N-CSR 1 a_vtglobalutilities.htm PUTNAM VARIABLE TRUST a_vtglobalutilities.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: $13.15  Class IB: $13.12 

 

Total return at net asset value   
      MSCI World Utilities 
(as of 12/31/10)  Class IA shares*  Class IB shares†  Index (ND)‡ 
1 year  2.10%  1.83%  –0.99% 
5 years  17.32  15.79  22.53 
Annualized  3.25  2.98  4.15 
10 years  15.44  12.58  48.35 
Annualized  1.45  1.19  4.02 
Life  237.73  225.49  — 
Annualized  6.74  6.53  — 

 

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

* Class inception date: May 4, 1992.

† Class inception date: April 30, 1998.

‡ The fund’s benchmark, the MSCI World Utilities Index (ND), was introduced on 1/1/01, which post-dates the inception of the fund’s class IA shares.


MSCI World Utilities Index (ND) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets in the utilities sector.

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 of 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.


Reflects equity holdings and cash only. 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 Global Utilities Fund  1 

 


Report from your fund’s manager

What was the market environment like for utilities, and how did the fund perform?

Global utilities generally underperformed the broad market aver ages in most countries. Stocks of North American utilities and Asian utilities held up better than their European counterparts, which were overtaken by concerns surrounding the weak power market, the sovereign debt crisis, and initiatives by governments generate taxes to close their budget shortfalls. In this environment, Putnam VT Global Utilities Fund’s class IA shares returned 2.10% net asset value for the 12 months ended December 31, 2010.

Did the fund’s positioning on a regional and industry level contribute to results?

Performance was favorably influenced by our decision to under weight continental Europe and overweight North America, where we emphasized U.S. utilities. Our decision to move the fund’s Asian exposure from a slight underweight to a slight overweight, however, worked against us due to timing and the underperformance of a single large position, Tokyo Electric Power The fund was overweight more regulated utilities and under weight merchant generators, whose revenues are subject to power market volatility. In other words, we anticipated weak markets, even with the strengthening economy, and invested more defensive issues. The portfolio does, however, hold utilities with significant market power exposure.

Which utilities contributed to performance?

The top contributor was CMS Energy, which performed well due to the improving regulatory environment in Michigan, a stronger than-expected economy in the utility’s service territory, and surprise 40% dividend increase declared in August. Shares Centrica, predominantly a U.K. power and natural gas distrib utor, profited from falling commodity prices. Fortum, a Nordic generator headquartered in Finland, rallied on the back of high commodity prices in that region.

What holdings produced disappointing results?

The biggest detractor was Tokyo Electric Power, which is still recovering from the 2007 earthquake that shut down a nuclear power station. The drop in energy production had adversely affected the company’s revenue stream, causing concern for some investors. More recently, management’s conservative finan cial strategy has led them to issue an excessive amount of equity, thereby diluting shareholder returns. We remain positive on the stock, however, due to its attractive valuation, and even increased the size of our position when the stock bottomed in October.

A leading Spanish utility, Endesa SA, declined due to sovereign debt concerns, along with other southern European stocks the portfolio, rather than due to company-specific issues. We continue to hold this stock and others in Europe as their prices have declined enough to discount the risks as we see them.

What is your outlook for global utilities in 2011?

Given their defensive characteristics, utilities stocks could be an attractive sector in 2011 if the markets are troubled or uncertain

Historically, however, utilities stocks have lagged in rising markets and periods of economic expansion. Regardless of direction, we expect that utilities will have relatively good earnings and dividend visibility due to the predictability of sales volumes and prices. If anything, they could surprise on the positive side due to management’s cost-cutting efforts.

Long term, utilities have a great opportunity to help transform the energy industry into a more environmentally-friendly one. In this, opportunities will abound — upgrading some coal plants, replacing some of them with gas plants, building renewable generation (including wind, solar, geothermal, and biomass facilities), and constructing nuclear power plants. This will all require a vastly expanded transmission grid to bring power from renewable and nuclear sites to population centers. We think such investments have the potential to attract broad support and deliver attractive returns for investors.

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: International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging-market securities, including illiquidity and volatility. The fund may invest a portion of its assets in small and/or midsize companies. Such investments increase the risk of greater price fluctuations. The fund invests in fewer issuers or concentrates its investments by region or sector, and involves more risk than a fund that invests more broadly. The use of derivatives involves special risks and may result in losses. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. The market may not favor growth-or value-style investing. The use of short selling may result in losses if the securities appreciate in value. The fund’s non-diversified status, which means the fund may invest in fewer issues, can increase the fund’s vulnerability to common economic forces and may result in greater losses and volatility. Current and future portfolio holdings are subject to risk.

Your fund’s manager


Portfolio Manager Michael Yogg is Utilities Sector Team Leader at Putnam. A CFA charterholder, he joined Putnam in 1997 and has been in the investment industry since 1978.

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 Global Utilities 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*  $4.40  $5.76  $4.13  $5.40 
 
Ending value         
(after expenses)  $1,156.60  $1,154.90  $1,021.12  $1,019.86 
 
Annualized         
expense ratio†  0.81%  1.06%  0.81%  1.06% 

 

* 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 Global Utilities Fund  3 

 


Report of Independent Registered Public Accounting Firm

To the Trustees of Putnam Variable Trust and Shareholders of
Putnam VT Global Utilities 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 Global Utilities 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 and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2011

4  Putnam VT Global Utilities Fund 

 


The fund’s portfolio 12/31/10

COMMON STOCKS (97.0%)*  Shares  Value 
 
Electric utilities (67.6%)     
AES Corp. (The) †  397,007  $4,835,545 
AGL Energy, Ltd. (Australia)  151,164  2,357,136 
Alliant Energy Corp.  65,658  2,414,245 
Ameren Corp.  229,428  6,467,575 
American Electric Power Co., Inc.  143,794  5,173,708 
CMS Energy Corp.  248,467  4,621,486 
E.ON AG (Germany)  233,835  7,171,143 
EDF (France)  7,404  303,888 
Edison International  119,915  4,628,718 
Endesa SA (Spain)  82,367  2,125,094 
Entergy Corp.  56,614  4,009,970 
Fortum OYJ (Finland)  256,034  7,713,277 
Great Plains Energy, Inc.  105,700  2,049,523 
Hong Kong Electric Holdings, Ltd. (Hong Kong)  474,000  2,988,036 
ITC Holdings Corp.  22,300  1,382,154 
Kansai Electric Power, Inc. (Japan)  92,400  2,280,976 
Kyushu Electric Power Co., Inc. (Japan)  92,200  2,067,061 
National Grid PLC (United Kingdom)  385,407  3,323,870 
Northeast Utilities  48,904  1,559,060 
NV Energy, Inc.  181,458  2,549,485 
Pepco Holdings, Inc.  59,000  1,076,750 
PG&E Corp.  163,179  7,806,483 
Pinnacle West Capital Corp.  71,597  2,967,696 
PPL Corp.  173,147  4,557,229 
Terna SPA (Italy)  446,128  1,885,067 
Tokyo Electric Power Co. (Japan)  468,700  11,449,028 
Wisconsin Energy Corp.  42,304  2,490,013 
XCEL Energy, Inc.  47,900  1,128,045 
    103,382,261 
Electronics (0.5%)     
Elster Group SE ADR (Germany) † S  42,213  713,400 
    713,400 
Natural gas utilities (20.9%)     
Centrica PLC (United Kingdom)  1,492,804  7,719,988 
GDF Suez (France)  158,134  5,677,402 
Sempra Energy  78,637  4,126,870 
Snam Rete Gas SpA (Italy)  937,955  4,665,574 
Tokyo Gas Co., Ltd. (Japan)  1,695,000  7,516,630 
UGI Corp.  72,100  2,276,918 
    31,983,382 
Oil and gas (1.0%)     
Questar Corp.  90,600  1,577,346 
    1,577,346 
Power producers (3.4%)     
Cheung Kong Infrastructure Holdings, Ltd.     
(Hong Kong)  552,000  2,528,136 
International Power PLC (United Kingdom)  404,412  2,759,946 
    5,288,082 
Transportation services (1.2%)     
Deutsche Post AG (Germany)  106,952  1,816,238 
    1,816,238 
Water Utilities (2.4%)     
American Water Works Co., Inc.  40,512  1,024,548 
Northumbrian Water Group PLC (United Kingdom)  143,621  741,387 
Severn Trent PLC (United Kingdom)  40,192  926,432 
United Utilities Group PLC (United Kingdom)  113,088  1,044,089 
    3,736,456 
 
Total common stocks (cost $119,950,747)    $148,497,165 

 

CONVERTIBLE PREFERRED STOCKS (1.5%)*  Shares  Value 
 
Great Plains Energy, Inc. $6.00 cv. pfd.  11,115  $708,026 
PPL Corp. $4.75 cv. pfd.  28,398  1,552,803 
Total convertible preferred stocks (cost $2,165,745)  $2,260,829 
 
SHORT-TERM INVESTMENTS (0.7%)*  Principal amount/shares  Value 
 
Putnam Cash Collateral Pool, LLC 0.21% d  56,000  $56,000 
SSgA Prime Money Market Fund 0.13% i P  119,000  119,000 
U.S. Treasury Bills with yields ranging from 0.19%   
to 0.21%, June 2, 2011  $42,000  41,952 
U.S. Treasury Bills with an effective yield     
of 0.19%, September 25, 2011  120,000  119,809 
U.S. Treasury Bills with yields ranging from 0.24%   
to 0.26%, November 20, 2011 ##  748,000  746,781 
Total short-term investments (cost $1,083,294)  $1,083,542 
 
Total investments (cost $123,199,786)    $151,841,536 

 

Key to holding’s abbreviations

ADR  American Depository Receipts 

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 $153,025,883.

† Non-income-producing security.

## This security, in part or in entirety, was pledged and segregated with the custodian for collateral on certain derivatives contracts at the close of the reporting period.

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. i Security purchased with cash or security received, that was pledged to the fund for collateral on certain derivatives contracts (Note 1).

P The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.

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

At the close of the reporting period, the fund maintained liquid assets totaling $290,983 to cover certain derivatives contracts.

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

DIVERSIFICATION BY COUNTRY
Distribution of investments by country of risk at the close of the reporting
period (as a percentage of Portfolio Value):
 
United States  47.4%  France  3.9% 
Japan  15.4  Hong Kong  3.6 
United Kingdom  10.9  Australia  1.6 
Germany  6.4  Spain  1.4 
Finland  5.1  Total  100.0% 
Italy  4.3     

 

Putnam VT Global Utilities Fund  5 

 


FORWARD CURRENCY CONTRACTS at 12/31/10 (aggregate face value $46,762,832)   Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Bank of America, N.A.             
  Australian Dollar  Sell  1/19/11  $473,168  $443,974  $(29,194) 
  British Pound  Sell  1/19/11  861,702  859,116  (2,586) 
  Euro  Sell  1/19/11  1,079,449  1,054,592  (24,857) 
Barclays Bank PLC             
  British Pound  Sell  1/19/11  416,973  415,855  (1,118) 
  Euro  Buy  1/19/11  1,001,495  978,831  22,664 
  Hong Kong Dollar  Sell  1/19/11  468,492  469,340  848 
  Japanese Yen  Sell  1/19/11  535,387  516,645  (18,742) 
Citibank, N.A.             
  British Pound  Sell  1/19/11  2,344,654  2,351,132  6,478 
  Euro  Buy  1/19/11  5,496,324  5,370,951  125,373 
  Hong Kong Dollar  Sell  1/19/11  1,546,370  1,548,533  2,163 
Credit Suisse AG             
  British Pound  Buy  1/19/11  2,246,102  2,239,368  6,734 
  Euro  Buy  1/19/11  4,742,462  4,634,710  107,752 
  Japanese Yen  Buy  1/19/11  851,300  820,914  30,386 
Deutsche Bank AG             
  Euro  Sell  1/19/11  565,999  553,257  (12,742) 
Goldman Sachs International             
  Australian Dollar  Sell  1/19/11  809,933  760,120  (49,813) 
  Euro  Buy  1/19/11  910,572  889,897  20,675 
  Japanese Yen  Sell  1/19/11  2,531,859  2,440,587  (91,272) 
HSBC Bank USA, National Association             
  Australian Dollar  Buy  1/19/11  432,094  405,531  26,563 
  British Pound  Buy  1/19/11  958,850  955,948  2,902 
  Euro  Sell  1/19/11  1,037,597  1,013,650  (23,947) 
  Hong Kong Dollar  Buy  1/19/11  2,003,230  2,006,210  (2,980) 
JPMorgan Chase Bank, N.A.             
  British Pound  Sell  1/19/11  75,005  76,301  1,296 
  Canadian Dollar  Buy  1/19/11  2,095,311  2,044,185  51,126 
  Euro  Sell  1/19/11  865,779  845,978  (19,801) 
  Hong Kong Dollar  Buy  1/19/11  368,952  369,515  (563) 
  Japanese Yen  Buy  1/19/11  423,880  408,799  15,081 
Royal Bank of Scotland PLC (The)             
  British Pound  Sell  1/19/11  2,521,017  2,514,340  (6,677) 
  Euro  Sell  1/19/11  393,378  384,728  (8,650) 
State Street Bank and Trust Co.             
  Australian Dollar  Sell  1/19/11  351,479  329,659  (21,820) 
  Euro  Sell  1/19/11  748,915  731,905  (17,010) 
UBS AG             
  British Pound  Buy  1/19/11  1,256,064  1,255,396  668 
  Euro  Buy  1/19/11  5,431,876  5,363,180  68,696 
Westpac Banking Corp.             
  British Pound  Buy  1/19/11  800,731  797,748  2,983 
  Euro  Buy  1/19/11  553,430  540,866  12,564 
  Japanese Yen  Sell  1/19/11  384,615  371,071  (13,544) 
Total            $159,636 

 

6  Putnam VT Global Utilities Fund 

 


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:       
Energy  $1,577,346  $—  $— 
Technology  713,400  —  — 
Transportation  1,816,238  —  — 
Utilities and power  144,390,181  —  — 
Total common stocks  148,497,165  —  — 
Convertible preferred stocks  —  2,260,829  — 
Short-term investments  119,000  964,542  — 
Totals by level  $148,616,165  $3,225,371  $— 
 
    Valuation inputs   
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $159,636  $— 
Totals by level  $—  $159,636  $— 

 

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

Putnam VT Global Utilities Fund  7 

 


Statement of assets and liabilities

12/31/10

Assets   
Investment in securities, at value, including $54,240 of securities on   
loan (Note 1):   
Unaffiliated issuers (identified cost $123,143,786)  $151,785,536 
Affiliated issuers (identified cost $56,000) (Note 1)  56,000 
Dividends, interest and other receivables  437,538 
Receivable for investments sold  1,213,689 
Unrealized appreciation on forward currency contracts (Note 1)  504,952 
Total assets  153,997,715 
 
Liabilities   
Payable to custodian  28,976 
Payable for investments purchased  60,806 
Payable for shares of the fund repurchased  124,244 
Payable for compensation of Manager (Note 2)  81,885 
Payable for investor servicing fees (Note 2)  7,623 
Payable for custodian fees (Note 2)  9,872 
Payable for Trustee compensation and expenses (Note 2)  118,993 
Payable for administrative services (Note 2)  697 
Payable for distribution fees (Note 2)  4,986 
Unrealized depreciation on forward currency contracts (Note 1)  345,316 
Collateral on securities loaned, at value (Note 1)  56,000 
Collateral on certain derivative contracts, at value (Note 1)  119,000 
Other accrued expenses  13,434 
Total liabilities  971,832 
 
Net assets  $153,025,883 
 
Represented by   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $120,396,222 
Undistributed net investment income (Note 1)  4,941,349 
Accumulated net realized loss on investments and foreign currency   
transactions (Note 1)  (1,114,802) 
Net unrealized appreciation of investments and assets and liabilities   
in foreign currencies  28,803,114 
Total — Representing net assets applicable   
to capital shares outstanding  $153,025,883 
 
Computation of net asset value Class IA   
Net assets  $129,384,398 
Number of shares outstanding  9,839,733 
Net asset value, offering price and redemption price per share   
(net assets divided by number of shares outstanding)  $13.15 
 
Computation of net asset value Class IB   
Net assets  $23,641,485 
Number of shares outstanding  1,801,386 
Net asset value, offering price and redemption price per share   
(net assets divided by number of shares outstanding)  $13.12 

 

Statement of operations   
Year ended 12/31/10   
 
Investment income   
Dividends (net of foreign tax of $394,478)  $6,492,801 
Interest (including interest income of $1,603 from investments   
in affiliated issuers) (Note 6)  3,622 
Securities lending (including interest income of $33,788   
from investments in affiliated issuers) (Note 1)  232,303 
Total investment income  6,728,726 
 
Expenses   
Compensation of Manager (Note 2)  1,015,889 
Investor servicing fees (Note 2)  159,156 
Custodian fees (Note 2)  24,772 
Trustee compensation and expenses (Note 2)  14,671 
Administrative services (Note 2)  7,100 
Distribution fees — Class IB (Note 2)  62,764 
Other  86,772 
Total expenses  1,371,124 
 
Expense reduction (Note 2)  (17,000) 
Net expenses  1,354,124 
 
Net investment income  5,374,602 
 
Net realized gain on investments (Notes 1 and 3)  1,770,967 
Net realized loss on foreign currency transactions (Note 1)  (603,793) 
Net unrealized appreciation of assets and liabilities in foreign currencies   
during the year  501,053 
Net unrealized depreciation of investments during the year  (4,882,956) 
Net loss on investments  (3,214,729) 
 
Net increase in net assets resulting from operations  $2,159,873 

 

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

8  Putnam VT Global Utilities Fund 

 


Statement of changes in net assets

  Year ended  Year ended 
  12/31/10  12/31/09 
Decrease in net assets     
Operations:     
Net investment income  $5,374,602  $5,918,950 
Net realized gain (loss) on investments     
and foreign currency transactions  1,167,174  (1,233,279) 
Net unrealized appreciation (depreciation)     
of investments and assets and liabilities in     
foreign currencies  (4,381,903)  5,401,753 
Net increase in net assets     
resulting from operations  2,159,873  10,087,424 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class IA  (5,910,217)  (6,737,984) 
Class IB  (1,038,222)  (1,151,811) 
From net realized long-term gain on     
investments     
Class IA  —  (10,140,778) 
Class IB  —  (1,912,602) 
Decrease from capital share transactions     
(Note 4)  (23,327,583)  (17,055,582) 
Total decrease in net assets  (28,116,149)  (26,911,333) 
Net assets:     
Beginning of year  181,142,032  208,053,365 
End of year (including undistributed net     
investment income of $4,941,349 and     
$7,118,974, respectively)  $153,025,883  $181,142,032 

 

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

Putnam VT Global Utilities Fund  9 

 


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)c,d   Ratio of expenses to average net assets (%)   Ratio of net investment income (loss) to average net assets (%)   Portfolio turnover (%)
Class IA                                                    
12/31/10   $13.44   .43   (.18)   .25   (.54)   —   (.54)   $13.15   2.10   $129,384   .82   3.39   33.50
12/31/09   14.31   .42   .21   .63   (.60)   (.90)   (1.50)   13.44   7.66   152,608   .84e   3.41e   55.11
12/31/08   21.03   .49   (6.77)   (6.28)   (.44)   —   (.44)   14.31   (30.33)   175,735   .81e   2.73e   49.80
12/31/07   17.83   .38   3.19   3.57   (.37)   —   (.37)   21.03   20.25   320,375   .80e   1.94e   39.76
12/31/06   14.47   .34   3.50   3.84   (.48)   —   (.48)   17.83   27.40   320,261   .84e   2.20e   65.65
Class IB                                                    
12/31/10   $13.41   .40   (.18)   .22   (.51)   —   (.51)   $13.12   1.83   $23,641   1.07   3.15   33.50
12/31/09   14.25   .39   .21   .60   (.54)   (.90)   (1.44)   13.41   7.36   28,534   1.09e   3.17e   55.11
12/31/08   20.93   .44   (6.74)   (6.30)   (.38)   —   (.38)   14.25   (30.49)   32,319   1.06e   2.48e   49.80
12/31/07   17.75   .33   3.17   3.50   (.32)   —   (.32)   20.93   19.94   60,942   1.05e   1.69e   39.76
12/31/06   14.41   .30   3.48   3.78   (.44)   —   (.44)   17.75   27.03   62,641   1.09e   1.95e   65.65

 

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 Total return assumes dividend reinvestment.

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

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

e Reflects an involuntary contractual expense limitation in effect during the period. For periods prior to December 31, 2009, certain fund expenses were waived in connection with the fund’s investment in Putnam Prime Money Market Fund. 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
12/31/09 0.02%
12/31/08 0.01
12/31/07 0.01
12/31/06 0.03

 

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

10  Putnam VT Global Utilities Fund

 


Notes to financial statements 12/31/10

Note 1 — Significant accounting policies

Putnam VT Global Utilities Fund (the fund) is a non-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 primarily through investments in equity and debt securities issued by utility companies worldwide. The fund concentrates its investments in one sector which involves more risk than a fund that invests more broadly.

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 liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. Unless otherwise 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 securities. 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.

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 securities 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 Investment Management, LLC (Putnam Management), the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC, 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 significant 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 Management. 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. All premiums/discounts are amortized/accreted on a yield-to-maturity basis.

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) Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge against foreign exchange risk. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities. Forward currency contracts outstanding at period end,

Putnam VT Global Utilities Fund  11 

 


if any, are listed after the fund’s portfolio. The fund had an average contract amount of approximately $38,500,000 on forward currency contracts for the reporting period.

F) Master agreements The fund is a party to ISDA (International Swap and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio. Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty. Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.

At the close of the reporting period, the fund had a net liability position of $243,946 on derivative contracts subject to the Master Agreements. Collateral posted by the fund totaled $29,943.

G) 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 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 $54,240 and the fund received cash collateral of $56,000.

H) 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 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.

I) 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.

J) 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 $175,273 available to the extent allowed by the Code to offset future net capital gain, if any. This capital loss carryover will expire on December 31, 2017.

K) 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 foreign currency gains and losses. 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 $603,788 to decrease undistributed net investment income and $5 to decrease paid-in-capital, with a decrease to accumulated net realized losses of $603,793.

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

Unrealized appreciation  $33,160,502 
Unrealized depreciation  (5,458,281) 
Net unrealized appreciation  27,702,221 
Undistributed ordinary income  5,101,519 
Capital loss carryforward  (175,273) 
Cost for federal income tax purposes  $124,139,315 

 

L) 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.

M) 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 46.1% 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: 0.780% of the first $5 billion, 0.730% of the next $5 billion, 0.680% of the next $10 billion, 0.630% of the next $10 billion, 0.580% of the next $50 billion, 0.560% of the next $50 billion, 0.550% of the next $100 billion and 0.545% 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.

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

12  Putnam VT Global Utilities Fund 

 


an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.

The Putnam Advisory Company, LLC (PAC), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund, as designated from time to time by Putnam Management or PIL. Putnam Management or PIL, as applicable, pays a quarterly sub-advisory fee to PAC for its services at the annual rate of 0.35% of the average net assets of the portion of the fund’s assets for which PAC is engaged as sub-adviser.

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. 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 $6 under the expense offset arrangements and by $16,994 under the brokerage/service arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $110, 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.

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 $52,925,219 and $78,574,275, 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  40,325  $511,501  24,999  $313,504  38,868  $478,817  74,801  $912,342 
Shares issued in connection with                 
reinvestment of distributions  473,196  5,910,217  1,648,317  16,878,762  83,124  1,038,222  299,259  3,064,413 
  513,521  6,421,718  1,673,316  17,192,266  121,992  1,517,039  374,060  3,976,755 
Shares repurchased  (2,028,196)  (25,613,171)  (2,598,916)  (31,927,544)  (447,882)  (5,653,169)  (515,081)  (6,297,059) 
Net decrease  (1,514,675)  $(19,191,453)  (925,600)  $(14,735,278)  (325,890)  $(4,136,130)  (141,021)  $(2,320,304) 

 

Note 5 — Summary of derivative activity

The following is a summary of the market values of derivative instruments as of the close of the reporting period:

Market values of derivative instruments as of the close of the reporting period

  Asset derivatives Liability derivatives
Derivatives not accounted         
for as hedging instruments  Statement of assets and    Statement of assets and   
under ASC 815  liabilities location  Market value  liabilities location  Market value 
Foreign exchange contracts  Receivables  $504,952  Payables  $345,316 
Total    $504,952    $345,316 

 

The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):

Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments

Derivatives not accounted for as hedging instruments     
under ASC 815  Forward currency contracts  Total 
Foreign exchange contracts  $(553,989)  $(553,989) 
Total  $(553,989)  $(553,989) 

 

Putnam VT Global Utilities Fund  13 

 


Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments

Derivatives not accounted for as hedging instruments     
under ASC 815  Forward currency contracts  Total 
Foreign exchange contracts  $496,451  $496,451 
Total  $496,451  $496,451 

 

Note 6 — 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 $1,603 for the reporting period. During the reporting period, cost of purchases and proceeds of sales of investments in Putnam Money Market Liquidity Fund aggregated $40,424,639 and $41,459,190, respectively. Management fees charged to Putnam Money Market Liquidity Fund have been waived by Putnam Management.

Note 7 — Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by 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 8 — 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 Global Utilities Fund 

 


Federal tax information (Unaudited)

For the period, interest and dividends from foreign countries were $3,784,878 or $0.33 per share (for all classes of shares). Taxes paid to foreign countries were $394,478 or $0.03 per share (for all classes of shares).

The fund designated 56.79% of ordinary income distributions as qualifying for the dividends received deduction for corporations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Putnam VT Global Utilities 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 Global Utilities 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 Global Utilities Fund  17 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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18  Putnam VT Global Utilities Fund 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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20  Putnam VT Global Utilities 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 
Investment Sub-Advisor  Legal Counsel  George Putnam, III 
The Putnam Advisory Company, LLC  Ropes & Gray LLP  Robert L. Reynolds 
One Post Office Square    W. Thomas Stephens 
Boston, MA 02109  Independent Registered 
  Public Accounting Firm 
Marketing Services  PricewaterhouseCoopers LLP   
Putnam Retail Management     
One Post Office Square     
Boston, MA 02109     

 

Putnam VT Global Utilities Fund  21 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 
This report has been prepared for the shareholders   H322 
of Putnam VT Global Utilities Fund.  265768 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  $33,501  $--  $5,788  $110* 
December 31, 2009  $34,290  $--  $6,626  $230* 

 


* Includes fees of $110 and $230 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 $284,118 and $ 566,136 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