Putnam
Health Sciences
Trust
SEMIANNUAL REPORT
February 28, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent mutual fund rating agency, awarded Putnam Health
Sciences Trust's class A shares 4 out of a possible 5 stars for overall
performance as of March 31, 1997, based on the fund's average annual returns
for the 3-, 5-, and 10-year periods. This rating put the fund among 22.5% of
equity funds rated.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
16 Financial statements
27 Results of February 6, 1997 shareholder meeting
*Morningstar ratings reflect risk-adjusted performance through 3/31/97 and are
subject to change every month. Morningstar ratings are calculated from a
fund's 3-, 5-, and 10-year returns (with fee adjustments) in excess of 90-day
Treasury bill returns and a risk factor that reflects performance below 90-day
Treasury bill returns. The 1 year rating is calculated using the same
methodology, but it is not a component of the overall rating. For 3- and
5-year performance, the fund received 5 stars. There were 1919 and 601 funds
rated. For the 1 year period the fund received 2 stars and was rated among
3048 equity funds. 10% of funds in an investment category receive 5 stars;
22.5% receive 4; 35% receive 3 stars. Performance of other share classes will
vary. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
As more members of the baby-boom generation reach the half-century mark,
virtually every sector of the health-care industry will increasingly feel the
impact -- and the prognosis is mixed. Demand for drugs, medical supplies, and
health-care services will continue to rise, sustaining business growth. At the
same time, pressure is mounting to curb spiraling costs and trim spending on
federal Medicare and Medicaid programs.
Mergers and takeovers will continue to alter the corporate landscape as
health-care providers consolidate in the name of increased efficiency. A new
round of debate on the future of health care is almost certain to be on the
Congressional agenda this year and next.
Keeping up on these and other issues represents a major challenge for Putnam
Health Sciences Trust's manager, Joanne Soja, as she picks and chooses among
the myriad investment selections in an ever-changing health-care environment.
Her report on the first half of fiscal 1997 and prospects for the months ahead
makes informative reading for investors of all ages.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 16, 1997
Report from the Fund Manager
Joanne Soja
The performance of health-care stocks generally mirrored that of the overall
U.S. equity market during the first half of Putnam Health Sciences Trust's
fiscal year. Continuing a trend that began in fiscal 1996, the stocks of
large, blue-chip companies significantly outperformed those of smaller growth
companies. Fortunately the fund's ability to invest in companies of all sizes
and across a variety of subsectors helped balance overall performance.
For the six months ended February 28, 1997, the fund's class A shares provided
a total return of 18.03%, class B shares, 17.57%, and class M shares, 17.73%.
The returns taking maximum sales charges into account were 11.25%, 12.57%, and
13.60%, respectively. For complete performance information, see pages 9 and 10
of this report.
Many of the health-care industry trends we witnessed in fiscal 1996 continued
to affect the fund during the first half of fiscal 1997. Mergers and
acquisitions, for example, helped boost the value of several holdings, while
pharmaceutical stocks outperformed other sectors. Demographics continue to
favor virtually every health-care sector, as the baby-boom generation -- now
reaching 50 years of age -- is expected to keep drugs, medical supplies, and
health-care services in strong demand. At the same time, the industry is
challenged by increasing costs and the pressure on providers to contain them
as well as by the potential impact of the federal government's efforts to
reduce federal Medicare and Medicaid spending.
* PHARMACEUTICALS A LEADING SECTOR IN FISCAL '97
A number of drug companies contributed solid performance during the period.
One of the fund's largest holdings, Eli Lilly & Co., is a good example of how
innovative product development can boost a stock's performance. During the
fourth quarter of calendar 1996, Lilly launched a new drug, Zyprexa, which has
been described as the most promising of the current group of new schizophrenia
drugs. Zyprexa treats the symptoms of schizophrenia with fewer side effects
than older antipsychotic drugs. Like the company's best-selling antidepressant
drug, Prozac, it is expected to have a positive impact on Lilly's earnings.
Strong sales of two other products also boosted Lilly's earnings for the
fourth quarter of calendar 1996. Gemzar, a drug for pancreatic cancer, went on
sale last May, and ReoPro, an anticlotting drug used in cardiac procedures,
was introduced in 1995. Lilly has several other products in development that
are expected to be highly successful, including Evista, a treatment for
osteoporosis. While Lilly, along with other stocks discussed in this report,
was viewed favorably as of February 28, 1997, all portfolio holdings are
subject to review and adjustment in accordance with the fund's investment
strategy and may well vary in the future.
Looking ahead, we believe there is still great potential in the pharmaceutical
sector as new products are produced at a faster rate and the regulatory
process accelerates. Indeed, the average number of new drugs and medical
products introduced annually has nearly doubled in less than 10 years, while
the approval time has been cut in half. We also expect the current economic
environment of moderate growth and low inflation will continue to benefit the
performance of drug company stocks.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals 39.2%
Medical supplies and devices 27.6%
Biotechnology 8.8%
Other healthcare services 7.9%
Managed services 7.1%
Footnote reads:
*Based on net assets as of 2/28/97. Holdings will vary over time.
* MERGERS AND ACQUISITIONS BOOST VALUE OF SEVERAL HOLDINGS
After enduring some tough times, the fund's holdings in health maintenance
organizations (HMOs) began to strengthen during the period. The performance of
stocks in this sector had been weak because of low investor demand and the
inability of the industry to control growing costs. We believe this sector
will begin to rebound as HMOs make progress toward cost containment and look
toward mergers and acquisitions to gain financial strength.
During the period, consolidation within the industry boosted the value of
several key holdings. For example, the merger of Foundation Health Corp. with
Health Systems International, Inc. will create one of the nation's largest
HMOs, serving 5 million members in California and other states. Also
benefiting the fund was Tenet Healthcare Corp.'s acquisition of Ornda
Healthcorp., a rival hospital company, in October. As a result of the merger,
Tenet, a current fund holding, is expected to have a more powerful role in the
hospital company industry.
The portfolio was also strengthened by the anticipated merger of two companies
in the fund's medical devices sector. Boston Scientific Corp., a developer and
manufacturer of innovative medical devices, recently announced plans to
acquire Target Therapeutics, Inc., which specializes in devices to treat
stroke-related conditions of the brain. The announcement boosted the stock
price of both companies, and the acquisition is expected to strengthen further
Boston Scientific's competitive position.
* SMALL COMPANIES OFFER STRONG REWARD POTENTIAL
Despite a rather dismal period for small-company stocks, the fund did profit
from some of its small-capitalization holdings. The stock of Biopsys Medical,
Inc., for example, rose dramatically during the period. This medical
technology company has received favorable exposure within the industry for its
Mammotome system, which allows for the nonsurgical removal of breast tissue
for biopsies. Another small-company stock that performed well during the
period was Inhale Therapeutic Systems. The company develops devices for the
pulmonary delivery -- or inhalation -- of drugs. The company recently entered
into a collaborative agreement with Eli Lilly to develop a pulmonary delivery
system for Lilly's osteoporosis drug.
TOP 10 HOLDINGS
Johnson & Johnson
Medical supplies and devices
Merck & Co., Inc.
Pharmaceuticals
Abbott Laboratories
Medical supplies and devices
Eli Lilly & Co.
Pharmaceuticals
Pfizer, In.
Pharmaceuticals
Smithkline Beecham (United Kingdom)
Pharmaceuticals
Medtronic, Inc.
Medicla supplies and devices
Warner-Lambert Co.
Pharmaceuticals
American Home Products Corp.
Pharmaceuticals
Schering-Plough Corp.
Pharmaceuticals
Footnote reads:
These holdings represent 42.9% of the fund's assets as of 2/28/97.
Portfolio holdings will vary over time.
We believe some strong value opportunities are being created for small-company
health-care stocks. The recent underperformance of the fund's small-cap
holdings has generally been the result of market conditions rather than
company fundamentals. We will continue to look to small-company stocks for
their rapid growth potential, while balancing the fund's risk profile by
investing in stocks of larger, more-established companies.
* INFORMATION SYSTEMS SECTOR IS DISAPPOINTING
One surprisingly weak area of the health-care industry has been information
systems companies -- those that provide technological support, such as
software, for health-care businesses. The health-care industry as a whole
spends very little of its budget on information systems and we believe
investors may not be ready to commit to this relatively new business. We
believe this sector still holds enormous potential, but its recognition within
the industry may take longer than anticipated.
* CAUTIOUS OPTIMISM MARKS OUTLOOK FOR REMAINDER OF FISCAL YEAR
As we look toward the second half of fiscal '97, we expect continued strength
from the large, blue-chip companies. At the same time, we will seek
opportunities among small-cap health-care stocks that we believe offer
significant value. We're optimistic about the rate of U.S. economic growth,
which appears likely to remain steady in the coming months. Regardless of the
economic environment, we will continue to invest across a variety of
health-care subsectors, seeking stocks with long-term 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 2/28/97, there is no guarantee the fund will continue to hold
these securities in the future. Funds investing in a single sector may be
subject to more volatility than funds investing in a diverse group of sectors.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 2/28/97
Class A Class B Class M
(inception date) (5/28/82) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 18.03% 11.25% 17.57% 12.57% 17.73% 13.60%
- ------------------------------------------------------------------------------
1 year 15.41 8.78 14.51 9.51 14.83 10.81
- ------------------------------------------------------------------------------
5 years 96.76 85.45 -- -- -- --
Annual average 14.50 13.15 -- -- -- --
- ------------------------------------------------------------------------------
10 years 308.91 285.40 -- -- -- --
Annual average 15.12 14.44 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 122.07 119.07 54.87 49.46
Annual average -- -- 22.07 21.66 30.15 27.39
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/97
Standard & Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------------
6 months 22.52% 1.14%
- ------------------------------------------------------------------------------
1 year 26.15 2.71
- ------------------------------------------------------------------------------
5 years 118.51 14.79
Annual average 16.92 2.80
- ------------------------------------------------------------------------------
10 years 275.83 42.56
Annual average 14.15 3.61
- ------------------------------------------------------------------------------
Life of class B 97.55 11.18
Annual average 18.55 2.68
- ------------------------------------------------------------------------------
Life of class M 50.65 4.33
Annual average 27.86 2.58
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They 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. Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their original
cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for
class M shares. CDSC for class B shares assumes the applicable sales charge,
with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/28/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.085 -- --
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.274 0.274 0.274
- ------------------------------------------------------------------------------
Short-term 1.326 1.326 1.326
- ------------------------------------------------------------------------------
Total $1.685 $1.600 $1.600
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
08/31/96 $43.67 $46.33 $42.94 $43.54 $45.12
- ------------------------------------------------------------------------------
02/28/97 49.74 52.77 48.78 49.55 51.35
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.98% -2.00% 3.57% -1.43% 3.71% 0.09%
- ------------------------------------------------------------------------------
1 year 8.45 2.22 7.61 2.61 7.90 4.12
- ------------------------------------------------------------------------------
5 years 95.45 84.23 -- -- -- --
Annual average 14.34 13.00 -- -- -- --
- ------------------------------------------------------------------------------
10 years 287.56 265.28 -- -- -- --
Annual average 14.51 13.83 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 108.55 106.55 54.87 49.46
Annual average -- -- 19.74 19.46 30.15 27.39
- ------------------------------------------------------------------------------
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.
Dow Jones Industrial Average* is an unmanaged list of 30 common stocks
frequently used as a general measure of stock market performance. Its
performance figures reflect changes of market prices and reinvestment of all
distributions but are not adjusted for commissions or other costs.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund will
differ. It is not possible to invest directly in an index.
Portfolio of investments owned
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (93.7%) *
NUMBER OF SHARES VALUE
Biotechnology (8.8%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
300,000 Aastrom Biosciences, Inc. + $ 2,100,000
130,000 Affymetrix, Inc. + 3,640,000
500,000 Amgen, Inc. + 30,562,500
246,500 Amylin Pharmaceuticals, Inc. + 3,666,682
185,000 Arris Pharmaceutical Corp. + 2,428,125
250,000 Biochem Pharmaceutical, Inc. + 13,250,000
260,000 Biogen, Inc. + 12,805,000
200,000 Cambridge NeuroScience, Inc. + 2,500,000
100,000 Cell Genesys, Inc. + 762,500
174,000 CN Biosciences, Inc. + 2,479,500
260,000 CytoTherapeutics, Inc. + 2,210,000
234,000 Ergo Science Corp. + 3,393,000
232,500 Genentech, Inc.-Special Common + 12,816,563
250,000 Genome Therapeutics Corp. + 2,343,750
270,000 Genzyme Corp. + 6,952,500
140,000 Guilford Pharmaceuticals, Inc. + 3,605,000
160,000 IDEC Pharmaceuticals Corp. + 3,980,000
300,000 Immulogic Pharmaceutical Corp. + 1,650,000
170,000 Immunex Corp. + 4,802,500
470,000 La Jolla Pharmaceutical Co. + 2,408,750
190,000 Ligand Pharmaceuticals, Inc. Class B + 2,303,750
100,000 Magainin Pharmaceuticals, Inc. + 812,500
197,200 Martek Biosciences Corp. + 3,944,000
300,000 Medimmune, Inc. + 4,350,000
177,000 Microcide Pharmaceuticals, Inc. + 2,168,250
130,000 Millennium Pharmaceuticals, Inc. + 2,177,500
313,400 Neurocrine Biosciences, Inc. + 3,604,100
112,500 Neurogen Corp. + 1,968,750
435,000 NPS Pharmaceuticals Inc. + 5,111,250
80,000 SangStat Medical Corp. + 2,560,000
125,000 SIBIA Neurosciences, Inc. + 1,046,875
175,000 Synaptic Pharmaceutical Corp. + 2,450,000
133,400 Vertex Pharmaceuticals, Inc. + 6,169,750
400,000 ViroPharma Inc. + 5,250,000
134,000 Virus Research Institute, Inc. + 1,072,000
--------------
163,345,095
Healthcare Information Systems (3.1%)
- ---------------------------------------------------------------------------------------------------------
122,000 Apache Medical Systems Inc. + 823,500
283,000 Enterprise Systems, Inc. + 7,358,000
31,100 LanVision Systems, Inc. + 206,038
341,000 Medic Computer Systems, Inc. + 12,276,000
600,000 Physicians Computer Network + 4,800,000
305,400 Shared Medical Systems Corp. 16,682,475
35,900 Sunquest Information Systems, Inc. + 448,750
505,200 Vivra, Inc. + 15,029,700
--------------
57,624,463
Managed Services (7.1%)
- ---------------------------------------------------------------------------------------------------------
277,300 Advanced Health Corp. + 5,026,063
100,000 Coventry Corp. + 731,250
84,000 Express Scripts, Inc. Class A + 2,856,000
180,000 Foundation Health Corp. + 6,795,000
300,000 HealthCare COMPARE Corp. + 12,806,250
400,000 Humana, Inc. + 7,850,000
410,000 Mid Atlantic Medical Services, Inc. + 6,047,500
214,500 Oxford Health Plans Inc. + 11,958,375
322,000 Pacificare Health Systems, Inc. Class B + 26,967,500
198,000 Physicians Health Services, Inc. Class A + 3,811,500
251,700 Trigon Healthcare, Inc. 4,499,138
790,000 United Healthcare Corp. 39,401,250
87,100 United Wisconsin Services, Inc. 2,319,038
--------------
131,068,864
Medical Supplies and Devices (27.6%)
- ---------------------------------------------------------------------------------------------------------
1,630,000 Abbott Laboratories 91,687,500
150,000 Acuson Corp. + 4,162,500
630,000 Allergan Inc. 21,420,000
270,000 Arrow International, Inc. 9,517,500
300,000 ArthroCare Corp. + 2,700,000
200,000 ATS Medical, Inc. + 1,400,000
30,000 Autonomous Technologies Corp. + 180,000
271,600 AVECOR Cardiovascular, Inc. + 3,462,900
530,000 Bard (C.R.), Inc. 14,508,750
273,750 Baxter International, Inc. 12,592,500
230,000 Biomet, Inc. 3,507,500
206,500 Biopsys Medical, Inc. + 6,504,750
151,000 Biosite Diagnostics Inc. + 1,830,875
340,145 Boston Scientific Corp. + 22,534,606
198,850 Chad Therapeutics, Inc. + 2,535,338
110,000 Collagen Corp. 2,200,000
36,700 Conceptus. Inc. + 467,925
222,819 Delaware Global Technologies Corp. + 1,977,519
132,500 Fischer Imaging Corp. + 877,813
300,000 Guidant Corp. 20,100,000
320,000 Haemonetics Corp. + 5,520,000
300,000 Heartstream, Inc. + 3,750,000
230,000 Imagyn Medical, Inc. + 1,696,250
1,870,364 Johnson & Johnson 107,779,726
1,005,629 Medtronic, Inc. 65,114,478
390,000 Mentor Corp. 9,701,250
250,000 Metra Biosystems, Inc. + 1,281,250
205,000 Molecular Devices Corp. + 2,921,250
540,800 Nellcor Puritan Bennett, Inc. + 9,396,400
200,000 Neuromedical Systems, Inc. + 1,575,000
220,000 Orthofix International N.V. + 1,622,500
332,800 Orthologic Corp. + 1,955,200
130,000 Perkin-Elmer Corp. 9,230,000
78,000 Rochester Medical Corp. + 1,326,000
279,000 St. Jude Medical Inc. + 11,020,500
956,000 Stryker Corp. 27,724,000
127,800 Trex Medical Corp. + 1,613,475
320,000 U.S. Surgical Corp. 13,640,000
425,000 Uroquest Medical Corp. + 2,284,375
320,000 Ventritex, Inc. + 6,640,000
--------------
509,959,630
Other Health Care Services (7.9%)
- ---------------------------------------------------------------------------------------------------------
200,000 American Oncology Resources, Inc. + 1,825,000
102,000 Amerisource Health Corp. Class A + 5,138,250
485,400 Applied Analytical Industries, Inc. + 12,135,000
620,000 Beverly Enterprises, Inc. + 8,912,500
263,550 Cardinal Health, Inc. 16,208,325
179,984 Choice Hotels International, Inc. + 2,767,254
300,000 ClinTrials Research Inc. + 2,925,000
75,500 Collaborative Clinical Research, Inc. + 622,875
330,000 Health Care & Retirement Corp. + 8,951,250
100,000 Health Management Assoc., Inc. + 2,650,000
350,575 Health Management Systems, Inc. + 2,804,600
300,000 Healthsouth Rehabilitation Corp. + 12,075,000
300,000 IBAH, Inc. + 2,362,500
180,000 Manor Care, Inc. 4,792,500
320,000 Medaphis Corp. + 3,180,000
35,850 National Surgery Centers, Inc. + 1,084,463
238,200 OccuSystems, Inc. + 5,597,700
665,000 Owens & Minor, Inc. Holding Co. 6,816,250
202,410 Pharmaceutical Product Development, Inc. + 4,756,635
230,200 Quintiles Transnational Corp. + 15,049,325
213,900 Quorum Health Group, Inc. + 6,711,113
260,000 Summit Medical Systems, Inc. + 1,235,000
120,000 Sunrise Assisted Living, Inc. + 3,360,000
313,100 Tenet Healthcare Corp. + 8,492,838
135,600 Total Renal Care Holdings, Inc. + 4,729,050
23,200 Transition Systems, Inc. + 310,300
--------------
145,492,728
Pharmaceuticals (39.2%)
- ---------------------------------------------------------------------------------------------------------
513,000 Alpharma, Inc. Class A 6,861,375
330,000 Alza Corp. + 9,363,750
893,000 American Home Products Corp. 57,152,000
230,000 Aradigm Corp. + 2,012,500
350,000 Astra AB (Sweden) 16,786,571
279,400 Bayer AG ADR (Germany) + 11,788,506
220,000 Bristol-Myers Squibb Co. 28,710,000
396,920 Elan Corp. PLC ADR (Ireland) + 13,743,355
125,000 GelTex Pharmaceuticals, Inc. + 2,625,000
200,000 ILEX Oncology Inc. + 2,575,000
200,400 Inhale Therapeutic Systems + 3,957,900
1,040,000 Lilly (Eli) & Co. 90,870,000
1,007,200 Merck & Co., Inc. 92,662,400
230,000 Mylan Laboratories, Inc. 3,852,500
27,266 Novartis AG Rights expiration date 3/12/97 (Switzerland) + 1,728,387
27,266 Novartis AG (Switzerland) + 31,166,424
965,000 Pfizer, Inc. 88,418,125
825,000 Pharmacia & Upjohn, Inc. 30,421,875
200,000 R.P. Scherer Corp. + 11,550,000
101,000 Schering AG (Germany) + 9,156,807
680,000 Schering-Plough Corp. 52,105,000
1,190,000 Smithkline Beecham PLC ADR (United Kingdom) 88,357,500
100,200 Synthelabo (France) + 10,855,219
700,000 Warner-Lambert Co. 58,800,000
--------------
725,520,194
--------------
Total Common Stocks (cost $934,557,968) $1,733,010,974
CONVERTIBLE BONDS AND NOTES (0.8%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 1,400,000 North American Vaccine 144A cv. sub. notes 6 1/2s, 2003 $ 1,335,250
10,000,000 Synetic, Inc. cv. sub. deb. 5s, 2007 10,000,000
2,200,000 Ventritex, Inc. cv. sub. notes 5 3/4s, 2001 2,972,750
--------------
Total Convertible Bonds and Notes
(cost $13,625,000) $ 14,308,000
SHORT-TERM INVESTMENTS (5.4%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$11,000,000 American Home Products Corp. effective yield of 5.27%,
March 26, 1997 $ 10,959,743
25,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.19%,
March 17, 1997 24,942,333
20,000,000 National Rural Utilities Cooperative Finance Corp. effective
yield of 5.25%, April 21, 1997 19,851,250
43,738,000 Interest in $579,653,000 joint repurchase agreement dated
February 28, 1997 with UBS Securities due March 3, 1997
with respect to various U.S. Treasury obligations --
maturity value of $43,757,573 for an effective yield
of 5.37% 43,744,524
--------------
Total Short-Term Investments (cost $99,497,850) $ 99,497,850
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $1,047,680,818) *** $1,846,816,824
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,849,764,129.
*** The aggregate identified cost on a tax basis is $1,047,680,818,
resulting in gross unrealized appreciation and depreciation of
$868,449,256 and $69,313,250 respectively, or net unrealized
appreciation of $799,136,006.
+ Non-income-producing security.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American Depository
Receipts, representing ownership of foreign securities on deposit with a
domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,047,680,818) (Note 1) $1,846,816,824
- ---------------------------------------------------------------------------------------------------
Cash 861
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,497,733
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 10,767,557
- ---------------------------------------------------------------------------------------------------
Total assets 1,860,082,975
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 3,431,121
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,436,205
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,545,731
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 510,827
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,756
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,779
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 871,976
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 512,451
- ---------------------------------------------------------------------------------------------------
Total liabilities 10,318,846
- ---------------------------------------------------------------------------------------------------
Net assets $1,849,764,129
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,032,091,511
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (374,246)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 18,910,858
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 799,136,006
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,849,764,129
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,440,002,757 divided by 28,952,239 shares) $49.74
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $49.74)* $52.77
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($395,892,632 divided by 8,116,009 shares)** $48.78
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,868,740 divided by 279,915 shares) $49.55
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $49.55)* $51.35
- ---------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 28, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $78,565) $ 8,286,121
- --------------------------------------------------------------------------------------------------
Interest 2,344,744
- --------------------------------------------------------------------------------------------------
Total investment income 10,630,865
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,914,586
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,200,353
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 23,492
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,224
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,601,255
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,615,725
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 39,797
- --------------------------------------------------------------------------------------------------
Reports to shareholders 123,187
- --------------------------------------------------------------------------------------------------
Registration fees 57,922
- --------------------------------------------------------------------------------------------------
Auditing 37,423
- --------------------------------------------------------------------------------------------------
Legal 9,771
- --------------------------------------------------------------------------------------------------
Postage 515,872
- --------------------------------------------------------------------------------------------------
Other 56,078
- --------------------------------------------------------------------------------------------------
Total expenses 10,206,685
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (157,134)
- --------------------------------------------------------------------------------------------------
Net expenses 10,049,551
- --------------------------------------------------------------------------------------------------
Net investment income 581,314
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 39,821,865
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 225,143,778
- --------------------------------------------------------------------------------------------------
Net gain on investments 264,965,643
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $265,546,957
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
February 28 August 31
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 581,314 $ 4,244,121
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 39,821,865 37,691,811
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 225,143,778 209,775,087
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 265,546,957 251,711,019
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,287,254) (6,939,764)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (305,285)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (6,787)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (43,054,189) (23,696,924)
- ----------------------------------------------------------------------------------------------------------------------
Class B (11,235,464) (3,517,887)
- ----------------------------------------------------------------------------------------------------------------------
Class M (360,240) (43,157)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 191,385,876 189,432,991
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 399,995,686 406,634,206
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,449,768,443 1,043,134,237
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed
net investment income of $374,246 and
$1,331,694, respectively) $1,849,764,129 $1,449,768,443
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share February 28
operating performance (Unaudited) Year ended August 31
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $43.67 $36.21 $29.77 $24.40 $28.31 $31.29
- -----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income .05(d) .19 .23 .30 .26 .12
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 7.71 8.46 6.99 5.36 (1.82) (.35)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 7.76 8.65 7.22 5.66 (1.56) (.23)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.27) (.26) (.24) (.13) (.27)
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.60) (.92) (.52) (.05) (2.22) (2.48)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.69) (1.19) (.78) (.29) (2.35) (2.75)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $49.74 $43.67 $36.21 $29.77 $24.40 $28.31
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 18.03* 24.12 24.81 23.38 (6.45) (1.12)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,440,003 $1,166,794 $929,484 $789,598 $764,443 $970,412
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55* 1.10 1.12 1.12 1.13 1.20
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .11* .43 .70 .96 .91 .61
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.94* 10.55 19.51 23.18 45.46 42.12
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0550 $.0718
- -----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996
and thereafter, include amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required on security trades for fiscal periods
beginning on or after September 1, 1995.
(d) Per share net investment income (loss) has been determined on
the basis of weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 March 1, 1993+
operating performance (Unaudited) Year ended August 31 to August 31
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $42.94 $35.72 $29.47 $24.28 $24.02
- -----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (.12)(d) (.13)(d) .11 .10 .05(d)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 7.56 8.35 6.78 5.33 .21
- -----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 7.44 8.22 6.89 5.43 .26
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- (.08) (.12) (.19) --
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.60) (.92) (.52) (.05) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.60) (1.00) (.64) (.24) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $48.78 $42.94 $35.72 $29.47 $24.28
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 17.57* 23.19 23.83 22.49 (1.08)*
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $395,893 $273,243 $113,329 $55,424 $18,455
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93* 1.85 1.88 1.87 .96*
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.26)* (.31) (.05) .24 .21*
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.94* 10.55 19.51 23.18 45.46
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0550 $.0718
- -----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996
and thereafter, include amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required on security trades for fiscal periods
beginning on or after September 1, 1995.
(d) Per share net investment income (loss) has been determined on
the basis of weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share February 28 ended July 3, 1995+
operating performance (Unaudited) August 31 to August 31
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $43.54 $36.17 $33.96
- -----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (.06)(d) (.02)(d) (.02)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 7.67 8.46 2.23
- -----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 7.61 8.44 2.21
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- (.15) --
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.60) (.92) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.60) (1.07) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $49.55 $43.54 $36.17
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 17.73* 23.51 6.51*
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,869 $9,732 $321
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80 * 1.61 .30*
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.13)* (.05) (.02)*
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.94* 10.55 19.51
- -----------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0550 $.0718
- -----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996
and thereafter, include amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. (Note 2)
(c) Average commission rate paid on security trades is required on security trades for fiscal periods
beginning on or after September 1, 1995.
(d) Per share net investment income (loss) has been determined on
the basis of weighted average number of shares outstanding during the period.
</TABLE>
Notes to financial statements
February 28, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Health Sciences Trust (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. Class A shares are sold
with a maximum front-end sales charge of 5.75 %. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are 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
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
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. 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.
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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
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. 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 on securities held and for excise tax
on income and capital gains.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. 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, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44% of the next $5 billion and 0.43% of any amount
over $21.5 billion. Prior to December 20, 1996, any amount over $1.5 billion
was based on 0.50%.
The fund 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.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended February 28, 1997, fund expenses were reduced by
$157,134 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $2,130 and an
additional fee for each Trustee's 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.
The fund has 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 certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 up to 0.35%, 1.00% and 1.00% of the 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 six months ended February 28, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $322,745 and $11,999 from the sale
of class A and class M shares, respectively and $239,961 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. For
the six months ended February 28, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $2,216 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended February 28, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$232,766,214 and $122,827,235, respectively. There were no purchases and sales
of U.S. government obligations. 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
February 28, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 7,984,112 $380,323,218
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 783,971 36,470,379
- ------------------------------------------------------------
8,768,083 416,793,597
Shares
repurchased (6,535,872) (310,554,430)
- ------------------------------------------------------------
Net increase 2,232,211 $106,239,167
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 13,918,363 $599,209,089
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 595,488 24,385,358
- ------------------------------------------------------------
14,513,851 623,594,447
Shares
repurchased (13,463,980) (579,395,669)
- ------------------------------------------------------------
Net increase 1,049,871 $44,198,778
- ------------------------------------------------------------
Six months ended
February 28, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 2,766,779 $129,520,949
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 196,898 8,996,274
- ------------------------------------------------------------
2,963,677 138,517,223
Shares
repurchased (1,211,428) (56,167,063)
- ------------------------------------------------------------
Net increase 1,752,249 $82,350,160
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 5,867,835 $249,843,040
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 77,198 3,124,835
- ------------------------------------------------------------
5,945,033 252,967,875
Shares
repurchased (2,754,090) (117,038,817)
- ------------------------------------------------------------
Net increase 3,190,943 $135,929,058
- ------------------------------------------------------------
Six months ended
February 28, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 130,288 $6,165,521
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,631 307,628
- ------------------------------------------------------------
136,919 6,473,149
Shares repurchased (80,547) (3,676,600)
- ------------------------------------------------------------
Net increase 56,372 $2,796,549
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 317,824 $13,735,757
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,093 44,599
- ------------------------------------------------------------
318,917 13,780,356
Shares repurchased (104,244) (4,475,201)
- ------------------------------------------------------------
Net increase 214,673 $9,305,155
- ------------------------------------------------------------
Note 5
Transactions with
Certain Companies
Transactions during the period with companies in which the fund owns at least
5% of the voting securities were as follows:
Purchase Sales Dividend Market
cost cost Income Value
- -------------------------------------------------------------------------
Rightchoice Managed Care, Inc. $-- $2,433,544 $-- $--
Results of February 6, 1997 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on February 6, 1997. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 18,088,746 490,137
Hans H. Estin 18,090,080 488,803
John A. Hill 18,100,040 478,843
R.J. Jackson 18,091,698 487,185
Elizabeth T. Kennan 18,079,621 499,262
Lawrence J. Lasser 18,084,804 494,079
Robert E. Patterson 18,097,206 481,677
Donald S. Perkins 18,087,261 491,622
William F. Pounds 18,094,185 484,698
George Putnam 18,088,224 490,659
George Putnam, III 18,085,170 493,713
A.J.C. Smith 18,095,516 483,367
W. Nicholas Thorndike 18,077,450 501,433
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows: 17,668,119 votes for, and 214,357 votes
against, with 696,407 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to diversification was approved as follows: 16,084,975 votes for, and
1,179,661 votes against, with 1,314,247 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in the securities of a single issuer was approved as follows:
15,334,933 votes for, and 1,674,523 votes against, with 1,569,427 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to making loans was approved as follows: 14,495,235 votes for, and 2,587,997
votes against, with 1,495,651 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in real estate was approved as follows: 14,866,618 votes for,
and 2,300,967 votes against, with 1,411,298 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to concentration of its assets was approved as follows: 15,570,938 votes for,
and 1,481,882 votes against, with 1,526,063 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in commodities was approved as follows: 14,506,646 votes for,
and 2,580,294 votes against, with 1,491,943 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in securities of issuers in which management of the
fund or Putnam Investment Management, Inc. owns securities was approved as
follows: 14,921,196 votes for, and 2,029,931 votes against, with 1,627,756
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to margin transactions was approved as follows: 14,196,115 votes for,
and 2,774,620 votes against, with 1,608,148 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to short sales was approved as follows: 14,256,936 votes for, and
2,696,848 votes against, with 1,625,099 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to pledging assets was approved as follows: 14,215,460 votes for, and
2,709,978 votes against, with 1,653,445 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in restricted securities was approved as follows:
14,478,293 votes for, and 2,425,109 votes against, with 1,675,481 abstentions
and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in certain oil, gas an mineral interests was approved
as follows: 14,772,065 votes for, and 2,357,702 votes against, with 1,449,116
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investing to gain control of a company's management was approved as
follows: 14,860,299 votes for, and 2,135,870 votes against, with 1,582,714
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in other investment companies was approved as follows:
14,956,095 votes for, and 2,036,192 votes against, with 1,586,596 abstentions
and broker non-votes.
All tabulations are rounded to nearest whole number.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
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
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
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
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
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 [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured
nor guaranteed by the U.S. government. These funds are
managed to maintain a price of $1.00 per share, although
there is no assurance that this price will be maintained
in the future.
[2 DBL. DAGGERS] 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.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
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 C. McMullen
Vice President
Joanne Soja
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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32133-021/335/2AB 4/97
