As filed with the Securities and Exchange Commission on
April 30 , 1998
Registration No. 33-17486
811-5346
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X
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Pre-Effective Amendment No. /
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Post-Effective Amendment No. 17 / X
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and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X
/
ACT OF 1940 ----
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Amendment No. 18 / X
/
(Check appropriate box or boxes) ----
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PUTNAM VARIABLE TRUST
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on April 30, 1998 pursuant to paragraph
(b)
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/ / 60 days after filing pursuant to paragraph (a)(1)
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/ / on (date) pursuant to paragraph (a)(1)
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/ / 75 days after filing pursuant
to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM VARIABLE TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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<PAGE>
PUTNAM VARIABLE TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
Part A
N-1A Item No. Location
1. Cover Page . . . . . . . . . . Cover page
2. Synopsis . . . . . . . . . . . Omitted
3. Condensed Financial Information . Financial
highlights;
How
performance is shown
4. General Description of Registrant . The Trust;
Investment
objectives and policies;
Common investment
policies and techniques;
Organization and history
5. Management of the Fund. . . . . . How the Trust is
managed;
Organization
and history; About
Putnam Investments,
Inc.
5A. Management's Discussion. . . .(Contained in the annual
of Fund Performance report of the
Registrant)
6. Capital Stock and Other
Securities . . . . . . . . . . Cover page; Sales and
redemptions; How a fund
values its shares; How
each Fund makes
distributions to
shareholders; tax
information;
Organization and history
7. Purchase of Securities Being
Offered. . . . . . . . . . . . The Trust; Sales and
redemptions; How a Fund
values its shares;
Organization and history
8. Redemption or Repurchase . . . Cover page; Sales and
redemptions; How a Fund
values its shares;
Organization and history
9. Pending Legal Proceedings. . . Not applicable<PAGE>
Part B
N-1A Item No. Location
10. Cover Page . . . . . . . . . . Cover page
11. Table of Contents. . . . . . . Cover page
12. General Information and History . . Organization and
history
(Part A)
13. Investment Objectives and
Policies . . . . . . . . . . . Investment objectives
and policies; Investment
restrictions; Portfolio
turnover
14. Management of the Registrant . Management
15. Control Persons and Principal. Management
Holders of Securities
16. Investment Advisory and Other. Management; Custodian;
Services Independent accountants
and financial statements
17. Brokerage Allocation . . . . . Management
18. Capital Stock and Other
Securities . . . . . . . . . . Management;
Determination of net
asset value; Suspension
of redemptions;
Shareholder liability
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . Sales and
redemptions
(Part A);
Management;
Determination of net
asset value;
Suspension
of redemptions
20. Tax Status . . . . . . . . . . How each Fund makes
distributions to
shareholders; tax
information (Part A);
Taxes
21. Underwriter. . . . . . . . . . Management
<PAGE>
22. Calculation of Performance Data . How performance is
shown
(Part A); Investment
performance of the
Trust
(Standard performance
measures)
23. Financial Statements . . . . . . . Independent
accountants
and financial
statements
Part C
Information required to be included in Part C is set
forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
PUTNAM VARIABLE TRUST
Class IA Shares
PROSPECTUS - APRIL 30, 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 hereby, and class IB shares,
offered pursuant to another 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.
<PAGE>
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.
<PAGE>
ABOUT THE TRUST
Financial highlights
.................................................................
Study this table to see, among other things, how the funds have
performed each year since their inception.
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.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
.................................................................
This section describes the terms under which shares may be
purchased and redeemed by insurance company separate accounts.
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
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The following table present per share financial
information for Class IA Shares . This information has
been audited and reported on by the independent accountants. The
"Report of independent accountants" and financial statements
included in the Trust's annual report to shareholders for the
1997 fiscal year are incorporated by reference into this
prospectus. The Trust's annual report, which contains additional
unaudited performance information, is available without charge
upon request.
Financial information for Putnam VT The George Putnam Fund of
Boston, Putnam VT Health Sciences Fund, Putnam VT Investors Fund
and Putnam VT OTC & Emerging Growth Fund is not included because
these funds had not commenced operations as of December 31, 1997.
<PAGE>
<TABLE><CAPTION>
Financial Highlights
Investment Operations
Less Distributions:
Net
From
Net Asset Realized and
Total From In Excess Net In Excess of
Value, Net Unrealized
from Net of Net Realized Net Realized
Period Beginning Investment Gain (Loss)
on Investment InvestmentInvestment Gain on Gain on
ended of Period Income Investments
operations Income Income Investments Investments
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Putnam VT Asia
Pacific Growth Fund
December 31, 1997 $11.01 $.07 $(1.66)
$(1.59) $(.22) $- $- $-
December 31, 1996 10.23 .05 .88
.93 (.15) - - -
December 31, 1995** 10.00 .06(a)(b) .17
.23 - - - -
Putnam VT Diversified
Income Fund
December 31, 1997 $11.27 $.82(a) $(.05)
$.77 $(.63) $- $(.10) $-
December 31, 1996 11.03 .80(a) .11
.91 (.67) - - -
December 31, 1995 9.74 .71 1.09
1.80 (.51) - - -
December 31, 1994 10.23 .61 (1.04)
(.43) (.06) - - -
December 31, 1993*** 10.00 .06 .17
.23 - - - -
Putnam VT Global Asset
Allocation Fund
December 31, 1997 $17.25 $.50 $2.63
$3.13 $(.60) $- $(1.02) -
December 31, 1996 16.15 .43 1.94
2.37 (.44) - (.83) -
December 31, 1995 13.19 .47 2.74
3.21 (.25) - - -
December 31, 1994 14.29 .35 (.71)
(.36) (.29) - (.43)
$ (.02)
December 31, 1993 12.92 .30 1.87
2.17 (.55) - (.25) -
December 31, 1992 12.77 .35 .41
.76 (.42) - (.19) -
December 31, 1991 11.28 .45 1.64
2.09 (.54) - (.06) -
December 31, 1990 11.26 .54 (.52)
.02 - - - -
December 31, 1989 10.68 .56 1.10
1.66 (.88) - (.15) -
December 31, 1988**** 10.00 .53(a) .15
.68 - - - -
<PAGE>
Investment Operations
Less Distributions:
Net
From
Net Asset Realized and
Total From In Excess Net In Excess of
Value, Net Unrealized
from Net of Net Realized Net Realized
Period Beginning Investment Gain (Loss)
on Investment InvestmentInvestment Gain on Gain on
ended of Period Income Investments
operations Income Income Investments Investments
Putnam VT Global
Growth Fund
December 31, 1997 $16.88 $.13 $2.18
$2.31 $(.41) $- $(.44) -
December 31, 1996 15.18 .17 2.35
2.52 (.25) - (.57) -
December 31, 1995 13.48 .20 1.85
2.05 (.11) - (.24) -
December 31, 1994 13.68 .13 (.26)
(.13) (.05) - (.02) -
December 31, 1993 10.48 .08 3.28
3.36 (.16) - - -
December 31, 1992 10.61 .10 (.14)
(.04) (.09) - - -
December 31, 1991 9.32 .11 1.28
1.39 (.10) - - -
December 31, 1990*****10.00 .11 (.79)
(.68) - - - -
Putnam VT Growth and
Income Fund
December 31, 1997 $24.56 $.48 $5.07
$5.55 $(.52) $- $(1.27) -
December 31, 1996 21.47 .65(a) 3.84
4.49 (.51) - (.89) -
December 31, 1995 16.44 .53 5.31
5.84 (.51) - (.30) -
December 31, 1994 17.38 .50 (.48)
.02 (.38) - (.58) -
December 31, 1993 15.93 .38 1.83
2.21 (.39) - (.37) -
December 31, 1992 15.33 .39 1.04
1.43 (.42) - (.41) -
December 31, 1991 13.51 .43 2.09
2.52 (.53) - (.17) -
December 31, 1990 13.41 .55 (.29)
.26 (.05) - (.11) -
December 31, 1989 12.00 .45 2.04
2.49 (.60) - (.48) -
December 31, 1988**** 10.00 .42(a) 1.58
2.00 - - - -
<PAGE>
Investment Operations
Less Distributions:
Net
From
Net Asset Realized and
Total From In Excess Net In Excess of
Value, Net Unrealized
from Net of Net Realized Net Realized
Period Beginning Investment Gain (Loss)
on Investment InvestmentInvestment Gain on Gain on
ended of Period Income Investments
operations Income Income Investments Investments
Putnam VT High
Yield Fund
December 31, 1997 $12.96 $1.06 $.65
$1.71 $(.94) $- $(.11) -
December 31, 1996 12.37 1.18(a) .32
1.50 (.91) - - -
December 31, 1995 11.46 .91 1.05
1.96 (1.05) - - -
December 31, 1994 12.53 1.05 (1.17)
(.12) (.79) - (.14) (.02)
December 31, 1993 11.17 .73 1.37
2.10 (.74) - - -
December 31, 1992 10.12 1.26 .59
1.85 (.80) - - -
December 31, 1991 7.91 .85 2.47
3.32 (1.11) - - -
December 31, 1990 9.15 1.30 (2.20)
(.90) (.34) - - -
December 31, 1989 10.76 1.12 (1.37)
(.25) (1.36) - - -
December 31, 1988**** 10.00 1.04(a)(b) (.28)
.76 - - - -
Putnam VT International
Growth Fund
December 31, 1997******* $10.00 $.05(b)
$1.56 $1.61 $(.05) $(.02) $(.04)$(.06)
Putnam VT International
Growth and Income Fund
December 31, 1997****** $10.00 $.07
$1.87 $1.94 $(.08) $(.05) $(.28)-
Putnam VT International
New Opportunities Fund
December 31, 1997******* $10.00 $.01(b)
$(.02) $(.01) $(.01) $(.02) - -
<PAGE>
Investment Operations
Less Distributions:
Net
From
Net Asset Realized and
Total From In Excess Net In Excess of
Value, Net Unrealized
from Net of Net Realized Net Realized
Period Beginning Investment Gain (Loss)
on Investment InvestmentInvestment Gain on Gain on
ended of Period Income Investments
operations Income Income Investments Investments
Putnam VT Money
Market Fund
December 31, 1997 $1.00 $.0509 -
$.0509 $(.0509) - -
December 31, 1996 1.00 .0497 -
.0497 (.0497) - -
December 31, 1995 1.00 .0533 -
.0533 (.0533) - -
December 31, 1994 1.00 .0377 -
.0377 (.0377) - -
December 31, 1993 1.00 .0276 -
.0276 (.0276) - -
December 31, 1992 1.00 .0352 -
.0352 (.0352) - -
December 31, 1991 1.00 .0575 .0001
.0576 (.0575) (.0001) -
December 31, 1990 1.00 .0770 -
.0770 (.0770) - -
December 31, 1989 1.00 .0859 -
.0859 (.0859) - -
December 31, 1988**** 1.00 .0575 -
.0575 (.0575) - -
Putnam VT New
Opportunities Fund
December 31, 1997 $17.22 $-(f) $4.01
$4.01 - - -
December 31, 1996 15.63 (.01) 1.60
1.59 - - -
December 31, 1995 10.82 - 4.84
4.84 - (.02) -
December 31, 1994****** 10.00 -(b)
.82 .82 - - -
<PAGE>
Investment Operations
Less Distributions:
Net
From
Net Asset Realized and
Total From In Excess Net In Excess of
Value, Net Unrealized
from Net of Net Realized Net Realized
Period Beginning Investment Gain (Loss)
on Investment InvestmentInvestment Gain on Gain on
ended of Period Income Investments
operations Income Income Investments Investments
Putnam VT New Value
Fund
December 31,
1997******* $10.00 $.18(a) $1.58
$1.76 $ - $- $ - $ -
Putnam VT U.S. Government
and High Quality Bond Fund
December 31, 1997 $13.24 $.88 $.19
$1.06 $(.85) $- - -
December 31, 1996 13.74 .81 (.52)
.29 (.82) - - -
December 31, 1995 12.22 .81 1.56
2.37 (.85) - - -
December 31, 1994 13.53 .81 (1.24)
(.43) (.66) - (.22) -
December 31, 1993 12.85 .63 .78
1.41 (.61) - (.12) -
December 31, 1992 12.57 .60 .28
.88 (.54) - (.06) -
December 31, 1991 11.36 .56 1.31
1.87 (.66) - - -
December 31, 1990 10.82 .71 .08
.79 (.22) - (.03) -
December 31, 1989 10.28 .62 .78
1.40 (.79) - (.07) -
December 31, 1988**** 10.00 .66(a) (.38)
.28 - - - -
Putnam VT Utilities
Growth and Income Fund
December 31, 1997 $14.80 $.53 $3.11
$3.64 $(.55) $- $(.75) -
December 31, 1996 13.28 .54 1.49
2.03 (.51) - - -
December 31, 1995 10.68 .53 2.65
3.18 (.58) - - -
December 31, 1994 12.00 .60 (1.44)
(.84) (.35) - (.12) -
December 31, 1993 10.71 .30 1.13
1.43 (.12) - (.02) -
December 31, 1992******* 10.00 .15(b)
.56 .71 - - --
<PAGE>
Investment Operations
Less Distributions:
Net
From
Net Asset Realized and
Total From In Excess Net In Excess of
Value, Net Unrealized
from Net of Net Realized Net Realized
Period Beginning Investment Gain (Loss)
on Investment InvestmentInvestment Gain on Gain on
ended of Period Income Investments
operations Income Income Investments Investments
Putnam VT Vista
Fund
December 31,
1997******** $10.00 $ - (f) $2.32
$2.32 $ - (f) $- $-- $--
Putnam VT Voyager Fund
December 31, 1997 $32.53 $.10 $8.01
$8.11 $(.07) $- $(1.49) -
December 31, 1996 30.50 .09 3.75
3.84 (.13) - (1.68) -
December 31, 1995 22.20 .10 8.76
8.86 (.07) - (.49) -
December 31, 1994 22.41 .07 .14
.21 (.05) - (.37) -
December 31, 1993 19.21 .04 3.50
3.54 (.07) - (.27) -
December 31, 1992 17.94 .07 1.72
1.79 (.08) - (.44) -
December 31, 1991 12.58 .11(a) 5.61
5.72 (.12) - (.24) -
December 31, 1990 13.00 .18 (.45)
(.27) (.06) - (.09) -
December 31, 1989 10.30 .12 3.20
3.32 (.16) - (.46) -
December 31, 1988**** 10.00 .13(a) .17
.30 - - - -<PAGE>
Total Ratio of Net
Investment Ratio of Investment
Net Asset
Return at Net Assets Expenses to Income to
Return of Total Value, End
Net Asset End of Period Average Net Average Net
Capital Distributions of Period
Value(%)(c) (in thousands) Assets(%)(d) Assets(%)
Putnam VT Asia
Pacific Growth Fund
December 31, 1997 $- $(.22) $9.20
(14.66) $112,902 1.07 .70
December 31, 1996 - (.15) 11.01
9.10 130,548 1.23 .84
December 31, 1995** - - 10.23
2.30* 25,045 .81(b)* .72(b)*
Putnam VT Diversified
Income Fund
December 31, 1997 $- $(.73) $11.31
$7.38 $608,148 $.80 7.43
December 31, 1996 - (.67) 11.27
8.81 494,811 .83 7.45
December 31, 1995 - (.51) 11.03
19.13 303,721 .85 7.85
December 31, 1994 - (.06) 9.74
(4.23) 215,935 .80 7.60
December 31, 1993*** - - 10.23
2.30* 80,449 .28* 1.45*
Putnam VT Global Asset
Allocation Fund
December 31, 1997 $- $(1.62) $18.76
$19.67 $956,532 $.77 3.01
December 31, 1996 - $(1.27)
17.25 15.62 747,734 .83 3.08
December 31, 1995 - (.25) 16.15
24.71 535,666 .84 3.31
December 31, 1994 - (.74) 13.19
(2.50) 414,223 .76 3.19
December 31, 1993 - (.80) 14.29
17.48 297,307 .72 3.28
December 31, 1992 - (.61) 12.92
6.29 134,667 .79 3.84
December 31, 1991 - (.60) 12.77
19.02 82,071 .87 4.55
December 31, 1990 - - 11.28
.18 51,792 .88 5.31
December 31, 1989 (.05) (1.08) 11.26
16.08 40,200 .88 6.16
December 31, 1988**** - - 10.68
6.76* 26,202 1.17* 5.55*
<PAGE>
Total Ratio of Net
Investment Ratio of Investment
Net Asset
Return at Net Assets Expenses to Income to
Return of Total Value, End
Net Asset End of Period Average Net Average Net
Capital Distributions of Period
Value(%)(c) (in thousands) Assets(%)(d) Assets(%)
Putnam VT Global Growth
Fund
December 31, 1997 $- $(.85) $18.34
$14.33 $1,611,503 .75 .77
December 31, 1996 - (.82) $16.88
17.20 1,344,887 .76 1.25
December 31, 1995 - (.35) 15.18
15.67 831,593 .75 1.49
December 31, 1994 - (.07) 13.48
(.96) 669,821 .77 1.21
December 31, 1993 - (.16) 13.68
32.40 352,786 .75 1.38
December 31, 1992 - (.09) 10.48
(.36) 86,854 .85 1.82
December 31, 1991 - (.10) 10.61
15.01 40,183 .99 2.01
December 31, 1990***** - - 9.32
(6.80)* 13,203 .99* 2.35*
Putnam VT Growth and
Income Fund
December 31, 1997 $- $(1.79) $28.32
$24.15 $8,337,334 $.51 2.08
December 31, 1996 - (1.40) 24.56
21.92 5,679,100 .54 2.90
December 31, 1995 - (.81) 21.47
36.71 3,312,306 .57 3.34
December 31, 1994 - (.96) 16.44
.35 1,907,380 .62 3.64
December 31, 1993 - (.76) 17.38
14.27 1,407,382 .64 3.49
December 31, 1992 - (.83) 15.93
9.75 641,508 .69 3.79
December 31, 1991 - (.70) 15.33
19.05 325,861 .72 4.37
December 31, 1990 - (.16) 13.51
1.96 155,942 .75 5.02
December 31, 1989 - (1.08) 13.41
21.30 100,335 .74 5.73
December 31, 1988*** - - 12.00
19.89* 26,205 .92* 4.08*
<PAGE>
Total Ratio of Net
Investment Ratio of Investment
Net Asset
Return at Net Assets Expenses to Income to
Return of Total Value, End
Net Asset End of Period Average Net Average Net
Capital Distributions of Period
Value(%)(c) (in thousands) Assets(%)(d) Assets(%)
Putnam High Yield
Fund
December 31, 1997 $- $(1.05) $13.62
$14.32 $1,025,298 $.72
December 31, 1996 - (.91) 12.96
12.81 769,918 .76 9.57
December 31, 1995 - (1.05) 12.37
18.32 498,467 .79 9.42
December 31, 1994 - (.95) 11.46
(.94) 327,119 .74 9.79
December 31, 1993 - (.74) 12.53
19.57 291,737 .67 9.88
December 31, 1992 - (.80) 11.17
18.98 118,804 .71 11.53
December 31, 1991 - (1.11) 10.12
44.83 42,823 .92 12.64
December 31, 1990 - (.34) 7.91
(9.98) 18,915 .93 13.81
December 31, 1989 - (1.36) 9.15
(2.65) 27,511 .84 12.59
December 31, 1988**** - - 10.76
7.56* 19,506 .94(b)* 10.99(b)*
Putnam VT International
Growth Fund
December 31, 1997******** $(.01) $(.18) $11.43
$16.13 $150,884 1.20(b) .79(b)
Putnam VT International
Growth and Income Fund
December 31, 1997******** $- $(.41) $11.53
19.43 $206,598 1.12 1.11
Putnam VT International New
Opportunities Fund
December 31, 1997******** $- $(.03) $9.96
(.10) $107,000 1.60(b) .09(b)
<PAGE>
Total Ratio of Net
Investment Ratio of Investment
Net Asset
Return at Net Assets Expenses to Income to
Return of Total Value, End
Net Asset End of Period Average Net Average Net
Capital Distributions of Period
Value(%)(c) (in thousands) Assets(%)(d) Assets(%)
Putnam VT Money Market Fund
December 31, 1997 $- $(.0509) $1.00
5.22 $405,577 .54 5.10
December 31, 1996 - (.0497) 1.00
5.08 $437,132 .53 4.93
December 31, 1995 - (.0533) 1.00
5.46 263,213 .57 5.43
December 31, 1994 - (.0377) 1.00
3.82 244,064 .55 3.90
December 31, 1993 - (.0276) 1.00
2.79 129,329 .42 2.77
December 31, 1992 - (.0352) 1.00
3.57 105,694 .48 3.49
December 31, 1991 - (.0576) 1.00
5.92 78,568 .50 5.74
December 31, 1990 - (.0770) 1.00
7.98 77,892 .53 7.67
December 31, 1989 - (.0859) 1.00
8.88 24,975 .63 8.62
December 31, 1988**** - (.0575) 1.00
5.84* 14,001 .71* 6.70*
Putnam VT New Opportunities Fund
December 31, 1997 $- $- $21.23
23.29 $2,590,244 .63 (.01)
December 31, 1996 - - 17.22
10.17 $1,674,197 .72 (.13)
December 31, 1995 (.01) (.03) 15.63
44.87 515,109 .84 (.03)
December 31, 1994****** - - 10.82
8.20* 68,592 .47(b)* .03(b)*
Putnam VT New Value Fund
December 31, 1997******** $- $(.85) $13.42
8.64 $789,540 .69 6.58
<PAGE>
Total Ratio of Net
Investment Ratio of Investment
Net Asset
Return at Net Assets Expenses to Income to
Return of Total Value, End
Net Asset End of Period Average Net Average Net
Capital Distributions of Period
Value(%)(c) (in thousands) Assets(%)(d) Assets(%)
Putnam VT U.S. Government and
High Quality Bond Fund
December 31, 1997 $- $(1.30) $17.14
27.10 $822,257 .74 3.63
December 31, 1996 - (.82) 13.21
2.42 778,924 .69 6.48
December 31, 1995 - (.85) 13.74
20.44 747,024 .70 6.22
December 31, 1994 - (.88) 12.22
(3.23) 640,458 .67 6.24
December 31, 1993 - (.73) 13.53
11.28 735,386 .64 6.16
December 31, 1992 - (.60) 12.85
7.49 435,906 .70 6.98
December 31, 1991 - (.66) 12.57
17.28 229,306 .74 7.57
December 31, 1990 - (.25) 11.36
7.51 98,549 .76 8.24
December 31, 1989 - (.86) 10.82
14.06 61,765 .76 8.32
December 31, 1988**** - - 10.28
2.78* 28,406 .87* 7.04*
Putnam VT Utilities
Growth and Income Fund
December 31, 1997 $- $(1.30) $17.14
27.10 $822,257 .74
December 31, 1996 - (.51) 14.80
15.80 657,429 .73 4.22
December 31, 1995 - (.58) 13.28
31.08 530,461 .68 4.72
December 31, 1994 - (.48) 10.68
(7.02) 384,169 .68 5.23
December 31, 1993 - (.14) 12.00
13.42 443,281 .69 5.02
December 31, 1992******* - - 10.71
7.10* 83,522 .64(b)* 3.43(b)*
Putnam Vista Fund********$-(f) $- $12.32
23.31 $170,660 .87
Putnam VT Voyager Fund
December 31, 1997 $- $(1.56) $39.08
26.51 $4,538,535 .59 .30
December 31, 1996 - (1.81) 32.53
12.97 $3,281,490 .63 .36
December 31, 1995 - (.56) 30.50
40.67 2,000,232 .68 .49
December 31, 1994 - (.42) 22.20
1.04 1,026,972 .71 .40
December 31, 1993 - (.34) 22.41
18.70 675,198 .66 .33
December 31, 1992 - (.52) 19.21
10.36 317,225 .75 .56
December 31, 1991 - (.36) 17.94
46.09 156,741 .81 .78
December 31, 1990 - (.15) 12.58
(2.03) 48,414 .88 1.58
December 31, 1989 - (.62) 13.00
32.38 39,998 .82 1.93
December 31, 1988**** - - 10.30
2.98* 7,981 1.35* 1.44*
/TABLE
<PAGE>
Average
Portfolio Commission
Turnover (%) Rate Paid(e)
Putnam VT Asia
Pacific Growth Fund
December 31, 1997 102.92 $.0144
December 31, 1996 66.10 .0197
December 31, 1995** 67.72*
Putnam VT Diversified
Income Fund
December 31, 1997 282.56
December 31, 1996 235.53
December 31, 1995 297.17
December 31, 1994 165.17
December 31, 1993*** 40.83*
Putnam VT Global Asset
Allocation Fund
December 31, 1997 181.05 $.0295
December 31, 1996 165.03 .0475
December 31, 1995 150.88
December 31, 1994 150.21
December 31, 1993 192.48
December 31, 1992 141.87
December 31, 1991 77.31
December 31, 1990 52.97
December 31, 1989 95.97
December 31, 1988**** 183.11*
Putnam VT Global Growth
Fund
December 31, 1997 158.37 $.0245
December 31, 1996 79.18 .0318
December 31, 1995 82.53
December 31, 1994 41.55
December 31, 1993 47.00
December 31, 1992 59.68
December 31, 1991 48.67
December 31, 1990***** 18.07*
<PAGE>
Average
Portfolio Commission
Turnover (%) Rate Paid(e)
Putnam VT Growth and
Income Fund
December 31, 1997 64.96 $.0497
December 31, 1996 39.57 .0517
December 31, 1995 50.87
December 31, 1994 46.43
December 31, 1993 62.63
December 31, 1992 39.58
December 31, 1991 37.94
December 31, 1990 49.39
December 31, 1989 73.40
December 31, 1988*** 37.94*
Putnam High Yield
Fund
December 31, 1997 84.61
December 31, 1996 62.72
December 31, 1995 69.78
December 31, 1994 62.09
December 31, 1993 85.59
December 31, 1992 84.24
December 31, 1991 104.62
December 31, 1990 86.05
December 31, 1989 65.44
December 31, 1988**** 64.25*
Putnam VT International
Growth Fund
December 31, 1997******** 75.18 $.0352
Putnam VT International
Growth and Income Fund
December 31, 1997******** 53.20 $.0330
Putnam VT International New
Opportunities Fund
December 31, 1997******** 131.89 $.0207
<PAGE>
Average
Portfolio Commission
Turnover (%) Rate Paid(e)
Putnam VT Money Market Fund
December 31, 1997 --
December 31, 1996 --
December 31, 1995 --
December 31, 1994 --
December 31, 1993 --
December 31, 1992 --
December 31, 1991 --
December 31, 1990 --
December 31, 1989 --
December 31, 1988**** --
Putnam VT New Opportunities Fund
December 31, 1997 71.78 $.0472
December 31, 1996 57.94 .0488
December 31, 1995 30.87
December 31, 1994****** 32.77*
Putnam VT New Value Fund
December 31, 1997******** 64.15
Putnam VT U.S. Government and
High Quality Bond Fund
December 31, 1997 194.29
December 31, 1996 142.49
December 31, 1995 149.18
December 31, 1994 118.34
December 31, 1993 94.01
December 31, 1992 45.82
December 31, 1991 59.29
December 31, 1990 37.70
December 31, 1989 27.81
December 31, 1988**** 41.41*
Putnam VT Utilities
Growth and Income Fund
December 31, 1997 42.46 $.0452
December 31, 1996 61.94 .0475
December 31, 1995 60.33
December 31, 1994 84.88
December 31, 1993 50.79
December 31, 1992******* 19.29*
<PAGE>
Average
Portfolio Commission
Turnover (%) Rate Paid(e)
Putnam Vista Fund
December 31, 1997******** 74.43 $.0381
Putnam VT Voyager Fund
December 31, 1997 82.00 $.0524
December 31, 1996 63.87 .0544
December 31, 1995 57.51
December 31, 1994 62.44
December 31, 1993 55.85
December 31, 1992 48.17
December 31, 1991 55.04
December 31, 1990 93.65
December 31, 1989 91.82
December 31, 1988**** 103.99*
<PAGE>
* Not annualized.
** For the period May 1, 1995 (commencement of operations)
to
December 31, 1995.
*** For the period September 15, 1993 (commencement of
operations) to December 31, 1993.
**** For the period February 1, 1988 (commencement of
operations)
to December 31, 1988.
***** For the period May 1, 1990 (commencement of operations)
to
December 31, 1990.
****** For the period May 2, 1994 (commencement of operations)
to
December 31, 1994.
******* For the period May 4, 1992 (commencement of operations)
to
December 31, 1992.
******** For the period January 2, 1997 (commencement of
operations)
to December 31, 1997.
(a) Per share net investment income has been determined on
the
basis of the weighted average number of shares
outstanding
during the period.
(b) Reflects an expense limitation in effect during the
period.
As a result of such limitation, expenses of Putnam VT
Asia
Pacific Growth Fund for the period ended December 31,
1995
reflect a reduction of approximately $0.03 per share,
expenses of Putnam VT High Yield Fund for the period
ended
December 31, 1988 reflect a reduction of less than $0.01
per
share, expenses of Putnam VT New Opportunities Fund for
the
period ended December 31, 1994 reflect a reduction of
approximately $0.02 per share, and expenses of Putnam VT
Utilities Growth and Income Fund for the period ended
December 31, 1992 reflect a reduction of approximately
$0.01
per share.
(c) Total investment return assumes dividend reinvestment
.
(d) The ratio of expenses to average net assets for the
periods
ended on or after December 31, 1995 includes amounts paid
through expense offset and brokerage service
arrangements.
Prior period ratios exclude these amounts.
(e) Certain funds are required to disclose the average
commission
rate paid per share for fiscal periods beginning on or
after
September 1, 1995.
(f) Net investment income distributions from net investment
income and returns of capital were less than $0.01 per
share.
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."
<PAGE>
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% 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 denominated
in
non-U.S. currencies. 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
and
U.S. corporate issuers.
When investing in the International Sector, the fund may purchase
securities in any rating category without limit, provided that 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. For discussion of
the
risks of investing in below investment grade securities, see
"High
Yield Sector." 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.
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, 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 VT 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.
<PAGE>
* 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 investments in securities principally
traded
on foreign markets 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.
<PAGE>
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 ;
Personal Financial Services - specialty insurance companies,
credit
card issuers, and other consumer-oriented financial services
companies; and
Value-oriented Consuming - consumer franchise companies,
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."
See
"Common investment policies and techniques" below for a
discussion of
these strategies.
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 in determining
compliance
with the foregoing investment limitations . 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 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 Diversified Income Fund,
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 Utilities Growth and Income
Fund and
Putnam VT Health Sciences 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 Utilities Growth and Income Fund and Putnam VT
Health
Sciences Fund and with respect to 50% of its total assets for
Putnam VT Utilities Growth and Income Fund And Putnam VT
Health
Sciences 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 life 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) are shown in the section "Financial
highlights."
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.
<PAGE>
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-hedgi ng 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.
Illiquid securities. 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 of the class 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, 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
Roland W. Gillis 1998 Employed as an investment
Managing Director professional by Putnam
Management
since 1995. Prior to March,
1995,
Mr. Gillis was a Senior Vice
President of Keystone Custodian
Funds, Inc.
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.
<PAGE>
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.
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.
<PAGE>
Richard B. 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
Sheldon N. Simon 1992 Employed as an investment
Senior Vice President professional by Putnam
Management
since 1984.
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
Managing Director
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, including
management
fees but excluding any separate-account related charges and
expenses,
based on the most recent fiscal year (or, for funds that have
been in
operation for less than a full year, based on estimated expenses
for
the first full fiscal year) as a percentage of each fund's
average net
assets:
Total Management Other
Expenses Fees Expenses
(after (after (after
expense expense expense
limitation
limitationlimitation)
Putnam VT Asia Pacific
Growth Fund 1.07% 0.80% 0.27%
Putnam VT Diversified
Income Fund 0.80% 0.69% 0.11%
Putnam VT The George Putnam
Fund of Boston * 0.85% 0.49% 0.36%
Putnam VT Global
Asset Allocation Fund 0.77% 0.66% 0.11%
Putnam VT Global
Growth Fund 0.75% 0.60% 0.15%
Putnam VT Growth and
Income Fund 0.51% 0.47% 0.04%
Putnam VT Health Sciences Trust *0.90% 0.56% 0.34%
Putnam VT High Yield Fund 0.72% 0.66% 0.06%
Putnam VT International
Growth Fund * 1.20% 0.73% 0.47%
Putnam VT International
Growth and Income Fund 1.12% 0.80% 0.32%
Putnam VT International
New Opportunities Fund 1.60% 0.92% 0.68%
Putnam VT Investors Fund 0.85% 0.52% 0.33%
Putnam VT Money Market Fund 0.54% 0.45% 0.09%
Putnam VT New
Opportunities Fund * 0.63% 0.58% 0.05%
Putnam VT New Value Fund * 0.85% 0.70% 0.15%
Putnam VT OTC & Emerging Growth
Fund * 0.90% 0.56% 0.34%
Putnam VT U.S. Government
and High Quality Bond Fund 0.69% 0.61% 0.08%
Putnam VT Utilities Growth
and Income Fund 0.74% 0.67% 0.07%
Putnam VT Vista Fund 0.87% 0.65% 0.22%
Putnam VT Voyager Fund 0.59% 0.54% 0.05%
* After expense limitation. 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 expenses would have been:
Total Management Other
Expenses Fees Expenses
Putnam VT The George
Putnam Fund of Boston+ 1.01 0.65 0.36
Putnam VT Health Sciences
Fund+ 1.04 0.70 0.34
Putnam VT International
Growth Fund 1.27 0.80 0.47
Putnam VT International New
Opportunities Fund 1.88 1.20 0.68
Putnam VT Investors Fund+ 0.98 0.65 0.33
Putnam VT OTC & Emerging
Growth Fund+ 1.04 0.70 0.34
+ Estimated management fees, "Other expenses" and total fund
operating expenses.
In accordance with SEC policy, the expenses shown in the SE
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 Growth Fund was known as PCM
U.S.
Government and High Quality Growth 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.
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 and class IB shares. Class IB
shares are subject to fees imposed pursuant to a distribution
plan.
Only class IA shares are offered pursuant to 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. , Springs
Industries, Inc. and Time Warner 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.
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 EACH 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.
<PAGE>
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 meet 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.
<PAGE>
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
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
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800- 521-0538
www.putnaminv.com
PUTNAM VARIABLE TRUST
Class IB shares
PROSPECTUS - April 30, 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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 denominated
in
non-U.S. currencies. 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
and
U.S. corporate issuers.
When investing in the International Sector, the fund may purchase
securities in any rating category without limit, provided that 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. For discussion of
the
risks of investing in below investment grade securities, see
"High
Yield Sector." 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.
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 VT 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
possi
bilit
ies
for
long-
term
growt
h.
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 Diversified Income Fund ,
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 Utilities Growth and Income
Fund,)
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 Utilities Growth and Income Fund and Putnam VT
Health
Sciences Fund with respect to 50% of its total assets for
Putnam
VT Utilities Growth and Income Fund and Putnam VT Health
Sciences 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 end 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.
<PAGE>
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.
<PAGE>
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
Roland W. Gillis 1998 Employed as an investment
Managing Director professional by Putnam
Management
since 1995. Prior to March,
1995,
Mr. Gillis was a Senior Vice
President of Keystone Custodian
Funds, Inc.
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.
<PAGE>
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.
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.
<PAGE>
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
Sheldon N. Simon 1992 Employed as an investment
Senior Vice President professional by Putnam
Management
since 1984.
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 the
SE table do
not reflect the application of credits related to brokerage
service and
expense offset arrangements that reduce certain fund expenses.
<PAGE>
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 Growth Fund was known as PCM
U.S.
Government and High Quality Growth 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. , Springs
Industries, Inc. and Time Warner 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 EACH 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.
<PAGE>
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.
<PAGE>
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
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
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-521-0538
www.putnaminv.com
PUTNAM VARIABLE TRUST
Class IA Shares
PROSPECTUS - APRIL 30, 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.
This prospectus only offers the Trust's Putnam VT New
Opportunities
Fund ("the fund"). Shares of the fund are currently divided
into
two classes: class IA shares, offered hereby, and class IB,
offered
pursuant to another prospectus.
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 FUND 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 FUND 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.
<PAGE>
ABOUT THE TRUST
Financial highlights
.................................................................
Study this table to see, among other things, how the fund has
performed each year since its inception.
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 objective and policies of the fund
.................................................................
The fund is managed according to its own specific investment
objective
. This section identifies risks associated with
the
fund's investment policies . Read this section to make
sure the
fund's objective is consistent with your own.
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.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
.................................................................
This section describes the terms under which shares may be
purchased
and redeemed by insurance company separate accounts.
How the fund values its shares
.................................................................
This section explains how the fund determines the value of
its
shares.
How the 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.
<PAGE>
ABOUT THE TRUST
FINANCIAL HIGHLIGHTS
The following table presents per share financial
information
for Class IA Shares . This information has been audited
and
reported on by the independent accountants. The "Report of
independent accountants" and financial statements included in the
Trust's annual report to shareholders for the 1997 fiscal
year
are incorporated by reference into this prospectus. The Trust's
annual report, which contains additional unaudited performance
information, is available without charge upon request.
<PAGE>
<TABLE><CAPTION>
FINANCIAL HIGHLIGHTS
(outstanding throughout the period)
Investment Operations
Less Distributions:
Net Realized and
From In Excess of
Net Unrealized
Total from From Net Net Realized Net Realized
Period Net Asset Value, Investment Gain (Loss) on
Investment Investment Gain on Gain on
ended Beginning of Period Loss Investments
Operations Income Investments Investments
<S> <C> <C> <C>
<C> <C> <C> <C>
December 31, 1997 $17.22 $ - $4.01
$4.01 $ - $ -
December 31, 1996 15.63 (.01) 1.60
1.59 - - $-
December 31, 1995 10.82 - 4.84
4.84 - (.02) -
December 31, 1994** 10.00 -(a) .82
.82 - - -
Total
Ratio of
Investment
Ratio of Net Investment
Net Asset Return atNet Assets ,
Expenses to Income to Average
Return of Total Value, End Net Asset End of Period
Average Net Average Net Portfolio commission
Capital Distributions of Period Value(%)(b)(in thousands)
Assets(%)(c) Assets(%) Turnover(%) Rate paid(d)
$ - $ - $21.23 $23.29 $2,590,244
.63 (.01) 71.78 $.0472
- - 17.22 10.17 $1,674,197
.72 (.13) 57.94 .0488
(.01) (.03) 15.63 44.87 515,109
.84 (.03) 30.87
- - 10.82 8.20 * 68,592
.47(a) * .03(a) * 32.77 *
/TABLE
<PAGE>
* Not annualized.
*
* For the period May 2, 1994 (commencement of
operations) to December 31, 1994.
(a) Reflects an expense limitation in effect during the
period.
As a result of expense limitations, expenses of the fund
for
the period ended December 31, 1994 reflect a reduction of
approximately $0.02 per share.
(b) Total investment return assumes dividend reinvestment
.
(c) The ratio of expenses to average net assets for the
periods
ended on or after December 31, 1995 includes amounts paid
through expense offset and brokerage service arrangements.
Prior period ratios exclude these amounts.
(d) The fund is required to disclose the average commission
rate
paid per share for fiscal periods beginning on or
after September 1, 1995.
<PAGE>
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 OBJECTIVE AND POLICIES OF THE FUND
The investment objective and policies of the 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 of the fund
without
shareholder approval. The fund is not intended to be a complete
investment program, and there is no assurance that the fund will
achieve its objective.
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 the fund or divide the fund into
two
or more classes of shares with such special or relative rights
and
privileges as the Trustees may determine.
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 investments in securities principally
traded
on foreign markets will not ordinarily exceed 20% of its
assets . For a discussion of the risks associated with
foreign
investing, see " 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
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 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 that 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 which 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.
<PAGE>
Defensive strategies
At times, Putnam Management may judge that conditions in the
securities markets make pursuing the 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, the 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 the fund has held a particular security is not
generally a consideration in investment decisions. A change in
the
securities held by the fund is known as "portfolio turnover." As
a
result of the 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
life of the fund are shown in the section "Financial highlights."
Foreign investments
The 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 the fund's foreign
investments
and the value of its shares may be affected favorably or
unfavorably
by changes in currency exchange rates relative to the U.S.
dollar.
The 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 the 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, the 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 the 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.
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. 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 to 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.
Diversification
The 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, the 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 the 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.
Derivatives
Certain of the instruments in which the fund may invest, such as
futures contracts, options and forward contracts, 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.
<PAGE>
Limiting investment risk
Specific investment restrictions help to limit investment risks
for
the fund's shareholders. These restrictions prohibit the fund,
with
respect to 75% of its total assets from acquiring more than 10%
of the
voting securities of any one issuer.* They also prohibit the
fund
from investing more than:
(a) With respect to 75% of its total assets, 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); *
(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.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the SAI for the full text of these
policies
and other fundamental investment 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.
HOW PERFORMANCE IS SHOWN
Fund advertisements may, from time to time, include performance
information. "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 of the
class 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
" Investments in premium securities."
"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 the fund. Total return may also be
presented
for other periods.
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 the fund's investment objective or
objectives
and policies. These factors should be considered when comparing
the
fund's investment results with those of other mutual funds and
other
investment vehicles.
Performance information presented for the fund 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 fund's 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 fund's 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.
<PAGE>
The following officers of Putnam Management have had primary
responsibility for the day-to-day management of the fund's
portfolio
since the years stated below:
Business experience
Year (at least 5 years)
------ -------------------------
Daniel L. Miller 1994 Employed as an investment
Managing Director professional by Putnam
Management
since 1983.
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.
The Trust, on behalf of the fund, 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 the fund will be paid from the
assets of the 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 the 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.
The following table summarizes total expenses, including
management
fees but excluding any insurance-related charges and expenses,
based
on the most recent fiscal year, as a percentage of the fund's
average
net assets:
<PAGE>
Total Management Other
Expenses Fees Expenses
Putnam VT New
Opportunities Fund 0.63% 0.58% 0.05%
In accordance with SEC policy, the expenses shown in the
table
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. The
fund is
a diversified investment company. Prior to January 1, 1997,
Putnam VT
New Opportunities Fund was known as PCM New Opportunities 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 and class IB shares. Class IB
shares are subject to fees imposed pursuant to a distribution
plan.
Only class IA shares are offered pursuant to 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 fund 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. , Springs
Industries, Inc. and Time Warner 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 fund with
Putnam Mutual Funds, One Post Office Square, Boston,
Massachusetts
02109. Putnam Mutual Funds presently offers shares of the fund
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. Orders for purchases or
sales
of shares of the 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.
As noted above, only Putnam VT New Opportunities Fund is offered
by
this prospectus. A fund 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.
The fund currently does not foresee any disadvantages to
policyowners
arising out of the fact that the 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 the
fund
and shares of another fund may be substituted. This might force
the
fund to sell portfolio securities at disadvantageous prices. In
addition, the Trustees may refuse to sell shares of the fund to
any
separate account or may suspend or terminate the offering of
shares of
the 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.
HOW A FUND VALUES ITS SHARES
The Trust calculates the net asset value of a share of the 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.
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.
HOW A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
The fund will distribute any net investment income and net
realized
capital gains at least annually. Both types of distributions
will be
made in shares of the fund 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. 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 different class expenses.
The 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. The fund 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,
the 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 the fund's income
distributions
to constitute a return of capital for tax purposes or require the
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
the
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 fund will receive an unaudited semi-annual
financial
statement and an audited annual financial statement for the fund.
These reports show the investments owned by the 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.
<PAGE>
Putnam Variable Trust
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
Investment Manager
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
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
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PUTNAM VARIABLE TRUST
Class IA Shares
PROSPECTUS - APRIL 30, 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 Growth and Income
Fund,
Putnam VT New Opportunities Fund, Putnam VT Utilities Growth and
Income Fund, and Putnam VT Voyager Fund. Shares of each fund are
currently divided into two classes: class IA shares,
offered
hereby, and class IB shares, offered pursuant to another
prospectus.
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 the 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.
<PAGE>
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.
<PAGE>
ABOUT THE TRUST
Financial highlights
.................................................................
Study this table to see, among other things, how the funds have
performed each year since their inception.
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.
<PAGE>
ABOUT YOUR INVESTMENT
Sales and redemptions
.................................................................
This section describes the terms under which shares may be
purchased
and redeemed by insurance company separate accounts.
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
<PAGE>
About the Trust
FINANCIAL HIGHLIGHTS
The following table presents per share financial
information
for the Class IA shares . This information has been
audited and
reported on by the independent accountants. The "Report of
independent accountants" and financial statements included in the
Trust's annual report to shareholders for the 1997 fiscal year
are
incorporated by reference into this prospectus. The Trust's
annual
report, which contains additional unaudited performance
information,
is available without charge upon request.
<PAGE>
</TABLE>
<TABLE><CAPTION>
Financial Highlights
Investment Operations
Less Distributions:
Net
Realized and
In Excess of
Net Unrealized
Total from From Net From Net Realized Net Realized
Period ended Net Asset Value, Investment Gain (Loss) on
Investment Investment Gain on Gain on
Beginning of Period Income Investments
operations Income Investments Investments
<S> <C> <C> <C>
<C> <C> <C> <C>
Putnam VT Asia
Pacific Growth Fund
December 31, 1997 $11.01 $.07 $(1.66)
$(1.59) $(.22) $- $-
December 31, 1996 10.23 .05 .88
.93 (.15) - -
December 31, 1995** 10.00 .06(a)(b) .17
.23 - - -
Putnam VT Diversified
Income Fund
December 31, 1997 $11.27 $.82(a) $(.05)
$.77 $(.63) $(.10) $-
December 31, 1996 11.03 .80(a) .11
$.91 $(.67) - -
December 31, 1995 9.74 .71 1.09
1.80 (.51) - -
December 31, 1994 10.23 .61 (1.04)
(.43) (.06) - -
December 31, 1993*** 10.00 .06 .17
.23 - - -
Putnam VT Growth and
Income Fund
December 31, 1997 $24.56 $.48 $5.07
$5.55 $(.52) $(1.27) $-
December 31, 1996 21.47 .65(a) 3.84
4.49 (.51) (.89) -
December 31, 1995 16.44 .53 5.31
5.84 (.51) (.30) -
December 31, 1994 17.38 .50 (.48)
.02 (.38) (.58) -
December 31, 1993 15.93 .38 1.83
2.21 (.39) (.37) -
December 31, 1992 15.33 .39 1.04
1.43 (.42) (.41) -
December 31, 1991 13.51 .43 2.09
2.52 (.53) (.17) -
December 31, 1990 13.41 .55 (.29)
.26 (.05) (.11) -
December 31, 1989 12.00 .45 2.04
2.49 (.60) (.48) -
December 31, 1988**** 10.00 .42(a) 1.58
2.00 - - -
<PAGE>
Investment Operations
Less Distributions:
Net
Realized and
In Excess of
Net Unrealized
Total from From Net From Net Realized Net Realized
Period ended Net Asset Value, Investment Gain (Loss) on
Investment Investment Gain on Gain on
Beginning of Period Income Investments
operations Income Investments Investments
Putnam VT New
Opportunities Fund
December 31, 1997 $17.22 $-(f) $4.01
$4.01 $- $- $-
December 31, 1996 15.63 (.01) 1.60
1.59 - - -
December 31, 1995 10.82 - 4.84
4.84 - (.02) -
December 31, 1994******10.00 -(b) .82
.82 - - -
Putnam VT Utilities
Growth and Income Fund
December 31, 1997 $14.80 $.53 $3.11
$3.64 $(.55) $(.75) $-
December 31, 1996 13.28 .54 1.49
$2.03 $(.51) - -
December 31, 1995 10.68 .53 2.65
3.18 (.58) - -
December 31, 1994 12.00 .60 (1.44)
(.84) (.35) (.12) (.01)
December 31, 1993 10.71 .30 1.13
1.43 (.12) (.02) -
December 31, 1992******* 10.00 .15(b)
.56 .71 - - -
Putnam VT Voyager Fund
December 31, 1997 $32.53 $.10 $8.01
$8.11 $(.07) $(1.49) $-
December 31, 1996 30.50 .09 3.75
3.84 (.13) (1.68) -
December 31, 1995 22.20 .10 8.76
8.86 (.07) (.49) -
December 31, 1994 22.41 .07 .14
.21 (.05) (.37) -
December 31, 1993 19.21 .04 3.50
3.54 (.07) (.27) -
December 31, 1992 17.94 .07 1.72
1.79 (.08) (.44) -
December 31, 1991 12.58 .11(a) 5.61
5.72 (.12) (.24) -
December 31, 1990 13.00 .18 (.45)
(.27) (.06) (.09) -
December 31, 1989 10.30 .12 3.20
3.32 (.16) (.46) -
December 31, 1988**** 10.00 .13(a) .17
.30 - - -<PAGE>
Total Ratio of Net
Investment Ratio of Investment
Net Asset
Return at Net Assets Expenses to Income to
Return of Total Value, End
Net Asset End of Period Average Net Average Net
Capital Distributions of Period
Value(%)(c) (in thousands) Assets(%)(d) Assets(%)
Putnam VT Asia
Pacific Growth Fund
December 31, 1997 $- $(.22) $9.20
(14.66) $112,902 $1.07 .70
December 31, 1996 - (.15) 11.01
9.10 130,548 1.23 .84
December 31, 1995** - - 10.23
2.30* 25,045 .81(b)* .72(b)*
Putnam VT Diversified
Income Fund
December 31, 1997 $- $(.73) $11.31
7.38 $608,148 .80 7.43
December 31, 1996 - (.67) 11.27
8.81 $494,811 .83 7.45
December 31, 1995 - (.51) 11.03
19.13 303,721 .85 7.85
December 31, 1994 - (.06) 9.74
(4.23) 215,935 .80 7.60
December 31, 1993*** - - 10.23
2.30* 80,449 .28* 1.45*
Putnam VT Growth and
Income Fund
December 31, 1997 $- $(1.79) $28.32
24.15 $8,337,334 .51 2.08
December 31, 1996 - (1.40) 24.56
21.92 5,679,100 .54 2.90
December 31, 1995 - (.81) 21.47
36.71 3,312,306 .57 3.34
December 31, 1994 - (.96) 16.44
.35 1,907,380 .62 3.64
December 31, 1993 - (.76) 17.38
14.27 1,407,382 .64 3.49
December 31, 1992 - (.83) 15.93
9.75 641,508 .69 3.79
December 31, 1991 - (.70) 15.33
19.05 325,861 .72 4.37
December 31, 1990 - (.16) 13.51
1.96 155,942 .75 5.02
December 31, 1989 - (1.08) 13.41
21.30 100,335 .74 5.73
December 31, 1988*** - - 12.00
19.89* 26,205 .92* 4.08*
Putnam VT New Opportunities Fund
December 31, 1997 $- $- $21.23
23.29 $2,590,244 .63 (.01)
December 31, 1996 - - 17.22
10.17 1,674,197 .72 (.13)
December 31, 1995 (.01) (.03) 15.63
44.87 515,109 .84 (.03)
December 31, 1994****** - - 10.82
8.20* 68,592 .47(b)* .03(b)*
Putnam VT Utilities
Growth and Income Fund
December 31, 1997 $- $(1.30) $17.14
27.10 $822,257 .74 3.63
December 31, 1996 - (.51) 14.80
15.80 $657,429 .73 4.22
December 31, 1995 - (.58) 13.28
31.08 530,461 .68 4.72
December 31, 1994 - (.48) 10.68
(7.02) 384,169 .68 5.23
December 31, 1993 - (.14) 12.00
13.42 443,281 .69 5.02
December 31, 1992******* - - 10.71
7.10* 83,522 .64(b)* 3.43(b)*
Putnam VT Voyager Fund
December 31, 1997 $- $(1.56) $39.08
26.51 $4,538,535 .59 .30
December 31, 1996 - (1.81) 32.53
12.97 $3,281,490 .63 .36
December 31, 1995 - (.56) 30.50
40.67 2,000,232 .68 .49
December 31, 1994 - (.42) 22.20
1.04 1,026,972 .71 .40
December 31, 1993 - (.34) 22.41
18.70 675,198 .66 .33
December 31, 1992 - (.52) 19.21
10.36 317,225 .75 .56
December 31, 1991 - (.36) 17.94
46.09 156,741 .81 .78
December 31, 1990 - (.15) 12.58
(2.03) 48,414 .88 1.58
December 31, 1989 - (.62) 13.00
32.38 39,998 .82 1.93
December 31, 1988**** - - 10.30
2.98* 7,981 1.35* 1.44*
/TABLE
<PAGE>
Average
Portfolio Commission
Turnover (%) Rate Paid(e)
Putnam VT Asia
Pacific Growth Fund
December 31, 1997 102.92 $.0144
December 31, 1996 66.10 .0197
December 31, 1995** 67.72*
Putnam VT Diversified
Income Fund
December 31, 1997 282.56
December 31, 1996 235.53
December 31, 1995 297.17
December 31, 1994 165.17
December 31, 1993*** 40.83*
Putnam VT Growth and
Income Fund
December 31, 1997 64.96 $.0497
December 31, 1996 39.57 .0517
December 31, 1995 50.87
December 31, 1994 46.43
December 31, 1993 62.63
December 31, 1992 39.58
December 31, 1991 37.94
December 31, 1990 49.39
December 31, 1989 73.40
December 31, 1988*** 37.94*
Putnam VT New Opportunities Fund
December 31, 1997 71.78 $.0472
December 31, 1996 57.94 .0488
December 31, 1995 30.87
December 31, 1994****** 32.77*
Putnam VT Utilities
Growth and Income Fund
December 31, 1997 42.46 $.0452
December 31, 1996 61.94 .0475
December 31, 1995 60.33
December 31, 1994 84.88
December 31, 1993 50.79
December 31, 1992******* 19.29*
<PAGE>
Putnam VT Voyager Fund
December 31, 1997 82.00 $.0524
December 31, 1996 63.97 .0544
December 31, 1995 57.51
December 31, 1994 62.44
December 31, 1993 55.85
December 31, 1992 48.17
December 31, 1991 55.04
December 31, 1990 93.65
December 31, 1989 91.82
December 31, 1988**** 103.99*
[FN]
* Not annualized.
** For the period May 1, 1995 (commencement of operations)
to
December 31, 1995.
*** For the period September 15, 1993 (commencement of
operations) to December 31, 1993.
**** For the period February 1, 1988 (commencement of
operations)
to December 31, 1988.
*****
* For the period May 2, 1994 (commencement of operations)
to
December 31, 1994.
******* For the period May 4, 1992 (commencement of operations)
to
December 31, 1992.
(a) Per share net investment income has been determined on
the
basis of the weighted average number of shares
outstanding
during the period.
(b) Reflects an expense limitation in effect during the
period.
As a result of such limitation, expenses of Putnam VT
Asia
Pacific Growth Fund for the period ended December 31,
1995
reflect a reduction of approximately $0.03 per share,
expenses of Putnam VT New Opportunities Fund for the
period
ended December 31, 1994 reflect a reduction of
approximately
$0.02 per share, and expenses of Putnam VT Utilities
Growth
and Income Fund for the period ended December 31, 1992
reflect a reduction of approximately $0.01 per share.
(c) Total investment return assumes dividend reinvestment
.
(d) The ratio of expenses to average net assets for the
periods
ended on or after December 31, 1995 includes amounts paid
through expense offset and brokerage service
arrangements.
Prior period ratios exclude these amounts.
(e) Certain funds are required to disclose the average
commission
rate paid per share for fiscal periods beginning on or
after
September 1, 1995.
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.
<PAGE>
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 denominated
in
non-U.S. currencies. 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
and
U.S. corporate issuers.
When investing in the International Sector, the fund may purchase
securities in any rating category without limit, provided that 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. For discussion of
the
risks of investing in below investment grade securities, see
"High
Yield Sector." 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.
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 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 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 investments in securities principally
traded
on foreign markets 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 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.
<PAGE>
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.
<PAGE>
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 strategies
Each fund (other than Putnam Diversified Income 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 Utilities Growth and Income
Fund and
Putnam VT Health Sciences 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 Utilities Growth and Income Fund and with respect to
50% of
its total assets for 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;*
(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.
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.
<PAGE>
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 life of
each
fund are shown in the section "Financial highlights."
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 may be affected favorably or
unfavorably
by changes in currency exchange rates relative to the U.S.
dollar.
Each 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.
Illiquid securities. Each 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.
<PAGE>
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:
o Certain securities issued or guaranteed by the U.S.
government or one of its agencies or
instrumentalities;
o 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
o 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 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 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. "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 of the
class 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."
"Total return" for the one-, five- and ten-year periods (or for
the
life of a fund, 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.
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.
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 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.
<PAGE>
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 Utilities
Growth and Income Fund
Sheldon N. Simon 1992 Employed as an investment
Senior Vice President professional by Putnam
Management
since 1984.
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 Voyager Fund
Robert R. Beck 1995 Employed as an investment
Managing Director
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.
The following table summarizes total expenses, including
management
fees but excluding any separate-account related charges and
expenses,
based on the most recent fiscal year (or, for funds that have
been in
operation for less than a full year, based on estimated expenses
for
the first full fiscal year) as a percentage of each fund's
average net
assets:
Total Management Other
Expenses Fees Expenses
Putnam VT Asia Pacific
Growth Fund 1.07% 0.80% 0.27%
Putnam VT Diversified
Income Fund 0.80% 0.69% 0.11%
Putnam VT Growth and
Income Fund 0.51% 0.47% 0.04%
Putnam VT New
Opportunities Fund 0.63% 0.58% 0.05%
Putnam VT Utilities Growth
and Income Fund 0.74% 0.67% 0.07%
Putnam VT Voyager Fund 0.59% 0.54% 0.05%
In accordance with SEC policy, the expenses shown in the table 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
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 Growth and Income
Fund
was known as PCM Growth and Income Fund, Putnam VT New
Opportunities
Fund was known as PCM New Opportunities 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.
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 and class IB shares. Class IB
shares are subject to fees imposed pursuant to a distribution
plan.
Only class IA shares are offered pursuant to 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. , Springs
Industries, Inc. and Time Warner 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. 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.
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.
HOW THE FUNDS MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION
Distributions are reinvested without a sales charge, using the
net
asset value determined on the ex - dividend date and
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.
<PAGE>
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 meet 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.
<PAGE>
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
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
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800- 521-0538
www.putnaminv.com
PUTNAM VARIABLE TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
April 30, 1998
This SAI is not a prospectus and is only authorized for
distribution
when accompanied or preceded by the prospectuses of the Trust
dated
April 30, 1998, as revised from time to time. This SAI contains
information which may be useful to investors but which is not
included
in the prospectus. If the Trust has more than one form of
current
prospectus, each reference to the prospectus in this SAI shall
include
all of the Trust's prospectuses, unless otherwise noted. The SAI
should be read together with the applicable prospectus.
Investors may
obtain a free copy of the applicable prospectus from Putnam
Investor
Services, Mailing address: P.O. Box 41203, Providence, RI
02940-1203.
The Report of the Trust's independent accountants and the audited
financial statements of the Trust are incorporated by reference
into
this SAI.
Table of Contents
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .B- 2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . .
. . .B- 2
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . B- 32
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . .
. . B- 35
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . B- 37
INVESTMENT PERFORMANCE OF THE TRUST. . . . . . . . . . . . . . .
. . B- 83
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . .
. . B- 85
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . .
. . B- 88
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . .
. . B- 89
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . .
. . B- 89
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . B- 89
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS . . . . . . . .
. . B- 90
<PAGE>
PUTNAM VARIABLE TRUST
SAI DEFINITIONS
The "Trust" -- Putnam Variable Trust.
"Putnam Management" -- Putnam Investment Management,
Inc.,
the Trust's investment manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Trust's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Trust's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division
of Putnam Fiduciary Trust
Company,
the Trust's investor servicing
agent.
INVESTMENT OBJECTIVES AND POLICIES
The Trust consists of twenty separate investment
portfolios
(the "funds") with differing investment objectives and policies:
Putnam VT Asia Pacific Growth Fund, Putnam VT Diversified Income
Fund,
Putnam VT The George Putnam Fund of Boston, Putnam VT Global
Asset
Allocation Fund, Putnam VT Global Growth Fund, Putnam VT Growth
and
Income Fund, Putnam VT Health Sciences Fund , Putnam VT
High
Yield Fund, Putnam VT International Growth Fund, Putnam VT
International Growth and Income Fund, Putnam VT International New
Opportunities Fund, Putnam VT Investors Fund, Putnam VT Money
Market
Fund, Putnam VT New Opportunities Fund, Putnam VT New Value Fund,
Putnam VT OTC & Emerging Growth Fund, Putnam VT U.S. Government
and
High Quality Bond Fund, Putnam VT Utilities Growth and Income
Fund,
Putnam VT Vista Fund and Putnam VT Voyager Fund. The investment
objectives and policies of the funds are described in the
prospectus
offering such funds. This SAI contains, among other things, the
investment restrictions of the funds. It also contains
information
concerning certain investment practices in which some or all of
the
funds may engage. The prospectus indicates which practices are
applicable to each fund which it offers.
Except as described below under "Investment Restrictions of the
Trust," the investment policies described in the prospectus and
in
this SAI are not fundamental, and the Trustees may change such
policies without shareholder approval. As a matter of policy,
the
Trustees would not materially change the funds' investment
objectives
without shareholder approval.
Short-term Trading
In seeking a fund's objective or objectives, Putnam Management
will
buy or sell portfolio securities whenever Putnam Management
believes
it appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the fund
has
owned the security. From time to time the fund will buy
securities
intending to seek short-term trading profits. A change in the
securities held by the fund is known as "portfolio turnover" and
generally involves some expense to the fund. This expense may
include
brokerage commissions or dealer markups and other transaction
costs on
both the sale of securities and the reinvestment of the proceeds
in
other securities. If sales of portfolio securities cause the
fund to
realize net short-term capital gains, such gains will be taxable
as
ordinary income. As a result of a fund's investment policies,
under
certain market conditions the fund's portfolio turnover rate may
be
higher than that of other mutual funds. Portfolio turnover rate
for a
fiscal year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio
securities -- excluding securities whose maturities at
acquisition
were one year or less. A fund's portfolio turnover rate is not a
limiting factor when Putnam Management considers a change in a
fund's
portfolio.
Convertible Securities. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may
be
converted into or exchanged for, at a specific price or formula
within
a particular period of time, a prescribed amount of common stock
or
other equity securities of the same or a different issuer.
Convertible securities entitle the holder to receive interest
paid or
accrued on debt or dividends paid or accrued on preferred stock
until
the security matures or is redeemed, converted or exchanged.
The market value of a convertible security is a function of its
"investment value" and its "conversion value." A security's
"investment value" represents the value of the security without
its
conversion feature (i.e., a nonconvertible fixed income
security).
The investment value may be determined by reference to its credit
quality and the current value of its yield to maturity or
probable
call date. At any given time, investment value is dependent
upon
such factors as the general level of interest rates, the yield
of
similar nonconvertible securities, the financial strength of the
issuer and the seniority of the security in the issuer's capital
structure. A security's "conversion value" is determined by
multiplying the number of shares the holder is entitled to
receive
upon conversion or exchange by the current price of the
underlying
security.
If the conversion value of a convertible security is
significantly
below its investment value, the convertible security will trade
like
nonconvertible debt or preferred stock and its market value will
not
be influenced greatly by fluctuations in the market price of the
underlying security. Conversely, if the conversion value of a
convertible security is near or above its investment value, the
market
value of the convertible security will be more heavily influenced
by
fluctuations in the market price of the underlying security.
<PAGE>
The fund's investments in convertible securities may at times
include
securities that have a mandatory conversion feature, pursuant to
which
the securities convert automatically into common stock or other
equity
securities at a specified date and a specified conversion ratio,
or
that are convertible at the option of the issuer. Because
conversion
of the security is not at the option of the holder, the fund may
be
required to convert the security into the underlying common stock
even
at times when the value of the underlying common stock or other
equity
security has declined substantially.
The fund's investments in convertible securities, particularly
securities that are convertible into securities of an issuer
other
than the issuer of the convertible security, may be illiquid.
The
fund may not be able to dispose of such securities in a timely
fashion
or for a fair price, which could result in losses to the fund.
Lower-rated Securities
A fund may invest in lower-rated fixed-income securities
(commonly
known as "junk bonds") to the extent described in the prospectus.
The
lower ratings of certain securities held by a fund reflect a
greater
possibility that adverse changes in the financial condition of
the
issuer or in general economic conditions, or both, or an
unanticipated
rise in interest rates, may impair the ability of the issuer to
make
payments of interest and principal. The inability (or perceived
inability) of issuers to make timely payment of interest and
principal
would likely make the values of securities held by a fund more
volatile and could limit a fund's ability to sell its securities
at
prices approximating the values the fund had placed on such
securities. In the absence of a liquid trading market for
securities
held by it, a fund at times may be unable to establish the fair
value
of such securities.
Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time
of
rating. Consequently, the rating assigned to any particular
security
is not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would
indicate. In addition, the rating assigned to a security by
Moody's
Investors Service, Inc. or Standard & Poor's (or by any other
nationally recognized securities rating organization) does not
reflect
an assessment of the volatility of the security's market value or
the
liquidity of an investment in the security. See the prospectus
for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated
securities fluctuate in response to changes in interest rates. A
decrease in interest rates will generally result in an increase
in the
value of a fund's assets. Conversely, during periods of rising
interest rates, the value of a fund's assets will generally
decline.
The values of lower-rated securities may often be affected to a
greater extent by changes in general economic conditions and
business
conditions affecting the issuers of such securities and their
industries. Negative publicity or investor perceptions may also
adversely affect the values of lower-rated securities. Changes
by
recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments
of
interest and principal may also affect the value of these
investments.
Changes in the value of portfolio securities generally will not
affect
income derived from these securities, but will affect a fund's
net
asset value. A fund will not necessarily dispose of a security
when
its rating is reduced below its rating at the time of purchase.
However, Putnam Management will monitor the investment to
determine
whether its retention will assist in meeting a fund's investment
objective or objectives.
Issuers of lower-rated securities are often highly leveraged, so
that
their ability to service their debt obligations during an
economic
downturn or during sustained periods of rising interest rates may
be
impaired. Such issuers may not have more traditional methods of
financing available to them and may be unable to repay
outstanding
obligations at maturity by refinancing. The risk of loss due to
default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities
frequently
are unsecured and subordinated to the prior payment of senior
indebtedness.
At times, a substantial portion of a fund's assets may be
invested in
securities of which the fund, by itself or together with other
funds
and accounts managed by Putnam Management or its affiliates,
holds all
or a major portion. Although Putnam Management generally
considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under
adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, a fund could
find it
more difficult to sell these securities when Putnam Management
believes it advisable to do so or may be able to sell the
securities
only at prices lower than if they were more widely held. Under
these
circumstances, it may also be more difficult to determine the
fair
value of such securities for purposes of computing a fund's net
asset
value. In order to enforce its rights in the event of a default
under
such securities, a fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the
issuer's obligations on such securities. This could increase the
fund's operating expenses and adversely affect the fund's net
asset
value. In addition, each fund's intention to qualify as a
"regulated
investment company" under the Internal Revenue Code may limit the
extent to which a fund may exercise its rights by taking
possession of
such assets.
Certain securities held by a fund may permit the issuer at its
option
to "call," or redeem, its securities. If an issuer were to
redeem
securities held by a fund during a time of declining interest
rates,
the fund may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
A fund may at times invest without limit in so-called
"zero-coupon"
bonds and "payment-in-kind" bonds identified in the prospectus,
unless
otherwise specified in the prospectus. Zero-coupon bonds are
issued
at a significant discount from their principal amount in lieu of
paying interest periodically. Payment-in-kind bonds allow the
issuer,
at its option, to make current interest payments on the bonds
either
in cash or in additional bonds. Because zero-coupon bonds and
payment-in-kind bonds do not pay current interest in cash, their
values are subject to greater fluctuation in response to changes
in
market interest rates than bonds that pay interest currently in
cash.
Both zero-coupon and payment-in-kind bonds allow an issuer to
avoid
the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than
bonds
paying interest currently in cash. A fund is nonetheless
required to
accrue interest income on such investments and to distribute such
amounts at least annually to shareholders, even though such bonds
do
not pay current interest in cash. Thus, it may be necessary at
times
for a fund to liquidate other investments in order to satisfy its
dividend requirements.
To the extent the fund invests in securities in the lower rating
categories, the achievement of the fund's goals is more dependent
on
Putnam Management's investment analysis than would be the case if
the
fund were investing in securities in the higher rating
categories.
Investments in Premium Securities
Unless otherwise specified in the prospectus or elsewhere in this
SAI,
if a fund may invest in premium securities, it may do so without
limit.
Investments in Miscellaneous Fixed-Income Securities
Unless otherwise specified in the prospectus or elsewhere in this
SAI,
if a fund may invest in inverse floating obligations, premium
securities, or interest-only or principal-only classes of
mortgage-
backed securities (IOs and POs), it may do so without limit.
None of
the funds, however, currently intends to invest more than 15% of
its
assets in inverse floating obligations or more than 35% of its
assets
in IOs and POs under normal market conditions.
Private Placements
Each fund may invest in securities that are purchased in private
placements and, accordingly, are subject to restrictions on
resale as
a matter of contract or under federal securities laws. Because
there
may be relatively few potential purchasers for such investments,
especially under adverse market or economic conditions or in the
event
of adverse changes in the financial condition of the issuer, a
fund
could find it more difficult to sell such securities when Putnam
Management believes it advisable to do so or may be able to sell
such
securities only at prices lower than if such securities were more
widely held. At times, it may also be more difficult to
determine the
fair value of such securities for purposes of computing the
fund's net
asset value.
Loan Participations
A fund may invest in "loan participations." By purchasing a loan
participation, a fund acquires some or all of the interest of a
bank
or other lending institution in a loan to a particular borrower.
Many
such loans are secured, and most impose restrictive covenants
which
must be met by the borrower.
The loans in which a fund may invest are typically made by a
syndicate
of banks, represented by an agent bank which has negotiated and
structured the loan and which is responsible generally for
collecting
interest, principal, and other amounts from the borrower on its
own
behalf and on behalf of the other lending institutions in the
syndicate and for enforcing its and their other rights against
the
borrower. Each of the lending institutions, including the agent
bank,
lends to the borrower a portion of the total amount of the loan,
and
retains the corresponding interest in the loan.
A fund's ability to receive payments of principal and interest
and
other amounts in connection with loan participations held by it
will
depend primarily on the financial condition of the borrower. The
failure by a fund to receive scheduled interest or principal
payments
on a loan participation would adversely affect the income of the
fund
and would likely reduce the value of its assets, which would be
reflected in a reduction in a fund's net asset value. Banks and
other
lending institutions generally perform a credit analysis of the
borrower before originating a loan or participating in a lending
syndicate. In selecting the loan participations in which a fund
will
invest, however, Putnam Management will not rely solely on that
credit
analysis, but will perform its own investment analysis of the
borrowers. Putnam Management's analysis may include
consideration of
the borrower's financial strength and managerial experience, debt
coverage, additional borrowing requirements or debt maturity
schedules, changing financial conditions, and responsiveness to
changes in business conditions and interest rates. Because loan
participations in which a fund may invest are not generally rated
by
independent credit rating agencies, a decision by a fund to
invest in
a particular loan participation will depend almost exclusively on
Putnam Management's and the original lending institutions credit
analysis of the borrower.
Loan participations may be structured in different forms,
including
novations, assignments, and participating interests. In a
novation, a
fund assumes all of the rights of a lending institution in a
loan,
including the right to receive payments of principal and interest
and
other amounts directly from the borrower and to enforce its
rights as
a lender directly against the borrower. A fund assumes the
position
of a co-lender with other syndicate members. As an alternative,
a
fund may purchase an assignment of a portion of a lender's
interest in
a loan. In this case, a fund may be required generally to rely
upon
the assigning bank to demand payment and enforce its rights
against
the borrower, but would otherwise be entitled to all of such
bank's
rights in the loan. A fund may also purchase a participating
interest
in a portion of the rights of a lending institution in a loan.
In
such case, it will be entitled to receive payments of principal,
interest, and premium, if any, but will not generally be entitled
to
enforce its rights directly against the agent bank or the
borrower,
but must rely for that purpose on the lending institution. A
fund may
also acquire a loan participation directly by acting as a member
of
the original lending syndicate.
A fund will in many cases be required to rely upon the lending
institution from which it purchases the loan participation to
collect
and pass on to a fund such payments and to enforce a fund's
rights
under the loan. As a result, an insolvency, bankruptcy, or
reorganization of the lending institution may delay or prevent a
fund
from receiving principal, interest, and other amounts with
respect to
the underlying loan. When a fund is required to rely upon a
lending
institution to pay to the fund principal, interest, and other
amounts
received by it, Putnam Management will also evaluate the
creditworthiness of the lending institution.
The borrower of a loan in which a fund holds a participation
interest
may, either at its own election or pursuant to terms of the loan
documentation, prepay amounts of the loan from time to time.
There is
no assurance that a fund will be able to reinvest the proceeds of
any
loan prepayment at the same interest rate or on the same terms as
those of the original loan participation.
Corporate loans in which a fund may purchase a loan participation
are
made generally to finance internal growth, mergers, acquisitions,
stock repurchases, leveraged buy-outs, and other corporate
activities.
Under current market conditions, most of the corporate loan
participations purchased by a fund will represent interests in
loans
made to finance highly leveraged corporate acquisitions, known as
"leveraged buy-out" transactions. The highly leveraged capital
structure of the borrowers in such transactions may make such
loans
especially vulnerable to adverse changes in economic or market
conditions. In addition, loan participations generally are
subject to
restrictions on transfer, and only limited opportunities may
exist to
sell such participations in secondary markets. As a result, a
fund
may be unable to sell loan participations at a time when it may
otherwise be desirable to do so or may be able to sell them only
at a
price that is less than their fair market value.
Certain of the loan participations acquired by a fund may involve
revolving credit facilities under which a borrower may from time
to
time borrow and repay amounts up to the maximum amount of the
facility. In such cases, a fund would have an obligation to
advance
its portion of such additional borrowings upon the terms
specified in
the loan participation. To the extent that a fund is committed
to
make additional loans under such a participation, it will at all
times
hold and maintain in a segregated account liquid assets in an
amount
sufficient to meet such commitments. Certain of the loan
participations acquired by a fund may also involve loans made in
foreign currencies. A fund's investment in such participations
would
involve the risks of currency fluctuations described above with
respect to investments in the foreign securities.
Mortgage Related Securities
To the extent described in the prospectus, each fund may invest
in
mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and certain stripped mortgage-backed
securities.
CMOs and other mortgage-backed securities represent a
participation
in, or are secured by, mortgage loans.
Mortgage-backed securities have yield and maturity
characteristics
corresponding to the underlying assets. Unlike traditional debt
securities, which may pay a fixed rate of interest until
maturity,
when the entire principal amount comes due, payments on certain
mortgage-backed securities include both interest and a partial
repayment of principal. Besides the scheduled repayment of
principal,
repayments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. If
property owners make unscheduled prepayments of their mortgage
loans,
these prepayments will result in early payment of the applicable
mortgage-related securities. In that event a fund may be unable
to
invest the proceeds from the early payment of the
mortgage-related
securities in an investment that provides as high a yield as the
mortgage-related securities. Consequently, early payment
associated
with mortgage-related securities may cause these securities to
experience significantly greater price and yield volatility than
that
experienced by traditional fixed-income securities. The
occurrence of
mortgage prepayments is affected by factors including the level
of
interest rates, general economic conditions, the location and age
of
the mortgage and other social and demographic conditions. During
periods of falling interest rates, the rate of mortgage
prepayments
tends to increase, thereby tending to decrease the life of
mortgage-
related securities. During periods of rising interest rates, the
rate
of mortgage prepayments usually decreases, thereby tending to
increase
the life of mortgage-related securities. If the life of a
mortgage-
related security is inaccurately predicted, a fund may not be
able to
realize the rate of return it expected.
Mortgage-backed securities are less effective than other types of
securities as a means of "locking in" attractive long-term
interest
rates. One reason is the need to reinvest prepayments of
principal;
another is the possibility of significant unscheduled prepayments
resulting from declines in interest rates. These prepayments
would
have to be reinvested at lower rates. As a result, these
securities
may have less potential for capital appreciation during periods
of
declining interest rates than other securities of comparable
maturities, although they may have a similar risk of decline in
market
value during periods of rising interest rates. Prepayments may
also
significantly shorten the effective maturities of these
securities,
especially during periods of declining interest rates.
Conversely,
during periods of rising interest rates, a reduction in
prepayments
may increase the effective maturities of these securities,
subjecting
them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and,
therefore, potentially increasing the volatility of a fund.
Prepayments may cause losses on securities purchased at a
premium. At
times, some of the mortgage-backed securities in which a fund may
invest will have higher than market interest rates and therefore
will
be purchased at a premium above their par value. Unscheduled
prepayments, which are made at par, will cause the fund to
experience
a loss equal to any unamortized premium.
CMOs may be issued by a U.S. government agency or instrumentality
or
by a private issuer. Although payment of the principal of, and
interest on, the underlying collateral securing privately issued
CMOs
may be guaranteed by the U.S. government or its agencies or
instrumentalities, these CMOs represent obligations solely of the
private issuer and are not insured or guaranteed by the U.S.
government, its agencies or instrumentalities or any other person
or
entity.
Prepayments could cause early retirement of CMOs. CMOs are
designed
to allocate the risk of prepayment among investors by issuing
multiple
classes of securities, each having different maturities, interest
rates and payment schedules, and with the principal and interest
on
the underlying mortgages allocated among the several classes in
various ways. Payment of interest or principal on some classes
or
series of CMOs may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the
underlying
mortgages. CMOS of different classes or series are generally
retired
in sequence as the underlying mortgage loans in the mortgage pool
are
repaid. If enough mortgages are repaid ahead of schedule, the
classes
or series of a CMO with the earliest maturities generally will be
retired prior to their maturities. Thus, the early retirement of
particular classes or series of a CMO held by a fund would have
the
same effect as the prepayment of mortgages underlying other
mortgage-
backed securities. Conversely, slower than anticipated
prepayments
can extend the effective maturities of CMOs, subjecting them to a
greater risk of decline in market value in response to rising
interest
rates than traditional debt securities, and, therefore,
potentially
increasing the volatility of the fund.
Prepayments could result in losses on stripped mortgage-backed
securities. Stripped mortgage-backed securities are usually
structured
with two classes that receive different portions of the interest
and
principal distributions on a pool of mortgage loans. A fund may
invest in both the interest-only or "IO" class and the
principal-only
or "PO" class. The yield to maturity on an IO class of stripped
mortgage-backed securities is extremely sensitive not only to
changes
in prevailing interest rates but also to the rate of principal
payments (including prepayments) on the underlying assets. A
rapid
rate of principal prepayments may have a measurable adverse
effect on
the fund's yield to maturity to the extent it invests in IOs. If
the
assets underlying the IO experience greater than anticipated
prepayments of principal, the fund may fail to recoup fully its
initial investment in these securities. Conversely, POs tend to
increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated.
The secondary market for stripped mortgage-backed securities may
be
more volatile and less liquid than that for other mortgage-backed
securities, potentially limiting a fund's ability to buy or sell
those
securities at any particular time.
Securities Loans
Each fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25%
of its total assets, thereby realizing additional income. The
risks
in lending portfolio securities, as with other extensions of
credit,
consist of possible delay in recovery of the securities or
possible
loss of rights in the collateral should the borrower fail
financially.
As a matter of policy, securities loans are made to
broker-dealers
pursuant to agreements requiring that the loans be continuously
secured by collateral consisting of cash or short-term debt
obligations at least equal at all times to the value of the
securities
on loan, "marked-to-market" daily. The borrower pays to the fund
an
amount equal to any dividends or interest received on securities
lent.
The fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the
borrower.
Although voting rights, or rights to consent, with respect to the
loaned securities may pass to the borrower, the fund retains the
right
to call the loans at any time on reasonable notice, and it will
do so
to enable the fund to exercise voting rights on any matters
materially
affecting the investment. The fund may also call such loans in
order
to sell the securities.
Forward Commitments
Each fund may enter into contracts to purchase securities for a
fixed
price at a future date beyond customary settlement time ("forward
commitments") if the fund sets aside, on the books and records of
its
custodian, liquid assets in an amount sufficient to meet the
purchase
price, or if the fund enters into offsetting contracts for the
forward
sale of other securities it owns. In the case of to-be-announced
("TBA") purchase commitments, the unit price and the estimated
principal amount are established when the fund enters into a
contract,
with the actual principal amount being within a specified range
of the
estimate. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the
security to
be purchased declines prior to the settlement date, which risk is
in
addition to the risk of decline in the value of the fund's other
assets. Where such purchases are made through dealers, the fund
relies on the dealer to consummate the sale. The dealer's
failure to
do so may result in the loss to the fund of an advantageous yield
or
price. Although a fund will generally enter into forward
commitments
with the intention of acquiring securities for its portfolio or
for
delivery pursuant to options contracts it has entered into, a
fund may
dispose of a commitment prior to settlement if Putnam Management
deems
it appropriate to do so. A fund may realize short-term profits
or
losses upon the sale of forward commitments.
A fund may enter into TBA sale commitments to hedge its portfolio
positions or to sell securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received
until
the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or
an
offsetting TBA purchase commitment deliverable on or before the
sale
commitment date, are held as "cover" for the transaction.
Unsettled
TBA sale commitments are valued at the current market value of
the
underlying securities. If the TBA sale commitment is closed
through
the acquisition of an offsetting purchase commitment, that fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If a fund
delivers securities under the commitment, the fund realizes a
gain or
loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
Repurchase Agreements
Each fund may enter into repurchase agreements up to the limit
specified in the prospectus. A repurchase agreement is a
contract
under which a fund acquires a security for a relatively short
period
(usually not more than one week) subject to the obligation of the
seller to repurchase and the fund to resell such security at a
fixed
time and price (representing the fund's cost plus interest). It
is
the Trust's present intention to enter into repurchase agreements
only
with commercial banks and registered broker-dealers approved by
the
Trustees and only with respect to obligations of the U.S.
government
or its agencies or instrumentalities. Repurchase agreements may
also
be viewed as loans made by a fund which are collateralized by the
securities subject to repurchase. Putnam Management will monitor
such
transactions to ensure that the value of the underlying
securities
will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the
seller
defaults, a fund could realize a loss on the sale of the
underlying
security to the extent that the proceeds of sale including
accrued
interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be
involved in
bankruptcy or insolvency proceedings, a fund may incur delay and
costs
in selling the underlying security or may suffer a loss of
principal
and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange
Commission, the fund may transfer uninvested cash balances into a
joint account, along with cash of other Putnam funds and certain
other
accounts. These balances may be invested in one or more
repurchase
agreements and/or short-term money market instruments.
<PAGE>
Options on Securities
Writing covered options. Each fund may write covered call
options and
covered put options on optionable securities held in its
portfolio,
when in the opinion of Putnam Management such transactions are
consistent with a fund's investment objective(s) and policies.
Call
options written by a fund give the purchaser the right to buy the
underlying securities from the fund at a stated exercise price;
put
options give the purchaser the right to sell the underlying
securities
to the fund at a stated price.
Each fund may write only covered options, which means that, so
long as
a fund is obligated as the writer of a call option, it will own
the
underlying securities subject to the option (or comparable
securities
satisfying the cover requirements of securities exchanges). In
the
case of put options, the fund will hold cash and/or high-grade
short-
term debt obligations equal to the price to be paid if the option
is
exercised. In addition, the fund will be considered to have
covered a
put or call option if and to the extent that it holds an option
that
offsets some or all of the risk of the option it has written.
Each
fund may write combinations of covered puts and calls on the same
underlying security.
A fund will receive a premium from writing a put or call option,
which
increases the fund's return on the underlying security in the
event
the option expires unexercised or is closed out at a profit. The
amount of the premium reflects, among other things, the
relationship
between the exercise price and the current market value of the
underlying security, the volatility of the underlying security,
the
amount of time remaining until expiration, current interest
rates, and
the effect of supply and demand in the options market and in the
market for the underlying security. By writing a call option,
the
fund limits its opportunity to profit from any increase in the
market
value of the underlying security above the exercise price of the
option but continues to bear the risk of a decline in the value
of the
underlying security. By writing a put option, the fund assumes
the
risk that it may be required to purchase the underlying security
for
an exercise price higher than its then-current market value,
resulting
in a potential capital loss unless the security subsequently
appreciates in value.
A fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in
which it
purchases an offsetting option. The fund realizes a profit or
loss
from a closing transaction if the cost of the transaction (option
premium plus transaction costs) is less or more than the premium
received from writing the option. If a fund writes a call option
but
does not own the underlying security, and when it writes a put
option,
the fund may be required to deposit cash or securities with its
broker
as "margin," or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies,
the fund may have to deposit additional margin with the broker.
Margin requirements are complex and are fixed by individual
brokers,
subject to minimum requirements currently imposed by the Federal
Reserve Board and by stock exchanges and other self-regulatory
organizations.
Purchasing put options. A fund may purchase put options to
protect
its portfolio holdings in an underlying security against a
decline in
market value. Such protection is provided during the life of the
put
option since the fund, as holder of the option, is able to sell
the
underlying security at the put exercise price regardless of any
decline in the underlying security's market price. In order for
a put
option to be profitable, the market price of the underlying
security
must decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner,
the fund will reduce any profit it might otherwise have realized
from
appreciation of the underlying security by the premium paid for
the
put option and by transaction costs.
Purchasing call options. A fund may purchase call options to
hedge
against an increase in the price of securities that the fund
wants
ultimately to buy. Such hedge protection is provided during the
life
of the call option since the fund, as holder of the call option,
is
able to buy the underlying security at the exercise price
regardless
of any increase in the underlying security's market price. In
order
for a call option to be profitable, the market price of the
underlying
security must rise sufficiently above the exercise price to cover
the
premium and transaction costs.
Risk Factors in Options Transactions
The successful use of a fund's options strategies depends on the
ability of Putnam Management to forecast correctly interest rate
and
market movements. For example, if the fund were to write a call
option based on Putnam Management's expectation that the price of
the
underlying security would fall, but the price were to rise
instead,
the fund could be required to sell the security upon exercise at
a
price below the current market price. Similarly, if the fund
were to
write a put option based on Putnam Management's expectation that
the
price of the underlying security would rise, but the price were
to
fall instead, the fund
could be required to purchase the security upon exercise at a
price
higher than the current market price.
When a fund purchases an option, it runs the risk that it will
lose
its entire investment in the option in a relatively short period
of
time, unless the fund exercises the option or enters into a
closing
sale transaction before the option's expiration. If the price of
the
underlying security does not rise (in the case of a call) or fall
(in
the case of a put) to an extent sufficient to cover the option
premium
and transaction costs, the fund will lose part or all of its
investment in the option. This contrasts with an investment by
the
fund in the underlying security, since the fund will not realize
a
loss if the security's price does not change.
The effective use of options also depends on a fund's ability to
terminate option positions at times when Putnam Management deems
it
desirable to do so. There is no assurance that the fund will be
able
to effect closing transactions at any particular time or at an
acceptable price.
If a secondary market in options were to become unavailable, a
fund
could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for
particular options or series of options. A market may
discontinue
trading of a particular option or options generally. In
addition, a
market could become temporarily unavailable if unusual events --
such
as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet
qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be
opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to
become unavailable, a fund as a holder of an option would be able
to
realize profits or limit losses only by exercising the option,
and the
fund, as option writer, would remain obligated under the option
until
expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by a fund could result in losses on the
options. If
trading is interrupted in an underlying security, the trading of
options on that security is normally halted as well. As a
result, the
fund as purchaser or writer of an option will be unable to close
out
its positions until options trading resumes, and it may be faced
with
considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise
restrictions.
If a prohibition on exercise is imposed at the time when trading
in
the option has also been halted, the fund as purchaser or writer
of an
option will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation
were to determine that the available supply of an underlying
security
appears insufficient to permit delivery by the writers of all
outstanding calls in the event of exercise, the Options Clearing
Corporation may prohibit indefinitely the exercise of put
options.
The fund, as holder of such a put option, could lose its entire
investment if the prohibition remained in effect until the put
option's expiration.
Foreign-traded options are subject to many of the same risks
presented
by internationally-traded securities. In addition, because of
time
differences between the United States and various foreign
countries,
and because different holidays are observed in different
countries,
foreign options markets may be open for trading during hours or
on
days when U.S. markets are closed. As a result, option premiums
may
not reflect the current prices of the underlying interest in the
United States.
Over-the-counter ("OTC") options purchased by a fund and assets
held
to cover OTC options written by the fund may, under certain
circumstances, be considered illiquid securities for purposes of
any
limitation on the fund's ability to invest in illiquid
securities.
Futures Contracts and Related Options
Subject to applicable law, and unless otherwise specified in the
prospectus, a fund may invest without limit in the types of
futures
contracts and related options identified in the prospectus for
hedging
and non-hedging purposes, such as to manage the effective
duration of
the fund's portfolio or as a substitute for direct investment. A
financial futures contract sale creates an obligation by the
seller to
deliver the type of financial instrument called for in the
contract in
a specified delivery month for a stated price. A financial
futures
contract purchase creates an obligation by the purchaser to take
delivery of the type of financial instrument called for in the
contract in a specified delivery month at a stated price. The
specific instruments delivered or taken, respectively, at
settlement
date are not determined until on or near that date. The
determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are
traded in the United States only on commodity exchanges or boards
of
trade -- known as "contract markets" -- approved for such trading
by
the Commodity Futures Trading Commission (the "CFTC"), and must
be
executed through a futures commission merchant or brokerage firm
which
is a member of the relevant contract market.
Although futures contracts (other than index futures) by their
terms
call for actual delivery or acceptance of commodities or
securities,
in most cases the contracts are closed out before the settlement
date
without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for
the
same aggregate amount of the specific type of financial
instrument or
commodity with the same delivery date. If the price of the
initial
sale of the futures contract exceeds the price of the offsetting
purchase, the seller is paid the difference and realizes a gain.
Conversely, if the price of the offsetting purchase exceeds the
price
of the initial sale, the seller realizes a loss. If the fund is
unable to enter into a closing transaction, the amount of the
fund's
potential loss is unlimited. The closing out of a futures
contract
purchase is effected by the purchaser's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase
price, the purchaser realizes a gain, and if the purchase price
exceeds the offsetting sale price, the purchaser realizes a loss.
In
general, 40% of the gain or loss arising from the closing out of
a
futures contract traded on an exchange approved by the CFTC is
treated
as short-term gain or loss, and 60% is treated as long-term gain
or
loss.
Unlike when a fund purchases or sells a security, no price is
paid or
received by the fund upon the purchase or sale of a futures
contract.
Upon entering into a contract, the fund is required to deposit
with
its custodian in a segregated account in the name of the futures
broker an amount of liquid assets. This amount is known as
"initial
margin." The nature of initial margin in futures transactions is
different from that of margin in security transactions in that
futures
contract margin does not involve the borrowing of funds to
finance the
transactions. Rather, the initial margin is similar to a
performance
bond or good faith deposit which is returned to the fund upon
termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve
brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin," to and from the broker (or the custodian) are made on a
daily
basis as the price of the underlying security or commodity
fluctuates,
making the long and short positions in the futures contract more
or
less valuable, a process known as "marking to the market." For
example, when a fund has purchased a futures contract on a
security
and the price of the underlying security has risen, that position
will
have increased in value and the fund will receive from the broker
a
variation margin payment based on that increase in value.
Conversely,
when the fund has purchased a security futures contract and the
price
of the underlying security has declined, the position would be
less
valuable and the fund would be required to make a variation
margin
payment to the broker.
A fund may elect to close some or all of its futures positions at
any
time prior to their expiration date in order to reduce or
eliminate
the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will
operate to
terminate the fund's position in the futures contracts. Final
determinations of variation margin are then made, additional cash
is
required to be paid by or released to the fund, and the fund
realizes
a loss or a gain. Such closing transactions involve additional
commission costs.
None of the funds intend to purchase or sell futures or related
options for other than hedging purposes, if, as a result, the sum
of
the initial margin deposits on the fund's existing futures and
related
options positions and premiums paid for outstanding options on
futures
contracts would exceed 5% of the fund's net assets.
Options on futures contracts. A fund may purchase and write call
and
put options on futures contracts it may buy or sell and enter
into
closing transactions with respect to such options to terminate
existing positions. In return for the premium paid, options on
futures contracts give the purchaser the right to assume a
position in
a futures contract at the specified option exercise price at any
time
during the period of the option. The fund may use options on
futures
contracts in lieu of writing or buying options directly on the
underlying securities or purchasing and selling the underlying
futures
contracts. For example, to hedge against a possible decrease in
the
value of its portfolio securities, a fund may purchase put
options or
write call options on futures contracts rather than selling
futures
contracts. Similarly, a fund may purchase call options or write
put
options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the
price of
securities which the fund expects to purchase. Such options
generally
operate in the same manner as options purchased or written
directly on
the underlying investments.
As with options on securities, the holder or writer of an option
may
terminate his position by selling or purchasing an offsetting
option.
There is no guarantee that such closing transactions can be
effected.
A fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those
described above in connection with the discussion of futures
contracts.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by a fund is subject to
Putnam
Management's ability to predict movements in various factors
affecting
securities markets, including interest rates.
Compared to the purchase or sale of futures contracts, the
purchase of
call or put options on futures contracts involves less potential
risk
to a fund because the maximum amount at risk is the premium paid
for
the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a
futures
contract would result in a loss to a fund when the purchase or
sale of
a futures contract would not, such as when there is no movement
in the
prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating
to the
sale of futures contracts.
The use of options and futures strategies also involves the risk
of
imperfect correlation among movements in the prices of the
securities
underlying the futures and options purchased and sold by the
fund, of
the options and futures contracts themselves, and, in the case of
hedging transactions, of the securities which are the subject of
a
hedge. The successful use of these strategies further depends on
the
ability of Putnam Management to forecast interest rates and
market
movements correctly.
There is no assurance that higher than anticipated trading
activity or
other unforeseen events might not, at times, render certain
market
clearing facilities inadequate, and thereby result in the
institution
by exchanges of special procedures which may interfere with the
timely
execution of customer orders.
To reduce or eliminate a position held by a fund, the fund may
seek to
close out such position. The ability to establish and close out
positions will be subject to the development and maintenance of a
liquid secondary market. It is not certain that this market will
develop or continue to exist for a particular futures contract or
option. Reasons for the absence of a liquid secondary market on
an
exchange include the following: (i) there may be insufficient
trading
interest in certain contracts or options; (ii) restrictions may
be
imposed by an exchange on opening transactions or closing
transactions
or both; (iii) trading halts, suspensions or other restrictions
may be
imposed with respect to particular classes or series of contracts
or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the
facilities of an exchange or a clearing corporation may not at
all
times be adequate to handle current trading volume; or (vi) one
or
more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of
contracts
or options (or a particular class or series of contracts or
options),
in which event the secondary market on that exchange for such
contracts or options (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or
options on the exchange that had been issued by a clearing
corporation
as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
U.S. Treasury security futures contracts and options. U.S.
Treasury
security futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security
called for in the contract at a specified date and price.
Options on
U.S. Treasury security futures contracts give the purchaser the
right
in return for the premium paid to assume a position in a U.S.
Treasury
security futures contract at the specified option exercise price
at
any time during the period of the option.
Successful use of U.S. Treasury security futures contracts by a
fund
is subject to Putnam Management's ability to predict movements in
the
direction of interest rates and other factors affecting markets
for
debt securities. For example, if a fund has sold U.S. Treasury
security futures contracts in order to hedge against the
possibility
of an increase in interest rates which would adversely affect
securities held in its portfolio, and the prices of the fund's
securities increase instead as a result of a decline in interest
rates, the fund will lose part or all of the benefit of the
increased
value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the fund has insufficient cash, it may have to
sell
securities to meet daily maintenance margin requirements at a
time
when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security
futures contracts and related options will not correlate closely
with
price movements in markets for particular securities. For
example, if
a fund has hedged against a decline in the values of fixed-income
securities held by it by selling Treasury security futures and
the
values of Treasury securities subsequently increase while the
values
of its fixed-income securities decrease, the fund would incur
losses
on both the Treasury security futures contracts written by it and
the
fixed-income securities held in its portfolio.
Index futures contracts. An index futures contract is a contract
to
buy or sell units of an index at a specified future date at a
price
agreed upon when the contract is made. Entering into a contract
to
buy units of an index is commonly referred to as buying or
purchasing
a contract or holding a long position in the index. Entering
into a
contract to sell units of an index is commonly referred to as
selling
a contract or holding a short position. A unit is the current
value
of the index. A fund may enter into stock index futures
contracts,
debt index futures contracts, or other index futures contracts
appropriate to its objective(s). A fund may also purchase and
sell
options on index futures contracts.
For example, the Standard & Poor's 500 Composite Stock Price
Index
("S&P 500") is composed of 500 selected common stocks, most of
which
are listed on the New York Stock Exchange. The S&P 500 assigns
relative weightings to the common stocks included in the Index,
and
the value fluctuates with changes in the market values of those
common
stocks. In the case of the S&P 500, contracts are to buy or sell
500
units. Thus, if the value of the S&P 500 were $150, one contract
would be worth $75,000 (500 units x $150). The stock index
futures
contract specifies that no delivery of the actual stocks making
up the
index will take place. Instead, settlement in cash must occur
upon
the termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if a
fund
enters into a futures contract to buy 500 units of the S&P 500 at
a
specified future date at a contract price of $150 and the S&P 500
is
at $154 on that future date, the fund will gain $2,000 (500 units
x
gain of $4). If the fund enters into a futures contract to sell
500
units of the stock index at a specified future date at a contract
price of $150 and the S&P 500 is at $152 on that future date, the
fund
will lose $1,000 (500 units x loss of $2).
There are several risks in connection with the use by a fund of
index
futures. One risk arises because of the imperfect correlation
between
movements in the prices of the index futures and movements in the
prices of securities which are the subject of the hedge. Putnam
Management will, however, attempt to reduce this risk by buying
or
selling, to the extent possible, futures on indices the movements
of
which will, in its judgment, have a significant correlation with
movements in the prices of the securities sought to be hedged.
Successful use of index futures by a fund is also subject to
Putnam
Management's ability to predict movements in the direction of the
market. For example, it is possible that, where a fund has sold
futures to hedge its portfolio against a decline in the market,
the
index on which the futures are written may advance and the value
of
securities held in the fund's portfolio may decline. If this
occurred, the fund would lose money on the futures and also
experience
a decline in value in its portfolio securities. It is also
possible
that, if a fund has hedged against the possibility of a decline
in the
market adversely affecting securities held in its portfolio and
securities prices increase instead, the fund will lose part or
all of
the benefit of the increased value of those securities it has
hedged
because it will have offsetting losses in its futures positions.
In
addition, in such situations, if the fund has insufficient cash,
it
may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index
futures and the portion of the portfolio being hedged, the prices
of
index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit
and
maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts
through
offsetting transactions which could distort the normal
relationship
between the index and futures markets. Second, margin
requirements in
the futures market are less onerous than margin requirements in
the
securities market, and as a result the futures market may attract
more
speculators than the securities market does. Increased
participation
by speculators in the futures market may also cause temporary
price
distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation
between
movements in the index and movements in the prices of index
futures,
even a correct forecast of general market trends by Putnam
Management
may still not result in a profitable position over a short time
period.
Options on stock index futures. Options on index futures are
similar
to options on securities except that options on index futures
give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the
option
is a call and a short position if the option is a put), at a
specified
exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by
the
writer of the option to the holder of the option will be
accompanied
by delivery of the accumulated balance in the writer's futures
margin
account which represents the amount by which the market price of
the
index futures contract, at exercise, exceeds (in the case of a
call)
or is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last
trading day prior to its expiration date, the settlement will be
made
entirely in cash equal to the difference between the exercise
price of
the option and the closing level of the index on which the future
is
based on the expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date suffer a loss
of the
premium paid.
Options on Indices
As an alternative to purchasing call and put options on index
futures,
a fund may purchase and sell call and put options on the
underlying
indices themselves. Such options would be used in a manner
identical
to the use of options on index futures.
Index Warrants
A fund may purchase put warrants and call warrants whose values
vary
depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are
generally
issued by banks or other financial institutions and give the
holder
the right, at any time during the term of the warrant, to receive
upon
exercise of the warrant a cash payment from the issuer based on
the
value of the underlying index at the time of exercise. In
general, if
the value of the underlying index rises above the exercise price
of
the index warrant, the holder of a call warrant will be entitled
to
receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price
of
the warrant; if the value of the underlying index falls, the
holder of
a put warrant will be entitled to receive a cash payment from the
issuer upon exercise based on the difference between the exercise
price of the warrant and the value of the index. The holder of a
warrant would not be entitled to any payments from the issuer at
any
time when, in the case of a call warrant, the exercise price is
greater than the value of the underlying index, or, in the case
of a
put warrant, the exercise price is less than the value of the
underlying index. If the fund were not to exercise an index
warrant
prior to its expiration, then the fund would lose the amount of
the
purchase price paid by it for the warrant.
A fund will normally use index warrants in a manner similar to
its use
of options on securities indices. The risks of a fund's use of
index
warrants are generally similar to those relating to its use of
index
options. Unlike most index options, however, index warrants are
issued in limited amounts and are not obligations of a regulated
clearing agency, but are backed only by the credit of the bank or
other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although the
fund
will normally invest only in exchange-listed warrants, index
warrants
are not likely to be as liquid as certain index options backed by
a
recognized clearing agency. In addition, the terms of index
warrants
may limit the fund's ability to exercise the warrants at such
time, or
in such quantities, as the fund would otherwise wish to do.
Foreign Investments
A fund may invest in securities of foreign issuers that are not
actively traded in U.S. markets. These foreign investments
involve
certain special risks described below.
Foreign securities are normally denominated and traded in foreign
currencies. As a result, the value of a fund's foreign
investments
and the value of its shares (other than Putnam VT Money Market
Fund)
may be affected favorably or unfavorably by changes in currency
exchange rates relative to the U.S. dollar. There may be less
information publicly available about a foreign issuer than about
a
U.S. issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and
practices
comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than
securities of comparable U.S. issuers. Foreign brokerage
commissions
and other fees are also generally higher than in the United
States.
Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities
or
in the recovery of a fund's assets held abroad) and expenses not
present in the settlement of investments in U.S. markets.
In addition, a fund's investments in foreign securities may be
subject
to the risk of nationalization or expropriation of assets,
imposition
of currency exchange controls or restrictions on the repatriation
of
foreign currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the
value
of a fund's investments in certain foreign countries. Dividends
or
interest on, or proceeds from the sale of, foreign securities may
be
subject to foreign withholding taxes, and special U.S. tax
considerations may apply.
Legal remedies available to investors in certain foreign
countries may
be more limited than those available with respect to investments
in
the United States or in other foreign countries. The laws of
some
foreign countries may limit a fund's ability to invest in
securities
of certain issuers organized under the laws of those foreign
countries.
The risks described above, including the risks of nationalization
or
expropriation of assets, are typically increased in connection
with
investments in "emerging markets." For example, political and
economic structures in these countries may be in their infancy
and
developing rapidly, and such countries may lack the social,
political
and economic stability characteristic of more developed
countries.
Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and
expropriated the assets of private companies. High rates of
inflation
or currency devaluations may adversely affect the economies and
securities markets of such countries. Investments in emerging
markets
may be considered speculative.
The currencies of certain emerging market countries have
experienced a
steady devaluation relative to the U.S. dollar, and continued
devaluations may adversely affect the value of a fund's assets
denominated in such currencies. Many emerging market companies
have
experienced substantial, and in some periods extremely high,
rates of
inflation for many years, and continued inflation may adversely
affect
the economies and securities markets of such countries.
In addition, unanticipated political or social developments may
affect
the value of a fund's investments in emerging markets and the
availability to a fund of additional investments in these
markets.
The small size, limited trading volume and relative inexperience
of
the securities markets in these countries may make a fund's
investments in securities traded in emerging markets illiquid and
more
volatile than investments in securities traded in more developed
countries, and a fund may be required to establish special
custodial
or other arrangements before making investments in securities
traded
in emerging markets. There may be little financial or accounting
information available with respect to issuers of emerging market
securities, and it may be difficult as a result to assess the
value or
prospects of an investment in such securities.
Certain of the foregoing risks may also apply to some extent to
securities of U.S. issuers that are denominated in foreign
currencies
or that are traded in foreign markets, or securities of U.S.
issuers
having significant foreign operations.
Foreign Currency Transactions
Unless otherwise specified in the prospectus or this SAI, a fund
may
engage without limit in currency exchange transactions, including
purchasing and selling foreign currency, foreign currency
options,
foreign currency forward contracts and foreign currency futures
contracts and related options, to manage its exposure to foreign
currencies. In addition, a fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.
Generally, a fund may engage in both "transaction hedging" and
"position hedging." The fund may also engage in foreign currency
transactions for non-hedging purposes, subject to applicable law.
When it engages in transaction hedging, the fund enters into
foreign
currency transactions with respect to specific receivables or
payables, generally arising in connection with the purchase or
sale of
portfolio securities. The fund will engage in transaction
hedging
when it desires to "lock in" the U.S. dollar price of a security
it
has agreed to purchase or sell, or the U.S. dollar equivalent of
a
dividend or interest payment in a foreign currency. By
transaction
hedging, the fund will attempt to protect itself against a
possible
loss resulting from an adverse change in the relationship between
the
U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on
which the dividend or interest payment is earned, and the date on
which such payments are made or received.
A fund may purchase or sell a foreign currency on a spot (or
cash)
basis at the prevailing spot rate in connection with the
settlement of
transactions in portfolio securities denominated in that foreign
currency. If conditions warrant, for transaction hedging
purposes a
fund may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and purchase
and
sell foreign currency futures contracts. A foreign currency
forward
contract is a negotiated agreement to exchange currency at a
future
time at a rate or rates that may be higher or lower than the spot
rate. Foreign currency futures contracts are standardized
exchange-
traded contracts and have margin requirements. In addition, for
transaction hedging purposes a fund may also purchase or sell
exchange-listed and over-the-counter call and put options on
foreign
currency futures contracts and on foreign currencies. A fund may
also
enter into contracts to purchase or sell foreign currencies at a
future date ("forward contracts") and purchase and sell foreign
currency futures contracts.
A fund's currency hedging transactions may call for the delivery
of
one foreign currency in exchange for another foreign currency and
may
at times not involve currencies in which its portfolio securities
are
then denominated. Putnam Management will engage in such "cross
hedging" activities when it believes that such transactions
provide
significant hedging opportunities for a fund.
Cross hedging transactions by a fund involve the risk of
imperfect
correlation between changes in the values of the currencies to
which
such transactions relate and changes in the value of the currency
or
other asset or liability which is the subject of the hedge.
For transaction hedging purposes, a fund may also purchase
exchange-
listed and over-the-counter call and put options on foreign
currency
futures contracts and on foreign currencies. A put option on a
futures contract gives the fund the right to assume a short
position
in the futures contract until expiration of the option. A put
option
on a currency gives the fund the right to sell the currency at an
exercise price until the expiration of the option. A call option
on a
futures contract gives the fund the right to assume a long
position in
the futures contract until the expiration of the option. A call
option on a currency gives the fund the right to purchase the
currency
at the exercise price until the expiration of the option.
A fund may engage in position hedging to protect against a
decline in
the value relative to the U.S. dollar of the currencies in which
its
portfolio securities are denominated or quoted (or an increase in
the
value of the currency in which the securities the fund intends to
buy
are denominated, when the fund holds cash or short-term
investments).
For position hedging purposes, the fund may purchase or sell, on
exchanges or in over-the-counter markets, foreign currency
futures
contracts, foreign currency forward contracts and options on
foreign
currency futures contracts and on foreign currencies on exchanges
or
in over-the-counter markets. In connection with position
hedging, a
fund may also purchase or sell foreign currency on a spot basis.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or
futures contract. Accordingly, it may be necessary for a fund to
purchase additional foreign currency on the spot market (and bear
the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign
currency
the fund is obligated to deliver and a decision is made to sell
the
security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some
of the
foreign currency received upon the sale of the portfolio security
or
securities if the market value of such security or securities
exceeds
the amount of foreign currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the
underlying prices of the securities which the fund owns or
intends to
purchase or sell. They simply establish a rate of exchange which
one
can achieve at some future point in time. Additionally, although
these techniques tend to minimize the risk of loss due to a
decline in
the value of the hedged currency, they tend to limit any
potential
gain which might result from the increase in value of such
currency.
See "Risk factors in options transactions" above.
A fund may seek to increase its current return or to offset some
of
the costs of hedging against fluctuations in current exchange
rates by
writing covered call options and covered put options on foreign
currencies. The fund receives a premium from writing a call or
put
option, which increases the fund's current return if the option
expires unexercised or is closed out at a net profit. The fund
may
terminate an option that it has written prior to its expiration
by
entering into a closing purchase transaction in which it
purchases an
option having the same terms as the option written.
The fund's currency hedging transactions may call for the
delivery of
one foreign currency in exchange for another foreign currency and
may
at times not involve currencies in which its portfolio securities
are
then denominated. Putnam Management will engage in such "cross
hedging" activities when it believes that such transactions
provide
significant hedging opportunities for the fund. Cross hedging
transactions by the fund involve the risk of imperfect
correlation
between changes in the values of the currencies to which such
transactions relate and changes in the value of the currency or
other
asset or liability which is the subject of the hedge.
The fund may also engage in non-hedging currency transactions.
For
example, Putnam Management may believe that exposure to a
currency is
in the fund's best interest but that securities denominated in
that
currency will not assist the fund in meeting its objective. In
that
case the fund may purchase a currency forward contract or option
in
order to increase its exposure to the currency. In accordance
with
SEC regulations, the fund will segregate liquid assets in its
portfolio to cover forward contracts used for non-hedging
purposes.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors
applicable to the issuing country. In addition, the exchange
rates of
foreign currencies (and therefore the values of foreign currency
options, forward contracts and futures contracts) may be affected
significantly, fixed, or supported directly or indirectly by U.S.
and
foreign government actions. Government intervention may increase
risks involved in purchasing or selling foreign currency options,
forward contracts and futures contracts, since exchange rates may
not
be free to fluctuate in response to other market forces.
The value of a foreign currency option, forward contract or
futures
contract reflects the value of an exchange rate, which in turn
reflects relative values of two currencies, the U.S. dollar and
the
foreign currency in question. Because foreign currency
transactions
occurring in the interbank market involve substantially larger
amounts
than those that may be involved in the exercise of foreign
currency
options, forward contracts and futures contracts, investors may
be
disadvantaged by having to deal in an odd-lot market for the
underlying foreign currencies in connection with options at
prices
that are less favorable than for round lots. Foreign
governmental
restrictions or taxes could result in adverse changes in the cost
of
acquiring or disposing of foreign currencies.
There is no systematic reporting of last sale information for
foreign
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or
revised
on a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the
interbank
market and thus may not reflect exchange rates for smaller
odd-lot
transactions (less than $1 million) where rates may be less
favorable.
The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that options markets are
closed while the markets for the underlying currencies remain
open,
significant price and rate movements may take place in the
underlying
markets that cannot be reflected in the options markets.
The decision as to whether and to what extent a fund will engage
in
foreign currency exchange transactions will depend on a number of
factors, including prevailing market conditions, the composition
of
the fund's portfolio and the availability of suitable
transactions.
Accordingly, there can be no assurance that a fund will engage in
foreign currency exchange transactions at any given time or from
time
to time.
Currency forward and futures contracts. A forward foreign
currency
contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days
from
the date of the contract as agreed by the parties, at a price set
at
the time of the contract. In the case of a cancelable forward
contract, the holder has the unilateral right to cancel the
contract
at maturity by paying a specified fee. The contracts are traded
in
the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions
are
charged at any stage for trades. A foreign currency futures
contract
is a standardized contract for the future delivery of a specified
amount of a foreign currency at a price set at the time of the
contract. Foreign currency futures contracts traded in the
United
States are designed by and traded on exchanges regulated by the
CFTC,
such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days
from the date of the contract agreed upon by the parties, rather
than
a predetermined date in a given month. Forward contracts may be
in
any amount agreed upon by the parties rather than predetermined
amounts. Also, forward foreign exchange contracts are traded
directly
between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the fund may
either
accept or make delivery of the currency specified in the
contract, or
at or prior to maturity enter into a closing transaction
involving the
purchase or sale of an offsetting contract. Closing transactions
with
respect to forward contracts are usually effected with the
currency
trader who is a party to the original forward contract. Closing
transactions with respect to futures contracts are effected on a
commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out
only on an exchange or board of trade which provides a secondary
market in such contracts. Although a fund intends to purchase or
sell
foreign currency futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there
is
no assurance that a secondary market on an exchange or board of
trade
will exist for any particular contract or at any particular time.
In
such event, it may not be possible to close a futures position
and, in
the event of adverse price movements, the fund would continue to
be
required to make daily cash payments of variation margin.
Foreign currency options. In general, options on foreign
currencies
operate similarly to options on securities and are subject to
many of
the risks described above. Foreign currency options are traded
primarily in the over-the-counter market, although options on
foreign
currencies are also listed on several exchanges. Options are
traded
not only on the currencies of individual nations, but also on the
European Currency Unit ("ECU"). The ECU is composed of amounts
of a
number of currencies, and is the official medium of exchange of
the
European Community's European Monetary System.
A fund will only purchase or write foreign currency options when
Putnam Management believes that a liquid secondary market exists
for
such options. There can be no assurance that a liquid secondary
market will exist for a particular option at any specific time.
Options on foreign currencies are affected by all of those
factors
which influence foreign exchange rates and investments generally.
Settlement procedures. Settlement procedures relating to a
fund's
investments in foreign securities and to the fund's foreign
currency
exchange transactions may be more complex than settlements with
respect to investments in debt or equity securities of U.S.
issuers,
and may involve certain risks not present in the fund's domestic
investments. For example, settlement of transactions involving
foreign securities or foreign currencies may occur within a
foreign
country, and the fund may be required to accept or make delivery
of
the underlying securities or currency in conformity with any
applicable U.S. or foreign restrictions or regulations, and may
be
required to pay any fees, taxes or charges associated with such
delivery. Such investments may also involve the risk that an
entity
involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers
do not
charge a fee for currency conversion, they do realize a profit
based
on the difference (the "spread") between prices at which they are
buying and selling various currencies. Thus, a dealer may offer
to
sell a foreign currency to a fund at one rate, while offering a
lesser
rate of exchange should the fund desire to resell that currency
to the
dealer.
Restricted Securities
The SEC Staff currently takes the view that any delegation by the
Trustees of the authority to determine that a restricted security
is
readily marketable (as described in the investment restrictions
of the
funds) must be pursuant to written procedures established by the
Trustees. It is the present intention of the Trustees that, if
the
Trustees decide to delegate such determinations to Putnam
Management
or another person, they would do so pursuant to written
procedures,
consistent with the Staff's position. Should the Staff modify
its
position in the future, the Trustees would consider what action
would
be appropriate in light of the Staff's position at that time.
Year 2000. Like other financial and business organizations,
the
funds depend on the proper function of their service providers'
computer systems. To the extent that the systems used by the
funds or
their service providers cannot distinguish between the year 1900
and
the year 2000 or have other operating difficulties as a result of
the
year 2000, the operations of and services provided to the funds
and
their shareholders could be adversely impacted. Putnam
Management and
its affiliates have reported that each expects to modify its
systems,
as necessary, to address this so-called "year 2000 problem," and
will,
on behalf of the funds, inquire as to the year 2000 compliance of
the
funds' other major service providers. However, there can be no
assurance that the operations of and services provided to the
funds
and their shareholders will not be adversely affected.
Similarly,
companies in which the funds invest may also experience "year
2000
problems," which could ultimately result in losses to a fund to
the
extent that the securities of any such company decline in value
as a
result of a "year 2000 problem."
TAXES
Taxation of the Trust. Each fund intends to qualify each year as
a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify
and to qualify for the special tax treatment accorded regulated
investment companies and their shareholders, each fund must,
among
other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains
from the sale of stock, securities and foreign currencies, or
other
income (including but not limited to gains from options, futures,
or
forward contracts) derived with respect to its business of
investing
in such stock, securities, or currencies;
(b) Distribute with respect to each taxable year at least 90% of
the
sum of its taxable net investment income, its net tax-exempt
income,
and the excess, if any, of net short-term capital gains over net
long-
term capital losses for such year; and
(c) Diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's
assets is
represented by cash and cash items, U.S. government securities,
securities of other regulated investment companies, and other
securities limited in respect of any one issuer to a value not
greater
than 5% of the value of the fund's total assets and to not more
than
10% of the outstanding voting securities of such issuer, and (ii)
not
more than 25% of the value of its assets is invested in the
securities
(other than those of the U.S. Government or other regulated
investment
companies) of any one issuer or of two or more issuers which the
fund
controls and which are engaged in the same, similar, or related
trades
or businesses.
If a fund qualifies as a regulated investment company that is
accorded
special tax treatment, the fund will not be subject to federal
income
tax on income paid to its shareholders in the form of dividends
(including capital gain dividends).
If a fund failed to qualify as a regulated investment company
accorded
special tax treatment in any taxable year, the fund would be
subject
to tax on its taxable income at corporate rates. In addition,
the
fund could be required to recognize unrealized gains, pay
substantial
taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded
special tax treatment.
If a fund fails to distribute in a calendar year substantially
all of
its ordinary income for such year and substantially all of its
capital
gain net income for the one-year period ending October 31 (or
later if
the fund is permitted so to elect and so elects), plus any
retained
amount from the prior year, the fund will be subject to a 4%
excise
tax on the undistributed amounts. A fund is exempt from this
distribution requirement and excise tax if at all times during
the
calendar year each shareholder in the fund was "a segregated
asset
account of a life insurance company held in connection with
variable
contracts."
Hedging transactions. If a fund engages in hedging transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including constructive sale, mark-to-market,
straddle, wash sale, and short sale rules), the effect of which
may be
to accelerate income to the fund, defer losses to the fund, cause
adjustments in the holding periods of the fund's securities, or
convert short-term capital losses into long-term capital losses.
These
rules could therefore affect the amount, timing and character of
the
fund's distributions. The fund will endeavor to make any
available
elections pertaining to such transactions in a manner believed to
be
in the best interests of the fund.
Securities issued or purchased at a discount. A fund's
investment in
securities issued at a discount and certain other obligations
will
(and investments in securities purchased at a discount may)
require
the fund to accrue and distribute income not yet received. In
order
to generate sufficient cash to make the requisite distributions,
the
fund may be required to sell securities in its portfolio that it
otherwise would have continued to hold.
Capital loss carryover. Distributions from capital gains are
made
after applying any available capital loss carryovers. The
amounts and
expiration dates of any capital loss carryovers available to a
fund
are shown in Note 1 (Federal income taxes) to the financial
statements
incorporated by reference into this SAI.
Foreign currency-denominated securities and related hedging
transactions. The fund's transactions in foreign currencies,
foreign
currency-denominated debt securities and certain foreign currency
options, futures contracts and forward contracts (and similar
instruments) may give rise to ordinary income or loss to the
extent
such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the fund's assets at year end consists of the
stock or securities of foreign corporations, the fund may elect
to
permit shareholders to claim a credit or deduction on their
income tax
returns for their pro rata portion of qualified taxes paid by the
fund
to foreign countries in respect of foreign securities the fund
has
held for at least the minimum period specified in the Code. In
such a
case, shareholders will include in gross income from foreign
sources
their pro rata shares of such taxes. A shareholder's ability to
claim
a foreign tax credit or deduction in respect of foreign taxes
paid by
the fund may be subject to certain limitations imposed by the
Code, as
a result of which a shareholder may not get a full credit or
deduction
for the amount of such taxes. In particular, shareholders must
hold
their fund shares (without protection from risk of loss) on the
ex-
dividend date and for at least 15 additional days during the
30-day
period surrounding the ex-dividend date to be eligible to claim a
foreign tax credit with respect to a given dividend.
Shareholders who
do not itemize on their federal income tax returns may claim a
credit
(but no deduction) for such foreign taxes.
Investment by a fund in "passive foreign investment companies"
could
subject the fund to a U.S. federal income tax or other charge on
the
proceeds from the sale of its investment in such a company;
however,
this tax can be avoided by making an election to mark such
investments
to market annually or to treat the passive foreign investment
company
as a "qualified electing fund."
A "passive foreign investment company" is any foreign
corporation: (i)
75 percent of more of the income of which for the taxable year is
passive income, or (ii) the average percentage of the assets of
which
(generally by value, but by adjusted tax basis in certain cases)
that
produce or are held for the production of passive income is at
least
50 percent. Generally, passive income for this purpose means
dividends, interest (including income equivalent to interest),
royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and
foreign currency gains. Passive income for this purpose does not
include rents and royalties received by the foreign corporation
from
active business and certain income received from related persons.
This discussion of federal income tax treatment of the Trust and
its
shareholders is based on the law as of the date of this SAI.
INVESTMENT RESTRICTIONS
As fundamental investment restrictions, which may not be changed
as to
any fund without a vote of a majority of the outstanding voting
securities of that fund, the Trust may not and will not take any
of
the following actions with respect to that fund:
(1) (a) (All funds except Putnam VT The George Putnam Fund
of
Boston, Putnam VT Health Sciences Fund, Putnam VT
Investors
Fund, Putnam VT OTC & Emerging Growth Fund and Putnam
VT Voyager Fund) Borrow money in excess of 10% of the
value
(taken at the lower of cost or current value) of the fund's total
assets (not including the amount borrowed) at the time the
borrowing
is made, and then only from banks as a temporary measure to
facilitate
the meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or
for extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased.
(1)(b) (Putnam VT Voyager Fund) Borrow more than 50% of
the
value of its total assets (excluding borrowings and stock index
futures contracts and call options on stock index futures
contracts
and stock indices) less liabilities other than borrowings and
stock
index futures contracts and call options on stock index futures
contracts and stock indices.
(1)(c) (Putnam VT The George Putnam Fund of Boston, Putnam
VT
Health Sciences Fund, Putnam VT Investors Fund and
Putnam
VT OTC & Emerging Growth Fund) Borrow money in excess of 33
1/3%
of the value of its total assets (not including the amount
borrowed)
at the time the borrowing is made.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which
are
secured by interests in real estate, and securities which
represent
interests in real estate, and it may acquire and dispose of real
estate or interests in real estate acquired through the exercise
of
its rights as a holder of debt obligations secured by real estate
or
interests therein.
(4) Purchase or sell commodities or commodity contracts, except
that
the fund may purchase and sell financial futures contracts and
options
and may enter into foreign exchange contracts and other financial
transactions not involving physical commodities.
(5) (a) (All funds except Putnam VT The George Putnam Fund
of
Boston, Putnam VT Health Sciences Fund, Putnam VT
Investors Fund and Putnam VT OTC & Emerging Growth
Fund)
Make loans, except by purchase of debt obligations in which the
fund
may invest consistent with its investment policies, by entering
into
repurchase agreements, or by lending its portfolio securities.
(5)(b) (Putnam VT The George Putnam Fund of Boston, Putnam
VT
Health Sciences Fund , Putnam Investors Fund and
Putnam
OTC & Emerging Growth Fund) Make loans, except by purchase of
debt
obligations in which the fund may invest consistent with its
investment policies (including without limitation debt
obligations
issued by other Putnam Funds), by entering into repurchase
agreements,
or by lending its portfolio securities.
(6)(a) (All funds except Putnam VT Utilities Growth and
Income
Fund) With respect to 75% of its total assets, invest in the
securities of any issuer if, immediately after such investment,
more
than 5% of the total assets of the fund (taken at current value)
would
be invested in the securities of such issuer; provided that this
limitation does not apply to obligations issued or guaranteed as
to
interest or principal by the U.S. government or its agencies or
instrumentalities.
(6)(b) (Putnam VT Utilities Growth and Income Fund) With
respect to 50% of its total assets, invest in the securities of
any
issuer if, immediately after such investment, more than 5% of the
total assets of the fund (taken at current value) would be
invested in
the securities of such issuer; provided that this limitation does
not
apply to obligations issued or guaranteed as to interest or
principal
by the U.S. government or its agencies or instrumentalities.
(7)(a) (All funds except Putnam VT Utilities Growth and
Income
Fund) With respect to 75% of its total assets, acquire more than
10%
of the outstanding voting securities of any issuer.
(7)(b) (Putnam VT Utilities Growth and Income Fund) With
respect to 50% of its total assets, acquire more than 10% of the
outstanding voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of
such
purchase, more than 25% of the fund's total assets would be
invested
in any one industry; except that Putnam VT Utilities Growth and
Income
Fund may invest more than 25% of its assets in any of the public
utilities industries; and except that Putnam VT Money Market Fund
may
invest up to 100% of its assets (i) in the banking industry, (ii)
in
the personal credit institution or business credit institution
industries when in the opinion of management yield differentials
make
such investments desirable, or (iii) any combination of these.
(9) Issue any class of securities which is senior to the fund's
shares of beneficial interest, except for permitted borrowings.
The Investment Company Act of 1940 provides that a "vote of a
majority
of the outstanding voting securities" of a fund or the Trust
means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding
shares of a fund or the Trust, as the case may be, or (2) 67% or
more
of the shares present at a meeting if more than 50% of the
outstanding
shares are represented at the meeting in person or by proxy.
---------------------
It is contrary to each funds' present policy, which may be
changed
without shareholder approval, to:
(1) Invest in (a) securities which are not readily marketable,
(b)
securities restricted as to resale (excluding securities
determined by
the Trustees of the fund (or the person designated by the
Trustees of
the fund to make such determinations) to be readily marketable),
and
(c) repurchase agreements maturing in more than seven days, if,
as a
result, more than 15% of the fund's net assets (taken at current
value) would be invested in securities described in (a), (b) and
(c)
above.
All percentage limitations on investments (other than pursuant to
non-
fundamental restriction (1)) will apply at the time of the making
of
an investment and shall not be considered violated unless an
excess or
deficiency occurs or exists immediately after and as a result of
such
investment.
MANAGEMENT
Trustees Name (Age)
*+George Putnam (71), Chairman and President. Chairman and
Director
of Putnam Management and Putnam Mutual Funds. Director,
Freeport Copper and Gold, Inc. (a mining and natural resource
company) , Houghton Mifflin Company (a major publishing
company)
and Marsh & McLennan Companies, Inc.
+William F. Pounds (70), Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of IDEXX Laboratories, Inc. ,
Management
Sciences for Health, Inc., and Sun Company, Inc.
Jameson A. Baxter (54), Trustee. President, Baxter Associates,
Inc. (a
management and financial consulting firm) . Director of
Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta
Corporation ( printing and digital imaging). Chairman
Emeritus
of the Board of Trustees, Mount Holyoke College.
+Hans H. Estin (69), Trustee. Chartered Financial Analyst and
Vice
Chairman, North American Management Corp. (a registered
investment
adviser).
John A. Hill (56), Trustee. Chairman and Managing Director,
First
Reserve Corporation (a registered investment adviser investing in
companies in the world-wide energy industry on behalf of
institutional
investors). Director of Snyder Oil Corporation,
TransMontaigne Oil Company, Weatherford Enterra, Inc. (an oil
field
service company) and various private companies owned by First
Reserve
Corporation, such as James River Coal and Anker Coal Corporation,
and
various First Reserve Funds , such as American Gas & Oil
Investors, Ltd., AmGO II, L.P., First Reserve Secured Energy
Assets
Fund, L.P., First Reserve Fund V., L.P., First Reserve Fund VI,
L.P.,
and First Reserve Fund VII, L.P.
Ronald J. Jackson (54), Trustee. Former Chairman, President and
Chief
Executive Officer of Fisher-Price, Inc.
*Paul L. Joskow (50), Trustee. Professor of Economics and
Management
and Head of the Department of Economics , Massachusetts
Institute of Technology. Director, New England Electric System,
State
Farm Indemnity Company and Whitehead Institute for Biomedical
Research. He has been a consultant to National Economic
Research
Associates, Inc. since 1972.
Elizabeth T. Kennan (60), Trustee. President Emeritus and
Professor,
Mount Holyoke College. Director , Bell Atlantic (a
telecommunications company), the Kentucky Home Life Insurance
Companies, NYNEX Corporation, Northeast Utilities and
Talbots.
*Lawrence J. Lasser (55), Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and
Putnam Investment Management , Inc . Director of
Marsh &
McLennan Companies, Inc. and the United Way of Massachusetts Bay.
John H. Mullin, III (56), Trustee. Chairman and CEO of Ridgeway
Farm,
Director of ACX Technologies, Inc. (a company engaged in the
manufacture of industrial ceramics and packaging products) ,
Alex.
Brown Realty, Inc. and The Liberty Corporation (a
company
engaged in the life insurance and broadcasting industries).
+Robert E. Patterson (53), Trustee. President and Trustee of
Cabot
Industrial Trust (a publicly traded real estate investment
trust). Director of Brandywine Trust Company. Trustee of SEA
Education Association.
*Donald S. Perkins (71), Trustee. Director of various
corporations,
including AON Corp. (an insurance company) , Cummins Engine
Company, Inc. (an engine and power generator manufacturer and
assembler) , Current Assets L.L.C. (a corporation providing
financial staffing services) , LaSalle Street Fund,
Inc. and
LaSalle U.S. Realty Income and Growth Fund, Inc. (real estate
investment trusts) , Lucent Technologies Inc., Nanophase
Technologies Inc. (a producer of nano crystalline materials),
Ryerson Tull, Inc. (America's largest steel service
corporation) , Springs Industries, Inc. (a textile
manufacturer), and Time Warner , Inc. (one of the nation's
largest
media conglomerates.)
*#George Putnam III (46), Trustee. President, New Generation
Research, Inc. (a publisher of financial advisory and
other
research services relating to bankrupt and distressed
companies)
and New Generation Advisers, Inc. (a registered investment
adviser).
Director, Massachusetts Audubon Society and The Boston Family
Office,
L.L.C. (a registered investment advisor).
*A.J.C. Smith (64), Trustee. Chairman and Chief Executive
Officer,
Marsh & McLennan Companies, Inc. Director, Trident Corp.
W. Thomas Stephens (55), Trustee. President and Chief
Executive
Officer of MacMillan Bloedel Ltd. Director, Qwest Communications
(a
fiber optics manufacturer) and New Century Energies (a public
utility
company).
W. Nicholas Thorndike (65), Trustee. Director of various
corporations
and charitable organizations, including Courier
Corporation ,
Data General Corporation, Bradley Real Estate, Inc., and
Providence
Journal Co.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the
fund ,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive
Committee meets between regular meetings of the Trustees as may
be
required to review investment matters and other affairs of the
fund and may exercise all of the powers of the Trustees.
#George Putnam, III is the son of George Putnam.
Officers Name (Age)
Charles E. Porter (59), Executive Vice President. Managing
Director
of Putnam Investments, Inc. and Putnam Management.
Patricia C. Flaherty (51), Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Management.
William N. Shiebler (56), Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President and
Director
of Putnam Mutual Funds .
Gordon H. Silver (50), Vice President. Director and Senior
Managing
Director of Putnam Investments, Inc. and Putnam Management.
Ian C. Ferguson (40), Vice President. Senior Managing
Director of
Putnam Management.
John R. Verani (58), Vice President. Senior Vice President of
Putnam
Investments, Inc. and Putnam Management.
John D. Hughes (63), Senior Vice President and Treasurer.
Beverly Marcus (53), Clerk and Assistant Treasurer.
-----------------
Each of the following persons is also a Vice President of the
Trust
and certain of the other Putnam funds, the total of which is
noted
parenthetically. Officers of Putnam Management hold the same
offices
in Putnam Management's parent company, Putnam Investments, Inc.
Ian C. Ferguson (40) (101 funds), Senior Managing Director of
Putnam
Management.
Anthony W. Regan (58) (2 funds), Senior Managing Director of
Putnam
Management.
Robert R. Beck (57) (2 funds), Managing Director of Putnam
Management.
Brett C. Browchuk (35) (52 funds), Managing Director of Putnam
Management.
William J. Curtin (38) (60 funds), Managing Director of Putnam
Management.
Omid Kamshad (35) (4 funds), Managing Director of Putnam
Management.
D. William Kohli (37) (8 funds), Managing Director of
Putnam
Management.
Anthony I. Kreisel (53) (12 funds), Managing Director of
Putnam
Management.
<PAGE>
William J. Landes (45) (19 funds), Managing Director of Putnam
Management.
Jennifer E. Leichter (37) (11 funds), Managing Director of
Putnam
Management.
Michael Martino (45) (8 funds), Managing Director of
Putnam
Management.
Carol C. McMullen (42) (14 funds), Managing Director of
Putnam
Management.
Daniel L. Miller (40) (6 funds), Managing Director of Putnam
Management.
Justin M. Scott (40) (9 funds), Managing Director of Putnam
Management.
Eric M. Wetlaufer (36) (2 funds), Managing Director of Putnam
Management.
William E. Zieff (38) (19 funds), Managing Director of Putnam
Management.
Michael K. Arends (44) (2 funds), Senior Vice President of Putnam
Management.
Edward P. Bousa (39) (3 funds), Senior Vice President of Putnam
Management.
David G. Carlson (36) (1 fund), Senior Vice President of Putnam
Management.
C. Beth Cotner (45) (4 fund), Senior Vice President of
Putnam
Management.
Ami T. Kuan Danoff (35) (4 funds), Senior Vice President of
Putnam
Management.
Richard England (39) (2 funds), Senior Vice President of Putnam
Management.
Richard M. Frucci (53) (1 fund), Senior Vice President of Putnam
Management.
Roland W. Gillis (48) (4 funds), Senior Vice President of
Putnam Management.
J. Peter Grant (55) (5 funds), Senior Vice President of
Putnam
Management.
Steven L. Kirson (37) (1 fund), Senior Vice President of Putnam
Management.
David L. King (41) (5 funds), Senior Vice President of Putnam
Management.
Kelly A. Morgan (35) (2 funds), Senior Vice President of Putnam
Management.
Michael J. Mufson (35) (1 fund), Senior Vice President of Putnam
Management.
Robert M. Paine (34) (6 funds), Senior Vice President of
Putnam Management.
Christopher A. Ray (35) (2 funds), Senior Vice President of
Putnam
Management.
Anthony C. Santosus (39) (1 fund) , Senior Vice President
of
Putnam Management.
Sheldon N. Simon (40) (4 funds), Senior Vice President of Putnam
Management.
Michael P. Stack (39) (2 funds), Senior Vice President of Putnam
Management.
Charles H. Swanberg (50) (4 funds), Senior Vice President of
Putnam
Management.
Robert Swift (37) (5 funds), Senior Vice President of Putnam
Management.
David K. Thomas (56) (3 funds), Senior Vice President of Putnam
Management.
Paul Warren (37) (3 funds), Senior Vice President of Putnam
Management.
Manuel Weiss (49) (1 fund), Senior Vice President of Putnam
Management.
Gail S. Attridge (36) (8 funds), Vice President of Putnam
Management.
Joanne M. Driscoll (27) (2 funds), Vice President of Putnam
Management.
David J. Santos (40) (3 funds), Vice President of Putnam
Management.
<PAGE>
Rosemary H. Thomsen (37) (3 funds), Vice President of Putnam
Management.
Except as stated below, the principal occupations of the officers
and
Trustees for the last five years have been with the employers as
shown
above, although in some cases they have held different positions
with
such employers. Prior to 1993, Mr. Jackson was Chairman of the
Board,
President and Chief Executive Officer of Fisher-Price, Inc.
Prior
to June, 1995, Ms. Kennan was President of Mount Holyoke
College.
Prior to 1996, Mr. Stephens was Chairman of the Board of
Directors,
President and Chief Executive Officer of Johns Manville
Corporation. Prior to February, 1998, Mr. Patterson was
Executive
Vice President and Director of Acquisitions of Cabot Partners
Limited
Partnership. Prior to November, 1993, Ms. Attridge was an
Analyst
at Keystone Custody International. Prior to April, 1993, Ms.
Kuan
attended the MIT Sloan School of Management. Prior to April,
1996,
Mr. Ferguson was CEO at Hong Kong Shanghai Banking Corporation.
Prior
to January, 1994, Mr. Martino was employed by Back Bay Advisors
in the
positions of Executive Vice President and Chief Investment
Officer
from 1992 to 1994. Prior to June, 1995, Ms. McMullen was Senior
Vice
President of Baring Asset Management. Prior to March, 1995, Mr.
Gillis was Vice President at Keystone Custodian Funds, Inc.
Prior to
January, 1996, Mr. Kamshad was Director of Investments at Lombard
Odier International and prior to April, 1995 he was Director at
Baring
Asset Management Company. Prior to September, 1994, Mr. Kohli
was
Executive Vice President and Co-Director of Global Bond
Management
and, prior to October, 1993, Senior Portfolio Manager, at
Franklin
Advisors/Templeton Investment Counsel. Prior to December, 1992,
Mr.
Ray was Vice President and Portfolio Manager at Scudder, Stevens
&
Clark, Inc. Prior to June, 1993, Mr. Siegel was Vice President
at
Salomon Brothers International LTD. Prior to August, 1995, Mr.
Swift
was Director and Senior Portfolio Manager at IAI
International/Hill
Samuel Investment Advisors. Prior to December, 1996 Ms. Morgan
was
Senior Vice President at Alliance Capital Management L.P. Prior
to
May, 1997, Mr. Warren was a Director at IDS Fund Management, and
prior
to August, 1994 was a Director at Pilgrim Baxter Associates.
Prior to
March, 1994 Mr. Warren was a Director at Prudential Asia, and
prior to
February, 1993 was a Director at Rothschild Asset Management.
Prior
to December, 1996, Mr. Zieff was Manager of the Global Asset
Allocation Group at Grantham, Mayo, Van Otterloo & Co. Prior to
November 1997, Mr. Arends was employed by Phoenix Duff & Phelps
as a
Managing Director, Equities. Prior to August 1994, Mr. Arends
was
employed as a Portfolio Manager with Kemper Financial Services.
Prior
to November 1997, Mr. Wetlaufer was employed as a Managing
Director
and Portfolio Manager at Cadence Capital Management. Prior to
November, 1997, Mr. Stack was employed as a Senior Vice President
and
Portfolio Manager at Independence Investment Associates, Inc.
Prior
to April, 1995, Ms. Driscoll was a Graduate Teaching Assistant in
the
Finance Department at Northeaster University and prior to
September,
1994, Ms. Driscoll was a Financial Associate at Bank Boston.
Prior to
June, 1993, Ms. Driscoll was an Investment Associate at BayBanks
Investment Management. Prior to September, 1995, Ms. Cotner was
Executive Vice President of Kemper Financial Services. Prior to
June,
1993, Mr. Mufson was Senior Equity Analyst at Stein Roe &
Farnham.
The Trust pays each Trustee a fee for his or her services. Each
Trustee also receives fees for serving as Trustee of other Putnam
funds. The Trustees periodically review their fees to assure
that
such fees continue to be appropriate in light of their
responsibilities as well as in relation to fees paid to trustees
of
other mutual fund complexes. The Trustees meet monthly over a
two-day
period, except in August. The Compensation Committee, which
consists
solely of Trustees not affiliated with Putnam Management and is
responsible for recommending Trustee compensation, estimates that
Committee and Trustee meeting time together with the appropriate
preparation requires the equivalent of at least three business
days
per Trustee meeting. The following table shows the year each
Trustee
was first elected a Trustee of the Putnam funds the fees paid to
each
Trustee by each Putnam VT fund for fiscal 1997 (except for Putnam
VT
The George Putnam Fund of Boston, Putnam VT Health Sciences
Fund , Putnam VT Investors Fund and Putnam VT OTC &
Emerging Growth Fund, for which fees expected to be paid for the
first
full fiscal year are shown), and the fees paid to each Trustee by
all
of the Putnam funds for the year ended December 31, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate
compensation (1) from:
Putnam VT Putnam VT
Putnam VT Putnam VT Putnam VT Putnam VT
Asia Pacific Diversified
Global Asset Global Growth and High
Trustee/Year Growth Income
Allocation Growth Income Yield
- -----------------------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $932 $1,121
$1,242 $2,287 $5,776 $1,386
Hans H. Estin/1972 927 1,115
1,234 2,273 5,743 1,386
John A. Hill/1985 (5) 927 1,115
1,234 2,273 5,743 1,386
Ronald J. Jackson/1996 (5) 932 1,121
1,242 2,287 5,776 1,386
Paul L. Joskow/1997 (8) 128 157
177 325 855 195
Elizabeth T. Kennan/1992 922 1,108
1,228 2,261 5,709 1,370
Lawrence J. Lasser/1992 912 1,096
1,214 2,235 5,642 1,355
John H. Mullin/1997 (8) 128 157
177 325 855 195
Robert E. Patterson/1984 932 1,121
1,242 2,286 5,776 1,386
Donald S. Perkins/1982 932 1,121
1,242 2,286 5,776 1,386
William F. Pounds/1971 (6) 952 1,210
1,380 2,528 6,896 1,528
George Putnam/1957 927 1,115
1,235 2,274 5,742 1,382
George Putnam, III/1984 922 1,109
1,228 2,261 5,709 1,370
A.J.C. Smith/1986 901 1,083
1,200 2,209 5,577 1,338
W. Thomas Stephens (5) (7) 281 337
287 528 1,369 320
W. Nicholas Thorndike/1992 932 1,121
1,242 2,287 5,776 1,386
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE (continued)
Aggregate
compensation (1) from:
Putnam VT Putnam VT
Putnam VT Putnam VT Putnam VT Putnam VT
International International
International New Money New New
Trustee/Year Growth Growth and Income
Opportunities Market Value Opportunities
- -----------------------------------------------------------------
- ------------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $389
$401 $395 $522 $264 $2,435
Hans H. Estin/1972 389 401
395 519 264 2,421
John A. Hill/1985 (5) 389 401
395 519 264 2,421
Ronald J. Jackson/1996 (5) 389 401
395 522 263 2,435
Paul L. Joskow/1997 (8) 113 117
115 75 77 350
Elizabeth T. Kennan/1992 384 397
390 516 261 2,407
Lawrence J. Lasser/1992 376 387
390 510 261 2,380
John H. Mullin/1997 (8) 113 117
115 75 77 350
Robert E. Patterson/1984 389 401
395 522 264 2,435
Donald S. Perkins/1982 389 401
395 522 264 2,435
William F. Pounds/1971 (6) 401 418
407 602 281 2,759
George Putnam/1957 384 396
390 519 261 2,422
George Putnam, III/1984 380 392
386 516 258 2,408
A.J.C. Smith/1986 376 388
381 504 255 2,352
W. Thomas Stephens (5) (7)248 257
253 159 167 567
W. Nicholas Thorndike/1992 389 401
395 522 263 2,435
/TABLE
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Estimated
Aggregate compensation (1) from:
Putnam VT
Putnam VT
Putnam VT The George
Putnam VT OTC & Emerging
Health Putnam Fund
Trustee/Year Investors+ Growth+
Sciences+ of Boston+
- -----------------------------------------------------------------
- ---------------------------
<S> <C> <C>
<C> <C>
Jameson A. Baxter/1994 (5) $401 $401 $401
$401
Hans H. Estin/1972 401 401 401
401
John A. Hill/1985 (5) 401 401 401
401
Ronald J. Jackson/1996 (5) 401 401 401
401
Paul L. Joskow/1997 (8) 401 401 401
401
Elizabeth T. Kennan/1992 401 401 401
401
Lawrence J. Lasser/1992 401 401 401
401
John H. Mullin/1997 (8) 401 401 401
401
Robert E. Patterson/1984 401 401 401
401
Donald S. Perkins/1982 401 401 401
401
William F. Pounds/1971 (6) 418 418 418
418
George Putnam/1957 401 401 401
401
George Putnam, III/1984 401 401 401
401
A.J.C. Smith/1986 401 401 401
401
W. Thomas Stephens (5) (7) 401 401
401 401
W. Nicholas Thorndike/1992 401 401 401
401
</TABLE>
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Aggregate
compensation (1) from:
Estimated
annual
benefits
Putnam VT
from all
Putnam VT U.S. Government
Putnam funds
Utilities Growth and High
Putnam VT Putnam VT All Putnam upon
Trustee/Year and Income Quality Bond Vista
Voyager funds (2) retirement (4)
- -----------------------------------------------------------------
- -------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $1,292 $1,022
$263 $3,929 $176,000 $87,500
Hans H. Estin/1972 1,285 1,016 264
3,907 175,000 87,500
John A. Hill/1985 (5) 1,285 1,016 264
3,907 175,000 87,500
Ronald J. Jackson/1996 (5) 1,292 1,022 264
3,929 176,000 87,500
Paul L. Joskow/1997 (8) 178 138 77
560 25,500 87,500
Elizabeth T. Kennan/1992 1,278 1,011 260
3,885 174,000 87,500
Lawrence J. Lasser/1992 1,264 1,000 260
3,841 172,000 87,500
John H. Mullin/1997 (8) 178 138 77
560 25,000 87,500
Robert E. Patterson/1984 1,292 1,022 263
3,929 176,000 87,500
Donald S. Perkins/1982 1,292 1,022 263
3,929 176,000 87,500
William F. Pounds/1971 (6) 1,404 1,147 277
4,528 201,000 98,000
George Putnam/1957 1,286 1,017 260
3,907 175,000 87,500
George Putnam, III/1984 1,279 1,011 257
3,885 174,000 87,500
A.J.C. Smith/1986 1,249 988 254
3,796 170,000 87,500
W. Thomas Stephens (5) (7) 293 225
167 900 53,000 87,500
W. Nicholas Thorndike/1992 1,292 1,022 263
3,929 176,000 87,500
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or retirement benefits
accrued as part of fund expenses (3) from:
Putnam VT Putnam VT
Putnam VT Putnam VT Putnam VT Putnam VT
Asia Pacific Diversified
Global Asset Global Growth and High
Trustee/Year Growth Income
Allocation Growth Income Yield
- -----------------------------------------------------------------
- ----------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $189 $225
$245 $452 $1091 $276
Hans H. Estin/1972 470 558
608 1122 2708 685
John A. Hill/1985 (5) 177 210
229 422 1019 258
Ronald J. Jackson/1996 (5) 79 94
103 190 458 116
Paul L. Joskow/1997 (8) N/A N/A
N/A N/A N/A N/A
Elizabeth T. Kennan/1992 244 289
315 582 1404 355
Lawrence J. Lasser/1992 183 217
236 436 1053 266
John H. Mullin/1997 (8) N/A N/A
N/A N/A N/A N/A
Robert E. Patterson/1984 141 168
183 338 815 206
Donald S. Perkins/1982 510 605
659 1217 2937 743
William F. Pounds/1971 (6) 528 627
683 1261 3043 769
George Putnam/1957 537 637
694 1282 3093 782
George Putnam, III/1984 93 110
120 222 536 136
A.J.C. Smith/1986 317 377
410 757 1827 462
W. Thomas Stephens (5) (7) N/A N/A
N/A N/A N/A N/A
W. Nicholas Thorndike/1992 350 416
453 836 2018 510
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE (continued)
Pension or retirement benefits
accrued as part of fund expenses (3) from:
Putnam VT Putnam VT
Putnam VT Putnam VT Putnam VT Putnam VT
International International
International New Money New New
Trustee/Year Growth++ Growth and Income++
Opportunities++ Market Value++ Opportunities
- -----------------------------------------------------------------
- ------------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
Jameson A. Baxter/1994 (5) $0 $0
$0 $103 $0 $474
Hans H. Estin/1972 0 0
0 255 0 1177
John A. Hill/1985 (5) 0 0
0 96 0 443
Ronald J. Jackson/1996 (5) 0 0
0 43 0 199
Paul L. Joskow/1997 (8) 0 0
0 N/A 0 N/A
Elizabeth T. Kennan/1992 0 0
0 132 0 610
Lawrence J. Lasser/1992 0 0
0 99 0 458
John H. Mullin/1997 (8) 0 0
0 N/A 0 N/A
Robert E. Patterson/1984 0 0
0 77 0 354
Donald S. Perkins/1982 0 0
0 276 0 1276
William F. Pounds/1971 (6) 0 0
0 286 0 1323
George Putnam/1957 0 0
0 291 0 1344
George Putnam, III/1984 0 0
0 50 0 233
A.J.C. Smith/1986 0 0
0 172 0 794
W. Thomas Stephens (5) (7) 0 0
0 N/A 0 N/A
W. Nicholas Thorndike/1992 0 0
0 190 0 877
/TABLE
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Pension or retirement benefits
accrued as part of fund expenses (3) from:
Putnam VT
Putnam VT U.S. Government
Utilities Growth and High
Putnam VT Putnam VT
Trustee/Year and Income Quality Bond
Vista++ Voyager
- -----------------------------------------------------------------
- -------------
<S> <C> <C> <C>
<C>
Jameson A. Baxter/1994 (5) $263 $212
$0 $775
Hans H. Estin/1972 652 525 0
1923
John A. Hill/1985 (5) 245 198 0
724
Ronald J. Jackson/1996 (5) 110 89 0
325
Paul L. Joskow/1997 (8) N/A N/A 0
N/A
Elizabeth T. Kennan/1992 338 272 0
997
Lawrence J. Lasser/1992 253 204 0
748
John H. Mullin/1997 (8) N/A N/A 0
N/A
Robert E. Patterson/1984 196 158 0
579
Donald S. Perkins/1982 707 569 0
2086
William F. Pounds/1971 (6) 733 590 0
2162
George Putnam/1957 745 600 0
2197
George Putnam, III/1984 129 104 0
381
A.J.C. Smith/1986 440 354 0
1298
W. Thomas Stephens (5) (7) N/A N/A
0 N/A
W. Nicholas Thorndike/1992 486 391 0
1434
/TABLE
<PAGE>
<TABLE><CAPTION>
COMPENSATION TABLE (continued)
Pension or retirement benefits
accrued as part of fund expenses (3) from:
Putnam VT
Putnam VT
Putnam VT The George
Putnam VT OTC & Emerging
Health Putnam Fund
Trustee/Year Investors++ Growth++
Sciences++ of Boston++
- -----------------------------------------------------------------
- -------------
<S> <C> <C> <C>
<C>
Jameson A. Baxter/1994 (5) $0 $0 $0
$0
Hans H. Estin/1972 0 0 0
0
John A. Hill/1985 (5) 0 0 0
0
Ronald J. Jackson/1996 (5) 0 0 0
0
Paul L. Joskow/1997 (8) 0 0 0
0
Elizabeth T. Kennan/1992 0 0 0
0
Lawrence J. Lasser/1992 0 0 0
0
John H. Mullin/1997 (8) 0 0 0
0
Robert E. Patterson/1984 0 0 0
0
Donald S. Perkins/1982 0 0 0
0
William F. Pounds/1971 (6) 0 0 0
0
George Putnam/1957 0 0 0
0
George Putnam, III/1984 0 0 0
0
A.J.C. Smith/1986 0 0 0
0
W. Thomas Stephens (5) (7) 0 0 0
0
W. Nicholas Thorndike/1992 0 0 0
0
<PAGE>
+ Reflects estimated amounts to be paid for the current fiscal
year.
++ For certain newly created funds , actual pension or
retirement benefit information is not yet available.
(1) Includes an annual retainer and an attendance fee for each
meeting attended.
(2) As of December 31, 1997, there were 101 funds in the Putnam
family.
(3) The Trustees approved a Retirement Plan for Trustees of the
Putnam funds on October 1, 1996.
(4) Assumes that each Trustee retires at the normal retirement
date. Estimated benefits for each Trustee are based on
Trustee fee rates in effect during calendar 1997.
(5) Includes compensation deferred pursuant to a Trustee
Compensation Deferral Plan. The total amounts of deferred
compensation payable to Ms. Baxter as of December 31, 1997 by
Putnam VT Growth and Income Fund and Putnam
VT Voyager Fund, were $5,728 and $4,156,
respectively, including income earned on such amounts. The
total amounts of deferred compensation payable to Mr. Hill as
of December 31, 1997 by Putnam VT Global Asset Allocation
Fund, Putnam VT Global Growth Fund, Putnam VT Growth and
Income Fund, Putnam VT High Yield Fund, Putnam VT New
Opportunities Fund, Putnam VT U.S. Government and High
Quality Bond Fund, Putnam VT Utilities Growth and Income Fund,
and Putnam VT Voyager Fund, were $4,079 , $6,837,
$14,706, $4,096, $5,013, $4,097, $4,305, and $11,998
respectively, including income earned on such amounts. The
total amounts of deferred compensation payable to Mr.
Jackson as of December 31, 1997 by Putnam VT Global Asset
Allocation Fund, Putnam VT Global Growth Fund, Putnam VT
Growth and Income Fund, Putnam VT High Yield Fund, Putnam VT
New Opportunities Fund, Putnam VT U.S. Government and High
Quality Bond Fund, Putnam VT Utilities Growth and Income
Fund, and Putnam VT Voyager Fund, were $2,225, $4,020, $9,197,
$2,371, $4,037, $1,990, $2,328, and $6,858
respectively, including income earned on such amounts. The total
amounts of deferred compensation payable to Mr. Stephens as
of December 31, 1997 by Putnam VT Global Asset Allocation
Fund, Putnam VT Global Growth Fund, Putnam VT Growth and
Income Fund, Putnam VT High Yield Fund, Putnam VT New
Opportunities Fund, Putnam VT U.S. Government and High
Quality Bond Fund, Putnam VT Utilities Growth and Income Fund,
and Putnam VT Voyager Fund, were $285, $523, $1,358, $317,
$562, $223, $291, and $893 respectively, including income
earned on such amounts.
(6) Includes additional compensation for service as Vice Chairman
of the Putnam funds.
(7) Elected a Trustee in September 1997.
(8) Elected a Trustee in November 1997.
/TABLE
<PAGE>
Under a Retirement Plan for Trustees of the Putnam funds (the
"Plan"),
each Trustee who retires with at least five years of service as a
Trustee of the funds is entitled to receive an annual retirement
benefit equal to one-half of the average annual compensation paid
to
such Trustee for the last three years of service prior to
retirement.
This retirement benefit is payable during a Trustee's lifetime,
beginning the year following retirement, for a number of years
equal
to such Trustee's years of service. A death benefit is also
available
under the Plan which assures that the Trustee and his or her
beneficiaries will receive benefit payments for the lesser of an
aggregate period of (i) ten years or (ii) such Trustee's total
years
of service.
The Plan Administrator (a committee comprised of Trustees that
are not
"interested persons" of the fund, as defined in the Investment
Company
Act of 1940) may terminate or amend the Plan at any time, but no
termination or amendment will result in a reduction in the amount
of
benefits (i) currently being paid to a Trustee at the time of
such
termination or amendment, or (ii) to which a current Trustee
would
have been entitled had he or she retired immediately prior to
such
termination or amendment.
For additional information concerning the Trustees, see
"Management"
in this SAI.
The Agreement and Declaration of Trust of the Trust provides that
the
Trust will indemnify its Trustees and officers against
liabilities and
expenses incurred in connection with litigation in which they may
be
involved because of their offices with the Trust, except if it is
determined in the manner specified in such Agreement and
Declaration
of Trust that such Trustees and officers have not acted in good
faith
in the reasonable belief that their actions were in the best
interests
of the Trust or that such indemnification would relieve any
officer or
Trustee of any liability to the Trust or its shareholders by
reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard
of his or her duties. The Trust, at its expense, provides
liability
insurance for the benefit of its Trustees and officers.
Trustees and officers of the Trust who are also officers of
Putnam
Management or its affiliates or stockholders of Marsh & McLennan
Companies, Inc. will benefit from the advisory fees, transfer
agency
fees and custodian fees and fees paid or allowed by the Trust.
At
March 31, 1998, the officers and Trustees as a group owned
directly no
shares of the Trust or any fund. As of that date, less than 1%
of the
value of the accumulation units with respect to any fund was
attributable to the officers and Trustees of the Trust, as a
group,
owning variable annuity contracts or variable life insurance
policies
issued by the insurers listed in the following tables. All of
the
shares of each of the funds are owned by the insurance company
separate accounts listed below and by Putnam Management pursuant
to
its initial capital contribution to each fund during the
organization
of the Trust and the subsequent organization of Putnam VT Global
Growth Fund, Putnam VT Utilities Growth and Income Fund, Putnam
VT
Diversified Income Fund, Putnam VT New Opportunities Fund, Putnam
VT
Asia Pacific Growth Fund, Putnam VT International Growth Fund,
Putnam
VT International Growth and Income Fund, Putnam VT International
New
Opportunities Fund, Putnam VT New Value Fund and Putnam VT Vista
Fund.
Except to the extent set forth below, to the knowledge of the
Trust no
person owned of record or beneficially 5% or more of the shares
of any
fund as of March 31, 1998.
Issuer and name of
Separate Account
(1) Hartford Life
Percentage of
Insurance Company Fund shares
owned of record
(a) Putnam Capital Manager Trust
Separate Account
Putnam VT Asia
Pacific Growth Fund 38.70%
Putnam VT Diversified
Income Fund 51.71%
Putnam VT Global
Asset Allocation Fund 50.25%
Putnam VT Global
Growth Fund 44.33%
Putnam VT Growth and
Income Fund 51.41%
Putnam VT High Yield Fund 43.67%
Putnam VT International
Growth Fund 36.61%
Putnam VT International
Growth and Income Fund 41.49%
Putnam VT International
New Opportunities Fund 39.84%
Putnam VT Money Market Fund 48.31%
<PAGE>
Issuer and name of
Separate Account
(1) Hartford Life
Percentage of
Insurance Company Fund shares
owned of record
(a) Putnam Capital Manager Trust
Separate Account (continued)
Putnam VT New Opportunities
Fund 4.04%
Putnam VT New Value Fund 38.91%
Putnam VT U.S. Government
and High Quality Bond Fund 66.33%
Putnam VT Utilities
Growth and Income Fund 54.01%
Putnam VT Vista Fund 41.09%
Putnam VT Voyager Fund 46.72%
(b) Putnam Capital Manager Trust
Separate Account VLI
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund 1.05%
Putnam VT Global
Growth Fund 1.23%
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Issuer and name of
Separate Account
(1) Hartford Life
Percentage of
Insurance Company Fund shares
owned of record
(b) Putnam Capital Manager Trust
Separate Account VLI (continued)
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund 1.00%
(c) Putnam Capital Manager Trust
Separate Account VLII
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
Issuer and name of
Separate Account
(1) Hartford Life
Percentage of
Insurance Company Fund shares
owned of record
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT International
Growth Fund *
Putnam VT International
Growth and Income Fund *
Putnam VT International
New Opportunities Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT U.S. Government
and High Quality Bond Fund *
<PAGE>
Issuer and name of
Separate Account
(1) Hartford Life
Percentage of
Insurance Company Fund shares
owned of record
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five (continued)
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Vista Fund *
Putnam VT Voyager Fund *
(e) Putnam Capital Manager Trust
Variable Life
Separate Account VLUL
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
(2) ITT Hartford Life
and Annuity
Percentage of
Insurance Company Fund shares
owned of record
(a) Putnam Capital Manager Trust
Separate Account Two
Putnam VT Asia Pacific
Growth Fund 60.09%
Putnam VT Diversified
Income Fund 44.21%
Putnam VT Global Asset
Allocation Fund 47.68%
Putnam VT Global Growth
Fund 52.99%
Putnam VT Growth and
Income Fund 45.95%
Putnam VT High Yield Fund 54.08%
Putnam VT International
Growth Fund 54.88%
Putnam VT International
Growth and Income Fund 58.25%
Putnam VT International
New Opportunities Fund 59.38%
Putnam VT Money Market Fund 46.20%
Putnam VT New
Opportunities Fund 5.76%
Putnam VT New Value Fund 60.60%
Putnam VT U.S. Government
and High Quality Bond Fund 30.41%
Putnam VT Utilities Growth
and Income Fund 43.39%
Putnam VT Vista Fund 58.59%
Putnam VT Voyager Fund 48.53%
<PAGE>
(2) ITT Hartford Life
and Annuity
Percentage of
Insurance Company Fund shares
owned of record
(b) Putnam Capital Manager Trust
Separate Account VLI
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(c) Putnam Capital Manager Trust
Separate Account VLII
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
<PAGE>
(2) ITT Hartford Life
and Annuity
Percentage of
Insurance Company Fund shares
owned of record
(c) Putnam Capital Manager Trust
Separate Account VLII (continued)
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT International
Growth Fund *
Putnam VT International
Growth and Income Fund *
(2) ITT Hartford Life
and Annuity
Percentage of
Insurance Company Fundshares owned of record
(d) Putnam Capital Manager Trust
Variable Life
Separate Account Five (continued)
Putnam VT International
New Opportunities Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Vista Fund *
Putnam VT Voyager Fund *
(e) Putnam Capital Manager Trust
Separate Account Six
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
<PAGE>
(2) ITT Hartford Life
and Annuity
Percentage of
Insurance Company Fund shares
owned of record
(g) Putnam Capital Manager Trust
Separate Account VLUL
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global
Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money
Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality Bond Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
Issuer and name
of Separate Account
(3) ReliaStar Life
Percentage of
Insurance Company Fund shares
owned of record
(a) Putnam Variable Trust
Select Life I
Putnam VT Diversified
Income Fund 1.12%
Putnam VT Growth and
Income Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(b) Putnam Variable Trust
Select Life II
Putnam VT Asia Pacific
Growth Fund 1.12%
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
(c) Putnam Variable Trust
Select Life III
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
(3) ReliaStar Life
Percentage of
Insurance Company Fund shares
owned of record
(c) Putnam Variable Trust
Select Life III (continued)
Putnam VT New
Opportunities Fund *
Putnam VT Utilities
Growth and Income Fund *
Putnam VT Voyager Fund *
(d) Putnam Variable Trust
Survivorship Flexible
Premium Variable Life (SVUL I)
Putnam VT Asia Pacific
Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Utilities
Growth and Income Fund *
Putnam VT Voyager Fund *
(e) Putnam Variable Trust
ReliaStar Select Annuity II
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT Utilities Growth
and Income Fund *
Putnam VT Voyager Fund *
<PAGE>
(3) ReliaStar Life Percentage of
Insurance Company Fund shares owned of record
(f) Putnam Variable Trust
ReliaStar Select Annuity III
Putnam VT Asia Pacific
Growth Fund 2.86%
Putnam VT Diversified
Income Fund 1.72%
Putnam VT Growth and
Income Fund *
Putnam VT New
Opportunities Fund 87.71%
Putnam VT Utilities Growth
and Income Fund 1.03%
Putnam VT Voyager Fund 1.32%
(4) ReliaStar Life
Percentage of
Insurance Company Fund shares
owned of record
of New York
(a) Putnam Variable Trust
ReliaStar Select Life New York
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
Putnam VT Voyager
Fund *
(5) American Enterprise
Life Insurance Company
(a) American Enterprise
Variable Annuity Account
Putnam VT Diversified
Income Fund *
Putnam VT Growth and
Income Fund *
(5) American Enterprise
Percentage of
Life Insurance Company Fund shares
owned of record
(a) American Enterprise
Variable Annuity Account (continued)
Putnam VT Global Growth
Fund *
Putnam VT High Yield Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Voyager Fund *
(b) American Enterprise
American Centurion Life
Putnam VT Diversified Income Fund *
Putnam VT Global Growth and Income
Fund *
Putnam VT High Yield Fund *
Putnam VT New
Opportunities Fund *
Putnam VT Voyager Fund *
(6) Investors Life
Insurance Company of
Percentage of
North America Fund shares
owned of record
Putnam Variable Trust
CIGNA Separate
Account I
Putnam VT Growth and
Income Fund *
Putnam VT Money
Market Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Voyager Fund *
Issuer and name of
Separate Account
(7) Paragon Life
Percentage of shares
Insurance Company Fund
owned of record as
(a) Putnam Variable Trust
Paragon Variable Life
Putnam VT Asia Pacific Growth Fund *
Putnam VT Diversified
Income Fund *
Putnam VT Global Asset
Allocation Fund *
Putnam VT Global Growth Fund *
Putnam VT Growth and
Income Fund *
Putnam VT High Yield Fund *
Putnam VT Money Market Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Utilities
Growth and Income Fund *
Putnam VT Voyager Fund *
(b) Putnam Variable Trust
Paragon Variable Life
Multi-Manager
Putnam VT High Yield Fund *
Putnam VT New
Opportunities Fund *
Putnam VT U.S. Government
and High Quality
Bond Fund *
Putnam VT Voyager Fund *
Issuer and name of
Separate Account
(8) IDS Life
Percentage of shares
Insurance Company Fund
owned of record as
(a) IDS Life Variable
Account 10
Putnam VT New
Opportunities Fund 1.68%
(b) IDS Life of New York
Flexible Portfolio
Annuity Account
Putnam VT New
Opportunities Fund *
(c) IDS Life Variable
Life Separate Account
Putnam VT New
Opportunities Fund *
(d) IDS Life of New
York Account 8
Putnam VT New
Opportunities Fund *
(9) Cova Financial Life
Percentage of shares
Insurance Company Fund
owned of record as
(a) Variable Annuity
Account One
Putnam VT Growth and Income Fund *
Putnam VT International Growth Fund *
Putnam VT International
New Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT Vista Fund *
(b) Variable Annuity
Account Five
Putnam VT Growth and
Income Fund *
Putnam VT International
Growth Fund *
Issuer and name of
Separate Account
(9) Cova Financial Life
Percentage of shares
Insurance Company Fund
owned of record as
(b) Variable Annuity
Account Five (continued)
Putnam VT International
New Opportunities Fund *
Putnam VT New Value Fund *
Putnam VT Vista Fund *
*Less than 1/10th of 1%.
The address for the separate accounts listed in (1) and (2) above
is:
P.O. Box 2099, Hartford, CT 06140-2999. The address for the
separate
account listed in (3) above is: 20 Washington Avenue South,
Minneapolis, MN 55401. The address for the separate account
listed
in (4) above is: 80 S. Eighth Street, Minneapolis, MN 55440.
The
address for the separate account listed in (5) above is: Austin
Centre, 701 Brazos Street, Austin, TX 78701. The address for the
separate account listed in (6) above is: 100 South Brentwood,
St.
Louis, MO 63105. The address for the separate account listed in
(7)
above is: IDS Tower 10, Minneapolis, MN 55440.
Each of the insurance companies issuing the separate accounts
listed
above have agreed to vote their shares in proportion to and in
the
manner instructed by contract and policy owners. By virtue of
the
foregoing, each of these insurance companies, or any of them
together,
may be deemed to be a controlling person of each of the funds.
Putnam Management and its affiliates
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio
managers and research analysts selects securities and constantly
supervises the fund's portfolio. By pooling an investor's money
with
that of other investors, a greater variety of securities can be
purchased than could be purchased by the investor individually;
the
resulting diversification helps reduce investment risk. Putnam
Management has been managing mutual funds since 1937. Today, the
firm
serves as the investment manager for the funds in the Putnam
Family,
with nearly $182 billion in assets in over 9 million shareholder
accounts at December 31, 1997 . An affiliate, The Putnam
Advisory Company, Inc., manages domestic and foreign
institutional
accounts and mutual funds, including the accounts of many Fortune
500
companies. Another affiliate, Putnam Fiduciary Trust Company,
provides investment advice to institutional clients under its
banking
and fiduciary powers. At December 31, 1997 , Putnam
Management
and its affiliates managed nearly $181 billion in assets,
including
over $19 billion in tax-exempt securities and over $57 billion in
retirement plan assets.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies,
Inc., a publicly-owned holding company whose principal operating
subsidiaries are international insurance and reinsurance brokers,
investment managers and management consultants.
Trustees and officers of a fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales
commissions, distribution fees, custodian fees and transfer
agency
fees paid or allowed by the fund.
The Management Contract
Under a Management Contract between the Trust and Putnam
Management
dated October 2, 1987, as supplemented March 2, 1990, and as
further
supplemented February 27, 1992, July 9, 1993, April 5, 1994, June
2,
1994, April 7, 1995, July 13, 1995, July 11, 1996 and as further
supplemented, December 20, 1996, February 6 , 1998 subject
to
such policies as the Trustees may determine, Putnam Management,
at its
expense, furnishes continuously an investment program for the
funds
and makes investment decisions on their behalf. Subject to the
control of the Trustees, Putnam Management also manages,
supervises
and conducts the other affairs and business of the Trust,
furnishes
office space and equipment, provides bookkeeping and clerical
services
(including determination of the net asset value, but excluding
shareholder accounting services) and places all orders for the
purchase and sale of the Trust's portfolio securities. Putnam
Management may place the Trust's portfolio transactions with
broker-
dealers which furnish Putnam Management, without cost to it,
certain
research, statistical and quotation services of value to Putnam
Management and its affiliates in advising the Trust and other
clients.
In so doing, Putnam Management may cause a fund to pay greater
brokerage commissions than it might otherwise pay.
The compensation payable to Putnam Management under the
Management
Contract for its investment management services to the funds is
paid
quarterly at the following annual rates of each fund's average
net
assets, as determined at the close of each business day during
the
quarter:
Fund Rate
Putnam VT International New 1.20% of the first $500
Opportunities Fund million of average net
assets, 1.10% of the
next
$500 million, 1.05% of
the
next $500 million, 1.00%
of
the next $5 billion,
0.975%
of the next $5 billion,
0.955% of the next $5
billion, 0.94% of the
next
$5 billion, and 0.93% of
any
excess thereafter
Putnam VT Asia Pacific Growth Fund, 0.80% of the first $500
Putnam VT International Growth Fund, and million of average net
Putnam VT International Growth and assets, 0.70% of the
Income Fund next $500 million, 0.65%
of
the next $500 million,
0.60%
of the next $5 billion,
0.575% of the next $5
billion, 0.555% of the
next
$5 billion, 0.54% of the
next $5 billion, and
0.53%
of any excess
thereafter.
Putnam VT Diversified Income Fund, 0.70% of the first $500
Putnam VT Global Asset Allocation Fund, million of average
Putnam VT Health Sciences Fund, Putnam net
assets, 0.60% of
VT High Yield Fund, Putnam VT New the next $500 million,
Opportunities Fund, Putnam VT New 0.55% of the
next
$500
Value Fund, Putnam VT OTC & Emerging million, 0.50% of the
Growth Fund, Putnam VT Utilities Growth next $5 billion,
0.475%
and Income Fund, and Putnam VT Voyager
of the next $5
billion, Fund 0.455% of the
next $5
billion, 0.44% of the
next $5 billion and
0.43% of any excess
thereafter.
Putnam VT Growth and Income Fund, 0.65% of the first $500
Putnam VT Investors Fund, Putnam million of average net
VT The George Putnam Fund of Boston, assets, 0.55% of the
Putnam VT U.S. Government and High next $500
million , Quality Bond Fund, and Putnam
VT 0.50% of the next $500 Vista
Fund million, 0.45% of the
next $5 billion, 0.425%
of the next $5 billion,
0.405% of the next $5
billion, 0.39% of the
next $5 billion and
0.38% of any excess
thereafter.
Putnam VT Global Growth Fund 0.60% of average net
assets.
Putnam VT Money Market Fund 0.45% of the first $500
million of average net
assets, 0.35% of the
next
$500 million, 0.30% of
the
next $500 million, 0.25%
of
the next $5 billion,
0.225%
of the next $5 billion,
0.205% of the next $5
billion, 0.19% of the
next
$5 billion and 0.18% of
any
excess thereafter.
The Trust pays affiliates of Putnam Management additional amounts
for
investor servicing and custody services.
In addition to the fee paid to Putnam Management, the Trust
reimburses
Putnam Management for the compensation and related expenses of
certain
officers of the funds and certain persons who assist them in
carrying
out the responsibilities of their offices. During fiscal 1996,
the
Trust reimbursed Putnam Management $192,769 in this regard,
including
$170,800 in contributions to the Putnam Investments, Inc. Profit
Sharing Retirement Plan for the benefit of such officers and
their
assistants. The Trust may also pay or reimburse Putnam
Management for
all or a part of the compensation and related expenses of one or
more
other officers of the Trust and their assistants who provide
certain
administrative services for the fund and the other Putnam funds,
each
of which bears an allocated share of the foregoing costs.
Currently
the Trust is reimbursing Putnam Management for the compensation
and
related expenses of the Senior Vice President and the Clerk of
the
Trust. The aggregate amount of all such payments and
reimbursements
is determined annually by the Trustees. Putnam Management pays
all
other salaries of officers of the Trust. The Trust pays all
expenses
not assumed by Putnam Management including, without limitation,
auditing, legal, custodial, investor servicing and shareholder
reporting expenses. The Trust pays any cost of typesetting for
its
prospectuses and any cost of printing and mailing prospectuses
sent to
its shareholders. Putnam Mutual Funds pays the cost of printing
and
distributing all other prospectuses.
The Management Contract provides that Putnam Management shall not
be
subject to any liability to the Trust or to any shareholder of
the
Trust for any act or omission in the course of or connected with
rendering services to the Trust in the absence of willful
misfeasance,
bad faith, gross negligence or reckless disregard of its duties
on the
part of Putnam Management. The Management Contract may be
terminated
as to the Trust or as to any fund without penalty by vote of the
Trustees or the shareholders of one or more Funds affected, or by
Putnam Management, on 30 days' written notice. It may be amended
with
respect to a fund only by a vote of the shareholders of that
fund.
The Management Contract also terminates without payment of any
penalty
in the event of its assignment. The Management Contract provides
that
it will continue in effect as to any fund only so long as such
continuance is approved at least annually by vote of either the
Trustees or the shareholders of that fund, and, in either case,
by a
majority of the Trustees who are not "interested persons" of
Putnam
Management or any fund. In each of the foregoing cases, the vote
of
the shareholders of any fund is the affirmative vote of a
"majority of
the outstanding voting securities" of such fund as defined in the
Investment Company Act of 1940. The continuation of the Contract
as
to all funds was unanimously approved by the Trustees, including
those
Trustees who are not "interested persons," on January 5, 1996.
Putnam
Management's compensation under the Management Contract may be
reduced
in any year if the fund's expenses exceed the limits on
investment
company expenses imposed by any statute or regulatory authority
of any
jurisdiction in which shares of the fund are qualified for offer
or
sale. The term "expenses" is defined in the statutes or
regulations
of such jurisdictions, and generally excludes brokerage
commissions,
taxes, interest, extraordinary expenses and, if the fund has a
distribution plan, payments made under such plan.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that a fund's expenses exceed such
lower
expense limitation as Putnam Management may, by notice to the
fund,
declare to be effective. The expenses subject to this limitation
are
exclusive of brokerage commissions, interest, taxes, deferred
organizational and extraordinary expenses and, if the fund has a
distribution plan, payments required under such plan. For the
purpose
of determining any such limitation on Putnam Management's
compensation, expenses of the fund shall not reflect the
application
of commissions or cash management credits that may reduce
designated
fund expenses.
<PAGE>
Management fees
Reflecting a
reduction in the
following amounts
pursuant to an
Fund Fiscal Management expense
name year fee paid limitation
- ---- ------ ---------- -----------------
Putnam VT Asia
Pacific Growth 1997 $1,076,596
Fund 1996 $681,628
1995+ $67,583 $40,348
Putnam VT Diversified
Income Fund 1997 $3,811,378
1996 $2,766,551
1995 $1,741,950
Putnam VT Global
Asset Allocation
Fund 1997 $5,755,350
1996 $4,262,397
1995 $3,253,739
Putnam VT Global
Growth Fund 1997 $9,366,376
1996 $6,444,626
1995 $4,329,841
Putnam VT Growth
and Income Fund 1997 $34,012,687
1996 $21,454,942
1995 $13,096,405
Putnam VT High
Yield Fund 1997 $5,842,951
1996 $4,142,115
1995 $2,909,080
Putnam VT International
Growth Fund 1997 * $608,193 $55,502
1996 N/A
1995 N/A
<PAGE>
Putnam VT International
Growth & Income
Fund 1997 * $871,531
1996 N/A
1995 N/A
Putnam VT International
New Opportunities 1997 * $893,002 $206,574
Fund 1996 N/A
1995 N/A
Putnam VT Money
Market Fund 1997 $2,090,282
1996 $1,689,370
1995 $1,061,046
Putnam VT New
Opportunities Fund 1997 $12,267,574
1996 $7,144,796
1995 $1,618,748
Putnam VT New
Value Fund 1997 * $757,486
1996 N/A
1995 N/A
Putnam VT U.S.
Government and High
Quality Bond Fund 1997 $4,731,739
1996 $4,628,688
1995 $4,133,901
Putnam VT Utilities
Growth and Income
Fund 1997 $4,703,343
1996 $3,753,576
1995 $2,666,363
Putnam VT Vista Fund 1997 * $600,249
1996 N/A
1995 N/A
Putnam VT Voyager
Fund 1997 $21,134,308
1996 $15,143,788
1995 $8,864,927
+ Commencement of operations May 1, 1995
* Commencement of operations January
2, 1997
Portfolio Transactions
Investment decisions. Investment decisions for each of the funds
and
for the other investment advisory clients of Putnam Management
and its
affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many
factors in addition to basic suitability for the particular
client
involved. Thus, a particular security may be bought or sold for
certain clients even though it could have been bought or sold for
other clients at the same time. Likewise, a particular security
may
be bought for one or more clients when one or more other clients
are
selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens
that
two or more clients simultaneously purchase or sell the same
security,
in which event each day's transactions in such security are,
insofar
as possible, averaged as to price and allocated between such
clients
in a manner which in Putnam Management's opinion is equitable to
each
and in accordance with the amount being purchased or sold by
each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
Brokerage and research services. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency
transactions involve the payment by the Trust of negotiated
brokerage
commissions. Such commissions vary among different brokers.
Also, a
particular broker may charge different commissions according to
such
factors as the difficulty and size of the transaction.
Transactions
in foreign investments often involve the payment of fixed
brokerage
commissions, which may be higher than those in the United States.
There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price paid by the
Trust usually includes an undisclosed dealer commission or
mark-up.
In underwritten offerings, the price paid includes a disclosed,
fixed
commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive "brokerage and research
services"
(as defined in the Securities Exchange Act of 1934, as amended
(the
"1934 Act")) from broker-dealers that execute portfolio
transactions
for the clients of such advisers and from third parties with
which
these broker-dealers have arrangements. Consistent with this
practice, Putnam Management receives brokerage and research
services
and other similar services from many broker-dealers with which
Putnam
Management places the funds' portfolio transactions and from
third
parties with which these broker-dealers have arrangements. These
services include such matters as general economic and market
reviews,
industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments,
newspapers, magazines, pricing services, quotation services, news
services and personal computers utilized by Putnam Management's
managers and analysts. Where the services referred to above are
not
used exclusively by Putnam Management for research purposes,
Putnam
Management, based upon its own allocations of expected use, bears
that
portion of the cost of these services which directly relates to
their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients
(including the Trust), although not all of these services are
necessarily useful and of value in managing the Trust. The
management
fee paid by the Trust is not reduced because Putnam Management
and its
affiliates receive these services even though Putnam Management
might
otherwise be required to purchase some of these services for
cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for each fund and buys and sells
investments for
each fund through a substantial number of brokers and dealers.
In so
doing, Putnam Management uses its best efforts to obtain for each
fund
the most favorable price and execution available, except to the
extent
it may be permitted to pay higher brokerage commissions as
described
below. In seeking the most favorable price and execution, Putnam
Management, having in mind each fund's best interests, considers
all
factors it deems relevant, including, by way of illustration,
price,
the size of the transaction, the nature of the market for the
security
or other investment, the amount of the commission, the timing of
the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer
involved and the quality of service rendered by the broker-dealer
in
other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management
Contract, Putnam Management may cause a fund to pay a
broker-dealer
which provides "brokerage and research services" (as defined in
the
1934 Act) to Putnam Management an amount of disclosed commission
for
effecting securities transactions on stock exchanges and other
agency
transactions for the fund on an agency basis in excess of the
commission which another broker-dealer would have charged for
effecting that transaction. Putnam Management's authority to
cause a
fund to pay any such greater commissions is also subject to such
policies as the Trustees may adopt from time to time. Putnam
Management does not currently intend to cause the Trust to make
such
payments. It is the position of the staff of the Securities and
Exchange Commission that Section 28(e) does not apply to the
payment
of such greater commissions in "principal" transactions.
Accordingly,
Putnam Management will use its best efforts to obtain the most
favorable price and execution available with respect to such
transactions, as described above.
The Management Contract provides that commissions, fees,
brokerage or
similar payments received by Putnam Management or an affiliate in
connection with the purchase and sale of portfolio investments of
a
fund, less any direct expenses approved by the Trustees, shall be
recaptured by the fund through a reduction of the fee payable by
the
fund under the Management Contract. Putnam Management seeks to
recapture for each fund soliciting dealer fees on the tender of
the
fund's portfolio securities in tender or exchange offers. Any
such
fees which may be recaptured are likely to be minor in amount.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most
favorable
price and execution available and such other policies as the
Trustees
may determine, Putnam Management may consider sales of shares of
the
Trust (and, if permitted by law, of the other Putnam funds) as a
factor in the selection of broker-dealers to execute portfolio
transactions for the Funds.
Fund Fiscal Brokerage
name year commissions
- ---- ------ -----------
Putnam VT Asia
Pacific Growth
Fund (Commencement 1997 $679,699
of operations 1996 $829,577
May 1, 1995) 1995 $205,198
Putnam VT Diversified
Income Fund 1997 $32,813
1996 $11,983
1995 $14,676
Putnam VT Global Asset
Allocation Fund 1997 $1,043,014
1996 $908,217
1995 $797,004
Putnam VT Global
Growth Fund 1997 $8,339,967
1996 $3,111,557
1995 $2,275,831
<PAGE>
Putnam VT Growth and
Income Fund 1997 $8,609,589
1996 $5,056,587
1995 $3,637,703
Putnam VT High
Yield Fund 1997 $9,384
1996 $14,940
1995 $11,800
Putnam VT International
Growth Fund 1997 $553,235
1996 N/A
1995 N/A
Putnam VT International
Growth & Income Fund 1997 $659,464
1996 N/A
1995 N/A
Putnam VT International
New Opportunities
Fund 1997 $733,380
1996 N/A
1995 N/A
Putnam VT Money
Market Fund 1997 $0
1996 $0
1995 $0
Putnam VT New
Opportunities Fund
(Commencement of
operations
May 2, 1994) 1997 $2,268,158
1996 $1,584,684
1995 $312,487
Putnam VT New
Value Fund 1997 $292,442
1996 N/A
1995 N/A
Putnam VT U.S. Government
and High Quality
Bond Fund 1997 $85,584
1996 $23,582
1995 $2,880
Putnam VT Utilities
Growth and Income Fund 1997 $785,994
1996 $898,263
1995 $938,350
Putnam VT Vista Fund 1997 $174,221
1996 N/A
1995 N/A
Putnam VT Voyager Fund 1997 $3,624,594
1996 $3,380,235
1995 $2,171,392
Principal Underwriter
Putnam Mutual Funds is the principal underwriter of shares of the
Trust, which are continuously offered, and shares of the other
continuously offered Putnam funds. Putnam Mutual Funds is not
obligated to sell any specific amount of shares of the Trust and
will
purchase shares for resale only against orders for shares.
Investor servicing agent and Custodian
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company
("PFTC"), is the Trust's investor servicing agent (transfer, plan
and
dividend disbursing agent), for which it receives fees which are
paid
monthly by the Trust as an expense of all its shareholders. The
fee
paid to Putnam Investor Services is determined on the basis of
the
number of shareholder accounts, the number of transactions and
the
assets of the fund. Putnam Investor Services won the DALBAR
Quality
Tested Service Seal in 1990, 1991, 1992, 1993, 1994 and 1995.
Over
10,000 tests of 38 separate shareholder service components
demonstrated that Putnam Investor Services tied for the highest
scores, with two other mutual fund companies in all categories.
The Trust paid $12,166,403 in gross fees to PFTC for its
investor servicing and custody services during fiscal 1997. The
Trust
made no payments to PFTC for out-of-pocket expenses related to
the
investor servicing agent's function for the year. For a
description
of the custodial services provided by PFTC, see "Custodian"
below.
Putnam Fiduciary Trust Company is also investor servicing agent
for
the other Putnam funds and receives fees from each of those funds
for
its services.
<PAGE>
INVESTMENT PERFORMANCE OF THE TRUST
Standard Performance Measures
Yield and total return data for the funds may from time to time
be
presented in the prospectus, this SAI and advertisements. In
the
case of funds with more than one class of shares, all performance
information is calculated separately for each class. The
data is
calculated as follows.
Total return for the one-, five- and ten year periods (or for
such
shorter periods as the fund has been in operation or shares of
the
relevant class have been outstanding) is determined by
calculating
the actual dollar amount of investment return on a $1,000
investment
in a fund at the beginning of the period, at net asset value
for
class IA and IB shares and then calculating the annual
compounded
rate of return which would produce that amount. Total return for
a
period of one year is equal to the actual return of a fund during
that
period. Total return calculations assume deduction of the
fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all
fund distributions at net asset value on their respective
reinvestment
dates.
A fund's yield is presented for a specified thirty-day period
(the
"base period"). Yield is based on the amount determined by (i)
calculating the aggregate amount of dividends and interest earned
by
the fund during the base period less expenses accrued for that
period,
and (ii) dividing that amount by the product of (A) the average
daily
number of shares of the fund outstanding during the base period
and
entitled to receive dividends and (B) the per share net asset
value
for class IA and IB shares of the fund on the last day of
the
base period. The result is annualized on a compounding basis to
determine the fund's yield. For this calculation, interest
earned on
debt obligations held by the fund is generally calculated using
the
yield to maturity (or first expected call date) of such
obligations
based on their market values (or, in the case of
receivables-backed
securities such as GNMAs, based on cost). Dividends on equity
securities are accrued daily at their stated dividend rates.
The
amount of expenses used in determining the fund's yield includes,
in
addition to expenses actually accrued by the fund, an estimate of
the
amount of expenses that the fund would have incurred if brokerage
commissions had not been used to reduce such expenses.
Putnam VT Money Market Fund's yield is computed by determining
the
percentage net change, excluding capital changes, in the value of
an
investment in one share of the fund over the seven-day period for
which yield is presented (the "base period"), and multiplying the
net
change by 365/7 (or approximately 52 weeks). The fund's
effective
yield represents a compounding of the fund's yield by adding 1 to
the
number representing the percentage change in value of the
investment
during the base period, raising that sum to a power equal to
365/7,
and subtracting 1 from the result.
At times, Putnam Management may reduce its compensation or assume
expenses of a fund in order to reduce that fund's expenses. The
annual per share amount of any such fee reduction or
assumption
of expenses during the fund's past ten fiscal years (or for
the
life of the fund, if shorter) is set forth in the footnotes
to the
table entitled "Financial highlights" in the class IA and
class IB
prospectuses. Any such fee reduction or assumption of
expenses would increase a fund's yield and total return for
periods
including the period of the fee reduction or
assumption.
The table below presents yield and total return performance
information for the class IA shares for the period ended December
31,
1997. For funds that have been in existence for more than one
year,
average annual total return information is shown. For funds in
existence for a year or less, cumulative total return information
(from the period of the fund's inception through December 31,
1997)
is shown. All data is based on past performance and does
not
predict future results. No class IB shares were outstanding
during
these periods.
Total Return
-----------------------------
Putnam VT Fund Yield* 1 year 5 years Life of fund
Asia Pacific N/A -14.66% N/A -1.81%
Diversified Income 8.19% 7.38 N/A 7.50
Global Asset
Allocation 2.55 19.67 14.60% 12.11
Global Growth N/A 14.33 15.24 10.63
Growth and Income 1.82 24.15 18.86 16.65
High Yield 9.12 14.34 12.57 11.49
International
Growth & Income 1.33 N/A N/A 19.43
International
Growth N/A N/A N/A 16.13
International
New Opportunities N/A N/A N/A -0.10
Money Market 5.34 5.22 4.47 5.50
New Opportunities N/A 23.29 N/A 22.86
New Value N/A N/A N/A 17.60
U.S. Government and
High Quality Bond 5.56 8.64 7.60 8.73
Utilities
Growth and Income 3.09 27.10 15.26 14.72
Vista N/A N/A N/A 23.21
Voyager N/A 26.51 19.25 18.08
* Cumulative performance
* Information shown for all funds except Putnam VT Money Market
Fund
represents 30-day yield. Information shown for Putnam VT Money
Market
Fund represents 7-day yield.
See the prospectus for the inception date of each fund. The
foregoing
performance information reflects an expense limitation applicable
to
Putnam VT High Yield Fund for fiscal 1988, Putnam VT Utilities
Growth
and Income Fund for fiscal 1992, Putnam VT New Opportunities Fund
for
fiscal 1994 , Putnam VT Asia Pacific Growth Fund for
fiscal
1995, and Putnam VT International Growth Fund, Putnam VT
International Growth and Income Fund, Putnam VT International New
Opportunities Fund, Putnam New Value Fund and Putnam VT Vista
Fund for
fiscal 1997. Performance information presented for the funds
should
not be compared directly with performance information of other
insurance products without taking into account insurance-related
charges and expenses payable under their variable annuity
contracts.
These charges and expenses are not reflected in the funds'
performance
and would reduce an investor's return under the annuity contract.
DETERMINATION OF NET ASSET VALUE
The Trust values the shares of each fund daily on each day the
New
York Stock Exchange (the "Exchange") is open. Currently, the
Exchange
is closed Saturdays, Sundays and the following holidays: New
Year's
Day, Rev. Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving
and
Christmas. The Trust determines net asset value as of the close
of
regular trading on the Exchange, currently 4:00 p.m. However,
equity
options held by a fund are priced as of the close of trading at
4:10
p.m., and futures contracts on U.S. government and other
fixed-income
securities and index options held by a fund are priced as of
their
close of trading at 4:15 p.m.
Putnam VT Money Market fund. The valuation of the fund's
portfolio
instruments at amortized cost is permitted in accordance with
Securities and Exchange Commission Rule 2a-7 and certain
procedures
adopted by the Trustees. The amortized cost of an instrument is
determined by valuing it at cost originally and thereafter
amortizing
any discount or premium from its face value at a constant rate
until
maturity, regardless of the effect of fluctuating interest rates
on
the market value of the instrument. Although the amortized cost
method provides certainty in valuation, it may result at times in
determinations of value that are higher or lower than the price
the
fund would receive if the instruments were sold. Consequently,
changes in the market value of portfolio instruments during
periods of
rising or falling interest rates will not normally be reflected
either
in the computation of net asset value of the fund's portfolio or
in
the daily computation of net income. Under the procedures
adopted by
the Trustees, the fund must maintain a dollar-weighted average
portfolio maturity of 397 days or less, purchase only instruments
having remaining maturities of 90 days or less and invest in
securities determined by the Trustees to be of high quality with
minimal credit risks. The Trustees have also established
procedures
designed to stabilize, to the extent reasonably possible, the
fund's
price per share as computed for the purpose of distribution,
redemption and repurchase at $1.00. These procedures include
review
of the fund's portfolio holdings by the Trustees, at such
intervals as
they may deem appropriate, to determine whether the fund's net
asset
value calculated by using readily available market quotations
deviates
from $1.00 per share, and, if so, whether such deviation may
result in
material dilution or is otherwise unfair to existing
shareholders. In
the event the Trustees determine that such a deviation exists,
they
will take such corrective action as they regard as necessary and
appropriate, including selling portfolio instruments prior to
maturity
to realize capital gains or losses or to shorten average
portfolio
maturity, withholding dividends, redeeming shares in kind, or
establishing a net asset value per share by using readily
available
market quotations.
Since the net income of the fund is declared as a dividend each
time
it is determined, the net asset value per share of the fund
remains at
$1.00 per share immediately after such determination and dividend
declaration. Any increase in the value of a shareholder's
investment
in the fund representing the reinvestment of dividend income is
reflected by an increase in the number of shares of the fund in
the
shareholder's account on the first day of the next month (or, if
that
day is not a business day, on the next business day). It is
expected
that the fund's net income will be positive each time it is
determined. However, if because of realized losses on sales of
portfolio investments, a sudden rise in interest rates, or for
any
other reason the net income of the fund determined at any time is
a
negative amount, the fund will offset such amount allocable to
each
then shareholder's account from dividends accrued during the
month
with respect to such account. If at the time of payment of a
dividend
(either at the regular monthly dividend payment date, or, in the
case
of a shareholder who is withdrawing all or substantially all of
the
shares in an account, at the time of withdrawal), such negative
amount
exceeds a shareholder's accrued dividends, the fund will reduce
the
number of outstanding shares by treating the shareholder as
having
contributed to the capital of the fund that number of full and
fractional shares which represent the amount of excess. Each
shareholder is deemed to have agreed to such contribution in
these
circumstances by his or her investment in the fund.
Other Funds. Each of the other funds determines net asset value
as
follows: Securities for which market quotations are readily
available
are valued at prices which, in the opinion of the Trustees or
Putnam
Management, most nearly represent the market values of such
securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case
of
some securities traded over-the-counter) the last reported bid
price,
except that certain U.S. government securities are valued at the
mean
between the last reported bid and asked prices. Short-term
investments having remaining maturities of 60 days or less are
stated
at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following
procedures approved by the Trustees. Liabilities are deducted
from
the total, and the resulting amount is divided by the number of
shares
of the class outstanding.
Reliable market quotations are not considered to be readily
available
for long-term corporate bonds and notes, certain preferred
stocks,
tax-exempt securities, and certain foreign securities. These
investments are valued at fair value on the basis of valuations
furnished by pricing services approved by the Trustees, which
determine valuations for normal, institutional-size trading units
of
such securities using methods based on market transactions for
comparable securities and various relationships between
securities
which are generally recognized by institutional traders. If any
securities held by a fund are restricted as to resale, Putnam
Management determines their fair value following procedures
approved
by the Trustees. The fair value of such securities is generally
determined as the amount which the fund could reasonably expect
to
realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in
any
specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the
issuer and other fundamental analytical data relating to the
investment and to the nature of the restrictions on disposition
of the
securities (including any registration expenses that might be
borne by
the fund in connection with such disposition). In addition,
specific
factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the
same class, the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign
securities)
is substantially completed each day at various times prior to the
close of the Exchange. The values of these securities used in
determining the net asset value of the Trust's shares are
computed as
of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as
convertible bonds, U.S. government securities, and tax-exempt
securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the
close
of the Exchange. Occasionally, events affecting the value of
such
securities may occur between such times and the close of the
Exchange
which will not be reflected in the computation of the funds' net
asset
values. If events materially affecting the values of such
securities
occur during such period, then these securities will be valued at
their fair value following procedures approved by the
Trustees. In
addition, securities held by some of the funds may be traded in
foreign markets that are open for business on days that a fund is
not,
and the trading of such securities on those days may have an
impact on
the value of a shareholder's investment at a time when the
shareholder
cannot buy and sell shares of the fund.
DISTRIBUTION PLAN
The Trust has adopted a distribution plan with respect to class
IB
shares, the principal features of which are described in the
prospectus. This SAI contains additional information which may
be of
interest to investors.
Continuance of the plan is subject to annual approval by a vote
of the
Trustees, including a majority of the Trustees who are not
interested
persons of a fund and who have no direct or indirect interest in
the
plan or related arrangements (the "Qualified Trustees"), cast in
person at a meeting called for that purpose. All material
amendments
to the plan must be likewise approved by the Trustees and the
Qualified Trustees. The class IB plan may not be amended in
order to
increase materially the costs which a fund may bear for
distribution
pursuant to such plan without also being approved by a majority
of the
outstanding voting securities of a fund. The class IB plan may
terminate automatically in the event of its assignment and may be
terminated without penalty, at any time, by a vote of a majority
of
the Qualified Trustees or by a vote of a majority of the
outstanding
voting securities of the fund or the relevant class of a fund, as
the
case may be.
Putnam Mutual Funds pays service fees to insurance companies and
their
affiliated dealers at the rates set forth in the Prospectus.
Service
fees are paid quarterly to the insurance company or dealer of
record
for that quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as
described above may be required to comply with various state and
federal regulatory requirements, including among others those
regulating the activities of insurance companies and securities
brokers or dealers.
Except as otherwise agreed between Putnam Mutual Funds and a
dealer,
for purposes of determining the amounts payable to insurance
companies
or their affiliates, "average net asset value" means the product
of
(i) the average daily share balance in such account(s) and (ii)
the
average daily net asset value of the relevant class of shares
over the
quarter.
SUSPENSION OF REDEMPTIONS
The Trust may not suspend shareholders' right of redemption or
postpone payment for more than seven days unless the New York
Stock
Exchange is closed for other than customary weekends or holidays,
or
except, if permitted by the rules of the Securities and Exchange
Commission during periods when trading on the Exchange is
restricted
or during any emergency which makes it impracticable for the
Trust to
dispose of its securities or to determine fairly the value of its
net
assets, or during any other period permitted by order of the
Commission for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the
Trust. However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each
agreement,
obligation, or instrument entered into or executed by the Trust
or the
Trustees. The Agreement and Declaration of Trust provides for
indemnification out of fund property for all loss and expense of
any
shareholder held personally liable for the obligations of that
fund.
Thus, the risk of a shareholder incurring financial loss on
account of
shareholder liability is limited to circumstances in which a fund
would be unable to meet its obligations. The likelihood of such
circumstances is remote.
CUSTODIAN
Putnam Fiduciary Trust Company ("PFTC") is the custodian of the
Trust's assets. In carrying out its duties under its custodian
contract, PFTC may employ one or more subcustodians whose
responsibilities will include safeguarding and controlling the
Trust's
cash and securities, handling the receipt and delivery of
securities
and collecting interest and dividends on the Trust's investments.
PFTC and any subcustodians employed by it have a lien on the
securities of each fund (to the extent permitted by the Trust's
investment restrictions) to secure charges and any advances made
by
such subcustodians at the end of any day for the purpose of
paying for
securities purchased by the Trust for the benefit of that fund.
The
Trust expects that such advances will exist only in unusual
circumstances. Neither PFTC nor any subcustodian determines the
investment policies of any fund or decides which securities a
fund
will buy or sell. PFTC pays the fees and other charges of any
subcustodians employed by it. The Trust may from time to time
pay
custodial expenses in full or in part through the placement by
Putnam
Management of the Trust's portfolio transactions with the
subcustodians or with a third-party broker having an agreement
with
the subcustodians. The Trust pays PFTC an annual fee based on
each
fund's assets, securities transactions and securities holdings
and
reimburses PFTC for certain out-of-pocket expenses incurred by it
or
any subcustodian employed by it in performing custodial services.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP are the Trust's independent accountants,
providing audit services, tax return review and other tax
consulting
services and assistance and consultation in connection with the
review
of various Securities and Exchange Commission filings. The
Report of
Independent Accountants and financial statements included in the
Trust's Annual Report for the fiscal year ended December 31, 1997
filed electronically on February 27 , 1998 (File No.
811-5346),
are incorporated by reference into this SAI.
The financial statements for the fiscal year ended December 31,
1997
incorporated by reference into this SAI have been so included and
incorporated in reliance upon the report of the independent
accountants, given on their authority as experts in auditing and
accounting.
PUTNAM VARIABLE TRUST
FORM N-lA
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting Schedules:
(1) Financial Statements:
Statements of assets and liabilities --December
31, 1997 (a).
Statements of operations -- year ended December
31, 1997 (a).
Statement of changes in net assets -- years ended
December 31, 1997 and December 31, 1996 (a).
Financial highlights (a) (b).
Notes to financial statements (a).
(2) Supporting Schedules:
Schedule I - Portfolios of investments
owned -- December 31, 1997 (a).
Schedules II through IX omitted
because the
required matter is not present.
(a) Included in Part B.
(b) Included in Part A.
- ---------------
(b) Exhibits:
1. Agreement and Declaration of Trust dated September
24, 1987, as revised January 1, 1997 --
Incorporated by reference to Post-Effective
Amendment No. 14 to the Registrant's Registration
Statement.
2. By-Laws, as amended through January 30, 1997 --
Incorporated by reference to Post-Effective
Amendment No. 14 to the Registrant's Registration
Statement.
3. Not applicable.
4a. Not applicable
4b. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights --Incorporated by
reference to Post-Effective Amendment No. 14 to
the Registrant's Registration Statement.
4c. Portions of By-Laws Relating to Shareholders'
Rights -- Incorporated by reference to Post-
Effective Amendment No. 14 to the Registrant's
Registration Statement.
5. Management Contract, dated October 2,
1987, as supplemented March 2, 1990, as further
supplemented February 27, 1992, July 9, 1993,
April 5, 1994, June 2, 1994, April 7, 1995, July
13, 1995, July 11, 1996, December 20, 1996 and
February 6 , 1998 -- Exhibit 1.
6a. Distributor's Contract dated May 6, 1994 --
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement.
6b. Form of Specimen Dealer Sales Contract --
Incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration
Statement.
6c. Form of Specimen Financial Institution Sales
Contract -- Incorporated by reference to Post-
Effective Amendment No. 11 to the Registrant's
Registration Statement.
7. Not applicable.
8. Custodian Agreement with Putnam Fiduciary Trust
Company dated May 3, 1991, as amended July 13,
1992 -- Incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's
Registration Statement.
9. Investor Servicing Agreement, dated June 3, 1991
with Putnam Fiduciary Trust Company --
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement.
10. Opinion of Ropes & Gray, including consent --
Incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration
Statement.
11. Not applicable.
12. Not applicable.
13. Investment Letters from The Putnam Management
Company, Inc. to the Registrant --Incorporated by
reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement.
14. Not applicable.
15a. Class IB Distribution Plan and Agreement --
Incorporated by reference to Post-Effective
Amendment No. 15 to the Registrant's Registration
Statement.
15b. Form of Specimen Dealer Service Agreement --
Incorporated by reference to Post-Effective
Amendment No. 15 to the Registrant's Registration
Statement.
16. Schedules for computation of performance
quotations -- Exhibit 2.
17a. Financial Data Schedule -- PVT Asia Pacific
Growth
Fund -- Exhibit 3 .
17b. Financial Data Schedule -- PVT Diversified Income
Fund -- Exhibit 4 .
17c. Financial Data Schedule -- PVT Global Asset
Allocation Fund -- Exhibit 5 .
17d. Financial Data Schedule -- PVT Global Growth Fund
-- Exhibit 6 .
17e. Financial Data Schedule -- PVT Growth and Income
Fund -- Exhibit 7 .
17f. Financial Data Schedule -- PVT High Yield Fund --
Exhibit 8 .
17g. Financial Data Schedule -- PVT International
Growth Fund -- Exhibit 9 .
17h. Financial Data Schedule -- PVT International
Growth and Income Fund -- Exhibit 10 .
17i. Financial Data Schedule -- PVT International New
Opportunities Fund -- Exhibit 11 .
17j. Financial Data Schedule -- PVT Money Market Fund -
- Exhibit 12 .
17m. Financial Data Schedule -- PVT New Opportunities
Fund -- Exhibit 13 .
17m. Financial Data Schedule -- PVT New Value Fund --
Exhibit 14 .
17n. Financial Data Schedule -- PVT U.S. Government and
High Quality Bond Fund -- Exhibit 15 .
17o. Financial Data Schedule -- PVT Utilities Growth
and Income Fund -- Exhibit 16 .
17p. Financial Data Schedule -- PVT Vista Fund --
Exhibit 17 .
17p. Financial Data Schedule -- PVT Voyager Fund --
Exhibit 18 .
18. Rule 18f-3(d) Plan -- Incorporated by reference to
Post-Effective Amendment No. 15 to the
Registrant's Registration Statement.
<PAGE>
Item 25. Persons Controlled by or under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
As of March 31, 1998 there were 30 shareholders of
the Registrant's Class IA shares of beneficial interest. No
Class IB
shares were outstanding as of that date.
Item 27. Indemnification
The information required by this item is incorporated by
reference to the Registrant's Initial Registration Statement on
Form
N-1A under the Investment Company Act of 1940 (File No.
33-17486).<PAGE>
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.
Name Non-Putnam business and other
connections
Michael J. Abata Prior to May, 1997, Assistant
Assistant Vice President Alliance Capital Management Corp.,
1345 Avenue of the Americas, New
York, NY 10020
Nikesh Arora Prior to April, 1997, Chief Financial
Vice President Officer, Fidelity Investments, 82
Devonshire St., Boston, MA 02110
Michael Arends Prior to May, 1997, Managing Director,
Senior Vice President Equities, Phoenix Duff & Phelps, 56
Prospect St., Hartford, CT 06101
Michael J. Atkin Prior to July, 1997, Director of
Senior Vice President Latin America, Institute of
International Finance, 2000
Pennsylvania Avenue, Washington,
D.C. 20006
Rowland T. Bankes Prior to July, 1997, Senior Fixed-
Vice President Income Trader, Jennison Associates
Capital Corp., One Financial Center,
Boston, MA 02110
Robert R. Beck Director, Charles Bridge Publishing,
Senior Vice President 85 Main St., Watertown, MA 02172
Geoffrey C. Blaisdell Prior to October, 1997, Vice President
Senior Vice President Blackrock Financial, 345 Park
Avenue, New York, NY 10010
John A. Boselli Prior to April, 1996, Senior Manager,
Vice President Price Waterhouse LLP, 200 E.
Randolph Drive, Chicago, IL 60601
<PAGE>
Jeffrey M. Bray Prior to October, 1997, Analyst,
Vice President Lehman Brothers, 3 World Financial
Center, New York, NY 10285
Ronald J. Bukovak Prior to October, 1997, Senior Manager
Vice President Valuation, Price Waterhouse, 200 E.
Randolph Drive, Chicago, IL 60601
Robert W. Burke Member-Executive Committee, The Ridge
Senior Managing Director Club, Country Club Road, Sandwich,
MA 02563; Member-Advisory Board,
Cathedral High School, 74 Union Park
St., So. Boston, MA 02118
Jack P. Chang Prior to July, 1997, Vice President
Vice President Columbia Management Company, 1300
S.W. 6th Ave., Portland, OR 97207
Mary Claire Chase Prior to January, 1997, Director of
Vice President Staff Development, Arthur D. Little
Co., 25 Acorn Park, Cambridge, MA
02140
James E. Corning Prior to October, 1996, Assistant Vice
Assistant Vice President President of Plan Investments at
State Street Bank & Trust, 1776
Heritage Dr., Quincy, MA 02171
C. Beth Cotner Director, The Lyric Stage Theater, 140
Senior Vice President Clarendon St., Boston, MA; Prior to
September, 1995, Executive Vice
President, Director of U.S. Equity
Funds, Kemper Financial Services,
120 S. LaSalle St., Chicago, IL
60603
Kevin M. Cronin Prior February, 1997, Vice President
Senior Vice President and Portfolio Manager, MFS
Investment Management, 500 Boylston
St., Boston, MA 02117
Peter J. Curran Prior to January, 1996, Vice President
Senior Vice President ITT Sheraton Director Worldwide
Staffing, ITT Sheraton Corporation,
60 State St., Boston, MA 02109
William J. Curtin Prior to August, 1996, Managing
Managing Director Director, Chief Global Fixed-Income
Strategist, Lehman Brothers, 3 World
Financial Center, New York, NY 10285
Sean G. Daly Prior to March, 1997, Assistant
Assistant Vice President Vice President-Corporate Accounting,
Fleet Financial Group, 111
Westminster St., Providence, RI
02903
Michael W. Davis Prior to August, 1997, Technical
Vice President Finance Consultant, Bank of America
Mortgage, 50 California St., San
Francisco, CA 94111; Prior to
January, 1996, Consultant, Martin
Davis and Associates, 33215
Sandpiper Rd., Freemont, CA 94555
Michael G. Dolan Chairman-Finance Council, St. Mary's
Assistant Vice President Parish, 44 Myrtle St., Melrose, MA
02176; Member, School Advisory
Board, St. Mary's School, 44 Myrtle
St., Melrose, MA 02176
Andrea Donnelly Prior to March, 1996, Equity Trader,
Assistant Vice President Hellman Jordan Management Company,
Inc., 75 State St., Suite 2420,
Boston, MA 02109
Martha A. Donovan Prior to July, 1996, Assistant
Vice President Treasurer, CBS Inc., 51 W. 52nd St.,
New York, NY 10020
Nathan Eigerman Prior to July, 1996, Quantitative
Assistant Vice President Analyst, Fidelity Management &
Research, 82 Devonshire St., Boston,
MA 02110
Irene M. Esteves Prior to January, 1997, Vice
Managing Director President, Miller Brewing Co., 3939
West Highland Blvd. Milwaukee, WI.
53201
Ian C. Ferguson Prior to April, 1996, Chief
Senior Managing Director Executive Officer, HSBC Asset
Management, Ltd., 6 Bevis Marks,
London, England
Brian J. Fullerton Prior to November, 1995, Vice
Senior Vice President President, Pension and 401(k)
Derivatives Marketing, J.P. Morgan,
60 Wall Street, New York, NY 10260
J. Peter Grant Trustee, The Dover Church, Dover, MA
Senior Vice President 02030
Donnalee Guerin Prior to September, 1996, Corporate
Assistant Vice President Service Manager, Haemonetics Corp.,
400 Wood Rd., Braintree, MA 02184.
Paul E. Haagensen Director, Haagensen Research
Senior Vice President Foundation, 630 West 168th St., New
York, NY 10032
James B. Haines Prior to February, 1997, Associate,
Assistant Vice President Benefits Department, Ropes & Gray,
One International Place, Boston, MA
02110
Matthew C. Halperin Prior to April, 1996, Portfolio
Senior Vice President Manager, Allstate Insurance, 3075
Sanders Road, Northbrook, IL 60062
Mary S. Hapij Prior to March, 1997, Research
Assistant Vice President Library Manager, Pioneering
Management Corp., 60 State Street,
Boston, MA 02109; Prior to January,
1996, Information Resource Center
Manager, Copley Real Estate
Advisers, 399 Boylston St., Boston,
MA 02116
Nigel P. Hart Prior to October, 1997, Senior Vice
Vice President President and Portfolio Manager,
Investment Advisers, 3700 First Bank
Place, Minneapolis, MN 55402
Thomas R. Haslett Prior to December, 1996, Managing
Managing Director Director and Senior Portfolio
Manager, Montgomery Asset
Management, LTD, 101 California St.,
San Franscisco, CA 94111
Timothy E. Hawkins Prior to September, 1997, Investment
Vice President Officer, Liberty Mutual, 175
Berkeley St., Boston, MA 02116
Daniel E. Herbert Prior to April, 1996, Vice President
Vice President and Analyst, Keystone Group, Inc.,
200 Berkeley St., Boston, MA 02116
Thomas J. Hoey Prior to April, 1996, Securities
Vice President Analyst, Driehaus Capital
Management, Inc., 25 East Erie St.,
Chicago, IL 60610
Jerome J. Jacobs Prior to September, 1996, Head of
Managing Director Municipal Bond Group, Vanguard
Group Investments, 100 Vanguard
Blvd., Malvern, PA 19482
Omid Kamshad Prior to January, 1996, Investment
Senior Vice President Director, Lombard Odier, 13
Southampton Place, London, England,
WC1
Mary E. Kearney Trustee, Massachusetts Eye and Ear
Managing Director Infirmary, 243 Charles St., Boston,
MA 02114
Matthew W. Keenan Prior to December, 1996, Copy Editor,
Vice President The Boston Globe, 135 Morrisey
Blvd., Boston, MA 02107
Catherine Kennedy Prior to September, 1997, Principal
Vice President Morgan Stanley, 1585 Broadway, New
York, NY 10036
Jeffrey K. Kerrigan Prior to June, 1997, Vice President,
Assistant Vice President Fleet Investments, 75 State St.,
Boston, MA 02109
David R. King Prior to October, 1997, Vice President
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA
Deborah F. Kuenstner Prior to March, 1997, Senior Portfolio
Senior Vice President Manager, DuPont Pension Fund
Investment, 1 Right Parkway,
Wilmington, DE 19850
Thomas J. Kurey Prior to August, 1997, Vice President
Vice President Everen Securities, 77 W. Wacker,
Chicago, IL 60601
Kenneth W. Lang Prior to April, 1997, Vice President,
Vice President Montgomery Securities, 600
Montgomery St., San Francisco, CA
94111
Coleman N. Lannum, III Prior to June, 1997, Director-
Vice President Investor Relations, Mallinckrodt,
Inc., 7733 Forsyth Blvd., St. Louis,
MO 63105
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020; Board Member,
Artery Business Committee, One
Beacon Street, Boston, MA 02108;
Board of Managers, Investment and
Finance Committees, Beth Israel
Hospital, 330 Brookline Avenue,
Boston, MA 02215; Board of
Governors, Executive Committee,
Investment Company Institute, 1401
H. St., N.W., Suite 1200,
Washington, DC 20005; Board of
Overseers, Museum of Fine Arts, 465
Huntington Ave., Boston, MA 02115;
Board Member, Trust for City Hall
Plaza, Three Center Plaza, Boston,
MA 02108; Board Member, The Vault
Coordinating Committee, c/o John
Hancock Mutual Life Insurance
Company, Law Sector, T-55, P.O. Box
111, Boston, MA 02117
Joan M. Leary Prior to January, 1997, Senior Tax
Assistant Vice President Manager, KPMG, 99 High St., Boston,
MA 02110
Julian W. Lim Prior to July, 1997, Manager, Fidelity
Assistant Vice President Management & Research, 82 Devonshire
St., Boston, MA 02110
Geirulv Lode Prior to July, 1997, Vice President
Vice President Chancellor Lgt. Asset Management,
1166 Avenue of the Americas, New
York, NY 10036
Diana R. Madonna Prior to January, 1997, Librarian,
Assistant Vice President Lipper Analytical Services, Inc.,
1380 Lawrence St., Denver CO 80204
Bruce D. Martin Prior to April, 1997, Vice President,
Vice President Eaton Vance, 29 Federal St., Boston,
MA 02110; Prior to August, 1996,
Senior Research Officer, John
Hancock Mutual Life Insurance Co.,
101 Huntington Ave., Boston, MA
02190
Saba Malak Prior to October, 1997, Consultant,
Vice President The Boston Consultant, Exchange
Place, Boston, MA 02109
Kevin Maloney Trustee, Town of Hanover, NH, Trustee
Managing Director of Trust Funds, Hanover, NH 03755;
President and Board Member,
Hampshire Cooperative Nursery
School, Dartmouth College Highway,
Hanover, NH 03755
Scott M. Maxwell Prior to March, 1997, Chief Financial
Managing Director Officer-Equity Division, Lehman
Brothers, 3 World Financial Center,
New York, NY 10285
William F. McGue Member, Advisory Committee, Academy
Managing Director of Finance, 2 Oliver St., Boston, MA
02109
Mary G. McNamee Prior to December, 1996, Recruitment
Assistant Vice President Consultant, 171 Walnut St. Boston,
MA 02110
Sandeep Mehta Prior to May, 1996, Vice President,
Vice President Wellington Management Co., 100
Vanguard Blvd., Malvern, PA 19355
Carol H. Miller Board Member, The Lyric Stage Theater,
Assistant Vice President 140 Clarendon St., Boston, MA 02116
William H. Miller Prior to October, 1997, Vice
Senior Vice President President and Asset Portfolio
Manager, Delawre Management, One
Commerce Square, Philadelphia, PA;
Prior to January, 1995, Vice
President and Analyst, Janney,
Montgomery, Scott, 1801 Market St.,
Philadelphia, PA 19104
Jeanne L. Mockard Trustee, The Bryn Mawr School, 109
Senior Vice President W. Melrose Avenue, Baltimore, MD
21210
Gerard I. Moore Prior to August, 1997, Vice
Vice President President/Equity Research, Boston
Company Asset Management, One
Boston, Place, Boston, MA 02109
Kelly A. Morgan Prior to September, 1996, Senior Vice
Senior Vice President President and International
Portfolio Manager, Alliance Capital
Management, 1345 Avenue of the
Americas, New York, NY 10020
David D. Motill Prior to April, 1996, Indepdendent
Vice President Consultant, 417 Valley Forge Rd.,
Wayne, PA 19087; Prior to July,
1995, Senior Investment Analyst, SEI
Investments, One Freedom Valley
Drive, Oaks, PA 19456
Lois O'Brien Prior to March, 1996, Director,
Assistant Vice President Training and Development, J. Baker,
Inc., 555 Turnpike St., Canton, MA
02021
Gayle M. O'Connell Prior to March, 1997, Assistant
Assistant Vice President Director of Human Resources, ITT
Sheraton Corporation, 60 State St.,
Boston, MA 02109
Stephen S. Oler Prior to June, 1997, Vice President,
Senior Vice President Templeton Investment Counsel, 500 E.
Broward Blvd., Ft. Lauderdale, FL
33394; Prior to February, 1996,
Senior Vice President, Baring Asset
Management, 125 High St., Boston, MA
02110
Carmel Peters Prior to April, 1997, Managing
Senior Vice President Director/Chief Investment Officer,
Asia Pacific, Wheelock NatWest
Investment Management, Ltd, NatWest
Tower, Times Square, Causeway Bay,
Hong Kong, China; Prior to February,
1996, Chief Investment Officer, Asia
Pacific, Rothschild Asset Management
Asia Pacific, Hong Kong, Alexandra
House, Central Hong Kong, China
William Perry Prior to September, 1997, Senior
Senior Vice President Trader, Fidelity Management &
Research, 82 Devonshire St., Boston,
MA 02110
Keith Plapinger Vice Chairman and Trustee, Advent
Vice President School, 17 Brimmer St., Boston, MA
02108
Charles E. Porter Director, The Boston Fulbright
Executive Vice President Committee, 99 Garden St., Cambridge,
MA; Trustee, Anatolia College and
The American College of
Thessaloniki, 555 10 Pycea,
Thessaloniki, Greece
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.; Director, The Boston
Company, Inc., One Boston Place,
Boston, MA 02108; Director, Boston
Safe Deposit and Trust Company, One
Boston Place, Boston, MA 02108;
Director, Freeport-McMoRan, Inc.,
200 Park Avenue, New York, NY 10166;
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis, MN
55440; Director, Houghton Mifflin
Company, One Beacon Street, Boston,
MA 02108; Director, Marsh & McLennan
Companies, Inc., 1221 Avenue of the
Americas, New York, NY 10020;
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas, New
York, NY 10020
Keith Quinton Director, Eleazar, Inc., West Wheelock
Senior Vice President St., Hanover, NH 03755
Kimberly A. Raynor Prior to April, 1996, Principal,
Vice President Principal, Scudder, Stevens & Clark,
2 International Place, Boston, MA
02110
Paul A. Rokosz Prior to November, 1996, Analyst,
Vice President Kemper Financial Services, 120 S.
Casalle St., Chicago, IL 60606
Michael V. Salm Prior to November, 1997, Mortgage
Vice President Analyst, Blackrock Financial
Management, 345 Park Ave., New York,
NY 10010; Prior to May, 1996,
Trader, Nomura Securities, 2 World
Financial Center, New York, NY 10048
Robert J. Schoen Prior to June, 1997, Sole Proprietor,
Assistant Vice President Schoen Timing Strategies, 315 E.
21st St., New York, NY 10010
Justin M. Scott Director, DSI Properties (Neja) Ltd.
Managing Director Epping Rd., Reydon, Essex CM19 5RD;
Director, DSI Management (Neja)
Ltd., Epping Rd., Reydon, Essex CM19
5RD
Max S. Senter General Partner, M.S. Senter & Sons
Senior Vice President Partnership, 4900 Fayetteville, Rd.,
Raleigh, NC 27611
Mitchell D. Schultz Prior to September, 1996, Vice
Senior Vice President President, Human Resources, The Walt
Disney Co., 500 South Buena Vista
St., Burbank, CA 91510
Edward Shadek, Jr. Prior to March, 1997, Portfolio
Vice President Manager, Newhold Asset Management,
950 Haverford Rd., Bryn Mawr, PA
19010
Gordon H. Silver Trustee, Wang Center for the
Managing Director Performing Arts, 270 Tremont St.,
Boston, MA 02116
Erin J. Spatz Prior to May, 1996, Vice
Vice President President, Pioneering Management
Organization, 60 State St., Boston,
MA 02109
Steven Spiegel Director, Ultra Corp., 29 East
Senior Managing Director Madison St., Chicago, IL 60602;
Trustee, Babson College, One College
Drive, Wellesley, MA 02157; Prior to
December, 1994, Managing
Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285
Christopher A. Spurlock Prior to May, 1997, Sales Trader,
Vice President J.P. Morgan, 60 Wall St., New York,
NY; Prior to March, 1996, Equity
Trader, Pioneer Group, 60 State St.,
Boston, MA 02109
Michael P. Stack Prior to November, 1997, Senior
Senior Vice President Vice President and Portfolio
Manager, Independence Investment
Associates, 53 State St., Boston, MA
02109
Casey Strumpf Prior to January, 1997, Director, Blue
Senior Vice President Cross and Blue Shield, 100 Summer
St., Boston, MA 02110
Maryann Sullivan Prior to August, 1996, Unit Manager,
Assistant Vice President First Data Services, 4400 Computer
Dr., Westboro, MA 01581
Heidi A. Tuchen Prior to December 1996, Vice President
Assistant Vice President and Credit Officer, Fleet Financial
Group, 75 State St., Boston, MA
02109
Scott G. Vierra Prior to September, 1997, Staffing
Vice President Lead, Cisco Systems, 250 Apollo
Drive, Chelmsford, MA 01824
David L. Waldman Prior to June, 1997, Senior Portfolio
Managing Director Manager, Lazard Feres Asset
Management, 30 Rockefeller Center,
New York, NY 10112
Paul C. Warren Prior to May, 1997, Director
Senior Vice President IDS Fund Management, LT, One Pacific
Place, Squuensway, Hong Kong, China
Eric Wetlaufer Prior to November, 1997, Managing
Managing Director Director and Portfolio Manager,
Cadence Capital Management, Exchange
Place, Boston, MA 02109
Burton Wilson Prior to March, 1997, Associate
Assistant Vice President Investments-Banking, Robertson
Stephens & Co., 555 California St.,
Suite 2600, San Francisco, CA 94104
Michael R. Yogg Prior to November, 1996, Portfolio
Senior Vice President Manager, State Street Research &
Management, One Financial Center,
Boston, MA 02111
Scott D. Zaleski Prior to May, 1997, Investment Officer
Assistant Vice President State Street Bank & Trust, 1776
Heritage Dr., Quincy, MA 02171;
Prior to September, 1996, Investment
Associate Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Michael P. Zeller Prior to July, 1997, Sales Manager,
Vice President NYNEX Information Resources, 35
Village Rd., Middleton, MA 01949
William E. Zieff Prior to December, 1996, Global Asset
Managing Director Allocation, Granthham, Mayo, Van
Otterloo & Co., 40 Rowes Wharf,
Boston, MA 02110
<PAGE>
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam American Government Income Fund, Putnam Arizona Tax Exempt
Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset
Allocation Funds, Putnam Balanced Retirement Fund, Putnam
California Tax Exempt Income Fund, Putnam California Tax Exempt
Money Market Fund, Putnam Capital Appreciation Fund, Putnam
Convertible Income-Growth Trust, Putnam Diversified Equity Trust,
Putnam Diversified Income Trust, Putnam Diversified Income Trust
II, Putnam Equity Income Fund, Putnam Europe Growth Fund, Putnam
Federal Income Trust, Putnam Florida Tax Exempt Income Fund,
Putnam Funds Trust, The George Putnam Fund of Boston, Putnam
Global Governmental Income Trust, Putnam Global Growth Fund,
Putnam Global Natural Resources Fund, The Putnam Fund for Growth
and Income, Putnam Growth and Income Fund II, Putnam Health
Sciences Trust, Putnam High Yield Trust, Putnam High Yield
Advantage Fund, Putnam High Yield Municipal Trust, Putnam Income
Fund, Putnam Intermediate U.S. Government Income Fund, Putnam
Investment Funds, Putnam Investors Fund, Putnam Massachusetts Tax
Exempt Income Fund, Putnam Michigan Tax Exempt Income Fund,
Putnam Minnesota Tax Exempt Income Fund, Putnam Money Market
Fund, Putnam Municipal Income Fund, Putnam New Jersey Tax Exempt
Income Fund, Putnam New Opportunities Fund, Putnam New York Tax
Exempt Income Fund, Putnam New York Tax Exempt Money Market Fund,
Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax
Exempt Income Fund, Putnam OTC & Emerging Growth Fund, Putnam
Pennsylvania Tax Exempt Income Fund, Putnam Preferred Income
Fund, Putnam Tax Exempt Income Fund, Putnam Tax Exempt Money
Market Fund, Putnam Tax-Free Income Trust, Putnam U.S. Government
Income Trust, Putnam Utilities Growth and Income Fund, Putnam
Variable Trust, Putnam Vista Fund, Putnam Voyager Fund, Putnam
Voyager Fund II.<PAGE>
<TABLE>
<CAPTION>
(b) The directors and officers of the Registrant's principal underwriter are listed
below. The principal business address of each person is One Post Office
Square, Boston, MA 02109:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<C> <C> <C>
John V. Adduci Vice President None
Frank Albanese Vice President None
Christopher A. Alders Senior Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Jeanne Antill Assistant Vice President None
Margaret Andrews Vice President None
Steven E. Asher Senior Vice President None
Scott A. Avery Senior Vice President None
Christian E. Aymond Vice President None
Suzanne J. Battit Vice President None
Steven M. Beatty Senior Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
Kathleen A. Blackman Assistant Vice President None
John F. Boneparth Managing Director None
Keith R. Bouchard Senior Vice President None
Linwood E. Bradford, Jr. Vice President None
Linda M. Brady Assistant Vice President None
Mary Ann Brennan Assistant Vice President None
Leslee R. Bresnahan Senior Vice President None
James D. Brockelman Senior Vice President None
Joel S. Brockman Vice President None
Timothy K. Brown Senior Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Susan D. Cabana Vice President None
Thomas C. Callahan Assistant Vice President None
Robert Capone Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Senior Vice President None
David M. Casey Vice President None
James R. Castle, Jr. Vice President None
Mary Clare Chase Vice President None
Louis F. Chrostowski Vice President None
Daniel J. Church Vice President None
Richard B. Clark Senior Vice President None
Mary Clermont Assistant Vice President None
John C. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Senior Vice President None
Clare D. Connelly Assistant Vice President None
Donald A. Connelly Senior Vice President None
Karen E. Connolly Assistant Vice President None
Barry M. Conyers Assistant Vice President None
F. Nicholas Corvinus Senior Vice President None
Thomas A. Cosmer Senior Vice President None
Michele A. Cranston Assistant Vice President None
Chad H. Cristo Vice President None
Peter J. Curran Senior Vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Sean G. Daly Assistant Vice President None
Edward H. Dane Vice President None
Nancy M. Days Assistant Vice President None
Pamela De Oliveira-Smith Assistant Vice President None
Lisa M. DeMont Vice President None
Teresa F. Dennehy Vice President None
Karen E. DiStasio Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Deirdre E. Duffy Senior Vice President None
Emily J. Durbin Vice President None
David B. Edlin Managing Director None
Gail A. Eisenkraft Managing Director None
James M. English Senior Vice President None
Vincent Esposito Managing Director None
Irene M. Esteves Director and Managing Director None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter Vice President None
Susan H. Feldman Senior Vice President None
C. Nancy Fisher Managing Director None
Mitchell B. Fishman Senior Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Brian J. Fullerton Senior Vice President None
Judy S. Gates Senior Vice President None
Joseph P. Gennaco Senior Vice President None
Mark P. Goodfellow Assistant Vice President None
Robert Goodman Managing Director None
Carol J. Gould Assistant Vice President None
Anthony J. Grace Assistant Vice President None
Linda K. Grace Vice President None
Daniel W. Greenwood Vice President None
Jill Grossberg Assistant Vice President None
Denise Grove Assistant Vice President None
Jeffrey P. Gubala Vice President None
Donnalee Guerin Assistant Vice President None
Salvatore P. Guerra Assistant Vice President None
James B. Haines Assistant Vice President None
Debra Hall Assistant Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Senior Vice President None
Meghan C. Hannigan Assistant Vice President None
John D. Harbeck Vice President None
Bruce D. Harrington Assistant Vice President None
Craig W. Hartigan Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Vice President None
Dennis P. Hearns Senior Vice President None
Gayle A. Hedstrom Assistant Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
James Hickey Vice President None
Bess J.M. Hochstein Senior Vice President None
Jeremiah K. Holly, Sr. Vice President None
Maureen A. Holmes Assistant Vice President None
Paula J. Hoyt Assistant Vice President None
William J. Hurley Managing Director and Controller None
Dwight D. Jacobsen Managing Director None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
Mary E. Kearney Managing Director None
John P. Keating Vice President None
Brian J. Kelley Vice President None
A. Siobahn Kelly Assistant Vice President None
Anne Kinsman Assistant Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Senior Vice President None
Linda G. Kraunelis Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Marjorie B. Krieger Assistant Vice President None
Charles Lacasia Vice President None
James D. Lathrop Senior Vice President None
Joan M. Leary Assistant Vice President None
Charles C. Ledbetter Vice President None
Margaret Leipsitz Assistant Vice President None
Kevin Lemire Assistant Vice President None
Anthony J. Leonard Vice President None
Eric S. Levy Senior Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
David M. Lifsitz Vice President None
David R. Lilien Vice President None
Ann Marie Linehan Assistant Vice President None
Lisa M. Litant Assistant Vice President None
Thomas W. Littauer Managing Director None
Maura A. Lockwood Vice President None
Rufino R. Lomba Vice President None
Gregory T. Long Vice President None
Peter V. Lucas Senior Vice President None
Kevin Lucey Assistant Vice President None
Robert F. Lucey Director None
Robert F. Lyons Assistant Vice President None
Ann Malatos Assistant Vice President None
Bonnie Mallin Vice President None
Leslie Mannix Senior Vice President None
Frederick S. Marius Vice President None
Karen A. McCafferty Vice President None
Anne B. McCarthy Assistant Vice President None
Paul McConville Vice President None
Brian McCracken Assistant Vice President None
Bruce A. McCutcheon Vice President None
Daniel E. McDermott Assistant Vice President None
Mark J. McKenna Senior Vice President None
Mary G. McNamee Assistant Vice President None
Claye A. Metelmann Vice President None
Eric D. Milgroom Assistant Vice President None
Bart D. Miller Senior Vice President None
Janis E. Miller Managing Director None
Jeffery M. Miller Managing Director None
Ronald K. Mills Vice President None
Matthew P. Mintzer Senior Vice President None
Kimberly A. Monahan Vice President None
Paul R. Moody Vice President None
Peter M. Moore Assistant Vice President None
Mitchell Moret Senior Vice President None
Jean Moses Senior Vice President None
Barry L. Mosher Assistant Vice President None
Donald E. Mullen Vice President None
Paul G. Murphy Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Amy Jane Newell Vice President None
John P. Nickodemus Vice President None
Gail A. Nickse Assistant Vice President None
Kristen P. O'Brien Senior Vice President None
Lois C. O'Brien Vice President None
Nancy E. O'Brien Vice President None
Gayle M. O'Connell Assistant Vice President None
Joseph R. Palombo Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
Dale M. Pelletier Vice President None
Samuel W. Perry Vice President None
Jennifer H. Peterson Assistant Vice President None
Kate Peterson Assistant Vice President None
John G. Phoenix Vice President None
Joseph Phoenix Senior Vice President None
Keith Plapinger Vice President None
Jeffrey P. Pollock Vice President None
Margaret J. Portorski Assitant Vice President None
Douglas H. Powell Vice President None
Howard B. Present Senior Vice President None
Jane E. Price Assistant Vice President None
Scott M. Pulkrabek Vice President None
George Putnam Director Chairman & President
Kimberly Raynor Vice President None
W. Frank Richardson Vice President None
George A. Rio Senior Vice President None
Kris Rodammer Vice President None
Debra V. Rothman Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Charles A. Ruys de Perez Senior Vice President None
Deborah A. Ryan Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Vice President None
Karl W. Saur Vice President None
Michael Scanlon Vice President None
Shannon D. Schofield Vice President None
Mitchell D. Schultz Managing Director None
Curt A. Schultzberg Assistant Vice President None
Christine A. Scordato Senior Vice President None
Joseph W. Scott Assistant Vice President None
Elizabeth R. Segers Senior Vice President None
John B. Shamburg Vice President None
Kathleen G. Sharpless Managing Director None
Terence B. Shea Assistant Vice President None
William N. Shiebler Director and President Vice President
Robert J. Shull, II Vice President None
Gordon H. Silver Senior Managing Director Vice President
John Skistimas, Jr. Assistant Vice President None
Stuart C. Smith Assistant Vice President None
Peter J. Southard Vice President None
Steven Spiegel Senior Managing Director None
Nicholas T. Stanojev Senior Vice President None
Paul R. Stickney Vice President None
J. Bradely Stillwagon Vice President None
Casey Strumpf Senior Vice President None
Brian L. Sullivan Senior Vice President None
Elaine M. Sullivan Vice President None
Guy Sullivan Senior Vice President None
Kevin J. Sullivan Vice President None
Maryann Sullivan Assistant Vice President None
Moira Sullivan Vice President None
George C. Sutherland Vice President None
Maureen C. Tallon Vice President None
B. Iris Tanner Assistant Vice President None
April M. Tavares Assistant Vice President None
David S. Taylor Vice President None
John R. Telling Vice President None
Cynthia Tercha Vice President None
Tracy A. Thomas Assistant Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Vice President None
Bonnie L. Troped Vice President None
Christine M. Twigg Assistant Vice President None
Douglas J. Vander Linde Senior Vice President None
John R. Verani Senior Vice President Vice President
Rajeshiri Vora Vice President None
Mitchell J. Waters Vice President None
Karen Waystack Assistant Vice President None
Dierdre West-Smith Assistant Vice President None
Brian Whalen Vice President None
Edward F. Whalen Senior Vice President None
Peter R. Wheeler Senior Vice President None
J. Gregg Whitaker Vice President None
J. Bennett White Vice President None
Robert A. Williams Vice President None
Leigh T. Williamson Vice President None
Jane Wolfson Senior Vice President None
Benjamin I. Woloshin Vice President None
William H. Woolverton Managing Director None
Michael P. Zeller Vice President None
Laura J. Zografos Vice President None
</TABLE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books
and other documents required to be maintained by Section 31(a) of
the
Investment Company Act of 1940 and the Rules promulgated
thereunder
are Registrant's Clerk, Beverly Marcus; Registrant's investment
adviser, Putnam Investment Management, Inc.; Registrant's
principal
underwriter, Putnam Mutual Funds Corp.; Registrant's custodian,
Putnam
Fiduciary Trust Company ("PFTC"); and Registrant's transfer and
dividend disbursing agent, Putnam Investor Services, a division
of
PFTC. The address of the Clerk, investment adviser, principal
underwriter, custodian and transfer and dividend disbursing agent
is
One Post Office Square, Boston, Massachusetts 02109.
Item 31. Management Services
None.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom
a prospectus of the Registrant is delivered a copy of the
Registrant's
latest annual report to shareholders, upon request and without
charge.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses and the Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A (File No. 33-17486) (the
"Registration Statement") of our report dated February 13 ,
1998, relating to the financial statements and financial
highlights
appearing in the December 31, 1997 Annual Report of Putnam
Variable
Trust, which financial statements and financial highlights are
also
incorporated by reference into the Registration Statement. We
also
consent to the reference to us under the heading "Independent
Accountants and Financial Statements" in such Statement of
Additional
Information and under the headings "Financial highlights" in
such
Prospectuses .
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 28 , 1998
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam
Variable Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this
instrument is executed on behalf of the Registrant by an officer
of
the Registrant as an officer and not individually and the
obligations
of or arising out of this instrument are not binding upon any of
the
Trustees, officers or shareholders individually but are binding
only
upon the assets and property of the relevant series of the
Registrant.
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of the Putnam Variable Trust,
hereby
severally constitute and appoint George Putnam, Charles E.
Porter,
Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John
W.
Gerstmayr, and each of them singly, my true and lawful attorneys,
with
full power to them and each of them, to sign for me, and in my
name
and in the capacity indicated below, the Registration Statement
on
Form N-1A of the Putnam Variable Trust and any and all amendments
(including post-effective amendments) to said Registration
Statement
and to file the same with all exhibits thereto, and other
documents in
connection therewith, with the Securities and Exchange
Commission,
granting unto my said attorneys, and each of them acting alone,
full
power and authority to do and perform each and every act and
thing
requisite or necessary to be done in the premises, as fully to
all
intents and purposes as he might or could do in person, and
hereby
ratify and confirm all that said attorneys or any of them may
lawfully
do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ Paul L. Joskow
- --------------------- Trustee
November 6, 1997
Paul L. Joskow
<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of the Putnam Variable Trust,
hereby
severally constitute and appoint George Putnam, Charles E.
Porter,
Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John
W.
Gerstmayr, and each of them singly, my true and lawful attorneys,
with
full power to them and each of them, to sign for me, and in my
name
and in the capacity indicated below, the Registration Statement
on
Form N-1A of the Putnam Variable Trust and any and all amendments
(including post-effective amendments) to said Registration
Statement
and to file the same with all exhibits thereto, and other
documents in
connection therewith, with the Securities and Exchange
Commission,
granting unto my said attorneys, and each of them acting alone,
full
power and authority to do and perform each and every act and
thing
requisite or necessary to be done in the premises, as fully to
all
intents and purposes as he might or could do in person, and
hereby
ratify and confirm all that said attorneys or any of them may
lawfully
do or cause to be done by virtue thereof.
WITNESS my hand and seal on the date set forth below.
Signature Title Date
/s/ John H. Mullin, III
- ----------------------- Trustee November 6, 1997
John H. Mullin, III
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and
the Investment Company Act of 1940, the Registrant has
certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities
Act of 1933 and duly caused this Amendment to its
Registration
Statement to be signed on its behalf by the undersigned,
thereunto
duly authorized, in the City of Boston, and The Commonwealth of
Massachusetts, on the 30th day of April , 1998.
PUTNAM VARIABLE TRUST
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam Variable
Trust
has been signed below by the following persons in the capacities
and
on the dates indicated:
Signature Title
George Putnam President and Chairman of the Board;
Principal Executive Officer; Trustee
John D. Hughes Senior Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson Adkins Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Ronald J. Jackson Trustee
Paul L. Joskow Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
John H. Mullin, III Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
William F. Pounds Trustee
George Putnam, III Trustee
A.J.C. Smith Trustee
W. Thomas Stephens Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
April 30 , 1998
PUTNAM VARIABLE TRUST
(formerly Putnam Capital Manager Trust)
MANAGEMENT CONTRACT
Management Contract dated as of October 2, 1987, as supplemented
March 2, 1990, as further supplemented February 27, 1992, as
further supplemented July 9, 1993, as further supplemented April
5, 1994, as further supplemented June 2, 1994, as further
supplemented April 7, 1995, as further supplemented July 13,
1995, as further supplemented July 11, 1996, as further
supplemented December 20, 1996 and as further supplemented
February 6, 1998 between Putnam Variable Trust (formerly Putnam
Capital Manager Trust), a Massachusetts business trust (the
"Fund"), and PUTNAM INVESTMENT MANAGEMENT, INC., a Massachusetts
corporation (the "Manager").
WITNESSETH:
That in consideration of the mutual covenants herein contained,
it is agreed as follows:
1. SERVICES TO BE RENDERED BY MANAGER TO FUND.
(a) The Manager, at its expense, will furnish continuously an
investment program for the Fund, will determine what investments
shall be purchased, held, sold or exchanged by the Fund and what
portion, if any, of the assets of the Fund shall be held
uninvested and shall, on behalf of the Fund, make changes in the
Fund's investments. Subject always to the control of the
Trustees of the Fund and except for the functions carried out by
the officers and personnel referred to in Section 1(d), the
Manager will also manage, supervise and conduct the other affairs
and business of the Fund and matters incidental thereto. In the
performance of its duties, the Manager will comply with the
provisions of the Agreement and Declaration of Trust and By-Laws
of the Fund and its stated investment objectives, policies and
restrictions, and will use its best efforts to safeguard and
promote the welfare of the Fund and to comply with other policies
which the Trustees may from time to time determine and shall
exercise the same care and diligence expected of the Trustees.
(b) The Manager, at its expense, except as such expense is paid
by the Fund as provided in Section 1(d), will furnish (1) all
necessary investment and management facilities, including
salaries of personnel, required for it to execute its duties
faithfully; (2) suitable office space for the Fund; and (3)
administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for the efficient conduct of
the affairs of the Fund, including determination of the Fund's
net asset value, but excluding shareholder accounting services.
Except as otherwise provided in Section 1(d), the Manager will
pay the compensation, if any, of the officers of the Fund.
<PAGE>
(c) The Manager, at its expense, shall place all orders for the
purchase and sale of portfolio investments for the Fund's account
with brokers or dealers selected by the Manager. In the
selection of such brokers or dealers and the placing of such
orders, the Manager shall use its best efforts to obtain for the
Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage
commissions for brokerage and research services as described
below. In using its best efforts to obtain for the Fund the most
favorable price and execution available, the Manager, bearing in
mind the Fund's best interests at all times, shall consider all
factors it deems relevant, including by way of illustration,
price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or
dealer involved and the quality of service rendered by the broker
or dealer in other transactions. Subject to such policies as the
Trustees of the Fund may determine, the Manager shall not be
deemed to have acted unlawfully or to have breached any duty
created by this Contract or otherwise solely by reason of its
having caused the Fund to pay a broker or dealer that provides
brokerage and research services to the Manager an amount of
commission for effecting a portfolio investment transaction in
excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Manager's overall
responsibilities with respect to the Fund and to other clients of
the Manager as to which the Manager exercises investment
discretion. The Manager agrees that in connection with purchases
or sales of portfolio investments for the Fund's account, neither
the Manager nor any officer, director, employee or agent of the
Manager shall act as a principal or receive any commission other
than as provided in Section 3.
(d) The Fund will pay or reimburse the Manager for (i) the
compensation of the Vice Chairman of the Fund and of persons
assisting him in these offices, as determined from time to time
by the Trustees of the Fund, (ii) the compensation in whole or in
part of such other officers of the Fund and persons assisting
them as may be determined from time to time by the Trustees of
the Fund, and (iii) the cost of suitable office space, utilities,
support services and equipment of the Vice Chairman and persons
assisting him and, as determined from time to time by the
Trustees of the Fund, all or a part of such cost attributable to
the other officers and persons assisting them whose compensation
is paid in whole or in part by the Fund. The Fund will pay the
fees, if any, of the Trustees of the Fund.
<PAGE>
(e) The Manager shall pay all expenses incurred in connection
with the organization of the Fund and the initial public offering
and sale of its shares of beneficial interest, provided that upon
the issuance and sale of such shares to the public pursuant to
the offering, and only in such event, the Fund shall become
liable for, and to the extent requested reimburse the Manager
for, registration fees payable to the Securities and Exchange
Commission and for an additional amount not exceeding $125,000 as
its agreed share of such expenses.
(f) The Manager shall not be obligated to pay any expenses of or
for the Fund not expressly assumed by the Manager pursuant to
this Section 1 other than as provided in Section 3.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers
and employees of the Fund may be a shareholder, director, officer
or employee of, or be otherwise interested in, the Manager, and
in any person controlled by or under common control with the
Manager, and that the Manager and any person controlled by or
under common control with the Manager may have an interest in the
Fund. It is also understood that the Manager and any person
controlled by or under common control with the Manager have and
may have advisory, management, service or other contracts with
other organizations and persons, and may have other interests and
business.
3. COMPENSATION TO BE PAID BY THE FUND TO THE MANAGER.
The Fund will pay to the Manager as compensation for the
Manager's services rendered, for the facilities furnished and for
the expenses borne by the Manager pursuant to paragraphs (a),
(b), (c) and (e) of Section 1, a fee, computed and paid quarterly
at the following annual rates applicable to the average net asset
value of each Series of the Fund (a "Series") of:
Putnam VT International New Opportunities Fund:
(a)1.20% of the first $500 million of average net assets;
(b)1.10% of the next $500 million;
(c)1.05% of the next $500 million;
(d)1.00% of the next $5 billion;
(e)0.975% of the next $5 billion;
(f)0.955% of the next $5 billion;
(g)0.94% of the next $5 billion; and
(h)0.93% of any excess thereafter.
<PAGE>
Putnam VT Asia Pacific Growth Fund, Putnam VT International
Growth Fund and Putnam VT International Growth and Income Fund:
(a)0.80% of the first $500 million of average net assets;
(b)0.70% of the next $500 million;
(c)0.65% of the next $500 million;
(d)0.60% of the next $5 billion;
(e)0.575% of the next $5 billion;
(f)0.555% of the next $5 billion;
(g)0.54% of the next $5 billion; and
(h)0.53% of any excess thereafter.
Putnam VT Diversified Income Fund, Putnam VT Global Asset
Allocation Fund, Putnam VT Health Sciences Fund, Putnam VT High
Yield Fund, Putnam VT New Opportunities Fund, Putnam VT New Value
Fund, Putnam VT Utilities Growth and Income Fund, Putnam VT
Voyager Fund and Putnam VT OTC Emerging Growth Fund:
(a)0.70% of the first $500 million of average net assets;
(b)0.60% of the next $500 million;
(c)0.55% of the next $500 million;
(d)0.50% of the next $5 billion;
(e)0.475% of the next $5 billion;
(f)0.455% of the next $5 billion;
(g)0.44% of the next $5 billion; and
(h)0.43% of any excess thereafter.
Putnam VT Growth and Income Fund, Putnam VT U.S. Government and
High Quality Bond Fund, Putnam VT Vista Fund, Putnam VT Investors
Fund and Putnam VT The George Putnam Fund of Boston:
(a)0.65% of the first $500 million of average net assets;
(b)0.55% of the next $500 million;
(c)0.50% of the next $500 million;
(d)0.45% of the next $5 billion;
(e)0.425% of the next $5 billion;
(f)0.405% of the next $5 billion;
(g)0.39% of the next $5 billion; and
(h)0.38% of any excess thereafter.
Putnam VT Money Market Fund:
(a)0.45% of the first $500 million of average net assets;
(b)0.35% of the next $500 million;
(c)0.30% of the next $500 million;
(d)0.25% of the next $5 billion;
(e)0.225% of the next $5 billion;
(f)0.205% of the next $5 billion;
(g)0.19% of the next $5 billion; and
(h)0.18% of any excess thereafter.
Putnam VT Global Growth Fund: 0.60% of average net assets.
<PAGE>
Such fees computed with respect to the net asset value of each
Series shall be paid from the assets of such Series. Such
average net asset value of each Series of the Fund shall be
determined by taking an average of all of the determinations of
such net asset value during such quarter at the close of business
on each business day during such quarter while this Contract is
in effect. Such fee shall be payable for each month within 30
days after the end of such quarter.
The fees payable by the Fund to the Manager pursuant to this
Section 3 with respect to any Series of the Fund shall be reduced
by any commissions, fees, brokerage or similar payments received
by the Manager or any affiliated person of the Manager in
connection with the purchase and sale of portfolio investments of
such Series, less any direct expenses approved by the Trustees
incurred by the Manager or any affiliated person of the Manager
in connection with obtaining such payments.
In the event that expenses of any Series of the Fund for any
fiscal year should exceed the expense limitation on investment
company expenses imposed by any statute or regulatory authority
of any jurisdiction in which shares of that Series are qualified
for offer or sale, the compensation due the Manager for such
fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof. In the event that the expenses of
any Series of the Fund exceed any expense limitation which the
Manager may, by written notice to the Fund, voluntarily declare
to be effective subject to such terms and conditions as the
Manager may prescribe in such notice, the compensation due the
Manager shall be reduced, and, if necessary, the Manager shall
assume expenses of the Series to the extent required by the terms
and conditions of such expense limitation.
If the Manager shall serve for less than the whole of a month,
the foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT.
This Contract shall automatically terminate, without the payment
of any penalty, in the event of its assignment; and this Contract
shall not be amended as to any Series of the Fund unless such
amendment be approved at a meeting by the affirmative vote of a
majority of the outstanding shares of the Series, and by the
vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the Trustees of the
Fund who are not interested persons of the Fund or of the
Manager.
<PAGE>
5. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT.
This Contract shall become effective upon its execution, and
shall remain in full force and effect as to each Series
continuously thereafter (unless terminated automatically as set
forth in Section 4) until terminated as follows:
(a) Either party hereto may at any time terminate this Contract
as to any Series or as to the Fund by not more than sixty days'
nor less than thirty days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party, or
(b) If (i) the Trustees of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the
Series, and (ii) a majority of the Trustees of the Fund who are
not interested persons of the Fund or of the Manager, by vote
cast in person at a meeting called for the purpose of voting on
such approval, do not specifically approve at least annually the
continuance of this Contract, then this Contract shall
automatically terminate as to such Series at the close of
business on:
January 31, 1989 in the case of Putnam VT Global Growth Fund,
and the second anniversary of its execution with respect to
any other Series,
or the expiration of one year from the effective date of the last
such continuance, whichever is later; provided, however, that if
the continuance of this Contract is submitted to the shareholders
of a Series for their approval and such shareholders fail to
approve such continuance of this Contract as provided herein, the
Manager may continue to serve hereunder in a manner consistent
with the Investment Company Act of 1940 and the Rules and
Regulations thereunder.
Action by the Fund under (a) above may be taken either (i) by
vote of a majority of its Trustees, or (ii) by the affirmative
vote of a majority of the outstanding shares of one or more
Series affected.
Termination of this Contract pursuant to this Section 5 will be
without the payment of any penalty.
6. CERTAIN DEFINITIONS.
For the purposes of this Contract, the "affirmative vote of a
majority of the outstanding shares" means the affirmative vote,
at a duly called and held meeting of shareholders, (a) of the
holders of 67% or more of the shares of the Fund or the Series,
as the case may be, present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding shares of the Fund or the Series, as the case may be,
entitled to vote at such meeting are present in person or by
proxy, or (b) of the holders of more than 50% of the outstanding
shares of the Fund, or the Series, as the case may be, entitled
to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their
respective meanings defined in the Investment Company Act of 1940
and the Rules and Regulations thereunder, subject, however, to
such exemptions as may be granted by the Securities and Exchange
Commission under said Act; the term "specifically approve at
least annually" shall be construed in a manner consistent with
the Investment Company Act of 1940 and the Rules and Regulations
thereunder; and the term "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934 and
the Rules and Regulations thereunder.
7. NON-LIABILITY OF MANAGER.
In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or reckless disregard of
its obligations and duties hereunder, the Manager shall not be
subject to any liability to the Fund or to any shareholder of the
Fund, for any act or omission in the course of, or connected
with, rendering services hereunder.
8. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Fund is
on file with the Secretary of State of The Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Fund as Trustees and
not individually and that the obligations of or arising out of
this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Fund.
IN WITNESS WHEREOF, PUTNAM VARIABLE TRUST and PUTNAM INVESTMENT
MANAGEMENT, INC. have each caused this instrument to be signed in
duplicate in its behalf by its President or a Vice President
thereunto duly authorized, all as of the day and year first above
written.
PUTNAM VARIABLE TRUST
/s/ Charles E. Porter
By: _______________________________
Charles E. Porter
Executive Vice President
PUTNAM INVESTMENT MANAGEMENT, INC.
/s/ Gordon H. Silver
By: _______________________________
Gordon H. Silver
Senior Managing Director
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Asia Pacific Growth Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): May 1,
1995
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $853 N/A $953
T = Average Annual
Total Return -14.66% N/A -1.81%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Diversified Income Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): September
15, 1993
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,074 N/A $1,364
T = Average Annual
Total Return 7.38% N/A 7.50%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $4,370,800
Expenses $351,442
Reimbursement $0
Average shares 53,608,765
NAV $11.31
Yield at NAV 8.09%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Global Asset Allocation Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): February
1, 1988
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,197 $1,976 $3,105
T = Average Annual
Total Return 19.67% 14.60% 12.11%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $2,554,003
Expenses $573,792
Reimbursement $0
Average shares 51,024,411
NAV $18.76
Yield at NAV 2.50%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Global Growth Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): May 1,
1990
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,143 $2,032 $2,171
T = Average Annual
Total Return 14.33% 15.24% 10.63%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Growth and Income Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): February
1, 1988
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,241 $2,373 $4,601
T = Average Annual
Total Return 24.15% 18.86% 16.65%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $15,437,827
Expenses $2,911,679
Reimbursement $0
Average shares 293,142,590
NAV $28.32
Yield at NAV 1.82%<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT High Yield Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): February
1, 1988
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,143 $1,808 $2,937
T = Average Annual
Total Return 14.34% 12.57% 11.49%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $8,086,980
Expenses $538,044
Reimbursement $0
Average shares 74,312,292
NAV $13.62
Yield at NAV 9.12%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT International Growth Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): January
2, 1997
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $1,161
T = Average Annual
Total Return N/A N/A 16.13%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT International Growth and Income Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): January
2, 1997
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $1,194
T = Average Annual
Total Return N/A N/A 19.43%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $295,609
Expenses $77,297
Reimbursement $0
Average shares 17,165,489
NAV $11.53
Yield at NAV 1.33%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT International New Opportunities Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): January
2, 1997
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $999
T = Average Annual
Total Return N/A N/A -0.10%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Money Market Fund
Fiscal periods ending: December 31, 1997
Inception date (if less than 10 years of performance): February
1, 1988
7 DAY YIELD FORMULA - DIVIDENDS DECLARED FOR LAST 7 DAYS / 7 *365
TOTAL DIVIDENDS DECLARED
PER SHARE FOR LAST 7 DAYS:
7 DAY YIELD = 5.34%
CALCULATION OF 7 DAY EFFECTIVE YIELD
7 DAY YIELD ^52.142857
( 1 + --------------------) -1
(100 * 52.142587)
7 DAY EFFECTIVE YIELD = 5.48%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT New Opportunities Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): May 2,
1994
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $1,233 N/A $2,129
T = Average Annual
Total Return 23.29% N/A 22.86%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT New Value Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): January
2, 1997
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $1,176
T = Average Annual
Total Return N/A N/A 17.60%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT U.S. Government and High Quality Bond Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): February
1, 1988
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,086 $1,442 $2,292
T = Average Annual
Total Return 8.64% 7.60% 8.73%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $4,865,001
Expenses $562,091
Reimbursement $0
Average shares 58,720,508
NAV $13.42
Yield at NAV 6.64%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Utilities Growth and Income Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): May 4,
1992
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,271 $2,034 $2,179
T = Average Annual
Total Return 27.10% 15.26% 14.72%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $2,568,490
Expenses $472,367
Reimbursement $0
Average shares 47,787,178
NAV $17.14
Yield at NAV 3.09%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Vista Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): January
1, 1997
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment N/A N/A $1,000
ERV = Ending Redeemable Value N/A N/A $1,232
T = Average Annual
Total Return N/A N/A 23.21%*
*Life of fund, if less than 10 years
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam VT Voyager Fund
Fiscal period ending: December 31, 1997
Inception date (if less than 10 years of performance): February
1, 1988
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $1,265 $2,411 $5,193
T = Average Annual
Total Return 26.51% 19.25% 18.08%*
*Life of fund, if less than 10 years
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Asia Pacific Growth Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 116,630,747
<INVESTMENTS-AT-VALUE> 112,246,356
<RECEIVABLES> 5,395,910
<ASSETS-OTHER> 78,290
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 117,720,556
<PAYABLE-FOR-SECURITIES> 1,216,640
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,601,843
<TOTAL-LIABILITIES> 4,818,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,092,105
<SHARES-COMMON-STOCK> 12,265,876
<SHARES-COMMON-PRIOR> 11,855,445
<ACCUMULATED-NII-CURRENT> 3,110,245
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,297,932)
<ACCUM-APPREC-OR-DEPREC> (3,002,345)
<NET-ASSETS> 112,902,073
<DIVIDEND-INCOME> 2,026,042
<INTEREST-INCOME> 229,492
<OTHER-INCOME> 0
<EXPENSES-NET> 1,314,356
<NET-INVESTMENT-INCOME> 941,178
<REALIZED-GAINS-CURRENT> (8,695,246)
<APPREC-INCREASE-CURRENT> (11,278,930)
<NET-CHANGE-FROM-OPS> (19,032,998)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,664,413)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,980,776
<NUMBER-OF-SHARES-REDEEMED> (14,827,774)
<SHARES-REINVESTED> 257,429
<NET-CHANGE-IN-ASSETS> (17,645,511)
<ACCUMULATED-NII-PRIOR> 1,775,888
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,367,199)
<GROSS-ADVISORY-FEES> 1,076,596
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,435,752
<AVERAGE-NET-ASSETS> 134,612,740
<PER-SHARE-NAV-BEGIN> 11.01
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> (1.66)
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.20
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Diversified Income Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 589,096,035
<INVESTMENTS-AT-VALUE> 600,573,914
<RECEIVABLES> 29,279,484
<ASSETS-OTHER> 20,551,049
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 650,404,447
<PAYABLE-FOR-SECURITIES> 30,565,950
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,690,824
<TOTAL-LIABILITIES> 42,256,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 561,345,707
<SHARES-COMMON-STOCK> 53,760,037
<SHARES-COMMON-PRIOR> 43,893,169
<ACCUMULATED-NII-CURRENT> 24,946,121
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,721,933
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,133,912
<NET-ASSETS> 608,147,673
<DIVIDEND-INCOME> 1,701,218
<INTEREST-INCOME> 43,501,322
<OTHER-INCOME> 0
<EXPENSES-NET> 4,154,165
<NET-INVESTMENT-INCOME> 41,048,375
<REALIZED-GAINS-CURRENT> (1,694,515)
<APPREC-INCREASE-CURRENT> 888,492
<NET-CHANGE-FROM-OPS> 40,242,352
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29,111,302)
<DISTRIBUTIONS-OF-GAINS> (4,589,202)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,541,469
<NUMBER-OF-SHARES-REDEEMED> (2,918,154)
<SHARES-REINVESTED> 3,243,553
<NET-CHANGE-IN-ASSETS> 113,336,358
<ACCUMULATED-NII-PRIOR> 27,720,672
<ACCUMULATED-GAINS-PRIOR> 2,741,650
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,811,378
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,407,244
<AVERAGE-NET-ASSETS> 552,259,335
<PER-SHARE-NAV-BEGIN> 11.27
<PER-SHARE-NII> .82
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> (.63)
<PER-SHARE-DISTRIBUTIONS> (.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.31
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Global Asset Allocation Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 824,144,238
<INVESTMENTS-AT-VALUE> 943,957,013
<RECEIVABLES> 28,639,912
<ASSETS-OTHER> 6,903,994
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 979,500,919
<PAYABLE-FOR-SECURITIES> 17,792,666
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,176,094
<TOTAL-LIABILITIES> 22,968,760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 724,592,366
<SHARES-COMMON-STOCK> 50,986,362
<SHARES-COMMON-PRIOR> 43,350,143
<ACCUMULATED-NII-CURRENT> 19,696,988
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 94,421,572
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 117,821,233
<NET-ASSETS> 956,532,159
<DIVIDEND-INCOME> 8,992,099
<INTEREST-INCOME> 24,013,735
<OTHER-INCOME> 0
<EXPENSES-NET> 6,643,416
<NET-INVESTMENT-INCOME> 26,362,418
<REALIZED-GAINS-CURRENT> 93,474,412
<APPREC-INCREASE-CURRENT> 32,963,374
<NET-CHANGE-FROM-OPS> 152,800,204
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,895,274)
<DISTRIBUTIONS-OF-GAINS> (45,515,619)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,393,308
<NUMBER-OF-SHARES-REDEEMED> (2,265,912)
<SHARES-REINVESTED> 4,508,773
<NET-CHANGE-IN-ASSETS> 208,797,900
<ACCUMULATED-NII-PRIOR> 24,025,712
<ACCUMULATED-GAINS-PRIOR> 42,665,272
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,755,350
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,718,165
<AVERAGE-NET-ASSETS> 875,891,681
<PER-SHARE-NAV-BEGIN> 17.25
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> 2.63
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> (1.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.76
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Global Growth Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,478,502,620
<INVESTMENTS-AT-VALUE> 1,612,544,530
<RECEIVABLES> 32,551,866
<ASSETS-OTHER> 4,143,554
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,648,238,950
<PAYABLE-FOR-SECURITIES> 30,265,849
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,470,643
<TOTAL-LIABILITIES> 37,736,492
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,228,827,530
<SHARES-COMMON-STOCK> 87,869,535
<SHARES-COMMON-PRIOR> 79,683,919
<ACCUMULATED-NII-CURRENT> 39,155,023
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 201,097,344
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 142,423,651
<NET-ASSETS> 1,611,503,458
<DIVIDEND-INCOME> 20,301,826
<INTEREST-INCOME> 3,044,350
<OTHER-INCOME> 0
<EXPENSES-NET> 23,346,176
<NET-INVESTMENT-INCOME> 12,009,717
<REALIZED-GAINS-CURRENT> 237,026,255
<APPREC-INCREASE-CURRENT> (49,925,874)
<NET-CHANGE-FROM-OPS> 199,110,098
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33,624,622)
<DISTRIBUTIONS-OF-GAINS> (36,166,971)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,785,671
<NUMBER-OF-SHARES-REDEEMED> (11,889,504)
<SHARES-REINVESTED> 4,289,449
<NET-CHANGE-IN-ASSETS> 266,616,626
<ACCUMULATED-NII-PRIOR> 29,235,076
<ACCUMULATED-GAINS-PRIOR> 34,625,518
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,366,376
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,696,177
<AVERAGE-NET-ASSETS> 1,561,934,924
<PER-SHARE-NAV-BEGIN> 16.88
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 2.18
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> (.44)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.34
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Growth and Income Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,980,553,629
<INVESTMENTS-AT-VALUE> 8,324,589,744
<RECEIVABLES> 71,555,622
<ASSETS-OTHER> 739,788
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,396,885,154
<PAYABLE-FOR-SECURITIES> 48,617,733
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,933,348
<TOTAL-LIABILITIES> 59,551,081
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,885,529,815
<SHARES-COMMON-STOCK> 294,356,911
<SHARES-COMMON-PRIOR> 231,214,083
<ACCUMULATED-NII-CURRENT> 145,500,331
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 963,025,316
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,343,278,611
<NET-ASSETS> 8,337,334,073
<DIVIDEND-INCOME> 173,360,599
<INTEREST-INCOME> 14,336,090
<OTHER-INCOME> 0
<EXPENSES-NET> 36,632,162
<NET-INVESTMENT-INCOME> 151,064,527
<REALIZED-GAINS-CURRENT> 979,781,001
<APPREC-INCREASE-CURRENT> 367,746,315
<NET-CHANGE-FROM-OPS> 1,498,591,843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (128,693,999)
<DISTRIBUTIONS-OF-GAINS> (313,245,625)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 47,137,172
<NUMBER-OF-SHARES-REDEEMED> (2,856,470)
<SHARES-REINVESTED> 18,862,126
<NET-CHANGE-IN-ASSETS> 2,658,234,471
<ACCUMULATED-NII-PRIOR> 123,367,843
<ACCUMULATED-GAINS-PRIOR> 295,968,021
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,012,687
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 37,099,642
<AVERAGE-NET-ASSETS> 3,878,811,951
<PER-SHARE-NAV-BEGIN> 24.56
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> 5.07
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> (1.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 28.32
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust High Yield Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 971,553,050
<INVESTMENTS-AT-VALUE> 1,009,432,258
<RECEIVABLES> 35,972,818
<ASSETS-OTHER> 8,228,555
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,053,633,631
<PAYABLE-FOR-SECURITIES> 26,471,593
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,863,914
<TOTAL-LIABILITIES> 28,335,507
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 891,849,108
<SHARES-COMMON-STOCK> 75,287,731
<SHARES-COMMON-PRIOR> 59,425,005
<ACCUMULATED-NII-CURRENT> 82,916,513
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,658,981
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,873,522
<NET-ASSETS> 1,025,298,124
<DIVIDEND-INCOME> 6,523,312
<INTEREST-INCOME> 82,181,788
<OTHER-INCOME> 0
<EXPENSES-NET> 6,216,240
<NET-INVESTMENT-INCOME> 82,488,860
<REALIZED-GAINS-CURRENT> 19,263,536
<APPREC-INCREASE-CURRENT> 17,958,850
<NET-CHANGE-FROM-OPS> 119,711,246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (58,024,885)
<DISTRIBUTIONS-OF-GAINS> (6,728,418)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,952,072
<NUMBER-OF-SHARES-REDEEMED> (15,521,671)
<SHARES-REINVESTED> 5,432,325
<NET-CHANGE-IN-ASSETS> 255,380,325
<ACCUMULATED-NII-PRIOR> 57,863,338
<ACCUMULATED-GAINS-PRIOR> 134,410
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,842,951
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,436,813
<AVERAGE-NET-ASSETS> 890,646,335
<PER-SHARE-NAV-BEGIN> 12.96
<PER-SHARE-NII> 1.06
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> (.94)
<PER-SHARE-DISTRIBUTIONS> (.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.62
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust International Growth Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 149,300,268
<INVESTMENTS-AT-VALUE> 152,870,318
<RECEIVABLES> 2,266,531
<ASSETS-OTHER> 73,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 155,210,515
<PAYABLE-FOR-SECURITIES> 3,504,069
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 821,954
<TOTAL-LIABILITIES> 4,326,023
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 147,407,270
<SHARES-COMMON-STOCK> 13,203,930
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (138,410)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (983,749)
<ACCUM-APPREC-OR-DEPREC> 4,599,381
<NET-ASSETS> 150,884,492
<DIVIDEND-INCOME> 1,136,820
<INTEREST-INCOME> 453,670
<OTHER-INCOME> 0
<EXPENSES-NET> 878,074
<NET-INVESTMENT-INCOME> 598,784
<REALIZED-GAINS-CURRENT> 434,252
<APPREC-INCREASE-CURRENT> 4,599,381
<NET-CHANGE-FROM-OPS> 5,632,417
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (933,770)
<DISTRIBUTIONS-OF-GAINS> (1,221,426)
<DISTRIBUTIONS-OTHER> (105,318)
<NUMBER-OF-SHARES-SOLD> 15,588,769
<NUMBER-OF-SHARES-REDEEMED> (2,832,498)
<SHARES-REINVESTED> 197,659
<NET-CHANGE-IN-ASSETS> 148,384,492
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 608,193
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 912,290
<AVERAGE-NET-ASSETS> 76,231,161
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> (.10)
<RETURNS-OF-CAPITAL> (.01)
<PER-SHARE-NAV-END> 11.43
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust International Growth and Income Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 208,567,948
<INVESTMENTS-AT-VALUE> 214,806,717
<RECEIVABLES> 851,815
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 215,658,532
<PAYABLE-FOR-SECURITIES> 4,074,164
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,986,358
<TOTAL-LIABILITIES> 9,060,522
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 200,394,945
<SHARES-COMMON-STOCK> 17,911,179
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (346,390)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 214,309
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,335,146
<NET-ASSETS> 206,598,010
<DIVIDEND-INCOME> 1,811,692
<INTEREST-INCOME> 580,957
<OTHER-INCOME> 0
<EXPENSES-NET> 1,180,776
<NET-INVESTMENT-INCOME> 1,211,873
<REALIZED-GAINS-CURRENT> 5,522,841
<APPREC-INCREASE-CURRENT> 6,335,146
<NET-CHANGE-FROM-OPS> 13,069,860
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,972,016)
<DISTRIBUTIONS-OF-GAINS> (4,894,779)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,411,817
<NUMBER-OF-SHARES-REDEEMED> (4,352,599)
<SHARES-REINVESTED> 601,961
<NET-CHANGE-IN-ASSETS> 204,098,010
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 871,531
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,219,689
<AVERAGE-NET-ASSETS> 108,941,350
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 1.87
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> (.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.53
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust International New Opportunities Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 114,790,240
<INVESTMENTS-AT-VALUE> 114,080,700
<RECEIVABLES> 777,082
<ASSETS-OTHER> 528,324
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,386,106
<PAYABLE-FOR-SECURITIES> 6,545,424
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,840,198
<TOTAL-LIABILITIES> 8,385,622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 112,572,237
<SHARES-COMMON-STOCK> 10,746,746
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (20,027)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,087,219)
<ACCUM-APPREC-OR-DEPREC> (464,507)
<NET-ASSETS> 107,000,484
<DIVIDEND-INCOME> 368,371
<INTEREST-INCOME> 853,870
<OTHER-INCOME> 0
<EXPENSES-NET> 1,158,541
<NET-INVESTMENT-INCOME> 63,700
<REALIZED-GAINS-CURRENT> (4,862,745)
<APPREC-INCREASE-CURRENT> (464,507)
<NET-CHANGE-FROM-OPS> (5,263,552)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (308,201)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,100,759
<NUMBER-OF-SHARES-REDEEMED> (2,634,975)
<SHARES-REINVESTED> 30,962
<NET-CHANGE-IN-ASSETS> 104,500,484
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 893,002
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,191,808
<AVERAGE-NET-ASSETS> 74,621,257
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.02)
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Money Market Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 386,165,201
<INVESTMENTS-AT-VALUE> 386,165,201
<RECEIVABLES> 19,999,680
<ASSETS-OTHER> 2,147
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 406,167,028
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 589,880
<TOTAL-LIABILITIES> 589,880
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 405,577,148
<SHARES-COMMON-STOCK> 405,557,148
<SHARES-COMMON-PRIOR> 437,132,301
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 405,577,148
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,346,295
<OTHER-INCOME> 0
<EXPENSES-NET> 2,537,879
<NET-INVESTMENT-INCOME> 23,808,416
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 23,808,416
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,808,416)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,150,816,521
<NUMBER-OF-SHARES-REDEEMED> (1,206,180,090)
<SHARES-REINVESTED> 23,808,416
<NET-CHANGE-IN-ASSETS> (31,555,153)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,090,282
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,538,635
<AVERAGE-NET-ASSETS> 466,376,477
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .0509
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.0509)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust New Opportunities Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,065,821,738
<INVESTMENTS-AT-VALUE> 2,607,710,214
<RECEIVABLES> 8,372,968
<ASSETS-OTHER> 2,990,329
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,619,073,511
<PAYABLE-FOR-SECURITIES> 22,949,782
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,879,871
<TOTAL-LIABILITIES> 28,829,653
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,012,795,892
<SHARES-COMMON-STOCK> 122,008,086
<SHARES-COMMON-PRIOR> 97,206,802
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII>
<ACCUMULATED-NET-GAINS> 35,559,298
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 541,888,668 <NET-
ASSETS> 2,590,243,858 <DIVIDEND-
INCOME> 8,588,364
<INTEREST-INCOME> 4,305,527
<OTHER-INCOME> 0
<EXPENSES-NET> 13,062,268
<NET-INVESTMENT-INCOME> (168,377)
<REALIZED-GAINS-CURRENT> 68,314,810
<APPREC-INCREASE-CURRENT> 376,452,164 <NET-
CHANGE-FROM-OPS> 444,597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 42,527,077
<NUMBER-OF-SHARES-REDEEMED> (17,725,793)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 916,047,161
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,300)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (32,755,137)
<GROSS-ADVISORY-FEES> 12,267,574
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,259,926
<AVERAGE-NET-ASSETS> 2,106,259,502 <PER-
SHARE-NAV-BEGIN> 17.22
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 4.01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.23
<EXPENSE-RATIO> .63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<
/
T
A
B
L
E
>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Varibale Trust New Value Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 194,402,476
<INVESTMENTS-AT-VALUE> 202,099,849
<RECEIVABLES> 3,374,169
<ASSETS-OTHER> 190,856
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 205,664,874
<PAYABLE-FOR-SECURITIES> 9,229,132
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,044,891
<TOTAL-LIABILITIES> 10,274,023
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 182,416,386
<SHARES-COMMON-STOCK> 16,619,656
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,560,934
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,789,899
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,623,632
<NET-ASSETS> 195,390,851
<DIVIDEND-INCOME> 2,223,795
<INTEREST-INCOME> 387,993
<OTHER-INCOME> 0
<EXPENSES-NET> 891,506
<NET-INVESTMENT-INCOME> 1,720,282
<REALIZED-GAINS-CURRENT> 3,630,551
<APPREC-INCREASE-CURRENT> 7,623,632
<NET-CHANGE-FROM-OPS> 12,974,465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,943,165
<NUMBER-OF-SHARES-REDEEMED> (348,509)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 195,140,851
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 757,486
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 922,572
<AVERAGE-NET-ASSETS> 553,608,288
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.76
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust US Government and High Quality Bond
Fund </LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 768,339,548
<INVESTMENTS-AT-VALUE> 791,091,741
<RECEIVABLES> 25,372,651
<ASSETS-OTHER> 1,502,146
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 817,966,538
<PAYABLE-FOR-SECURITIES> 25,931,699
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,494,755
<TOTAL-LIABILITIES> 28,426,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 723,176,210
<SHARES-COMMON-STOCK> 58,832,286
<SHARES-COMMON-PRIOR> 58,983,969
<ACCUMULATED-NII-CURRENT> 41,308,267
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 687,020
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,368,587
<NET-ASSETS> 789,540,084
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 55,864,924
<OTHER-INCOME> 0
<EXPENSES-NET> 5,178,021
<NET-INVESTMENT-INCOME> 50,686,903
<REALIZED-GAINS-CURRENT> (2,397,818)
<APPREC-INCREASE-CURRENT> 15,536,485
<NET-CHANGE-FROM-OPS> 63,825,480
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (49,260,624)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,028,621
<NUMBER-OF-SHARES-REDEEMED> (10,616,521)
<SHARES-REINVESTED> 4,021,287
<NET-CHANGE-IN-ASSETS> 164,827,507
<ACCUMULATED-NII-PRIOR> 48,438,520
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5,471,694)
<GROSS-ADVISORY-FEES> 4,731,739
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,304,062
<AVERAGE-NET-ASSETS> 770,003,470
<PER-SHARE-NAV-BEGIN> 13.21
<PER-SHARE-NII> .88
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> (.85)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.42
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<
/
T
A
B
L
E
>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Utilities Growth and Income Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 635,398,542
<INVESTMENTS-AT-VALUE> 823,779,623
<RECEIVABLES> 6,714,442
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 830,494,065
<PAYABLE-FOR-SECURITIES> 6,630,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,606,586
<TOTAL-LIABILITIES> 8,237,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 566,325,283
<SHARES-COMMON-STOCK> 47,966,028
<SHARES-COMMON-PRIOR> 571,549,799
<ACCUMULATED-NII-CURRENT> 24,996,593
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42,587,132
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 188,377,533
<NET-ASSETS> 822,256,541
<DIVIDEND-INCOME> 22,041,010
<INTEREST-INCOME> 8,507,728
<OTHER-INCOME> 0
<EXPENSES-NET> 5,097,244
<NET-INVESTMENT-INCOME> 25,451,494
<REALIZED-GAINS-CURRENT> 42,912,552
<APPREC-INCREASE-CURRENT> 106,798,904
<NET-CHANGE-FROM-OPS> 175,162,950
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,529,426)
<DISTRIBUTIONS-OF-GAINS> (33,449,218)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,065,697
<NUMBER-OF-SHARES-REDEEMED> (3,862,391)
<SHARES-REINVESTED> 4,346,225
<NET-CHANGE-IN-ASSETS> 164,829,507
<ACCUMULATED-NII-PRIOR> 24,041,912
<ACCUMULATED-GAINS-PRIOR> 33,091,203
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,703,343
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,210,720
<AVERAGE-NET-ASSETS> 700,701,207
<PER-SHARE-NAV-BEGIN> 14.80
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 3.11
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.14
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Putnam Variable Trust Vista Fund
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 151,581,953
<INVESTMENTS-AT-VALUE> 173,665,713
<RECEIVABLES> 766,729
<ASSETS-OTHER> 102,353
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 174,534,795
<PAYABLE-FOR-SECURITIES> 3,582,810
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 291,565
<TOTAL-LIABILITIES> 3,874,375
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151,727,658
<SHARES-COMMON-STOCK> 13,848,509
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,150,998)
<ACCUM-APPREC-OR-DEPREC> 22,083,760
<NET-ASSETS> 170,660,420
<DIVIDEND-INCOME> 469,437
<INTEREST-INCOME> 295,031
<OTHER-INCOME> 0
<EXPENSES-NET> 760,451
<NET-INVESTMENT-INCOME> 4,017
<REALIZED-GAINS-CURRENT> (3,150,998)
<APPREC-INCREASE-CURRENT> 22,083,760
<NET-CHANGE-FROM-OPS> 18,936,779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,017)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,177,780
<NUMBER-OF-SHARES-REDEEMED> (1,580,403)
<SHARES-REINVESTED> 1,132
<NET-CHANGE-IN-ASSETS> 168,160,420
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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Putnam Variable Trust Voyager Fund
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<NAME> CLASS A
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