Putnam
Health Sciences
Trust
ANNUAL REPORT
August 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Health Sciences is in new but capable hands . . . this
low-expense fund is still a good play on the mature areas of the
health-care sector. With just enough small-cap stocks to add spice, the
fund's construction befits the moderately aggressive investor."
-- Morningstar Mutual Funds, July 4, 1997
* Putnam Health Sciences Trust's class A shares ranked 2 out of 29
health/biotechnology funds (top 7%) tracked by Lipper Analytical Services
for the 1-year period ended September 30, 1997.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
18 Financial statements
*Lipper rankings are based on total return performance, vary over time,
and do not include the effects of sales charges. For the 1-year period
ended 9/30/97, the fund's class B and class M shares ranked 4 and 3,
respectively, out of 29 health/biotechnology funds. For the 5- and
10-year periods ended 9/30/97, the fund's class A shares ranked 5 out
of 12 and 6 out of 7, respectively. Past performance is no guarantee
of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Investors who purchased shares of Putnam Health Sciences Trust when it was
introduced on May 28, 1982, and reinvested all distributions in additional
shares saw their investment increase in value by nearly 10 times at the close
of the fund's fiscal year on August 31, 1997 -- a healthy return indeed. While
past results can never be taken as a guarantee of future returns, performance
over other periods, as shown in the table on page 9, was similarly positive.
The fund enters its 16th full fiscal year with a new team of managers. Richard
England, formerly with Aetna Equity Investors, joined Putnam in 1992 and has
11 years of investment experience. Roland W. Gillis, who has been with Putnam
since 1995, was formerly with Keystone Custodian Funds and Loomis Sayles & Co.
and has been in investment management for 22 years. David G. Carlson, who
joined Putnam in 1990 from Coopers & Lybrand, has 9 years of investment
experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 15, 1997
Report from the Fund Managers
Richard B. England, lead manager
Roland W. Gillis
David G. Carlson
Putnam Health Sciences Trust's strategy of spreading assets across companies
of all sizes remained a key factor in its solid performance during the second
half of fiscal 1997. The stocks of large companies, especially those in the
pharmaceutical sector, represented a significant portion of your fund's
portfolio and contributed greatly to returns. Over the 12 months ended August
31, 1997, record-breaking surges in a number of large-company indexes,
including a rise above 8000 for the Dow Jones Industrial Average, were
accompanied by generally dreary performance from the stocks of smaller
companies. Indeed, for this period, which is your fund's fiscal year, the
Standard & Poor's 500(registered trademark) Index, which is weighted in favor
of large-company stocks, returned 40.62%, while the Russell 2000 Index, a
measure of small-company stocks, gained 28.96%.
Despite this challenging environment, we drew upon the strongest sectors in
the health-care industry, targeting companies that we expected would benefit
from long-term trends rather than short-term economic fluctuations. For the
August 31, 1997, fiscal year, your fund's class A shares provided an
impressive total return of 32.46% at net asset value. The return taking
maximum sales charges into account was 24.85%. For complete performance
information, please refer to the summary that begins on page 9.
* BANNER YEAR FOR PHARMACEUTICAL STOCKS
In the fund's semiannual report, we noted that stocks of many pharmaceutical
companies had delivered strong returns as the companies developed, tested, and
received approval for new drugs. We're happy to report that this trend
continued through the remainder of fiscal 1997. Since one of the most
effective ways to control spiraling medical costs is to keep people out of the
hospital, the ability to develop effective drugs with minimal side effects has
become a very valuable asset. A number of pharmaceutical companies in your
fund's portfolio are now dominating global markets by creating innovative
products for the treatment and prevention of disease.
Warner-Lambert Company, for example, recently was cleared to market Rezulin, a
drug for diabetes patients who are newly diagnosed or have problems with
traditional insulin treatments. Approximately 16 million people in the United
States have diabetes, and new guidelines for early diagnosis endorsed by the
American Diabetes Association are expected to reveal an additional 2 million.
The disease is estimated to cost the U.S. health-care system more than $100
billion annually. The strong performance of Warner-Lambert's stock can be
attributed in part to this drug and also to the company's development of
Lipitor, a drug for the treatment of high cholesterol. The company is expected
to benefit greatly from this product, since the U.S. cholesterol drug market
was estimated at more than $3 billion for 1996 and is expected to increase by
30% by the end of 1997. The worldwide market is estimated to total an
additional $7 billion.
Another standout among the portfolio's pharmaceutical holdings was
Schering-Plough Corp., developer of Claritin, the number one prescription
antihistamine in the world. U.S. sales of this drug have risen strongly in
calendar 1997, and Schering-Plough is expected to get approval soon to market
Claritin in Japan, the world's second largest pharmaceutical market. Another
leading Schering-Plough product, Intron A, is an antiviral and cancer
treatment that has contributed greatly to the company's solid performance so
far in 1997. Use of Intron A as a treatment for malignant melanoma and
hepatitis C has increased significantly in the United States. While these
holdings, along with others discussed in this report, were viewed favorably at
the end of the fiscal period, all portfolio holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may vary in
the future.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals 38.1%
Medical supplies and devices 24.9%
Other health-care services 11.4%
Managed services 8.4%
Biotechnology 8.0%
Footnote reads:
*Based on net assets as of 8/31/97. Holdings will vary over time.
* MEDICAL DEVICES: ANOTHER PROFITABLE SECTOR
Companies that develop innovative medical devices, especially those that
control the rhythm of the heart, were significant contributors to your fund's
performance in fiscal 1997. Guidant Corp., for example, has had great success
with the Ventak AV, an electrode system that is implanted into a patient's
shoulder to monitor and control heart activity. The Ventak AV is the only
device on the market that is able to both pace and defibrillate an irregular
heartbeat. Guidant Corp. is also known for its coronary stent -- a metal tube
or coil that is used to keep arteries open. Guidant's Multi-Link stent was
approved recently for sale in Japan and should be approved for sale in the
United States within the next 6 to 9 months.
One of the small companies in your fund's portfolio, Arterial Vascular
Engineering, Inc. (AVEI), has also made great progress with coronary stent
systems. The company has the number-one-selling stent in Europe and recently
received clearance to sell its entire line of devices in Japan. Both AVEI and
Guidant are expected to be the first major competitors of pharmaceutical giant
Johnson & Johnson in the U.S. coronary stent market.
* SMALL BIOTECH COMPANIES HELP FISCAL '97 RETURNS
While small-company stocks endured a tough year and represented a smaller
portion of your fund's portfolio, several are worth noting, including Guilford
Pharmaceuticals, Inc., a biotechnology company. Guilford recently announced a
patent for its Gliadel Wafer, a compound used for postsurgical treatment of
brain cancer. The product is designed to target specific tumors while
minimizing the adverse side effects that have been present with other
treatments. Guilford is also known for its efforts to develop treatments for
neurological diseases like Parkinson's disease. Also in 1997, Guilford's stock
was boosted by the company's alliance with Amgen, another biotechnology
company. Under the agreement, Amgen will receive worldwide rights to several
of Guilford's neurological compounds and will conduct clinical development,
manufacturing, and marketing of the products.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Pfizer, Inc.
Pharmaceuticals
Eli Lilly & Co.
Pharmaceuticals
Warner-Lambert Co.
Pharmaceuticals
Merck & Co., Inc.
Pharmaceuticals
Abbott Laboratories
Medical supplies and devices
Schering-Plough Corp.
Pharmaceuticals
Bristol-Myers Squibb Co.
Pharmaceuticals
American Home Products Corp.
Pharmaceuticals
Johnson & Johnson
Medical supplies and devices
SmithKline Beecham PLC ADR (United Kingdom)
Pharmaceuticals
Footnote reads:
These holdings represent 33.7% of the fund's
net assets as of 8/31/97. Portfolio holdings will
vary over time.
Another small-company biotech holding, Medimmune, Inc., recently presented
very positive clinical results for MEDI-493, a drug designed to prevent RSV, a
life-threatening respiratory virus in infants. Medimmune expects to receive
FDA approval in the near future, which should present a large market
opportunity.
Despite these success stories, the biotechnology industry as a whole was
disappointing during fiscal 1997, and our decision to maintain an
underweighted position in this sector proved to be a prudent one. Of course,
we will continue to monitor this sector carefully and to shift portfolio
weightings appropriately.
* PROMISING NEW FISCAL YEAR ANTICIPATED
Despite disappointments in the hospital, health maintenance organization
(HMO), and biotechnology sectors, we have been able to uncover opportunities
in many health-care sectors that have contributed to stellar returns for
fiscal 1997. As we enter a new fiscal year, we remain optimistic about a
number of promising industry trends, including mergers, acquisitions, and an
aging population that will favor virtually every health-care sector. Of
course, we will continue to diversify 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 8/31/97, 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
This section provides information about your fund's performance, which
should always be considered in light of its 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 8/31/97
Class A Class B Class M
(5/28/82) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 32.46% 24.85% 31.46% 26.46% 31.79% 27.18%
- ------------------------------------------------------------------------------
5 years 136.79 123.15 127.80 125.80 130.91 122.85
Annual average 18.82 17.41 17.90 17.69 18.22 17.38
- ------------------------------------------------------------------------------
10 years 316.56 292.58 283.24 283.24 293.42 279.64
Annual average 15.34 14.65 14.38 14.38 14.68 14.27
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/97
Standard & Poor's Consumer
500 Index Price Index
- ------------------------------------------------------------------------------
1 year 40.62% 2.23%
- ------------------------------------------------------------------------------
5 years 146.29 14.12
Annual average 19.76 2.68
- ------------------------------------------------------------------------------
10 years 266.42 40.56
Annual average 13.87 3.46
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% for class A shares and 3.50% for class M shares.
One-, five-, and ten-year (when available) returns for class B shares
reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 8/31/97
S&P 500
Date/year Fund at POP Index CPI
8/31/87 9425 10000 10000
8/31/88 7654 8212 10402
8/31/89 10267 11437 10892
8/31/90 11809 10861 11503
8/31/91 16767 13788 11941
8/31/92 16569 14878 12316
8/31/93 15509 17141 12657
8/31/94 19135 18077 13024
8/31/95 23881 21948 13365
8/31/96 29639 26057 13750
8/31/97 39258 36642 14056
Footnote reads:
Past performance is no assurance of future results.
At the end of the same time period, a $10,000 investment
in the fund's class B shares would have been valued at
$38,324 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares
would have been valued at $39,342 ($37,964 at public
offering price). See first page of performance section
for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.085 -- --
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long term 1.326 1.326 1.326
- ------------------------------------------------------------------------------
Short term 0.274 0.274 0.274
- ------------------------------------------------------------------------------
Total $1.685 $1.600 $1.600
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
8/31/96 $43.67 $46.33 $42.94 $43.54 $45.12
- ------------------------------------------------------------------------------
8/31/97 55.82 59.23 54.54 55.47 57.48
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
(5/28/82) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 33.72% 26.04% 32.69% 27.69% 33.06% 28.42%
- ------------------------------------------------------------------------------
5 years 160.79 145.78 150.84 148.84 154.31 145.40
Annual average 21.13 19.70 20.19 20.00 20.52 19.67
- ------------------------------------------------------------------------------
10 years 360.65 334.17 323.90 323.90 335.21 320.04
Annual average 16.50 15.82 15.54 15.54 15.84 15.43
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
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.
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 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.
WELCOME TO
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VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
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You can also read Dr. Robert Goodman's economic commentary and Putnam's
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The site can be accessed through any of the major online services
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New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Report of independent accountants
For the fiscal year ended August 31, 1997
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, 1997, and the related statement of operations for the year then
ended and the statements 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, 1997, 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, 1997, 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 10, 1997
Portfolio of investments owned
August 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (95.3%) *
NUMBER OF SHARES VALUE
Biotechnology (8.0%)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
100,000 Aastrom Biosciences, Inc. + $ 375,000
80,000 Affymetrix, Inc. + 2,680,000
246,500 Amylin Pharmaceuticals, Inc. + 1,956,594
200,000 Arris Pharmaceutical Corp. + 2,725,000
804,300 Biochem Pharmaceutical, Inc. + 20,861,531
330,000 Biogen, Inc. + 12,993,750
384,000 CN Biosciences, Inc. +[SECTION MARK] 7,392,000
318,500 GelTex Pharmaceuticals, Inc. + 6,409,813
232,500 Genentech, Inc.-Special Common + 13,281,563
450,000 Genzyme Corp. + 12,656,250
368,500 Guilford Pharmaceuticals, Inc. + 9,903,438
160,000 IDEC Pharmaceuticals Corp. + 4,860,000
200,000 ILEX Oncology, Inc. + 3,175,000
231,100 Imnet Systems, Inc. + 7,626,300
470,000 La Jolla Pharmaceutical Co. + 2,203,125
200,000 Ligand Pharmaceuticals, Inc. Class B + 2,900,000
197,200 Martek Biosciences Corp. + 2,884,050
401,300 Medimmune, Inc. + 10,634,450
177,000 Microcide Pharmaceuticals, Inc. + 2,124,000
130,000 Millennium Pharmaceuticals, Inc. + 1,755,000
313,400 Neurocrine Biosciences, Inc. + 2,546,375
112,500 Neurogen Corp. + 2,214,844
560,000 NPS Pharmaceuticals, Inc. + 4,760,000
296,200 Protein Design Labs, Inc. + 10,552,125
359,800 SangStat Medical Corp. + 8,275,400
285,000 SEQUIS Pharmaceuticals, Inc. + 1,923,750
261,400 Transkaryotic Therapies, Inc. (Malaysia) + 8,201,425
189,546 Vertex Pharmaceuticals, Inc. + 6,491,951
410,000 ViroPharma, Inc. + 6,560,000
--------------
180,922,734
Healthcare Information Systems (2.4%)
- ------------------------------------------------------------------------------------------------------------
288,300 HBO & Co. 20,649,488
200,600 HCIA, Inc. + 3,109,300
129,800 Incyte Pharmaceuticals, Inc. + 7,852,900
365,800 Medic Computer Systems, Inc. + 11,431,250
825,400 Physicians Computer Network + 5,726,213
96,900 Shared Medical Systems Corp. 4,748,100
--------------
53,517,251
Managed Services (8.4%)
- ------------------------------------------------------------------------------------------------------------
371,300 Advanced Health Corp. + [SECTION MARK] 8,911,200
278,400 Aetna, Inc. 26,569,800
476,400 Centennial HealthCare Corp. + 9,587,550
89,100 CIGNA Corp. 16,338,713
600,000 Compdent Corp. +[SECTION MARK] 14,550,000
263,800 Coventry Corp. + 4,385,675
84,000 Express Scripts, Inc. Class A + 4,189,500
350,000 HealthCare COMPARE Corp. + 19,512,500
227,000 Oxford Health Plans, Inc. + 16,599,375
703,000 Physician Reliance Network, Inc. + 6,986,063
251,700 Trigon Healthcare, Inc. + 6,009,338
451,600 United Healthcare Corp. 21,959,050
185,400 United Wisconsin Services, Inc. 6,060,263
530,900 Wellpoint Health Networks, Inc. + 28,867,688
--------------
190,526,715
Medical Supplies and Devices (24.9%)
- ------------------------------------------------------------------------------------------------------------
1,285,600 Abbott Laboratories 77,055,650
270,000 Arrow International, Inc. 7,998,750
308,400 Arterial Vascular Engineering, Inc. + 11,410,800
485,500 Ballard Medical Products 11,227,188
530,000 Bard (C.R.), Inc. 18,285,000
446,250 Baxter International, Inc. 23,734,922
450,100 Biomet, Inc. 9,339,575
458,745 Boston Scientific Corp. + 32,341,523
480,950 Cardinal Health, Inc. 31,862,938
264,500 Cytyc Corp. + 5,290,000
222,819 Del Global Technologies Corp. + 2,256,042
447,600 Guidant Corp. 39,304,875
844,600 IDEXX Laboratories, Inc. + 15,889,038
634,100 InControl, Inc. + 5,706,900
933,264 Johnson & Johnson 52,904,403
141,300 McKesson Corp. 13,238,044
497,029 Medtronic, Inc. 44,918,996
400,000 Mentor Corp. 12,300,000
421,400 Minimed, Inc. + 14,801,675
205,000 Molecular Devices Corp. + 3,920,625
37,100 Neuromedical Systems, Inc. + 129,850
160,400 Ocular Sciences, Inc. + 3,067,650
463,600 Omnicare, Inc. 13,415,425
337,700 Perclose, Inc. + 7,935,950
204,800 Perkin-Elmer Corp. 15,155,200
332,800 Sabratek Corp. + 12,064,000
311,000 Steris Corp. + 11,662,500
640,800 Stryker Corp. 25,591,950
346,800 Thermotrex Corp. + 8,821,725
271,100 Trex Medical Corp. + 4,202,050
361,200 U.S. Surgical Corp. 11,897,025
250,000 Ventana Medical Systems, Inc. + 4,031,250
248,400 Waters Corp. + 8,274,825
240,000 Wesley Jessen VisionCare, Inc. + 6,240,000
--------------
566,276,344
Other Health Care Services (11.4%)
- ------------------------------------------------------------------------------------------------------------
177,800 ABR Information Services, Inc. + 4,778,375
176,100 Amerisource Health Corp. Class A + 8,816,006
525,400 Applied Analytical Industries, Inc. + 12,149,875
757,400 Beverly Enterprises, Inc. + 12,355,088
343,300 Genesis Health Ventures, Inc. + 11,972,588
330,000 Health Care & Retirement Corp. + 12,024,375
150,000 Health Management Assoc., Inc. + 4,434,375
1,485,600 Healthsouth Rehabilitation Corp. + 37,047,150
198,000 Lincare Holdings, Inc. + 9,442,125
180,000 Manor Care, Inc. 5,557,500
662,625 National Surgery Centers, Inc. + 13,142,063
438,200 OccuSystems, Inc. + 13,803,300
234,100 On Assignment, Inc. + 10,563,763
665,000 Owens & Minor, Inc. Holding Co. 9,019,063
523,710 Pharmaceutical Product Development, Inc. + 11,390,693
700,000 Physician Sales & Service, Inc. + 11,900,000
357,800 Quintiles Transnational Corp. + 27,908,400
477,100 Quorum Health Group, Inc. + 16,251,219
120,000 Sunrise Assisted Living, Inc. + 3,735,000
475,800 Tenet Healthcare Corp. + 12,965,550
208,700 Total Renal Care Holdings, Inc. + 9,548,025
--------------
258,804,533
Pharmaceuticals (38.1%)
- ------------------------------------------------------------------------------------------------------------
513,000 Alpharma, Inc. Class A 11,253,938
330,000 Alza Corp. + 9,570,000
893,000 American Home Products Corp. 64,296,000
928,600 Bristol-Myers Squibb Co. 70,573,600
340,000 Dura Pharmaceuticals, Inc. + 12,112,500
383,020 Elan Corp. PLC ADR (Ireland) + 17,427,410
1,282,500 Glaxo Wellcome PLC ADR (United Kingdom) 51,139,688
331,600 Inhale Therapeutic Systems + 7,461,000
975,800 Lilly (Eli) & Co. 102,093,063
300,000 Medicis Pharmaceutical Corp. Class A + 11,925,000
849,300 Merck & Co., Inc. 77,976,356
31,266 Novartis AG (Switzerland) 44,204,378
1,930,000 Pfizer, Inc. 106,873,750
356,300 Pharmacia & Upjohn, Inc. 12,136,469
330,000 R.P. Scherer Corp. + 18,583,125
101,000 Schering AG (Germany) + 9,804,254
1,528,900 Schering-Plough Corp. 73,387,200
503,200 Sepracor, Inc. + 11,070,400
1,206,000 SmithKline Beecham PLC ADR (United Kingdom) 52,234,875
30,000 Sonus Pharmaceuticals, Inc. + 1,196,250
283,200 Warner Chilcott Laboratories (Ireland) + 5,239,200
700,000 Warner-Lambert Co. 88,943,750
237,500 Zonagen, Inc. + 7,510,938
--------------
867,013,144
Retail (2.1%)
- ------------------------------------------------------------------------------------------------------------
415,300 CVS Corp. 23,412,538
505,300 Rite Aid Corp. 25,296,581
--------------
48,709,119
--------------
Total Common Stocks (cost $1,335,654,791) $2,165,769,840
CONVERTIBLE BONDS AND NOTES (0.4%) * (cost $10,000,000)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 10,000,000 Synetic, Inc. cv. sub. deb. 5s, 2007 $ 9,562,500
SHORT-TERM INVESTMENTS (4.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
25,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.43%,
September 19, 1997 $ 24,928,354
71,009,000 Interest in $500,000,000 joint repurchase agreement
dated August 29, 1997 with Morgan Stanley & Co., Inc.
due September 2, 1997 with respect to various
U.S. Treasury obligations -- maturity value of $71,052,947
for an effective yield of 5.57% 71,030,973
--------------
Total Short-Term Investments (cost $95,959,327) $ 95,959,327
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,441,614,118) *** $2,271,291,667
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $2,272,789,788.
*** The aggregate identified cost on a tax basis is $1,441,948,914, resulting in gross unrealized
appreciation and depreciation of $862,962,585 and $33,619,832, respectively, or net unrealized
appreciation of $829,342,753.
+ Non-income-producing security.
[SECTION MARK] Affiliated Companies (Note 5)
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
August 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,441,614,118) (Note 1) $2,271,291,667
- ---------------------------------------------------------------------------------------------------
Cash 2,887,657
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,547,859
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 10,309,539
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 13,437
- ---------------------------------------------------------------------------------------------------
Total assets 2,287,050,159
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 5,249,433
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,727,796
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,254,313
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 449,051
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 36,286
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,741
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,229,814
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 309,937
- ---------------------------------------------------------------------------------------------------
Total liabilities 14,260,371
- ---------------------------------------------------------------------------------------------------
Net assets $2,272,789,788
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,224,104,324
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 709,903
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 218,298,012
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 829,677,549
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,272,789,788
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,681,187,332 divided by 30,117,875 shares) $55.82
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $55.82)* $59.23
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($567,927,661 divided by 10,412,565 shares)** $54.54
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($23,674,795 divided by 426,766 shares) $55.47
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $55.47)* $57.48
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 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
Year ended August 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $149,716) $17,846,473
- --------------------------------------------------------------------------------------------------
Interest 6,243,561
- --------------------------------------------------------------------------------------------------
Total investment income 24,090,034
Expenses:
Compensation of Manager (Note 2) 10,970,406
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,033,097
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 68,771
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 22,603
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,565,887
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,004,489
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 109,935
- --------------------------------------------------------------------------------------------------
Reports to shareholders 129,069
- --------------------------------------------------------------------------------------------------
Registration fees 44,671
- --------------------------------------------------------------------------------------------------
Auditing 61,869
- --------------------------------------------------------------------------------------------------
Legal 24,968
- --------------------------------------------------------------------------------------------------
Postage 424,854
- --------------------------------------------------------------------------------------------------
Other 500,219
- --------------------------------------------------------------------------------------------------
Total expenses 22,960,838
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (536,267)
- --------------------------------------------------------------------------------------------------
Net expenses 22,424,571
- --------------------------------------------------------------------------------------------------
Net investment income 1,665,463
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3 and 5) (including realized
loss of $384,436 on sales of investments in affiliated issuers) 239,230,201
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (21,182)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 255,685,321
- --------------------------------------------------------------------------------------------------
Net gain on investments 494,894,340
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $496,559,803
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 1,665,463 $ 4,244,121
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 239,209,019 37,691,811
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 255,685,321 209,775,087
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 496,559,803 251,711,019
- ----------------------------------------------------------------------------------------------------------------------
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) 383,398,689 189,432,991
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 823,021,345 406,634,206
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 1,449,768,443 1,043,134,237
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $709,903 and $1,331,694, respectively) $2,272,789,788 $1,449,768,443
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $43.67 $36.21 $29.77 $24.40 $28.31
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .13 (c) .19 .23 .30 .26
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 13.71 8.46 6.99 5.36 (1.82)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 13.84 8.65 7.22 5.66 (1.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.27) (.26) (.24) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.60) (.92) (.52) (.05) (2.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.69) (1.19) (.78) (.29) (2.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $55.82 $43.67 $36.21 $29.77 $24.40
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 32.46 24.12 24.81 23.38 (6.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,681,187 $1,166,794 $929,484 $789,598 $764,443
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.08 1.10 1.12 1.12 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .26 .43 .70 .96 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.54 10.55 19.51 23.18 45.46
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0535 $.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 and
brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Per share net investment income (loss) has been determined on
the basis of weighted average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share March 1, 1993+
operating performance 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 (loss) (.24)(c) (.13)(c) .11 .10 .05 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 13.44 8.35 6.78 5.33 .21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 13.20 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 $54.54 $42.94 $35.72 $29.47 $24.28
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 31.46 23.19 23.83 22.49 (1.08)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $567,928 $273,243 $113,329 $55,424 $18,455
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.83 1.85 1.88 1.87 .96 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.49) (.31) (.05) .24 .21 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.54 10.55 19.51 23.18 45.46
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0535 $.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 and
brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Per share net investment income (loss) has been determined on
the basis of weighted average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 3, 1995+
operating performance Year ended 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 (loss) (.12)(c) (.02)(c) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 13.65 8.46 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 13.53 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 $55.47 $43.54 $36.17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 31.79 23.51 6.51 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,675 $9,732 $321
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.58 1.61 .30 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (.24) (.05) (.02)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.54 10.55 19.51 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0535 $.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 and
brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2)
(c) Per share net investment income (loss) has been determined on
the basis of weighted average number of shares outstanding during the period.
(d) Average commission rate paid on security trades is required for fiscal periods
beginning on or after September 1, 1995.
</TABLE>
Notes to financial statements
August 31, 1997
Note 1
Significant accounting policies
Putnam Health Sciences ("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) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) 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.
G) 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. For the
year ended August 31, 1997, the fund required no such reclassifications.
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% thereafter.
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 year ended August 31, 1997, fund expenses were reduced by $536,267
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 "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
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 year ended August 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $862,756 and $33,622 from the sale of
class A and class M shares, respectively and $611,861 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 year
ended August 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $4,102 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $1,081,450,155 and
$770,821,219, 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 August 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
August 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 17,235,544 $ 861,557,693
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 784,043 36,473,739
- ------------------------------------------------------------
18,019,587 898,031,432
Shares
repurchased (14,621,740) (728,618,530)
- ------------------------------------------------------------
Net increase 3,397,847 $ 169,412,902
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 6,452,852 $ 322,027,608
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 197,008 9,001,277
- ------------------------------------------------------------
6,649,860 331,028,885
Shares
repurchased (2,601,055) (127,578,073)
- ------------------------------------------------------------
Net increase 4,048,805 $ 203,450,812
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 379,404 $ 19,325,876
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,638 307,944
- ------------------------------------------------------------
386,042 19,633,820
Shares
repurchased (182,819) (9,098,845)
- ------------------------------------------------------------
Net increase 203,223 $ 10,534,975
- ------------------------------------------------------------
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 Affiliated Issues
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
Affiliates cost cost Income Value
- ----------------------------------------------------------------
Advanced
Health Corp. $ 4,976,445 $ -- $ -- $ 8,911,200
CN Biosciences,
Inc. 5,307,505 -- -- 7,392,000
Compdent Corp. 8,850,000 -- -- 14,550,000
Rightchoice
Managed Care,
Inc. -- 2,433,544 -- --
- ----------------------------------------------------------------
Totals $19,133,950 $2,433,544 $ -- $30,853,200
- ----------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the Fund
hereby designates $242,554,185 (or if different, the amount
necessary to offset net capital gain earned by the Fund) as
capital gain dividends for its taxable year ended August 31, 1997.
The fund has designated 63.11% of the distributions from net
investment income as qualifying for the dividends received deduction
for corporations.
The Form 1099 you receive in January 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities 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 Total Return Fund
High Yield Trust +
Income Fund
Money Market 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 Exempt Money Market 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
State tax-free money market funds [SECTION MARK]
California, New York
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
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** 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.
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
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
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Richard B. England
Vice President and Fund Manager
Roland W. Gillis
Vice President and Fund Manager
David G. Carlson
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 the principal amount
invested.
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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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AN008-36575-021/335/2AB 10/97
