N-CSR 1 a_vtintlvalue.htm PUTNAM VARIABLE TRUST a_vtintlvalue.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: Robert T. Burns, Vice President
One Post Office Square
Boston, Massachusetts 02109
Copy to:         Bryan Chegwidden, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, New York 10036
Registrant’s telephone number, including area code: (617) 292-1000
Date of fiscal year end: December 31, 2014
Date of reporting period : January 1, 2014 — December 31, 2014



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 Shareholder:

The falling price of oil has captured headlines in recent months and is having a sustained effect on markets and economies worldwide. Cheaper oil allows many consumers and businesses to shift spending to other priorities. At the same time, the decline reflects greater pessimism about global growth, and it is having a negative impact on the energy sector — not just in the United States, but wherever energy is a key export.

This change in the investing environment has contributed to an increase in market volatility. Although the U.S. economy continues to grow, economic challenges in Europe, China, and Japan are causing uncertainty.

Compared with recent years, we may see more tempered returns from equity and fixed-income markets. While a number of positive trends continue, including an improving housing market and a brighter employment situation, investors should also be alert to a possible increase in short-term interest rates that is widely expected to occur in 2015. History suggests that rising rates could generate headwinds for markets.

In all types of market conditions, Putnam offers a wide range of flexible strategies. Our experienced investment teams employ new ways of thinking about building portfolios for both the opportunities and risks in today’s markets. In this dynamic environment, it may be an opportune time for you to meet with your financial advisor to ensure that your portfolio is properly aligned with your goals and tolerance for risk.

As always, thank you for investing with Putnam.



Performance summary (as of 12/31/14)

Investment objective

Capital growth with current income as its secondary objective

Net asset value December 31, 2014 
 
Class IA: $9.99  Class IB: $9.88 

 

Total return at net asset value   
      MSCI EAFE Value 
(as of 12/31/14)  Class IA shares*  Class IB shares†  Index (ND) 
1 year  –9.29%  –9.49%  –5.39% 
5 years  25.87  24.34  24.14 
Annualized  4.71  4.45  4.42 
10 years  34.88  31.56  46.46 
Annualized  3.04  2.78  3.89 
Life  160.21  150.36  167.71 
Annualized  5.46  5.23  5.65 


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

* Class inception date: January 2, 1997.

† Class inception date: April 6, 1998.

The MSCI EAFE Value Index (ND) is an unmanaged index that measures the performance of equity securities representing the value style in countries within Europe, Australasia, and the Far East.

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. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund 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.


Allocations are shown as a percentage of the fund’s net assets. Cash and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the information in the portfolio schedule notes included in the financial statements due to the inclusion of derivative securities, any interest accruals, and the exclusion of as-of trades, if any. Holdings and allocations may vary over time.

Putnam VT International Value Fund   1 

 


Report from your fund’s manager

How were stock market and economic conditions during the 12-month reporting period ended December 31, 2014?

International stock markets finished the period in negative territory after posting positive returns during the first half of the year. Growth among the world’s economies began to diverge over the summer, with low inflation and weak manufacturing posing significant headwinds for Europe; Japan’s economy shrinking more than early estimates; China’s economy slowing; and a steady stream of positive data confirming the United States as a clear economic world leader. International equity market performance and currency fluctuations mirrored these macroeconomic changes. U.S. equity markets advanced, while stocks in developed and emerging markets faltered.

How did this environment affect international value stocks?

Returns from international value stocks generally lagged those of stocks in U.S. markets. This underperformance was particularly pronounced in U.S. dollar terms, as the dollar strengthened significantly. Much of the dollar’s strength stemmed from the pace of the U.S. economy, which outperformed most of the world’s economies, including the eurozone, Japan, China, and emerging markets.

After enjoying relatively supportive conditions and ample investment opportunities early in the period, value investors faced a less favorable market environment toward the end of 2014. Disappointing macroeconomic data in the eurozone, China, and Japan hindered growth. As is often the case when growth becomes harder to find, investors showed a clear preference for stocks of companies that demonstrated earnings growth and favorable forward visibility. Consequently, international value stocks underperformed their international growth counterparts.

What is your outlook as we begin 2015?

With the significant declines in oil prices, particularly in the later months of the period, uncertainty in the energy sector could bring more volatility to the stock market in the months ahead. For world stock markets, we believe the dominant theme as we head into 2015 will be divergent monetary policies from governments and central banks. Until recently, most regions were moving in the same direction — working to stimulate their economies and bring liquidity into their systems. Now, however, it appears regions are beginning to move in different directions. In the United States, for example, the Federal Reserve’s quantitative easing program has come to an end, and we believe a potential hike in short-term interest rates is on the horizon. While the U.S. Fed has been tightening, central banks in Europe and Japan have been more aggressive in their easing policies. We believe this divergence could lead to some disruption in global financial markets.

We are fairly optimistic about Europe, which recently has faced a number of headwinds to growth. The European Central Bank [ECB] appears to be very supportive, and the region’s banks appear healthier after being subjected to an ECB-run asset-quality review, the first region-wide stress test of the banking system. Japan is another area about which we are optimistic, due in part to its aggressive stimulus efforts. Regardless of the macroeconomic outlook, we seek to maintain a diversified portfolio, conducting rigorous research of individual stocks.

The views expressed in this report are exclusively those of Putnam Management and are subject to change. 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 currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Value stocks may fail to rebound, and the market may not favor value-style investing. The value of stocks in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific company or industry. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. You can lose money by investing in the fund.

Your fund’s manager


Portfolio Manager Darren A. Jaroch, CFA, joined Putnam in 1999 and has been in the investment industry since 1996.

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 International Value 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 two left-hand columns of the Expense per $1,000 table show the expenses you would have paid on a $1,000 investment in your fund from July 1, 2014, to December 31, 2014. 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 Expense per $1,000 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.

Expense ratios     
  Class IA  Class IB 
Total annual operating expenses for the     
fiscal year ended 12/31/13*  0.93%  1.18% 
Annualized expense ratio for the     
six-month period ended 12/31/14†  0.91%  1.16% 

 

*Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report.

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

Expense per $1,000       
  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 12/31/14    for the 6 months ended 12/31/14 
  Class IA  Class IB  Class IA  Class IB 
Expenses paid         
per $1,000*†  $4.32  $5.51  $4.63  $5.90 
Ending value         
(after expenses)  $885.60  $884.50  $1,020.62  $1,019.36 


*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 12/31/14. The expense ratio may differ for each share class.

†Expenses based on actual returns 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. Expenses based on a hypothetical 5% return are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period; and then dividing that result by the number of days in the year.

Putnam VT International Value Fund   3 

 


Report of Independent Registered Public Accounting Firm

To the Trustees of Putnam Variable Trust and Shareholders of
Putnam VT International Value 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 International Value Fund (the “fund”) at December 31, 2014, 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, 2014 by correspondence with the custodian, brokers, and transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 2015

4   Putnam VT International Value Fund 

 


The fund’s portfolio 12/31/14

COMMON STOCKS (95.8%)*  Shares  Value 
Aerospace and defense (1.7%)     
Airbus Group NV (France)  19,871  $986,937 
BAE Systems PLC (United Kingdom)  110,650  807,748 
Air freight and logistics (2.0%)    1,794,685 
Deutsche Post AG (Germany)  63,604  2,081,036 
    2,081,036 
Airlines (0.9%)     
Japan Airlines Co., Ltd. (Japan) UR  30,400  888,002 
Automobiles (4.7%)    888,002 
Daimler AG (Registered Shares) (Germany)  19,628  1,637,576 
Nissan Motor Co., Ltd. (Japan)  184,900  1,610,524 
Toyota Motor Corp. (Japan)  25,700  1,602,667 
Banks (15.6%)    4,850,767 
Banco Bilbao Vizcaya Argentaria SA (Spain)  74,256  698,862 
Bank of Ireland (Ireland) †  2,608,047  972,414 
Bank of Queensland, Ltd. (Australia)  162,134  1,602,218 
Barclays PLC (United Kingdom)  62,477  234,882 
DNB ASA (Norway)  73,635  1,085,702 
Erste Group Bank AG (Czech Republic)  17,729  406,462 
HSBC Holdings PLC (United Kingdom)  206,201  1,948,699 
ING Groep NV GDR (Netherlands) †  231,383  2,995,857 
Lloyds Banking Group PLC (United Kingdom) †  598,692  706,975 
Metro Bank PLC (acquired 1/15/14,     

cost $235,131) (Private) (United Kingdom) † ΔΔ F 

 18,087  375,285 
Mizuho Financial Group, Inc. (Japan)  417,000  700,685 
Natixis SA (France)  109,284  718,633 
Sumitomo Mitsui Financial Group, Inc. (Japan)  56,500  2,041,486 
TSB Banking Group PLC (United Kingdom) † S  139,296  602,170 
United Overseas Bank, Ltd. (Singapore)  47,000  868,929 
Virgin Money Holdings UK PLC (United Kingdom) †  67,030  300,882 
Beverages (1.0%)    16,260,141 
Anheuser-Busch InBev NV (Belgium)  8,827  993,335 
Building products (0.6%)    993,335 
Compagnie De Saint-Gobain (France)  14,839  624,711 
Capital markets (1.0%)    624,711 
UBS Group AG (Switzerland)  61,980  1,065,418 
Communications equipment (0.8%)    1,065,418 
Alcatel-Lucent (France) †  226,994  805,869 
Construction and engineering (1.4%)    805,869 
Vinci SA (France)  26,128  1,429,742 
Construction materials (0.5%)    1,429,742 
CRH PLC (Ireland)  21,828  525,166 
Diversified financial services (1.8%)    525,166 
Challenger, Ltd. (Australia)  228,504  1,203,765 
Eurazeo SA (France)  9,218  643,893 
Diversified telecommunication services (3.8%)    1,847,658 
Com Hem Holding AB (Sweden) †  47,642  382,551 
Nippon Telegraph & Telephone (NTT) Corp. (Japan)  8,700  447,685 
Spark New Zealand, Ltd. (New Zealand)  386,252  935,855 
Telecom Italia SpA RSP (Italy)  783,426  654,815 
Telstra Corp., Ltd. (Australia)  164,246  797,612 
Vivendi SA (France)  30,524  761,426 
    3,979,944 

 

COMMON STOCKS (95.8%)* cont.  Shares  Value 
Electronic equipment, instruments, and components (0.6%)   
Hitachi, Ltd. (Japan)  84,000  $614,650 
    614,650 
Food and staples retail (0.8%)     
Seven & i Holdings Co., Ltd. (Japan)  16,300  587,953 
WM Morrison Supermarkets PLC (United Kingdom)  74,624  212,378 
    800,331 
Food products (2.1%)     
Kerry Group PLC Class A (Ireland)  15,660  1,080,479 
Nestle SA (Switzerland)  15,134  1,109,346 
    2,189,825 
Gas utilities (1.2%)     
Tokyo Gas Co., Ltd. (Japan)  237,000  1,278,891 
    1,278,891 
Hotels, restaurants, and leisure (1.5%)     
TUI AG (Germany) † S  95,710  1,537,981 
    1,537,981 
Household durables (2.0%)     
Panasonic Corp. (Japan)  110,100  1,293,529 
Skyworth Digital Holdings, Ltd. (China)  1,516,000  821,019 
    2,114,548 
Household products (1.2%)     
Henkel AG & Co. KGaA (Preference) (Germany)  11,354  1,228,214 
    1,228,214 
Industrial conglomerates (3.2%)     
Siemens AG (Germany)  17,518  1,986,720 
Toshiba Corp. (Japan)  327,000  1,384,648 
    3,371,368 
Insurance (8.1%)     
ACE, Ltd.  9,765  1,121,803 
Admiral Group PLC (United Kingdom)  13,357  273,533 
AIA Group, Ltd. (Hong Kong)  198,800  1,094,684 
Allianz SE (Germany)  4,469  742,541 
AXA SA (France)  61,076  1,410,644 
Intact Financial Corp. (Canada)  12,800  923,808 
Prudential PLC (United Kingdom)  87,836  2,021,295 
SCOR SE (France)  29,038  878,770 
    8,467,078 
Internet software and services (0.4%)     
Alibaba Group Holding, Ltd. ADR (China) † S  4,321  449,125 
    449,125 
Media (3.0%)     
Atresmedia Corporacion de Medios de Comunicacion     
SA (Spain)  35,659  501,544 
Liberty Global PLC Ser. C (United Kingdom)  21,700  1,048,327 
WPP PLC (United Kingdom)  76,073  1,578,225 
    3,128,096 
Metals and mining (1.7%)     
BHP Billiton, Ltd. (Australia)  31,544  748,494 
Fortescue Metals Group, Ltd. (Australia) S  133,512  294,219 
Glencore Xstrata PLC (United Kingdom)  167,931  772,944 
    1,815,657 
Multi-utilities (2.0%)     
Centrica PLC (United Kingdom)  277,354  1,193,720 
Veolia Environnement SA (France)  48,512  861,502 
    2,055,222 
Oil, gas, and consumable fuels (9.0%)     
BG Group PLC (United Kingdom)  28,796  383,296 
EnCana Corp. (Canada)  77,300  1,075,866 
Genel Energy PLC (United Kingdom) †  62,262  666,450 
Origin Energy, Ltd. (Australia)  72,723  686,291 
Royal Dutch Shell PLC Class A (United Kingdom)  141,433  4,730,546 
Suncor Energy, Inc. (Canada)  57,600  1,829,437 
    9,371,886 

 

Putnam VT International Value Fund   5 

 


COMMON STOCKS (95.8%)* cont.    Shares  Value 
Personal products (0.7%)       
Asaleo Care, Ltd. (Australia) †    541,537  $728,520 
      728,520 
Pharmaceuticals (9.1%)       
Astellas Pharma, Inc. (Japan)    132,000  1,837,124 
AstraZeneca PLC (United Kingdom)    24,854  1,748,371 
Bayer AG (Germany)    9,917  1,355,747 
GlaxoSmithKline PLC (United Kingdom)    43,217  924,630 
Sanofi (France)    39,707  3,618,734 
      9,484,606 
Professional services (0.3%)       
Recruit Holdings Co., Ltd. (Japan) †    12,000  339,738 
      339,738 
Real estate investment trusts (REITs) (1.8%)       
Hibernia REIT PLC (Ireland) †    1,203,243  1,575,650 
Shopping Centres Australasia Property Group       
(Australia)    237,616  358,611 
      1,934,261 
Real estate management and development (2.3%)     
Hongkong Land Holdings, Ltd. (Hong Kong)    109,000  733,646 
Mitsui Fudosan Co., Ltd. (Japan)    36,000  968,239 
Sumitomo Realty & Development Co., Ltd. (Japan)    20,000  681,309 
      2,383,194 
Specialty retail (0.7%)       
Kingfisher PLC (United Kingdom)    135,717  715,176 
      715,176 
Technology hardware, storage, and peripherals (1.7%)     
Konica Minolta Holdings, Inc. (Japan)    58,400  629,936 
Samsung Electronics Co., Ltd. (South Korea)    979  1,176,809 
      1,806,745 
Tobacco (2.1%)       
Japan Tobacco, Inc. (Japan)    60,900  1,672,197 
Philip Morris International, Inc.    6,800  553,860 
      2,226,057 
Trading companies and distributors (1.7%)       
ITOCHU Corp. (Japan)    51,900  554,897 
Mitsubishi Corp. (Japan)    65,500  1,201,262 
      1,756,159 
Transportation infrastructure (0.5%)       
Sumitomo Warehouse Co., Ltd. (The) (Japan)    92,000  494,158 
      494,158 
Wireless telecommunication services (2.3%)       
SoftBank Corp. (Japan)    8,100  482,049 
Vodafone Group PLC (United Kingdom)    578,818  1,983,297 
      2,465,346 
 
Total common stocks (cost $95,248,384)      $99,903,306 
 
U.S. TREASURY OBLIGATIONS (0.1%)*  Principal amount  Value 
U.S. Treasury Notes 2.000%, January 31, 2016 i    $112,000  $114,943 
Total U.S. treasury Obligations (cost $114,943)      $114,943 
 
    Principal   
SHORT-TERM INVESTMENTS (6.8%)*  amount/shares  Value 
Putnam Cash Collateral Pool, LLC 0.20% d  Shares  2,618,873  $2,618,873 
Putnam Short Term Investment Fund 0.10% L  Shares  3,222,827  3,222,827 
SSgA Prime Money Market Fund Class N 0.04% P  Shares  110,000  110,000 
U.S. Treasury Bills with an effective yield       
of 0.03%, April 9, 2015 Δ    $110,000  109,992 
U.S. Treasury Bills with an effective yield       

of zero %, February 19, 2015 Δ

   250,000  250,000 
U.S. Treasury Bills with an effective yield       

of 0.02%, February 26, 2015 Δ 

   200,000  199,995 

 

  Principal   
SHORT-TERM INVESTMENTS (6.8%)* cont.  amount/shares  Value 
U.S. Treasury Bills with an effective yield     

of 0.01%, February 5, 2015 Δ 

 $321,000  $320,998 
U.S. Treasury Bills with an effective yield     
of 0.01%, January 22, 2015  200,000  199,999 
U.S. Treasury Bills with an effective yield     
of 0.05%, January 8, 2015   110,000  109,999 
Total short-term investments (cost $7,142,680)    $7,142,683 
 
Total investments (cost $102,506,007)    $107,160,932 

 

Key to holding’s abbreviations

ADR  American Depository Receipts: represents ownership of foreign securities on deposit with a custodian bank
GDR  Global Depository Receipts: represents ownership of foreign securities on deposit with a custodian bank
 

 

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, 2014 through December 31, 2014 (the reporting period). Within the following notes to the portfolio, references to “ASC  820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures and references to “OTC”, if any, represent over-the-counter.

* Percentages indicated are based on net assets of $104,278,336.

† Non-income-producing security.

ΔΔ Security is restricted with regard to public resale. The total fair value of this security and any other restricted securities (excluding 144A securities), if any, held at the close of the reporting period was $375,285, or 0.4% of net assets.

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

d Affiliated company. 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.

F Security is valued at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for ASC 820 based on the securities’ valuation inputs. At the close of the reporting period, fair value pricing was also used for certain foreign securities in the portfolio (Note 1).

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

L Affiliated company (Note 5). The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.

P Security was pledged, or purchased with cash that was pledged, to the fund for collateral on certain derivative contracts. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period (Note 1).

S Security on loan, in part or in entirety, at the close of the reporting period (Note 1).

UR At the reporting period end, 4,100 shares owned by the fund were not formally entered on the company’s shareholder register, due to local restrictions on foreign ownership. While the fund has full title to these unregistered shares, these shares do not carry voting rights.

At the close of the reporting period, the fund maintained liquid assets totaling $732,965 to cover certain derivatives contracts.

6   Putnam VT International Value Fund 

 


DIVERSIFICATION BY COUNTRY 

Distribution of investments by country of risk at the close of the reporting period, excluding collateral received, if any (as a percentage of Portfolio Value):

United Kingdom  22.3%  China  1.2% 
Japan  20.4  Spain  1.2 
France  12.2  South Korea  1.1 
Germany  10.1  Belgium  1.0 
Australia  6.2  Norway  1.0 
United States  5.8  New Zealand  0.9 
Ireland  4.0  Singapore  0.8 
Canada  3.7  Italy  0.6 
Netherlands  2.9  Other  0.7 
Switzerland  2.1  Total  100.0% 
  
Hong Kong  1.8     
  

 

FORWARD CURRENCY CONTRACTS at 12/31/14 (aggregate face value $71,152,226)        Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
Bank of America N.A.             
  Australian Dollar  Buy  1/21/15  $2,089,916  $2,224,982  $(135,066) 
  Euro  Buy  3/18/15  220,011  227,196  (7,185) 
Barclays Bank PLC             
  Canadian Dollar  Sell  1/21/15  1,017,060  1,056,088  39,028 
  Hong Kong Dollar  Buy  2/13/15  1,758,385  1,758,506  (121) 
  Japanese Yen  Buy  2/13/15  119,347  141,527  (22,180) 
  Singapore Dollar  Buy  2/13/15  758,373  779,693  (21,320) 
  Swiss Franc  Buy  3/18/15  2,178,617  2,248,241  (69,624) 
Citibank, N.A.             
  British Pound  Buy  3/18/15  2,634,852  2,661,193  (26,341) 
  Canadian Dollar  Sell  1/21/15  1,124,694  1,166,812  42,118 
  Danish Krone  Buy  3/18/15  415,828  429,413  (13,585) 
  Euro  Sell  3/18/15  3,932,720  4,060,070  127,350 
  Japanese Yen  Buy  2/13/15  529,815  557,829  (28,014) 
  Japanese Yen  Sell  2/13/15  529,815  538,862  9,047 
Credit Suisse International             
  British Pound  Sell  3/18/15  2,574,414  2,600,545  26,131 
  Canadian Dollar  Sell  1/21/15  247,102  246,319  (783) 
  Euro  Sell  3/18/15  276,074  285,038  8,964 
  Japanese Yen  Buy  2/13/15  1,518,707  1,565,279  (46,572) 
  Japanese Yen  Sell  2/13/15  1,518,707  1,585,166  66,459 
  Norwegian Krone  Buy  3/18/15  697,147  749,904  (52,757) 
  Swedish Krona  Buy  3/18/15  570,425  599,445  (29,020) 
  Swiss Franc  Sell  3/18/15  245,247  253,062  7,815 
Deutsche Bank AG             
  Australian Dollar  Buy  1/21/15  201,824  216,105  (14,281) 
  British Pound  Sell  3/18/15  1,211,580  1,216,998  5,418 
  Euro  Buy  3/18/15  7,878,154  8,122,707  (244,553) 
HSBC Bank USA, National Association             
  British Pound  Sell  3/18/15  584,450  590,302  5,852 
  Canadian Dollar  Sell  1/21/15  1,396,317  1,447,958  51,641 
  Euro  Buy  3/18/15  1,154,425  1,175,199  (20,774) 
JPMorgan Chase Bank N.A.             
  British Pound  Buy  3/18/15  6,275,671  6,340,447  (64,776) 
  Canadian Dollar  Buy  1/21/15  995,206  1,010,594  (15,388) 

 

Putnam VT International Value Fund   7 

 


FORWARD CURRENCY CONTRACTS at 12/31/14 (aggregate face value $71,152,226) cont.      Unrealized 
    Contract  Delivery    Aggregate  appreciation/ 
Counterparty  Currency  type  date  Value  face value  (depreciation) 
JPMorgan Chase Bank N.A. cont.             
  Canadian Dollar  Sell  1/21/15  $995,206  $1,027,974  $32,768 
  Euro  Sell  3/18/15  188,045  173,986  (14,059) 
  Japanese Yen  Buy  2/13/15  1,136  1,196  (60) 
  Japanese Yen  Sell  2/13/15  1,136  1,155  19 
  New Zealand Dollar  Sell  1/21/15  752,886  744,514  (8,372) 
  Norwegian Krone  Sell  3/18/15  388,616  418,054  29,438 
  Singapore Dollar  Sell  2/13/15  39,371  17,060  (22,311) 
  Swedish Krona  Buy  3/18/15  593,880  624,068  (30,188) 
  Swiss Franc  Buy  3/18/15  3,112,670  3,212,277  (99,607) 
State Street Bank and Trust Co.             
  Australian Dollar  Sell  1/21/15  623,246  662,579  39,333 
  Canadian Dollar  Buy  1/21/15  271,021  280,502  (9,481) 
  Canadian Dollar  Sell  1/21/15  271,021  282,283  11,262 
  Euro  Buy  3/18/15  1,742,534  1,799,023  (56,489) 
  Hong Kong Dollar  Sell  2/13/15  285,613  285,668  55 
  Israeli Shekel  Buy  1/21/15  532,309  569,778  (37,469) 
  Japanese Yen  Buy  2/13/15  400,778  400,257  521 
  Swedish Krona  Buy  3/18/15  1,273,460  1,328,042  (54,582) 
  Swiss Franc  Sell  3/18/15  2,158,474  2,224,808  66,334 
UBS AG             
  British Pound  Sell  3/18/15  530,553  549,705  19,152 
  Canadian Dollar  Buy  1/21/15  208,471  217,119  (8,648) 
  Canadian Dollar  Sell  1/21/15  208,471  216,734  8,263 
  Euro  Sell  3/18/15  4,809,981  4,963,544  153,563 
  Swiss Franc  Sell  3/18/15  791,638  816,948  25,310 
WestPac Banking Corp.             
  British Pound  Sell  3/18/15  2,571,610  2,597,374  25,764 
  Euro  Sell  3/18/15  1,822,814  1,882,098  59,284 
Total            $(292,717) 

 

8   Putnam VT International Value Fund 

 


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*:       
Consumer discretionary  $2,586,308  $9,760,260  $— 
Consumer staples  553,860  7,612,422  — 
Energy  2,905,303  6,466,583  — 
Financials  3,411,911  28,170,554  375,285 
Health care  —  9,484,606  — 
Industrials  —  12,779,599  — 
Information technology  449,125  3,227,264  — 
Materials  —  2,340,823  — 
Telecommunication services  —  6,445,290  — 
Utilities  —  3,334,113  — 
Total common stocks  9,906,507  89,621,514  375,285 
U.S. treasury obligations  $—  $114,943  $— 
Short-term investments  3,332,827  3,809,856  — 
Totals by level  $13,239,334  $93,546,313  $375,285 
 
    Valuation inputs   
Other financial instruments:  Level 1  Level 2  Level 3 
Forward currency contracts  $—  $(292,717)  $— 
Totals by level  $—  $(292,717)  $— 


* Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.

During the reporting period, transfers within the fair value hierarchy, if any, (other than certain transfers involving non-U.S. equity securities as described in Note 1) did not represent, in the aggregate, more than 1% of the fund’s net assets measured as of the end of the period.

At the start and close of the reporting period, Level 3 investments in securities represented less than 1% of the fund’s net assets and were not considered a significant portion of the fund’s portfolio.

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

Putnam VT International Value Fund   9 

 


Statement of assets and liabilities
12/31/14

Assets   
Investment in securities, at value, including $2,460,190 of securities on loan (Note 1):   
Unaffiliated issuers (identified cost $96,664,307)  $101,319,232 
Affiliated issuers (identified cost $5,841,700) (Notes 1 and 5)  5,841,700 
Foreign currency (cost $5,072) (Note 1)  4,991 
Dividends, interest and other receivables  209,908 
Receivable for shares of the fund sold  8,837 
Receivable for investments sold  303,206 
Unrealized appreciation on forward currency contracts (Note 1)  860,889 
Foreign tax reclaim  80,891 
Prepaid assets  2,631 
Total assets  108,632,285 
 
Liabilities   
Payable for investments purchased  7,264 
Payable for shares of the fund repurchased  114,055 
Payable for compensation of Manager (Note 2)  61,509 
Payable for custodian fees (Note 2)  6,407 
Payable for investor servicing fees (Note 2)  7,093 
Payable for Trustee compensation and expenses (Note 2)  84,685 
Payable for administrative services (Note 2)  705 
Payable for distribution fees (Note 2)  9,742 
Unrealized depreciation on forward currency contracts (Note 1)  1,153,606 
Collateral on securities loaned, at value (Note 1)  2,618,873 
Collateral on certain derivative contracts, at value (Note 1)  224,943 
Other accrued expenses  65,067 
Total liabilities  4,353,949 
 
Net assets  $104,278,336 
 
Represented by   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $196,667,500 
Undistributed net investment income (Note 1)  1,540,965 
Accumulated net realized loss on investments and foreign currency transactions (Note 1)  (98,283,301) 
Net unrealized appreciation of investments and assets and liabilities in foreign currencies  4,353,172 
Total — Representing net assets applicable to capital shares outstanding  $104,278,336 
 
Computation of net asset value Class IA   
Net assets  $58,217,467 
Number of shares outstanding  5,829,191 
Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding)  $9.99 
 
Computation of net asset value Class IB   
Net assets  $46,060,869 
Number of shares outstanding  4,663,772 
Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding)  $9.88 

 

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

10   Putnam VT International Value Fund 

 


Statement of operations
Year ended 12/31/14

Investment income   
Dividends (net of foreign tax of $297,273)  $3,256,784 
Interest (including interest income of $1,565 from investments in affiliated issuers) (Note 5)  1,666 
Securities lending (Note 1)  83,145 
Total investment income  3,341,595 
 
Expenses   
Compensation of Manager (Note 2)  831,015 
Investor servicing fees (Note 2)  120,434 
Custodian fees (Note 2)  31,105 
Trustee compensation and expenses (Note 2)  4,993 
Distribution fees (Note 2)  130,482 
Administrative services (Note 2)  2,940 
Other  103,812 
Total expenses  1,224,781 
 
Expense reduction (Note 2)  (12,241) 
Net expenses  1,212,540 
 
Net investment income  2,129,055 
 
Net realized gain on investments (Notes 1 and 3)  10,420,470 
Net realized gain on swap contracts (Note 1)  480,954 
Net realized loss on foreign currency transactions (Note 1)  (614,664) 
Net unrealized depreciation of assets and liabilities in foreign currencies during the year  (208,515) 
Net unrealized depreciation of investments during the year  (23,172,661) 
Net loss on investments  (13,094,416) 
 
Net decrease in net assets resulting from operations  $(10,965,361) 

 

Statement of changes in net assets      
  Year ended  Year ended 
  12/31/14  12/31/13 
Increase (decrease) in net assets     
Operations:     
Net investment income  $2,129,055  $2,201,071 
Net realized gain on investments and foreign currency transactions  10,286,760  10,300,108 
Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies  (23,381,176)  11,975,741 
Net increase (decrease) in net assets resulting from operations  (10,965,361)  24,476,920 
Distributions to shareholders (Note 1):     
From ordinary income     
Net investment income     
Class IA  (1,069,066)  (2,074,384) 
Class IB  (720,721)  (970,346) 
Increase (decrease) from capital share transactions (Note 4)  (15,601,333)  859,226 
Total increase (decrease) in net assets  (28,356,481)  22,291,416 
Net assets:     
Beginning of year  132,634,817  110,343,401 
End of year (including undistributed net investment income of $1,540,965 and $1,616,296, respectively)  $104,278,336  $132,634,817 

 

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

Putnam VT International Value Fund   11 

 


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

          LESS               
INVESTMENT OPERATIONS:          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 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 (%)c,d Ratio of net investment income (loss) to average net assets (%) Portfolio turnover (%)
Class IA                         
12/31/14  $11.18  .20  (1.22)  (1.02)  (.17)  (.17)  $9.99  (9.29)  $58,217  .91  1.88  41 
12/31/13  9.39  .20  1.87  2.07  (.28)  (.28)  $11.18  22.63  74,948  .93  2.04  50 
12/31/12  7.96  .21  1.50  1.71  (.28)  (.28)  9.39  21.80  73,265  .94  2.50  36 
12/31/11  9.45  .21  (1.44)  (1.23)  (.26)  (.26)  7.96  (13.52)  72,563  .93  2.33  57 
12/31/10  9.10  .16  .50  .66  (.31)  (.31)  9.45  7.42  112,372  .91  1.87  52 
Class IB                         
12/31/14  $11.06  .17  (1.21)  (1.04)  (.14)  (.14)  $9.88  (9.49)  $46,061  1.16  1.63  41 
12/31/13  9.30  .16  1.85  2.01  (.25)  (.25)  $11.06  22.21  57,687  1.18  1.60  50 
12/31/12  7.87  .19  1.50  1.69  (.26)  (.26)  9.30  21.70  37,078  1.19  2.26  36 
12/31/11  9.35  .18  (1.43)  (1.25)  (.23)  (.23)  7.87  (13.78)  37,682  1.18  2.04  57 
12/31/10  9.01  .14  .49  .63  (.29)  (.29)  9.35  7.12  52,719  1.16  1.62  52 


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 and/or brokerage/service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.

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

12   Putnam VT International Value Fund 

 


Notes to financial statements 12/31/14

Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from January 1, 2014 through December 31, 2014.

Putnam VT International Value 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 goal of the fund is to seek capital growth. Current income is a secondary objective. The fund invests mainly in common stocks of large and midsize companies outside the United States, with a focus on value stocks. Value stocks are those that Putnam Management believes are currently undervalued by the market. If Putnam Management is correct and other investors recognize the value of the company, the price of its stock may rise. The fund invests mainly in developed countries, but may invest in emerging markets. Putnam Management may consider, among other factors, a company’s valuation, financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. The fund may also use derivatives, such as futures, options, certain foreign currency transactions, warrants and swap contracts, for both hedging and non-hedging purposes.

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.

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.

Note 1 — Significant accounting policies

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.

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.

Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and has delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.

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 under Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.

Investments in open-end investment companies (excluding exchange traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.

Market quotations are not considered to be readily available for certain debt obligations and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. 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 consider such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value, and are classified as Level 2 securities.

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 would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. 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. At the close of the reporting period, fair value pricing was used for certain foreign securities in the portfolio. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value and are classified as Level 2 securities.

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 in accordance with policies and procedures approved by the Trustees. 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, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.

To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. 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.

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, net of any applicable withholding taxes, is recorded on the accrual basis. Dividend income, net of any 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 value of the securities received. Dividends representing a return of capital or capital

Putnam VT International Value Fund   13 

 


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.

Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The fair 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.

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 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 fair value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in fair value is recorded as an unrealized gain or loss. 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 when the contract matures or by delivery of the currency. 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, if any, are listed after the fund’s portfolio.

Total return swap contracts The fund entered into OTC total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount, to manage exposure to specific sectors or industries.

To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. OTC total return swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain OTC total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.

OTC total return swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.

Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern OTC 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, is presented in the fund’s portfolio. Collateral posted to the fund which cannot be sold or repledged totaled $84,509 at the close of the reporting period.

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 $722,699 on open derivative contracts subject to the Master Agreements. Collateral posted by the fund at period end for these agreements totaled $439,989 and may include amounts related to unsettled agreements.

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 fair value of the securities loaned. The fair 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. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged to Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the fund received cash collateral of $2,618,873 and the value of securities loaned amounted to $2,460,190.

Interfund lending 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.

Lines of credit The fund participates, along with other Putnam funds, in a $392.5 million unsecured committed line of credit and a $235.5 million unsecured uncommitted line of credit, both provided by 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 0.04% of the committed line of credit and 0.04% of the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.11% 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.

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.

The fund is subject to the provisions of Accounting Standards Codification 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

14   Putnam VT International Value Fund 

 


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.

The fund may also be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.

At December 31, 2014, the fund had a capital loss carryover of $98,196,852 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   
Short-term  Long-term  Total  Expiration 
$49,839,291  N/A  $49,839,291  12/31/16 
48,357,561  N/A  48,357,561  12/31/17 


Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

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 from losses on wash sale transactions, from foreign currency gains and losses, from realized gains and losses on passive foreign investment companies, foreign tax credits, and from income on swap contracts. 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. At the close of the reporting period, the fund reclassified $414,599 to decrease undistributed net investment income and $414,599 to decrease accumulated net realized loss.

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  $12,413,998 
Unrealized depreciation  (7,845,522) 
Net unrealized appreciation  4,568,476 
Undistributed ordinary income  1,305,320 
Capital loss carryforward  (98,196,852) 
Cost for federal income tax purposes  $102,592,456 

 

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.

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 33.4% of the fund is owned by accounts of one insurance company.

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:

0.850%  of the first $5 billion, 
0.800%  of the next $5 billion, 
0.750%  of the next $10 billion, 
0.700%  of the next $10 billion, 
0.650%  of the next $50 billion, 
0.630%  of the next $50 billion, 
0.620%  of the next $100 billion and 
0.615%  of any excess thereafter. 

 

The fund’s shareholders approved the fund’s current management contract with Putnam Management effective February 27, 2014. Shareholders were asked to approve the fund’s management contract following the death on October 8, 2013 of The Honourable Paul G. Desmarais, who had controlled directly and indirectly a majority of the voting shares of Power Corporation of Canada, the ultimate parent company of Putnam Management. The substantive terms of the management contract, including terms relating to fees, are identical to the terms of the fund’s previous management contract and reflect the rates provided in the table above.

Putnam Management has contractually agreed, through June 30, 2015, 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, acquired fund fees and 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 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. During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:

Class IA  $68,220 
Class IB  52,214 
Total  $120,434 

 

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 not reduced under the expense offset arrangements and were reduced by $12,241 under the brokerage/ service arrangements.

Putnam VT International Value Fund   15 

 


Each Independent Trustee of the fund receives an annual Trustee fee, of which $65, 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, an indirect wholly-owned subsidiary of Putnam Investments, LLC, 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. During the reporting period, the class specific expenses related to distribution fees were as follows:

Class IB  $130,482 

 

Note 3 — Purchases and sales of securities

During the reporting period, cost of purchases and proceeds from sales, excluding short-term investments were as follows:

  Cost of purchases  Proceeds from sales 
Investments in securities, including TBA     
commitments (Long-term)  $48,642,406  $67,891,802 
U.S. government securities (Long-term)  —  — 
Total  $48,642,406  $67,891,802 

 

Note 4 — Capital shares

At the close of the reporting period, there were 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 12/31/14  Year ended 12/31/13  Year ended 12/31/14  Year ended 12/31/13 
 
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount 
Shares sold  109,190  $1,180,123  126,779  $1,257,178  370,017  $3,868,064  2,040,065  $20,158,394 
Shares issued in connection with                 
reinvestment of distributions  97,990  1,069,066  223,774  2,074,384  66,672  720,721  105,587  970,346 
  207,180  2,249,189  350,553  3,331,562  436,689  4,588,785  2,145,652  21,128,740 
Shares repurchased  (1,082,398)  (11,773,311)  (1,445,074)  (14,445,229)  (987,985)  (10,665,996)  (918,711)  (9,155,847) 
Net increase (decrease)  (875,218)  $(9,524,122)  (1,094,521)  $(11,113,667)  (551,296)  $(6,077,211)  1,226,941  $11,972,893 

 

Note 5 — Affiliated transactions

Transactions during the reporting period with Putnam Short Term Investment Fund, which is under common ownership and control, were as follows:

  Fair value at the beginning of        Fair value at the end of the 
Name of affiliate  the reporting period  Purchase cost  Sale proceeds  Investment income  reporting period 
Putnam Short Term Investment Fund*  $—  $43,969,596  $40,746,769  $1,565  $3,222,827 
Total  $—  $43,969,596  $40,746,769  $1,565  $3,222,827 


* Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management.

Note 6 — Market, credit and other risks

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. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations.

Note 7 — Summary of derivative activity

The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was as follows based on an average of the holdings at the end of each fiscal quarter:

Forward currency contracts (contract amount)  $79,900,000 
OTC total return swap contracts (notional)  $—* 


* For the reporting period, there were no holdings at the end of each fiscal quarter and the transactions were considered minimal.

 

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The following is a summary of the fair value of derivative instruments as of the close of the reporting period:

Fair value 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  Fair value  liabilities location  Fair value 
Foreign exchange contracts  Receivables  $860,889  Payables  $1,153,606 
Total     $860,889     $1,153,606 

 

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  Warrants  Forward currency contracts  Swaps  Total 
Foreign exchange contracts  $—  $(575,686)  $—  $(575,686) 
Equity contracts  1,995  —  480,954  482,949 
Total  $1,995  $(575,686)  $480,954  $(92,737) 

 

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  $(192,259)  $(192,259) 
Total  $(192,259)  $(192,259) 

 

Putnam VT International Value Fund   17 

 


Note 8 — Offsetting of financial and derivative assets and liabilities

The following table summarizes any derivatives, repurchase agreements and reverse repurchase agreements, at the end of the reporting period, that are subject to an enforceable master netting agreement or similar agreement. For securities lending transactions or borrowing transactions associated with securities sold short, if any, see Note 1. For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to the master netting agreements in the Statement of assets and liabilities.

  Bank of America N.A. Barclays Bank PLC Citibank, N.A. Credit Suisse International Deutsche Bank AG HSBC Bank USA, National Association JPMorgan Chase Bank N.A. State Street Bank and Trust Co. UBS AG WestPac Banking Corp. Total
Assets:                       
Forward currency contracts#  $—  $39,028  $178,515  $109,369  $5,418  $57,493  $62,225  $117,505  $206,288  $85,048  $860,889 
Total Assets  $—  $39,028  $178,515  $109,369  $5,418  $57,493  $62,225  $117,505  $206,288  $85,048  $860,889 
Liabilities:                       
Forward currency contracts #  142,251  113,245  67,940  129,132  258,834  20,774  254,761  158,021  8,648  —  1,153,606 
Total Liabilities  $142,251  $113,245  $67,940  $129,132  $258,834  $20,774  $254,761  $158,021  $8,648  $—  $1,153,606 
Total Financial and Derivative                       
Net Assets  $(142,251)  $(74,217)  $110,575  $(19,763)  $(253,416)  $36,719  $(192,536)  $(40,516)  $197,640  $85,048  $(292,717) 
Total collateral received (pledged)† ##  $(109,989)  $(20,000)  $110,000  $—  $(190,000)  $36,719  $(120,000)  $—  $84,509  $—   
Net amount  $(32,262)  $(54,217)  $575  $(19,763)  $(63,416)  $—  $(72,536)  $(40,516)  $113,131  $85,048   


† Additional collateral may be required from certain brokers based on individual agreements.

# Covered by master netting agreement (Note 1).

## Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements.

18   Putnam VT International Value Fund  Putnam VT International Value Fund   19 

 


Federal tax information (Unaudited)

For the reporting period, total interest and dividend income from foreign countries were $3,526,657 or $0.34 per share (for all classes of shares). Taxes paid to foreign countries were $297,273 or $0.03 per share (for all classes of shares).

The fund designated 1.23% of ordinary income distributions as qualifying for the dividends received deduction for corporations.

20   Putnam VT International Value Fund 

 


Shareholder meeting results (Unaudited)

February 27, 2014 special meeting

At the meeting, each of the nominees for Trustees was elected, with all funds of the Trust voting together as a single class, as follows:

  Votes for  Votes withheld 
Liaquat Ahamed  545,333,593  24,865,496 
Ravi Akhoury  545,906,178  24,292,911 
Barbara M. Baumann  549,255,821  20,943,268 
Jameson A. Baxter  548,878,213  21,320,877 
Charles B. Curtis  548,266,326  21,932,764 
Robert J. Darretta  548,954,413  21,244,676 
Katinka Domotorffy  547,720,210  22,478,879 
John A. Hill  548,926,132  21,272,957 
Paul L. Joskow  548,318,739  21,880,351 
Kenneth R. Leibler  549,128,017  21,071,073 
Robert E. Patterson  548,989,554  21,209,535 
George Putnam, III  548,805,405  21,393,685 
Robert L. Reynolds  549,170,754  21,028,335 
W. Thomas Stephens  548,523,544  21,675,546 

 

A proposal to approve a new management contract between the fund and Putnam Management was approved as follows:

Votes for  Votes against  Abstentions  Broker non-votes 
10,380,434  434,101  1,231,566  — 

 

A proposal to adopt an Amended and Restated Declaration of Trust was approved, with all funds of the Trust voting together as a single class, as follows:

Votes for  Votes against  Abstentions  Broker non-votes 
507,595,281  19,452,349  43,151,459  — 

 

All tabulations are rounded to the nearest whole number.

Putnam VT International Value Fund   21 

 


About the Trustees


22   Putnam VT International Value Fund 

 


 

*Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund and Putnam Investments. 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.

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

As of December 31, 2014, there were 116 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 75, removal, or death.

Officers

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

Jonathan S. Horwitz (Born 1955)  Michael J. Higgins (Born 1976)  James P. Pappas (Born 1953) 
Executive Vice President, Principal Executive  Vice President, Treasurer, and Clerk  Vice President 
Officer, and Compliance Liaison  Since 2010  Since 2004 
Since 2004  Manager of Finance, Dunkin’ Brands  Director of Trustee Relations, 
  (2008–2010); Senior Financial Analyst, Old  Putnam Investments and 
Steven D. Krichmar (Born 1958)  Mutual Asset Management (2007–2008);  Putnam Management 
Vice President and Principal Financial Officer  Senior Financial Analyst, Putnam Investments   
Since 2002  (1999–2007)  Mark C. Trenchard (Born 1962) 
Chief of Operations, Putnam Investments and    Vice President and BSA Compliance Officer 
Putnam Management  Janet C. Smith (Born 1965)  Since 2002 
  Vice President, Principal Accounting Officer,  Director of Operational Compliance, 
Robert T. Burns (Born 1961)  and Assistant Treasurer  Putnam Investments and 
Vice President and Chief Legal Officer  Since 2007  Putnam Retail Management 
Since 2011  Director of Fund Administration Services,   
General Counsel, Putnam Investments,  Putnam Investments and  Nancy E. Florek (Born 1957) 
Putnam Management, and  Putnam Management Vice President, Director of Proxy Voting and 
Putnam Retail Management   Corporate Governance, Assistant Clerk, and
  Susan G. Malloy (Born 1957)  Associate Treasurer 
Robert R. Leveille (Born 1969)  Vice President and Assistant Treasurer  Since 2000 
Vice President and Chief Compliance Officer  Since 2007   
Since 2007  Director of Accounting & Control   
Chief Compliance Officer,  Services, Putnam Investments and   
Putnam Investments, Putnam Management,  Putnam Management   
and Putnam Retail 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.

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24   Putnam VT International Value 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, 2014, are available in the Individual Investors section of putnam.com and on the Securities and Exchange Commission’s (SEC) website, www.sec.gov. If you have questions about finding forms on the SEC’s website, 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 Form N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Form 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 website or the operation of the Public Reference Room.

Fund information

Investment Manager  Investor Servicing Agent  Trustees 
Putnam Investment Management, LLC  Putnam Investor Services, Inc.  Jameson A. Baxter, Chair 
One Post Office Square  Mailing address:  Liaquat Ahamed 
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  Katinka Domotorffy
London, England SW1A 1LD  State Street Bank and Trust Company  John A. Hill
    Paul L. Joskow
Investment Sub-Advisor  Legal Counsel  Kenneth R. Leibler
The Putnam Advisory Company, LLC  Ropes & Gray LLP  Robert E. Patterson
One Post Office Square    George Putnam, III
Boston, MA 02109  Independent Registered  Robert L. Reynolds
  Public Accounting Firm  W. Thomas Stephens
Marketing Services  PricewaterhouseCoopers LLP
Putnam Retail Management   
One Post Office Square     
Boston, MA 02109     

 

The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.

Putnam VT International Value Fund   25 

 

 

 

 

 

 

 

 

 

 

 

 


 

   
This report has been prepared for the shareholders    H515 
of Putnam VT International Value Fund.  VTAN024  292435  2/15 

 

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 July 2013, the Code of Ethics of Putnam Investment Management, LLC was amended. The changes to the Code of Ethics were as follows: (i) eliminating the requirement for employees to hold their shares of Putnam mutual funds for specified periods of time, (ii) removing the requirement to preclear transactions in certain kinds of exchange-traded funds and exchange-traded notes, although reporting of all such instruments remains required; (iii) eliminating the excessive trading rule related to employee transactions in securities requiring preclearance under the Code; (iv) adding provisions related to monitoring of employee trading; (v) changing from a set number of shares to a set dollar value of stock of mid- and large-cap companies on the Restricted List that can be purchased or sold; (vi) adding a requirement starting in March 2014 for employees to generally use certain approved brokers that provide Putnam with an electronic feed of transactions and statements for their personal brokerage accounts; and (vii) certain other changes.

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. 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, and the funds’ amended and restated agreement and Declaration of Trust provides, 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 year ended Audit Fees Audit-Related Fees Tax Fees All Other Fees
December 31, 2014 $38,737 $ — $6,711 $ —
December 31, 2013 $36,083 $ — $4,937 $ —

For the fiscal years ended December 31, 2014 and December 31, 2013, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $568,776 and $ 154,937 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.

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 year ended Audit-Related Fees Tax Fees All Other Fees Total Non-Audit Fees
December 31, 2014 $ — $562,065 $ — $ —
December 31, 2013 $ — $150,000 $ — $ —

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 27, 2015
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 27, 2015
By (Signature and Title):
/s/ Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: February 27, 2015