PUTNAM
HEALTH
SCIENCES
TRUST
SEMIANNUAL REPORT
February 28, 1995
(Balance Scales)
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> The fund's class A shares ranked in the top 13% of 15 funds in Lipper's
health/biotechnology fund category for one-year performance ended 2/28/95.*
> 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.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
Total return NAV POP NAV CDSC
<S> <C> <C> <C> <C> <C>
(change in value
during period plus
reinvested
distributions)
6 months ended
2/28/95 9.57% 3.26% 9.17% 4.17%
Share value NAV POP NAV
8/31/94 $29.77 $31.59 $29.47
2/28/95 31.79 33.73 31.49
Long-term
Distributions: No. Income capital gains Total
Class A 1 $0.257 $0.516 $0.773
Class B 1 0.120 0.516 0.636
</TABLE>
Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 5.75%
maximum sales charge for class A shares. CDSC for class B shares assumes 5%
maximum contingent deferred sales charge.
*Lipper rankings vary over time and do not include the effects of sales
charges. Class A shares ranked 2 out of 15, 6 out of 8, and 4 out of 4
health/biotechnology funds for 1, 5, and 10-year performance, respectively,
as of 2/28/95. Past performance is not indicative of future results.
<PAGE>
From the Chairman
(Photo-George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
The massive dose of self-healing prescribed by the health-care industry to
ward off the threat of governmental intervention continues to pay off for
investors. Shareholders of Putnam Health Sciences Trust were among the
beneficiaries during the six months ended February 28, 1995, the period
encompassing the first half of the fund's current fiscal year.
Although health-care reform is clearly on Washington's back burner, at least
for now, companies that heeded the wake-up call by trimming costs and
otherwise improving efficiency are still recording positive results.
As time goes on, the benefits of these self-reforms will become less
pronounced. Nevertheless, we believe the companies that have pursued tighter
management most assiduously will remain in investors' favor.
Fund managers Joanne Soja and James Giblin will continue to seek out the most
promising of these companies for your fund. Joanne and Jim review fiscal
1995's first half and discuss prospects for the second half in the following
report.
Respectfully yours,
(Signature George Putnam)
George Putnam
Chairman of the Trustees
April 19, 1995
<PAGE>
Report from the fund managers
Joanne Soja
James F. Giblin
Health-care-related stocks continued their run of strong performance
throughout the six months ended February 28, 1995. Putnam Health Sciences
Trust was a standout in its fund category, receiving high rankings from an
industry research firm as noted on page 2. Indeed, the fund's total return
for both class A and class B shares at net asset value and public offering
price, handily surpassed the S&P 500(R) during this period.
The impetus for the sector's outperformance was twofold: the withdrawal of
President Clinton's health-care reform plan, and industry-wide consolidation
driven by the need for cost cutting. Investors once again pursued
health-care-related stocks, bidding up stock prices. Several big mergers and
acquisitions -- including American Home Products' $9.7 billion acquisition of
American Cyanamid and Glaxo's hostile takeover of Burroughs Wellcome -- also
reignited interest in the sector.
Our broad-based investment approach, which emphasizes a variety of
health-sector industries, has served your fund well. The following discussion
summarizes our strategies during the semiannual period and offers insights
into what we believe may lie ahead.
> PHARMACEUTICALS/MEDICAL DEVICES: THE ENGINE DRIVING PERFORMANCE
Ethical pharmaceutical stocks remained your fund's largest industry weighting
throughout the period, making up more than one third of net assets. The
second largest subsector, at nearly 25.4% of net assets, was medical supplies
and devices.
Many of the fund's holdings in this subsector were impacted because of the
psychology of the health care reform. They recovered nicely after the demise
of the reform program. Our focus on these areas enabled your fund to provide
exceptional performance throughout the period. Aggressive restructurings, the
prospect of ongoing merger activity, and replenishment of inventories by
providers and hospitals also helped boost price appreciation.
<PAGE>
The companies we've selected have shown the ability to develop and market new
products. For example, Medtronic, Inc., consistently a leader in the
production of traditional pacemakers, has developed an innovative new
implantable defibrillator which regulates the pace of too-rapid heartbeats.
We have increased the fund's holdings in Medtronic, Inc.
As we progress through fiscal 1995, we will maintain a watchful eye on
potential pricing pressures. The companies that have prepared themselves for
such pressures, either through strategic realignments or enhanced sales and
research efforts, should be able to sustain their current growth levels. As
part of our broad-based diversification strategy, we are also closely
examining several newer approaches to the delivery of health-care services.
> MANAGED CARE ADDS TO FUND PERFORMANCE
Health maintenance organizations (HMOs) and medical service providers which
help to manage care, continue to enjoy robust earnings. Corporations such as
United Healthcare Corp., and Columbia/HCA Healthcare Corp., have been able to
respond to payers' demands and deliver quality health care at lower costs.
Despite ongoing concerns about the potential tug-of-war between price
inflation and low locked-in premiums, we believe many HMOs are well
positioned for future growth. Not only have these companies experienced
strong enrollment increases, but preventive care and early diagnosis of
diseases have improved as well. And now, Medicare and Medicaid appear as
large potential markets as federal and state governments increasingly direct
the programs' recipients toward managed care. A typical Medicare enrollee can
(Bar Chart)
TOP INDUSTRY SECTORS* (2/28/95)
Ethical pharmaceuticals 35.4%
Medical supplies and devices 25.4%
Hospital management
and health care 22.2%
Biotechnology 6.4%
*Based on percentage of net assets.
(End of bar chart)
<PAGE>
generate up to three times as much revenue for these firms as healthy younger
members.
Therefore, as the largest service business in the United States --
health-care spending is roughly 14% of gross domestic product -- we believe
this industry group maintains a firm foothold on growth. We're confident our
position on managed care will be a distinguishing factor in your fund's
performance.
> NON-HEALTH-RELATED ISSUES HAVE BEEN ELIMINATED
By mid-year 1994, we had eliminated nearly all the fund's exposure to
securities outside the health sciences industries. The valuation of
health-care industry stocks became extremely compelling. Additionally, the
economic and market landscape has since changed, favoring the industry as a
whole. Our broad-based allocation within the industry, however, will remain
in force, as we believe it provides the fund with the flexibility to pursue
various avenues of growth.
Biotechnology stocks remain a relatively small part of the portfolio, with
emphasis given to those firms exhibiting strong clinical results and the
ability to establish creative alliances with pharmaceutical companies and
medical suppliers. Given the financial pressure many of these firms are
facing, theirs remains very much a "show me" story.
> OUTLOOK: LONG-TERM PROSPECTS REMAIN STRONG
We believe health-care industries, from HMOs to drug companies, are in good
shape. Within the past two years, the industry as a whole has gotten leaner
and tougher while medical price inflation has fallen dramatically.
In our opinion, the aging of America will necessitate a strong health-care
infrastructure and improved standards of living in the developing world,
allowing for increased market penetration by pharmaceutical firms. Companies
with unique products and innovative solutions to unmet health-care needs will
be in the best position to succeed. Recent discussions within the Federal
Drug Administration point to greater responsiveness to the needs of
pharmaceutical, medical devices, and biotech firms--particularly the medical
devices area, which has endured substantial delays in new-product approvals
in the past. Certain other health-care subsectors, such as information
services, also hold promise.
<PAGE>
TOP 10 HOLDINGS (2/28/95)
Abbott Laboratories
Medical supplies and devices
...........................................................................
Johnson & Johnson
Medical supplies and devices
...........................................................................
Merck & Co. Inc.
Ethical pharmaceuticals
...........................................................................
SmithKline Beecham PLC ADR
Ethical pharmaceuticals
...........................................................................
Pfizer Inc.
Ethical pharmaceuticals
...........................................................................
United Healthcare Corp.
Hospital management and health-care services
...........................................................................
American Home Products Corp.
Ethical pharmaceuticals
...........................................................................
Medtronic, Inc.
Medical supplies and devices
...........................................................................
U.S. Healthcare Inc.
Hospital management and health-care services
...........................................................................
Lilly (Eli) & Co.
Ethical pharmaceuticals
These holdings represent 46.8% of the fund's assets. Portfolio holdings are
subject to change over time.
In general, consumers seem to have regained their confidence in the
health-care delivery system, believing that physicians, hospitals, and
pharmaceutical and device companies are making greater strides in improving
the quality of life. We believe health care will remain an industry that has
the potential to grow faster than the overall economy, and that those
companies delivering a quality solution to a medical need should continue to
offer significant growth potential.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of February 28, 1995, there is no guarantee the fund will
continue to hold these securities in the future.
<PAGE>
Performance summary
This 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 2/28/95
<TABLE>
<CAPTION>
Standard Consumer
Class A Class B & Poor's Price
NAV POP NAV CDSC 500 Index Index
<S> <C> <C> <C> <C> <C> <C>
6 months 9.57% 3.26% 9.17% 4.17% 3.98% 1.28%
1 year 22.40 15.35 21.49 16.49 7.41 2.86
5 years 105.46 93.68 -- -- 71.25 17.89
Annual average 15.49 14.13 -- -- 11.36 3.35
10 years 346.54 320.86 -- -- 273.77 42.36
Annual average 16.14 15.46 -- -- 14.09 3.59
Life of shares -- -- 35.16 31.16 16.31 5.45
Annual average -- -- 16.26 14.53 7.85 2.69
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
1 year 34.70% 26.97% 33.73% 28.73%
5 years 103.30 91.65 -- --
Annual average 15.25 13.89 -- --
10 years 359.64 333.25 -- --
Annual average 16.48 15.79 -- --
Life of shares -- -- 39.28 36.28
Annual average -- -- 17.27 16.05
</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. The fund
began operations on 5/28/82 offering shares now known as class A. Effective
3/1/93, the fund began offering class B shares. Performance data represent
past results and will differ for each share class. 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>
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 for class A shares.
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>
Portfolio of investments owned
February 28, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (96.3%)*
NUMBER OF SHARES VALUE
<C> <S> <C>
Biotechnology (6.4%)
280,000 Amgen Inc. + $ 19,320,000
156,500 Amylin Pharmaceuticals, Inc. + 978,125
350,000 Athena Neurosciences, Inc. + 3,106,250
100,000 Biochem Pharmaceutical, Inc. + 1,375,000
200,000 Biogen, Inc. + 8,250,000
260,000 Cor Therapeutics Inc + 3,510,000
212,500 Genentech, Inc. + 10,678,125
150,000 Mentor Corp. Minnesota 3,637,500
130,100 Quintiles Transnational Corp. + 4,911,275
50,000 Thermo Cardiosystems, Inc. + 1,193,750
133,400 Vertex Pharmaceuticals Inc + 2,167,750
-------------
59,127,775
Computer Software (1.9%)
91,600 Cerner Corp. + 4,247,950
220,000 GMIS, Inc. + 4,730,000
25,800 HCIA, Inc. + 483,750
625,000 Physicians Computer Network + 2,265,625
170,000 Shared Medical Systems Corp. 5,854,375
-------------
17,581,700
Distribution and Drug Retailing (1.0%)
645,000 Owens & Minor, Inc. 9,030,000
Ethical Pharmaceuticals (35.4%)
65,500 Affymax N.V. + 1,960,906
360,000 Allergan Inc. 10,395,000
560,000 American Home Products Corp. 40,040,000
220,000 Bristol-Myers Squibb Co. 13,640,000
120,000 Elan Corp. ADR + 4,230,000
134,100 Forest Laboratories, Inc. Class A + 6,805,575
115,000 Ivax Corp. 2,486,875
440,000 Lilly (Eli) & Co. 29,480,000
1,187,200 Merck & Co., Inc. 50,307,600
120,000 Mylan Laboratories Inc. 3,750,000
542,500 Pfizer Inc. 44,891,875
370,000 Schering Plough Corp. 28,998,750
1,210,000 SmithKline Beecham PLC ADR 47,038,750
500,000 Upjohn Co. 17,625,000
340,000 Warner-Lambert Co. 25,967,500
-------------
327,617,831
Health Care (2.5%)
289,608 Boston Scientific Corp. 6,262,794
50,900 Cardinal Health, Inc. 2,519,550
130,400 Emcare Holdings, Inc. 2,200,500
20,000 Medpartners, Inc. + 350,000
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
Health Care (continued)
208,200 Rightchoice Managed Care, Inc.
Class A $ 3,591,450
50,000 Target Therapeutics, Inc. 1,862,500
220,000 U.S. Surgical Corp. 4,620,000
50,000 Ventritex, Inc. 1,050,000
50,000 Zoll Medical Corp. 612,500
-------------
23,069,294
Health Care/Medical Electronic (0.2%)
44,700 Health Management Systems, Inc. 1,620,375
Hospital Management and Health Care Services (22.2%)
90,000 Apogee, Inc. + 1,845,000
620,000 Beverly Enterprises Inc. + 8,060,000
251,125 Columbia/HCA Healthcare Corp. 10,390,297
75,000 Express Scripts, Inc. Class A + 2,550,000
235,000 FHP Intl. Corp. + 6,315,625
110,000 Foundation Health Corp. + 3,286,250
210,000 Health Care & Retirement Corp. + 6,510,000
250,000 Horizon Healthcare Corp. + 6,093,750
810,000 Humana Inc. 19,237,500
190,000 Manor Care, Inc. 5,628,750
160,000 Medaphis Corp. + 9,040,000
60,000 Medcath, Inc. + 817,500
300,000 Mid Atlantic Medical Services, Inc. + 6,150,000
193,100 National Medical Enterprises, Inc. 2,993,050
251,000 Pacificare Health Systems Class B + 17,632,750
210,000 Quantum Health Resources, Inc. + 4,620,000
183,900 Quorum Health + 3,494,100
950,000 United Healthcare Corp. 40,850,000
717,500 U.S. Healthcare Inc. 30,852,500
245,900 Value Health, Inc. + 9,159,775
320,000 Vivra, Inc. + 10,400,000
-------------
205,926,847
Medical Supplies and Devices (25.4%)
1,770,000 Abbott Laboratories 62,835,000
60,000 Arrow International, Inc. 2,235,000
480,000 Bard (C.R.), Inc. 12,840,000
723,750 Baxter International Inc. 22,526,719
65,000 Cordis Corp. + 4,225,000
310,000 Haemonetics Corp. + 4,921,250
900,000 Johnson & Johnson 51,075,000
160,000 Medisense Inc. 3,280,000
600,000 Medtronic, Inc. 36,000,000
120,000 Mitek + 3,555,000
170,000 Nellcor Inc. + 5,780,000
135,000 St. Jude Medical Inc. 4,893,750
478,000 Stryker Corp. 20,793,000
-------------
234,959,719
<PAGE>
COMMON STOCKS
NUMBER OF SHARES VALUE
Pharmaceuticals (1.3%)
268,000 Astra AB $ 6,752,287
50,000 Ligand Pharmaceuticals, Inc.
Class B + 343,750
50,000 Medimmune, Inc. + 350,000
110,000 R.P. Scherer Corp. + 5,046,250
-------------
12,492,287
Total Common Stocks (cost
$633,160,743) $891,425,828
SHORT-TERM INVESTMENTS (3.9%)*
PRINCIPAL AMOUNT VALUE
$10,000,000 Federal Home Loan Banks 5.84s,
March 9, 1995 $ 9,987,022
1,521,000 Federal Home Loan Mortgage Corp.
5.95s, March 1, 1995 1,521,000
10,000,000 General Electric Capital Corp.
5.93s, March 14, 1995 9,978,586
15,000,000 Interest in $875,000,000 joint
repurchase agreement dated
February 28, 1995 with Goldman
Sachs & Co. Inc., due March 1,
1995 with respect to various U.S.
Treasury obligations--maturity
value of $15,002,521 for an
effective yield of 6.05% 15,002,521
Total Short-Term Investments
(cost $36,489,129) $ 36,489,129
Total Investments
(cost $669,649,872)*** $927,914,957
</TABLE>
* Percentages indicated are based on net assets of $925,968,231 which
correspond to a net asset value per share of Class A and Class B shareholders
of $31.79 and $31.49, respectively.
+ Non-income-producing.
*** The aggregate identified cost on a tax basis is $669,649,872, resulting
in gross unrealized appreciation and depreciation of $276,032,083, and
$17,766,998, respectively, or net unrealized appreciation of $258,265,085.
ADR or ADS after the name of a foreign holding stands for American Depository
Receipt or American Depository Shares, respectively, representing foreign
securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
February 28, 1995 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (identified cost $669,649,872 ) (Note 1) $927,914,957
Cash 263
Dividends and interest receivable 1,518,767
Receivable for shares of the fund sold 4,846,706
Total assets 934,280,693
Liabilities
Payable for shares of the fund repurchased 4,252,299
Payable for securities purchased 1,907,196
Payable for compensation of Manager (Note 2) 1,422,920
Payable for administrative services (Note 2) 6,482
Payable for compensation of Trustees (Note 2) 2,141
Payable for investor servicing and custodian fees (Note 2) 240,590
Payable for distribution fees (Note 2) 391,460
Other accrued expenses 89,374
Total liabilities 8,312,462
Net assets $925,968,231
Represented by
Paid-in capital (Note 4) $661,083,679
Undistributed net investment income 1,106,697
Accumulated net realized gain on investments 5,512,770
Net unrealized appreciation of investments 258,265,085
Total--Representing net assets applicable to capital shares outstanding $925,968,231
Computation of net asset value and offering price
Net asset value and redemption price of class A shares
($841,450,366 divided by 26,470,650 shares) $31.79
Offering price per class A share (100/94.25 of $31.79)* $33.73
Net asset value and offering price of class B shares
($84,517,865 divided by 2,684,262 shares)+ $31.49
</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.
+ Redemtion price per share is equal to net asset value less any applicable
contingent sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Six months ended February 28, 1995 (Unaudited)
<TABLE>
<S> <C>
Investment income:
Dividends $ 6,819,437
Interest 699,566
Total investment income 7,519,003
Expenses:
Compensation of Manager (Note 2) 2,816,244
Investor servicing and custodian fees (Note 2) 594,778
Compensation of Trustees (Note 2) 16,305
Auditing 16,572
Legal 9,115
Postage 77,095
Reports to Shareholders 32,897
Distribution fees--Class A (Note 2) 986,533
Distribution fees--Class B (Note 2) 333,741
Administrative services (Note 2) 11,455
Registration fees 2,181
Other 87,980
Total expenses 4,984,896
Net investment income 2,534,107
Net realized gain on investments (Notes 1 and 3) 5,520,532
Net unrealized appreciation of investments during
the period 71,706,208
Net gain on investments 77,226,740
Net increase in net assets resulting from $79,760,847
operations
</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
1995* 1994
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 2,534,107 $ 7,269,246
Net realized gain on investments 5,520,532 37,397,500
Net unrealized appreciation of investments 71,706,208 122,395,466
Net increase in net assets resulting from operations 79,760,847 167,062,212
Distributions to shareholders from:
Net investment income
Class A (6,672,840) (7,054,011)
Class B (277,402) (218,378)
Net realized gain on investments
Class A (13,397,610) (1,518,110)
Class B (1,192,827) (60,825)
Increase (decrease) from capital share transactions
(Note 4) 22,726,193 (96,087,506)
Total increase in net assets 80,946,361 62,123,382
Net assets
Beginning of period 845,021,870 782,898,488
End of period (including undistributed net investment
income of $1,106,697 and $5,522,832, respectively $925,968,231 $845,021,870
</TABLE>
* Unaudited.
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
Six months (commencement Six months
ended Year ended of operations) to ended Year ended
February 28 August 31 August 31 February 28 August 31
1995* 1994 1993+ 1995* 1994 1993
Class B Class A
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 29.47 $ 24.28 $ 24.02 $ 29.77 $ 24.40 $ 28.31
Investment operations
Net Investment Income (.06) .10 .05 .10 .30 .26
Net Realized and Unrealized Gain
(Loss) on Investments 2.72 5.33 .21 2.70 5.36 (1.82)
Total from investment operations 2.66 5.43 .26 2.80 5.66 (1.56)
Less Distributions from:
Net Investment Income (.12) (.19) -- (.26) (.24) (.13)
Net Realized Gain on Investments (.52) (.05) -- (.52) (.05) (2.22)
Total Distributions (.64) (.24) -- (.78) (.29) (2.35)
Net Asset Value, End of Period $ 31.49 $ 29.47 $ 24.28 $ 31.79 $ 29.77 $ 24.40
Total Investment Return at Net
Asset Value (%) (b) 9.17(c) 22.49 1.08(c) 9.57(c) 23.38 (6.45)
Net Assets, End of Period
(in thousands) $84,518 $55,424 $18,455 $841,450 $789,598 $764,443
Ratio of Total Expenses to
Average Net Assets (%) .92(c) 1.87 .96(c) .55(c) 1.12 1.13
Ratio of Net Investment Income
to Average Net Assets (%) (.05)(c) .24 .21(c) .32(c) .96 .91
Portfolio Turnover (%) 40.90(c) 23.18 45.46(c) 40.90(c) 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>
* Unaudited.
(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.
+ Per share net investment income has been determined on the basis of the
weighted average number of shares
outstanding during the period.
<PAGE>
Notes to financial statements
August 31, 1994 (Unaudited)
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.
<PAGE>
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 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 the treatment of
wash sales, foreign currency gains and losses, and post-October loss
deferrals.
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 excess over $1.5 billion,
subject 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.
Trustees of the fund receive an annual Trustee's fee of $1,730 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
Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of PFTC.
<PAGE>
Investor servicing and custodian fees reported in the Statement of operations
for the period ended February 28, 1995 have been reduced by credits allowed
by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its
class A shares and class B shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Plans 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 each class of
shares of the fund. The Trustees have approved payments by the fund at an
annual rate of 0.25% and up to 1.00% of the average net assets attributable
to class A and class B shares, respectively.
For the period ended February 28, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $752,955 from the sale of class A
shares and $219,739 in contingent deferred sales charges from redemptions of
class B shares.
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 period ended February 28, 1995, Putnam Mutual Funds Corp., acting as
underwriter, received $119 on class A redemptions.
Note 3
Purchases and sales of securities
During the period ended February 28, 1995, purchases and sales of investment
securities other than short-term investments aggregated $348,426,539 and
$343,455,237, 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 February 28, 1995, there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, class A and class B capital
stock. Transactions in capital shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
Six months ended February 28 Year ended August 31
1995 1994
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 3,915,403 $ 118,994,200 6,392,086 $ 167,778,186
Shared issued in
connection with
reinvestment of
distributions 534,895 15,848,976 254,000 6,576,169
4,450,298 134,843,176 6,646,086 174,354,355
Shares repurchased (4,500,172) (136,421,225) (11,457,249) (299,677,276)
Net increase
(decrease) (49,874) $ (1,578,049) (4,811,163) $ (125,322,921)
Six months ended February 28 Year ended August 31
1995 1994
Class B Shares Amount Shares Amount
Shares sold 1,332,097 $ 40,119,439 1,447,812 $ 37,873,012
Shares issued in
connection with
reinvestment of
distributions 41,296 1,213,701 8,743 225,304
1,373,393 41,333,140 1,456,555 38,098,316
Shares repurchased (569,726) (17,028,898) (335,909) (8,862,901)
Net increase
(decrease) 803,667 $ 24,304,242 1,120,646 $ 29,235,415
</TABLE>
<PAGE>
Our commitment to quality service
>CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for
the past five years, through 1994. DALBAR, an independent research firm, ran
more than 12,000 tests of 38 shareholder service components. In every
category, Putnam outperformed the industry standard.
> HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam fund or from your own checking or savings account.*
> SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or
termination.)
> ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than their original
cost.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
> To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number: 1-800-225-1581.
*Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to
continue purchasing shares during periods of low price levels.
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
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
Eli Shapiro
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 F. 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
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other
agency, and involve risk, including the possible loss of principal amount
invested.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
021/335-17495
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
B O S T O N * L O N D O N * T O K Y O
<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)
