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Putnam Sustainable Leaders Fund (PNOBX)

Filed: 25 Feb 22, 12:54pm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES




Investment Company Act file number:(811-06128)
Exact name of registrant as specified in charter:Putnam Sustainable Leaders Fund
Address of principal executive offices:100 Federal Street, Boston, Massachusetts 02110
Name and address of agent for service:Stephen Tate, Vice President
100 Federal Street
Boston, Massachusetts 02110
Copy to:        Bryan Chegwidden, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, New York 10036
Registrant’s telephone number, including area code:(617) 292-1000
Date of fiscal year end:June 30, 2022
Date of reporting period:July 1, 2021 – December 31, 2021



Item 1. Report to Stockholders:

The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:






Message from the Trustees

February 11, 2022

Dear Fellow Shareholder:

In 2021, most areas of the stock market had another above-average year as corporate earnings rose amid rapid gross domestic product growth. Bonds, on the other hand, had a subpar year, with inflation causing concern. Financial markets are now adjusting to a shift in monetary policy, as the U.S. Federal Reserve reduces its bond-purchasing program and considers raising interest rates.

In 2022, the evolving Covid-19 pandemic remains challenging. Still, companies have learned to adapt to unexpected hurdles. Trends in consumer spending, employment, and credit conditions have been encouraging. We believe economic conditions may remain supportive for financial markets this year.

As the economy shifts gears, Putnam’s investment professionals will be actively managing your fund and monitoring risks, as the firm has done for more than 80 years.

Thank you for investing with Putnam.





The managers of Putnam Sustainable Leaders Fund invest in companies that they believe have demonstrated a commitment to sustainable business practices. This commitment may be reflected through environmental, social, or corporate governance (ESG) policies, practices, or outcomes. Putnam believes that these types of companies can deliver more profitable, durable financial returns with lower risk profiles.


An enhanced analytical process

Sustainable investing is not a different asset class or investment style; it is an enhanced analytical approach. In our rapidly changing world, it is important for all investors to understand the risks and opportunities that lie beyond conventional financial statements. Thoughtful research that integrates relevant ESG considerations creates a more complete view of long-term fundamental business prospects. Recent research on investment performance indicates that companies adopting better corporate practices can also achieve better stock performance.

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Targeting companies with sustainable business practices

In analyzing companies for the portfolio, the fund’s managers look for excellence in areas such as clean and efficient materials use, plans to reduce carbon or water intensity, focus on employee well-being, improvements in workplace equality and diversity, and alignment of management incentives with the company’s sustainability objectives.

Rigorous analysis of company financial strength

With the goal of delivering capital appreciation for investors over time, the fund’s managers focus on companies with the potential to produce strong financial performance. They consider factors such as the stock’s valuation and the company’s financial strength, growth potential, competitive position, future earnings, and cash flows.


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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 5.75%; had they, returns would have been lower. See page 5 and pages 10–11 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.

Before March 21, 2018, the fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from that shown for periods before this date.

Returns for periods of less than one year are not annualized.

Lipper peer group average provided by Lipper, a Refinitiv company.

* The Russell 3000 Growth Index - S&P 500 Index Linked Benchmark represents performance of the Russell 3000 Growth Index from the inception date of the fund, August 31, 1990, through July 31, 2019, and performance of the S&P 500 Index from August 1, 2019, and thereafter.

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This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 12/31/21. See page 4 and pages 10–11 for additional fund performance information. Index descriptions can be found on pages 15–16.

All Bloomberg indices are provided by Bloomberg Index Services Limited.

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How was the investing environment for U.S. stocks during the six-month reporting period?

KATHERINE In our view, inflation was a top concern for investors, who also focused on the potential for interest-rate hikes. A number of businesses were challenged by shortages in parts and labor as well as cost pressures for materials and shipping. Another market disruption came late in the period with the emergence of Omicron, the latest Covid-19 variant. Stocks declined sharply as new Covid cases mounted and concerns grew about the potential for widespread economic shutdowns. However, U.S. stocks were also boosted at times by positive economic data and strong earnings results from businesses. Despite the macroeconomic challenges, the S&P 500 Index continued to reach new record highs and closed the year with a solid gain.

How did the fund perform for the reporting period?

KATHERINE The fund delivered a gain of 8.00%, underperforming its S&P 500 Index benchmark, which returned 11.67%.

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Allocations are shown as a percentage of the fund’s net assets as of 12/31/21. Cash and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, the use of different classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.


This table shows the fund’s top 10 holdings by percentage of the fund’s net assets as of 12/31/21. Short-term investments and derivatives, if any, are excluded. Holdings may vary over time.

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What were some holdings that contributed to performance during the period?

STEPHANIE Thermo Fisher Scientific was a key contributor during the period. The business has experienced accelerating organic growth across various end markets. The company continues to outgrow many of its end markets as it makes investments to serve a broad range of customer needs. Also, throughout the pandemic, the company gained share in the clinical PCR testing market. We believe this should continue to be a meaningful contributor to revenues.

KATHERINE Hilton was another key contributor, as the hotel company’s earnings continued to recover during the period. Occupancy also trended upward and back toward pre-pandemic levels.

Could you discuss some holdings that detracted from the fund’s performance during the period?

STEPHANIE The top detractor was DocuSign, a company that specializes in electronic document management, including its eSignature product and its Agreement Cloud suite of products. During the period, the company reported decelerating billings growth, although the trend was still strong in absolute terms. In 2020 and early 2021, DocuSign benefited as customers quickly transitioned to work-from-home settings. We believe this likely pulled forward some future sales, and the robust incoming demand distracted the sales team from growing the broader Agreement Cloud business. We believe we are still in the early days of the transition from paper-based contract management to digital management. In our view, this should lead to continued strong growth for DocuSign over the long term. However, we also believe it may take some time for the company to reorient its sales team to the current set of conditions.


KATHERINE Fidelity National Information Services [FIS] was a detractor despite the company’s growing revenues and earnings. This was likely due to investor concerns about increasing competition. FIS competes with several smaller financial technology companies that are growing faster than legacy merchant acquirers like FIS. We believe the valuation for FIS is reasonable and that FIS can continue to grow alongside smaller competitors in a very large and fragmented market.

As you look ahead to the second half of the fund’s fiscal year, what are your thoughts on sustainable investing opportunities?

STEPHANIE Looking ahead, we remain attuned to macroeconomic issues such as rising inflation, increasing labor costs, and supply chain disruptions. However, we also see many opportunities to find companies that are navigating these headwinds and solving key sustainability challenges.

Examples of issues with rising importance are climate change and worker health and well-being, including physical and mental health. We also see increased focus on diversity, equity, and inclusion, both within companies and across customer bases and supply chains. An increasing number of newly public companies are focusing on sustainability challenges and solutions to address them. We believe customers, employees, investors, and other stakeholders will also continue to place increasing value on these issues over time.

Thank you both for your time and for bringing us up to date.

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The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.


This table shows the fund’s largest allocation shifts, by percentage, over the past six months. Allocations are shown as a percentage of the fund’s net assets. Current period summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities, any interest accruals, the exclusion of as-of trades, if any, the use of different classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.

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Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended December 31, 2021, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R, R6, and Y shares are not available to all investors. See the Terms and definitions section in this report for definitions of the share classes offered by your fund.

Fund performance Total return for periods ended 12/31/21

 Annual         
 average  Annual  Annual  Annual   
 (life of fund) 10 years average 5 years average 3 years average 1 year 6 months 
Class A (8/31/90)          
Before sales charge 12.77% 431.77% 18.19% 175.15% 22.44% 115.14% 29.09% 23.26% 8.00% 
After sales charge 12.56 401.19 17.49 159.33 21.00 102.77 26.57 16.17 1.79 
Class B (3/1/93)          
Before CDSC 12.55 400.75 17.48 165.04 21.52 110.35 28.13 22.34 7.60 
After CDSC 12.55 400.75 17.48 163.04 21.34 107.35 27.52 17.34 3.02 
Class C (7/26/99)          
Before CDSC 12.55 400.71 17.48 165.05 21.53 110.38 28.14 22.33 7.60 
After CDSC 12.55 400.71 17.48 165.05 21.53 110.38 28.14 21.33 6.67 
Class R (1/21/03)          
Net asset value 12.49 418.61 17.89 171.74 22.13 113.53 28.77 22.96 7.87 
Class R6 (5/22/18)          
Net asset value 13.03 447.35 18.53 179.70 22.84 117.42 29.55 23.67 8.19 
Class Y (7/19/94)          
Net asset value 13.02 445.25 18.48 178.62 22.74 116.76 29.42 23.56 8.14 

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A shares reflect the deduction of the maximum 5.75% sales charge levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R, R6, and Y shares have no initial sales charge or CDSC. Performance for class B, C, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable. Performance for class R6 shares prior to their inception is derived from the historical performance of class Y shares and has not been adjusted for the lower investor servicing fees applicable to class R6 shares; had it, returns would have been higher.

For a portion of the periods, the fund had expense limitations, without which returns would have been lower.

The fund has had performance fee adjustments that may have had a positive or negative impact on returns.

Class B and C share performance reflects conversion to class A shares after eight years.

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Comparative index returns For periods ended 12/31/21

 Annual         
 average  Annual  Annual  Annual   
 (life of fund) 10 years average 5 years average 3 years average 1 year 6 months 
S&P 500 Index 11.24% 362.57% 16.55% 133.41% 18.47% 100.37% 26.07% 28.71% 11.67% 
Russell 3000 Growth          
Index - S&P 500 Index 11.08 414.53 17.80 162.18 21.26 106.70 27.38 28.71 11.67 
Linked Benchmark*          
Lipper Large-Cap          
Core Funds category 10.77 321.62 15.36 125.48 17.56 95.09 24.86 26.52 10.04 
average          

 

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

Lipper peer group average provided by Lipper, a Refinitiv company.

* The Russell 3000 Growth Index - S&P 500 Index Linked Benchmark represents performance of the Russell 3000 Growth Index from the inception date of the fund, August 31, 1990, through July 31, 2019, and performance of the S&P 500 Index from August 1, 2019, and thereafter.

Over the 6 month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 12/31/21, there were 630, 612, 540, 488, 391, and 41 funds, respectively, in this Lipper category.

Fund price and distribution information For the six-month period ended 12/31/21

Distributions Class A Class B Class C Class R Class R6 Class Y 
Number 
Income $0.598 — — $0.050 $1.033 $0.921 
Capital gains      
Long-term gains 12.071 $12.071 $12.071 12.071 12.071 12.071 
Short-term gains 1.806 1.806 1.806 1.806 1.806 1.806 
Total $14.475 $13.877 $13.877 $13.927 $14.910 $14.798 
 Before After Net Net Net Net Net 
 sales sales asset asset asset asset asset 
Share value charge charge value value value value value 
6/30/21 $128.40 $136.23 $89.00 $100.59 $122.36 $141.11 $140.72 
12/31/21 123.83 131.38 81.54 94.01 117.71 137.37 136.99 

 

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (5.75% for class A shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.

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Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.

Expense ratios

 Class A Class B Class C Class R Class R6 Class Y 
Total annual operating expenses for the       
fiscal year ended 6/30/21 1.05% 1.80% 1.80% 1.30% 0.70% 0.80% 
Annualized expense ratio for the       
six-month period ended 12/31/21* 1.03% 1.78% 1.78% 1.28% 0.70% 0.78% 

 

Fiscal year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report.

Expenses are shown as a percentage of average net assets.

* Includes an increase of 0.08% from annualizing the performance fee adjustment for the six months ended 12/31/21.

Expenses per $1,000

The following table shows the expenses you would have paid on a $1,000 investment in each class of the fund from 7/1/21 to 12/31/21. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

 Class A Class B Class C Class R Class R6 Class Y 
Expenses paid per $1,000*† $5.40 $9.31 $9.31 $6.71 $3.67 $4.09 
Ending value (after expenses) $1,080.00 $1,076.00 $1,076.00 $1,078.70 $1,081.90 $1,081.40 

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 12/31/21. The expense ratio may differ for each share class.

Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period (184); and then dividing that result by the number of days in the year (365).

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Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended 12/31/21, use the following calculation method. To find the value of your investment on 7/1/21, call Putnam at 1-800-225-1581.


Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

 Class A Class B Class C Class R Class R6 Class Y 
Expenses paid per $1,000*† $5.24 $9.05 $9.05 $6.51 $3.57 $3.97 
Ending value (after expenses) $1,020.01 $1,016.23 $1,016.23 $1,018.75 $1,021.68 $1,021.27 

 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 12/31/21. The expense ratio may differ for each share class.

Expenses are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period (184); and then dividing that result by the number of days in the year (365).

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Consider these risks before investing

The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political, or financial market conditions; investor sentiment and market perceptions; government actions; geopolitical events or changes; and factors related to a specific issuer, geography, industry, or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings.

Growth stocks may be more susceptible to earnings disappointments, and the market may not favor growth-style investing. Investments in small and midsize companies increase the risk of greater price fluctuations. International investing involves currency, economic, and political risks. Emerging market securities have illiquidity and volatility risks.

Investing with a focus on companies that exhibit a commitment to sustainable business practices may result in the fund investing in certain types of companies, industries, or sectors that underperform the market as a whole. From time to time, the fund may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the fund more vulnerable to adverse developments affecting those industries or sectors. The technology industries may be affected by technological obsolescence, short product cycles, falling prices and profits, competitive pressures, and general market conditions. In evaluating an investment opportunity, we may make investment decisions based on information and data that is incomplete or inaccurate. In addition, a company’s business practices, products, or services may change over time. As a result of these possibilities, among others, the fund may temporarily hold securities that are inconsistent with the fund’s sustainable investment criteria.

Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

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Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.

Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions. They are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 5.75% maximum sales charge for class A shares.

Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.

Share classes

Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class B shares are closed to new investments and are only available by exchange from another Putnam fund or through dividend and/or capital gains reinvestment. They are not subject to an initial sales charge and may be subject to a CDSC.

Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.

Class R shares are not subject to an initial sales charge or CDSC and are only available to employer-sponsored retirement plans.

Class R6 shares are not subject to an initial sales charge or CDSC and carry no 12b-1 fee. They are generally only available to employer-sponsored retirement plans, corporate and institutional clients, and clients in other approved programs.

Class Y shares are not subject to an initial sales charge or CDSC and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.

Comparative indexes

Bloomberg U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

ICE BofA (Intercontinental Exchange Bank of America) U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

Russell 3000® Growth Index is an unmanaged index of those companies in the broad-market Russell 3000 Index chosen for their growth orientation.

Russell 3000® Growth - S&P 500® Linked Benchmark represents performance of the Russell 3000 Growth Index from the inception date of the fund, August 31, 1990, through July 31, 2019, and performance of the S&P 500 Index from August 1, 2019, and thereafter.

S&P 500® Index is an unmanaged index of common stock performance.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.

BLOOMBERG®  is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices.

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Neither Bloomberg nor Bloomberg’s licensors approve or endorse this material, or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom, and to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.

ICE Data Indices, LLC (“ICE BofA”), used with permission. ICE BofA permits use of the ICE BofA indices and related data on an “as is” basis; makes no warranties regarding same; does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE BofA indices or any data included in, related to, or derived therefrom; assumes no liability in connection with the use of the foregoing; and does not sponsor, endorse, or recommend Putnam Investments, or any of its products or services.

Lipper, a Refinitiv company, is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

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Other information for shareholders

Important notice regarding delivery of shareholder documents

In accordance with Securities and Exchange Commission (SEC) regulations, Putnam sends a single notice of internet availability, or a single printed copy, of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2021, are available in the Individual Investors section of putnam.com and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT within 60 days of the end of such fiscal quarter. Shareholders may obtain the fund’s Form N-PORT on the SEC’s website at www.sec.gov.

Prior to its use of Form N-PORT, the fund filed its complete schedule of its portfolio holdings with the SEC on Form N-Q, which is available online at www.sec.gov.

Trustee and employee fund ownership

Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of December 31, 2021, Putnam employees had approximately $571,000,000 and the Trustees had approximately $82,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.

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Financial statements

These sections of the report, as well as the accompanying Notes, constitute the fund’s financial statements.

The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.

Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)

Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal period.

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal period.

Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlights table also includes the current reporting period.

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The fund’s portfolio 12/31/21 (Unaudited)
COMMON STOCKS (98.4%)*SharesValue
Banks (4.0%)
Bank of America Corp.3,340,726$148,628,900
First Republic Bank563,000116,265,130
264,894,030
Beverages (1.4%)
Heineken NV (Netherlands)820,43592,341,659
Zevia PBC Class A † S652,8734,602,755
96,944,414
Biotechnology (2.7%)
Amgen, Inc.361,10081,236,667
Ginkgo Bioworks Holdings, Inc.5,802,09148,215,376
Regeneron Pharmaceuticals, Inc. 87,40055,194,848
184,646,891
Building products (1.9%)
Johnson Controls International PLC1,591,200129,380,472
129,380,472
Capital markets (3.2%)
BlackRock, Inc.132,997121,766,733
KKR & Co., Inc.1,282,00095,509,000
217,275,733
Chemicals (5.4%)
Ecolab, Inc.298,50070,025,115
Koninklijke DSM NV (Netherlands)430,52297,049,528
Linde PLC323,700112,139,391
Novozymes A/S Class B (Denmark)1,078,57988,703,032
367,917,066
Containers and packaging (2.2%)
Avery Dennison Corp.482,300104,451,711
Ball Corp.500,60048,192,762
152,644,473
Electric utilities (1.5%)
NextEra Energy, Inc.1,101,800102,864,048
102,864,048
Entertainment (1.8%)
Walt Disney Co. (The) 800,800124,035,912
124,035,912
Equity real estate investment trusts (REITs) (2.1%)
American Tower Corp. R256,70075,084,750
Boston Properties, Inc. R591,40068,117,452
143,202,202
Food and staples retail (1.7%)
Walmart, Inc.793,600114,825,984
114,825,984
Food products (1.1%)
McCormick & Co., Inc. (non-voting shares)772,70074,650,547
74,650,547


Sustainable Leaders Fund 19



COMMON STOCKS (98.4%)* cont.SharesValue
Health-care equipment and supplies (2.6%)
Cooper Cos., Inc. (The) S232,500$97,403,550
Medtronic PLC792,70082,004,815
179,408,365
Health-care providers and services (1.8%)
CVS Health Corp.1,222,700126,133,732
126,133,732
Hotels, restaurants, and leisure (4.1%)
Chipotle Mexican Grill, Inc. 57,600100,699,200
Hilton Worldwide Holdings, Inc. 797,036124,329,646
Vail Resorts, Inc.172,40056,529,960
281,558,806
Household durables (—%)
HC Brillant Services GmbH (acquired 8/2/13, cost $69) (Private) (Germany) † ∆∆ F104
Independent power and renewable electricity producers (1.3%)
AES Corp. (The)3,569,00086,726,700
86,726,700
Industrial conglomerates (2.8%)
Honeywell International, Inc.476,85399,428,619
Roper Technologies, Inc.184,00090,502,240
189,930,859
Insurance (2.6%)
AXA SA (France)3,525,410105,098,157
Prudential PLC (United Kingdom)4,375,79475,486,797
180,584,954
Interactive media and services (0.4%)
Bumble, Inc. Class A † S720,75924,404,900
24,404,900
Internet and direct marketing retail (5.2%)
Amazon.com, Inc. 92,177307,349,458
Etsy, Inc. 202,15544,259,816
351,609,274
IT Services (4.5%)
Fidelity National Information Services, Inc.687,00074,986,050
PayPal Holdings, Inc. 227,80042,958,524
Shopify, Inc. Class A (Canada) 39,90054,957,861
Visa, Inc. Class A617,800133,883,438
306,785,873
Life sciences tools and services (4.4%)
Danaher Corp.475,300156,378,453
Thermo Fisher Scientific, Inc.213,700142,589,188
298,967,641
Machinery (1.9%)
Deere & Co.186,70064,017,563
Ingersoll Rand, Inc.1,102,30068,199,301
132,216,864


20 Sustainable Leaders Fund




COMMON STOCKS (98.4%)* cont.SharesValue
Multiline retail (1.6%)
Target Corp.483,000$111,785,520
111,785,520
Personal products (1.2%)
Unilever PLC (United Kingdom)1,587,24085,031,779
85,031,779
Pharmaceuticals (3.1%)
Eli Lilly and Co.517,800143,026,716
Merck & Co., Inc.884,20067,765,088
210,791,804
Road and rail (1.3%)
Union Pacific Corp.360,90090,921,537
90,921,537
Semiconductors and semiconductor equipment (5.7%)
Applied Materials, Inc.496,70078,160,712
ASML Holding NV (NY Reg Shares) (Netherlands)110,90088,291,926
NVIDIA Corp.474,400139,525,784
Texas Instruments, Inc. S436,20082,210,614
388,189,036
Software (14.3%)
Adobe, Inc. 302,300171,422,238
DocuSign, Inc. 349,90053,293,269
Intuit, Inc.136,20087,606,564
Microsoft Corp.1,622,900545,813,728
Salesforce.com, Inc. 456,400115,984,932
974,120,731
Specialty retail (1.7%)
Home Depot, Inc. (The)279,200115,870,792
115,870,792
Technology hardware, storage, and peripherals (8.2%)
Apple, Inc.3,139,028557,397,201
557,397,201
Textiles, apparel, and luxury goods (0.7%)
Levi Strauss & Co. Class A S1,859,53046,544,036
46,544,036
Total common stocks (cost $3,601,193,265)$6,712,262,176

U.S. TREASURY OBLIGATIONS (—%)*Principal
amount
Value
U.S. Treasury Notes 1.125%, 2/28/27 i$30,000$29,901
Total U.S. treasury obligations (cost $29,901)$29,901

CONVERTIBLE PREFERRED STOCKS (—%)*SharesValue
UNEXT.com, LLC $0.00 cv. pfd. (acquired 4/14/00, cost $10,451,238) (Private) † ∆∆ F125,000$—
Total convertible preferred stocks (cost $10,451,238)$—


Sustainable Leaders Fund 21




SHORT-TERM INVESTMENTS (2.4%)*Principal amount/
shares
Value
Putnam Cash Collateral Pool, LLC 0.12% dShares54,868,505$54,868,505
Putnam Short Term Investment Fund Class P 0.13% LShares110,084,155110,084,155
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% PShares101,000101,000
U.S. Treasury Bills 0.113%, 5/19/22 $200,000199,926
Total short-term investments (cost $165,253,575)$165,253,586

TOTAL INVESTMENTS
Total investments (cost $3,776,927,979)$6,877,545,663

Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from July 1, 2021 through December 31, 2021 (the reporting period). Within the following notes to the portfolio, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures.
*Percentages indicated are based on net assets of $6,818,117,709.
This security is non-income-producing.
∆∆This security is restricted with regard to public resale. The total fair value of this security and any other restricted securities (excluding 144A securities), if any, held at the close of the reporting period was $—.
This security, in part or in entirety, was pledged and segregated with the custodian for collateral on certain derivative contracts at the close of the reporting period. Collateral at period end totaled $110,945 and is included in Investments in securities on the Statement of assets and liabilities (Notes 1 and 8).
dAffiliated company. See Notes 1 and 5 to the financial statements regarding securities lending. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
FThis security is valued by Putnam Management at fair value following procedures approved by the Trustees. Securities are classified as Level 3 for ASC 820 based on the securities’ valuation inputs (Note 1).
iThis security was pledged, or purchased with cash that was pledged, to the fund for collateral on certain derivative contracts (Note 1).
LAffiliated company (Note 5). The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
PThis security was pledged, or purchased with cash that was pledged, to the fund for collateral on certain derivative contracts. The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
RReal Estate Investment Trust.
SSecurity on loan, in part or in entirety, at the close of the reporting period (Note 1).
At the close of the reporting period, the fund maintained liquid assets totaling $628,230 to cover certain derivative contracts.
The dates shown on debt obligations are the original maturity dates.
Unless otherwise noted, the rates quoted in Short-term investments security descriptions represent the weighted average yield to maturity.


22 Sustainable Leaders Fund




FORWARD CURRENCY CONTRACTS at 12/31/21 (aggregate face value $143,399,085) (Unaudited)
CounterpartyCurrencyContract
type*
Delivery
date
ValueAggregate
face value
Unrealized
appreciation/
(depreciation)
Bank of America N.A.
British PoundSell3/16/22$15,905,874$15,652,457$(253,417)
Barclays Bank PLC
British PoundSell3/16/224,151,5654,084,506(67,059)
HSBC Bank USA, National Association
British PoundSell3/16/222,447,6932,408,749(38,944)
JPMorgan Chase Bank N.A.
EuroSell3/16/2254,151,67253,977,034(174,638)
State Street Bank and Trust Co.
EuroSell3/16/2218,779,31718,717,190(62,127)
UBS AG
EuroSell3/16/2248,716,47248,559,149(157,323)
Unrealized appreciation
Unrealized (depreciation)(753,508)
Total$(753,508)
* The exchange currency for all contracts listed is the United States Dollar.


Sustainable Leaders Fund 23



ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:

Level 1: Valuations based on quoted prices for identical securities in active markets.

Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.

The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:

Valuation inputs
Investments in securities:Level 1Level 2Level 3
Common stocks*:
Communication services$148,440,812$—$—
Consumer discretionary907,368,428—**
Consumer staples371,452,724
Financials662,754,717
Health care999,948,433
Industrials542,449,732
Information technology2,226,492,841
Materials520,561,539
Real estate143,202,202
Utilities189,590,748
Total common stocks6,712,262,176
Convertible preferred stocks—**
U.S. treasury obligations29,901
Short-term investments101,000165,152,586
Totals by level$6,712,363,176$165,182,487$—
Valuation inputs
Other financial instruments:Level 1Level 2Level 3
Forward currency contracts$—$(753,508)$—
Totals by level$—$(753,508)$—
* Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.
** Value of Level 3 security is $—.
At the start and close of the reporting period, Level 3 investments in securities represented less than 1% of the fund’s net assets and were not considered a significant portion of the fund’s portfolio.


The accompanying notes are an integral part of these financial statements.


24 Sustainable Leaders Fund



Statement of assets and liabilities 12/31/21 (Unaudited)

ASSETS  
Investment in securities, at value, including $53,474,146 of securities on loan (Note 1 and 8):  
Unaffiliated issuers (identified cost $3,611,975,319) $6,712,593,003 
Affiliated issuers (identified cost$164,952,660) (Note 5) 164,952,660 
Foreign currency (cost $68) (Note 1) 69 
Dividends, interest and other receivables 5,596,997 
Foreign tax reclaim 1,965,872 
Receivable for shares of the fund sold 2,043,976 
Prepaid assets 75,189 
Total assets 6,887,227,766 
 
LIABILITIES  
Payable to custodian 7,810 
Payable for shares of the fund repurchased 2,012,845 
Payable for compensation of Manager (Note 2) 3,333,096 
Payable for custodian fees (Note 2) 19,818 
Payable for investor servicing fees (Note 2) 1,497,654 
Payable for Trustee compensation and expenses (Note 2) 2,178,236 
Payable for administrative services (Note 2) 73,276 
Payable for distribution fees (Note 2) 3,939,316 
Unrealized depreciation on forward currency contracts (Note 1) 753,508 
Collateral on securities loaned, at value (Note 1) 54,868,505 
Collateral on certain derivative contracts, at value (Notes 1 and 8) 130,901 
Other accrued expenses 295,092 
Total liabilities 69,110,057 
 
Net assets $6,818,117,709 
 
REPRESENTED BY  
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $3,489,362,443 
Total distributable earnings (Note 1) 3,328,755,266 
Total — Representing net assets applicable to capital shares outstanding $6,818,117,709 
 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE  
Net asset value and redemption price per class A share  
($6,159,147,083 divided by 49,738,632 shares) $123.83 
Offering price per class A share (100/94.25 of $123.83)* $131.38 
Net asset value and offering price per class B share ($26,892,295 divided by 329,818 shares)** $81.54 
Net asset value and offering price per class C share ($44,529,047 divided by 473,681 shares)** $94.01 
Net asset value, offering price and redemption price per class R share  
($4,257,453 divided by 36,169 shares) $117.71 
Net asset value, offering price and redemption price per class R6 share  
($117,642,024 divided by 856,382 shares) $137.37 
Net asset value, offering price and redemption price per class Y share  
($465,649,807 divided by 3,399,095 shares) $136.99 

 

*On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.

**Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.

Sustainable Leaders Fund 25 

 



Statement of operations Six months ended 12/31/21 (Unaudited)

INVESTMENT INCOME  
Dividends (net of foreign tax of $107,652) $33,743,406 
Interest (including interest income of $57,593 from investments in affiliated issuers) (Note 5) 57,650 
Securities lending (net of expenses) (Notes 1 and 5) 40,798 
Total investment income 33,841,854 
 
EXPENSES  
Compensation of Manager (Note 2) 21,032,661 
Investor servicing fees (Note 2) 4,455,837 
Custodian fees (Note 2) 44,280 
Trustee compensation and expenses (Note 2) 115,187 
Distribution fees (Note 2) 8,091,111 
Administrative services (Note 2) 110,087 
Other 672,755 
Total expenses 34,521,918 
Expense reduction (Note 2) (2,119) 
Net expenses 34,519,799 
 
Net investment loss (677,945) 
 
REALIZED AND UNREALIZED GAIN (LOSS)  
Net realized gain (loss) on:  
Securities from unaffiliated issuers 407,122,555 
Foreign currency transactions (Note 1) 4,114 
Forward currency contracts (Note 1) 10,963,065 
Total net realized gain 418,089,734 
Change in net unrealized appreciation (depreciation) on:  
Securities from unaffiliated issuers 102,938,181 
Assets and liabilities in foreign currencies (65,870) 
Forward currency contracts (4,856,209) 
Total change in net unrealized appreciation 98,016,102 
 
Net gain on investments 516,105,836 
 
Net increase in net assets resulting from operations $515,427,891 

 

The accompanying notes are an integral part of these financial statements.

26 Sustainable Leaders Fund 

 



Statement of changes in net assets

INCREASE IN NET ASSETS Six months ended 12/31/21* Year ended 6/30/21 
Operations   
Net investment income (loss) $(677,945) $12,361,957 
Net realized gain on investments   
and foreign currency transactions 418,089,734 595,192,161 
Change in net unrealized appreciation of investments   
and assets and liabilities in foreign currencies 98,016,102 1,348,385,944 
Net increase in net assets resulting from operations 515,427,891 1,955,940,062 
Distributions to shareholders (Note 1):   
From ordinary income   
Net investment income   
Class A (26,857,581) (14,836,252) 
Class R (1,611) (11,977) 
Class R6 (804,212) (467,043) 
Class Y (2,861,909) (1,520,344) 
Net realized short-term gain on investments   
Class A (81,163,859) (21,181,876) 
Class B (524,802) (192,033) 
Class C (751,546) (211,035) 
Class R (58,343) (42,368) 
Class R6 (1,406,578) (320,374) 
Class Y (5,614,468) (1,217,303) 
From net realized long-term gain on investments   
Class A (542,485,571) (336,675,646) 
Class B (3,507,688) (3,052,274) 
Class C (5,023,208) (3,354,300) 
Class R (389,957) (673,413) 
Class R6 (9,401,329) (5,092,193) 
Class Y (37,526,159) (19,348,436) 
Increase from capital share transactions (Note 4) 513,346,757 3,673,402 
Total increase in net assets 310,395,827 1,551,416,597 
 
NET ASSETS   
Beginning of period 6,507,721,882 4,956,305,285 
End of period $6,818,117,709 $6,507,721,882 

 

*Unaudited.

The accompanying notes are an integral part of these financial statements.

Sustainable Leaders Fund 27 

 



Financial highlights (For a common share outstanding throughout the period)

 INVESTMENT OPERATIONSLESS DISTRIBUTIONSRATIOS AND SUPPLEMENTAL DATA
            Ratio of Ratio of net  
 Net asset  Net realized   From      expenses investment  
 value,  and unrealized Total from From net realized  Non-recurring Net asset Total return Net assets, to average income (loss) Portfolio 
 beginning Net investment gain (loss) on investment net investment gain on Total reimburse-­ value, end at net asset end of period net assets to average turnover 
Period ended­ of period­ income (loss)a investments­ operations­ income­ investments­ distributions ments­ of period­ value (%)b (in thousands) (%)c net assets (%) (%) 
Class A               
December 31, 2021**  $128.40­ (.02) 9.93­ 9.91­ (.60) (13.88) (14.48) —­ $123.83­ 8.00* $6,159,147­ .52* (.02)* 12* 
June 30, 2021­ 98.08­ .23­ 38.43­ 38.66­ (.33) (8.01) (8.34) —­ 128.40­ 40.82­ 5,915,779­ 1.05­ .20­ 24­ 
June 30, 2020 92.99­ .23­ 11.58­ 11.81­ (.31) (6.41) (6.72) —­ 98.08­ 13.30­ 4,535,812­ 1.03­ .25­ 44­ 
June 30, 2019 95.86­ .14­ 12.06­ 12.20­ (.04) (15.03) (15.07) —­f 92.99­ 15.46­ 4,298,012­ 1.04­ .16­ 30­ 
June 30, 2018 83.77­ .04­ 16.44­ 16.48­ (.45) (3.94) (4.39) —­ 95.86­ 20.16­ 4,085,165­ .99­ .04­ 87­ 
June 30, 2017 67.21­ .30­d 16.26­ 16.56­ —­ —­ —­ —­ 83.77­ 24.64­ 3,648,574­ 1.01­ .40­d 76­ 
Class B               
December 31, 2021**  $89.00­ (.36) 6.78­ 6.42­ —­ (13.88) (13.88) —­ $81.54­ 7.60* $26,892­ .90 * (.40)* 12* 
June 30, 2021­ 70.32­ (.45) 27.14­ 26.69­ —­ (8.01) (8.01) —­ 89.00­ 39.78­ 30,467­ 1.80­ (.56) 24­ 
June 30, 2020 68.68­ (.35) 8.40­ 8.05­ —­ (6.41) (6.41) —­ 70.32­ 12.45­ 33,752­ 1.78­ (.52) 44­ 
June 30, 2019 75.26­ (.41) 8.86­ 8.45­ —­ (15.03) (15.03) —­f 68.68­ 14.60­ 43,671­ 1.79­ (.60) 30­ 
June 30, 2018 66.70­ (.52) 13.02­ 12.50­ —­ (3.94) (3.94) —­ 75.26­ 19.26­ 51,481­ 1.74­ (.72) 87­ 
June 30, 2017 53.91­ (.21) d 13.00­ 12.79­ —­ —­ —­ —­ 66.70­ 23.72­ 57,979­ 1.76­ (.35) d 76­ 
Class C               
December 31, 2021**  $100.59­ (.41) 7.71­ 7.30­ —­ (13.88) (13.88) —­ $94.01­ 7.60* $44,529­ .90 * (.39)* 12* 
June 30, 2021­ 78.62­ (.51) 30.49­ 29.98­ —­ (8.01) (8.01) —­ 100.59­ 39.76­ 41,870­ 1.80­ (.56) 24­ 
June 30, 2020 76.05­ (.38) 9.36­ 8.98­ —­ (6.41) (6.41) —­ 78.62­ 12.47­ 38,033­ 1.78­ (.51) 44­ 
June 30, 2019 81.69­ (.45) 9.84­ 9.39­ —­ (15.03) (15.03) —­f 76.05­ 14.60­ 38,196­ 1.79­ (.59) 30­ 
June 30, 2018 72.09­ (.58) 14.12­ 13.54­ —­ (3.94) (3.94) —­ 81.69­ 19.26­ 34,733­ 1.74­ (.74) 87­ 
June 30, 2017 58.28­ (.23) d 14.04­ 13.81­ —­ —­ —­ —­ 72.09­ 23.70­ 66,307­ 1.76­ (.35) d 76­ 
Class R               
December 31, 2021**  $122.36­ (.18) 9.46­ 9.28­ (.05) (13.88) (13.93) —­ $117.71­ 7.87* $4,257­ .64* (.14)* 12* 
June 30, 2021­ 93.85­ (.12) 36.77­ 36.65­ (.13) (8.01) (8.14) —­ 122.36­ 40.47­ 3,860­ 1.30­ (.10) 24­ 
June 30, 2020 89.28­ (.01) 11.10­ 11.09­ (.11) (6.41) (6.52) —­ 93.85­ 13.01­ 8,167­ 1.28­ (.02) 44­ 
June 30, 2019 92.81­ (.08) 11.58­ 11.50­ —­ (15.03) (15.03) —­f 89.28­ 15.18­ 8,443­ 1.29­ (.10) 30­ 
June 30, 2018 81.27­ (.19) 15.94­ 15.75­ (.27) (3.94) (4.21) —­ 92.81­ 19.85­ 8,210­ 1.24­ (.22) 87­ 
June 30, 2017 65.36­ .11­d 15.80­ 15.91­ —­ —­ —­ —­ 81.27­ 24.34­ 7,930­ 1.26­ .15­d 76­ 
Class R6               
December 31, 2021**  $141.11­ .22­ 10.95­ 11.17­ (1.03) (13.88) (14.91) —­ $137.37­ 8.19 * $117,642­ .35* .15* 12* 
June 30, 2021­ 107.06­ .69­ 42.06­ 42.75­ (.69) (8.01) (8.70) —­ 141.11­ 41.29­ 102,909­ .70­ .55­ 24­ 
June 30, 2020 100.88­ .61­ 12.62­ 13.23­ (.64) (6.41) (7.05) —­ 107.06­ 13.71­ 74,725­ .66­ .61­ 44­ 
June 30, 2019 102.51­ .52­ 13.09­ 13.61­ (.21) (15.03) (15.24) —­f 100.88­ 15.89­ 68,654­ .67­ .53­ 30­ 
June 30, 2018 ­ 103.52­ .01­ (1.02) (1.01) —­ —­ —­ —­ 102.51­ (.98)* 58,846­ .07* e*  87­ 

 

See notes to financial highlights at the end of this section.

The accompanying notes are an integral part of these financial statements.

28 Sustainable Leaders Fund Sustainable Leaders Fund 29 

 



Financial highlights cont.

 INVESTMENT OPERATIONSLESS DISTRIBUTIONSRATIOS AND SUPPLEMENTAL DATA
            Ratio of Ratio of net  
 Net asset  Net realized   From      expenses investment  
 value,  and unrealized Total from From net realized  Non-recurring Net asset Total return Net assets, to average income (loss) Portfolio 
 beginning Net investment gain (loss) on investment net investment gain on Total reimburse-­ value, end at net asset end of period net assets to average turnover 
Period ended­ of period­ income (loss)a investments­ operations­ income­ investments­ distributions ments­ of period­ value (%)b (in thousands) (%)c net assets (%) (%) 
Class Y               
December 31, 2021**  $140.72­ .16­ 10.91­ 11.07­ (.92) (13.88) (14.80) —­ $136.99­ 8.14* $465,650­ .39* .11* 12* 
June 30, 2021­ 106.79­ .58­ 41.95­ 42.53­ (.59) (8.01) (8.60) —­ 140.72­ 41.17­ 412,837­ .80­ .46­ 24­ 
June 30, 2020 100.64­ .50­ 12.59­ 13.09­ (.53) (6.41) (6.94) —­ 106.79­ 13.59­ 265,816­ .78­ .51­ 44­ 
June 30, 2019 102.50­ .40­ 13.05­ 13.45­ (.28) (15.03) (15.31) —­f 100.64­ 15.74­ 208,467­ .79­ .41­ 30­ 
June 30, 2018 89.27­ .29­ 17.55­ 17.84­ (.67) (3.94) (4.61) —­ 102.50­ 20.46­ 178,886­ .74­ .30­ 87­ 
June 30, 2017 71.44­ .52­d 17.31­ 17.83­ —­ —­ —­ —­ 89.27­ 24.96­ 199,737­ .76­ .64­d 76­ 

 

Before March 21, 2018, the fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from that shown for periods before that date.

* Not annualized.

** Unaudited.

†For the period May 22, 2018 (commencement of operations) to June 30, 2018.

a Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.

b Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

c Includes amounts paid through expense offset and/or brokerage/service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.

d Reflects a dividend received by the fund from a single issuer which amounted to the following amounts:

 Per share Percentage of average net assets 
Class A $0.22 0.29% 
Class B 0.18 0.30 
Class C 0.19 0.29 
Class R 0.21 0.28 
Class Y 0.22 0.27 

 

e Amount represents less than 0.01%.

f Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (the SEC) and Canadian Imperial Holdings, Inc. and CIBC World Markets Corp., which amounted to less than $0.01 per share outstanding on March 6, 2019.

The accompanying notes are an integral part of these financial statements.

30 Sustainable Leaders Fund Sustainable Leaders Fund 31 

 



Notes to financial statements 12/31/21 (Unaudited)

Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from July 1, 2021 through December 31, 2021.

Putnam Sustainable Leaders Fund (the fund) is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The goal of the fund is to seek long-term capital appreciation. The fund invests mainly in common stocks of U.S. companies of any size, with a focus on companies that Putnam Management believes exhibit a commitment to financially material sustainable business practices. In evaluating investments for the fund, Putnam Management views “financially material sustainable business practices” as business practices that Putnam Management believes are reasonably likely to impact the financial condition or operating performance of a company and that relate to environmental, social, or corporate governance issues. Putnam Management identifies relevant environmental, social, or corporate governance issues on a sector-specific basis using an internally developed materiality map, which is informed by the sustainability issues identified by the Sustainability Accounting Standards Board as material to companies within a particular industry. As part of this analysis, Putnam Management may utilize metrics and information such as emissions data, carbon intensity, sources of energy used for operations, water use and re-use, water generation and diversion from landfill, employee safety and diversity data, supplier audits, product safety, board composition, and incentive compensation structures. Stocks of companies that exhibit a commitment to financially material sustainable business practices are typically, but not always, considered to be growth stocks. Growth stocks are stocks of companies whose revenues, earnings, or cash flows are expected to grow faster than those of similar firms, and whose business growth and other characteristics may lead to an increase in stock price. Putnam Management may consider, among other factors, a company’s sustainable business practices (as described above), valuation, financial strength, growth potential, competitive position in its industry, projected future earnings, cash flows and dividends when deciding whether to buy or sell investments. The fund may also invest in non-U.S. companies.

Under normal circumstances, the fund invests at least 80% of the value of its net assets in securities that meet Putnam Management’s sustainability criteria. These criteria are based on a proprietary materiality map that is informed by the sustainability issues identified as material by the Sustainability Accounting Standards Board. In applying these criteria, Putnam Management will assign each company a proprietary environmental, social and/or corporate governance (ESG) rating ranging from 1 to 4 (1 indicating the highest (best) ESG rating and 4 indicating the lowest (worst) ESG rating). In order to meet Putnam Management’s sustainability criteria for purposes of this investment policy, a company must be rated 2 or 1 by Putnam Management. This policy is non-fundamental and may be changed only after 60 days’ notice to shareholders. In selecting each investment, Putnam Management focuses on companies that have a demonstrated commitment to sustainable business practices in areas that are relevant and material to their long-term financial returns and risk profiles. Putnam Management believes that companies that have exhibited such a commitment also often demonstrate potential for strong financial growth. This commitment may be reflected through ESG policies, practices, or outcomes. The fund’s approach to sustainable investing incorporates fundamental research together with consideration of ESG factors. Environmental factors include, for example, a company’s carbon intensity and use of resources like water or minerals. Sustainability measures in this area might include plans to reduce waste, increase recycling, raise the proportion of energy supply from renewable sources, or improve product design to be less resource intensive. Social factors include, for example, labor practices and supply chain management. Sustainability measures in this area might include programs to improve employee well-being, commitment to workplace equality and diversity, or improved stewardship of supplier relationships and working conditions. Corporate governance factors include, for example, board composition and executive compensation. Sustainability measures in this area might include improvements in board independence or diversity, or alignment of management incentives with the company’s strategic sustainability objectives. The integrated approach of the fund combines analysis of the growing body of ESG data and deep fundamental analysis and looks for companies that demonstrate leadership, beyond compliance, on relevant sustainability issues. The characteristics that Putnam Management may use when considering sustainability leadership include:

(1) Materiality. The company is focused on sustainability issues that are relevant to long term business success.

(2) Creativity and proactiveness. The company’s sustainability characteristics go beyond compliance to demonstrate heightened commitment.

32 Sustainable Leaders Fund 

 



(3) Transparency. The company’s goals are specific, with candid and consistent progress reporting.

(4) Impact. The sustainability characteristics create benefits that are meaningful both at the company and more broadly.

The fund offers class A, class B, class C, class R, class R6 and class Y shares. Purchases of class B shares are closed to new and existing investors except by exchange from class B shares of another Putnam fund or through dividend and/or capital gains reinvestment. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class A shares generally are not subject to a contingent deferred sales charge, and class R, class R6 and class Y shares are not subject to a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, are not subject to a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares are subject to a one-year 1.00% contingent deferred sales charge and generally convert to class A shares after approximately eight years. Class R shares, which are not available to all investors, are sold at net asset value. The expenses for class A, class B, class C and class R shares may differ based on the distribution fee of each class, which is identified in Note 2. Class R6 and class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class R shares, but do not bear a distribution fee, and in the case of class R6 shares, bear a lower investor servicing fee, which is identified in Note 2. Class R6 and class Y shares are not available to all investors.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.

The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent and custodian, who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.

Under the fund’s Amended and Restated Agreement and Declaration of Trust, any claims asserted against or on behalf of the Putnam Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.

Note 1: Significant accounting policies

The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.

Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.

Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities under Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.

Sustainable Leaders Fund 33 

 



Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.

Market quotations are not considered to be readily available for certain debt obligations (including short-term investments with remaining maturities of 60 days or less) and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which consider such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.

Many securities markets and exchanges outside the U.S. close prior to the scheduled close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the scheduled close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value certain foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. The foreign equity securities, which would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.

To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management in accordance with policies and procedures approved by the Trustees. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.

To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.

Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.

Interest income, net of any applicable withholding taxes, if any, and including amortization and accretion of premiums and discounts on debt securities, is recorded on the accrual basis. Dividend income, net of any applicable withholding taxes, is recognized on the ex-dividend date except that certain dividends from foreign securities, if any, are recognized as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair value of the securities received. Dividends representing a return of capital or capital gains, if any, are reflected as a reduction of cost and/or as a realized gain.

Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The fair value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on disposition of foreign currencies, currency gains and losses realized between the trade and

34 Sustainable Leaders Fund 

 



settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of assets and liabilities other than investments at the period end, resulting from changes in the exchange rate.

Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to hedge foreign exchange risk.

The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The fair value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in fair value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities.

Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.

Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern OTC derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral pledged to the fund is held in a segregated account by the fund’s custodian and, with respect to those amounts which can be sold or repledged, is presented in the fund’s portfolio.

Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.

Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.

At the close of the reporting period, the fund had a net liability position of $753,508 on open derivative contracts subject to the Master Agreements. Collateral pledged by the fund at period end for these agreements totaled $110,945 and may include amounts related to unsettled agreements.

Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the fair value of the securities loaned. The fair value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The remaining maturities of the securities lending transactions are considered overnight and continuous. The risk of borrower default will be borne by the fund’s agent; the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending, net of expenses, is included in investment income on the Statement of operations. Cash collateral is invested in Putnam Cash Collateral Pool, LLC, a limited liability company managed by an affiliate of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are valued at its closing net asset value each business day. There are no management fees charged to Putnam Cash Collateral Pool, LLC. At the close of the reporting period, the fund received cash collateral of $54,868,505 and the value of securities loaned amounted to $53,474,146.

Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from or lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending

Sustainable Leaders Fund 35 

 



transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.

Lines of credit The fund participates, along with other Putnam funds, in a $317.5 million unsecured committed line of credit and a $235.5 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to 1.25% plus the higher of (1) the Federal Funds rate and (2) the Overnight Bank Funding Rate for the committed line of credit and 1.30% plus the higher of (1) the Federal Funds rate and (2) the Overnight Bank Funding Rate for the uncommitted line of credit. A closing fee equal to 0.04% of the committed line of credit and 0.04% of the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.21% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.

Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.

The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

The fund may also be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.

Tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but closely approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. The aggregate identified cost on a tax basis is $3,804,722,200, resulting in gross unrealized appreciation and depreciation of $3,192,212,145 and $120,142,190, respectively, or net unrealized appreciation of $3,072,069,955.

Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.

Note 2: Management fee, administrative services and other transactions

The fund pays Putnam Management a management fee (base fee) (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of all open-end mutual funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). Such annual rates may vary as follows:

0.710% of the first $5 billion, 0.510% of the next $50 billion, 
0.660% of the next $5 billion, 0.490% of the next $50 billion, 
0.610% of the next $10 billion, 0.480% of the next $100 billion and 
0.560% of the next $10 billion, 0.475% of any excess thereafter. 

 

36 Sustainable Leaders Fund 

 



In addition, the monthly management fee consists of the monthly base fee plus or minus a performance adjustment for the month. The performance adjustment is determined based on performance over the thirty-six month period then ended. Each month, the performance adjustment is calculated by multiplying the performance adjustment rate and the fund’s average net assets over the performance period and dividing the result by twelve. The resulting dollar amount is added to, or subtracted from the base fee for that month. The performance adjustment rate is equal to 0.03 multiplied by the difference between the fund’s annualized performance (measured by the fund’s class A shares) and the annualized performance of the benchmark indices described below each measured over the performance period. The maximum annualized performance adjustment rate is +/–0.12%. The monthly base fee is determined based on the fund’s average net assets for the month, while the performance adjustment is determined based on the fund’s average net assets over the thirty-six month performance period. This means it is possible that, if the fund underperforms significantly over the performance period, and the fund’s assets have declined significantly over that period, the negative performance adjustment may exceed the base fee. In this event, Putnam Management would make a payment to the fund.

Effective August 1, 2019, the fund’s benchmark index is the S&P 500 Index. Before August 1, 2019, the fund’s benchmark index was the Russell 3000 Growth Index. Because the performance adjustment is based on a rolling thirty-six-month performance period, there is a transition period during which the fund’s performance is compared to a composite index that reflects the performance of the Russell 3000 Growth Index for the portion of the performance period before August 1, 2019, and the performance of the S&P 500 Index for the remainder of the period.

Because the performance adjustment is based on the fund’s performance relative to its applicable benchmark index, and not its absolute performance, the performance adjustment could increase Putnam Management’s fee even if the fund’s shares lose value during the performance period provided that the fund outperformed its benchmark index, and could decrease Putnam Management’s fee even if the fund’s shares increase in value during the performance period provided that the fund underperformed its benchmark index.

For the reporting period, the management fee represented an effective rate (excluding the impact of any expense waiver in effect) of 0.311% of the fund’s average net assets, which included an effective base fee of 0.272% and an increase of 0.039% ($2,633,460) based on performance.

Putnam Management has contractually agreed, through October 30, 2022, to waive fees and/or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.

Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay a quarterly sub-management fee to PIL for its services at an annual rate of 0.35% of the average net assets of the portion of the fund managed by PIL.

The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.

Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.

Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing for class A, class B, class C, class R and class Y shares that included (1) a per account fee for each direct and underlying non-defined contribution account (retail account) of the fund; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) a specified rate based on the average net assets in retail accounts. Putnam Investor Services, Inc. has agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts for these share classes will not exceed an annual rate of 0.25% of the fund’s average assets attributable to such accounts.

Class R6 shares paid a monthly fee based on the average net assets of class R6 shares at an annual rate of 0.05%.

Sustainable Leaders Fund 37 

 



Class A $4,078,013 Class R6 27,880 
Class B 19,146 Class Y 298,770 
Class C 29,270 Total $4,455,837 
Class R 2,758   

 

The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $2,119 under the expense offset arrangements.

Each Independent Trustee of the fund receives an annual Trustee fee, of which $4,264 as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.

The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.

The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the Plans) with respect to the following share classes pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Putnam Investments, LLC, for services provided and expenses incurred in distributing shares of the fund. The Plans provide payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to the following amounts (Maximum %) of the average net assets attributable to each class. The Trustees have approved payment by the fund at the following annual rate (Approved %) of the average net assets attributable to each class. During the reporting period, the class-specific expenses related to distribution fees were as follows:

 Maximum % Approved % Amount 
Class A 0.35% 0.25% $7,714,377 
Class B 1.00% 1.00% 144,853 
Class C 1.00% 1.00% 221,443 
Class R 1.00% 0.50% 10,438 
Total   $8,091,111 

 

For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $141,813 from the sale of class A shares and received $770 and $362 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.

A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received $70 on class A redemptions.

38 Sustainable Leaders Fund 

 



Note 3: Purchases and sales of securities

During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:

 Cost of purchases Proceeds from sales 
Investments in securities (Long-term) $783,477,086 $965,822,225 
U.S. government securities (Long-term) — — 
Total $783,477,086 $965,822,225 

 

The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales of long-term securities from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.

Note 4: Capital shares

At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions, including, if applicable, direct exchanges pursuant to share conversions, in capital shares were as follows:

 SIX MONTHS ENDED 12/31/21 YEAR ENDED 6/30/21 
Class A Shares Amount Shares Amount 
Shares sold 533,303 $68,610,567 932,896 $106,394,663 
Shares issued in connection with     
reinvestment of distributions 5,089,320 614,382,658 3,191,476 351,764,495 
 5,622,623 682,993,225 4,124,372 458,159,158 
Shares repurchased (1,957,513) (256,473,392) (4,294,711) (490,870,036) 
Net increase (decrease) 3,665,110 $426,519,833 (170,339) $(32,710,878) 
 
 SIX MONTHS ENDED 12/31/21 YEAR ENDED 6/30/21 
Class B Shares Amount Shares Amount 
Shares sold 1,347 $121,293 6,059 $494,144 
Shares issued in connection with     
reinvestment of distributions 50,140 3,987,646 41,795 3,206,536 
 51,487 4,108,939 47,854 3,700,680 
Shares repurchased (63,986) (5,792,497) (185,476) (14,829,771) 
Net decrease (12,499) $(1,683,558) (137,622) $(11,129,091) 
 
 SIX MONTHS ENDED 12/31/21 YEAR ENDED 6/30/21 
Class C Shares Amount Shares Amount 
Shares sold 39,240 $4,046,610 77,478 $7,102,993 
Shares issued in connection with     
reinvestment of distributions 62,427 5,723,948 40,814 3,539,003 
 101,667 9,770,558 118,292 10,641,996 
Shares repurchased (44,227) (4,505,714) (185,821) (16,700,918) 
Net increase (decrease) 57,440 $5,264,844 (67,529) $(6,058,922) 

 

Sustainable Leaders Fund 39 

 



 SIX MONTHS ENDED 12/31/21 YEAR ENDED 6/30/21 
Class R Shares Amount Shares Amount 
Shares sold 2,676 $337,486 19,273 $2,104,853 
Shares issued in connection with     
reinvestment of distributions 3,912 448,956 6,914 727,197 
 6,588 786,442 26,187 2,832,050 
Shares repurchased (1,966) (247,983) (81,656) (8,916,785) 
Net increase (decrease) 4,622 $538,459 (55,469) $(6,084,735) 
 
 SIX MONTHS ENDED 12/31/21 YEAR ENDED 6/30/21 
Class R6 Shares Amount Shares Amount 
Shares sold 84,082 $12,412,818 97,907 $12,502,229 
Shares issued in connection with     
reinvestment of distributions 86,641 11,600,345 48,611 5,877,078 
 170,723 24,013,163 146,518 18,379,307 
Shares repurchased (43,598) (6,237,781) (115,251) (14,205,014) 
Net increase 127,125 $17,775,382 31,267 $4,174,293 
 
 SIX MONTHS ENDED 12/31/21 YEAR ENDED 6/30/21 
Class Y Shares Amount Shares Amount 
Shares sold 395,326 $57,969,352 880,112 $110,878,056 
Shares issued in connection with     
reinvestment of distributions 340,086 45,411,668 179,072 21,599,617 
 735,412 103,381,020 1,059,184 132,477,673 
Shares repurchased (270,144) (38,449,223) (614,480) (76,994,938) 
Net increase 465,268 $64,931,797 444,704 $55,482,735 

 

Note 5: Affiliated transactions

Transactions during the reporting period with any company which is under common ownership or control were as follows:

     Shares 
     outstanding 
     and fair 
 Fair value as Purchase Sale Investment value as 
Name of affiliate of 6/30/21 cost proceeds income of 12/31/21 
Short-term investments      
Putnam Cash Collateral      
Pool, LLC* $83,798,975 $553,069,524 $581,999,994 $47,657 $54,868,505 
Putnam Short Term      
Investment Fund** 182,522,844 493,004,429 565,443,118 57,593 110,084,155 
Total Short-term      
investments $266,321,819 $1,046,073,953 $1,147,443,112 $105,250 $164,952,660 

 

* No management fees are charged to Putnam Cash Collateral Pool, LLC (Note 1).Investment income shown is included in securities lending income on the Statement of operations. There were no realized or unrealized gains or losses during the period.

** Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management.

There were no realized or unrealized gains or losses during the period.

40 Sustainable Leaders Fund 

 



Note 6: Market, credit and other risks

In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations.

Beginning in January 2020, global financial markets have experienced, and may continue to experience, significant volatility resulting from the spread of a virus known as Covid–19. The outbreak of Covid–19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand, and general market uncertainty. The effects of Covid–19 have adversely affected, and may continue to adversely affect, the global economy, the economies of certain nations, and individual issuers, all of which may negatively impact the fund’s performance.

Note 7: Summary of derivative activity

The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was based on an average of the holdings at the end of each fiscal quarter:

Forward currency contracts (contract amount) $145,800,000 
Warrants (number of warrants) 32,000 

 

The following is a summary of the fair value of derivative instruments as of the close of the reporting period:

Fair value of derivative instruments as of the close of the reporting period  
 ASSET DERIVATIVESLIABILITY DERIVATIVES
Derivatives not     
accounted for as Statement of  Statement of  
hedging instruments assets and  assets and  
under ASC 815 liabilities location Fair value liabilities location Fair value 
Foreign exchange     
contracts Receivables $— Payables $753,508 
Total  $—  $753,508 

 

The following is a summary of realized and change in unrealized gains or losses of derivative instruments in the Statement of operations for the reporting period (Note 1):

Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments 
  Forward  
Derivatives not accounted for as hedging  currency  
instruments under ASC 815 Warrants contracts Total 
Foreign exchange contracts $— 10,963,065 $10,963,065 
Equity contracts — — — 
Total $— $10,963,065 $10,963,065 
 
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) 
on investments    
  Forward  
Derivatives not accounted for as hedging  currency  
instruments under ASC 815 Warrants contracts Total 
Foreign exchange contracts $— (4,856,209) $(4,856,209) 
Equity contracts — — — 
Total $— $(4,856,209) $(4,856,209) 

 

Sustainable Leaders Fund 41 

 



Note 8: Offsetting of financial and derivative assets and liabilities

The following table summarizes any derivatives, repurchase agreements and reverse repurchase agreements, at the end of the reporting period, that are subject to an enforceable master netting agreement or similar agreement. For securities lending transactions or borrowing transactions associated with securities sold short, if any, see Note 1. For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to the master netting agreements in the Statement of assets and liabilities.

   HSBC     
 Bank of  Bank USA, JPMorgan State Street   
 America Barclays National Chase Bank Bank and   
 N.A. Bank PLC Association N.A. Trust Co. UBS AG Total 
Assets:        
Forward currency $— $— $— $— $— $— $— 
contracts#        
Total Assets $— $— $— $— $— $— $— 
Liabilities:        
Forward currency 253,417 67,059 38,944 174,638 62,127 157,323 753,508 
contracts#        
Total Liabilities $253,417 $67,059 $38,944 $174,638 $62,127 $157,323 $753,508 
Total Financial and        
Derivative $(253,417) $(67,059) $(38,944) $(174,638) $(62,127) $(157,323) $(753,508) 
Net Assets        
Total collateral        
received $(110,945) $— $— $18,000 $29,901 $83,000  
(pledged)†##        
Net amount $(142,472) $(67,059) $(38,944) $(192,638) $(92,028) $(240,323)  
Controlled collateral        
received (including $— $— $— $18,000 $29,901 $83,000 $130,901 
TBA commitments)**        
Uncontrolled        
collateral received $— $— $— $— $— $— $— 
Collateral (pledged)        
(including TBA $(110,945) $— $— $— $— $— $(110,945) 
commitments)**        

 

**Included with Investments in securities on the Statement of assets and liabilities.

Additional collateral may be required from certain brokers based on individual agreements.

# Covered by master netting agreement (Note 1).

##Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements.

42 Sustainable Leaders Fund 

 



Putnam family of funds

The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, contact your financial advisor or call Putnam Investor Services at 1-800-225-1581. Please read the prospectus carefully before investing.

Blend Income 
Emerging Markets Equity Fund Convertible Securities Fund 
Focused Equity Fund Diversified Income Trust 
Focused International Equity Fund Floating Rate Income Fund 
International Capital Opportunities Fund Global Income Trust 
International Equity Fund Government Money Market Fund* 
Multi-Cap Core Fund High Yield Fund 
Research Fund Income Fund 
 Money Market Fund 
Global Sector Mortgage Opportunities Fund 
Global Health Care Fund Mortgage Securities Fund 
Global Technology Fund Short Duration Bond Fund 
 Ultra Short Duration Income Fund 
Growth  
Growth Opportunities Fund Tax-free Income 
Small Cap Growth Fund Intermediate-Term Municipal Income Fund 
Sustainable Future Fund Short-Term Municipal Income Fund 
Sustainable Leaders Fund Strategic Intermediate Municipal Fund 
 Tax Exempt Income Fund 
Value Tax-Free High Yield Fund 
International Value Fund  
Large Cap Value Fund State tax-free income funds: 
Small Cap Value Fund California, Massachusetts, Minnesota, 
 New Jersey, New York, Ohio, and Pennsylvania 

 

Sustainable Leaders Fund 43 

 



Absolute Return Asset Allocation (cont.) 
Fixed Income Absolute Return Fund Putnam Retirement Advantage Maturity Fund 
Multi-Asset Absolute Return Fund Putnam Retirement Advantage 2065 Fund 
 Putnam Retirement Advantage 2060 Fund 
Putnam PanAgora§ Putnam Retirement Advantage 2055 Fund 
Putnam PanAgora Risk Parity Fund Putnam Retirement Advantage 2050 Fund 
 Putnam Retirement Advantage 2045 Fund 
Asset Allocation Putnam Retirement Advantage 2040 Fund 
Dynamic Risk Allocation Fund Putnam Retirement Advantage 2035 Fund 
George Putnam Balanced Fund Putnam Retirement Advantage 2030 Fund 
 Putnam Retirement Advantage 2025 Fund 
Dynamic Asset Allocation Balanced Fund 
Dynamic Asset Allocation Conservative Fund RetirementReady® Maturity Fund 
Dynamic Asset Allocation Growth Fund RetirementReady® 2065 Fund 
 RetirementReady® 2060 Fund 
 RetirementReady® 2055 Fund 
 RetirementReady® 2050 Fund 
 RetirementReady® 2045 Fund 
 RetirementReady® 2040 Fund 
 RetirementReady® 2035 Fund 
 RetirementReady® 2030 Fund 
 RetirementReady® 2025 Fund 

 

* You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

Not available in all states.

§ Sub-advised by PanAgora Asset Management.

Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.

44 Sustainable Leaders Fund 

 



Fund information

Founded over 80 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage funds across income, value, blend, growth, sustainable, asset allocation, absolute return, and global sector categories.

Investment Manager Trustees Richard T. Kircher 
Putnam Investment Kenneth R. Leibler, Chair Vice President and BSA 
Management, LLC Liaquat Ahamed Compliance Officer 
100 Federal Street Ravi Akhoury  
Boston, MA 02110 Barbara M. Baumann Martin Lemaire 
 Katinka Domotorffy Vice President and 
Investment Sub-Advisor Catharine Bond Hill Derivatives Risk Manager 
Putnam Investments Limited Paul L. Joskow  
16 St James’s Street George Putnam, III Susan G. Malloy 
London, England SW1A 1ER Robert L. Reynolds Vice President and 
 Manoj P. Singh Assistant Treasurer 
Marketing Services Mona K. Sutphen  
Putnam Retail Management  Alan G. McCormack 
Limited Partnership Officers Vice President and 
100 Federal Street Robert L. Reynolds Derivatives Risk Manager 
Boston, MA 02110 President  
  Denere P. Poulack 
Custodian James F. Clark Assistant Vice President, 
State Street Bank Vice President, Chief Compliance Assistant Clerk, and 
and Trust Company Officer, and Chief Risk Officer Assistant Treasurer 
   
Legal Counsel Nancy E. Florek Janet C. Smith 
Ropes & Gray LLP Vice President, Director of Vice President, 
 Proxy Voting and Corporate Principal Financial Officer, 
 Governance, Assistant Clerk, Principal Accounting Officer, 
 and Assistant Treasurer and Assistant Treasurer 
   
 Michael J. Higgins Stephen J. Tate 
 Vice President, Treasurer, Vice President and 
 and Clerk Chief Legal Officer 
   
 Jonathan S. Horwitz Mark C. Trenchard 
 Executive Vice President, Vice President 
 Principal Executive Officer,  
 and Compliance Liaison  

 

This report is for the information of shareholders of Putnam Sustainable Leaders Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.




Item 2. Code of Ethics:
Not applicable

Item 3. Audit Committee Financial Expert:
Not applicable

Item 4. Principal Accountant Fees and Services:
Not applicable

Item 5. Audit Committee of Listed Registrants
Not applicable

Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies
Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:
Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable

Item 11. Controls and Procedures:
(a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Disclosures of Securities Lending Activities for Closed-End Investment Companies:
Not Applicable

Item 13. Exhibits:
(a)(1) Not applicable

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Sustainable Leaders Fund
By (Signature and Title):
/s/ Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: February 25, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):
/s/ Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer

Date: February 25, 2022
By (Signature and Title):
/s/ Janet C. Smith
Janet C. Smith
Principal Financial Officer

Date: February 25, 2022