N-CSR 1 a_vtgrowthinc.htm PUTNAM VARIABLE TRUST a_vtgrowthinc.htm
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
FORM N-CSR 
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED 
MANAGEMENT INVESTMENT COMPANIES 
 
Investment Company Act file number: (811-05346)   
 
Exact name of registrant as specified in charter: Putnam Variable Trust   
 
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109 
 
Name and address of agent for service:  Beth S. Mazor, Vice President 
  One Post Office Square 
  Boston, Massachusetts 02109 
Copy to:    John W. Gerstmayr, Esq. 
  Ropes & Gray LLP 
  800 Boylston Street 
  Boston, Massachusetts 02199-3600 
 
Registrant’s telephone number, including area code:  (617) 292-1000 
 
Date of fiscal year end: December 31, 2010   
 
Date of reporting period: January 1, 2010 — December 31, 2010 

 

Item 1. Report to Stockholders:
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:




Message from the Trustees

Dear Fellow Shareholder:

The global recovery continued to solidify in the final months of 2010, with economies around the world experiencing economic growth. In the United States, corporations are emerging from the Great Recession in strong financial health. Putnam’s investment team believes the outlook for U.S. equities is further bolstered by low short-term interest rates and the extension of current tax rates. Another sign of the positive outlook for equities was that traditionally safe-haven U.S. Treasuries experienced their first setback in several years, as investors sought higher potential returns in riskier assets.

Although the global recovery continues, a range of fiscal and monetary circumstances around the world contributes to a global investment mosaic that is more varied than in recent years. Europe struggles with debt issues at a time when emerging markets are striving to dampen inflationary growth. This divergence may well lead to future market volatility. However, we believe it may also lead to additional opportunities for active, research-focused managers like Putnam.

In developments affecting oversight of your fund, we wish to thank Richard B. Worley and Myra R. Drucker, who have retired from the Board of Trustees, for their many years of dedicated and thoughtful leadership.

Lastly, we would like to take this opportunity to welcome new shareholders to the fund and to thank all of our investors for your continued confidence in Putnam.



Performance summary (as of 12/31/10)

Investment objective

Capital growth and current income

Net asset value December 31, 2010 
 
Class IA: $16.31  Class IB: $16.23 

 

Total return at net asset value   
      Russell 1000 
(as of 12/31/10)‡**  Class IA shares*  Class IB shares†  Value Index 
1 year  14.71%  14.38%  15.51% 
5 years  0.41  –0.87  6.54 
Annualized  0.08  –0.17  1.28 
10 years  14.79  11.96  37.80 
Annualized  1.39  1.14  3.26 
Life  569.52  540.98  796.63 
Annualized  8.65  8.45  10.04 

 

For a portion of the periods, the fund had expense limitations, without which returns would have been lower.

* Class inception date: February 1, 1988.

† Class inception date: April 6, 1998.

‡ Performance benefited from receipt of an Enron Class Action Settlement pertaining to investments made prior to 2002.

** Performance benefited from receipt of a Tyco International, Ltd. Class Action Settlement pertaining to investments made prior to 2003.


Russell 1000 Value Index is an unmanaged index of those companies in the large-cap Russell 1000 Index chosen for their value orientation.

Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. All total return figures are at net asset value and exclude contract charges and expenses, which are added to the variable annuity contracts to determine total return at unit value. Had these charges and expenses been reflected, performance would have been lower. Performance for class IB shares before their inception is derived from the historical performance of class IA shares, adjusted to reflect the higher operating expenses applicable to such shares. For more recent performance, contact your variable annuity provider who can provide you with performance that reflects the charges and expenses at your contract level.


Portfolio holdings and allocations may vary over time. Allocations are represented as a percentage of net assets as of 12/31/10. Due to rounding, percentages may not equal 100%. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities and the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes.

Putnam VT Growth and Income Fund  1 

 


Report from your fund’s manager

Despite some patches of market volatility along the way, stocks ultimately posted solid gains in 2010. How did the fund perform?

In 2010, investors appeared to be weighing the evidence for an economic recovery. Initial concerns about a double-dip recession and the sovereign debt crisis in Europe were overcome by healthy corporate profits, improving signs of economic growth, and optimism surrounding the extension of the Bush-era tax cuts, all of which spurred a rally in the final months of the year. With its focus on large-cap value stocks, Putnam VT Growth and Income Fund’s class IA shares returned 14.71% at net asset value for the 12 months ended December 31, 2010.

What strategies guided the portfolio during the period?

From a top-down macroeconomic standpoint, we believed continuing modest global economic growth was likely. This led us to maintain a slight bias in the portfolio toward cyclical stocks that would benefit from positive global growth. As for our bottom-up investment approach, we maintained a strict value discipline —that is, we looked for stocks that we felt were priced below their true value. Many of the value opportunities we found over the past 12 months centered on controversial areas of the market where valuations had been driven lower due to acute investor uncertainty. For example, the potential for regulatory reform to negatively impact the health-care and financials sectors created a number of attractively valued investment opportunities. Looking at the energy sector, the Gulf of Mexico oil spill created a lot of uncertainty about the future of energy sources, which drove down stock prices. These three sectors were the cornerstones of our investment approach for the year.

Which holdings contributed to performance?

The fund held an overweight position in Atmel Corp., a semiconductor stock that we felt had real product momentum in cell phone touch screen displays. The company has been cutting costs, streamlining its product line, and eliminating slow-growth areas of its businesses. Investors finally recognized its inherent value given these improvements, and its stock price rallied strongly.

An overweight position in mining company Freeport-McMoRan Copper & Gold contributed strong results. Copper is used in many industrial purposes, and the price of the metal and the stock improved as investors became more confident in the global economic recovery. The fund also benefited from the overweight position in Wyndham Worldwide, another pro-cyclical success story. Wyndham Worldwide manages hotels and offers timeshares internationally, two areas that were beneficiaries of the economic recovery. The company has also done a terrific job repairing its balance sheet and generating a very compelling cash flow.

What holdings produced disappointing results?

In August 2010, Hewlett-Packard’s CEO Mark Hurd announced his resignation, effective immediately. The stock price dropped sharply following the news and was never able to completely bounce back during the remainder of the year.

In mid November, Cisco reported quarterly results that were more or less in line with expectations, but the company’s future earnings guidance concerned investors. The company predicted declining revenue versus the previous quarter and full-year earnings below consensus estimates. For Cisco, this marked the second consecutive quarter of weak earnings guidance, which caused the stock to decline sharply late in 2010.

Apollo Group is the largest for-profit higher education provider in the United States. Apollo has struggled recently due to increased industry regulation and concerns related to the viability of its business model, which depends heavily on loans to students from the federal government.

What is your outlook for 2011?

The stock market has just gone through its worst 10-year period in generations. As an entry point, we believe the current equity market is attractive relative to other asset classes. Looking deeper into the market environment, earnings growth for the market overall has been quite robust. Despite only modest economic growth, companies have been performing exceedingly well, and generating significant profits. In fact, we believe that 2011 will be a record earnings year for the market. With the market still below its peak from three years ago, we believe it still has room to grow. As a result, we feel that having a procyclical orientation — one geared toward stocks that benefit from global economic growth — is the best strategy for the fund.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice. Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

Consider these risks before investing: The use of derivatives involves special risks and may result in losses. Value stocks may fail to rebound, and the market may not favor value-style investing. Current and future portfolio holdings are subject to risk.

Your fund’s manager


Portfolio Manager Robert Ewing is Head of U.S. Equities at Putnam. A CFA charterholder, he joined Putnam in 2008 and has been in the investment industry since 1990.

Your fund’s manager may also manage other accounts advised by Putnam Management or an affiliate, including retail mutual fund counterparts to the funds in Putnam Variable Trust.

2  Putnam VT Growth and Income Fund

 


Understanding your fund’s expenses

As an investor in a variable annuity product that invests in a registered investment company, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, which are not shown in this section and would result in higher total expenses. Charges and expenses at the insurance company separate account level are not reflected. For more information, see your fund’s prospectus or talk to your financial representative.

Review your fund’s expenses

The first two columns in the following table show the expenses you would have paid on a $1,000 investment in your fund from July 1, 2010, to December 31, 2010. They also show how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses. To estimate the ongoing expenses you paid over the period, divide your account value by $1,000, then multiply the result by the number in the first line for the class of shares you own.

Compare your fund’s expenses with those of other funds

The two right-hand columns of the table show your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All shareholder reports of mutual funds and funds serving as variable annuity vehicles will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

  Expenses and value for a Expenses and value for a
  $1,000 investment, assuming $1,000 investment, assuming a
  actual returns for the 6 months hypothetical 5% annualized return
  ended 12/31/10   for the 6 months ended 12/31/10
 
 
  Class IA Class IB Class IA Class IB
 
Expenses paid        
per $1,000* $3.52 $4.93 $3.16 $4.43
 
Ending value        
(after expenses) $1,249.80 $1,247.50 $1,022.08 $1,020.82
 
Annualized        
expense ratio† 0.62% 0.87% 0.62% 0.87%

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 12/31/10. The expense ratio may differ for each share class. Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

† For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.

Putnam VT Growth and Income Fund  3

 


Report of Independent Registered Public Accounting Firm

To the Trustees of Putnam Variable Trust and Shareholders of
Putnam VT Growth and Income Fund:

In our opinion, the accompanying statement of assets and liabilities, including the portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam VT Growth and Income Fund (the “fund”) at December 31, 2010, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at December 31, 2010 by correspondence with the custodian, broker and transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 2011

4  Putnam VT Growth and Income Fund

 


The fund’s portfolio 12/31/10

COMMON STOCKS (98.8%)* Shares Value
 
Aerospace and defense (3.7%)    
Embraer SA ADR (Brazil) S 144,400 $4,245,360
Goodrich Corp. 16,200 1,426,734
L-3 Communications Holdings, Inc. 94,600 6,668,354
Northrop Grumman Corp. S 176,600 11,440,148
Precision Castparts Corp. 24,800 3,452,408
Raytheon Co. 182,500 8,457,050
Safran SA (France) 81,375 2,883,480
United Technologies Corp. 179,800 14,153,856
    52,727,390
Airlines (0.2%)    
Delta Air Lines, Inc. † 223,900 2,821,140
    2,821,140
Automotive (0.4%)    
Dongfeng Motor Group Co., Ltd. (China) 770,000 1,327,415
General Motors Co. † S 105,100 3,873,986
    5,201,401
Banking (13.3%)    
Bank of America Corp. 2,586,845 34,508,512
Bank of New York Mellon Corp. (The) 476,100 14,378,220
Barclays PLC (United Kingdom) 556,068 2,269,070
Citigroup, Inc. † 4,571,900 21,625,087
JPMorgan Chase & Co. 1,104,958 46,872,318
PNC Financial Services Group, Inc. S 117,800 7,152,816
State Street Corp. 270,600 12,539,604
SunTrust Banks, Inc. 103,100 3,042,481
U.S. Bancorp 319,900 8,627,703
Wells Fargo & Co. 1,194,820 37,027,472
Wilmington Trust Corp. 89,600 388,864
    188,432,147
Beverage (0.6%)    
Coca-Cola Co. (The) 85,100 5,597,027
Coca-Cola Enterprises, Inc. 107,800 2,698,234
    8,295,261
Biotechnology (0.8%)    
Amgen, Inc. † 112,700 6,187,230
Genzyme Corp. † 70,000 4,984,000
    11,171,230
Broadcasting (0.5%)    
DISH Network Corp. Class A † 362,900 7,134,614
    7,134,614
Building materials (0.4%)    
Masco Corp. 136,900 1,733,154
Owens Corning, Inc. † 123,400 3,843,910
    5,577,064
Cable television (2.1%)    
Comcast Corp. Class A 681,000 14,961,570
DIRECTV Class A † 200,135 7,991,391
Time Warner Cable, Inc. 96,948 6,401,476
    29,354,437
Chemicals (1.6%)    
CF Industries Holdings, Inc. 17,600 2,378,640
Dow Chemical Co. (The) 263,600 8,999,304
E.I. du Pont de Nemours & Co. 159,500 7,955,860
LyondellBasell Industries NV Class A    
(Netherlands) † 113,500 3,904,400
    23,238,204
Coal (0.3%)    
CONSOL Energy, Inc. 96,200 4,688,788
    4,688,788

 

COMMON STOCKS (98.8%)* cont. Shares Value
 
Commercial and consumer services (0.2%)    
Alliance Data Systems Corp. † S 50,200 $3,565,706
    3,565,706
Communications equipment (1.8%)    
Cisco Systems, Inc. † 557,900 11,286,317
Harris Corp. 88,400 4,004,520
Motorola, Inc. † 334,900 3,037,543
Qualcomm, Inc. 162,300 8,032,227
    26,360,607
Computers (1.9%)    
Hewlett-Packard Co. 439,010 18,482,321
IBM Corp. 35,900 5,268,684
Seagate Technology † 177,900 2,673,837
    26,424,842
Conglomerates (3.1%)    
General Electric Co. 1,827,070 33,417,110
Tyco International, Ltd. 265,075 10,984,708
    44,401,818
Consumer finance (0.4%)    
Discover Financial Services 295,200 5,470,056
    5,470,056
Consumer goods (1.7%)    
Colgate-Palmolive Co. 53,700 4,315,869
Estee Lauder Cos., Inc. (The) Class A 21,040 1,697,928
Kimberly-Clark Corp. 40,900 2,578,336
Newell Rubbermaid, Inc. 352,900 6,415,722
Procter & Gamble Co. (The) 149,100 9,591,603
    24,599,458
Consumer services (0.7%)    
Avis Budget Group, Inc. † S 328,900 5,117,684
Hertz Global Holdings, Inc. † S 340,700 4,936,743
    10,054,427
Electric utilities (3.9%)    
AES Corp. (The) † 443,700 5,404,266
Ameren Corp. 211,100 5,950,909
American Electric Power Co., Inc. 245,141 8,820,173
CMS Energy Corp. 140,900 2,620,740
Edison International 199,500 7,700,700
Entergy Corp. 72,922 5,165,065
Great Plains Energy, Inc. 222,700 4,318,153
NV Energy, Inc. 107,900 1,515,995
PG&E Corp. 225,600 10,792,704
PPL Corp. 110,400 2,905,728
    55,194,433
Electrical equipment (0.8%)    
Emerson Electric Co. 197,500 11,291,075
    11,291,075
Electronics (2.2%)    
Elster Group SE ADR (Germany) † 103,100 1,742,390
Integrated Device Technology, Inc. † 362,221 2,412,392
Intel Corp. 313,300 6,588,699
Intersil Corp. Class A 146,000 2,229,420
Jabil Circuit, Inc. 192,200 3,861,298
Marvell Technology Group, Ltd. † 118,100 2,190,755
MEMC Electronic Materials, Inc. † 266,500 3,000,790
SanDisk Corp. † 58,000 2,891,880
Texas Instruments, Inc. 189,700 6,165,250
    31,082,874
Energy (oil field) (3.3%)    
Halliburton Co. 55,100 2,249,733
Helix Energy Solutions Group, Inc. † 189,900 2,305,386
National Oilwell Varco, Inc. 152,000 10,222,000
Schlumberger, Ltd. 200,689 16,757,532

 

Putnam VT Growth and Income Fund  5

 


COMMON STOCKS (98.8%)* cont. Shares Value
 
Energy (oil field) cont.    
Transocean, Ltd. (Switzerland) † S 90,300 $6,276,753
Weatherford International, Ltd. (Switzerland) † 371,722 8,475,262
    46,286,666
Energy (other) (0.3%)    
First Solar, Inc. † S 31,100 4,047,354
    4,047,354
Engineering and construction (0.7%)    
Fluor Corp. 84,200 5,579,092
Foster Wheeler AG (Switzerland) † 110,200 3,804,104
    9,383,196
Financial (0.3%)    
KKR & Co. LP 259,698 3,687,712
    3,687,712
Food (0.6%)    
Kraft Foods, Inc. Class A 290,813 9,163,518
    9,163,518
Forest products and packaging (0.3%)    
International Paper Co. 137,600 3,748,224
    3,748,224
Health-care services (2.6%)    
Aetna, Inc. 357,600 10,910,376
CIGNA Corp. 179,900 6,595,134
Lincare Holdings, Inc. 84,200 2,259,086
McKesson Corp. 51,800 3,645,684
Omnicare, Inc. S 130,900 3,323,551
WellPoint, Inc. † 190,400 10,826,144
    37,559,975
Homebuilding (0.4%)    
D.R. Horton, Inc. 218,300 2,604,319
Toll Brothers, Inc. † 191,100 3,630,900
    6,235,219
Industrial (0.1%)  
China Ming Yang Wind Power Group, Ltd. ADS
(China) † 143,120 1,645,880
    1,645,880
Insurance (6.6%)    
ACE, Ltd. 157,400 9,798,150
Aflac, Inc. 222,900 12,578,247
Allstate Corp. (The) 417,100 13,297,148
Assured Guaranty, Ltd. (Bermuda) 191,667 3,392,506
Chubb Corp. (The) S 151,117 9,012,618
Everest Re Group, Ltd. 92,600 7,854,332
Hartford Financial Services Group, Inc. (The) 335,600 8,890,044
Marsh & McLennan Cos., Inc. 80,500 2,200,870
MetLife, Inc. 239,200 10,630,048
Prudential Financial, Inc. 113,100 6,640,101
Travelers Cos., Inc. (The) 92,300 5,142,033
XL Group PLC 200,400 4,372,728
    93,808,825
Investment banking/Brokerage (1.6%)    
Goldman Sachs Group, Inc. (The) 85,669 14,406,099
Morgan Stanley 300,664 8,181,067
    22,587,166
Lodging/Tourism (0.5%)    
Wyndham Worldwide Corp. 234,339 7,020,796
    7,020,796
Machinery (1.4%)    
Bucyrus International, Inc. Class A 84,100 7,518,540
Lonking Holdings, Ltd. (China) 2,093,000 1,144,378
Parker Hannifin Corp. 124,263 10,723,897
    19,386,815
Manufacturing (1.0%)    
Illinois Tool Works, Inc. 96,200 5,137,080
Ingersoll-Rand PLC S 206,600 9,728,794
    14,865,874

 

COMMON STOCKS (98.8%)* cont. Shares Value
 
Media (2.2%)    
Time Warner, Inc. 449,000 $14,444,330
Viacom, Inc. Class B 158,800 6,290,068
Walt Disney Co. (The) 265,600 9,962,656
    30,697,054
Medical technology (3.0%)    
Baxter International, Inc. 272,400 13,788,888
Boston Scientific Corp. † 901,730 6,826,096
Covidien PLC (Ireland) 200,854 9,170,994
Hospira, Inc. † 35,100 1,954,719
Medtronic, Inc. 277,500 10,292,475
    42,033,172
Metals (2.5%)    
Alcoa, Inc. 333,100 5,126,409
Freeport-McMoRan Copper & Gold, Inc. Class B 85,776 10,300,840
Newmont Mining Corp. 42,000 2,580,060
Nucor Corp. 135,200 5,924,464
Steel Dynamics, Inc. 221,300 4,049,790
U.S. Steel Corp. S 116,800 6,823,456
    34,805,019
Oil and gas (11.1%)    
Apache Corp. 150,803 17,980,242
BP PLC ADR (United Kingdom) 116,400 5,141,388
Chevron Corp. 400,600 36,554,750
ConocoPhillips 128,800 8,771,280
EOG Resources, Inc. 79,000 7,221,390
Exxon Mobil Corp. 445,718 32,590,900
Nexen, Inc. (Canada) 182,700 4,183,830
Occidental Petroleum Corp. 216,686 21,256,897
Petrohawk Energy Corp. † 330,400 6,029,800
Petroleo Brasileiro SA ADR (Brazil) 118,700 4,491,608
QEP Resources, Inc. 85,200 3,093,612
Royal Dutch Shell PLC ADR (United Kingdom) 62,100 4,147,038
Total SA ADR (France) S 114,200 6,107,416
    157,570,151
Pharmaceuticals (5.3%)    
Abbott Laboratories 96,600 4,628,106
Johnson & Johnson 174,100 10,768,085
Merck & Co., Inc. 586,825 21,149,173
Pfizer, Inc. 2,248,216 39,366,262
    75,911,626
Publishing (0.3%)    
R. R. Donnelley & Sons Co. 267,300 4,669,731
    4,669,731
Real estate (0.2%)    
Chimera Investment Corp. R 843,100 3,465,141
    3,465,141
Regional Bells (4.1%)    
AT&T, Inc. 774,300 22,748,934
Verizon Communications, Inc. 1,004,000 35,923,120
    58,672,054
Restaurants (0.3%)    
Domino’s Pizza, Inc. † 91,100 1,453,045
McDonald’s Corp. 27,600 2,118,576
    3,571,621
Retail (3.8%)    
Bed Bath & Beyond, Inc. † 89,700 4,408,755
CVS Caremark Corp. 365,600 12,711,912
Lowe’s Cos., Inc. 467,400 11,722,392
Macy’s, Inc. 52,500 1,328,250
Office Depot, Inc. † 658,900 3,558,060
Staples, Inc. 99,600 2,267,892
SUPERVALU, Inc. 244,100 2,350,683

 

6  Putnam VT Growth and Income Fund

 


COMMON STOCKS (98.8%)* cont. Shares Value
 
Retail cont.    
Target Corp. 101,800 $6,121,234
Wal-Mart Stores, Inc. 177,380 9,566,103
    54,035,281
Schools (0.3%)    
Apollo Group, Inc. Class A † 114,300 4,513,707
    4,513,707
Semiconductor (1.4%)    
Atmel Corp. † 156,408 1,926,947
FormFactor, Inc. † 141,305 1,254,788
KLA-Tencor Corp. 174,200 6,731,088
Lam Research Corp. † 88,500 4,582,530
Novellus Systems, Inc. † 182,700 5,904,864
    20,400,217
Shipping (0.1%)    
Nordic American Tanker Shipping (Bermuda) S 49,100 1,277,582
    1,277,582
Software (1.8%)    
CA, Inc. 253,400 6,193,096
Microsoft Corp. 472,800 13,200,576
Oracle Corp. 185,000 5,790,500
    25,184,172
Technology services (0.2%)    
Unisys Corp. † 100,888 2,611,990
    2,611,990
Telecommunications (0.5%)    
Sprint Nextel Corp. † 485,100 2,051,973
Vodafone Group PLC ADR (United Kingdom) 205,400 5,428,722
    7,480,695
Textiles (0.4%)    
Hanesbrands, Inc. † 251,000 6,375,400
    6,375,400
Tobacco (0.9%)    
Philip Morris International, Inc. 206,600 12,092,298
    12,092,298
Waste Management (0.1%)    
Republic Services, Inc. 65,200 1,946,873
    1,946,873
 
Total common stocks (cost $1,096,739,330)   $1,403,827,976

 

CONVERTIBLE BONDS AND NOTES (0.3%)* Principal amount Value
 
Ford Motor Co. cv. sr. unsec. notes 4 1/4s, 2016 $1,880,000 $3,763,798
Total convertible bonds and notes (cost $1,880,000) $3,763,798
 
SHORT-TERM INVESTMENTS (5.4%)* Shares Value
 
Putnam Cash Collateral Pool, LLC 0.21% d 64,772,163 $64,772,163
Putnam Money Market Liquidity Fund 0.15% e 11,989,617 11,989,617
Total short-term investments (cost $76,761,780)   $76,761,780
 
Total investments (cost $1,175,381,110)   $1,484,353,554

 

Key to holding’s abbreviations
 
ADR American Depository Receipts
ADS American Depository Shares


Notes to the fund’s portfolio

Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from January 1, 2010 through December 31, 2010 (the reporting period).

* Percentages indicated are based on net assets of $1,420,300,259.

† Non-income-producing security.

d See Note 1 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.

e See Note 5 to the financial statements regarding investments in Putnam Money Market Liquidity Fund. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.

R Real Estate Investment Trust.

S Securities on loan, in part or in entirety, at the close of the reporting period.

Debt obligations are considered secured unless otherwise indicated.

ADR and ADS after the name of a foreign holding represents ownership of foreign securities on deposit with a custodian bank.

The dates shown on debt obligations are the original maturity dates.

Putnam VT Growth and Income Fund  7

 


Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (ASC 820) establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:

Level 1 — Valuations based on quoted prices for identical securities in active markets.

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.

The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:

    Valuation inputs  
Investments in securities: Level 1 Level 2 Level 3
Common stocks:      
Basic materials $61,791,447 $— $—
Capital goods 111,247,103 — —
Communication services 95,507,186 — —
Conglomerates 44,401,818 — —
Consumer cyclicals 115,449,671 — —
Consumer staples 87,352,885 — —
Energy 212,592,959 — —
Financials 317,451,047 — —
Health care 166,676,003 — —
Technology 132,064,702 — —
Transportation 4,098,722 — —
Utilities and power 55,194,433 — —
Total common stocks 1,403,827,976 — —
Convertible bonds and notes — 3,763,798 —
Short-term investments 11,989,617 64,772,163 —
Totals by level $1,415,817,593 $68,535,961 $—

 

The accompanying notes are an integral part of these financial statements.

8  Putnam VT Growth and Income Fund

 


Statement of assets and liabilities
12/31/10

Assets  
Investment in securities, at value, including $63,329,720  
of securities on loan (Note 1):  
Unaffiliated issuers (identified cost $1,098,619,330) $1,407,591,774
Affiliated issuers (identified cost $76,761,780) (Notes 1 and 5) 76,761,780
Dividends, interest and other receivables 2,340,992
Receivable for shares of the fund sold 43,614
Receivable for investments sold 533,736
Total assets 1,487,271,896
 
Liabilities  
Payable to custodian (Note 2) 93,718
Payable for shares of the fund repurchased 789,612
Payable for compensation of Manager (Note 2) 573,390
Payable for investor servicing fees (Note 2) 99,636
Payable for custodian fees (Note 2) 10,367
Payable for Trustee compensation and expenses (Note 2) 489,311
Payable for administrative services (Note 2) 5,871
Payable for distribution fees (Note 2) 57,390
Collateral on securities loaned, at value (Note 1) 64,772,163
Other accrued expenses 80,179
Total liabilities 66,971,637
 
Net assets $1,420,300,259
 
Represented by  
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $1,734,703,356
Undistributed net investment income (Note 1) 18,690,013
Accumulated net realized loss on investments (642,065,554)
Net unrealized appreciation of investments 308,972,444
Total — Representing net assets applicable  
to capital shares outstanding $1,420,300,259
 
Computation of net asset value Class IA  
Net assets $1,147,181,577
Number of shares outstanding 70,353,991
Net asset value, offering price and redemption price per share  
(net assets divided by number of shares outstanding) $16.31
 
Computation of net asset value Class IB  
Net assets $273,118,682
Number of shares outstanding 16,823,125
Net asset value, offering price and redemption price per share  
(net assets divided by number of shares outstanding) $16.23

 

Statement of operations
Year ended 12/31/10

Investment income  
Dividends (net of foreign tax of $106,287) $28,534,161
Interest (including interest income of $19,459  
from investments in affiliated issuers) (Note 5) 99,644
Securities lending (including interest income of $48,244  
from investments in affiliated issuers) (Note 1) 141,735
Total investment income 28,775,540
 
Expenses  
Compensation of Manager (Note 2) 6,726,995
Investor servicing fees (Note 2) 1,375,094
Custodian fees (Note 2) 27,161
Trustee compensation and expenses (Note 2) 126,725
Administrative services (Note 2) 61,427
Distribution fees — Class IB (Note 2) 684,915
Other 432,219
Total expenses 9,434,536
 
Expense reduction (Note 2) (117,280)
Net expenses 9,317,256
 
Net investment income 19,458,284
 
Net realized gain on investments (Notes 1 and 3) 126,259,420
Net realized gain on foreign currency transactions (Note 1) 7,227
Net unrealized appreciation of investments during the year 43,051,429
Net gain on investments 169,318,076
 
Net increase in net assets resulting from operations $188,776,360

 

The accompanying notes are an integral part of these financial statements.

Putnam VT Growth and Income Fund  9

 


Statement of changes in net assets

  Year ended Year ended
  12/31/10 12/31/09
Increase (decrease) in net assets    
Operations:    
Net investment income $19,458,284 $24,654,823
Net realized gain (loss) on investments 126,266,647 (233,914,548)
Net unrealized appreciation    
of investments 43,051,429 556,637,451
Net increase in net assets    
resulting from operations 188,776,360 347,377,726
Distributions to shareholders (Note 1):    
From ordinary income    
Net investment income    
Class IA (20,215,375) (33,429,210)
Class IB (4,382,851) (7,341,071)
Decrease from capital share transactions    
(Note 4) (223,578,041) (216,997,244)
Total increase (decrease) in net assets (59,399,907) 89,610,201
Net assets:    
Beginning of year 1,479,700,166 1,390,089,965
End of year (including undistributed net
investment income of $18,690,013 and
$23,837,530, respectively) $1,420,300,259 $1,479,700,166

 

The accompanying notes are an integral part of these financial statements.

10  Putnam VT Growth and Income Fund

 


Financial highlights (For a common share outstanding throughout the period)

INVESTMENT OPERATIONS:   LESS DISTRIBUTIONS:   RATIOS AND SUPPLEMENTAL DATA:    
Period ended   Net asset value, beginning of period   Net investment income (loss)a   Net realized and unrealized gain (loss) on investments   Total from investment operations   From net investment income   From net realized gain on investments   Total distributions   Net asset value, end of period   Total return at net asset value (%)b,c   Net assets, end of period (in thousands)   Ratio of expenses to average net assets (%)b,d   Ratio of net investment income (loss) to average net assets (%)   Portfolio turnover (%)
Class IA                                                    
12/31/10   $14.46   .21   1.90   2.11   (.26)   —   (.26)   $16.31   14.71   $1,147,182   .63   1.45   45.48
12/31/09   11.54   .23   3.07e   3.30   (.38)   —   (.38)   14.46   30.16e   1,183,503   .67   1.90   54.56
12/31/08   23.28   .36   (8.17)g   (7.81)   (.52)   (3.41)   (3.93)   11.54   (38.57)g   1,117,897   .60f   2.19f   40.26
12/31/07   29.54   .40   (1.80)   (1.40)   (.46)   (4.40)   (4.86)   23.28   (5.80)   2,427,397   .55f   1.52f   50.44
12/31/06   26.51   .39   3.78   4.17   (.49)   (.65)   (1.14)   29.54   16.19   3,309,577   .55f   1.44f   78.00
Class IB                                                    
12/31/10   $14.40   .18   1.87   2.05   (.22)   —   (.22)   $16.23   14.38   $273,119   .88   1.20   45.48
12/31/09   11.47   .20   3.06e   3.26   (.33)   —   (.33)   14.40   29.81e   296,197   .92   1.65   54.56
12/31/08   23.12   .31   (8.11)g   (7.80)   (.44)   (3.41)   (3.85)   11.47   (38.70)g   272,193   .85f   1.94f   40.26
12/31/07   29.36   .33   (1.79)   (1.46)   (.38)   (4.40)   (4.78)   23.12   (6.04)   592,681   .80f   1.27f   50.44
12/31/06   26.35   .32   3.76   4.08   (.42)   (.65)   (1.07)   29.36   15.91   791,640   .80f   1.19f   78.00

 

a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.

b The charges and expenses at the insurance company separate account level are not reflected.

c Total return assumes dividend reinvestment.

d Includes amounts paid through expense offset and brokerage/service arrangements (Note 2).

e Reflects a non-recurring litigation payment received by the fund from Tyco International, Ltd. which amounted to $0.08 per share outstanding as of March 31, 2009. This payment resulted in an increase to total returns of 0.72% for the year ended December 31, 2009.

f Reflects an involuntary contractual expense limitation and/or waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of such limitation and/or waivers, the expenses of each class reflect a reduction of the following amounts:

  Percentage of average net assets
12/31/08 <0.01%
12/31/07 <0.01
12/31/06 <0.01

 

g Reflects a non-recurring litigation payment received by the fund from Enron Corporation which amounted to $0.06 per share outstanding on December 29, 2008. This payment resulted in an increase to total returns of 0.32% for the year ended December 31, 2008.

The accompanying notes are an integral part of these financial statements.

Putnam VT Growth and Income Fund  11

 


Notes to financial statements 12/31/10

Note 1 — Significant accounting policies

Putnam VT Growth and Income Fund (the fund) is a diversified series of Putnam Variable Trust (the Trust), a Massachusetts business trust, registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The fund seeks capital growth and current income by investing in a portfolio primarily consisting of value-oriented common stocks of mature, financially strong, dividend paying large-capitalization U.S. companies across an array of industries.

The fund offers class IA and class IB shares of beneficial interest. Class IA shares are offered at net asset value and are not subject to a distribution fee. Class IB shares are offered at net asset value and pay an ongoing distribution fee, which is identified in Note 2.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabili ties date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless other wise noted, the “reporting period” represents the period from January 1, 2010 through December 31, 2010.

A) Security valuation Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets and are classified as Level 1 securi ties. If no sales are reported — as in the case of some securities traded over the-counter — a security is valued at its last reported bid price and is generally categorized as a Level 2 security.

Market quotations are not considered to be readily available for certain debt obligations; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which considers such factors as secu rity prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securi ties in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange Accordingly, on certain days, the fund will fair value foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. These securities, which will generally represent a transfer from a Level 1 to a Level 2 security, will be classified as Level 2. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.

To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as signifi-cant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.

Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.

B) Joint trading account Pursuant to an exemptive order from the Securities and Exchange Commission (the SEC), the fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. These balances may be invested in issues of short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments.

C) Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income, net of applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.

D) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments.

E) Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional

12  Putnam VT Growth and Income Fund

 


required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. Effective August 2010, cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management and is valued at its closing net asset value each business day. There are no management fees charged by Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the value of securities loaned amounted to $63,329,720. The fund received cash collateral of $64,772,163.

F) Interfund lending Effective July 2010, the fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the Securities and Exchange Commission (the SEC). This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.

G) Line of credit Effective July 2010, the fund participates, along with other Putnam funds, in a $285 million unsecured committed line of credit and a $165 million unsecured uncommitted line of credit, both provided by State Street Bank and Trust Company (State Street). Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.03% of the committed line of credit and $100,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.15% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.

H) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code. The fund is subject to the provisions of Accounting Standards Codification ASC 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

At December 31, 2010, the fund had a capital loss carryover of $602,967,566 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:

Loss carryover Expiration
$353,288,014 12/31/16
249,679,552 12/31/17

I) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of losses on wash sale transactions and corporate action basis. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the reporting period ended, the fund reclassified $7,575 to decrease undistributed net investment income and $519 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $8,094.

The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:

Unrealized appreciation $298,576,846
Unrealized depreciation (30,418,664)
Net unrealized appreciation 268,158,182
Undistributed ordinary income 18,690,013
Capital loss carryforward (602,967,566)
Cost for federal income tax purposes $1,216,195,372


J) Expenses of the Trust Expenses directly charged or attributable to any fund will be paid from the assets of that fund. Generally, expenses of the Trust will be allocated among and charged to the assets of each fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each fund or the nature of the services performed and relative applicability to each fund.

K) Beneficial interest At the close of the reporting period, insurance companies or their separate accounts were record owners of all but a de minimis number of the shares of the fund. Approximately 41.6% of the fund is owned by accounts of one group of insurance companies.

Note 2 — Management fee, administrative services and other transactions

The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows: 0.630% of the first $5 billion, 0.580% of the next $5 billion, 0.530% of the next $10 billion, 0.480% of the next $10 billion, 0.430% of the next $50 billion, 0.410% of the next $50 billion, 0.400% of the next $100 billion and 0.395% of any excess thereafter.

Putnam Management has contractually agreed, through June 30, 2011, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.

Effective April 30, 2010, Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.

The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.

Custodial functions for the fund’s assets are provided by State Street Bank and Trust Company (State Street). Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.

Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. was paid a monthly fee for investor servicing at an annual rate of 0.10% of the fund’s average net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.

The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. The fund also reduced expenses through brokerage/service arrangements. For the reporting period, the fund’s expenses were reduced by $239 under the expense offset arrangements and by $117,041 under the brokerage/ service arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $930, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

Putnam VT Growth and Income Fund  13

 


The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.

The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted a distribution plan (the Plan) with respect to its class IB shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to compensate Putnam Retail Management Limited Partnership, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plan provides for payment by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to 0.35% of the average net assets attributable to the fund’s class IB shares. The Trustees have approved payment by the fund at an annual rate of 0.25% of the average net assets attributable to the fund’s class IB shares.

Note 3 — Purchases and sales of securities

During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $620,840,215 and $841,519,549, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.

Note 4 — Capital shares

At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Subscriptions and redemptions are presented at the omnibus level. Transactions in capital shares were as follows:

    Class IA shares      Class IB shares   
  Year ended 12/31/10  Year ended 12/31/09  Year ended 12/31/10  Year ended 12/31/09 
 
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount 
Shares sold  92,424  $1,362,003  1,206,656  $16,665,760  246,054  $3,554,411  333,686  $3,982,434 
Shares issued in connection with                 
reinvestment of distributions  1,338,767  20,215,375  3,457,002  33,429,210  291,026  4,382,851  760,733  7,341,071 
  1,431,191  21,577,378  4,663,658  50,094,970  537,080  7,937,262  1,094,419  11,323,505 
Shares repurchased  (12,951,943)  (190,441,871)  (19,639,154) (228,540,148)  (4,288,078)  (62,650,810)  (4,252,509)  (49,875,571) 
Net decrease  (11,520,752)  $(168,864,493)  (14,975,496) $(178,445,178)  (3,750,998) $(54,713,548)  (3,158,090) $(38,552,066) 

 

Note 5 — Investment in Putnam Money Market Liquidity Fund

The fund invested in Putnam Money Market Liquidity Fund, an open-end management investment company managed by Putnam Management. Investments in Putnam Money Market Liquidity Fund are valued at its closing net asset value each business day. Income distributions earned by the fund are recorded as interest income in the Statement of operations and totaled $19,459 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $252,546,706 and $258,133,509, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.

Note 6 — Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission (the SEC) and the Massachusetts Securities Division in connection with excessive short-term trading in Putnam funds. Distribution of payments from Putnam Management to certain open-end

Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Note 7 — Market and credit risk

In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.

14  Putnam VT Growth and Income Fund 

 


Federal tax information (Unaudited)

The fund designated 100% of ordinary income distribution as qualifying for the dividends received deduction for corporat

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Putnam VT Growth and Income Fund  15

 


About the Trustees

Name    
Year of birth    
Position held Principal occupations during past five years Other directorships
Independent Trustees  
Ravi Akhoury Advisor to New York Life Insurance Company. Trustee of American India Foundation and of the Jacob Ballas Capital India,
Born 1947 Rubin Museum. From 1992 to 2007, was Chairman and CEO of MacKay Shields, a multi-product a non-banking finance
Trustee since 2009 investment management firm with over $40 billion in assets under management. company focused on private
    equity advisory services
Barbara M. Baumann President and Owner of Cross Creek Energy Corporation, a strategic consultant to domestic SM Energy Company, a
Born 1955 energy firms and direct investor in energy assets. Trustee, and Co-Chair of the Finance Committee, publicly held energy company
Trustee since 2010 of Mount Holyoke College. Former Chair and current board member of Girls Incorporated of Metro focused on natural gas
  Denver. Member of the Finance Committee, The Children’s Hospital of Denver. and crude oil in the United
    States; UniSource Energy
    Corporation, a publicly held
    provider of natural gas and
    electric service across Arizona;
    Cody Resources Management,
    LLP, a privately held energy,
    ranching, and commercial real
    estate company
Jameson A. Baxter President of Baxter Associates, Inc., a private investment firm. Chairman of Mutual Fund ASHTA Chemicals, Inc.
Born 1943 Directors Forum. Chairman Emeritus of the Board of Trustees of Mount Holyoke College.  
Trustee since 1994 and    
Vice Chairman since 2005    
Charles B. Curtis President Emeritus of the Nuclear Threat Initiative, a private foundation dealing with national Edison International; Southern
Born 1940 security issues. Senior Advisor to the United Nations Foundation. Senior Advisor to the Center California Edison
Trustee since 2001 for Strategic and International Studies. Member of the Council on Foreign Relations and the  
  National Petroleum Council.  
Robert J. Darretta Health Care Industry Advisor to Permira, a global private equity firm. Until April 2007, was Vice United-Health
Born 1946 Chairman of the Board of Directors of Johnson & Johnson. Served as Johnson & Johnson’s Chief Group, a diversified
Trustee since 2007 Financial Officer for a decade. health-care company
John A. Hill Founder and Vice-Chairman of First Reserve Corporation, the leading private equity buyout Devon Energy Corporation, a
Born 1942 firm focused on the worldwide energy industry. Serves as a Trustee and Chairman of the Board leading independent natural
Trustee since 1985 and of Trustees of Sarah Lawrence College. Also a member of the Advisory Board of the Millstein gas and oil exploration and
Chairman since 2000 Center for Corporate Governance and Performance at the Yale School of Management. production company
Paul L. Joskow Economist and President of the Alfred P. Sloan Foundation, a philanthropic institution focused TransCanada Corporation,
Born 1947 primarily on research and education on issues related to science, technology, and economic an energy company focused
Trustee since 1997 performance. Elizabeth and James Killian Professor of Economics and Management, Emeritus on natural gas transmission
  at the Massachusetts Institute of Technology (MIT). Prior to 2007, served as the Director of the and power services; Exelon
  Center for Energy and Environmental Policy Research at MIT. Corporation, an energy
    company focused on
    power services
Kenneth R. Leibler Founder and former Chairman of Boston Options Exchange, an electronic marketplace for the Northeast Utilities,
Born 1949 trading of derivative securities. Vice Chairman of the Board of Trustees of Beth Israel Deaconess which operates New
Trustee since 2006 Hospital in Boston, Massachusetts. Until November 2010, director of Ruder Finn Group, a global England’s largest energy
  communications and advertising firm. delivery system
Robert E. Patterson Senior Partner of Cabot Properties, LP and Co-Chairman of Cabot Properties, Inc., a private None
Born 1945 equity firm investing in commercial real estate. Past Chairman and Trustee of the Joslin  
Trustee since 1984 Diabetes Center.  
George Putnam, III Chairman of New Generation Research, Inc., a publisher of financial advisory and other research None
Born 1951 services, and founder and President of New Generation Advisors, LLC, a registered investment  
Trustee since 1984 advisor to private funds.  
  Director of The Boston Family Office, LLC, a registered investment advisor.  
W. Thomas Stephens Retired as Chairman and Chief Executive Officer of Boise Cascade, LLC, a paper, forest TransCanada Corporation, an
Born 1942 products, and timberland assets company, in December 2008. energy company focused on
Trustee from 1997 to 2008   natural gas transmission and
and since 2009   power services
 
 
 
 
16  Putnam VT Growth and Income Fund  

 

 
Name    
Year of birth    
Position held Principal occupations during past five years Other directorships
Interested Trustee         
Robert L. Reynolds* President and Chief Executive Officer of Putnam Investments since 2008. Prior to joining               None
Born 1952 Putnam Investments, served as Vice Chairman and Chief Operating Officer of Fidelity  
Trustee since 2008 and Investments from 2000 to 2007.  
President of the Putnam    
Funds since July 2009    

 

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of December 31, 2010, there were 104 Putnam funds. All Trustees serve as Trustees of all Putnam funds. Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, removal, or death.

*Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, and/or Putnam Retail Management. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.

Officers

In addition to Robert L. Reynolds, the other officers of the fund are shown below:

Jonathan S. Horwitz (Born 1955) Francis J. McNamara, III (Born 1955)
Executive Vice President, Principal Executive Officer, Treasurer and Vice President and Chief Legal Officer
Compliance Liaison Since 2004
Since 2004 Senior Managing Director, Putnam Investments and Putnam Management
Senior Vice President and Treasurer, The Putnam Funds
James P. Pappas (Born 1953)
Steven D. Krichmar (Born 1958) Vice President
Vice President and Principal Financial Officer Since 2004
Since 2002 Managing Director, Putnam Investments and Putnam Management
Senior Managing Director, Putnam Investments and Putnam Management
Judith Cohen (Born 1945)
Janet C. Smith (Born 1965) Vice President, Clerk and Assistant Treasurer
Vice President, Assistant Treasurer and Principal Accounting Officer Since 1993
Since 2007 Vice President, Clerk and Assistant Treasurer, The Putnam Funds
Managing Director, Putnam Investments and Putnam Management
Michael Higgins (Born 1976)
Beth S. Mazor (Born 1958) Vice President, Senior Associate Treasurer and Assistant Clerk
Vice President Since 2010
Since 2002 Manager of Finance, Dunkin’ Brands (2008–2010); Senior Financial
Managing Director, Putnam Investments and Putnam Management Analyst, Old Mutual Asset Management (2007–2008); Senior Financial
Analyst, Putnam Investments (1999–2007)
Robert R. Leveille (Born 1969)
Vice President and Chief Compliance Officer Nancy E. Florek (Born 1957)
Since 2007 Vice President, Assistant Clerk, Assistant Treasurer and Proxy Manager
Managing Director, Putnam Investments, Putnam Management and Since 2000
Putnam Retail Management Vice President, Assistant Clerk, Assistant Treasurer and Proxy Manager,
The Putnam Funds
Mark C. Trenchard (Born 1962)
Vice President and BSA Compliance Officer Susan G. Malloy (Born 1957)
Since 2002 Vice President and Assistant Treasurer
Managing Director, Putnam Investments and Putnam Retail Management Since 2007
Managing Director, Putnam Management

 

The principal occupations of the officers for the past five years have been with the employers as shown above although in some cases, they have held different positions with such employers. The address of each Officer is One Post Office Square, Boston, MA 02109.

Putnam VT Growth and Income Fund  17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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20  Putnam VT Growth and Income Fund

 


Other important information

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2010, are available in the Individual Investors section of putnam.com and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

Each Putnam VT fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the public reference room.

Fund information
 
Investment Manager Investor Servicing Agent Trustees
Putnam Investment Management, LLC Putnam Investor Services, Inc. John A. Hill, Chairman
One Post Office Square Mailing address: Jameson A. Baxter, Vice Chairman
Boston, MA 02109 P.O. Box 8383 Ravi Akhoury
Boston, MA 02266-8383 Barbara M. Baumann
Investment Sub-Manager 1-800-225-1581 Charles B. Curtis 
Putnam Investments Limited Robert J. Darretta
57–59 St James’s Street Custodian Paul L. Joskow
London, England SW1A 1LD State Street Bank and Trust Company Kenneth R. Leibler
Robert E. Patterson
Marketing Services Legal Counsel George Putnam, III
Putnam Retail Management Ropes & Gray LLP Robert L. Reynolds
One Post Office Square W. Thomas Stephens
Boston, MA 02109 Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP

 

Putnam VT Growth and Income Fund  21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 
This report has been prepared for the shareholders   H308 
of Putnam VT Growth and Income Fund.  265754 2/11 

 


Item 2. Code of Ethics:

(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.

(c) In May 2008, the Code of Ethics of Putnam Investment Management, LLC was updated in its entirety to include the amendments adopted in August 2007 as well as a several additional technical, administrative and non-substantive changes. In May of 2009, the Code of Ethics of Putnam Investment Management, LLC was amended to reflect that all employees will now be subject to a 90-day blackout restriction on holding Putnam open-end funds, except for portfolio managers and their supervisors (and each of their immediate family members), who will be subject to a one-year blackout restriction on the funds that they manage or supervise. In June 2010, the Code of Ethics of Putnam Investments was updated in its entirety to include the amendments adopted in May of 2009 and to change certain rules and limits contained in the Code of Ethics. In addition, the updated Code of Ethics included numerous technical, administrative and non-substantive changes, which were intended primarily to make the document easier to navigate and understand.

Item 3. Audit Committee Financial Expert:

The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Leibler, Mr. Hill, Mr. Darretta and Ms. Baumann qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.

Item 4. Principal Accountant Fees and Services:

The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:

Fiscal    Audit-     
year  Audit  Related  Tax  All Other 
ended  Fees  Fees  Fees  Fees 
  
December 31, 2010  $108,518  $--  $3,006  $1,004* 
December 31, 2009  $110,197  $--  $2,870  $1,905* 

 


* Includes fees of $1,004 and $1,905 billed by the fund’s independent auditor to the fund for procedures necessitated by regulatory and litigation matters for the fiscal years ended December 31, 2010 and December 31, 2009, respectively. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”).

For the fiscal years ended December 31, 2010 and December 31, 2009, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $ 282,230 and $ 564,055 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.

Audit Fees represent fees billed for the fund's last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements.

Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.

Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.

All Other Fees represent fees billed for services relating to an analysis of the proposed market timing distribution.

Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.

The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.

The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

Fiscal  Audit-    All  Total 
year  Related  Tax  Other  Non-Audit 
ended  Fees  Fees  Fees  Fees 
  
December 31, 2010  $ -  $ 227,601  $ -  $ - 
December 31, 2009  $ -  $ 453,847  $ -  $ - 

 


Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:

(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Variable Trust

By (Signature and Title):

/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: February 28, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):

/s/Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer

Date: February 28, 2011

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: February 28, 2011