| 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, 2015 |
| Date of reporting period : | January 1, 2015 — December 31, 2015 |
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:
As 2016 gets under way, a number of factors in today’s markets stand out. Last year, the U.S. Federal Reserve announced a liftoff in short-term interest rates. The first increase took place in December, but the Fed has said that future hikes will likely occur at a gradual pace. Meanwhile, central banks in Europe and Japan continue to run accommodative monetary policies. China’s economy, the world’s second largest, is slowing, with global ramifications. In addition, the price of a barrel of oil is testing multi-year lows.
This combination of factors tempered the performance of stocks in 2015 after a string of solid annual gains over the previous three years. Should the economy continue to grow, stocks could rise, but it would be prudent to be prepared for bouts of volatility in the months ahead.
Managing downside risk while pursuing returns in today’s investing environment poses a challenge. Putnam’s experienced portfolio managers are constantly seeking innovative ways to maneuver in today’s markets, relying on a proprietary global research framework to guide their investment decisions. The interview on the following pages provides an overview of your fund’s performance for the reporting period ended December 31, 2015, as well as an outlook for the coming months.
We also encourage you to consult your financial advisor to ensure that your portfolio is in line with your investment goals, time horizon, and risk tolerance.
Performance summary (as of 12/31/15)
Investment objective
Long-term growth of capital
Net asset value December 31, 2015
| Class IA: $16.70 | Class IB: $16.54 |
|
| |
Total return at net asset value
| (as of 12/31/15) | Class IA shares* | Class IB shares* | Russell 2500 Index |
|
| |||
| 1 year | –7.37% | –7.61% | –2.90% |
|
| |||
| 5 years | 44.19 | 42.42 | 63.44 |
| Annualized | 7.59 | 7.33 | 10.32 |
|
| |||
| 10 years | 86.09 | 81.46 | 107.17 |
| Annualized | 6.41 | 6.14 | 7.56 |
|
| |||
| Life | 217.23 | 207.31 | 269.06 |
| Annualized | 9.54 | 9.27 | 10.86 |
|
| |||
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
* Class inception date: May 1, 2003.
The Russell 2500 Index is an unmanaged index of 2,500 small and midsize companies in the Russell 3000 Index.
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. 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 portfolio schedule included in the financial statements due to the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
| Putnam VT Capital Opportunities Fund 1 |
Report from your fund’s managers
What was the investment environment like for stocks for the 12-month reporting period ended December 31, 2015?
The 12-month reporting period ended December 31, 2015 was quite challenging for stocks as increased market volatility and macroeconomic pressures resulted in a correction for many major indexes by year-end. China’s economic slowdown and the continued slide in oil and commodity prices added to growing worries about the direction of global growth. In August, China’s unexpected devaluation of the yuan sparked a dramatic selloff in the markets, and investors retreated to the sidelines. The markets recovered dramatically in October, only to see those gains evaporate in November and December for higher-risk assets.
Still, U.S. growth remained positive, and the Federal Reserve took the first step on the path of gradual normalization of interest rates and raised its short-term benchmark rate on December 16. Investors initially cheered the rate hike, but the final weeks of 2015 saw increased volatility and a flight to safe havens, as investors considered the slump in commodity prices, troubles in the high-yield market, continued weakness in China and emerging markets, and the future pace of Fed rate increases. During 2015, large-cap stocks outperformed small- and mid-cap stocks, and growth stocks outperformed value stocks.
How did Putnam VT Capital Opportunities Fund perform during the 12-month reporting period ended December 31, 2015?
Putnam VT Capital Opportunities Fund underperformed its benchmark, the Russell 2500 Index, during the reporting period. The underperformance was driven primarily by the fund’s consumer discretionary and financial stock holdings. Poor stock selection in both sectors detracted from results. OFG Bancorp, a financial holding company, and ION Geophysical, an energy drilling company, were top detractors for the reporting period. Subsequently, the fund’s holdings in ION Geophysical were sold by period’s end. Sector allocation decisions and stock selection in materials and health care aided performance. Overall, top contributors to performance included JetBlue Airways, which benefited from lower oil prices, as well as Emergent BioSolutions and Chemed in the health-care sector.
Did you make any shifts in the fund’s allocation during the reporting period?
We reduced the fund’s exposure to energy companies. Many small-and mid-cap energy companies have a significant amount of debt and do not generate a lot of free cash flow. We became concerned that some of these companies might go out of business due to the decline in oil prices. As of period-end, the fund held an underweight position in the energy sector relative to the benchmark.
We invested in other sectors including consumer spending, information technology, and health care. In the area of consumer spending, the sector was challenged at the beginning of the period. It appeared that whatever cost savings were achieved from lower oil prices were being used by consumers for debt reduction. At period-end, the fund was also overweight relative to the benchmark in information technology companies, which typically have strong balance sheets and generate solid free cash flows, in our view. Within health care, the fund’s holdings were largely focused in the areas of medical device manufacturing and health-care service providers.
What is your outlook as 2016 begins?
As we saw in the second half of 2015 and the opening weeks of 2016, equity markets faced increased headwinds, which were largely driven by concerns about struggling emerging markets, especially China. At the same time, however, the U.S. economy had been strengthening, providing a supportive backdrop for U.S. equities. U.S. gross domestic product [GDP] grew at a 2% seasonally adjusted annual rate in the third quarter, supported by strong employment and consumer spending. Downward revisions of the original estimate reflected the revenue-dampening effects of a strong U.S. dollar for export sectors and weakness in the energy and metals/mining sectors. The number of new jobs created in the fourth quarter was significantly better than expected, and wage growth had shown signs of picking up. Even though we expected fourth-quarter GDP to weaken slightly with annualized growth of approximately 1%, we do think the pace of growth will return to 2% in 2016.
The slowdown in China’s economy, the world’s second largest, has been generating a lot of uncertainty. However, the United States, the world’s largest economy, is well into its recovery, which has been bolstering the U.S. dollar. While the stronger dollar tends to weigh on profitability for large companies, we expect a more muted impact on the small- and mid-cap companies in the fund’s portfolio, which typically generate less revenues overseas.
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: Investments in small and/or midsize companies increase the risk of greater price fluctuations. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. Stock prices may fall or fail to rise over time for several reasons, including general financial market conditions and factors related to a specific company or industry. You can lose money by investing in the fund.
Your fund’s managers
Portfolio Manager Joseph P. Joseph, CFA, joined Putnam in 1994 and has been in the investment industry since 1987.
In addition to Joe, your fund’s portfolio managers are Randy J. Farina, CFA, and John McLanahan, CFA.
Your fund’s managers 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 Capital Opportunities 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 Expenses per $1,000 table show the expenses you would have paid on a $1,000 investment in your fund from 7/1/15 to 12/31/15. 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 Expenses 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 | |
|
| ||
| Net expenses for the fiscal year ended | ||
| 12/31/14*† | 0.89% | 1.14% |
|
| ||
| Total annual operating expenses for the | ||
| fiscal year ended 12/31/14† | 0.90% | 1.15% |
|
| ||
| Annualized expense ratio for the | ||
| six-month period ended 12/31/15‡ | 0.92% | 1.17% |
|
| ||
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.
Expenses are shown as a percentage of average net assets.
*Reflects Putnam Management’s contractual obligation to limit expenses through 4/30/16.
†Restated to reflect current fees.
‡Fort hef und’sm ostr ecentf iscalh alfy ear;m ayd ifferf rome xpenser atios based on one-year data in the financial highlights.
Expenses 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 12/31/15 | for the 6 months ended 12/31/15 | |||||||
|
| ||||||||
| Class IA | Class IB | Class IA | Class IB | |||||
|
| ||||||||
| Expenses paid | ||||||||
| per $1,000*† | $4.48 | $5.69 | $4.69 | $5.96 | ||||
|
| ||||||||
| Ending value | ||||||||
| (after expenses) | $931.90 | $930.80 | $1,020.57 | $1,019.31 | ||||
|
| ||||||||
*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 12/31/15. 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 Capital Opportunities Fund 3 |
Report of Independent Registered Public Accounting Firm
To the Trustees of Putnam Variable Trust and Shareholders of
Putnam VT Capital Opportunities 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 Capital Opportunities Fund (the “fund”) at December 31, 2015, 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, 2015 by correspondence with the custodian, brokers, and transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2016
| 4 Putnam VT Capital Opportunities Fund |
The fund’s portfolio 12/31/15
| COMMON STOCKS (99.5%)* | Shares | Value |
|
| ||
| Aerospace and defense (1.9%) | ||
| Huntington Ingalls Industries, Inc. | 1,710 | $216,914 |
|
| ||
| Spirit AeroSystems Holdings, Inc. Class A † | 5,565 | 278,640 |
|
| ||
| 495,554 | ||
| Airlines (4.2%) | ||
| Alaska Air Group, Inc. | 4,395 | 353,841 |
|
| ||
| Allegiant Travel Co. | 1,370 | 229,927 |
|
| ||
| JetBlue Airways Corp. † S | 23,225 | 526,046 |
|
| ||
| 1,109,814 | ||
| Auto components (5.7%) | ||
| Autoliv, Inc. (Sweden) S | 1,725 | 215,228 |
|
| ||
| Cooper Tire & Rubber Co. | 9,715 | 367,713 |
|
| ||
| Dana Holding Corp. | 17,610 | 243,018 |
|
| ||
| Lear Corp. | 3,555 | 436,661 |
|
| ||
| Tenneco, Inc. † | 5,020 | 230,468 |
|
| ||
| 1,493,088 | ||
| Banks (4.3%) | ||
| Comerica, Inc. | 7,120 | 297,830 |
|
| ||
| OFG Bancorp (Puerto Rico) | 34,770 | 254,516 |
|
| ||
| PacWest Bancorp | 4,740 | 204,294 |
|
| ||
| Popular, Inc. (Puerto Rico) | 5,322 | 150,825 |
|
| ||
| Wilshire Bancorp, Inc. | 20,035 | 231,404 |
|
| ||
| 1,138,869 | ||
| Biotechnology (4.6%) | ||
| Emergent BioSolutions, Inc. † | 14,515 | 580,743 |
|
| ||
| Myriad Genetics, Inc. † S | 8,735 | 377,003 |
|
| ||
| United Therapeutics Corp. † | 1,630 | 255,274 |
|
| ||
| 1,213,020 | ||
| Capital markets (5.6%) | ||
| AllianceBernstein Holding LP | 11,475 | 273,679 |
|
| ||
| Associated Capital Group, Inc. † | 1,450 | 44,225 |
|
| ||
| GAMCO Investors, Inc. Class A | 1,450 | 45,008 |
|
| ||
| Lazard, Ltd. Class A | 3,450 | 155,285 |
|
| ||
| OM Asset Management PLC (United Kingdom) | 12,735 | 195,228 |
|
| ||
| Piper Jaffray Cos. † | 3,440 | 138,976 |
|
| ||
| SEI Investments Co. | 8,595 | 450,378 |
|
| ||
| Waddell & Reed Financial, Inc. Class A | 5,689 | 163,047 |
|
| ||
| 1,465,826 | ||
| Chemicals (1.0%) | ||
| Cabot Corp. | 6,420 | 262,450 |
|
| ||
| 262,450 | ||
| Commercial services and supplies (1.9%) | ||
| ACCO Brands Corp. † | 33,390 | 238,071 |
|
| ||
| Deluxe Corp. | 3,395 | 185,163 |
|
| ||
| Herman Miller, Inc. | 2,990 | 85,813 |
|
| ||
| 509,047 | ||
| Communications equipment (5.2%) | ||
| ARRIS Group, Inc. † | 12,400 | 379,068 |
|
| ||
| Brocade Communications Systems, Inc. | 54,145 | 497,051 |
|
| ||
| F5 Networks, Inc. † | 2,020 | 195,859 |
|
| ||
| Polycom, Inc. † | 23,975 | 301,845 |
|
| ||
| 1,373,823 | ||
| Construction and engineering (0.9%) | ||
| EMCOR Group, Inc. | 4,990 | 239,720 |
|
| ||
| 239,720 | ||
| Containers and packaging (1.4%) | ||
| Owens-Illinois, Inc. † | 4,830 | 84,139 |
|
| ||
| Packaging Corp. of America | 4,640 | 292,552 |
|
| ||
| 376,691 | ||
| Diversified consumer services (4.7%) | ||
| Apollo Education Group, Inc. Class A † | 13,050 | 100,094 |
|
| ||
| DeVry Education Group, Inc. | 6,610 | 167,299 |
|
| ||
| COMMON STOCKS (99.5%)* cont. | Shares | Value |
|
| ||
| Diversified consumer services cont. | ||
| H&R Block, Inc. | 8,983 | $299,224 |
|
| ||
| Strayer Education, Inc. † | 11,395 | 685,067 |
|
| ||
| 1,251,684 | ||
| Diversified financial services (2.3%) | ||
| FactSet Research Systems, Inc. | 3,710 | 603,135 |
|
| ||
| 603,135 | ||
| Electric utilities (1.1%) | ||
| Westar Energy, Inc. | 7,135 | 302,595 |
|
| ||
| 302,595 | ||
| Electronic equipment, instruments, and components (4.6%) | ||
| Arrow Electronics, Inc. † | 3,585 | 194,235 |
|
| ||
| Ingram Micro, Inc. Class A | 10,270 | 312,003 |
|
| ||
| Jabil Circuit, Inc. | 13,230 | 308,127 |
|
| ||
| ScanSource, Inc. † | 7,585 | 244,389 |
|
| ||
| Tech Data Corp. † | 2,430 | 161,303 |
|
| ||
| 1,220,057 | ||
| Energy equipment and services (0.6%) | ||
| Helmerich & Payne, Inc. | 1,485 | 79,522 |
|
| ||
| Oil States International, Inc. † | 2,995 | 81,614 |
|
| ||
| 161,136 | ||
| Food products (1.2%) | ||
| Pilgrim’s Pride Corp. S | 7,005 | 154,740 |
|
| ||
| Sanderson Farms, Inc. S | 2,095 | 162,404 |
|
| ||
| 317,144 | ||
| Gas utilities (1.4%) | ||
| Atmos Energy Corp. | 2,030 | 127,971 |
|
| ||
| UGI Corp. | 6,907 | 233,180 |
|
| ||
| 361,151 | ||
| Health-care equipment and supplies (3.2%) | ||
| Analogic Corp. | 2,705 | 223,433 |
|
| ||
| Greatbatch, Inc. † | 5,700 | 299,250 |
|
| ||
| ResMed, Inc. | 6,015 | 322,945 |
|
| ||
| 845,628 | ||
| Health-care providers and services (7.0%) | ||
| Chemed Corp. | 3,395 | 508,571 |
|
| ||
| LHC Group, Inc. † | 3,390 | 153,533 |
|
| ||
| MEDNAX, Inc. † | 4,355 | 312,079 |
|
| ||
| Owens & Minor, Inc. | 6,435 | 231,531 |
|
| ||
| Patterson Cos., Inc. S | 7,200 | 325,512 |
|
| ||
| Select Medical Holdings Corp. | 25,900 | 308,469 |
|
| ||
| 1,839,695 | ||
| Health-care technology (0.4%) | ||
| Veeva Systems, Inc. Class A † S | 3,535 | 101,985 |
|
| ||
| 101,985 | ||
| Hotels, restaurants, and leisure (1.2%) | ||
| Cheesecake Factory, Inc. (The) | 6,582 | 303,496 |
|
| ||
| 303,496 | ||
| Household products (0.2%) | ||
| Energizer Holdings, Inc. | 1,680 | 57,221 |
|
| ||
| 57,221 | ||
| Insurance (5.3%) | ||
| Assurant, Inc. | 3,360 | 270,614 |
|
| ||
| Horace Mann Educators Corp. | 10,290 | 341,422 |
|
| ||
| Torchmark Corp. | 3,585 | 204,919 |
|
| ||
| Validus Holdings, Ltd. | 8,640 | 399,946 |
|
| ||
| W.R. Berkley Corp. | 3,340 | 182,865 |
|
| ||
| 1,399,766 | ||
| Internet software and services (0.7%) | ||
| IAC/InterActive Corp. | 3,070 | 184,354 |
|
| ||
| 184,354 | ||
| IT Services (3.2%) | ||
| CSG Systems International, Inc. S | 11,715 | 421,506 |
|
| ||
| ManTech International Corp. Class A | 9,345 | 282,593 |
|
| ||
| Syntel, Inc. † | 2,890 | 130,773 |
|
| ||
| 834,872 | ||
| Putnam VT Capital Opportunities Fund 5 |
| COMMON STOCKS (99.5%)* cont. | Shares | Value |
|
| ||
| Machinery (4.1%) | ||
| AGCO Corp. S | 2,510 | $113,929 |
|
| ||
| Federal Signal Corp. | 18,700 | 296,395 |
|
| ||
| Hyster-Yale Materials Handling, Inc. | 1,725 | 90,476 |
|
| ||
| Oshkosh Corp. | 6,555 | 255,907 |
|
| ||
| Terex Corp. | 4,945 | 91,384 |
|
| ||
| Wabash National Corp. † | 13,915 | 164,614 |
|
| ||
| WABCO Holdings, Inc. † | 730 | 74,650 |
|
| ||
| 1,087,355 | ||
| Metals and mining (0.3%) | ||
| Commercial Metals Co. | 6,530 | 89,396 |
|
| ||
| 89,396 | ||
| Multi-utilities (0.7%) | ||
| Vectren Corp. | 4,655 | 197,465 |
|
| ||
| 197,465 | ||
| Multiline retail (0.7%) | ||
| Dillards, Inc. Class A | 2,700 | 177,417 |
|
| ||
| 177,417 | ||
| Paper and forest products (1.1%) | ||
| Domtar Corp. (Canada) S | 7,570 | 279,712 |
|
| ||
| 279,712 | ||
| Personal products (0.7%) | ||
| Herbalife, Ltd. † S | 3,210 | 172,120 |
|
| ||
| 172,120 | ||
| Pharmaceuticals (0.5%) | ||
| Jazz Pharmaceuticals PLC † | 290 | 40,762 |
|
| ||
| Lannett Co., Inc. † S | 2,205 | 88,465 |
|
| ||
| 129,227 | ||
| Professional services (2.4%) | ||
| ManpowerGroup, Inc. | 1,235 | 104,098 |
|
| ||
| Navigant Consulting, Inc. † | 17,535 | 281,612 |
|
| ||
| Robert Half International, Inc. | 1,770 | 83,438 |
|
| ||
| RPX Corp. † | 15,535 | 170,885 |
|
| ||
| 640,033 | ||
| Real estate investment trusts (REITs) (0.6%) | ||
| Ryman Hospitality Properties | 1,690 | 87,272 |
|
| ||
| Xenia Hotels & Resorts, Inc. | 4,525 | 69,368 |
|
| ||
| 156,640 | ||
| Real estate management and development (1.8%) | ||
| Jones Lang LaSalle, Inc. | 2,955 | 472,386 |
|
| ||
| 472,386 | ||
| Road and rail (1.5%) | ||
| ArcBest Corp. | 10,370 | 221,814 |
|
| ||
| Landstar System, Inc. | 3,020 | 177,123 |
|
| ||
| 398,937 | ||
| Semiconductors and semiconductor equipment (4.9%) | ||
| Lam Research Corp. | 5,591 | 444,037 |
|
| ||
| Marvell Technology Group, Ltd. | 12,625 | 111,353 |
|
| ||
| Skyworks Solutions, Inc. | 5,705 | 438,315 |
|
| ||
| Teradyne, Inc. | 14,655 | 302,919 |
|
| ||
| 1,296,624 | ||
| COMMON STOCKS (99.5%)* cont. | Shares | Value |
|
| ||
| Specialty retail (6.1%) | ||
| Aaron’s, Inc. | 4,495 | $100,643 |
|
| ||
| Ascena Retail Group, Inc. † | 4,327 | 42,621 |
|
| ||
| Cato Corp. (The) Class A | 3,147 | 115,873 |
|
| ||
| DSW, Inc. Class A | 6,445 | 153,778 |
|
| ||
| Express, Inc. † | 5,310 | 91,757 |
|
| ||
| GameStop Corp. Class A S | 10,410 | 291,896 |
|
| ||
| Hibbett Sports, Inc. † S | 2,750 | 83,160 |
|
| ||
| Michaels Cos., Inc. (The) † | 15,545 | 343,700 |
|
| ||
| Select Comfort Corp. † | 14,240 | 304,878 |
|
| ||
| Zumiez, Inc. † | 5,150 | 77,868 |
|
| ||
| 1,606,174 | ||
| Textiles, apparel, and luxury goods (0.3%) | ||
| Deckers Outdoor Corp. † S | 1,486 | 70,139 |
|
| ||
| 70,139 | ||
| Total common stocks (cost $23,023,624) | $26,235,446 | |
| SHORT-TERM INVESTMENTS (11.0%) | Shares | Value |
|
| ||
| Putnam Cash Collateral Pool, LLC 0.44% d | 2,707,235 | $2,707,235 |
|
| ||
| Putnam Short Term Investment Fund 0.33% L | 186,767 | 186,767 |
|
| ||
| Total short-term investments (cost $2,894,002) | $2,894,002 | |
| Total investments (cost $25,917,626) | $29,129,448 | |
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, 2015 through December 31, 2015 (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 $26,357,108.
† This security is non-income-producing.
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.
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.
S Security on loan, in part or in entirety, at the close of the reporting period (Note 1).
| 6 Putnam VT Capital Opportunities 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 | $4,901,998 | $— | $— | |||
|
| ||||||
| Consumer staples | 546,485 | — | — | |||
|
| ||||||
| Energy | 161,136 | — | — | |||
|
| ||||||
| Financials | 5,236,622 | — | — | |||
|
| ||||||
| Health care | 4,129,555 | — | — | |||
|
| ||||||
| Industrials | 4,480,460 | — | — | |||
|
| ||||||
| Information technology | 4,909,730 | — | — | |||
|
| ||||||
| Materials | 1,008,249 | — | — | |||
|
| ||||||
| Utilities | 861,211 | — | — | |||
|
| ||||||
| Total common stocks | 26,235,446 | — | — | |||
|
| ||||||
| Short-term investments | 186,767 | 2,707,235 | — | |||
|
| ||||||
| Totals by level | $26,422,213 | $2,707,235 | $— | |||
|
| ||||||
* 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. Transfers are accounted for using the end of period pricing valuation method.
The accompanying notes are an integral part of these financial statements.
| Putnam VT Capital Opportunities Fund 7 |
Statement of assets and liabilities
12/31/15
| Assets | |
|
| |
| Investment in securities, at value, including $2,612,756 of securities on loan (Note 1): | |
|
| |
| Unaffiliated issuers (identified cost $23,023,624) | $26,235,446 |
|
| |
| Affiliated issuers (identified cost $2,894,002) (Notes 1 and 5) | 2,894,002 |
|
| |
| Cash | 21,604 |
|
| |
| Dividends, interest and other receivables | 44,261 |
|
| |
| Receivable for shares of the fund sold | 5,449 |
|
| |
| Total assets | 29,200,762 |
| Liabilities | |
|
| |
| Payable for shares of the fund repurchased | 39,969 |
|
| |
| Payable for compensation of Manager (Note 2) | 14,219 |
|
| |
| Payable for custodian fees (Note 2) | 9,698 |
|
| |
| Payable for investor servicing fees (Note 2) | 2,927 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 34,825 |
|
| |
| Payable for administrative services (Note 2) | 203 |
|
| |
| Payable for distribution fees (Note 2) | 2,946 |
|
| |
| Collateral on securities loaned, at value (Note 1) | 2,707,235 |
|
| |
| Other accrued expenses | 31,632 |
|
| |
| Total liabilities | 2,843,654 |
| Net assets | $26,357,108 |
| Represented by | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $22,386,165 |
|
| |
| Undistributed net investment income (Note 1) | 273,053 |
|
| |
| Accumulated net realized gain on investments | 486,068 |
|
| |
| Net unrealized appreciation of investments | 3,211,822 |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $26,357,108 |
| Computation of net asset value Class IA | |
|
| |
| Net assets | $12,730,644 |
|
| |
| Number of shares outstanding | 762,278 |
|
| |
| Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding) | $16.70 |
|
| |
| Computation of net asset value Class IB | |
|
| |
| Net assets | $13,626,464 |
|
| |
| Number of shares outstanding | 823,757 |
|
| |
| Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding) | $16.54 |
|
| |
The accompanying notes are an integral part of these financial statements.
| 8 Putnam VT Capital Opportunities Fund |
Statement of operations
Year ended 12/31/15
| Investment income | |
|
| |
| Dividends (net of foreign tax of $1,949) | $526,196 |
|
| |
| Interest (including interest income of $378 from investments in affiliated issuers) (Note 5) | 378 |
|
| |
| Securities lending (Note 1) | 71,224 |
|
| |
| Total investment income | 597,798 |
| Expenses | |
|
| |
| Compensation of Manager (Note 2) | 187,826 |
|
| |
| Investor servicing fees (Note 2) | 21,267 |
|
| |
| Custodian fees (Note 2) | 15,707 |
|
| |
| Trustee compensation and expenses (Note 2) | 1,907 |
|
| |
| Distribution fees (Note 2) | 38,529 |
|
| |
| Administrative services (Note 2) | 783 |
|
| |
| Auditing and tax fees | 26,696 |
|
| |
| Other | 14,604 |
|
| |
| Total expenses | 307,319 |
| Expense reduction (Note 2) | (273) |
|
| |
| Net expenses | 307,046 |
| Net investment income | 290,752 |
| Net realized gain on investments (Notes 1 and 3) | 522,095 |
|
| |
| Net unrealized depreciation of investments during the year | (3,026,486) |
|
| |
| Net loss on investments | (2,504,391) |
| Net decrease in net assets resulting from operations | $(2,213,639) |
Statement of changes in net assets
| Year ended | Year ended | |
| 12/31/15 | 12/31/14 | |
|
| ||
| Decrease in net assets | ||
|
| ||
| Operations: | ||
|
| ||
| Net investment income | $290,752 | $168,327 |
|
| ||
| Net realized gain on investments | 522,095 | 4,249,144 |
|
| ||
| Net unrealized depreciation of investments and assets and liabilities | (3,026,486) | (2,037,174) |
|
| ||
| Net increase (decrease) in net assets resulting from operations | (2,213,639) | 2,380,297 |
|
| ||
| Distributions to shareholders (Note 1): | ||
|
| ||
| From ordinary income | ||
|
| ||
| Net investment income | ||
|
| ||
| Class IA | (97,453) | (74,644) |
|
| ||
| Class IB | (54,545) | (33,543) |
|
| ||
| Net realized short-term gain on investments | ||
|
| ||
| Class IA | (286,788) | (275,725) |
|
| ||
| Class IB | (287,905) | (275,945) |
|
| ||
| From net realized long-term gain on investments | ||
|
| ||
| Class IA | (1,833,419) | (2,894,351) |
|
| ||
| Class IB | (1,840,565) | (2,896,662) |
|
| ||
| Increase from capital share transactions (Note 4) | 196,059 | 319,066 |
|
| ||
| Total decrease in net assets | (6,418,255) | (3,751,507) |
|
| ||
| Net assets: | ||
|
| ||
| Beginning of year | 32,775,363 | 36,526,870 |
|
| ||
| End of year (including undistributed net investment income of $273,053 and $160,790, respectively) | $26,357,108 | $32,775,363 |
|
| ||
The accompanying notes are an integral part of these financial statements.
| Putnam VT Capital Opportunities Fund 9 |
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
| Period ended | Net asset value, beginning of period | Net investment income (loss)a | Net realized and unrealized gain (loss) on investments | Total from investment operations | From net investment income | From net realized gain on investments | Total distributions | Non-recurring reimbursements | 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 | ||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/15 | $20.83 | .20 | (1.45) | (1.25) | (.13) | (2.75) | (2.88) | — | $16.70 | (7.37) | $12,731 | .89 | 1.09 | 21 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/14 | 23.55 | .13 | 1.41 | 1.54 | (.10) | (4.16) | (4.26) | — | 20.83 | 7.36 | 16,453 | .92e | .61e | 58 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/13 | 17.67 | .09 | 5.95 | 6.04 | (.16) | — | (.16) | — | 23.55 | 34.33 | 18,510 | .91 | .43 | 75 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/12 | 15.50 | .15 | 2.13 | 2.28 | (.11) | — | (.11) | — | 17.67 | 14.69 | 15,888 | .91 | .86 | 44 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/11 | 16.52 | .10f | (1.06) | (.96) | (.06) | — | (.06) | —g,h | 15.50 | (5.88) | 16,392 | .94e | .63e,f | 35 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| Class IB | ||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/15 | $20.65 | .15 | (1.44) | (1.29) | (.07) | (2.75) | (2.82) | — | $16.54 | (7.61) | $13,626 | 1.14 | .83 | 21 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/14 | 23.39 | .07 | 1.39 | 1.46 | (.04) | (4.16) | (4.20) | — | 20.65 | 7.05 | 16,322 | 1.17e | .36e | 58 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/13 | 17.54 | .04 | 5.92 | 5.96 | (.11) | — | (.11) | — | 23.39 | 34.10 | 18,016 | 1.16 | .18 | 75 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/12 | 15.39 | .10 | 2.11 | 2.21 | (.06) | — | (.06) | — | 17.54 | 14.37 | 14,651 | 1.16 | .62 | 44 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
| 12/31/11 | 16.41 | .06f | (1.06) | (1.00) | (.02) | — | (.02) | —g,h | 15.39 | (6.11) | 15,310 | 1.19e | .37e,f | 35 | ||||||||||||||
|
| ||||||||||||||||||||||||||||
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.
e Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| 12/31/14 | 0.01% |
|
| |
| 12/31/11 | 0.04 |
|
| |
f Reflects a dividend received by the fund from a single issuer which amounted to the following amounts:
| Percentage of | ||
| Per share | average net assets | |
|
| ||
| Class IA | $0.06 | 0.34% |
|
| ||
| Class IB | 0.05 | 0.33 |
|
| ||
g Amount represents less than $0.01 per share.
h Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the Securities and Exchange Commission (the SEC) which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursement related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011.
The accompanying notes are an integral part of these financial statements.
| 10 Putnam VT Capital Opportunities Fund |
Notes to financial statements 12/31/15
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, 2015 through December 31, 2015.
Putnam VT Capital Opportunities 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 long-term growth of capital. The fund invests mainly in common stocks (growth or value stocks or both) of small and midsize U.S. companies that Putnam Management believes have favorable investment potential. For example, the fund may purchase stocks of companies with stock prices that reflect a value lower than that which Putnam Management places on the company. Putnam Management may also consider other factors that Putnam Management believes will cause the stock price to rise and 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 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 have 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.
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. 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 gains, if any, are reflected as a reduction of cost and/or as a realized gain.
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 remaining maturities of the securities lending transactions are considered overnight and continuous. 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 $2,707,235 and the value of securities loaned amounted to $2,612,756.
| Putnam VT Capital Opportunities Fund 11 |
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 syndicated unsecured committed line of credit provided by State Street ($292.5 million) and Northern Trust Company ($100 million) and a $235.5 million unsecured uncommitted line of credit 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 higher of (1) the Federal Funds rate and (2) the overnight LIBOR 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 0.16% 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 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.
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 a redesignation of taxable income and from partnership income. 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 $26,491 to decrease undistributed net investment income, $4,120 to decrease paid-in capital and $30,611 to increase accumulated net realized gain.
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 | $5,648,669 |
| Unrealized depreciation | (2,481,031) |
|
| |
| Net unrealized appreciation | 3,167,638 |
| Undistributed ordinary income | 273,055 |
| Undistributed long-term gain | 530,253 |
|
| |
| Cost for federal income tax purposes | $25,961,810 |
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 31.6% 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:
| 0.780% | of the first $5 billion, |
| 0.730% | of the next $5 billion, |
| 0.680% | of the next $10 billion, |
| 0.630% | of the next $10 billion, |
| 0.580% | of the next $50 billion, |
| 0.560% | of the next $50 billion, |
| 0.550% | of the next $100 billion and |
| 0.545% | of any excess thereafter. |
Putnam Management has contractually agreed, through April 30, 2017, 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 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 0.07% (0.10% prior to January 1, 2015) of the fund’s average daily net assets. During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:
| Class IA | $10,475 |
| Class IB | 10,792 |
|
| |
| Total | $21,267 |
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 $273 under the brokerage/service arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $17, 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
| 12 Putnam VT Capital Opportunities Fund |
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 | $38,529 |
Note 3 — Purchases and sales of securities
During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:
| Cost of purchases | Proceeds from sales | |
|
| ||
| Investments in securities (Long-term) | $6,169,096 | $8,413,355 |
|
| ||
| U.S. government securities (Long-term) | — | — |
|
| ||
| Total | $6,169,096 | $8,413,355 |
|
| ||
The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.
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 12/31/15 | Year ended 12/31/14 | Year ended 12/31/15 | Year ended 12/31/14 | |||||
|
| ||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |
|
| ||||||||
| Shares sold | 35,547 | $667,296 | 35,340 | $753,207 | 39,775 | $739,218 | 94,345 | $1,983,937 |
|
| ||||||||
| Shares issued in connection with | ||||||||
| reinvestment of distributions | 119,615 | 2,217,660 | 162,806 | 3,244,720 | 118,642 | 2,183,015 | 162,009 | 3,206,150 |
|
| ||||||||
| 155,162 | 2,884,956 | 198,146 | 3,997,927 | 158,417 | 2,922,233 | 256,354 | 5,190,087 | |
|
| ||||||||
| Shares repurchased | (182,646) | (3,335,131) | (194,232) | (4,020,889) | (124,972) | (2,275,999) | (236,426) | (4,848,059) |
|
| ||||||||
| Net increase (decrease) | (27,484) | $(450,175) | 3,914 | $(22,962) | 33,445 | $646,234 | 19,928 | $342,028 |
|
| ||||||||
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* | $202,943 | $4,403,374 | $4,419,550 | $378 | $186,767 |
|
| |||||
| Total | $202,943 | $4,403,374 | $4,419,550 | $378 | $186,767 |
|
| |||||
* 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.
| Putnam VT Capital Opportunities Fund 13 |
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $586,735 as a capital gain dividend with respect to the taxable year ended December 31, 2015, or, if subsequently determined to be different, the net capital gain of such year.
The fund designated 100% of ordinary income distributions as qualifying for the dividends received deduction for corporations.
| 14 Putnam VT Capital Opportunities Fund |
About the Trustees
| Putnam VT Capital Opportunities Fund 15 |
*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, 2015, there were 117 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 Putnam |
| Vice President and Chief Legal Officer | Since 2007 | 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 | Putnam Management | Vice President, Director of Proxy Voting and |
| Retail Management | Corporate Governance, Assistant Clerk, and | |
| Susan G. Malloy (Born 1957) | Associate Treasurer | |
| James F. Clark (Born 1974) | Vice President and Assistant Treasurer | Since 2000 |
| Chief Compliance Officer | Since 2007 | |
| Since 2016 | Director of Accounting & Control | |
| Associate General Counsel, Putnam | Services, Putnam Investments and | |
| Investments, Putnam Investment | Putnam Management | |
| Management, and Putnam Retail | ||
| Management (2003–2015) |
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.
| 16 Putnam VT Capital Opportunities 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, 2015, 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 | Robert J. Darretta |
| Putnam Investments Limited | Katinka Domotorffy | |
| 57–59 St James’s Street | Custodian | John A. Hill |
| London, England SW1A 1LD | State Street Bank and Trust Company | Paul L. Joskow |
| Kenneth R. Leibler | ||
| Marketing Services | Legal Counsel | Robert E. Patterson |
| Putnam Retail Management | Ropes & Gray LLP | George Putnam, III |
| One Post Office Square | Robert L. Reynolds | |
| Boston, MA 02109 | Independent Registered | W. Thomas Stephens |
| Public Accounting Firm | ||
| PricewaterhouseCoopers LLP |
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 Capital Opportunities Fund 17 |
| This report has been prepared for the shareholders | H501 | |
| of Putnam VT Capital Opportunities Fund. | VTAN068 298648 2/16 | |
| 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 November 2015, the Code of Ethics of Putnam Investment Management, LLC was amended. The key changes to the Code of Ethics are as follows: (i) Non-Access Persons are no longer required to pre-clear their trades, (ii) a new provision governing conflicts of interest has been added, (iii) modifying certain provisions of the pre-clearance requirements, Contra-Trading Rule and 60-Day Short-Term Rule, (iv) modifying and adding language relating to reporting of unethical or illegal acts, including anti-retaliation provision, and (v) certain other changes. |
| Item 3. Audit Committee Financial Expert: |
| The Funds’ Audit, Compliance and Distributions 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, Compliance and Distributions 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. Darretta, Mr. Patterson, Mr. Hill, 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, Compliance and Distribution 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, 2015 | $23,374 | $ — | $3,309 | $ — | |
| December 31, 2014 | $22,743 | $ — | $3,238 | $ — | |
| For the fiscal years ended December 31, 2015 and December 31, 2014, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $745,902 and $565,303 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, Compliance and Distributions Committee. The Audit, Compliance and Distributions 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, Compliance and Distributions 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, 2015 | $ — | $742,593 | $ — | $ — | |
| December 31, 2014 | $ — | $562,065 | $ — | $ — | |
| 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 26, 2016 |
| 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 26, 2016 |
| By (Signature and Title): |
| /s/ Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: February 26, 2016 |