PUTNAM VARIABLE TRUST
Class IB shares
PROSPECTUS - April 30, 1998 , as revised July 2, 1998
Putnam Variable Trust (the "Trust") offers shares of beneficial
interest in separate investment portfolios (collectively, the
"funds") for purchase by separate accounts of various insurance
companies. The funds, which have different investment objectives
and policies, offered by this prospectus are: 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.
Shares of each fund are currently divided into two classes:
class IA shares, offered pursuant to another prospectus, and
class IB shares, offered hereby. The offering of class IB shares
commenced as of the date of this prospectus.
An investment in Putnam VT Money Market Fund is neither insured
nor guaranteed by the U.S. government. There can be no assurance
that Putnam VT Money Market Fund will be able to maintain a
stable net asset value of $1.00 per share.
Putnam VT High Yield Fund invests primarily in, and Putnam VT
Diversified Income Fund may invest significantly in, lower-rated
bonds, commonly known as "junk bonds." These investments are
subject to a greater risk of loss of principal and non-payment of
interest. Investors should carefully assess the risks associated
with an investment in either fund.
This prospectus explains concisely what you should know before
investing in the Trust and should be read in conjunction with the
prospectus for the separate account of the variable annuity or
variable life insurance product that accompanies this prospectus.
Please read it carefully and keep it for future reference.
Investors can find more detailed information about the Trust in
the April 30, 1998, statement of additional information (the
"SAI"), as amended from time to time. For a free copy of the
SAI, call Putnam Investor Services at 1-800-521-0538. The SAI
has been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated into this prospectus by
reference. The Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated
by reference into this prospectus and the SAI, and other
information regarding registrants that file electronically with
the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
SHARES OF THE FUNDS ARE PRESENTLY AVAILABLE AND ARE BEING
MARKETED EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE
ANNUITY CONTRACT AND VARIABLE LIFE INSURANCE POLICY SEPARATE
ACCOUNTS OF VARIOUS INSURANCE COMPANIES.
ABOUT THE TRUST
The Trust
.................................................................
This section explains the Trust's relationship to various
variable annuity and variable life insurance products and advises
prospective investors to read the prospectus issued by the
relevant insurance company for information about the annuity or
insurance product.
Investment objectives and policies of the funds
.................................................................
Each of the funds is managed according to its own specific
investment objective or objectives and identifies risks
associated with a fund's investment policies. Read this section
to make sure a fund's objectives are consistent with your own.
Common investment policies and techniques
.................................................................
Certain investment policies and techniques apply to two or more
of the funds. This section defines, describes, and explains
these policies and techniques.
How performance is shown
.................................................................
This section describes and defines the measures used to assess
fund performance. All data are based on past investment results
and do not predict future performance.
How the Trust is managed
.................................................................
Consult this section for information about the Trust's
management, allocation of its expenses, and how it purchases and
sells securities.
Organization and history
.................................................................
In this section, you will learn when the Trust was introduced,
how it is organized, how it may offer shares, and who its
Trustees are.
ABOUT YOUR INVESTMENT
Sales and redemptions
.................................................................
This section describes the terms under which shares may be
purchased and redeemed by insurance company separate accounts.
Distribution plan
................................................................
This section tells you what distribution fees are charged against
the class IB shares.
How a fund values its shares
.................................................................
This section explains how a fund determines the value of its
shares.
How a fund makes distributions to shareholders; tax information
.................................................................
This section describes how fund dividends are paid to various
insurance separate accounts. It also discusses the tax status of
the payments and counsels you to seek specific advice about your
own situation.
Financial information
.................................................................
This section informs you that each year you will receive
semiannual and annual reports of the Trust.
ABOUT PUTNAM INVESTMENTS, INC.
.................................................................
Read this section to learn more about the companies that provide
marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings
About the Trust
THE TRUST
The Trust is designed to serve as a funding vehicle for insurance
separate accounts associated with variable annuity contracts and
variable life insurance policies. The Trust presently serves as
the funding vehicle for variable annuity contracts and variable
life insurance policies offered by separate accounts of various
insurance companies. You should consult the prospectus issued by
the relevant insurance company for more information about a
separate account. Shares of the Trust are offered to these
separate accounts through Putnam Mutual Funds Corp. ("Putnam
Mutual Funds"), the principal underwriter for the Trust.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each fund of the Trust has its own investment objective or
objectives which it pursues through its own investment policies
as described below. The particular objectives and policies of
the funds can be expected to affect the return of each fund and
the degree of market and financial risk to which each fund is
subject. For more information about the investment strategies
employed by the funds, see "Common investment policies and
techniques." The investment objectives and policies of each fund
may, unless otherwise specifically stated, be changed by the
Trustees without a vote of the shareholders. As a matter of
policy, the Trustees would not materially change the investment
objective or objectives of a fund without shareholder approval.
None of the funds is intended to be a complete investment
program, and there is no assurance that any fund will achieve its
objective or objectives.
Additional portfolios with differing investment objectives and
policies may be created from time to time for use as funding
vehicles for insurance company separate accounts or for other
insurance products. In addition, the Trustees may, subject to
any necessary regulatory approvals, eliminate any fund or divide
any fund into two or more classes of shares with such special or
relative rights and privileges as the Trustees may determine.
Glossary
The following terms are frequently used in this prospectus. Many
of these terms are explained in greater detail under "Common
investment policies and techniques."
"Putnam Management" -- Putnam Investment Management, Inc., the
Trust's investment manager
"S&P" -- Standard & Poor's
"Moody's" -- Moody's Investors Service, Inc.
"U.S. government securities" -- debt securities issued or
guaranteed by the U.S. government, by various of its agencies, or
by various instrumentalities established or sponsored by the U.S.
government. Certain U.S. government securities, including U.S.
Treasury bills, notes and bonds, mortgage participation
certificates guaranteed by Ginnie Mae, and Federal Housing
Administration debentures, are supported by the full faith and
credit of the United States. Other U.S. government securities
issued or guaranteed by federal agencies or government-sponsored
enterprises are not supported by the full faith and credit of the
United States. These securities include obligations supported by
the right of the issuer to borrow from the U.S. Treasury, such as
obligations of Federal Home Loan Banks, and obligations supported
only by the credit of the instrumentality, such as Fannie Mae
bonds.
"CMOs" -- collateralized mortgage obligations
"Ginnie Mae" -- Government National Mortgage Association
"Fannie Mae" -- Federal National Mortgage Association
"Freddie Mac" -- Federal Home Loan Mortgage Corporation
PUTNAM VT ASIA PACIFIC GROWTH FUND
Putnam VT Asia Pacific Growth Fund's investment objective is to
seek capital appreciation. In seeking capital appreciation, the
fund will invest primarily in securities of companies located in
Asia and in the Pacific Basin. The fund's investments will
normally include common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants
to purchase common stocks or preferred stocks. The fund may also
invest to a lesser extent in debt securities and other types of
investments if Putnam Management believes they would help achieve
the fund's objective. The fund may hold a portion of its assets
in cash and high-quality money market instruments.
The fund may invest in securities of issuers located in any
country in Asia or the Pacific Basin where Putnam Management
believes there is potential for above-average capital
appreciation. Such countries may include, for example,
Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
New Zealand, the People's Republic of China, the Philippines,
Singapore, Taiwan and Thailand.
It is anticipated that under normal market conditions the fund
will invest at least 85% of its assets in securities of companies
located in Asia and in the Pacific Basin that Putnam Management
believes have potential for capital appreciation. The fund will
consider an issuer of securities to be located in Asia or in the
Pacific Basin if it is organized under the laws of a country in
Asia or the Pacific Basin and has a principal office in a country
in Asia or the Pacific Basin, if it derives 50% or more of its
total revenues from business in Asia or the Pacific Basin, or if
its equity securities are traded principally on a securities
exchange in Asia or the Pacific Basin. It is anticipated that
under normal circumstances the fund will invest at least 65% of
its assets in securities of issuers meeting at least one of the
first two criteria described in the preceding sentence. For a
discussion of the risks associated with foreign investing, see
"Common investment policies and techniques -- Foreign
investments."
The fund will not limit its investments to any particular type of
company. The fund may invest in companies, large or small, whose
earnings are believed to be in a relatively strong growth trend,
or in companies in which significant further growth is not
anticipated but whose securities are thought to be undervalued.
It may invest in small and relatively less well-known companies.
These companies, which typically have equity market
capitalizations below $1 billion, may present greater
opportunities for capital appreciation, but may also involve
greater risk. They may have limited product lines, markets or
financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume,
and only in the over-the-counter market or on a regional
securities exchange. As a result, these securities may fluctuate
in value more than those of larger, more established companies.
Debt securities in which the fund may invest will generally be
rated at the time of purchase at least Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's ("S&P"),
and in any event the fund will not invest in debt securities
rated at the time of purchase less than Baa by Moody's and BBB by
S&P, or unrated securities that Putnam Management determines are
of comparable quality, if as a result more than 5% of the fund's
assets would be invested in such securities. Debt securities
rated Baa or BBB have speculative characteristics and adverse
economic conditions may lead to a weakened capacity to pay
interest and repay principal.
For a discussion of the risks associated with investing in lower-
rated debt securities, see "Common investment policies and
techniques - Lower-rated and other fixed income securities."
In addition to engaging in the options and futures transactions
described under "Common investment policies and techniques --
Futures and options," the fund may purchase warrants, issued by
banks and other financial institutions, whose values are based on
the values of one or more stock indices.
The fund may engage in defensive strategies when Putnam
Management judges that conditions in the securities markets make
pursuing the fund's basic investment strategy inconsistent with
the best interests of its shareholders. When pursuing such
defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets or in other markets
outside Asia or the Pacific Basin. See "Common investment
policies and techniques" below for a discussion of these
strategies. The fund may also engage in foreign currency
exchange transactions and in transactions in futures and options,
enter into repurchase agreements, loan its portfolio securities
and purchase securities for future delivery. See "Common
investment policies and techniques" below for a discussion of
these securities and types of transactions and the risks
associated with them.
Putnam VT Asia Pacific Growth Fund will generally be managed in a
style similar to that of Putnam Asia Pacific Growth Fund.
PUTNAM VT DIVERSIFIED INCOME FUND
Putnam VT Diversified Income Fund seeks high current income
consistent with capital preservation. The fund pursues its
investment objective by allocating its investments among the
following three sectors of the fixed-income securities markets:
* a U.S. Government and Investment Grade Sector, consisting
primarily of debt obligations of the U.S. government, its
agencies and instrumentalities;
* a High Yield Sector, consisting of primarily high-yielding,
lower-rated, higher-risk U.S. and foreign corporate fixed-income
securities; and
* an International Sector, consisting of obligations of foreign
governments, their agencies and instrumentalities, and other
fixed-income securities denominated in foreign currencies.
Putnam Management believes that diversifying the fund's
investments among these sectors, as opposed to investing
exclusively in any one sector, will better enable the fund to
preserve capital while pursuing its objective of high current
income. Historically, the markets for U.S. government
securities, high yielding corporate fixed-income securities, and
debt securities of foreign issuers have tended to behave
independently and have at times moved in opposite directions.
For example, U.S. government securities have generally been
affected negatively by inflationary concerns resulting from
increased economic activity. High-yield corporate fixed-income
securities, on the other hand, have generally benefitted from
increased economic activity due to improvements in the credit
quality of corporate issuers. The reverse has generally been
true during periods of economic decline. Similarly, U.S.
government securities have often been negatively affected by a
decline in the value of the dollar against foreign currencies,
while the bonds of foreign issuers held by U.S. investors have
generally benefitted from such decline. Putnam Management
believes that, when financial markets exhibit such a lack of
correlation, a pooling of investments among these markets may
produce greater preservation of capital over the long term than
would be obtained by investing exclusively in any one of the
markets.
Putnam Management will determine the amount of assets to be
allocated to each of the three market sectors in which the fund
will invest based on its assessment of the returns that can be
achieved from a portfolio which is invested in all three sectors.
In making this determination, Putnam Management will rely in part
on quantitative analytical techniques that measure relative risks
and opportunities of each market sector based on current and
historical market data for each sector, as well as on its own
assessment of economic and market conditions. Although there are
no fixed limits on allocations among sectors, including
investments in the High Yield Sector, Putnam Management will
continuously review this allocation of assets and make such
adjustments as it deems appropriate. Because of the importance
of sector diversification to the fund's investment policies,
Putnam Management expects that a substantial portion of the
fund's assets will normally be invested in each of the three
market sectors. The fund's assets allocated to each of these
market sectors will be managed in accordance with particular
investment policies, which are summarized below.
The fund may engage in defensive strategies when Putnam
Management judges that conditions in the securities markets make
pursuing the fund's basic investment strategy inconsistent with
the best interests of its shareholders. When pursuing such
defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies.
The fund may invest in premium securities, engage in foreign
currency exchange transactions, transactions in futures and
options, enter into repurchase agreements, loan its portfolio
securities and purchase securities for future delivery. See
"Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them. The fund may also hold a portion of
its assets in cash and money market instruments.
Putnam VT Diversified Income Fund will generally be managed in a
style similar to that of Putnam Diversified Income Trust.
U.S. Government and Investment Grade Sector
The fund will invest assets allocated to the U.S. Government and
Investment Grade Sector primarily in U.S. government securities.
The fund may also purchase other fixed-income securities that are
rated at least BBB or Baa by a nationally recognized securities
rating agency such as S&P or Moody's, or, if unrated, are
determined by Putnam Management to be of comparable quality. In
purchasing securities for the U.S. Government and Investment
Grade Sector, Putnam Management may take full advantage of the
entire range of maturities of eligible fixed-income securities
and may adjust the average maturity of the investments held in
the portfolio from time to time, depending on its assessment of
relative yields of securities of different maturities and its
expectations of future changes in interest rates. Under normal
market conditions, the fund will invest at least 20% of its net
assets in U.S. government securities, and at least 65% of the
assets allocated to the U.S. Government and Investment Grade
Sector will be invested in U.S. government securities.
The fund may invest assets allocated to the U.S. Government and
Investment Grade Sector in a variety of debt securities,
including asset-backed and mortgage-backed securities, such as
CMOs and certain stripped mortgage-backed securities, that are
issued by private U.S. issuers. For a description of these
securities, and the risks associated with them, see "Common
investment policies and techniques -- Mortgage-backed and asset-
backed securities."
As noted above, with respect to assets allocated to the U.S.
Government and Investment Grade Sector, the fund will only invest
in privately issued debt securities that are rated at least BBB
or Baa by a nationally recognized securities rating agency such
as S&P or Moody's, or in unrated securities that Putnam
Management determines are of comparable quality. The fund will
not necessarily dispose of a security if its rating is reduced
below its rating at the time of purchase. However, Putnam
Management will consider such reduction in its determination of
whether the fund should continue to hold the security in its
portfolio. The foregoing investment limitations will be measured
at the time of purchase and, to the extent that a security is
assigned a different rating by one or more of the various rating
agencies, Putnam Management will use the highest rating assigned
by any agency.
Risk factors. U.S. government securities are considered among
the safest of fixed-income investments, but their values, like
those of other debt securities, will fluctuate with changes in
interest rates. Changes in the value of portfolio securities
will not affect interest income from those securities, but will
be reflected in the fund's net asset value. Thus, a decrease in
interest rates will generally result in an increase in the value
of fund shares. Conversely, during periods of rising interest
rates, the value of fund shares will generally decline. The
magnitude of these fluctuations will generally be greater for
securities with longer maturities, and the fund expects that its
portfolio will normally be weighted towards longer maturities.
Because of their added safety, the yields available from U.S.
government securities are generally lower than the yields
available from comparable corporate debt securities.
While certain U.S. government securities, such as U.S. Treasury
obligations and Ginnie Mae certificates, are backed by the full
faith and credit of the U.S. government, other securities in
which the fund may invest are subject to varying degrees of risk
of default. These risk factors include the creditworthiness of
the issuer and, in the case of mortgage-backed and asset-backed
securities, the ability of the underlying mortgagors or other
borrowers to meet their obligations.
High Yield Sector
The fund will invest assets allocated to the High Yield Sector
primarily in high yielding, lower-rated, higher risk U.S. and
foreign corporate fixed-income securities, including debt
securities, convertible securities and preferred stocks. As
discussed below, however, under certain circumstances the fund
may invest all or any part of the High Yield Sector portfolio in
higher-rated and unrated fixed-income securities. The fund will
not necessarily invest in the highest yielding securities
available if in Putnam Management's opinion the differences in
yield are not sufficient to justify the higher risks involved.
The High Yield Sector may invest in any security which is rated
at least Caa or CCC by a nationally recognized securities rating
agency, such as Moody's or S&P or in any unrated security that
Putnam Management determines is of comparable quality. In
addition, the High Yield Sector may invest up to 5% of its net
assets in securities rated below Caa or CCC by each rating agency
rating such security, or in unrated securities that Putnam
Management determines are of comparable quality. No more than 5%
of the net assets of the fund, regardless of whether they are
allocated to the High Yield Sector or the International Sector,
may be invested in securities rated below Caa or CCC by a
nationally recognized securities rating agency, or, if unrated,
determined by Putnam Management to be of comparable quality.
Securities rated below Caa or CCC are of poor standing and may be
in default.
The 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 consider such reduction in its
determination of whether the fund should continue to hold the
security in its portfolio. The foregoing investment limitations
will be measured at the time of purchase and, to the extent that
a security is assigned a different rating by one or more of the
various rating agencies, Putnam Management will use the highest
rating assigned by any agency. The rating services' descriptions
of these rating categories, including the speculative
characteristics of the lower categories, are included in the
Appendix to this prospectus.
The table below shows the percentages of fund assets invested
during fiscal 1997 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by another rating agency, and in unrated
securities determined by Putnam Management to be of comparable
quality.
Rated securities, Unrated securities of
as percentage of comparable quality, as
Rating net assets percentage of net assets
- ------ ------------- ------------------------
"AAA" 0.04% --
"AA" -- --
"A" 0.06% --
"BBB" 0.27% --
"BB" 6.09% 0.25%
"B" 21.86% 4.86%
"CCC" 2.94% 0.06%
"CC" 0.34% --
"C" -- --
"D" 0.13% --
------ -----
Total 31.73% 5.17%
====== =====
For a description of the risks associated with investments in
fixed-income securities, including lower-rated fixed-income
securities, see "Common investment policies and techniques --
Lower-rated and other fixed-income securities."
The fund may invest assets allocated to the High Yield Sector in
participations and assignments of fixed and floating rate loans
made by financial institutions to governmental or corporate
borrowers. In addition to the more general investment
considerations applicable to fixed-income investments,
participations and assignments involve the risk that the
institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the fund. The fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
The fund may also invest assets allocated to the High Yield
Sector in lower-rated securities of foreign corporate and
governmental issuers denominated either in U.S. dollars or in
foreign currencies. For a discussion of the risks associated
with foreign investing, see "Common investment policies and
techniques -- Foreign investments."
The fund may invest in securities of issuers in emerging markets,
as well as more developed markets. Investing in emerging markets
generally involves more risk than investing in developed markets.
International Sector
The fund will invest the assets allocated to the International
Sector in debt obligations and other fixed-income securities ,
primarily those of non-U.S. issuers . These securities
include:
* debt obligations issued or guaranteed by foreign ,
national, provincial, state, or other governments with taxing
authority, or by their agencies or instrumentalities;
* debt obligations of supranational entities (described below);
and
* debt obligations and other fixed-income securities of foreign
corporate issuers and similar non-U.S. dollar
denominated securities of U.S. corporate issuers.
Investments in the International Sector are not subject
to any limitation based on securities ratings (other than
the limitation set forth below) and may be denominated in any
currency, including the U.S. dollar. To the extent a security
is assigned a different rating by one or more rating
agencies, Putnam Management will use the highest rating assigned
by any agency. No more than 5% of the net assets of the
fund, regardless of whether they are allocated to the High Yield
Sector or the International Sector, may be invested in securities
that are rated below Caa or CCC by a nationally recognized
securities rating agency, or, if unrated, are determined
by Putnam Management to be of comparable quality. Investments
in fixed income securities of foreign governments and
supranational entities will be allocated to the International
Sector. The High Yield Sector and the International Sector
may make investments in foreign corporate fixed income
securities.
In the past, yields available from securities denominated in
foreign currencies have often been higher than those of
securities denominated in U.S. dollars. Putnam Management will
consider expected changes in foreign currency exchange rates in
determining the anticipated returns of securities denominated in
foreign currencies.
The obligations of foreign governmental entities, including
supranational issuers, have various kinds of government support.
Obligations of foreign governmental entities include obligations
issued or guaranteed by national, provincial, state or other
governments with taxing power or by their agencies. These
obligations may or may not be supported by the full faith and
credit of a foreign government.
Supranational entities include international organizations
designated or supported by governmental entities to promote
economic reconstruction or development and international banking
institutions and related government agencies. Examples include
the International Bank for Reconstruction and Development (the
World Bank), the European Steel and Coal Community, the Asian
Development Bank, and the Inter-American Development Bank. The
governmental members or "stockholders" usually make initial
capital contributions to the supranational entity and in many
cases are committed to make additional capital contributions if
the supranational entity is unable to repay its borrowing. Each
supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves, and net
income.
For a discussion of the risks associated with foreign
investments, see "Common investment policies and techniques --
Foreign investments."
PUTNAM VT THE GEORGE PUTNAM FUND OF BOSTON
Putnam VT The George Putnam Fund of Boston seeks to provide a
balanced investment composed of a well-diversified portfolio of
stocks and bonds which will produce both capital growth and
current income.
In seeking its objective, the fund may invest in almost any type
of security or negotiable instrument, including cash or money
market instruments. The fund's portfolio will include some
securities selected primarily to provide for capital protection,
others selected for dependable income and still others for growth
in value. The proportion invested in each type of security is
not fixed, although ordinarily no more than 75% of the fund's
assets consist of common stocks and that portion of
the value of
convertible
securities attributable to conversion rights. The
fund may, however, at times invest more than 75% of its assets in
such securities if Putnam Management determines that unusual
market or economic conditions make it appropriate to do so. The
fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. The fund expects that its
investments in foreign securities generally will not exceed 20%
of its total assets, although the fund's investments in foreign
securities may exceed this amount from time to time.
For a discussion of the risks associated with foreign
investments, see "Common investment policies and techniques --
Foreign investments."
The fund may invest in both higher-rated and lower-rated fixed-
income securities. See "Common investment policies and
techniques -- Lower-rated and other fixed-income securities.
The fund will invest in securities rated at least B by a
nationally recognized securities rating agency, such as S&P or
Moody's, or unrated securities that Putnam Management determines
are of comparable quality. The foregoing investment limitation
will be measured at the time of purchase and, to the extent that
a security is assigned a different rating by one or more of the
various rating agencies, Putnam Management will use the highest
rating assigned by any agency. Securities rated B (and
comparable unrated securities) are predominantly speculative and
have large uncertainties or major exposures to adverse
conditions. Securities rated lower than Baa or BBB (and
comparable unrated securities) are sometimes referred to as "junk
bonds." The rating services' descriptions of securities in the
various rating categories, including the speculative
characteristics of securities in the lower rating categories, are
included in the appendix to this prospectus.
The fund may engage in defensive strategies when Putnam
Management judges that conditions in the securities markets make
pursuing the fund's basic investment strategy inconsistent with
the best interests of the fund's shareholders. See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may hold a portion of its assets in
cash and money market instruments. The fund may also engage in
foreign currency exchange transactions and transactions in
futures and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them.
Putnam VT The George Putnam Fund of Boston will generally be
managed in a style similar to that of The George Putnam Fund of
Boston.
PUTNAM VT GLOBAL ASSET ALLOCATION FUND
The investment objective of Putnam VT Global Asset Allocation
Fund is to seek a high level of long-term total return consistent
with preservation of capital. By seeking total return, the fund
seeks to increase the value of the shareholder's investment
through both capital appreciation and investment income. "Total
return" includes interest and dividend income, net of expenses,
and realized and unrealized capital gains and losses on
securities. The fund invests in a wide variety of equity and
fixed-income securities both of U.S. and foreign issuers. The
fund's portfolio may include securities in the following four
investment categories, which in the judgment of Putnam Management
represent large, well-differentiated classes of securities with
distinctive investment characteristics:
U.S. Equities
International Equities
U.S. Fixed Income
International Fixed Income
The amount of fund assets assigned to each investment category
will be reevaluated by Putnam Management at least quarterly based
on Putnam Management's assessment of the relative market
opportunities and risks of each investment category taking into
account various economic and market factors.
The fund may engage in defensive strategies when Putnam
Management judges that conditions in the securities markets make
pursuing the fund's basic investment strategy inconsistent with
the best interests of its shareholders. When pursuing such
defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may invest in premium securities,
engage in foreign currency exchange transactions and transactions
in futures and options, enter into repurchase agreements, loan
its portfolio securities and purchase securities for future
delivery. See "Common investment policies and techniques" below
for a discussion of these securities and types of transactions
and the risks associated with them. The fund may also hold a
portion of its assets in cash and money market instruments.
The portion of the fund's assets invested in each investment
category will be managed as a separate investment portfolio in
accordance with that category's particular investment objectives
and policies, independently of the fund's overall objective. The
following is a description of the investment objectives and
policies of each investment category:
U.S. Equities. The objective of the U.S. Equities category is to
seek both capital growth and, to a lesser extent, current income
through equity securities. This category's portfolio will
include equity securities selected primarily to provide one or
more of the following factors: growth in value, capital
protection and dependable income. Investments will be made in
companies, large or small, whose earnings are believed to be in a
relatively strong growth trend or whose securities are thought to
be undervalued. The fund may invest in small and relatively less
well-known companies. Investing in these companies may present
greater opportunities for capital appreciation, but also may
involve greater risk. They may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in limited volume, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than securities of larger, more
established companies.
International Equities. The objective of the International
Equities category is to seek capital appreciation. This
category's portfolio will be invested in securities principally
traded in foreign securities markets. These securities will
primarily be common stocks or securities convertible into common
stocks. Investments will be made in companies, large or small,
whose earnings are believed to be in a relatively strong growth
trend or whose securities are thought to be undervalued. The
fund may invest in small and relatively less well-known
companies. Investing in these companies may present greater
opportunities for capital appreciation, but also may involve
greater risk. They may have limited product lines, markets or
financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume.
As a result, these securities may fluctuate in value more than
securities of larger, more established companies. For a
discussion of the risks associated with foreign investments, see
"Common investment policies and techniques -- Foreign
investments."
U.S. Fixed Income. The objective of the U.S. Fixed Income
category is to seek high current income through a portfolio of
fixed-income securities which in the judgment of Putnam
Management does not involve undue risk to principal or income.
The U.S. Fixed Income category may invest in any fixed-income
securities Putnam Management considers appropriate, including
U.S. government securities, debt securities, mortgage-backed and
asset-backed securities, convertible securities and preferred
stocks of non-governmental issuers.
Whereas certain U.S. government securities in which the fund may
invest, such as U.S. Treasury obligations and Ginnie Mae
certificates, are supported by the full faith and credit of the
United States, other fixed-income securities in which the fund
may invest are subject to varying degrees of risk of default
depending upon, among other factors, the creditworthiness of the
issuer and the ability of the borrower, or, in the case of
mortgage-backed securities, the mortgagor, to meet its
obligations. While the credit risks presented by differing types
of fixed-income securities vary, the values of all fixed-income
securities change as interest rates fluctuate.
For a description of the risks associated with investments in
mortgage-backed and asset-backed securities, see "Common
investment policies and techniques -- Mortgage-backed and asset-
backed securities."
International Fixed Income. The investment objective of the
International Fixed Income category is to seek high current
income by investing principally in debt securities denominated in
foreign currencies which are issued by foreign governments and
governmental or supranational agencies. This category may also
invest in other privately issued debt securities, convertible
securities and preferred stocks principally traded in foreign
securities markets. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments."
General. Putnam Management will adjust the percentage of the
fund's assets in each investment category from time to time based
upon its market outlook and its analysis of longer-term trends.
The fund may from time to time invest in all or any one of the
investment categories as Putnam Management may consider
appropriate in response to changing market conditions.
The fund will not purchase fixed-income securities rated below
Caa or CCC by each nationally recognized securities rating
agency, such as S&P or Moody's, rating such security or, if
unrated, determined by Putnam Management to be of comparable
quality, if, as a result more than 5% of the fund's total assets
would be invested in securities of that quality. In addition,
the fund will not purchase fixed-income securities rated at the
time of purchase below Baa or BBB by each rating agency rating
such security, or, if unrated, determined to be of comparable
quality by Putnam Management, if, as a result, more than 35% of
the fund's total assets would be invested in securities of that
quality.
The 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 consider such reduction in its
determination of whether the fund should continue to hold the
security in its portfolio. The foregoing investment limitations
will be measured at the time of purchase and, to the extent that
a security is assigned a different rating by one or more of the
various rating agencies, Putnam Management will use the highest
rating assigned by any agency.
For a description of the risks of investing in fixed-income
securities, including lower-rated fixed-income securities
(commonly known as "junk bonds"), see "Common investment policies
and techniques -- Lower-rated and other fixed-income securities."
PUTNAM VT GLOBAL GROWTH FUND
Putnam VT Global Growth Fund seeks capital appreciation. The
fund is designed for investors seeking above-average capital
growth potential through a globally diversified portfolio of
common stocks. Dividend and interest income is only an
incidental consideration. In seeking capital appreciation, the
fund follows a global investment strategy of investing primarily
in common stocks traded in securities markets located in a number
of foreign countries and in the United States. The fund may at
times invest up to 100% of its assets in securities principally
traded in securities markets outside the United States, and will,
under normal market conditions, invest at least 65% of its assets
in at least three different countries, one of which may be the
United States. In unusual market circumstances where Putnam
Management, believes that foreign investing may involve undue
risks, 100% of the fund's assets may be invested in the United
States. The fund may hold a portion of its assets in cash and
money market instruments.
The fund will not limit its investments to any particular type of
company. It may invest in companies, large or small, whose
earnings Putnam Management believes to be in a relatively strong
growth trend, or in companies in which significant further growth
is not anticipated but whose securities Putnam Management
believes to be undervalued. It may invest in small and
relatively less well-known companies. Investing in securities of
smaller, less well-known companies may present greater
opportunities for capital appreciation, but may also involve
greater risks. These companies may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in limited volume. As a result, these securities may fluctuate
in value more than prices of securities of larger, more
established companies.
Putnam Management believes that the securities markets of many
nations move relatively independently of one another, because
business cycles and other economic or political events that
influence one country's securities markets may have little effect
on securities markets in other countries. By investing in a
globally diversified portfolio, Putnam Management attempts to
reduce the risks associated with investing in the economy of only
one country. The countries which Putnam Management believes
offer attractive opportunities for investment may change from
time to time.
Foreign investments can involve risks that may not be present in
domestic securities. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments."
The fund may also engage in foreign currency exchange
transactions and transactions in futures and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below for a discussion of these securities and
types of transactions and the risks associated with them. The
fund may engage in defensive strategies when Putnam Management
judges that conditions in the securities markets make pursuing
the fund's basic investment strategy inconsistent with the best
interests of its shareholders. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
The fund may enter into other types of "over-the-counter"
transactions with broker-dealers or other financial institutions
such as "swap" contracts, in which its investment return will
depend on the change in value of a specified security or index.
The fund would typically receive from the counterparty the amount
of any increase, and pay to the counterparty the amount of any
decrease, in the value of the underlying security or index. The
contracts would thus, absent the failure of the counterparty to
complete its obligations, provide to the fund approximately the
same return as it would have realized if it had owned the
security or index directly.
The fund's ability to realize a profit from such transactions
will depend on the ability of the financial institutions with
which it enters into the transactions to meet their obligations
to the fund. Under certain circumstances, suitable transactions
may not be available to the fund, or the fund may be unable to
close out its position under such transactions at the same times,
or at the same prices, as if it had purchased comparable publicly
traded securities.
Putnam VT Global Growth Fund will generally be managed in a style
similar to that of Putnam Global Growth Fund.
PUTNAM VT GROWTH AND INCOME FUND
Putnam VT Growth and Income Fund seeks capital growth and current
income as its investment objectives. The fund invests primarily
in common stocks that offer potential for capital growth, current
income, or both. The fund may also purchase corporate bonds,
notes and debentures, preferred stocks, convertible securities
(both debt securities and preferred stocks) or U.S. government
securities, if Putnam Management determines that their purchase
would help further the fund's investment objectives. The types
of securities held by the fund may vary from time to time in
light of the fund's investment objectives, changes in interest
rates, and economic and other factors. The fund may engage in
defensive strategies when Putnam Management judges that
conditions in the securities markets make pursuing the fund's
basic investment strategy inconsistent with the best interests of
the fund's shareholders. See "Common investment policies and
techniques" below for a discussion of these strategies.
The fund may invest in securities principally traded in foreign
markets, and expects that such investments will not ordinarily
exceed 20% of its assets. For a discussion of the risks
associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments." The fund may
invest in both higher-rated and lower-rated fixed-income
securities. The risks associated with fixed-income securities,
including lower-rated fixed-income securities (commonly known as
"junk bonds"), are discussed below under "Common investment
policies and techniques -- Lower-rated and other fixed-income
securities."
The fund may hold a portion of its assets in cash and money
market instruments. The fund may also engage in foreign currency
exchange transactions and transactions in futures and options,
enter into repurchase agreements, loan its portfolio securities
and purchase securities for future delivery. See "Common
investment policies and techniques" below for a discussion of
these securities and types of transactions and the risks
associated with them.
Putnam VT Growth and Income Fund will generally be managed in a
style similar to that of The Putnam Fund for Growth and Income.
PUTNAM VT HEALTH SCIENCES FUND
Putnam VT Health Sciences Fund seeks capital appreciation by
investing at least 80% of its assets (other than assets invested
in U.S. government securities, short-term debt obligations, and
cash or money market instruments) in common stocks and other
securities of companies in the health sciences industries, except
when Putnam Management believes alternative strategies are
appropriate to protect the fund against a market decline.
The fund concentrates its investments in a limited group of
industries. The fund is not intended to be a complete investment
program, and there is no assurance it will achieve its objective.
The fund invests mainly in common stocks of companies in the
health sciences industries, but may also invest a portion of its
assets in other industries and may invest in fixed-income
securities. The fund seeks to purchase securities that will rise
in value; current income is only a minor consideration. The fund
invests primarily in common stocks, but may also purchase
convertible bonds, convertible preferred stocks, warrants,
preferred stocks and debt securities if Putnam Management
believes they would help achieve the fund's objective of capital
appreciation. The fund may hold a portion of its assets in cash
and money market instruments.
The health sciences industries
The fund provides investors with a portfolio of companies in the
health sciences industries. The health sciences industries
include companies that Putnam Management considers to be
principally engaged in the development, production or
distribution of products or services related to the treatment or
prevention of diseases, disorders or other medical conditions.
The following examples illustrate the wide range of products and
services provided by these industries:
* Pharmaceuticals, including ethical (prescription) and
proprietary (nonprescription) drugs, drug
administration products, and chemical or biological
components used in diagnostic testing.
* Health care services, including hospitals, clinical
test laboratories, convalescent and mental health care
facilities, rehabilitation centers, and products and
services for home health care.
* Applied research and development, including scientific
research toward developing drugs, processes and
technologies with possible commercial applications.
* Medical equipment and supplies, including sophisticated
electronic equipment used in chemical analysis and
diagnostic testing, surgical and medical instruments,
and other special products.
Putnam Management considers a particular company to be
"principally engaged" in the health sciences industries if at the
time of investment Putnam Management determines that at least 50%
of the company's assets, revenues or profits are derived from
those industries. Under normal market conditions, the fund will
invest at least 65% of its assets in securities of issuers
meeting at least one of these 50% tests. Putnam Management also
considers a company to be "principally engaged" in these
industries if it believes that the company has the potential for
capital appreciation primarily as a result of particular
products, technology, patents or other market advantages in the
health sciences industries. The fund does not anticipate that
companies in the latter category will represent more than 15% of
the fund's investments in the health sciences industries.
While the fund's portfolio will normally include securities of
established suppliers of traditional products and services, the
fund may invest without limit in smaller companies which may
benefit from the development of new products and services. While
many major U.S. corporations are involved in the health sciences
industries, smaller and less seasoned companies represent a
substantial portion of this field, particularly in the area of
emerging medical technologies. These smaller companies may
present greater opportunities for capital appreciation, but may
also involve greater risks. They may have limited product lines,
markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in more limited volume than the securities of larger, more
established companies, and only in the over-the-counter market or
on a regional securities exchange. As a result, the prices of
these securities may fluctuate more erratically, and to a greater
degree, than the prices of securities of other issuers.
Because the fund's investments are concentrated in the health
sciences industries, the value of its shares is especially
affected by factors relating to those industries and may
fluctuate more widely than the value of shares of a portfolio
which invests in a broader range of industries. For example,
many products and services are subject to risk of rapid
obsolescence caused by technological and scientific advances. In
addition, the health sciences industries are generally subject to
greater government regulation than many other industries.
Changes in governmental policies may have a material effect on
the demand for or costs of certain products and services.
Regulatory approvals are generally required before new drugs and
medical devices or procedures may be introduced and before the
acquisition of additional facilities and equipment by health care
providers. Changes in reinvestment rates and methods, including
changes in governmental payment systems and the increased use of
managed care arrangements, may affect the revenues and expenses
of health care service providers.
The fund is a "non-diversified" investment company under the
Investment Company Act of 1940 (the "1940 Act"). This means
that, with respect to 50% of its total assets, the fund may not
invest more than 5% of its total assets in the securities of any
one issuer (except U.S. government securities). With respect to
the remaining 50% of the fund's total assets, the fund may invest
up to 25% of its total assets in the securities of each of any
two issuers (and may invest without limit in U.S. government
securities). To the extent the fund invests a significant
portion of its assets in the securities of a particular issuer,
the fund will be subject to an increased risk of loss if the
market value of such issuer's securities declines.
The fund may invest in securities, including but not limited to,
those companies in the health sciences industries, principally
traded in foreign markets, and expects that such investments will
not ordinarily exceed 30% of its assets. For a discussion of the
risks associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments."
The fund may also engage in foreign currency exchange
transactions and transactions in futures and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below for a discussion of these securities and
types of transactions and the risks associated with them. The
fund may engage in defensive strategies when Putnam Management
judges that conditions in the securities markets make pursuing
the fund's basic investment strategy inconsistent with the best
interests of its shareholders. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
Putnam VT Health Sciences Fund will generally be managed in a
style similar to that of Putnam Health Sciences Trust.
PUTNAM VT HIGH YIELD FUND
The primary investment objective of Putnam VT High Yield Fund is
to seek high current income. Capital growth is a secondary
objective when consistent with high current income.
The fund seeks high current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly
known as "junk bonds"), constituting a portfolio which Putnam
Management believes does not involve undue risk to income or
principal. Normally, at least 80% of the fund's assets will be
invested in debt securities, convertible securities or preferred
stocks that are consistent with its primary investment objective
of high current income. The fund's remaining assets may be held
in cash or money market instruments, or invested in common stocks
and other equity securities when these types of investments are
consistent with the objective of high current income. The fund
may invest in securities principally traded in foreign markets,
and expects that such investments will not ordinarily exceed 20%
of its assets. For a discussion of the risks associated with
foreign investments, see "Common investment policies and
techniques -- Foreign investments." The fund may also invest in
premium securities, engage in foreign currency exchange
transactions, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them. The fund may engage in defensive
strategies when Putnam Management judges that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of the fund's
shareholders. See "Common investment policies and techniques"
below for a discussion of these strategies.
The fund seeks its secondary objective of capital growth, when
consistent with its primary objective of high current income, by
investing in securities which may be expected to appreciate in
value as a result of declines in long-term interest rates or as a
result of favorable developments affecting the business or
prospects of the issuer which may improve the issuer's financial
condition and credit rating. Putnam Management believes that
such opportunities for capital appreciation often exist in the
securities of smaller capitalization companies which have the
potential for significant growth. These securities may involve
greater risks than the securities of larger, more established
issuers.
The fund may generally invest in any security which is rated at
least Caa or CCC by a nationally recognized securities rating
agency, such as S&P or Moody's, or in any unrated security which
Putnam Management determines is of comparable quality. The 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 consider such reduction in its
determination of whether the fund should continue to hold the
security in its portfolio. Securities rated below Baa or BBB are
considered to be of poor standing and predominantly speculative.
The fund may invest up to 15% of its assets in securities rated
below Caa or CCC by each rating agency rating such security,
including securities in the lowest rating category of each rating
agency, or in unrated securities Putnam Management determines are
of comparable quality. Such securities may be in default and are
generally regarded by the rating agencies as having extremely
poor prospects of ever attaining any real investment standing.
For a discussion of the risks associated with investments in
fixed-income securities, including lower-rated fixed-income
securities, see "Common investment policies and techniques --
Lower-rated and other fixed-income securities." The foregoing
investment limitations will be measured at the time of purchase
and, to the extent that a security is assigned a different rating
by one or more of the various rating agencies, Putnam Management
will use the highest rating assigned by any agency.
The table below shows the percentages of fund assets invested
during fiscal 1997 in securities assigned to the various rating
categories by S&P, or, if unrated by S&P, assigned to comparable
rating categories by another rating agency, and in unrated
securities determined by Putnam Management to be of comparable
quality.
Rated securities, Unrated securities of
as percentage of comparable quality, as
Rating net assets percentage of net assets
- ------ ----------------- ------------------------
"AAA" 0.47% --
"AA" -- --
"A" 0.18% --
"BBB" 0.70% --
"BB" 13.29% 0.21%
"B" 57.36% 13.40%
"CCC" 5.44% 0.11%
"CC" 0.81% --
"C" -- --
"D" 0.33% --
------ ------
Total 78.58% 13.72%
====== ======
The fund may invest in participations and assignments of fixed
and floating rate loans made by financial institutions to
governmental or corporate borrowers. In addition to the more
general investment considerations applicable to fixed-income
investments, participations and assignments involve the risk that
the institution's insolvency could delay or prevent the flow of
payments on the underlying loan to the fund. The fund may have
limited rights to enforce the terms of the underlying loan, and
the liquidity of loan participations and assignments may be
limited.
Putnam VT High Yield Fund will generally be managed in a style
similar to that of Putnam High Yield Advantage Fund.
PUTNAM VT INTERNATIONAL GROWTH FUND
Putnam VT International Growth Fund seeks capital appreciation.
The fund seeks its objective by investing primarily in equity
securities of companies located in a country other than the
United States. The fund's investments will normally include
common stocks, preferred stocks, securities convertible into
common or preferred stocks, and warrants to purchase common or
preferred stocks. The fund may also invest to a lesser extent in
debt securities and other types of investments if Putnam
Management believes purchasing them would help achieve the fund's
objective. The fund will, under normal circumstances, invest at
least 65% of its total assets in securities of issuers located in
at least three different countries other than the United States.
The fund may hold a portion of its assets in cash or money market
instruments.
The fund will consider an issuer of securities to be "located in
a country other than the United States" if it is organized under
the laws of a country other than the United States and has a
principal office outside the United States, or if it derives 50%
or more of its total revenues from business outside the United
States.
The fund will not limit its investments to any particular type of
company. The fund may invest in companies, large or small, whose
earnings Putnam Management believes are to be in a relatively
strong growth trend, or in companies in which significant further
growth is not anticipated but whose securities are, in the
opinion of Putnam Management, undervalued. It may invest in
small and relatively less well-known companies which meet these
characteristics.
Smaller companies may present greater opportunities for capital
appreciation, but may also involve greater risks. They may have
limited product lines, markets for financial resources, or may
depend on a limited management group. Their securities may trade
less frequently and in limited volume. As a result, the prices of
these securities may fluctuate more than prices of securities of
larger, more established companies.
Putnam Management believes that the securities markets of many
nations move relatively independently of one another because
business cycles and other economic or political events that
influence one country's securities markets may have little effect
on securities markets in other countries. By investing in a
diversified portfolio of foreign securities, Putnam Management
attempts to reduce the risks associated with being invested in
the economy of only one country. The countries which Putnam
Management believes offer attractive opportunities for investment
may change from time to time.
Foreign investments can involve risks that may not be present in
domestic securities. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments." The fund may invest in
securities of issuers in emerging markets, as well as more
developed markets. Investing in emerging markets generally
involves more risk than investing in developed markets. See
"Common investment policies and techniques -- Foreign
investments."
The fund may also engage in foreign currency exchange
transactions and transactions in futures and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below for a discussion of these securities and
types of transactions and the risks associated with them. The
fund may engage in defensive strategies when Putnam Management
judges that conditions in the securities markets make pursuing
the fund's basic investment strategy inconsistent with the best
interests of its shareholders. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
Putnam VT International Growth Fund will generally be managed in
a style similar to that of Putnam International Growth Fund.
PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND
Putnam VT International Growth and Income Fund seeks capital
growth. Current income is a secondary objective.
The fund will invest primarily in common stocks that Putnam
Management believes offer potential for capital growth, and may,
consistent with its investment objectives, invest in stocks that
Putnam Management believes offer potential for current income.
Under normal market conditions, the fund expects to invest
substantially all of its assets in securities principally traded
on markets outside the United States. The fund will normally
diversify its investments among a number of different countries
and, except when investing for defensive purposes, will invest at
least 65% of its total assets in at least three countries other
than the United States. The fund may invest in securities of
issuers in emerging market countries, as well as securities of
issuers in more developed countries. Investing in emerging
market countries involves special risks. For a discussion of the
risks of foreign investments, see "Common investment policies and
techniques -- Foreign investments."
The fund may also purchase corporate bonds, notes and debentures,
preferred stocks, securities convertible into common stock or
other equity securities, or U.S. or foreign government securities
if Putnam Management determines that their purchase would help
further the fund's investment objectives.
The types of securities held by the fund may vary from time to
time in light of the fund's investment objectives, changes in
interest rates, and economic and other factors. When selecting
portfolio securities for the fund that have the potential for
capital growth, Putnam Management will seek to identify
securities that are significantly undervalued in relation to
underlying asset values or earnings potential. The fund may also
hold a portion of its assets in cash or high-quality money market
instruments.
The fund may invest a portion of its assets in securities of
small-capitalization companies (defined for these purposes as
companies with equity market capitalizations of less than $1
billion). These securities may involve certain special risks.
Such companies may have limited product lines, markets or
financial resources, and may be dependent on a limited management
group. Such securities may trade less frequently and in smaller
volume than more widely held securities. The values of these
securities may fluctuate more sharply than those of other
securities, and the fund may experience some difficultly in
establishing or closing out positions in these securities at
prevailing market prices. There may be less publicly available
information about the issuers of these securities or less market
interest in such securities than in the case of larger companies,
and it may take a longer period of time for the prices of such
securities to reflect the full value of their issuers' underlying
earnings potential or assets.
Common stocks of foreign issuers have historically offered lower
yields than common stocks of comparable U.S. issuers. In
addition, foreign withholding taxes may further reduce the amount
of income available for distribution to fund shareholders. As a
result, the fund's yield is expected to be lower than that of
funds with similar investment objectives that invest primarily in
U.S. issuers. See "How the fund makes distributions to
shareholders."
The fund may invest in fixed-income securities rated at least C
by a nationally recognized securities rating agency, such as S&P
or Moody's, and in unrated securities which Putnam Management
determines to be of comparable quality. The risks associated
with fixed-income securities, including lower-rated fixed-income
securities (commonly known as "junk bonds"), are discussed below
under "Common investment policies and techniques -- Lower-rated
and other fixed-income securities." The 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 consider such reduction in its determination of
whether the fund should continue to hold the security in its
portfolio. The foregoing investment limitations will be measured
at the time of purchase and, to the extent that a security is
assigned a different rating by one or more of the various rating
agencies, Putnam Management will use the highest rating assigned
by any agency.
Foreign investments can involve risks that may not be present in
domestic securities. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments."
The fund may also engage in foreign currency exchange
transactions and transactions in futures and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below for a discussion of these securities and
types of transactions and the risks associated with them. The
fund may engage in defensive strategies when Putnam Management
judges that conditions in the securities markets make pursuing
the fund's basic investment strategy inconsistent with the best
interests of its shareholders. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
Putnam VT International Growth and Income Fund will generally be
managed in a style similar to that of Putnam International Growth
and Income Fund.
PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND
Putnam VT International New Opportunities Fund seeks long-term
capital appreciation.
The fund seeks to invest in companies that have above-average
growth prospects due to the fundamental growth of their market
sector. Under normal market conditions, the fund expects to
invest substantially all of its total assets, other than cash or
short-term investments held pending investment, in common stocks,
preferred stocks, convertible preferred stocks, convertible bonds
and other equity securities principally traded in securities
markets outside the United States. The fund will normally
diversify its investments among a number of different countries
and, except when investing for defensive purposes, will invest at
least 65% of its assets in at least three different countries
other than the United States.
Putnam Management believes that different market sectors in
different countries will experience different rates of growth
depending on the state of economic development of each country.
As a result, Putnam Management seeks to identify those market
sectors which will experience above-average growth in three broad
categories of economies: less developed economies, developing
economies that have experienced sustained growth over the recent
past, and mature economies. Within the identified growth sectors
of each type of economy, Putnam Management seeks to invest in
particular companies that offer above-average growth prospects.
The sectors in which the fund will invest are likely to change
over time and may include a variety of industries. Subject to
the fund's investment restrictions, the fund may invest up to
one-half of its assets in any one sector. The fund's emphasis on
particular sectors may make the value of the fund's shares more
susceptible to any single economic, political or regulatory
development than the shares of an investment company which is
more widely diversified. As a result, the value of the fund's
shares may fluctuate more than the value of the shares of such an
investment company. The fund may also invest a portion of its
assets in market sectors other than those that Putnam Management
believes will experience above-average growth if Putnam
Management believes that such investments are consistent with the
fund's investment objective of long-term capital appreciation.
The securities markets of less developed economies and of many
developing economies are sometimes referred to as "emerging
markets." Although the amount of the fund's assets invested in
emerging securities markets will vary over time, Putnam
Management currently expects that a substantial portion of the
fund's assets will be invested in emerging markets. These
markets are generally characterized by limited trading volume and
greater volatility and, as a result, the fund may be subject to
greater risks to the extent of its investments in such markets.
Companies in the fund's portfolio may include small, rapidly
growing companies with equity market capitalizations of less than
$1 billion. These companies may present greater opportunities
for capital appreciation, but may also involve greater risk.
They may have limited product lines, markets or financial
resources, or may depend on a limited management group. Their
securities may trade less frequently and in limited volume, and
only in the over-the-counter market or on a regional securities
exchange. As a result, these securities may fluctuate in value
more than those of larger, more established companies.
Because Putnam Management evaluates securities for the fund based
on their long-term potential for capital appreciation, the fund's
investments may not appreciate or yield significant income over
the shorter term, and, as a result, the fund's total return over
certain periods may be less than that of other equity mutual
funds.
The fund invests primarily in common stocks and other equity
securities, but may also invest up to 10% of its total assets in
non-convertible debt securities if Putnam Management believes
they would help achieve the fund's objective of long-term capital
appreciation. The fund may invest in securities in the lower-
rated categories. Securities in the lower-rated categories are
considered to be predominantly speculative and may be in default.
See "Common investment policies and techniques -- Lower-rated and
other fixed-income securities." The fund may also hold a portion
of its assets in cash or high-quality money market instruments.
Foreign investments can involve risks that may not be present in
domestic securities. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments."
The fund may also engage in foreign currency exchange
transactions and transactions in futures and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below for a discussion of these securities and
types of transactions and the risks associated with them. The
fund may engage in defensive strategies when Putnam Management
judges that conditions in the securities markets make pursuing
the fund's basic investment strategy inconsistent with the best
interests of its shareholders. When pursuing such defensive
strategies, the fund may invest without limit in securities
primarily traded in U.S. markets. See "Common investment
policies and techniques" below for a discussion of these
strategies.
Putnam VT International New Opportunities Fund will generally be
managed in a style similar to that of Putnam International New
Opportunities Fund.
PUTNAM VT INVESTORS FUND
Putnam VT Investors Fund seeks long-term growth of capital and
any increased income that results from this growth. The fund is
designed for investors seeking long-term growth of capital from a
portfolio primarily consisting of quality common stocks.
Putnam VT Investors Fund invests primarily in common stocks that
Putnam Management believes afford the best opportunity for
capital growth over the long term. Though common stocks are
normally the fund's main investments, the fund may also purchase
convertible bonds, convertible preferred stocks, preferred stocks
and debt securities if Putnam Management believes they would help
achieve the fund's objective. The fund may also hold a portion
of its assets in cash or money market instruments.
In seeking the fund's objective of long-term growth of capital,
Putnam Management considers three main factors:
1. The general outlook for the economy.
2. A study of various industries to determine those with
the best possibilities for long-term growth.
3. A detailed study of what appear to be the most
promising individual companies.
In the evaluation of a company, more consideration is given to
growth potential than to dividend income. Putnam Management
believes that evaluating a company's probable future earnings,
dividends, financial strength, working assets and competitive
position will prove more profitable in the long run than simply
seeking current dividend income. Although the fund's investments
are not limited to any particular type of company, Putnam
Management currently expects that the fund will invest a
substantial portion of its assets in common stocks of companies
with equity market capitalizations of more than $1 billion. The
fund may also invest in common stocks of companies with equity
market capitalizations below this level. Such companies may
present greater opportunities for capital appreciation because of
high potential earnings growth, but may also involve greater
risk. They may have limited product lines, markets or financial
resources, or may depend on a limited management group. Their
securities may trade less frequently and in limited volume, and
only in the over-the-counter market or on a regional securities
exchange. As a result, these securities may change in value more
than those of larger, more established companies.
The fund expects that its investments in foreign securities
generally will not exceed 20% of its total assets, although the
fund's investments in foreign securities may exceed this amount
from time to time. For a discussion of risks associated with
foreign investments, see "Common investment policies and
techniques -- Foreign investments. The fund may engage in a
variety of foreign currency exchange transactions in connection
with it foreign investment, including transactions involving
futures contracts, forward contracts and options.
The fund may engage in defensive strategies when Putnam
Management judges that conditions in the securities markets make
pursuing the fund's basic investment strategy inconsistent with
the best interests of the fund's shareholders. See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may hold a portion of its assets in
cash and money market instruments. The fund may also engage in
foreign currency exchange transactions and transactions in
futures and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them.
Putnam VT Investors Fund will generally be managed in a style
similar to that of Putnam Investors Fund.
PUTNAM VT MONEY MARKET FUND
Putnam VT Money Market Fund seeks as high a rate of current
income as Putnam Management believes is consistent with
preservation of capital and maintenance of liquidity. It is
designed for investors seeking current income with stability of
principal.
The fund invests in a portfolio of high-quality money market
instruments. Examples of these instruments include:
* bank certificates of deposit (CDs): negotiable certificates
issued against funds deposited in a commercial bank for a
definite period of time and earning a specified return.
* bankers' acceptances: negotiable drafts or bills of
exchange, which have been "accepted" by a bank, meaning, in
effect, that the bank has unconditionally agreed to pay the
face value of the instrument on maturity.
* prime commercial paper: high-grade, short-term obligations
issued by banks, corporations and other issuers.
* corporate obligations: high-grade, short-term corporate
obligations other than prime commercial paper.
* municipal obligations: high-grade, short-term municipal
obligations.
* U.S. government securities: marketable securities issued or
guaranteed as to principal and interest by the U.S.
government or by its agencies or instrumentalities.
* repurchase agreements: contracts under which the fund
acquires U.S. Treasury or U.S. government agency obligations
for a relatively short period subject to the agreement of the
seller to repurchase and the fund to resell such obligations
at a fixed time and price (representing the fund's cost plus
interest).
The fund will invest only in high-quality securities that Putnam
Management believes present minimal credit risk. High-quality
securities are securities rated at the time of acquisition in one
of the two highest categories by at least two nationally
recognized rating services (or, if only one rating service has
rated the security, by that service) or if the security is
unrated, judged to be of equivalent quality by Putnam Management.
The fund will maintain a dollar-weighted average maturity of 90
days or less and will not invest in securities with remaining
maturities of more than 397 days. The fund may invest in
variable or floating rate securities which bear interest at rates
subject to periodic adjustment or which provide for periodic
recovery of principal on demand. Under certain conditions, these
securities may be deemed to have remaining maturities equal to
the time remaining until the next interest adjustment date or the
date on which principal can be recovered on demand.
The fund may invest in bank certificates of deposit and bankers'
acceptances issued by banks having deposits in excess of $2
billion (or the foreign currency equivalent) at the close of the
last calendar year. Should the Trustees decide to reduce this
minimum deposit requirement, shareholders will be notified and
this prospectus supplemented.
Considerations of liquidity and preservation of capital mean that
the fund may not necessarily invest in money market instruments
paying the highest available yield at a particular time.
Consistent with its investment objective, the fund will attempt
to maximize yields by portfolio trading and by buying and selling
portfolio investments in anticipation of or in response to
changing economic and money market conditions and trends. The
fund will also invest to take advantage of what Putnam Management
believes to be temporary disparities in yields of different
segments of the high-grade money market or among particular
instruments within the same segment of the market. These
policies, as well as the relatively short maturity of obligations
purchased by the fund, may result in frequent changes in the
fund's portfolio. Portfolio turnover may give rise to capital
gains. The fund does not usually pay brokerage commissions in
connection with the purchase or sale of portfolio securities.
See "Management -- Portfolio Transactions -- Brokerage and
research services" in the SAI for a discussion of underwriters'
commissions and dealers' spreads involved in the purchase and
sale of portfolio securities.
The value of the securities in the fund's portfolio can be
expected to vary inversely to changes in prevailing interest
rates. Although the fund's investment policies are designed to
minimize these changes and maintain a net asset value of $1.00
per share, there is no assurance that these policies will be
successful. Withdrawals by shareholders could require the sale
of portfolio investments at a time when such a sale might not
otherwise be desirable.
The fund may invest without limit in the banking industry and in
commercial paper and short-term corporate obligations of issuers
in the personal credit institution and business credit
institution industries when, in the opinion of Putnam Management,
the yield, marketability and availability of investments meeting
the fund's quality standards in those industries justify any
additional risks associated with the concentration of the fund's
assets in those industries. The fund, however, will invest more
than 25% of its assets in the personal credit institution or
business credit institution industries only when, to Putnam
Management's knowledge, the yields then available on securities
issued by companies in such industries and otherwise suitable for
investment by the fund exceed the yields then available on
securities issued by companies in the banking industry and
otherwise suitable for investment by the fund.
The fund may invest without limit in U.S. dollar-denominated
commercial paper of foreign issuers and in bank certificates of
deposits and bankers' acceptances payable in U.S. dollars and
issued by foreign banks (including U.S. branches of foreign
banks) or by foreign branches of U.S. banks. These investments
subject the fund to investment risks different from those
associated with domestic investments. For a discussion of the
risks associated with foreign investments, See "Common
investment policies and techniques -- Foreign investments."
The fund may also lend its portfolio securities. For a
discussion of this strategy and the risks associated with it, see
"Common investment policies and techniques" below.
Insurance
The fund, along with four other Putnam money market funds, has
purchased insurance, which, among other things, will insure the
fund against a decrease in the value of a security held by it due
to the issuer's default or bankruptcy. Most securities and
instruments in which the funds invest, other than U.S. Government
securities, are covered by this insurance. Although the
insurance, which is subject to certain conditions, may provide
the fund with some protection in the event of a decrease in value
of certain of its portfolio securities due to default or
bankruptcy, the policy does not insure or guarantee that the fund
will maintain a stable net asset value of $1.00 per share.
The maximum amount of total coverage under the policy is $30
million, subject to a deductible in respect of each loss equal to
the lesser of $1 million or 0.30% of the fund's net assets. As
of March 31, 1998, the fund's net assets totaled $387.78 million.
Each of the money market funds that has purchased the insurance
has access to the full amount of insurance under the policy,
subject to the deductible. Accordingly, depending upon the
circumstances, the fund may not be entitled to recover under the
policy, even though it has experienced a loss that would
otherwise be insurable.
Putnam VT Money Market Fund will generally be managed in a style
similar to that of Putnam Money Market Fund.
PUTNAM VT NEW OPPORTUNITIES FUND
Putnam VT New Opportunities Fund seeks long-term capital
appreciation. The fund seeks its objective by investing
principally in common stocks of companies in sectors of the
economy which Putnam Management believes possess above-average
long-term growth potential.
The fund will generally invest in companies which Putnam
Management identifies as offering the best prospects for long-
term growth within a particular sector. Current dividend income
is only an incidental consideration. The fund invests primarily
in common stocks, but may also purchase convertible bonds,
convertible preferred stocks, warrants, preferred stocks and debt
securities if Putnam Management believes they would help achieve
the fund's objective of capital appreciation. The fund may
invest in foreign securities, and expects that such investments
will not ordinarily exceed 20% of its assets. For a discussion
of the risks associated with foreign investing, see "Common
investment policies and techniques -- Foreign investments." The
fund may also engage in foreign currency exchange transactions
and transactions in futures and options, enter into repurchase
agreements, loan its portfolio securities and purchase securities
for future delivery. See "Common investment policies and
techniques" below for a discussion of these securities and types
of transactions and the risks associated with them. The fund may
also hold a portion of its assets in cash and money market
instruments. The fund may engage in defensive strategies when
Putnam Management judges that conditions in the securities
markets make pursuing the fund's basic investment strategy
inconsistent with the best interests of the fund's shareholders.
See "Common investment policies and techniques" below for a
discussion of these strategies.
The sectors of the economy which offer above-average growth
potential will change over time. At present, Putnam Management
has identified the following sectors of the economy, and examples
of industries within these sectors, as having an above-average
growth potential over the next three to five years:
Personal Communications - long distance telephone, competitive
local exchange carriers, cellular telephone, paging, personal
communication networks;
Media/Entertainment - cable television system operators, cable
television network programmers, casino operators, film
entertainment providers, theme park operators, radio and
television stations, billboard advertising providers;
Medical Technology/Cost-Containment - home and outpatient care,
medical device companies, biotechnology, health care
information services, physician practice management, managed
care providers;
Environmental Services - solid waste disposal, hazardous waste
disposal, remediation services, environmental testing;
Applied/Advanced Technology - database software, application
software, entertainment software, networking software, computer
systems integrators, information services companies,
semiconductors, manufacturing technology;
Personal Financial Services - specialty insurance companies,
credit card issuers, and other consumer-oriented financial
services companies; and
Value-oriented Consuming - retailers, restaurants, hotel
chains, travel companies, consumer franchise companies and
other consumer product or service companies able to provide
quality products or services at lower prices or offering
greater perceived value than competitors.
In addition, the fund may also invest a portion of its assets in
securities of companies that, although not in any of the sectors
described above, are expected to experience above-average growth.
The sectors described above represent Putnam Management's current
judgment of the sectors of the economy which offer the most
attractive growth opportunities. The fund will not necessarily
be invested in each of the seven market sectors at all times.
Such sectors are likely to change over time and may include a
variety of industries. Subject to the fund's investment
restrictions, the fund may invest up to one-half of its assets in
any one sector.
The fund will invest in securities that Putnam Management
believes offer above-average long-term growth opportunities. As
a result of the fund's long-term investment strategy, it is
possible that the fund's total return over certain periods may be
less than that of other equity investment vehicles.
The fund seeks to invest in companies that offer above-average
growth prospects in their particular sector of the economy,
without regard to a company's size. Companies in the fund's
portfolio will range from small, rapidly growing companies to
larger, well-established firms. It may invest in small and
relatively less well-known companies. Investing in these
companies may present greater opportunities for capital
appreciation, but also may involve greater risk. They may have
limited product lines, markets or financial resources, or may
depend on a limited management group. Their securities may trade
less frequently and in limited volume, and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
The fund will normally emphasize investments in particular
economic sectors. Although the fund will not invest more than 25%
of its assets in any one industry, the fund's emphasis on
particular sectors of the economy may make the value of the
fund's shares more susceptible to any single economic, political
or regulatory development than the shares of an investment
company which is more widely diversified. As a result, the value
of the fund's shares may fluctuate more than the value of the
shares of a more diversified investment company.
Putnam VT New Opportunities Fund will generally be managed in a
style similar to that of Putnam New Opportunities Fund.
PUTNAM VT NEW VALUE FUND
Putnam VT New Value Fund seeks long-term capital appreciation.
The fund will invest primarily in common stocks that Putnam
Management believes are undervalued at the time of purchase and
have the potential for long-term capital appreciation. The fund
is unlike most equity mutual funds in that its investments will
be comprised of a relatively small number of issuers (currently
expected to be approximately 40 to 50). Because Putnam
Management evaluates securities for the fund based on their long-
term potential for capital appreciation, the fund's investments
may not appreciate over the shorter term, and as a result the
fund's total return over certain periods may be less than that of
other equity mutual funds. Putnam Management's investment
decisions for the fund may be contrary to those of most other
investors.
In selecting common stocks for the fund, Putnam Management will
consider, among other things, an issuer's financial strength,
current and projected dividend rates, competitive position and
current and projected future earnings. Putnam Management
currently expects that a portion of the fund's investments will
include common stocks that offer the potential for above-average
current income.
The fund's investments may include widely-traded common stocks of
larger companies as well as common stocks of small companies with
equity market capitalizations below $1 billion. These companies
may present greater opportunities for capital appreciation, but
may also involve greater risk. They may have limited product
lines, markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and
in limited volume, and only in the over-the-counter market or on
a regional securities exchange. As a result, these securities
may fluctuate in value more than those of larger, more
established companies.
Common stocks and other equity securities are normally the fund's
main investments. However, the fund may purchase preferred
stocks, debt securities and convertible securities (both bonds
and preferred stocks) if Putnam Management believes they would
help achieve the fund's objective of long-term capital
appreciation. The fund may invest in securities principally
traded in foreign markets, and expects that such investments will
not ordinarily exceed 20% of its assets. For a discussion of the
risks associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments.
The fund may invest in both higher-rated and lower-rated fixed-
income securities, and is not subject to any restrictions based
on credit ratings. See "Common investment policies and
techniques -- Lower-rated and other fixed-income securities."
The fund may also hold a portion of its assets in cash or high-
quality money market instruments. The fund may also engage in
foreign currency exchange transactions and transactions in
futures and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them. The fund may engage in defensive
strategies when Putnam Management judges that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of its
shareholders. When pursuing such defensive strategies, the fund
may invest without limit in securities primarily traded in U.S.
markets. See "Common investment policies and techniques" below
for a discussion of these strategies.
Putnam VT New Value Fund will generally be managed in a style
similar to that of Putnam New Value Fund.
PUTNAM VT OTC & EMERGING GROWTH FUND
Putnam VT OTC & Emerging Growth Fund seeks capital appreciation.
The fund invests primarily in common stocks traded in the over-
the-counter ("OTC") market and common stocks of "emerging growth"
companies listed on securities exchanges. The fund is designed
for investors willing to assume above-average risk in return for
above-average capital growth potential. The fund may trade
securities for short-term profits.
The fund invests primarily in common stocks of small- to medium-
sized companies with equity capitalizations of less than $5
billion that Putnam Management, believes have potential for
capital appreciation significantly greater than that of the
market averages. Under normal market conditions, the fund will
invest at least 65% of its total assets in common stocks that are
traded in the OTC market (that is, stocks not listed on any
national, regional or foreign stock exchange) or are issued by
"emerging growth" companies. "Emerging growth" companies are
companies determined by Putnam Management
to
have
a leading or
proprietary position in a growing industry or gaining market
share in an established industry, particularly companies which
have developed a new way to do business within that industry.
These companies may range from startups, or recently organized
companies, to mature companies with long, established operating
histories.
The companies in which the fund invests may offer greater
opportunities for capital appreciation than larger, more
established companies, but investments in such companies may
involve certain special risks. OTC listed and emerging growth
companies may have limited product lines, markets or financial
resources and may be dependent on a limited management group.
Many OTC and emerging growth stocks trade less frequently and in
smaller volume than exchange-listed stocks. The values of these
stocks may fluctuate more sharply than exchange-listed stocks,
and the fund may experience difficulty in establishing or closing
out positions in these stocks at prevailing market prices.
Though common stocks are normally the fund's main investment, it
may also purchase convertible bonds, convertible preferred
stocks, warrants, preferred stocks and debt securities without
being subject to any limitation based on securities ratings if
Putnam Management believes they would help achieve the fund's
objective. Securities in the lower-rated categories are
considered to be primarily speculative and may be in default.
See "Common investment techniques -- Lower-rated and other fixed
income securities." Dividend and interest income is not a
consideration in the selection of portfolio investments.
The fund may engage in defensive strategies when Putnam
Management judges that conditions in the securities markets make
pursuing the fund's basic investment strategy inconsistent with
the best interests of the fund's shareholders. See "Common
investment policies and techniques" below for a discussion of
these strategies. The fund may hold a portion of its assets in
cash and money market instruments. The fund may also engage in
foreign currency exchange transactions and transactions in
futures and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them.
The fund expects that its investments in foreign securities
generally will not exceed 20% of its total assets although the
fund's investments in foreign securities may exceed this amount.
For a discussion of the risks associated with foreign
investments, see "Common investment techniques -- Foreign
investments."
Putnam VT OTC & Emerging Growth Fund will generally be managed in
a style similar to that of Putnam OTC & Emerging Growth Fund.
PUTNAM VT U.S. GOVERNMENT AND HIGH QUALITY BOND FUND
Putnam VT U.S. Government and High Quality Bond Fund seeks
current income consistent with preservation of capital. The fund
invests primarily in U.S. government securities and in other debt
obligations rated at least A by a nationally recognized
securities rating agency, such as S&P or Moody's, or, if not
rated, determined by Putnam Management to be of comparable
quality. For a more detailed description of security ratings,
see the Appendix to this prospectus. The 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 consider such reduction in its determination of
whether the fund should continue to hold the security in its
portfolio. The foregoing investment limitations will be measured
at the time of purchase and, to the extent that a security is
assigned a different rating by one or more of the various rating
agencies, Putnam Management will use the highest rating assigned
by any agency.
Putnam Management will allocate the fund's assets between U.S.
government securities and other high quality bonds, depending on
its assessment of market conditions and the relative investment
returns available from such securities. The fund will not,
however, make any investment, if, as a result, less than 25% of
the value of its assets would be invested in U.S. government
securities. The fund may invest in securities principally traded
in foreign markets, and expects that such investments will not
ordinarily exceed 20% of its assets. For a discussion of the
risks associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments." The fund may
also invest in premium securities, engage in foreign currency
exchange transactions and transactions in futures and options,
enter into repurchase agreements, loan its portfolio securities
and purchase securities for future delivery. See "Common
investment policies and techniques" below for a discussion of
these strategies and the risks associated with them. The fund
may also hold a portion of its assets in cash and money market
instruments. The fund may engage in defensive strategies when
Putnam Management judges that conditions in the securities
markets make pursuing the fund's basic investment strategy
inconsistent with the best interests of its shareholders. See
"Common investment policies and techniques" below for a
discussion of these strategies.
Putnam Management may take full advantage of the entire range of
maturities of U.S. government securities and other high quality
bonds and may adjust the average maturity of the fund's portfolio
from time to time, depending on its assessment of relative yields
on securities of different maturities and expectations of future
changes in interest rates. Thus, at certain times the average
maturity of the portfolio may be relatively short (less than one
year to five years, for example) and at other times may be
relatively long (more than 10 years, for example).
The fund may also invest in high quality mortgage-backed and
asset-backed securities. For a description of these securities,
and the risks associated with them, see "Common investment
policies and techniques -- Mortgage-backed and asset-backed
securities."
U.S. government securities and other high quality bonds do not
involve the degree of credit risk associated with investments in
lower quality fixed-income securities, although, as a result, the
yields available from U.S. government securities and other high
quality bonds are generally lower than the yields available from
many other fixed-income securities. Like other fixed-income
securities, however, the values of U.S. government securities and
other high quality bonds change as interest rates fluctuate.
Fluctuations in the value of the fund's securities will not
affect interest income on securities already held by the fund,
but will be reflected in the fund's net asset value. Since the
magnitude of these fluctuations generally will be greater at
times when the fund's average maturity is longer, under certain
market conditions the fund may invest in short-term investments
yielding lower current income rather than investing in higher
yielding longer-term securities.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND
The investment objective of Putnam VT Utilities Growth and Income
Fund is to seek capital growth and current income. The fund
concentrates its investments in securities issued by companies in
the public utilities industries.
The fund will seek its objective by investing under normal
circumstances at least 65% of its total assets in equity and debt
securities of companies in the public utilities industries.
Equity securities in which the fund may invest include common
stocks, preferred stocks, securities convertible into common
stocks or preferred stocks, and warrants to purchase common or
preferred stocks. The fund may invest up to 20% of its total
assets in securities that are rated below BBB or Baa by a
nationally recognized securities rating agency, such as S&P or
Moody's, or, if unrated, are determined by Putnam Management to
be of comparable quality. The fund is not subject to any other
restrictions based on securities ratings. Securities rated below
BBB and Baa (and comparable unrated securities) are commonly
known as "junk bonds." See "Common investment policies and
techniques" for a discussion of lower-rated and other fixed-
income securities and the risks associated with them. The
foregoing investment limitations will be measured at the time of
purchase and, to the extent that a security is assigned a
different rating by one or more of the various rating agencies,
Putnam Management will use the highest rating assigned by any
agency. The fund may invest in debt and equity securities of
issuers in other industries if Putnam Management believes they
will help achieve the fund's objective.
Companies in the public utilities industries include companies
engaged in the manufacture, production, generation, transmission,
sale or distribution of electric or gas energy or other types of
energy and companies engaged in telecommunications, including
telephone, telegraph, satellite, microwave and other
communications media (but not companies engaged in public
broadcasting or cable television). Putnam Management deems a
particular company to be in the public utilities industries if at
the time of investment Putnam Management determines that at least
50% of the company's assets, revenues or profits are derived from
one or more of those industries.
The portion of the fund's assets invested in equity securities
and in debt securities will vary from time to time in light of
the fund's investment objective, changes in interest rates, and
economic and other factors. Although the fund expects that in
the near term it will invest substantial portions of its assets
in both equity securities and in debt securities, the fund may
invest all of its assets in either equity or debt securities.
The fund may hold a portion of its assets in cash and money
market instruments.
The fund may invest up to 25% of its assets in securities
principally traded in foreign markets. For a discussion of the
risks associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments." The fund may
also engage in foreign currency exchange transactions and
transactions in futures and options, enter into repurchase
agreements, loan its portfolio securities and purchase securities
for future delivery. See "Common investment policies and
techniques" below for a discussion of these securities and types
of transactions and the risks associated with them. The fund may
engage in defensive strategies when Putnam Management judges that
conditions in the securities markets make pursuing the fund's
basic investment strategy inconsistent with the best interests of
the fund's shareholders. See "Common investment policies and
techniques" below for a discussion of these strategies.
Since the fund's investments are concentrated in the utilities
industries, the value of its shares can be expected to change in
response to factors affecting those industries, and may fluctuate
more widely than the value of shares of a portfolio that invests
in a broader range of industries. Many utility companies,
especially electric, gas and other energy-related utility
companies, have historically been subject to risks of increase in
fuel and other operating costs, changes in interest rates on
borrowings for capital improvement programs, changes in
applicable laws and regulations, changes in technology which may
render existing plants, equipment or products obsolete, the
effects of energy conservation and operating constraints, and
increased costs and delays associated with compliance with
environmental regulations. In particular, regulatory changes
with respect to nuclear and conventionally-fueled power
generating facilities could increase costs or impair the ability
of utility companies to operate such facilities or obtain
adequate return on invested capital. Generally, prices charged
by utilities are regulated in the United States and in foreign
countries with the intention of protecting the public while
ensuring that utility companies earn a return sufficient to allow
them to attract capital in order to grow and continue to provide
appropriate services. There can be no assurance that such
pricing policies or rates of return will continue in the future.
In recent years, regulatory changes in the United States have
increasingly allowed utility companies to provide services and
products outside their traditional geographic areas and lines of
business, creating new areas of competition within the utilities
industries. This trend toward deregulation and the emergence of
new entrants have caused non-regulated providers of utility
services to become a significant part of the utilities
industries. Putnam Management believes that the emergence of
competition and deregulation will result in certain utility
companies being able to earn more than their traditional
regulated rates of return, while others may be forced to defend
their core business from increased competition and may be less
profitable. Although Putnam Management seeks to take advantage
of favorable investment opportunities that may arise from these
structural changes, there can be no assurance that the fund will
benefit from any such changes.
Foreign utility companies may be more heavily regulated than U.S.
utility companies, which may result in increased costs or
otherwise adversely affect the operations of such companies. The
securities of foreign utility companies also often have lower
dividend yields than U.S. utility companies. The fund's
investments in foreign issuers may include recently privatized
enterprises, in which the fund's participation may be limited or
otherwise affected by local law. There can be no assurance that
governments with privatization programs will continue such
programs or that privatization will succeed in such countries.
In addition, the stock of certain of these enterprises may be
held by a small group of stockholders, whose sale of a portion or
all of the stock may adversely affect the value of the stock of
any such enterprise.
Investments in securities rated BBB or Baa have speculative
characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of
the issuer to make principal and interest payments than would
likely be the case with investments in securities with higher
credit ratings. The fund will not necessarily dispose of a
security when its rating is reduced below its rating at the time
of purchase, although Putnam Management will monitor the
investment to determine whether continued investment in the
security would serve the fund's investment objective.
The fund is "non-diversified." This means that it may invest its
assets in a limited number of issuers. In order to qualify as a
"regulated investment company" under the Internal Revenue Code
(see "How a fund makes distributions to shareholders; tax
information" below), the fund generally may not invest more than
25% of its total assets in obligations of any one issuer other
than U.S. government securities and, with respect to 50% of its
total assets, the fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S.
government securities). Thus the fund may invest up to 25% of
its total assets in the securities of each of any two issuers.
Because of the limited number of issuers in the public utilities
industries, the fund is more likely to invest a higher percentage
of its assets in the securities of a single issuer than an
investment company which invests in a broad range of industries.
This practice involves an increased risk of loss to the fund if
the issuer is unable to make interest or principal payments or if
the market value of such securities were to decline.
Putnam VT Utilities Growth and Income Fund will generally be
managed in a style similar to that of Putnam Utilities Growth and
Income Fund. Because the latter fund is "diversified," however,
Putnam VT Utilities Growth and Income Fund's portfolio may
consist of securities of a smaller number of issuers than the
portfolio of that fund.
PUTNAM VT VISTA FUND
Putnam VT Vista Fund seeks capital appreciation. It is designed
for investors seeking above-average capital growth potential,
which involves certain risks.
The fund invests in a diversified portfolio of common stocks
which Putnam Management believes have the potential for above-
average capital appreciation. These may include widely-traded
common stocks of larger companies as well as common stocks of
smaller, less well known companies. Putnam Management expects
that, under normal market conditions, the fund will generally
invest principally in the equity securities of medium-sized
companies. While the definition of "medium-sized" companies will
change over time in response to market conditions, Putnam
Management believes that such companies currently include those
in the Russell Midcap Growth Index, as well as other companies
with equity market capitalizations ranging from approximately
$450 million to $10 billion. Such securities are often referred
to as "midcap stocks."
In selecting common stocks for the fund, Putnam Management will
consider, among other things, an issuer's financial strength,
competitive position, projected future earnings and dividends,
and other investment criteria. Current income will be only an
incidental consideration in the selection of investments.
Investment opportunities may be sought among securities of large,
widely traded companies as well as securities of smaller, less
well-known companies. Smaller companies may present greater
opportunities for capital appreciation, but may also involve
greater risks. They may have limited product lines, markets or
financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume.
As a result, the prices of these securities may fluctuate more
than prices of securities of larger, more established companies.
The fund may at times invest a portion of its assets in common
stocks Putnam Management believes are significantly undervalued.
In selecting such common stocks, Putnam Management will focus on
industries and issuers it considers to have particular
possibilities for long-term capital appreciation due to potential
growth of earnings which, in the judgment of Putnam Management,
is not fully reflected in current market prices. In selecting
undervalued securities, Putnam Management may make investment
judgments contrary to those of most investors.
Although common stocks are normally the fund's main investments,
the fund may purchase preferred stocks, debt securities,
convertible securities (both bonds and preferred stocks) and
warrants if Putnam Management believes they would help achieve
the fund's objective of capital appreciation. The fund may
purchase debt securities rated at the time of purchase at least C
by a nationally recognized securities rating agency, such as S&P
or Moody's, and unrated securities determined by Putnam
Management to be of comparable quality. Securities in the lower-
rated categories are considered to be primarily speculative and
may be in default. The risks associated with fixed-income
securities, including lower-rated fixed-income securities
(commonly known as "junk bonds"), are discussed below under
"Common investment policies and techniques -- Lower-rated and
other fixed-income securities." The foregoing investment
limitations will be measured at the time of purchase and, to the
extent that a security is assigned a different rating by one or
more of the various rating agencies, Putnam Management will use
the highest rating assigned by any agency. The fund may also
hold a portion of its assets in cash or money market instruments
and may invest in securities principally traded in foreign
markets, and expects that such investments will not ordinarily
exceed 20% of its assets. For a discussion of the risks
associated with foreign investments, see "Common investment
policies and techniques -- Foreign investments."
The fund may also engage in foreign currency exchange
transactions and transactions in futures and options, enter into
repurchase agreements, loan its portfolio securities and purchase
securities for future delivery. See "Common investment policies
and techniques" below for a discussion of these securities and
types of transactions and the risks associated with them. The
fund may engage in defensive strategies when Putnam Management
judges that conditions in the securities markets make pursuing
the fund's basic investment strategy inconsistent with the best
interests of the fund's shareholders. When pursuing such
defensive strategies, the fund may invest without limit in
securities primarily traded in U.S. markets. See "Common
investment policies and techniques" below for a discussion of
these strategies.
Putnam VT Vista Fund will generally be managed in a style similar
to Putnam Vista Fund.
PUTNAM VT VOYAGER FUND
Putnam VT Voyager Fund seeks capital appreciation. It is
designed for investors willing to assume above-average risk in
return for above-average capital growth potential. The fund
invests primarily in common stocks of companies that Putnam
Management believes have potential for capital appreciation that
is significantly greater than that of market averages. The fund
may also purchase convertible bonds, convertible preferred
stocks, warrants, preferred stocks and debt securities if Putnam
Management believes they would help achieve the fund's objective.
The fund may also hold a portion of its assets in cash and money
market instruments and may invest up to 20% of its assets in
foreign securities. For a discussion of the risks associated
with foreign investments, see "Common investment policies and
techniques -- Foreign investments." The fund may also engage in
foreign currency exchange transactions and transactions in
futures and options, enter into repurchase agreements, loan its
portfolio securities and purchase securities for future delivery.
See "Common investment policies and techniques" below for a
discussion of these securities and types of transactions and the
risks associated with them. The fund may engage in defensive
strategies when Putnam Management judges that conditions in the
securities markets make pursuing the fund's basic investment
strategy inconsistent with the best interests of the fund's
shareholders. See "Common investment policies and techniques"
below for a discussion of these strategies.
The fund's investments may include widely-traded common stocks of
larger companies as well as common stocks of smaller, less well-
known issuers. The fund generally invests a portion of its
assets in the securities of small- to medium-sized companies with
equity market capitalizations of less than $3 billion. Investing
in these companies may present greater opportunities for capital
appreciation, but may also involve greater risk. They may have
limited product lines, markets or financial resources, or may
depend on a limited management group. Their securities may trade
less frequently and in limited volume and only in the over-the-
counter market or on a regional securities exchange. As a
result, these securities may fluctuate in value more than
securities of larger, more established companies.
Putnam VT Voyager Fund will generally be managed in a style
similar to Putnam Voyager Fund.
GENERAL
As indicated above, certain of the funds are generally managed in
styles similar to other open-end investment companies which are
managed by Putnam Management and whose shares are generally
offered to the public. These other Putnam funds may, however,
employ different investment practices and may invest in
securities different from those in which their counterpart funds
invest, and consequently will not have identical portfolios or
experience identical investment results.
COMMON INVESTMENT POLICIES AND TECHNIQUES
Diversification policies
Each fund (other than Putnam VT Health Sciences Fund and
Putnam VT Utilities Growth and Income Fund) is a "diversified"
investment company under the Investment Company Act of 1940 (the
"1940 Act"). This means that with respect to 75% of its total
assets a fund may not invest more than 5% of its total assets in
the securities of any one issuer (except U.S. government
securities). The remaining 25% of its total assets is not
subject to this restriction. To the extent a fund invests a
significant portion of its assets in the securities of a
particular issuer, it will be subject to an increased risk of
loss if the market value of such issuer's securities declines.
Limiting investment risk
Specific investment restrictions help to limit investment risks
for each fund's shareholders. These restrictions prohibit a fund
with respect to 75% of its total assets (with respect to 50% of
its total assets in the case of Putnam VT Health Sciences Fund
and Putnam VT Utilities Growth and Income Fund ) from
holding more than 10% of the voting securities of any one
issuer.* They also prohibit a fund from investing more than:
(a) (with respect to 75% of total assets for all funds other than
Putnam VT Health Sciences Fund and Putnam VT Utilities
Growth and Income Fund with respect to 50% of its total
assets for Putnam VT Health Sciences Fund and Putnam VT
Utilities Growth and Income Fund) 5% of its total assets
in securities of any one issuer other than the U.S. government;*
(b) 25% of its total assets in any one industry (securities of
the U.S. government, its agencies or instrumentalities are not
considered to represent any 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 Putnam VT
Health Sciences Fund may invest more than 25% of its assets in
the health sciences industries; and except that Putnam VT Money
Market Fund may invest more than 25% of its assets in (i) the
banking industry, (ii) the personal credit institution or
business credit institution industries or (iii) any combination
of the above, when, in the opinion of Putnam Management yield
differentials make such investments desirable.*
(c) 15% of its net assets in any combination of securities that
are not readily marketable, in securities restricted as to resale
(excluding securities determined by the Trustees (or the person
designated by the Trustees to make such determinations) to be
readily marketable), and in repurchase agreements maturing in
more than seven days.
The Money Market Fund has not invested more than 10% of its net
assets in the types of securities listed in item (c) and has no
current intention of doing so.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the SAI for the full text of these
policies and other fundamental policies. Except as otherwise
noted in the SAI, all percentage limitations described in this
prospectus and the SAI will apply at the time an investment is
made, and will not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of
such investment. Except for investment policies designated as
fundamental in this prospectus or the SAI, the investment
policies described in this prospectus and in the SAI are not
fundamental policies. The Trustees may change any non-
fundamental investment policy without shareholder approval. As a
matter of policy, the Trustees would not materially change the
fund's investment objective without shareholder approval.
Defensive strategies
At times, Putnam Management may judge that conditions in the
securities markets make pursuing a fund's basic investment
strategy inconsistent with the best interests of its
shareholders. At such times, Putnam Management may temporarily
use alternative strategies that are primarily designed to reduce
fluctuations in the value of fund assets.
In implementing these defensive strategies, a fund may invest
without limit in cash or cash equivalents, money-market
instruments, short-term bank obligations, high-rated fixed-income
securities or preferred stocks or in any other securities Putnam
Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, these
alternative strategies would be used.
Portfolio turnover
The length of time a fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by a fund is known as "portfolio turnover."
As a result of a fund's investment policies, under certain market
conditions its portfolio turnover rate may be higher than that of
other mutual funds.
Portfolio turnover generally involves some expense, including
brokerage commissions or dealer markups and other transaction
costs in connection with the sale of securities and reinvestment
in other securities. These transactions may result in
realization of taxable capital gains. A high portfolio turnover
for a fund may lead to higher brokerage costs. Portfolio
turnover rates for the most recent fiscal year of each
fund (other than Putnam VT The George Putnam Fund of Boston,
Putnam VT Health Sciences Fund, Putnam VT Investors Fund and
Putnam VT OTC & Emerging Growth Fund, each of which commenced
operations on April 30, 1998, and Putnam VT Money Market Fund,
for which portfolio turnover rates are not required to be
disclosed by the Securities and Exchange Commission) were as
follows:
Putnam VT Asia Pacific Growth Fund 102.92%
Putnam VT Diversified Income Fund 282.56%
Putnam VT Global Asset Allocation Fund 181.05%
Putnam VT Global Growth Fund 158.37%
Putnam VT Growth and Income Fund 64.96%
Putnam VT High Yield Fund 84.61%
Putnam International Growth Fund 75.18%
Putnam International Growth and Income Fund 53.20%
Putnam International New Opportunities Fund 131.89%
Putnam VT New Opportunities Fund 71.78%
Putnam VT New Value Fund 64.15%
Putnam VT U.S. Government and High 194.29%
Quality Bond Fund
Putnam VT Utilities Growth and Income Fund 42.46%
Putnam VT Vista Fund 75.43%
Putnam VT Voyager Fund 82.00%
While it is impossible to predict a fund's portfolio turnover
rate, Putnam Management, based on its experience, believes that
such rate will not exceed 150% for Putnam VT The George Putnam
Fund of Boston, Putnam VT Health Sciences Fund and Putnam VT
Investors Fund, and 300% for Putnam VT OTC & Emerging Growth
Fund.
Investments in premium securities
To the extent described above, certain of the funds may invest in
securities bearing coupon rates higher than prevailing market
rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity.
A fund does not amortize the premium paid for these securities in
calculating its net investment income. As a result, the purchase
of premium securities provides a higher level of investment
income distributable to shareholders on a current basis than if
the fund purchased securities bearing current market rates of
interest. Because the value of premium securities tends to
approach the principal amount as they approach maturity (or call
price in the case of securities approaching their first call
date), the purchase of such securities may increase the fund's
risk of capital loss if such securities are held to maturity (or
first call date).
During a period of declining interest rates, many of a fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. These
securities would generally carry premium market values that would
be reflected in the net asset value of fund shares. As a result,
an investor who purchases fund shares during such periods would
initially receive higher taxable monthly distributions (derived
from the higher coupon rates payable on a fund's investments)
than might be available from alternative investments bearing
current market interest rates, but the investor may face an
increased risk of capital loss as these higher coupon securities
approach maturity (or first call date). In evaluating the
potential performance of an investment in a fund, investors may
find it useful to compare the fund's current dividend rate with
its "yield," which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization
of market premiums. See "How performance is shown."
Foreign investments
Each fund may invest in securities of foreign issuers including
securities 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.
Each fund (other than Putnam VT Money Market Fund) may engage in
a variety of foreign currency exchange transactions in connection
with its foreign investments, including transactions involving
futures contracts, forward contracts and options.
Investments in foreign securities may subject a fund to other
risks as well. For example, 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 the
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 the 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 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 the
fund's assets denominated in such currencies. Many emerging
market countries 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 values of the fund's investments in these countries
and the availability to the fund of additional investments in
these countries. The small size, limited trading volume and
relative inexperience of the securities markets in these
countries may make the fund's investments in such countries
illiquid and more volatile than investments in more developed
countries, and the fund may be required to establish special
custodial or other arrangements before making investments in
these countries. There may be little financial or accounting
information available with respect to issuers located in these
countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.
The fund's investments in securities of issuers located in
emerging market countries may include securities issued by
foreign governmental issuers through the exchange of existing
commercial bank loans to such countries for new bonds in
connection with debt restructurings, including Brady Bonds, which
are issued under a debt restructuring plan introduced by former
U.S. Secretary of the Treasury, Nicholas F. Brady. These
securities may have no (or only limited) collateralization, and
the payment of interest and principal may be dependent on the
willingness and the ability of the foreign governmental issuer to
make payment in accordance with the terms of the security.
Each fund expects that its investments in foreign securities
generally will not exceed the percentage of its total assets
indicated above in its relevant section, although its investments
in foreign securities may exceed this amount from time to time.
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.
For more information about foreign securities and the risks
associated with investment in such securities, see the SAI.
Foreign currency exchange transactions
To the extent described above, certain of the funds may engage in
foreign currency exchange transactions to manage their exposure
to foreign currencies. Putnam Management may engage in foreign
currency exchange transactions in connection with the purchase
and sale of portfolio securities ("transaction hedging") and to
protect against changes in the value of specific portfolio
positions ("position hedging"). Each such fund may also engage
in foreign currency transactions for non-hedging purposes,
subject to applicable law.
A fund may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on
which the fund contracts to purchase or sell a security and the
settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. A fund may
also 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 may
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 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
securities the fund intends to buy are denominated, when the fund
holds cash or short-term investments). For position hedging
purposes, a 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.
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.
Each 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, for example, purchase
a currency forward contract or option in order to increase its
exposure to the currency.
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 a 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.
For a further discussion of the risks associated with purchasing
and selling futures contracts and options, see "Futures and
options." The SAI also contains additional information
concerning a fund's use of foreign currency exchange
transactions.
Futures and options
Futures and options on futures. To the extent described above,
each fund may buy and sell stock index futures contracts ("index
futures"). An "index future" is a contract to buy or sell units
of a particular stock index at an agreed price on a specified
future date. Depending on the change in value of the index
between the time a fund enters into and terminates an index
futures transaction, the fund realizes a gain or loss. A fund
may also, to the extent consistent with its investment objectives
and policies, buy and sell call and put options on index futures
or stock indexes. A fund may engage in index futures and
options transactions for hedging purposes and for nonhedging
purposes, such as to adjust its exposure to relevant markets or
as a substitute for direct investment. In addition, if a fund's
investment policies permit it to invest in foreign securities,
such fund may invest in futures and options on foreign
securities, for hedging purposes and for nonhedging purposes.
The use of index futures and related options involves certain
special risks. Futures and options transactions involve costs
and may result in losses.
To the extent described above, each fund may also buy and sell
futures contracts and related options with respect to U.S.
government securities and options directly on U.S. government
securities. Putnam Management believes that, under certain market
conditions, price movements in U.S. government securities futures
and related options may correlate closely with securities in
which such funds may invest and may, as a result, provide hedging
opportunities for the funds. Such funds may engage in U.S.
government securities futures and related options transactions
for hedging purposes and for nonhedging purposes, such as to
substitute for direct investment or to manage their effective
duration. Duration is a commonly used measure of the longevity
of debt instruments.
Options. As described above, certain of the funds may, to the
extent consistent with their investment objectives and policies,
seek to increase current return by writing covered call and put
options on securities such funds own or in which they may invest.
A fund receives a premium from writing a call or put option,
which increases the return if the option expires unexercised or
is closed out at a net profit.
When a fund writes a call option, it gives up the opportunity to
profit from any increase in the price of a security above the
exercise price of the option; when it writes a put option, it
takes the risk that it will be required to purchase a security
from the option holder at a price above the current market price
of the security. 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 option having the
same terms as the option written.
A fund may also, to the extent consistent with its investment
objectives and policies, buy and sell put and call options,
including combinations of put and call options on the same
underlying security. The use of these strategies may be limited
by applicable law.
Risks related to options and futures strategies
Options and futures transactions involve costs and may result in
losses. The effective use of options and futures strategies
depends on a fund's ability to terminate its options and futures
positions at times when Putnam Management deems it desirable to
do so. Although a fund will enter into an option or futures
contract position only if Putnam Management believes that a
liquid secondary market exists for such option or futures
contract, there is no assurance that the fund will be able to
effect closing transactions at any particular time or at an
acceptable price. Options on certain U.S. government securities
are traded in significant volume on securities exchanges.
However, other options which a fund may purchase or sell are
traded in the "over-the-counter" market rather than on an
exchange. This means that a fund will enter into such option
contracts with particular securities dealers who make markets in
these options. A fund's ability to terminate options positions
established in the over-the-counter market may be more limited
than for exchange-traded options and may also involve the risk
that securities dealers participating in such transactions would
fail to meet their obligations to the fund. Certain provisions
of the Internal Revenue Code and certain regulatory requirements
may limit the use of index futures and options transactions.
The use of options and futures strategies also involves the risk
of imperfect correlation among movements in the values of the
securities, currencies or indexes underlying the futures and
options purchased and sold by a fund, of the option or futures
contract itself, and of the securities or currencies 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.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the SAI.
Lower-rated and other fixed-income securities
As described above, certain of the funds may invest in lower-
rated fixed-income securities (commonly known as "junk bonds").
Differing yields on fixed-income securities of the same maturity
are a function of several factors, including the relative
financial strength of the issuers. Higher yields are generally
available from securities in the lower rating categories of a
nationally recognized rating agency (below Baa or BBB) or from
unrated securities of comparable quality. Securities rated below
Baa or BBB are considered to be of poor standing and
predominantly speculative. The rating services' descriptions of
securities in the lower rating categories, including their
speculative characteristics, are set forth in the Appendix to
this prospectus.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' investment 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. Although Putnam Management
considers security ratings when making investment decisions, it
performs its own investment analysis and does not rely
principally on the ratings assigned by the rating services.
Putnam Management's analysis may include consideration of the
issuer's experience and managerial strength, changing financial
condition, borrowing requirements or debt maturity schedules, and
its responsiveness to changes in business conditions and interest
rates. It also considers relative values based on anticipated
cash flow, interest or dividend coverage, asset coverage and
earning prospects.
At times, a substantial portion of fund assets may be invested in
securities of which the fund, by itself or together with other
funds and accounts managed by Putnam Management and its
affiliates, holds all or a major portion. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, it may be more difficult to
sell these securities when Putnam Management believes it
advisable to do so, or a fund 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 of these
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 the securities. This could
increase fund operating expenses and adversely affect the fund's
net asset value.
The values of fixed-income securities fluctuate in response to
changes in interest rates. A decrease in interest rates will
generally result in an increase in the value of fund assets.
Conversely, during periods of rising interest rates, the value of
fund assets will generally decline. The magnitude of these
fluctuations generally is greater for securities with longer
maturities. However, the yields on such securities are also
generally higher. In addition, the values of fixed-income
securities are affected by changes in general economic and
business conditions affecting the specific industries of their
issuers.
Changes by nationally recognized securities rating agencies in
their ratings of a 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.
Investors should carefully consider their ability to assume the
risks of owning shares of a mutual fund which invests in
lower-rated securities before allocating a portion of their
insurance investment to a fund that invests in such securities.
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
payments of interest and principal would likely make the values
of securities held by a fund more volatile and could limit the
fund's ability to sell its securities at prices approximating the
values placed on such securities. In the absence of a liquid
trading market for its portfolio securities, a fund at times may
be unable to establish the fair value of such securities.
The rating assigned to a security by a nationally recognized
securities rating agency, such as Moody's or S&P does not reflect
an assessment of the volatility of the security's market value or
of the liquidity of an investment in the security.
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis. When
a fund invests in securities in the lower rating categories, the
achievement of the fund's goals is more dependent on Putnam
Management's ability than would be the case if the fund were
investing in securities in the higher rating categories.
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 continued investment in the security will assist in
meeting a fund's investment objective.
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 at times may invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the
security. 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. Both zero-coupon bonds 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 that pay interest in cash
currently. The values of zero-coupon bonds and payment-in-kind
bonds are subject to greater fluctuation in response to changes
in market interest rates than bonds which pay interest in cash
currently.
Even though such bonds do not pay current interest in cash, a
fund is nonetheless required to accrue interest income on these
investments and to distribute the interest income on a current
basis. Thus, a fund could be required at times to liquidate
other investments in order to satisfy its distribution
requirements.
Certain investment grade securities in which a fund may invest
share some of the risk factors discussed above with respect to
lower-rated securities.
For additional information regarding the risks associated with
investing in securities in the lower rating categories, see the
SAI.
Each fund (other than Putnam VT Money Market Fund) may invest up
to 15% of its assets in illiquid securities. Putnam Management
believes that opportunities to earn high yields may exist from
time to time in securities which are illiquid and which may be
considered speculative. The sale of these securities is usually
restricted under federal securities laws. As a result of
illiquidity, the fund may not be able to sell these securities
when Putnam Management considers it desirable to do so or may
have to sell them at less than fair market value.
Mortgage-backed and asset-backed securities
As described above, certain of the funds may invest in asset-
backed and mortgage-backed securities, including CMOs and certain
stripped mortgage-backed securities. CMOs and other mortgage-
backed securities represent participations in, or are secured by,
mortgage loans and include:
- - Certain securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities;
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage-backed securities
issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; and
- - Securities issued by private issuers that represent an
interest in or are secured by mortgage loans or mortgage-
backed securities without a government guarantee but
usually having some form of private credit enhancement.
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.
Each fund may also invest in asset-backed securities. Asset-
backed securities are structured like mortgage-backed securities,
but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle
installment sales or installment loan contracts, leases of
various types of real and personal property, and receivables from
credit card agreements. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying
assets may be limited.
Mortgage-backed and asset-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 and asset-backed
securities include both interest and a partial payment of
principal. Besides the scheduled repayment of principal,
payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans or
other assets.
Mortgage-backed and asset-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 and asset-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 are issued with a number of classes or series that have
different maturities and that may represent interests in some or
all of the interest or principal on the underlying collateral.
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 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 a fund.
The yield to maturity on an IO or PO 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 measurably adverse
effect on a fund's yield to maturity to the extent it invests in
IOs. If the assets underlying the IOs experience greater than
anticipated prepayments of principal, a 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.
In either event, 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.
Securities loans, repurchase agreements and forward commitments.
A fund may lend portfolio securities amounting to not more than
25% of its assets to broker-dealers and may enter into repurchase
agreements on up to 25% of its assets. These transactions must
be fully collateralized at all times. A fund (other than Putnam
VT Money Market Fund) may also purchase securities for future
delivery, which may increase its overall investment exposure and
involves a risk of loss if the value of the securities declines
prior to the settlement date. These transactions involve some
risk if the other party should default on its obligation and a
fund is delayed or prevented from recovering the collateral or
completing the transaction.
Derivatives
Certain of the instruments in which each fund (except Putnam VT
Money Market Fund) may invest, such as futures contracts,
options, forward contracts and CMOs, are considered to be
"derivatives." Derivatives are financial instruments whose value
depends upon, or is derived from, the value of an underlying
asset, such as a security or an index. Further information about
these instruments and the risks involved in their use is included
elsewhere in this prospectus and in the SAI.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. For funds other than Putnam VT Money Market Fund,
"yield" for each class is calculated by dividing the annualized
net investment income per share during a recent 30-day period by
the maximum public offering price per share on the last day of
that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for tax purposes. SEC
regulations require that net investment income be calculated on a
"yield-to-maturity" basis, which has the effect of amortizing any
premiums or discounts in the current market value of fixed-income
securities. The current dividend rate is based on net investment
income as determined for tax purposes, which may not reflect
amortization in the same manner. See "Common investment policies
and techniques -- Investments in premium securities." For Putnam
VT Money Market Fund, "yield" for each class represents an
annualization of the change in value of an investment (excluding
any capital changes) in the fund for a specific seven-day period;
"effective yield" for each class compounds that yield for a year
and is, for that reason, greater than the fund's yield.
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in a fund. Total return may also be
presented for other periods. To the extent that there is a
difference between the total return and yield quoted for Putnam
VT Money Market Fund, yield will more closely effect the current
earnings of the fund.
All data are based on past investment results and do not predict
future performance. Investment performance, which will vary, is
based on many factors, including market conditions, portfolio
composition, fund operating expenses and the class of shares the
investor purchases. Investment performance also often reflects
the risks associated with a fund's investment objective or
objectives and policies. These factors should be considered when
comparing a fund's investment results with those of other mutual
funds and other investment vehicles.
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 with respect to these insurance products.
Insurance related charges and expenses are not reflected in the
funds' performance information. As a result of such insurance-
related charges and expenses, an investor's return under the
insurance product would be lower.
For performance information through the funds' most recent fiscal
year, see "Investment Performance of the Trust" in the SAI.
HOW THE TRUST IS MANAGED
The Trustees are responsible for generally overseeing the conduct
of Trust business. Subject to such policies as the Trustees may
determine, Putnam Management furnishes a continuing investment
program for the Trust and makes investment decisions on its
behalf. Subject to the control of the Trustees, Putnam
Management also manages the Trust's other affairs and business.
The Trust pays Putnam Management a quarterly fee for these
services based on average net assets. See the SAI.
Putnam Management's Global Asset Allocation Committee has primary
responsibility for the day-to-day management of Putnam VT Global
Asset Allocation Fund.
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the indicated
funds' portfolios since the years stated below:
Business experience
Fund name Year (at least 5 years)
- --------------------- ------- -------------------------
Putnam VT Asia Pacific
Growth Fund
David K. Thomas 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
Paul Warren 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997. Prior
to May, 1997, Mr. Warren was a
Director at IDS Fund
Management. Prior to August,
1994, Mr. Warren was a
Director at Pilgrim Baxter
Associates and prior to March,
1994, Mr. Warren was a
Director at Prudential Asia.
Putnam VT Diversified
Income Fund
William Kohli 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1994. Prior
to September, 1994, Mr. Kohli
was Executive Vice President,
and Co-Director of Global Bond
Management and, prior to
October, 1993, Mr. Kohli was
Senior Portfolio Manager at
Franklin Advisors/Templeton
Investment Counsel.
Jennifer E. Leichter 1993 Employed as an investment
Managing Director professional by Putnam
Management since 1987.
Michael Martino 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1994. Prior
to January, 1994, Mr. Martino
was employed by Back Bay
Advisors in the positions of
Executive Vice President and
Chief Investment Officer.
Gail S. Attridge 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since November,
1993. Prior to November,
1993, Ms. Attridge was an
Analyst at Keystone Custody
International.
Robert M. Paine 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
Putnam VT The George
Putnam Fund of Boston
Edward P. Bousa Employed as an investment
Senior Vice President 1998 professional by Putnam
Management since 1992.
Putnam VT Global
Growth Fund
Anthony W. Regan 1996 Employed as an investment
Senior Managing Director professional by Putnam
Management since 1987.
Michael K. Arends 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since November,
1997. Prior to 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.
Ami T. Kuan Danoff 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1993. Prior
to April, 1993, Ms. Danoff
attended the MIT Sloan School
of Management.
Kelly A. Morgan 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1996. Prior
to December, 1996, Ms. Morgan
was a Senior Vice President at
Alliance Capital Management
L.P.
Robert Swift 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1995. Prior
to August, 1995, Mr. Swift was
Director and Senior Portfolio
Manager at IAI
International/Hill Samuel
Investment Advisors.
Putnam VT Growth and
Income Fund
Anthony I. Kreisel 1993 Employed as an investment
Managing Director professional by Putnam
Management since 1986.
David L. King 1993 Employed as an investment
Managing Director professional by Putnam
Management since 1983.
Sheldon N. Simon 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1984.
Putnam VT Health Sciences
Fund
Richard B. England 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1992.
David G. Carlson 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since December
1992.
Putnam VT High
Yield Fund
Rosemary H. Thomsen 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1986.
Putnam VT International
Growth Fund
Justin M. Scott 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
Omid Kamshad 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1996. 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.
Putnam VT International
Growth and Income Fund
Justin M. Scott 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1988.
Putnam VT International
New Opportunities Fund
Robert Swift 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1995. Prior
to August, 1995, Mr. Swift was
Director and Senior Portfolio
Manager at IAI
International/Hill Samuel
Investment Advisors.
J. Peter Grant 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1973.
Ami T. Kuan Danoff 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1993. Prior
to April, 1993, Ms. Danoff
attended the MIT Sloan School
of Management.
Stephen Oler 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997. Prior
to June, 1997, Mr. Oler was a
Vice President at Templeton
Investments, and prior to
March, 1996 was a Senior Vice
President at Baring Asset
Management Co.
Deborah S. Farrell 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997. Prior
to May, 1997, Ms. Farrell was
a Portfolio Manager at
Emerging Markets Investors
Corporation, and prior to May,
1994, Ms. Farrell was Division
Manager, Asian Capital
Markets, at International
Finance Corporation.
Putnam VT Investors
Fund
C. Beth Cotner 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1995. Prior
to September, 1995, Ms. Cotner
was Executive Vice President
of Kemper Financial Services.
Richard England 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1992. Prior
to December, 1992, Mr. England
was an investment Officer at
Aetna Equity Investors.
Manuel H. Weiss 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1987.
Putnam VT Money
Market Fund
Joanne Driscoll 1997 Employed as an investment
Vice President professional by Putnam
Management since 1995. Prior
to April, 1995, Ms. Driscoll
was a Graduate Teaching
Assistant in the Finance
Department at Northeastern
University and prior to
September, 1994, Ms. Driscoll
was a Financial Associate at
Bank of Boston. Prior to
June, 1993, Ms. Driscoll was
an Investment Associate at Bay
Banks Investment Management.
Putnam VT New
Opportunities Fund
Carol C. McMullen 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1995. Prior
to June, 1995, Ms. McMullen
was Senior Vice President of
Baring Asset Management.
Daniel L. Miller 1994 Employed as an investment
Managing Director professional by Putnam
Management since 1983.
Putnam VT New Value Fund
David L. King 1996 Employed as an investment
Managing Director professional by Putnam
Management since 1983.
Putnam VT OTC & Emerging
Growth Fund
Steven L. Kirson 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1989.
Michael J. Mufson 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since 1993. Prior
to June, 1993, Mr. Mufson was
Senior Equity Analyst at Stein
Roe & Farnham.
Putnam VT U.S.
Government and High
Quality Bond Fund
Michael Martino 1998 Employed as an investment
Managing Director professional by Putnam
Management since 1994. Prior
to January, 1994, Mr. Martino
was employed by Back Bay
Advisors in the positions of
Executive Vice President and
Chief Investment Officer.
Putnam VT Utilities
Growth and Income Fund
Jeanne L. Mockard 1998 Employed as an investment
Senior Vice President professional by Putnam
Management since
1990 .
Christopher A. Ray 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1992. Prior
to December, 1992, Mr. Ray was
Vice President and Portfolio
Manager at Scudder, Stevens &
Clark, Inc.
Putnam VT Vista Fund
Eric Wetlaufer 1997 Employed as an investment
Managing Director professional by Putnam
Management since 1997. Prior
to November, 1997, Mr.
Wetlaufer was employed as a
Managing Director and
Portfolio Manager at Cadence
Capital Management.
David J. Santos 1996 Employed as an investment
Vice President professional by Putnam
Management since 1986.
Anthony C. Santosus 1996 Employed as an investment
Senior Vice President professional by Putnam
Management since 1985.
Putnam VT Voyager Fund
Robert R. Beck 1995 Employed as an investment
Senior Vice President professional by Putnam
Management since 1989.
Roland W. Gillis 1995 Employed as an investment
Managing Director professional by Putnam
Management since 1995. Prior
to March, 1995, Mr. Gillis was
Senior Vice President at
Keystone Custodian Funds, Inc.
Michael P. Stack 1997 Employed as an investment
Senior Vice President professional by Putnam
Management since 1997. Prior
to November, 1997, Mr. Stack
was employed as a Senior Vice
President and Portfolio
Manager at Independence
Investment Associates, Inc.
Charles H. Swanberg 1994 Employed as an investment
Senior Vice President professional by Putnam
Management since 1984.
The Trust, on behalf of the funds, pays all expenses not assumed
by Putnam Management, including Trustees' fees and auditing,
legal, custodial, investor servicing and shareholder reporting
expenses. The Trust also reimburses Putnam Management for the
compensation and related expenses of certain officers of the
Trust and their staff who provide administrative services. The
total reimbursement is determined annually by the Trustees.
Expenses of the Trust directly charged or attributable to a fund
will be paid from the assets of that fund. General expenses of
the Trust will be allocated among and charged to the assets of
the funds on a basis that the Trustees deem fair and equitable,
which may be based on the nature of the services performed and
their relative applicability to, or the relative assets of, the
funds.
Putnam Management places all orders for purchases and sales of
the securities of each fund. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider, if
permitted by law, sales of shares of the other Putnam funds as a
factor in the selection of broker-dealers.
Expense Limitations. In order to limit the expenses of Putnam VT
The George Putnam Fund of Boston, Putnam VT Health Sciences 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 New Value Fund, Putnam
VT OTC & Emerging Growth Fund and Putnam VT Vista Fund during
their start-up periods, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses
of the funds) through December 31, 1998, to the extent that
expenses of the funds (exclusive of brokerage, interest, taxes,
deferred organizational and extraordinary expenses, and payments
under the funds' distribution plan with respect to class IB
shares) would exceed the annual rate of 0.85%, 0.90%, 1.20%,
1.20%, 1.60%, 0.85%, 1.10%, 0.90% and 1.05%, respectively, of the
fund's average net assets.
For the purpose of determining any such limitation on Putnam
Management's compensation, expenses of the funds will not reflect
the application of commissions or cash management credits that
may reduce designated fund expenses.
With Trustee approval, any expense limitation may be terminated
earlier, in which event shareholders would be notified and this
prospectus would be revised.
The following table summarizes total expenses for class IB
shares, including management fees but excluding any separate-
account related charges and expenses of the funds. The table is
based on information for class IA shares for the year ended
December 31, 1997, and has been restated to reflect the 12b-1
fees assessed on class IB shares. For funds that have been in
operation for less than a full year, total expenses and
management fees are based on estimated expenses for the first
full fiscal year as a percentage of each fund's average net
assets:
Total Management 12b-1 Other
Expenses Fees Fees Expenses
Putnam VT Asia
Pacific Growth Fund 1.22% 0.80% 0.15% 0.27%
Putnam VT Diversified
Income Fund 0.95% 0.69% 0.15% 0.11%
Putnam VT The George Putnam
Fund of Boston* 1.00% 0.49% 0.15% 0.36%
Putnam VT Global
Asset Allocation Fund 0.92% 0.66% 0.15% 0.11%
Putnam VT Global
Growth Fund 0.90% 0.60% 0.15% 0.15%
Putnam VT Growth and
Income Fund 0.66% 0.47% 0.15% 0.04%
Putnam VT Health Sciences
Fund* 1.05% 0.56% 0.15% 0.34%
Putnam VT High Yield Fund 0.87% 0.66% 0.15% 0.06%
Putnam VT International
Growth Fund* 1.35% 0.73% 0.15% 0.47%
Putnam VT International
Growth and Income Fund 1.27% 0.80% 0.15% 0.32%
Putnam VT International
New Opportunities Fund* 1.75% 0.92% 0.15% 0.68%
Putnam VT Investors Fund* 1.00% 0.52% 0.15% 0.33%
Putnam VT Money Market Fund 0.69% 0.45% 0.15% 0.09%
Putnam VT New
Opportunities Fund 0.78% 0.58% 0.15% 0.05%
Putnam VT New Value Fund 1.00% 0.70% 0.15% 0.15%
Putnam VT OTC & Emerging
Growth Fund* 1.05% 0.56% 0.15% 0.34%
Putnam VT U.S. Government
and High Quality Bond Fund 0.84% 0.61% 0.15% 0.08%
Putnam VT Utilities Growth
and Income Fund 0.89% 0.67% 0.15% 0.07%
Putnam VT Vista Fund 1.02% 0.65% 0.15% 0.22%
Putnam VT Voyager Fund 0.74% 0.54% 0.15% 0.05%
* The management fees and "Other expenses" shown in the table reflect an
expense limitation. In the absence of an expense limitation, management
fees, "Other expenses" and total fund operating expenses would have been:
Total Management 12b-1 Other
Expenses Fees Fees Expenses
Putnam VT The George
Putnam Fund of Boston+ 1.16% 0.65% 0.15% 0.36%
Putnam VT Health Sciences
Fund+ 1.19% 0.70% 0.15% 0.34%
Putnam VT International
Growth Fund 1.42% 0.80% 0.15% 0.47%
Putnam VT International New
Opportunities Fund 2.03% 1.20% 0.15% 0.68%
Putnam VT Investors Fund+ 1.13% 0.65% 0.15% 0.33%
Putnam VT OTC & Emerging
Growth Fund+ 1.19% 0.70% 0.15% 0.34%
+ Estimated management fees, "Other expenses" and total fund operating
expenses.
In accordance with SEC policy, the expenses shown in these tables do
not reflect the application of credits related to brokerage service and
expense offset arrangements that reduce certain fund expenses.
ORGANIZATION AND HISTORY
Putnam Variable Trust is a Massachusetts business trust organized
on September 24, 1987. A copy of the Agreement and Declaration
of Trust, which is governed by Massachusetts law, is on file with
the Secretary of State of The Commonwealth of Massachusetts.
Prior to January 1, 1997, the Trust was known as Putnam Capital
Manager Trust.
The Trust is an open-end management investment company with an
unlimited number of authorized shares of beneficial interest.
Shares of the Trust may, without shareholder approval, be divided
into two or more series of shares representing separate
investment portfolios, and are currently divided into twenty
series of shares, each representing a separate investment
portfolio which is being offered through separate accounts of
various insurance companies. Each portfolio is a diversified
investment company, except for Putnam VT Health Sciences Fund and
Putnam VT Utilities Growth and Income Fund, both of which are
non-diversified investment companies.
Prior to January 1, 1997, Putnam VT Asia Pacific Growth Fund was
known as PCM Asia Pacific Growth Fund, Putnam VT Diversified
Income Fund was known as PCM Diversified Income Fund, Putnam VT
Global Asset Allocation Fund was known as PCM Global Asset
Allocation Fund, Putnam VT Global Growth Fund was known as PCM
Global Growth Fund, Putnam VT Growth and Income Fund was known as
PCM Growth and Income Fund, Putnam VT High Yield Fund was known
as PCM High Yield Fund, Putnam VT Money Market Fund was known as
PCM Money Market Fund, Putnam VT New Opportunities Fund was known
as PCM New Opportunities Fund, Putnam VT U.S. Government and High
Quality Bond Fund was known as PCM U.S. Government and
High Quality Bond Fund, Putnam VT Utilities Growth and
Income Fund was known as PCM Utilities Growth and Income Fund,
and Putnam VT Voyager Fund was known as PCM Voyager Fund. Until
September 1, 1993, Putnam VT Global Asset Allocation Fund was
known as PCM Multi-Strategy Fund.
Any series of shares of the Trust may be further divided without
shareholder approval into two or more classes of shares having
such preferences and special or relative rights and privileges as
the Trustees may determine. Shares of each series are currently
divided into two classes: class IA shares are offered pursuant to
another prospectus at net asset value and are not subject to fees
imposed pursuant to a distribution plan. Class IB shares are
offered pursuant to this prospectus at net asset value and are
subject to fees imposed pursuant to a distribution plan (the
"Distribution Plan") adopted under Rule 12b-1 under the 1940 Act.
Only class IB shares are offered by this prospectus. The funds
may also offer other classes of shares with different sales
charges and expenses. Because of these different sales charges
and expenses, the investment performance of the classes will
vary.
The two classes of shares are offered under a multiple class
distribution system approved by the Trust's Trustees, and are
designed to allow promotion of insurance products investing in
the Trust through alternative distribution channels. The
insurance company issuing a variable contract selects the class
of shares in which the separate account funding the contract
invests.
Each share has one vote, with fractional shares voting
proportionately. Shares vote as a single class without regard to
series or classes of shares except (i) when required by the 1940
Act, or when the Trustees have determined that the matter affects
one or more series or classes of shares materially differently,
shares shall be voted by individual series or class, and (ii)
when the Trustees have determined that the matter affects only
the interests of one or more series or classes, only the
shareholders of such series or class shall be entitled to vote.
Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, if the portfolio were liquidated,
would receive the net assets of the portfolio. The Trust may
suspend the sale of shares of any portfolio at any time and may
refuse any order to purchase shares. Although the Trust is not
required to hold annual meetings of its shareholders,
shareholders holding at least 10% of the outstanding shares
entitled to vote have the right to call a meeting to elect or
remove Trustees, or to take other actions as provided in the
Agreement and Declaration of Trust.
Shares of the funds may only be purchased by an insurance company
separate account. For matters requiring shareholder approval,
you may be able to instruct the insurance company separate
account how to vote the fund shares attributable to your contract
or policy. See the Voting Rights section of your insurance
product prospectus.
The Trust's Trustees: George Putnam,* Chairman. President of
the Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds. Director, Marsh & McLennan Companies, Inc.;
William F. Pounds, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology; Jameson Adkins Baxter, President, Baxter Associates,
Inc.; Hans H. Estin, Vice Chairman, North American Management
Corp.; John A. Hill, Chairman and Managing Director, First
Reserve Corporation; Ronald J. Jackson, Former Chairman,
President and Chief Executive Officer of Fisher-Price, Inc.,
Trustee of Salem Hospital and the Peabody Essex Museum; Paul L.
Joskow,* Professor of Economics and Management, Massachusetts
Institute of Technology, Director, New England Electric System,
State Farm Indemnity Company and Whitehead Institute for
Biomedical Research; Elizabeth T. Kennan, President Emeritus and
Professor, Mount Holyoke College; Lawrence J. Lasser,* Vice
President of the Putnam funds. President, Chief Executive
Officer and Director of Putnam Investments, Inc. and Putnam
Management. Director, Marsh & McLennan Companies, Inc.; John H.
Mullin, III, Chairman and CEO of Ridgeway Farm, Director of ACX
Technologies, Inc., Alex . Brown Realty, Inc., and The
Liberty Corporation; Robert E. Patterson, President and Trustee
of Cabot Industrial Trust and Trustee of the SEA Education
Association; Donald S. Perkins,* Director of various
corporations, including Cummins Engine Company, Inc., Lucent
Technologies Inc., Nanophase Technologies, Inc., and
Springs Industries, Inc. ; George Putnam, III,* President,
New Generation Research, Inc.; A.J.C. Smith,* Chairman and Chief
Executive Officer, Marsh & McLennan Companies, Inc.; W. Thomas
Stephens, President and Chief Executive Officer, MacMillan
Bloedel Ltd. Director of Qwest Communications and New Century
Energies; and W. Nicholas Thorndike, Director of various
corporations and charitable organizations, including Data General
Corporation, Bradley Real Estate, Inc. and Providence Journal Co.
Also, Trustee of Cabot Industrial Trust, Massachusetts General
Hospital and Eastern Utilities Associates. The Trust's Trustees
are also Trustees of the other Putnam funds. Those marked with
an asterisk (*) are or may be deemed to be "interested persons"
of the Trust, Putnam Management or Putnam Mutual Funds.
About Your Investment
SALES AND REDEMPTIONS
The Trust has an underwriting agreement relating to the funds
with Putnam Mutual Funds, One Post Office Square, Boston,
Massachusetts 02109. Putnam Mutual Funds presently offers shares
of each fund of the Trust continuously to separate accounts of
various insurers. The underwriting agreement presently provides
that Putnam Mutual Funds accepts orders for shares at net asset
value and no sales commission or load is charged. Putnam Mutual
Funds may, at its expense, provide promotional incentives to
dealers that sell variable insurance products.
Shares are sold or redeemed at the net asset value per share next
determined after receipt of an order, except that, in the case of
Putnam VT Money Market Fund, purchases will not be effected until
the next determination of net asset value after federal funds
have been made available to the Trust. Orders for purchases or
sales of shares of a fund must be received by Putnam Mutual Funds
before the close of regular trading on the New York Stock
Exchange in order to receive that day's net asset value. No fee
is charged to a separate account when it redeems fund shares.
Please check with your insurance company to determine the funds
available under your variable annuity contract or variable life
insurance policy. Certain funds may not be available in your
state due to various insurance regulations. Inclusion in this
prospectus of a fund that is not available in your state is not
to be considered a solicitation. This prospectus should be read
in conjunction with the prospectus of the separate account of the
specific insurance product which accompanies this prospectus.
Each fund currently does not foresee any disadvantages to
policyowners arising out of the fact that each fund offers its
shares to separate accounts of various insurance companies to
serve as the investment medium for their variable products.
Nevertheless, the Trustees intend to monitor events in order to
identify any material irreconcilable conflicts which may possibly
arise, and to determine what action, if any, should be taken in
response to such conflicts. If such a conflict were to occur,
one or more insurance companies' separate accounts might be
required to withdraw their investments in one or more funds and
shares of another fund may be substituted. This might force a
fund to sell portfolio securities at disadvantageous prices. In
addition, the Trustees may refuse to sell shares of any fund to
any separate account or may suspend or terminate the offering of
shares of any fund if such action is required by law or
regulatory authority or is in the best interests of the
shareholders of the fund.
Under unusual circumstances, the Trust may suspend repurchases or
postpone payment for up to seven days or longer, as permitted by
federal securities law.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan with respect to class
IB shares to compensate Putnam Mutual Funds for services provided
and expenses incurred by it as principal underwriter of the class
IB shares, including the payments to insurance companies and
their affiliated dealers mentioned below. The plans provide for
payments by each fund to Putnam Mutual Funds at the annual rate
(expressed as a percentage of average net assets) of up to 0.35%
on class IB shares. The Trustees currently limit payments on
class IB shares to 0.15% of average net assets.
Putnam Mutual Funds compensates insurance companies (or
affiliated broker-dealers) whose separate accounts invest in the
Trust through class IB shares for providing services to their
contract holders investing in the Trust.
Putnam Mutual Funds makes quarterly payments to dealers at the
annual rate of up to 0.15% of the average net asset value of
class IB shares.
Putnam Mutual Funds may suspend or modify its payments to
dealers. The payments are also subject to the continuation of
the Distribution Plan, the terms of service agreements between
dealers and Putnam Mutual Funds, and any applicable limits
imposed by the National Association of Securities Dealers, Inc.
HOW A FUND VALUES ITS SHARES
The Trust calculates the net asset value of a share of each fund
by dividing the total value of its assets, less liabilities, by
the number of its shares outstanding. Shares are valued as of
the close of regular trading on the New York Stock Exchange each
day the Exchange is open.
Except for securities held by Putnam VT Money Market Fund,
portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by
the Trustees. The Trust values the portfolio investments of
Putnam VT Money Market Fund at amortized cost pursuant to Rule
2a-7 under the 1940 Act.
HOW A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
Putnam VT Money Market Fund will declare a dividend of its net
investment income daily and distribute such dividend monthly.
Each month's distributions will be paid on the first business day
of the next month. Since the net income of Putnam VT Money
Market Fund is declared as a dividend each time it is determined,
the net asset value per share of the fund remains at $1.00
immediately after each determination and dividend declaration.
Each of the other funds will distribute any net investment income
and net realized capital gains at least annually. Both types of
distributions will be made in shares of such funds unless an
election is made on behalf of a separate account to receive some
or all of the distributions in cash.
Distributions are reinvested without a sales charge, using the
net asset value determined on the ex-dividend date, except that
with respect to Putnam VT Money Market Fund, distributions are
reinvested using the net asset value determined on the day
following the distribution payment date. Distributions on each
share are determined in the same manner and are paid in the same
amount, regardless of class, except for such differences as are
attributable to differential class expenses.
Each fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal income
taxes on income and gains it distributes to the separate
accounts. For information concerning federal income tax
consequences for the holders of variable annuity contracts and
variable life insurance policies, contract holders should consult
the prospectus of the applicable separate account.
Internal Revenue Service regulations applicable to variable
annuity and variable life insurance separate accounts generally
require that portfolios that serve as the funding vehicles solely
for such separate accounts invest no more than 55% of the value
of their assets in one investment, 70% in two investments, 80% in
three investments and 90% in four investments. Alternatively, a
portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter,
the portfolio meets the diversification requirements applicable
to regulated investment companies (see "Taxes" in the SAI) and no
more than 55% of the value of its total assets consists of cash
and cash items (including receivables), U.S. government
securities and securities of other regulated investment
companies. Each of the funds intends to comply with these
requirements.
Fund investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments.
In that case, a fund's yield on those securities would be
decreased.
Fund transactions in foreign currencies and hedging activities
will likely produce a difference between book income and taxable
income. This difference may cause a portion of a fund's income
distributions to constitute a return of capital for tax purposes
or require a fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
Investment in an entity that qualifies as a "passive foreign
investment company" under the Internal Revenue Code could subject
a fund to a U.S. federal income tax or other charge on certain
"excess distributions" with respect to the investment, and on the
proceeds from disposition of the investment.
FINANCIAL INFORMATION
It is expected that owners of the variable annuity contracts and
variable life insurance policies who have contract or policy
values allocated to the funds will receive an unaudited semi-
annual financial statement and an audited annual financial
statement for such funds. These reports show the investments
owned by each fund and provide other relevant information about
the fund.
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of the Trust and
of other Putnam funds. Putnam Fiduciary Trust Company is the
custodian of the Trust. Putnam Investor Services, a division of
Putnam Fiduciary Trust Company, is the investor servicing and
transfer agent for the Trust.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are located at One Post Office Square, Boston,
Massachusetts 02109 and are subsidiaries of Putnam Investments,
Inc., which is owned by Marsh & McLennan Companies, Inc., a
publicly-owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
APPENDIX
SECURITIES RATINGS
The following rating services describe rated securities as
follows:
Moody's Investors Service, Inc.
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than
the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking, or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever earning any real investment standing.
Notes
MIG 1/VMIG 1 -- This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins
of protection are ample although not so large as in the preceding
group.
Commercial paper
Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by the following characteristics:
- -- Leading market positions in well established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- -- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Standard & Poor's
Bonds
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However,
the obligor's capacity to meet its financial commitment on the
obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the lowest
degree of speculation and C the highest. While such obligations
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to
adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligations. Adverse
business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC -- An obligation rated CCC is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial,
and economic conditions for the obligor to met its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the
obligation.
CC -- An obligation rated CC is currently highly vulnerable to
nonpayment.
C -- The C rating may be used to cover a situation where a
bankruptcy petition has been filed, or similar action has been
taken, but payments on this obligation are being continued.
D -- An obligation rated D is in payment default. The D rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition, or the taking of a
similar action if payments on an obligation are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics
are given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial paper
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with
a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated `A-1'.
A-3 -- Issues carrying this designation have adequate capacity
for timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
Duff & Phelps Corporation
Long-Term Debt
AAA -- Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A+, A, A- -- Protection factors are average but adequate.
However, risk factors are more variable and greater in periods of
economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B- -- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
Fitch Investors Service, Inc.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB -- Bonds considered to be speculative. The obligor's ability
to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B -- Bonds are considered highly speculative. Bonds in this class
are lightly protected as to the obligor's ability to pay interest
over the life of the issue and repay principal when due.
CCC -- Bonds have certain characteristics which, with passing of
time, could lead to the possibility of default on either
principal or interest payments.
CC -- Bonds are minimally protected. Default in payment of
interest and/or principal seems probable.
C -- Bonds are in actual or imminent default in payment of
interest or principal.
DDD -- Bonds are in default and in arrears in interest and/or
principal payments. Such bonds are extremely speculative and
should be valued only on the basis of their value in liquidation
or reorganization of the obligor.
Putnam Variable Trust PUTNAM VARIABLE TRUST
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
Investment Manager
Putnam Investment Management, Inc.
One Post Office Square PROSPECTUS
Boston, MA 02109 APRIL 30, 1998 , as
revised July 2, 1998
Marketing Services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Investor Servicing Agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
Custodian
Putnam Fiduciary Trust Company
One Post Office Square
Boston, MA 02109
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
P.O. Box 989
Boston, Massachusetts 02103
Toll-free 1-800- 225-1581
www.putnaminv.com
