February 2000
Dear Mentor VIP Shareholders,
We are pleased to provide you with the Mentor VIP High Income Portfolio annual
report for the period ended December 31, 1999.
We would like to take the opportunity to welcome you to the Evergreen Funds
family. Evergreen Funds is one of the nation's fastest growing investment
companies with over $80 billion in assets under management. We are dedicated to
providing shareholders the highest quality service and excellence in investment
management.
Effective February 1, 2000, the Mentor VIP High Income Portfolio officially
became part of the Evergreen Variable Annuity Trust. This will be the final
report referring to the Mentor VIP High Income Portfolio you will receive.
Please note that while the investment objectives and policies of the Portfolio
remain the same as they were under the Mentor Trust, the name will change to
reflect the following:
Old Name New Name
Mentor VIP High Income Portfolio Evergreen VA High Income Fund
We believe that being part of the Evergreen Variable Annuity Trust will offer
you many advantages, including continued expert portfolio management, the
benefit of association with a leading investment management company, and
professional and courteous service.
Website Enhancements
Please visit our enhanced website, evergreen-funds.com, for more information
about Evergreen Funds. The site offers an array of helpful information including
1999 tax information, an investment education center, interactive calculators to
assist your investment planning needs and general information about Evergreen
Funds.
We believe that sound investing is about taking steps to meet your long-term
financial needs and goals. Evergreen Funds offers a broad mix of stock, bond and
money market funds that should make it simple for you to choose the most
appropriate for your portfolio.
Sincerely,
[GRAPHIC OMITTED]
Fund at a glance as of December 31, 1999
Performance and Returns 1
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Portfolio Inception Date 6/30/1999
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Total Return Since Portfolio Inception 4.46%
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30-day SEC Yield 7.98%
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6-month income dividends per share $0.30
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Portfolio Management
Timothy E. Anderson, CFA
Tenure: June 1999
P. Michael Jones, CFA
Tenure: June 1999
shapeType75fFlipH0fFlipV0pib[GRAPHIC OMITTED]
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Comparison of a $10,000 investment in Mentor VIP High Income Portfolio1, versus
a similar investment in the Merrill Lynch High Yield Master II Index (MLHYMII)
and the Consumer Price Index (CPI).
The Merrill Lynch High Yield Master II Index is a broad-based measure of the
performance of the non-investment grade U.S. domestic bond market. The index
currently captures close to $200 billion of the outstanding debt of domestic
market issuers rated below investment grade but not in default.
1 Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost.
Funds that invest in high yield, lower rated bonds may contain more risk due to
the increased possibility of default.
The MLHYMII is an unmanaged index and does not include transaction costs
associated with buying and selling securities or any management fees. The CPI is
a commonly used measure of inflation and does not represent an investment
return. It is not possible to invest directly in an index.
Portfolio Manager Interview
How did the Portfolio perform?
Mentor VIP High Income Portfolio returned 4.46% from its inception on June 30,
1999 to the close of its fiscal year on December 31, 1999. In comparison, the
Portfolio's benchmark, the Merrill Lynch High Yield Master II Index, returned
0.02% for the same period. The outperformance of the benchmark is attributed
partially to the Portfolio's unusually high weighting in short-term investments
during the period. By the end of the period, the Portfolio had invested in a
well diversified portfolio of high yield investments while reducing the position
of short-term investments to approximately 14%.
Portfolio Characteristics
(as of 12/31/1999)
Total Net Assets $5,257,026
Average Credit Quality BB
Effective Maturity 6.0 years
Average Duration 4.1 years
How would you describe the investment environment for the Portfolio?
High income investors faced challenging market conditions over the past six
months. Rising interest rates, strength in the stock market, a rising default
rate and periods of heavy supply all put downward pressure on bond prices.
Concerned that the economy's strength would re-ignite inflation, the Federal
Reserve Board raised interest rates three times during the fiscal period -
forcing bond prices lower. The yield on the 10-year U.S. Treasury note rose from
5.78% on June 30, 1999 to 6.44% at year-end. The atmosphere stood in stark
contrast to the beginning of 1999, when investors' concerns centered on fragile
global economies in the aftermath of 1998's international financial crisis. At
that time, many investors believed that weak foreign economies would drain U.S.
economic growth. The economy remained strong into 1999, however, with
extraordinarily low interest rates fueling growth. Labor markets were robust and
commodity prices rose. As mid-year approached, investors' concerns turned to
excessive growth and rekindled inflation.
In addition to rising interest rates, high income investors kept an eye on a
rising default rate. Much of the increase could be attributed to weak commodity
prices and deals that came to market when extraordinary demand for high income
bonds had prompted many investors and underwriters to relax their credit
standards. As the default rate rose, credit strength and liquidity became
increasingly important investment considerations.
While conditions in the high yield bond market deteriorated, the outlook for
stocks grew increasingly bright. As a result, cash poured out of high yield
bonds during the period, as investors sought loftier returns in equities.
Further, as investors shifted assets out of high yield bonds, companies issued
debt in anticipation of Y2K. The combination of heavier supply and reduced
demand put additional downward pressure on prices.
Portfolio Composition
(based on 12/31/1999 portfolio assets)
Corporate Bonds 86.0%
Repurchase Agreements 14.0%
Portfolio Manager Interview (continued)
What strategies did you employ in this environment?
We structured the Portfolio to be broadly diversified in both individual
securities and sectors. As of December 31, 1999, the Portfolio's largest
positions were in telecommunications, cable and energy. We primarily focused on
"B"-rated securities because of their attractive yield premiums and opportunity
for price appreciation. We also expect this position to help reduce the
Portfolio's exposure to interest rate risk, because "B"-rated bonds tend to
trade more on the credit strength of the underlying issuer, rather than on the
direction of interest rates.
Portfolio Credit Quality
(based on 12/31/1999 portfolio assets)
AAA 12.8%
BBB 12.9%
BB 69.9%
B 4.4%
What is your outlook?
We are optimistic about the opportunities available in the high income sector,
although we anticipate higher short-term rates over the near-term. We expect the
Federal Reserve Board to tighten monetary policy in the next few months, slowing
economic growth and cooling inflationary pressures.
We believe there is abundant opportunity in high income bonds, particularly in
fixed and wireless communications. The market for these industries is global,
and wireless penetration rates are increasing. Consolidation among competitive
local exchange carriers, as well as other merger and acquisition activity, has
caused significant price appreciation in the bonds of these companies. Further,
substantial funding from well-known private investors has strengthened many
companies from a credit standpoint.
The default rate, too, has begun to plateau, which should relieve some of the
downward pressure on prices. We expect it to begin a decline toward the latter
half of the year, lowering the risk premium investors have demanded on high
income credits. Lower risk premiums should enable high income bonds to
outperform their higher-rated counterparts. With the high yield market yielding
over 11%, combined with the positive outlook for many of these securities and
industries, we expect high income bonds to turn in a relatively strong
performance in 2000.
Financial Highlights
(For a share outstanding throughout the period)
Period Ended December 31, 1999 (a)
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Net asset value, beginning of period .......... $ 10.00
---------
Income from investment operations
Net investment income ......................... 0.29
Net realized and unrealized gains on securities 0.16
---------
Total from investment operations .............. 0.45
---------
Distributions to shareholders from
Net investment income ......................... (0.30)
---------
Net asset value, end of period ................ $ 10.15
---------
Total return .................................. 4.46%
Ratios and supplemental data
Net assets, end of period (thousands) ......... $ 5,257
Ratios to average net assets
Expenses * ............................... 1.02%+
Net investment income .................... 5.88%+
Portfolio turnover rate ....................... 19%
(a) For the period from June 30, 1999 (commencement of operations) to
December 31, 1999.
* Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
Mentor VIP High Income Portfolio
Schedule of Investments
31-Dec-99
Principal Amount Value
CORPORATE BONDS - 84.8%
Airlines - 1.9%
$100,000 Atlas Air, Inc.,
Sr. Notes,
10.75%, 8/1/2005......$ 102,500
Automotive Equipment &
Manufacturing - 1.9%
100,000 Tenneco Automotive, Inc.,
Sr. Sub. Notes,
11.625%, 10/15/2009 (a)... 102,500
Communication Systems &
Services - 10.9%
100,000 AMFM, Inc.,
9.00%, 10/1/2008...... 104,500
100,000 Metromedia Fiber Network, Inc.,
Sr. Notes, Ser. B,
10.00%, 11/15/2008..... 102,750
100,000 Nextlink Communications, Inc.,
Sr. Notes,
10.75%, 6/1/2009...... 103,250
100,000 PSINet, Inc., Sr. Notes,
10.50%, 12/1/2006 (a).... 101,250
50,000 Verio, Inc., Sr. Notes,
11.25%, 12/1/2008..... 52,750
100,000 Williams Communications
Group, Inc., Sr. Notes,
10.875%, 10/1/2009..... 105,000
569,500
Consumer Products &
Services - 1.9%
100,000 K-Mart Corp., Notes,
8.375%, 12/1/2004..... 98,646
Electronic Equipment &
Services - 1.9%
100,000 Amkor Technologies, Inc.,
Sr. Sub. Notes,
10.50%, 5/1/2009 (a).... 100,000
Finance - 2.1%
100,000 Asat Fin., LLC,
Sr. Notes,
12.50%, 11/1/2006 (a).... 108,000
Food & Beverage
Products - 5.9%
50,000 Canandaigua Brands, Inc.,
8.625%, 8/1/2006...... 50,063
100,000 Del Monte Corp.,
Sr. Sub. Notes, Ser. B,
12.25%, 4/15/2007..... 111,000
50,000 Vlasic Foods Int'l., Inc.,
Sr. Sub. Notes, Ser. B,
10.25%, 7/1/2009...... 47,875
100,000 Weight Watchers Int'l., Inc.,
Sr. Sub. Notes,
13.00%, 10/1/2009 (a).... 101,625
310,563
Forest Products - 1.9%
100,000 Millar Western Forest
Products Ltd., Sr. Notes,
9.875%, 5/15/2008...... 100,000
Gaming - 9.4%
100,000 Coast Hotels & Casinos, Inc.,
9.50%, 4/1/2009...... 96,000
100,000 Hollywood Casino Corp.,
11.25%, 5/1/2007...... 105,000
50,000 Hollywood Park Inc.,
Sr. Sub. Notes, Ser. B,
9.50%, 8/1/2007....... 50,312
50,000 Isle of Capri Casinos, Inc.,
8.75%, 4/15/2009...... 46,250
100,000 Lady Luck Gaming Corp.,
First Mtge.,
11.875%, 3/1/2001...... 101,250
100,000 Majestic Star, LLC, Ser. B,
10.875%, 7/1/2006...... 97,000
495,812
Healthcare - 5.8%
100,000 Iasis Healthcare Corp.,
Sr. Sub. Notes,
13.00%, 10/15/2009 (a).... 103,500
50,000 Lifepoint Hospitals, Inc.,
Ser. B,
10.75%, 5/15/2009...... 52,000
100,000 Tenet Healthcare Corp.,
Sr. Sub. Notes,
8.625%, 1/15/2007...... 97,000
50,000 Triad Hospitals, Inc.,
Sr. Sub. Notes,
11.00%, 5/15/2009 (a).... 52,000
304,500
Oil / Energy - 10.4%
100,000 Chesapeake Energy Corp.,
Ser. B,
9.625%, 5/1/2005...... 94,750
100,000 Eott Energy Partners, LP,
11.00%, 10/1/2009...... 104,000
100,000 Parker Drilling Co., Ser. D,
9.75%, 11/15/2006...... 98,250
50,000 Pride Int'l., Inc., Sr. Notes,
9.375%, 5/1/2007...... 50,000
100,000 Swift Energy Co.,
Sr. Sub. Notes,
10.25%, 8/1/2009...... 101,250
100,000 Tesoro Petroleum Corp.,
Ser. B,
9.00%, 7/1/2008...... 96,000
544,250
Printing, Publishing,
Broadcasting &
Entertainment - 8.3%
100,000 Adelphia Communications Corp.,
Sr. Notes,
9.375%, 11/15/2009..... 98,500
100,000 Charter Communication
Holdings, LLC, Sr. Notes,
8.625%, 4/1/2009...... 92,875
100,000 Classic Cable, Inc.,
Ser. B,
9.375%, 8/1/2009...... 98,750
50,000 Rogers Cablesystems Ltd.,
Sr. Notes, Ser. B,
10.00%, 3/15/2005...... 54,125
100,000 Telewest Communications, PLC,
Deb. (Eff. Yield 10.835)(b),
0.00%, 10/1/2007...... 93,750
438,000
Telecommunication Services &
Equipment - 19.7%
200,000 Airgate PCS, Inc.,
Sr. Sub. Notes (Eff. Yield
13.095%)(b),
0.00%, 10/1/2009...... 112,000
150,000 Allegiance Telecom, Inc.,
Sr. Disc. Notes, Ser. B
(Eff.Yield 12.127%)(b),
0.00%, 2/15/2008...... 108,000
50,000 Clearnet Communications, Inc.,
Sr. Disc. Notes (Eff. Yield
12.387%)(b),
0.00%, 12/15/2005..... 49,312
100,000 Insight Midwest,
Sr. Notes,
9.75%, 10/1/2009 (a).... 103,750
50,000 Intergrated Circuit Systems,Inc.,
11.50%, 5/15/2009...... 49,875
50,000 KMC Telecom Holdings, Inc.,
Sr. Notes,
13.50%, 5/15/2009 (a).... 50,250
100,000 Level 3 Communications, Inc.,
Sr. Notes,
9.125%, 5/1/2008...... 94,750
100,000 Microcell Telecommunications, Inc.,
Sr. Disc. Notes, Ser. B
(Eff.Yield 12.086%)(b),
0.00%, 6/1/2006....... 88,750
140,000 Nextel Communications,
Sr. Disc. Notes (Eff. Yield
10.469%)(b),
0.00%, 9/15/2007...... 105,000
200,000 U.S. Unwired, Inc.,
Sr. Disc. Notes (Eff. Yield
12.804%)(b),
0.00%, 11/1/2009 (a).... 118,000
100,000 VoiceStream Wireless Corp.,
Sr. Notes,
10.375%, 11/15/2009 (a)... 103,500
50,000 Worldwide Fiber, Inc.,
Sr. Notes,
12.00%, 8/1/2009 (a).... 51,750
1,034,937
Textile & Apparel - 0.9%
50,000 Simmons Co.,
Sr. Sub. Notes, Ser. B,
10.25%, 3/15/2009...... 47,563
Thrift Institutions - 1.9%
100,000 Sovereign Bancorp, Inc.,
Sr. Notes,
10.25%, 5/15/2004...... 101,500
Total Corporate Bonds
(cost $4,386,948)..... 4,458,271
REPURCHASE AGREEMENT - 13.8%
$727,439 State Street Bank & Trust, 3.25%,
dated 12/31/1999, due 1/3/2000,
maturity value $727,636
(cost $727,439)(c)..... 727,439
Total Investments -
(cost $5,114,387)... 98.60% 5,185,710
Other Assets and
Liabilities - net.... 1.4 71,316
Net Assets....... 100.00% $5,257,026
(a) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the Board of Trustees.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accrues until its maturity date.
(c) The repurchase agreement is fully collateralized by U.S. Treasury and/or
federal agency obligations based on market price plus accrued interest at
December 31, 1999.
See Notes to Financial Statements.
Mentor VIP High Income Portfolio
Statement of Assets and Liabilities
December 31, 1999
Assets
Identified cost of securities ............... $ 4,386,948
Repurchase agreement, at amortized cost ..... 727,439
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Total identified cost of securities .... 5,114,387
Net unrealized gains on securities .......... 71,323
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Market value of securities .................. 5,185,710
Interest receivable ......................... 89,818
Prepaid expenses and other assets ........... 38
-----------
Total assets ........................... 5,275,566
-----------
Liabilities
Advisory fee payable ........................ 1,776
Due to other related parties ................ 451
Accrued expenses and other liabilities ...... 16,313
-----------
Total liabilities ...................... 18,540
-----------
Net assets ..................................... $ 5,257,026
-----------
Net assets represented by
Paid-in-capital ............................. $ 5,187,798
Undistributed net investment income ......... 0
Accumulated net realized losses on securities (2,095)
Net unrealized gains on securities .......... 71,323
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Total net assets ............................... $ 5,257,026
-----------
Shares outstanding ............................. 518,180
-----------
Net asset value per share ...................... $ 10.15
-----------
Mentor VIP High Income Portfolio
Statement of Operations
Period Ended December 31, 1999 (a)
Investment income
Interest ............................................ $ 177,479
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Expenses
Advisory fee ........................................ 18,045
Distribution Plan expenses .......................... 6,445
Transfer agent fee .................................. 123
Administrative services fees ........................ 2,576
Custody fee ......................................... 1,238
Professional fees ................................... 10,699
Organization expenses ............................... 4,999
Other ............................................... 2,923
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Total expenses .................................... 47,048
Less: Expense reductions .......................... (465)
Fee waivers ............................ (20,804)
---------
Net expenses ...................................... 25,779
---------
Net investment income ............................... 151,700
---------
Net realized and unrealized gain or (loss) on securities
Net realized loss on securities ..................... (2,070)
Net change in unrealized gains on securities ........ 71,323
---------
Net realized and unrealized gains on securities ..... 69,253
---------
Net increase in net assets resulting from operations $ 220,953
---------
(a) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
See Notes to Financial Statements.
Statement of Changes in Net Assets
Period Ended December 31, 1999 (a)
Operations
Net investment income $ 151,700
Net realized loss on securities (2,070)
Net change in unrealized gains on securities 71,323
-----------
Net increase in net assets resulting from operations 220,953
-----------
Distributions to shareholders from
Net investment income (152,762)
-----------
Capital share transactions
Proceeds from shares sold 5,186,531
Payment for shares redeemed (2,958)
Net asset value of shares
issued in reinvestment of distributions 5,262
-----------
Net increase in net assets resulting
from capital share transactions 5,188,835
-----------
Total increase in net assets 5,257,026
Net assets
Beginning of period 0
-----------
End of period $ 5,257,026
-----------
Undistributed net investment income $ 0
-----------
(a) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
See Notes to Financial Statements.
Mentor VIP High Income Portfolio
Notes To Financial Statements
1. ORGANIZATION
The Mentor VIP High Income Portfolio (the "Portfolio"), is a diversified series
of the Mentor Variable Investment Portfolios (the "Trust"), an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act").
The Portfolio's objective is to seek high current income. Capital growth is a
secondary objective when consistent with the objective of seeking high current
income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein.
Actual results could differ from these estimates.
A. Valuation of Securities
Corporate bonds, U.S. government obligations, mortgage and other asset-backed
securities and other fixed-income securities are valued at prices provided by an
independent pricing service. In determining a price for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. Securities for which valuations are not available from an
independent pricing service may be valued by brokers which use prices provided
by market makers or estimates of market value obtained from yield data relating
to investments or securities with similar characteristics. Otherwise, securities
for which valuations are not readily available from an independent pricing
service (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Repurchase Agreements
The Portfolio may invest in repurchase agreements. Securities pledged as
collateral for repurchase agreements are held in a segregated account by the
custodian on the Portfolio's behalf. The Portfolio monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral in
the event the market value of the securities pledged falls below the carrying
value of the repurchase agreement, including accrued interest. The Portfolio
will only enter into repurchase agreements with banks and other financial
institutions, which are deemed by the investment advisor to be creditworthy
pursuant to guidelines established by the Board of Trustees.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date.
Mentor VIP High Income Portfolio
Notes To Financial Statements (continued)
D. Federal Taxes
The Portfolio has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Portfolio will not incur any federal income tax liability
since it is expected to distribute all of its net investment company taxable
income and net capital gains, if any, to its shareholders. The Portfolio also
intends to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal taxes is required. To the
extent that realized capital gains can be offset by capital loss carryforwards,
it is the Portfolio's policy not to distribute such gains.
Additionally, the Portfolio intends to meet the diversification standards on the
underlying assets of a variable insurance contract under the Code. Failure to
meet these standards would cause the disqualification of the variable insurance
contract as an annuity contract or life insurance contract and would result in
the immediate imposition of federal income tax on contract owners with respect
to earnings allocable to the contract.
E. Distributions
Distributions from net investment income for the Portfolio are declared and paid
annually. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for
distributions in excess of net investment income.
F. Organization Expenses
Expenses relating to the organization of the Portfolio have been reflected in
its operating results for the period ended December 31, 1999.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Mentor Investment Advisors, LLC ("Mentor Advisors"), a subsidiary of First Union
Corporation ("First Union"), is the investment advisor to the Portfolio and is
paid a management fee that is computed daily and paid monthly at an annual rate
of 0.70% of the Portfolio's average daily net assets.
During the year ended December 31, 1999, $14,359 of investment advisory fees
were waived by the investment advisor, reducing the Portfolio's expense ratio
represented as a percentage of its average net assets by 0.56%.
Evergreen Investment Services ("EIS"), an indirect, wholly-owned subsidiary of
First Union, serves as the administrator to the Portfolio. As administrator, EIS
provides the Portfolio with facilities, equipment and personnel. EIS is entitled
to a fee of 0.10% of the average daily net assets of the Portfolio.
Officers of the Portfolios and affiliated Trustees receive no compensation
directly from the Portfolio.
Mentor VIP High Income Portfolio
Notes To Financial Statements (continued)
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of First
Union is the transfer and dividend disbursing agent for the Portfolio.
For the year ended December 31, 1999, the Portfolio paid or accrued $123 to ESC
for transfer and dividend disbursing services.
4. DISTRIBUTION PLAN
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of The BISYS
Group, Inc., serves as principal underwriter to the Portfolio.
The Portfolio has adopted a Distribution Plan, as allowed by Rule 12b-1 of the
1940 Act. Distribution Plans permit a Portfolio to compensate its principal
underwriter for costs related to selling shares of the Portfolio and for various
other services. These costs, which consist primarily of commissions and service
fees to broker-dealers who sell shares of the Portfolio, are paid by the
Portfolio through "Distribution Plan Expenses," and are accrued daily and paid
monthly at an annual rate of 0.25% of the Portfolio's average daily net assets.
The Distribution Plan may be terminated at any time by vote of the Independent
Trustees or by vote of a majority of the outstanding voting shares of the
respective class.
For the period ended December 31, 1999, the amount paid or accrued to EDI was as
follows:
Fees % of Average
EDI Waived Net Assets
$6,445 $6,445 0.25%
5. CAPITAL SHARE TRANSACTIONS
The Portfolio has an unlimited number of shares of beneficial interest with
$0.001 par value authorized. Transactions in shares of the Portfolio during the
period ended December 31, 1999 were as follows:
Shares sold 517,952
Shares redeemed (291)
Shares issued in reinvestment
of distributions 519
Net increase 518,180
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the period ended December 31, 1999 were $4,824,909
and $449,171, respectively.
On December 31, 1999 the aggregate cost of investment securities for federal
income tax purposes was $5,114,387. Net unrealized appreciation aggregated to
$71,323, of which $85,264 related to appreciated securities and $13,941 related
to depreciated securities.
Mentor VIP High Income Portfolio
Notes To Financial Statements (continued)
Capital losses incurred after October 31, within a Fund's fiscal year, are
deemed to arise on the first business day of the fund's following fiscal year.
The Portfolio has incurred and will elect to defer post October losses of
$2,095.
7. EXPENSE REDUCTIONS
The Portfolio has entered into expense offset arrangements with ESC and their
custodian whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of the Portfolio's related expenses. The assets
deposited with ESC and the custodian under these expense offset arrangements
could have been invested in income-producing assets. The amount of expense
reductions received by the Portfolio was $465 and the impact of the total
expense reductions on the Portfolio's expense ratio represented as a percentage
of its average net assets was 0.02%.
8. FINANCING AGREEMENT
On August 6, 1999, the Portfolio became party to an agreement between the
Evergreen Funds and a group of banks (the "lenders"). Under this agreement, the
Lenders provide an unsecured revolving credit commitment in the aggregate amount
of $1.050 billion. The credit facility is allocated, under the terms of the
financing agreement, among the Lenders. The credit facility is accessed by the
Funds for temporary or emergency purposes to fund the redemption of their shares
or a general working capital as permitted by each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.75% per annum above the
Federal Funds rate (1.50% per annum above the Federal Funds rate during the
period from and including December 1, 1999 through and including January 31,
2000). A commitment fee of 0.10% per annum is incurred on the average daily
unused portion of the revolving credit commitment. The commitment fee is
allocated to all funds. For its assistance in arranging this financing
agreement, First Union Capital Markets Corp. was paid a one-time arrangement fee
of $250,000. State Street serves as paying agent for the funds and as paying
agent is entitled to a fee of $20,000 per annum which is allocated to all the
funds.
During the period ended December 31, 1999, the Portfolio had no borrowings under
this agreement.
9. SUBSEQUENT EVENT
Effective February 1, 2000 shares of Evergreen VA High Income Fund, a
diversified series of the Evergreen Variable Annuity Trust, a Delaware business
trust organized on December 23, 1997, were substituted for shares of the
Portfolio. As a result of the substitution, shareholders of the Portfolio became
owners of that number of full and fractional shares of the Evergreen VA High
Income Fund having a net asset value equal to the net asset value of their
shares immediately prior to the substitution of shares.
Since the Portfolio and Evergreen VA High Income Fund have substantially similar
investment objectives and policies, and the Portfolio contributed the majority
of the net assets and shareholders, its basis of accounting for assets and
liabilities and its operating results for prior periods are being carried
forward.
Mentor VIP High Income Portfolio
Independent Auditors' Report
The Board of Trustees and Shareholders
Mentor Variable Investment Portfolios
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Mentor VIP High Income Portfolio, a portfolio of
Mentor Variable Investment Portfolios as of December 31, 1999, and the related
statements of operations and changes in net assets and financial highlights for
the period from June 30, 1999 (commencement of operations) through December 31,
1999. These financial statements and financial highlights are the responsibility
of the fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Mentor
VIP High Income Portfolio as of December 31, 1999, the results of its
operations, changes in its net assets and financial highlights for the period
from June 30, 1999 (commencement of operations) through December 31, 1999, in
conformity with generally accepted accounting principles.
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