Putnam Mortgage Securities

Objective And Strategy

Objective
High level of current income as Putnam Investment Management LLC believes is consistent with preservatoin of capital.

Strategy
Invest mainly in bonds and securitized debt instruments (such as mortgage-backed investments) that are obligations of the U.S. government, its agencies and instrumentalities and accordingly are backed by the full faith and credit of the United States.
Tax Inefficient Fund

Principal Risks

* This portfolio can leverage or use leveraged instruments or derivatives. Portfolios that use leverage, that is, borrow money, are subject to the risk that the cost of borrowing money to leverage will exceed the returns for the securities purchased or that the securities purchased may actually go down in value. Thus, the portfolio's net asset value can decrease more quickly than if the portfolio had not borrowed. Portfolios that use leveraged instruments or derivatives such as futures, options and swap agreements, may expose the portfolio to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The more a portfolio invests in leveraged instruments, the more the leverage will magnify any gains or losses on those investments.

* The portfolio invests substantial assets in real estate investment trusts (REITS) that present risks not associated with investing in stock.

* This portfolio invests its assets in underlying funds, thus the risks associated with investing in the portfolio are closely related to the risks associated with the securities and other investments held by the underlying funds. The ability of this portfolio to achieve its investment objective will depend on the ability of the underlying funds to achieve their investment objectives.

* Fixed income securities are subject to interest rate risk because the prices of fixed income securities tend to move in the opposite direction of interest rates. When interest rates rise, fixed income security prices fall. When interest rates fall, fixed income security prices rise.

* Credit risk is the risk that the issuer of a security may be unable to make interest payments and/or repay principal when due. A downgrade to an issuer's credit rating or a perceived change in an issuer's financial strength may affect a security's value, and thus, impact the VA Short-Term Fixed Portfolio's performance.