Putnam
Health
Sciences
Trust
ANNUAL REPORT
August 31, 1994
(Art of balance scales)
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> Total returns for the fund's class A and class B shares at net asset value
for the one-year period ended August 31, 1994, were 23.38% and 22.49%,
respectively, outpacing both the Dow Jones Industrial Average and the
Standard & Poor's 500(R) Index.*
> Lipper ranked the fund's class A shares in the top third of all
health/biotechnology funds tracked for one-year total return performance as
of August 31, 1994.+
> Performance should always be considered in light of a fund's investment
strategy. Putnam Health Sciences Trust is designed for investors seeking
capital appreciation through investments in the health sciences industries.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
Total return NAV POP NAV CDSC
<S> <C> <C> <C> <C>
12 months ended
8/31/94 (change
in
value during
period
plus reinvested
distributions) 23.38 % 16.28 % 22.49% 17.49%
Share value NAV POP NAV
8/31/93 $24.40 $25.89 $24.28
8/31/94 29.77 31.59 29.47
Capital gains
Distributions Number Income Long- Short-
term term Total
Class A 1 $ 0.240 $ 0.051 -- $ 0.291
Class B 1 0.185 0.051 -- 0.236
</TABLE>
Performance data represent past results. For performance over longer periods,
see pages 8 and 9. POP assumes 5.75% maximum sales charge. CDSC assumes 5%
maximum contingent deferred sales charge.
*Performance for the DJIA was 10.25% and the S&P 500, was 5.51%.
+Lipper Analytical Services is an independent research organization; rankings
vary over time and do not reflect the effects of sales charges. The fund's
class A shares ranked 5 out of 16 health/ biotechnology funds for 1 year, 7
out of 9 for 5 years, and 4 out of 4 for 10 years as of 8/31/94. Past
performance is not indicative of future results.
<PAGE>
From the Chairman
(Photo of George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
By the time you receive this report, 1994 will be well into the final quarter
of what is proving to be anything but a quiet year on the investment front.
The stock market, where your fund concentrates virtually all of its
attention, has been especially erratic, with unmistakably beneficial effects
on your fund's performance for the 12 months ended August 31, 1994.
It is worth cautioning, however, that continued volatility, rather than a new
sustained rise, is the probable course for stocks--including health care
stocks--over the months immediately ahead. The Fed will likely continue its
tight rein on credit until it is convinced that the economy's growth has
achieved a sustainable rate and inflation fears have been put to rest.
I am pleased to report that James Giblin has joined Joanne Soja as a
co-manager of your fund. Jim brings 22 years of investment experience to the
task. Before joining Putnam in 1993, he was managing director and head of
Cigna Equity Advisors.
Respectfully yours,
(Signature of George Putnam)
George Putnam
Chairman of the Trustees
October 19, 1994
<PAGE>
Report from the fund managers
Joanne Soja
James Giblin
Putnam Health Sciences Trust's results for the 12 months ended August 31,
1994, support our current belief that the recent two- year lag in health care
stock performance has come to an end. It became clear early in 1994 that the
proposed Clinton health care legislation would eventually be watered down but
that meanwhile the health care industry had already begun reforming itself.
It is in this context that we report that the fund produced total returns of
23.38% and 22.49% for class A and class B shares, respectively, at net asset
value for the period, compared with the 5.51% average return for stocks
measured by the Standard & Poor's 500(R) Index. This performance reflects the
flexibility of investment strategy for the fund during challenging times in
the market.
However, as long as uncertainty related to health care reform lingers in the
market, some volatility in health care stock prices should be expected to
continue. Consequently, we have been focusing primarily on companies whose
managements have been quick to respond to a changing environment and to
offset the inevitable decline in gross profit margins--either through cost
reductions, restructuring, consolidation, or creative alliances. We have been
broad-based in our approach, positioning your fund's portfolio in diverse
subsectors of health care that, in our judgment, have the potential to grow
regardless of the outcome of health care reform.
> REPOSITIONING THE FUND FOR INCREASED
GROWTH POTENTIAL
At the start of summer in 1993, the fund's portfolio was positioned
defensively, approximately 15% in cash and 15% in non-health- care-related
stocks because of the huge uncertainty resulting from proposed health care
reform legislation. Values became so depressed, however, that in the fall of
1993, we began reducing cash levels and increasing the fund's investments in
the health care sector.
<PAGE>
While we became more positively inclined toward the stocks because of
valuations, we were still unsure of the specifics of any legislative actions
and therefore invested in a diversified mix within the broad health care
sector. More recently, we decreased the portfolio's cash portion to less than
5% and reduced investments outside health care to below 4%. We shifted more
of the portfolio's assets into the medical services companies and continued
to position the fund opportunistically, targeting companies with attractive
yields and low price/earnings ratios, and those effecting industry changes to
improve prospects for growth.
We see several themes emerging in health care. Companies continue to
consolidate. Small companies are springing up to answer the information needs
of the health care industry. Managed care companies have accelerating
enrollments and better economics continue to fuel their strong earnings
growth potential. Companies with streamlined cost structures or those with
unique products and innovative solutions to unmet health care needs continue
to succeed.
> HEALTH CARE SERVICES STOCKS HAVE PROVIDED ATTRACTIVE RETURNS
During the period, health care services stocks were the best- performing
sector in the health care industry. The sector continues to be led by the
success of health maintenance organizations (HMOs) that have answered the
need for high-quality, affordable care. There have also been innovative
non-HMO approaches bringing into the industry important new technologies and
services that didn't exist a few years ago--pharmaceutical benefits programs
and comprehensive provider networks, for example.
One of the stocks that we increased your fund's position in has been U.S.
Healthcare Inc. In general, HMOs performed so strongly that we took profits
across the sector during the period.
<PAGE>
In our judgment, the health care services sector should be able to maintain
its heady growth rates and low valuations going forward, continuing to
deliver attractive returns to your fund's portfolio.
> PHARMACEUTICAL AND BIOTECHNOLOGY STOCKS BEGIN TO STRENGTHEN
Large-capitalization pharmaceutical companies began to outperform the market
in the summer of 1994. We believe this was a function of low relative
valuations and the absence of dramatic downward earnings revisions following
first-quarter reports.
Though high gross profit margins may fall, many companies have prepared
themselves well for the next year. We primarily seek pharmaceutical companies
with good long-term product pipelines and those preparing themselves for
inevitable pricing pressure with strategic realignments or enhanced sales and
research efforts.
Your fund has benefited from the consolidation trend. For example, following
SmithKline Beecham's purchase of the pharmaceutical benefits manager (PBM)
division of United Healthcare Corp., we tripled the fund's position in
McKesson Co., which owned a very strong PBM. This PBM was eventually
purchased by Eli Lilly & Co. for significant performance over the McKesson
stock price. We are using some of the proceeds from these transactions to
purchase reasonably valued names like Warner-Lambert Co. and Upjohn Co. The
stocks of these and other major pharmaceutical companies have yielded
reasonable total returns.
Though conservative in our investments in biotechnology, we consider your
fund appropriately weighted with 5.4% of net assets in this sector as of
period's end. Stocks of portfolio companies Biogen, Inc., and Genentech,
Inc., have contributed to portfolio performance.
<PAGE>
TOP 10 HOLDINGS (8/31/94)
Abbott Laboratories
Medical supplies and devices
....................................................
Johnson & Johnson
Medical supplies and devices
....................................................
Merck & Co., Inc.
Ethical pharmaceuticals
....................................................
United Healthcare Corp.
Hospital management and health care services
....................................................
SmithKline Beecham PLC ADR
Ethical pharmaceuticals
....................................................
American Home Products Corp.
Ethical pharmaceuticals
....................................................
Pfizer Inc.
Ethical pharmaceuticals
....................................................
Medtronic, Inc.
Medical supplies and devices
....................................................
Schering Plough Corp.
Ethical pharmaceuticals
....................................................
Warner-Lambert Co.
Ethical pharmaceuticals
These holdings represent 44.2% of the fund's assets. Portfolio holdings are
subject to change.
> OUTLOOK: HEALTH CARE OFFERS GROWTH OPPORTUNITIES
As your fund begins fiscal 1995, we continue broad-based diversification,
seeking health care companies that offer better products or services at lower
cost. Many of the same opportunities in health care exist today as did 5 or
10 years ago. Major disorders like cancer, heart disease, and AIDS call out
for the promise of new drugs, devices, and therapies. We will aggressively
pursue those companies that appear to have strong prospects for growth. We
continue to believe that health care valuations are compelling and that your
fund retains the potential to continue its outperformance of the general
market averages into fiscal 1995 and beyond.
The views expressed about the companies mentioned in this report are
exclusively those of Putnam Management, and are not meant as investment
advice. Although the described holdings were viewed favorably as of August
31, 1994, there is no guarantee the fund will continue to hold these
securities in the future.
<PAGE>
Performance summaryThis section provides, at a glance, information about your
fund's performance. 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 back into the fund. We show total return in two
ways: on a cumulative long-term basis and on average how the fund might have
grown each year over varying periods. For comparative purposes, we show how
the fund performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 8/31/94
<TABLE>
<CAPTION>
Standard
Class A Class B & Poor's
NAV POP NAV CDSC 500 Index CPI
<S> <C> <C> <C> <C> <C> <C>
1 year 23.38% 16.28% 22.49% 17.49% 5.51% 2.90%
5 years 86.37 75.65 -- -- 58.06 19.58
Annual average 13.26 11.93 -- -- 9.59 3.64
10 years 356.62 330.45 -- -- 299.70 42.58
Annual average 16.40 15.72 -- -- 14.86 3.61
Life of class B
(3/1/93) -- -- 23.81 19.81 11.86 4.12
Annual average -- -- 15.30 12.81 7.76 2.73
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
1 year 25.01% 17.81% 24.05% 19.05%
5 years 87.31 76.54
Annual average 13.37 12.04 -- --
10 years 382.28 354.55
Annual average 17.04 16.35 -- --
Life of class B (3/1/93) -- -- 26.17 22.17
Annual average -- -- 15.85 13.51
</TABLE>
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions or, for class A shares, distribution fees
prior to implementation of the class A distribution plan in 1990. Performance
data represent past results. Investment returns and net asset value will
fluctuate so an investor's shares, when sold, may be worth more or less than
their original cost.
<PAGE>
(Graphic Line chart)
GROWTH OF A $10,000 INVESTMENT
Plot Points
Class A Standard Consumer
Shares & Poor's Price Index
9525 10000 10000
11442 11823 10335
16605 16450 10498
21201 22149 10947
17218 18165 11388
23097 25289 11923
26564 23993 12593
37718 30469 13072
37296 32886 13483
34888 37883 13856
43045 39970 14258
(End chart)
Past performance is no assurance of future results. A $10,000 investment in
the fund's class B shares at inception on 3/1/93 would have grown to $12,381
by 8/31/94 ($11,981 with a redemption at the end of the period).
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 5.75% sales charge.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year to
1% during the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. The index
assumes reinvestment of all distributions and does not take into account
brokerage commissions or other costs. The fund's portfolio contains
securities that do not match those in the index.
Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
Life cycle investing
As we move through life, our investment needs change. As
these needs change, so does the way we allocate our assets. Here are some
basic rules for setting up and maintaining an investment program and some
examples of how assets might be allocated.
> DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses, or retirement.
> EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with longer
timelines and lower for older investors who may depend on their investment
for current income.
> ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of your investable
dollars should be allocated to each investment category.
> CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own Putnam
portfolio of funds as your financial needs change -- without a service fee.*
Look at the facing page for some ways you can allocate your assets, then turn
the page to see how the Putnam Family of Funds can help you make your
choices.
*Putnam reserves the right to change or terminate the exchange privilege. In
some cases, a sales charge may apply. See prospectus for details.
<PAGE>
FOUR WAYS TO ALLOCATE ASSETS
Your investment advisor can help you determine your objectives, evaluate your
risk tolerance, and develop a long-term financial plan. These sample
portfolios can help you diversify your portfolio within the Putnam Family of
Funds. These illustrations are not intended as investment advice.
SEEKING MAXIMUM GROWTH
(Graphic representation of four pie charts)
Risk tolerance: 30%-40% Growth and income --------------
Generally
investors with a
higher risk 40%-50% Growth --------------
tolerance
(often in their 20s
and early 30s). 5%-20% Income or --------------
tax-free income
SEEKING GROWTH AND SOME INCOME
Risk tolerance: 40%-50% Growth and income --------------
Generally
investors with a 30%-40% Growth --------------
high to moderate
risk tolerance
(often in their late 10%-30% Income or --------------
tax-free income
30s and early 40s).
SEEKING INCOME AND SOME GROWTH
WITH PROTECTION AGAINST INFLATION
Risk tolerance: 30%-40% Growth and income --------------
Generally
investors with a 25%-60% Income or --------------
moderate risk tax-free income
tolerance
(often in their late 10%-20% Growth --------------
40s and 50s).
SEEKING HIGH CURRENT INCOME AND
PROTECTION AGAINST INFLATION
Risk tolerance: 20%-30% Growth and income --------------
Generally
investors with 40%-70% Income or --------------
a moderate to tax-free income
low risk
tolerance 5%-10% Growth ------------------
(often over 60
and retired).
<PAGE>
Putnam Family of Funds
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
Please call your financial advisor or Putnam to obtain a prospectus for any
Putnam fund. It contains more complete information, including charges and
expenses. Please read it carefully before you invest or send money.
PUTNAM TAX-FREE
INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds+
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio, and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments to help
maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation:
Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS++
Putnam money market funds:
Money Market FundS.
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts**
*Formerly Energy-Resources Trust.
+Not available in all states.
++Relative to above.
S.Formerly Daily Dividend Trust.
**Not offered by Putnam Investments. Certificates of deposit offer a fixed rate
of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
<PAGE>
Report of Independent Accountants
For the fiscal year ended August 31, 1994
To the Trustees and Shareholders of
Putnam Health Sciences Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Health Sciences Trust, including the portfolio of investments owned,
as of August 31, 1994, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in
the period then ended, and the "Financial Highlights" for each of the ten
years in the period then ended for class A shares and for the year ended
August 31, 1994 and for the period March 1, 1993 (commencement of operations)
to August 31, 1993, for class B shares. These financial statements and
"Financial Highlights" are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
"Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
"Financial Highlights" are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1994, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and "Financial Highlights" referred
to above present fairly, in all material respects, the financial position of
Putnam Health Sciences Trust as of August 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the "Financial Highlights" for
each of the ten years in the period then ended for class A shares and for the
year ended August 31, 1994 and for the period March 1, 1993 (commencement of
operations) to August 31, 1993, for class B shares in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 17, 1994
<PAGE>
Portfolio of investments owned
August 31, 1994
<TABLE>
<CAPTION>
COMMON STOCKS (95.3%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Ethical Pharmaceuticals (35.8%)
100,000 Affymax N.V.(b) $ 1,650,000
350,000 Allergan Inc. 9,581,250
180,000 American Cyanamid Co. 17,370,000
633,000 American Home Products Corp. 37,584,375
300,000 Bristol-Myers Squibb Co. 17,250,000
120,000 Elan Corp. ADR(b)(c) 4,320,000
134,100 Forest Laboratories, Inc. Class
A(b) 6,302,700
100,000 Ivax Corp. 1,987,500
400,000 Lilly (Eli) & Co. 22,750,000
1,227,200 Merck & Co., Inc. 41,878,200
120,000 Mylan Laboratories Inc. 3,090,000
542,500 Pfizer Inc. 37,025,625
370,000 Schering Plough Corp. 25,853,750
1,210,000 SmithKline Beecham PLC ADR(c) 37,661,250
400,000 Upjohn Co. 14,450,000
280,000 Warner-Lambert Co. 23,415,000
302,169,650
Medical Supplies and Devices (25.9%)
1,770,000 Abbott Laboratories 53,100,000
50,000 Arrow International, Inc. 1,237,500
648,300 Bard (C.R.), Inc. 18,071,363
763,750 Baxter International Inc. 21,671,406
140,000 Cordis Corp.(b) 7,700,000
310,000 Haemonetics Corp.(b) 5,812,500
910,000 Johnson & Johnson 45,613,750
300,000 Medtronic, Inc. 29,625,000
120,000 Mitek(b) 2,580,000
170,000 Nellcor Inc.(b) 5,142,500
122,000 Perseptive Tech II Corp.(b) 1,677,500
84,800 Sci-Med Life Systems, Inc.(b) 3,116,400
128,000 Sofamor/Danek Group, Inc.(b) 2,576,000
125,000 St. Jude Medical Inc. 4,312,500
478,000 Stryker Corp. 16,969,000
219,205,419
Hospital Management and Medical Services (22.5%)
65,000 Apogee, Inc.(b) 1,235,000
630,000 Beverly Enterprises Inc.(b) 8,583,750
291,125 Columbia/HCA Healthcare Corp. 12,372,813
75,000 Express Scripts, Inc. Class A(b) 2,587,500
235,000 FHP Intl. Corp.(b) 6,345,000
100,000 Foundation Health Corp.(b) 3,787,500
210,000 Health Care & Retirement Corp. (b) 5,853,750
250,000 Horizon Healthcare Corp.(b) 6,343,750
800,000 Humana Inc. 17,000,000
190,000 Manor Care, Inc. 5,225,000
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS
NUMBER OF SHARES VALUE
<S> <C> <C>
Hospital Management and Medical Services (continued)
170,000 Medaphis Corp.(b) $ 5,992,500
100,000 Mid Atlantic Medical Services, Inc.(b) 2,650,000
193,100 National Medical Enterprises, Inc. 3,524,075
40,000 Oxford Health Plan(b) 2,830,000
171,000 Pacificare Health Systems Class B(b) 11,756,250
160,000 Quantum Health Resources, Inc.(b) 5,740,000
183,900 Quorum Health(b) 3,379,162
472,500 U.S. Healthcare Inc. 20,435,625
800,000 United Healthcare Corp. 41,800,000
295,600 Value Health, Inc.(b) 14,558,300
320,000 Vivra, Inc. 8,200,000
190,199,975
Biotechnology (5.4%)
280,000 Amgen Inc.(b) 14,770,000
156,500 Amylin Pharmaceuticals, Inc.(b) 1,252,000
350,000 Athena Neurosciences, Inc.(b) 2,318,750
50,000 Biochem Pharmaceutical, Inc.(b) 525,000
140,000 Biogen, Inc.(b) 7,052,500
260,000 Cor Therapeutics Inc.(b) 3,835,000
172,500 Genentech, Inc.(b) 8,862,188
210,000 Gensia Pharmaceuticals Inc.(b) 2,362,500
90,100 Quintiles Transnational Corp.(b) 2,353,862
133,400 Vertex Pharmaceuticals Inc(b) 1,917,625
45,249,425
Computer Software (1.3%)
91,600 Cerner Corp.(b) 3,824,300
220,000 GMIS, Inc.(b) 2,970,000
170,000 Shared Medical Systems Corp. 4,250,000
11,044,300
Distribution and Drug Retailing (1.1%)
645,000 Owens & Minor, Inc. 9,513,750
Insurance (0.7%)
90,000 Lincoln National Corp. 3,465,000
208,200 Rightchoice Managed Care, Inc. Class A(b) 2,394,300
5,859,300
Electronic Components and Equipment (0.5%)
65,000 Intel Corp. 4,273,750
Conglomerates (0.5%)
50,000 ITT Corp. 4,100,000
Pharmaceuticals (0.5%)
118,500 Roberts Pharmaceutical Corp.(b) 3,999,375
Health Care (0.4%)
200,000 Medisense Inc.(b) 3,550,000
Automotive (0.4%)
65,000 General Motors Corp. 3,266,250
<PAGE>
Transportation (0.3%)
55,000 Burlington Northern Inc. $ 2,887,500
Total Common Stocks (cost $618,506,529) $805,318,694
CONVERTIBLE BONDS (0.3%) (cost $1,750,000)
PRINCIPAL AMOUNT VALUE
$1,750,000 Hillhaven (The) Corp. cv. deb. 7-3/4s, 2002(b) $ 2,301,250
VENTURE CAPITAL LIMITED PARTNERSHIP (0.2%) (a)(b)(d) (cost $2,424,562)
Montgomery Medical Ventures ll (Represents an
interest in the limited partnership: $600,000
invested on 10/30/87, 11/7/88, 6/30/89, and 1/5/90,
and $24,562 invested on 10/24/90, for a total
investment of $2,424,562) $ 1,620,024
SHORT-TERM INVESTMENTS (4.4%)(a)
PRINCIPAL AMOUNT VALUE
$10,000,000 Federal Home Loan Banks 4.62s, September 26, 1994 $ 9,967,916
27,350,000 Interest in $300,000,000 joint repurchase agreement
dated August 31, 1994 with Bankers Trust Company due
September 1, 1994 with respect to various U.S
Treasury obligations-- maturity value of $27,353,639
for an effective yield of 4.79% 27,353,639
Total Short-Term Investments
(cost $37,321,555) $ 37,321,555
Total Investments
(cost $660,002,646) (e) $846,561,523
</TABLE>
(a) Percentages indicated are based on net assets of $845,021,870 which
correspond to a net asset value for class A and class B shares of $29.77 and
$29.47, respectively.
(b) Non-income-producing security.
(c) Securities whose value is determined or significantly influenced by
trading on exchanges not in the United States or Canada. ADR after the name
of a foreign holding stands for American Depository Receipt, representing
foreign securities on deposit with a domestic custodian bank.
(d) Restricted as to public resale. At the date of acquisition, these
securities were valued at cost. The investment in Montgomery Medical Ventures
II represents interest in a limited partnership which makes investments in
companies developing various health care products and technologies. There
were no outstanding unrestricted securities of the same class as those held.
Total market value of restricted securities owned at August 31, 1994 was
$1,620,024 or 0.2% of net assets.
(e) The aggregate identified cost on a federal income tax basis is
$660,015,944 resulting in gross unrealized appreciation and depreciation of
$225,813,321 and $39,267,742 respectively, or net unrealized appreciation of
$186,545,579.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
August 31, 1994
<TABLE>
<CAPTION>
Assets
<S> <C>
Investments in securities, at value (identified cost $660,002,646) (Note 1) $846,561,523
Cash 381
Dividends and interest receivable 2,104,033
Receivable for shares of the fund sold 1,979,172
Total assets $850,645,109
Liabilities
Payable for shares of the fund repurchased $ 2,341,076
Payable for securities purchased 1,443,800
Payable for compensation of Manager (Note 2) 1,288,537
Payable for administrative services (Note 2) 2,831
Payable for compensation of Trustees (Note 2) 583
Payable for investor servicing and custodian fees (Note 2) 127,603
Payable for distribution fees (Note 2) 350,611
Other accrued expenses 68,198
Total liabilities 5,623,239
Net assets $845,021,870
Represented by
Paid-in capital (Notes 1, 4 and 5) $638,357,486
Undistributed net investment income (Notes 1 and 5) 5,522,832
Accumulated net realized gain on investment (Notes 1 and 5) 14,582,675
Net unrealized appreciation of investments 186,558,877
Total--Representing net assets applicable
to capital shares outstanding $845,021,870
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Computation of net asset value and offering price
Net asset value and redemption price
of class A shares ($789,597,994 divided by 26,520,524
shares) $29.77
Offering price per class A share (100/94.25 of $29.77)* $31.59
Net asset value and offering price of class B shares
($55,423,876 divided by 1,880,595 shares)+ $29.47
</TABLE>
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales 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.
<PAGE>
Statement of operations
Year ended August 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends $ 14,857,814
Interest 1,473,048
Total investment income 16,330,862
Expenses:
Compensation of Manager (Note 2) 5,195,028
Investor servicing and custodian fees (Note 2) 1,185,145
Compensation of Trustees (Note 2) 31,108
Auditing 28,375
Legal 23,283
Postage 108,050
Reports to shareholders 66,679
Distribution fees--class A (Note 2) 1,863,170
Distribution fees--class B (Note 2) 361,785
Administrative services (Note 2) 21,952
Registration fees 7,902
Other 169,139
Total expenses 9,061,616
Net investment income 7,269,246
Net realized gain on investments (Notes 1 and 3) 37,397,500
Net unrealized appreciation of investments during
the year 122,395,466
Net gain on investments 159,792,966
Net increase in net assets resulting from
operations $167,062,212
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Year ended
August 31
1994 1993
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 7,269,246 $ 8,002,314
Net realized gain (loss) on investments 37,397,500 (14,644,194)
Net unrealized appreciation (depreciation) of
investments 122,395,466 (52,699,200)
Net increase (decrease) in net assets resulting from
operations 167,062,212 (59,341,080)
Distributions to shareholders from:
Net investment income
Class A (7,054,011) (4,451,894)
Class B (218,378) --
Net realized gain on investments
Class A (1,518,110) (74,951,856)
Class B (60,825) --
Decrease from capital share transactions (Note 4) (96,087,506) (48,768,406)
Total increase (decrease) in net assets 62,123,382 (187,513,236)
Net assets
Beginning of year 782,898,488 970,411,724
End of year (including undistributed net investment
income of $5,522,832 and $9,003,209, respectively) $845,021,870 $ 782,898,488
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
March 1, 1993
(commencement of
Year ended operations) to
August 31 August 31 Year ended August 31
1994 1993* 1994 1993
Class B Class A
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 24.28 $ 24.02 $ 24.40 $ 28.31
Investment operations
Net investment income .10 .05 .30 .26
Net realized and unrealized gain
(loss) on investments 5.33 .21 5.36 (1.82)
Total from investment operations 5.43 .26 5.66 (1.56)
Less distributions from:
Net investment income (.19) -- (.24) (.13)
Net realized gain on investments (.05) -- (.05) (2.22)
Total distributions (.24) -- (.29) (2.35)
Net asset value, end of period $ 29.47 $ 24.28 $ 29.77 $ 24.40
Total investment return at net asset
value (%) (b) 22.49 (1.08)(c) 23.38 (6.45)
Net assets, end of period
(in thousands) $55,424 $18,455 $789,598 $764,443
Ratio of total expenses to average
net assets (%) 1.87 .96(c) 1.12 1.13
Ratio of net investment income to
average net assets (%) .24 .21(c) .96 .91
Portfolio turnover (%) 23.18 45.46 23.18 45.46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended August 31
1992 1991 1990 1989 1988 1987 1986 1985
Class A
<S> <C> <C> <C> <C> <C> <C> <C>
$ 31.29 $ 22.82 $ 21.81 $ 18.55 $ 24.39 $ 22.46 $ 18.47 $ 15.96
.12 .25 .27 .39 .25(a) .17 .20 .22
(.35) 9.07 2.85 5.21 (4.67) 4.70 6.67 2.99
(.23) 9.32 3.12 5.60 (4.42) 4.87 6.87 3.21
(.27) (.35) (.30) (.29) (.12) (.20) (.22) (.16)
(2.48) (.50) (1.81) (2.05) (1.30) (2.74) (2.66) (.54)
(2.75) (.85) (2.11) (2.34) (1.42) (2.94) (2.88) (.70)
$ 28.31 $ 31.29 $ 22.82 $ 21.81 $ 18.55 $ 24.39 $ 22.46 $ 18.47
(1.12) 41.99 15.01 34.15 (18.79) 27.68 45.12 21.38
$970,412 $676,081 $335,080 $270,712 $244,169 $347,540 $289,545 $236,588
1.20 1.18 1.18 1.14 1.08(a) 1.03 1.00 .99
.61 1.27 1.44 1.88 1.22(a) .82 1.01 1.05
42.12 26.59 37.30 25.11 20.85 33.35 31.14 42.75
</TABLE>
* Per-share net investment income has been determined on the basis of the
weighted average number of shares
outstanding during the period.
(a) Reflects an expense limitation during the year ended August 31, 1988. As
a result of such limitation, expenses of
the fund reflect a reduction of $0.02 per share.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Not annualized.
<PAGE>
Notes to financial statements
August 31, 1994
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The investment
objective of the fund is to seek capital appreciation by investing primarily
in the common stocks of companies in the health sciences industries.
The fund offers both class A and class B shares. Class A shares are sold with
a maximum front-end sales charge of 5.75%. Class B shares do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and may be subject to a contingent deferred sales charge if those
shares are redeemed within six years of purchase. Expenses of the fund are
borne pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class) and 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. Shares of each class would receive their pro-
rata share of the net assets of the fund, if the fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported--as in the case of some
securities traded over-the-counter-- the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the last
reported bid and asked prices. Short- term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments are stated at fair value
following procedures approved by the Trustees. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the current exchange
rate. The fair value of restricted securities is determined by the Manager
following procedures approved by the Trustees, and such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account, along with the cash of other
registered investment companies managed by Putnam Investment Management, Inc.
(Putnam Management), the fund's Manager, a wholly owned subsidiary of Putnam
Investments, Inc. and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money market
instruments.
C) Repurchase agreements The fund or any joint trading account, through the
fund's custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale
<PAGE>
price, including accrued interest. The fund's Manager is responsible for
determining that the value of these underlying securities is at all times at
least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis and dividend
income is recorded on the ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the fund is informed of the
ex-dividend date.
E) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue 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 Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held, and excise tax
on income and capital gains.
F) Distributions to shareholders Distributions to shareholders are recorded
by the fund on the ex-dividend date.
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. These differences include treatment of wash
sales, foreign currency gains and losses, and post October loss deferrals.
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. For the year ended August 31, 1994, the fund
reclassified $54,146 to decrease undistributed net investment income,
$121,331 to decrease accumulated net realized gain on investments, and
$175,477 to increase paid-in capital.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management for management and investment advisory
services is paid quarterly based on the average net assets of the fund for
the quarter. Such fee is based on the following annual rates: 0.70% of the
first $500 million of average net assets, 0.60% of the next $500 million,
0.55% of the next $500 million, and 0.50% of any amount over $1.5 billion,
subject under current law, to reduction in any year to the extent that
expenses (exclusive of distribution fees, brokerage, interest and taxes) of
the fund exceed 2.5% of the first $30 million of average net assets, 2% of
the next $70 million and 1.5% of any excess over $100 million and by the
amount of certain brokerage commissions and fees (less expenses) received by
affiliates of the Manager on the fund's portfolio transactions.
The fund also reimburses the Manager 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. For the year ended
August 31, 1994, the fund paid $21,952 for these services.
Trustees of the fund receive an annual Trustee's fee of $1,750 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust
<PAGE>
Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of PFTC.
Fees paid for these investor servicing and custodial functions for the year
ended August 31, 1994 amounted to $1,185,145.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended August 31, 1994, have been reduced by credits allowed by
PFTC.
The fund has adopted a distribution plan with respect to its class A shares
(the "Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The purpose of the Class A Plan is to compensate Putnam Mutual Funds
Corp., a wholly owned subsidiary of Putnam Investments, Inc., for services
provided and expenses incurred by it in distributing class A shares. The
Trustees have approved payment by the fund to Putnam Mutual Funds Corp. at an
annual rate of 0.25% of the average net assets attributable to class A
shares. For the year ended August 31, 1994, the fund paid distribution fees
of $1,863,170 for class A shares.
During the year ended August 31, 1994, Putnam Mutual Funds Corp., acting as
the underwriter, received net commissions of $253,932 from the sale of class
A shares of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For
the year ended August 1994, Putnam Mutual Funds Corp., acting as the
underwriter, received $10,477 on class A redemptions.
The fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in
distributing class B shares. The Class B Plan provides for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of the fund's
average net assets attributable to class B shares. For the year ended August
31, 1994, the fund paid distribution fees of $361,785 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of the contingent
deferred sales charges levied on class B share redemptions within six years
of purchase. The charge is based on declining rates, which begin at 5.00% of
the net asset value of the redeemed shares. Putnam Mutual Funds Corp.
received contingent deferred sales charges of $102,556 from such redemptions
for the year ended August 31, 1994.
Note 3
Purchases and sales of securities
During the year ended August 31, 1994, purchases and sales of investment
securities other than short-term investments aggregated $169,903,431 and
$200,336,070, respectively. There were no purchases or sales of U.S.
government obligations during the year. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At August 31, 1994, there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, class A and class B capital
shares. Transactions in capital shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
Year ended August 31
1994 1993
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 6,392,086 $ 167,778,186 7,677,047 $ 199,120,210
Shares issued in
connection with
reinvestment of
distributions 254,000 6,576,169 2,203,034 60,715,642
6,646,086 174,354,355 9,880,081 259,835,852
Shares repurchased (11,457,249) (299,677,276) (12,825,263) (327,178,004)
Net decrease (4,811,163) $(125,322,921) (2,945,182) $ (67,342,152)
</TABLE>
<TABLE>
<CAPTION>
March 1, 1993
(commencement of
operations) to
Year ended August 31 August 31
1994 1993
Class B Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,447,812 $37,873,012 856,829 $20,939,215
Shares issued in
connection with
reinvestment of
distributions 8,743 225,304 -- --
1,456,555 38,098,316 856,829 20,939,215
Shares repurchased (335,909) (8,862,901) (96,880) (2,365,469)
Net increase 1,120,646 $29,235,415 759,949 $18,573,746
</TABLE>
Note 5
Reclassification of Capital Accounts
Effective September 1, 1993, Putnam Health Sciences Trust has adopted the
provisions of Statement of Position 93-2 "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of
Capital distributions by Investment Companies (SOP)." The purpose of this SOP
is to report the accumulated net gain (loss) accounts in such a manner as to
approximate amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
As a result of the SOP, the fund has reclassified to reduce undistributed net
investment income by $3,423,088 to increase accumulated net realized gain by
$2,962,679, and increasing additional paid-in capital by $460,409.
Reclassifications represent the cumulative amounts necessary to report these
balances through August 31, 1993, the close of the fund's prior fiscal
year-end for financial reporting and tax purposes.
<PAGE>
Federal Tax Information
The distribution of $0.24 and $0.185 per share for class A and class B
shares, respectively, paid in December 1993 from investment income was
designated as "dividend income" for federal income tax purposes. The fund has
designated 100% of the investment income as qualifying for the
dividends-received deduction for corporations.
In addition, the fund paid a distribution of $0.051 per share for class A and
class B shares in December 1993 classified as "long-term capital gain,"
whether received in cash or additional fund shares, and regardless of how
long you had owned your shares before the distribution was made.
The Form 1099 you receive in January 1995 will show you the tax status of all
distributions paid to your account in calendar 1994.
Fund information
<PAGE>
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Joanne Soja
Vice President and Fund Manager
James Giblin
Vice President and Fund Manager
William N. Shiebler
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Health
Sciences Trust. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most
recent copy of the Putnam Quarterly Performance Summary.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
..................
Bulk Rate
U.S. Postage Paid
Boston, MA
Permit No. 53749
..................
021/335/14155
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Trademark symbol replaced with (TM)
