Putnam
Health
Sciences
Trust
ANNUAL REPORT
August 31, 1995
(Graphic--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, 1995, were 24.81% and 23.83%,
respectively, outpacing both the Dow Jones Industrial Average and the
Standard & Poor's 500((r)) Index for the same period.*
FISCAL 1995 RESULTS AT A GLANCE
Class A Class B
Total return: NAV POP NAV CDSC
...............................................................................
(change in value during
period plus reinvested
distributions)
12 months ended
8/31/95 24.81% 17.62% 23.83% 18.83%
Class A Class B Class M
Share value: NAV POP NAV NAV POP
...............................................................................
8/31/94 $29.77 $31.59 $29.47 -- --
7/3/95 (inception
of class M shares) -- -- -- $33.96 $35.19
8/31/95 36.21 38.42 35.72 36.17 37.48
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
Data above represent past results and are not indicative of future
performance. For performance over longer periods, see pages 8 and 9.
Effective 7/3/95, the fund began offering class M shares; performance for
these shares is not shown because of the brevity of the reporting period. POP
assumes 5.75% maximum sales charge for class A and 3.50% for class M shares.
CDSC assumes 5% maximum contingent deferred sales charge.
*Performance for the DJIA was 21.05% and for the S&P 500, 21.42%.
<PAGE>
From the Chairman
(Photo of George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
Putnam Management's forecast this year called for continued improvement in
the stock market, but it certainly did not anticipate the vigor of the
advance we have actually experienced. Now, as investors take profits and the
slower economy begins to rein in corporate earnings growth, the exuberance of
1995's first half has become somewhat diminished.
Nevertheless, Putnam Management believes the market advance and the economic
recovery still have a way to go. Some near-term turbulence could occur as
current market and economic uncertainties are resolved. However, down the
road, prospects appear much brighter.
Furthermore, as the election campaign sparks tax-change proposals,
anticipation of major reforms that favor saving and investing may spur
investor confidence. Such a prospect could help sustain the current market
advance even though no meaningful legislation is likely before 1997.
In the following report, Joanne Soja, Putnam Health Sciences Trust's manager,
reviews performance during the fiscal year ended August 31, 1995, and
presents her outlook for the remainder of the fiscal year.
Respectfully yours,
(Signature of George Putnam)
George Putnam
Chairman of the Trustees
October 17, 1995
<PAGE>
Report from the Fund Manager
Joanne Soja
Market conditions over the 12 months ended August 31, 1995, have been
rewarding for health-care investors, but not always easy. Double-digit
returns have been relatively common among product-oriented issues such as
pharmaceuticals, medical devices, and biotechnology stocks. However, medical
services stocks -- particularly health maintenance organizations (HMOs) --
have lately fallen on hard times. Putnam Health Sciences Trust maintains
positions in both sides of the health-care sector, with the bulk of its
assets invested in product-oriented stocks. Thus, for your fund the year
meant a combination of stellar gains and relative declines.
Against such a backdrop, it is a pleasure to be able to report total returns
of 24.81% and 23.83% for class A and class B shares, respectively, at net
asset value for the 1-year period ended August 31, 1995, well ahead of both
the Dow Jones Industrial Average and the Standard & Poor's 500(R) Index. Your
fund's performance once again shows the effectiveness of a flexible
investment strategy that emphasizes diversification across a variety of
subsectors and companies at different levels of market capitalization. As the
market breathed a collective sigh of relief at the demise of health-care
reform and consequently lowered its opinion of the importance of cost
containment/managed care stocks, this strategy has proved itself anew.
> RESHIFTING THE FUND'S MEDICAL SERVICES ASSETS
In the wake of the Clinton administration's derailed proposal, investors who
once equated health-care reform with the need for managed care and cost
containment began to view managed care stocks in general, and HMOs in
particular, as somewhat unimportant investments. Additionally, in the final
months of the fund's fiscal year, fears of proposed changes in, or likely
cuts to, Medicare and Medicaid spending permeated the health-care market,
negatively affecting the performance of the entire medical services sector.
<PAGE>
Though medical services stocks constitute a much smaller portion of your fund
than do product-oriented stocks, their underperformance during the period was a
matter of concern for us. Consequently, we opted to retain the fund's medical
services position but shifted assets into companies we believed would be most
able to overcome a challenging market environment.
For example, among the fund's HMO holdings, we reduced positions in Humana and
U.S. Healthcare and increased holdings in Pacificare. With its long history of
successful operations in California, a highly competitive state for managed
care, we believe Pacificare can survive in a tough environment. Additionally,
Pacificare was a pioneer in the formation of Medicare HMOs, which we believe the
government will encourage. Finally, Pacificare has less margin risk because it
capitates a higher percentage of its providers. We prefer this risk profile in
an uncertain environment.
In our opinion, the need for health-care cost containment will continue
regardless of political events. In fact, most HMO enrollments continued to grow
at double-digit rates, particularly during the latter half of the fiscal year.
We also sought out smaller, entrepreneurial companies that provide invaluable
services to large product-oriented companies. One such stock that we added to
the portfolio this year was Quintiles, a clinical research organization that
helps pharmaceutical and biotechnology companies to design and test emerging
drug therapies more efficiently. Quintiles' stock has increased in value by more
than 115% so far in 1995, and it continues to exceed our earnings estimates.
(Bar Chart)
Top Industry Sectors (8/31/95)
Pharmaceuticals 36.2%
Medical supplies and devices 31.0%
Cost containment/HMOs 11.5%
Biotechnology 5.8%
Clinics and hospitals 3.2%
Holdings will vary over time.
<PAGE>
> PRODUCT-ORIENTED ISSUES FARED BEST
Most of your fund's growth this fiscal year resulted from the success of
product-oriented stocks within the pharmaceutical, medical devices, and
biotechnology subsectors. Here are some examples.
Merck & Company. This large-capitalization pharmaceutical company, currently
representing 5.3% of net assets, contributed significantly to overall fund
performance throughout the period. Merck is developing a new drug to fill a
pressing health-care need -- the effective treatment of osteoporosis. Because we
believe this market is large, we also bought shares of Metra Biosystems, a
small-capitalization diagnostic company in the medical supplies subsector that
is working on a predictive test for osteoporosis.
Medtronic, Inc., Boston Scientific Company, and St. Jude Medical. Among the
fund's medical devices holdings, these three companies have experienced
extraordinary success through their innovative development of cardiovascular
devices. Medtronic, a leader in the production of traditional pacemakers, was
one of the first companies to successfully create a new implantable
defibrillator that regulates the pace of too-rapid heartbeats. At 5.3% of the
fund's holdings, Medtronic has seen the value of its stock more than double this
year. Boston Scientific stock, at 1.1% of net assets, has more than doubled in
value. St. Jude Medical, a smaller fund position, has increased in value by
almost 54%.
The fund's overweighting in the cardiovascular device area was very positive for
performance, as witnessed by our holdings of still other companies seeking
solutions to heart disease: Avecor Cardiovascular, Instent, and Arrow
International.
Biochem Pharmaceutical. Although we have never relied extensively on
biotechnology stocks to support your fund's performance, Biochem has been one of
our most successful selections in this sector. This midsize biotechnology
company is currently engaged in late-stage development of promising new drugs
for both AIDS and hepatitis B. The value of Biochem's stock has risen by more
than 200% since we first purchased it.
<PAGE>
TOP 10 HOLDINGS (8/31/95)
Johnson & Johnson
Medical supplies and devices
Abbott Laboratories
Medical supplies and devices
Medtronic, Inc.
Medical supplies and devices
Merck & Co., Inc.
Pharmaceuticals
SmithKline Beecham PLC ADR Units
Pharmaceuticals
Pfizer, Inc.
Pharmaceuticals
Lilly (Eli) & Co.
Pharmaceuticals
United Healthcare Corp.
Cost containment/HMO
Schering Plough Corp.
Pharmaceuticals
Warner-Lambert Co.
Pharmaceuticals
These holdings represent 46.0% of the fund's net assets. Holdings will vary
over time.
> BROAD-BASED DIVERSIFICATION STRATEGY LOWERS RISK
Your fund continues its strategy of investing across a variety of health-care
companies, giving your investment the benefit of the successes of tried and
true larger companies as well as the cutting-edge approaches to products and
services taken by small to midsize companies. We constantly seek companies we
believe can meet previously unmet health-care needs and demonstrate the
potential to grow. Through a stock selection process involving careful
research into a company's financial structure and long-term strategies, we
make changes in fund holdings only incrementally, always with decreased
volatility and enhanced fund performance as our goal.
Health care is in the spotlight daily as our nation's leaders highlight its
importance. With renewed consumer confidence in the health-care delivery
system and with greater strides made by pharmaceutical, biotechnology, and
device companies to improve the quality of life, we believe health care will
remain an industry with the potential to grow faster than the overall
economy.
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 8/31/95,
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.
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.
TOTAL RETURN FOR PERIODS ENDED 8/31/95
<TABLE>
<CAPTION>
Standard Consumer
Class A Class B & Poor's Price
NAV POP NAV CDSC 500(R) Index Index
- -------------- ------- ------- ------- ------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year 24.81% 17.62% 23.83% 18.83% 21.42% 2.62%
- -------------- ----- ----- ----- ----- ----------- -------
5 years 102.24 90.62 -- -- 102.28 16.19
Annual average 15.13 13.77 -- -- 15.13 3.05
- -------------- ----- ----- ----- ----- ----------- -------
10 years 369.52 342.44 -- -- 310.50 41.57
Annual average 16.73 16.03 -- -- 15.17 3.54
- -------------- ----- ----- ----- ----- ----------- -------
Life of class B -- -- 53.32 50.32 35.82 6.85
Annual average -- -- 18.64 17.71 13.03 2.68
- -------------- ----- ----- ----- ----- ----------- -------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/95
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
- -------------- ------- ------- ------- ---------
<S> <C> <C> <C> <C>
1 year 31.51% 23.95% 30.51% 25.51%
- -------------- ----- ----- ----- -------
5 years 126.76 113.76 -- --
Annual average 17.79 16.41 -- --
- -------------- ----- ----- ----- -------
10 years 434.93 404.27 -- --
Annual average 18.26 17.56 -- --
- -------------- ----- ----- ----- -------
Life of class B -- -- 64.65 61.65
Annual average -- -- 21.32 20.46
- -------------- ----- ----- ----- -------
</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. Effective
3/1/93, the fund began offering class B shares and on 7/3/95, class M shares.
Performance for class M shares is not shown because of the brevity of the
reporting period. Performance data differ for each share class and represent
past results. Investment returns and principal value will fluctuate so an
investor's shares, when sold, may be worth more or less than their original
cost.
<PAGE>
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000
investment since 8/31/85
Fund's class A shares at POP $44,244
S&P 500 $41,050
Consumer Price Index $14,157
PLOT POINTS FOR LINE CHART
8/31/85 9425 10000 10000
8/31/86 13676 13914 10157
8/31/87 17461 18734 10593
8/31/88 14180 15365 11019
8/31/89 19023 21390 11537
8/31/90 21878 20294 12185
8/31/91 31064 25771 12648
8/31/92 30716 27816 13046
8/31/93 28733 32043 13407
8/31/94 35451 33808 13796
8/31/95 44244 41050 14157
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 been valued at $15,332
on 8/31/95 ($15,032 with a redemption at the end of the period). A $10,000
investment in the funds class M shares at inception on 7/3/95 would have been
valued at $10,651 at net asset value on 8/31/95, and $10,278 at POP.
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.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on 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 and 3.50%
for class M 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 (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
<PAGE>
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the relationship
between an investment's potential rewards and its accompanying risks. Given
the cautionary nature of such instructions, it may take most investors a
while to realize that risk has a positive side.
Every risk signals a potential reward. Selecting only those investments that
offer the greatest degree of security generally leads to only modest rewards.
Furthermore, even insured or guaranteed investments may be subject to changes
in their rates of return or, in some cases, in their principal values.
Experienced investors know that no investment is truly risk free and are
therefore willing to take on some measure of risk in order to increase their
potential gains.
The greater the risk, the greater the potential reward.
Accepting an appropriate level of investment risk can give you a better
chance of outpacing inflation over time and seeking to maximize your
investment's return. How much risk? Your financial
> A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds, this
is a measure of how sensitive a fund's holdings are to changes in general
market conditions. Remember, though, that securities that lose value quickly
in market declines may also show the strongest gains in more favorable
environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this type
of risk is a particular concern for fixed-income investors. However,
interest-rate increases can also have a substantial negative effect on the
stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk over
the long term.
<PAGE>
advisor's feedback and your time horizon can make all the difference in
determining how much risk is compatible with your investment goals and your
peace of mind.
> FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that can
apply to different types of investments, and to look at your own portfolio
with this perspective.
For short-term goals, your first priority may be managing marketrisk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and reward
potential to customize your portfolio.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the security's
issuer will not be able to meet its payment, while prepayment risk involves
the premature payoff of a loan, with a resulting loss of interest income.
Professional management and in-depth research are invaluable in managing both
these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share prices.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's prospectus.
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund*
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Trust
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II**
PUTNAM GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
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
LIFESTAGES(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:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts(S.)
* Temporarily closed to new investors.
** Formerly Putnam Growth Fund.
+ Not available in all states.
++ Relative to above.
(S.) 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.
Please call your financial advisor or Putnam at 1-800-225-1581 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.
<PAGE>
Report of independent accountants
For the year ended August 31, 1995
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, 1995, and 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
periods indicated therein. 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 audit 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, 1995 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, 1995, 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 periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 17, 1995
<PAGE>
Portfolio of investments owned
August 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (95.9%)*
NUMBER OF SHARES VALUE
<S> <C> <C>
Biotechnology (5.8%)
- -------------------------------------------------------------------------
500,000 Amgen, Inc.+ $ 23,937,500
156,500 Amylin Pharmaceuticals, Inc.+ 1,193,310
350,000 Athena Neurosciences, Inc.+ 3,631,250
210,000 Biochem Pharmaceutical, Inc.+ 6,326,250
150,000 Biogen, Inc.+ 8,212,500
120,000 Cor Therapeutics Inc.+ 1,395,000
212,500 Genentech, Inc.+ 10,014,063
100,000 Ligand Pharmaceuticals, Inc. Class B+ 925,000
100,000 Magainin Pharmaceuticals, Inc.+ 975,000
80,000 Medimmune, Inc.+ 990,000
133,400 Vertex Pharmaceuticals, Inc.+ 2,768,050
------------
60,367,923
Clinics & Hospitals (3.2%)
- -------------------------------------------------------------------------
251,125 Columbia/HCA Healthcare Corp. 11,802,875
210,000 Quantum Health Resources, Inc.+ 2,677,500
213,900 Quorum Health Group, Inc.+ 4,545,375
223,100 Tenet Healthcare Corp.+ 3,541,713
320,000 Vivra, Inc.+ 10,600,000
------------
33,167,463
Cost Containment/HMO'S (11.5%)
- -------------------------------------------------------------------------
150,000 Coventry Corp.+ 2,981,250
75,000 Express Scripts, Inc. Class A+ 2,775,000
235,000 FHP Intl. Corp.+ 5,816,250
120,000 Foundation Health Corp.+ 4,155,000
720,000 Humana Inc.+ 13,140,000
320,000 Mid Atlantic Medical Services, Inc.+ 5,960,000
271,000 Pacificare Health Systems, Inc. Class B+ 15,514,750
50,000 Physicians Health Services, Inc. Class
A+ 1,406,250
208,200 Rightchoice Managed Care, Inc. Class A+ 3,070,950
537,500 U.S. Healthcare Inc. 17,200,000
880,000 United Healthcare Corp. 37,180,000
305,900 Value Health, Inc.+ 10,591,788
------------
119,791,238
Drugs (36.2%)
- -------------------------------------------------------------------------
360,000 Allergan Inc. 10,935,000
380,000 American Home Products Corp. 29,260,000
268,000 Astra AB+ 8,888,280
220,000 Bristol-Myers Squibb Co. 15,097,500
120,000 Elan Corp. PLC ADR (Ireland)+ 4,710,000
134,100 Forest Laboratories, Inc. Class A+ 6,000,975
100,000 Glaxo Wellcome PLC ADR (United Kingdom)+ 2,375,000
115,000 Ivax Corp. 2,946,875
<PAGE>
Drugs (continued)
- -------------------------------------------------------------------------
520,000 Lilly (Eli) & Co. $ 42,575,000
1,107,200 Merck & Co., Inc. 55,221,600
180,000 Mylan Laboratories, Inc. 4,117,500
945,000 Pfizer, Inc. 46,659,375
120,000 R.P. Scherer Corp.+ 5,160,000
7,000 Sandoz AG 5,059,469
690,000 Schering-Plough Corp. 32,171,250
1,210,000 Smithkline Beecham PLC ADR (United
Kingdom) 54,147,500
500,000 Upjohn Co. 21,187,500
340,000 Warner-Lambert Co. 30,727,500
------------
377,240,324
Drugs Distribution/retail (2.0%)
- -------------------------------------------------------------------------
102,000 Amerisource Health Corp. Class A+ 2,320,500
50,900 Cardinal Health, Inc. 2,723,150
170,900 Eckerd Corp.+ 6,259,213
665,000 Owens & Minor, Inc. Holding Co. 9,642,500
------------
20,945,363
Information Systems (1.9%)
- -------------------------------------------------------------------------
220,000 GMIS, Inc.+ 3,905,000
50,000 HCIA, Inc.+ 1,400,000
67,050 Health Management Systems, Inc.+ 2,061,788
625,000 Physicians Computer Network+ 3,320,313
230,000 Shared Medical Systems Corp. 8,481,250
49,100 Summit Medical Systems, Inc.+ 761,050
------------
19,929,401
Medical Supplies and Devices (31.0%)
- -------------------------------------------------------------------------
221,600 AVECOR Cardiovascular, Inc.+ 2,991,600
1,590,000 Abbott Laboratories 61,612,500
135,000 Arrow International, Inc. 5,535,000
510,000 Bard (C.R.), Inc. 15,810,000
573,750 Baxter International, Inc. 22,376,250
279,608 Boston Scientific Corp.+ 11,114,418
60,000 Chad Therapeutics, Inc.+ 1,050,000
75,000 Cordis Corp.+ 5,793,750
200,000 EP Technologies, Inc.+ 2,675,000
310,000 Haemonetics Corp.+ 6,665,000
106,000 Instent, Inc.+ 1,682,750
920,492 Johnson & Johnson 63,513,948
96,800 Medisense Inc.+ 2,299,000
590,000 Medtronic, Inc. 55,681,250
170,000 Mentor Corp. Minnesota 6,502,500
150,000 Metra Biosystems, Inc.+ 3,000,000
150,000 Minimed, Inc.+ 1,725,000
210,400 Nellcor Puritan Bennett, Inc.+ 10,940,800
135,000 St. Jude Medical Inc.+ 8,049,375
468,000 Stryker Corp. 19,539,000
50,000 Target Therapeutics, Inc.+ 2,437,500
280,000 U.S. Surgical Corp. 7,105,000
220,000 Ventritex, Inc.+ 4,455,000
50,000 Zoll Medical Corp.+ 475,000
------------
323,029,641
<PAGE>
Nursing Homes (2.5%)
- -------------------------------------------------------------------------
620,000 Beverly Enterprises Inc.+ $ 8,215,000
220,000 Health Care & Retirement Corp.+ 6,930,000
210,000 Horizon/CMS Healthcare Corp.+ 4,593,750
210,000 Manor Care, Inc. 6,798,750
------------
26,537,500
Other Health Care Services (0.7%)
- -------------------------------------------------------------------------
130,100 Quintiles Transnational Corp.+ 7,578,325
Physicians Group Management (1.1%)
- -------------------------------------------------------------------------
100,000 Apogee, Inc.+ 1,875,000
60,400 Emcare Holdings, Inc.+ 1,177,800
280,000 Medaphis Corp.+ 6,475,000
110,000 OccuSystems, Inc.+ 2,310,000
------------
11,837,800
- -------------------------------------------------------------------------
Total Common Stocks
(cost $636,210,010) $1,000,424,978
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (3.7%)*
PRINCIPAL AMOUNT VALUE
$ 5,000,000 Federal Home Loan Mortgage Corp. 5.65s,
September 20, 1995 $ 4,985,090
10,000,000 Federal National Mortgage Assn. 5.68s,
September 8, 1995 9,988,956
10,000,000 Morgan (J.P.) & Co., Inc. 5.73s,
September 20, 1995 9,969,758
13,605,000 Interest in $514,241,000 joint
repurchase agreement dated August 31,
1995 with Morgan (J.P.) & Co. Inc., due
September 1, 1995 with respect to
various U.S. Treasury
obligations-maturity value of
$13,607,173 for an effective yield of 5.75% 13,607,173
- -------------------------------------------------------------------------
Total Short-Term Investments (cost
$38,548,804) $ 38,550,977
- -------------------------------------------------------------------------
Total Investments (cost $674,758,814)*** $1,038,975,955
- -------------------------------------------------------------------------
</TABLE>
*Percentages indicated are based on net assets of $1,043,134,237 which
correspond to a net asset value per share of Class A, Class B and Class M
shares of $36.21 ,$35.72 and $36.17, respectively.
+ Non-income-producing security.
***The aggregate identified cost for federal income tax purposes is
$674,758,814, resulting in gross unrealized appreciation and depreciation of
$378,588,251, and $14,371,110, respectively, or net unrealized appreciation
of $364,217,141.
ADR after the name of a foreign holding stands for American Depository
Receipt, 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
August 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $674,758,814) (Note 1) $1,038,975,955
- -----------------------------------------------------------------------------------------------
Cash 61
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 1,838,347
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,569,359
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,373,804
- -----------------------------------------------------------------------------------------------
Total assets 1,047,757,526
- -----------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,480,700
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 707,500
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,634,991
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,914
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,061
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 221,930
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 473,089
- -----------------------------------------------------------------------------------------------
Other accrued expenses 101,104
- -----------------------------------------------------------------------------------------------
Total liabilities 4,623,289
- -----------------------------------------------------------------------------------------------
Net assets $1,043,134,237
- -----------------------------------------------------------------------------------------------
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 651,910,344
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,339,409
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 22,667,343
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 364,217,141
- -----------------------------------------------------------------------------------------------
Total--Representing net assets applicable to capital shares outstanding $1,043,134,237
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($929,484,195 divided by 25,670,157 shares) $36.21
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $36.21)* $38.42
- -----------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($113,329,222 divided by 3,172,817 shares)+ $35.72
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price of Class M shares
($320,820 divided by 8,870 shares) $36.17
- -----------------------------------------------------------------------------------------------
Offering price per class M shares (100/96.50 of $36.17)* $37.48
- -----------------------------------------------------------------------------------------------
</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, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends (Net of foreign tax $12,361) $ 14,910,015
- -------------------------------------------------------------------------
Interest 1,889,601
- -------------------------------------------------------------------------
Total investment income 16,799,616
- -------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,018,819
- -------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,435,484
- -------------------------------------------------------------------------
Compensation of Trustees (Note 2) 30,203
- -------------------------------------------------------------------------
Administrative services (Note 2) 16,781
- -------------------------------------------------------------------------
Auditing 60,787
- -------------------------------------------------------------------------
Legal 21,849
- -------------------------------------------------------------------------
Postage 182,775
- -------------------------------------------------------------------------
Reports to Shareholders 135,616
- -------------------------------------------------------------------------
Distribution fees--Class A (Note 2) 2,090,917
- -------------------------------------------------------------------------
Distribution fees--Class B (Note 2) 828,033
- -------------------------------------------------------------------------
Distribution fees--Class M (Note 2) 249
- -------------------------------------------------------------------------
Registration fees 520
- -------------------------------------------------------------------------
Other 157,601
- -------------------------------------------------------------------------
Total expenses 10,979,634
- -------------------------------------------------------------------------
Net investment income 5,819,982
- -------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 23,154,465
- -------------------------------------------------------------------------
Net unrealized appreciation of investments during the
year 177,658,264
- -------------------------------------------------------------------------
Net gain on investments 200,812,729
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations $206,632,711
- -------------------------------------------------------------------------
</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 in net assets
- --------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------
Net investment income $ 5,819,982 $ 7,269,246
- --------------------------------------------------------------------------------------
Net realized gain on investments 23,154,465 37,397,500
- --------------------------------------------------------------------------------------
Net unrealized appreciation of investments 177,658,264 122,395,466
- --------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 206,632,711 167,062,212
- --------------------------------------------------------------------------------------
Distributions to shareholders from:
- --------------------------------------------------------------------------------------
Net investment income
- --------------------------------------------------------------------------------------
Class A (6,665,340) (7,054,011)
- --------------------------------------------------------------------------------------
Class B (276,702) (218,378)
- --------------------------------------------------------------------------------------
Net realized gain on investments
- --------------------------------------------------------------------------------------
Class A (13,402,834) (1,518,110)
- --------------------------------------------------------------------------------------
Class B (1,193,139) (60,825)
- --------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions
(Note 4) 13,017,671 (96,087,506)
- --------------------------------------------------------------------------------------
Total increase in net assets 198,112,367 62,123,382
- --------------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------------
Beginning of year 845,021,870 782,898,488
- --------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,339,409 and $5,522,832 respectively) $1,043,134,237 $845,021,870
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
July 3, 1995 March 1, 1993
(commencement (commencement
of operations) to of operations) to
August 31 Year ended August 31 August 31
1995 1995 1994 1993+
Class M Class B
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $33.96 $29.47 $24.28 $24.02
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income (.02) .11 .10 .05
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2.23 6.78 5.33 .21
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 2.21 6.89 5.43 .26
- -----------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------
Net investment income -- (.12) (.19) --
- -----------------------------------------------------------------------------------------------------------
Net realized gain on investments -- (.52) (.05) --
- -----------------------------------------------------------------------------------------------------------
Total distributions -- (.64) (.24) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $36.17 $35.72 $29.47 $24.28
- -----------------------------------------------------------------------------------------------------------
Total investment return at net asset
value (%) (a) 6.51(b) 23.83 22.49 (1.08)(b)
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $321 $113,329 $55,424 $18,455
- -----------------------------------------------------------------------------------------------------------
Ratio of total expenses to average net
assets (%) .30(b) 1.88 1.87 .96(b)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (.02)(b) (.05) .24 .21(b)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19.51 19.51 23.18 45.46
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Year ended August 31
- ------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------
- ------------------------------------------------------------
Class A
- ------------------------------------------------------------
$29.77 $24.40 $28.31 $31.29 $22.82
- ------------------------------------------------------------
- ------------------------------------------------------------
.23 .30 .26 .12 .25
- ------------------------------------------------------------
6.99 5.36 (1.82) (.35) 9.07
- ------------------------------------------------------------
7.22 5.66 (1.56) (.23) 9.32
- ------------------------------------------------------------
- ------------------------------------------------------------
(.26) (.24) (.13) (.27) (.35)
- ------------------------------------------------------------
(.52) (.05) (2.22) (2.48) (.50)
- ------------------------------------------------------------
(.78) (.29) (2.35) (2.75) (.85)
- ------------------------------------------------------------
$36.21 $29.77 $24.40 $28.31 $31.29
- ------------------------------------------------------------
24.81 23.38 (6.45) (1.12) 41.99
- ------------------------------------------------------------
$929,484 $789,598 $764,443 $970,412 $676,081
- ------------------------------------------------------------
1.12 1.12 1.13 1.20 1.18
- ------------------------------------------------------------
- ------------------------------------------------------------
.70 .96 .91 .61 1.27
- ------------------------------------------------------------
19.51 23.18 45.46 42.12 26.59
- ------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) 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, 1995
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 class A, class B and class M shares. The fund commenced its
public offering of class M shares on July 3, 1995. 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. Class M shares are sold
with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares. Expenses of the fund are borne pro-rata by the holders of each class
of shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). 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. 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 Putnam Investment
Management, Inc. (Putnam Management), the fund's manager, a wholly owned
subsidiary of Putnam Investments, Inc., 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 Management, 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 their
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. Putnam Management 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
taxable 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
income from partnerships. 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 regulation. For the year ended
August 31, 1995, the fund reclassified $61,363 to decrease undistributed net
investment income, $473,824 to decrease accumulated net realized gain on
investments and $535,187 to increase paid in capital. The calculation of net
investment income per share in the financial highlights table excludes these
adjustments.
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 Putnam
Management on the fund's portfolio transactions.
The fund also reimburses Putnam Management 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 $1,780 and an addi-
<PAGE>
tional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee
meetings.
During the year ended August 31, 1995, the fund adopted a Trustee Fee
Deferral Plan (the "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 in the fund and are invested in the fund or in other
Putnam funds until distribution in accordance with the Plan.
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.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended August 31, 1995 have been reduced by credits allowed by
PFTC.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M 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
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate of 0.35%, 1.00% and 1.00% of average net
assets attributable to class A, class B, and class M shares, respectively.
The Trustees have approved payment by the fund at an annual rate of 0.25%,
1.00%, and 0.75% of the average net assets attributable to class A, class B,
and class M shares, respectively.
For the year ended August 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $326,682 and $626 from the sale of
class A and class M shares, respectively. Putnam Mutual Funds Corp. received
$449,555 in contingent deferred sales charges from redemptions of class B
shares. A deferred sales charge of up to 1% 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 31, 1995, Putnam Mutual Funds
Corp., acting as underwriter received $50,125 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 1995, purchases and sales of investment
securities other than short-term investments aggregated $165,803,754 and
$172,011,043, 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, 1995, there was an unlimited number of shares of beneficial
interest authorized, divided into three classes, class A, class B, and class
M capital shares. Transactions in capital shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
Year ended August 31
----------------------------------------------------------
1995 1994
-------------------------- ----------------------------
Class A Shares Amount Shares Amount
- --------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 8,052,125 $ 258,073,342 6,392,086 $ 167,778,186
Shared issued
in connection
with
reinvestment
of
distributions 535,035 15,853,096 254,000 6,576,169
- --------------- -------- ---------- --------- -----------
8,587,160 273,926,438 6,646,086 174,354,355
Shares
repurchased (9,437,527) (302,016,572) (11,457,249) (299,677,276)
- --------------- -------- ---------- --------- -----------
Net decrease (850,367) $ (28,090,134) (4,811,163) $(125,322,921)
- --------------- -------- ---------- --------- -----------
Year ended August 31
--------------------------------------------------------
1995 1994
------------------------ --------------------------
Class B Shares Amount Shares Amount
- --------------- -------- ---------- --------- -----------
Shares sold 2,716,923 $ 85,990,448 1,447,812 $ 37,873,012
Shares issued
in connection
with
reinvestment
of
distributions 41,252 1,212,410 8,743 225,304
- --------------- -------- ---------- --------- -----------
2,758,175 87,202,858 1,456,555 38,098,316
Shares
repurchased (1,465,953) (46,403,109) (335,909) (8,862,901)
- --------------- -------- ---------- --------- -----------
Net increase 1,292,222 $ 40,799,749 1,120,646 $ 29,235,415
- --------------- -------- ---------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
July 3, 1995
(commencement of
operations)
to August 31
------------------
1995
------------------
Class M Shares Amount
------------------------ ----- ---------
<S> <C> <C>
Shares sold 8,913 $309,595
Shares issued in
connection with
reinvestment of
distributions -- --
------------------------ --- -------
8,913 309,595
Shares repurchased (43) (1,539)
------------------------ --- -------
Net increase 8,870 $308,056
------------------------ --- -------
</TABLE>
<PAGE>
Federal tax information
(Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the fund hereby
designates $0.52 per share (or if different, the amount necessary to offset
net capital gain income earned by the fund) for share classes A and B as
capital gain dividends for its taxable year ended August 31, 1995.
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
The form 1099 you receive in January 1996 will show you the tax status of
all distributions paid to your account in calendar 1995.
<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
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
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
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
Carol McMullen
Vice President
Joanne Soja
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. For more information or to request
a prospectus, call toll-free: 1-800-225-1581.
Shares of mutual funds are not deposits of, 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
20663-021/335/2AB
(Artwork--Putnam Investments)
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<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)
