<PAGE>
As filed with the Securities and Exchange Commission on August 17, 2000
1933 Act File No.
1940 Act File No. 811-10067
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO. [ ]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. [ ]
EATON VANCE VARIABLE TRUST
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
-----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 482-8260
--------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
-----------------------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement under the Securities Act of 1933.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
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<PAGE>
{LOGO} Investing
EATON VANCE for the
Mutual Funds 21st
Century(R)
Eaton Vance Variable Trust
Eaton Vance VT Worldwide
Health Sciences Fund
A diversified global growth fund concentrating in health sciences companies
Eaton Vance VT
Information Age Fund
A diversified global growth fund of information age companies
Eaton Vance VT
Income Fund of Boston
A diversified mutual fund seeking high current income
Prospectus Dated
NOVEMBER , 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Information in this prospectus
Page Page
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Fund Summaries Valuing Shares
Investment Objectives & Principal Purchasing and Redeeming
Policies and Risks Shares
Management and Organization Tax Information
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This prospectus contains important information about the Funds which are
available for purchase by separate accounts of insurance companies.
Please save it for reference.
<PAGE>
Fund Summaries
This section summarizes the investment objectives, and principal strategies and
risks of investing in each Fund. Information about the performance of each Fund
is presented on the pages that follow.
Investment Objectives and Principal Strategies
Eaton Vance VT Worldwide Health Sciences Fund. The VT Worldwide Health Sciences
Fund's investment objective is to seek long-term capital growth by investing in
a global and diversified portfolio of health sciences companies. The Fund
invests primarily in common stocks of companies engaged in the development,
production or distribution of products related to scientific advances in health
care. The Fund invests in companies with a broad range of market
capitalizations, including small companies. The Fund invests in foreign
securities and will normally be invested in at least three different countries.
In managing the portfolio, the portfolio manager looks for stocks that will grow
in value over time, regardless of short-term market fluctuations. The Fund
concentrates (that is, invests at least 25% of its assets) its investments in
medical research and the health care industry, so the Fund could be affected by
any event that adversely affects that sector.
Eaton Vance VT Information Age Fund. The VT Information Age Fund's investment
objective is to seek long-term capital growth. The Fund invests primarily in
common stocks of information age companies expected to grow in value.
Approximately 40% to 60% of total assets will be invested in foreign securities,
including securities issued by companies in emerging markets. The Fund invests
in companies with a broad range of market capitalizations, including smaller
companies. Because of the dynamic nature of many portfolio companies, trading
may be more frequent than for mutual funds focusing only on established
companies located in only one country. The Fund does not concentrate (that is,
invest 25% or more of its assets) in any one industry.
Eaton Vance VT Income Fund of Boston. The primary investment objective of VT
Income Fund is to provide as much current income as possible. To do so, the Fund
invests primarily in high yield, high risk corporate bonds (so-called "junk
bonds"). Secondary purposes of the Fund are to provide reasonable preservation
of capital to the extent attainable from such bonds, and growth of income and
capital.
The Fund invests a substantial portion of its assets in bonds issued in
connection with mergers, acquisitions and other highly leveraged transactions.
The Fund may invest in a wide variety of other income-producing debt securities,
as well as preferred stocks that pay dividends. Some debt securities acquired by
the Fund do not pay current income or do not make regular interest payments,
while others may pay interest in the form of additional debt securities. The
Fund will generally hold well in excess of 100 securities, which helps reduce
investment risk. The Fund may invest a portion of its assets in foreign
securities, and may hedge currency fluctuations by entering forward foreign
currency contracts.
The Fund's investments are actively managed and securities may be bought and
sold on a daily basis. The investment adviser's staff monitors the credit
quality of securities held by the Fund and other securities available to the
Fund. The portfolio manager attempts to improve yield and preserve and enhance
principal value through timely trading. The portfolio manager also considers the
relative value of securities in the marketplace in making investment decisions.
Principal Risk Factors
The value of shares of the VT Worldwide Health Sciences and VT Information Age
Funds are sensitive to stock market volatility. If there is a decline in the
value of exchange-listed stocks, the value of Fund shares will also likely
decline. Changes in stock market values can be sudden and unpredictable. Also,
although stock values can rebound, there is no assurance that values will return
to previous levels. Because both Funds can invest a significant portion of
assets in foreign securities, the value of Fund shares can also be adversely
affected by changes in currency exchange rates and political and economic
developments abroad. In emerging or less-developed countries, these risks can be
significant. The securities of smaller companies are generally subject to
greater price fluctuation and investment risk than securities of more
established companies.
The VT Worldwide Health Sciences Fund concentrates (that is, invests at least
25% of its assets) its investments in medical research and the health care
industry, so the Fund will likely be affected by events that adversely affect
that sector. The Fund intends to generally hold fewer than 50 stocks at any one
time; therefore, the Fund could be more sensitive to developments affecting
particular stocks than would be a more broadly diversified fund. These
developments include product obsolescence, the failure of the issuer to develop
new products and the expiration of patent rights. The value of Fund shares can
also be impacted by regulatory activities that affect health sciences companies.
For instance, increased regulation can increase the cost of bringing new
products to market and thereby reduce profits. The VT Information Age Fund is
subject to factors that adversely affect information-related industries, such as
deregulation of certain of these industries and product obsolescence due to
technological advancements.
2
<PAGE>
The VT Income Fund invests primarily in below investment grade bonds, which are
predominantly speculative because of the credit risk of their issuers. Such
companies are more likely to default on their payments of interest and principal
owed to the Fund, and such defaults will reduce the Fund's net asset value and
income distributions. An economic downturn generally leads to a higher
non-payment rate, and a security may lose significant value before a default
occurs.
The value of VT Income Fund's shares may also decline when interest rates rise,
when the supply of suitable bonds exceeds market demand, or in response to a
significant drop in the stock market. Bonds that do not make regular interest
payments may experience greater volatility in response to interest rate changes.
Because the Fund invests a portion of its assets in foreign securities, the
value of Fund shares could be adversely affected by changes in currency exchange
rates and by political and economic developments abroad. Forward foreign
currency contracts also involve a risk of loss due to unanticipated changes in
exchange rates, as well as the risk of counterparty default. The Fund is not
appropriate for investors who cannot assume the greater risk of capital
depreciation or loss inherent in seeking higher yields.
The Funds are not a complete investment program and you may lose money by
investing. An investment in a Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Prior Performance of Similar Funds
Because none of the VT Worldwide Health Sciences Fund, VT Information Age Fund
and VT Income Fund have commenced operations as of the date of this prospectus,
none of the funds have any operating history or performance information.
However, each Fund is expected to be managed in a style that is substantially
similar to that of Eaton Vance Worldwide Health Sciences Fund (Retail Worldwide
Health Sciences Fund), Eaton Vance Information Age Fund (Retail Information Age
Fund) and Income Fund of Boston (Retail Income Fund), respectively, each of
which is managed by the same management team as its corresponding fund in the
Eaton Vance Variable Trust (Variable Trust) and which has investment objectives
and policies identical to the Variable Trust Funds. Retail Worldwide Health
Sciences Fund, Retail Information Age Fund and Retail Income Fund (sometimes
referred to in this prospectus as the Retail Funds) are registered open-end
management investment companies that offer their shares to the general public.
The performance information below relates solely to Retail Worldwide Health
Sciences Fund, Retail Information Age Fund and Retail Income Fund. Past
performance is no guarantee of future results. Moreover, although each Variable
Trust Fund is expected to be managed in a style that is substantially similar to
that of its corresponding Retail Fund, you should not assume that the relevant
Variable Trust Fund would have had the same performance as the corresponding
Retail Fund. The relevant Variable Trust Fund's performance may vary from that
of the corresponding Retail Fund due to factors including differences in the
Fund's expenses and cash flows, as well as differences in the tax considerations
of the Funds' shareholders.
3
<PAGE>
Eaton Vance VT Worldwide Health Sciences Fund
Performance Information. The following bar chart and table provide information
about the performance of the Retail Worldwide Health Sciences Fund, including a
comparison of the Fund's performance to the performance of domestic and foreign
stock indices. Although past performance is no guarantee of future results, this
performance information demonstrates the risk that the value of your investment
will change. The following returns are for Class A shares of the Retail
Worldwide Health Sciences Fund for each calendar year through December 31, 1999.
The Fund's performance has been restated to reflect the estimated expenses and
fees of the VT Worldwide Health Sciences Fund. The information does not reflect
any insurance-related charges or fees or charges associated with the Retail
Worldwide Health Sciences Fund. If such charges were reflected, the returns
would be lower. Please refer to the prospectus for your insurance contract for
information about those charges and performance data reflecting those charges
and expenses.
The Retail Worldwide Health Sciences Fund's highest quarterly total return was
X.XX% for the quarter ended ____________, and its lowest quarterly return was
X.XX% for the quarter ended ____________. The year-to-date total return through
the end of the most recent calendar quarter (December 31, XXXX to September 30,
XXXX) was X.XX%
<TABLE>
One Five Ten
Average Annual Total Return as of December 31, 1999 Year Years Years
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares % % %
Standard & Poor's 500 Index % % %
Morgan Stanley Capital International Europe, Australasia & Far East Index % % %
</TABLE>
These returns reflect the performance of the Retail Worldwide Health Sciences
Fund adjusted to reflect the fees and charges applicable to shares of the VT
Worldwide Health Sciences Fund. The Standard & Poor's 500 Index is an unmanaged
index of common stocks trading in the U.S. The MSCI EAFE Index is an unmanaged
index of foreign stocks. Investors cannot invest directly in an Index. (Source:
Lipper, Inc.) The Fund's performance is compared to the performance of a
domestic and a foreign index because it invests in domestic and foreign
securities.
4
<PAGE>
EATON VANCE VT INFORMATION AGE FUND
Performance Information. The following bar chart and table provide information
about the performance of Retail Information Age Fund, including a comparison of
the Fund's performance to the performance of a global index of equity
securities. Although past performance is no guarantee of future results, this
performance information demonstrates the risk that the value of your investment
will change from year-to-year. The following returns are for Class B shares for
each calendar year through December 31, 1999. The Retail Information Age Fund's
performance has been restated to reflect the expenses and fees of the VT
Information Age Fund. The information does not reflect any insurance-related
charges or fees or charges associated with the Retail Information Age Fund. If
such charges were reflected, the returns would be lower. Please refer to the
prospecctus for your insurance contract for information about those charges and
performance data reflecting those charges and expenses.
The Retail Information Age Fund's highest quarterly total return was X.XX% for
the quarter ended __________, and its lowest quarterly return was X.XX% for the
quarter ended ____________. The year-to-date total return through the end of the
most recent calendar quarter (December 31, XXXX to September 30, XXXX) was
XX.XX%.
One Life of
Average Annual Total Return as of December 31, 1999 Year Fund
--------------------------------------------------------------------------------
Class A Shares % %
Morgan Stanley Capital International World Index % %
These returns reflect the performance of the Retail Information Age Fund
adjusted to reflect the fees and charges applicable to shares of the VT
Information Age Fund. Life of Fund returns are calculated from September 30,
1995. The MSCI World Index is an unmanaged index of global stocks. Investors
cannot invest directly in an index. (Source: Lipper, Inc.)
5
<PAGE>
Eaton Vance VT Income Fund of Boston
Performance Information. The following bar chart and table provide information
about the performance of Retail Income Fund, including a comparision of the
Fund's performance to the performance of a national index of corporate
obligations. Although past performance is no guarantee of future results, this
performance information demonstrates the risk that the value of your investment
will change. The following returns are for Class A shares of the Retail Income
Fund for each calendar year through December 31, 1999. The Fund's performance
has been reestated to reflect the estimated expenses and fees of the VT Income
Fund. The information does not reflect any insurance-related charges or fees or
charges associated with the Retail Income Fund. If such charges were reflected,
the returns would be lower. Please refer to the prospectus for your insurance
contract for information about those charges and performance data reflecting
those charges and expenses.
Retail Income Fund's highest quarterly total return was X.XX% for the quarter
ended ___________, and its lowest quarterly total return was X.XX% for the
quarter ended ____________. The year-to-date total return through the end of the
most recent calendar quarter (December 31, 1999 to September 30, XXXX) was
X.XX%. For the thirty-day period ended __________, the yield of the Fund was
X.XX%
<TABLE>
One Five Ten
Average Annual Total Return as of December 31, XXXX Year Years Years
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund Shares % % %
C.S. First Boston High Yield Bond Index % % %
</TABLE>
These returns reflect the performance of the Retail Income Fund adjusted to
reflect the fees and charges applicable to shares of the VT Income Fund. The
C.S. First Boston High Yield Bond Index is an unmanaged index of corporate
bonds. Investors cannot invest directly in an index. (Source for C.S. First
Boston High Yield Bond Index returns: C.S. First Boston).
6
<PAGE>
Investment Objectives & Principal Policies and Risks
VT Worldwide Health Sciences Fund. The VT Worldwide Health Sciences Fund's
investment objective is to seek long-term capital growth by investing in a
global and diversified portfolio of health sciences companies. The Fund's
objective and policies may be changed without shareholder approval. There is no
present intention to make any such change and any proposed material change in
investment objective will be submitted to shareholders for their approval.
The VT Worldwide Health Sciences Fund invests at least 65% of total assets in
securities (primarily common stocks) of companies principally engaged in the
development, production or distribution of products or services related to
scientific advances in health care, including biotechnology, diagnostics,
managed health care, medical equipment and supplies, and pharmaceuticals. At the
time the Fund makes an investment, 50% or more of the company's sales, earnings
or assets will arise from or will be dedicated to the application of scientific
advances related to health care. The Fund may invest in securities of both
established and emerging companies, some of which may be denominated in foreign
currencies.
Many health sciences companies are subject to substantial governmental
regulations that can affect their prospects. Changes in governmental policies,
such as reductions in the funding of third-party payment programs, may have a
material effect on the demand for particular health care products and services.
Regulatory approvals (often entailing lengthy application and testing
procedures) are also generally required before new drugs and certain medical
devices and procedures may be introduced. Many of the products and services of
companies engaged in medical research and health care are also subject to
relatively high risks of rapid obsolescence caused by progressive scientific and
technological advances. The enforcement of patent, trademark and other
intellectual property laws will affect the value of many such companies. The VT
Worldwide Health Sciences Fund will invest in securities of emerging growth
health sciences companies, which may offer limited products or services or which
are at the research and developmental stage with no marketable or approved
products or technologies.
The portfolio manager seeks to purchase stocks that are favorably priced in
relation to their fundamental value, and which will grow in value over time. In
making each investment decision, the portfolio manager may draw upon the
information provided by, and the expertise of, the investment adviser's research
staff. The stock selection process will be based on numerous factors, including
the potential to increase market share (for larger companies), and the potential
of research and development projects (for smaller companies). The stock
selection process is highly subjective.
VT Information Age Fund. The VT Information Age Fund's investment objective is
to seek long-term capital growth. The Fund's objective and policies may be
changed without shareholder approval. There is no present intention to make any
such change and any proposed material change in investment objective will be
submitted to shareholders for their approval.
The VT Information Age Fund invests in a global and diversified portfolio of
common stocks of companies in information-related industries. These "information
age" companies are companies that may be engaged in providing information
services, such as telephone, broadcasting, cable or satellite television,
publishing, advertising, producing information and entertainment media, data
processing, networking of data processing and communication systems, or
providing consumer interconnection to computer communication networks. In
addition, such companies may be engaged in the development, manufacture, sale,
or servicing of information age products, such as computer hardware, software
and networking equipment, mobile telephone devices, telecommunications network
switches and equipment, television and radio broadcasting and receiving
equipment, or news and information media of all types. The Fund will invest at
least 65% of total assets in securities of information age companies.
The VT Information Age Fund may invest in securities of both established and
emerging companies operating in developed and emerging economies. Many
information age companies are subject to substantial government regulations that
can affect their prospects. The enforcement of patent, trademark and other
intellectual property laws will affect the value of many such companies. To
reduce risk, the portfolio managers normally diversify investments by
capitalization, geographical location and industry. The Fund does not
concentrate in any one industry. A portfolio manager may use hedging techniques
(such as forward contracts and options) to attempt to mitigate adverse effects
of foreign currency fluctuations.
The portfolio managers seek to purchase stocks that are favorably priced in
relation to their fundamental value, and which will grow in value over time.
Because the value of information age companies will fluctuate in response to
technological and regulatory developments, the portfolio managers will generally
sell a stock when they believe it has attained its optimum value.
VT Income Fund of Boston. The VT Income Fund's primary investment objective is
to provide as much current income as possible. In seeking this objective, the
Fund currently invests primarily in high yield, high risk corporate bonds which
are rated lower than investment grade (i.e., bonds rated lower than Baa by
7
<PAGE>
Moody's Investors Service, Inc. ("Moody's") and lower than BBB by Standard &
Poor's Ratings Group ("S&P")) or are unrated and of comparable quality. The Fund
also seeks reasonable preservation of capital to the extent attainable from such
investments, and growth of income and capital, as secondary objectives. The
Fund's investment objectives and certain policies may be changed by the Trustees
without shareholder approval. The Trustees have no present intention to make a
change and intend to submit any material change in the objectives to
shareholders for approval.
The VT Income Fund may hold debt securities that are unrated or in the lowest
rating categories (rated C by Moody's or D by S&P). Bonds rated C by Moody's are
regarded as having extremely poor prospects of ever attaining any real
investment standing. Bonds rated D by S&P are in payment default or a bankruptcy
petition has been filed and debt service payments are jeopardized. In order to
enforce its rights with defaulted securities, the Fund may be required to retain
legal counsel and/or a financial adviser. This may increase the Fund's operating
expenses and adversely affect net asset value.
The credit quality of most securities held by the VT Income Fund reflects a
greater possibility that adverse changes in the financial condition of an
issuer, or in general economic conditions, or both, may impair the ability of
the issuer to make payments of interest and principal. The inability (or
perceived inability) of issuers to make timely payment of interest and principal
would likely make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at favorable prices. In
the absence of a liquid trading market for securities held by it, the Fund may
have difficulties determining the fair market value of such securities.
Although the investment adviser considers security ratings when making
investment decisions, it performs its own credit and investment analysis and
does not rely primarily on the ratings assigned by the rating services. In
evaluating the quality of a particular security, whether rated or unrated, the
investment adviser will normally take into consideration, among other things,
the issuer's financial resources and operating history, its sensitivity to
economic conditions and trends, the ability of its management, its debt maturity
schedules and borrowing requirements, and relative values based on anticipated
cash flow, interest and asset coverage, and earnings prospects. Because of the
greater number of investment considerations involved in investing in high yield,
high risk bonds, the achievement of the VT Income Fund's objective depends more
on the investment adviser's judgment and analytical abilities than would be the
case if the Fund invested primarily in securities in the higher rating
categories. While the investment adviser will attempt to reduce the risks of
investing in lower rated or unrated securities through active portfolio
management, diversification, credit analysis and attention to current
developments and trends in the economy and the financial markets, there can be
no assurance that a broadly diversified portfolio of such securities would
substantially lessen the risks of defaults brought about by an economic downturn
or recession. Moreover, the Fund may invest up to 25% of its assets in any one
industry, which may expose the Fund to unique risks of that industry.
The VT Income Fund may invest in zero coupon bonds, deferred interest bonds and
bonds or preferred stocks on which the interest is payable in-kind ("PIK
securities"). Zero coupon and deferred interest bonds are debt obligations which
are issued at a significant discount from face value. While zero coupon bonds do
not require the periodic payment of interest, deferred interest bonds provide
for a period of delay before the regular payment of interest begins. PIK
securities provide that the issuer thereof may, at its option, pay interest in
cash or in the form of additional securities. Such investments may experience
greater volatility in market value due to changes in interest rates. The Fund
accrues income on these investments and is required to distribute its income
each year. The Fund may be required to sell securities to obtain cash needed for
income distributions.
The value of VT Income Fund shares will usually change in response to interest
rate fluctutations. When interest rates decline, the value of securities already
held by the Fund can be expected to rise. Conversely, when interest rates rise,
the value of existing portfolio securities can be expected to decline. Other
economic factors (such as a large downward movement in stock prices) can also
adversely impact the high yield bond market. Rating downgrades of securities
held by the Fund may reduce their value.
Common Investment Practices. The VT Worldwide Health Sciences Fund and the VT
Information Age Fund may invest in equity securities of smaller, less seasoned
companies. Such securities are generally subject to greater price fluctuations,
limited liquidity, higher transaction costs and higher investment risk. Smaller
companies may have limited product lines, markets or financial resources, and
they may be dependent on a limited management group. There is generally less
publicly available information about such companies than for larger, more
established companies. The VT Worldwide Health Sciences Fund may make direct
investments in companies in private placement transactions. Because of the
absence of any public trading market for some of these investments (such as
those that are legally restricted) it may take longer to liquidate these
positions at fair value than would be the case for publicly traded securities.
8
<PAGE>
THE VT WORLDWIDE HEALTH AND VT INFORMATION FUNDS MAY INVEST SIGNIFICANTLY IN
FOREIGN SECURITIES. THE VT INCOME FUND MAY INVEST UP TO 65% OF TOTAL ASSETS IN
FOREIGN SECURITIES WHICH ARE PREDOMINANTLY U.S. DOLLAR DENOMINATED. The value of
foreign securities is affected by changes in currency rates, foreign tax laws
(including withholding tax), government policies (in this country or abroad) and
relations between nations, and trading, settlement, custodial and other
operational risks. In addition, the costs of investing abroad are generally
higher than in the United States, and foreign securities markets may be less
liquid, more volatile and less subject to governmental supervision than markets
in the United States. Foreign investments also could be affected by other
factors not present in the United States, including expropriation, armed
conflict, confiscatory taxation, lack of uniform accounting and auditing
standards, less publicly available financial and other information and potential
difficulties in enforcing contractual obligations. Transactions in the
securities of foreign issuers could be subject to settlement delays and risk of
loss. As an alternative to holding foreign stocks directly, the Funds may invest
in dollar-denominated depositary receipts which evidence ownership in underlying
foreign stocks. Investment in depositary receipts is not subject to a Fund's
limitation on investing in foreign companies.
With respect to non-dollar denominated securities, the VT Income Fund may use
forward currency exchange contracts to attempt to mitigate adverse effects of
foreign currency fluctuations. These contracts allow the Fund to establish a
currency exchange rate with payment and delivery at a future date. They are
subject to a risk of loss due to unanticipated changes in currency exchange
rates and default by the counterparty to the contract. There can be no assurance
that this hedging strategy will be advantageous to the Fund. The VT Worldwide
Health Science Fund and the VT Information Age Fund generally do not expect to
engage in such hedging strategies. For the Funds, currency exchange rates may
fluctuate significantly over short periods of time causing a Fund's net asset
value to fluctuate as well. Costs are incurred in connection with conversions
between various currencies.
Each Fund may borrow amounts up to one-third of the value of each Funds' total
assets (including borrowings). Each Fund will not borrow more than 5% of the
value of its total assets except to satisfy redemption requests or for other
temporary purposes. Such borrowings would result in increased expense to a Fund
and, while they are outstanding, would magnify increases or decreases in the
value of Fund shares. The Funds will not purchase additional investment
securities while outstanding borrowings exceed 5% of the value of its total
assets. During unusual market conditions, each Fund may temporarily invest up to
100% of its assets in cash or cash equivalents. While temporarily invested, a
Fund may not achieve its investment objective.
Each Fund may, with the approval of the Trustees of the Trust, seek its
investment objectives by investing all of its assets in another registered
investment company, although none of the Funds currently intend to do so.
Portfolio Turnover. The annual portfolio turnover rate for each of VT
Information Fund and VT Income Fund may exceed 100%. A fund with high turnover
(100% or more) pays more commissions and may generate more capital gains than a
fund with a lower rate. Paying more commissions may also reduce return. Capital
gains distributions will reduce after tax returns for shareholders holding Fund
shares in taxable accounts.
Management and Organization
Management. Eaton Vance Management ("Eaton Vance"), The Eaton Vance Building,
255 State Street, Boston, MA 02109, and Lloyd George Investment Management
(Bermuda) Limited ("Lloyd George"), 3808 One Exchange Square, Central Hong Kong,
co-manage the VT Information Fund, with non-U.S. assets managed by Lloyd George
and U.S. assets managed by Eaton Vance. OrbiMed Advisors, Inc. ("OrbiMed"), 767
3rd Avenue, New York, NY 10017, manages the VT Worldwide Health Sciences Fund.
Eaton Vance manages the VT Income Fund. Each investment adviser manages fund
investments and provides related office facilities and personnel.
Eaton Vance and Lloyd George receive a monthly advisory fee, to be divided
equally between them, of .0625% (equivalent to .75% annually) of the average
daily net assets of the VT Information Age Fund up to $500 million. This fee
declines at intervals above $500 million as set forth below:
ANNUAL
CATEGORY AVERAGE DAILY NET ASSETS ASSET RATE
1 less than $500 million .................... 0.75%
2 $500 million but less than $1 billion ..... 0.70
3 $1 billion but less than $1.5 billion ..... 0.65
4 $1.5 billion but less than $2 billion ..... 0.60
5 $2 billin but less than $3 billion ........ 0.55
6 $3 billin and over ........................ 0.50
Duncan W. Richardson and Jacob Rees-Mogg are the portfolio managers of the VT
Information Age Fund. Mr. Richardson also manages other Eaton Vance portfolios,
9
<PAGE>
has been an employee of Eaton Vance for more than 5 years, and is a Vice
President of Eaton Vance. Mr. Rees-Mogg is an Investment Manager for Lloyd
George and has been employed by Lloyd George for more than 5 years.
OrbiMed receives a monthly fee of 1.00% of the VT Worldwide Health Fund's
average daily net assets up to $30 million of assets, 0.90% of the next $20
million of assets, and 0.75% on assets in excess of $50 million. OrbiMed may
receive a performance-based adjustment of up to 0.25% of the average daily net
assets of the VT Worldwide Health Sciences Fund based upon its investment
performance compared to the Standard & Poor's Index of 500 Common Stocks over
specified periods.
The performance fee adjustment to the advisory fee is as follows: After 12
months, the basic advisory fee is subject to upward or downward adjustment
depending upon whether, and to what extent, the investment performance of the VT
Worldwide Health Sciences Fund differs by at least one percentage point from the
record of the Standard & Poor's Index of 500 Common Stocks over the same period.
Each percentage point difference is multiplied by a performance adjustment rate
of 0.025%. The maximum adjustment plus/minus is 0.25%. One twelfth (1/12) of
this adjustment is applied each month to the average daily net assets of the
Fund over the entire performance period. This adjustment shall be based on a
rolling period of up to and including the most recent 36 months. Fund
performance shall be total return as computed under Rule 482 under the
Securities Act of 1933.
Samuel D. Isaly is the portfolio manager of the VT Worldwide Health Sciences
Fund. He is Managing Partner of OrbiMed and has been employed by OrbiMed (or its
predecessor) for more than 5 years. OrbiMed is an investment advisory firm
registered with the Securities and Exchange Commission. Mr. Isaly has provided
investment advisory services since 1989.
Eaton Vance receives a monthly advisory fee of 5/96 of 1% (equivalent to 0.625%
annually) of the average daily net assets of the VT Income Fund throughout the
month.
Michael Weilheimer and Thomas Huggins co-manage the VT Income Fund. Mr.
Weilheimer also manages other Eaton Vance portfolios, and is a Vice President of
Eaton Vance. Prior to 1996 Mr. Weilheimer was a senior analyst in the Eaton
Vance high yield bond group. Mr. Huggins is a Vice President of Eaton Vance. He
joined Eaton Vance in April 1997 as the head of high yield bond trading. Prior
to joining Eaton Vance, Mr. Huggins was a fixed income trader for John Hancock
Mutual Funds.
Eaton Vance has been managing assets since 1924 and managing mutual funds since
1931. Eaton Vance and its subsidiaries currently manage over $46 billion on
behalf of mutual funds, institutional clients and individuals. Lloyd George and
its affiliates act as investment adviser to various individual and institutional
clients and manage $2.6 billion in assets. Eaton Vance's corporate parent owns
21% of Lloyd George's corporate parent. Lloyd George and its affiliates are
domiciled outside of the United States. Because of this, it would be difficult
for the Fund to bring a claim or enforce a judgment against them.
Eaton Vance administers the business affairs of the Funds. For these services,
Eaton Vance receives a monthly fee from each Fund of 1/48 of 1% (equal to 0.25%
annually) of average daily net assets.
Each investment adviser and the Eaton Vance Group of Funds have adopted Codes of
Ethics governing personal securities transactions. Under the Codes, employees of
the investment adviser and Eaton Vance may purchase and sell securities subject
to certain reporting requirements and other procedures.
Organization. Each Fund is a series of Eaton Vance Variable Trust, a
Massachusetts business trust. The Funds do not hold annual shareholder meetings,
but may hold special meetings for matters that require shareholder approval
(like electing or removing trustees, approving management contracts or changing
investment policies that may only be changed with shareholder approval).
Because the Funds use this combined prospectus, a Fund could be held liable for
a misstatement or omission made about another Fund. The Trust's Trustees
considered this in approving the use of a combined prospectus.
Valuing Shares
Each Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The purchase
price of Fund shares is their net asset value. Exchange-listed securities are
valued at closing sale prices; however, an investment adviser may use the fair
value of a foreign security if events occurring after the close of a foreign
exchange would materially affect net asset value. Because foreign securities
trade on days when Fund shares are not priced, net asset value can change at
times when Fund shares cannot be redeemed. Most debt securities are valued by an
independent pricing service.
Purchasing and Redeeming Shares
The Trust has an underwriting agreement relating to the Funds with Eaton Vance
Distributors, Inc. (EVD), 255 State Street, Boston, Massachusetts 02109. EVD
intends to offer shares of each Fund of the Trust continuously to separate
accounts of various insurance companies. The underwriting agreement presently
provides that
10
<PAGE>
EVD accepts orders for shares at net asset value and no sales commission or load
is charged. EVD may, at its expense, provide promotional incentives to dealers
that sell variable insurance products.
Shares are sold or redeemed at the net asset value per share next determined
after receipt of an order. Orders for purchases or sales of shares of a Fund
must be received by EVD before the close of regular trading on the New York
Stock Exchange in order to receive that day's net asset value. No fee is charged
to a separate account when it redeems Fund shares.
Please check with your insurance company to determine which Funds are available
under your variable annuity contract or variable life insurance policy. Certain
Funds may not be available in your state due to various insurance regulations.
Inclusion in this prospectus of a Fund that is not available in your state is
not to be considered a solicitation. This prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product which accompanies this prospectus.
The Funds currently do not foresee any disadvantages to policyowners arising out
of the fact that the funds may offer their shares to separate accounts of
various insurance companies to serve as the investment medium for their variable
products. Nevertheless, the Trustees intend to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise, and to
determine what action, if any, should be taken in response to such conflicts. If
such a conflict were to occur, one or more insurance companies' separate
accounts might be required to withdraw their investments in one or more Funds
and shares of another Fund may be substituted. This might force a Fund to sell
portfolio securities at disadvantageous prices. In addition, the Trustees may
refuse to sell shares of any Fund to any separate account or may suspend or
terminate the offering of shares of any Fund if such action is required by law
or regulatory authority or is in the best interests of the shareholders of the
Fund. Under unusual circumstances, the Trustees may suspend repurchases or
postpone payment of up to seven days or longer, as permitted by federal
securities law.
Service Fees. Each Fund has adopted a plan that allows each Fund to pay service
fees to insurance companies for providing personal and/or account services to
account holders of insurance product separate accounts which will be equal to an
annual rate of 0.25% of average daily net assets.
Tax Information
Each Fund will distribute any net investment income and net realized capital
gains at least annually. Both types of distributions will be made in shares of
such Funds unless an election is made on behalf of a separate account to receive
some or all of the distributions in cash.
Distributions are reinvested without a sales charge, using the net asset value
determined on the ex-dividend date and distributions are reinvested using the
net asset value determined on the day following the distribution payment date.
Generally, owners of variable annuity and variable life contracts are not taxed
currently on income or gains realized with respect to such contracts. However,
some distributions from such contracts may be taxable at ordinary income tax
rates. In addition, distributions made to an owner who is younger than 59 1/2
may be subject to a 10% penalty tax. Investors should ask their own tax advisors
for more information on their own tax situation, including possible foreign,
state or local taxes.
In order for investors to receive the favorable tax treatment available to
holders of variable annuity and variable life contracts, the separate accounts
underlying such contracts, as well as the funds in which such accounts invest,
must meet certain diversification requirements. Each Fund intends to comply with
these requirements. If a Fund does not meet such requirements, income allocable
to the contracts would be taxable currently to the holders of such contracts.
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements necessary for it to be
relieved of federal income taxes on income and gains it distributes to the
separate accounts. For information concerning federal income tax consequences
for the holders of variable annuity contracts and variable life insurance
policies, contract holders should consult the prospectus of the applicable
separate account.
11
<PAGE>
{LOGO} Investing
EATON VANCE for the
Mutual Funds 21st
Century(R)
More Information
--------------------------------------------------------------------------------
About the Funds: More information is available in the statement of additional
information. The statement of additional information is incorporated by
reference into this prospectus. Additional information about the Funds'
investments will be available in the annual and semi-annual reports to
shareholders. You may obtain free copies of the statement of additional
information and the shareholder reports by contacting:
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about each Fund (including the
statement of additional information): at the Securities and Exchange
Commission's public reference room in Washington, DC (call 1-202-942-8090
for information on the operation of the public reference room); on the
EDGAR Database on the SEC's Internet site (http://www.sec.gov); or, upon
payment of copying fees, by writing to the SEC's public reference section,
Washington, DC 20549-0102, or by electronic mail at [email protected].
--------------------------------------------------------------------------------
The Funds' SEC File No. is 811-10067 1/1COMBP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
November , 2000
EATON VANCE VT WORLDWIDE HEALTH SCIENCES FUND
EATON VANCE VT INFORMATION AGE FUND
EATON VANCE VT INCOME FUND OF BOSTON
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Funds listed above. Each Fund is a series of Eaton Vance
Variable Trust. Capitalized terms used in this SAI and not otherwise defined
have the meanings given to them in the prospectus. This SAI contains additional
information about:
Page
Strategies and Risks ................................................ 1
Investment Restrictions ............................................. 10
Management and Organization ......................................... 11
Investment Advisory and Administrative Services ..................... 14
Other Service Providers ............................................. 16
Purchasing and Redeeming Shares ..................................... 16
Service Plan ........................................................ 17
Performance ......................................................... 18
Taxes ............................................................... 20
Portfolio Security Transactions ..................................... 21
Financial Statements ................................................ 23
Appendices:
A: Corporate Bond Ratings ........................................... a-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
SAI regarding another Fund because the Funds use this combined SAI. The Trustees
of the Trust have considered this factor in approving the use of a combined SAI.
THIS IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED
NOVEMBER , 2000, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS,
WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
VT WORLDWIDE HEALTH SCIENCES FUND. Under normal market conditions, the VT
Worldwide Health Sciences Fund will invest at least 65% of its total assets in
securities of health sciences companies, including common and preferred stocks;
equity interests in partnerships; convertible preferred stocks; and other
convertible instruments. Convertible debt instruments generally will be rated
below investment grade (i.e., rated lower than Baa by Moody's Investors Service,
Inc. ("Moody's") or lower than BBB by Standard & Poor's Ratings Group ("S&P"))
or, if unrated, determined by OrbiMed to be of equivalent quality. Convertible
debt securities so rated are commonly called "junk bonds" and have risks similar
to equity securities; they are speculative and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
securities. Such below investment grade debt securities will not exceed 20% of
total assets.
VT INFORMATION AGE FUND. Under normal market conditions, the VT Information Age
Fund will invest at least 65% of its total assets in securities of information
age companies. Securities eligible for purchase include common and preferred
stocks; equity interests in trusts, partnerships, joint ventures and other
unincorporated entities or enterprises; special classes of shares available only
to foreign investors in markets that restrict ownership by foreign investors to
certain classes of equity securities; convertible preferred stocks; and other
convertible instruments. Convertible debt instruments generally will be rated
below investment grade (i.e., rated lower than Baa by Moody's or lower than BBB
by S&P) or, if unrated, determined by an investment adviser to be of equivalent
quality. Convertible debt securities so rated are commonly called "junk bonds"
and have risks similar to equity securities; they are speculative and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt securities. Such below investment grade debt securities will not
exceed 20% of total assets.
VT INCOME FUND. The Fund seeks to achieve its primary investment objective, as
much current income as possible, by investing primarily in high-yielding, high
risk, fixed-income securities. In addition to lower-rated bonds, the Fund may
invest in higher-rated securities. A substantial portion of the Fund's portfolio
will generally consist of fixed-income securities and dividend paying stocks.
However, the Fund may also, from time to time, invest in non-income producing
bonds and obligations and in non-dividend paying stocks and rights and warrants
when it believes there is a substantial opportunity for capital appreciation.
Any realized gains from such capital appreciation provide an opportunity for
increasing the Fund's investment in income producing securities. Bonds and
preferred stocks will tend to be acquired for current income and reasonable
stability of capital; convertible securities and common stocks will normally be
acquired for their growth potential as well as their yield. The percentages of
assets invested in fixed-income securities and the type of such securities held
by the Fund will vary and may include a broad range of quality in rated and
unrated debt securities, as described in the prospectus. The Fund does not
invest in companies for the primary purpose of acquiring control or management
thereof.
The Fund may dispose of fixed-income securities on a short term (less than
six months) basis in order to take advantage of differentials in bond prices and
yields or of fluctuations in interest rates consistent with its investment
objective. Other securities may also be disposed of earlier than originally
anticipated because of changes in business trends or developments, or other
circumstances believed to render them vulnerable to price decline or otherwise
undesirable for continued holding.
The rating assigned to a security by a rating agency does not reflect
assessment of the volatility of the security's market value or of the liquidity
of an investment in the securities. Credit ratings are based largely on the
issuer's historical financial condition and the rating agency's investment
analysis at the time of rating, and the rating assigned to any particular
security is not necessarily a reflection of the issuer's current financial
condition. Credit quality in the high yield high risk bond market can change
from time to time, and recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security.
Certain securities held by the Fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by the Fund during a time of declining interest rates, the Fund may not be able
to reinvest the proceeds in securities providing the same investment return as
the securities redeemed.
The asset composition of the Fund is set forth in Appendix A and the
corporate bond ratings are found in Appendix B.
SMALLER COMPANIES. The investment risk associated with smaller or emerging
companies is higher than that normally associated with larger, older companies
due to the greater business risks associated with small size, the relative age
of the company, limited product lines, distribution channels and financial and
managerial resources. Further, there is typically less publicly available
information concerning smaller companies than for larger, more established ones.
The securities of small companies are often traded only over-the-counter and may
not be traded in the volumes typical of trading on a national securities
exchange. As a result, in order to sell this type of holding, a Fund may need to
discount the securities from recent prices or dispose of the securities over a
long period of time. The prices of this type of security may be more volatile
than those of larger companies which are often traded on a national securities
exchange.
FOREIGN INVESTMENTS. Investing in securities issued by companies whose principal
business activities are outside the United States may involve significant risks
not present in domestic investments. For example, there is generally less
publicly available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Foreign issuers are generally not bound by uniform accounting, auditing,
and financial reporting requirements and standards of practice comparable to
those applicable to domestic issuers. Investments in foreign securities also
involve the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of a Portfolio, political or financial instability or
diplomatic and other developments which could affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. It is anticipated that in
most cases the best available market for foreign securities will be on exchanges
or in over-the-counter markets located outside of the United States. Foreign
stock markets, while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some foreign issuers
(particularly those located in developing countries) may be less liquid and more
volatile than securities of comparable U.S. companies. In addition, foreign
brokerage commissions are generally higher than commissions on securities traded
in the United States and may be non-negotiable. In general, there is less
overall governmental supervision and regulation of foreign securities markets,
broker-dealers, and issuers than in the United States. In some countries delayed
settlements are customary, which increases the risk of loss.
The Funds may also invest in American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs). ADRs, EDRs and
GDRs are certificates evidencing ownership of shares of a foreign issuer and are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. However, they continue to be subject to many of
the risks associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks of the
underlying issuer's country. ADRs, EDRs and GDRs may be sponsored or
unsponsored. Unsponsored receipts are established without the participation of
the issuer. Unsponsored receipts may involve higher expenses, they may not
pass-through voting and other shareholder rights, and they may be less liquid.
FOREIGN CURRENCY TRANSACTIONS. Because investments in companies whose principal
business activities are located outside of the United States will frequently
involve currencies of foreign countries, and because assets of a Fund may
temporarily be held in bank deposits in foreign currencies during the completion
of investment programs, the value of the assets of a Fund as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations. Currency exchange rates can
also be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. A Fund may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into swaps, forward
contracts, options or futures on currency. On spot transactions, foreign
exchange dealers do not charge a fee for conversion, but they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
CURRENCY SWAPS. A Fund may enter into currency swaps for both hedging and
non-hedging purposes. Currency swaps involve the exchange of rights to make or
receive payments in specified currencies. Since currency swaps are individually
negotiated, a Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its currency swap positions. Currency
swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of currency swaps is a highly specialized activity which involves
special investment techniques and risks. If an investment adviser is incorrect
in its forecasts of market values and currency exchange rates, a Fund's
performance will be adversely affected.
Currency swaps require maintenance of a segregated account described under
"Asset Coverage Requirements" below. Each Fund will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by the
investment adviser. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid in comparison with the markets for
other similar instruments which are traded in the interbank market.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Forward contracts are
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency (or basket of currencies) for an agreed price at a future
date, which may be any fixed number of days from the date of the contract. Each
Fund may engage in cross-hedging by using forward contracts in one currency (or
basket of currencies) to hedge against fluctuations in the value of securities
denominated in a different currency if the Fund's adviser determines that there
is an established historical pattern or correlation between the two currencies
(or the basket of currencies and the underlying currency). Use of a different
foreign currency magnifies a Fund's exposure to foreign currency exchange rate
fluctuations. Each Fund may also use forward contracts to shift its exposure to
foreign currency exchange rate changes from one currency to another.
Each Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Fund may desire to "lock in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Fund will attempt to
protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when management of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the securities held by the Fund denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of a Fund's
foreign assets.
SPECIAL RISKS ASSOCIATED WITH CURRENCY TRANSACTIONS. Transactions in forward
contracts, as well as futures and options on foreign currencies, are subject to
the risk of governmental actions affecting trading in or the prices of
currencies underlying such contracts, which could restrict or eliminate trading
and could have a substantial adverse effect on the value of positions held by
the Fund. In addition, the value of such positions could be adversely affected
by a number of other complex political and economic factors applicable to the
countries issuing the underlying currencies.
Furthermore, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying forward contracts, futures contracts and options. As a
result, the available information on which a Fund's trading systems will be
based may not be as complete as the comparable data on which the Fund makes
investment and trading decisions in connection with securities and other
transactions. Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which will not be
reflected in the forward, futures or options markets until the following day,
thereby preventing a Fund from responding to such events in a timely manner.
Settlements of over-the-counter forward contracts or of the exercise of
foreign currency options generally must occur within the country issuing the
underlying currency, which in turn requires parties to such contracts to accept
or make delivery of such currencies in conformity with any United States or
foreign restrictions and regulations regarding the maintenance of foreign
banking relationships, fees, taxes or other charges.
Unlike currency futures contracts and exchange-traded options, options on
foreign currencies and forward contracts are not traded on contract markets
regulated by the Commodity Futures Trading Commission ("CFTC") or (with the
exception of certain foreign currency options) the Securities and Exchange
Commission (the "SEC"). To the contrary, such instruments are traded through
financial institutions acting as market-makers. (Foreign currency options are
also traded on the Philadelphia Stock Exchange subject to SEC regulation). In an
over-the-counter trading environment, many of the protections associated with
transactions on exchanges will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, an option writer could lose
amounts substantially in excess of its initial investment due to the margin and
collateral requirements associated with such option positions. Similarly, there
is no limit on the amount of potential losses on forward contracts to which a
Fund is a party.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contacts, and a Fund may be unable to close out options
purchased or written, or forward contracts entered into, until their exercise,
expiration or maturity. This in turn could limit a Fund's ability to realize
profits or to reduce losses on open positions and could result in greater
losses.
Furthermore, over-the-counter transactions are not backed by the guarantee
of an exchange's clearing corporation. A Fund will therefore be subject to the
risk of default by, or the bankruptcy of, the financial institution serving as
its counterparty. One or more of such institutions also may decide to
discontinue its role as market-maker in a particular currency, thereby
restricting a Fund's ability to enter into desired hedging transactions. A Fund
will enter into over-the-counter transactions only with parties whose
creditworthiness has been reviewed and found satisfactory by an investment
adviser.
The purchase and sale of exchange-traded foreign currency options, however,
are subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the Options Clearing Corporation ("OCC"), which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures for exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
FIXED-INCOME SECURITIES. VT Income Fund invests primarily in fixed-income
securities and VT Worldwide Health Sciences invests in such securities to a much
lesser extent. Included in the fixed-income securities in which the Fund may
invest are preferred, preference and convertible stocks, equipment lease
certificates, equipment trust certificates and conditional sales contracts.
Preference stocks are stocks that have many characteristics of preferred stocks,
but are typically junior to an existing class of preferred stocks. Equipment
lease certificates are debt obligations secured by leases on equipment (such as
railroad cars, airplanes or office equipment), with the issuer of the
certificate being the owner and lessor of the equipment. Equipment trust
certificates are debt obligations secured by an interest in property (such as
railroad cars or airplanes), the title of which is held by a trustee while the
property is being used by the borrower. Conditional sales contracts are
agreements under which the seller of property continues to hold title to the
property until the purchase price is fully paid or other conditions are met by
the buyer.
The Fund may purchase fixed-rate bonds which have a demand feature allowing
the holder to redeem the bonds at specified times. These bonds are more
defensive than conventional long-term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, since the Fund may retain the bond if interest rates
decline. By acquiring these kinds of bonds the Fund obtains the contractual
right to require the issuer of the bonds to purchase the security at an agreed
upon price, which right is contained in the obligation itself rather than in a
separate agreement or instrument. Since this right is assignable only with the
bond, the Fund will not assign any separate value to such right. The Fund may
also purchase floating or variable rate obligations, which it would anticipate
using as short-term investments pending longer term investment of its funds.
LOAN INTERESTS. VT Income Fund only. A loan in which the Fund may acquire a loan
interest (a "Loan Interest") is typically originated, negotiated and structured
by a U.S. or foreign commercial bank, insurance company, finance company or
other financial institution (the "Agent") for a lending syndicate of financial
institutions. The Agent typically administers and enforces the loan on behalf of
the other lenders in the syndicate. In addition, an institution, typically but
not always the Agent (the "Collateral Bank"), holds collateral (if any) on
behalf of the lenders. These Loan Interests may take the form of participation
interests in, assignments of or novations of a loan during its secondary
distribution, or direct interests during a primary distribution. Such Loan
Interests may be acquired from U.S. or foreign banks, insurance companies,
finance companies or other financial institutions who have made loans or are
members of a lending syndicate or from other holders of Loan Interests.
The Fund may also acquire Loan Interests under which the Fund derives its
rights directly from the borrower. Such Loan Interests are separately
enforceable by the Fund against the borrower and all payments of interest and
principal are typically made directly to the Fund from the borrower. In the
event that the Fund and other lenders become entitled to take possession of
shared collateral, it is anticipated that such collateral would be held in the
custody of a Collateral Bank for their mutual benefit. The Fund may not act as
an Agent, a Collateral Bank, a guarantor or sole negotiator or structurer with
respect to a loan.
The investment adviser will analyze and evaluate the financial condition of
the borrower in connection with the acquisition of any Loan Interest. The
investment adviser also analyzes and evaluates the financial condition of the
Agent and, in the case of Loan Interests in which the Fund does not have privity
with the borrower, those institutions from or through whom the Fund derives its
rights in a loan (the "Intermediate Participants"). From time to time the
investment adviser and its affiliates may borrow money from various banks in
connection with their business activities. Such banks may also sell interests in
loans to or acquire such interests from the Fund or may be Intermediate
Participants with respect to loans in which the Fund owns interests. Such banks
may also act as Agents for loans in which the Fund owns interests.
In a typical loan the Agent administers the terms of the loan agreement. In
such cases, the Agent is normally responsible for the collection of principal
and interest payments from the borrower and the apportionment of these payments
to the credit of all institutions which are parties to the loan agreement. The
Fund will generally rely upon the Agent or an Intermediate Participant to
receive and forward to the Fund its portion of the principal and interest
payments on the loan. Furthermore, unless under the terms of a participation
agreement the Fund has direct recourse against the borrower, the Fund will rely
on the Agent and the other members of the lending syndicate to use appropriate
credit remedies against the borrower. The Agent is typically responsible for
monitoring compliance with covenants contained in the loan agreement based upon
reports prepared by the borrower. The seller of the Loan Interest usually does,
but is often not obligated to, notify holders of Loan Interests of any failures
of compliance. The Agent may monitor the value of the collateral and, if the
value of the collateral declines, may accelerate the loan, may give the borrower
an opportunity to provide additional collateral or may seek other protection for
the benefit of the participants in the loan. The Agent is compensated by the
borrower for providing these services under a loan agreement, and such
compensation may include special fees paid upon structuring and funding the loan
and other fees paid on a continuing basis. With respect to Loan Interests for
which the Agent does not perform such administrative and enforcement functions,
the Fund will perform such tasks on its own behalf, although a Collateral Bank
will typically hold any collateral on behalf of the Fund and the other lenders
pursuant to the applicable loan agreement.
A financial institution's appointment as Agent may usually be terminated in
the event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the loan agreement should remain available to holders of Loan
Interests. However, if assets held by the Agent for the benefit of the Fund were
determined to be subject to the claims of the Agent's general creditors, the
Fund might incur certain costs and delays in realizing payment on a loan
interest, or suffer a loss of principal and/or interest. In situations involving
Intermediate Participants similar risks may arise.
Purchasers of Loan Interests depend primarily upon the creditworthiness of
the borrower for payment of principal and interest. If the Fund does not receive
scheduled interest or principal payments on such indebtedness, the Fund's share
price and yield could be adversely affected. Loans that are fully secured offer
the Fund more protections than an unsecured loan in the event of non-payment of
scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral can be liquidated. Indebtedness of borrowers
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may never
pay off their indebtedness, or may pay only a small fraction of the amount owed.
Direct indebtedness of developing countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
The Fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry. See Investment Restrictions (1)
and (5) below. For purposes of these restrictions, the Fund generally will treat
the borrower as the "issuer" of a Loan Interest held by the Fund. In the case of
loan participations where the Agent or Intermediate Participant serves as
financial intermediary between the Fund and the borrower, the Fund, in
appropriate circumstances, will treat both the Agent or Intermediate Participant
and the borrower as "issuers" for the purposes of determining whether the Fund
has invested more than 5% of its total assets in a single issuer. Treating a
financial intermediary as an issuer of indebtedness may restrict the Fund's
ability to invest in indebtedness related to a single intermediary, or a group
of intermediaries engaged in the same industry, even if the underlying borrowers
represent many different companies and industries.
DERIVATIVE INSTRUMENTS. Each Fund may purchase or sell derivative instruments
(which are instruments that derive their value from another instrument,
security, index or currency) to enhance return, to hedge against fluctuations in
securities prices, interest rates or currency exchange rates, or as a substitute
for the purchase or sale of securities or currencies. Options may be written to
enhance income. A Fund's transactions in derivative instruments may be in the
U.S. or abroad and may include the purchase or sale of futures contracts on
securities, securities indices, other indices, other financial instruments or
currencies; options on futures contracts; exchange-traded and over-the-counter
options on securities, indices or currencies; and forward foreign currency
exchange contracts. Transactions in derivative instruments involve a risk of
loss or depreciation due to: unanticipated adverse changes in securities prices,
interest rates, the other financial instruments' prices or currency exchange
rates; the inability to close out a position; default by the counterparty;
imperfect correlation between a position and the desired hedge; tax constraints
on closing out positions; and portfolio management constraints on securities
subject to such transactions. The loss on derivative instruments (other than
purchased options) may substantially exceed a Fund's initial investment in these
instruments. In addition, a Fund may lose the entire premium paid for purchased
options that expire before they can be profitably exercised by a Fund. A Fund
incurs transaction costs in opening and closing positions in derivative
instruments. Under regulations of the CFTC, the use of futures transactions for
non-hedging purposes is limited. There can be no assurance that a Fund's
investment adviser's use of derivative instruments will be advantageous to the
Fund.
Each Fund may enter into futures contracts, and options on futures
contracts, traded on an exchange regulated by the CFTC and on foreign exchanges,
but, with respect to foreign exchange-traded futures contracts and options on
such futures contracts, only if a Fund's investment adviser determines that
trading on each such foreign exchange does not subject the Fund to risks,
including credit and liquidity risks, that are materially greater than the risks
associated with trading on CFTC-regulated exchanges.
In order to hedge its current or anticipated portfolio positions, a Fund may
use futures contracts on securities held in its Fund or on securities with
characteristics similar to those of the securities held by the Fund. If, in the
opinion of a Fund's investment adviser, there is a sufficient degree of
correlation between price trends for the securities held by the Fund and futures
contracts based on other financial instruments, securities indices or other
indices, the Fund may also enter into such futures contracts as part of its
hedging strategy.
A Fund may purchase call and put options, subject to the Asset Coverage
Requirements set forth below. A Fund may only write a put option on a security
that it intends to acquire for its investment portfolio.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on an exchange regulated by
the CFTC, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in-the-money") may
not exceed 5% of the liquidation value of the Fund's investments, after taking
into account unrealized profits and unrealized losses on any contracts the Fund
has entered into.
OPTIONS ON SECURITIES. An options position may be closed out only on an options
exchange which provides a secondary market for an option of the same series.
Although the Funds will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. For some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions in
particular options, with the result that the Fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the sale of underlying securities pursuant to the exercise of put options. If
the Fund as a covered call option writer is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
FUTURES CONTRACTS. All futures contracts entered into by a Fund are traded on
exchanges or boards of trade that are licensed and regulated by the Commodity
Futures Trading Commission ("CFTC"). The Fund may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade.
The Fund will engage in futures and related options transactions for bona
fide hedging or non-hedging purposes as defined in or permitted by CFTC
regulations. The Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Fund or which it expects
to purchase. The Fund will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Code for maintaining the qualification of the Fund as a
regulated investment company for federal income tax purposes.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on an exchange regulated by
the CFTC, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in-the-money") may
not exceed 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the Fund
has entered into. The Fund did not engage in such transactions during the fiscal
year ended September 30, 1999, and there is no assurance that it will engage in
such transactions in the future.
RISKS ASSOCIATED WITH DERIVATIVE INSTRUMENTS. Entering into a derivative
instrument involves a risk that the applicable market will move against a Fund's
position and that the Fund will incur a loss. For derivative instruments other
than purchased options, this loss may exceed the amount of the initial
investment made or the premium received by a Fund. Derivative instruments may
sometimes increase or leverage a Fund's exposure to a particular market risk.
Leverage enhances the Fund's exposure to the price volatility of derivative
instruments it holds. A Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instruments and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instrument, the assets underlying the derivative
instrument and the Fund assets. Over-the- counter ("OTC") derivative instruments
involve an enhanced risk that the issuer or counterparty will fail to perform
its contractual obligations. Some derivative instruments are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of market volatility, a commodity exchange may suspend or limit
trading in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. Commodity exchanges may also
establish daily limits on the amount that the price of a futures contract or
futures option can vary from the previous day's settlement price. Once the daily
limit is reached, no trades may be made that day at a price beyond the limit.
This may prevent a Fund from closing out positions and limiting its losses. The
staff of the SEC takes the position that certain purchased OTC options, and
assets used as cover for written OTC options, are subject to a Fund's 15% limit
on illiquid investments. A Fund's ability to terminate OTC derivative
instruments may depend on the cooperation of the counterparties to such
contracts. For thinly traded derivative instruments, the only source of price
quotations may be the selling dealer or counterparty. In addition, certain
provisions of the Code limit the extent to which the Fund may purchase and sell
derivative instruments. A Fund will engage in transactions in futures contracts
and related options only to the extent such transactions are consistent with the
requirements of the Code for maintaining the qualification of its corresponding
Fund as a regulated investment company for federal income tax purposes.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements (the
purchase of a security coupled with an agreement to resell) with respect to its
permitted investments, but currently intends to do so only with member banks of
the Federal Reserve System or with primary dealers in U.S. Government
securities. In the event of the bankruptcy of the other party to a repurchase
agreement, a Fund might experience delays in recovering its cash. To the extent
that, in the meantime, the value of the securities a Fund purchased may be have
decreased, the Fund could experience a loss. The Funds do not expect to invest
more than 5% of their respective total assets in repurchase agreements under
normal circumstances. At no time will a Fund commit more than 15% of its net
assets to repurchase agreements which mature in more than seven days and other
illiquid securities. A Fund's repurchase agreements will provide that the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement, and will be marked to market daily.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements. Under a reverse repurchase agreement, a Fund temporarily transfers
possession of a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash. At the same time, the Fund agrees to
repurchase the instrument at an agreed upon time (normally within seven days)
and price, which reflects an interest payment. The Fund expects that it will
enter into reverse repurchase agreements when it is able to invest the cash so
acquired at a rate higher than the cost of the agreement, which would increase
the income earned by the Fund. The Fund could also enter into reverse repurchase
agreements as a means of raising cash to satisfy redemption requests without the
necessity of selling portfolio assets.
When a Fund enters into a reverse repurchase agreement, any fluctuations in
the market value of either the securities transferred to another party or the
securities in which the proceeds may be invested would affect the market value
of the Fund's assets. As a result, such transactions may increase fluctuations
in the market value of the Fund's assets. While there is a risk that large
fluctuations in the market value of the Fund's assets could affect the Fund's
net asset value, this risk is not significantly increased by entering into
reverse repurchase agreements, in the opinion of an adviser. Because reverse
repurchase agreements may be considered to be the practical equivalent of
borrowing funds, they constitute a form of leverage. If a Fund reinvests the
proceeds of a reverse repurchase agreement at a rate lower than the cost of the
agreement, entering into the agreement will lower the Fund's yield.
While an investment adviser does not consider reverse repurchase agreements
to involve a traditional borrowing of money, reverse repurchase agreements will
be included within the aggregate limitation on "borrowings" contained in the
Fund's investment restriction (1) set forth below.
LENDING PORTFOLIO SECURITIES. If the relevant investment adviser decides to make
securities loans, each of the Funds may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers. The
financial condition of the borrower will be monitored by an adviser on an
ongoing basis. The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned and would also receive
a fee, or all or a portion of the interest on investment of the collateral. The
Fund would have the right to call a loan and obtain the securities loaned at any
time on up to five business days' notice. The Fund would not have the right to
vote any securities having voting rights during the existence of a loan, but
could call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or holding of their consent on a
material matter affecting the investment. Securities lending involves
administrative expenses, including finders' fees. If an adviser decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 1/3 of a Fund's total assets.
ASSET COVERAGE REQUIREMENTS. Transactions involving reverse repurchase
agreements, currency swaps, forward contracts, futures contracts and options
(other than options that the Fund has purchased) expose a Fund to an obligation
to another party. A Fund will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities, currencies or
other options, futures contracts or forward contracts, or (2) cash or liquid
securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. (Only the net obligations of a
swap will be covered.) Each Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities in a segregated account with its custodian in the prescribed
amount. The securities in the segregated account will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
Fund's custodian cannot be sold while the position requiring coverage or
segregation is outstanding unless they are replaced with other appropriate
assets. As a result, the commitment of a large portion of a Fund's assets to
segregated accounts or to cover could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
CONVERTIBLE SECURITIES. A Fund may from time to time invest a portion of its
assets in debt securities and preferred stocks which are convertible into, or
carry the right to purchase, common stock or other equity securities. The debt
security or preferred stock (such as Canadian special warrants) may itself be
convertible into or exchangeable for equity securities, or the purchase right
may be evidenced by warrants attached to the security or acquired as part of a
unit with the security. Convertible securities may be purchased for their
appreciation potential when they yield more than the underlying securities at
the time of purchase or when they are considered to present less risk of
principal loss than the underlying securities. Generally speaking, the interest
or dividend yield of a convertible security is somewhat less than that of a
non-convertible security of similar quality issued by the same company.
WARRANTS. Warrants are an option to purchase equity securities at a specific
price valid for a specific period of time. They do not represent ownership of
the securities, but only the right to buy them. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities. Warrants
may become valueless if not sold or exercised prior to their expiration.
(Canadian special warrants issued in private placements prior to a public
offering are not considered warrants for purposes of a VT Worldwide Health
Sciences and VT Information Age Funds' investment restrictions).
RESTRICTED SECURITIES. Each Fund may invest up to 15% of net assets in illiquid
securities. Illiquid securities include securities legally restricted as to
resale, such as commercial paper issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and securities eligible for resale pursuant
to Rule 144A thereunder. Section 4(2) and Rule 144A securities may, however, be
treated as liquid by the investment adviser pursuant to procedures adopted by
the Trustees, which require consideration of factors such as trading activity,
availability of market quotations and number of dealers willing to purchase the
security. If the Fund invests in Rule 144A securities, the level of portfolio
illiquidity may be increased to the extent that eligible buyers become
uninterested in purchasing such securities.
It may be difficult to sell such securities at a price representing their
fair value until such time as such securities may be sold publicly. Where
registration is required, a considerable period may elapse between a decision to
sell the securities and the time when a Fund would be permitted to sell. Thus, a
Fund may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. A Fund may also acquire securities through private
placements under which it may agree to contractual restrictions on the resale of
such securities. Such restrictions might prevent their sale at a time when such
sale would otherwise be desirable.
TEMPORARY INVESTMENTS. Each Fund may invest temporarily in cash or cash
equivalents. Cash equivalents are highly liquid, short-term securities such as
commercial paper, certificates of deposit, short-term notes and short-term U.S.
Government obligations.
OTHER INVESTMENT COMPANIES. Each Fund reserves the right to invest up to 10% of
its total assets in the securities of other investment companies unaffiliated
with the Fund's adviser that have the characteristics of closed-end investment
companies. A Fund will indirectly bear its proportionate share of any management
fees paid by investment companies in which it invests in addition to the
advisory fee paid by a Fund. The value of closed-end investment company
securities, which are usually traded on an exchange, is affected by demand for
the securities themselves, independent of the demand for the underlying
portfolio assets, and, accordingly, such securities can trade at a discount from
their net asset values.
PORTFOLIO TURNOVER. A Fund cannot accurately predict its portfolio turnover
rate, but it is anticipated that the VT Worldwide Health Sciences Fund annual
turnover rate will generally not exceed 100%, while the VT Income Fund and the
VT Information Age Fund's annual turnover rate will exceed 100% (excluding
turnover of securities having a maturity of one year or less). A 100% turnover
rate could occur if all the securities held by a Fund are sold and either
repurchased or replaced within one year. A high turnover rate (100% or more)
necessarily involves greater expenses to a Fund. High portfolio turnover may
also result in the realization of substantial net short-term capital gains.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of a Fund. Accordingly, a Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act");
(2) Purchase any securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities);
(3) Make loans to any person except by (a) the acquisition of debt
securities and making portfolio investments, (b) entering into repurchase
agreements, (c) lending portfolio securities and (d) lending cash consistent
with applicable law;
(4) With respect to 75% of its total assets, invest more than 5% of its
total assets (taken at current value) in the securities of any one issuer,
or invest in more than 10% of the outstanding voting securities of any one
issuer, except obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and except securities of other investment
companies;
(5) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in
selling a portfolio security under circumstances which may require the
registration of the same under the Securities Act of 1933 (restricted
securities);
(6) Invest in real estate including interests in real estate limited
partnerships (although it may purchase and sell securities which are secured
by real estate and securities of companies which invest or deal in real
estate) or in commodities or commodity contracts for the purchase or sale of
physical commodities.
With respect to the VT Information Age Fund, the Fund may not:
(7) Concentrate its investments in any particular industry, but, if
deemed appropriate for the Fund's objective, up to 25% of the value of its
assets may be invested in securities of companies in any one industry
(although more than 25% may be invested in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities).
With respect to the VT Worldwide Health Sciences Fund, the Fund may not:
(8) Invest in the securities of any one industry, except the medical
research and health care industry (and except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if as
a result 25% or more of the Fund's total assets would be invested in the
securities of such industry.
With respect to the VT Income Fund, the Fund may not:
(9) Purchase any security if such purchase, at the time thereof, would
cause 25% or more of the Fund's total assets to be invested in any single
industry, provided that the electric, gas and telephone utility industries
shall be treated as separate industries for purposes of this restriction and
further provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities;
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest its investable assets in an open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund.
The Funds have adopted the following investment policies which may be
changed by the Trustees with respect to a Fund without approval by that Fund's
shareholders or with respect to the Portfolio without approval of a Fund or its
other investors. Each Fund will not:
(a) invest more than 15% of its net assets in investments which are not
readily marketable, including restricted securities and repurchase
agreements with a maturity longer than seven days. Restricted securities for
the purposes of this limitation do not include securities eligible for
resale pursuant to Rule 144A under the Securities Act and commercial paper
issued pursuant to Section 4(2) of said Act that the Trustees of the Trust,
or their delegate, determine to be liquid. Any such determination by a
delegate will be made pursuant to procedures adopted by the Board. If a Fund
invests in Rule 144A securities, the level of portfolio illiquidity may be
increased to the extent that eligible buyers become uninterested in
purchasing such securities; or
(b) purchase an option on a security if, after such transaction, more
than 5% of its net assets, measured by the aggregate of all premiums paid
for all such options held by the Fund, would be so invested (VT Worldwide
Health Sciences Fund only).
(c) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issuer as, and
equal in amount to, the securities sold short, and unless not more than 25%
of its net assets (taken at current value) is held as collateral for such
sales at any one time.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or other asset. Accordingly, any later increase or decrease
resulting from a change in values, assets or other circumstances or any
subsequent rating change made by a rating service will not compel the Fund to
dispose of such security or other asset. Notwithstanding the foregoing, under
normal circumstances the VT Information Age Fund will maintain at least 65% of
its total assets in securities of information age companies and the VT Worldwide
Health Sciences Fund will maintain at least 65% of its total assets in
securities of health science companies and none of the Funds will invest more
than 15% of net assets in illiquid securities. Moreover, each Fund must always
be in compliance with the borrowing policies set forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees and officers of the Trust are listed below. Except
as indicated, each individual has held the office shown or other offices in the
same company for the last five years. Unless otherwise noted, the business
address of each Trustee and officer is The Eaton Vance Building, 255 State
Street, Boston, Massachusetts 02109. Those Trustees who are "interested persons"
of the Trust or a Portfolio, as defined in the 1940 Act, are indicated by an
asterisk(*).
JESSICA M. BIBLIOWICZ (40), Trustee*
President and Chief Executive Officer of National Financial Partners (a
financial services company) (since April 1999). President and Chief Operating
Officer of John A. Levin & Co. (a registered investment advisor) (July 1997 to
April 1999) and a Director of Baker, Fentress & Company which owns John A.
Levin & Co. (July 1997 to April 1999). Formerly Executive Vice President of
Smith Barney Mutual Funds (from July 1994 to June 1997). Elected Trustee
October 30, 1998. Trustee of various investment companies managed by Eaton
Vance or BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, NY 10019
DONALD R. DWIGHT (69), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or Boston Management and
Research (BMR) (a subsidiary of Eaton Vance).
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (58), President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance and their corporate
parent and trustee (EVC and EV). Director of EVC and EV. Trustee and officer
of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (65), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick Investment
Trust (mutual funds). Trustee of various investment companies managed by Eaton
Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (64), Trustee
Chairman of the Board, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (42), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (70), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS P. HUGGINS (34), Vice President of VT Income Fund
Vice President of Eaton Vance and BMR since November 1, 1998. Officer of
various investment companies managed by Eaton Vance and BMR. Previously, he
was head of high yield bond trading with Eaton Vance (1997-1998) and a fixed
income trader for John Hancock Mutual Funds (1995-1997).
SAMUEL D. ISALY (54), Vice President of VT Worldwide Health Sciences Fund
Managing Partner of OrbiMed Advisors, Inc. since 1998; President of Mehta and
Isaly Asset Management, Inc. from 1989 through 1998.
Address: OrbiMed Advisors, Inc., 767 3rd Avenue, New York, NY 10017
JACOB REES-MOGG ( ), Vice President of VT Information Age Fund. Investment
Manager, Lloyd George and portfolio manager of various investment
companies managed by Eaton Vance, Lloyd George or BMR.
DUNCAN W. RICHARDSON (42), Vice President of Information Age Portfolio
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
MICHAEL W. WEILHEIMER (38), Vice President of VT Income Fund
Vice President of Eaton Vance and BMR. Officer of various other investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (55), Treasurer
Vice President of BMR and Eaton Vance. Officer of various other investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (59), Secretary
Vice President, Secretary and Chief Legal Officer of BMR, Eaton Vance, EVC and
EV. Prior to joining Eaton Vance on November 1, 1996, he was a Partner of the
law firm of Kirkpatrick & Lockhart LLP, New York and Washington, D.C., and was
Executive Vice President of Neuberger & Berman Management, Inc., a mutual fund
management company. Officer of various investment companies managed by Eaton
Vance or BMR.
JANET E. SANDERS (64), Assistant Treasurer and Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (37), Assistant Secretary
Assistant Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (43), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
The Nominating Committee of the Board of Trustees of the Trust is comprised
of the Trustees who are not "interested persons" as that term is defined under
the 1940 Act ("noninterested Trustees"). The purpose of the Committee is to
recommend to the Board nominees for the position of noninterested Trustee and to
assure that at least a majority of the Board of Trustees is independent of Eaton
Vance and its affiliates.
Messrs. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of the
Special Committee of the Board of Trustees of the Trust. The purpose of the
Special Committee is to consider, evaluate and make recommendations to the full
Board of Trustees concerning (i) all contractual arrangements with service
providers to the Funds, including investment advisory administrative, transfer
agency, custodial and fund accounting and distribution services, and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Funds or investors therein.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust. The Audit Committee's functions include
making recommendations to the Trustees regarding the selection of the
independent accountants, and reviewing matters relative to trading and brokerage
policies and practices, accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed by
the custodian, transfer agent and dividend disbursing agent of the Trust.
The fees and expenses of the noninterested Trustees of the Trust are paid by
the Funds. (The Trustees of the Trust who are members of the Eaton Vance
organization receive no compensation from the Trust). The Trustees have received
no compensation to date for their service as Trustees of the Trust. For the year
ended December 31, 1999, noninterested Trustees of the Trust earned the
following compensation in their capacities as Trustees of the funds in the Eaton
Vance fund complex(1):
<TABLE>
<CAPTION>
SOURCE OF JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JACK L.
COMPENSATION BIBLIOWICZ DWIGHT HAYES, III REAMER STOUT TREYNOR
------------ ---------- ------ ---------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Trust(2) $ $ $ $ $ $
Trust and Fund Complex $33,334 $160,000(3) $170,000(4) $160,000 $32,842 $170,000
------------
(1) As of , the Eaton Vance fund complex consists of registered investment companies or series thereof.
(2) Amounts are estimated.
(3) Includes $60,000 of deferred compensation.
(4) Includes $41,563 of deferred compensation.
</TABLE>
ORGANIZATION. Each Fund is a series of the Trust, which is organized under
Massachusetts law, and is operated as an open-end management investment company.
The Trust may issue an unlimited number of shares of beneficial interest (no par
value per share) in one or more series (such as the Funds). The Trustees have
the authority under the Declaration of Trust to create additional classes of
shares with differing rights and privileges. When issued and outstanding, shares
are fully paid and nonassessable by the Trust. Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares of a Fund will be voted together except that only shareholders of a
particular class may vote on matters affecting only that class. Shares have no
preemptive or conversion rights and are freely transferable. In the event of the
liquidation of a Fund, shareholders of each class are entitled to share pro rata
in the net assets attributable to that class available for distribution to
shareholders.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes (such as reclassifying series of classes of shares or restructuring the
Trust) as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. The Declaration of Trust also contains provisions limiting the
liability of a series or class to that series or class. Moreover, the Trust's
By-laws also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expense arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liability
exceeding its assets, and therefore the shareholder's risk of personal
liability, is remote.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. The VT Information Age Fund has engaged EVM and
Lloyd George as its investment advisers, the VT Worldwide Health Sciences Fund
has engaged OrbiMed as its investment adviser, and VT Income Fund has engaged
EVM as its investment adviser. As investment advisers to the Fund, each adviser
manages a Fund's investments, subject to the supervision of the Board of
Trustees of each Fund. The investment advisers are also responsible for
effecting all security transactions on behalf of the Fund, including the
allocation of principal transactions and portfolio brokerage and the negotiation
of commissions.
Under the investment advisory agreement with the VT Information Age Fund,
Eaton Vance and Lloyd George are entitled to receive a monthly advisory fee
computed by applying the annual asset rate applicable to that portion of the
average daily net assets of the Fund throughout the month in each Category as
indicated below:
ANNUAL
CATEGORY AVERAGE DAILY NET ASSETS ASSET RATE
1 less than $500 million ........................ 0.75%
2 $500 million but less than $1 billion ......... 0.70
3 $1 billion but less than $1.5 billion ......... 0.65
4 $1.5 billion but less than $2 billion ......... 0.60
5 $2 billion but less than $3 billion ........... 0.55
6 $3 billion and over ........................... 0.50
OrbiMed receives a monthly fee of 1.00% of the VT Worldwide Health Sciences
Fund's average daily net assets up to $30 million of assets, 0.90% of the next
$20 million of assets, and 0.75% on assets in excess of $50 million.
The performance fee adjustment to the advisory fee is as follows: After 12
months, the basic advisory fee is subject to upward or downward adjustment
depending upon whether, and to what extent, the investment performance of the VT
Worldwide Health Sciences Fund differs by at least one percentage point from the
record of the Standard & Poor's Index of 500 Common Stocks over the same period.
Each percentage point difference is multiplied by a performance adjustment rate
of 0.025%. The maximum adjustment plus/minus is 0.25%. One twelfth (1/12) of
this adjustment is applied each month to the average daily net assets of the
Fund over the entire performance period. This adjustment shall be based on a
rolling period of up to and including the most recent 36 months. Fund
performance shall be total return as computed under Rule 482 under the
Securities Act of 1933.
Eaton Vance receives a monthly fee of 5/96 of 1% (equivalent to 0.625%
annually) of average daily net assets of the VT Income Fund throughout the
month.
Each Investment Advisory Agreement continues in effect from year to year so
long as such continuance is approved at least annually (i) by the vote of a
majority of the noninterested Trustees of the Trust cast in person at a meeting
specifically called for the purpose of voting on such approval and (ii) by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities of a Fund. Each Agreement may be terminated at any time
without penalty on sixty days' written notice by the Board of Trustees of either
party or by vote of the majority of the outstanding voting securities of a Fund,
and each Agreement will terminate automatically in the event of its assignment.
Each Agreement provides that an investment adviser may render services to
others. Each Agreement also provides that an investment adviser shall not be
liable for any loss incurred in connection with the performance of its duties,
or action taken or omitted under that Agreement, in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties thereunder, or
for any losses sustained in the acquisition, holding or disposition of any
security or other investment.
ADMINISTRATIVE SERVICES. Under Eaton Vance's administrative services contract
with the Trust on behalf of the Funds, Eaton Vance receives a monthly
administration fee from the Funds in the amount of 0.25% of each Fund's average
daily net assets per annum, computed and paid monthly.
Eaton Vance's administrative services agreement with the Trust will continue
in effect from year to year, so long as such continuance is approved annually by
the vote of a majority of the Trustees of the Trust, as the case may be. Each
agreement may be terminated at any time without penalty on sixty days' written
notice by the Board of Trustees of either party thereto, or by a vote of a
majority of the outstanding voting securities of the Funds, as the case may be.
Each agreement will terminate automatically in the event of its assignment. Each
agreement provides that, in the absence of Eaton Vance's willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties
to the Funds under such contract or agreement, Eaton Vance will not be liable to
the Funds for any loss incurred. Each agreement was initially approved by the
Trustees, including the non-interested Trustees, of the Trust.
INFORMATION ABOUT EATON VANCE. Eaton Vance is a business trust organized
under Massachusetts law. Eaton Vance, Inc. ("EV") serves as trustee of Eaton
Vance. Eaton Vance and EV are wholly-owned subsidiaries of Eaton Vance
Corporation ("EVC"), a Maryland corporation and publicly-held holding company.
EVC through its subsidiaries and affiliates engages primarily in investment
management, administration and marketing activities. The Directors of EVC are
James B. Hawkes, John G.L. Cabot, Leo I. Higdon, Jr., John M. Nelson, Vincent
M. O'Reilly and Ralph Z. Sorenson. All of the issued and outstanding shares of
Eaton Vance are owned by EVC. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust, the Voting Trustees of which are
Messrs. Hawkes, Jeffrey P. Beale, Alan R. Dynner, Thomas E. Faust, Jr., Thomas
J. Fetter, Scott H. Page, Duncan W. Richardson, William M. Steul, Payson F.
Swaffield, Michael W. Weilheimer, and Wharton P. Whitaker (all of whom are
officers of Eaton Vance). The Voting Trustees have unrestricted voting rights
for the election of Directors of EVC. All of the outstanding voting trust
receipts issued under said Voting Trust are owned by certain of the officers
of Eaton Vance who are also officers, or officers and Directors of EVC and EV.
As indicated under "Management and Organization," all of the officers of the
Trust (as well as Mr. Hawkes who is also a Trustee) hold positions in the
Eaton Vance organization.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Mumbai. Eaton Vance mutual funds are distributed by the
Principal Underwriter both within the United States and offshore.
Investment decisions for the VT Worldwide Health Sciences Fund are made by
the portfolio manager, Samuel D. Isaly. Mr. Isaly has been active in
international and health care investing throughout his career, beginning at
Chase Manhattan Bank in New York in 1968. He studied international economics,
mathematics and econometrics at Princeton and the London School of Economics.
His company, Gramercy Associates, was the first to develop an integrated
worldwide system of analysis on the 100 leading worldwide pharmaceutical
companies, with investment recommendations conveyed to 50 leading financial
institutions in the United States and Europe beginning in 1982. Gramercy
Associates was absorbed into S.G. Warburg & Company Inc. in 1986, where Mr.
Isaly became a Senior Vice President. In July of 1989, Mr. Isaly joined with
Mr. Viren Mehta to found the partnership of Mehta and Isaly Asset Management,
Inc. On January 1, 1998, Mehta and Isaly Asset Management, Inc. changed its
name to OrbiMed Advisors, Inc. and Mr. Mehta is no longer associated with
OrbiMed.
EXPENSES. Each Fund is responsible for all expenses not expressly stated to be
payable by another party (such as the investment adviser under the Investment
Advisory Agreement, Eaton Vance under the Administrative Services Agreement or
the principal underwriter under the Distribution Agreement). In the case of
expenses incurred by the Trust, each Fund is responsible for its pro rata share
of those expenses. The only expenses of a Fund are those incurred under the
Service Plan and those resulting from the fee paid to the principal underwriter
for repurchase transactions.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), The Eaton Vance
Building, 255 State Street, Boston, MA 02109, is the Funds' principal
underwriter. The principal underwriter acts as principal in selling shares under
a Distribution Agreement with the Trust. The expenses of printing copies of
prospectuses used to offer shares and other selling literature and of
advertising are borne by the principal underwriter. The fees and expenses of
qualifying and registering and maintaining qualifications and registrations of a
Fund and its shares under federal and state securities laws are borne by that
Fund. The Distribution Agreement is renewable annually by the Board of Trustees
of the Trust (including a majority of the noninterested Trustees), may be
terminated on six months' notice by either party and is automatically terminated
upon assignment. The principal underwriter distributes shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The principal underwriter allows investment dealers discounts
from the applicable public offering price which are alike for all investment
dealers. See "Sales Charges." EVD is a wholly-owned subsidiary of EVC. Mr.
Hawkes is a Vice President and Director and Messrs. Dynner and O'Connor are Vice
Presidents of EVD.
Distribution of shares of the VT Worldwide Health Sciences Fund by the
principal underwriter will also be encouraged by the payment by OrbiMed to the
principal underwriter of amounts equivalent to 33 1/3% of the management fees
paid to OrbiMed by the Fund.
CUSTODIAN AND TRANSFER AGENT. Investors Bank & Trust Company ("IBT"), 200
Clarendon Street, Boston, MA 02116, serves as custodian and transfer agent and
dividend disbursing agent to the Funds. IBT has the custody of all cash and
securities representing a Fund's interest, has custody of each Fund's assets,
maintains the general ledger of each Fund and computes the daily net asset value
of interests in each Fund and the net asset value of shares of the Fund. In such
capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Funds' investments, receives
and disburses all funds and performs various other ministerial duties upon
receipt of proper instructions from the Trust. IBT also provides services in
connection with the preparation of shareholder reports and the electronic filing
of such reports with the SEC. EVC and its affiliates and their officers and
employees from time to time have transactions with various banks, including IBT.
It is Eaton Vance's opinion that the terms and conditions of such transactions
were not and will not be influenced by existing or potential custodial or other
relationships between the Fund and such banks.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, are the independent accountants of the Funds and the
Portfolios, providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of each Fund is computed by
IBT by subtracting the liabilities of the Fund from the value of its total
assets. The Funds will be closed for business and will not price their
respective shares or interests on the following business holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor, in a Fund may add to or reduce its investment in the Fund on
each day the New York Stock Exchange (the "Exchange") is open for trading
("Business Day") as of the close of regular trading on the Exchange (the
"Valuation Time"). The value of each investor's interest in the Fund will be
determined by multiplying the net asset value of the Fund by the percentage,
determined on the prior Business Day, which represented that investor's share of
the aggregate interests in the Fund on such prior day. Any additions or
withdrawals for the current Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Fund will then be recomputed as a
percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Fund as of the Valuation Time on the prior Business
Day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Fund on the current Business
Day and (ii) the denominator of which is the aggregate net asset value of the
Fund as of the Valuation Time on the prior Business Day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investment in the Fund on the current Business Day by all investors in
the Fund. The percentage so determined will then be applied to determine the
value of the investor's interest in the Fund for the current Business Day.
While normally payments will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to pay
the redemption price of shares of a Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn from its
portfolio. The securities so distributed would be valued pursuant to the Fund's
valuation procedures. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
The Funds currently do not foresee any disadvantages to policy owners
arising out of the fact that the Funds intend to offer their shares to separate
accounts of various insurance companies to serve as the investment medium for
their variable products. Nevertheless, the Trustees intend to monitor events in
order to identify any material irreconcilable conflicts that may possibly arise,
and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in one or more
funds and shares of another fund may be substituted. This might force a fund to
sell portfolio securities at disadvantageous prices. In addition, the Trustees
may refuse to sell shares of any fund to any separate account or may suspend or
terminate the offering of shares of a fund if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
fund.
Under unusual circumstances, the Trust may suspend repurchases or postpone
payment for up to seven days or longer, as permitted by federal securities laws.
SERVICE PLAN
The Trust has in effect a Service Plan (the "Plan") for the shares of each
Fund consistent with Rule 12b-1 under the 1940 Act. The Plan provides for the
payment of a monthly distribution fee to the principal underwriter in an amount
equal to 0.25% of average daily net assets of a Fund. The principal underwriter
intends to use all of such fees to compensate insurance companies or affiliated
broker-dealers whose separate accounts invest in the Trust for providing
services to their contract holders investing in the Trust. Aggregate payments to
the principal underwriter under the Plan are limited to those permissible
pursuant to a rule of the National Association of Securities Dealers, Inc.
("NASD").
The Plan continues in effect from year to year so long as such continuance
is approved at least annually by the vote of both a majority of (i) the
noninterested Trustees of the Trust who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
"Plan Trustees") and (ii) all of the Trustees then in office. The Plan may be
terminated at any time by vote of a majority of the Plan Trustees or by a vote
of a majority of the outstanding voting securities of the applicable Class. The
Plan requires quarterly Trustee review of a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the affected Class and the
Trustees. So long as the Plan is in effect, the selection and nomination of the
noninterested Trustees shall be committed to the discretion of such Trustees.
The Plan was initially approved by the Trustees, including the Plan Trustees, on
August 14, 2000.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of each Fund's assets, and will result in increased
investment flexibility and advantages which have benefitted and will continue to
benefit the Fund and its shareholders. Payments for sales commissions and
distribution fees made to the principal underwriter will compensate the
principal underwriter for its services and expenses in distributing shares.
Service fee payments made to the principal underwriter and insurance companies
and affiliated broker-dealers provide incentives to provide continuing personal
services to investors and the maintenance of shareholder accounts. By providing
incentives to the principal underwriter and insurance companies and affiliated
broker-dealers, the Plan is expected to result in the maintenance of, and
possible future growth in, the assets of the Fund. Based on the foregoing and
other relevant factors, the Trustees of the Trust have determined that in their
judgment there is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
PERFORMANCE
Average annual total return is determined separately for each Fund by
multiplying a hypothetical initial purchase order of $1,000 by the average
annual compound rate of return (including capital appreciation/depreciation, and
distributions paid and reinvested) for the stated period and annualizing the
result. The calculation assumes (i) that all distributions are reinvested at net
asset value on the reinvestment dates during the period and (ii) a complete
redemption of the investment.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (including the maximum sales charge) per share on the
last day of the period and annualizing the resulting figure. Net investment
income per share is equal to the Fund's dividends and interest earned during the
period, reduced by accrued expenses for the period with the resulting number
being divided by the average daily number of Fund shares outstanding and
entitled to receive dividends during the period.
Total return may be compared to relevant indices, such as the Consumer Price
Index and various domestic and foreign securities indices. A Fund's total return
and comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. The performance of
the VT Income Fund and/or the high yield bond market may also be compared to the
performance of comparable securities (such as Treasury bonds) or comparable
mutual funds or mutual fund averages prepared by independent sources (such as
Lipper, Inc., Wiesenberger and Morningstar, Inc.). In addition, evaluations of a
Fund's performance or rankings of mutual funds (which include a Fund) made by
independent sources may be used in advertisements and in information furnished
to present or prospective shareholders.
Information showing the effects of compounding interest (based on different
investment amounts and hypothetical rates of return) may be included in
advertisements and other material furnished to present and prospective
shareholders. Compounding is the process of earning interest on principal plus
interest that was earned earlier. Information, charts and illustrations relating
to inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders.
Information, charts and illustrations showing comparative historical
information of high-yielding bonds as represented by a relevant bond Index as
compared to 10-year U.S. Treasury bonds may be used in advertisements and other
material furnished to present or prospective shareholders. Rates are given for
illustrative purposes only and are not meant to imply or predict actual results
of an investment in the Fund.
Information (including charts and illustrations) relating to inflation and
the effects of inflation on the dollar may be included in advertisements and
other material furnished to present and prospective shareholders. Such
information may reflect the change in the net asset value of a hypothetical
investment in a Fund over a specified time period and compare it to an
inflationary measure, such as the Consumer Price Index (which is computed by the
Bureau of Labor Statistics of the U.S. Department of Labor).
Information used in advertisements and in materials furnished to present or
prospective shareholders may include statistics, data and performance studies
prepared by independent organizations or included in various publications
reflecting the investment performance or return achieved by various classes and
types of investments (e.g. common stocks, small company stocks, long-term
corporate bonds, long-term government bonds, intermediate- term government
bonds, U.S. Treasury bills) over various periods of time. This information may
be used to illustrate the benefits of long-term investments in common stocks.
Information used in advertisements and in materials provided to present and
prospective shareholders may include descriptions of Eaton Vance and other Fund
service providers, their investment styles, other investment products, personnel
and Fund distribution channels.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in equity
securities or in bond funds. Such information may describe: the potential for
growth; the performance of equities or bonds as compared to other investment
vehicles; and the value of investing as early as possible and regularly, as well
as staying invested. The benefits of investing in equity securities or in bonds
by means of a mutual fund may also be included (such benefits may include
diversification, professional management and the variety of mutual fund
products).
Information in advertisements and materials furnished to present and
prospective investors may include profiles of different types of investors
(i.e., investors with different goals and assets) and different investment
strategies for meeting specific financial goals. Such information may provide
hypothetical illustrations which include: results of various investment
strategies; performance of an investment in the Fund over various time periods;
and results of diversifying assets among several investments with varying
performance. Information in advertisements and materials furnished to present
and prospective investors may also include quotations (including editorial
comments) and statistics concerning investing in securities, as well as
investing in particular types of securities and the performance of such
securities.
Investors may be provided with information concerning Fund volatility or
risk, including but not limited to beta, a standard deviation and Sharpe ratio.
Beta is a measure of risk which shows Fund volatility relative to a market
index. A fund with a beta of 1 would perform exactly like the market index; a
beta of 2 would mean its performance was twice as volatile as the index,
positive or negative. Standard deviation is a measure of a security's
volatility, or variability, in expected return. Sharpe ratio is a measure of
risk-adjusted performance. The higher the Sharpe ratio the better a fund's
historical risk-adjusted return. Information concerning Fund distribution
payments (or the payment record of issuers in which the Fund may invest) may
also be provided to investors.
The Trust (or Principal Underwriter) may provide investors with information
on global investing, which may include descriptions, comparisons, charts and/or
illustrations of: foreign and domestic equity market capitalizations; returns
obtained by foreign and domestic securities; and the effects of globally
diversifying an investment portfolio (including volatility analysis and
performance information). Such information may be provided for a variety of
countries over varying time periods.
Information used in advertisements for VT Worldwide Health Sciences Fund may
include information about medical, pharmaceutical and technological developments
and innovations, as well as demographical information relating to health care
expenditures. Advertisements may also contain historical information on the
issuers of health sciences stocks and the performance of such stocks.
Information may also be provided about OrbiMed, including descriptions of: its
personnel; staffing techniques; evaluation and analysis procedures; and stock
selection process.
The Trust (or principal underwriter) may provide information about Lloyd
George, Eaton Vance, its affiliates and other investment advisers to the funds
in the Eaton Vance Family of Funds in sales material or advertisements provided
to investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. Each Fund has elected to be treated and intends to qualify each
year as a regulated investment company ("RIC") under the Code. Accordingly, each
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute substantially all of its net
income and net short-term and long-term capital gains in accordance with the
timing requirements imposed by the Code, so as to maintain its RIC status and to
avoid paying any federal income or excise tax.
In order to avoid incurring a federal excise tax obligation, the Code
requires that each Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year (i) at least 98% of its ordinary income for
such year, (ii) at least 98% of its capital gain net income (which is the excess
of its realized capital gains over its realized capital losses), generally
computed on the basis of the one-year period ending on October 31 of such year,
after reduction by any available capital loss carryforwards, and (iii) 100% of
any income from the prior year (as previously computed) that was not paid out
during such year and on which the Fund paid no federal income tax. Under current
law, provided that a Fund qualifies as a RIC, the Fund should not be liable for
any income, corporate excise or franchise tax in the Commonwealth of
Massachusetts.
A Fund's transactions in options, futures contracts, forward contracts and
certain other transactions involving foreign exchange gain or loss will be
subject to special tax rules, the effect of which may be to accelerate income to
the Fund, defer Fund losses, cause adjustments in the holding periods of Fund
securities, convert capital gain into ordinary income and convert short-term
capital losses into long-term capital losses. The effect of these rules may be
to change the amount, timing and character of a Fund's distributions to its
shareholders. For example, the tax treatment of many types of options, futures
contracts and forward contracts entered into by a Fund will be governed by
Section 1256 of the Code. Absent a tax election for "mixed straddles" (see
below), each such position held by the Fund on the last business day of each
taxable year will be marked to market (i.e., treated as if it were closed out on
such day), and any resulting gain or loss, except for certain currency-related
positions, will generally be treated as 60% long-term and 40% short-term capital
gain or loss, with subsequent adjustments made to any gain or loss realized upon
an actual disposition of such positions. When the Fund holds an option or
contract governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to another position of the Fund not governed by Section
1256 (as might occur in some hedging transactions), this combination of
positions could be a "mixed straddle" which is generally subject to special tax
rules requiring deferral of losses and other adjustments in addition to being
subject in part to Section 1256. A Fund may make certain tax elections for its
"mixed straddles" which could alter certain effects of these rules.
Foreign exchange gains and losses realized by a Fund in connection with
investments in foreign securities and certain options, futures or forward
contracts or foreign currency may be treated as ordinary income and losses under
special tax rules. Certain uses of foreign currency and foreign currency
derivatives such as options, futures, forward contracts and swaps and investment
by the Fund in certain "passive foreign investment companies" may be limited or
a tax election may be made, if available, in order to preserve the Fund's
qualification as a RIC or avoid imposition of a tax on the Fund.
Each Fund anticipates that it will be subject to foreign taxes on its income
(including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. If more than 50% of a Fund's total assets, taking into account its
allocable share of a Portfolio's total assets, at the close of any taxable year
of the Fund consists of stock or securities of foreign corporations, the Fund
may file an election with the IRS pursuant to which shareholders of the Fund
will be required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro rata shares of qualified foreign income
taxes paid by the Fund even though not actually received, and (ii) treat such
respective pro rata portions as foreign income taxes paid by them. Shareholders
may then deduct such pro rata portions of qualified foreign income taxes in
computing their taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their U.S. federal income
taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of foreign
taxes deemed paid by the Fund, although such shareholders will be required to
include their shares of such taxes in gross income. Shareholders who claim a
foreign tax credit for such foreign taxes may be required to treat a portion of
dividends received from the Fund as a separate category of income for purposes
of computing the limitations on the foreign tax credit. Tax-exempt shareholders
will ordinarily not benefit from this election. Each year that the Fund files
the election described above, its shareholders will be notified of the amount of
(i) each shareholder's pro rata share of foreign income taxes paid by the Fund
and (ii) the portion of Fund dividends which represents income from each foreign
country. If the Fund does not make this election, it may deduct its allocated
share of such taxes in computing its investment company taxable income.
A Fund's investments, if any, in securities issued with original issue
discount (possibly including certain asset-related securities) or securities
acquired at a market discount (if an election is made to include accrued market
discount in current income) will cause it to realize income prior to the receipt
of cash payments with respect to these securities. In order to enable the
corresponding Fund to distribute its proprotionate share of this income and
avoid a tax payable by the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold in order to generate
cash that the Fund may withdraw for subsequent distribution to Fund
shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for a Fund to the extent that the issuers of these securities may default
on their obligations pertaining thereto. The Code is not entirely clear
regarding the federal income tax consequences of a Fund's taking certain
positions in connection with ownership of such distressed securities. For
example, the Code is unclear regarding: (i) when the Fund may cease to accrue
interest, original issue discount, or market discount; (ii) when and to what
extent deductions may be taken for bad debts or worthless securities; (iii) how
payments received on obligations in default should be allocated between
principal and income; and (iv) whether exchanges of debt obligations in a
workout context are taxable.
The portion of distributions made by a Fund which are derived from dividends
received by the Fund from U.S. domestic corporations and may qualify for the
dividends-received deduction for corporations. The dividends-received deduction
is reduced to the extent the shares of the Fund with respect to which the
dividends are received are treated as debt-financed under the federal income tax
law and is eliminated if the shares are deemed to have been held for less than a
minimum period, generally 46 days, which must be satisfied separately for each
dividend during a specified period. Receipt of certain distributions qualifying
for the deduction may result in reduction of the tax basis of the corporate
shareholder's shares and require current income recognition to the extent in
excess of such basis. Distributions eligible for the dividends-received
deduction may give rise to (or increase) an alternative minimum tax for
corporations, depending upon the shareholder's particular tax situation.
Any loss realized upon the redemption or exchange of shares with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution treated as long-term capital gains with
respect to such shares. All or a portion of a loss realized upon a redemption or
other disposition of Fund shares may be disallowed under "wash sale" rules if
other shares of the same Fund are purchased (whether through reinvestment of
dividends or otherwise) within the 30 days before or after such disposition. Any
disallowed loss will result in an adjustment to the shareholder's tax basis in
some or all of the other shares acquired. Sales charges paid upon a purchase of
shares of a Fund cannot be taken into account for purposes of determining gain
or loss on a redemption or exchange of the shares before the 91st day after
their purchase to the extent a sales charge is reduced or eliminated in a
subsequent acquisition of shares of the Fund or of another fund pursuant to the
Fund's reinvestment or exchange privilege. Any disregarded amounts will result
in an adjustment to the shareholder's tax basis in some or all of any other
shares acquired.
Amounts paid by a Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the IRS, as well as shareholders
with respect to whom the Fund has received notification from the IRS or a
broker, may be subject to "backup" withholding of federal income tax arising
from the Fund's dividends and other distributions as well as the proceeds of
redemption transactions (including repurchases and exchanges), at a rate of 31%.
An individual's TIN is generally his or her social security number.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as retirement plans, tax-exempt entities,
foreign investors, insurance companies and financial institutions. Shareholders
should consult their own tax advisers with respect to special tax rules that may
apply in their particular situations, as well as the state, local and, when
applicable, foreign tax consequences of investing in a Fund.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions of the
Funds, including the selection of the market and the broker-dealer firm, are
made by an investment adviser. An investment adviser places the portfolio
security transactions of a Fund and of all other accounts managed by it for
execution with many broker-dealer firms. An investment adviser uses its best
efforts to obtain execution of portfolio transactions at prices which are
advantageous to the relevant Fund and (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such execution,
an adviser will use its best judgment in evaluating the terms of a transaction,
and will give consideration to various relevant factors, including without
limitation the full range and quality of the broker-dealer's services, the value
of the brokerage and research services provided, the responsiveness of the
broker-dealer to an investment adviser, the size and type of the transaction,
the general execution and operational capabilities of the broker-dealer, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the
reputation, reliability, experience and financial condition of the
broker-dealer, the value and quality of the services rendered by the
broker-dealer in this and other transactions, and the reasonableness of the
commission or spread, if any. Transactions on stock exchanges and other agency
transactions involve the payment by a Fund of negotiated brokerage commissions.
Such commissions vary among different broker-dealer firms, and a particular
broker-dealer may charge different commissions according to such factors as the
difficulty and size of the transaction and the volume of business done with such
broker-dealer. Transactions in foreign securities often involve the payment of
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 or received by a Fund usually
includes an undisclosed dealer markup or markdown. In an underwritten offering,
the price paid by a Fund often includes a disclosed fixed commission or discount
retained by the underwriter or dealer. Although commissions paid on portfolio
security transactions will, in the judgment of an adviser, be reasonable in
relation to the value of the services provided, commissions exceeding those
which another firm might charge may be paid to broker-dealers who were selected
to execute transactions on behalf of the Funds and an investment adviser's other
clients for providing brokerage and research services to an investment adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Fund may
receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if an
investment adviser determines in good faith that such compensation was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that particular
transaction or on the basis of overall responsibilities which an investment
adviser and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, an investment adviser will not
attempt to place a specific dollar value on the brokerage and research services
provided or to determine what portion of the commission should be related to
such services. Brokerage and research services may include advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement) and the "Research
Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the
investment advisers of investment companies, institutions and other investors to
receive research, analytical, statistical and quotation services, data,
information and other services, products and materials which assist such
advisers in the performance of their investment responsibilities ("Research
Services") from broker-dealer firms which execute portfolio transactions for the
clients of such advisers and from third parties with which such broker-dealers
have arrangements. Consistent with this practice, an investment adviser receives
Research Services from many broker-dealer firms with which an adviser places the
portfolio transactions of a Fund and from third parties with which these
broker-dealers have arrangements. These Research Services include such matters
as general economic, political, business and market information, industry and
company reviews, evaluations of securities and portfolio strategies and
transactions, proxy voting data and analysis services, technical analysis of
various aspects of the securities markets, recommendations as to the purchase
and sale of securities and other portfolio transactions, financial, industry and
trade publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software, data
bases and services. Any particular Research Service obtained through a
broker-dealer may be used by an investment adviser in connection with client
accounts other than those accounts which pay commissions to such broker-dealer.
Any such Research Service may be broadly useful and of value to an investment
adviser in rendering investment advisory services to all or a significant
portion of its clients, or may be relevant and useful for the management of only
one client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by each
Fund is not reduced because an investment adviser receives such Research
Services. An investment adviser evaluates the nature and quality of the various
Research Services obtained through broker-dealer firms and attempts to allocate
sufficient portfolio security transactions to such firms to ensure the continued
receipt of Research Services which the investment adviser believes are useful or
of value to it in rendering investment advisory services to its clients.
A Fund and an adviser may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by the investment adviser in connection with its investment
responsibilities. The investment companies sponsored by an investment adviser or
Eaton Vance may allocate brokerage commissions to acquire information relating
to the performance, fees and expenses of such companies and other mutual funds,
which information is used by the Trustees of such companies to fulfill their
responsibility to oversee the quality of the services provided by various
entities, including the investment adviser, to such companies. Such companies
may also pay cash for such information.
Subject to the requirement that an investment adviser shall use its best
efforts to seek to execute portfolio security transactions at advantageous
prices and at reasonably competitive commission rates or spreads, an investment
adviser is authorized to consider as a factor in the selection of any
broker-dealer firm with whom Fund orders may be placed the fact that such firm
has sold or is selling shares of the Funds or of other investment companies
sponsored by Eaton Vance. This policy is not inconsistent with a rule of the
NASD, which rule provides that no firm which is a member of the NASD shall favor
or disfavor the distribution of shares of any particular investment company or
group of investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Securities considered as investments for the Funds may also be appropriate
for other investment accounts managed by an investment adviser or its
affiliates. Whenever decisions are made to buy or sell securities by a Portfolio
and one or more of such other accounts simultaneously, an investment adviser
will allocate the security transactions (including "hot" issues) in a manner
which it believes to be equitable under the circumstances. As a result of such
allocations, there may be instances where a Fund will not participate in a
transaction that is allocated among other accounts. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata
basis. An order may not be allocated on a pro rata basis where, for example: (i)
consideration is given to portfolio managers who have been instrumental in
developing or negotiating a particular investment; (ii) consideration is given
to an account with specialized investment policies that coincide with the
particulars of a specific investment; (iii) pro rata allocation would result in
odd-lot or de minimis amounts being allocated to a portfolio or other client; or
(iv) where the adviser reasonably determines that departure from a pro rata
allocation is advisable. While these aggregation and allocation policies could
have a detrimental effect on the price or amount of the securities available to
the Fund from time to time, it is the opinion of the Trustees of the Trust that
the benefits from an investment adviser's organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent accountants' report
for, the Trust appear herein. Consistent with applicable law, duplicate mailings
of shareholder reports and certain other Fund information to shareholders
residing at the same address may be eliminated.
<PAGE>
APPENDIX A
CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the 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.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST WILL INCLUDE THOSE IN THE FOLLOWING
CATEGORIES:
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
DESCRIPTION OF S&P'S CORPORATE DEBT RATINGS:
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
SECURITIES IN WHICH THE PORTFOLIO MAY INVEST WILL INCLUDE THOSE IN THE FOLLOWING
CATEGORIES:
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits 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
debt in this category than for bonds in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: NR indicates that no public rating has been requested, because there is
insufficient information on which to base a rating, or because Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
NOTES: Debt which is unrated exposes the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative obligations. The Portfolio is dependent on the
investment adviser's judgment, analysis and experience in the evaluation of such
debt.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust dated August 14, 2000, filed herewith.
(b) By-Laws filed herewith.
(c) Reference is made to Item 23(a) and 23(b) above.
(d)(1) Investment Advisory Agreement with Eaton Vance Management for Eaton
Vance VT Income Fund of Boston to be filed by amendment.
(2) Investment Advisory Agreement with Eaton Vance Management and Lloyd
George Investment Management (Bermuda) Limited for Eaton Vance VT
Information Age Fund to be filed by amendment.
(3) Investment Advisory Agreement with OrbiMed Advisors, Inc. for Eaton
Vance VT Worldwide Health Sciences Fund to be filed by amendment.
(e)(1) Distribution Agreement between Eaton Vance Variable Trust and Eaton
Vance Distributors, Inc. to be filed by amendment.
(f) Not applicable
(g)(1) Custodian Agreement with Investors Bank & Trust Company dated
November 7, 1994 filed as Exhibit (8) to Post-Effective Amendment
No. 59 to the Registration Statement of Eaton Vance Growth Trust
(File Nos. 2-22019, 811-01241)(Accession No. 0000950156-95-000600)
and incorporated herein by reference.
(2) Amendment to Custodian Agreement with Investors Bank & Trust Company
dated November 20, 1995 filed as Exhibit (8)(b) to Post-Effective
Amendment No. 61 to the Registration Statement of Eaton Vance Growth
Trust (File Nos. 2-22019, 811-01241) (Accession No.
0000950156-95-000833) and incorporated herein by reference.
(3) Amendment to Master Custodian Agreement with Investors Bank & Trust
Company dated December 21, 1998 filed as Exhibit (g)(3) to the
Registration Statement of Eaton Vance Municipals Trust (File Nos.
33-572, 811-4409) (Accession No. 0000950156-99-000050) and
incorporated herein by reference.
(h)(1) Administrative Services Agreement between Eaton Vance Variable Trust
(on behalf of each of its series listed on Schedule A) and Eaton
Vance Management to be filed by amendment.
(i)(1) Opinion of Internal Counsel to be filed by amendment.
(j) Consent of Independent Accountants to be filed by amendment.
(k) Not applicable
(l) Not applicable
(m)(1) Service Plan to be filed by amendment.
C-1
<PAGE>
(n) Not applicable
(o) Not applicable.
(p)(1) Code of Ethics adopted by the Eaton Vance Group of Funds to be filed
by amendment.
(2) Code of Ethics adopted by Eaton Vance Management to be filed by
amendment.
(3) Code of Ethics adopted by Lloyd George Management to be filed by
amendment.
(q) Power of Attorney dated August 14, 2000 filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Declaration of Trust permits Trustee and
officer indemnification by By-law, contract and vote. Article XI of the By-Laws
contains indemnification provisions. Registrant's Trustees and officers are
insured under a standard mutual fund errors and omissions insurance policy
covering loss incurred by reason of negligent errors and omissions committed in
their capacities as such.
The distribution agreement of the Registrant also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
"Management and Organization" in the Statement of Additional Information; (ii)
the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File
No. 1-8100); and (iii) the Form ADV of Eaton Vance (File No. 801-15930), Lloyd
George (Bermuda) (File No. 801-40889), and Orbimed (File No. 801-34429) filed
with the Commission, all of which are incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
Eaton Vance Advisers Senior Floating-Rate Fund
Eaton Vance Growth Trust
Eaton Vance Income Fund of Boston
Eaton Vance Institutional Senior Floating-Rate Fund
Eaton Vance Investment Trust
Eaton Vance Municipals Trust
Eaton Vance Municipals Trust II
Eaton Vance Mutual Funds Trust
Eaton Vance Prime Rate Reserves
Eaton Vance Special Investment Trust
EV Classic Senior Floating-Rate Fund
Eaton Vance Variable Trust
C-2
<PAGE>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
----------------- -------------------------- ---------------------
Albert F. Barbaro Vice President None
Ira Baron Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
Mark Carlson Vice President None
Daniel C. Cataldo Vice President None
and Treasurer
Kiersten Christensen Vice President None
Raymond Cox Vice President None
Peter Crowley Vice President None
Anthony DeVille Vice President None
Ellen Duffy Vice President None
Alan R. Dynner Vice President, Secretary Secretary
and
Clerk
Richard A. Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
Robert Hammond Vice President None
James B. Hawkes Vice President and Director President and Trustee
Perry D. Hooker Vice President None
Aamer Khan Vice President None
Kara Lawler Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Geoff Marshall Vice President None
Tim McEwan Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Joseph Nelson Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Andrew Ogren Vice President None
George D. Owen, II Vice President None
Philip Pace Vice President None
Lew Piantedosi Vice President None
Margaret Pier Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Frances Rogell Vice President None
Jay S. Rosoff Vice President None
Stephen M. Rudman Vice President None
Kevin Schrader Vice President None
Teresa A. Sheehan Vice President None
William M. Steul Vice President and Director None
Cornelius J. Sullivan Senior Vice President None
Peter Sykes Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Jerry Vainisi Vice President None
John Vaughan Vice President None
Chris Volf Vice President None
Debra Wekstein Vice President None
Wharton P. Whitaker President and Director None
Sue Wilder Vice President None
------------------------------------------
* Address is The Eaton Vance Building, 255 State Street, Boston, MA 02109
C-3
<PAGE>
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian and transfer agent, Investors Bank & Trust Company, 200
Clarendon Street, 16th Floor, Mail Code ADM27, Boston, MA 02116, with the
exception of certain corporate documents and portfolio trading documents which
are in the possession and custody of the administrator and investment adviser.
Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the custody
and possession of Eaton Vance Management.
ITEM 29. MANAGEMENT SERVICES
Not applicable
ITEM 30. UNDERTAKINGS
The Registrant undertakes to include the information required by Item 5 of
Form N-1A in its annual reports to shareholders under Rule 30d-1.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Trust has duly caused this registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston, and the Commonwealth of Massachusetts, on August 14, 2000.
EATON VANCE VARIABLE TRUST
By: /s/ James B. Hawkes
------------------------------
James B. Hawkes, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities on August 14, 2000.
Signature Title
--------- -----
/s/ James B. Hawkes President (Chief Executive Officer) and
-------------------------- Trustee
James B. Hawkes
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting
-------------------------- Officer)
James L. O'Connor
/s/ Jessica M. Bibliowicz Trustee
--------------------------
Jessica M. Bibliowicz
/s/ Donald R. Dwight Trustee
--------------------------
Donald R. Dwight
/s/ Samuel L. Hayes, III Trustee
--------------------------
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee
--------------------------
Norton H. Reamer
/s/ Lynn A. Stout Trustee
--------------------------
Lynn A. Stout
/s/ Jack L. Treynor Trustee
--------------------------
Jack L. Treynor
C-5
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to Rule 483 of Regulation C.
Exhibit No. Description
----------- -----------
(a) Declaration of Trust dated August 14, 2000
(b) By-Laws dated August 14, 2000
(q) Power of Attorney
C-6
