Putnam
Health
Sciences
Trust
SEMIANNUAL REPORT
February 28, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Health Sciences Trust's broader range adds to its
strengths....The fund is a good mix for those wanting to invest in the
long-term growth of health care without tilting too heavily toward its
most volatile subsectors."
-- Morningstar Mutual Funds, November 21, 1997
* "[Fund managers] David Carlson and Richard England have brought new
life to Putnam Health Sciences Trust. Taking over management of the fund
in May 1997, the young team inherited a strong fund. Then they turned it
into 1997's number one health and biotechnology mutual fund. Putnam's
traditional emphasis on research combined with an unorthodox mix of stocks
helps to give the fund its winning edge."
-- Boston magazine, March 1998
* Putnam Health Sciences Trust's class A shares ranked 1 out of 31
health/biotechnology funds tracked by Lipper Analytical Services for the
1-year period ended 12/31/97. For the 1-, 5-, and 10-year periods ended
3/31/98, the fund's class A shares ranked 3 out of 37, 3 out of 14, and 5
out of 7.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
16 Financial statements
* Lipper rankings are based on total return performance, vary over time,
and do not include the effects of sales charges. For the 5- and 10-year
periods ended 12/31/97, the fund's class A shares ranked 3 out of 13 and 5
out of 7 health/biotechnology funds. For the 1-year period ended 12/31/97,
the fund's class B and class M shares ranked 3 out of 31 and 2 out of 31,
respectively. For the 1-year period ended 3/31/98, the fund's class B and
class M shares ranked 10 out of 37 and 8 out of 37, respectively. Past
performance is no guarantee of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The rest of the world's equity markets may have sneezed, but Putnam Health
Sciences Trust's carefully selected portfolio remained in the pink during the
first half of the fund's fiscal 1998. One reason was the relative immunity
enjoyed by many of the fund's holdings by virtue of their issuers' limited
exposure to the most troubled markets. Another factor contributing to the
fund's solid performance was the increasing demand for health-care products,
services, and facilities by a maturing generation of baby boomers. Finally the
bidding war touched off by talk of mergers involving some of the world's
largest pharmaceutical companies provided an added boost to this already
thriving sector of the health-care industry.
Your fund's dynamic new management team took full advantage of opportunities
within this favorable environment. In the following report, fund managers
Richard England and David Carlson discuss strategy and performance during the
six months ended February 28, 1998, and take a look at prospects for the
second half of the fund's fiscal year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 15, 1998
Report from the Fund Managers
Richard B. England, lead manager
David G. Carlson
Putnam Health Sciences Trust's performance over the first half of fiscal 1998
illustrated one of the most powerful advantages of investing in the
health-care industry: its products and services tend to stay in demand
regardless of economic conditions. Demand for the strongest companies in the
portfolio -- those developing innovative drugs, treatments, and devices for
illnesses and diseases -- remained strong despite a rather turbulent time for
the world's financial markets. As the population in the United States ages,
long-term prospects for these companies look even more promising.
In addition, as last fall's Asian currency crisis sent the world's stock
markets reeling, your fund successfully weathered the volatility because it
invests in companies with relatively low exposure to the troubled economies.
Examples include pharmaceuticals, medical technology companies, and drug
retailers, a relatively new sector for the fund. For the six months ended
February 28, 1998, your fund's class A shares provided a total return of
20.68% at net asset value and 13.73% at public offering price. For complete
performance information, please refer to the summary that begins on page 9.
* DRUG COMPANY STOCKS BOOSTED BY MERGER TALKS
In our past several reports, we discussed the powerful contribution of
pharmaceutical stocks to your fund's portfolio. The semiannual period just
past was no exception; these stocks continued to boost returns, while the
industry as a whole buzzed with merger, acquisition, and takeover discussions.
To investors, this type of activity often signifies a healthy, thriving
industry, even in cases in which merger discussions fall apart or are
temporarily suspended.
Perhaps most notable during the period were merger discussions between
SmithKline Beecham and Glaxo Wellcome -- both of which are held in the
portfolio. The stock prices of these two British pharmaceutical giants rose
significantly as the talks progressed. In late February, however, the
discussions were halted and prices of both stocks had a temporary setback,
followed by a partial rebound amid speculation that discussions may begin
again.
At the close of the period, both stocks remained in the fund's portfolio and
these discussions were expected to prompt further merger activity across the
industry, creating an even more favorable environment for pharmaceutical
stocks. While these holdings, along with others discussed in this report, were
viewed favorably at the end of the fiscal period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may vary
in the future.
* PHARMACEUTICALS CONTINUE TO DRIVE PERFORMANCE
Another notable drug company holding was Warner-Lambert, which we've
highlighted in past reports. In December, the company announced that its new
diabetes drug Rezulin would require stricter medical monitoring because of
liver disorders in a small number of the drug's users. Glaxo Wellcome,
marketer of the drug in Great Britain, suspended distribution temporarily and
several Wall Street analysts lowered their earnings estimates for
Warner-Lambert. When the stock price dropped more than 18% in one day, we
bought additional shares. We believed that investors had overreacted to a
short-term setback and that Warner-Lambert remained a fundamentally strong
company with solid long-term growth potential. Our assessment proved accurate;
the price of the stock has since reached an all-time high. In addition to
Rezulin, the company has had great success with another innovative drug,
Lipitor, a treatment to lower cholesterol.
The portfolio's best-performing pharmaceutical stock was that of Pfizer, Inc.,
which was also the largest holding at the close of the period. While some drug
companies depend heavily on one or two major products, Pfizer has several
successful drugs that are expected to generate impressive sales growth over
the long term. The company has also shown great success with cross licensing,
which means it markets and sells drugs developed by other companies and shares
in the resulting profits. The power of Pfizer's sales force has contributed to
its success in this area.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals 42.7%
Medical supplies
and devices 20.4%
Health-care services 11.6%
Biotechnology 9.5%
Managed services 5.2%
Footnote reads:
* Based on net assets as of 2/28/98. Holdings will vary over time.
* DRUG RETAILERS: SUCCESSFUL NEW ADDITION TO PORTFOLIO
Just before the fiscal year began, we established positions in drug retail
stocks. These holdings, which include drugstore chains like CVS Corp., have
not traditionally represented a significant portion of this fund's portfolio,
but our attention to this sector has proved profitable. Strong market share,
industry expertise, and recognition of customer needs have propelled CVS to
its position as one of the largest retail pharmacy chains in the United
States.
During the semiannual period, CVS acquired Arbor Drug, a smaller chain in the
Midwest. Vital to CVS's success is its in-depth knowledge of the retail
pharmaceutical business and its ability to develop creative solutions for
meeting customer needs. For example, CVS's PharmaCare subsidiary recently
launched a computer software system for more than 400 primary care physicians.
The system allows physicians to file prescriptions electronically, send
patient instructions directly to pharmacies, and access patient information
from pharmacies.
* SMALL COMPANIES OFFER GREAT POTENTIAL
While large-company stocks have garnered the bulk of investors' attention --
and the strongest performance -- for quite some time, we remain optimistic
about the health-care industry's smaller companies. We believe that small
growth-oriented stocks like those of medical device manufacturers and
biotechnology companies are due for a rebound.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Pfizer, Inc.
Pharmaceuticals
Warner-Lambert Co.
Pharmaceuticals
Schering-Plough Corp.
Pharmaceuticals
Merck & Co., Inc.
Pharmaceuticals
American Home Products Corp.
Pharmaceuticals
Bristol-Myers Squibb Co.
Pharmaceuticals
Eli Lilly & Co.
Pharmaceuticals
Glaxo Wellcome PLC ADR (United Kingdom)
Pharmaceuticals
SmithKline Beecham PLC ADR (United Kingdom)
Pharmaceuticals
Johnson & Johnson
Medical supplies and devices
These holdings represent 36.8% of the fund's net assets as of 2/28/98.
Portfolio holdings will vary over time.
One promising company in the fund's portfolio is MiniMed, a medical equipment
manufacturer that focuses on products to help manage diabetes. The company has
developed an implantable insulin pump to replace traditional insulin
injections. It is placed under the skin and releases insulin directly into the
body. MiniMed has also applied for FDA approval of an implantable glucose
sensor, which gathers glucose readings that are then downloaded into a
computer for analysis.
Theragenics Corporation, another small-company holding, is a biotechnology
company that develops cancer treatments. Its most recent success is
Theraseeds, which are tiny pellets inserted directly into prostate cancer
tumors. Theraseeds are less expensive, have fewer side effects, and require a
much shorter recovery period than traditional surgical treatment.
Contract research organizations represent another promising health-care
sector. These companies provide outsourcing services to pharmaceutical and
biotechnology companies. During the last month of the period, stocks of
contract research organizations as a whole were up 22%, and Quintiles
Transnational was one of the portfolio's top performers in February. Quintiles
provides a wide range of services to drug and biotechnology companies, from
providing regulatory consulting to speed up the federal approval process to
conducting clinical trials and marketing products.
* OUTLOOK: DEMOGRAPHIC TRENDS WILL CONTINUE TO BOOST HEALTH-CARE INDUSTRY
Our outlook for the remainder of fiscal 1998 is a positive one for many of the
reasons mentioned at the opening of this report. Health-care industry products
and services remain in strong demand, while large demographic trends,
including an aging population, indicate that this demand won't diminish at any
time soon. Companies of all sizes are offering new, innovative drugs, devices,
and treatments to replace traditional methods, and these are driving higher
growth rates for the types of companies in which your fund invests.
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 2/28/98, 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 2/28/98
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 20.68% 13.73% 20.23% 15.23% 20.39% 16.18%
- ----------------------------------------------------------------------
1 year 35.43 27.66 34.43 29.43 34.77 30.05
- ----------------------------------------------------------------------
5 years 211.87 193.91 200.03 198.03 204.06 193.39
Annual average 25.54 24.06 24.58 24.41 24.91 24.02
- ----------------------------------------------------------------------
10 years 502.72 468.15 455.41 455.41 470.07 450.20
Annual average 19.68 18.97 18.70 18.70 19.01 18.59
- ----------------------------------------------------------------------
Life of fund 1302.51 1221.62 1119.28 1119.28 1169.88 1125.84
Annual average 18.24 17.80 17.20 17.20 17.50 17.24
- ----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/98
Standard & Poor's Consumer
500 Index Price Index
- ---------------------------------------------------------------------
6 months 17.62% 0.68%
- ---------------------------------------------------------------------
1 year 35.01 1.44
- ---------------------------------------------------------------------
5 years 166.86 13.14
Annual average 21.69 2.50
- ---------------------------------------------------------------------
10 years 422.46 39.57
Annual average 17.98 3.39
- ---------------------------------------------------------------------
Life of fund 1485.92 69.00
Annual average 19.18 3.39
- ---------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines 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 expenses 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/28/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income $0.024 -- --
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long term 5.689 $5.689 $5.689
- ------------------------------------------------------------------------------
Short term 0.734 0.734 0.734
- ------------------------------------------------------------------------------
Total $6.447 $6.423 $6.423
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
8/31/97 $55.82 $59.23 $54.54 $55.47 $57.48
- ------------------------------------------------------------------------------
2/29/98 60.07 63.73 58.32 59.52 61.68
- ------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(most recent calendar quarter)
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 16.82% 10.11% 16.40% 11.40% 16.54% 12.45%
- ----------------------------------------------------------------------
1 year 50.24 41.60 49.13 44.13 49.51 44.27
- ----------------------------------------------------------------------
5 years 220.02 201.63 207.81 205.81 212.07 201.16
Annual average 26.19 24.71 25.22 25.05 25.56 24.67
- ----------------------------------------------------------------------
10 years 546.31 509.14 495.62 495.62 511.51 490.17
Annual average 20.52 19.80 19.54 19.54 19.85 19.43
- ----------------------------------------------------------------------
Life of fund 1362.05 1277.72 1170.29 1170.29 1223.22 1177.33
Annual average 18.45 18.01 17.41 17.41 17.71 17.45
- ----------------------------------------------------------------------
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. 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 charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an unmanaged list of common stocks that is
frequently used as a general measure of stock market performance. The
index assumes reinvestment of all distributions and interest payments and
does not take in account brokerage fees or taxes. Securities in the fund
do not match those in the index and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
Portfolio of investments owned
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (95.3%) *
NUMBER OF SHARES VALUE
Biotechnology (9.5%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
250,000 Agouron Pharmaceuticals, Inc. + $ 9,218,750
300,000 AXYS Pharmaceuticals, Inc. + 2,550,000
1,482,700 Biochem Pharmaceutical, Inc. + 33,268,081
384,000 CN Biosciences, Inc. + [SECTION MARK] 10,704,000
242,500 Cell Therapeutics, Inc. + 3,637,500
637,900 Centocor, Inc. + 23,004,269
365,000 Coulter Pharmaceutical, Inc. + 8,486,250
400,000 Digene Corp. + 3,100,000
318,500 GelTex Pharmaceuticals, Inc. + 9,196,688
381,800 Genentech, Inc.-Special Common + 25,795,363
578,500 Guilford Pharmaceuticals, Inc. + 12,727,000
564,200 ICN Pharmaceuticals, Inc. 32,582,550
160,000 IDEC Pharmaceuticals Corp. + 7,260,000
150,000 ILEX Oncology, Inc. + 1,143,750
279,600 Incyte Pharmaceuticals, Inc. + 12,721,800
470,000 La Jolla Pharmaceutical Co. + 1,703,750
300,000 Ligand Pharmaceuticals, Inc. Class B + 4,500,000
436,300 Medimmune, Inc. + 22,633,063
280,000 Millennium Pharmaceuticals, Inc. + 5,635,000
580,000 NPS Pharmaceuticals, Inc. + 4,712,500
61,000 Pharmacopeia, Inc. + 1,159,000
170,000 Pharmacylics, Inc. 4,441,250
296,200 Protein Design Labs, Inc. + 12,736,600
164,000 QIAGEN N.V. (Netherlands) + 7,820,750
500,000 Scios, Inc. + 5,000,000
485,000 SEQUUS Pharmaceuticals, Inc. + 4,728,750
266,400 Transkaryotic Therapies, Inc. (Malaysia) + 8,458,200
396,300 Trimeris, Inc. + 3,764,850
200,446 Vertex Pharmaceuticals, Inc. + 7,491,669
410,000 ViroPharma, Inc. + 8,097,500
--------------
298,278,883
Health Care Services (11.6%)
- ------------------------------------------------------------------------------------------------------------
274,100 ABR Information Services, Inc. + 7,777,588
646,400 Applied Analytical Industries, Inc. + 9,372,800
1,187,400 Beverly Enterprises, Inc. + 18,033,638
537,900 Centennial HealthCare Corp. + 12,102,750
398,200 Concentra Managed Care, Inc. + 13,663,238
333,300 Genesis Health Ventures, Inc. + 9,665,700
330,000 Health Care & Retirement Corp. + 14,478,750
2,514,000 Healthsouth Rehabilitation Corp. + 67,878,000
198,000 Lincare Holdings, Inc. + 12,851,438
183,600 Manor Care, Inc. 6,896,475
662,625 National Surgery Centers, Inc. + 16,648,453
749,200 Omnicare, Inc. 27,720,400
476,200 On Assignment, Inc. + 13,988,375
573,710 Pharmaceutical Product Development, Inc. + 12,047,910
835,000 Physician Sales & Service, Inc. + 17,430,625
834,000 Quintiles Transnational Corp. + 40,761,750
941,650 Quorum Health Group, Inc. + 26,101,361
656,780 Tenet Healthcare Corp. + 24,506,104
435,333 Total Renal Care Holdings, Inc. + 14,012,281
--------------
365,937,636
Healthcare Information Systems (1.9%)
- ------------------------------------------------------------------------------------------------------------
286,500 Cerner Corp. + 5,909,063
610,900 HBO & Co. 33,064,963
371,100 Imnet Systems, Inc. + 7,769,906
279,100 Medquist, Inc. + 9,733,613
916,500 Physicians Computer Network + 3,895,125
--------------
60,372,670
Managed Services (5.2%)
- ------------------------------------------------------------------------------------------------------------
513,700 Advanced Health Corp. + [SECTION MARK] 7,577,075
575,700 Compdent Corp. + [SECTION MARK] 7,987,838
433,800 Coventry Corp. + 7,022,138
84,000 Express Scripts, Inc. Class A + 6,552,000
77,500 First Health Group Corp. + 3,860,469
200,000 FPA Medical Management, Inc. + 4,625,000
1,267,500 MedPartners, Inc. + 15,210,000
151,900 Pediatrix Medical Group, Inc. + 6,265,875
450,000 Phycor, Inc. + 11,573,438
763,000 Physician Reliance Network, Inc. + 9,108,313
295,000 Specialty Care Network, Inc. + 3,687,500
301,700 Trigon Healthcare, Inc. + 9,352,700
460,600 United Healthcare Corp. 27,952,663
296,600 United Wisconsin Services, Inc. 9,194,600
599,500 Wellpoint Health Networks, Inc. + 35,033,281
--------------
165,002,890
Medical Supplies and Devices (20.4%)
- ------------------------------------------------------------------------------------------------------------
790,600 Abbott Laboratories 59,146,763
170,000 Arrow International, Inc. 6,651,250
577,400 Ballard Medical Products 14,507,175
780,750 Baxter International, Inc. 44,209,969
240,100 Bergen Brunswig Corp. Class A 10,804,500
622,300 Biomet, Inc. + 18,552,319
252,045 Boston Scientific Corp. + 15,059,689
575,350 Cardinal Health, Inc. 47,106,781
138,300 Cyberonics, Inc. + 3,336,488
364,500 Cytyc Corp. + 8,383,500
222,819 Del Global Technologies Corp. + 2,297,821
654,000 Henry Schein, Inc. + 26,650,500
955,000 IDEXX Laboratories, Inc. + 14,981,563
634,100 InControl, Inc. + 3,170,500
1,088,964 Johnson & Johnson 82,216,782
314,500 Lifecore Biomedical, Inc. + 6,014,813
367,000 McKesson Corp. 19,129,875
963,900 Medtronic, Inc. 51,207,188
500,000 Mentor Corp. 14,593,750
328,400 Minimed, Inc. + 13,792,800
230,000 Molecular Devices Corp. + 3,823,750
225,000 Novoste Corp. + 6,665,625
550,000 Perclose, Inc. + [SECTION MARK] 13,887,500
400,000 Respironics, Inc. + 10,850,000
446,000 Sabratek Corp. + 14,996,750
74,800 Safeskin, Corp. + 4,590,850
553,800 Stryker Corp. 22,671,188
677,400 Sybron International Corp. + 18,501,488
64,300 Theragenics Corp. + 3,817,813
585,200 Trex Medical Corp. + 9,107,175
388,500 Tyco International Ltd. + 19,716,375
407,900 U.S. Surgical Corp. 12,491,938
420,000 Ventana Medical Systems, Inc. + 9,187,500
359,500 Waters Corp. + 17,772,781
257,800 Wesley Jessen VisionCare, Inc. + 8,732,975
121,000 Xomed Surgical Products Inc. + 3,418,250
--------------
642,045,984
Pharmaceuticals (42.7%)
- ------------------------------------------------------------------------------------------------------------
513,000 Alpharma, Inc. Class A 11,863,125
457,600 Alza Corp. + 17,102,800
1,268,300 American Home Products Corp. 118,903,125
1,069,500 Bristol-Myers Squibb Co. 107,150,531
400,000 Dura Pharmaceuticals, Inc. + 10,050,000
390,720 Elan Corp. PLC ADR (Ireland) + 24,249,060
1,825,000 Glaxo Wellcome PLC ADR (United Kingdom) 99,120,313
361,600 Inhale Therapeutic Systems + 10,802,800
1,607,200 Lilly (Eli) & Co. 105,773,850
285,000 Medicis Pharmaceutical Corp. Class A + 12,237,188
1,006,300 Merck & Co., Inc. 128,366,144
368,900 NeXstar Pharmaceuticals, Inc. + 4,334,575
31,866 Novartis AG (Switzerland) 58,268,635
275,000 PathoGenesis Corp. + 9,900,000
1,732,600 Pfizer, Inc. 153,335,100
1,019,400 Pharmacia & Upjohn, Inc. 40,330,013
336,600 R.P. Scherer Corp. + 20,469,488
103,000 Schering AG (Germany) + 11,571,185
1,783,400 Schering-Plough Corp. 135,649,863
533,200 Sepracor, Inc. + 21,461,300
1,487,200 Smithkline Beecham PLC ADR (United Kingdom) 92,020,500
312,500 Sonus Pharmaceuticals, Inc. + 7,890,625
414,800 Warner Chilcott Laboratories (Ireland) + 4,562,800
929,800 Warner-Lambert Co. 135,983,250
137,500 Zonagen, Inc. + 2,535,156
--------------
1,343,931,426
Retail (4.0%)
- ------------------------------------------------------------------------------------------------------------
505,100 CVS Corp. 37,408,969
659,900 General Nutrition Companies, Inc. + 26,231,025
1,917,400 Rite Aid Corp. 62,075,825
--------------
$ 125,715,819
--------------
Total Common Stocks (cost $1,836,764,252) $3,001,285,308
CONVERTIBLE PREFERRED STOCKS (0.2%) * (cost 4,000,000)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
4,000 Igen International, Inc, $7.75 $ 5,880,000
SHORT-TERM INVESTMENTS (3.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$25,000,000 Fed Home Loan Mortgage Corp. effective yield
of 5.4%, March 17, 1998 $ 24,940,000
30,000,000 Federal National Mortgage Association effective yield
of 5.39%, March 19, 1998 29,919,301
17,354,000 Ford Motor Corp. effective yield
of 5.47%, April 8, 1998 17,253,800
25,000,000 Morgan (JP) & Co., Inc. effective yield
of 5.46%, April 20, 1998 24,810,416
25,000,000 Interest in $363,000,000 joint repurchase agreement
dated February 27, 1998 with JP Morgan
due March 2, 1998 with respect to various
U.S. Treasury obligations -- maturity value
of $25,011,708 for an effective yield of 5.62% 25,007,806
--------------
Total Short-Term Investments (cost $121,931,323) $ 121,931,323
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,962,695,575) *** $3,129,096,631
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,149,281,081.
*** The aggregate identified cost on a tax basis is $1,963,030,371, resulting in gross unrealized
appreciation and depreciation of $1,214,416,054 and $48,349,794, respectively, or net unrealized
appreciation of $1,166,066,260.
+ Non-income-producing security.
[SECTION MARK] Affiliated Company (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
February 28, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,962,695,575) (Note 1) $ 3,129,096,631
- ---------------------------------------------------------------------------------------------------
Cash 2,834,636
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 2,366,099
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 25,191,646
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 37,653,210
- ---------------------------------------------------------------------------------------------------
Total assets $ 3,197,142,222
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 38,431,060
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,058,452
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,853,978
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 597,663
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 38,463
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,422
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,536,596
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 339,507
- ---------------------------------------------------------------------------------------------------
Total liabilities 47,861,141
- ---------------------------------------------------------------------------------------------------
Net assets $ 3,149,281,081
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 1,884,272,674
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,772,344)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 102,379,695
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,166,401,056
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 3,149,281,081
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,170,954,065 divided by 36,141,164 shares) $60.07
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $60.07)* $63.73
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($935,754,680 divided by 16,046,092 shares)** $58.32
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($42,572,336 divided by 715,286 shares) $59.52
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $59.52)* $61.68
- ---------------------------------------------------------------------------------------------------
* 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, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $108,781) $ 8,882,729
- --------------------------------------------------------------------------------------------------
Interest 3,239,177
- --------------------------------------------------------------------------------------------------
Total investment income 12,121,906
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,417,668
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,057,611
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,619
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,392
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,357,613
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,532,081
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 115,323
- --------------------------------------------------------------------------------------------------
Reports to shareholders 103,581
- --------------------------------------------------------------------------------------------------
Registration fees 146,577
- --------------------------------------------------------------------------------------------------
Auditing 31,783
- --------------------------------------------------------------------------------------------------
Legal 11,335
- --------------------------------------------------------------------------------------------------
Postage 91,760
- --------------------------------------------------------------------------------------------------
Other 246,907
- --------------------------------------------------------------------------------------------------
Total expenses 16,147,250
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (292,178)
- --------------------------------------------------------------------------------------------------
Net expenses 15,855,072
- --------------------------------------------------------------------------------------------------
Net investment loss (3,733,166)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (including realized gain of $596,201
on sales of investments in affiliated issuers) (Notes 1, 3, and 5) 164,646,383
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 336,723,507
- --------------------------------------------------------------------------------------------------
Net gain on investments 501,369,890
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 497,636,724
- --------------------------------------------------------------------------------------------------
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
1998* 1997
--------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (3,733,166) $ 1,665,463
- ----------------------------------------------------------------------------------------------------------------
Net realized gain on investments 164,646,383 239,209,019
- ----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 336,723,507 255,685,321
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 497,636,724 496,559,803
- ----------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------
Class A (749,081) (2,287,254)
- ----------------------------------------------------------------------------------------------------------------
From net realized gain on investments
- ----------------------------------------------------------------------------------------------------------------
Class A (200,473,089) (43,054,189)
- ----------------------------------------------------------------------------------------------------------------
Class B (76,861,512) (11,235,464)
- ----------------------------------------------------------------------------------------------------------------
Class M (3,230,099) (360,240)
- ----------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 660,168,350 383,398,689
- ----------------------------------------------------------------------------------------------------------------
Total increase in net assets 876,491,293 823,021,345
Net assets
- ----------------------------------------------------------------------------------------------------------------
Beginning of period 2,272,789,788 1,449,768,443
- ----------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $3,772,344 and $709,903, respectively) $ 3,149,281,081 $2,272,789,788
- ----------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $55.82 $43.67 $36.21 $29.77 $24.40 $28.31
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.02)(c) .13(c) .19 .23 .30 .26
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 10.71 13.71 8.46 6.99 5.36 (1.82)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 10.69 13.84 8.65 7.22 5.66 (1.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.02) (.09) (.27) (.26) (.24) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (6.42) (1.60) (.92) (.52) (.05) (2.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (6.44) (1.69) (1.19) (.78) (.29) (2.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $60.07 $55.82 $43.67 $36.21 $29.77 $24.40
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 20.68* 32.46 24.12 24.81 23.38 (6.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,170,954 $1,681,187 $1,166,794 $929,484 $789,598 $764,443
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .51* 1.08 1.10 1.12 1.12 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.04)* .26 .43 .70 .96 .91
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22.29* 44.54 10.55 19.51 23.18 45.46
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0492 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 March 1, 1993+
operating performance (Unaudited) Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $54.54 $42.94 $35.72 $29.47 $24.28 $24.02
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.22)(c) (.24)(c) (.13)(c) .11 .10 .05(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 10.42 13.44 8.35 6.78 5.33 .21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 10.20 13.20 8.22 6.89 5.43 .26
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- (.08) (.12) (.19) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (6.42) (1.60) (.92) (.52) (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (6.42) (1.60) (1.00) (.64) (.24) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $58.32 $54.54 $42.94 $35.72 $29.47 $24.28
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 20.23* 31.46 23.19 23.83 22.49 (1.08)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $935,755 $567,928 $273,243 $113,329 $55,424 $18,455
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .88* 1.83 1.85 1.88 1.87 .96*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) (.40)* (.49) (.31) (.05) .24 .21*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22.29* 44.54 10.55 19.51 23.18 45.46
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0492 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 July 3, 1995+
operating performance (Unaudited) Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $55.47 $43.54 $36.17 $33.96
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.17)(c) (.12)(c) (.02)(c) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 10.64 13.65 8.46 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 10.47 13.53 8.44 2.21
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- (.15) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (6.42) (1.60) (.92) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (6.42) (1.60) (1.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $59.52 $55.47 $43.54 $36.17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 20.39* 31.79 23.51 6.51*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $42,572 $23,675 $9,732 $321
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .76* 1.58 1.61 .30*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.29)* (.24) (.05) (.02)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 22.29* 44.54 10.55 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0492 $.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
February 28, 1998 (Unaudited)
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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended February 28, 1998, the
fund had no borrowings against the line of credit.
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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor 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.
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.
The fund reimburses Putnam Management an allocated amount 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 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, 1998, fund expenses were reduced by
$292,178 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.
Each Trustee of the fund receives an annual Trustee fee, of which $2,310 has
been allocated to the fund, 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 currently limit payment by the fund to 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, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $891,012 and $42,078 from the sale
of class A and class M shares, respectively and $363,315 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received $6,370 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended February 28, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$880,472,855 and $549,907,817, 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
February 28, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 6,520,954 $375,870,823
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,947,926 156,534,791
- ------------------------------------------------------------
9,468,880 532,405,614
Shares
repurchased (3,445,591) (200,334,778)
- ------------------------------------------------------------
Net increase 6,023,289 $332,070,836
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
3,397,847 $169,412,902
- ------------------------------------------------------------
Six months ended
February 28, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 5,740,046 $323,655,421
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,208,512 62,407,591
- ------------------------------------------------------------
6,948,558 386,063,012
Shares
repurchased (1,315,031) (74,240,725)
- ------------------------------------------------------------
Net increase 5,633,527 $311,822,287
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
February 28, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 352,253 $ 20,226,455
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 54,125 2,850,741
- ------------------------------------------------------------
406,378 23,077,196
Shares
repurchased (117,858) (6,801,969)
- ------------------------------------------------------------
Net increase 288,520 $ 16,275,227
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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
- -----------------------------------------------------------------------
Name of affiliate
- -----------------------------------------------------------------------
Advanced Health Corp. $ 2,216,837 $ -- $ -- $ 7,577,075
CN Biosciences, Inc. -- -- -- 10,704,000
Compdent, Corp. 722,925 885,000 -- 7,987,838
Perclose, Inc. 4,839,399 -- -- 13,887,500
- -----------------------------------------------------------------------
Totals $ 7,779,161 $885,000 $ -- $40,156,413
- -----------------------------------------------------------------------
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Carol McMullen
Vice President
C. Beth Cotner
Vice President
Richard B. England
Vice President and Fund Manager
David G. Carlson
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA008 41234-021/335/2AB 4/98
