Putnam
Health
Sciences
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Some of the most exciting scientific advances continue to be made in
health-related fields. It follows, then, that some of the most dramatic
opportunities for investment originate in these same industries. At some
point in the 17 years since the introduction of Putnam Health Sciences
Trust, your fund has invested in virtually every health-care industry in
pursuit of these opportunities.
In some years, the fund's performance has bordered on the spectacular; in
other years, results have been much less dramatic. Overall, however, your
fund has compiled an admirable record. While this fine accomplishment
cannot be taken as a guarantee of future results, the opportunities that
are sure to present themselves in the months and years ahead certainly
bode well for the fund's prospects, especially given the expertise and
experience its management team brings to the task of identifying
potentially successful investments.
The managers review your fund's fiscal 1999 strategy and performance in
the following report, as well as some of the more promising sectors within
the industry as the fund begins its new fiscal year.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
Report from the Fund Managers
Richard B. England
David G. Carlson
Margery C. Parker
Despite lackluster performance from stocks in many health-care industries,
Putnam Health Sciences Trust delivered solid returns for the 12 months
ended August 31, 1999. Relative earnings weakness in the U.S.
pharmaceutical industry and uncertainty about potential Medicare reform
were among the challenges facing the health-care sector during your fund's
fiscal year. More rewarding opportunities were found in biotechnology, a
field in which stocks have delivered their best performance in more than
eight years.
Total return for 12 months ended 8/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
20.50% 13.57% 19.61% 14.61% 19.63% 18.63% 19.93% 15.73%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
While the long-term prospects remain extremely positive for the
health-care sector, short-term setbacks in fiscal 1999 prompted some
strategic shifts in the fund's weightings. U.S. pharmaceutical holdings
have been reduced considerably, while biotechnology stocks represented 15%
of net assets at the end of the fiscal year -- their highest weighting in
several years.
* MEDICARE UNCERTAINTY HURTS DRUG STOCKS
For many years, U.S. pharmaceutical stocks have been the darlings of the
fund's portfolio, delivering impressive returns even as other sectors of
the stock market were underperforming. During fiscal 1999, the U.S.
economy continued to strengthen and prospects for growth in the global
economy brightened considerably as emerging Asian and Latin American
markets made a surprisingly quick recovery from the 1997-98 economic
crisis. As a result, investors began to turn away from U.S. drug stocks,
seeking opportunities in other industries and regions that offered strong
growth potential and more attractive prices.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Pharmaceuticals 48.6%
Medical technology 16.0%
Biotechnology 15.0%
Medical services 12.4%
Other 7.0%
Footnote reads:
*Based on net assets as of 8/31/99. Holdings will vary over time.
At the same time, uncertainty about potential Medicare reform also took
its toll on pharmaceutical stocks. President Clinton's proposal to revamp
Medicare, the 34-year-old federal health insurance system, includes a plan
to offer partial prescription drug benefits to all 39 million people
covered under the system. While analysts say such a move would boost drug
sales volume, pharmaceutical companies are concerned that entering into
sales arrangements with the government could lead to price controls on
their industry. Such a scenario could hamper growth because the drug
companies will have less capital available to invest in the expensive
process of developing new drugs.
Answers to the Medicare reform questions may not be apparent for some
time, but we believe that the worst-case scenario -- widespread price
controls -- will probably not occur. The reform proposals may also have a
positive impact on the industry if, for example, they result in a drug
benefit plan administered by the private sector, rather than by the
government. This would likely increase drug volumes without bringing on
damaging price controls.
In this challenging environment, we decreased the fund's weighting in U.S.
pharmaceutical stocks. During the first half of the fiscal year, we also
added some international drug companies to the fund's portfolio. This
provided additional diversification and helped offset the underperformance
of the U.S. stocks.
* BIOTECH MAKES BIG COMEBACK IN FISCAL '99
The biotech rally that began with the largest companies early in the
fiscal year grew to include companies of all sizes by the close of the
period. At the end of August, 24 of the 162 stocks in the Nasdaq Biotech
Index were up 100% or more, while 42 were up 50% or more. The last broad
rally for biotechnology stocks was in 1991; in the intervening years, this
sector had been overlooked by investors. The industry has matured and more
companies are developing multiple products rather than being dependent on
just one. These changes have appealed to investors, along with ongoing
merger and acquisition rumors, which often indicate a thriving industry.
One outstanding stock among the fund's biotechnology holdings was Amgen,
which has seen robust sales for two key products. Epogen, the company's
top-selling product, is used to treat anemia associated with chronic renal
failure in patients on dialysis. The company has also had great success
with Neupogen, which is used to prevent infection in cancer patients
undergoing certain types of chemo-therapy and bone marrow transplants. As
Amgen generates cash with strong sales of these drugs, it is investing in
research and development for a number of promising new products, further
enhancing the company's future growth potential.
"One of the most exciting aspects of the health-care industry is the remarkable
innovation of biotechnology companies. Rigorous research and development are
leading to more technologically advanced products that offer vast improvements
in the way illnesses and diseases are treated."
- -- Richard England, Portfolio Manager
Canadian biotech company QLT PhotoTherapeutics, Inc. is another fund
holding that delivered outstanding performance during the fiscal period.
QLT has worked with Swiss drug company Novartis to develop Visudyne
therapy for age-related macular degeneration, the leading cause of
blindness in people over the age of 50. This relatively painless treatment
can be performed with a simple procedure in a doctor's office and is
currently under review by the U.S. Food and Drug Administration. 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.
* STOCK SELECTION KEY IN MEDICAL DEVICE INDUSTRY
Strategic selection of medical device stocks also helped boost performance
in fiscal 1999. The stock of VISX, Inc., for example, has skyrocketed with
the success of its laser vision correction systems. VISX controls more
than 70% of the market for the laser systems that correct nearsightedness,
farsightedness, and astigmatism in a quick, essentially painless
procedure. The company's revenue and earnings have boomed along with
demand for the company's systems and for training in the use of the
systems. The number of laser procedures has increased from 70,000 in 1996
to 420,000 in 1998, a compounded annual growth rate of 145%. VISX
estimates that in 1999 there could be up to 900,000 procedures, more than
double last year's total.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Johnson & Johnson
Pharmaceuticals
Bristol-Myers Squibb Co.
Pharmaceuticals
Warner-Lambert Co.
Pharmaceuticals
Tyco International, Ltd.
Conglomerate
Pharmacia & Upjohn
Pharmaceuticals
Amgen, Inc.
Biotechnology
Merck & Co., Inc.
Pharmaceuticals
Schering-Plough Corp.
Pharmaceuticals
Abbott Laboratories
Pharmaceuticals
Medtronic, Inc.
Medical technology
Footnote reads:
These holdings represent 38.2% of the fund's net assets as of 8/31/99.
Portfolio holdings will vary over time.
Also helping the fund in fiscal 1999 was its limited exposure to the
troubled health-care services industry. Nursing homes, hospitals, and HMOs
have all been hurt by the Balanced Budget Act of 1997, which cut deeply
into Medicare reimbursements. The reductions in federal funding have made
it difficult for these services to keep pace with rising costs. The fund's
position in health-care services stocks was minimal throughout the period
and will remain so until we see signs of recovery for the industry.
* LONG-TERM TRENDS FAVOR HEALTH-CARE SECTOR
While fiscal 1999 brought dampened performance in a number of health-care
industries, we remain optimistic about the long-term prospects. As the
population ages, demand for innovative drugs, treatments, and devices for
illnesses and diseases will only get stronger. Despite the recent downturn
in domestic pharmaceutical stocks, a number of companies in the fund's
portfolio have impressive pipelines of drugs in development as well as
strong management teams and tight control over operating costs.
Also contributing to the portfolio's growth potential is the remarkable
innovation of biotechnology and medical device companies. As the fund
begins fiscal 2000, we realize that more volatility is likely, and
investor uncertainty over Medicare reform may remain for some time. But we
will continue to rely on strategic stock selection to take advantage of
the diversity and long-term growth potential of the health-care sector.
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 8/31/99, 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 industry.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 8/31/99
Class A Class B Class C Class M
(inception dates) (5/28/82) (3/1/93) (7/26/99) (7/3/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 20.50% 13.57% 19.61% 14.61% 19.63% 18.63% 19.93% 15.73%
- ------------------------------------------------------------------------------------------
5 years 165.71 150.41 155.85 153.85 155.95 155.95 159.15 150.12
Annual average 21.59 20.15 20.67 20.48 20.68 20.68 20.98 20.12
- ------------------------------------------------------------------------------------------
10 years 395.19 366.72 358.04 358.04 359.21 359.21 370.22 353.72
Annual average 17.35 16.66 16.44 16.44 16.47 16.47 16.74 16.33
- ------------------------------------------------------------------------------------------
Life of fund 1405.09 1318.28 1193.85 1193.85 1221.43 1221.43 1252.81 1205.89
Annual average 17.01 16.61 15.99 15.99 16.13 16.13 16.29 16.05
- ------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/99
S&P 500 Consumer
Index price index
- ------------------------------------------------------------------------
1 year 39.82% 2.33%
- ------------------------------------------------------------------------
5 years 206.52 12.21
Annual average 25.11 2.33
- ------------------------------------------------------------------------
10 years 384.71 34.19
Annual average 17.10 2.98
- ------------------------------------------------------------------------
Life of fund 1937.95 74.53
Annual average 19.09 3.28
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-, 10-year 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. For class C shares, returns for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the CDSC currently
applicable to class C shares, which is 1% for the first year and is
eliminated thereafter, and the higher operating expenses applicable to
class C shares. All returns assume reinvestment of distributions at NAV.
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 OMMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 8/31/89
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
8/31/89 9,452 10,000 10,000
8/31/90 10,840 9,502 10,562
8/31/91 15,391 12,058 10,963
8/31/92 15,219 13,013 11,308
8/31/93 14,236 14,993 11,621
8/31/94 17,565 15,813 11,958
8/31/95 21,922 19,205 12,271
8/31/96 27,208 22,801 12,624
8/31/97 36,038 32,070 12,905
8/31/98 38,734 34,666 13,114
8/31/99 $46,672 $48,471 $13,419
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 or class C shares
would have been valued at $45,804 and $45,921, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $47,022 ($45,372 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 1 1 -- 1
- --------------------------------------------------------------------------------------
Income -- -- -- --
- --------------------------------------------------------------------------------------
Capital gains
Long-term $4.9811 $4.9811 -- $4.9811
- --------------------------------------------------------------------------------------
Short-term -- -- -- --
- --------------------------------------------------------------------------------------
Return of capital* $0.0299 $0.0299 -- $0.0299
- --------------------------------------------------------------------------------------
Total $5.0110 $5.0110 -- $5.0110
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
8/31/98 $53.50 $56.76 $51.74 -- $52.87 $54.79
- --------------------------------------------------------------------------------------
7/26/99+ -- -- -- $59.32 -- --
- --------------------------------------------------------------------------------------
8/31/99 59.51 63.14 56.96 59.48 58.47 60.59
- --------------------------------------------------------------------------------------
*See page 28.
+Inception of class C shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (5/28/82) (3/1/93) (7/26/99) (7/3/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 1.82% -4.04% 1.04% -3.61% 1.07% 0.14% 1.31% -2.23%
- --------------------------------------------------------------------------------------------
5 years 145.05 130.96 135.97 133.97 136.00 136.00 138.96 130.57
Annual average 19.63 18.22 18.73 18.53 18.74 18.74 19.03 18.18
- --------------------------------------------------------------------------------------------
10 years 358.99 332.59 324.63 324.63 325.65 325.65 336.01 320.72
Annual average 16.46 15.77 15.56 15.56 15.59 15.59 15.86 15.45
- --------------------------------------------------------------------------------------------
Life of fund 1315.56 1233.92 1115.94 1115.94 1141.89 1141.89 1171.60 1127.50
Annual average 16.51 16.11 15.50 15.50 15.64 15.64 15.79 15.56
- --------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns may be more or less
than those shown. They do not take into account any adjustment for taxes payable on reinvested
distributions. 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.
</TABLE>
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 shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 5.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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 into 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended August 31, 1999
To the Trustees and Shareholders of
Putnam Health Sciences Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Health Sciences
Trust (the "fund") at August 31, 1999, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
August 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 11, 1999
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999
COMMON STOCKS (99.0%) (a)
NUMBER OF SHARES VALUE
<S> <C>
Biotechnology (15.0%)
- --------------------------------------------------------------------------------------------------------------------------
587,800 Alkermes, Inc. (NON) $ 21,822,075
2,283,600 Amgen Inc. (NON) 189,966,975
1,465,800 Biogen, Inc. (NON) 112,500,150
151,200 COR Therapeutics Inc (NON) 3,298,050
917,500 Guilford Pharmaceuticals, Inc. (NON) 12,386,250
1,497,500 IDEXX Laboratories, Inc. (NON) 25,457,500
1,458,000 Immunex Corp. (NON) 98,141,625
844,900 Inhale Therapeutic Systems (NON) 27,828,894
460,200 Liposome Company, Inc. (NON) 9,074,569
750,600 MedImmune, Inc. (NON) 77,452,538
408,400 Millennium Pharmaceuticals, Inc. (NON) 24,070,075
680,200 PE Corp.-PE Biosystems Group 46,806,263
339,600 QLT PhotoTherapeutics Inc. (Canada) (NON) 27,804,750
583,100 Sepracor, Inc. (NON) 43,659,613
677,600 Transkaryotic Therapies, Inc. (Malaysia) (NON) 26,680,500
891,860 Trimeris, Inc. (NON) (AFF) 21,906,311
--------------
768,856,138
Medical Services (12.4%)
- --------------------------------------------------------------------------------------------------------------------------
166,850 Allscripts, Inc. (NON) 2,158,622
1,216,000 AmeriSource Health Corp., Class A (NON) 31,388,000
1,215,250 Baxter International, Inc. 81,497,703
2,165,800 Cardinal Health, Inc. 138,069,750
1,157,500 CIGNA Corp. 103,957,969
521,800 Express Scripts, Inc., Class A (NON) 35,156,275
237,200 Healtheon Corp. (NON) 8,020,325
2,043,000 HEALTHSOUTH Corp. (NON) 16,727,063
52,800 MEDE AMERICA Corp. (NON) 1,207,800
665,175 Medical Manager Corp. (NON) 39,577,913
1,005,100 Medquist, Inc. (NON) 34,990,044
784,510 Pharmaceutical Product Development, Inc. (NON) 15,886,328
559,000 Province Healthcare Co. (NON) 8,804,250
822,400 St. Jude Medical, Inc. (NON) 29,812,000
160,400 TLC The Laser Center Inc. (Canada) (NON) 4,791,950
368,400 Trigon Healthcare, Inc.(NON) 13,377,525
609,100 United Healthcare Corp. 37,040,894
441,000 WeLLPoint Health Networks, Inc. (NON) 32,137,875
--------------
634,602,286
Medical Technology (16.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,294,700 Bausch & Lomb, Inc. 85,531,119
786,800 Biomet, Inc. 28,128,100
2,926,300 Boston Scientific Corp. (NON) 99,311,306
452,500 Cerus Corp. (NON) 11,934,688
1,216,100 Guidant Corp. 71,369,869
730,100 Mallinckrodt Inc. 23,408,831
1,838,083 Medtronic, Inc. 143,829,995
485,500 Minimed, Inc. (NON) 44,150,156
580,600 Molecular Devices Corp. (NON) (AFF) 16,619,675
479,150 Perclose, Inc. (NON) 25,365,003
1,798,800 Sybron International Corp. (NON) 46,319,100
824,900 Ventana Medical Systems, Inc. (NON) (AFF) 13,198,400
880,000 VISX, Inc. (NON) 79,640,000
1,334,800 Waters Corp. (NON) 88,013,375
984,370 Wesley Jessen VisionCare, Inc. (NON) (AFF) 30,207,854
293,220 Xomed Surgical Products Inc. (NON) 17,245,001
--------------
824,272,472
Other (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,157,900 CVS Corp. 89,957,468
1,028,300 Monsanto Co. 42,224,569
331,600 On Assignment, Inc. (NON) 9,906,550
2,133,300 Tyco International Ltd. 216,129,956
--------------
358,218,543
Pharmaceuticals (48.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,352,200 Abbott Laboratories 145,401,675
941,800 Allergan, Inc. 94,062,275
788,783 Alpharma, Inc., Class A 26,720,024
246,680 Alza Corp. (NON) 12,426,505
865,800 American Home Products Corp. 35,930,700
14,800 Ares-Serono Group, Class B (Switzerland) 22,393,129
962,900 AstraZeneca Group PLC (United Kingdom) 37,914,188
395,600 Biovail Corp. International (Canada) (NON) 22,870,625
3,616,200 Bristol-Myers Squibb Co. 254,490,075
3,443,640 Elan Corp. PLC ADR (Ireland) (NON) 110,411,708
821,000 Hoechst AG (Germany) 34,731,584
2,514,910 Johnson & Johnson 257,149,548
740,100 Lilly (Eli) & Co. 55,229,963
774,700 Medicis Pharmaceutical Corp., Class A (NON) 21,110,575
2,423,000 Merck & Co., Inc. 162,795,313
2,720,800 Pfizer, Inc. 102,710,200
3,925,400 Pharmacia & Upjohn, Inc. 205,102,150
7,903 Roche Holdings AG (Switzerland) 91,483,687
1,188,400 Sanofi-Synthelabo SA (France) 49,519,963
2,903,500 Schering-Plough Corp. 152,615,219
1,029,283 Shire Pharmaceuticals Group PLC ADR
(United Kingdom) (NON) 25,732,075
1,999,100 Smithkline Beecham PLC ADR (United Kingdom) 127,442,625
1,977,000 Takeda Chemical Industries (Japan) 99,319,510
3,456,700 Warner-Lambert Co. 229,006,375
762,300 Watson Pharmaceuticals, Inc. (NON) 27,347,513
1,880,000 Yamanouchi Pharmaceutical Co., Ltd. (Japan) 83,799,794
--------------
2,487,716,998
--------------
Total Common Stocks (cost $3,863,783,622) $5,073,666,437
SHORT-TERM INVESTMENTS (2.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$25,000,000 Corporate Receivables Corp. effective yield of 5.33%,
October 5, 1999 $ 24,874,153
33,430,000 Sigma Finance Inc. effective yield of 5.15%,
September 27, 1999 33,302,279
64,744,000 Interest in $500,000,000 joint repurchase agreement
dated August 31, 1999 with Morgan Stanley & Co. Inc.
due September 1, 1999 with respect to various U.S.
Treasury obligations -- maturity value of $64,753,712
for an effective yield of 5.40% 64,744,000
--------------
Total Short-Term Investments (cost $122,920,432) $ 122,920,432
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,986,704,054) (b) $5,196,586,869
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $5,122,358,496.
(b) The aggregate identified cost on a tax basis is $3,993,325,920, resulting in gross unrealized appreciation and
depreciation of $1,363,436,853 and $160,175,904, respectively, or net unrealized appreciation of $1,203,260,949.
(NON) Non-income-producing security.
(AFF) Affiliated Companies (Note 5).
ADR after the name of a foreign holding stands for American Depositary 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, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,986,704,054) (Note 1) $5,196,586,869
- -----------------------------------------------------------------------------------------------
Cash 308
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 3,152,157
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 10,596,042
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 32,767,652
- -----------------------------------------------------------------------------------------------
Total assets 5,243,103,028
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 102,923,021
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 6,498,840
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 6,838,167
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 533,535
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 99,599
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,001
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,151,487
- -----------------------------------------------------------------------------------------------
Other accrued expenses 693,882
- -----------------------------------------------------------------------------------------------
Total liabilities 120,744,532
- -----------------------------------------------------------------------------------------------
Net assets $5,122,358,496
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,971,256,119
- -----------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments (Note 1) (58,779,830)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,209,882,207
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $5,122,358,496
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,883,732,319 divided by 48,454,429 shares) $59.51
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $59.51)* $63.14
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($2,141,640,311 divided by 37,599,325 shares)** $56.96
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,770,242 divided by 63,391 shares)** $59.48
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($93,215,624 divided by 1,594,248 shares) $58.47
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $58.47)* $60.59
- -----------------------------------------------------------------------------------------------
* 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
Year ended August 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $275,821) (including dividend income of
$143,836 from investments in affiliated issuers) (Note 5) $ 31,596,698
- -----------------------------------------------------------------------------------------------
Interest 7,890,850
- -----------------------------------------------------------------------------------------------
Total investment income 39,487,548
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 25,715,677
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,051,256
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 65,148
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 35,765
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,977,931
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 19,358,622
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 1,858
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 630,454
- -----------------------------------------------------------------------------------------------
Reports to shareholders 243,685
- -----------------------------------------------------------------------------------------------
Registration fees 316,157
- -----------------------------------------------------------------------------------------------
Auditing 66,172
- -----------------------------------------------------------------------------------------------
Legal 30,289
- -----------------------------------------------------------------------------------------------
Postage 857,450
- -----------------------------------------------------------------------------------------------
Other 1,382,894
- -----------------------------------------------------------------------------------------------
Total expenses 60,733,358
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (818,788)
- -----------------------------------------------------------------------------------------------
Net expenses 59,914,570
- -----------------------------------------------------------------------------------------------
Net investment loss (20,427,022)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1, 3 and 5) (including realized gain
of $7,558,700 on sales of investments in affiliated issuers) (55,779,858)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (342)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (608)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 780,663,424
- -----------------------------------------------------------------------------------------------
Net gain on investments 724,882,616
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $704,455,594
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (20,427,022) $ (8,016,719)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (55,780,200) 425,904,020
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 780,662,816 (400,458,158)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 704,455,594 17,429,143
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A -- (749,082)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (209,438,189) (200,473,089)
- ---------------------------------------------------------------------------------------------------------------
Class B (143,039,807) (76,861,512)
- ---------------------------------------------------------------------------------------------------------------
Class M (6,108,803) (3,230,099)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (1,256,551) --
- ---------------------------------------------------------------------------------------------------------------
Class B (858,186) --
- ---------------------------------------------------------------------------------------------------------------
Class M (36,651) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,193,092,454 1,576,643,486
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,536,809,861 1,312,758,847
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,585,548,635 2,272,789,788
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $-- and $--, respectively) $5,122,358,496 $3,585,548,635
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $53.50 $55.82 $43.67 $36.21 $29.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.07)(c) (.01)(c) .13(c) .19 .23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 11.09 4.13 13.71 8.46 6.99
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 11.02 4.12 13.84 8.65 7.22
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- (.02) (.09) (.27) (.26)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (4.98) (6.42) (1.60) (.92) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of
capital (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (5.01) (6.44) (1.69) (1.19) (.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $59.51 $53.50 $55.82 $43.67 $36.21
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 20.50 7.48 32.46 24.12 24.81
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,883,732 $2,236,469 $1,681,187 $1,166,794 $929,484
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .95 1.00 1.08 1.10 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.11) (.02) .26 .43 .70
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 79.12 40.45 44.54 10.55 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, includes 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $51.74 $54.54 $42.94 $35.72 $29.47
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.50)(c) (.44)(c) (.24)(c) (.13)(c) .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 10.73 4.06 13.44 8.35 6.78
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 10.23 3.62 13.20 8.22 6.89
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- -- (.08) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (4.98) (6.42) (1.60) (.92) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of
capital (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (5.01) (6.42) (1.60) (1.00) (.64)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $56.96 $51.74 $54.54 $42.94 $35.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 19.61 6.67 31.46 23.19 23.83
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,141,640 $1,292,418 $567,928 $273,243 $113,329
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.70 1.75 1.83 1.85 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.86) (.76) (.49) (.31) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 79.12 40.45 44.54 10.55 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, includes 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $59.32
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.04)(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of
capital --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $59.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .27*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,770
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .17*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.09)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 79.12
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, includes 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.
</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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $52.87 $55.47 $43.54 $36.17 $33.96
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.37)(c) (.31)(c) (.12)(c) (.02)(c) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 10.98 4.13 13.65 8.46 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 10.61 3.82 13.53 8.44 2.21
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- -- (.15) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (4.98) (6.42) (1.60) (.92) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of
capital (.03) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (5.01) (6.42) (1.60) (1.07) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $58.47 $52.87 $55.47 $43.54 $36.17
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 19.93 6.94 31.79 23.51 6.51*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $93,216 $56,662 $23,675 $9,732 $321
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.45 1.50 1.58 1.61 .30*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (.61) (.51) (.24) (.05) (.02)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 79.12 40.45 44.54 10.55 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, includes 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.
</TABLE>
Notes to financial statements
August 31, 1999
Note 1
Significant accounting policies
Putnam Health Sciences Trust ("the fund") is registered under the
Investment Company Act of 1940, as amended, as a non-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, class C and class M shares.The fund
began offering class C shares on July 26, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that
is higher than class A but lower than class B and class C 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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). Gains or losses on securities sold are determined on
the identified cost basis. 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 year ended
August 31, 1999, 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. At August 31, 1999, the fund had a capital loss carryover of
approximately $52,158,000 available to offset future net capital gain, if
any, which will expire on August 31, 2007.
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. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses and net operating
loss. 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,
1999, the fund reclassified $20,427,022 to decrease accumulated net
investment loss and $20,427,123 to decrease paid-in-capital, with a
decrease to distributions in excess of net realized gain on investments of
$101. The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
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 year ended August 31, 1999, fund expenses were reduced by $818,788
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 $3,688
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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the year ended August 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter, received net commissions of $3,320,429 and $161,892 from the
sale of class A and class M shares, respectively and received $4,397,043
and $49 in contingent deferred sales charges from redemptions of class B
and class C shares, respectively. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the year ended
August 31, 1999, Putnam Mutual Funds Corp., acting as underwriter received
$42,156 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 1999, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $4,548,968,748 and $3,664,741,229, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At August 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 15,780,996 $955,941,380
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,939,701 176,969,983
- -----------------------------------------------------------------------------
18,720,697 1,132,911,363
Shares
repurchased (12,073,075) (718,353,158)
- -----------------------------------------------------------------------------
Net increase 6,647,622 $414,558,205
- -----------------------------------------------------------------------------
Year ended August 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 15,247,680 $918,890,572
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,947,902 156,533,485
- -----------------------------------------------------------------------------
18,195,582 1,075,424,057
Shares
repurchased (6,506,650) (389,241,553)
- -----------------------------------------------------------------------------
Net increase 11,688,932 $686,182,504
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 19,563,008 $1,142,794,644
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,009,002 116,381,745
- -----------------------------------------------------------------------------
21,572,010 1,259,176,389
Shares
repurchased (8,950,494) (515,983,962)
- -----------------------------------------------------------------------------
Net increase 12,621,516 $ 743,192,427
- -----------------------------------------------------------------------------
Year ended August 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 16,902,149 $997,063,120
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,208,801 62,422,542
- -----------------------------------------------------------------------------
18,110,950 1,059,485,662
Shares
repurchased (3,545,706) (207,355,651)
- -----------------------------------------------------------------------------
Net increase 14,565,244 $852,130,011
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 63,961 $3,792,336
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
63,961 3,792,336
Shares
repurchased (570) (33,113)
- -----------------------------------------------------------------------------
Net increase 63,391 $3,759,223
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 933,321 $55,847,824
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 91,148 5,409,712
- -----------------------------------------------------------------------------
1,024,469 61,257,536
Shares
repurchased (501,896) (29,674,937)
- -----------------------------------------------------------------------------
Net increase 522,573 $31,582,599
- -----------------------------------------------------------------------------
Year ended August 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 861,855 $51,630,828
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 54,171 2,853,160
- -----------------------------------------------------------------------------
916,026 54,483,988
Shares
repurchased (271,117) (16,153,017)
- -----------------------------------------------------------------------------
Net increase 644,909 $38,330,971
- -----------------------------------------------------------------------------
Note 5
<TABLE>
<CAPTION>
Transactions with Affiliated Issuers
Transactions with Affiliated Issuers Transactions during the year with companies in which the fund owns at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of Affiliate cost cost Income Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alpharma, Inc., Class A $ 9,239,675 $ 5,012,594 $143,836 $ --
Centennial Healthcare Corp. -- 11,586,582 -- --
CN Biosciences Inc. 402,500 5,836,880 -- --
Compdent Corp. -- 8,687,925 -- --
CYTYC Corp. 6,869,082 17,511,949 -- --
Imnet Systems Inc. 373,685 12,467,674 -- --
Inhale Therapeutic Systems 7,734,718 -- -- --
Molecular Devices Corp. 917,538 801,338 -- 16,619,675
Perclose, Inc. 2,718,853 8,587,777 -- --
Sabratek Corp. -- 15,310,168 -- --
Trimeris, Inc. 5,360,005 -- -- 21,906,311
Ventana Medical Systems 9,704,809 1,624,134 -- 13,198,400
Wesley Jessen Visioncare, Inc. 8,454,520 1,686,900 -- 30,207,854
Xomed Surgical Products Inc. -- 4,267,180 -- --
- -------------------------------------------------------------------------------------------------------------------
Totals $51,775,385 $93,381,101 $143,836 $81,932,240
</TABLE>
Federal tax information
(Unaudited)
For the year ended August 31, 1999, a portion of the fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
C. Beth Cotner
Vice President
Richard B. England
Vice President and Fund Manager
David G. Carlson
Vice President and Fund Manager
Margery C. Parker
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN008 55089 021/335/2AB 10/99
