| 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: | 100 Federal Street, Boston, Massachusetts 02110 |
| Name and address of agent for service: | Robert T. Burns, Vice President 100 Federal Street Boston, Massachusetts 02110 |
| 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, 2020 |
| Date of reporting period: | January 1, 2020 — June 30, 2020 |
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: | |||
IMPORTANT NOTICE: Delivery of paper fund reports
In accordance with regulations adopted by the Securities and Exchange Commission, beginning on or after January 1, 2021, at the election of your insurance provider, you may not receive paper reports like this one in the mail from the insurance provider that offers your variable annuity contract or variable life insurance policy unless you specifically request it. Instead, they will be available on a website, and your insurance provider will notify you by mail whenever a new one is available, and provide you with a website link to access the report.
If you wish to continue to receive paper reports free of charge after January 1, 2021, please contact your insurance provider.
If you already receive these reports electronically, no action is required.
Message from the Trustees
August 10, 2020
Dear Shareholder:
Financial markets worldwide continue to be challenged by economic uncertainty and high unemployment due to the COVID-19 pandemic. In addition, our nation is struggling with confusion, anger, and grief over horrific acts of racism and brutality in our country and with the overall issue of systemic racial injustice. Your Board of Trustees and Putnam Investments stand united against oppression and racism. We will work to support thoughtful and resourceful actions to elevate both our workplace and society.
Also, we would like to take this opportunity to thank Robert E. Patterson, who retired as a Trustee on June 30, 2020, for his 36 years of service. We will miss Bob’s experienced judgment and insights, and we wish him well. We are also pleased to welcome Mona K. Sutphen to the Board. Ms. Sutphen brings extensive professional and directorship experience to her role as a Trustee.
As always, thank you for investing with Putnam.
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. Growth stocks may be more susceptible to earnings disappointments, and value stocks may fail to rebound. 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. The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political or financial market conditions, investor sentiment and market perceptions, government actions, geopolitical events or changes, and factors related to a specific issuer, geography, industry or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.
Performance summary (as of 6/30/20)
Investment objective
Capital appreciation
Net asset value June 30, 2020
| Class IA: $18.09 | Class IB: $17.91 |
Total return at net asset value
| MSCI World | |||
| (as of 6/30/20) | Class IA shares* | Class IB shares† | Index (ND) |
| 6 months | –7.35% | –7.41% | –5.77% |
| 1 year | 0.89 | 0.66 | 2.84 |
| 5 years | 26.55 | 25.01 | 39.59 |
| Annualized | 4.82 | 4.57 | 6.90 |
| 10 years | 155.61 | 149.36 | 158.28 |
| Annualized | 9.84 | 9.57 | 9.95 |
| Life | 526.86 | 488.00 | 618.81 |
| Annualized | 6.27 | 6.05 | 6.78 |
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
* Class inception date: May 1, 1990.
† Class inception date: April 30, 1998.
The MSCI World Index (ND) is an unmanaged index of equity securities from developed countries. Calculated with net dividends (ND), this total return index reflects the reinvestment of dividends after the deduction of withholding taxes, using a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.
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, the exclusion of as-of trades, if any, and rounding. Holdings and allocations may vary over time.
| Putnam VT Global Equity Fund | 1 |
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. In the most recent six-month period, your fund’s expenses were limited; had expenses not been limited, they would have been higher. 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 1/1/20 to 6/30/20. 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, a ssuming 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 | ||
| 12/31/19*† | 0.81% | 1.06% |
| Total annual operating expenses for the fiscal | ||
| year ended 12/31/19† | 0.86% | 1.11% |
| Annualized expense ratio for the six-month | ||
| period ended 6/30/20 | 0.81% | 1.06% |
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 certain fund expenses through 4/30/21.
†Restated to reflect current fees.
Expenses per $1,000
| Expenses and value for a | ||||||||
| Expenses and value for a | $1,000 investment, assuming | |||||||
| $1,000 investment, assuming | a hypothetical 5% annualized | |||||||
| actual returns for the | return for the 6 months | |||||||
| 6 months ended 6/30/20 | ended 6/30/20 | |||||||
| Class IA | Class IB | Class IA | Class IB | |||||
| Expenses paid | ||||||||
| per $1,000*† | $3.88 | $5.08 | $4.07 | $5.32 | ||||
| Ending value | ||||||||
| (after | ||||||||
| expenses) | $926.50 | $925.90 | $1,020.84 | $1,019.59 | ||||
*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 6/30/20. 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.
Your fund’s managers
Portfolio Manager Shep Perkins, CFA, is Chief Investment Officer, Equities. He joined Putnam in 2011 and has been in the investment industry since 1993.
Jacquelyne J. Cavanaugh and Walter D. Scully, CPA, are also Portfolio Managers of the fund.
Your fund’s managers also manage other accounts advised by Putnam Management or an affiliate, including retail mutual fund counterparts to the funds in Putnam Variable Trust.
| 2 | Putnam VT Global Equity Fund |
ABOUT DERIVATIVES
Derivatives are an increasingly common type of investment instrument, the performance of which is derived from an underlying security, index, currency, or other area of the capital markets. Derivatives employed by the fund’s managers generally serve one of two main purposes: to implement a strategy that may be difficult or more expensive to invest in through traditional securities, or to hedge unwanted risk associated with a particular position.
For example, the fund’s managers might use currency forward contracts to capitalize on an anticipated change in exchange rates between two currencies. This approach would require a significantly smaller outlay of capital than purchasing traditional bonds denominated in the underlying currencies. In another example, the managers may identify a bond that they believe is undervalued relative to its risk of default, but may seek to reduce the interest-rate risk of that bond by using interest-rate swaps, a derivative through which two parties “swap” payments based on the movement of certain rates. In other examples, the managers may use options and futures contracts to hedge against a variety of risks by establishing a combination of long and short exposures to specific equity markets or sectors.
Like any other investment, derivatives may not appreciate in value and may lose money. Derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities. And because derivatives typically represent contractual agreements between two financial institutions, derivatives entail “counterparty risk,” which is the risk that the other party is unable or unwilling to pay. Putnam monitors the counterparty risks we assume. For example, Putnam often enters into collateral agreements that require the counterparties to post collateral on a regular basis to cover their obligations to the fund. Counterparty risk for exchange-traded futures and centrally cleared swaps is mitigated by the daily exchange of margin and other safeguards against default through their respective clearinghouses.
| Putnam VT Global Equity Fund | 3 |
The fund’s portfolio 6/30/20 (Unaudited)
| COMMON STOCKS (97.9%)* | Shares | Value |
| Banks (2.2%) | ||
| Bank of America Corp. | 114,738 | $2,725,028 |
| Citigroup, Inc. | 28,400 | 1,451,240 |
| 4,176,268 | ||
| Beverages (3.1%) | ||
| Asahi Group Holdings, Ltd. (Japan) | 94,700 | 3,317,648 |
| PepsiCo, Inc. | 19,500 | 2,579,070 |
| 5,896,718 | ||
| Biotechnology (2.3%) | ||
| Regeneron Pharmaceuticals, Inc. † | 3,235 | 2,017,508 |
| Vertex Pharmaceuticals, Inc. † | 7,843 | 2,276,901 |
| 4,294,409 | ||
| Building products (1.2%) | ||
| Fortune Brands Home & Security, Inc. | 35,668 | 2,280,255 |
| 2,280,255 | ||
| Chemicals (1.7%) | ||
| Sherwin-Williams Co. (The) | 5,500 | 3,178,175 |
| 3,178,175 | ||
| Commercial services and supplies (1.8%) | ||
| A-Living Services Co., Ltd. Class H (China) | 157,500 | 794,755 |
| Waste Connections, Inc. | 27,021 | 2,534,300 |
| 3,329,055 | ||
| Construction and engineering (0.9%) | ||
| Kyudenko Corp. (Japan) | 58,600 | 1,728,343 |
| 1,728,343 | ||
| Construction materials (1.1%) | ||
| Summit Materials, Inc. Class A † | 130,256 | 2,094,516 |
| 2,094,516 | ||
| Containers and packaging (3.0%) | ||
| Ball Corp. | 30,200 | 2,098,598 |
| SIG Combibloc Group AG (Switzerland) | 213,440 | 3,449,584 |
| 5,548,182 | ||
| Distributors (0.8%) | ||
| PALTAC Corp. (Japan) | 32,900 | 1,508,678 |
| 1,508,678 | ||
| Diversified financial services (0.7%) | ||
| Eurazeo SA (France) † | 27,093 | 1,387,412 |
| 1,387,412 | ||
| Electric utilities (4.9%) | ||
| NRG Energy, Inc. | 281,103 | 9,152,714 |
| 9,152,714 | ||
| Electrical equipment (1.0%) | ||
| Eaton Corp. PLC | 22,200 | 1,942,056 |
| 1,942,056 | ||
| Entertainment (1.5%) | ||
| Activision Blizzard, Inc. | 37,400 | 2,838,660 |
| 2,838,660 | ||
| Food and staples retail (1.8%) | ||
| Walmart, Inc. | 28,700 | 3,437,686 |
| 3,437,686 | ||
| Food products (6.8%) | ||
| Kerry Group PLC Class A (Ireland) | 25,952 | 3,228,608 |
| Nestle SA (Switzerland) | 33,087 | 3,655,293 |
| Nomad Foods, Ltd. (United Kingdom) † | 273,871 | 5,874,533 |
| 12,758,434 | ||
| Health-care equipment and supplies (3.4%) | ||
| Baxter International, Inc. | 16,600 | 1,429,260 |
| Boston Scientific Corp. † | 42,900 | 1,506,219 |
| Danaher Corp. | 19,786 | 3,498,758 |
| 6,434,237 | ||
| Hotels, restaurants, and leisure (0.7%) | ||
| Compass Group PLC (United Kingdom) | 89,655 | 1,233,395 |
| 1,233,395 |
| COMMON STOCKS (97.9%)* cont. | Shares | Value |
| Household durables (1.4%) | ||
| HC Brillant Services GmbH (acquired 8/2/13, | ||
| cost $4) (Private) (Germany) † ∆∆ F | 6 | $5 |
| Lennar Corp. Class A | 42,369 | 2,610,778 |
| 2,610,783 | ||
| Insurance (5.4%) | ||
| Assured Guaranty, Ltd. | 151,923 | 3,708,440 |
| AXA SA (France) † | 101,546 | 2,119,174 |
| Prudential PLC (United Kingdom) | 113,252 | 1,705,537 |
| QBE Insurance Group, Ltd. (Australia) | 424,029 | 2,606,755 |
| 10,139,906 | ||
| Interactive media and services (1.9%) | ||
| Alphabet, Inc. Class C † | 2,579 | 3,645,700 |
| 3,645,700 | ||
| Internet and direct marketing retail (6.0%) | ||
| Alibaba Group Holding, Ltd. ADR (China) † | 7,800 | 1,682,460 |
| Amazon.com, Inc. † | 3,489 | 9,625,523 |
| 11,307,983 | ||
| IT Services (6.7%) | ||
| Fidelity National Information Services, Inc. | 14,900 | 1,997,941 |
| Fiserv, Inc. † | 22,390 | 2,185,712 |
| GoDaddy, Inc. Class A † | 32,533 | 2,385,645 |
| PayPal Holdings, Inc. † | 11,400 | 1,986,222 |
| Visa, Inc. Class A S | 20,958 | 4,048,457 |
| 12,603,977 | ||
| Life sciences tools and services (2.1%) | ||
| Bio-Rad Laboratories, Inc. Class A † | 3,100 | 1,399,619 |
| Thermo Fisher Scientific, Inc. | 6,900 | 2,500,146 |
| 3,899,765 | ||
| Media (1.2%) | ||
| Cogeco Communications, Inc. (Canada) | 30,600 | 2,204,616 |
| 2,204,616 | ||
| Metals and mining (2.5%) | ||
| Newmont Corp. | 33,700 | 2,080,638 |
| Wheaton Precious Metals Corp. (Canada) | 61,000 | 2,687,050 |
| 4,767,688 | ||
| Oil, gas, and consumable fuels (3.5%) | ||
| Cenovus Energy, Inc. (Canada) | 594,808 | 2,782,138 |
| Enterprise Products Partners LP | 107,418 | 1,951,785 |
| Williams Cos., Inc. (The) | 100,500 | 1,911,510 |
| 6,645,433 | ||
| Pharmaceuticals (3.7%) | ||
| AstraZeneca PLC (United Kingdom) | 27,421 | 2,858,548 |
| Novartis AG (Switzerland) | 27,945 | 2,428,160 |
| Royalty Pharma PLC Class A † | 35,535 | 1,725,224 |
| 7,011,932 | ||
| Real estate management and development (1.4%) | ||
| Open House Co., Ltd. (Japan) | 78,400 | 2,685,690 |
| 2,685,690 | ||
| Road and rail (3.1%) | ||
| Uber Technologies, Inc. † | 43,311 | 1,346,106 |
| Union Pacific Corp. | 26,059 | 4,405,795 |
| 5,751,901 | ||
| Semiconductors and semiconductor equipment (2.9%) | ||
| Micron Technology, Inc. † | 38,000 | 1,957,760 |
| Taiwan Semiconductor Manufacturing Co., Ltd. ADR | ||
| (Taiwan) | 24,800 | 1,407,896 |
| Texas Instruments, Inc. | 15,759 | 2,000,920 |
| 5,366,576 | ||
| Software (10.0%) | ||
| Adobe, Inc. † | 7,636 | 3,324,027 |
| Dynatrace, Inc. † | 61,800 | 2,509,080 |
| Microsoft Corp. | 39,286 | 7,995,094 |
| ServiceNow, Inc. † | 11,951 | 4,840,872 |
| 18,669,073 | ||
| 4 | Putnam VT Global Equity Fund |
| COMMON STOCKS (97.9%)* cont. | Shares | Value |
| Specialty retail (2.9%) | ||
| Advance Auto Parts, Inc. | 14,202 | $2,023,075 |
| Lowe’s Cos., Inc. | 24,583 | 3,321,655 |
| 5,344,730 | ||
| Technology hardware, storage, and peripherals (1.2%) | ||
| Samsung Electronics Co., Ltd. (South Korea) | 50,346 | 2,231,794 |
| 2,231,794 | ||
| Thrifts and mortgage finance (0.8%) | ||
| Radian Group, Inc. | 93,427 | 1,449,053 |
| 1,449,053 | ||
| Trading companies and distributors (2.3%) | ||
| Ashtead Group PLC (United Kingdom) | 80,526 | 2,706,985 |
| Yellow Cake PLC 144A (United Kingdom) † | 582,719 | 1,526,558 |
| 4,233,543 | ||
| Total common stocks (cost $159,229,622) | $183,789,336 | |
| U.S. TREASURY OBLIGATIONS (—%)* | Principal amount | Value |
| U.S. Treasury Notes 2.00%, 7/31/22 i | $60,000 | $62,791 |
| Total U.S. treasury obligations (cost $62,791) | $62,791 | |
| Principal amount/ | ||
| SHORT-TERM INVESTMENTS (3.9%)* | shares | Value |
| Putnam Cash Collateral Pool, LLC 0.27% d | Shares 3,299,725 | $3,299,725 |
| Putnam Short Term Investment | ||
| Fund 0.41% L | Shares 3,631,363 | 3,631,363 |
| State Street Institutional U.S. Government | ||
| Money Market Fund, Premier Class 0.12% P | Shares 230,000 | 230,000 |
| U.S. Treasury Bills 1.530%, 7/16/20 | $79,000 | 78,996 |
| U.S. Treasury Bills 0.014%, 9/24/20 ∆ | 110,000 | 109,962 |
| U.S. Treasury Bills 0.005%, 9/10/20 ∆ | 15,000 | 14,996 |
| Total short-term investments (cost $7,365,035) | $7,365,042 | |
| Total investments (cost $166,657,448) | $191,217,169 | |
Key to holding’s abbreviations
| ADR | American 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, 2020 through June 30, 2020 (the reporting period). Within the following notes to the portfolio, 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 “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures.
* Percentages indicated are based on net assets of $187,653,513.
† This security is non-income-producing.
∆∆ This 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 $5, or less than 0.1% of net assets.
∆ 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. Collateral at period end totaled $110,967 and is included in Investments in securities on the Statement of assets and liabilities (Notes 1 and 9).
d Affiliated company. See Notes 1 and 5 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 This security is valued by Putnam Management at fair value following procedures approved by the Trustees. Securities are classified as 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 This 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 This 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.
S Security on loan, in part or in entirety, at the close of the reporting period (Note 1).
At the close of the reporting period, the fund maintained liquid assets totaling $183,336 to cover certain derivative contracts.
Unless otherwise noted, the rates quoted in Short-term investments security descriptions represent the weighted average yield to maturity.
144A after the name of an issuer represents securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
The dates shown on debt obligations are the original maturity dates.
| 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 States | 69.2% | Australia | 1.4% | |
| United Kingdom | 8.5 | China | 1.3 | |
| Switzerland | 5.1 | South Korea | 1.2 | |
| Japan | 4.9 | Taiwan | 0.7 | |
| Canada | 4.1 | Germany | <0.1 | |
| France | 1.9 | Total | 100.0% | |
| Ireland | 1.7 |
⌂ Methodology differs from that used for purposes of complying with the fund’s policy regarding investments in securities of foreign issuers, as discussed further in the fund’s prospectus.
| Putnam VT Global Equity Fund | 5 |
| FORWARD CURRENCY CONTRACTS at 6/30/20 (aggregate face value $56,938,395) (Unaudited) | Unrealized | |||||
| Contract | Delivery | Aggregate | appreciation/ | |||
| Counterparty | Currency | type* | date | Value | face value | (depreciation) |
| Bank of America N.A. | ||||||
| British Pound | Sell | 9/16/20 | $4,195,962 | $4,264,036 | $68,074 | |
| Japanese Yen | Sell | 8/19/20 | 1,441,193 | 1,449,105 | 7,912 | |
| Barclays Bank PLC | ||||||
| Canadian Dollar | Buy | 7/15/20 | 596,958 | 578,547 | 18,411 | |
| Euro | Buy | 9/16/20 | 1,683,792 | 1,673,746 | 10,046 | |
| Hong Kong Dollar | Buy | 8/19/20 | 1,814,757 | 1,813,164 | 1,593 | |
| Japanese Yen | Sell | 8/19/20 | 899,555 | 904,727 | 5,172 | |
| Citibank, N.A. | ||||||
| British Pound | Sell | 9/16/20 | 1,276,590 | 1,297,298 | 20,708 | |
| Danish Krone | Buy | 9/16/20 | 1,260,425 | 1,254,021 | 6,404 | |
| Euro | Buy | 9/16/20 | 1,410,550 | 1,407,311 | 3,239 | |
| Japanese Yen | Sell | 8/19/20 | 953,661 | 958,088 | 4,427 | |
| Goldman Sachs International | ||||||
| Canadian Dollar | Buy | 7/15/20 | 1,137,786 | 1,103,010 | 34,776 | |
| Japanese Yen | Buy | 8/19/20 | 4,450,698 | 4,472,196 | (21,498) | |
| HSBC Bank USA, National Association | ||||||
| British Pound | Sell | 9/16/20 | 497,967 | 505,881 | 7,914 | |
| Chinese Yuan (Offshore) | Sell | 8/19/20 | 2,482,868 | 2,465,958 | (16,910) | |
| Euro | Buy | 9/16/20 | 4,065,431 | 4,065,308 | 123 | |
| JPMorgan Chase Bank N.A. | ||||||
| Australian Dollar | Buy | 7/15/20 | 277,235 | 245,096 | 32,139 | |
| Japanese Yen | Buy | 8/19/20 | 3,005,746 | 3,018,044 | (12,298) | |
| Norwegian Krone | Buy | 9/16/20 | 348,681 | 352,111 | (3,430) | |
| Singapore Dollar | Buy | 8/19/20 | 778,430 | 766,204 | 12,226 | |
| South Korean Won | Sell | 8/19/20 | 1,999,747 | 1,966,411 | (33,336) | |
| Swedish Krona | Buy | 9/16/20 | 1,329,404 | 1,328,990 | 414 | |
| Swiss Franc | Sell | 9/16/20 | 3,458,709 | 3,403,797 | (54,912) | |
| NatWest Markets PLC | ||||||
| Australian Dollar | Buy | 7/15/20 | 1,290,863 | 1,141,309 | 149,554 | |
| British Pound | Sell | 9/16/20 | 667,055 | 677,781 | 10,726 | |
| Euro | Buy | 9/16/20 | 2,417,989 | 2,412,008 | 5,981 | |
| State Street Bank and Trust Co. | ||||||
| Australian Dollar | Buy | 7/15/20 | 385,796 | 362,613 | 23,183 | |
| British Pound | Buy | 9/16/20 | 159,667 | 162,226 | (2,559) | |
| Canadian Dollar | Sell | 7/15/20 | 1,030,829 | 999,886 | (30,943) | |
| Euro | Sell | 9/16/20 | 1,926,536 | 1,922,370 | (4,166) | |
| Israeli Shekel | Buy | 7/15/20 | 406,911 | 389,007 | 17,904 | |
| Japanese Yen | Buy | 8/19/20 | 1,461,047 | 1,467,731 | (6,684) | |
| UBS AG | ||||||
| Australian Dollar | Sell | 7/15/20 | 550,535 | 508,420 | (42,115) | |
| Canadian Dollar | Sell | 7/15/20 | 2,362,124 | 2,276,222 | (85,902) | |
| Euro | Buy | 9/16/20 | 4,155,235 | 4,150,047 | 5,188 | |
| WestPac Banking Corp. | ||||||
| British Pound | Sell | 9/16/20 | 513,958 | 522,153 | 8,195 | |
| Euro | Buy | 9/16/20 | 655,082 | 653,573 | 1,509 | |
| Unrealized appreciation | 455,818 | |||||
| Unrealized (depreciation) | (314,753) | |||||
| Total | $141,065 | |||||
* The exchange currency for all contracts listed is the United States Dollar.
| 6 | Putnam VT Global Equity 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*: | |||||
| Communication services | $8,688,976 | $— | $— | ||
| Consumer discretionary | 19,263,491 | 2,742,073 | 5 | ||
| Consumer staples | 11,891,289 | 10,201,549 | — | ||
| Energy | 6,645,433 | — | — | ||
| Financials | 9,333,761 | 7,818,878 | — | ||
| Health care | 16,353,635 | 5,286,708 | — | ||
| Industrials | 12,508,512 | 6,756,641 | — | ||
| Information technology | 36,639,626 | 2,231,794 | — | ||
| Materials | 12,138,977 | 3,449,584 | — | ||
| Real estate | — | 2,685,690 | — | ||
| Utilities | 9,152,714 | — | — | ||
| Total common stocks | 142,616,414 | 41,172,917 | 5 | ||
| U.S. treasury obligations | — | 62,791 | — | ||
| Short-term investments | 3,861,363 | 3,503,679 | — | ||
| Totals by level | $146,477,777 | $44,739,387 | $5 | ||
| Valuation inputs | |||||
| Other financial instruments: | Level 1 | Level 2 | Level 3 | ||
| Forward currency contracts | $— | $141,065 | $— | ||
| Totals by level | $— | $141,065 | $— | ||
* Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.
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 Global Equity Fund | 7 |
Statement of assets and liabilities
6/30/20 (Unaudited)
| Assets | |
| Investment in securities, at value, including $3,264,573 of securities on loan (Notes 1 and 9): | |
| Unaffiliated issuers (identified cost $159,726,360) | $184,286,081 |
| Affiliated issuers (identified cost $6,931,088) (Notes 1 and 5) | 6,931,088 |
| Cash | 11 |
| Foreign currency (cost $3,812) (Note 1) | 3,788 |
| Dividends, interest and other receivables | 252,076 |
| Receivable for shares of the fund sold | 1,686 |
| Receivable for investments sold | 911,750 |
| Foreign tax reclaim | 88,752 |
| Unrealized appreciation on forward currency contracts (Note 1) | 455,818 |
| Total assets | 192,931,050 |
| Liabilities | |
| Payable for investments purchased | 779,755 |
| Payable for shares of the fund repurchased | 148,468 |
| Payable for compensation of Manager (Note 2) | 91,283 |
| Payable for custodian fees (Note 2) | 7,083 |
| Payable for investor servicing fees (Note 2) | 21,309 |
| Payable for Trustee compensation and expenses (Note 2) | 257,787 |
| Payable for administrative services (Note 2) | 701 |
| Payable for distribution fees (Note 2) | 4,713 |
| Unrealized depreciation on forward currency contracts (Note 1) | 314,753 |
| Collateral on securities loaned, at value (Note 1) | 3,299,725 |
| Collateral on certain derivative contracts, at value (Notes 1 and 9) | 292,791 |
| Other accrued expenses | 59,169 |
| Total liabilities | 5,277,537 |
| Net assets | $187,653,513 |
| Represented by | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $166,027,369 |
| Total distributable earnings (Note 1) | 21,626,144 |
| Total — Representing net assets applicable to capital shares outstanding | $187,653,513 |
| Computation of net asset value Class IA | |
| Net assets | $164,595,599 |
| Number of shares outstanding | 9,096,589 |
| Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding) | $18.09 |
| Computation of net asset value Class IB | |
| Net assets | $23,057,914 |
| Number of shares outstanding | 1,287,682 |
| Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding) | $17.91 |
The accompanying notes are an integral part of these financial statements.
| 8 | Putnam VT Global Equity Fund |
Statement of operations
Six months ended 6/30/20 (Unaudited)
| Investment income | |
| Dividends (net of foreign tax of $50,418) | $1,633,866 |
| Interest (including interest income of $25,849 from investments in affiliated issuers) (Note 5) | 30,221 |
| Securities lending (net of expenses) (Notes 1 and 5) | 7,189 |
| Total investment income | 1,671,276 |
| Expenses | |
| Compensation of Manager (Note 2) | 639,003 |
| Investor servicing fees (Note 2) | 65,308 |
| Custodian fees (Note 2) | 17,477 |
| Trustee compensation and expenses (Note 2) | 4,558 |
| Distribution fees (Note 2) | 28,686 |
| Administrative services (Note 2) | 2,168 |
| Other | 69,767 |
| Fees waived and reimbursed by Manager (Note 2) | (46,356) |
| Total expenses | 780,611 |
| Expense reduction (Note 2) | (272) |
| Net expenses | 780,339 |
| Net investment income | 890,937 |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on: | |
| Securities from unaffiliated issuers (Notes 1 and 3) | 3,829,943 |
| Foreign currency transactions (Note 1) | (23,146) |
| Forward currency contracts (Note 1) | 472,445 |
| Written options (Note 1) | (8,138,634) |
| Total net realized loss | (3,859,392) |
| Change in net unrealized appreciation (depreciation) on: | |
| Securities from unaffiliated issuers | (13,357,235) |
| Assets and liabilities in foreign currencies | 2,953 |
| Forward currency contracts | 28,350 |
| Total change in net unrealized depreciation | (13,325,932) |
| Net loss on investments | (17,185,324) |
| Net decrease in net assets resulting from operations | $(16,294,387) |
The accompanying notes are an integral part of these financial statements.
| Putnam VT Global Equity Fund | 9 |
Statement of changes in net assets
| Six months ended | Year ended | |
| 6/30/20* | 12/31/19 | |
| Increase (decrease) in net assets | ||
| Operations: | ||
| Net investment income | $890,937 | $992,281 |
| Net realized gain (loss) on investments and foreign currency transactions | (3,859,392) | 1,821,478 |
| Change in net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies | (13,325,932) | 38,592,648 |
| Net increase (decrease) in net assets resulting from operations | (16,294,387) | 41,406,407 |
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Net investment income | ||
| Class IA | (679,382) | (6,829) |
| Class IB | (40,544) | — |
| Net realized short-term gain on investments | ||
| Class IA | (45,904) | — |
| Class IB | (6,539) | — |
| From net realized long-term gain on investments | ||
| Class IA | (1,395,487) | (10,926,171) |
| Class IB | (198,799) | (1,514,301) |
| Increase (decrease) from capital share transactions (Notes 4 and 7) | (9,587,658) | 50,752,850 |
| Total increase (decrease) in net assets | (28,248,700) | 79,711,956 |
| Net assets: | ||
| Beginning of period | 215,902,213 | 136,190,257 |
| End of period | $187,653,513 | $215,902,213 |
* Unaudited.
The accompanying notes are an integral part of these financial statements.
| 10 | Putnam VT Global Equity Fund |
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | |||||||||||
| Period ended | Net asset value, beginning of period | Net investment income (loss)a | Net realized and unrealized gain (loss) on investments | Total from investment operations | From net investment income | From net realized gain on investments | Total distributions | Net asset value, end of period | Total return at net asset value (%)b,c | Net assets, end of period (in thousands) | Ratio of expenses to average net assets (%)b,d | Ratio of net investment income (loss) to average net assets (%) | Portfolio turnover (%) |
| Class IA | |||||||||||||
| 6/30/20† | $19.83 | .09 | (1.60) | (1.51) | (.07) | (.16) | (.23) | $18.09 | (7.35)* | $164,596 | .40*e | .49*e | 35* |
| 12/31/19 | 17.04 | .11 | 4.28 | 4.39 | — f | (1.60) | (1.60) | 19.83 | 26.92 | 188,825 | .86e,g | .58e,g | 42 |
| 12/31/18 | 19.52 | .09 | (2.46) | (2.37) | (.11) | — | (.11) | 17.04 | (12.21) | 119,948 | .87 | .47 | 53 |
| 12/31/17 | 15.42 | .12 | 4.25 | 4.37 | (.27) | — | (.27) | 19.52 | 28.71 | 152,601 | .87 | .67 | 75 |
| 12/31/16 | 15.42 | .13 | .07 | .20 | (.20) | — | (.20) | 15.42 | 1.37 | 133,781 | .88 h | .85 h | 54 |
| 12/31/15 | 15.84 | .14 | (.36) | (.22) | (.20) | — | (.20) | 15.42 | (1.49) | 152,638 | .86 | .86 | 56 |
| Class IB | |||||||||||||
| 6/30/20† | $19.59 | .06 | (1.55) | (1.49) | (.03) | (.16) | (.19) | $17.91 | (7.41)* | $23,058 | .53*e | .37*e | 35* |
| 12/31/19 | 16.89 | .06 | 4.24 | 4.30 | — | (1.60) | (1.60) | 19.59 | 26.60 | 27,077 | 1.11e,g | .32e,g | 42 |
| 12/31/18 | 19.35 | .04 | (2.44) | (2.40) | (.06) | — | (.06) | 16.89 | (12.43) | 16,242 | 1.12 | .22 | 53 |
| 12/31/17 | 15.29 | .07 | 4.22 | 4.29 | (.23) | — | (.23) | 19.35 | 28.38 | 19,874 | 1.12 | .43 | 75 |
| 12/31/16 | 15.29 | .09 | .07 | .16 | (.16) | — | (.16) | 15.29 | 1.07 | 16,954 | 1.13h | .59 h | 54 |
| 12/31/15 | 15.70 | .10 | (.36) | (.26) | (.15) | — | (.15) | 15.29 | (1.71) | 18,413 | 1.11 | .61 | 56 |
* Not annualized.
† Unaudited.
a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b The charges and expenses at the insurance company separate account level are not reflected.
c Total return assumes dividend reinvestment.
d Includes amounts paid through expense offset and/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 | |||
| 6/30/20 | 0.02% | ||
| 12/31/19 | 0.03 |
f Amount represents less than $0.01 per share.
g Includes one-time merger costs which amounted to 0.03% as a percentage of average net assets (Note 7).
h Reflects a voluntary waiver of certain fund expenses in effect during the period. As a result of such waiver, the expenses of each class reflect a reduction of less than 0.01% as a percentage of average net assets.
The accompanying notes are an integral part of these financial statements.
| Putnam VT Global Equity Fund | 11 |
Notes to financial statements 6/30/20 (Unaudited)
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, 2020 through June 30, 2020.
Putnam VT Global Equity 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 appreciation. The fund invests mainly in common stocks (growth or value stocks or both) of large and midsize companies worldwide 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. Under normal circumstances, Putnam Management invests at least 80% of the fund’s net assets in equity investments. This policy may be changed only after 60 days’ notice to shareholders. Putnam Management may also consider other factors that Putnam Management believes will cause the stock price to 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.
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent and custodian, who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the fund’s Amended and Restated Agreement and Declaration of Trust, any claims asserted against or on behalf of the Putnam Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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.
Market quotations are not considered to be readily available for certain debt obligations (including short-term investments with remaining maturities of 60 days or less) 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.
Many securities markets and exchanges outside the U.S. close prior to the scheduled 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 scheduled close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value certain 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. The foreign equity 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.
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.
| 12 | Putnam VT Global Equity Fund |
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, if any, and including amortization and accretion of premiums and discounts on debt securities, 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.
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 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 assets and liabilities other than investments at the period end, resulting from changes in the exchange rate.
Options contracts The fund uses options contracts to hedge against changes in values of securities it owns, owned or expects to own.
The potential risk to the fund is that the change in value of options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Exchange-traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. OTC traded options are valued using prices supplied by dealers.
Options on swaps are similar to options on securities except that the premium paid or received is to buy or grant the right to enter into a previously agreed upon interest rate or credit default contract. Forward premium swap option contracts include premiums that have extended settlement dates. The delayed settlement of the premiums is factored into the daily valuation of the option contracts. In the case of interest rate cap and floor contracts, in return for a premium, ongoing payments between two parties are based on interest rates exceeding a specified rate, in the case of a cap contract, or falling below a specified rate in the case of a floor contract.
Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
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.
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 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 $194,164 on open derivative contracts subject to the Master Agreements. Collateral posted by the fund at period end for these agreements totaled $110,967 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 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, net of expenses, 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 $3,299,725 and the value of securities loaned amounted to $3,264,573.
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 $317.5 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 1.25% plus the higher of (1) the Federal Funds rate and (2) the overnight LIBOR 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 0.21% 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
| Putnam VT Global Equity Fund | 13 |
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.
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.
Tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but closely approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. The aggregate identified cost on a tax basis is $167,003,648, resulting in gross unrealized appreciation and depreciation of $36,134,623 and $11,780,037, respectively, or net unrealized appreciation of $24,354,586.
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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. 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.
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 46.3% 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 all open-end mutual funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). 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. |
For the reporting period, the management fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.343% of the fund’s average net assets.
Putnam Management has contractually agreed, through April 30, 2022, to waive fees and/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 plan, 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 Management has also agreed, through April 30, 2022, to waive 0.05% of the contractual management fee payable by the fund. During the reporting period, the fund’s expenses were reduced by $46,356 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. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay 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. PAC did not manage any portion of the assets of the fund during the reporting period. If Putnam Management or PIL were to engage the services of PAC, Putnam Management or PIL, as applicable, would pay 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 0.07% 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 | $57,249 |
| Class IB | 8,059 |
| Total | $65,308 |
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. For the reporting period, the fund’s expenses were reduced by $272 under the expense offset arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $128, 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.
| 14 | Putnam VT Global Equity Fund |
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. The expenses related to distribution fees during the reporting period are included in Distribution fees in the Statement of operations.
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 | Proceeds | |
| purchases | from sales | |
| Investments in securities | ||
| (Long-term) | $63,539,832 | $75,187,887 |
| U.S. government securities | ||
| (Long-term) | — | — |
| Total | $63,539,832 | $75,187,887 |
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 of long-term securities 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 | |||||||
| Six months ended 6/30/20 | Year ended 12/31/19 | Six months ended 6/30/20 | Year ended 12/31/19 | |||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |
| Shares sold | 35,179 | $622,598 | 44,912 | $825,308 | 8,674 | $143,912 | 51,914 | $953,358 |
| Shares issued in connection with | ||||||||
| reinvestment of distributions | 143,006 | 2,120,773 | 619,083 | 10,933,000 | 16,738 | 245,882 | 86,581 | 1,514,301 |
| Shares issued in connection with | ||||||||
| the merger of Putnam VT Global | ||||||||
| Utilities Fund | — | — | 2,994,763 | 53,356,793 | — | — | 495,417 | 8,734,747 |
| 178,185 | 2,743,371 | 3,658,758 | 65,115,101 | 25,412 | 389,794 | 633,912 | 11,202,406 | |
| Shares repurchased | (604,714) | (10,602,042) | (1,176,028) | (21,637,564) | (119,699) | (2,118,781) | (213,489) | (3,927,093) |
| Net increase (decrease) | (426,529) | $(7,858,671) | 2,482,730 | $43,477,537 | (94,287) | $(1,728,987) | 420,423 | $7,275,313 |
Note 5 — Affiliated transactions
Transactions during the reporting period with any company which is under common ownership or control were as follows:
| Shares outstanding | |||||
| Fair value as of | and fair value as of | ||||
| Name of affiliate | 12/31/19 | Purchase cost | Sale proceeds | Investment income | 6/30/20 |
| Short-term investments | |||||
| Putnam Cash Collateral Pool, LLC* | $3,115,800 | $15,982,665 | $15,798,740 | $20,184 | $3,299,725 |
| Putnam Short Term Investment | |||||
| Fund** | 1,647,764 | 39,506,598 | 37,522,999 | 25,849 | 3,631,363 |
| Total Short-term investments | $4,763,564 | $55,489,263 | $53,321,739 | $46,033 | $6,931,088 |
*No management fees are charged to Putnam Cash Collateral Pool, LLC (Note 1). Investment income shown is included in securities lending income on the Statement of operations. There were no realized or unrealized gains or losses during the period.
**Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management. There were no realized or unrealized gains or losses during the period.
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.
Beginning in January 2020, global financial markets have experienced, and may continue to experience, significant volatility resulting from the spread of a virus known as COVID–19. The outbreak of COVID–19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand, and general market uncertainty. The effects of COVID–19 have adversely affected, and may continue to adversely affect, the global economy, the economies of certain nations, and individual issuers, all of which may negatively impact the fund’s performance.
| Putnam VT Global Equity Fund | 15 |
Note 7 — Acquisition of Putnam VT Global Utilities Fund
On June 17, 2019, the fund issued 2,994,763 and 495,417 class IA and class IB shares, respectively, for 6,779,843 and 1,103,818 class IA and class IB shares of Putnam VT Global Utilities Fund to acquire that fund’s net assets in a tax-free exchange approved by the shareholders. The purpose of the transaction was to combine two Putnam funds with substantially similar investment objectives and similar investment strategies into a single Putnam fund with a larger asset base and therefore potentially lower expenses for fund shareholders. The investment portfolio of Putnam VT Global Utilities Fund, with a fair value of $62,081,125 and an identified cost of $61,085,332 at June 14, 2019, was the principal asset acquired by the fund. The net assets of the fund and Putnam VT Global Utilities Fund on June 14, 2019, were $84,079,001 and $62,091,540, respectively. On June 14, 2019, Putnam VT Global Utilities Fund had distributions in excess of net investment income of $164,433, accumulated net realized loss of $546,008 and unrealized appreciation of $992,107. The aggregate net assets of the fund immediately following the acquisition were $146,170,541.
Information presented in the Statement of changes in net assets for the period ended December 31, 2019 reflect only the operations of Putnam VT Global Equity Fund.
Assuming the acquisition had been completed on January 1, 2019, the fund’s pro forma results of operations for the prior fiscal year would have been as follows:
| Net investment Income | $2,066,199 |
| Net gain on investments | $47,596,485 |
| Net Increase in net assets resulting from operations | $49,662,684 |
Note 8 — 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 based on an average of the holdings at the end of each fiscal quarter:
| Purchased equity option contracts (contract amount) | $—* |
| Written equity option contracts (contract amount) | $—* |
| Forward currency contracts (contract amount) | $60,700,000 |
*For the reporting period, there were no holdings at the end of each fiscal quarter and the transactions were considered minimal.
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 | Statement of assets and | Statement of assets and | ||
| instruments under ASC 815 | liabilities location | Fair value | liabilities location | Fair value |
| Foreign exchange contracts | Receivables | $455,818 | Payables | $314,753 |
| Total | $455,818 | $314,753 | ||
The following is a summary of realized and change in unrealized gains or losses of derivative instruments in the Statement of operations for the reporting period (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 | Options | Forward currency contracts | Total |
| Foreign exchange contracts | $— | $472,445 | $472,445 |
| Equity contracts | 867,736 | — | $867,736 |
| Total | $867,736 | $472,445 | $1,340,181 |
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 | $28,350 | $28,350 |
| Total | $28,350 | $28,350 |
| 16 | Putnam VT Global Equity Fund |
Note 9 — 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.
| HSBC | |||||||||||
| Goldman | Bank USA, | State | |||||||||
| Bank of | Sachs | National | JPMorgan | NatWest | Street | WestPac | |||||
| America | Barclays | Citibank, | Inter- | Associ- | Chase | Markets | Bank and | Banking | |||
| N.A. | Bank PLC | N.A. | national | ation | Bank N.A. | PLC | Trust Co. | UBS AG | Corp. | Total | |
| Assets: | |||||||||||
| Forward currency contracts# | $75,986 | $35,222 | $34,778 | $34,776 | $8,037 | $44,779 | $166,261 | $41,087 | $5,188 | $9,704 | $455,818 |
| Total Assets | $75,986 | $35,222 | $34,778 | $34,776 | $8,037 | $44,779 | $166,261 | $41,087 | $5,188 | $9,704 | $455,818 |
| Liabilities: | |||||||||||
| Forward currency contracts# | $— | $— | $— | $21,498 | $16,910 | $103,976 | $— | $44,352 | $128,017 | $— | $314,753 |
| Total Liabilities | $— | $— | $— | $21,498 | $16,910 | $103,976 | $— | $44,352 | $128,017 | $— | $314,753 |
| Total Financial and Derivative | |||||||||||
| Net Assets | $75,986 | $35,222 | $34,778 | $13,278 | $(8,873) | $(59,197) | $166,261 | $(3,265) | $(122,829) | $9,704 | $141,065 |
| Total collateral received (pledged)†## | $62,791 | $35,222 | $— | $— | $— | $— | $120,000 | $— | $(110,967) | $— | |
| Net amount | $13,195 | $— | $34,778 | $13,278 | $(8,873) | $(59,197) | $46,261 | $(3,265) | $(11,862) | $9,704 | |
| Controlled collateral received | |||||||||||
| (including TBA commitments)** | $62,791 | $110,000 | $— | $— | $— | $— | $120,000 | $— | $— | $— | $292,791 |
| Uncontrolled collateral received | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— |
| Collateral (pledged) (including | |||||||||||
| TBA commitments)** | $— | $— | $— | $— | $— | $— | $— | $— | $(110,967) | $— | $(110,967) |
** Included with Investments in securities on the Statement of assets and liabilities.
† 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.
| Putnam VT Global Equity Fund | 17 |
Trustee approval of management contract
General conclusions
The Board of Trustees of The Putnam Funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management, LLC (“Putnam Management”), the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), and the sub-advisory contract among Putnam Management, PIL, and another affiliate, The Putnam Advisory Company (“PAC”). The Board, with the assistance of its Contract Committee, requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. The Contract Committee consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of The Putnam Funds (“Independent Trustees”).
At the outset of the review process, members of the Board’s independent staff and independent legal counsel considered any possible changes to the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review and, as applicable, identified those changes to Putnam Management. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management and its affiliates furnish specified information, together with any additional information that Putnam Management considered relevant, to the Contract Committee. Over the course of several months ending in June 2020, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided. Throughout this process, the Contract Committee was assisted by the members of the Board’s independent staff and by independent legal counsel for The Putnam Funds and the Independent Trustees.
In May 2020, the Contract Committee met in executive session to discuss and consider its recommendations with respect to the continuance of the contracts. At the Trustees’ June 2020 meeting, the Contract Committee met in executive session with the other Independent Trustees to review a summary of the key financial, performance and other data that the Contract Committee considered in the course of its review. The Contract Committee then presented its written report, which summarized the key factors that the Committee had considered and set forth its recommendations. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management, sub-management and sub-advisory contracts, effective July 1, 2020. (Because PIL and PAC are affiliates of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL and PAC, the Trustees have not attempted to evaluate PIL or PAC as separate entities, and all subsequent references to Putnam Management below should be deemed to include reference to PIL and PAC as necessary or appropriate in the context.)
The Independent Trustees’ approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, the costs incurred by Putnam Management in providing services to the fund, and the application of certain reductions and waivers noted below; and
• That the fee schedule in effect for your fund represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years. For example, with certain exceptions primarily involving newly launched or repositioned funds, the current fee arrangements under the vast majority of the funds’ management contracts were first implemented at the beginning of 2010 following extensive review by the Contract Committee and discussions with representatives of Putnam Management, as well as approval by shareholders.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. The Trustees also reviewed the total expenses of each Putnam fund, recognizing that in most cases management fees represented the major, but not the sole, determinant of total costs to fund shareholders. (Two funds have implemented so-called “all-in” management fees covering substantially all routine fund operating costs.)
In reviewing fees and expenses, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management, changes in a fund’s investment strategy, changes in Putnam Management’s operating costs or profitability, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not indicate that changes to the management fee schedule for your fund would be appropriate at this time.
Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale between fund shareholders and Putnam Management.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to support the effort to have fund expenses meet competitive standards, the Trustees and Putnam Management and the funds’ investor servicing agent, Putnam Investor Services, Inc. (“PSERV”), have implemented expense limitations that were in effect during your fund’s fiscal year ending in 2019. These expense limitations were: (i) a contractual expense limitation applicable to specified open-end funds, including your fund, of 25 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable
| 18 | Putnam VT Global Equity Fund |
to specified open-end funds, including your fund, of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, distribution fees, investor servicing fees, investment-related expenses, interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses). These expense limitations attempt to maintain competitive expense levels for the funds. Most funds, including your fund, had sufficiently low expenses that these expense limitations were not operative during their fiscal years ending in 2019. Putnam Management and PSERV have agreed to maintain these expense limitations until at least April 30, 2022. In addition, Putnam Management contractually agreed to waive five basis points of your fund’s management fee through at least April 30, 2022, and your fund’s expenses were reduced as a result of this waiver. The support of Putnam Management and PSERV for these expense limitation arrangements was an important factor in the Trustees’ decision to approve the continuance of your fund’s management, sub-management and sub-advisory contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Broadridge Financial Solutions, Inc. (“Broadridge”). This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fees), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the first quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the second quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2019. The first quintile represents the least expensive funds and the fifth quintile the most expensive funds. The fee and expense data reported by Broadridge as of December 31, 2019 reflected the most recent fiscal year-end data available in Broadridge’s database at that time.
In connection with their review of fund management fees and total expenses, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of the revenues, expenses and profitability of Putnam Management and its affiliates, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the Putnam funds at that time.
The information examined by the Trustees in connection with their annual contract review for the Putnam funds included information regarding services provided and fees charged by Putnam Management and its affiliates to other clients, including defined benefit pension and profit-sharing plans, sub-advised mutual funds, private funds sponsored by affiliates of Putnam Management, and model-only separately managed accounts. This information included, in cases where a product’s investment strategy corresponds with a fund’s strategy, comparisons of those fees with fees charged to the Putnam funds, as well as an assessment of the differences in the services provided to these clients as compared to the services provided to the Putnam funds. The Trustees observed that the differences in fee rates between these clients and the Putnam funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect, among other things, historical competitive forces operating in separate marketplaces. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for other clients, and the Trustees also considered the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its other clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of Putnam Management’s investment process and performance by the work of the investment oversight committees of the Trustees and the full Board of Trustees, which meet on a regular basis with individual portfolio managers and with senior management of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period.
The Trustees considered that, in the aggregate, 2019 was a strong year of performance for The Putnam Funds, with the Putnam funds, on an asset-weighted basis, ranking in the top quartile of their Lipper Inc. (“Lipper”) peers for the year ended December 31, 2019. For those funds that are evaluated based on their total returns versus selected investment benchmarks, the Trustees observed that the funds, on an asset-weighted-basis, delivered a gross return that was 2.3% ahead of their benchmarks in 2019. In addition to the performance of the individual Putnam funds, the Trustees considered, as they had in prior years, the performance of The Putnam Fund complex versus competitor fund complexes. In this regard, the Trustees observed that The Putnam Funds’ relative performance, as reported in the Barron’s/Lipper Fund Families survey, was exceptionally strong over both the short and long term, with The Putnam Funds ranking as the 8th best performing mutual fund complex out of 55 complexes for the one-year period ended December 31, 2019 and the 8th best performing mutual fund complex out of 45 complexes for the ten-year period, with 2019 marking the third consecutive year that The Putnam Funds have ranked in the top ten fund complexes for the ten-year period. The Trustees also noted that The Putnam Funds ranked 26th out of 52 complexes for the five-year period ended December 31, 2019. In addition to the Barron’s/Lipper Fund Families Survey, the Trustees also considered the funds’ ratings assigned by Morningstar Inc., noting that 22 of the funds were four- or five-star rated at the end of 2019 and that this included five funds that had achieved a five-star rating. They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2019 and considered information provided by Putnam Management regarding the factors contributing to
| Putnam VT Global Equity Fund | 19 |
the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor closely the performance of those funds, including the effectiveness of any efforts Putnam Management has undertaken to address underperformance and whether additional actions to address areas of underperformance are warranted.
For purposes of the Trustees’ evaluation of the Putnam funds’ investment performance, the Trustees generally focus on a competitive industry ranking of each fund’s total net return over a one-year, three-year and five-year period. For a number of Putnam funds with relatively unique investment mandates for which Putnam Management informed the Trustees that meaningful competitive performance rankings are not considered to be available, the Trustees evaluated performance based on their total gross and net returns and comparisons of those returns with the returns of selected investment benchmarks. In the case of your fund, the Trustees considered that its class IA share cumulative total return performance at net asset value was in the following quartiles of its Lipper peer group (Lipper VP (Underlying Funds) – Global Multi-Cap Growth Funds) for the one-year, three-year and five-year periods ended December 31, 2019 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):
| One-year period | Three-year period | Five-year period |
| 4th | 4th | 4th |
Over the one-year, three-year and five-year periods ended December 31, 2019, there were 25, 23 and 20 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.) The Trustees expressed concern about your fund’s fourth quartile performance over the one-year, three-year and five-year periods ended December 31, 2019. The Trustees considered Putnam Management’s continued efforts to support fund performance through changes in the portfolio management team in 2019 and through initiatives including structuring compensation for portfolio managers and research analysts to enhance accountability for fund performance, emphasizing accountability in the portfolio management process, and affirming its commitment to a fundamental-driven approach to investing. The Trustees noted further that Putnam Management had made selective hires and internal promotions in 2019 to strengthen its investment team.
As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance concerns that may arise from time to time. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on Putnam Management’s willingness to take appropriate measures to address fund performance issues and Putnam Management’s responsiveness to Trustee concerns about investment performance, the Trustees concluded that it continued to be advisable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of engaging a new investment adviser for an underperforming fund, with all the attendant risks and disruptions, would not likely provide any greater assurance of improved investment performance.
Brokerage and soft-dollar allocations; investor servicing
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft dollars generated by these means are used predominantly to acquire brokerage and research services (including third-party research and market data) that enhance Putnam Management’s investment capabilities and supplement Putnam Management’s internal research efforts. The Trustees noted that, in 2019, they had approved the elimination of a fund expense recapture program, whereby a portion of available soft dollars were used to pay fund expenses, and that the amount of commissions allocated to that program were instead used to increase, by a corresponding amount, the budget allocated for execution services. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee. In addition, with the assistance of their Brokerage Committee, the Trustees indicated their continued intent to monitor the allocation of the Putnam funds’ brokerage in order to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management, sub-management and sub-advisory contracts, the Trustees reviewed your fund’s investor servicing agreement with PSERV and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are fair and reasonable in relation to the nature and quality of such services, the fees paid by competitive funds, and the costs incurred by PSERV and PRM, as applicable, in providing such services. Furthermore, the Trustees were of the view that the services provided were required for the operation of the funds, and that they were of a quality at least equal to those provided by other providers.
| 20 | Putnam VT Global Equity 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, 2020, are available in the Individual Investors section of putnam.com and on the Securities and Exchange Commission’s (SEC) website at 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
The 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-PORT within 60 days of the end of such fiscal quarter. Shareholders may obtain the fund’s Form N-PORT from the SEC’s website at www.sec.gov.
Prior to its use of Form N-PORT, the fund filed its complete schedule of its portfolio holdings with the SEC on Form N-Q, which is available online at www.sec.gov.
Liquidity risk management program
Putnam, as the administrator of the fund’s liquidity risk management program (appointed by the Board of Trustees), presented the first annual report on the program to the Trustees in April 2020. The report covered the structure of the program, including the program documents and related policies and procedures adopted to comply with Rule 22e-4 under the Investment Company Act of 1940, and reviewed the operation of the program from December 2018 through March 2020. The report included a description of the annual liquidity assessment of the fund that Putnam performed in November 2019. The report noted that there were no material compliance exceptions identified under Rule 22e-4 during the period. The report included a review of the governance of the program and the methodology for classification of the fund’s investments. The report also included a discussion of liquidity monitoring during the period, including during the market liquidity challenges caused by the COVID-19 pandemic, and the impact those challenges had on the liquidity of the fund’s investments. Putnam concluded that the program has been operating effectively and adequately to ensure compliance with Rule 22e-4.
Fund information
| Investment Manager | Investor Servicing Agent | Trustees |
| Putnam Investment Management, LLC | Putnam Investments | Kenneth R. Leibler, Chair |
| 100 Federal Street | Mailing address: | Liaquat Ahamed |
| Boston, MA 02110 | P.O. Box 219697 | Ravi Akhoury |
| Kansas City, MO 64121-9697 | Barbara M. Baumann | |
| Investment Sub-Advisors | 1-800-225-1581 | Katinka Domotorffy |
| Putnam Investments Limited | Catharine Bond Hill | |
| 16 St James’s Street | Custodian | Paul L. Joskow |
| London, England SW1A 1ER | State Street Bank and Trust Company | George Putnam, III |
| Robert L. Reynolds | ||
| The Putnam Advisory Company, LLC | Legal Counsel | Manoj P. Singh |
| 100 Federal Street | Ropes & Gray LLP | Mona K. Sutphen |
| Boston, MA 02110 | ||
| Marketing Services | ||
| Putnam Retail Management | ||
| 100 Federal Street | ||
| Boston, MA 02110 |
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 Global Equity Fund | 21 |
| This report has been prepared for the shareholders | |
| of Putnam VT Global Equity Fund. | VTSA006 322139 8/20 |
| Item 2. Code of Ethics: |
| Not applicable |
Item 3. Audit Committee Financial Expert: |
| Not applicable |
Item 4. Principal Accountant Fees and Services: |
| Not applicable |
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 180 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. Disclosures of Securities Lending Activities for Closed-End Investment Companies: |
| Not Applicable |
Item 13. Exhibits: |
(a)(1) Not applicable |
| (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: August 27, 2020 |
| 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: August 27, 2020 |
| By (Signature and Title): |
| /s/ Janet C. Smith Janet C. Smith Principal Financial Officer |
| Date: August 27, 2020 |