would likely affect adversely the market value and marketability of its obligations and could adversely affect the values of Tax-Exempt Securities issued by others in that state as well. The Portfolio may invest without limit in high quality taxable money market instruments of any type may invest at any time when Mentor Advisors believes that market conditions make pursuing the Portfolio's basic investment strategy inconsistent with the best interests of shareholders. It is impossible to predict when, or for how long, the Portfolio will use these alternative defensive strategies. 3 Selection of Investments The Portfolio will invest only in U.S. dollar-denominated high-quality securities and other U.S. dollar- denominated money market instruments meeting credit criteria which the Trustees believe present minimal credit risk. "High-quality securities" are (i) commercial paper or other short-term obligations rated in one of the two highest short-term rating categories by at least two nationally recognized rating services (or, if only one rating service has rated the security, by that service), (ii) obligations rated at least AA by Standard & Poor's or Aa by Moody's Investors Service, Inc. at the time of investment, and (iii) unrated securities determined by Mentor Advisors to be of comparable quality. The Portfolio will maintain a dollar-weighted average maturity of 90 days or less and will not invest in securities with remaining maturities of more than 397 days. The Portfolio may invest in variable or floating-rate securities which bear interest at rates subject to periodic adjustment or which provide for periodic recovery of principal on demand. Under certain conditions, these securities may be deemed to have remaining maturities equal to the time remaining until the next interest adjustment date or the date on which principal can be recovered on demand. The Portfolio follows investment and valuation policies designed to maintain a stable net asset value of $1.00 per share, although there is no assurance that these policies will be successful. Considerations of liquidity and preservation of capital mean that the Portfolio may not necessarily invest in money market instruments paying the highest available yield at a particular time. Consistent with its investment objective, the Portfolio will attempt to maximize yields by portfolio trading and by buying and selling portfolio investments in anticipation of or in response to changing economic and money market conditions and trends. The Portfolio may also invest to take advantage of what Mentor Advisors believes to be temporary disparities in the yields of different segments of the high-quality money market or among particular instruments within the same segment of the market. These policies, as well as the relatively short maturity of obligations purchased by the Portfolio, may result in frequent changes in the investments held by the Portfolio. The Portfolio will not usually pay brokerage commissions in connection with the purchase or sale of portfolio securities. 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 securities 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. Diversification and concentration policies The Portfolio is a "diversified" investment company under the Investment Company Act of 1940. This means that the Portfolio may invest up to 25% of its total assets in the securities of one or more issuers, and is limited with respect to the remaining portion of its assets to investing 5% or less of its total assets in the securities of any one issuer (other than the U.S. government). However, under the current rules governing money market funds, the Portfolio generally may not invest more than 5% of its assets in any one issuer (other than the U.S. government). The Portfolio will not invest more than 25% of its total assets in any one industry. Governmental issuers of Tax-Exempt Securities are not considered part of any "industry." However, Securities backed only by the assets and revenues of nongovernmental users may for this purpose be deemed to be issued by such nongovernmental users, and the 25% limitation would apply to such obligations. It is nonetheless possible that the Portfolio may invest more than 25% of its assets in a broader segment of the Tax-Exempt Securities market, such as revenue obligations of hospitals and other health care facilities, housing agency revenue obligations, or airport revenue obligations. This would be the case only if Mentor Advisors determined that the yields available from obligations in a particular segment of the market justified the additional risks associated with such concentration. Although such obligations could be supported by the credit of governmental users or by the credit of nongovernmental users engaged in a number of industries, economic, business, political, and other developments generally affecting the revenues of such users (for example, proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products) may have a general adverse effect on all Tax-Exempt Securities in such a market segment. The Portfolio reserves the right to invest more than 25% of its assets in industrial development bonds and private activity bonds or notes. The Portfolio also reserves the right to invest more than 25% of its assets in securities relating to any one or more states (including the District of Columbia), U.S. territories or possessions, or any of their political subdivisions. As a result of such an investment, the performance of the Portfolio may be especially affected by factors pertaining to the economy of the relevant state and other factors specifically affecting the ability of issuers of such securities to meet their obligations. As a result, the value of the Portfolio's shares may fluctuate more widely than the value of shares of a fund investing in securities relating to a greater number of different states. 4 Other Investment Practices The Portfolio may also engage to a limited extent in the following investment practices, each of which involves certain special risks. The Statement of Additional Information contains more detailed information about these practices. Repurchase agreements. 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. The Portfolio will enter into repurchase agreements only with commercial banks and with registered broker-dealers who are members of a national securities exchange or market makers in government securities, and only if the debt instrument subject to the repurchase agreement is a U.S. Government security. Although Mentor Advisors will monitor repurchase agreement 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 required to return the collateral to the other party's estate. Securities lending. The Portfolio may lend portfolio securities to broker-dealers. These transactions must be fully collateralized at all times with cash or short-term debt obligations, but involve some risk to the Portfolio if the other party should default on its obligation and the Portfolio is delayed or prevented from exercising its rights in respect of the collateral. Any investment of collateral by the Portfolio would be made in accordance with the Portfolio's investment objective and policies described above. Dividends The Trust determines the net income of the Portfolio as of the close of regular trading on the New York Stock Exchange (the "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 Portfolio. 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. 5 Daily dividends. The 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 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 any calendar month will be paid on the last day of that month (or, if that day is not a business day, on the next preceding 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 who 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. You can choose from two distribution options: (1) automatically reinvest all distributions from the Portfolio in additional shares of it; or (2) receive all distributions in cash. If you wish to change your distribution option, you should contact your Financial Institution (as defined below), who will be responsible for forwarding the necessary instructions to the Trust's transfer agent, Investors Fiduciary Trust Company ("IFTC"). If you do not select an option when you open your account, all distributions will be reinvested. You will receive a statement confirming reinvestment of distributions in additional shares of the Portfolio promptly following the month in which the reinvestment occurs. Tax information Federal taxes. The Portfolio intends to qualify as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal income taxes on income (and gains, if any) it distributes to shareholders. The Portfolio will distribute substantially all of its ordinary income (and net capital gains, if any) on a current basis. Dividends paid by the Portfolio that are derived from exempt-interest income (known as "exempt-interest dividends") and that are designated as such may be treated by the Portfolio's shareholders as items of interest excludable from their federal gross income. (Shareholders should consult their own tax adviser with respect to whether exempt-interest dividends would be excludable from gross income if the shareholder were treated as a "substantial user" of facilities financed by an obligation held by the Portfolio or a "related person" to such a user under the Internal Revenue Code.) If a shareholder receives an exempt-interest dividend with respect to any share held for six months or less, any loss on the sale or exchange of that share will be disallowed to the extent of the amount of the exempt-interest dividend. To the extent dividends paid to shareholders are derived from taxable income (for example, from interest on certificates of deposit) or from gains, such dividends will be subject to federal income tax, whether they are paid in the form of cash or additional shares. If the Portfolio holds certain "private activity bonds" ("industrial development bonds" under prior law), dividends derived from interest on such obligations will be classified as an item of tax preference which could subject certain shareholders to alternative minimum tax liability. Corporate shareholders must also take all exempt-interest dividends into account in determining "adjusted current earnings" for purposes of calculating their alternative minimum tax liability. Shareholders receiving Social Security benefits or Railroad Retirement Act benefits should note that all exempt-interest dividends will be taken into account in determining the taxability of such benefits. Early in each year the Portfolio will notify you of the amount and tax status of distributions paid to you by the Portfolio for the preceding year. General. The foregoing is a summary of certain federal income tax consequences of investing in the Portfolio. You should consult your tax adviser to determine the precise effect of an investment in the Portfolio on your particular tax situation. HOW THE PORTFOLIO VALUES ITS SHARES The 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 in accordance with 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. PURCHASE OF SHARES The 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 901 East Byrd Street, Richmond, Virginia 23219, 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 Mentor Distributors or the Trust. 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. Shares of the Portfolio may be purchased by (i) paying cash, (ii) exchanging securities acceptable to Mentor Advisors, or (iii) a combination of such securities and cash. Purchase of shares of the Portfolio in exchange for securities is subject in each case to the determination by Mentor Advisors that the securities to be exchanged are acceptable for purchase by the Portfolio. Securities accepted by Mentor Advisors 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 Distributors at 1-800-869-6042. Mentor Distributors, Mentor Advisors, and their affiliates, 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. 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 Advisors or Mentor Distributors reserves the right to reject any particular investment. REDEMPTION OF SHARES A shareholder may redeem all or any portion of its shares in the Portfolio any day the New York Stock Exchange is open by sending a signed letter of instruction and stock power form, along with any certificates that represent shares the shareholder wants to sell, to the Portfolio c/o Mentor Funds, P.O. Box 1357, Richmond, Virginia 23218-1357 or to Mentor Distributors. 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. 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 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 Distributors for details. 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 redemptions, or postpone payment for more than seven days, as permitted by federal securities law. 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 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. 6 Management The Trustees are responsible for generally overseeing the conduct of the Trust's business. Mentor Investment Advisors, LLC, located at 901 East Byrd Street, Richmond, Virginia 23219, serves as investment adviser to the Portfolio, providing investment advisory services and advising and assisting the officers of the Trust in taking such steps as are necessary or appropriate to carry out the decisions of the Trustees. Subject to such policies as the Trustees may determine, Mentor Advisors furnishes a continuing investment program for the Portfolio and makes investment decisions on its behalf. 7 Mentor Advisors has over $13 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 $172 billion in assets and $12 billion in total stockholders' equity as of March 31, 1998. EVEREN Capital Corporation has a 20% ownership in Mentor Investment Group and may acquire additional ownership based principally on the amount of Mentor Investment Group's revenues derived from assets attributable to clients of EVEREN Securities, Inc. and its affiliates. The Portfolio pays management fees to Mentor Advisors monthly at the following annual rates (based on the average daily net assets of the Portfolio): 0.22% of the first $500 million of the Portfolio's average net assets; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of the next $1 billion; and 0.15% of any amounts over $3 billion. The Portfolio pays all expenses not assumed by Mentor Advisors, including Trustees' fees, auditing, legal, custodial, investor servicing, and shareholder reporting expenses. General expenses of the Trust will be charged to the assets of the Portfolio on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of the Portfolio (and other series of shares of the Trust) or the nature of the services performed and relative applicability to the Portfolio. Expenses directly charged or attributable to the Portfolio will be paid from the assets of the Portfolio. Mentor Advisors places all orders for purchases and sales of the investments of the Portfolio. In selecting broker-dealers, Mentor Advisors may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Mentor Advisors may consider sales of shares of the Portfolio (and, if permitted by law, of the other funds in the Mentor family) as a factor in the selection of broker-dealers. 8 How the Portfolio's Performance is Calculated Yield and effective yield data of the Portfolio's Institutional Shares may from time to time be included in advertisements about the Portfolio. "Yield" is calculated by dividing the Portfolio's annualized net investment income per Institutional Share during a recent seven-day period by the net asset value per share on the last day of that period. "Effective yield" compounds that yield for a year and is, for that reason, greater than the Portfolio's yield. Quotations of yield for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. The Portfolio's performance may be compared to various indices. See the Statement of Additional Information. All data is based on the Portfolio's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of the Portfolio's investments, the Portfolio's operating expenses, and the class of shares purchased. Investment performance also often reflects the risks associated with the Portfolio's investment objective and policies. These factors should be considered when comparing the Portfolio's investment results to those of other mutual funds and other investment vehicles. General Information Mentor Funds is a Massachusetts business trust organized on January 20, 1992. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Trust is an open-end, management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Trust may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios, and are currently divided into twelve series of shares. Under the Agreement and Declaration of Trust, the Portfolio's shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights and privileges as the Trustees may determine. The Portfolio's shares are currently divided into two classes, Institutional Shares, which are offered by this Prospectus, and Retail Shares. Institutional Shares are not subject to any 12b-1 fees, and may be subject to different expenses. Differences in expenses between the classes will affect performance. Contact Mentor Services Company at 1-800-869-6042 for information concerning Retail Shares of a Portfolio and your eligibility to purchase those shares. Each share has one vote, with fractional shares voting proportionally. Shares of the Portfolio are freely transferable, are entitled to dividends as declared by the Trustees, and, if the Portfolio were liquidated, would receive the net assets of the Portfolio. The Trust may suspend the sale of shares of any Portfolio at any time and may refuse any order to purchase shares. 9 Although the Trust is not required to hold annual meetings of its shareholders, shareholders have the right to call a meeting to elect or remove Trustees, or to take other actions as provided in the Agreement and Declaration of Trust. Investors Fiduciary Trust Company, located at 127 West 10th Street, Kansas City, Missouri 64105, is the transfer agent and dividend-paying agent for the Trust. IFTC engages at its own expense certain Financial Institutions to perform bookkeeping, data processing, and administrative services pertaining to the maintenance of shareholder accounts. If you own fewer shares of the Portfolio than a minimum amount set by the Trustees (presently 500 shares), the Trust may choose to redeem your shares and pay you for them. You will receive at least 30 days written notice before the Trust redeems your shares, and you may purchase additional shares at any time to avoid a redemption. The Trust may also redeem shares if you own shares of the Portfolio or of the Trust above any maximum amount set by the Trustees. There is presently no maximum, but the Trustees may establish one at any time, which could apply to both present and future shareholders. The Trust may send a single copy of shareholder reports and communications to an address where there is more than one registered shareholder with the same last name, unless a shareholder at that address requests, by calling or writing his Financial Institution or Mentor Services Company, that the Trust do otherwise. 10 No person has been authorized to give any information or to make any representations other than those contained in this Prospectus and in the Portfolio's official sales literature in connection with the offer of the Portfolio's shares, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Portfolio. This Prospectus does not constitute an offer in any State in which, or to any person to whom, such offering may not lawfully be made. This Prospectus omits certain information contained in the Registration Statement, to which reference is made, filed with the Securities and Exchange Commission. Items which are thus omitted, including contracts and other documents referred to or summarized herein, may be obtained from the Commission upon payment of the prescribed fees. Additional information concerning the securities offered hereby and the Portfolio is to be found in the Registration Statement, including various exhibits thereto and financial statements included or incorporated therein, which may be inspected at the office of the Commission. Mentor Funds 901 East Byrd Street Richmond, VA 23219 (800) 869-6042 1998 Mentor Distributors, LLC SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED MAY LOSE VALUE MK 1341 Mentor Funds Mentor Institutional Tax-Exempt Money Market Portfolio Institutional Shares ------------------------- PROSPECTUS ------------------------- October , 1998 [logo] MENTOR INVESTMENT GROUP MENTOR FUNDS STATEMENT OF ADDITIONAL INFORMATION (Mentor Institutional Tax-Exempt Money Market Portfolio) October __, 1998 This Statement of Additional Information relates to Retail and Institutional Shares of the Mentor Institutional Tax-Exempt Money Market Portfolio (the "Portfolio"). The Portfolio is a series of shares of beneficial interest of Mentor Funds (the "Trust"). This Statement is not a prospectus and should be read in conjunction with the relevant prospectus. Separate statements of additional information relate to the other Portfolios comprising the Trust. A copy of any prospectus or statement of additional information can be obtained upon request made to Mentor Services Company, Inc., at P.O. Box 1357, Richmond, Virginia 23218-1357, or calling Mentor Services Company, Inc. at 1-(800) 869-6042. TABLE OF CONTENTS
CAPTION PAGE GENERAL .................................................. INVESTMENT RESTRICTIONS.................................... CERTAIN INVESTMENT TECHNIQUES.............................. MANAGEMENT OF THE TRUST.................................... PRINCIPAL HOLDERS OF SECURITIES............................ INVESTMENT ADVISORY AND OTHER SERVICES..................... BROKERAGE.................................................. DETERMINATION OF NET ASSET VALUE........................... TAX STATUS................................................. THE DISTRIBUTOR............................................ INDEPENDENT ACCOUNTANTS.................................... CUSTODIAN.................................................. PERFORMANCE INFORMATION.................................... SHAREHOLDER LIABILITY...................................... MEMBERS OF INVESTMENT MANAGEMENT TEAMS..................... RATINGS ..................................................
GENERAL Mentor Funds (the "Trust") is a Massachusetts business trust organized on January 20, 1992 as Cambridge Series Trust. INVESTMENT RESTRICTIONS As fundamental investment restrictions, which may not be changed with respect to the Portfolio without approval by the holders of a majority of the outstanding shares of the Portfolio, the Portfolio may not: 1. Purchase any security (other than U.S. Government securities) if as a result: (i) as to 75% of such Portfolio's total assets, more than 5% of the Portfolio's total assets (taken at current value) would then be invested in securities of a single issuer, or (ii) more than 25% of the Portfolio's total assets would be invested in a single industry; 2. Acquire more than 10% of the voting securities of any issuer. 3. Act as underwriter of securities of other issuers except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws. 4. Issue any class of securities which is senior to the Portfolio's shares of beneficial interest. 5. Purchase or sell real estate or interests in real estate, including real estate mortgage loans, although it may purchase and sell securities which are secured by real estate and securities of companies that invest or deal in real estate or real estate limited partnership interests. (For purposes of this restriction, investments by 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.) 6. Borrow money in excess of 10% 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. -2- 7. Purchase or sell commodities or commodity contracts, except that a Portfolio may purchase or sell financial futures contracts, options on futures contracts, and futures contracts, forward contracts, and options with respect to foreign currencies, and may enter into swap transactions. 8. Make loans, except by purchase of debt obligations in which the Portfolio may invest consistent with its investment policies, by entering into repurchase agreements, or by lending its portfolio securities. In addition, it is contrary to the current policy of the Portfolio, which policy may be changed without shareholder approval, to invest in (a) securities which at the time of such investment are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the Trust (or the person designated by the Trustees to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 10% of the Portfolio's net assets (taken at current value) would then be invested in securities described in (a), (b), and (c). 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 the 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. The Investment Company Act of 1940, as amended (the "1940 Act"), provides that a "vote of a majority of the outstanding voting securities" of the Portfolio means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Portfolio, and (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. CERTAIN INVESTMENT TECHNIQUES Set forth below is information concerning certain investment techniques in which the Portfolio may engage, and certain of the risks they may entail. Repurchase Agreements The 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 -3- Reserve System and securities dealers meeting certain criteria as to creditworthiness and financial condition established by the Trustees of the Trust and only with respect to obligations of the U.S. government or its agencies or instrumentalities or other high quality short term debt obligations. Repurchase agreements may also be viewed as loans made by the Portfolio which are collateralized by the securities subject to repurchase. 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, the Portfolio could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Portfolio may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Portfolio is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate. Tax-Exempt Securities General description. As used in the prospectus and in this Statement the term "Tax-Exempt Securities" includes debt obligations issued by a state, its political subdivisions (for example, counties, cities, towns, villages, districts and authorities) and their agencies, instrumentalities or other governmental units, the interest from which is, in the opinion of bond counsel, exempt from federal income tax. Such obligations are issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which Tax-Exempt Securities may be issued include the refunding of outstanding obligations or the payment of general operating expenses. Short-term Tax-Exempt Securities are generally issued by state and local governments and public authorities as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance such public purposes. In addition, certain types of "private activity" bonds may be issued by public authorities to finance such projects as privately operated housing facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal, student loans, or the obtaining of funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. Other types of private activity bonds, the proceeds of which are used for the construction, repair or improvement of, or to obtain equipment for, privately operated industrial or commercial facilities, may constitute Tax-Exempt Securities, although the current federal tax laws place substantial limitations on the size of such issues. Tax-Exempt Securities also include tax-exempt commercial paper, which are promissory notes issued by municipalities to enhance their cash flows. Participation interests. The Portfolio may invest in Tax-Exempt Securities either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on Tax-Exempt Securities, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on the certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related Tax- -4- Exempt Securities will be exempt from federal income tax to the same extent as interest on the Tax-Exempt Securities. The Portfolio may also invest in Tax-Exempt Securities by purchasing from banks participation interests in all or part of specific holdings of Tax-Exempt Securities. These participations may be backed in whole or in part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from a Fund in connection with the arrangement. Stand-by commitments. When the Portfolio purchases Tax-Exempt Securities, it has the authority to acquire stand-by commitments from banks and broker-dealers with respect to those Tax-Exempt Securities. A stand-by commitment may be considered a security independent of the state tax-exempt security to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances, would be substantially the same as the market value of the underlying Tax-Exempt Security to a third party at any time. The Portfolio expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. No Fund expects to assign any value to stand-by commitments. Yields. The yields on Tax-Exempt Securities depend on a variety of factors, including general money market conditions, effective marginal tax rates, the financial condition of the issuer, general conditions of the tax-exempt security market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The ratings of Moody's Investors Service, Inc. and Standard & Poor's represent their opinions as to the quality of the Tax-Exempt Securities which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Tax-Exempt Securities with the same maturity and interest rate but with different ratings may have the same yield. Yield disparities may occur for reasons not directly related to the investment quality of particular issues or the general movement of interest rates, due to such factors as changes in the overall demand or supply of various types of Tax-Exempt Securities or changes in the investment objectives of investors. Subsequent to purchase by the Portfolio, an issue of Tax-Exempt Securities or other investments may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Portfolio. Neither event will require the elimination of an investment from the Portfolio's portfolio, but Mentor Advisors will consider such an event in its determination of whether the Portfolio should continue to hold an investment in its portfolio. "Moral obligation" bonds. The Portfolio does not currently intend to invest in so-called "moral obligation" bonds, where repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation," meets the investment criteria established for investments by the Portfolio. -5- Additional risks. Securities in which the Portfolio may invest, including Tax-Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code (including special provisions related to municipalities and other public entities), and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power, ability or willingness of issuers to meet their obligations for the payment of interest and principal on their Tax-Exempt Securities may be materially affected. There is no assurance that any issuer of a Tax-Exempt Security will make full or timely payments of principal or interest or remain solvent. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax-exemption for interest on debt obligations issued by states and their political subdivisions. Federal tax laws limit the types and amounts of tax-exempt bonds issuable for certain purposes, especially industrial development bonds and private activity bonds. Such limits may affect the future supply and yields of these types of Tax-Exempt Securities. Further proposals limiting the issuance of tax-exempt bonds may well be introduced in the future. If it appeared that the availability of Tax-Exempt Securities for investment by the Portfolio and the value of the Portfolio's portfolio could be materially affected by such changes in law, the Trustees of the Trust would reevaluate the Portfolio's investment objectives and policies and consider changes in the structure of the Portfolio or its dissolution. Loans of Portfolio Securities The Portfolio may lend its portfolio securities, provided: (1) the loan is secured continuously by collateral consisting of U.S. Government Securities, cash, or cash equivalents adjusted daily to have market value at least equal to the current market value of the securities loaned; (2) the Portfolio may at any time call the loan and regain the securities loaned; (3) 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 the Portfolio may be invested in any securities in which the Portfolio may invest consistent with its investment policies. In addition, it is anticipated that the Portfolio may share with the borrower some of the income received on the collateral for the loan or that it will be paid a premium for the loan. Before the 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, the Portfolio retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Portfolio if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Portfolio will not lend portfolio securities to borrowers affiliated with the Portfolio. -6- 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.
Position Held Principal Occupation Name and Address with Portfolio During Past 5 Years - ---------------- -------------- ------------------- *Daniel J. Ludeman Chairman; Trustee Chairman and Chief Executive Officer, Mentor Investment Group, LLC; Managing Director, Wheat, First Securities, Inc.; Director, Wheat First Butcher Singer, Inc.; Chairman and Director, Mentor Income Fund, Inc. and America's Utility Fund, Inc.; Chairman and Trustee, Mentor Institutional Trust and Cash Resource Trust. Louis W. Moelchert, Jr. Trustee Vice President for Investments, University of Richmond; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, America's Utility Fund, Inc. and Mentor Income Fund, Inc. Thomas F. Keller Trustee Professor of Business Administration and former Dean, Fuqua School of Business, Duke University; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, America's Utility Fund, Inc. and Mentor Income Fund, Inc. Arnold H. Dreyfuss Trustee Chairman, Eskimo Pie Corp.; formerly, Chairman and Chief Executive Officer, Hamilton Beach/Proctor-Silex, Inc.; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, America's Utility Fund, Inc. and Mentor Income Fund, Inc. Troy A. Peery, Jr. Trustee President, Heilig-Meyers Company; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, America's Utility Fund, Inc. and Mentor Income Fund, Inc. *Peter J. Quinn, Jr. Trustee President, Mentor Distributors, LLC; Managing Director, Mentor Investment Group, LLC and Wheat First Butcher Singer, Inc.; formerly, Senior Vice President/Director of Mutual Funds, Wheat First Butcher Singer, Inc.; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, America's Utility Fund, Inc. and Mentor Income Fund, Inc. Arch T. Allen, III Trustee Attorney at law, Raleigh, North Carolina; Trustee, Mentor Institutional Trust and Case Resource Trust; Director, Mentor Income Fund, Inc. and America's Utility Fund, Inc.; formerly, Vice Chancellor for Development and University Relations, University of North Carolina at Chapel Hill. Weston E. Edwards Trustee President, Weston Edwards & Associates; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, Mentor Income Fund, Inc. and America's Utility Fund, Inc.; Founder and Chairman, The Housing Roundtable; formerly, President, Smart Mortgage Access, Inc. Jerry R. Barrentine Trustee President, J.R. Barrentine & Associates; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, Mentor Income Fund, Inc. and America's Utility Fund, Inc.; formerly, Executive Vice President and Chief Financial Officer, Barclays/American Mortgage Director Corporation; Managing Partner, Barrentine Lott & Associates. J. Garnett Nelson Trustee Consultant, Mid-Atlantic Holdings, LLC; Trustee, Mentor Institutional Trust and Cash Resource Trust; Director, Mentor Income Fund, Inc., America's Utility Fund, Inc., GE Investment Funds, Inc., and Lawyers Title Corporation; Member, Investment Advisory Committee, Virginia Retirement System; formerly, Senior Vice President, The Life Insurance Company of Virginia. Paul F. Costello President Managing Director, Mentor Investment Group, LLC, Wheat First Butcher Singer, Inc., and Mentor Investment Advisors, LLC; President, Mentor Income Fund, Inc., America's Utility Fund, Inc., Mentor Institutional Trust, and Cash Resource Trust; Director, Mentor Perpetual Advisors, LLC and Mentor Trust Company. Terry L. Perkins Treasurer Senior Vice President, Mentor Investment Group, LLC; Treasurer, Cash Resource Trust, Mentor Income Fund, Inc., and Mentor Institutional Trust; Treasurer and Senior Vice President, America's Utility Fund, Inc.; formerly, Treasurer and Comptroller, Ryland Capital Management, Inc. Michael Wade Assistant Vice President, Mentor Investment Group, LLC; Assistant Treasurer, Cash Treasurer Resource Trust, Mentor Income Fund, Inc., Mentor Institutional Trust, and America's Utility Fund, Inc.; formerly, Senior Accountant, Wheat First Butcher Singer, Inc.; Audit Senior, BDO Seidman. Geoffrey B. Sale Secretary Associate Vice President Mentor Investment Group, LLC; Clerk Mentor Institutional Trust; Secretary Cash Resource Trust, Mentor Income Fund, Inc., Mentor Funds and Mentor Variable Investment Portfolios.
The table below shows the fees paid to each Trustee by the Trust for the 1997 fiscal year and the fees paid to each Trustee by all funds in the Mentor family (including the Trust) during the 1997 calendar year. Total compensation Aggregate compensation from all Trustees from the Trust complex funds (23 Funds) - -------- ---------------------- ------------------------- Daniel J. Ludeman 0 0 Arnold H. Dreyfuss $6,000 $12,200 Thomas F. Keller $6,000 $12,200 Louis W. Moelchert, Jr. $6,000 $12,200 Stanley F. Pauley* $6,000 $12,200 Troy A. Peery, Jr. $5,500 $11,175 Peter J. Quinn, Jr. $ 0 $ 0 Arch T. Allen, III+ $ 0 $ 0 Weston E. Edwards+ $ 0 $ 0 Jerry R. Barrentine+ $ 0 $ 0 J. Barnett Nelson+ $ 0 $ 0 - ------------- * Resigned as Trustee effective December 22, 1997 + Elected Trustee December 22, 1997 The Trustees do not receive pension or retirement benefits from the Trust. The Agreement and Declaration of Trust of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Trust or that such indemnification would relieve any officer or Trustee of any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers. PRINCIPAL HOLDERS OF SECURITIES As of October ,1998, the Portfolio had no shares outstanding. INVESTMENT ADVISORY AND OTHER SERVICES Investment Advisory Services Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment adviser to the Portfolio pursuant to a Management Contract with the Trust. Subject to the supervision and direction of the Trustees, Mentor Advisors manages the Portfolio's portfolio in accordance with the stated policies of the Portfolio and of the Trust. Mentor Advisors makes investment decisions for the Portfolio and places the purchase and sale orders for portfolio transactions. Mentor Advisors bears all of its expenses in connection with the performance of its services. In addition, Mentor Advisors pays the salaries of all officers and employees who are employed by it and the Trust. Mentor Advisors provides the Portfolio with investment officers who are authorized to execute purchases and sales of securities. Investment decisions for the Portfolio and for the other investment advisory clients of Mentor Advisors and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a -8- 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. Mentor Advisors employs a professional staff of portfolio managers who draw upon a variety of resources, including Wheat, First Securities, Inc., an affiliate of Mentor Advisors, for research information for the Portfolio. The proceeds received by the 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 the Portfolio, and constitute the underlying assets of the Portfolio. The underlying assets of the Portfolio will be segregated on the Trust's books of account, and will be charged with the liabilities in respect of the Portfolio and with a share of the general liabilities of the Trust. Expenses with respect to the Portfolio may be allocated in proportion to the net asset values of the Portfolio except where allocations of direct expenses can otherwise be fairly made. Expenses incurred in the operation of the Portfolio or otherwise allocated to the Portfolio, including but not limited to taxes, interest, brokerage fees and commissions, 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. The Management Contract 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 Portfolio, provided that in either event the continuance is also approved by a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust or Mentor Advisors, by vote cast in person at a meeting called for the purpose of voting on such approval. The Management Contract is 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 Mentor Advisors. The Management Contract terminates automatically in the event of its assignment (as defined in the 1940 Act). Under the Management Contract, the Portfolio pays management fees to Mentor Advisors monthly at the following annual rates (based on average net assets of a Portfolio): 0.22% of the first $500 million; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of the next $1 billion; and 0.15% of any amounts over $3 billion. -9- BROKERAGE Transactions on U.S. stock exchanges, commodities markets, and futures markets and other agency transactions involve the payment by the Portfolio of negotiated brokerage commissions. Such commissions vary among different brokers. A particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign investments often involve the payment of fixed brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the 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 the Portfolio will be with the issuer or with underwriters of or dealers in those securities, acting as principal. Accordingly, the Portfolio 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, Mentor Advisors receives brokerage and research services and other similar services from many broker-dealers with which it places 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 Mentor Advisors for research purposes, Mentor Advisors, 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 Mentor Advisors and its affiliates in advising various of its clients (including the Portfolio), although not all of these services are necessarily useful and of value in managing the Portfolio. Mentor Advisors places all orders for the purchase and sale of portfolio investments for the Portfolio and buys and sells investments for the Portfolio through a substantial number of brokers and dealers. Mentor Advisors seeks the best overall terms available for the Portfolio, except to the extent it may be permitted to pay higher brokerage commissions as described below. In doing so, Mentor Advisors, having in mind the Portfolio's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security or other investment, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience -10- 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 Contract, Mentor Advisors may cause the Portfolio to pay a broker-dealer which provides "brokerage and research services" (as defined in the 1934 Act) to it 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. Mentor Advisors' authority to cause the Portfolio to pay any such greater commissions is also subject to such policies as the Trustees may adopt from time to time. Mentor Advisors does not currently intend to cause the 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, Mentor Advisors will use its best efforts to obtain the best overall terms available with respect to such transactions, as described above. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to such other policies as the Trustees may determine, Mentor Advisors may consider sales of shares of the 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 the Portfolio. The Trustees have determined that portfolio transactions for the Trust may be effected through Wheat, First Securities, Inc. ("Wheat") or EVEREN Securities, Inc. ("EVEREN"), broker-dealers affiliated with Mentor Advisors. The Trustees have adopted certain policies incorporating the standards of Rule 17e-l issued by the SEC under the 1940 Act which requires, among other things, that the commissions paid to Wheat 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 and EVEREN will not participate in brokerage commissions paid by the Portfolio to other brokers or dealers. Over-the-counter purchases and sales are transacted directly with principal market makers except in those cases in which better prices and executions may be obtained elsewhere. The Portfolio will in no event effect principal transactions with Wheat or EVEREN in over-the-counter securities in which Wheat or EVEREN makes a market, as the case may be. Under rules adopted by the SEC, neither Wheat nor EVEREN may execute transactions for the Portfolio on the floor of any national securities exchange, but either may effect transactions for the Portfolio by transmitting orders for execution and arranging for the performance of this function by members of the exchange not associated with them. Wheat and EVEREN will be required to pay fees charged to those persons performing the floor brokerage elements out of the brokerage compensation it receives from the Portfolio. The Trust has been -11- advised by Wheat that, on most transactions, the floor brokerage generally constitutes from 5% and 10% of the total commissions paid. DETERMINATION OF NET ASSET VALUE The Trust determines net asset value per share of the Portfolio twice each day as of 12:00 noon and as of the close of regular trading (generally 4:00 p.m. New York time) on each day the New York Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed Saturdays, Sundays, and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving, and Christmas. The valuation of the 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, the 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 the 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 -12- 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 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 The Portfolio intends to qualify each year and elect to be taxed as a regulated investment company under Subchapter M of the United States Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company qualifying to have its tax liability determined under Subchapter M, the Portfolio will not be subject to federal income tax on any of its net investment -13- income or net realized capital gains that are distributed to shareholders. As a series of Massachusetts business trust, the Portfolio will not under present law be subject to any excise or income taxes in Massachusetts. In order to qualify as a "regulated investment company," the Portfolio must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other dispositions of stock, securities, or foreign currencies, and other income (including 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 value of its total assets consists of cash, cash items, U.S. Government Securities, 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 assets is invested in the securities of any issuer (other than U.S. Government Securities). In order to receive the favorable tax treatment accorded regulated investment companies and their shareholders, moreover, a Portfolio must in general distribute at least 90% of its interest, dividends, net short-term capital gain, and certain other income each year. An excise tax at the rate of 4% will be imposed on the excess, if any, of the 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 (or December 31, if the Portfolio so elects) plus undistributed amounts from prior years. Each Portfolio intends to make distributions sufficient to avoid imposition of the excise tax. Distributions declared by a Portfolio during October, November, or December to shareholders of record on a date in any such month 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. 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 face value ("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. The Portfolio is required to withhold 31% of all income dividends and capital gain distributions, and 31% of the gross proceeds of all redemptions of Portfolio shares, in the case of any shareholder who does not provide a correct taxpayer identification number, about whom the -14- Portfolio is notified that the shareholder has under reported income in the past, or who fails to certify to the Portfolio that the shareholder is not subject to such withholding. Tax-exempt shareholders are not subject to these back-up withholding rules so long as they furnish the Portfolio with a proper certification. Exempt-interest dividends. The Portfolio will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Portfolio's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the Portfolio properly designates as exempt-interest dividends are treated as interest excludable from shareholders' gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the Portfolio intends to be qualified to pay exempt-interest dividends, the Portfolio may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures and options contracts on financial futures, tax-exempt bond indices and other assets. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Portfolio paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Portfolio's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users. The Portfolio which is qualified to pay exempt-interest dividends will inform investors within 60 days of the Portfolio's fiscal year-end of the percentage of its income distributions designated as tax-exempt. The percentage is applied uniformly to all distributions made during the year. The percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of the Portfolio's income that was tax-exempt during the period covered by the distribution. Securities issued or purchased at a discount. The Portfolio's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Portfolio may be required to sell securities in its portfolio that it otherwise would have continued to hold. 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 and distributions also may be subject to state and federal taxes. Shareholders are urged to consult their tax advisers regarding specific questions as to federal, state or local 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 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). THE DISTRIBUTOR Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio 43219, is the principal distributor of the Portfolio's shares. Mentor Distributors is acting on a best efforts basis in the continuous offering of the Trust's shares. Mentor Distributors, LLC is a wholly owned subsidiary of BISYS Fund Services, Inc. INDEPENDENT ACCOUNTANTS ______________ are the Portfolio's independent auditors, providing audit services, tax return review, and other tax consulting services. CUSTODIAN The custodian of the Portfolio, Investors Fiduciary Trust Company, is located at 127 West 10th Street, Richmond, Virginia 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. PERFORMANCE INFORMATION The yield of the 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 -15- 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. EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES The table below shows the effect of the tax status of Tax-Exempt Securities on the effective yield received by their individual holders under the federal income tax laws in effect for 1997. It gives the approximate yield a taxable security must earn at various income levels to produce after-tax yields equivalent to those of Tax-Exempt Securities yielding from 2.0% to 10.0%.
- ----------------------------------------------------------------------------------------------------------------------------------- 1997 Marginal Taxable Income* federal Tax-exempt yield ______________ income ----------------------------------------------------------------------------- tax** Single Joint Rate 2% 3% 4% 5% 6% 7% 8% 9% 10% - ----------------------------------------------------------------------------------------------------------------------------------- Equivalent taxable yield $0 - 24,650 $0 - 41,200 15.00% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% 24,651 - 59,750 41,201 - 99,600 28.00% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% 59,751 - 124,650 99,601 - 151,750 31.00% 2.90% 4.35% 5.80% 7.25% 8.70% 10.15% 11.59% 13.04% 14.49% 124,651 - 271,050 151,751 - 271,050 36.00% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% over 271,051 over 271,051 39.60% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25% 14.90% 16.56%
- ------------------ * This amount represents taxable income as defined in the Internal Revenue Code of 1986, as amended (the "Code"), after any deduction for personal exemptions and the greater of the standard deduction or itemized deductions. ** These rates are the marginal federal income tax rates on taxable income in effect for 1997 under the Code. Of course, there is no assurance that the Portfolio will achieve any specific tax-exempt yield. While it is expected that the Portfolio will invest principally in obligations which pay interest exempt from federal income tax, other income received by the Portfolio may be taxable. The table does not take into account any state or local taxes payable on Portfolio distributions. Independent statistical agencies measure the Portfolio's investment performance and publish comparative information showing how the Portfolio, and other investment companies, performed in specified time periods. Agencies whose reports are commonly used for such comparisons are set forth below. From time to time, the Portfolio may distribute these comparisons to its shareholders or to potential investors. The agencies listed below measure performance based on 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 the Portfolio's performance. Certain of those publications are listed below, at the request of Mentor Distributors, which bears full responsibility for their use and the descriptions appearing below. From time to time the Portfolio may distribute evaluations by or excerpts from these publications to its -16- 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. 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. -17- 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 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 -18- 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 fivepoint 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." 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 -19- the Trust or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of the Portfolio's property for all loss and expense of any shareholder held personally liable for the obligations of the Portfolio. Thus the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Portfolio would be unable to meet its obligations. MEMBERS OF INVESTMENT MANAGEMENT TEAMS The following persons are investment personnel of Mentor Advisors: Mentor Investment Advisors, LLC Cash Management R. Preston Nuttall, CFA -- Managing Director, Chief Investment Officer Mr. Nuttall has more than thirty 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 -- Vice President, Portfolio Manager Mr. White has eleven 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. Kathryn T. Allen -- Vice President, Portfolio Manager Ms. Allen has fourteen years of investment management experience and specializes in tax-free trades. Prior to joining Mentor Advisors, Ms. Allen was portfolio group manager at PNC Institutional Management Corporation. She has her undergraduate degree in commerce and business administration from the University of Alabama. -20- RATINGS The rating services' descriptions of corporate bonds are: Moody's Investors Service, Inc.: 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-edge". 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. Standard & Poor's: AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in small degree. A -- Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. -21- BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than for bonds in higher rated categories. A-1 and Prime-1 Commercial Paper Ratings The rating A-1 (including A-1+) is the highest commercial paper rating assigned by S&P. Commercial paper rated A-1 by S&P has the following characteristics: o liquidity ratios are adequate to meet cash requirements; o long-term senior debt is rated "A" or better; o the issuer has access to at least two additional channels of borrowing; o basic earnings and cash flow have an upward trend with allowance made for unusual circumstances; o typically, the issuer's industry is well established and the issuer has a strong position within the industry; and o the reliability and quality of management are unquestioned. Relative strength or weakness of the above factors determines whether the issuer's commercial paper is rated A-1, A-2 or A-3. Issues rated A-1 that are determined by S&P to have overwhelming safety characteristics are designated A-1+. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Among the factors considered by Moody's in assigning ratings are the following: o evaluation of the management of the issuer; o economic evaluation of the issuer's industry or industries and an appraisal of speculative- type risks which may be inherent in certain areas; o evaluation of the issuer's products in relation to competition and customer acceptance; o liquidity; o amount and quality of long-term debt; -22- o trend of earnings over a period of ten years; o financial strength of parent company and the relationships which exist with the issuer; and o recognition by the management of obligations which may be present or may arise as a result of public interest. PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits: (a) Financial Statements (1) Audited Financial Statements and Supporting Schedules (For all Portfolios other than Mentor Asset Allocation Portfolio, Mentor High Income Portfolio, Mentor Institutional Money Market Portfolio Mentor Institutional U.S. Government Money Market Portfolio, Institutional Shares, and Mentor Growth Opportunities) Financial Statements: Portfolios of Investments -- September 30, 1997* Statements of Assets and Liabilities -- September 30, 1997* Statements of Operations -- year ended September 30, 1997* Statements of Changes in Net Assets -- years/periods ended September 30, 1997 and September 30, 1996* Financial Highlights *(+) Notes to Financial Statements* Independent Auditors' Report (2) Unaudited Financial Statements and Supporting Schedules (Mentor Institutional Money Market Portfolio, Mentor Institutional U.S. Government Money Market Portfolio, Institutional Shares) Financial Statements: Portfolios of Investments -- March 31, 1998* Statements of Assets and Liabilities -- March 31, 1998* Statements of Operations -- year ended March 31, 1998* Statements of Changes in Net Assets -- years/periods ended March 31, 1998 and March 31, 1997* Financial Highlights * Notes to Financial Statements* _____________ * Incorporated by reference into Part B to this Registration Statement. (+) Incorporated by reference to Part A to this Registration Statement. (b) Exhibits: (1)(i) Conformed copy of Declaration of Trust of the Registrant, with Amendments No. 1 and 2 (2); (ii) Amendment No. 5 to the Declaration of Trust of the Registrant (12); (iii) Form of Amendment to the Declaration of Trust of the Registrant (13) (iv) Form of Proposed Amendment to the Declaration of Trust of the Registrant to be dated as of May 12, 1998 (14) (2) Copy of By-Laws of the Registrant (1); (3) Not applicable; (4) Portions of Registrant's Declaration of Trust and By-Laws relating to shareholder rights (1)(2)(12)(13); (5)(i) Form Management Agreement of the Registrant (Capital Growth, Income and Growth, Quality Income, and Municipal Income Portfolios) (14); (ii) Form of Investment Advisory Agreement (Municipal Income Portfolio) (14); (iii) Form of Investment Advisory Agreement (Income and Growth Portfolio) (14); (iv) Form of Investment Advisory and Management Agreement (Perpetual Global Portfolio) (8); (v) Form of Investment Advisory and Management Agreement (Growth Portfolio) (14); (vi) Form of Investment Advisory and Management Agreement (Strategy Portfolio) (14); (vii) Form of Investment Advisory and Management Agreement (Short-Duration Income Portfolio) (14); (viii) Form of Investment Advisory and Management Agreement (Balanced Portfolio) (14); (ix) Form of Investment Advisory and Management Agreement (Institutional Money Market Portfolio) (14); (x) Form of Investment Advisory and Management Agreement (Institutional U.S. Government Money Market Portfolio) (14); (xi) Form of Investment Advisory and Management Agreement (Growth Opportunities Portfolio) (11); (xii) Form of Investment Advisory and Management Agreement (Mentor High Income Portfolio) (14) (xiii) Sub-Advisory Agreement (Mentor High Income Portfolio)(14) (xiv) Form of Investment Advisory and Management Agreement (Mentor Asset Allocation Portfolio) (13) (xv) Form of Investment Advisory and Management Agreement (Mentor Institutional Tax-Exempt Money Market Portfolio) (17) (6) Form of Distribution Agreement of the Registrant (14) (7) Not applicable; (8)(i) Conformed copy of Custodian Contract of the Registrant with Investors Fiduciary Trust Company (2); (ii) Conformed copy of Custodian Contract of the Registrant with State Street Bank and Trust Company (2); (iii) Form of Administration Agreement of the Registrant in respect of certain Portfolios (14); (iv) Form of Custodian Contract with State Street Bank and Trust Company in respect of foreign securities(7); (v) Form of Administration Agreement of the Registrant in respect of the Money Market Portfolios (17) (9)(i) Conformed copy of Transfer Agency and Registrar Agreement of the Registrant (2); (ii) (a) Conformed copy of Shareholder Services Plan of the Registrant through and including Exhibit B in respect of the Capital Growth, Quality Income, Municipal Income, Income and Growth, and Global Portfolios (3); (b) Form of Instrument of Transfer of Shareholder Services Plan (8); (c) Form of New Exhibit C to the Shareholder Services Plan in respect of the Class A and B shares of the Growth, Strategy, Short-Duration Income Portfolios and the Balanced Portfolio (6); (d) Form of New Exhibit D to Shareholder Services Plan in respect of Class A and B shares of the Growth Opportunities Portfolio (11); (e) Form of New Exhibit E to Shareholder Services Plan in respect of Class A and B shares of the High Yield and Asset Allocation Portfolios (13); (9)(iii) Form of Agency Agreement with Investors Fiduciary Trust Company (Money Market Portfolios) (17); (9)(iv) Form of Draft Processing Agreement with Investors Fiduciary Trust Company (Money Market Portfolios) (17) (10) Not applicable; (11)(i) Conformed copy of Consent of Independent Auditors (16); (ii) Conformed copy of KPMG Peat Marwick LLP opinion on Methodology and Procedures for Accounting for Multiple Classes of Shares (5); (12) Not applicable; (13) Conformed copy of Initial Capital Understanding (1); (14) Not applicable; (15)(i) Plan of Distribution (12) (ii) Revised Exhibit A to Plan of Distribution (17) (16)(i) Schedules for Computation of Performance (all Portfolios)(8) (18)(i) Amended and Restated Rule 18f-3(d) Plan (Portfolios other than Money Market Portfolios) (15) (ii) Rule 18f-3 Plan (Money Market Portfolios) (16) (27)(i) Financial Data Schedules of Class A Shares (12) (ii) Financial Data Schedules of Class B Shares (12) (iii) Financial Data Schedule in respect of the Balanced Portfolio. (12) (iv) Financial Data Schedules in respect of Money Market Portfolios (16) 1. Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 on Form N-1A filed April 14, 1992. 2. Incorporated by reference to Registrant's Post-Effective Amendment No. 3 on Form N-1A filed May 14, 1993. 3. Incorporated by reference to Registrant's Post-Effective Amendment No. 5 on Form N-1A filed November 26, 1993. 4. Incorporated by reference to Registrant's Post-Effective Amendment No. 7 on Form N-1A filed August 3, 1994. 5. Incorporated by reference to Registrant's Post-Effective Amendment No. 8 on Form N-1A filed January 27, 1995. 6. Incorporated by reference to Registrant's Post-Effective Amendment No. 9 on Form N-1A filed March 15, 1995. 7. Incorporated by reference to Registrant's Post-Effective Amendment No. 10 on Form N-1A filed January 15, 1996. 8. Incorporated by reference to Registrant's Post-Effective Amendment No. 11 on Form N-1A filed November 29, 1996. 9. Incorporated by reference to Registrant's Post-Effective Amendment No. 12 on Form N-1A filed January 22, 1997. 10. Incorporated by reference to Registrant's Post-Effective Amendment No. 13 on Form N-1A filed March 4, 1997. 11. Incorporated by reference to Registrant's Post-Effective Amendment No. 14 on Form N-1A filed November 7, 1997. 12. Incorporated by reference to Registrant's Post-Effective Amendment No. 15 on Form N-1A filed December 22, 1997. 13. Incorporated by reference to Registrant's Post-Effective Amendment No. 16 on Form N-1A filed on January 30, 1998. 14. Incorporated by reference to Registrant's Post-Effective Amendment No. 17 on Form N-1A filed on May 7, 1998. 15. Incorporated by reference to Registrant's Post-Effective Amendment No. 18 on Form N-1A filed on May 12, 1998. 16. Incorporated by reference to Registrant's Post-Effective Amendment No. 19 on form N-1A filed on July 10, 1998. 17. Filed herewith. Item 25. Persons Controlled by or Under Common Control with Registrant: Reference is made to "Principal Holders of Securities" in Part B of this Registration Statement Item 26. Number of Holders of Securities as of June 30, 1998 Multiclass Portfolios Class A Class B Capital Growth Portfolio 6,749 12,766 Global Portfolio 3,345 8,415 Growth Portfolio 5,905 30,212 Income and Growth Portfolio 3,978 8,951 Municipal Income Portfolio 794 1,316 Quality Income Portfolio 2,543 4,508 Short-Duration Income Portfolio 963 2,004 Strategy Portfolio 1,478 13,482 Single Class Portfolios Balanced Portfolio 4 Mentor Institutional U.S. Government Money Market Portfolio--Institutional Class 58 Mentor Institutional Money Market Portfolio--Institutional Class 43 No Retail Shares of either Mentor Institutional U.S. Government Money Market Portfolio or Mentor Institutional Money Market Portfolio were outstanding on June 30, 1998 No Shares of Mentor Institutional Tax-Exempt Money Market Portfolio were outstanding on July , 1998. Item 27. Indemnification: 1. Response is incorporated by reference to Registrant's Initial Registration Statement on Form N-1A filed January 31, 1992 (File Nos. 33-45315 and 811-6550). Item 28. Business and Other Connections of Investment Advisers The business and other connections of each director, officer, or partner of the entities below in which such director, officer, or partner is or has been, at any time during the past two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner, or trustee are set forth in the following tables. (a) The following is additional information with respect to the directors and officers of Mentor Investment Advisors, LLC: Business, Profession, Vocation or Employment Position with during the past Name Investment Adviser two fiscal years John G. Davenport Managing Director Managing Director, Mentor Investment Group, LLC. R. Preston Nuttall Managing Director Managing Director, Mentor Investment Group, LLC. Paul F. Costello Managing Director Managing Director, Mentor Investment Group, LLC; President, Mentor Funds, Mentor Institutional Trust, Cash Resource Trust, Mentor Income Fund, Inc.; and America's Utility Fund, Inc.; Senior Vice President, Mentor Distributors, LLC; Managing Director, Mentor Perpetual Advisors, LLC. Theodore W. Price Managing Director Managing Director, Mentor Investment Group, LLC. P. Michael Jones Managing Director Managing Director, Mentor Investment Group, LLC. Peter J. Quinn, Jr. Managing Director Managing Director, Mentor Investment Group, LLC. -3- Daniel J. Ludeman Chairman Chairman and Chief Executive Officer, Mentor Investment Group, LLC. Karen H. Wimbish Managing Director Managing Director, Mentor Investment Group, LLC. Terry L. Perkins Treasurer Senior Vice President, Mentor Investment Group, L.L.C. Michael A. Wade Controller Vice President, Mentor Investment Group, L.L.C. Geoffrey B. Sale Secretary Associate Vice President Mentor Investment Group, LLC; Clerk Mentor Institutional Trust; Secretary Cash Resource Trust, Mentor Income Fund, Inc., Mentor Funds and Mentor Variable Investment Portfolios. (b) The following is additional information with respect to the directors and officers of Mentor Perpetual Advisors, LLC ("Mentor Perpetual"): Other Substantial Position with the Business, Profession, Name Investment Advisor Vocation or Employment Scott A. McGlashan President Director, Perpetual Portfolio Management Limited. Martyn Arbib Managing Director Chairman, Perpetual Portfolio Management Limited. Roger C. Cormick Managing Director Deputy Chairman - Marketing, Perpetual Portfolio Management Limited. Paul F. Costello Managing Director Managing Director, Mentor Investment Group, LLC and Mentor Investment Advisors, LLC; President, Mentor Funds, Mentor Institutional Trust, Cash Resource Trust, Mentor Income Fund, Inc., and America's Utility Fund, Inc.; Senior Vice President, Mentor Distributors, LLC. Daniel J. Ludeman Managing Director Chairman and Chief Executive Officer, Mentor Investment Group, LLC; Director, Wheat First Securities, Inc.; Managing Director, Wheat First Butcher Singer, Inc. David S. Mossop Managing Director Director, Perpetual Portfolio Management Limited Peter J. Quinn, Jr. Managing Director Managing Director, Mentor Investment Group, LLC. Roderick A. Smyth Managing Director Managing Director, Mentor Investment Group, LLC. * The address of Mentor Investment Group, LLC, Wheat, First Securities, Inc., Wheat First Butcher Singer, Inc., Mentor Funds, Mentor Income Fund, Inc., Mentor Investment Advisors, LLC, and Mentor Perpetual Advisors, LLC is 901 East Byrd Street, Richmond, VA 23219. The address of Ryland Capital Management, Inc. and RAC Income Fund, Inc. is 11000 Broken Land Parkway, Columbia, MD 21044. The address of Perpetual Portfolio Management Limited is 48 Hart Street, Henley-on-Thames, Oxon, England, RG92AZ.
(c) The following is a list of the general partners and Senior Vice Presidents of Wellington Management Company, LLP, located at 75 State Street, Boston Massachusetts 02109: Kenneth L. Abrams Paul D. Kaplan Richard S. Press Nicholas C. Adams John C. Keogh Robert D. Rands Rand L. Alexander Mark T. Lynch Eugene E. Record, Jr. Deborah L. Allinson Nanch T. Lukitsh John R. Ryan Nancy T. August Christine S. Manfredi Joseph H. Schwartz James H. Averill Patrick J. McCloskey David W. Scudder Marie-Claude Bernal Earl E. McEvoy Binkley C. Shorts William N. Booth Duncan M. McFarland Trond Skramstad Paul Braverman Paul M. Mecray, III Catherine A. Smith William D. Dilanni Matthew E. Megargel Stephen A. Soderberg Pamela Dippel James N. Mordy Harriett Tee Taggart Robert W. Doran Diane C. Nordin Perry M. Traquina Charles T. Freeman Edward P. Owens Gene R. Tremblay Laurie A. Gabriel Saul J. Pannell Mary Ann Tynan Frank J. Gilday, III Thomas L. Pappas Ernst H. von Metzsch John H. Gooch David M. Parker Clare Villari Nicholas P. Greville Robert D. Payne James L. Walters William C.S. Hicks Jonathan M. Payson Kim Williams Stephen M. Pazuk Frank V. Wisneski (d) The following is additional information with respect to the directors and officers of Van Kampen American Capital Management Inc., located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181-4486: Other Substantial Position with Business, Profession, Name Investment Advisor Vocation or Employment ---- ------------------ ---------------------- Don G. Powell Chairman and Director Chairman and Director, VK/AC Holding, Inc., Van Kampen American Capital, Inc., Van Kampen American Capital Distributors, Inc., Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp., and Van Kampen American Capital Advisors, Inc. Philip N. Duff Chief Executive Officer President and Chief Executive Officer, VK/AC Holding, Inc. and Van Kampen American Capital, Inc. Dennis J. McDonnell President and Chief Executive Vice Operating Officer President, VK/AC Holding, Inc. and Van Kampen American Capital, Inc.; President and Chief Operating Officer, Van Kampen American Capital Advisors, Inc., Van Kampen American Capital Asset Management, Inc., and Van Kampen American Capital Investment Advisory Corp. Ronald A. Nyberg Executive Vice President Executive Vice and General Counsel President and General Counsel, VK/AC Holding, Inc., Van Kampen American Capital, Inc., Van Kampen American Capital Distributors, Inc., Van Kampen American Asset Management, Inc., Van Kampen American Investment Advisory Corp., and Van Kampen American Capital Advisors, Inc. William R. Rybak Executive Vice President Executive Vice and Chief Financial President and Chief Officer Financial Officer, VK/AC Holding, Inc., Van Kampen American Capital, Inc., Van Kampen American Capital Distributors, Inc., Van Kampen American Capital Asset Management Inc., Van Kampen American Capital Investment Advisory Corp., and Van Kampen American Capital Advisors, Inc. Peter W. Hegel Executive Vice President Executive Vice President, Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp., and Van Kampen American Capital Advisors, Inc. Alan T. Sachtleben Executive Vice President Executive Vice President, Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp., and Van Kampen American Capital Advisors, Inc. Item 29. Principal Underwriters: (a) Mentor Distributors, LLC, the Fund's principal underwriter, acts as principal underwriter for the following investment companies: The Mentor Funds o Mentor Growth Portfolio o Mentor Strategy Portolio o Mentor Short-Duration Income Portfolio o Mentor Balanced Portfolio o Mentor Capital Growth Portfolio o Mentor Perpetual Global Portfolio o Mentor High Income Portfolio o Mentor Income and Growth Portfolio o Mentor Quality Income Portfolio o Mentor Municipal Income Portfolio o Mentor Institutional U.S. Government Money Market Portfolio o Mentor Institutional Money Market Portfolio Cash Resource Trust o Cash Resource Money Market Fund o Cash Resource U.S. Government Money Market Fund o Cash Resource Tax-Exempt Money Market Fund o Cash Resource California Tax-Exempt Money Market Fund o Cash Resource New York Tax-Exempt Money Market Fund Mentor Institutional Trust o Mentor U.S. Government Cash Management Portfolio o Mentor Fixed-Income Portfolio o Mentor Perpetual International Portfolio Mentor Investment Group o Mentor Income Fund o America's Utility Fund Mentor Variable Investment Portfolios o Mentor VIP Growth Portfolio o Mentor VIP Strategy Portfolio o Mentor VIP Balanced Portfolio o Mentor VIP Capital Growth Portfolio o Mentor VIP Perpetual International Portfolio (b) Information concerning officers of Mentor Distributors, LLC: -10- Name And Principal Positions And Offices Positions And Offices Business Address* With Underwriter With Registrant - ----------------- -------------------- --------------------- Lynn Mangum Chairman Inapplicable D'Ray Moore President Inapplicable Dennis Sheehan Executive Vice President Inapplicable William J. Tomko Senior Vice President Inapplicable Mark J. Rybarczyk Senior Vice President Inapplicable Kevin J. Dell Vice President and Inapplicable Secretary Michael D. Burns Vice President Inapplicable David Blackmore Vice President Inapplicable Robert L. Tuch Assistant Secretary Inapplicable Steven Ludwig Compliance Officer Inapplicable *Principal Address for all Officers: BISYS Fund Services, Inc. 3435 Stelzer Road Columbus, Ohio 43219-8000 (c) Inapplicable. Item 30. Location of Accounts and Records Certain accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder are maintained by the Fund at 901 East Byrd Street, Richmond, Virginia 23219 or by Boston Financial Data Services, Inc., the Registrant's transfer agent, at 2 Heritage Drive, North Quincy, Massachusetts 02171. Records relating to the duties of the Registrant's custodian are maintained by the Registrant's Custodian, Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri 64105. Records relating to the duties of the Registrant's distributor are maintained by the Registrant's Distributor, Mentor Distributors, LLC, 3435 Stelzer Road, Columbus, Ohio 43219-8000. Item 31. Management Services None. Item 32. Undertakings: (a) Registrant hereby undertakes to comply with the provisions of Section 16(c) of the 1940 Act with respect to the removal of Trustees and the calling of special shareholder meetings by shareholders. (b) Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Amendment to be signed on behalf of the undersigned, thereunto duly authorized, in the City of Richmond and the Commonwealth of Virginia, on the 31st day of July, 1998. MENTOR FUNDS By: /s/ Paul F. Costello ---------------------------- Paul F. Costello Pursuant to the requirements of the Securities Act of 1933, this Amendment has been signed below by the following persons in the capacity and on the date indicated:
Name Title Date * - ----------------------- Chairman and Trustee July 31, 1998 Daniel J. Ludeman (Chief Executive Officer) * Trustee July 31, 1998 - ----------------------- Peter J. Quinn, Jr. * July 31, 1998 - ---------------------- Trustee Arnold H. Dreyfuss * Trustee July 31, 1998 - ----------------------- Thomas F. Keller * Trustee July 31, 1998 - ----------------------- Louis W. Moelchert, Jr. * Trustee July 31, 1998 - ----------------------- Troy A. Peery, Jr. Trustee - ----------------------- Arch T. Allen, III Trustee - ----------------------- Weston E. Edwards Trustee - ----------------------- Jerry R. Barrentine Trustee - ----------------------- J. Garnett Nelson /s/ Paul F. Costello President July 31, 1998 - ------------------------ Paul F. Costello /s/ Terry L. Perkins Treasurer (Principal Financial July 31, 1998 - ------------------------ and Accounting Officer) Terry L. Perkins /s/ Paul F. Costello Attorney-in-fact July 31, 1998 - ------------------------ Paul F. Costello
EXHIBIT INDEX Exhibit Page 5(xv) Form of Investment Advisory and Management Agreement 8(v) Form of Administration Agreement (Money Market Portfolios) 9(iii) Form of Agency Agreement with Investors Fiduciary Trust Company (Institutional Money Market Portfolio, Institutional U.S. Government Money Market Portfolio) (iv) Form of Draft Processing Agreement with Investors Fiduciary Trust Company (Institutional Money Market Portfolio, Institutional U.S. Government Money Market Portfolio) 15 (ii) Revised Exhibit A to Plan of Distribution EX-5 2 EXHIBIT 5 (XV) MENTOR FUNDS INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT This Investment Advisory and Management Agreement dated as of August __, 1998 between MENTOR FUNDS, a Massachusetts business trust (the "Trust"), and MENTOR INVESTMENT ADVISORS, LLC, a Virginia limited liability company (the "Manager"). WITNESSETH: That in consideration of the mutual covenants herein contained, it is agreed as follows: 1. SERVICES TO BE RENDERED BY THE MANAGER TO TRUST. (a) The Manager, at its expense, will furnish continuously an investment program for the Mentor Institutional Tax-Exempt Money Market Portfolio, a series of the Trust (the "Portfolio"), will determine what investments shall be purchased, held, sold, or exchanged by the Portfolio and what portion, if any, of the assets of the Portfolio shall be held uninvested and shall make changes in the Portfolio's investments. In the performance of its duties, the Manager will comply with the provisions of the Agreement and Declaration of Trust and Bylaws of the Portfolio and the Portfolio's stated investment objectives, policies, and restrictions, and will use its best efforts to safeguard and promote the welfare of the Portfolio and to comply with other policies which the Trustees may from time to time determine and shall exercise the same care and diligence expected of the Trustees. (b) The Manager, at its expense, except as such expense is paid by the Portfolio as provided in Section 1(e), will furnish all necessary investment and related management facilities, including salaries of personnel, required for it to execute its duties faithfully. The Manager will pay the compensation, if any, of certain officers of the Trust carrying out the investment management and related duties provided for by this Agreement. (c) The Manager, at its expense, shall place all orders for the purchase and sale of portfolio investments for the Portfolio's account with brokers or dealers selected by the Manager. In the selection of such brokers or dealers and the placing of such orders, the Manager shall give primary consideration to securing for the Portfolio the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions for brokerage and research services as described below. In doing so, the Manager, bearing in mind the Portfolio's best interests at all times, shall consider all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission, the timing of the transaction -1- taking into account market prices and trends, the reputation, experience, and financial stability of the broker or dealer involved, and the quality of service rendered by the broker or dealer in other transactions. Subject to such policies as the Trustees of the Trust may determine, the Manager shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Portfolio to pay a broker or dealer that provides brokerage and research services to the Manager an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission that another broker or dealer would have charged for effecting that transaction, if the Manager determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Manager's overall responsibilities with respect to the Portfolio and to other clients of the Manager as to which the Manager exercises investment discretion. (d) The Trust, on behalf of the Portfolio, hereby authorizes any entity or person associated with the Manager which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Portfolio which is permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Portfolio hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(2)(iv). (e) The Manager shall not be obligated to pay any expenses of or for the Portfolio not expressly assumed by the Manager pursuant to this Section 1 other than as provided in Section 3. 2. OTHER AGREEMENTS, ETC. It is understood that any of the shareholders, Trustees, officers, and employees of the Trust may be a shareholder, director, officer, or employee of, or be otherwise interested in, the Manager, and in any person controlled by or under common control with the Manager, and that the Manager and any person controlled by or under common control with the Manager may have an interest in the Portfolio. It is also understood that the Manager and any person controlled by or under common control with the Manager have and may have advisory, management, service, or other agreements with other organizations and persons, and may have other interests and business. 3. COMPENSATION TO BE PAID BY THE PORTFOLIO TO THE MANAGER. As compensation for the services performed and the facilities furnished and expenses assumed by the Manager, including the services of any consultants retained by the Manager, the Portfolio shall pay the Manager, as promptly as possible after the last day of each month, a fee, calculated daily, at the following annual rates (as a percentage of the Portfolio's average daily net assets): 0.22% of the first $500 million; 0.20% of the next $500 million; 0.175% of the next $1 billion; 0.16% of the next $1 billion; 0.15% of any amounts over $3 billion. The first payment of the fee shall be made as promptly as possible at the end of the month next -2- succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due the Manager for all services prior to that date. If this Agreement is terminated as of any date that is not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average daily net assets of the Portfolio in that period from the beginning of such month to such date of termination, and shall be that proportion of such average daily net assets as the number of business days in such period bears to the number of business days in such month. The average daily net assets of the Portfolio shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Trustees. Each such payment shall be accompanied by a report of the Trust prepared either by the Trust or by a reputable firm of independent accountants which shall show the amount properly payable to the Manager under this Agreement and the detailed computation thereof. 4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT. This Agreement shall automatically terminate, without the payment of any penalty, in the event of its assignment; and this Agreement shall not be amended unless such amendment be approved at a meeting by the affirmative vote of a majority of the outstanding shares of the Portfolio, and by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager. 5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This Contract shall become effective upon its execution and shall remain in full force and effect continuously thereafter until the close of business on February 1, 2000 (unless terminated automatically as set forth in Section 4), and shall continue for successive one-year periods thereafter, if approved in accordance with Section 6, until terminated by either party hereto at any time by not more than sixty days nor less than thirty days written notice delivered or mailed by registered mail, postage prepaid, to the other party. Such action by the Trust with respect to termination may be taken either (i) by vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of the Fund. Termination of this Contract pursuant to this Section 5 will be without the payment of any penalty. 6. ANNUAL APPROVAL. For additional terms after the initial term of this Contract, this Contract shall be submitted for approval to the Trustees annually and shall continue in effect only so long as specifically approved annually by vote of a majority of the Trustees of the Trust who are not interested persons of the Trust or of the Manager, by vote cast in person at a meeting called for the purpose of voting on such approval. -3- 7. CERTAIN DEFINITIONS. For the purposes of this Agreement, the "affirmative vote of a majority of the outstanding shares" of the Portfolio means the affirmative vote, at a duly called and held meeting of such shareholders, (a) of the holders of 67% or more of the shares of the Portfolio present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Portfolio entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Portfolio entitled to vote at such meeting, whichever is less. For the purposes of this Agreement, the terms "affiliated person", "control", "interested person," and "assignment" shall have their respective meanings defined in the Investment Company Act of 1940, as amended, and the Rules and Regulations thereunder, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act; the term "specifically approve at least annually" shall be construed in a manner consistent with the Investment Company Act of 1940, as amended, and the Rules and Regulations thereunder; and the term "brokerage and research services" shall have the meaning given in the Securities Exchange Act of 1934, as amended, and the Rules and Regulations thereunder. 8. NON-LIABILITY OF MANAGER. In the absence of willful misfeasance, bad faith, or gross negligence on the part of the Manager, or reckless disregard of its obligations and duties hereunder, the Manager shall not be subject to any liability to the Trust or to any shareholder of the Trust for any act or omission in the course of, or connected with, rendering services hereunder. 9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers, or shareholders of the Trust but are binding only upon the assets and property of the Trust. -4- IN WITNESS WHEREOF, MENTOR FUNDS and MENTOR INVESTMENT ADVISORS, LLC, have each caused this instrument to be signed in duplicate in its behalf by its President or Vice President thereunto duly authorized, all as of the day and year first above written. MENTOR FUNDS on behalf of Mentor Institutional Tax-Exempt Money Market Portfolio By:_____________________________________ MENTOR INVESTMENT ADVISORS, LLC By:______________________________________ -5- EX-8 3 EXHIBIT 8(V) MENTOR FUNDS 901 East Byrd Street Richmond, Virginia 23219 August,__ 1998 Mentor Investment Group, LLC 901 East Byrd Street Richmond, Virginia 23219 Re: Administration Agreement Dear Gentlemen: Mentor Funds, a Massachusetts business trust (the "Fund"), is engaged in the business of an investment company. The Fund currently has ten series of shares (each, a "Series"), and the Trustees of the Fund may in their discretion authorize additional series of shares from time to time. The Fund desires that you act as administrator of one or more Series specified by the Trustees from time to time on Exhibit A hereto (each, a "Specified Series") of the Fund, and you are willing to act as such administrator and to perform such services under the terms and conditions hereinafter set forth. Accordingly, the Fund agrees with you as follows: 1. Delivery of Fund Documents. The Fund has furnished you with copies properly certified or authenticated of each of the following: (a) Agreement and Declaration of Trust of the Fund. (b) By-laws of the Fund as in effect on the date hereof. (c) Resolutions of the Trustees of the Fund selecting you as administrator and approving the form of this Agreement. The Fund will furnish you from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, if any. 2. Administrative Services. You will continuously provide business management services to each of the Specified Series and will generally, subject to the general oversight of the Trustees and except as provided in the next following paragraph, manage all of the -1- business and affairs of each of the Specified Series, subject always to the provisions of the Fund's Declaration of Trust and By-laws and of the Investment Company Act of 1940, as amended (the "1940 Act"), and subject, further, to such policies and instructions as the Trustees may from time to time establish. You shall, except as provided in the next following paragraph, advise and assist the officers of the Fund in taking such steps as are necessary or appropriate to carry out the decisions of the Trustees and the appropriate committees of the Trustees regarding the conduct of the business of each of the Specified Series. Notwithstanding any provision of this Agreement, you will not at any time provide, or be required to provide, to the Fund or to any person with respect to the Fund investment research, advice, or supervision, or in any way advise the Fund or any person acting on behalf of the Fund as to the value of securities or other investments or as to the advisability of investing in, purchasing, or selling securities or other investments. 3. Allocation of Charges and Expenses. You will pay the compensation and expenses of all officers and executive employees of the Fund (other than such persons who serve as such and who are employees of or serve at the request of any investment adviser to the Fund) and will make available, without expense to the Fund, the services of such of your directors, officers, and employees as may duly be elected Trustees or officers of the Fund, subject to their individual consent to serve and to any limitations imposed by law. You will provide all clerical services relating to the business of each of the Specified Series. You will not be required to pay any expenses of the Fund other than those specifically allocated to you in this paragraph 3. In particular, but without limiting the generality of the foregoing, you will not be required to pay: clerical salaries not relating to the services described in paragraph 2 above; fees and expenses incurred by the Fund in connection with membership in investment company organizations; brokers' commissions; payment for portfolio pricing services to a pricing agent, if any; legal, auditing, or accounting expenses; taxes or governmental fees; the fees and expenses of the transfer agent of the Fund; the cost of preparing share certificates or any other expenses, including clerical expenses, incurred in connection with the issue, sale, underwriting, redemption, or repurchase of shares of the Fund; the expenses of and fees for registering or qualifying securities for sale; the fees and expenses of Trustees of the Fund who are not affiliated with you; the cost of preparing and distributing reports and notices to shareholders; public and investor relations expenses; or the fees or disbursements of custodians of the Fund's assets, including expenses incurred in the performance of any obligations enumerated by the Agreement and Declaration of Trust or By-Laws of the Fund insofar as they govern agreements with any such custodian. 4. Compensation. As compensation for the services performed and the facilities furnished and expenses assumed by you, including the services of any consultants retained by you, each Specified Series shall pay you, as promptly as possible after the last day of each month, a fee, calculated daily, at the annual rate of .02 of 1% of the Specified Series average daily net assets. -2- The first payment of the fee shall be made as promptly as possible at the end of the month next succeeding the effective date of this Agreement in respect of such Specified Series, and shall constitute a full payment of the fee due you for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average daily net assets of the Specified Series in that period from the beginning of such month to such date of termination, and shall be that proportion of such average daily net assets as the number of business days in such period bears to the number of business days in such month. The average daily net assets of a Specified Series shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Trustees. Each such payment shall be accompanied by a report of the Fund prepared either by the Fund or by a reputable firm of independent accountants which shall show the amount properly payable to you under this Agreement and the detailed computation thereof. 5. Limitation of Liability. You shall not be liable for any error of judgement or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates except a loss resulting from willful misfeasance, bad faith, or gross negligence on your part in the performance of your duties, or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Fund shall be deemed, when acting within the scope of his or her employment by the Fund, to be acting in such employment solely for the Fund and not as your employee or agent. 6. Duration and Termination of this Agreement. This Agreement shall remain in force until February 1, 2000 and continue from year to year thereafter, but only so long as such continuance is specifically approved at least annually with respect to each Specified Series by the vote of a majority of the Trustees who are not interested persons of you or of the Fund, cast in person at a meeting called for the purpose of voting on such approval and by a vote of the Trustees. This Agreement may, on 30 days notice, be terminated at any time without the payment of any penalty by you, and, immediately upon notice, by the Trustees or, as to a Specified Series, by vote of a majority of the outstanding voting securities of that Specified Series. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Agreement, the definitions contained in Section 2(a) of the 1940 Act, as modified by rule 18f-2 under the Act (particularly the definitions of "interested person", "assignment", and "majority of the outstanding voting securities"), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation, or order. 7. Amendment of this Agreement. No provisions of this Agreement may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge, or termination is sought, and no amendment of this Agreement shall be effective as to a -3- Specified Series until approved by the Trustees, including a majority of the Trustees who are not interested persons of you or of the Fund, cast in person at a meeting called for the purpose of voting on such approval. 8. Miscellaneous. The captions in this Agreement are included for convenience or reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction of effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9. Limitation of Liability of the Trustees and Shareholders. A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers, or shareholders individually but are binding only upon the assets and property of the appropriate Series. If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return such counterpart to the Fund, whereupon this letter shall become a binding contract. Yours very truly, MENTOR FUNDS By: ___________________________ Title: The foregoing Agreement is hereby accepted as of the date thereof. MENTOR INVESTMENT GROUP, LLC By: _____________________________ Title: -4- EXHIBIT A Mentor Institutional Tax-Exempt Money Market Portfolio -5- EX-9 4 EXHIBIT 9 (III) AGENCY AGREEMENT THIS AGREEMENT made the ___ day of ________, 1998, by and between INVESTORS FIDUCIARY TRUST COMPANY, a state chartered trust company organized and existing under the laws of the State of Missouri, having its principal place of business at 127 West 10th Street, Kansas City, Missouri 64105 ("IFTC"), and MENTOR FUNDS, a Massachusetts business trust, having its principal place of business at 901 East Byrd Street, Richmond, Virginia 23219 on behalf of each of Mentor Institutional Money Market Portfolio, Mentor Institutional U.S. Government Money Market Portfolio, and Mentor Institutional Tax- Exempt Money Market Portfolio (A reference to "Fund" shall be to Mentor Funds on behalf of each such Portfolio, severally and not jointly).: WITNESSETH: WHEREAS, Mentor Funds desires to appoint IFTC as Transfer Agent and Dividend Disbursing Agent for each Fund, and IFTC desires to accept such appointment; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Documents to be Filed with Appointment. In connection with the appointment of IFTC as Transfer Agent and Dividend Disbursing Agent for Fund, there will be filed with IFTC the following documents, upon request: -1- A. A certified copy of the resolutions of the Trustees of Mentor Funds appointing IFTC as Transfer Agent and Dividend Disbursing Agent, approving the form of -2- this Agreement, and designating certain persons to sign share certificates, if any, and give written instructions and requests on behalf of Fund; B. A certified copy of the Agreement and Declaration of Trust of Mentor Funds and all amendments thereto,: C. A certified copy of the Bylaws of Mentor Funds; D. Copies of Registration Statements and amendments thereto, filed with the Securities and Exchange Commission. E. Specimens of all forms of outstanding share certificates, in the forms approved by the Trustees of Mentor Funds, with a certificate of the Secretary of Mentor Funds as to such approval; F. Specimens of the signatures of the officers of Mentor Funds authorized to sign share certificates and individuals authorized to sign written instructions and requests; G. An opinion of counsel for Mentor Funds with respect to: (1) Mentor Funds' organization and existence under the laws of its state of organization, (2) The status of all shares of beneficial interest of Fund under the Securities Act of 1933, as amended, and any other applicable federal or state statute and (3) That all issued shares are, and all unissued shares will be, when issued, validly issued, fully paid and nonassessable. -3- 2. Certain Representations and Warranties of IFTC. IFTC represents and warrants to Fund that: A. It is a trust company duly organized and existing and in good standing under the laws of Missouri. B. It is duly qualified to carry on its business in the State of Missouri. C. It is empowered under applicable laws and by its charter and bylaws to enter into and perform the services contemplated in this Agreement. D. It is registered as a transfer agent to the extent required under the Securities Exchange Act of 1934. E. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. F. It has and will continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 3. Certain Representations and Warranties of Fund. Mentor Fund represents and warrants to IFTC that: A. It is a business trust duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts. B. It is an open-end management investment company registered under the Investment Company Act of 1940, as amended. C. A registration statement under the Securities Act of 1933 has been filed and will be effective with respect to all shares of Fund being offered for sale. -4- D. All requisite steps have been or will be taken to register Fund's shares for sale in all applicable states. E. Mentor Funds is empowered under applicable laws and by its Agreement and Declaration of Trust and bylaws to enter into and perform this Agreement. 4. Scope of Appointment. A. Subject to the conditions set forth in this Agreement, Mentor Funds hereby appoints IFTC as Transfer Agent and Dividend Disbursing Agent in respect of each Fund. B. IFTC hereby accepts such appointment and agrees that it will act as each Fund's Transfer Agent and Dividend Disbursing Agent. IFTC agrees that it will also act as agent in connection with Fund's periodic withdrawal payment accounts and other open accounts or similar plans for shareholders, if any. C. IFTC agrees to provide the necessary facilities, equipment and personnel to perform its duties and obligations hereunder in accordance with industry practice. D. Mentor Funds agrees to use its best efforts to deliver to IFTC in Kansas City, Missouri, as soon as they are available, originals or copies of all of its shareholder account records in respect of each Fund. E. IFTC agrees that it will perform the usual and ordinary services as transfer, dividend disbursing and shareholders' servicing agent for Fund, and as agent of Fund for shareholder accounts thereof, in a timely manner, including issuing -5- (including countersigning), transferring and canceling share certificates; maintaining all shareholder accounts; providing transaction journals; preparing shareholder meeting lists, mailing proxies and proxy materials, receiving and tabulating proxies, certifying the shareholder votes in the Fund; mailing shareholder reports and prospectuses; withholding, as required by Federal law, taxes on shareholder accounts, disbursing income dividends and capital gains distributions to shareholders, preparing, filing and mailing U.S. Treasury Department Forms 1099, W2-P, 1042S and backup withholding as required for all shareholders; preparing and mailing confirmation forms to shareholders and dealers, as instructed, for all purchases and liquidations of shares of the Fund and other confirmable transactions in shareholders' accounts; recording reinvestment of dividends and distributions in shares of the Fund; providing or making available on-line daily and monthly reports as provided by the mutual fund processing system utilized by IFTC (the "DST System") and as requested by the Fund or its management company; maintaining those records necessary to carry out IFTC's duties hereunder, including all information reasonably required by the Fund to account for all transactions in Fund shares, calculating the appropriate sales charge with respect to each purchase of Fund shares as set forth in the prospectus for the Fund, determining the portion of each sales charge payable to the dealer participating in a sale in accordance with schedules delivered to IFTC by the Fund's principal underwriter or distributor (hereinafter -6- "principal underwriter") from time to time, disbursing dealer commissions collected to such dealers, determining the portion of each sales charge payable to such principal underwriter and disbursing such commissions to the principal underwriter; receiving correspondence pertaining to any former, existing or new shareholder account, processing such correspondence for proper recordkeeping, and responding promptly to shareholder correspondence; processing, as provided in the Fund's prospectus, purchases or redemptions or instructions to settle any mail or wire order purchases or redemptions received in proper order as set forth in the prospectus, rejecting promptly any requests not received in proper order (as defined by the Fund or its designated agents), and causing exchanges of shares to be executed in accordance with the Fund's instructions and prospectus and the general exchange privilege application, as they may be amended for time to time; mailing to dealers confirmations of wire order trades; and mailing copies of shareholder statements to shareholders and registered representatives of dealers in accordance with the Fund's instructions. F. IFTC will use reasonable efforts to provide, reasonably promptly under the circumstances, the same services with respect to any new, additional functions or features or any changes or improvements to existing functions or features as provided for in the Fund's prospectus as amended from time to time, provided, however, that IFTC is advised in advance by the Fund of any changes therein and the mutual fund processing system utilized by IFTC (the "DST System") as -7- then constituted supports such additional functions and features. If any addition to, improvement of or change in the features and functions currently provided by the DST System requested by the Fund requires an enhancement or modification to the DST System, IFTC shall not be liable therefor until such modification or enhancement is installed on the DST System. If any new, additional function or feature or change or improvement to existing functions or features or new service measurably increases IFTC's cost of performing the services required hereunder at the current level of service, IFTC shall advise the Fund of the amount of such increase and if the Fund elects to utilize such function, feature or service, IFTC shall be entitled to increase its fees by the amount of the increase in costs. 5. Limit of Authority. Unless otherwise expressly limited by the resolution of appointment or by subsequent action by the Fund, the appointment of IFTC as Transfer Agent will be construed to cover the full amount of authorized shares of the class or classes for which IFTC is appointed as the same will, from time to time, be constituted, and any subsequent increases in such authorized amount. 6. Compensation and Expenses. A. In consideration for its services hereunder as Transfer Agent and Dividend Disbursing Agent, Fund will pay to IFTC from time to time, as compensation for all services rendered as Agent, the fees set forth in a separate schedule to be -8- B. agreed to by Fund and IFTC in writing from time to time and also all its reasonable out-of-pocket expenses, charges, counsel fees, and other disbursements (Compensation and Expenses) incurred in connection with the agency. The initial fee schedule is attached hereto and incorporated herein by reference. If the Fund has not paid such Compensation and Expenses to IFTC within a reasonable time, IFTC may charge against any monies held under this Agreement, the amount of any Compensation and/or Expenses for which it shall be entitled to reimbursement under this Agreement. The Fund also agrees promptly to reimburse IFTC for all reasonable out of- pocket expenses or disbursements incurred by IFTC in connection with the performance of services under this Agreement including, but not limited to, expenses for postage (in advance if requested), express delivery services, freight charges, envelopes, checks, drafts, forms (continuous or otherwise), specially requested reports and statements, telephone calls, telegraphs, stationery supplies, reasonable outside counsel fees, outside mailing fu-ms, (including Support Resources, Inc.), magnetic tapes, reels or cartridges (if sent to Fund or to a third party at Fund's request) and magnetic tape handling charges, record storage and media for storage of records (e.g., microfilm, microfiche, optical platters, computer tapes), computer equipment installed at the Fund's request at the Fund's or third party's premises, telecommunications equipment and related telephone lines, proxy soliciting, processing and/or tabulating costs, and NSCC -9- transaction fees to the extent any of the foregoing are paid by IFTC. The Fund agrees to pay postage expenses at least one day in advance if so requested. In addition, any other expenses incurred by IFTC at the request or with the consent of the Fund will be promptly reimbursed by the Fund. 7. Operation of IFTC System. A. In connection with the performance of its services under this Agreement, IFTC is responsible for such items as: (1) The accuracy of entries in IFTC's records reflecting orders and instructions received by IFTC from dealers, shareholders, Fund or its principal underwriter; (2) The availability and the accuracy of shareholder lists, shareholder account verifications, confirmations and other shareholder account information to be produced from its records or data; (3) The accurate and timely issuance of dividend and distribution checks in accordance with instructions received from Fund; (4) The accuracy of redemption transactions and payments in accordance with redemption instructions received from dealers, shareholders or Fund; (5) The deposit daily in Fund's appropriate special bank account of all checks and payments received from dealers or shareholders for investment in shares; -10- (6) The requiring of proper forms of instruction, signatures and signature guarantees and any necessary documents supporting the legality of transfers, redemptions and other shareholder account transactions, all in conformance with IFTC's present procedures with such changes as may be required or approved by Fund; and (7) The maintenance of a current duplicate set of Fund's essential records at a secure distant location, in a form available and usable forthwith in the event of any break-down or disaster disrupting its main operation. 8. Indemnification. A. IFTC shall at all times use reasonable care, due diligence and act in good faith in performing its duties under this Agreement. Except to the extent caused by IFTC's bad faith conduct, IFTC shall not be responsible for, and the Fund shall indemnify and hold IFTC harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability which may be asserted against IFTC or for which IFTC may be held to be liable, to the extent arising out of or attributable to: (1) All actions of IFTC required to be taken by IFTC pursuant to this Agreement, provided that IFTC has acted in good faith and with due diligence and reasonable care; -11- (2) The Fund's refusal or failure to comply with the terms of this Agreement, the Fund's negligence or willful misconduct, or the breach of any representation or warranty of the Fund hereunder; (3) The good faith reliance on, or the carrying out of, any written or recorded oral instructions or requests of persons designated by the Fund in writing from time to time as authorized to give instructions on its behalf or representatives of the Fund's investment advisor, sponsor or principal underwriter or IFTC's good faith reliance on, or use of, information, data, records and documents received from, or which have been prepared and/or maintained by the Fund, its investment advisor, its sponsor or its principal underwriter; (4) Defaults by dealers or shareowners with respect to payment for share orders previously entered; (5) The offer or sale of the Fund's shares in violation of any requirement under federal securities laws or regulations or the Securities laws or regulations of any state or in violation of any stop order or other determination or ruling by any federal agency or state with respect to the offer or sale of such shares in such state (unless such violation results from IFTC's failure to comply with written instructions of the Fund or of any officer of the Fund that no offers or sales be made in or to residents of such state); -12- (6) The Fund's errors and mistakes in the use of the DST System, the data center, computer and related equipment used to access the DST System (the "DST Facilities"), and control procedures relating thereto in the verification of output and in the remote input of data; and (7) Errors, inaccuracies, and omissions in, or errors, inaccuracies or omissions of IFTC arising out of or resulting from such errors, inaccuracies and omissions in, the Fund's records, shareholder and other records, delivered to IFTC hereunder by the Fund or its prior agent(s). B. IFTC shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of IFTC's failure to comply with the terms of this Agreement or arising out of or attributable to IFTC's negligence or willful misconduct or breach of any representation or warranty of IFTC hereunder. In the event IFTC shall be liable under this subsection, then the Fund shall (unless the liability arises out of IFTC's willful misconduct) take reasonable steps with IFTC to mitigate the amount of such liability. C. EXCEPT FOR VIOLATIONS OF SECTION 23., IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY, FOR CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES FOR ANY ACT OR FAILURE TO -13- ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THE POSSIBILITY THEREOF. 9. Certain Covenants of IFTC and Fund. A. All requisite steps will be taken by Fund from time to time when and as necessary to register the Fund's shares for sale in 0 states in which Fund's shares shall at the time be offered for sale and require registration. If at any time Fund will receive notice of any stop order or other proceeding in any such state affecting such registration or the sale of Fund's shares, or of any stop order or other proceeding under the federal securities laws affecting the sale of Fund's shares, Fund will give prompt notice thereof to IFTC. B. IFTC hereby agrees to perform such transfer agency functions as are set forth in Section 4.E. above and establish and maintain facilities and procedures reasonably acceptable to Fund for safekeeping of share certificates, check forms, and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices, and to carry such insurance as it considers adequate and reasonably available. C. To the extent required by Section 31 of the Investment Company Act of 1940 as amended and Rules thereunder, IFTC agrees that all records maintained by IFTC relating to the services to be performed by IFTC under this Agreement are -14- the property of Fund and will be preserved and will be surrendered promptly to Fund on request. D. IFTC agrees to furnish Fund semiannual reports of its financial condition, consisting of a balance sheet, earnings statement and any other financial information reasonably requested by Fund. The annual financial statements will be certified by IFTC's certified public accountants. E. IFTC represents and agrees that it will use its best efforts to keep current on the trends of the investment company industry relating to shareholder services and will use its best efforts to continue to modernize and improve. F. IFTC will permit Fund and its authorized representatives to make periodic inspections of its operations as such would involve the Fund at reasonable times during business hours. 10. Recapitalization or Readjustment. In case of any recapitalization, readjustment or other change in the capital structure of Fund requiring a change in the form of share certificates, IFTC will issue or register certificates in the new form in exchange for, or in transfer of, the outstanding certificates in the old form, upon receiving: A. Written instructions from an officer of Fund; B. Certified copy of the amendment to Mentor Funds' Agreement and Declaration of Trust or other document effecting the change; -15- C. Certified copy of the order or consent of each governmental or regulatory authority, required by law to the issuance of the shares in the new form, and an opinion of counsel that the order or consent of no other government or regulatory authority is required; D. Specimens of the new certificates in the form approved by the Trustees of Mentor Funds, with a certificate of the Secretary of Mentor Funds as to such approval; E. Opinion of counsel for Mentor Funds stating: (1) The status of the shares of beneficial interest of Fund in the new form under the Securities Act of 1933, as amended and any other applicable federal or state statute; and (2) That the issued shares in the new form are, and all unissued shares will be, when issued, validly issued, fully paid and nonassessable. 11. Share Certificates. Fund will furnish IFTC with a sufficient supply of blank share certificates and from time to time will renew such supply upon the request of IFTC. Such certificates will be signed manually or by facsimile signatures of the officers of Fund authorized by law and by bylaws to sign share certificates, and if required, will bear the corporate seal or facsimile thereof. 12. Death, Resignation or Removal of Signing Officer. -16- Fund will file promptly with IFTC written notice of any change in the officers authorized to sign share certificates, written instructions or requests, together with two signature cards bearing the specimen signature of each newly authorized officer. In case any officer of Fund who will have signed manually or whose facsimile signature will have been affixed to blank share certificates will die, resign, or be removed prior to the issuance of such certificates, IFTC may issue or register such share certificates as the share certificates of Fund notwithstanding such death, resignation, or removal, until specifically directed to the contrary by Fund in writing. In the absence of such direction, Fund will file promptly with IFTC such approval, adoption, or ratification as may be required by law. 13. Future Amendments of Charter and Bylaws. Fund will promptly file with IFTC copies of all material amendments to its Agreement and Declaration of Trust or bylaws made after the date of this Agreement. 14. Instructions, Opinion of Counsel and Signatures. At any time IFTC may apply to any person authorized by the Fund to give instructions to IFTC, and may with the approval of a Fund officer consult with legal counsel for Fund or its own legal counsel at the expense of Fund, with respect to any matter arising in connection with the agency and it will not be liable for any action taken or omitted by it reasonably and in good faith in reliance upon such instructions or upon the opinion of such counsel. IFTC will be protected in acting upon any paper or document reasonably believed by it to be genuine and to have been signed by the proper person or -17- persons and will not be held to have notice of any change of authority of any person, until receipt of written notice thereof from Fund. It will also be protected in recognizing share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the officers of Mentor Funds, and the proper countersignature of any former Transfer Agent or Registrar, or of a co-Transfer Agent or co-Registrar. 15. Omnibus Accounts. The Fund recognizes that the Fund shall be marketed primarily through broker-dealers whose clients' positions and holdings in the Fund will be contained within an omnibus account in the broker-dealer's name. Accordingly, the books and records of the Fund as maintained by IFTC may not reflect the name, address and other identifying information concerning the ultimate investors but merely the name, address and other identifying information concerning the nominee broker-dealer. Further, IFTC shall not have any role or responsibility in choosing, accepting or rejecting prospective broker-dealer nominees. Accordingly, IFTC shall have no responsibility or liability for the actions or omissions of any such broker-dealer. 16. [Intentionally Omitted]. 17. Records. IFTC will maintain customary records in connection with its agency, and particularly will maintain those records required to be maintained pursuant to subparagraph (2) (iv) of paragraph (b) of Rule 31a-l under the Investment Company Act of 1940, if any. 18. Disposition of Books, Records and Canceled Certificates. -18- IFTC will send periodically to Fund, or to where designated by the Secretary or an Assistant Secretary of Mentor Funds, all books, documents, and all records no longer deemed needed for current purposes and share certificates which have been canceled in transfer or in exchange, upon the understanding that such books, documents, records, and share certificates will be maintained by the Fund under and in accordance with the requirements of Section 17Ad-7 adopted under the Securities Exchange Act of 1934. Such materials relating to share certificates which have been stopped and replaced and share certificates escheated will not be destroyed by Fund without the written consent of IFTC (which consent will not be unreasonably withheld), but will be safely stored for possible future reference. 19. Provisions Relating to IFTC as Transfer Aunt. A. IFTC will make original issues of share certificates upon written request of an officer of Fund and upon being furnished with a certified copy of a resolution of the Trustees authorizing such original issue, an opinion of counsel as outlined in paragraphs LD. and G. of this Agreement, any documents required by paragraphs 5. or 10. of this Agreement, and necessary funds for the payment of any original issue tax. B. Before making any original issue of certificates Fund will furnish IFTC with sufficient funds to pay all required taxes on the original issue of the share, if any. Fund will furnish IFTC such evidence as may be required by IFTC to show the actual value of the shares. -19- C. Shares will be transferred and new certificates issued in transfer, or shares accepted for redemption and funds remitted therefor, upon surrender of the old certificates in form reasonably deemed by IFTC properly endorsed for transfer or redemption accompanied by such documents as IFTC may reasonably deem necessary to evidence that authority of the person making the transfer or redemption, and bearing satisfactory evidence of the payment of any applicable share transfer taxes. IFTC reserves the right to refuse to transfer or redeem shares until it is satisfied that the endorsement or signature on the certificate or any other document is valid and genuine, and for that purpose it may require a guaranty of signature by a firm having membership in the New York Stock Exchange, Midwest Stock Exchange, American Stock Exchange, Pacific Coast Stock Exchange, or any other exchange acceptable to IFTC or by a bank or trust company approved by it. IFTC also reserves the right to refuse to transfer or redeem shares until it is satisfied that the requested transfer or redemption is legally authorized, and it will incur no liability for the refusal in good faith to make transfers or redemptions which, in its reasonable judgment, are improper or unauthorized. IFTC may, in effecting transfers or redemptions, rely upon Simplification Acts or other statutes which protect it and Fund in not requiring complete fiduciary documentation. D. When mail is used for delivery of share certificates IFTC will forward share certificates in "nonnegotiable" form by first class or registered mail and share -20- certificates in "negotiable" form by registered mail, all such mail deliveries to be covered while in transit to the addressee by insurance arranged for by IFTC. E. IFTC will issue and mail subscription warrants, certificates representing share dividends, exchanges or split ups, or act as Conversion Agent upon receiving written instructions from any officer of Mentor Funds and such other documents as IFTC deems necessary. F. IFTC will issue, transfer, and split up certificates and will issue certificates representing full shares upon surrender of scrip certificates aggregating one full share or more when presented to IFTC for that purpose upon receiving written instructions from an officer of Mentor Funds and such other documents as IFTC may deem necessary. G. IFTC may issue new certificates in place of certificates represented to have been lost, destroyed, stolen or otherwise wrongfully taken upon receiving instructions from Fund and indemnity satisfactory to IFTC and Fund, and may issue new certificates in exchange for, and upon surrender of, mutilated certificates. Such instructions from Fund will be in such form as will be approved by the Trustees of Fund and will be in accordance with the provisions of law and the bylaws of Fund governing such matter. H. IFTC will supply a shareholder's list to Fund for any shareholder meeting upon receiving a request from an officer of Mentor Funds. It will also supply lists at such other times as may be requested by an officer of Mentor Funds. -21- I. Upon receipt of written instructions of an officer of Mentor Funds, IFTC will address and mail notices to shareholders. J. In case of any request or demand for the inspection of the share books of Fund or any other books in the possession of IFTC, IFTC will endeavor to notify Fund and to secure instructions as to permitting or refusing such inspection. IFTC reserves the right, however, to exhibit the share books or other books to any person in case it is advised by its counsel that it may be held responsible for the failure to exhibit the share books or other books to such person. 20. Provisions Relating to Dividend Disbursing Agency. A. IFTC will, at the expense of Fund, provide a special form of check containing the imprint of any device or other matter desired by Fund. Said checks must, however, be of a form and size convenient for use by IFTC. B. If Fund desires to include additional printed matter, financial statements, etc., with the dividend checks, the same will be furnished IFTC within a reasonable time prior to the date of mailing of the dividend checks, at the expense of Fund. C. If Fund desires its distributions mailed in any special form of envelopes, sufficient supply of the same will be furnished to IFTC but the size and form of said envelopes will be subject to the approval of IFTC. If stamped envelopes are used, they must be furnished by Fund; or if postage stamps are to be affixed to the envelopes, the stamps or the cash necessary for such stamps must be furnished by Fund. -22- IFTC will maintain one or more deposit accounts as Agent for Fund, into which the monies received by IFTC as agent of the Fund and monies for payment of dividends, distributions, redemptions or other disbursements provided for hereunder will be deposited, and against which checks will be drawn. If IFTC shall, in its sole discretion, advance funds to the account of the Fund which results in an overdraft on any account of Fund maintained at IFTC, the amount of the overdraft shall be payable on demand along with the overdraft fee provided for in the then-current fee schedule. IFTC shall be entitled to offset the amount owed for any such overdraft against any other monies of Fund held by IFTC. E. IFTC is authorized and directed to stop payment of checks theretofore issued hereunder, but not presented for payment, when the payees thereof allege either that they have not received the checks or that such checks have been mislaid, lost, stolen, destroyed or through no fault of theirs, are otherwise beyond their control, and cannot be produced by them for presentation and collection, and, upon receipt of appropriate indemnities or undertakings from the payees, to issue and deliver duplicate checks in replacement thereof. 21. Assumption of Duties By the Fund. The Fund may assume certain duties and responsibilities of IFTC or those usual and ordinary services of Transfer Agent and Dividend Disbursement Agent as those terms are referred to in Section 4.E. of this Agreement including but not limited to accepting -23- shareholder instructions and transmitting orders based on such instructions to IFTC, preparing and mailing confirmations, obtaining certified TIN numbers, and disbursing monies of the Fund. To the extent the Fund or its agent or affiliate assumes such duties and responsibilities, IFTC shall be relieved from all responsibility and liability therefor. 22. Termination of Agreement. A. This Agreement may be terminated by either party upon receipt of ninety (90) days written notice from the other party. B. Fund, in addition to any other rights and remedies, shall have the right to terminate this Agreement forthwith upon the occurrence at any time of any of the following events: (1) Any interruption or cessation of operations by IFTC or its assigns which materially interferes with the business operation of Fund; (2) The insolvency or bankruptcy of IFTC or the appointment of a receiver for IFTC; (3) Any merger, consolidation or sale of substantially all the assets of IFTC; (4) The acquisition of a controlling interest in IFTC by any broker, dealer, investment adviser or investment company except as may presently exist; or (5) Failure by IFTC or its assigns to perform its duties in accordance with the Agreement, which failure materially adversely affects the business operations of Fund and which failure continues for ten (10) business days -24- after receipt of written notice from Fund; provided, however, that notwithstanding the foregoing, if such failure cannot reasonably be cured within ten (10) business days, then IFTC shall have such time as is reasonably necessary to cure such failure, but not to exceed thirty (30) days. C. In the event of termination, Fund will promptly pay IFTC all amounts due to IFTC hereunder. D. In the event of termination, (1) IFTC will transfer the books and records of the Fund to the designated successor transfer for reasonable compensation therefor, and (2) IFTC will provide other reasonably necessary information relating to its services provided hereunder other than IFTC Protected Information (as defined in Section 23.C.) for reasonable compensation therefor. 23. Confidentiality. A. IFTC agrees that, except as provided in the last sentence of Section 19.J hereof, or as otherwise required by law, IFTC will keep confidential all records of and information in its possession relating to Fund or its shareholders or shareholder accounts and will not disclose the same to any person except at the request or with the consent of Fund. B. Fund agrees that, except as otherwise required by law, Fund will keep confidential all financial statements and other financial records (other than statements and records relating solely to Fund's business dealings with IFTC or -25- Fund operations) and all manuals, systems and other technical information and data, not publicly disclosed, relating to IFTC's operations and programs furnished to it by IFTC pursuant to this Agreement and will not disclose the same to any person except at the request or with the consent of IFTC. C. The Fund acknowledges that IFTC and DST Systems, Inc. (DST) have proprietary rights in and to the computerized data processing recordkeeping system used by IFTC to perform services hereunder including, but not limited to the maintenance of shareholder accounts and records, processing of related information and generation of output (the MFS System), including, without limitation any changes or modifications of the MFS System and any other IFTC or DST programs, data bases, supporting documentation, or procedures (collectively "IFTC Protected Information") which the Fund's access to the MFS System or computer hardware or software may permit the Fund or its employees or agents to become aware of or to access and that the IFTC Protected Information constitutes confidential material and trade secrets of IFTC. The Fund agrees to maintain the confidentiality of the IFTC Protected Information. The Fund acknowledges that any unauthorized use, misuse, disclosure or taking of IFTC Protected Information which is confidential as provided by law, or which is a trade secret, residing or existing internal or external to a computer, computer system, or computer network, or the knowing and unauthorized accessing or causing to be accessed of any computer, -26- computer system, or computer network, may be subject to civil liabilities and criminal penalties under applicable state law. The Fund will advise all of its employees and agents who have access to any IFTC Protected Information or to any computer equipment capable of accessing IFTC or DST hardware or software of the foregoing. DST is intended to be, and shall be, a third party beneficiary of the Fund's obligations and undertakings contained in this Section. D. If either party believes at any time that it is or may be required by law to disclose confidential information of the other party, it shall notify such other party thereof as promptly as possible and permit the other party to contest the disclosure by appropriate legal proceedings or other action. 24. Changes and Modifications. A. During the term of this Agreement IFTC will use on behalf of the Fund without additional cost all modifications, enhancements, or changes which DST or IFTC may make to its shareholder/transfer agent processing system in the normal course of its business and which are applicable to functions and features offered by the Fund, unless substantially all DST or IFTC clients are charged separately for such modifications, enhancements or changes, including, without limitation, substantial system revisions or modifications necessitated by changes in existing laws, rules or regulations. The Fund agrees to pay IFTC promptly for modifications and improvements utilized by the Fund which are charged for separately at the rate provided for in DST's or IFTC's standard pricing schedule -27- which shall be identical for substantially all clients, if a standard pricing schedule shall exist, provided that IFTC shall give the Fund ninety (90) days advance written notice thereof. If there is no standard pricing schedule, the parties shall mutually agree upon the rates to be charged. -28- B. IFTC shall have the right, at any time and from time to time, to alter and modify any systems, programs, procedures or facilities used or employed in performing its duties and obligations hereunder; provided that the Fund will be notified as promptly as possible prior to implementation of such alterations and modifications and that no such alteration or modification or deletion shall materially adversely change or affect the operations and procedures of the Fund unless the Fund is given sixty (60) days prior notice to allow the Fund to change its procedures; and provided further, that if any fee increase shall result therefrom, IFTC shall give the Fund ninety (90) days advance written notice thereof. All enhancements, improvements, changes, modifications or new features added to the DST System however developed or paid for shall be, and shall remain, the confidential and exclusive property of, and proprietary to, DST Systems, Inc. Notwithstanding the foregoing, at the request of the Fund, all enhancements, improvements, modifications or new features added to the DST System developed at the expense of the Fund, may be subject to a period of exclusivity as mutually agreed to by the Fund and IFTC, which period may not exceed three (3) months. 25. Subcontractors. The Fund acknowledges that IFTC intends to subcontract certain obligations hereunder and consents to such subcontract on condition that IFTC shall remain fully responsible and liable for the complete and proper performance of IFTC's obligations hereunder, -29- that all acts and omissions of any such subcontractor hereunder shall for all purposes hereof be considered and deemed to be acts or omissions of IFTC and that the Fund shall be fully responsible and liable hereunder to IFTC as if no subcontract had occurred and such obligations had been performed by IFTC itself. 26. Force Majeure. IFTC shall not be responsible or liable for its failure or delay in performance of its obligations under this Agreement to the extent arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation: any interruption, loss or malfunction or any utility, transportation, computer (hardware or software) or communication service; inability to obtain labor, material, equipment or transportation, or a delay in mails; governmental or exchange action, statute, ordinance, rulings, regulations or direction; war, strike, riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes, floods, fires, tornados, acts of God or public enemy, revolutions, or insurrection; or any other cause, contingency, circumstance or delay not subject to IFTC's reasonable control. 27. Declaration of Trust. The parties agree that this Agreement shall constitute a separate and discrete agreement between IFTC and each Fund, as if set out in a separate writing executed by IFTC and Mentor Funds on behalf solely of that Fund alone, and no other series of shares of Mentor Funds shall have any obligation or incur any liability under or -30- in respect of such agreement. Any reference in this Agreement to a "Fund" shall be construed so as to give effect to the foregoing. A copy of the Agreement and Declaration of Trust of Mentor Funds is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of Mentor Funds as Trustees and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or beneficiaries individually, but binding only upon the assets and property of the Fund in question. 28. Miscellaneous. A. This Agreement shall be construed according to, and the rights and liabilities of the parties hereto shall be governed by, the laws of the State of Missouri. B. All terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. C. The representations and warranties, and the indemnification extended hereunder, if any, are intended to and shall continue after and survive the expiration, termination or cancellation of this Agreement. D. No provisions of the Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed each party hereto. -31- E. The captions in the Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. F. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. G. If any part, term or provision of this Agreement is by the courts held to be illegal, in conflict with any law or otherwise invalid, the remaining portion or portions shall be considered severable and not be affected, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular part, term or provision held to be illegal or invalid. H. This Agreement may not be assigned by any party hereto without prior written consent of the other parties. I. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and between Fund and IFTC. J. Except as specifically provided herein, this Agreement does not in any way affect any other agreements entered into among the parties hereto and any actions taken or omitted by any party hereunder shall not affect any rights or obligations of any other party hereunder. -32- K. The failure of either party to insist upon the performance of any terms or conditions of this Agreement or to enforce any rights resulting from any breach of any of the terms or conditions of this Agreement, including the payment of damages, shall not be construed as a continuing or permanent waiver of any such terms, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. L. This Agreement constitutes the entire agreement between the par-ties hereto and supersedes any prior agreement, draft or agreement or proposal with respect to the subject matter hereof, whether oral or written, and this Agreement may not be modified except by written instrument executed by both parties. -33- WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers, to be effective the ____ day of _________, 1998. INVESTORS FIDUCIARY TRUST COMPANY By:_______________________________ Title:____________________________ MENTOR FUNDS By:_______________________________ Title:____________________________ -34- EX-9 5 EXHIBIT 9 (IV) DRAFT PROCESSING AGENCY AGREEMENT This Draft Processing Agency Agreement ("Agreement") is hereby entered into as of this ___ day of _________, 1998, by and between INVESTORS FIDUCIARY TRUST COMPANY, a Missouri trust company having its principal offices at 127 West 10th Street, Kansas City, Missouri 64105-1716 ("IFTC") and MENTOR FUNDS, a Massachusetts business trust having its principal offices at 901 East Byrd Street, Richmond, Virginia 23219, on behalf of each of Mentor Institutional Money Market Portfolio, Mentor Institutional U.S. Government Money Market Portfolio, and Mentor Institutional Tax-Exempt Money Market Portfolio. (A reference to "Fund" shall be to Mentor Funds on behalf of each such Portfolio, severally and not jointly). WHEREAS, Fund desires to make available to its participating shareholders ("Shareholders") a feature by which such Shareholders may authorize the Fund to redeem shares ("Shares") of the Fund owned by such Shareholder and may access the proceeds of such redemptions through the use of drafts drawn on such Fund and made payable through a financial institution that serves as the Fund's paying, clearing, settlement and processing agent; WHEREAS, in order to make such feature available to its Shareholders, Fund desires to enter into an arrangement with a financial institution under which such financial institution would perform certain payment, clearing, processing, presentation, settlement and other services with respect to such drafts; and WHEREAS, IFTC is willing to provide certain such services to the Fund, on certain terms and conditions; NOW, THEREFORE, in consideration of the premises and mutual covenants set forth in this Agreement, the parties hereby agree as follows: 1. Drafts. All drafts ("Drafts") to be processed by IFTC under this Agreement shall conspicuously state that they are "payable through" IFTC and shall contain such other identification, names, numbers, MICR codes and other information as IFTC may from time to time reasonably specify. IFTC shall have no obligation to perform any services hereunder with respect to any Draft that does not contain all markings and information so specified by IFTC or is -1- not in a form which has been expressly approved by IFTC. The cost of designing, printing and distributing Drafts to Shareholders shall be borne solely by the Fund. 2. Receipt of Drafts. Drafts shall contain names and MICR coding such that they will be received by a bank ("Sub-Agent") designated by IFTC to act as IFTC's sub-agent for purposes of receiving from the Federal Reserve Bank of Kansas City Drafts payable through IFTC. For purposes of this Agreement, the term "Banking Day" shall mean each day on which the Federal Reserve Bank of Kansas City is open for business. All Drafts presented by the Federal Reserve Bank of Kansas City to IFTC's Sub-Agent between 2:01 p.m. Central Time of each Banking Day and 2:00 p.m. Central Time the next-following Banking Day shall be batched and shall be deemed to have been presented to IFTC on such next-following Banking Day. 3. Daily Report. Each Banking Day, IFTC shall prepare and transmit to the Fund or a designated agent of the Fund an electronic data transmission (the "Daily Report") containing the following information with respect to each Draft in the batch presented to the Sub-Agent on that Banking Day: Draft number, amount of Draft, Fund number, Fund account number, date of Draft, and all other information contained on the MICR line supplied by the Federal Reserve Bank of Kansas City. Additionally, each Daily Report shall reflect, with respect to each Fund number, the total amounts of all Drafts contained in the batch received by IFTC's -Sub-Agent on that Banking Day that were drawn on such Fund (the "Settlement Amount"). IFTC shall cause the Daily Reports to be transmitted on an overnight basis so as to be received by Fund prior to 8 a.m. Eastern Time on the next Banking Day. 4. Review of Drafts. Fund shall at all times provide IFTC a current and updated listing of all Fund accounts on which Draft privileges have been extended to the respective Shareholders, the names of all Shareholders whose signatures are required on such Drafts, and signature cards containing signature specimens of such Shareholders. Fund will immediately notify IFTC in writing in the event that Draft privileges are terminated on any such account or if the account is closed or terminated; until the first Banking Day following IFTC's receipt of such written notification, IFTC is authorized to continue to perform its duties under this Agreement (including, without limitation, the honoring, dishonoring, payment and settlement of Drafts of Shareholders whose Draft privileges are canceled and/or accounts terminated) as if such -2- privileges had not been revoked and/or accounts terminated. If the Fund does not furnish to IFTC a signature card with respect to a Shareholder whose name appears on a Draft received by IFTC or its Sub-Agent, IFTC shall have no duty whatsoever with respect to reviewing or comparing any signatures on such Draft, but shall, if the amount of such Draft equals or exceeds the $5,000 threshold set forth below, list such Draft on the "Notification of Proposed Dishonor" list provided by it to Fund pursuant to the provisions of section 6 below. IFTC shall review each Draft in the amount of $5,000 or more in the batch presented to its Sub-Agent on each Banking Day, for purposes of comparing the signature(s) contained on the Draft against the applicable signature cards furnished to IFTC by the Fund with respect to the Shareholder whose name(s) is printed on such Draft, and to determine whether the Draft contains the purported signature of all parties required by the applicable signature card. IFTC will also review each such Draft for evidence of any "material alteration" (as defined in the Uniform Commercial Code of the State of Missouri) to the Draft. If, based upon such inspection, IFTC determines that the signature on a Draft appears different from that on the respective signature card, or that there is evidence of material alteration, IFTC shall so notify Fund in accordance with the provisions of Section 6 below (by listing the Draft on the "Notification of Proposed Dishonor") , shall send Fund a copy of such Draft and the applicable signature card (if any) held by IFTC, and shall inform Fund that IFTC proposes to dishonor the Draft for that reason. Unless IFTC is instructed by Fund in accordance with the timetable and provisions of Section 6 below to honor such Draft, IFTC is deemed to be authorized and instructed by Fund to dishonor each such Draft on such Notification of Proposed Dishonor on the following Banking Day and return it through such procedures and methods as IFTC deems proper. The Fund acknowledges and agrees that the only duty or standard of care that IFTC shall have with respect to comparison of signatures and determination of material alterations, whether hereunder or under any provision of applicable law, shall be to exercise reasonable care in an effort to determine that the signature(s) on each Draft of $5,000 or more drawn on an account for which IFTC has been provided a signature card reasonably appears to be the same as those appearing on the respective signature card(s), and that the Draft does not contain any obvious evidence of a material alteration. It is agreed that if IFTC uses reasonable care in carrying out -3- such duties, it shall have no liability even if it is subsequently established that there was a forgery or alteration on a Draft. Notwithstanding anything contained above to the contrary, it is expressly agreed and understood that IFTC shall have no duty or obligation whatsoever to review any Draft for signature verification or material alteration if such Draft purports to be drawn in an amount of less than $5,000 or if IFTC has not been provided a signature card for all Shareholders whose name(s) appear on such Draft. IFTC is authorized and instructed to cause each Draft under $5,000 to be honored and paid unless instructed otherwise through an Exception Report or effective stop payment order furnished to it pursuant to the provisions of, and within the deadlines established by, this Agreement. IFTC shall also have no responsibility or liability whatsoever with respect to the genuineness, effectiveness, sufficiency or existence of any endorsements on any Draft, regardless of amount. 5. Stop Payment Orders. The Fund may send IFTC a stop payment order with respect to any Draft. The Fund may also -instruct its Shareholders to send directly to IFTC any stop payment orders that the Shareholder may wish to make effective with respect to a Draft drawn by such Shareholder. If IFTC receives a stop payment order from the Fund or from a Shareholder, it is authorized to, and shall, act upon the stop payment order in accordance with the following terms and conditions. Each stop payment order must contain the following information: the name and number of the Fund on which the Draft was drawn, the Draft number, the Shareholder's name and number that appears on the Draft, the amount and date of the Draft, and such other information as IFTC may reasonably from time to time request. Any stop payment order received by IFTC in writing shall be effective for a period of six months, and any stop payment order received by telephone shall be effective only for 14 days unless written confirmation of same is received within such 14 day period, in which case the total effective period of the stop order payment shall be six months. Any stop payment order received by IFTC on a Banking Day prior to 10:30 a.m. Central Time shall become effective on the same Banking Day; a stop payment order received by IFTC after 10:30 a.m. Central Time shall not become effective until the following Banking Day. -4- Notwithstanding the foregoing, IFTC is authorized, but not ,obligated, to waive any requirement set forth above with respect to a stop payment order and to act on any stop payment order that does not fully comply with the above requirements, irrespective of whether the stop payment order has yet become effective pursuant to the foregoing provisions. If a Daily Report reflects a Draft with respect to which there is outstanding an effective stop payment order or a stop payment order that IFTC has elected to honor (notwithstanding its effectiveness or non-compliance with the requirements of this Section 5), IFTC will so notify Fund either in the respective Daily Report or by separate notification. 6. Notification of Dishonored Items and Items for Which no Signature Card was Furnished. As early as reasonably possible each Banking Day IFTC shall notify Fund of each Draft presented to it on the preceding Banking Day (identifying it by Fund number, Shareholder number, date and amount) that it proposes to dishonor as a result of the examination and review to be conducted by it pursuant to the provisions of Section 4 above, or as a result of its receipt of a stop payment order relating to such Draft, or as a result of its not having been furnished with a signature card for the Shareholder(s) whose name(s) appear on such Draft. Such notification ("Notification of Proposed Dishonor") shall be by telephone or facsimile device sent to such place as the Fund shall specify from time to time. A copy of the Draft and any signature card applicable to the Shareholder whose name(s) are printed thereon that Bank has in its possession shall also be sent to Fund at the same time. If IFTC receives notice from the Fund pursuant to the provisions of Section 7 below or otherwise notifying IFTC to honor a Draft notwithstanding the fact that IFTC had proposed to dishonor it, Fund shall be deemed to have unconditionally honored and approved the Draft for payment, and IFTC is authorized to cause the Draft to be honored, and the Fund agrees to reimburse IFTC with respect to such Draft in accordance with the schedule and procedures set forth in Section 10 hereof. If by the later of (i) one hour after IFTC has given the Fund the Notification of Proposed Dishonor or (ii) 10:30 a.m. Central Time on such Banking Day, Fund has not notified IFTC pursuant to the provisions of Section 7 below or otherwise to honor and pay such Draft, IFTC shall be deemed to be authorized and instructed to dishonor the Draft. -5- 7. Exception Report. Provided IFTC has met the deadline set forth in Section 3 for transmission of the relevant Daily Report, no later than 10:30 a.m. Central Time each Banking Day (or, in the case of exceptions to the Notification of Proposed Dishonor, no later than the time specified in the immediately preceding Section) , the Fund shall, either by electronic data transmission or written notice, deliver to IFTC a listing (the "Exception Report") identifying each Draft listed in the Daily Report received by the Fund with respect to the immediately-preceding Banking Day that the Fund desires to dishonor and specifically identifying each Draft listed in the latest Notification of Proposed Dishonor that Fund desires to have honored. Each Draft shall be identified by the Fund number, Shareholder number, amount, date, Draft number and such other information as IFTC may require from time to time. IFTC is authorized and directed to cause all Drafts identified on each Exception Report to be dishonored or honored, as Fund has indicated, and IFTC shall have no duty to confirm, investigate or -take any other action with respect to any Draft listed on the Exception Report, or to determine whether the dishonoring or honoring of such Draft is appropriate under the circumstances. 8. Dishonor. Each Banking Day, IFTC shall initiate procedures to dishonor and return all Drafts listed on the Daily Report sent by it to the Fund with respect to the previous Banking Day, which: (i) were listed on the Exception Report received by IFTC on such Banking Day as being Drafts to be dishonored, (ii) for which stop payment orders became effective or on which IFTC elected to act pursuant to its authority set forth in Section 5 hereof, or (iii) which were listed on the Notice of Proposed Dishonor sent by IFTC to Fund and for which IFTC did not receive an Exception Report or other notification authorizing and instructing IFTC to honor such Drafts. All such Drafts will be returned by IFTC with such notation as IFTC may from time to time deem appropriate. IFTC will provide direct notice of dishonor to the depository bank for each dishonored Draft if such notice is required pursuant to Regulation CC of the Board of Governors of the Federal Reserve System. 9. Payment. Except for Drafts to be dishonored and returned by IFTC pursuant to Section 8 above, all Drafts reflected on a Daily Report shall be deemed to be unconditionally approved by the Fund for payment as of 10:30 a.m. Central Time on the Banking Day immediately following the Banking Day as of which the Daily Report reflecting such Draft was -6- prepared. IFTC is authorized, as Fund's agent, to cause all such approved Drafts (the "Approved Drafts") to be paid and settled, and Fund shall pay to IFTC in accordance with the procedures and schedule set out in Section 10 hereof, all sums required to fully reimburse IFTC for all amounts paid by IFTC in connection with the settlement and payment of all Approved Drafts. Fund acknowledges and agrees that its reimbursement obligation to IFTC is absolute, and that it will reimburse IFTC irrespective of whether Fund is able to obtain payment from its shareholder and irrespective of whether such shareholder has adequate funds or shares in his/her account with Fund to facilitate such payment to Fund. 10. Settlement. IFTC shall establish an agency settlement account (the "Settlement Account") at IFTC over which IFTC has the sole power of withdrawal. IFTC is authorized to debit the Settlement Account to effect payment of all reimbursements, payments and other sums due it from Fund from time to time. No later than 10:30 a.m. Central Time each Banking Day, the Fund shall transfer immediately-available funds to the Settlement Account in an amount equal to the Settlement Amount reflected in the Daily Report received by Fund with respect to the immediately-preceding Banking Day, and IFTC is authorized to immediately debit the Settlement Account an amount equal to such Settlement Amount. The parties agree and understand that such debit is to be treated as preliminary settlement with respect to the Drafts reflected on such Daily Report, and that as a result of one or more of such Drafts being subsequently dishonored or other occurrences, adjustments to such preliminary settlement may be required. With respect to each Draft for which preliminary settlement was received by IFTC pursuant to the immediately-preceding paragraph and which was subsequently dishonored and returned pursuant to the provisions of Section 8 hereof, IFTC shall reimburse the Fund the amount of such Draft as soon as IFTC's Sub-Agent receives reimbursement therefor from the Federal Reserve Bank of Kansas City. 11. Settlement Account. In the event that Fund fails to transfer funds to the Settlement Account in the full amount of the Settlement Amount, IFTC is authorized to dishonor and return one or more of the Drafts (in such order as IFTC may in its discretion determine) to -7- which such Settlement Amount relates, to the extent that the balance of the Settlement Account is insufficient to reimburse IFTC for such Drafts. 12. Overdrafts. Notwithstanding the fact that the balance in the Settlement Account may be insufficient to enable IFTC to effect a debit sufficient to reimburse IFTC for the payment of all Drafts reflected on a Daily Report, IFTC may nevertheless in its sole discretion elect to honor and cause to be paid all such Drafts reflected on the Daily Report that are otherwise deemed to have been honored and accepted by Fund, by advancing IFTC's own funds. In such event, Fund shall immediately pay to IFTC the amount of such deficiency, together with a "Lost Earnings Feel' as provided for in the fee schedule set forth on Exhibit A attached hereto and incorporated herein, as such Exhibit A may from time to time be amended. IFTC shall be entitled to offset the amount owed for any overdraft against any other monies of Fund held by IFTC. 13. Return of Drafts. All Approved Drafts shall be held by IFTC and sent to Fund or, if Fund so instructs IFTC, to the respective Shareholder, on a monthly basis. 14. Processing Fee. IFTC shall bill Fund, and Fund shall pay to IFTC, on a monthly basis, all charges and fees applicable to IFTC's performance hereunder in accordance with the aforesaid fee schedule. 15. Indemnification. Fund shall indemnify IFTC and hold IFTC harmless from all liability, claims, losses, damages, expenses (including reasonable attorneys' fees and disbursements incurred by IFTC in resisting claims for which IFTC is indemnified hereunder or incurred by IFTC in enforcing the Fund's obligations and agreements hereunder), suits and demands of every kind which may be incurred by IFTC or that may be asserted against IFTC: (i) by Fund, any Shareholder, any payee or endorser or endorsee or holder of any Draft, or any other person or entity whomsoever, with respect to any Draft subject to this Agreement or any Shareholder or any act or failure to act by the Fund or IFTC under this Agreement, (ii) as a result of IFTC's causing any Draft to be honored and paid, or to be dishonored, whether or not at the instruction or direction of the Fund, in accordance with its authorization hereunder, or (iii) in connection with any action taken or not taken by IFTC in accordance with this Agreement with regard to a stop payment order received by it; provided, however, that the Fund shall have no -8- obligation to indemnify or hold IFTC harmless to the extent any such claim arises out of negligence or willful misconduct or breach -of this Agreement by IFTC. IFTC shall indemnify Fund and hold Fund harmless from and against all liabilities, claims, losses, suits and damages of any kind whatsoever which may be incurred by or assessed against Fund as a result of (i) any act or failure to act by IFTC which is in violation of the terms of this Agreement, or (ii) the failure of IFTC to exercise the degree of care required by Section 4 with respect to the duties of IFTC set forth therein or its negligence in the performance of its other duties under this Agreement, or (iii) IFTC's willful misconduct. 16. Special Damages. In no event shall either party be liable to the other hereunder with respect to any consequential, incidental or punitive damages or awards; provided, however, that the foregoing shall not affect the obligation of either party (the "indemnifying party") to indemnify the other (the "indemnified party") for damages or awards, however denominated, which the indemnified party must pay to shareholders or other third parties as a result of occurrences or circumstances which otherwise give rise to an obligation of the indemnifying party to indemnify the indemnified party pursuant hereto. 17. Confidentiality. IFTC and Fund shall each have the right, in accordance with applicable law, to record any and all communications and verbal instructions as may be given by one of them to the other or by any Shareholder during any telephone conversations. Fund shall immediately deliver to IFTC all signature cards and copies of agreements and other relevant records (if any) maintained by Fund with respect to Shareholders as may be necessary to IFTC in performance of its obligations under this Agreement. IFTC shall be entitled to rely conclusively on the completeness and correctness of such signature cards, agreements and records, and Fund shall indemnify and hold IFTC harmless of and from any and all expenses, damages and losses to the extent, but only to the extent, they arise out of or in connection with any error, omission, inaccuracy or other deficiency of or from such signature cards, agreements and records, or from the failure of Fund to provide any signature card, agreement or record or other information needed by IFTC to knowledgeably perform its functions hereunder. IFTC agrees that all signature cards, agreements, records and Shareholder lists and other compilations of the names or addresses of Shareholders compiled or to which it has access during the term of this Agreement -9- are the property of the Fund and shall be used by IFTC solely for the purpose of performing services under and relating to this Agreement, and that it will not prepare, compile and utilize a list of Shareholders for any other purpose. 18. Assignment. This Agreement shall be binding upon and inure to the benefit of successors and permitted assigns of each party hereto, provided, however, that neither party may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other, which consent shall not be unreasonably withheld. 19. Governing Law; Time. This Agreement is entered into, and shall be governed by and construed in accordance with, the laws of the State of Missouri, as amended from time to time. 20. Notices. Any notice which may be given under or in connection with this Agreement, other than the reports, notifications and notices specifically provided for in the preceding sections of this Agreement and any other notices where the timing or method or effective time or means of giving such notice is expressly provided for herein, may be given and shall be effective three days from the day deposited in the mail, certified or registered postage prepaid, addressed as follows: If to IFTC: Investors Fiduciary Trust Company 127 West 10th Street Kansas City, Missouri 64105-1716 Attn: Moneycard Manager If to Fund: Mentor Funds 901 East Byrd Street Richmond, Virginia 23219 Attn: Paul F. Costello or to any other address of the respective party for which notice has been given by such party to the other party pursuant to the provisions hereof. 21. Term. Unless sooner terminated pursuant to the following provisions, the initial term of this Agreement shall be for a period of one year from the effective date hereof. Thereafter, the Agreement shall remain in effect until terminated by either party hereto by the giving of six months' advance notice of termination to the other party. Upon the occurrence of a material default by either party hereunder in the performance of its respective duties and -10- obligations under this Agreement and a failure to correct the condition or pattern of conduct which resulted in such default -within 30 days after receiving written notice of same to the satisfaction of the party giving such notice, the party giving such notice of default may at any time thereafter immediately terminate this Agreement, reserving all rights and remedies it may have available hereunder or under applicable law. Either party shall additionally have the right to immediately terminate this Agreement in the event that the Federal Reserve Bank of Kansas City or IFTC's Sub-Agent is no longer able to deliver Drafts to IFTC's Sub-Agent or to IFTC on a schedule which would reasonably permit IFTC to give the notifications and deliver the notices and Drafts and other data and take the other actions required herein in accordance with the deadlines set forth or required herein, or if IFTC is unable, as a result of any other change in circumstances not under its control, to perform in accordance with the timetables and deadlines set forth herein. Additionally, IFTC may immediately terminate this Agreement upon giving written notice to the Fund in the event that the Fund uses any form of Draft in connection with this Agreement that has not been previously approved by IFTC. 22. Effect of Termination. In the event this Agreement is terminated, IFTC shall have the right at all times thereafter to return all Drafts received by it or its Sub-Agent after the effective date of termination, and may mark such Drafts as being dishonored by the Fund, or in IFTC's sole discretion, may bear such other notations as IFTC deems appropriate. The respective rights and obligations of the respective parties hereto with respect to Drafts that are received by IFTC or its Sub-Agent prior to termination shall continue in effect notwithstanding such termination. Each party's undertakings and agreements of indemnification set forth herein or otherwise shall survive any termination of this Agreement. Upon any termination of this Agreement, IFTC and Fund shall immediately discuss procedures by which any Drafts that may thereafter be issued by one or more Shareholders (irrespective of whether such Shareholders were instructed to discontinue using such Drafts) may be processed in a manner to reduce the inconvenience of the Fund and its Shareholders, it being understood and agreed, however, that IFTC shall have no duty or obligation to undertake any course of action or activity unless it elects to do so in its sole discretion, reasonably exercised; provided, however, that IFTC shall take reasonable steps reasonably requested by Fund to avoid substantial inconvenience to the Fund -11- and its shareholders if such termination was as a result of IFTC's breach or inability to perform any of its obligations hereunder, provided that such steps do not involve any unreasonable burden or inconvenience for IFTC, IFTC is reasonably able to perform such steps, and that the Fund agrees to compensate IFTC reasonably therefor. 23. Force Majeure. In the event that either party fails to perform its obligations under this Agreement in whole or in part as a consequence of acts of God, fire, explosion, public utility failure, accident, strike, flood, embargo, war, nuclear disaster, riot or civil insurrection, such failure to perform shall not be considered a breach of this Agreement during the period of disability. In the event of any force majeure occurrence set forth in this section, the disabled party shall use its best efforts to meet its obligations as set forth in the Agreement and shall promptly and in writing advise the other party of its inability to perform due to such event, the expected duration of such inability, and any developments (or changes therein) that appear likely to affect the liability of that party to perform. If a party remains unable to perform due to a continuation of the occurrence for a period of 30 continuous days, the other party shall thereupon have the right to immediately terminate this Agreement, reserving all of its rights and remedies. Without limitation on the foregoing, it is expressly agreed that if the Fund is, by reason of the occurrence of an event of force majeure described herein, unable to provide the Exception Report required by Section 7 hereof or any other data or information or notices to IFTC according to the timetable provided therein, IFTC is authorized to cause all Drafts reflected on the relevant Daily Report to be honored and paid as if such Exception Report had been transmitted to it by the Fund and reflected that no Drafts were to be dishonored. 24. Obligations of Portfolios; Declaration of Trust. The parties agree that this Agreement shall constitute a separate and discrete agreement between IFTC and each Fund, as if set out in a separate writing executed by IFTC and Mentor Funds on behalf solely of that Fund alone, and no other series of shares of Mentor Funds shall have any obligation or incur any liability under or in respect of such agreement. Any reference in this Agreement to a "Fund" shall be construed so as to give effect to the foregoing. -12- A copy of the Agreement and Declaration of Trust of Mentor Funds is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of Mentor Funds as Trustees and not individually and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or beneficiaries individually, but binding only upon the assets and property of the Portfolio in question. IN WITNESS WHEREOF, Fund and IFTC have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. "FUND" -------------------------------- Mentor Funds By: Title: "IFTC" ------------------------------- Investors Fiduciary Trust Company By: Title: -13- EX-15 6 EXHIBIT 15 (II) Exhibit 15(ii) EXHIBIT A Class of Shares 12b-1 Fee --------------- --------- Mentor Growth Portfolio B 0.75% Mentor Capital Growth Portfolio B 0.75% Mentor Strategy Portfolio B 0.75% Mentor Income and Growth Portfolio B 0.75% Mentor Perpetual Global Portfolio B 0.75% Mentor Quality Income Portfolio B 0.50% Mentor Municipal Income Portfolio B 0.50% Mentor Short-Duration Income Portfolio B 0.30% Mentor Balanced Portfolio B 0.75% Mentor Growth Opportunities Portfolio B 0.75% Mentor High Income Portfolio B 0.50% Mentor Asset Allocation Portfolio B 0.75% Mentor Inst. U.S. Gov. MM Portfolio Retail 0.38% Mentor Institution MM Portfolio Retail 0.38% Mentor Inst. Tax-Exempt MM Portfolio Retail 0.33% -1- -----END PRIVACY-ENHANCED MESSAGE-----