PUTNAM VARIABLE TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
April 30, 1998, as revised July 30, 1998
This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the prospectuses of
the Trust dated April 30, 1998, as revised from time to time.
This SAI contains information which may be useful to investors
but which is not included in the prospectus. If the Trust has
more than one form of current prospectus, each reference to the
prospectus in this SAI shall include all of the Trust's
prospectuses, unless otherwise noted. The SAI should be read
together with the applicable prospectus. Investors may obtain a
free copy of the applicable prospectus from Putnam Investor
Services, Mailing address: P.O. Box 41203, Providence, RI 02940-
1203.
The Report of the Trust's independent accountants and the audited
financial statements of the Trust are incorporated by reference
into this SAI.
Table of Contents
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .B- 3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . .B- 3
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B- 33
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . B- 36
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . B- 38
INVESTMENT PERFORMANCE OF THE TRUST. . . . . . . . . . . . . . B- 84
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . B- 86
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . B- 89
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . B- 90
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . B- 90
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . B- 90
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . B- 91
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PUTNAM VARIABLE TRUST
SAI DEFINITIONS
The "Trust" -- Putnam Variable Trust.
"Putnam Management" -- Putnam Investment Management,
Inc., the Trust's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Trust's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Trust's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Trust's
investor servicing agent.
INVESTMENT OBJECTIVES AND POLICIES
The Trust consists of twenty separate investment portfolios (the
"funds") with differing investment objectives and policies:
Putnam VT Asia Pacific Growth Fund, Putnam VT Diversified Income
Fund, Putnam VT The George Putnam Fund of Boston, Putnam VT
Global Asset Allocation Fund, Putnam VT Global Growth Fund,
Putnam VT Growth and Income Fund, Putnam VT Health Sciences Fund,
Putnam VT High Yield Fund, Putnam VT International Growth Fund,
Putnam VT International Growth and Income Fund, Putnam VT
International New Opportunities Fund, Putnam VT Investors Fund,
Putnam VT Money Market Fund, Putnam VT New Opportunities Fund,
Putnam VT New Value Fund, Putnam VT OTC & Emerging Growth Fund,
Putnam VT U.S. Government and High Quality Bond Fund, Putnam VT
Utilities Growth and Income Fund, Putnam VT Vista Fund and Putnam
VT Voyager Fund. The investment objectives and policies of the
funds are described in the prospectus offering such funds. This
SAI contains, among other things, the investment restrictions of
the funds. It also contains information concerning certain
investment practices in which some or all of the funds may
engage. The prospectus indicates which practices are applicable
to each fund which it offers.
Except as described below under "Investment Restrictions of the
Trust," the investment policies described in the prospectus and
in this SAI are not fundamental, and the Trustees may change such
policies without shareholder approval. As a matter of policy,
the Trustees would not materially change the funds' investment
objectives without shareholder approval.
Short-term Trading
In seeking a fund's objective or objectives, Putnam Management
will buy or sell portfolio securities whenever Putnam Management
believes it appropriate to do so. In deciding whether to sell a
portfolio security, Putnam Management does not consider how long
the fund has owned the security. From time to time the fund will
buy securities intending to seek short-term trading profits. A
change in the securities held by the fund is known as "portfolio
turnover" and generally involves some expense to the fund. This
expense may include brokerage commissions or dealer markups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of a fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. A fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in a fund's portfolio.
Convertible Securities. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may
be converted into or exchanged for, at a specific price or
formula within a particular period of time, a prescribed amount
of common stock or other equity securities of the same or a
different issuer. Convertible securities entitle the holder to
receive interest paid or accrued on debt or dividends paid or
accrued on preferred stock until the security matures or is
redeemed, converted or exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's
"investment value" represents the value of the security without
its conversion feature (i.e., a nonconvertible fixed income
security). The investment value may be determined by reference
to its credit quality and the current value of its yield to
maturity or probable call date. At any given time, investment
value is dependent upon such factors as the general level of
interest rates, the yield of similar nonconvertible securities,
the financial strength of the issuer and the seniority of the
security in the issuer's capital structure. A security's
"conversion value" is determined by multiplying the number of
shares the holder is entitled to receive upon conversion or
exchange by the current price of the underlying security.
If the conversion value of a convertible security is
significantly below its investment value, the convertible
security will trade like nonconvertible debt or preferred stock
and its market value will not be influenced greatly by
fluctuations in the market price of the underlying security.
Conversely, if the conversion value of a convertible security is
near or above its investment value, the market value of the
convertible security will be more heavily influenced by
fluctuations in the market price of the underlying security.
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The fund's investments in convertible securities may at times
include securities that have a mandatory conversion feature,
pursuant to which the securities convert automatically into
common stock or other equity securities at a specified date and a
specified conversion ratio, or that are convertible at the option
of the issuer. Because conversion of the security is not at the
option of the holder, the fund may be required to convert the
security into the underlying common stock even at times when the
value of the underlying common stock or other equity security has
declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer
other than the issuer of the convertible security, may be
illiquid. The fund may not be able to dispose of such securities
in a timely fashion or for a fair price, which could result in
losses to the fund.
Lower-rated Securities
A fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds") to the extent described in the
prospectus. The lower ratings of certain securities held by a
fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by a fund more volatile and
could limit a fund's ability to sell its securities at prices
approximating the values the fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, a fund at times may be unable to establish the fair value of
such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. In addition, the rating assigned to a security
by Moody's Investors Service, Inc. or Standard & Poor's (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the prospectus for a description of security
ratings.
Like those of other fixed-income securities, the values of lower-
rated securities fluctuate in response to changes in interest
rates. A decrease in interest rates will generally result in an
increase in the value of a fund's assets. Conversely, during
periods of rising interest rates, the value of a fund's assets
will generally decline. The values of lower-rated securities may
often be affected to a greater extent by changes in general
economic conditions and business conditions affecting the issuers
of such securities and their industries. Negative publicity or
investor perceptions may also adversely affect the values of
lower-rated securities. Changes by recognized rating services in
their ratings of any fixed-income security and changes in the
ability of an issuer to make payments of interest and principal
may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income
derived from these securities, but will affect a fund's net asset
value. A fund will not necessarily dispose of a security when
its rating is reduced below its rating at the time of purchase.
However, Putnam Management will monitor the investment to
determine whether its retention will assist in meeting a fund's
investment objective or objectives.
Issuers of lower-rated securities are often highly leveraged, so
that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest
rates may be impaired. Such issuers may not have more
traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by
refinancing. The risk of loss due to default in payment of
interest or repayment of principal by such issuers is
significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior
indebtedness.
At times, a substantial portion of a fund's assets may be
invested in securities of which the fund, by itself or together
with other funds and accounts managed by Putnam Management or its
affiliates, holds all or a major portion. Although Putnam
Management generally considers such securities to be liquid
because of the availability of an institutional market for such
securities, it is possible that, under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, a fund could find it more difficult to
sell these securities when Putnam Management believes it
advisable to do so or may be able to sell the securities only at
prices lower than if they were more widely held. Under these
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing a fund's
net asset value. In order to enforce its rights in the event of
a default under such securities, a fund may be required to
participate in various legal proceedings or take possession of
and manage assets securing the issuer's obligations on such
securities. This could increase the fund's operating expenses
and adversely affect the fund's net asset value. In addition,
each fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which a fund may exercise its rights by taking possession of such
assets.
Certain securities held by a fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by a fund during a time of declining
interest rates, the fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
A fund may at times invest without limit in so-called "zero-
coupon" bonds and "payment-in-kind" bonds identified in the
prospectus, unless otherwise specified in the prospectus. Zero-
coupon bonds are issued at a significant discount from their
principal amount in lieu of paying interest periodically.
Payment-in-kind bonds allow the issuer, at its option, to make
current interest payments on the bonds either in cash or in
additional bonds. Because zero-coupon bonds and payment-in-kind
bonds do not pay current interest in cash, their values are
subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently in cash.
Both zero-coupon and payment-in-kind bonds allow an issuer to
avoid the need to generate cash to meet current interest
payments. Accordingly, such bonds may involve greater credit
risks than bonds paying interest currently in cash. A fund is
nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to
shareholders, even though such bonds do not pay current interest
in cash. Thus, it may be necessary at times for a fund to
liquidate other investments in order to satisfy its dividend
requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent
on Putnam Management's investment analysis than would be the case
if the fund were investing in securities in the higher rating
categories.
Investments in Premium Securities
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if a fund may invest in premium securities, it may do so
without limit.
Investments in Miscellaneous Fixed-Income Securities
Unless otherwise specified in the prospectus or elsewhere in this
SAI, if a fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities (IOs and POs), it may do so without
limit. None of the funds, however, currently intends to invest
more than 15% of its assets in inverse floating obligations or
more than 35% of its assets in IOs and POs under normal market
conditions.
Private Placements
Each fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as a matter of contract or under federal securities laws.
Because there may be relatively few potential purchasers for such
investments, especially under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, a fund could find it more difficult to
sell such securities when Putnam Management believes it advisable
to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times,
it may also be more difficult to determine the fair value of such
securities for purposes of computing the fund's net asset value.
Loan Participations
A fund may invest in "loan participations." By purchasing a loan
participation, a fund acquires some or all of the interest of a
bank or other lending institution in a loan to a particular
borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower.
The loans in which a fund may invest are typically made by a
syndicate of banks, represented by an agent bank which has
negotiated and structured the loan and which is responsible
generally for collecting interest, principal, and other amounts
from the borrower on its own behalf and on behalf of the other
lending institutions in the syndicate and for enforcing its and
their other rights against the borrower. Each of the lending
institutions, including the agent bank, lends to the borrower a
portion of the total amount of the loan, and retains the
corresponding interest in the loan.
A fund's ability to receive payments of principal and interest
and other amounts in connection with loan participations held by
it will depend primarily on the financial condition of the
borrower. The failure by a fund to receive scheduled interest or
principal payments on a loan participation would adversely affect
the income of the fund and would likely reduce the value of its
assets, which would be reflected in a reduction in a fund's net
asset value. Banks and other lending institutions generally
perform a credit analysis of the borrower before originating a
loan or participating in a lending syndicate. In selecting the
loan participations in which a fund will invest, however, Putnam
Management will not rely solely on that credit analysis, but will
perform its own investment analysis of the borrowers. Putnam
Management's analysis may include consideration of the borrower's
financial strength and managerial experience, debt coverage,
additional borrowing requirements or debt maturity schedules,
changing financial conditions, and responsiveness to changes in
business conditions and interest rates. Because loan
participations in which a fund may invest are not generally rated
by independent credit rating agencies, a decision by a fund to
invest in a particular loan participation will depend almost
exclusively on Putnam Management's and the original lending
institutions credit analysis of the borrower.
Loan participations may be structured in different forms,
including novations, assignments, and participating interests.
In a novation, a fund assumes all of the rights of a lending
institution in a loan, including the right to receive payments of
principal and interest and other amounts directly from the
borrower and to enforce its rights as a lender directly against
the borrower. A fund assumes the position of a co-lender with
other syndicate members. As an alternative, a fund may purchase
an assignment of a portion of a lender's interest in a loan. In
this case, a fund may be required generally to rely upon the
assigning bank to demand payment and enforce its rights against
the borrower, but would otherwise be entitled to all of such
bank's rights in the loan. A fund may also purchase a
participating interest in a portion of the rights of a lending
institution in a loan. In such case, it will be entitled to
receive payments of principal, interest, and premium, if any, but
will not generally be entitled to enforce its rights directly
against the agent bank or the borrower, but must rely for that
purpose on the lending institution. A fund may also acquire a
loan participation directly by acting as a member of the original
lending syndicate.
A fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to
collect and pass on to a fund such payments and to enforce a
fund's rights under the loan. As a result, an insolvency,
bankruptcy, or reorganization of the lending institution may
delay or prevent a fund from receiving principal, interest, and
other amounts with respect to the underlying loan. When a fund
is required to rely upon a lending institution to pay to the fund
principal, interest, and other amounts received by it, Putnam
Management will also evaluate the creditworthiness of the lending
institution.
The borrower of a loan in which a fund holds a participation
interest may, either at its own election or pursuant to terms of
the loan documentation, prepay amounts of the loan from time to
time. There is no assurance that a fund will be able to reinvest
the proceeds of any loan prepayment at the same interest rate or
on the same terms as those of the original loan participation.
Corporate loans in which a fund may purchase a loan participation
are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs, and other
corporate activities. Under current market conditions, most of
the corporate loan participations purchased by a fund will
represent interests in loans made to finance highly leveraged
corporate acquisitions, known as "leveraged buy-out"
transactions. The highly leveraged capital structure of the
borrowers in such transactions may make such loans especially
vulnerable to adverse changes in economic or market conditions.
In addition, loan participations generally are subject to
restrictions on transfer, and only limited opportunities may
exist to sell such participations in secondary markets. As a
result, a fund may be unable to sell loan participations at a
time when it may otherwise be desirable to do so or may be able
to sell them only at a price that is less than their fair market
value.
Certain of the loan participations acquired by a fund may involve
revolving credit facilities under which a borrower may from time
to time borrow and repay amounts up to the maximum amount of the
facility. In such cases, a fund would have an obligation to
advance its portion of such additional borrowings upon the terms
specified in the loan participation. To the extent that a fund
is committed to make additional loans under such a participation,
it will at all times hold and maintain in a segregated account
liquid assets in an amount sufficient to meet such commitments.
Certain of the loan participations acquired by a fund may also
involve loans made in foreign currencies. A fund's investment in
such participations would involve the risks of currency
fluctuations described above with respect to investments in the
foreign securities.
Mortgage Related Securities
To the extent described in the prospectus, each fund may invest
in mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed
securities. CMOs and other mortgage-backed securities represent
a participation in, or are secured by, mortgage loans.
Mortgage-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike
traditional debt securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount comes
due, payments on certain mortgage-backed securities include both
interest and a partial repayment of principal. Besides the
scheduled repayment of principal, repayments of principal may
result from the voluntary prepayment, refinancing, or foreclosure
of the underlying mortgage loans. If property owners make
unscheduled prepayments of their mortgage loans, these
prepayments will result in early payment of the applicable
mortgage-related securities. In that event a fund may be unable
to invest the proceeds from the early payment of the mortgage-
related securities in an investment that provides as high a yield
as the mortgage-related securities. Consequently, early payment
associated with mortgage-related securities may cause these
securities to experience significantly greater price and yield
volatility than that experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected
by factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and
other social and demographic conditions. During periods of
falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. During periods of rising interest rates, the
rate of mortgage prepayments usually decreases, thereby tending
to increase the life of mortgage-related securities. If the life
of a mortgage-related security is inaccurately predicted, a fund
may not be able to realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest rates. One reason is the need to reinvest prepayments
of principal; another is the possibility of significant
unscheduled prepayments resulting from declines in interest
rates. These prepayments would have to be reinvested at lower
rates. As a result, these securities may have less potential for
capital appreciation during periods of declining interest rates
than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of
rising interest rates. Prepayments may also significantly
shorten the effective maturities of these securities, especially
during periods of declining interest rates. Conversely, during
periods of rising interest rates, a reduction in prepayments may
increase the effective maturities of these securities, subjecting
them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of a fund.
Prepayments may cause losses on securities purchased at a
premium. At times, some of the mortgage-backed securities in
which a fund may invest will have higher than market interest
rates and therefore will be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will
cause the fund to experience a loss equal to any unamortized
premium.
CMOs may be issued by a U.S. government agency or instrumentality
or by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by the U.S. government or its
agencies or instrumentalities, these CMOs represent obligations
solely of the private issuer and are not insured or guaranteed by
the U.S. government, its agencies or instrumentalities or any
other person or entity.
Prepayments could cause early retirement of CMOs. CMOs are
designed to allocate the risk of prepayment among investors by
issuing multiple classes of securities, each having different
maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated
among the several classes in various ways. Payment of interest
or principal on some classes or series of CMOs may be subject to
contingencies or some classes or series may bear some or all of
the risk of default on the underlying mortgages. CMOS of
different classes or series are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
If enough mortgages are repaid ahead of schedule, the classes or
series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by a fund would have
the same effect as the prepayment of mortgages underlying other
mortgage-backed securities. Conversely, slower than anticipated
prepayments can extend the effective maturities of CMOs,
subjecting them to a greater risk of decline in market value in
response to rising interest rates than traditional debt
securities, and, therefore, potentially increasing the volatility
of the fund.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of
the interest and principal distributions on a pool of mortgage
loans. A fund may invest in both the interest-only or "IO" class
and the principal-only or "PO" class. The yield to maturity on
an IO class of stripped mortgage-backed securities is extremely
sensitive not only to changes in prevailing interest rates but
also to the rate of principal payments (including prepayments) on
the underlying assets. A rapid rate of principal prepayments may
have a measurable adverse effect on the fund's yield to maturity
to the extent it invests in IOs. If the assets underlying the IO
experience greater than anticipated prepayments of principal, the
fund may fail to recoup fully its initial investment in these
securities. Conversely, POs tend to increase in value if
prepayments are greater than anticipated and decline if
prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may
be more volatile and less liquid than that for other mortgage-
backed securities, potentially limiting a fund's ability to buy
or sell those securities at any particular time.
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Securities Loans
Each fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that the loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the fund an
amount equal to any dividends or interest received on securities
lent. The fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities may pass to the borrower, the
fund retains the right to call the loans at any time on
reasonable notice, and it will do so to enable the fund to
exercise voting rights on any matters materially affecting the
investment. The fund may also call such loans in order to sell
the securities.
Forward Commitments
Each fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the fund sets aside, on the books and
records of its custodian, liquid assets in an amount sufficient
to meet the purchase price, or if the fund enters into offsetting
contracts for the forward sale of other securities it owns. In
the case of to-be-announced ("TBA") purchase commitments, the
unit price and the estimated principal amount are established
when the fund enters into a contract, with the actual principal
amount being within a specified range of the estimate. Forward
commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the fund's other
assets. Where such purchases are made through dealers, the fund
relies on the dealer to consummate the sale. The dealer's
failure to do so may result in the loss to the fund of an
advantageous yield or price. Although a fund will generally
enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options
contracts it has entered into, a fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to
do so. A fund may realize short-term profits or losses upon the
sale of forward commitments.
A fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received
until the contractual settlement date. During the time a TBA
sale commitment is outstanding, equivalent deliverable
securities, or an offsetting TBA purchase commitment deliverable
on or before the sale commitment date, are held as "cover" for
the transaction. Unsettled TBA sale commitments are valued at
the current market value of the underlying securities. If the
TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, that fund realizes a gain or loss
on the commitment without regard to any unrealized gain or loss
on the underlying security. If a fund delivers securities under
the commitment, the fund realizes a gain or loss from the sale of
the securities based upon the unit price established at the date
the commitment was entered into.
Repurchase Agreements
Each fund may enter into repurchase agreements up to the limit
specified in the prospectus. A repurchase agreement is a
contract under which a fund acquires a security for a relatively
short period (usually not more than one week) subject to the
obligation of the seller to repurchase and the fund to resell
such security at a fixed time and price (representing the fund's
cost plus interest). It is the Trust's present intention to
enter into repurchase agreements only with commercial banks and
registered broker-dealers approved by the Trustees and only with
respect to obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by a fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, a fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, a fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
Options on Securities
Writing covered options. Each fund may write covered call
options and covered put options on optionable securities held in
its portfolio, when in the opinion of Putnam Management such
transactions are consistent with a fund's investment objective(s)
and policies. Call options written by a fund give the purchaser
the right to buy the underlying securities from the fund at a
stated exercise price; put options give the purchaser the right
to sell the underlying securities to the fund at a stated price.
Each fund may write only covered options, which means that, so
long as a fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. Each fund may
write combinations of covered puts and calls on the same
underlying security.
A fund will receive a premium from writing a put or call option,
which increases the fund's return on the underlying security in
the event the option expires unexercised or is closed out at a
profit. The amount of the premium reflects, among other things,
the relationship between the exercise price and the current
market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
A fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in
which it purchases an offsetting option. The fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. If a
fund writes a call option but does not own the underlying
security, and when it writes a put option, the fund may be
required to deposit cash or securities with its broker as
"margin," or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
Purchasing put options. A fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
Purchasing call options. A fund may purchase call options to
hedge against an increase in the price of securities that the
fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
Risk Factors in Options Transactions
The successful use of a fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate
and market movements. For example, if the fund were to write a
call option based on Putnam Management's expectation that the
price of the underlying security would fall, but the price were
to rise instead, the fund could be required to sell the security
upon exercise at a price below the current market price.
Similarly, if the fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When a fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
fund will lose part or all of its investment in the option. This
contrasts with an investment by the fund in the underlying
security, since the fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on a fund's ability to
terminate option positions at times when Putnam Management deems
it desirable to do so. There is no assurance that the fund will
be able to effect closing transactions at any particular time or
at an acceptable price.
If a secondary market in options were to become unavailable, a
fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt normal market operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, a fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by a fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise,
the Options Clearing Corporation may prohibit indefinitely the
exercise of put options. The fund, as holder of such a put
option, could lose its entire investment if the prohibition
remained in effect until the put option's expiration.
Foreign-traded options are subject to many of the same risks
presented by internationally-traded securities. In addition,
because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by a fund and assets
held to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the fund's ability to invest in illiquid
securities.
Futures Contracts and Related Options
Subject to applicable law, and unless otherwise specified in the
prospectus, a fund may invest without limit in the types of
futures contracts and related options identified in the
prospectus for hedging and non-hedging purposes, such as to
manage the effective duration of the fund's portfolio or as a
substitute for direct investment. A financial futures contract
sale creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to take delivery
of the type of financial instrument called for in the contract in
a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. If the fund is unable to enter into
a closing transaction, the amount of the fund's potential loss is
unlimited. The closing out of a futures contract purchase is
effected by the purchaser's entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price,
the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss. In
general, 40% of the gain or loss arising from the closing out of
a futures contract traded on an exchange approved by the CFTC is
treated as short-term gain or loss, and 60% is treated as long-
term gain or loss.
Unlike when a fund purchases or sells a security, no price is
paid or received by the fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of liquid assets. This
amount is known as "initial margin." The nature of initial
margin in futures transactions is different from that of margin
in security transactions in that futures contract margin does not
involve the borrowing of funds to finance the transactions.
Rather, the initial margin is similar to a performance bond or
good faith deposit which is returned to the fund upon termination
of the futures contract, assuming all contractual obligations
have been satisfied. Futures contracts also involve brokerage
costs.
Subsequent payments, called "variation margin" or "maintenance
margin," to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when a fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the fund would be required to make a variation
margin payment to the broker.
A fund may elect to close some or all of its futures positions at
any time prior to their expiration date in order to reduce or
eliminate the hedge position then currently held by the fund.
The fund may close its positions by taking opposite positions
which will operate to terminate the fund's position in the
futures contracts. Final determinations of variation margin are
then made, additional cash is required to be paid by or released
to the fund, and the fund realizes a loss or a gain. Such
closing transactions involve additional commission costs.
None of the funds intend to purchase or sell futures or related
options for other than hedging purposes, if, as a result, the sum
of the initial margin deposits on the fund's existing futures and
related options positions and premiums paid for outstanding
options on futures contracts would exceed 5% of the fund's net
assets.
Options on futures contracts. A fund may purchase and write call
and put options on futures contracts it may buy or sell and enter
into closing transactions with respect to such options to
terminate existing positions. In return for the premium paid,
options on futures contracts give the purchaser the right to
assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The
fund may use options on futures contracts in lieu of writing or
buying options directly on the underlying securities or
purchasing and selling the underlying futures contracts. For
example, to hedge against a possible decrease in the value of its
portfolio securities, a fund may purchase put options or write
call options on futures contracts rather than selling futures
contracts. Similarly, a fund may purchase call options or write
put options on futures contracts as a substitute for the purchase
of futures contracts to hedge against a possible increase in the
price of securities which the fund expects to purchase. Such
options generally operate in the same manner as options purchased
or written directly on the underlying investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
A fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those
described above in connection with the discussion of futures
contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by a fund is subject to
Putnam Management's ability to predict movements in various
factors affecting securities markets, including interest rates.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to a fund because the maximum amount at risk
is the premium paid for the options (plus transaction costs).
However, there may be circumstances when the purchase of a call
or put option on a futures contract would result in a loss to a
fund when the purchase or sale of a futures contract would not,
such as when there is no movement in the prices of the hedged
investments. The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of
futures contracts.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the prices of the
securities underlying the futures and options purchased and sold
by the fund, of the options and futures contracts themselves,
and, in the case of hedging transactions, of the securities which
are the subject of a hedge. The successful use of these
strategies further depends on the ability of Putnam Management to
forecast interest rates and market movements correctly.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a position held by a fund, the fund may
seek to close out such position. The ability to establish and
close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. Treasury security futures contracts and options. U.S.
Treasury security futures contracts require the seller to
deliver, or the purchaser to take delivery of, the type of U.S.
Treasury security called for in the contract at a specified date
and price. Options on U.S. Treasury security futures contracts
give the purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury security futures contract at
the specified option exercise price at any time during the period
of the option.
Successful use of U.S. Treasury security futures contracts by a
fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if a fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect securities held in its portfolio,
and the prices of the fund's securities increase instead as a
result of a decline in interest rates, the fund will lose part or
all of the benefit of the increased value of its securities which
it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the fund
has insufficient cash, it may have to sell securities to meet
daily maintenance margin requirements at a time when it may be
disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for particular
securities. For example, if a fund has hedged against a decline
in the values of fixed-income securities held by it by selling
Treasury security futures and the values of Treasury securities
subsequently increase while the values of its fixed-income
securities decrease, the fund would incur losses on both the
Treasury security futures contracts written by it and the
fixed-income securities held in its portfolio.
Index futures contracts. An index futures contract is a contract
to buy or sell units of an index at a specified future date at a
price agreed upon when the contract is made. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. A fund may
enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective(s). A fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if a
fund enters into a futures contract to buy 500 units of the S&P
500 at a specified future date at a contract price of $150 and
the S&P 500 is at $154 on that future date, the fund will gain
$2,000 (500 units x gain of $4). If the fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by a fund of
index futures. One risk arises because of the imperfect
correlation between movements in the prices of the index futures
and movements in the prices of securities which are the subject
of the hedge. Putnam Management will, however, attempt to reduce
this risk by buying or selling, to the extent possible, futures
on indices the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the
securities sought to be hedged.
Successful use of index futures by a fund is also subject to
Putnam Management's ability to predict movements in the direction
of the market. For example, it is possible that, where a fund
has sold futures to hedge its portfolio against a decline in the
market, the index on which the futures are written may advance
and the value of securities held in the fund's portfolio may
decline. If this occurred, the fund would lose money on the
futures and also experience a decline in value in its portfolio
securities. It is also possible that, if a fund has hedged
against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices
increase instead, the fund will lose part or all of the benefit
of the increased value of those securities it has hedged because
it will have offsetting losses in its futures positions. In
addition, in such situations, if the fund has insufficient cash,
it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a profitable position over a short time period.
Options on stock index futures. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time
during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of
the accumulated balance in the writer's futures margin account
which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price
of the option on the index future. If an option is exercised on
the last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
Options on Indices
As an alternative to purchasing call and put options on index
futures, a fund may purchase and sell call and put options on the
underlying indices themselves. Such options would be used in a
manner identical to the use of options on index futures.
Index Warrants
A fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the fund were not to
exercise an index warrant prior to its expiration, then the fund
would lose the amount of the purchase price paid by it for the
warrant.
A fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of a fund's
use of index warrants are generally similar to those relating to
its use of index options. Unlike most index options, however,
index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
fund's ability to exercise the warrants at such time, or in such
quantities, as the fund would otherwise wish to do.
Foreign Investments
A fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. These foreign investments
involve certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of a fund's foreign
investments and the value of its shares (other than Putnam VT
Money Market Fund) may be affected favorably or unfavorably by
changes in currency exchange rates relative to the U.S. dollar.
There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not
generally subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions and other fees are also generally
higher than in the United States. Foreign settlement procedures
and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of a fund's
assets held abroad) and expenses not present in the settlement of
investments in U.S. markets.
In addition, a fund's investments in foreign securities may be
subject to the risk of nationalization or expropriation of
assets, imposition of currency exchange controls or restrictions
on the repatriation of foreign currency, confiscatory taxation,
political or financial instability and diplomatic developments
which could affect the value of a fund's investments in certain
foreign countries. Dividends or interest on, or proceeds from
the sale of, foreign securities may be subject to foreign
withholding taxes, and special U.S. tax considerations may apply.
Legal remedies available to investors in certain foreign
countries may be more limited than those available with respect
to investments in the United States or in other foreign
countries. The laws of some foreign countries may limit a fund's
ability to invest in securities of certain issuers organized
under the laws of those foreign countries.
The risks described above, including the risks of nationalization
or expropriation of assets, are typically increased in connection
with investments in "emerging markets." For example, political
and economic structures in these countries may be in their
infancy and developing rapidly, and such countries may lack the
social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past
failed to recognize private property rights and have at times
nationalized and expropriated the assets of private companies.
High rates of inflation or currency devaluations may adversely
affect the economies and securities markets of such countries.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have
experienced a steady devaluation relative to the U.S. dollar, and
continued devaluations may adversely affect the value of a fund's
assets denominated in such currencies. Many emerging market
companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued
inflation may adversely affect the economies and securities
markets of such countries.
In addition, unanticipated political or social developments may
affect the value of a fund's investments in emerging markets and
the availability to a fund of additional investments in these
markets. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may
make a fund's investments in securities traded in emerging
markets illiquid and more volatile than investments in securities
traded in more developed countries, and a fund may be required to
establish special custodial or other arrangements before making
investments in securities traded in emerging markets. There may
be little financial or accounting information available with
respect to issuers of emerging market securities, and it may be
difficult as a result to assess the value or prospects of an
investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities
of U.S. issuers having significant foreign operations.
Foreign Currency Transactions
Unless otherwise specified in the prospectus or this SAI, a fund
may engage without limit in currency exchange transactions,
including purchasing and selling foreign currency, foreign
currency options, foreign currency forward contracts and foreign
currency futures contracts and related options, to manage its
exposure to foreign currencies. In addition, a fund may write
covered call and put options on foreign currencies for the
purpose of increasing its current return.
Generally, a fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law.
When it engages in transaction hedging, the fund enters into
foreign currency transactions with respect to specific
receivables or payables, generally arising in connection with the
purchase or sale of portfolio securities. The fund will engage
in transaction hedging when it desires to "lock in" the U.S.
dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging, the fund will attempt
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the
dividend or interest payment is earned, and the date on which
such payments are made or received.
A fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. If conditions warrant, for transaction
hedging purposes a fund may also enter into contracts to purchase
or sell foreign currencies at a future date ("forward contracts")
and purchase and sell foreign currency futures contracts. A
foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be
higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have
margin requirements. In addition, for transaction hedging
purposes a fund may also purchase or sell exchange-listed and
over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies. A fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency
futures contracts.
A fund's currency hedging transactions may call for the delivery
of one foreign currency in exchange for another foreign currency
and may at times not involve currencies in which its portfolio
securities are then denominated. Putnam Management will engage
in such "cross hedging" activities when it believes that such
transactions provide significant hedging opportunities for a
fund.
Cross hedging transactions by a fund involve the risk of
imperfect correlation between changes in the values of the
currencies to which such transactions relate and changes in the
value of the currency or other asset or liability which is the
subject of the hedge.
For transaction hedging purposes, a fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration
of the option. A put option on a currency gives the fund the
right to sell the currency at an exercise price until the
expiration of the option. A call option on a futures contract
gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on a
currency gives the fund the right to purchase the currency at the
exercise price until the expiration of the option.
A fund may engage in position hedging to protect against a
decline in the value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in the value of the currency in which the
securities the fund intends to buy are denominated, when the fund
holds cash or short-term investments). For position hedging
purposes, the fund may purchase or sell, on exchanges or in over-
the-counter markets, foreign currency futures contracts, foreign
currency forward contracts and options on foreign currency
futures contracts and on foreign currencies on exchanges or in
over-the-counter markets. In connection with position hedging, a
fund may also purchase or sell foreign currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for a fund
to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of the
security or securities being hedged is less than the amount of
foreign currency the fund is obligated to deliver and a decision
is made to sell the security or securities and make delivery of
the foreign currency. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the
sale of the portfolio security or securities if the market value
of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency. See "Risk factors in options
transactions" above.
A fund may seek to increase its current return or to offset some
of the costs of hedging against fluctuations in current exchange
rates by writing covered call options and covered put options on
foreign currencies. The fund receives a premium from writing a
call or put option, which increases the fund's current return if
the option expires unexercised or is closed out at a net profit.
The fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in
which it purchases an option having the same terms as the option
written.
The fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the fund. Cross hedging transactions by the fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For example, Putnam Management may believe that exposure to a
currency is in the fund's best interest but that securities
denominated in that currency will not assist the fund in meeting
its objective. In that case the fund may purchase a currency
forward contract or option in order to increase its exposure to
the currency. In accordance with SEC regulations, the fund will
segregate liquid assets in its portfolio to cover forward
contracts used for non-hedging purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values of
foreign currency options, forward contracts and futures
contracts) may be affected significantly, fixed, or supported
directly or indirectly by U.S. and foreign government actions.
Government intervention may increase risks involved in purchasing
or selling foreign currency options, forward contracts and
futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or
futures contract reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar
and the foreign currency in question. Because foreign currency
transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the exercise of foreign currency options, forward contracts and
futures contracts, investors may be disadvantaged by having to
deal in an odd-lot market for the underlying foreign currencies
in connection with options at prices that are less favorable than
for round lots. Foreign governmental restrictions or taxes could
result in adverse changes in the cost of acquiring or disposing
of foreign currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
The decision as to whether and to what extent a fund will engage
in foreign currency exchange transactions will depend on a number
of factors, including prevailing market conditions, the
composition of the fund's portfolio and the availability of
suitable transactions. Accordingly, there can be no assurance
that a fund will engage in foreign currency exchange transactions
at any given time or from time to time.
Currency forward and futures contracts. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a price set at the time of the
contract. Foreign currency futures contracts traded in the
United States are designed by and traded on exchanges regulated
by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amount agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the fund may
either accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although a fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the fund would continue to be required to make
daily cash payments of variation margin.
Foreign currency options. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many of the risks described above. Foreign currency
options are traded primarily in the over-the-counter market,
although options on foreign currencies are also listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
A fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists
for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
Settlement procedures. Settlement procedures relating to a
fund's investments in foreign securities and to the fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currencies may occur within a foreign country, and the
fund may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to a fund at one
rate, while offering a lesser rate of exchange should the fund
desire to resell that currency to the dealer.
Restricted Securities
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security
is readily marketable (as described in the investment
restrictions of the funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
Year 2000. Like other financial and business organizations, the
funds depend on the proper function of their service providers'
computer systems. To the extent that the systems used by the
funds or their service providers cannot distinguish between the
year 1900 and the year 2000 or have other operating difficulties
as a result of the year 2000, the operations of and services
provided to the funds and their shareholders could be adversely
impacted. Putnam Management and its affiliates have reported
that each expects to modify its systems, as necessary, to address
this so-called "year 2000 problem," and will, on behalf of the
funds, inquire as to the year 2000 compliance of the funds' other
major service providers. However, there can be no assurance that
the operations of and services provided to the funds and their
shareholders will not be adversely affected. Similarly,
companies in which the funds invest may also experience "year
2000 problems," which could ultimately result in losses to a fund
to the extent that the securities of any such company decline in
value as a result of a "year 2000 problem."
TAXES
Taxation of the Trust. Each fund intends to qualify each year as
a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, each fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) Distribute with respect to each taxable year at least 90%
of the sum of its taxable net investment income, its net
tax-exempt income, and the excess, if any, of net short-term
capital gains over net long-term capital losses for such year;
and
(c) Diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's
assets is represented by cash and cash items, U.S. government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If a fund qualifies as a regulated investment company that is
accorded special tax treatment, the fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If a fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the fund
would be subject to tax on its taxable income at corporate rates.
In addition, the fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If a fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the fund
will be subject to a 4% excise tax on the undistributed amounts.
A fund is exempt from this distribution requirement and excise
tax if at all times during the calendar year each shareholder in
the fund was "a segregated asset account of a life insurance
company held in connection with variable contracts."
Hedging transactions. If a fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including constructive sale, mark-to-market,
straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's
securities, or convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount,
timing and character of the fund's distributions. The fund will
endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interests of
the fund.
Securities issued or purchased at a discount. A fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
Capital loss carryover. Distributions from capital gains are
made after applying any available capital loss carryovers. The
amounts and expiration dates of any capital loss carryovers
available to a fund are shown in Note 1 (Federal income taxes) to
the financial statements incorporated by reference into this SAI.
Foreign currency-denominated securities and related hedging
transactions. The fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the fund's assets at year end consists of the
stock or securities of foreign corporations, the fund may elect
to permit shareholders to claim a credit or deduction on their
income tax returns for their pro rata portion of qualified taxes
paid by the fund to foreign countries in respect of foreign
securities the fund has held for at least the minimum period
specified in the Code. In such a case, shareholders will include
in gross income from foreign sources their pro rata shares of
such taxes. A shareholder's ability to claim a foreign tax
credit or deduction in respect of foreign taxes paid by the fund
may be subject to certain limitations imposed by the Code, as a
result of which a shareholder may not get a full credit or
deduction for the amount of such taxes. In particular,
shareholders must hold their fund shares (without protection from
risk of loss) on the ex-dividend date and for at least 15
additional days during the 30-day period surrounding the ex-
dividend date to be eligible to claim a foreign tax credit with
respect to a given dividend. Shareholders who do not itemize on
their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Investment by a fund in "passive foreign investment companies"
could subject the fund to a U.S. federal income tax or other
charge on the proceeds from the sale of its investment in such a
company; however, this tax can be avoided by making an election
to mark such investments to market annually or to treat the
passive foreign investment company as a "qualified electing
fund."
A "passive foreign investment company" is any foreign
corporation: (i) 75 percent of more of the income of which for
the taxable year is passive income, or (ii) the average
percentage of the assets of which (generally by value, but by
adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent.
Generally, passive income for this purpose means dividends,
interest (including income equivalent to interest), royalties,
rents, annuities, the excess of gains over losses from certain
property transactions and commodities transactions, and foreign
currency gains. Passive income for this purpose does not include
rents and royalties received by the foreign corporation from
active business and certain income received from related persons.
This discussion of federal income tax treatment of the Trust and
its shareholders is based on the law as of the date of this SAI.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
as to any fund without a vote of a majority of the outstanding
voting securities of that fund, the Trust may not and will not
take any of the following actions with respect to that fund:
(1)(a) (All funds except Putnam VT The George Putnam Fund of
Boston, Putnam VT Health Sciences Fund, Putnam VT Investors Fund,
Putnam VT OTC & Emerging Growth Fund and Putnam VT Voyager Fund)
Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of the fund's total assets (not including
the amount borrowed) at the time the borrowing is made, and then
only from banks as a temporary measure to facilitate the meeting
of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
(1)(b) (Putnam VT Voyager Fund) Borrow more than 50% of the
value of its total assets (excluding borrowings and stock index
futures contracts and call options on stock index futures
contracts and stock indices) less liabilities other than
borrowings and stock index futures contracts and call options on
stock index futures contracts and stock indices.
(1)(c) (Putnam VT The George Putnam Fund of Boston, Putnam VT
Health Sciences Fund, Putnam VT Investors Fund and Putnam VT OTC
& Emerging Growth Fund) Borrow money in excess of 33 1/3% of
the value of its total assets (not including the amount borrowed)
at the time the borrowing is made.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are secured by interests in real estate, and securities which
represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired
through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein.
<PAGE>
(4) Purchase or sell commodities or commodity contracts, except
that the fund may purchase and sell financial futures contracts
and options and may enter into foreign exchange contracts and
other financial transactions not involving physical commodities.
(5)(a) (All funds except Putnam VT The George Putnam Fund of
Boston, Putnam VT Health Sciences Fund, Putnam VT Investors Fund
and Putnam VT OTC & Emerging Growth Fund) Make loans, except by
purchase of debt obligations in which the fund may invest
consistent with its investment policies, by entering into
repurchase agreements, or by lending its portfolio securities.
(5)(b) (Putnam VT The George Putnam Fund of Boston, Putnam VT
Health Sciences Fund, Putnam Investors Fund and Putnam OTC &
Emerging Growth Fund) Make loans, except by purchase of debt
obligations in which the fund may invest consistent with its
investment policies (including without limitation debt
obligations issued by other Putnam Funds), by entering into
repurchase agreements, or by lending its portfolio securities.
(6)(a) (All funds except Putnam VT Health Sciences Fund and
Putnam VT Utilities Growth and Income Fund) With respect to 75%
of its total assets, invest in the securities of any issuer if,
immediately after such investment, more than 5% of the total
assets of the fund (taken at current value) would be invested in
the securities of such issuer; provided that this limitation does
not apply to obligations issued or guaranteed as to interest or
principal by the U.S. government or its agencies or
instrumentalities.
(6)(b) (Putnam VT Health Sciences Fund and Putnam VT Utilities
Growth and Income Fund) With respect to 50% of its total assets,
invest in the securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the fund (taken
at current value) would be invested in the securities of such
issuer; provided that this limitation does not apply to
obligations issued or guaranteed as to interest or principal by
the U.S. government or its agencies or instrumentalities.
(7)(a) (All funds except Putnam VT Health Sciences Fund and
Putnam VT Utilities Growth and Income Fund) With respect to 75%
of its total assets, acquire more than 10% of the outstanding
voting securities of any issuer.
(7)(b) (Putnam VT Health Sciences Fund and Putnam VT Utilities
Growth and Income Fund) With respect to 50% of its total assets,
acquire more than 10% of the outstanding voting securities of any
issuer.
(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of
such purchase, more than 25% of the fund's total assets would be
invested in any one industry; except that Putnam VT Utilities
Growth and Income Fund may invest more than 25% of its assets in
any of the public utilities industries; and except that Putnam VT
Money Market Fund may invest up to 100% of its assets (i) in the
banking industry, (ii) in the personal credit institution or
business credit institution industries when in the opinion of
management yield differentials make such investments desirable,
or (iii) any combination of these.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest, except for permitted borrowings.
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of a fund or the
Trust means the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of a fund or the Trust, as the case
may be, or (2) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
---------------------
It is contrary to each funds' present policy, which may be
changed without shareholder approval, to:
(1) Invest in (a) securities which are not readily marketable,
(b) securities restricted as to resale (excluding securities
determined by the Trustees of the fund (or the person designated
by the Trustees of the fund to make such determinations) to be
readily marketable), and (c) repurchase agreements maturing in
more than seven days, if, as a result, more than 15% of the
fund's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
All percentage limitations on investments (other than pursuant to
non-fundamental restriction (1)) will apply at the time of the
making of an investment and shall not be considered violated
unless an excess or deficiency occurs or exists immediately after
and as a result of such investment.
MANAGEMENT
Trustees Name (Age)
*+George Putnam (71), Chairman and President. Chairman and
Director of Putnam Management and Putnam Mutual Funds. Director,
Freeport Copper and Gold, Inc. (a mining and natural resource
company), Houghton Mifflin Company (a major publishing company)
and Marsh & McLennan Companies, Inc.
<PAGE>
+William F. Pounds (70), Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of IDEXX Laboratories, Inc., Management
Sciences for Health, Inc., and Sun Company, Inc.
Jameson A. Baxter (54), Trustee. President, Baxter Associates,
Inc. (a management and financial consulting firm). Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation (printing and digital imaging). Chairman Emeritus of
the Board of Trustees, Mount Holyoke College.
+Hans H. Estin (69), Trustee. Chartered Financial Analyst and
Vice Chairman, North American Management Corp. (a registered
investment adviser).
John A. Hill (56), Trustee. Chairman and Managing Director,
First Reserve Corporation (a registered investment adviser
investing in companies in the world-wide energy industry on
behalf of institutional investors). Director of Snyder Oil
Corporation, TransMontaigne Oil Company, Weatherford Enterra,
Inc. (an oil field service company) and various private companies
owned by First Reserve Corporation, such as James River Coal and
Anker Coal Corporation, and various First Reserve Funds, such as
American Gas & Oil Investors, Ltd., AmGO II, L.P., First Reserve
Secured Energy Assets Fund, L.P., First Reserve Fund V., L.P.,
First Reserve Fund VI, L.P., and First Reserve Fund VII, L.P.
Ronald J. Jackson (54), Trustee. Former Chairman, President and
Chief Executive Officer of Fisher-Price, Inc.
*Paul L. Joskow (50), Trustee. Professor of Economics and
Management and Head of the Department of Economics, Massachusetts
Institute of Technology. Director, New England Electric System,
State Farm Indemnity Company and Whitehead Institute for
Biomedical Research. He has been a consultant to National
Economic Research Associates, Inc. since 1972.
Elizabeth T. Kennan (60), Trustee. President Emeritus and
Professor, Mount Holyoke College. Director, Bell Atlantic (a
telecommunications company), the Kentucky Home Life Insurance
Companies, NYNEX Corporation, Northeast Utilities and Talbots.
*Lawrence J. Lasser (55), Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. and the United Way of Massachusetts Bay.
John H. Mullin, III (56), Trustee. Chairman and CEO of Ridgeway
Farm, Director of ACX Technologies, Inc. (a company engaged in
the manufacture of industrial ceramics and packaging products),
Alex. Brown Realty, Inc. and The Liberty Corporation (a company
engaged in the life insurance and broadcasting industries).
+Robert E. Patterson (53), Trustee. President and Trustee of
Cabot Industrial Trust (a publicly traded real estate investment
trust). Director of Brandywine Trust Company. Trustee of SEA
Education Association.
*Donald S. Perkins (71), Trustee. Director of various
corporations, including AON Corp. (an insurance company), Cummins
Engine Company, Inc. (an engine and power generator manufacturer
and assembler), Current Assets L.L.C. (a corporation providing
financial staffing services), LaSalle Street Fund, Inc. and
LaSalle U.S. Realty Income and Growth Fund, Inc. (real estate
investment trusts), Lucent Technologies Inc., Nanophase
Technologies Inc. (a producer of nano crystalline materials),
Ryerson Tull, Inc. (America's largest steel service corporation),
and Springs Industries, Inc. (a textile manufacturer.)
*#George Putnam III (46), Trustee. President, New Generation
Research, Inc. (a publisher of financial advisory and other
research services relating to bankrupt and distressed companies)
and New Generation Advisers, Inc. (a registered investment
adviser). Director, Massachusetts Audubon Society and The Boston
Family Office, L.L.C. (a registered investment advisor).
*A.J.C. Smith (64), Trustee. Chairman and Chief Executive
Officer, Marsh & McLennan Companies, Inc. Director, Trident
Corp.
W. Thomas Stephens (55), Trustee. President and Chief Executive
Officer of MacMillan Bloedel Ltd. Director, Qwest Communications
(a fiber optics manufacturer) and New Century Energies (a public
utility company).
W. Nicholas Thorndike (65), Trustee. Director of various
corporations and charitable organizations, including Courier
Corporation, Data General Corporation, Bradley Real Estate, Inc.,
and Providence Journal Co.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
<PAGE>
Officers Name (Age)
Charles E. Porter (59), Executive Vice President. Managing
Director of Putnam Investments, Inc. and Putnam Management.
Patricia C. Flaherty (51), Vice President. Senior Vice President
of Putnam Investments, Inc. and Putnam Management.
William N. Shiebler (56), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director of Putnam Mutual Funds.
Gordon H. Silver (50), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. and Putnam
Management.
Ian C. Ferguson (40), Vice President. Senior Managing Director
of Putnam Management.
John R. Verani (58), Vice President. Senior Vice President of
Putnam Investments, Inc. and Putnam Management.
John D. Hughes (63), Senior Vice President and Treasurer.
Beverly Marcus (53), Clerk and Assistant Treasurer.
-----------------
Each of the following persons is also a Vice President of the
Trust and certain of the other Putnam funds, the total of which
is noted parenthetically. Officers of Putnam Management hold the
same offices in Putnam Management's parent company, Putnam
Investments, Inc.
Ian C. Ferguson (40) (101 funds), Senior Managing Director of
Putnam Management.
Anthony W. Regan (58) (2 funds), Senior Managing Director of
Putnam Management.
Robert R. Beck (57) (2 funds), Managing Director of Putnam
Management.
Brett C. Browchuk (35) (52 funds), Managing Director of Putnam
Management.
William J. Curtin (38) (60 funds), Managing Director of Putnam
Management.
<PAGE>
Omid Kamshad (35) (4 funds), Managing Director of Putnam
Management.
D. William Kohli (37) (8 funds), Managing Director of Putnam
Management.
Anthony I. Kreisel (53) (12 funds), Managing Director of Putnam
Management.
William J. Landes (45) (19 funds), Managing Director of Putnam
Management.
Jennifer E. Leichter (37) (11 funds), Managing Director of Putnam
Management.
Michael Martino (45) (8 funds), Managing Director of Putnam
Management.
Carol C. McMullen (42) (14 funds), Managing Director of Putnam
Management.
Daniel L. Miller (40) (6 funds), Managing Director of Putnam
Management.
Justin M. Scott (40) (9 funds), Managing Director of Putnam
Management.
Eric M. Wetlaufer (36) (2 funds), Managing Director of Putnam
Management.
William E. Zieff (38) (19 funds), Managing Director of Putnam
Management.
Michael K. Arends (44) (2 funds), Senior Vice President of Putnam
Management.
Edward P. Bousa (39) (3 funds), Senior Vice President of Putnam
Management.
David G. Carlson (36) (1 fund), Senior Vice President of Putnam
Management.
C. Beth Cotner (45) (4 fund), Senior Vice President of Putnam
Management.
Ami T. Kuan Danoff (35) (4 funds), Senior Vice President of
Putnam Management.
Richard England (39) (2 funds), Senior Vice President of Putnam
Management.
Richard M. Frucci (53) (1 fund), Senior Vice President of Putnam
Management.
Roland W. Gillis (48) (4 funds), Senior Vice President of Putnam
Management.
J. Peter Grant (55) (5 funds), Senior Vice President of Putnam
Management.
Steven L. Kirson (37) (1 fund), Senior Vice President of Putnam
Management.
David L. King (41) (5 funds), Senior Vice President of Putnam
Management.
Kelly A. Morgan (35) (2 funds), Senior Vice President of Putnam
Management.
Michael J. Mufson (35) (1 fund), Senior Vice President of Putnam
Management.
Robert M. Paine (34) (6 funds), Senior Vice President of
Putnam Management.
Christopher A. Ray (35) (2 funds), Senior Vice President of
Putnam Management.
Anthony C. Santosus (39) (1 fund), Senior Vice President of
Putnam Management.
Sheldon N. Simon (40) (4 funds), Senior Vice President of Putnam
Management.
Michael P. Stack (39) (2 funds), Senior Vice President of Putnam
Management.
Charles H. Swanberg (50) (4 funds), Senior Vice President of
Putnam Management.
Robert Swift (37) (5 funds), Senior Vice President of Putnam
Management.
David K. Thomas (56) (3 funds), Senior Vice President of Putnam
Management.
Paul Warren (37) (3 funds), Senior Vice President of Putnam
Management.
Manuel Weiss (49) (1 fund), Senior Vice President of Putnam
Management.
<PAGE>
Gail S. Attridge (36) (8 funds), Vice President of Putnam
Management.
Joanne M. Driscoll (27) (2 funds), Vice President of Putnam
Management.
David J. Santos (40) (3 funds), Vice President of Putnam
Management.
Rosemary H. Thomsen (37) (3 funds), Vice President of Putnam
Management.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to 1993, Mr. Jackson was
Chairman of the Board, President and Chief Executive Officer of
Fisher-Price, Inc. Prior to June, 1995, Ms. Kennan was President
of Mount Holyoke College. Prior to 1996, Mr. Stephens was
Chairman of the Board of Directors, President and Chief Executive
Officer of Johns Manville Corporation. Prior to February, 1998,
Mr. Patterson was Executive Vice President and Director of
Acquisitions of Cabot Partners Limited Partnership. Prior to
November, 1993, Ms. Attridge was an Analyst at Keystone Custody
International. Prior to April, 1993, Ms. Kuan attended the MIT
Sloan School of Management. Prior to April, 1996, Mr. Ferguson
was CEO at Hong Kong Shanghai Banking Corporation. Prior to
January, 1994, Mr. Martino was employed by Back Bay Advisors in
the positions of Executive Vice President and Chief Investment
Officer from 1992 to 1994. Prior to June, 1995, Ms. McMullen was
Senior Vice President of Baring Asset Management. Prior to
March, 1995, Mr. Gillis was Vice President at Keystone Custodian
Funds, Inc. Prior to January, 1996, Mr. Kamshad was Director of
Investments at Lombard Odier International and prior to April,
1995 he was Director at Baring Asset Management Company. Prior
to September, 1994, Mr. Kohli was Executive Vice President and
Co-Director of Global Bond Management and, prior to October,
1993, Senior Portfolio Manager, at Franklin Advisors/Templeton
Investment Counsel. Prior to December, 1992, Mr. Ray was Vice
President and Portfolio Manager at Scudder, Stevens & Clark, Inc.
Prior to June, 1993, Mr. Siegel was Vice President at Salomon
Brothers International LTD. Prior to August, 1995, Mr. Swift was
Director and Senior Portfolio Manager at IAI International/Hill
Samuel Investment Advisors. Prior to December, 1996 Ms. Morgan
was Senior Vice President at Alliance Capital Management L.P.
Prior to May, 1997, Mr. Warren was a Director at IDS Fund
Management, and prior to August, 1994 was a Director at Pilgrim
Baxter Associates. Prior to March, 1994 Mr. Warren was a
Director at Prudential Asia, and prior to February, 1993 was a
Director at Rothschild Asset Management. Prior to December,
1996, Mr. Zieff was Manager of the Global Asset Allocation Group
at Grantham, Mayo, Van Otterloo & Co. Prior to November 1997,
Mr. Arends was employed by Phoenix Duff & Phelps as a Managing
Director, Equities. Prior to August 1994, Mr. Arends was
employed as a Portfolio Manager with Kemper Financial Services.
Prior to November 1997, Mr. Wetlaufer was employed as a Managing
Director and Portfolio Manager at Cadence Capital Management.
Prior to November, 1997, Mr. Stack was employed as a Senior Vice
President and Portfolio Manager at Independence Investment
Associates, Inc. Prior to April, 1995, Ms. Driscoll was a
Graduate Teaching Assistant in the Finance Department at
Northeaster University and prior to September, 1994, Ms. Driscoll
was a Financial Associate at Bank Boston. Prior to June, 1993,
Ms. Driscoll was an Investment Associate at BayBanks Investment
Management. Prior to September, 1995, Ms. Cotner was Executive
Vice President of Kemper Financial Services. Prior to June,
1993, Mr. Mufson was Senior Equity Analyst at Stein Roe &
Farnham.
The Trust pays each Trustee a fee for his or her services. Each
Trustee also receives fees for serving as Trustee of other Putnam
funds. The Trustees periodically review their fees to assure
that such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to trustees
of other mutual fund complexes. The Trustees meet monthly over a
two-day period, except in August. The Compensation Committee,
which consists solely of Trustees not affiliated with Putnam
Management and is responsible for recommending Trustee
compensation, estimates that Committee and Trustee meeting time
together with the appropriate preparation requires the equivalent
of at least three business days per Trustee meeting. The
following table shows the year each Trustee was first elected a
Trustee of the Putnam funds the fees paid to each Trustee by each
Putnam VT fund for fiscal 1997 (except for Putnam VT The George
Putnam Fund of Boston, Putnam VT Health Sciences Fund, Putnam VT
Investors Fund and Putnam VT OTC & Emerging Growth Fund, for
which fees expected to be paid for the first full fiscal year are
shown), and the fees paid to each Trustee by all of the Putnam
funds for the year ended December 31, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate compensation (1) from:
Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT
Asia Pacific Diversified Global Asset Global Growth and High
Trustee/Year Growth Income Allocation Growth Income Yield
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $932 $1,121 $1,242 $2,287 $5,776 $1,386
Hans H. Estin/1972 927 1,115 1,234 2,273 5,743 1,386
John A. Hill/1985 (5) 927 1,115 1,234 2,273 5,743 1,386
Ronald J. Jackson/1996 (5) 932 1,121 1,242 2,287 5,776 1,386
Paul L. Joskow/1997 (8) 128 157 177 325 855 195
Elizabeth T. Kennan/1992 922 1,108 1,228 2,261 5,709 1,370
Lawrence J. Lasser/1992 912 1,096 1,214 2,235 5,642 1,355
John H. Mullin/1997 (8) 128 157 177 325 855 195
Robert E. Patterson/1984 932 1,121 1,242 2,286 5,776 1,386
Donald S. Perkins/1982 932 1,121 1,242 2,286 5,776 1,386
William F. Pounds/1971 (6) 952 1,210 1,380 2,528 6,896 1,528
George Putnam/1957 927 1,115 1,235 2,274 5,742 1,382
George Putnam, III/1984 922 1,109 1,228 2,261 5,709 1,370
A.J.C. Smith/1986 901 1,083 1,200 2,209 5,577 1,338
W. Thomas Stephens (5) (7) 281 337 287 528 1,369 320
W. Nicholas Thorndike/1992 932 1,121 1,242 2,287 5,776 1,386
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE (continued)
Aggregate compensation (1) from:
Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT
International International International New Money New New
Trustee/Year Growth Growth and Income Opportunities Market Value Opportunities
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $389 $401 $395 $522 $264 $2,435
Hans H. Estin/1972 389 401 395 519 264 2,421
John A. Hill/1985 (5) 389 401 395 519 264 2,421
Ronald J. Jackson/1996 (5) 389 401 395 522 263 2,435
Paul L. Joskow/1997 (8) 113 117 115 75 77 350
Elizabeth T. Kennan/1992 384 397 390 516 261 2,407
Lawrence J. Lasser/1992 376 387 390 510 261 2,380
John H. Mullin/1997 (8) 113 117 115 75 77 350
Robert E. Patterson/1984 389 401 395 522 264 2,435
Donald S. Perkins/1982 389 401 395 522 264 2,435
William F. Pounds/1971 (6) 401 418 407 602 281 2,759
George Putnam/1957 384 396 390 519 261 2,422
George Putnam, III/1984 380 392 386 516 258 2,408
A.J.C. Smith/1986 376 388 381 504 255 2,352
W. Thomas Stephens (5) (7) 248 257 253 159 167 567
W. Nicholas Thorndike/1992 389 401 395 522 263 2,435
/TABLE
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Estimated Aggregate compensation (1) from:
Putnam VT
Putnam VT Putnam VT The George
Putnam VT OTC & Emerging Health Putnam Fund
Trustee/Year Investors+ Growth+ Sciences+ of Boston+
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $401 $401 $401 $401
Hans H. Estin/1972 401 401 401 401
John A. Hill/1985 (5) 401 401 401 401
Ronald J. Jackson/1996 (5) 401 401 401 401
Paul L. Joskow/1997 (8) 401 401 401 401
Elizabeth T. Kennan/1992 401 401 401 401
Lawrence J. Lasser/1992 401 401 401 401
John H. Mullin/1997 (8) 401 401 401 401
Robert E. Patterson/1984 401 401 401 401
Donald S. Perkins/1982 401 401 401 401
William F. Pounds/1971 (6) 418 418 418 418
George Putnam/1957 401 401 401 401
George Putnam, III/1984 401 401 401 401
A.J.C. Smith/1986 401 401 401 401
W. Thomas Stephens (5) (7) 401 401 401 401
W. Nicholas Thorndike/1992 401 401 401 401
</TABLE>
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Aggregate compensation (1) from:
Estimated
annual
benefits
Putnam VT from all
Putnam VT U.S. Government Putnam funds
Utilities Growth and High Putnam VT Putnam VT All Putnam upon
Trustee/Year and Income Quality Bond Vista Voyager funds (2) retirement (4)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $1,292 $1,022 $263 $3,929 $176,000 $87,500
Hans H. Estin/1972 1,285 1,016 264 3,907 175,000 87,500
John A. Hill/1985 (5) 1,285 1,016 264 3,907 175,000 87,500
Ronald J. Jackson/1996 (5) 1,292 1,022 264 3,929 176,000 87,500
Paul L. Joskow/1997 (8) 178 138 77 560 25,500 87,500
Elizabeth T. Kennan/1992 1,278 1,011 260 3,885 174,000 87,500
Lawrence J. Lasser/1992 1,264 1,000 260 3,841 172,000 87,500
John H. Mullin/1997 (8) 178 138 77 560 25,000 87,500
Robert E. Patterson/1984 1,292 1,022 263 3,929 176,000 87,500
Donald S. Perkins/1982 1,292 1,022 263 3,929 176,000 87,500
William F. Pounds/1971 (6) 1,404 1,147 277 4,528 201,000 98,000
George Putnam/1957 1,286 1,017 260 3,907 175,000 87,500
George Putnam, III/1984 1,279 1,011 257 3,885 174,000 87,500
A.J.C. Smith/1986 1,249 988 254 3,796 170,000 87,500
W. Thomas Stephens (5) (7) 293 225 167 900 53,000 87,500
W. Nicholas Thorndike/1992 1,292 1,022 263 3,929 176,000 87,500
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or retirement benefits accrued as part of fund expenses (3) from:
Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT
Asia Pacific Diversified Global Asset Global Growth and High
Trustee/Year Growth Income Allocation Growth Income Yield
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $189 $225 $245 $452 $1091 $276
Hans H. Estin/1972 470 558 608 1122 2708 685
John A. Hill/1985 (5) 177 210 229 422 1019 258
Ronald J. Jackson/1996 (5) 79 94 103 190 458 116
Paul L. Joskow/1997 (8) N/A N/A N/A N/A N/A N/A
Elizabeth T. Kennan/1992 244 289 315 582 1404 355
Lawrence J. Lasser/1992 183 217 236 436 1053 266
John H. Mullin/1997 (8) N/A N/A N/A N/A N/A N/A
Robert E. Patterson/1984 141 168 183 338 815 206
Donald S. Perkins/1982 510 605 659 1217 2937 743
William F. Pounds/1971 (6) 528 627 683 1261 3043 769
George Putnam/1957 537 637 694 1282 3093 782
George Putnam, III/1984 93 110 120 222 536 136
A.J.C. Smith/1986 317 377 410 757 1827 462
W. Thomas Stephens (5) (7) N/A N/A N/A N/A N/A N/A
W. Nicholas Thorndike/1992 350 416 453 836 2018 510
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE (continued)
Pension or retirement benefits accrued as part of fund expenses (3) from:
Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT
International International International New Money New New
Trustee/Year Growth++ Growth and Income++ Opportunities++ Market Value++ Opportunities
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $0 $0 $0 $103 $0 $474
Hans H. Estin/1972 0 0 0 255 0 1177
John A. Hill/1985 (5) 0 0 0 96 0 443
Ronald J. Jackson/1996 (5) 0 0 0 43 0 199
Paul L. Joskow/1997 (8) 0 0 0 N/A 0 N/A
Elizabeth T. Kennan/1992 0 0 0 132 0 610
Lawrence J. Lasser/1992 0 0 0 99 0 458
John H. Mullin/1997 (8) 0 0 0 N/A 0 N/A
Robert E. Patterson/1984 0 0 0 77 0 354
Donald S. Perkins/1982 0 0 0 276 0 1276
William F. Pounds/1971 (6) 0 0 0 286 0 1323
George Putnam/1957 0 0 0 291 0 1344
George Putnam, III/1984 0 0 0 50 0 233
A.J.C. Smith/1986 0 0 0 172 0 794
W. Thomas Stephens (5) (7) 0 0 0 N/A 0 N/A
W. Nicholas Thorndike/1992 0 0 0 190 0 877
/TABLE
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Pension or retirement benefits accrued as part of fund expenses (3) from:
Putnam VT
Putnam VT U.S. Government
Utilities Growth and High Putnam VT Putnam VT
Trustee/Year and Income Quality Bond Vista++ Voyager
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $263 $212 $0 $775
Hans H. Estin/1972 652 525 0 1923
John A. Hill/1985 (5) 245 198 0 724
Ronald J. Jackson/1996 (5) 110 89 0 325
Paul L. Joskow/1997 (8) N/A N/A 0 N/A
Elizabeth T. Kennan/1992 338 272 0 997
Lawrence J. Lasser/1992 253 204 0 748
John H. Mullin/1997 (8) N/A N/A 0 N/A
Robert E. Patterson/1984 196 158 0 579
Donald S. Perkins/1982 707 569 0 2086
William F. Pounds/1971 (6) 733 590 0 2162
George Putnam/1957 745 600 0 2197
George Putnam, III/1984 129 104 0 381
A.J.C. Smith/1986 440 354 0 1298
W. Thomas Stephens (5) (7) N/A N/A 0 N/A
W. Nicholas Thorndike/1992 486 391 0 1434
/TABLE
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Pension or retirement benefits accrued as part of fund expenses (3) from:
Putnam VT
Putnam VT Putnam VT The George
Putnam VT OTC & Emerging Health Putnam Fund
Trustee/Year Investors++ Growth++ Sciences++ of Boston++
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $0 $0 $0 $0
Hans H. Estin/1972 0 0 0 0
John A. Hill/1985 (5) 0 0 0 0
Ronald J. Jackson/1996 (5) 0 0 0 0
Paul L. Joskow/1997 (8) 0 0 0 0
Elizabeth T. Kennan/1992 0 0 0 0
Lawrence J. Lasser/1992 0 0 0 0
John H. Mullin/1997 (8) 0 0 0 0
Robert E. Patterson/1984 0 0 0 0
Donald S. Perkins/1982 0 0 0 0
William F. Pounds/1971 (6) 0 0 0 0
George Putnam/1957 0 0 0 0
George Putnam, III/1984 0 0 0 0
A.J.C. Smith/1986 0 0 0 0
W. Thomas Stephens (5) (7) 0 0 0 0
W. Nicholas Thorndike/1992 0 0 0 0
<PAGE>
+ Reflects estimated amounts to be paid for the current fiscal year.
++ For certain newly created funds, actual pension or retirement benefit information is not yet available.
(1) Includes an annual retainer and an attendance fee for each meeting attended.
(2) As of December 31, 1997, there were 101 funds in the Putnam family.
(3) The Trustees approved a Retirement Plan for Trustees of the Putnam funds on October 1, 1996.
(4) Assumes that each Trustee retires at the normal retirement date. Estimated benefits for each Trustee are based on
Trustee fee rates in effect during calendar 1997.
(5) Includes compensation deferred pursuant to a Trustee Compensation Deferral Plan. The total amounts of deferred
compensation payable to Ms. Baxter as of December 31, 1997 by Putnam VT Growth and Income Fund and Putnam VT
Voyager Fund, were $5,728 and $4,156, respectively, including income earned on such amounts. The total amounts of
deferred compensation payable to Mr. Hill as of December 31, 1997 by Putnam VT Global Asset Allocation Fund, Putnam
VT Global Growth Fund, Putnam VT Growth and Income Fund, Putnam VT High Yield Fund, Putnam VT New Opportunities
Fund, Putnam VT U.S. Government and High Quality Bond Fund, Putnam VT Utilities Growth and Income Fund, and Putnam
VT Voyager Fund, were $4,079, $6,837, $14,706, $4,096, $5,013, $4,097, $4,305, and $11,998 respectively, including
income earned on such amounts. The total amounts of deferred compensation payable to Mr. Jackson as of December
31, 1997 by Putnam VT Global Asset Allocation Fund, Putnam VT Global Growth Fund, Putnam VT Growth and Income Fund,
Putnam VT High Yield Fund, Putnam VT New Opportunities Fund, Putnam VT U.S. Government and High Quality Bond Fund,
Putnam VT Utilities Growth and Income Fund, and Putnam VT Voyager Fund, were $2,225, $4,020, $9,197, $2,371,
$4,037, $1,990, $2,328, and $6,858 respectively, including income earned on such amounts. The total amounts of
deferred compensation payable to Mr. Stephens as of December 31, 1997 by Putnam VT Global Asset Allocation Fund,
Putnam VT Global Growth Fund, Putnam VT Growth and Income Fund, Putnam VT High Yield Fund, Putnam VT New
Opportunities Fund, Putnam VT U.S. Government and High Quality Bond Fund, Putnam VT Utilities Growth and Income
Fund, and Putnam VT Voyager Fund, were $285, $523, $1,358, $317, $562, $223, $291, and $893 respectively, including
income earned on such amounts.
(6) Includes additional compensation for service as Vice Chairman of the Putnam funds.
(7) Elected a Trustee in September 1997.
(8) Elected a Trustee in November 1997.
/TABLE
<PAGE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"), each Trustee who retires with at least five years of
service as a Trustee of the funds is entitled to receive an
annual retirement benefit equal to one-half of the average annual
compensation paid to such Trustee for the last three years of
service prior to retirement. This retirement benefit is payable
during a Trustee's lifetime, beginning the year following
retirement, for a number of years equal to such Trustee's years
of service. A death benefit is also available under the Plan
which assures that the Trustee and his or her beneficiaries will
receive benefit payments for the lesser of an aggregate period of
(i) ten years or (ii) such Trustee's total years of service.
The Plan Administrator (a committee comprised of Trustees that
are not "interested persons" of the fund, as defined in the
Investment Company Act of 1940) may terminate or amend the Plan
at any time, but no termination or amendment will result in a
reduction in the amount of benefits (i) currently being paid to a
Trustee at the time of such termination or amendment, or (ii) to
which a current Trustee would have been entitled had he or she
retired immediately prior to such termination or amendment.
For additional information concerning the Trustees, see
"Management" in this SAI.
The Agreement and Declaration of Trust of the Trust provides that
the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
Trust, except if it is determined in the manner specified in such
Agreement and Declaration of Trust that such Trustees and
officers have not acted in good faith in the reasonable belief
that their actions were in the best interests of the Trust or
that such indemnification would relieve any officer or Trustee of
any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense,
provides liability insurance for the benefit of its Trustees and
officers.
Trustees and officers of the Trust who are also officers of
Putnam Management or its affiliates or stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
transfer agency fees and custodian fees and fees paid or allowed
by the Trust. At March 31, 1998, the officers and Trustees as a
group owned directly no shares of the Trust or any fund. As of
that date, less than 1% of the value of the accumulation units
with respect to any fund was attributable to the officers and
Trustees of the Trust, as a group, owning variable annuity
contracts or variable life insurance policies issued by the
insurers listed in the following tables. All of the shares of
each of the funds are owned by the insurance company separate
accounts listed below and by Putnam Management pursuant to its
initial capital contribution to each fund during the organization
of the Trust and the subsequent organization of Putnam VT Global
Growth Fund, Putnam VT Utilities Growth and Income Fund, Putnam
VT Diversified Income Fund, Putnam VT New Opportunities Fund,
Putnam VT Asia Pacific Growth Fund, Putnam VT International
Growth Fund, Putnam VT International Growth and Income Fund,
Putnam VT International New Opportunities Fund, Putnam VT New
Value Fund and Putnam VT Vista Fund. Except to the extent set
forth below, to the knowledge of the Trust no person owned of
record or beneficially 5% or more of the shares of any fund as of
March 31, 1998.
Issuer and name of
Separate Account
(1) Hartford Life Percentage of
Insurance Company Fund shares owned of record
(a) Putnam Capital Manager Trust
Separate Account
Putnam VT Asia
Pacific Growth Fund 38.70%
Putnam VT Diversified
Income Fund 51.71%
Putnam VT Global
Asset Allocation Fund 50.25%
Putnam VT Global
Growth Fund 44.33%
Putnam VT Growth and
Income Fund 51.41%
Putnam VT High Yield Fund 43.67%
Putnam VT International
Growth Fund 36.61%
Putnam VT International
Growth and Income Fund 41.49%
Putnam VT International
New Opportunities Fund 39.84%
Putnam VT Money Market Fund 48.31%
<PAGE>
Issuer and name of
Separate Account
(1) Hartford Life Percentage of
Insurance Company Fund shares owned of record
(a) Putnam Capital Manager Trust
Separate Account (continued)
Putnam VT New Opportunities
Fund 4.04%
Putnam VT New Value Fund 38.91%
Putnam VT U.S. Government
and High Quality Bond Fund 66.33%
Putnam VT Utilities
Growth and Income Fund 54.01%
Putnam VT Vista Fund 41.09%
Putnam VT Voyager Fund 46.72%
(b) Putnam Capital Manager Trust
Separate Account VLI
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund 1.05%
Putnam VT Global
Growth Fund 1.23%
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Issuer and name of
Separate Account
(1) Hartford Life Percentage of
Insurance Company Fund shares owned of record
(b) Putnam Capital Manager Trust
Separate Account VLI (continued)
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund 1.00%
(c) Putnam Capital Manager Trust
Separate Account VLII
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
Issuer and name of
Separate Account
(1) Hartford Life Percentage of
Insurance Company Fund shares owned of record
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT International
Growth Fund *
Putnam VT International
Growth and Income Fund *
Putnam VT International
New Opportunities Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT U.S. Government
and High Quality Bond Fund *
<PAGE>
Issuer and name of
Separate Account
(1) Hartford Life Percentage of
Insurance Company Fund shares owned of record
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five (continued)
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Vista Fund *
Putnam VT Voyager Fund *
(e) Putnam Capital Manager Trust
Variable Life
Separate Account VLUL
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
(2) ITT Hartford Life
and Annuity Percentage of
Insurance Company Fund shares owned of record
(a) Putnam Capital Manager Trust
Separate Account Two
Putnam VT Asia Pacific
Growth Fund 60.09%
Putnam VT Diversified
Income Fund 44.21%
Putnam VT Global Asset
Allocation Fund 47.68%
Putnam VT Global Growth
Fund 52.99%
Putnam VT Growth and
Income Fund 45.95%
Putnam VT High Yield Fund 54.08%
Putnam VT International
Growth Fund 54.88%
Putnam VT International
Growth and Income Fund 58.25%
Putnam VT International
New Opportunities Fund 59.38%
Putnam VT Money Market Fund 46.20%
Putnam VT New
Opportunities Fund 5.76%
Putnam VT New Value Fund 60.60%
Putnam VT U.S. Government
and High Quality Bond Fund 30.41%
Putnam VT Utilities Growth
and Income Fund 43.39%
Putnam VT Vista Fund 58.59%
Putnam VT Voyager Fund 48.53%
<PAGE>
(2) ITT Hartford Life
and Annuity Percentage of
Insurance Company Fund shares owned of record
(b) Putnam Capital Manager Trust
Separate Account VLI
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(c) Putnam Capital Manager Trust
Separate Account VLII
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
<PAGE>
(2) ITT Hartford Life
and Annuity Percentage of
Insurance Company Fundshares owned of record
(c) Putnam Capital Manager Trust
Separate Account VLII (continued)
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT International
Growth Fund *
Putnam VT International
Growth and Income Fund *
(2) ITT Hartford Life
and Annuity Percentage of
Insurance Company Fundshares owned of record
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five (continued)
Putnam VT International
New Opportunities Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Vista Fund *
Putnam VT Voyager Fund *
(e) Putnam Capital Manager Trust
Separate Account Six
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
<PAGE>
(2) ITT Hartford Life
and Annuity Percentage of
Insurance Company Fund shares owned of record
(g) Putnam Capital Manager Trust
Separate Account VLUL
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
Issuer and name
of Separate Account
(3) ReliaStar Life Percentage of
Insurance Company Fund shares owned of record
(a) Putnam Variable Trust
Select Life I
Putnam VT Diversified
Income Fund 1.12%
Putnam VT Growth and
Income Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(b) Putnam Variable Trust
Select Life II
Putnam VT Asia Pacific
Growth Fund 1.12%
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(c) Putnam Variable Trust
Select Life III
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
(3) ReliaStar Life Percentage of
Insurance Company Fund shares owned of record
(c) Putnam Variable Trust
Select Life III (continued)
Putnam VT New
Opportunities Fund *
Putnam VT Utilities
Growth and Income Fund *
Putnam VT Voyager Fund *
(d) Putnam Variable Trust
Survivorship Flexible
Premium Variable Life (SVUL I)
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Utilities
Growth and Income Fund *
Putnam VT Voyager Fund *
(e) Putnam Variable Trust
ReliaStar Select Annuity II
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
(3) ReliaStar Life Percentage of
Insurance Company Fund shares owned of record
(f) Putnam Variable Trust
ReliaStar Select Annuity III
Putnam VT Asia Pacific
Growth Fund 2.86%
Putnam VT Diversified
Income Fund 1.72%
Putnam VT Growth and
Income Fund *
Putnam VT New
Opportunities Fund 87.71%
Putnam VT Utilities Growth
and Income Fund 1.03%
Putnam VT Voyager Fund 1.32%
(4) ReliaStar Life Percentage of
Insurance Company Fund shares owned of record
of New York
(a) Putnam Variable Trust
ReliaStar Select Life New York
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT Voyager
Fund *
(5) American Enterprise
Life Insurance Company
(a) American Enterprise
Variable Annuity Account
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
(5) American Enterprise Percentage of
Life Insurance Company Fund shares owned of record
(a) American Enterprise
Variable Annuity Account (continued)
Putnam VT Global Growth
Fund *
Putnam VT High Yield Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Voyager Fund *
(b) American Enterprise
American Centurion Life
Putnam VT Diversified Income Fund *
Putnam VT Global Growth and Income
Fund *
Putnam VT High Yield Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Voyager Fund *
(6) Investors Life
Insurance Company of Percentage of
North America Fundshares owned of record
Putnam Variable Trust
CIGNA Separate
Account I
Putnam VT Growth and
Income Fund *
Putnam VT Money
Market Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Voyager Fund *
Issuer and name of
Separate Account
(7) Paragon Life Percentage of shares
Insurance Company Fund owned of record as
(a) Putnam Variable Trust
Paragon Variable Life
Putnam VT Asia Pacific Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities
Growth and Income Fund *
Putnam VT Voyager Fund *
(b) Putnam Variable Trust
Paragon Variable Life
Multi-Manager
Putnam VT High Yield Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Voyager Fund *
Issuer and name of
Separate Account
(8) IDS Life Percentage of shares
Insurance Company Fund owned of record as
(a) IDS Life Variable
Account 10
Putnam VT New
Opportunities Fund 1.68%
(b) IDS Life of New York
Flexible Portfolio
Annuity Account
Putnam VT New
Opportunities Fund *
(c) IDS Life Variable
Life Separate Account
Putnam VT New
Opportunities Fund *
(d) IDS Life of New
York Account 8
Putnam VT New
Opportunities Fund *
(9) Cova Financial Life Percentage of shares
Insurance Company Fund owned of record as
(a) Variable Annuity
Account One
Putnam VT Growth and Income Fund *
Putnam VT International Growth Fund *
Putnam VT International
New Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT Vista Fund *
(b) Variable Annuity
Account Five
Putnam VT Growth and
Income Fund *
Putnam VT International
Growth Fund *
Issuer and name of
Separate Account
(9) Cova Financial Life Percentage of shares
Insurance Company Fund owned of record as
(b) Variable Annuity
Account Five (continued)
Putnam VT International
New Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT Vista Fund *
*Less than 1/10th of 1%.
The address for the separate accounts listed in (1) and (2) above
is: P.O. Box 2099, Hartford, CT 06140-2999. The address for the
separate account listed in (3) above is: 20 Washington Avenue
South, Minneapolis, MN 55401. The address for the separate
account listed in (4) above is: 80 S. Eighth Street,
Minneapolis, MN 55440. The address for the separate account
listed in (5) above is: Austin Centre, 701 Brazos Street,
Austin, TX 78701. The address for the separate account listed in
(6) above is: 100 South Brentwood, St. Louis, MO 63105. The
address for the separate account listed in (7) above is: IDS
Tower 10, Minneapolis, MN 55440.
Each of the insurance companies issuing the separate accounts
listed above have agreed to vote their shares in proportion to
and in the manner instructed by contract and policy owners. By
virtue of the foregoing, each of these insurance companies, or
any of them together, may be deemed to be a controlling person of
each of the funds.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than could be purchased by the
investor individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual
funds since 1937. Today, the firm serves as the investment
manager for the funds in the Putnam Family, with nearly $182
billion in assets in over 9 million shareholder accounts at
December 31, 1997. An affiliate, The Putnam Advisory Company,
Inc., manages domestic and foreign institutional accounts and
mutual funds, including the accounts of many Fortune 500
companies. Another affiliate, Putnam Fiduciary Trust Company,
provides investment advice to institutional clients under its
banking and fiduciary powers. At December 31, 1997, Putnam
Management and its affiliates managed nearly $181 billion in
assets, including over $19 billion in tax-exempt securities and
over $57 billion in retirement plan assets.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of a fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees, custodian fees and transfer
agency fees paid or allowed by the fund.
The Management Contract
Under a Management Contract between the Trust and Putnam
Management dated October 2, 1987, as supplemented March 2, 1990,
and as further supplemented February 27, 1992, July 9, 1993,
April 5, 1994, June 2, 1994, April 7, 1995, July 13, 1995, July
11, 1996 and as further supplemented, December 20, 1996, February
6, 1998 subject to such policies as the Trustees may determine,
Putnam Management, at its expense, furnishes continuously an
investment program for the funds and makes investment decisions
on their behalf. Subject to the control of the Trustees, Putnam
Management also manages, supervises and conducts the other
affairs and business of the Trust, furnishes office space and
equipment, provides bookkeeping and clerical services (including
determination of the net asset value, but excluding shareholder
accounting services) and places all orders for the purchase and
sale of the Trust's portfolio securities. Putnam Management may
place the Trust's portfolio transactions with broker-dealers
which furnish Putnam Management, without cost to it, certain
research, statistical and quotation services of value to Putnam
Management and its affiliates in advising the Trust and other
clients. In so doing, Putnam Management may cause a fund to pay
greater brokerage commissions than it might otherwise pay.
The compensation payable to Putnam Management under the
Management Contract for its investment management services to the
funds is paid quarterly at the following annual rates of each
fund's average net assets, as determined at the close of each
business day during the quarter:
Fund Rate
Putnam VT International New 1.20% of the first $500
Opportunities Fund million of average net
assets, 1.10% of the
next $500 million,
1.05% of the next $500
million, 1.00% of the
next $5 billion, 0.975%
of the next $5 billion,
0.955% of the next $5
billion, 0.94% of the
next $5 billion, and
0.93% of any excess
thereafter
Putnam VT Asia Pacific Growth Fund, 0.80% of the first $500
Putnam VT International Growth Fund, and million of average net
Putnam VT International Growth and assets, 0.70% of the
Income Fund next $500 million,
0.65% of the next $500
million, 0.60% of the
next $5 billion, 0.575%
of the next $5 billion,
0.555% of the next $5
billion, 0.54% of the
next $5 billion, and
0.53% of any excess
thereafter.
Putnam VT Diversified Income Fund, 0.70% of the first $500
Putnam VT Global Asset Allocation Fund, million of average
Putnam VT Health Sciences Fund, Putnam net assets, 0.60% of
VT High Yield Fund, Putnam VT New the next $500 million,
Opportunities Fund, Putnam VT New 0.55% of the next $500
Value Fund, Putnam VT OTC & Emerging million, 0.50% of the
Growth Fund, Putnam VT Utilities Growth next $5 billion, 0.475%
and Income Fund, and Putnam VT Voyager of the next $5 billion,
Fund 0.455% of the next $5
billion, 0.44% of the
next $5 billion and
0.43% of any excess
thereafter.
Putnam VT Growth and Income Fund, 0.65% of the first $500
Putnam VT Investors Fund, Putnam million of average net
VT The George Putnam Fund of Boston, assets, 0.55% of the
Putnam VT U.S. Government and High next $500 million,
Quality Bond Fund, and Putnam VT 0.50% of the next $500
Vista Fund million, 0.45% of the
next $5 billion, 0.425%
of the next $5 billion,
0.405% of the next $5
billion, 0.39% of the
next $5 billion and
0.38% of any excess
thereafter.
Putnam VT Global Growth Fund 0.60% of average net
assets.
Putnam VT Money Market Fund 0.45% of the first $500
million of average net
assets, 0.35% of the
next $500 million,
0.30% of the next $500
million, 0.25% of the
next $5 billion, 0.225%
of the next $5 billion,
0.205% of the next $5
billion, 0.19% of the
next $5 billion and
0.18% of any excess
thereafter.
The Trust pays affiliates of Putnam Management additional amounts
for investor servicing and custody services.
In addition to the fee paid to Putnam Management, the Trust
reimburses Putnam Management for the compensation and related
expenses of certain officers of the funds and certain persons who
assist them in carrying out the responsibilities of their
offices. During fiscal 1996, the Trust reimbursed Putnam
Management $192,769 in this regard, including $170,800 in
contributions to the Putnam Investments, Inc. Profit Sharing
Retirement Plan for the benefit of such officers and their
assistants. The Trust may also pay or reimburse Putnam
Management for all or a part of the compensation and related
expenses of one or more other officers of the Trust and their
assistants who provide certain administrative services for the
fund and the other Putnam funds, each of which bears an allocated
share of the foregoing costs. Currently the Trust is reimbursing
Putnam Management for the compensation and related expenses of
the Senior Vice President and the Clerk of the Trust. The
aggregate amount of all such payments and reimbursements is
determined annually by the Trustees. Putnam Management pays all
other salaries of officers of the Trust. The Trust pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Trust pays any cost of
typesetting for its prospectuses and any cost of printing and
mailing prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the Trust or to any shareholder of
the Trust for any act or omission in the course of or connected
with rendering services to the Trust in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management. The Management
Contract may be terminated as to the Trust or as to any fund
without penalty by vote of the Trustees or the shareholders of
one or more Funds affected, or by Putnam Management, on 30 days'
written notice. It may be amended with respect to a fund only by
a vote of the shareholders of that fund. The Management Contract
also terminates without payment of any penalty in the event of
its assignment. The Management Contract provides that it will
continue in effect as to any fund only so long as such
continuance is approved at least annually by vote of either the
Trustees or the shareholders of that fund, and, in either case,
by a majority of the Trustees who are not "interested persons" of
Putnam Management or any fund. In each of the foregoing cases,
the vote of the shareholders of any fund is the affirmative vote
of a "majority of the outstanding voting securities" of such fund
as defined in the Investment Company Act of 1940. The
continuation of the Contract as to all funds was unanimously
approved by the Trustees, including those Trustees who are not
"interested persons," on January 5, 1996. Putnam Management's
compensation under the Management Contract may be reduced in any
year if the fund's expenses exceed the limits on investment
company expenses imposed by any statute or regulatory authority
of any jurisdiction in which shares of the fund are qualified for
offer or sale. The term "expenses" is defined in the statutes or
regulations of such jurisdictions, and generally excludes
brokerage commissions, taxes, interest, extraordinary expenses
and, if the fund has a distribution plan, payments made under
such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that a fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and, if
the fund has a distribution plan, payments required under such
plan. For the purpose of determining any such limitation on
Putnam Management's compensation, expenses of the fund shall not
reflect the application of commissions or cash management credits
that may reduce designated fund expenses.
<PAGE>
Management fees
Reflecting a
reduction in the
following amounts
pursuant to an
Fund Fiscal Management expense
name year fee paid limitation
- ---- ------ ---------- -----------------
Putnam VT Asia
Pacific Growth 1997 $1,076,596
Fund 1996 $681,628
1995+ $67,583 $40,348
Putnam VT Diversified
Income Fund 1997 $3,811,378
1996 $2,766,551
1995 $1,741,950
Putnam VT Global
Asset Allocation
Fund 1997 $5,755,350
1996 $4,262,397
1995 $3,253,739
Putnam VT Global
Growth Fund 1997 $9,366,376
1996 $6,444,626
1995 $4,329,841
Putnam VT Growth
and Income Fund 1997 $34,012,687
1996 $21,454,942
1995 $13,096,405
Putnam VT High
Yield Fund 1997 $5,842,951
1996 $4,142,115
1995 $2,909,080
Putnam VT International
Growth Fund 1997* $608,193 $55,502
1996 N/A
1995 N/A
<PAGE>
Putnam VT International
Growth & Income
Fund 1997* $871,531
1996 N/A
1995 N/A
Putnam VT International
New Opportunities 1997* $893,002 $206,574
Fund 1996 N/A
1995 N/A
Putnam VT Money
Market Fund 1997 $2,090,282
1996 $1,689,370
1995 $1,061,046
Putnam VT New
Opportunities Fund 1997 $12,267,574
1996 $7,144,796
1995 $1,618,748
Putnam VT New
Value Fund 1997* $757,486
1996 N/A
1995 N/A
Putnam VT U.S.
Government and High
Quality Bond Fund 1997 $4,731,739
1996 $4,628,688
1995 $4,133,901
Putnam VT Utilities
Growth and Income
Fund 1997 $4,703,343
1996 $3,753,576
1995 $2,666,363
Putnam VT Vista Fund 1997* $600,249
1996 N/A
1995 N/A
Putnam VT Voyager
Fund 1997 $21,134,308
1996 $15,143,788
1995 $8,864,927
+ Commencement of operations May 1, 1995
* Commencement of operations January 2, 1997
Portfolio Transactions
Investment decisions. Investment decisions for each of the funds
and for the other investment advisory clients of Putnam
Management and its affiliates are made with a view to achieving
their respective investment objectives. Investment decisions are
the product of many factors in addition to basic suitability for
the particular client involved. Thus, a particular security may
be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security.
In some instances, one client may sell a particular security to
another client. It also sometimes happens that two or more
clients simultaneously purchase or sell the same security, in
which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such
clients in a manner which in Putnam Management's opinion is
equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
Brokerage and research services. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the Trust of
negotiated brokerage commissions. Such commissions vary among
different brokers. Also, a particular broker may charge
different commissions according to such factors as the difficulty
and size of the transaction. Transactions in foreign investments
often involve the payment of fixed brokerage commissions, which
may be higher than those in the United States. There is
generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the Trust
usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid includes a disclosed,
fixed commission or discount retained by the underwriter or
dealer.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive "brokerage and research
services" (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which these broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
funds' portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their non-
research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the Trust), although not all of these services
are necessarily useful and of value in managing the Trust. The
management fee paid by the Trust is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for each fund and buys and sells
investments for each fund through a substantial number of brokers
and dealers. In so doing, Putnam Management uses its best
efforts to obtain for each fund the most favorable price and
execution available, except to the extent it may be permitted to
pay higher brokerage commissions as described below. In seeking
the most favorable price and execution, Putnam Management, having
in mind each fund's best interests, considers all factors it
deems relevant, including, by way of illustration, price, the
size of the transaction, the nature of the market for the
security or other investment, the amount of the commission, the
timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause a fund to pay a
broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other agency transactions for the fund on an
agency basis in excess of the commission which another broker-
dealer would have charged for effecting that transaction. Putnam
Management's authority to cause a fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Trust to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly, Putnam
Management will use its best efforts to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of a fund, less any direct expenses approved by the
Trustees, shall be recaptured by the fund through a reduction of
the fee payable by the fund under the Management Contract.
Putnam Management seeks to recapture for each fund soliciting
dealer fees on the tender of the fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most
favorable price and execution available and such other policies
as the Trustees may determine, Putnam Management may consider
sales of shares of the Trust (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of broker-
dealers to execute portfolio transactions for the Funds.
Fund Fiscal Brokerage
name year commissions
- ---- ------ -----------
Putnam VT Asia
Pacific Growth
Fund (Commencement 1997 $679,699
of operations 1996 $829,577
May 1, 1995) 1995 $205,198
Putnam VT Diversified
Income Fund 1997 $32,813
1996 $11,983
1995 $14,676
Putnam VT Global Asset
Allocation Fund 1997 $1,043,014
1996 $908,217
1995 $797,004
Putnam VT Global
Growth Fund 1997 $8,339,967
1996 $3,111,557
1995 $2,275,831
<PAGE>
Putnam VT Growth and
Income Fund 1997 $8,609,589
1996 $5,056,587
1995 $3,637,703
Putnam VT High
Yield Fund 1997 $9,384
1996 $14,940
1995 $11,800
Putnam VT International
Growth Fund 1997 $553,235
1996 N/A
1995 N/A
Putnam VT International
Growth & Income Fund 1997 $659,464
1996 N/A
1995 N/A
Putnam VT International
New Opportunities
Fund 1997 $733,380
1996 N/A
1995 N/A
Putnam VT Money
Market Fund 1997 $0
1996 $0
1995 $0
Putnam VT New
Opportunities Fund
(Commencement of
operations
May 2, 1994) 1997 $2,268,158
1996 $1,584,684
1995 $312,487
Putnam VT New
Value Fund 1997 $292,442
1996 N/A
1995 N/A
Putnam VT U.S. Government
and High Quality
Bond Fund 1997 $85,584
1996 $23,582
1995 $2,880
Putnam VT Utilities
Growth and Income Fund 1997 $785,994
1996 $898,263
1995 $938,350
Putnam VT Vista Fund 1997 $174,221
1996 N/A
1995 N/A
Putnam VT Voyager Fund 1997 $3,624,594
1996 $3,380,235
1995 $2,171,392
Principal Underwriter
Putnam Mutual Funds is the principal underwriter of shares of the
Trust, which are continuously offered, and shares of the other
continuously offered Putnam funds. Putnam Mutual Funds is not
obligated to sell any specific amount of shares of the Trust and
will purchase shares for resale only against orders for shares.
Investor servicing agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Trust's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Trust as an expense
of all its shareholders. The fee paid to Putnam Investor
Services is determined on the basis of the number of shareholder
accounts, the number of transactions and the assets of the fund.
Putnam Investor Services won the DALBAR Quality Tested Service
Seal in 1990, 1991, 1992, 1993, 1994 and 1995. Over 10,000 tests
of 38 separate shareholder service components demonstrated that
Putnam Investor Services tied for the highest scores, with two
other mutual fund companies in all categories.
The Trust paid $12,166,403 in gross fees to PFTC for its investor
servicing and custody services during fiscal 1997. The Trust
made no payments to PFTC for out-of-pocket expenses related to
the investor servicing agent's function for the year. For a
description of the custodial services provided by PFTC, see
"Custodian" below.
Putnam Fiduciary Trust Company is also investor servicing agent
for the other Putnam funds and receives fees from each of those
funds for its services.
<PAGE>
INVESTMENT PERFORMANCE OF THE TRUST
Standard Performance Measures
Yield and total return data for the funds may from time to time
be presented in the prospectus, this SAI and advertisements. In
the case of funds with more than one class of shares, all
performance information is calculated separately for each class.
The data is calculated as follows.
Total return for the one-, five- and ten year periods (or for
such shorter periods as the fund has been in operation or shares
of the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in a fund at the beginning of the period, at
net asset value for class IA and IB shares and then calculating
the annual compounded rate of return which would produce that
amount. Total return for a period of one year is equal to the
actual return of a fund during that period. Total return
calculations assume deduction of the fund's maximum sales charge
or CDSC, if applicable, and reinvestment of all fund
distributions at net asset value on their respective reinvestment
dates.
A fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the fund during the base period less expenses accrued
for that period, and (ii) dividing that amount by the product of
(A) the average daily number of shares of the fund outstanding
during the base period and entitled to receive dividends and (B)
the per share net asset value for class IA and IB shares of the
fund on the last day of the base period. The result is
annualized on a compounding basis to determine the fund's yield.
For this calculation, interest earned on debt obligations held by
the fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as GNMAs, based on cost). Dividends on equity securities
are accrued daily at their stated dividend rates. The amount of
expenses used in determining the fund's yield includes, in
addition to expenses actually accrued by the fund, an estimate of
the amount of expenses that the fund would have incurred if
brokerage commissions had not been used to reduce such expenses.
Putnam VT Money Market Fund's yield is computed by determining
the percentage net change, excluding capital changes, in the
value of an investment in one share of the fund over the seven-
day period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
The fund's effective yield represents a compounding of the fund's
yield by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising
that sum to a power equal to 365/7, and subtracting 1 from the
result.
At times, Putnam Management may reduce its compensation or assume
expenses of a fund in order to reduce that fund's expenses. The
annual per share amount of any such fee reduction or assumption
of expenses during the fund's past ten fiscal years (or for the
life of the fund, if shorter) is set forth in the footnotes to
the table entitled "Financial highlights" in the class IA and
class IB prospectuses. Any such fee reduction or assumption of
expenses would increase a fund's yield and total return for
periods including the period of the fee reduction or assumption.
The tables below present yield and total return
performance information for the period ended December 31,
1997. Returns shown for class IB shares for periods prior to
November 20, 1998, the date the Trust commenced operations with
respect to class IB shares, are derived from the historical
performance of class IA shares and have been adjusted to reflect
payments under the class IB distribution plan. For funds that
have been in existence for more than one year, average annual
total return information is shown. For funds in existence for a
year or less, cumulative total return information (from the
period of the fund's inception through December 31, 1997) is
shown. All data is based on past performance and does not
predict future results.
Class IA Shares
Total Return
-------------------------
1 5 Life
Putnam VT Fund Yield* year years of
fund
Asia Pacific N/A -14.66% N/A -
1.80%
Diversified Income 8.19% 7.38 N/A
7.49%
Global Asset
Allocation 2.55 19.67 14.60% 12.11
Global Growth N/A 14.33 15.24 10.63
Growth and Income 1.82 24.15 18.87 16.64
High Yield 9.12 14.34 12.57
11.48
International
Growth & Income 1.33 N/A N/A 19.43
International
Growth N/A N/A N/A 16.13
International
New Opportunities N/A N/A N/A -0.10
Money Market 5.34 5.22 4.47
5.49
New Opportunities N/A 23.29 N/A
22.89
New Value N/A N/A N/A 17.60
U.S. Government and
High Quality Bond 5.56 8.64 7.60 8.73
Utilities
Growth and Income 3.09 27.10 15.27 14.73
Vista N/A N/A N/A 23.21
Voyager N/A 26.5619.25 18.08
* Information shown for all funds except Putnam VT Money
Market Fund represents 30-day yield. Information shown for
Putnam VT Money Market Fund represents 7-day yield.
Class IB Shares
Total Return
-------------------------
1 5 Life
Putnam VT Fund Yield* year years of fund
Asia Pacific N/A -14.78% N/A -1.95%
Diversified Income 8.04% 7.22 N/A 7.33
Global Asset
Allocation 2.40% 19.49 14.74% 11.94
Global Growth N/A 14.16 17.00 10.47
Growth and Income 1.67 23.96 19.20 16.47
High Yield 8.97 14.17 10.92 11.31
International
Growth & Income 1.18 N/A N/A 19.39
International
Growth N/A N/A N/A 16.06
International
New Opportunities N/A N/A N/A -0.25
Money Market 5.19 5.06 4.32 5.33
New Opportunities N/A 23.10 N/A 22.71
New Value N/A N/A N/A 17.54
U.S. Government and
High Quality Bond 5.41 8.48 7.44 8.56
Utilities
Growth and Income 2.94 26.91 15.67 14.56
Vista N/A N/A N/A 23.18
Voyager N/A 26.33 19.07 17.90
* Information shown for all funds except Putnam VT Money Market
Fund represents 30-day yield. Information shown for Putnam VT
Money Market Fund represents 7-day yield.
See the prospectus for the inception date of each fund. The
foregoing performance information reflects an expense limitation
applicable to Putnam VT High Yield Fund for fiscal 1988, Putnam
VT Utilities Growth and Income Fund for fiscal 1992, Putnam VT
New Opportunities Fund for fiscal 1994, Putnam VT Asia Pacific
Growth Fund for fiscal 1995, and Putnam VT International Growth
Fund, Putnam VT International Growth and Income Fund, Putnam VT
International New Opportunities Fund, Putnam New Value Fund and
Putnam VT Vista Fund for fiscal 1997. Performance information
presented for the funds should not be compared directly with
performance information of other insurance products without
taking into account insurance-related charges and expenses
payable under their variable annuity contracts. These charges
and expenses are not reflected in the funds' performance and
would reduce an investor's return under the annuity contract.
DETERMINATION OF NET ASSET VALUE
The Trust values the shares of each fund daily on each day the
New York Stock Exchange (the "Exchange") is open. Currently, the
Exchange is closed Saturdays, Sundays and the following holidays:
New Year's Day, Rev. Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. The Trust determines net asset value
as of the close of regular trading on the Exchange, currently
4:00 p.m. However, equity options held by a fund are priced as
of the close of trading at 4:10 p.m., and futures contracts on
U.S. government and other fixed-income securities and index
options held by a fund are priced as of their close of trading at
4:15 p.m.
Putnam VT Money Market fund. The valuation of the fund's
portfolio instruments at amortized cost is permitted in
accordance with Securities and Exchange Commission Rule 2a-7 and
certain procedures adopted by the Trustees. The amortized cost
of an instrument is determined by valuing it at cost originally
and thereafter amortizing any discount or premium from its face
value at a constant rate until maturity, regardless of the effect
of fluctuating interest rates on the market value of the
instrument. Although the amortized cost method provides
certainty in valuation, it may result at times in determinations
of value that are higher or lower than the price the fund would
receive if the instruments were sold. Consequently, changes in
the market value of portfolio instruments during periods of
rising or falling interest rates will not normally be reflected
either in the computation of net asset value of the fund's
portfolio or in the daily computation of net income. Under the
procedures adopted by the Trustees, the fund must maintain a
dollar-weighted average portfolio maturity of 397 days or less,
purchase only instruments having remaining maturities of 90 days
or less and invest in securities determined by the Trustees to be
of high quality with minimal credit risks. The Trustees have
also established procedures designed to stabilize, to the extent
reasonably possible, the fund's price per share as computed for
the purpose of distribution, redemption and repurchase at $1.00.
These procedures include review of the fund's portfolio holdings
by the Trustees, at such intervals as they may deem appropriate,
to determine whether the fund's net asset value calculated by
using readily available market quotations deviates from $1.00 per
share, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the
event the Trustees determine that such a deviation exists, they
will take such corrective action as they regard as necessary and
appropriate, including selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, redeeming shares in
kind, or establishing a net asset value per share by using
readily available market quotations.
Since the net income of the fund is declared as a dividend each
time it is determined, the net asset value per share of the fund
remains at $1.00 per share immediately after such determination
and dividend declaration. Any increase in the value of a
shareholder's investment in the fund representing the
reinvestment of dividend income is reflected by an increase in
the number of shares of the fund in the shareholder's account on
the first day of the next month (or, if that day is not a
business day, on the next business day). It is expected that the
fund's net income will be positive each time it is determined.
However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other
reason the net income of the fund determined at any time is a
negative amount, the fund will offset such amount allocable to
each then shareholder's account from dividends accrued during the
month with respect to such account. If at the time of payment of
a dividend (either at the regular monthly dividend payment date,
or, in the case of a shareholder who is withdrawing all or
substantially all of the shares in an account, at the time of
withdrawal), such negative amount exceeds a shareholder's accrued
dividends, the fund will reduce the number of outstanding shares
by treating the shareholder as having contributed to the capital
of the fund that number of full and fractional shares which
represent the amount of excess. Each shareholder is deemed to
have agreed to such contribution in these circumstances by his or
her investment in the fund.
Other Funds. Each of the other funds determines net asset value
as follows: Securities for which market quotations are readily
available are valued at prices which, in the opinion of the
Trustees or Putnam Management, most nearly represent the market
values of such securities. Currently, such prices are determined
using the last reported sale price or, if no sales are reported
(as in the case of some securities traded over-the-counter) the
last reported bid price, except that certain U.S. government
securities are valued at the mean between the last reported bid
and asked prices. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are
valued at their fair value following procedures approved by the
Trustees. Liabilities are deducted from the total, and the
resulting amount is divided by the number of shares of the class
outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are valued at fair value on the
basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional-
size trading units of such securities using methods based on
market transactions for comparable securities and various
relationships between securities which are generally recognized
by institutional traders. If any securities held by a fund are
restricted as to resale, Putnam Management determines their fair
value following procedures approved by the Trustees. The fair
value of such securities is generally determined as the amount
which the fund could reasonably expect to realize from an orderly
disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are
likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other
fundamental analytical data relating to the investment and to the
nature of the restrictions on disposition of the securities
(including any registration expenses that might be borne by the
fund in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Trust's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the funds' net asset
values. If events materially affecting the values of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees. In addition, securities held by some of the funds
may be traded in foreign markets that are open for business on
days that a fund is not, and the trading of such securities on
those days may have an impact on the value of a shareholder's
investment at a time when the shareholder cannot buy and sell
shares of the fund.
DISTRIBUTION PLAN
The Trust has adopted a distribution plan with respect to class
IB shares, the principal features of which are described in the
prospectus. This SAI contains additional information which may
be of interest to investors.
Continuance of the plan is subject to annual approval by a vote
of the Trustees, including a majority of the Trustees who are not
interested persons of a fund and who have no direct or indirect
interest in the plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to the plan must be likewise approved by
the Trustees and the Qualified Trustees. The class IB plan may
not be amended in order to increase materially the costs which a
fund may bear for distribution pursuant to such plan without also
being approved by a majority of the outstanding voting securities
of a fund. The class IB plan may terminate automatically in the
event of its assignment and may be terminated without penalty, at
any time, by a vote of a majority of the Qualified Trustees or by
a vote of a majority of the outstanding voting securities of the
fund or the relevant class of a fund, as the case may be.
Putnam Mutual Funds pays service fees to insurance companies and
their affiliated dealers at the rates set forth in the
Prospectus. Service fees are paid quarterly to the insurance
company or dealer of record for that quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of insurance companies and
securities brokers or dealers.
Except as otherwise agreed between Putnam Mutual Funds and a
dealer, for purposes of determining the amounts payable to
insurance companies or their affiliates, "average net asset
value" means the product of (i) the average daily share balance
in such account(s) and (ii) the average daily net asset value of
the relevant class of shares over the quarter.
SUSPENSION OF REDEMPTIONS
The Trust may not suspend shareholders' right of redemption or
postpone payment for more than seven days unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or except, if permitted by the rules of the Securities
and Exchange Commission during periods when trading on the
Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Trust. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Agreement and
Declaration of Trust provides for indemnification out of fund
property for all loss and expense of any shareholder held
personally liable for the obligations of that fund. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
would be unable to meet its obligations. The likelihood of such
circumstances is remote.
CUSTODIAN
Putnam Fiduciary Trust Company ("PFTC") is the custodian of the
Trust's assets. In carrying out its duties under its custodian
contract, PFTC may employ one or more subcustodians whose
responsibilities will include safeguarding and controlling the
Trust's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Trust's
investments. PFTC and any subcustodians employed by it have a
lien on the securities of each fund (to the extent permitted by
the Trust's investment restrictions) to secure charges and any
advances made by such subcustodians at the end of any day for the
purpose of paying for securities purchased by the Trust for the
benefit of that fund. The Trust expects that such advances will
exist only in unusual circumstances. Neither PFTC nor any
subcustodian determines the investment policies of any fund or
decides which securities a fund will buy or sell. PFTC pays the
fees and other charges of any subcustodians employed by it. The
Trust may from time to time pay custodial expenses in full or in
part through the placement by Putnam Management of the Trust's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Trust pays PFTC an annual fee based on each fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP are the Trust's independent accountants,
providing audit services, tax return review and other tax
consulting services and assistance and consultation in connection
with the review of various Securities and Exchange Commission
filings. The Report of Independent Accountants and financial
statements included in the Trust's Annual Report for the fiscal
year ended December 31, 1997 filed electronically on February 27,
1998 (File No. 811-5346), are incorporated by reference into this
SAI.
The financial statements for the fiscal year ended December 31,
1997 incorporated by reference into this SAI have been so
included and incorporated in reliance upon the report of the
independent accountants, given on their authority as experts in
auditing and accounting.
